FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1994
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
Number)
410 E. College Blvd., Roswell, New Mexico 88201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 625-8700
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
------------------- -------------------
Common stock, par American Stock
value $1 per share Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(continued)
1
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on December 8, 1994 based on the
closing price on the American Stock Exchange of such stock on such date
was $34,674,912.
Registrant's Common Stock outstanding at December 8, 1994 was
13,039,776 shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement
for the annual shareholders meeting are incorporated by reference into
Part III.
2
HONDO OIL & GAS COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
Caption Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . 24
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 54
PART III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . 54
Item 11. Executive Compensation . . . . . . . . . . . . . 54
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 54
Item 13. Certain Relationships and Related Transactions . 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 54
3
PART I
As used in this report, unless the context otherwise requires, the terms
"Registrant", "the Company" and "Hondo Oil" refer to Hondo Oil & Gas
Company and its consolidated subsidiaries.
Item 1. BUSINESS
(a) General Development of Business
The Company is an independent oil and gas company, presently focusing on
international oil and gas exploration and development. The Company was
incorporated as Pauley Petroleum Inc. ("Pauley") in 1958. In January
1988, The Hondo Company ("Hondo") acquired a controlling interest in
Pauley in exchange (the "Exchange") for all of the outstanding stock of
Hondo's subsidiary, Hondo Oil & Gas Company. In March 1988, the Company
acquired Fletcher Oil and Refining Company ("Fletcher" or the "Fletcher
refinery"). In January 1990, Pauley merged ("the Merger") with the
wholly-owned subsidiary acquired in the Exchange, Hondo Oil & Gas
Company. In conjunction with the Merger, Pauley Petroleum Inc., the
surviving corporation, changed its name to Hondo Oil & Gas Company.
On December 15, 1989, the Company permanently suspended operations at
its wholly-owned subsidiary, Newhall Refining Co., Inc. ("Newhall
refinery"). On March 14, 1990, the Company sold its wholly-owned
subsidiary, Blacktop Materials Co., effective March 1, 1990. During
1991, Hondo Oil adopted plans of disposal for both its refining and
marketing operations and its real estate operations (primarily the land
underlying the Newhall refinery). The Company suspended operations at
its Fletcher refinery on October 1, 1992 and completed a sale of
substantially all of the refining and marketing operations on October 1,
1993.
In June 1992, the Company completed a sale of substantially all of its
domestic oil and gas assets and repaid a substantial portion of its
long-term debt with the proceeds.
The Company's principal assets now consist of its exploration concession
in Colombia and its discontinued real estate in California.
(b) Financial Information About Industry Segments
See Note 12 to the Consolidated Financial Statements in Item 8. The
Company presently operates in one segment.
(c) Narrative Description of Business
INTERNATIONAL OPERATIONS
The Company's wholly-owned subsidiary, Hondo Magdalena Oil & Gas Limited
("Hondo Magdalena"), participates in the Opon Association Contract (the
"Opon Contract") with Empresa Colombiana de Petroleos ("Ecopetrol"),
Opon Development Company ("ODC") and Amoco Colombia Petroleum Company
("Amoco Colombia"). Ecopetrol is a quasi-governmental corporate
organization wholly-owned by the government of Colombia. The Opon
4
Contract was entered into between Ecopetrol and ODC in 1987, and
approved by the Ministry of Mines and Energy in 1988, to explore and
develop an area of approximately 190 square miles located in the Middle
Magdalena Basin about 125 miles north of Bogota, Colombia.
The Opon Contract provides for an exploration period of up to six years,
which commenced in July 1988. If, at the end of the exploration period,
no hydrocarbon accumulation of potential commercial significance has
been discovered, the Opon Contract will terminate. The Opon Contract
requires the associate parties (Amoco Colombia, Hondo Magdalena and ODC)
to perform certain minimum work obligations each year of the exploration
period. The minimum work obligations for each of the first five years
of the exploration period have been completed. Ecopetrol has granted
extensions of the exploration period from time to time, and, at present,
commencement of the sixth-year exploration obligation has been extended
until July 13, 1995. The associate parties plan to fulfill the sixth-
year obligation by drilling a well to the La Paz formation (the Opon No.
4 well). The Opon Contract does not prescribe work obligations after
the completion of the exploration period. At the end of the exploration
period, the associate parties may seek to declare the field(s) capable
of producing hydrocarbons to be commercial (capable of repaying
investment and expenses and returning a profit). The associate parties
would then present an application to Ecopetrol to declare the field
commercial. Ecopetrol has 90 days to respond to the associate parties'
application. If Ecopetrol agrees, then the field(s) are declared to be
commercial and production may commence. If Ecopetrol does not agree, it
may indicate to the associate parties the additional work it deems
necessary to demonstrate that the field(s) are commercial. The
additional work may take up to one year, and the exploration period
would be extended for the period necessary to complete the additional
work. If Ecopetrol does not agree that the field(s) are commercial
after the completion of the additional work, the associate parties may
proceed to develop and exploit the property, with Ecopetrol
participating after the associate parties recover 200% of their costs.
An application for commerciality may be submitted by the associate
parties as early as the time the Opon No. 4 well is completed and
favorable results to support such an application are obtained from the
well. However, an application may be delayed for extended production
testing and/or further seismic assessment if Ecopetrol agrees to same
and grants further extensions.
Upon the designation of an area or field as commercial, Ecopetrol has
the right to acquire a 50% interest in such area or field and will
reimburse the associate parties 50% of the direct exploration costs for
each commercial discovery. Thereafter, Ecopetrol will pay 50% of all
subsequent costs and will receive 50% of all production. Hondo
Magdalena's interest in the Opon Contract will be reduced by one-half to
15%, if Ecopetrol becomes a party. A declaration of commerciality will
allow Hondo Magdalena to share in the sale of production during the
exploitation period. Prior to a declaration of commerciality, except
for extended production tests, the associate parties may not sell
hydrocarbons from the property. The interest of each of the parties who
participate in production from the Opon Contract area is subject to a
20% royalty, which is paid to the Colombian government.
5
At the end of the exploration period, if a field capable of producing
hydrocarbons in commercial quantities has been discovered, the Opon
Contract area will be reduced by 50 percent. Two years thereafter, the
Opon Contract area will be further reduced to 25 percent of the original
area. Two years thereafter, the Opon Contract area will be reduced to
the area of the commercial field or fields that are in production or
development, plus a reserve zone of five kilometers in width around the
productive limit of each field. The commercial fields plus the zone
surrounding each field will become the area of exploitation. The
associate parties designate the acreage to be released. The reductions
in the Opon Contract area will reduce the areas available to the
associate parties for further exploration. The Company believes that
the first acreage reduction will not cause the loss of material
exploration opportunities. Additional seismic assessment of the Opon
Contract area will be necessary to evaluate the effects of subsequent
acreage reductions.
Hondo Magdalena acquired its interest in the Opon Contract from ODC.
Prior to fiscal 1993, Hondo Magdalena drilled four wells to the shallow
Mugrosa formation. Following extended production and pressure testing,
one of these wells was declared a dry hole. In fiscal 1993, Hondo
Magdalena drilled the Lilia No. 10 well to the La Paz formation at its
sole cost. The well was drilled to a total depth of 10,003 feet. The
well encountered mechanical problems after the logs were run, and it was
temporarily plugged and suspended. The well may be re-entered at a
future date. By completing these operations, Hondo Magdalena acquired
an 80% interest in the Opon Contract.
Under a Farmout Agreement dated August 9, 1993, Amoco Colombia earned a
50% participating interest from Hondo Magdalena in the Opon Contract.
Hondo Magdalena retains a 30% interest. Amoco Colombia paid $3.0
million in cash and paid Hondo Magdalena's costs related to the fifth-
year obligation under the Opon Contract, a well to the La Paz formation
(the Opon No. 3 well). Amoco Colombia has an option to conduct further
seismic evaluation of the Opon Contract area at its expense. Under the
Farmout Agreement, Amoco Colombia paid Hondo Magdalena an additional
$5.0 million in October 1994 and will pay all but $2.0 million of Hondo
Magdalena's costs related to the sixth-year obligations under the Opon
Contract (the Opon No. 4 well). Amoco Colombia will again have the
option to withdraw and relinquish its interests after the drilling of
the sixth-year obligation well. ODC is also a party to the Farmout
Agreement and has assigned a 10% interest in the Opon Contract to Amoco
Colombia. As a result, Amoco Colombia, Hondo Magdalena and ODC have
interests of 60%, 30% and 10%, respectively, in the Opon Contract and
Amoco Colombia is operator.
The Opon No. 3 well began on October 12, 1993. The Opon No. 3 well was
drilled to a total depth of 12,710 feet and penetrated a full section of
the La Paz formation. Testing of the Opon No. 3 was completed in
September 1994 and indicated the presence of potentially significant
hydrocarbon reserves. The well tested at a rate of 45 million cubic
feet of natural gas and 2,000 barrels of condensate per day through a
42/64-inch opening at the surface with 6,000 pounds-per-square-inch
flowing tubing pressure. The natural gas and condensate came from 1,118
feet of perforations over the interval from 10,018 feet to 12,348 feet
6
within the La Paz formation. Amoco Colombia noted that downhole
restrictions prevented the well from testing at higher rates.
Additional wells and seismic data will be necessary in order to assess
the size of the hydrocarbon resources associated with the discovery.
Drilling of the sixth-year obligation well, the Opon No. 4 well, is
expected to commence in February 1995. This well is located
approximately three-quarters of a mile from the Opon No. 3 well.
Prior to Hondo Magdalena's participation, eight wells had been drilled
to various depths in the Opon Contract area. All of these wells are the
property of Ecopetrol, and are not considered to be included in the Opon
Contract area. None of these wells are currently producing and none of
the former contract holders have any rights in the Opon Contract.
The principal objective at Opon is to confirm and commercially develop
hydrocarbons from the La Paz formation. However, geologic and
geophysical modeling indicates that, in addition to the potentially
significant hydrocarbons discovered in the Opon No. 3 well, other
potential hydrocarbon-bearing traps may lie within the Opon Contract
area. Other traps and formations, including Cretaceous age formations
lying below the Tertiary age La Paz formation, are possible objectives
of further exploration efforts.
Operations in the Opon Contract area are subject to the operating risks
normally associated with exploration for, and production of, oil and
gas, including blowouts, cratering, and fires, each of which could
result in damage to, or destruction of, the oil and gas wells,
formations or production facilities or properties. In addition, there
are greater than normal mechanical drilling risks at the Opon Contract
area associated with high pressures in the La Paz and other formations.
These pressures may: cause collapse of the well bore, impede the drill
string while drilling, or cause difficulty in completing a well with
casing and cement. These potential problems were overcome in the
drilling of the Opon No. 3 well by the use of a top-drive drilling rig,
heavy-weight drilling fluids and other technical drilling enhancements.
Production is subject to political risks inherent in all foreign
operations, including: (i) loss of revenue, property, and equipment as a
result of unforeseen events such as expropriation, nationalization, war
and insurrection, (ii) risks of increases in taxes and governmental
royalties, (iii) renegotiation of contracts with governmental entities,
as well as, (iv) changes in laws and policies governing operations of
foreign-based companies in Colombia. In the past, guerilla activity in
Colombia has disrupted the operation of oil and gas projects, including
site preparation at the Opon Contract area during fiscal 1991. Security
in the area has been significantly improved and the associate parties
have taken steps to enhance relations with the local population through
a community relations program initiated in 1991. Since that time,
operations have not been impeded. The government also continues its
efforts through negotiation and legislation to ameliorate the problems
and effects of insurgent groups, including regulations containing
sanctions such as impairment or loss of contract rights on companies and
contractors if found to be giving aid to such groups. Hondo Magdalena
will continue to cooperate with the government, and does not expect that
future guerilla activity will have a material impact on the exploration
7
and development of the Opon Project. However, there can be no assurance
that such activity will not occur or have such an impact and no opinion
can be given on what steps the government may take in response to any
such activity.
Marketing arrangements for the sale of oil and natural gas will have to
be made. The government of Colombia has recently established a natural
gas policy and is pursuing a program to maximize the utilization of
natural gas throughout the country, including the industrial cities of
Medellin, Cali and Bogota, where developed markets and infrastructure do
not currently exist. The Colombian government's policy on natural gas
is intended to increase the consumption of natural gas in order to
provide a more balanced use of energy resources. The policy includes
the use of natural gas in place of higher cost electricity and in place
of wood to reduce deforestation. The government intends to encourage
the development of markets for natural gas and is pursuing the
development of pipeline transportation systems for new markets.
Colombia's largest refinery is located at Barrancabermeja, 30 miles
north of the Opon Contract area. The proximity of the Opon Contract
area to these potential gas markets will be an advantage for marketing
the natural gas. Amoco Colombia is now pursuing discussions for the
sale of natural gas in order to establish an early market for production
from the Opon No. 3 well and expected production from the Opon No. 4
well.
Development of the Opon Project will require significant future capital
expenditures. See Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources in
Item 7.
U.S OIL AND GAS OPERATIONS
In January 1987, Hondo Oil & Gas Company (prior to the Exchange and
subsequent Merger), acquired a number of oil and gas properties from
Atlantic Richfield Company. Prior to the Exchange, Pauley owned certain
oil and gas properties located primarily on the West Coast. The Company
explored for, developed and produced oil and gas in approximately 13
states until 1992.
In June 1992, the Company completed a sale of substantially all of its
domestic oil and gas assets. The Company's departure from the domestic
oil and gas business was in part driven by management's believe that
more profitable exploration and production opportunities exist abroad.
DISCONTINUED OPERATIONS
Refining and Marketing Operations
On October 1, 1993, the Company completed the sale of the common stock
of its Fletcher refinery and the assets of the Hilo, Hawaii asphalt
terminal. The Company's 41,000 bbl asphalt barge was sold in May 1993.
An asphalt terminal in Honolulu, Hawaii and two gasoline stations
acquired through bankruptcy proceedings against a former customer of
8
Fletcher were disposed of in 1994. There are no remaining assets of the
refining and marketing operations. See Note 3 to the Consolidated
Financial Statements in Item 8.
Real Estate Operations
On December 15, 1989, the Company suspended operations at its Newhall
refinery. Subsequently, the Company adopted a plan of disposition which
included dismantling the refinery, effecting environmental remediation
of the land and further developing the land to a condition where it may
be sold. Execution of the plan was suspended in September 1993 and the
Company is now marketing the site in its current condition and with
existing land-use entitlements. The Newhall refinery site consists of
approximately 105 acres located adjacent to a major freeway intersection
in northern Los Angeles County. See Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 and
Note 3 to the Consolidated Financial Statements in Item 8.
The Company owns in fee simple approximately 11 acres of undeveloped
land located in eastern Los Angeles County. The Company has executed a
contract for sale of this acreage for a minimum purchase price of $2.8
million. The sale is subject to certain contingencies and is scheduled
to close in 1995.
Each of the above real properties is subject to a mortgage in favor of
Lonrho Plc. See Note 6 to the Consolidated Financial Statements in Item
8.
COMPETITIVE FACTORS
Because of the sale of substantially all of the Company's domestic oil
and gas properties in 1992 and the sale of substantially all of its
discontinued refining and marketing assets in 1993, the only competition
the Company currently faces is from other parties offering undeveloped
raw land for sale in Los Angeles County and for participation in oil and
gas concessions around the world. Many of the Company's competitors are
large integrated oil companies having diverse operations and stronger
capitalization.
OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS
Environmental matters
The Company's operations are subject to certain federal, state and local
laws and regulations governing the management of hazardous materials,
the discharge of pollutants into the environment and the handling and
disposal of solid and hazardous waste.
(1) General
Minor spillage or discharge of petroleum and related substances are
a common occurrence at oil refineries and at oil and gas production
and drilling facilities. Such spills and discharges could create
liability under various federal, state and local environmental laws
and regulations. As is the case with other companies engaged in
9
oil and gas exploration, production and refining, the Company faces
exposure from potential claims and lawsuits involving environmental
matters. These matters may involve alleged soil and water
contamination and air pollution. The Company's policy is to accrue
environmental and clean-up costs when it is probable that a
liability has been incurred and the amount of the liability is
reasonably estimable. However, future environmental related
expenditures cannot be reasonably quantified in many circumstances
due to the conjectural nature of remediation and clean-up cost
estimates and methods, the imprecise and conflicting data regarding
the characteristics of various types of waste, the number of other
potentially responsible parties involved and changing environmental
laws and interpretations. The reduced scope of the Company's
operations following the sale of the Company's domestic oil and gas
properties and the Fletcher refinery has significantly reduced the
Company's potential exposure to environmental liability.
(2) Newhall Refinery Site
Operations at the Newhall refinery site ceased on December 15,
1989. Above ground facilities at the refinery have been dismantled
and the site has been evaluated to determine the impact of refining
activities on the environment. The Company has conducted an
environmental assessment of the refinery site and a remediation
plan for the site has been submitted to the Regional Water Quality
Control Board and has received staff approval. The Company
estimates that $2.0 million would be incurred in executing the
approved remediation plan; however, the Company expects to sell the
property without incurring these costs by reducing the purchase
price. The Company's estimate of the net realizable value of this
property has been reduced by the estimated remediation costs in
determining the carrying value of the property and therefore the
remediation costs will not affect future results of operations.
The Company has requested changes in the approved plan that will
reduce estimated remediation costs. See Note 3 to the Consolidated
Financial Statements in Item 8.
(3) Fletcher Refinery
Generators of hazardous substances found in disposal sites at which
environmental problems are alleged to exist, as well as the owners
of those sites and certain other classes of persons, are subject to
claims brought by state and federal regulatory agencies. Fletcher
has been notified by the EPA that it is a potentially responsible
party in a proceeding under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The notice
relates to the Operating Industries, Inc. ("OII") dump site in
Monterey Park, California. During fiscal 1993, the Company sold
the Fletcher refinery in a stock sale through which the purchaser
assumed environmental liabilities of Fletcher, known and unknown.
Any liability related to OII (to which Fletcher has asserted the
defense of bankruptcy discharge and with respect to which Fletcher
entered into a settlement with certain potentially responsible
parties at the time of the bankruptcy) remains a liability of
Fletcher and is no longer a liability of the Company. However, the
10
statutes impose liability on "owners" and "operators," and these
statutes have been used to assert claims against controlling
shareholders of corporations involved in claims under CERCLA and
related statutes. The Company is sole shareholder of Pauley
Pacific Inc. which was sole shareholder of Fletcher. The assertion
of such a claim against the Company in the case of OII is
considered by management to be remote, since the Company was not an
owner of Fletcher until after the events occurred that are the
basis of the notice to Fletcher on the OII dump site.
Government Regulations and Legislative Proposals
The Company is subject to governmental regulations which include various
controls on the exploration for, production, export, import and
transportation of crude oil and natural gas in Colombia, where the
Company is participating in exploration operations. See International
Operations above. A number of foreign, federal and state legislative
proposals, if enacted, may have a significant adverse effect on
companies in the petroleum industry, including Hondo Oil. These
proposals involve, among other matters, the imposition of additional
taxes, price controls, land use controls and other restrictive measures.
The Company cannot determine to what extent future operations and
earnings may be affected by new regulations or changes in current
regulations.
EMPLOYEES
The Company employed 6 full-time personnel as of September 30, 1994.
(d) Financial Information About Foreign Operations
Prior to the sale of substantially all of the Company's oil and gas
properties in 1992, all of the Company's crude oil and natural gas was
produced in the United States, and all crude oil, natural gas and
refined products were delivered and sold in the United States. The
Company has an interest in a foreign concession to explore for and
develop oil and gas in Colombia. However, no production had occurred as
of September 30, 1994. See Note 12 to the Consolidated Financial
Statements in Item 8.
11
Item 2. PROPERTIES
OIL AND GAS PROPERTIES
The Company uses the successful efforts method of accounting for its oil
and gas producing activities. All significant producing properties and
proved oil and gas reserves located in the United States were sold
during 1992. The Company is continuing its efforts to develop its
Colombian exploration concession. As of September 30, 1994 the Company
had no producing wells or proved reserves in Colombia. See
International Operations in Item 1.
(1) For estimated net quantities of proved developed oil and gas
reserves, results of operations from oil and gas producing
activities and the standardized measure of discounted future net
cash flows relating to proved oil and gas reserve quantities for
the years ended September 30, 1994, 1993 and 1992, as applicable,
see Supplementary Information about Oil and Gas Producing
Activities and Reserves (Unaudited) following the Consolidated
Financial Statements in Item 8.
(2) The only estimates of total proved net oil and gas reserves filed
with any federal agency during the fiscal year are those contained
in this Annual Report on Form 10-K. This information has been
filed with the Securities and Exchange Commission only.
(3) Production income and cost per unit for the years ended September
30 (all domestic), were as follows:
Oil Gas
(per bbl) (per mcf)
--------- ---------
Average Sales Price Per Unit:
1994 - -
1993 - -
1992 $ 17.55 $ 1.40
Average Lifting Cost Per Equivalent Barrel of Production (a) (b):
1994 -
1993 -
1992 $ 8.30
(a) The common unit of production is based upon approximate
relative energy content with six mcf of natural gas equivalent
to one barrel of crude oil.
(b) Lifting (production) costs do not include lease acquisition
costs, exploration and development costs, or depreciation,
depletion and amortization of capitalized assets relating to
producing activities, and make no provision for federal income
taxes. Depreciation, depletion and amortization of
capitalized acquisition, exploration and development costs are
a part of the ultimate cost of the oil and gas produced.
12
(4) The Company had no domestic productive wells or developed acreage
at September 30, 1994.
(5) Undeveloped acreage at September 30, 1994, all located in Colombia,
consists of 123,658 gross acres, or 37,097 net acres, contained
within the Opon Association Contract area.
(6) Net wells completed for the years ended September 30:
1994 (a) 1993 (a) 1992 (b)
-------- -------- --------
Productive exploratory 1 - 0.7
Dry exploratory - 1 3.3
Productive development - - 1.9
Dry development - - 1.5
(a) Located in Colombia, South America.
(b) The wells completed were located in the states of New Mexico,
North Dakota, Oklahoma and Texas.
(7) Present activity at September 30, 1994:
As of September 30, 1994, the Company had no wells in process in
the United States and 4 (1.2 net) wells in process in Colombia.
See Note 4 to the Consolidated Financial Statements in Item 8.
(8) Delivery Commitments:
None
OTHER PROPERTIES
Refer to Item 1 for descriptions of properties owned by the Company
other than those described in Item 2, above.
13
Item 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal and administrative
proceedings incident to the ordinary course of its business. In the
opinion of management, any liability to the Company relative to the
various proceedings will not have a material adverse effect on the
Company's operations or financial condition.
The Company has evaluated the Newhall Refinery site to determine the
impact of refining activities on the environment. The Company has
conducted an environmental assessment of the refinery site and a
remediation plan for the site has been submitted to the Regional Water
Quality Control Board and has received staff approval. The Company
estimates that $2.0 million would be incurred in executing the approved
remediation plan; however, the Company expects to sell the property
without incurring these costs by reducing the purchase price. The
Company's estimate of the net realizable value of this property has been
reduced by the estimated remediation costs in determining the carrying
value of the property and therefore the remediation costs will not
affect future results of operations. The Company has requested changes
in the approved plan that will reduce estimated remediation costs. See
Note 3 to the Consolidated Financial Statements in Item 8.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Closing stock price ranges for the quarterly periods during the fiscal
years ended September 30, 1994 and 1993, as reported by the American
Stock Exchange Monthly Market Statistics reports, were as follows:
December 31 March 31 June 30 September 30
----------- --------- ------- ------------
Fiscal 1994:
Low $ 5.75 $ 5.88 $ 6.00 $ 9.75
High $ 8.38 $ 7.63 $ 12.50 $ 19.88
Fiscal 1993:
Low $ 6.25 $ 7.13 $ 7.63 $ 6.00
High $ 9.75 $ 10.88 $ 10.50 $ 10.13
The common stock is listed on the American Stock Exchange under the
symbol HOG. The Company does not fully meet all of the guidelines of
the American Stock Exchange for continued listing of its shares. The
delisting policies and procedures of the Exchange provide guidelines
under which the Exchange will normally give consideration to suspending
dealings in, or removing, a security from listing. Among those
guidelines that may be applicable to the Company are: (i) having
stockholders' equity of less than $2,000,000 if such company has
sustained losses from continuing operations and/or net losses in two of
its three most recent fiscal years; or (ii) having sustained losses
which are so substantial in relation to its overall operations or its
existing financial resources, or its financial condition has become so
impaired that it appears questionable, in the opinion of the Exchange,
as to whether such company will be able to continue operations and/or
meet its obligations as they mature; or (iii) having sold or otherwise
disposed of its principal operating assets or has ceased to be an
operating company or has discontinued a substantial portion of its
operations of business for any reason whatsoever. Where the company has
substantially discontinued the business that it conducted at the time it
was listed or admitted to trading, and has become engaged in ventures of
promotions which have not developed to a commercial stage or the success
of which is problematical, it shall not be considered an operating
company for the purposes of continued trading and listing on the
Exchange.
The number of shareholders of record on December 8, 1994 was 835.
DIVIDEND POLICY
The Company has not paid a dividend on its common stock in the two most
recent fiscal years, nor has it ever done so. The Company's loan
agreement with Thamesedge, Ltd. restricts the payment of dividends to
35% of the Company's Consolidated Net Adjusted Income (as defined in the
loan agreement) plus $2.0 million. Since the Company has incurred net
losses during this fiscal year and prior years, the payment of dividends
is restricted.
15
ITEM 6 - SELECTED FINANCIAL DATA
<HEADING>
For the Fiscal Year Ended September 30,
---------------------------------------------------------
1994 1993 1992 a 1991 1990
--------- --------- --------- --------- ---------
(In Thousands Except Per Share Data)
OPERATING DATA
Revenue $728 $980 $50,557 $81,764 $79,447
Gain (loss) on sale
of assets (1,240) (8) 21,403 1,376 11,986
Operating expenses 2,880 5,910 38,687 59,055 48,974
Depreciation, depletion
and amortization 220 365 16,230 18,998 19,244
Interest expense 4,605 3,411 9,939 12,790 14,346
Provision for income taxes (199) (46) (285) 1,116 (4,044)
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations (8,018) (8,668) 7,389 (8,819) 12,913
Loss from discontinued
operations (3,038) b (15,176) c (64,147) d (37,511) ($279)
--------- --------- --------- --------- ---------
Net income (loss) ($11,056) ($23,844) ($56,758) ($46,330) $12,634
========= ========= ========= ========= =========
Earnings (loss) per share:
Continuing operations ($0.62) ($0.67) $0.57 ($0.68) $1.00
Discontinued operations (0.23) (1.16) (4.94) (2.90) (0.02)
--------- --------- --------- --------- ---------
($0.85) ($1.83) ($4.37) ($3.58) $0.98
========= ========= ========= ========= =========
Weighted average common
shares outstanding 13,009 13,007 13,001 12,931 12,930
========= ========= ========= ========= =========
16
<HEADING>
For the Fiscal Year Ended September 30,
---------------------------------------------------------
1994 1993 1992 a 1991 1990
--------- --------- --------- --------- ---------
(In Thousands)
OTHER FINANCIAL DATA
Working capital (deficit) $2,413 $1,729 $8,142 ($31,447) $1,011
========= ========= ========= ========= =========
Properties, net $10,855 $15,910 $10,758 $118,795 $125,112
========= ========= ========= ========= =========
Net assets of
discontinued operations $6,851 b $7,750 c $24,129 d $51,546 $59,299
========= ========= ========= ========= =========
Total assets $24,908 $30,142 $59,532 $196,039 $211,334
========= ========= ========= ========= =========
Long-term debt $81,888 $78,828 $67,005 $114,348 $116,085
========= ========= ========= ========= =========
Shareholders'
equity (deficit) ($66,681) ($55,815) ($31,971) $23,354 $69,660
========= ========= ========= ========= =========
a In June 1992, the Company sold substantially all of its domestic oil
and gas operations and repaid significant portions of its debt with
the proceeds from the sale.
b The Company recorded valuation provisions against the carrying
value of its discontinued real estate operations and accrued for a
contingent liability arising from its discontinued refining and
marketing operations in 1994.
c The Company completed the sale of substantially all of its
discontinued refining and marketing segment and recorded valuation
provisions against the carrying value of its discontinued real estate
segment in 1993.
d The Company recorded valuation provisions against the carrying value
of its discontinued segments in 1992.
17
Item 7. 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. The objectives
for the Company in fiscal 1994 have been i) to confirm management's
belief that significant hydrocarbon resources are contained in the Opon
Contract area ii) to position the Company to move forward with
exploration of the Opon Contract area iii) to minimize general and
administrative expense and limit cash outflows for other domestic
business activities and iv) to dispose of discontinued assets.
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. During 1991,
1992 and 1993, Hondo Magdalena and ODC drilled four shallow oil wells to
the Mugrosa formation, one of which was a dry hole, and one deep gas
well to the La Paz formation. These efforts met with limited success.
In August 1993, Hondo Magdalena and ODC entered into a Farmout Agreement
under which Amoco Colombia Petroleum Company ("Amoco Colombia") earned a
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, a deep gas well drilled
to the La Paz formation. Amoco Colombia, Hondo Magdalena and ODC have
interests of 60%, 30% and 10%, respectively. Amoco Colombia assumed the
role of operator from Hondo Magdalena on March 1, 1994.
To retain a 5% interest in the Opon Contract in accordance with the
terms of the Farmout Agreement, Amoco Colombia paid Hondo Magdalena an
additional $5.0 million in October 1994. 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 which must
commence by July 13, 1995. Site preparation for this well, the Opon No.
4 well, has begun and drilling is expected to commence in February 1995
Amoco Colombia will have an option to withdraw and relinquish its
interests after the drilling of the Opon No. 4 well.
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.
18
Management is pleased with the test results of the Opon No. 3 well.
This discovery of potentially significant reserves of natural gas and
condensate has confirmed management's beliefs. With completion of this
well, the first obstacle in securing the Company's future has been
overcome. However, 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, all remain to be accomplished. Refer to
Liquidity and Capital Resources.
Domestic Activities
-------------------
In 1994, the Company continued to reduce the scope of its domestic
operations. This process began in 1993 following the sale of the
Company's U.S. oil and gas assets in June 1992. The Company has further
reduced its employee count from fifteen at September 30, 1993 to the
present level of six. The Company's principal office facilities in
Roswell, New Mexico were sold in May 1994. The Company continues to
lease a portion of the space at this location from the buyer. The
Company has suspended activities of McKenzie Porcupine Pipeline Company
related to a proposed pipeline right-of-way in the State of Alaska.
In 1965, the Company (then Pauley Petroleum Inc.) acquired a
nonoperating contractor's interest in the Long Beach Unit, Wilmington
Oil Field, California ("THUMS"). The principal economic benefit of the
interest was the right to receive approximately 4,000 barrels per day of
THUMS crude oil for use at the Company's refineries. Following the sale
of the Fletcher refinery in October 1993, the Company's interest in the
Unit, which had been marginally profitable at best, became a potentially
severe cash drain due to a decline in crude oil prices.
On February 2, 1994, the Company entered into an agreement whereby the
Company and the City of Long Beach released each other from their
respective rights and obligations under the THUMS contracts, effective
January 1, 1994. The agreement also provides that amounts due the City
of Long Beach of approximately $1.5 million will be paid on or before
January 1, 1997, or prior to that date, if the Company has free
available cash flow from the Opon No. 3 well or any other assets. The
amount due is not subject to interest charges.
In November 1994, the Company obtained extensions of the maturities of
its debts to Lonrho Plc, an owner of the Company's majority shareholder.
The maturities of all loans from Lonrho Plc have been extended from 1995
to not earlier than October 1, 1996.
Discontinued Operations
-----------------------
The Company began an effort to sell its refining and marketing assets in
April 1991. On October 1, 1993 the Company completed a transaction for
the sale of its Fletcher refinery and asphalt terminal in Hilo, Hawaii.
The Company received net proceeds of $1.1 million in 1994. Further
19
proceeds, currently estimated at $0.4 million, are to be received when
certain components of the refinery equipment are sold by the buyer. The
Company completed disposal of the remaining minor portions of the
refining and marketing assets during 1994.
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 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. The Company also reduced the value of its
receivable for its share of proceeds from the pending sale of certain
components of the Fletcher refinery equipment by $0.6 million, bringing
total refining and marketing discontinued losses for the year to $2.0
million. See Note 3 to the Consolidated Financial Statements in Item 8.
Included in the Company's discontinued real estate operations are two
parcels of real estate in California: the 105 acre Valley Gateway
property in the City of Santa Clarita and the 11 acre Via Verde Bluffs
property in the City of San Dimas. 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. The transaction is subject to certain
contingencies and is scheduled to close in the summer of 1995.
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. The Company listed
the Valley Gateway property with a broker during 1994. The Company has
had several inquiries, but no offers have been received. The Company
recorded additional loss provisions of $1.4 million for its discontinued
real estate operations in June 1994 as a result of continued soft local
market conditions, the sale agreement for the Via Verde Bluffs property,
and extended holding periods for both properties. See Note 3 to the
Consolidated Financial Statements in Item 8.
Other
-----
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. See Item 5, Market For
Registrant's Equity and Related Shareholder Matters. 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.
The Company is subject to various federal, state and local environmental
laws and regulations. As is the case with other companies engaged in
20
oil and gas exploration, production and refining, the Company faces
exposure from actual or potential claims and lawsuits involving
environmental matters. These matters may involve alleged soil and water
contamination and air pollution. Future environmental related
expenditures cannot be reasonably quantified in many circumstances due
to the conjectural nature of remediation and clean-up cost estimates and
methods, the imprecise and conflicting data regarding the
characteristics of various types of waste, the number of other
potentially responsible parties involved and changing environmental laws
and interpretations. The reduced scope of the Company's operations
following the sale of the Company's domestic oil and gas properties and
the Fletcher refinery have significantly reduced the Company's potential
exposure to environmental liability. The Company will continue to
closely monitor and administer its compliance with environmental
matters.
RESULTS OF OPERATIONS
Results of operations for the year ended September 30, 1994 amounted to
a loss of $11.0 million, or 85 cents per share, of which $8.0 million
arose from continuing operations and $3.0 million resulted from
discontinued operations. The Company reported a net loss of $23.8
million, or $1.83 per share, for the year ended September 30, 1993. The
1993 loss included discontinued loss provisions of $15.1 million and a
loss of $8.7 million from continuing operations. In 1992, the Company
reported a net loss of $56.7 million, or $4.37 per share, which included
losses from discontinued operations of $64.1 million and a profit of
$7.4 million from continuing operations which included a gain on sale of
exploration and production assets of $21.4 million.
Due to the sale of substantially all of the Company's domestic oil and
gas operations in June 1992 and continuing reductions in the scope of
those operations since that time, the results of continuing operations
are not comparable and may not be indicative of the Company's future
operating results and financial condition. The customary analysis of
significant variances in the components of results of operations for
continuing operations has been omitted for 1993 compared to 1992.
1994 vs 1993
------------
Operating revenues, other income and operating costs are primarily
comprised of non-recurring transactions in both periods.
The decrease in general and administrative expense of $2.2 million
between the years arises primarily from reductions in the number of
employees, offices and aircraft. Costs of exploration and exploratory
dry holes include a charge of $1.0 million in 1993 for the write-off of
the Lilia No. 9, a shallow oil well in the Opon project. No comparable
expenses have been incurred in the current period. Loss on sale of
assets for 1994 includes $0.9 million from the sale of the Company's New
Mexico office facilities as described previously.
21
Total interest expense for 1994 of $4.6 million is less than total
interest expense for 1993 of $6.7 million. The net decrease of $2.1
million between the periods arises primarily from lower interest rates,
offset by an increase in outstanding debt of $9.3 million. The amounts
reported in the consolidated statements of operations increased by $1.2
million because $3.3 million of interest was allocated to discontinued
operations in 1993.
The Company implemented disposal accounting for its refining and
marketing and real estate segments during 1991. In 1994, the Company
recorded loss provisions of $2.0 million and $1.4 million for its
refining and marketing and real estate segments, respectively, as
described previously. Results for the Company's discontinued operations
in 1993 include loss provisions of $3.0 million and $5.7 million for the
refining and marketing and real estate operations, respectively, as well
as a loss of $6.4 million from the sale of substantially all of the
discontinued refining and marketing operations recorded in the fourth
quarter. The 1992 loss from discontinued operations includes loss
provisions totalling $47.0 million for the refining and marketing
segment and $17.1 million for the real estate segment.
Operating losses of $0.4 million, $11.7 million, and $17.0 million for
1994, 1993, and 1992, respectively, from the Company's discontinued
operations were charged against loss provisions established in earlier
periods. The Fletcher refinery was operated by the Company in October
and November 1991 and processed crude oil for a third party from April
1992 through September 1992. The refinery was shut down in October
1992. A portion of the refinery's storage capacity was used as a
facility for storage and distribution of crude oil and petroleum
products belonging to third parties during 1993. The refinery was sold
in September 1993. Accordingly, the operating losses of the periods are
not comparable.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994, cash inflows of $2.0 million, $1.0 million, and $0.2
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 $1.0 million and $0.5 million to finance continuing and discontinued
operations, respectively, and made scheduled debt repayments of $0.2
million. In addition, the Company expended $0.7 million and $0.2
million on capital projects for continuing and discontinued real estate
operations, respectively. At September 30, 1994, the Company had cash
balances of $1.1 million.
In October 1994, the Company received $4.8 million, net of withholding
taxes, from Amoco Colombia in accordance with the Farmout Agreement, as
previously described. Also in October 1994, the Company paid $5.0
million to Lonrho Plc to reduce the balance of outstanding loans from
Lonrho Plc, and related 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 will be used to fund
Hondo Magdalena's $2.0 million contribution to the costs of drilling the
22
Opon No. 4 well, to satisfy the accrued contingent liability arising
from the sold Fletcher refinery described above if determined to be due
during fiscal 1995, and for other business activities.
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 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. See Note 6 to Consolidated Financial Statements in Item 8.
Approximately $49.0 million of the Company's long-term debt now becomes
due in fiscal year 1997. 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 information, existing cash
and available facilities are projected 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 in the summer of 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.
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. 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 is 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.
23
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HONDO OIL & GAS COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors 25
Financial Statements:
Consolidated Balance Sheets as of
September 30, 1994 and 1993 26
Consolidated Statements of Operations for the years ended
September 30, 1994, 1993 and 1992 27
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended September 30, 1994, 1993 and 1992 28
Consolidated Statements of Cash Flows for the years ended
September 30, 1994, 1993 and 1992 29
Notes to Consolidated Financial Statements 31
Supplementary Information about Oil & Gas Producing
Activities and Reserves (Unaudited) 51
24
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Hondo Oil & Gas Company
Roswell, New Mexico
We have audited the accompanying consolidated balance sheets of Hondo Oil
& Gas Company as of September 30, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity (deficit),
and cash flows for each of the three years in the period ended September
30, 1994. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As more fully described in Note 1, the Company has no significant
operating assets which are presently generating cash to fund its operating
and capital expenditure requirements. In addition, at September 30,
1994, the Company had a deficiency in net assets. The Company is
currently exploring for oil and natural gas under the Opon Association
Contract in Colombia. The future of the Company is largely dependent
upon the successful exploitation of its rights under this contract.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Hondo Oil & Gas Company at September 30, 1994 and 1993, and
the consolidated results of its operations and its cash flows for each of
the three years in the period ended September 30, 1994, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Denver, Colorado
November 9, 1994
</AUDIT-REPORT>
25
HONDO OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Information)
September 30,
1994 1993
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $1,141 $601
Accounts receivable (Notes 2 and 3) 5,477 4,266
Inventory -- 770
Prepaid expenses and other 33 165
------------- -------------
Total current assets 6,651 5,802
Properties, net (Notes 1 and 4) 10,855 15,910
Net assets of discontinued
operations (Note 3) 6,851 7,750
Other assets 551 680
------------- -------------
$24,908 $30,142
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $196 $1,871
Current portion of long-term debt (Note 6) 220 210
Accrued expenses and other (Note 5) 3,822 1,992
------------- -------------
Total current liabilities 4,238 4,073
Long-term debt, including $77,755 and
$74,505, respectively, payable to a
related party (Note 6) 81,888 78,828
Deferred taxes (Note 11) -- 561
Other liabilities, including $2,354 in
1994 payable to a related party (Note 7) 5,463 2,495
------------- -------------
91,589 85,957
Contingent liabilities (Note 9)
Shareholders' equity (deficit):
Preferred stock (Note 10) -- --
Common stock, $1 par value, 30,000,000
shares authorized; shares issued and
outstanding: 13,032,276 and
13,006,892, respectively 13,032 13,007
Additional paid-in capital 43,972 43,807
Accumulated deficit (123,685) (112,629)
------------- -------------
(66,681) (55,815)
------------- -------------
$24,908 $30,142
============= =============
The accompanying notes are an integral part of these financial statements.
26
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Share and Per Share Data)
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
REVENUES
Sales and operating revenue $369 $145 $48,960
Gain on sale of assets (Note 2) -- -- 21,403
Other income 359 835 1,597
------------- ------------- -------------
728 980 71,960
------------- ------------- -------------
COSTS AND EXPENSES
Operating costs 668 471 20,498
Depreciation, depletion, and amortization 220 365 16,230
General and administrative 2,210 4,427 14,045
Costs of exploration, exploratory dry holes,
and impaired leases 2 1,012 4,144
Interest on indebtedness including $4,604,
$3,400 and $8,340, respectively, to a
related party (Note 6) 4,605 3,411 9,939
Loss on sale of assets (Note 2) 1,240 8 --
------------- ------------- -------------
8,945 9,694 64,856
------------- ------------- -------------
Income (loss) from continuing operations
before income taxes (8,217) (8,714) 7,104
Income tax benefit (Note 11) (199) (46) (285)
------------- ------------- -------------
Income (loss) from continuing operations (8,018) (8,668) 7,389
Loss from discontinued operations (Note 3) (3,038) (15,176) (64,147)
------------- ------------- -------------
Net Loss ($11,056) ($23,844) ($56,758)
============= ============= =============
Income (loss) per share:
Continuing operations ($0.62) ($0.67) $0.57
Discontinued operations (0.23) (1.16) (4.94)
------------- ------------- -------------
Net loss per share ($0.85) ($1.83) ($4.37)
============= ============= =============
Weighted average common shares outstanding 13,009,174 13,006,967 13,000,805
The accompanying notes are an integral part of these financial statements.
27
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In Thousands Except Common Shares)
Common Stock Retained
----------------------------- Additional Earnings
Paid-In (Accumulated
Shares Amount Capital Deficit)
------------- ------------- ------------- -------------
Balance at October 1, 1991 12,931,342 $12,931 $42,450 ($32,027)
Exercise of stock options 75,550 76 1,357 --
Net loss -- -- -- (56,758)
------------- ------------- ------------- -------------
Balance at September 30, 1992 13,006,892 13,007 43,807 (88,785)
Net loss -- -- -- (23,844)
------------- ------------- ------------- -------------
Balance at September 30, 1993 13,006,892 13,007 43,807 (112,629)
Exercise of stock options 25,384 25 165 --
Net loss -- -- -- (11,056)
------------- ------------- ------------- -------------
Balance at September 30, 1994 13,032,276 $13,032 $43,972 ($123,685)
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
28
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Cash flows from operating activities:
Pretax income (loss) from continuing operations ($8,217) ($8,714) $7,104
Adjustments to reconcile pretax income (loss) from
continuing operations to net cash used by continuing
operations:
Depreciation, depletion and amortization 220 365 16,230
(Gain) loss on sale of assets 1,240 8 (21,403)
Costs of exploratory dry holes and impaired leases -- 1,051 3,479
Accrued interest added to long-term debt 2,250 6,033 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 1,735 947 2,124
Inventory 770 (770) 978
Prepaid expenses and other 132 (284) 1,399
Other assets 121 (71) 727
Increase (decrease) in:
Accounts payable (1,675) (2,002) (4,715)
Accrued expenses and other (577) (3,417) (9,447)
Other liabilities 2,968 584 (1,570)
------------- ------------- -------------
Net cash used by continuing operations (1,033) (6,270) (5,094)
------------- ------------- -------------
Pretax loss from discontinued operations (3,400) (15,070) (64,147)
Adjustments to reconcile pretax loss from discontinued
operations to net cash used by discontinued operations:
Depreciation and amortization 3 3,047 5,214
Gain on sale of assets (81) (436) --
Provision for losses, net of utilization 2,967 3,677 45,651
Decrease in operating assets -- 8,134 20,142
Decrease in operating liabilities -- (9,748) (21,572)
------------- ------------- -------------
Net cash used by discontinued operations (511) (10,396) (14,712)
Income taxes paid (Note 11) -- -- (500)
------------- ------------- -------------
Net cash used by operating activities (1,544) (16,666) (20,306)
------------- ------------- -------------
(Continued)
29
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Cash flows from investing activities:
Sale of assets 1,971 3,714 130,351
Capital expenditures (897) (13,588) (11,929)
------------- ------------- -------------
Net cash provided (used) by investing activities 1,074 (9,874) 118,422
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings 1,000 6,000 28,626
Principal payments on long-term debt (180) (248) (112,888)
Issuance of stock 190 -- 1,433
------------- ------------- -------------
Net cash provided (used) by financing activities 1,010 5,752 (82,829)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents
from all operations 540 (20,788) 15,287
Less net increase (decrease) in cash and cash equivalents
from discontinued operations -- (914) 199
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents
from continuing operations 540 (19,874) 15,088
Cash and cash equivalents at the beginning of the year 601 20,475 5,387
------------- ------------- -------------
Cash and cash equivalents at the end of the year $1,141 $601 $20,475
============= ============= =============
The accompanying notes are an integral part of these financial statements.
30
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(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, hereinafter referred to as "Hondo", owns 78% of Hondo Oil's
common stock.
Effective March 31 and September 4, 1991, the Company adopted plans
of disposal for its refining and marketing and its real estate
segments, respectively. Accordingly, the results of operations and
the net assets of the discontinued segments have been reclassified to
discontinued operations for all periods presented. Assets of
discontinued operations are recorded at the lower of cost or net
realizable value. On October 1, 1993, the Company completed the sale
of substantially all of its refining and marketing assets. Refer to
Note 3.
As described in Note 2, during 1992 the Company sold substantially
all of its domestic oil and gas properties to Devon Energy
Corporation. As a result, the Company's cash resources are limited
to cash on hand, advances under lines of credit from a related party
(See Note 6) and the proceeds of sales of certain assets. Cash from
operations is not expected to be a source of funds unless and until
the Company's Colombian Opon Association Contract begins production.
The Company's future is dependent upon successful exploitation of its
rights under the Opon Association Contract. During 1993, the Company
entered into a Farmout Agreement with Amoco Colombia Petroleum
Company ("Amoco Colombia") relating to the Opon Contract in which the
Company sold a partial interest. As part of the consideration for
this interest, Amoco Colombia has or will provide funds for certain
capital expenditures required by the contract during fiscal 1994 and
1995. Management estimates its available cash is sufficient to meet
its cash needs for the next fiscal year assuming no material adverse
changes to budgeted plans occur.
31
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(a) Basis of Consolidation and Presentation (continued)
---------------------------------------------------
The Company now owns a 30% interest in the Opon Contract which
drilled the Opon No. 3 well in Colombia in 1994 and will soon begin
drilling of the Opon No. 4 well. The Opon No. 3 well discovered
potentially significant reserves of natural gas and condensate.
However, delivering these reserves to market is dependent upon
successful completion of another well and subsequently obtaining
financing for further development of the Opon Contract area. At
September 30, 1994, exploration under the Opon Contract represents
substantially all of the Company's current business operations.
While the Opon No. 3 well has discovered potentially significant
quantities of hydrocarbons, substantial contingencies must still be
resolved before recovery of the Company's investment in Colombia, by
production of the reserves, can be assured.
(b) Cash Equivalents
----------------
Cash equivalents represent highly liquid investments with maturities
of three months or less when purchased.
(c) Inventory
---------
Inventory, which consists entirely of lease and well equipment in
Colombia, is valued at the lower of cost or net realizable value.
(d) Oil and Gas Properties
----------------------
Oil and gas properties are accounted for using the successful efforts
method. Under this method, property acquisition costs are
capitalized when incurred and exploratory geological and geophysical
costs and delay rentals are expensed as incurred. The Company does
not capitalize salaries, or other general and administrative costs,
pertaining to oil and gas acquisition, exploration, and development
activities. The costs of drilling exploratory wells are capitalized
pending determination of whether the wells have found proved
reserves. If proved reserves are not discovered, such dry hole costs
are expensed. All developmental drilling costs, including intangible
drilling and equipment costs incurred on unsuccessful wells, are
capitalized.
32
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(d) Oil and Gas Properties (continued)
----------------------------------
Acquisition costs of unproved properties which are considered to be
individually significant are periodically assessed for impairment on
a property-by-property basis. Individually insignificant properties
are assessed for impairment as a group. Any decline in value is
included in the statement of operations in costs of exploration,
exploratory dry holes, and lease impairment.
Intangible drilling and development costs and tangible equipment are
depleted by the units-of-production method using proved developed
reserves on a field basis. Leasehold costs are also depleted on a
field basis using total proved reserves. Estimates of proved
reserves are based upon reports of Company and independent petroleum
engineers.
(e) Other Fixed Assets
------------------
Other fixed assets are recorded at historical cost and are
depreciated by the straight-line method using useful lives of 7 to
10 years.
(f) Earnings Per Share
------------------
Net income 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.
(g) 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 had no material effect on the Company's
financial position, results of operations, or components of income
tax expense for the current or previous fiscal years. Accordingly,
no cumulative effect of a change in accounting principle has been
recognized.
33
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(g) Income Taxes (continued)
------------------------
Under Statement 109, the liability method is used in 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. Prior to the adoption of
Statement 109, income tax expense was determined using the liability
method prescribed by Statement 96, which has been superseded by
Statement 109. Among other changes, Statement 109 changes the
recognition and measurement criteria for deferred tax assets included
in Statement 96.
Investment tax credits are accounted for by the flow-through method
which recognizes related benefits in the year realized.
(h) Loan Fees
---------
Capitalized loan fees pertaining to long-term loans are included in
other assets. The loan fees are stated at cost and are amortized by
the straight-line method, which approximates the level yield method,
over the life of the related loan.
(i) New Accounting Standards
------------------------
In December 1991 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures About Fair Value of Financial Instruments". SFAS No.
107 requires disclosure of information relating to fair market values
of financial instruments and is effective for fiscal years ending
after December 15, 1995, for companies with total assets of less than
$150,000. Accordingly, the difference between fair market values and
carrying values of the Company's financial instruments has not been
determined.
(j) Foreign Currency Translation
----------------------------
The Company's Colombian business is conducted in a highly
inflationary economic environment. Accordingly, the financial
statements of the Company's foreign subsidiary are remeasured as if
the functional currency were the U.S. dollar using historical
exchange rates. Exchange gains and losses, which have been
immaterial to date, are included in other income.
34
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
2) Accounts Receivable; Disposal of Oil and Gas Assets
---------------------------------------------------
Under the terms of the Farmout Agreement with Amoco Colombia (See
Note 1), Amoco Colombia had an option to withdraw from the Opon
Contract following completion of the Opon No. 3 well. On September
26, 1994, Amoco Colombia notified the Company it had elected to
proceed, and accordingly, incurred an obligation to the Company of
$5,000. The $5,000 receivable accrued by the Company at September
30, 1994 was collected on October 14, 1994. No gain was recognized
on the transaction, rather the full amount was used to reduce the
balance of the Company's drilling in progress. See Notes 4 and 5.
The accounts receivable balances reported in the consolidated balance
sheets are net of allowances for doubtful receivables of $399 and
$555 for September 30, 1994 and 1993, respectively.
On March 18, 1992, the Company executed an agreement to sell
substantially all of its domestic oil and gas properties to Devon
Energy Corporation for a contractual price of $139,175. The purchase
price was subject to various adjustments, including adjustments for
the cash operating profit of the properties and capital expenditures
pertaining to the properties from December 31, 1991 through the date
of closing, June 25, 1992. Proceeds from the sale were $126,668 and
the gain arising from the transaction was $23,588. The proceeds were
used to reduce short-term and long-term debt by $94,080 and to repay
accrued interest and expenses of $7,726. The remainder was retained
to fund the ongoing operations of the Company. The reported 1992 gain
of $21,403 also includes net losses from the disposal of domestic oil
and gas properties excluded from the transaction described above and
the disposal of fixed assets.
Since the time of the transaction described above, the Company has
not owned any significant domestic oil and gas properties and has
continued to dispose of the few remaining insignificant domestic
properties and excess fixed assets. Loss on sale of assets for 1994
includes $935 from the sale of the Company's office building and
certain furniture and equipment in Roswell, N.M.
35
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
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. Revenues of the refining and marketing segment for
1994, 1993 and 1992 were $64, $1,213 and $68,175 respectively. A
summary, by segment, of the results of discontinued operations is as
follows:
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Refining and marketing ($2,000) ($9,370) ($47,000)
Real estate (1,400) (5,700) (17,147)
Income tax expense (benefit) (362) 106 --
------------- ------------- -------------
($3,038) ($15,176) ($64,147)
============= ============= =============
Per share ($0.23) ($1.16) ($4.94)
============= ============= =============
In October 1992, the Fletcher refinery was placed in a cold shut-down
and subsequently the facility was used to terminal crude oil and
petroleum products for third parties. On September 15, 1993, the
Company executed an agreement for the sale of its Fletcher refinery
and its asphalt terminal in Hilo, Hawaii. These assets represent the
material portion of the Company's refining and marketing segment.
The transaction closed on October 1, 1993 at which time $992 of the
net accrued proceeds of $1,992 were received.
Refining and marketing losses for 1993 include $6,370 resulting from
the sale and operating loss provisions of $3,000. The Company
recorded a $44,000 valuation provision and a provision for future
operating losses of $3,000 in 1992 in respect of the refining and
marketing segment. Additional loss provisions of $2,000 have been
required in 1994 for the reasons described below.
36
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
3) Discontinued Operations (continued)
-----------------------------------
The agreement for the sale of Fletcher included a provision allowing
the Company to share in the proceeds from the sale of certain
components of the refinery equipment which the buyer planned to sell.
Based on estimates of a broker of used refinery equipment, the
Company recorded $1,000 as the estimated realizable value at the time
of the transaction. The buyer and the Company have not succeeded in
selling this equipment during the ensuing year. In September 1994,
the Company reduced the carrying value of the receivable by $600 on
the basis of an offer from the buyer for the Company's share of
equipment sale proceeds.
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.
On December 15, 1989, the Company permanently suspended operations at
its Newhall refinery because of expectations of continued operating
losses. As of September 30, 1990, the Company reclassified the cost
of Newhall's dismantled properties to the real estate segment. All
costs incurred subsequent to December 15, 1989 have been capitalized.
In September 1993, the Company suspended execution of a development
plan for the property, now referred to as Valley Gateway, which
included dismantling the refinery, effecting environmental
remediation of the land and further developing the land to a
condition where it could be sold as land ready for construction.
This decision was made as a result of continued declines in the local
real estate market and the Company's limited cash resources.
Management now believes that a sale of the property in its present
condition with existing entitlements is the best course of action.
Accordingly, the carrying value of the property was further reduced
by $5,700 in 1993 and prior accruals of environmental remediation and
development costs of $9,174 were netted against the carrying value of
the property.
37
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
3) Discontinued Operations (continued)
-----------------------------------
In addition to the Valley Gateway property, the Company owns the 11
acre Via Verde Bluffs property, carried at $2,575 and $2,995 at
September 30, 1994 and 1993, respectively. Both properties were
listed with brokers during 1994. The Company has executed a sale
agreement for the Via Verde Bluffs property which is subject to
certain contingencies and is scheduled to close in the summer of 1995.
In 1994, the carrying value of the real estate was further reduced by
$1,400 as a result of local market conditions, current sale
negotiations, and the timing of possible sales. It is management's
belief that the market value of the property is equal to or in excess
of the Company's carrying value, as adjusted.
Changes in the balance of real estate are as follows:
September 30,
1994 1993
------------- -------------
Beginning balance $7,750 $20,500
Development and dismantlement costs 168 1,606
Accrued future development costs:
Short-term -- (2,870)
Long-term -- (6,304)
Valuation provisions established (1,400) (5,700)
Valuation provisions used 333 518
------------- -------------
Ending balance $6,851 $7,750
============= =============
Remaining acres 116 116
============= =============
Interest expense included in the losses from discontinued operations
pertains only to debt directly attributable to the discontinued
segments. Interest of $2,522 and $4,184 for 1993 and 1992,
respectively, was allocated to refining and marketing operations.
Allocations of interest to the real estate operations were $285, $295
and $304 for 1994, 1993 and 1992 respectively. Interest expense
allocated to discontinued operations also includes $2,514 and $2,370
attributable to Lonrho Plc for the years ended September 30, 1993 and
1992, respectively.
38
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
4) Properties
----------
Properties, at cost, consist of the following:
September 30,
1994 1993
------------- -------------
Proved oil and gas properties (domestic) $3 $1,742
Accumulated depreciation,
depletion and amortization (3) (1,493)
------------- -------------
0 249
Drilling in progress (a),(b) 10,696 13,629
------------- -------------
Oil and gas properties, net 10,696 13,878
------------- -------------
Other fixed assets 267 2,693
Accumulated depreciation (108) (661)
------------- -------------
Other properties, net 159 2,032
------------- -------------
$10,855 $15,910
============= =============
(a) As of September 30, 1994, drilling in progress represents the
cost of four of the five wells the Company drilled in Colombia
prior to fiscal 1994. The fifth well was expensed as a dry
hole in fiscal 1993. Assignment of proved reserves to these
costs is dependent upon further exploration work which is now
in progress. If the additional capital expenditures fail to
establish proved reserves, these capitalized costs could be
written off during fiscal 1995.
(b) See Notes 2 and 5 regarding accruals at September 30, 1994
which affect this balance.
39
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
4) Properties (continued)
----------------------
Total costs incurred (both capitalized and expensed) in oil and
gas producing activities were:
<HEADING>
September 30,
1994 1993 1992
------------- ------------- -------------
Property acquisition costs $-- $536 $300
============= ============= =============
Exploration costs (a) $2,068 $7,184 $8,890
============= ============= =============
Development costs $-- -- $2,848
============= ============= =============
(a) See Note 5 regarding accruals at September 30, 1994 which
affect the 1994 amount.
5) Accrued expenses
----------------
Accrued expenses consist of the following:
September 30,
1994 1993
------------- -------------
Drilling costs (a) $2,000 $600
Refining and marketing costs (Note 3) 1,544 500
Ad valorem taxes -- 229
Other 278 663
------------- -------------
$3,822 $1,992
============= =============
(a) Under the terms of the Farmout Agreement with Amoco Colombia
(See Note 1), Amoco Colombia had an option to withdraw from
the Opon Contract following completion of the Opon No. 3 well.
On September 26, 1994, Amoco Colombia notified the Company it
had elected to proceed. Amoco Colombia's election obligates
Amoco Colombia to proceed with the drilling of Opon No. 4 well
and, in turn, obligates the Company to pay $2,000 of the
drilling costs for Opon No. 4 well. As of September 30, 1994,
the Company has accrued its obligations for the Opon No. 4
well and increased the balance of drilling in progress.
40
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
6) Long-Term Debt
--------------
Long-term debt consists of the following:
September 30,
1994 1993
------------- -------------
Notes payable to Lonrho Plc (a),(b):
Note A (c) $3,181 $3,087
Note B (c) 4,144 3,050
Note C (d) 35,302 34,274
Note D (d),(e) 35,128 34,094
Pollution Control Revenue Bonds (f) 2,930 3,140
Industrial Development Revenue Bonds (f) 1,000 1,000
Other 423 393
------------- -------------
82,108 79,038
Less current maturities (220) (210)
------------- -------------
$81,888 $78,828
============= =============
Maturities are as follows for the years ending September 30:
1995 $220
1996 235
1997 49,033
1998 13,497
1999 13,513
Thereafter 5,610
-------------
$82,108
=============
Hondo Oil paid interest of $260, $4,031 and $16,259 for the years
ended September 30, 1994, 1993 and 1992, respectively. Interest of
$829 and $814, all of which pertained to discontinued operations, was
capitalized for the years ended September 30, 1993 and 1992,
respectively. Capitalized interest for the year ended September 30,
1993 arose from amounts owed to Lonrho Plc.
41
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
6) Long-Term Debt (continued)
--------------------------
(a) In December 1993, the Company restructured its debts to Lonrho
Plc, a shareholder of Hondo, effective September 30, 1993.
The following terms apply to each of the four notes:
(1) Interest is payable semiannually at a rate of 6%.
(2) If management determines sufficent cash is not available
to pay interest, management may offer to issue the Company's
unregistered stock valued at the American Stock Exchange
closing price on the interest due date as payment in kind.
Lonrho may choose to either add the accrued interest to the
balance of the debt outstanding or accept the payment in kind.
(3) Accrued interest of $2,354, $2,250 and $6,005 has been
added to the outstanding debt as of October 1, 1994, April 1,
1994 and September 30, 1993, respectively.
(4) As consideration for past deferrals of interest and
principal payments due under the terms of the four notes, the
Company has granted Lonrho Plc a 5% share of the Company's net
profits, as defined, under the Opon Contract. Following
repayment of the four notes, Lonrho's entitlement will be
reduced by half.
(5) Net proceeds from asset sales are to be applied to the
reduction of Notes C and D.
(b) In November 1994, the Company and Lonrho agreed to defer
commencement of principal amortization for each of the four
loans. The maturity terms noted below reflect the revisions.
(c) Notes A and B are secured by the Company's real estate
included in discontinued operations. Absent repayment in full
as a result of the sale of the securing real estate, principal
amortization in ten equal semiannual installments will
commence October 1, 1996. Note A is secured by the Company's
Via Verde Bluffs real estate. Note B is secured by the
Company's Valley Gateway real estate. An additional $1,000
was drawn under the terms of Note B during 1994.
(d) Notes C and D are secured by the Company's Valley Gateway real
estate. Note C is to be amortized in three equal annual
installments beginning November 1, 1996. Note D is due
October 1, 1996. Notes C and D are subordinated to the
Company's other indebtedness existing at September 30, 1994.
(e) In October 1994, the Company received $4,800, net of
withholding taxes, from Amoco Colombia under the terms of the
Farmout Agreement (See Notes 1 and 2). Also in October 1994,
the Company paid $5,000 to Lonrho Plc to reduce the balance of
Note D and the related interest expense. 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.
42
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
6) Long-Term Debt (continued)
--------------------------
(f) Both issues of these tax-exempt bonds were issued under the
authority of the California Pollution Control Financing
Authority. The Pollution Control Revenue bonds bear interest
at an average rate of 6.11%, payable semiannually, and
mature serially through November 1, 2003. The Industrial
Development Revenue Bonds bear interest at a rate of 7.5%,
payable semiannually, and mature September 1, 2011. Both bond
issues are collateralized by certain refinery facilities and
equipment located at Valley Gateway and the Fletcher refinery.
The collateral at the Fletcher refinery is leased to the
buyer for a nominal annual fee. The trustee of the bonds has
been notified of these changes in the collateral. No
substitute collateral has been provided. The Company has
received no correspondence from the Trustee related to these
events.
According to the terms of the various credit agreements, the Company
is restricted in its ability to: (a) incur additional debt; and (b)
pay dividends on and/or redeem capital stock.
7) Other Liabilities
-----------------
During 1994, the Company entered into an agreement with the City of
Long Beach which provides, among other things, that payment of
amounts due to the City of Long Beach arising from the Company's
interest in the Long Beach Unit, Wilmington Oil Field, California
(THUMS), including $542 classified as a current liability at
September 30, 1993, will be deferred. Accordingly, all liabilities
to the City of Long Beach are now classified as long-term. Other
liabilities consist of the following:
September 30,
1994 1993
------------- -------------
Interest payable to Lonrho Plc (Note 6) $2,354 $ --
City of Long Beach 1,534 1,332
Other 1,575 1,163
------------- -------------
$5,463 $2,495
============= =============
43
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
8) Retirement Plans
----------------
The Company has made available to all full-time administrative
employees, who have completed at least one year of service, a defined
contribution profit-sharing plan (401(k) Plan). Qualifying employees
may contribute up to 10.00% of their annual earnings, but not in
excess of the maximum amount allowed by the Internal Revenue Service,
and the Company will match the employee contribution up to a maximum
5.00% of an employee's annual earnings. The Company's matching
contributions for the years ended September 30, 1994, 1993 and 1992
were $27, $121 and $232, respectively.
In addition, the Company has a defined benefit pension plan covering
certain former officers of the Company. The plan was created to
provide pension benefits greater than the amounts allowable (in
accordance with IRS regulations) under the former defined benefit
plan (terminated in 1989) available to all full-time non-union
employees. The benefits of the continuing plan are based on years of
service and compensation during the last five years of service as in
the terminated plan, less the pension benefit determined under the
terminated plan. The plan is unfunded. The weighted average
discount rates used in determining the actuarial present value of the
projected benefit obligation were 7.50% and 6.75% for September 30,
1994 and 1993, respectively. The following table sets forth the
plan's funded status and amounts recognized in the Company's balance
sheet:
September 30,
1994 1993
------------- -------------
Actuarial present value of projected
(fully accumulated) benefit obligation,
fully vested $625 $683
Plan assets at fair value -- --
------------- -------------
Projected benefit obligation in excess
of plan assets 625 683
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions (215) (268)
Unrecognized prior service cost (58) (64)
Unrecognized net transition obligation (145) (159)
Adjustment required to recognize minimum
liability 418 491
------------- -------------
Accrued pension cost included in
other long-term liabilities $625 $683
============= =============
44
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
8) Retirement Plans (continued)
----------------------------
Net pension cost included the following components:
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Interest cost on projected obligation $45 $46 $47
Net amortization and deferral 25 35 34
------------- ------------- -------------
$70 $81 $81
============= ============= =============
9) Contingent liabilities
----------------------
The Company is involved in a number of legal and administrative
proceedings incident to the ordinary course of its business. In the
opinion of management, any liability to the Company relative to the
various proceedings will not have a material adverse effect on the
Company's operations or financial condition.
The Company is subject to various environmental laws and regulations
of the United States. As is the case with other companies engaged in
similar industries, the Company faces exposure from actual or
potential claims and lawsuits involving environmental matters. These
matters may involve alleged soil and water contamination and air
pollution. The Company's policy is to accrue environmental and
clean-up costs when it is probable that a liability has been incurred
and the amount of the liability is reasonably estimable. However,
future environmental related expenditures cannot be reasonably
quantified in many circumstances due to the conjectural nature of
remediation and clean-up cost estimates and methods, the imprecise
and conflicting data regarding the characteristics of various types
of waste, the number of other potentially responsible parties
involved, and changing environmental laws and interpretations. The
reduced scope of the Company's operations following the sale of the
Company's domestic oil and gas properties and the Fletcher refinery
have significantly reduced the Company's potential exposure to
environmental liability, including potential Superfund claims against
Fletcher, which liability, in the opinion of management, is not
material.
45
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
10) Shareholders' Equity
--------------------
In addition to its common shares, the Company has authorized
10,000,000 shares of one dollar par value preferred stock. No
preferred shares have been issued as of September 30, 1994.
The Company has two stock option plans under which options to
purchase common shares of the Company are granted to certain
officers, directors and key employees. The options are priced equal
to or greater than the market price in effect at the date of grant.
Accordingly, no compensation expense in connection with the plan is
recognized. The 1982 Stock Option Plan has been terminated except
for 74,700 outstanding options priced at $19.00 per share which
expire in May 1997. Options granted, exercised and outstanding at
September 30, 1994 under the 1993 Stock Incentive Plan were all
priced at $7.50 per share.
The following table summarizes certain information relative to
the stock option plans:
Share
Options
-------------
Outstanding at October 1, 1993 75,200
Granted 171,000
Exercised (25,384)
Expired or terminated (500)
-------------
Outstanding at September 30, 1994 220,316
=============
Additional options of 179,000 are available for future grants at
September 30, 1994. No additional options were available at
September 30, 1993. Of the 220,316 options outstanding at September
30, 1994, 136,816 were exercisable at that date.
46
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
11) Income Taxes
------------
Until 1992, Hondo Oil was included in the consolidated tax return of
Hondo because Hondo owned greater than 80% of Hondo Oil's shares.
Hondo's ownership of Hondo Oil became less than 80% in 1992. Hondo
Oil had a tax allocation agreement with Hondo whereby Hondo Oil
reimbursed Hondo for the use of Hondo's tax attributes to the extent
these attributes were applied against taxable income generated by
Hondo Oil in the consolidated tax return. Under the terms of this
agreement, Hondo Oil paid $500 to Hondo in 1992. This payment was
made to reimburse Hondo for alternative minimum tax net operating
losses utilized by Hondo Oil in the consolidated tax return filed for
the year ended September 30, 1990.
The components of income tax benefit from continuing operations are
as follows:
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Deferred:
Federal ($190) ($30) ($186)
State (9) (16) (99)
------------- ------------- -------------
($199) ($46) ($285)
============= ============= =============
47
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
11) Income Taxes (continued)
------------------------
Significant components of the Company's deferred tax assets and
liabilities are as follows:
September 30,
1994 1993
------------- -------------
Deferred tax assets, long-term:
Net operating loss carryforwards $38,734 $35,223
Valuation allowances (38,734) (26,992)
------------- -------------
-- 8,231
------------- -------------
Deferred tax liabilities, long-term:
Financial reporting basis of real
estate in excess of income tax basis -- 8,671
Income tax depreciation in excess of
financial reporting depreciation -- 121
------------- -------------
-- 8,792
------------- -------------
Net deferred tax liability $-- $561
============= =============
The differences between income tax benefit from continuing operations
and the amount computed by applying the statutory Federal income tax
rate to income (loss) from continuing operations before income taxes
are as follows:
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Tax (benefit) computed at the effective
statutory rate ($2,794) ($2,963) $2,415
Reduction of future reversals by
utilization of net operating loss
carryforwards 93 -- (2,794)
State taxes, net (9) (16) (99)
Alternative minimum tax (190) (30) (186)
Losses from foreign operations 137 482 379
Net operating loss for which no benefit
is recognized 2,564 2,481 --
------------- ------------- -------------
($199) ($46) ($285)
============= ============= =============
48
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
11) Income Taxes (continued)
------------------------
At September 30, 1994, the Company had the following net operating
loss and investment tax credit carryforwards for financial statement
and income tax reporting purposes:
<HEADING>
Alternative
Book Net Tax Net Minimum Net Investment
Operating Operating Tax Operating Tax
Year of Expiration Loss Loss Loss Credit
------------------ ------------- ------------- ------------- -------------
Consolidated Carryforwards:
2003 $2,960 $3,167 --
2004 12,469 12,469 $10,917
2005 2,803 2,803 --
2006 26,612 26,612 22,012
2007 15,781 15,781 30,041
2008 25,551 25,551 23,919
2009 11,604 11,604 11,604
------------- ------------- -------------
$97,780 $97,987 $98,493
============= ============= =============
Separate Carryforwards (a)
1995 -- -- -- $1,600
1996 -- -- -- 766
1997 -- -- -- 612
1998 -- -- -- 259
1999 $12,397 $12,397 $12,397 144
2000 -- -- -- 210
2001 6,101 6,101 6,101 74
2002 6,648 6,714 10,715 --
------------- ------------- ------------- -------------
$25,146 $25,212 $29,213 $3,665
============= ============= ============= =============
(a) These separate carryforwards can only be used against future
income and tax liabilities of the company within the
consolidated group which generated the carryforwards.
In conjunction with the sale of the Fletcher refinery in 1993 as
described in Note 3, unrestricted net operating loss carryforwards of
$59,658 and separate net operating loss carryforwards of $23,983
pertaining to the Fletcher refinery were reattributed to Hondo Oil.
49
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
12) Segment information
-------------------
Following reclassification of the Company's refining and marketing
and real estate segments to discontinued operations in 1991, the
Company's operations have been concentrated in one industry segment:
the exploration for and production of reserves of oil and natural
gas. In 1992, the Company sold substantially all of its domestic oil
and gas reserves. The Company's continuing activities are presently
limited to exploration for oil and gas reserves located in Colombia.
Currently, no proven reserves have been established and the Company
has no foreign sales as yet, and no export sales. As a result of the
asset sale noted above, the Company has no significant customers
(comprising more than 10% of continuing operation's revenue) with
which it will do business in the foreseeable future. Information
segregating the Company's continuing domestic and foreign operations
is as follows:
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Sales and operating revenue:
United States $369 $145 $48,960
Foreign -- -- --
------------- ------------- -------------
$369 $145 $48,960
============= ============= =============
Operating profit (loss):
United States $155 ($728) $2,317
Foreign (283) (1,434) (1,109)
------------- ------------- -------------
Operating profit (loss): (128) (2,162) 1,208
Gain (loss) on sale of assets (1,240) (8) 21,403
Interest expense (4,605) (3,411) (9,939)
Corporate expense and other (2,244) (3,133) (5,568)
------------- ------------- -------------
Income (loss) from continuing
operations before income taxes ($8,217) ($8,714) $7,104
============= ============= =============
Identifiable assets:
United States $9,175 $15,637 $52,096
Foreign 15,733 14,505 7,436
------------- ------------- -------------
$24,908 $30,142 $59,532
============= ============= =============
50
HONDO OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
ACTIVITIES AND RESERVES (UNAUDITED)
September 30, 1994
(All Dollar Amounts in Thousands)
In September 1994, the Company announced the discovery of potentially
significant reserves of natural gas and condensate in an exploratory
well recently drilled on the Opon Association Contract area in
Colombia. Results of testing of this well indicate the well is
capable of producing 45 million cubic feet of natural gas and 2,000
barrels of condensate daily. The Company has a 30% interest in the
well. Ecopetrol, the Colombian national oil company, has the right
to a 50% working interest participation after the contract area is
declared commercial. No definitive assessment of the size of the
hydrocarbon resources associated with the discovery can presently be
made and no proven reserves have been assigned.
The following supplemental information regarding the oil and gas
activities of Hondo Oil is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange Commission
(SEC) and Statement of Financial Accounting Standards (SFAS) No. 69,
"Disclosures About Oil and Gas Producing Activities."
Due to the sale of substantially all of the Company's oil and gas
properties during 1992 (See Note 2 to the Consolidated Financial
Statements), certain of the disclosure provisions referenced above
are not presently applicable. Disclosures regarding proved oil and
gas reserve quantities are presented only for 1992. The standardized
measure of discounted future net cash flows (and the changes therein)
has been omitted. Disclosures regarding capitalized costs relating
to oil and gas producing activities and costs incurred for property
acquisition, exploration, and development activities are included in
Note 4 to the consolidated financial statements.
Estimates of oil and gas proved reserves and production, all located
in the United States, were as follows:
Oil Gas
(MBBLS) (MMCF)
------------- -------------
Proved reserves, October 1, 1991 14,452 83,745
Revisions in previous estimates -- --
Sale of producing properties (12,701) (75,399)
Extensions, discoveries and purchases 266 1,353
Production (2,017) (9,699)
------------- -------------
Proved reserves, September 30, 1992 0 0
============= =============
Proved reserves at October 1, 1991 include proved developed reserves
of 13,503 MBBLS and 74,174 MMCF.
51
HONDO OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
ACTIVITIES AND RESERVES (UNAUDITED)
September 30, 1994
(All Dollar Amounts in Thousands)
The following table sets forth the results of operations from oil and
gas producing and exploration activities. Income tax expense was
computed using the statutory tax rate for the period adjusted for
utilization of net operating loss carryforwards, permanent
differences, tax credits and allowances.
<HEADING> For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
Revenues $369 $145 $48,960
Production costs (386) (1,042) (29,703)
Exploration expenses (2) (1,012) (4,144)
Depreciation, depletion and amortization -- -- (13,905)
------------- ------------- -------------
(19) (1,909) 1,208
Income tax expense (benefit) (7) (743) 470
------------- ------------- -------------
Results of operations from exploration
and production activities (excluding
corporate overhead and interest) ($12) ($1,166) $738
============= ============= =============
52
<HEADING>
HONDO OIL & GAS COMPANY
Schedule VIII - VALUATION AND QUALIFYING ACCOUNTS
September 30, 1994
(All Dollar Amounts in Thousands)
Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Write-offs of period
------------- ------------- ------------- -------------
Allowance for doubtful receivables:
Continuing operations:
1994 $555 $61 ($217) $399
============= ============= ============= =============
1993 $812 $156 ($413) $555
============= ============= ============= =============
1992 $119 $775 ($82) $812
============= ============= ============= =============
Discontinued operations:
1994 $-- $-- $-- $--
============= ============= ============= =============
1993 $1,078 $-- ($856) $222
============= ============= ============= =============
1992 $951 $559 ($432) $1,078
============= ============= ============= =============
Note: The balance of $222 for discontinued operations as of September
30, 1993 was included in the assets of a subsidiary which was
sold as of that date.
53
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no change in the Company's auditors during the two most
recent fiscal years.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements: See the Index to Financial Statements
in Item 8 hereof.
(2) Financial Statement Schedules: Page
VIII. Valuation and Qualifying Accounts 53
Schedules other than those listed above are omitted because
they are not required or not applicable, or because the
information required in a schedule is otherwise included in
the Notes to Consolidated Financial Statements.
(3) Exhibits filed with this report: See Item (c) below.
54
(b) Reports on Form 8-K:
The Company filed two Forms 8-K during the quarter ended September
30, 1994, dated September 12, 1994 and September 30, 1994. The first
announced test results of an exploratory well recently completed in
Colombia in which the Company has an interest. The second reported
that Amoco Colombia elected to proceed with drilling of the
sixth-year obligation well and to pay Hondo Magdalena $5,000,000
under the Farmout Agreement dated August 9, 1993.
(c) Exhibits: See Exhibit Index on page 57 for exhibits required by Item
601 of Regulation S-K.
(d) Financial statement schedules required by Regulation S-X which are
excluded from the annual report to shareholders by Rule 14a-3 (b)(1):
See Item (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
Date: December 29, 1994 By:/s/Stanton J. Urquhart
-----------------------
Stanton J. Urquhart
Vice President and
Chief Financial Officer
(continued)
55
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<HEADING>
Signature Title Date
-------------------------------------- ----------------------------- ----------------
Chairman of the Board,
-------------------------------------- Director
ROBERT O. ANDERSON
/s/ John J. Hoey President, Chief Executive December 29, 1994
-------------------------------------- Officer, and Director
JOHN J. HOEY
/s/ Dieter Bock Director December 29, 1994
--------------------------------------
DIETER BOCK
/s/ Deborah Gudgeon Director December 29, 1994
--------------------------------------
DEBORAH GUDGEON
/s/ C.B. McDaniel Secretary, Director December 29, 1994
--------------------------------------
C.B. MCDANIEL
/s/ Douglas G. McNair Director December 29, 1994
--------------------------------------
DOUGLAS G. MCNAIR
/s/ John F. Price Director December 29, 1994
--------------------------------------
JOHN F. PRICE
Director
--------------------------------------
R.W. ROWLAND
/s/ Robert K. Steer Director December 29, 1994
--------------------------------------
ROBERT K. STEER
/s/ R.E. Whitten Director December 29, 1994
--------------------------------------
R.E. WHITTEN
/s/ Stanton J. Urquhart Vice President, Chief December 29, 1994
-------------------------------------- Financial Officer, Principal
STANTON J. URQUHART Accounting Officer
56
EXHIBIT INDEX
Exhibit
Number Subject
------- ---------------------------------------------------------------
3.1 Revised Certificate of Incorporation.
3.2 Bylaws.
*4.1 Documents relating to the $1 million principal amount of
California Pollution Control Authority, 7 1/2% Industrial
Development Revenue Bonds (Newhall Refining Co., Inc. Project)
including Installment Sale Agreement and Indenture of Trust.
*4.2 Documents relating to the $5 million principal amount of
California Pollution Control Financing Authority Pollution
Control Revenue Bonds (Newhall Refining Co., Inc. Project),
including Pollution Control Facilities Lease Agreement,
Indenture, U.S. Small Business Administration Pollution
Control Facility Payment Guaranty and Reimbursement Agreement.
*10.1 Note Purchase Agreement and Letter Agreement dated November
28, 1988, between the Company and Thamesedge, Ltd.
**10.2 Letter Agreement dated December 18, 1992, between the Company
and Thamesedge, Ltd., amending Note Purchase Agreement
(Exhibit 10.1, above) (incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, filed with the
Securities and Exchange Commission on December 28, 1992).
**10.3 Loan Agreement dated December 20, 1991, by and between Hondo
Oil & Gas Company and Lonrho Plc, including the Promissory
Notes and Letter Agreement related thereto (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991, filed
with the Securities and Exchange Commission on January 13,
1992).
**10.4 Letter Agreement dated December 18, 1992, between the Company
and Lonrho Plc, amending Loan Agreement (Exhibit 10.3, above)
(incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1992, filed with the Securities and Exchange Commission on
December 28, 1992).
**10.5 Net Profits Share Agreement dated December 18, 1992, among the
Company, Lonrho Plc, Thamesedge, Ltd. (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992, filed
with the Securities and Exchange Commission on December 28,
1992).
57
EXHIBIT INDEX (continued)
Exhibit
Number Subject
------- ---------------------------------------------------------------
**10.6 Note Dated April 30, 1993, for $3,000,000, from Via Verde
Development Company to Lonrho Plc; Guaranty of the Company
(incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1993, filed with the Securities and Exchange Commission on May
17, 1993).
**10.7 Note dated June 25, 1993 for $4,000,000 from the Company to
Lonrho Plc; Letter Agreement relating to same (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed
with the Securities and Exchange Commission on December 28,
1993).
**10.8 Letter Agreement dated December 17, 1993, by and among the
Company, Via Verde Development Company, Newhall Refining Co.,
Inc., Lonrho Plc and Thamesedge Ltd. and Note Amendments,
amending prior loan agreements and notes (Exhibits 10.1 through
10.7, above),(incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993, filed with the Securities and
Exchange Commission on December 28, 1993).
**10.9 Letter Agreement dated November 10, 1994, by and among the
Company, Via Verde Development Company, Newhall Refining Co.,
Inc., Lonrho Plc and Thamesedge Ltd. and Note Amendments
(excluding Exhibit E to the Letter Agreement filed as Exhibit
10.10, below) amending prior loan agreements and notes
(Exhibits 10.1 through 10.8, above),(incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated November 29, 1994, filed with the Securities and
Exchange Commission on November 29, 1994).
**10.10 Promissory Note dated October 31, 1994, in the original
principal amount of $5,000,000, from the Company to Lonrho Plc
(additional loan facility),(incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 8-K dated
November 29, 1994, filed with the Securities and Exchange
Commission on November 29, 1994).
*10.11 Employee Capital Appreciation Savings Plan, effective January
1, 1985.
**10.12 Form of Indemnity Agreement between Pauley and its directors
and officers, approved January 27, 1987 (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992, filed
with the Securities and Exchange Commission on December 28,
1992).
58
EXHIBIT INDEX (continued)
Exhibit
Number Subject
------- ---------------------------------------------------------------
**10.13 Opon Association Contract (translation) dated July 15, 1987,
between Ecopetrol and Opon Development Company, excluding
exhibits and attachments (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, filed with Securities
and Exchange Commission on January 13, 1992).
**10.14 Farmout Agreement among Hondo Magdalena Oil & Gas Limited,
Opon Development Company and Amoco Colombia Petroleum Company
dated August 9, 1993, excluding exhibits (incorporated by
reference to Exhibit 19.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, filed with the
Securities and Exchange Commission on August 16, 1993).
**10.15 New Operating Agreement dated as of August 9, 1993, among
Amoco Colombia Petroleum Company, Hondo Magdalena Oil & Gas
Limited and Opon Development Company (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed
with Securities and Exchange Commission on December 28, 1993).
**10.16 Stock and Asset Purchase Agreement between Signal Oil &
Refining Company, Inc. and the Company and Pauley Pacific Inc.
dated September 15, 1993, excluding exhibits (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on
Form 8- K dated October 12, 1993, filed with the Securities
and Exchange Commission on October 12, 1993).
**10.17 Letter Agreement dated February 2, 1994 between the Company
and the City of Long Beach, excluding exhibits (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1993, filed
with the Securities and Exchange Commission on February 14,
1994).
**10.18 Hondo Oil & Gas Company 1993 Stock Incentive Plan, excluding
exhibits (incorporated by reference to Exhibit A to the
Company's Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on January 28, 1994.
10.19 Agreement for Purchase and Sale of Real Estate and Escrow
Instructions between Via Verde Development Company and Kaufman
and Broad -- Coastal Valleys, Inc., excluding exhibits.
59
EXHIBIT INDEX (continued)
Exhibit
Number Subject
------- ---------------------------------------------------------------
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedules.
--------------------------------------
* These exhibits, which were previously incorporated by reference to the
Company's reports which have now been on file with the Commission for
more than 5 years, are not filed with this Annual Report pursuant to
17 C.F.R. 229.601(b)(4)(iii)(A). The Company agrees to furnish these
documents to the Commission upon request.
** Incorporated by reference
60