-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GH3ebsOgkC0VSCHC5XJVU1lHkat3MCGv1mmINH383xvwp5xKpY/vAAOxIfFK+jUu jCYuCPxXakhshMnv0S8a4Q== 0000950134-96-000765.txt : 19960319 0000950134-96-000765.hdr.sgml : 19960319 ACCESSION NUMBER: 0000950134-96-000765 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960318 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APCO ARGENTINA INC/NEW CENTRAL INDEX KEY: 0000311471 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 742041263 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08933 FILM NUMBER: 96535785 BUSINESS ADDRESS: STREET 1: P O BOX 2400 CITY: TULSA STATE: OK ZIP: 74102 BUSINESS PHONE: 9185882164 MAIL ADDRESS: STREET 1: P O BOX 2400 STREET 2: MD 47-17 CITY: TULSA STATE: OK ZIP: 74102 10-K 1 FORM 10-K FISCAL YEAR END 12-31-95 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to -------------- ---------- Commission file number 0-8933 APCO ARGENTINA INC. (Exact name of registrant as specified in its charter) CAYMAN ISLANDS - (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. BOX 2400 TULSA, OKLAHOMA 74102 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (918) 588-2164 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED None None
Securities registered pursuant to Section 12(g) of the Act: ORDINARY SHARES $.01 PAR VALUE (TITLE OF CLASS) 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 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. [x] The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on March 8, 1996, was $41,414,638. This value was calculated based upon the average bid and asked prices of the registrant's stock of $17.125 on March 8, 1996, as reported to the Company by the National Association of Securities Dealers. Since the shares of the registrant's stock trade sporadically in the over-the-counter market, the bid and asked prices and the aggregate market value of stock held by non-affiliates based thereon may not necessarily be representative of the actual market value. See Item 5. At March 8, 1995 there were outstanding 7,360,195 shares, $.01 par value, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: None 2 P A R T I ITEM I. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS Apco Argentina Inc. is a Cayman Islands corporation which was organized April 6, 1979 as a successor to Apco Argentina Inc., a Delaware corporation organized July 1, 1970. The principal business of the Company is its 47.6 percent participation in a joint venture engaged in the exploration, production, and development of oil and gas in the Entre Lomas concession located in southern Argentina. The Company also owns a 1.5 percent participation in the Acambuco joint venture, an oil and gas exploration and development project located in northwest Argentina. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS None. (C) NARRATIVE DESCRIPTION OF BUSINESS ENTRE LOMAS The Company participates in a joint venture with Petrolera Perez Companc S.A. ("Petrolera") and Maipu Inversora S.A., the current owner of the participation interest originally held by Perez Companc S.A. Both partners are Argentine companies. The purpose of the joint venture is the exploration and development of the Entre Lomas oil and gas concession in the provinces of Rio Negro and Neuquen in southern Argentina. The Company's interest in the joint venture totals 47.6 percent of which 23 percent is a direct participation and 24.6 percent is owned indirectly by virtue of the Company's 33.6 percent stock ownership in Petrolera, the operator of the joint venture. Petrolera owns a 73.15 percent direct interest in the joint venture. YPF CONTRACTS In 1967, Yacimientos Petroliferos Fiscales ("YPF") sought bids for the development of the Entre Lomas area. Perez Companc won the bidding. Contract No. 12,507, dated March 13, 1968, between YPF and Perez Companc permitted the Entre Lomas joint venture to explore for, develop, and produce oil in the Entre Lomas area. Similar contracts with YPF with respect to natural gas produced and liquids extracted from natural gas were entered into on November 18, 1970, and February 10, 1977, respectively. Originally, the joint venture's interests in the Entre Lomas area were derived from such contracts and not from direct ownership of the mineral resources involved. Under existing Argentine hydrocarbon laws, the Argentine government retains ownership of the minerals in place. -1- 3 JOINT VENTURE AGREEMENTS On April 1, 1968, Perez Companc and Petrolera entered into a joint venture agreement with Apco Oil Corporation pursuant to which Petrolera became operator of the Entre Lomas area. On July 1, 1970, Apco Oil Corporation transferred its interest in the Entre Lomas area to Apco Argentina Inc. Similar joint venture agreements among the Company, Perez Companc and Petrolera for the development of natural gas and extraction of propane and butane were entered into February 29, 1972, and March 23, 1977, respectively. DEREGULATION The Argentine government, in an effort to implement a program to establish complete deregulation of the energy industry in Argentina, issued three decrees from August through December 1989. On November 8, 1989, decree 1212/89 was issued describing steps necessary to deregulate hydrocarbon production from existing production and development contracts, including Entre Lomas. The decree directed YPF to negotiate with producers the conversion of contracts to the concession or association system described in the 1967 Hydrocarbon Law 17,319, and gave owners of the converted contracts the right to freely dispose of their share of hydrocarbons produced at world prices. Complete deregulation of the Entre Lomas area was accomplished in two stages. On December 26, 1990, a conversion agreement among Petrolera, acting on behalf of the Entre Lomas joint venture, YPF and the Argentine government was finalized and executed. Under the agreement, which went into effect January 22, 1991, the Entre Lomas contract was converted to a concession giving the joint venturers ownership of produced oil at the wellhead and enabling them to freely sell their oil in internal or external markets. YPF received the right to take in kind 8 percent of all oil produced from the concession over the remaining life of the contract, and undertook to transport to a point of market and store all oil produced in the area at no charge. The joint venturers became responsible for the payment of provincial royalties equivalent to 12 percent of sales value adjusted for marketing costs. Natural gas produced beyond a certain level, defined by a production decline curve, along with all natural gas liquids produced, could be freely disposed of by the joint venturers. The volumes defined by the production decline curve were to be delivered to YPF with the joint venturers continuing to receive the exploitation and capital account prices, as specified under terms of the original gas contract. The remaining balance of the gas capital account payable to the joint venturers by YPF was to be repaid or amortized by future gas deliveries to YPF. Finally, the life of the concession, which was to expire in the year 2003 under contract 12,507, as amended, was extended through 2015. An option to extend the concession for an additional ten years, was granted to the joint venture. In February 1994, certain terms of the above described conversion agreement were modified. Such modifications severed all links between YPF and the Entre Lomas joint venture which remained pursuant to the original 1968 Entre Lomas contract. Effective March 1, 1994, the joint venture assumed responsibility for the costs of transportation, treatment and storage of oil produced in Entre Lomas and YPF relinquished its right to take in kind eight percent of the oil produced in the concession. In addition, deliveries of natural gas to YPF were no longer required, entitling the joint venturers to sell all gas produced in the open market. Finally, YPF paid the joint venture $8.7 million as payment for the outstanding -2- 4 balance of the gas capital account and other costs to be incurred by the joint venture as a result of the modifications. These changes completed the evolution of the Entre Lomas contract from an oil production service contract to an oil and gas exploration and production concession pursuant to the 1967 hydrocarbon law 17,319. SALE OF OIL The Entre Lomas concession is currently participating in several contracts negotiated by the Perez Companc group. This arrangement allows the joint venturers to pool Entre Lomas oil with other concessions in the Medanito area providing greater negotiation strength with Argentine refiners and in export markets. All contracts which were in effect during 1994, expired during the year, and have been replaced with four new contracts which have terms that run through staggered dates in 1996. Under the new contracts, approximately one quarter of the concession's production is exported to Petrobras, the Brazilian national oil company. The remainder is sold to three Argentine refineries. No single customer purchases more than twenty-seven percent of the concession's production. The per barrel price for Argentine oil continues to be based on the spot market price of West Texas Intermediate crude less a discount. This discount has been declining steadily since Argentina's oil industry was deregulated. The average weighted discount in effect for the current sales contracts is $1.60, as compared with $2.18 for contracts in effect in 1994, and $2.50 for contracts in effect in 1993. Due to weight and quality differences between West Texas Intermediate crude oil and Entre Lomas oil, a base level discount will ultimately be reached. As described, all existing contracts expire at different times in 1996. Excellent demand exists for Medanito area crude oil because of its relative quality and favored geographical location. Management is confident, that upon expiration, these contracts can be extended or replaced. SALE OF GAS In March 1994, the Entre Lomas joint venturers entered into a gas sales agreement with Litoral Gas S.A., the gas distribution company for the province of Santa Fe. Under the agreement, the joint venturers provide 28 million cubic feet of gas per day during peak winter months and 25 million cubic feet per day during the remainder of the year. The price paid by the purchaser varies depending on seasonal demand. During 1995, prices averaged $1.23 per thousand cubic feet ("mcf"), and are scheduled to escalate gradually to an average of $1.34 per mcf during the final year. Provisions exist to adjust the contract price should it diverge too much from the average sale price of gas produced in the Neuquen basin. The term of the contract is five years. As described on pages 6 and 7, under "Gas Development", the Entre Lomas joint venture partners are currently developing a new gas field in the central part of the concession. Production from this field commenced in July 1994. To date, the joint venturers, through a temporary arrangement, have been successful selling this additional gas stream to Megrogas S.A. Spot market sales to other local distribution companies have also occurred during periods -3- 5 of peak gas demand. During the winter month of August, daily sales volumes from the concession reached an average of 40 million cubic feet. The joint venturers are currently seeking a long term outlet for gas production in excess of the volume commitment to Litoral S.A. The success of this undertaking will depend on the ultimate outcome of development efforts in this new field. TRANSPORTATION Oil produced in the Entre Lomas concession is sold in Puerto Rosales and is shipped through the Oleoductos de Valle S.A. ("Oldelval") pipeline system. From the concession, oil is transported through the joint venture's 8 inch, 6 3/4 mile pipeline. This line has a capacity of 16,000 barrels per day and is directly connected to the Medanito-Allen leg of the system. Medanito-Allen, with a daily capacity of 130,000 barrels, transports oil to Allen terminal. Two Oldelval lines, originating in Allen, with a daily capacity of 175,000 barrels, complete the journey to Puerto Rosales. Currently, the Entre Lomas joint venture's allocation in this pipeline system is 11,600 barrels per day. The system at this time is operating at 90 to 95 percent of capacity. The cost to transport oil through this system and use the storage and handling facilities in Puerto Rosales averaged $1.06 per barrel in 1995. Current transportation tariffs were established by government decree in 1992. PETROLERA Petrolera was established for the express purpose of carrying out production and development operations in the Entre Lomas area. Major investment and distribution decisions are made by the joint venture and implemented by Petrolera. Petrolera has a board of 15 directors, 7 of whom are nominees of the Company and 8 of whom are nominees of Perez Companc or its affiliates. Petrolera's senior officers are generally the same as those of Perez Companc with other general office and field personnel being employed exclusively by Petrolera. The Company understands that Petrolera's sole business at present is its role as joint venture operator. With the assistance of its branch office in Buenos Aires, the Company obtains operational and financial data with which it monitors joint venture operations. The branch also provides technical assistance to Petrolera and makes recommendations regarding field operations. DISTRIBUTIONS AND DIVIDENDS During 1995, the Company received direct distributions of $4.5 million and Petrolera dividends of $2.7 million. Future distributions will be dependent on the joint venture's ability to generate future profits and the level and timing of future investments in the area. Pursuant to a joint venture agreement dated January 31, 1986, whenever, during a two-month period, cash available to the joint venture exceeds its requirements and commitments, such excess shall be distributed, as soon as practicable, to the joint venturers. -4- 6 OIL AND GAS INFORMATION The Entre Lomas concession is located about 950 miles southwest of the city of Buenos Aires on the eastern slopes of the Andes mountains. It straddles the provinces of Rio Negro and Neuquen approximately 100 kilometers north of the city of Neuquen. The concession produces oil and gas primarily from the Charco Bayo/Piedras Blancas field complex ("CB/PB"). Two smaller fields, the Entre Lomas and El Caracol fields, located to the northwest of the main field complex also produce oil. The most prolific oil producing formation is called Tordillo which in the CB/PB field has generated 83% of all the oil produced in the concession. The Tordillo also produces associated gas which is consumed for field operations. Propane and butane are extracted from this gas in the joint venture's gas processing plant. Other important formations are the Quintuco, which produces gas in CB/PB and oil in the Entre Lomas and El Caracol fields. Since inception 393 wells have been drilled in the concession, of which at year end, 279 are oil wells, 20 are gas wells and 81 are water injection wells. Reference is made to page 12 which presents this information in tabular form. The CB/PB and the El Caracol fields are secondary recovery projects. Water injection has been introduced in CB/PB in phases since 1975. There still exist areas in CB/PB, primarily those developed since 1986, which lack injection. The El Caracol field has been under injection since 1989. CHARCO BAYO/PIEDRAS BLANCAS FIELD Production in the CB/PB field commenced in 1968, with the largest part of this complex developed before 1974. Additional development drilling has since continued occurring primarily during the 1979-1981 and 1986-1988 drilling campaigns. These two campaigns were the result of renegotiations of the original Entre Lomas contract. Secondary recovery was introduced with a successful pilot in 1975 and has slowly been expanded to include 71 injection wells. CB/PB can best be described as a mature oil field with remaining potential. Development of this field has historically been gradual due to the sporadic nature of past major investment programs which, until the Entre Lomas area was converted to a concession, occurred as a result of major renegotiations of the original contract. The future ultimate development of CB/PB is likely to result from a combination of expansion of secondary recovery throughout the entire producing field, selective infill drilling, continued step out drilling, and recompletion of existing wells with behind pipe reserves. The results of these programs can be enhanced, and higher percentage recoveries achieved, by improving the efficiency of the waterflood through various means. Such means include substantially increasing the rate of water injection in areas of the field already under flood, increasing lift capacity to handle greater volumes of fluid by accelerating the conversion of wells from gas lift to pump, placing idle wells back on production, attempting to reduce the effects of channeling of injection water through the use of polymer treatments of both injection and producing wells, and by modifying existing patterns of injection. Although the CB/PB waterflood has been in operation since 1975, there has been insufficient water injected in some areas of the field already under injection and other areas -5- 7 in which there has not been injection to date. As a result, recoveries normally attributed to waterfloods after 15 to 20 years have not been attained and it is currently estimated that this field has a remaining productive life in excess of twenty years. Expansion and improvement of secondary recovery throughout this field is a primary emphasis for the joint venture.Insofar as future drilling activity in the CB/PB field, it is felt that the oil/water contact, or the lowest structural point at which oil can be produced, is fairly well defined. Nevertheless, there remain undrilled step out locations in the flanks of the structure and selective infill locations which should be drilled in order to produce from areas of the field not currently drained by existing wells. The level of development drilling activity in CB/PB will, of course, be dependent on an oil price level that provides adequate returns for the joint venture partners. In the CB/PB field, the Quintuco formation is gas productive. Approximately 55 percent of the gas sold by the joint venturers is produced from a few gas wells interspersed among the many Tordillo oil wells located on this structure. Quintuco gas reserves in this field are believed to be fully developed and, until 1994, comprised virtually all of the company's proved gas reserves. EL CARACOL FIELD The El Caracol field is located in the northwestern most part of the concession. This field produces oil from the Quintuco formation. Thirty one wells have been drilled here to date. Additional development drilling potential may still exist. Water injection began here in 1989 and response has been favorable. ENTRE LOMAS FIELD The Entre Lomas field is located in the central part of the concession to the northwest of CB/PB. This anticlinal structure is cut by a fault near its crest. The oilfield exists on the southwest/upthrown side of the fault. Although the field has additional development drilling potential as indicated by the structural position and formation development in the two wells drilled in 1995 and those drilled in the two prior years, the field is showing signs of pressure depletion and is a candidate for secondary recovery. The Quintuco formation, which responded favorably to waterflooding in the El Caracol field, is the principal producing formation in this field. Studies which attempt to predict the reaction of this field to water injection are almost complete. Investments to implement secondary recovery are currently scheduled to commence during the second half of 1996. GAS DEVELOPMENT In 1970, a well known as the Entre Lomas 4 ("EL 4") was drilled and discovered what appeared to be significant gas potential from several sections in the Petrolifera formation. As described above, the Entre Lomas oil field produces from the southwest/upthrown side of a fault that runs through the center of the Entre Lomas structure. EL 4 is located on the downthrown side of the same fault. Another well drilled early in the -6- 8 life of the concession, which is a significant distance from EL 4 but is on the same side of this fault, was drilled and also found the Petrolifera to be gas productive. EL 4 was never produced due to its remote location and lack of market. In 1989, this well experienced casing problems and is believed, over a period of months, to have lost an unknown quantity of gas before repairs could be carried out. As part of the recent settlement with YPF, described under "Deregulation", on page 2, the Entre Lomas joint venture's obligation to deliver gas to YPF, under terms of the original contract, ceased. The joint venture was successful in quickly finding a market for its natural gas at a price substantially higher than formerly received from YPF. This event, in combination with deregulation of the gas industry in Argentina, has fueled considerable interest in gas development in the concession. On the basis of these developments, EL 4 was tested with good results. Subsequently, a gas pipeline was built from this area to the concession's main facilities and the well was placed on production in August 1994 at an initial rate of 8 million cubic feet per day. The decision was made to drill step out wells and determine the extent of Petrolifera development in this sector of the concession. The first step out location, the Entre Lomas 1-g, drilled during the last quarter of 1994, found good Petrolifera development in a favorable structural position. This well, however, has been a poor producer due to the existence of a complex faulting near the well bore which was not detected with the 2D seismic used to select the location. The joint venture then undertook a 3D seismic program over a 90 square mile kilometer surface rectangle which included the area of gas development potential. The next three wells, Entre Lomas 2-g, 3-g and 5-g were drilled during 1995 with successful results, finding good Petrolifera development in favorable structural positions and extending the area of potential development to the northwest. The 2-g and 3-g wells were placed on production intermittently during the winter season in Argentina as the joint venturers were able to sell gas into the spot market and through a temporary arrangement described on page 3, under "Gas Sales". Both wells produced for brief periods at rates reaching 10 million cubic feet per day. The Entre Lomas 5-g well, although not yet placed on production, tested volumes of approximately 10 million per day. Late in the year, the Entre Lomas 6-g was drilled as a step out location to the northeast, in a location that seismic interpretations indicated would be considerably downdip. The well was completed and tested in February 1996. The Petrolifera formation was well developed at this location and the structural position indicated by the seismic was confirmed. However, this well appears to have found the northeast limits of this field in that production testing resulted in one hundred percent water. Pipeline capacity inside the concession is now being expanded in order to increase deliverability from this new field. Additional wells to define the extent of this field to the northwest will be drilled in the second half of 1996. -7- 9 PROVED RESERVES The following tables summarize, for each of the years presented, significant changes in the quantities of proved oil and gas reserves through the term of the concession assuming exercise of the option to extend the term through 2025. Entre Lomas Joint Venture Summaries of Net Proved Reserves (Applicable to the Company's Interest)
Total proved oil, condensate and plant product reserves (Millions of Barrels) ------------------------------------ 1995 1994 1993 ---- ---- ---- Beginning of year 39.5 23.5 60.0 Revisions of previous estimates (0.7) 17.6 (37.5) Additions 0.4 0.2 0.8 Acquisitions - - 1.8 Production (1.8) (1.8) (1.6) ---- ---- ---- End of Year 37.4 39.5 23.5 ==== ==== ==== Proved developed oil reserves 25.1 25.5 23.5 ==== ==== ====
Total proved gas reserves (Billions of cubic feet) ------------------------------------ 1995 1994 1993 ---- ---- ---- Beginning of year 33.8 25.6 27.6 Revisions of previous estimates (1.6) (0.7) 2.5 Additions 27.1 14.5 - Production (5.8) (5.6) (4.5) ---- ---- ---- End of Year 53.5 33.8 25.6 ==== ==== ==== Proved developed gas reserves 47.8 32.5 25.6 ==== ==== ====
There were no estimates of total proved net oil or gas reserves filed with any other United States Federal authority or agency during 1995. -8- 10 The following table summarizes as of December 31, for each of the years presented, the standardized measure of discounted future net cash flows from proved oil and gas reserves that could be produced through the term of the concession, assuming exercise of the option to extend the term through 2025. Entre Lomas Joint Venture Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and Gas Reserves (Applicable to the Company's Interest)
(Millions of U.S. Dollars) --------------------------------- 1995 1994 1993 ---- ---- ---- Future revenues (1 and 2) $732 $676 $328 Future expenditures (3) 401 391 207 ---- ---- ---- 331 285 121 Argentine taxes (4) 90 77 27 ---- ---- ---- Future net cash flows 241 208 94 Less 10% annual discount for estimated timing of cash flows 127 113 39 ---- ---- ---- Discounted future net cash flows $114 $ 95 $ 55 ==== ==== ====
(1) Estimates are made of quantities and timing of future production of oil and gas reserves. (2) Estimates of gross revenues from sales are made using prices in effect at December 31 for each year presented. The per barrel price for 1995 is $17.58, as compared with $15.87 and $12.28 for 1994 and 1993, respectively. Gas prices for all years are based on prices provided by gas sales contracts in effect during the respective years. Production forecast beyond the term of gas sales contracts currently in effect, are assumed to be sold under the same contract terms. (3) Estimated production, transportation, marketing and development costs are based on the current cost of similar services and include all future capital expenditures. (4) Estimated taxes consider all taxes to which the Company is subject in Argentina. (5) Conversion to U.S. dollars is made utilizing the rate of exchange at December 31 for each of the years presented. -9- 11 DISCOUNTED FUTURE NET CASH FLOWS PRESENTED HEREIN MAY NOT BE RELIABLE DUE TO THE IMPRECISION OF ESTIMATING REMAINING RECOVERABLE RESERVES. ESTIMATES OF OIL AND GAS RESERVES AND RATES OF FUTURE PRODUCTION ARE INHERENTLY IMPRECISE AND CHANGE OVER TIME AS NEW INFORMATION BECOMES AVAILABLE. AS A RESULT, SUBSEQUENT REVISIONS OF THE QUANTITY AND VALUATION OF PROVED RESERVES MAY BE SIGNIFICANT. The following analysis summarizes for each of the years presented the increases (decreases) in the amount of discounted future net cash flows attributable to the estimate of the Company's proved oil and gas reserves. Entre Lomas Joint Venture Analysis of Changes in Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and Gas Reserves (Applicable to the Company's Interest)
(Millions of U.S. Dollars) ---------------------------------- 1995 1994 1993 ---- ---- ---- Prices and costs: Net changes in prices and production costs $12 $10 $(76) Quantities: Revenues, net of production costs (11) (23) (15) Additions and revisions of previous estimates - net 14 111 (140) Other: Changes in estimated future development costs (2) (36) 112 Accretion of discount 13 7 13 Net changes in Argentine taxes (8) (24) 56 Timing of future production and other 1 (5) 16 --- --- ---- Net increase (decrease) in discounted future net cash flows $19 $40 $(34) === === ====
The increase (decrease) for all years reflects the impact of changes in oil and gas prices on the economic viability of development drilling in the concession and thus the quantities of reserves qualifying as proved. -10- 12 The following table shows total sales of crude oil and condensate and natural gas from the Entre Lomas field and average sales prices and production costs for the last three years, based on data supplied to the Company by Petrolera. Entre Lomas Joint Venture Sales and Price Statistics
1995 1994 1993 -------------- -------------- -------------- Total Sales-Gross Crude Oil and Condensate (bbls) 3,441,973 3,544,643 3,558,020 Gas (mcf) 12,242,384 11,780,564 9,495,121 LPG (tons) 15,764 18,126 17,361 Total Sales-Net to Company Crude Oil and Condensate (bbls) 1,638,379 1,687,250 1,693,618 Gas (mcf) 5,827,375 5,607,548 4,519,678 LPG (tons) 7,504 8,628 8,264 Average Sales Prices (in U.S. Dollars) Oil (per bbl) $ 16.67 $ 15.11 $ 16.04 Gas (per mcf) 1.23 1.05 .80 LPG (per ton) 166.33 149.95 154.66 Average Production Costs (in U.S. Dollars) Oil (per bbl) $ 7.13 $ 6.45 $ 5.17 Gas (per mcf) .19 .15 .11 LPG (per ton) 65.47 53.24 55.24
Volumes presented in the above table represent those sold to joint venturers' customers and have not been reduced by the 12 percent provincial royalty, which is paid separately and is accounted for as an expense by the joint venture. In calculating royalty payments, the joint venturers are entitled to deduct gathering, storage, treating and compression costs. Average production cost is calculated by taking into consideration all costs of operating the Entre Lomas area, including the costs of remedial well workovers and depreciation of property and equipment. Variations in production costs have in the past been influenced by inflation and fluctuations in the value of the local currency versus the dollar over time. -11- 13 Total wells from all acreage in which the Company has an interest for the years ended December 31, 1995 and 1994, are as follows:
1995 1994 ------------ ------------ Gross Net Gross Net ----- --- ----- --- Oil 279 133 279 133 Gas 20 10 18 8 Abandoned and Inactive 13 6 12 6 Injection 81 38 73 35 --- --- --- --- Total 393 187 382 182 === === === ===
Total capital expenditures by the Entre Lomas joint venture for 1995 amounted to $21 million all related to development activities. Major development expenditures included drilling and completing 7 oil wells and 3 gas wells, conversion of 8 producing wells to injection, increases in lift capacity, installation of a telemetering system in the concession, improvements in the concession's hydrocarbon recovery unit, and costs associated with designing and building facilities to reinject produced water in the concession. Remedial well workovers are charged to operating expense. During 1995, the joint venture expended almost $5 million on workovers and polymer treatments of both producing and injection wells. Exploration expenditures for 1995 totaled $1.5 million and represent costs of completing a 3D seismic program initiated in the prior year. Development expenditures in 1994 and 1993 totaled $8 million and $15 million, respectively. Remedial well workovers for 1994 and 1993 totaled $3 million and $2 million, respectively, and exploration expenditures, for the same years totaled $4 million and $3 million respectively. In 1992, Argentina passed environmental control legislation in the form of Law 2,391. As a result, investments were made in 1993 to temporarily improve the concession's existing system of produced water disposal. Fresh water has previously been the sole source of injection in both waterflood projects in the concession. As a result, produced water has previously been disposed of in evaporation and filtration pits. During 1994, a system to reinject produced water was designed and approved by the governing provinces. Estimated to cost in excess of $5 million, these facilities are now being built and are scheduled to go into operation by mid 1996. The Entre Lomas field consists of approximately 183,000 acres, of which 32,971 acres are presently producing. The Company's 47.6 percent interest is equivalent to approximately 87,000 total net acres and 15,694 producing net acres. -12- 14 The aggregate amounts of capitalized costs related to the Company's oil and gas producing activities are as follows:
(Thousands of U.S. Dollars) --------------------------- 1995 1994 ------- ------- Proved oil and gas properties $44,028 $34,476 Accumulated depreciation, depletion and amortization 16,850 10,940 ------- ------- Net capitalized costs $27,128 $23,536 ======= =======
EXPLORATION The Entre Lomas concession consists of 183,000 acres of which 32,971 acres are presently producing. Since 1960, when the first exploration well was drilled, there have been drilled inside the concession 393 wells of which only a few have been drilled significant distances from the main producing fields. Although the joint venture believes the major producing structures have been identified and are being developed, the concession remains relatively unexplored. The Joint venturers are now in the midst of an effort to identify additional unexplored hydrocarbon accumulations which may exist inside the concession boundaries. In 1993, the partners completed an intensive seismic program which included reprocessing seismic shot in prior years and shooting approximately 300 miles of new 2D seismic. The results of this program were interpreted and several structures identified as potential drilling targets. These new prospects target both oil and gas in formations known to be productive in the concession, including the Tordillo, Quintuco and Petrolifera formations. In addition, it is the joint venture's intention to test deeper formations which have never been investigated in the concession. In early 1994, the joint venture completed drilling the La Pista x-1 well, located about 1 1/2 miles southwest of the Piedras Blancas field. This well reached a depth of 8,775 feet with the Petrolifera and Tordillo formations as primary targets. Structurally, the formations were encountered as expected but failed to exhibit good productive characteristics. Extended testing produced hydrocarbons, but not in commercial quantities. Early this year, the joint venture completed a $1.6 million 3D seismic program which covers a 90 square kilometer rectangular area including the area of Petrolifera formation gas development potential described on pages 6 and 7, under "Gas Development", the Entre Lomas oil field, and an extensive area on either side of the fault which runs through the crest of the Entre Lomas structure. The main objective of this seismic was to better select drilling locations for Petrolifera gas development, identify future development drilling locations in the Entre Lomas oil field, and find exploration potential in Los Alamos and Lomas de Ocampo. These two areas were lightly explored early on in the life of the Entre Lomas concession and have produced, from a few wells, small amounts of oil from the Tordillo and Quintuco formations. -13- 15 Late during the year, while drilling an Entre Lomas oil field Quintuco formation development well, the joint venture drilled down to and perforated a lower section of the Tordillo formation which was previously untested. This formation has produced most of the oil in the Charco Bayo/Piedras Blancas field complex described on page 5. The well was placed on production from the Tordillo. Results have been sufficiently positive to generate interest in potential Tordillo development in the area around this well and to the northwest where the Lomas de Ocampo area has accumulated Tordillo production. The joint venture plans to reenter previously drilled wells which provide access to the Tordillo and will soon drill a well to the northwest in the direction of Lomas de Ocampo targeting this formation. The joint venture partners are currently drilling an exploration well on the Borde Mocho prospect. This well, a Tordillo formation test, with a projected total depth of 9,750 feet, is located approximately four and one-half miles to the southwest of the Piedras Blancas field, just inside the concession's boundary with the Bajada del Palo field. YPF previously drilled several wells on the opposite side of the concession boundary, which produced small accumulations of oil from the Tordillo formation before being abandoned. ACAMBUCO The Company owns a 1.5% participation interest in the Acambuco joint venture, an oil and gas exploration and development concession located in Northwest Argentina, in the province of Salta, on the border with Bolivia. The Acambuco concession covers an area of 267,000 acres. The Company has been a participant in the Acambuco area since 1981. Three wells were drilled unsuccessfully in the early 1980's to depths ranging from 16,000 to 18,000 feet. Although two wells gave indications of oil and gas productive potential, they had to be abandoned for mechanical reasons. In the mid 1980's, a small shallow oil field was discovered and partially developed in the San Telmo formation. The field known as Mac-Sur has produced little oil. Although all activity in this area has to date been unsuccessful, the concession has been lightly explored. Significant gas production and reserves exist to the south and east of the concession in the Ramos and Aguarague concessions. In October 1994, the Acambuco partners, consisting of Bridas S.A.P.I.C., Northwest Argentina Corporation and the Company, entered into a farmout agreement with YPF, whereby YPF received a 45% interest in the concession in exchange for drilling, within five years, four exploration wells on four separate geological structures, the costs of which are to be paid 100% by YPF. The agreement also provides that YPF will finance development drilling which might result from successful exploration. Such financing is non-recourse and to be repaid without penalty or interest out of production revenues from the concession. The Company has the option, in each exploration prospect which is drilled, to either proportionately reduce its 1.5% interest by 45%; pay its share of the exploration costs; or exercise the non-consent penalty provisions of its 1984 agreement with Bridas while retaining its 1.5% interest. YPF and Bridas believe that the area has considerable gas potential and could be a possible source of future gas exports to major consumption centers in Brazil. However, it is an overthrust area, with very complex geology wherein drilling is extremely difficult and costly. The objective formations are deep with well depths likely to reach 18,000 feet and -14- 16 a high risk of mechanical problems, such as those encountered by Bridas, Northwest Argentina and the Company in the early 1980's. In March 1995, YPF commenced drilling the San Pedrito X-1 well with an objective total depth of 15,800 feet. The well will test the Santa Rosa/Huamampampa formation. For this initial exploration well, the Company exercised its non-consent option. As of late February 1996, the depth of the well had reached approximately 14,500 feet and was drilling in the Huamampampa with gas shows at the surface. The cumulative costs of this well to date have exceeded $30 million. The well has encountered problems of all types, including severe formation pressures, side wall cave-ins, and stuck drill pipe which have required special services and resulted in delays. The location for the second exploration well, the San Antonio X-1, has been selected. This well is to be drilled to a total depth of 14,600 feet. The objective is also the Santa Rosa/Huamampampa formation. Drilling at this location will commence after the San Pedrito well is completed. In addition, the Acambuco partners have approved an additional project to test the same target, which project is not a part of the YPF farmout agreement. Sometime in 1996, Bridas, as operator, will reenter the Macueta 1002 well and drill horizontally to a higher more favorable position in the Macueta structure where fractures are believed to exist in the Huamampampa formation. This well is one of the three original wells drilled in the early 1980's. Recent seismic interpretation has revealed that the well was drilled on the flank of the Macueta structure. ECONOMIC AND POLITICAL ENVIRONMENT Since 1989, the government of President Menem has pursued free market policies, including the privatization of state-owned companies, deregulation of the oil and gas industry, which included the successful sale of YPF shares in public markets, tax reform to equalize income tax rates for domestic and foreign investors, liberalization of import and export laws, and the lifting of exchange controls. The cornerstone of the country's economic reforms since 1989 has been its change in monetary policy. By early 1991, the exchange rate between the austral and the U.S. dollar reached 10,000 to 1. In April of that year, the convertibility law was implemented and the austral was renamed the peso. One peso became the equivalent of 10,000 former australs, establishing an exchange rate of one Argentine peso to one U.S. dollar. The convertibility plan requires that the country's monetary base be backed by an equivalent amount of international reserves, including U.S. dollars and gold. The government is forbidden to print pesos unless it is accompanied by an equivalent increase in international reserves. Likewise if money leaves Argentina, the government guarantees the exchange rate of 1:1 and will withdraw an equivalent amount of pesos from circulation. The Argentine government has not strayed from this policy since, and even though it is generally accepted that the peso is overvalued, the U.S. dollar exchange rate has remained at 1:1. These policies have been successful as evidenced, first, by a reduction in annual inflation from the 1989 rate of 5,000 percent to less than 5 percent in 1995 and, second, an influx of foreign investment capital into the country. -15- 17 Events in Mexico which have resulted in devaluations of its currency since December 1994, produced a crisis of confidence in Latin America during 1995. Foreign investors trapped by the devaluation in Mexico, began to withdraw funds from all Latin American countries including Argentina where the banking system was severely impacted. The Argentine government maintained its committment to the convertibility law and announced certain economic measures, including reductions in government expenditures and increases in taxes including raising the value added tax from 18% to 21%. Implementation of these policies resulted in significant loans from the International Monetary Fund, the World Bank and the Interamerican Development Bank which assisted Argentina through the crisis. Elections were held in Argentina in May of 1995 and Carlos Menem was reelected to a second term. He has indicated his intention to continue the free market policies and monetary reforms which have worked so well and enabled Argentina to survive relatively unscathed the recent crisis of confidence in Latin America that resulted from what has come to be known as the "tequila effect". ITEM 2. PROPERTIES See ITEM 1(c) for a description of properties. ITEM 3. LEGAL PROCEEDINGS Other than as described in the financial statements, there are no material pending legal proceedings to which the Company is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -16- 18 P A R T II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At December 31, 1995, there were 1,526 record holders of the Company's ordinary shares, $0.01 par value. The ordinary shares are traded sporadically in the over-the-counter market. The Company understands that the trades which occur are made both at the quoted market price or on a negotiated basis outside of the quoted market. The high and low bid prices listed below were provided to the Company by the National Association of Securities Dealers Automated Quotation System (NASDAQ). For reasons described on page 19, under "Management's Discussion and Analysis of Financial Condition and Results of Operation", effective the third quarter of 1995, the Company reduced its quarterly dividend to 16.25 cents per share from the previous level of 32.5 cents. Future dividends are necessarily dependent upon numerous factors, including, among others, earnings, capital spending, changes in governmental regulations and changes in crude oil and natural gas prices. The Company reserves the right to change the level of dividend payments or to discontinue or suspend such payments at the discretion of the Directors.
Stock Price ------------------------ High Low Dividend -------- -------- --------- Quarter of 1994 First $ 20 $ 18 $ .32 1/2 Second 18 1/2 14 3/4 .32 1/2 Third 17 3/4 16 1/2 .32 1/2 Fourth 17 15 .32 1/2 Quarter of 1995 First $ 15 1/4 $ 14 $ .32 1/2 Second 15 3/4 15 1/4 .32 1/2 Third 16 1/4 15 .16 1/4 Fourth 16 3/4 14 3/4 .16 1/4
The Company has been advised that: a Cayman Islands company may not pay dividends to shareholders out of its share capital or share premium account; there are no Cayman Islands laws, decrees or regulations relating to restrictions on the import or export of capital or exchange controls affecting remittances of dividends, interest and other payments to non-resident holders of the Company's ordinary shares; there are no limitations either under the laws of the Cayman Islands or under the Company's Memorandum or Articles of Association restricting the right of foreigners to hold or vote the Company's ordinary shares; there are no existing laws or regulations of the Cayman Islands imposing taxes or containing withholding provisions to which United States holders of the Company's ordinary shares are subject; and there are no reciprocal tax treaties between the Cayman Islands and the United States. -17- 19 ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (Dollars in thousands except per share amounts) Revenues $36,942 $33,267 $31,524 $36,281 $35,364 Net Income 8,268 8,168 9,305 11,281 11,046 Income per Ordinary Share 1.12 1.11 1.26 1.53 1.50 Dividends Declared per Ordinary Share .975 1.30 1.30 1.29 1.50 Total Assets at December 31 46,498 44,342 46,378 46,597 45,667 Stockholders' Equity at December 31 35,702 34,610 36,010 36,273 34,486
-18- 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES CASH FLOW The Company has continued its efforts to maximize cash flow from the Entre Lomas joint venture. In 1995, the Company received $7.2 million in distribution and dividends compared with $12.8 million and $9.8 million received in 1994 and 1993, respectively. The reduction in distributions from Entre Lomas is the result of an increase in the level of capital expenditures in the area. During 1995, the Entre Lomas partners reached an understanding about the need to increase investment levels in the concession over the next few years with the view to achieving various objectives. The most important being: full development of the existing producing fields; expansion of secondary recovery throughout the Charco Bayo/Piedras Blancas field complex substantially increasing water injection volumes from current levels; pursue, to the extent permitted by markets and pipeline capacity, efforts to fully develop Petrolifera gas production in the new Entre Lomas gas field; expand production facilities as required by increases in fluid production and water injection; and continue current exploration efforts, ultimately drilling the most attractive exploration prospects. The understanding referred to above, is not an expenditure commitment by the partners, but a general agreement about the long term development of the concession. Actual future investments will be defined through the annual budgeting process. Effective August 1, 1995, the Company and its Entre Lomas partners approved a capital spending program for the 1995/1996 fiscal year of $33 million ($16 million, net to the Company), which amount represented an increase in expenditures of approximately fifty percent over the last several years. This heightened level of investment was consistent with the previously described understanding reached by the partners. Maintaining investments at this level over time is contingent on success of these programs and continued stability of oil and gas prices. Raising capital spending by this magnitude should have a favorable long term effect on Entre Lomas production rates and, consequently, the Company's level of income and cash flow. In order to assure the Company can commit the financial resources required to carry out the 1995/1996 investment budget and future possible investments at this heightened level, effective the third quarter of 1995, the Company reduced its quarterly dividend to 16.25 cents per share from the previous level of 32.5 cents. Future dividends are necessarily dependent upon numerous factors, including among others, earnings, capital spending, changes in governmental regulations and changes in crude oil and natural gas prices. The Company reserves the right to change the level of dividend payments or to discontinue or suspend such payments at the discretion of the Directors. -19- 21 RESULTS OF OPERATIONS REFER TO CONSOLIDATED STATEMENT OF OPERATIONS ON PAGE 22. 1995 VS 1994 Operating revenues increased by $3.2 million compared with 1994. The primary causes of this increase were higher oil sales prices, which in 1995, on a per barrel basis, averaged $16.67 versus $15.11 during 1994; increased gas sales volumes, resulting from the success of gas development efforts in the new Entre Lomas gas field, described on pages 6 and 7, under "Gas Development"; and higher contract gas prices in effect during 1995. Other revenues increased by $442 thousand as a result of significantly higher interest rate yields during 1995 on the Company's short term financial investments. Operating expense increased by $1.2 million compared with the prior year due to several factors, the two most important of which are greater number of well workovers in both producing and injection wells, and costs associated with a polymer injection pilot implemented in the early part of the year. Depreciation, depletion and amortization increased by approximately $933 thousand due to a combination of greater capital expenditures resulting in increases in the Company's depreciable property and equipment base, and adjustments to estimates of the Company's oil and gas reserves as compared with the prior year. Exploration expense increased by $917 thousand compared with the prior year due to costs of the 3D seismic program conducted during the early part of the year and the charge associated with the write off of the La Pista x-1 well. Argentine taxes increased by $914 thousand over the prior year due to additional production and sales taxes directly associated with higher operating revenues and greater income taxes associated with higher Argentine taxable income. In 1994, as a result of new environmental regulations in Argentina, the joint venture began to accrue costs for future plugging and abandonment of wells in all of its producing fields. This accrual was initiated with a retroactive charge in 1994 and is the principal cause of the $886 thousand reduction in other expense. 1994 VS 1993 Operating revenues for 1994 were $2.1 million higher than in 1993. Gas sales from Entre Lomas increased due to the success of gas development activities in the concession which resulted in a significantly higher volume of natural gas sold. Also contributing to the increase was the termination of the joint venture's obligation to deliver gas to YPF under terms of the original Entre Lomas contract. The joint venturers were successful in quickly finding a market for their natural gas, as described on page 3, under "Sale of Gas", at a price substantially higher than formerly received from YPF. The effect of improved gas sales was partially offset by a decrease in oil sales due to lower oil prices. -20- 22 Other revenues decreased by $362 thousand compared with 1993. As a result of the settlement reached between YPF and the Entre Lomas joint venture, described on page 2, under "Deregulation", YPF repaid the outstanding balance of the interest bearing gas capital account which existed under terms of the original contract. The settlement went into effect March 1, 1994, and had the effect of reducing interest income when compared with 1993. Operating expense increased by $3 million compared with 1993. The increase can be attributed primarily to two factors. The Entre Lomas joint venture commenced paying oil transportation costs as required by the previously described YPF settlement and an increase in the number of well workovers performed in the concession. Depreciation, depletion and amortization increased by $1.5 million compared with 1993. The increase was the result of amortization expense relating to the cost associated with obtaining, as part of the settlement with YPF, the right to sell gas in the open market. Exploration expense decreased by $1 million because of the substantial seismic program which occurred in 1993. Expenditures incurred during the current year related to interpretation of results. Argentine taxes decreased in 1994 due to the combined effect of the variations described in the preceding paragraphs. -21- 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants 23 Consolidated Balance Sheets December 31, 1995 and 1994 24 Consolidated Statements of Operations Three Years Ended December 31, 1995 25 Consolidated Statements of Stockholders' Equity Three Years Ended December 31, 1995 26 Consolidated Statements of Cash Flows Three Years Ended December 31, 1995 27 Notes to Consolidated Financial Statements 28
Schedules--All schedules have been omitted, as the required information has been included in the consolidated financial statements and notes thereto, or because the schedules are not applicable or required. -22- 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Apco Argentina Inc.: We have audited the accompanying consolidated balance sheets of Apco Argentina Inc. (a Cayman Islands corporation) and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Apco Argentina Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tulsa, Oklahoma March 12, 1996 -23- 25 APCO ARGENTINA INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands) December 31, -------------------------- 1995 1994 ------- ------ ASSETS CURRENT ASSETS: Cash and cash equivalents (Note 4) $17,244 $19,169 Accounts receivable 5,699 6,039 Inventory 2,480 2,345 Other current assets 217 256 ------- ------ Total current assets 25,640 27,809 PROPERTY AND EQUIPMENT less accumulated depreciation of $23,601 and $18,351 in 1995 and 1994, respectively (Notes 1 and 3) 20,805 16,496 Other assets 53 37 ------- ------ $46,498 $44,342 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 3,922 $ 1,978 Accrued liabilities 3,306 2,518 Dividends payable 1,196 2,392 ------- ------ Total current liabilities 8,424 6,888 ------- ------ Other liabilities 2,372 2,844 Commitments and Contingencies (Notes 2 and 8 ) - - STOCKHOLDERS' EQUITY: Ordinary shares, par value $.01 per share; 15,000,000 shares authorized; 7,360,195 shares outstanding 74 74 Additional paid-in capital 9,326 9,326 Retained earnings 26,302 25,210 ------- ------ Total stockholders' equity 35,702 34,610 ------- ------ $46,498 $44,342 ======= =======
The accompanying notes are an integral part of these consolidated statements. -24- 26 APCO ARGENTINA INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands) For the Years Ended December 31, --------------------------------------------- 1995 1994 1993 ------- ------- ------- REVENUES: Operating revenues $35,742 $32,509 $30,404 Other revenues 1,200 758 1,120 ------- ------- ------- 36,942 33,267 31,524 ------- ------- ------- COST AND EXPENSES: Operating expense 12,355 11,166 8,154 Provincial royalties 3,759 3,260 3,053 Selling and administrative 2,371 2,362 2,274 Depreciation, depletion and amortization 4,625 3,692 2,144 Exploration expense 1,457 540 1,599 Argentine taxes 4,046 3,132 4,669 Other expense 61 947 326 ------- ------- ------- 28,674 25,099 22,219 ------- ------- ------- NET INCOME $ 8,268 $ 8,168 $ 9,305 ======= ======= ======= INCOME PER ORDINARY SHARE $ 1.12 $ 1.11 $ 1.26 ======= ======= ======= AVERAGE ORDINARY SHARES AND EQUIVALENTS OUTSTANDING (000's) 7,360 7,360 7,360 ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. -25- 27 APCO ARGENTINA INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and Shares in Thousands) Ordinary Shares Additional --------------------- Paid-in Retained Shares Amount Capital Earnings ------ ------ ---------- -------- BALANCE, January 1, 1993 7,360 $ 74 $ 9,326 $ 26,873 Net income - - - 9,305 Dividends declared ($1.30 per share) - - - (9,568) ----- ---- ------- -------- BALANCE, December 31, 1993 7,360 74 9,326 26,610 Net income - - - 8,168 Dividends declared ($1.30 per share) - - - (9,568) ----- ---- ------- -------- BALANCE, December 31, 1994 7,360 74 9,326 25,210 Net income - - - 8,268 Dividends declared ($0.975 per share) - - - (7,176) ----- ---- ------- -------- BALANCE, December 31, 1995 7,360 $ 74 $ 9,326 $ 26,302 ===== ==== ======= ========
The accompanying notes are an integral part of these consolidated statements. -26- 28 APCO ARGENTINA INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, -------------------------------------------- 1995 1994 1993 ------- ------- ------- (Dollars in Thousands) CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 8,268 $ 8,168 $ 9,305 Adjustments to reconcile to cash provided by operating activities: Depreciation, depletion and amortization 4,625 3,692 2,144 Abandonment of well drilled in prior year 502 - - Reclassification of plugging and abandonment provision from other liabilities to accumulated depreciation 626 - - Decrease (increase) in accounts receivable 340 3,275 (3,596) (Increase) decrease in inventory (135) (79) 413 Decrease (increase) in other current assets 39 (80) 22 Increase (decrease) in accounts payable 1,944 (176) (216) Increase (decrease) in accrued liabilities 788 (1,163) 143 Other, including changes in non-current assets and liabilities (488) 700 4,616 ------- ------- ------- Net cash provided by operating activities 16,509 14,337 12,831 ------- ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (10,062) (5,364) (6,279) CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid (8,372) (9,568) (9,384) ------- ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,925) (595) (2,832) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,169 19,764 22,596 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,244 $19,169 $19,764 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $2,785 $3,522 $4,880
The accompanying notes are an integral part of these consolidated statements. -27- 29 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES GENERAL AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Apco Argentina Inc. (a Cayman Islands corporation) and its wholly owned subsidiary, Apco Properties Ltd. (a Cayman Islands corporation), which are herein collectively referred to as the Company. The Company is engaged in joint ventures in oil and gas exploration, development and production in Argentina. Its principal business is a 47.6 percent participation in the Entre Lomas Concession, which is accounted for following the proportional consolidation method. Oil and gas operations are risky in nature. A successful operation requires that a Company deal with uncertainties about the subsurface that even a combination of experience, scientific information and careful evaluation cannot always overcome. Because the Company's assets are located in Argentina, management, for many years, as described in Note 9, was required to deal with threats from inflation, devaluation and currency controls. Since 1991, the economic and political environment in the country has improved dramatically due to free market economic policies implemented by the government of President Carlos Menem. These policies have resulted in significantly reducing inflation and stabilization of the Argentine peso. In May of 1995, President Menem was reelected for a second four year term. The Williams Companies, Inc. ("Williams") owns 67.14 percent of the outstanding ordinary shares of the Company. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property is recorded at cost. Oil and gas properties are depreciated over their productive lives using the units of production method. All other property is depreciated on a straight-line basis, using estimated useful lives of 3 to 15 years. -28- 30 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of was issued in March 1995. The Company must adopt this statement in 1996. Management does not expect the implementation of this statement to have a material effect on the Company's financial position and results of operations. NET INCOME PER ORDINARY SHARE Net income per ordinary share is based on the weighted average number of ordinary shares outstanding. FOREIGN EXCHANGE The general policy followed in the translation of the Company's financial statements of foreign operations into United States dollars is in accordance with Statement of Financial Accounting Standards No. 52, using the United States dollar as the functional currency. INCOME TAXES Provision is made for deferred income taxes applicable to temporary differences between the financial statements and tax basis of the assets and liabilities, if any. (2) ACAMBUCO JOINT VENTURE The Company is a participant in the Acambuco joint venture and has a 1.5 percent interest in an oil and gas concession in the Acambuco area, located in northwest Argentina. Bridas S.A.P.I.C. ("Bridas") is the operator of the joint venture. As part of the settlement of a 1983 dispute between Bridas, Northwest Argentina Corporation, a Williams subsidiary, and the Company, in 1984, Williams agreed to guarantee the payment of principal, interest and other costs related to a $7.9 million loan obtained from a U.S. bank by Bridas S.A., an affiliate of Bridas. Pursuant to the terms of the third amendment to the loan agreement and the loan guarantee agreement, payments on the loan began May 15, 1992. To date all principal and interest payments have been made on schedule and the current loan balance is $3.4 million. Any U.S. dollar shortfall which may result from loan payments made in Argentine currency by Bridas shall be borne equally by Bridas and Williams. -29- 31 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Because Williams' guarantee directly benefits the Company and Northwest Argentina Corporation, the Company and Northwest Argentina Corporation have each agreed to pay Williams one-half of any amounts paid by it as a result of a Bridas default. (3) ENTRE LOMAS JOINT VENTURE The Company owns a 23 percent direct interest in the Entre Lomas joint venture. It also owns a 24.6 percent indirect interest by virtue of its 33.68 percent stock ownership in Petrolera Perez Companc S.A., the operator of the joint venture, which owns 73.15 percent of the joint venture. Consequently, the Company's combined direct and indirect interests in the Entre Lomas joint venture total 47.6 percent. The joint venture is engaged in the exploration, development and production of oil and gas in the Entre Lomas concession located in the provinces of Rio Negro and Neuquen in southern Argentina. As described in Note 1, the Company's pro-rata share of the assets, liabilities, revenues and expenses of the Entre Lomas joint venture and Petrolera Perez Companc are reflected in the Company's Consolidated Financial Statements using proportional consolidation. The Entre Lomas joint venture uses the successful-efforts method of accounting for oil and gas exploration and production operation, whereby costs of acquiring non-producing acreage, costs of drilling successful exploration wells and development costs are capitalized. Costs of unsuccessful drilling are expensed as incurred. The Entre Lomas concession is evaluated periodically and, if conditions warrant, an impairment reserve would be provided. Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities", requires certain disclosures about oil and gas producing activities. Unaudited information regarding the Company's interest in the Entre Lomas joint venture is presented on pages 5 through 13. -30- 32 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (4) CASH EQUIVALENTS Cash equivalents are defined by the Company as short-term investments with original maturities of three months or less. Amounts are stated in thousands of dollars.
Principal --------------------------- 1995 1994 ------- ------- Short-term investments: Eurodollar term deposits with interest ranging from 5 3/16 - 5 1/2% in 1995 and 5 - 5 11/16% in 1994, maturing in January 1996 and January and February 1995, respectively $11,972 $15,883 Argentine time deposits 4,701 2,838 ------- ------- $16,673 $18,721 ======= =======
The carrying amount reported in the balance sheet for short-term investments is equivalent to fair value. (5) MAJOR CUSTOMERS Sales to customers with greater than ten percent of total sales consist of the following:
For the Years Ended December 31, --------------------------------------- 1995 1994 1993 ---- ---- ---- San Lorenzo S.A. 35.4% 22.3% 26.9% EG3 S.A. 26.2% 14.2% * Litoral S.A. 16.7% 13.7% * Interpetrol International S.A. * 28.2% 31.4% Isaura S.A. * 10.6% 14.2%
* Less than 10 percent -31- 33 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (6) RELATED PARTY TRANSACTIONS The Company paid approximately $206,000, $204,000, and $201,000 in 1995, 1994 and 1993, respectively, to Williams and affiliates for management services, general and administrative expenses and purchases of materials and supplies. Accounts payable to Williams and affiliates outstanding at December 31, 1995 and December 31, 1994, of approximately $22,000 and $25,000, were paid in 1996 and 1995 respectively. (7) CAYMAN ISLANDS AND UNITED STATES INCOME TAXES In 1979, the Company changed the jurisdiction of its incorporation from Delaware to the Cayman Islands. The Company's income since that date, to the extent that it is derived from sources outside the U.S., generally is not subject to U.S. Federal income taxes. Also, the Company has been granted an undertaking from the Cayman Islands government, expiring in 1999, to the effect that the Company will be exempt from tax liabilities resulting from tax laws enacted by the Cayman Islands government subsequent to 1979. The Cayman Islands currently has no applicable income tax or corporation tax and, consequently, the Company believes its earnings are not subject to U.S. income taxes or Cayman Islands income or corporation taxes. (8) ARGENTINE TAXES The Company recorded Argentine taxes as presented in the following table. Amounts are stated in thousands of dollars.
1995 1994 1993 ------ ------ ------ Income taxes $3,460 $2,704 $4,430 Other taxes 586 428 239 ------ ------ ------ $4,046 $3,132 $4,669 ====== ====== ======
In 1988, the Argentine government amended the obligatory Savings Law requiring that all taxpayers deposit with the government, both in 1988 and 1989, amounts computed on the basis of prior year taxable incomes. The deposits were to be repaid after five years and earned interest at the rate stipulated by the law. It was the point of view of the joint venture and the advice of its legal counsel that it was exempted from these deposits due to the tax exemption granted in the original Entre Lomas contract number 12,507. As a result the deposits were not made. -32- 34 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In August 1993, the Direccion General Impositiva ("DGI"), the Argentine taxing authority, made a claim against Petrolera for the delinquent deposits pertaining to the Entre Lomas operation, which including interest and indexation for inflation, amounts to $9.2 million. An appeal was filed by Petrolera in Argentine Federal Tax Court. In the opinion of Petrolera's management and legal counsel, the possibility that this claim will result in an unfavorable outcome for the joint venture is remote. The issue remains unresolved. The Company has no reason to believe otherwise, and accordingly, has not recorded a liability for its share of the asserted claim. (9) ARGENTINE CURRENCY FLUCTUATIONS Argentina has over the years experienced cycles of acute inflation followed by extreme devaluation. However, inflation and devaluation have diminished since 1991 due to implementation of the convertibility law, privatization of public sector Companies, deregulation and modifications in fiscal and monetary policy. By early 1991, the exchange rate between the austral and the U.S. dollar reached 10,000 to 1. In April of that year, the convertibility law was implemented and the austral was renamed the peso. One peso became the equivalent of 10,000 former australs, establishing an exchange rate of one Argentine peso to one U.S. dollar. The convertibility plan requires that the country's monetary base be backed by an equivalent amount of international reserves, including U.S. dollars and gold. The government is forbidden to print pesos unless it is accompanied by an equivalent increase in international reserves. Likewise if money leaves Argentina, the government guarantees the exchange rate of 1 to 1 and will withdraw an equivalent amount of pesos from circulation. No exchange gains or losses have been realized by the Company during the three years ended December 31, 1995 as the rate of exchange remains 1 to 1. -33- 35 APCO ARGENTINA INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (10) QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (Dollars in Thousands except per share amounts) 1995 Revenues $8,733 $9,443 $9,884 $8,882 Costs and expenses 6,659 7,727 7,563 6,725 Net income 2,074 1,716 2,321 2,157 Net income per ordinary share .28 .23 .32 .29 1994 Revenues $6,681 $7,770 $10,416 $8,400 Costs and expenses 4,572 5,848 8,196 6,483 Net income 2,109 1,922 2,220 1,917 Net income per ordinary share .29 .26 .30 .26
-34- 36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS None. P A R T III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (A) IDENTIFICATION OF DIRECTORS
Director's Term of Director Office Name Age Position Since Expires ---- --- -------- -------- ---------- K. E. Bailey 53 Chairman of the Board and 1987 1998 Chief Executive Officer J. H. Williams 77 Director 1992 1996 J. C. Bumgarner 53 Director 1994 1997
(B) IDENTIFICATION OF EXECUTIVE OFFICERS Executive officers of the Company are elected by the Board of Directors and hold office until relieved of such office by action of the Board of Directors.
Officer Name Age Position Since ---- --- -------- ------- K. E. Bailey 53 Chairman of the Board and 1987 Chief Executive Officer J. D. McCarthy 53 Vice President and 1991 Chief Financial Officer Thomas Bueno 44 Controller and Chief 1991 Accounting Officer
In March 1996, J. C. Bumgarner was appointed Chairman of the Board and Chief Executive Officer to replace Keith E. Bailey, who will remain on the Board of Directors. The appointment takes effect April 1, 1996. (C) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES None. -35- 37 (D) FAMILY RELATIONSHIPS There are no family relationships between any director or executive officer and any other director or executive officer in the Company. (E) BUSINESS EXPERIENCE Mr. Bailey is Chairman of the Board, Chief Executive Officer and President of Williams. He has held various other officer level positions with Williams and its subsidiaries since 1975. Mr. Williams is engaged in personal investments. He was Chairman of the Board and Chief Executive Office of Williams prior to retiring in 1978. Mr. Williams is also a director of General Cable Corporation and Unit Corporation. Mr. Bumgarner is Senior Vice President Corporate Development and Planning of Williams. He has held various officer level positions with Williams since 1977. J. D. McCarthy is Senior Vice President of Finance of Williams. He was previously Vice President and Treasurer of Williams from 1987 through 1991. Thomas Bueno was Manager of Finance and Accounting of the Company from 1985 through 1991. (F) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS None. ITEM 11. EXECUTIVE COMPENSATION (A) CASH COMPENSATION The Company has not paid its present executive officers any cash compensation or bonuses. (B) COMPENSATION PURSUANT TO PLANS None. (C) OTHER COMPENSATION None. (D) COMPENSATION OF DIRECTORS Directors who are employees of Williams receive no additional compensation for service on the Board of Directors. Directors who are not employees of Williams receive an annual retainer of $8,000 and an additional fee for attending Board meetings of $500 per meeting. -36- 38 (E) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT None. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AT DECEMBER 31, 1995
Amount and Nature of Beneficial Percent Name and Address of Ownership of Title of Class Beneficial Owner (Note 1) Class -------------- ------------------- ---------- ------- Ordinary Shares The Williams Companies, Inc. 4,941,822 67.14 $.01 Par Value One Williams Center Tulsa, Oklahoma 74172
(B) SECURITY OWNERSHIP OF MANAGEMENT AT DECEMBER 31, 1995 Each of the directors of the Company beneficially owns ten shares of the Company's ordinary shares, $.01 par value, as director's qualifying shares. (C) CHANGES IN CONTROL None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain relationships and related-party transactions are disclosed elsewhere herein in Notes 1, 2 and 6 to the Notes to Consolidated Financial Statements. -37- 39 P A R T IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Financial Statements filed in this report are set forth in the Index to Consolidated Financial Statements under Item 8. All schedules have been omitted as the required information has been included in the consolidated financial statements and notes thereto, or because the schedules are not applicable or required. (B) REPORTS ON FORM 8-K None. (C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Exhibit Number ------- *(3) - Memorandum of Association of Apco Argentina Inc. as amended August 20, 1980, as filed with Form 10-K of the Company for the fiscal year ended on December 31, 1980, Commission File No. 0-8933 dated April 30, 1981. *(3) - Articles of Association of Apco Argentina Inc. as filed with Form S-14 (Registration No. 2-6354), dated March 16, 1979. *(10) - Acambuco Area Operating Contract, which became effective April 23, 1981, as filed with Form 10-K, No. 0-8933, dated April 14, 1982. *(10) - Translation of agreement dated August 30, 1979, between Bridas, Socma, Inalruco and YPF for the exploration, development and exploitation of hydrocarbons in the Acambuco area, as filed with Form 10-K, No. 0-8933, dated April 12, 1984. *(10) - Translation of Additional Clause Number 1, dated March 22, 1983 to the Agreement with YPF for the exploration, development and exploitation of hydrocarbons in the Acambuco area, officially approved by the executive branch of the Argentine government on November 11, 1983, as filed with Form 10-K, No. 0-8933, filed April 12, 1984. *(10) - Agreement dated April 23, 1981, among the Company and Bridas S.A.P.I.C., with respect to the Acambuco project, Salta province, Argentina, as filed with Form 10-K, No. 0-8933, dated April 14, 1982.
-38- 40 *(10) - Agreement between The Williams Companies, Inc., Northwest Argentina Corporation and Apco Argentina Inc. dated April 15, 1987 relating to reimbursement of costs incurred by Williams pursuant to the guarantee by Williams of the bank loan made to Bridas in connection with the release by Bridas of Northwest Argentina Corporation's and Apco Argentina Inc.'s liability in the Acambuco Joint Venture as filed with Form 10-K, No. 0-8933, dated April 11, 1988. *(10) - Agreement dated March 13, 1968, between Perez Companc and YPF for the Exploration, Exploitation and Development of the "Entre Lomas" area, Contract Number 12,507 as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Translation dated November 18, 1970, of agreement dated March 13, 1968, between Perez Companc and YPF as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Joint Venture Agreement dated April 1, 1968, among Apco Oil Corporation, Perez Companc and Petrolera as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Joint Venture Agreement dated February 29, 1972, among the Company, Perez Companc and Petrolera as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Joint Venture Agreement dated March 23, 1977, among the Company, Perez Companc and Petrolera as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Assignment dated February 10, 1977, between YPF and Gas del Estado as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Contract dated December 1977 amending the March 13, 1968 Agreement between Perez Companc and YPF as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Form of Separation Agreement dated September 22, 1978, between Apco and the Company as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Memorandum of Agreement dated August 16, 1979, among the Company, Perez Companc and Petrolera as filed with Form 10-K, No. 0-8933, dated March 28, 1980. *(10) - Agreement dated December 7, 1983, between Petrolera and YPF regarding the delivery of propane and butane from the Entre Lomas area, as filed with Form 10-K, No. 0-8933, dated April 12, 1983.
-39- 41 *(10) - CONTRACT FOR THE EXPLORATION, EXPLOITATION AND DEVELOPMENT OF THE "ENTRE LOMAS" AREA, dated July 8, 1982 between Yacimientos Petroliferos Fiscales Sociedad Del Estado and Petrolera Perez Companc, Inc. relating to the extension of Contract No. 12,507, as filed with Form 10-K, No. 0-8933, dated April 12, 1983. *(10) - ADDITIONAL CLAUSE NUMBER 3 dated December 18, 1985, to the agreement between Perez Companc and YPF covering the Entre Lomas area dated March 13, 1968 and attached translation as filed with Form 10-K, No. 0-8933, dated April 11, 1988. *(10) - Agreement between the Joint Committee created by the Ministry of Public Works and Services and the Ministry of Energy, YPF and Petrolera Perez Companc S.A. dated December 26, 1990, constituting the conversion to concession and deregulation of the original Entre Lomas contract number 12,507. (24) - Power of attorney. (27) - Financial data schedule.
* Exhibits so marked have heretofore been filed with the Securities and Exchange Commission as part of the filing indicated and are incorporated herein by reference. -40- 42 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. APCO ARGENTINA INC. (Registrant) Dated: March 14, 1996 By: /s/ Thomas Bueno ---------------------------- Thomas Bueno Attorney-in-Fact 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 and in the capacities and on the date indicated. /s/ *Keith E. Bailey March 14, 1996 - ----------------------------------------- Keith E. Bailey Chairman of the Board and Chief Executive Officer /s/ *Jack D. McCarthy March 14, 1996 - ----------------------------------------- Jack D. McCarthy, Vice President and Chief Financial Officer /s/ *Thomas Bueno March 14, 1996 - ----------------------------------------- Thomas Bueno, Controller and Chief Accounting Officer /s/ *John H. Williams March 14, 1996 - ----------------------------------------- John H. Williams, Vice President and Director /s/ *John C. Bumgarner March 14, 1996 - ----------------------------------------- John C. Bumgarner, Director *By: /s/ Thomas Bueno March 14, 1996 ------------------------------------ Thomas Bueno, Attorney-in-Fact -41- 43 INDEX TO EXHIBITS
Exhibit Number Description ------- ----------- *(3) - Memorandum of Association of Apco Argentina Inc. as amended August 20, 1980, as filed with Form 10-K of the Company for the fiscal year ended on December 31, 1980, Commission File No. 0-8933 dated April 30, 1981. *(3) - Articles of Association of Apco Argentina Inc. as filed with Form S-14 (Registration No. 2-6354), dated March 16, 1979. *(10) - Acambuco Area Operating Contract, which became effective April 23, 1981, as filed with Form 10-K, No. 0-8933, dated April 14, 1982. *(10) - Translation of agreement dated August 30, 1979, between Bridas, Socma, Inalruco and YPF for the exploration, development and exploitation of hydrocarbons in the Acambuco area, as filed with Form 10-K, No. 0-8933, dated April 12, 1984. *(10) - Translation of Additional Clause Number 1, dated March 22, 1983 to the Agreement with YPF for the exploration, development and exploitation of hydrocarbons in the Acambuco area, officially approved by the executive branch of the Argentine government on November 11, 1983, as filed with Form 10-K, No. 0-8933, filed April 12, 1984. *(10) - Agreement dated April 23, 1981, among the Company and Bridas S.A.P.I.C., with respect to the Acambuco project, Salta province, Argentina, as filed with Form 10-K, No. 0-8933, dated April 14, 1982. *(10) - Agreement between The Williams Companies, Inc., Northwest Argentina Corporation and Apco Argentina Inc. dated April 15, 1987 relating to reimbursement of costs incurred by Williams pursuant to the guarantee by Williams of the bank loan made to Bridas in connection with the release by Bridas of Northwest Argentina Corporation's and Apco Argentina Inc.'s liability in the Acambuco Joint Venture as filed with Form 10-K, No. 0-8933, dated April 11, 1988. *(10) - Agreement dated March 13, 1968, between Perez Companc and YPF for the Exploration, Exploitation and Development of the "Entre Lomas" area, Contract Number 12,507 as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Translation dated November 18, 1970, of agreement dated March 13, 1968, between Perez Companc and YPF as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Joint Venture Agreement dated April 1, 1968, among Apco Oil Corporation, Perez Companc and Petrolera as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Joint Venture Agreement dated February 29, 1972, among the Company, Perez Companc and Petrolera as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Joint Venture Agreement dated March 23, 1977, among the Company, Perez Companc and Petrolera as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Assignment dated February 10, 1977, between YPF and Gas del Estado as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Contract dated December 1977 amending the March 13, 1968 Agreement between Perez Companc and YPF as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Form of Separation Agreement dated September 22, 1978, between Apco and the Company as filed with Form S-1, Registration No. 2-62187 dated September 26, 1978. *(10) - Memorandum of Agreement dated August 16, 1979, among the Company, Perez Companc and Petrolera as filed with Form 10-K, No. 0-8933, dated March 28, 1980. *(10) - Agreement dated December 7, 1983, between Petrolera and YPF regarding the delivery of propane and butane from the Entre Lomas area, as filed with Form 10-K, No. 0-8933, dated April 12, 1983. *(10) - CONTRACT FOR THE EXPLORATION, EXPLOITATION AND DEVELOPMENT OF THE "ENTRE LOMAS" AREA, dated July 8, 1982 between Yacimientos Petroliferos Fiscales Sociedad Del Estado and Petrolera Perez Companc, Inc. relating to the extension of Contract No. 12,507, as filed with Form 10-K, No. 0-8933, dated April 12, 1983. *(10) - ADDITIONAL CLAUSE NUMBER 3 dated December 18, 1985, to the agreement between Perez Companc and YPF covering the Entre Lomas area dated March 13, 1968 and attached translation as filed with Form 10-K, No. 0-8933, dated April 11, 1988. *(10) - Agreement between the Joint Committee created by the Ministry of Public Works and Services and the Ministry of Energy, YPF and Petrolera Perez Companc S.A. dated December 26, 1990, constituting the conversion to concession and deregulation of the original Entre Lomas contract number 12,507. (24) - Power of attorney. (27) - Financial data schedule.
* Exhibits so marked have heretofore been filed with the Securities and Exchange Commission as part of the filing indicated and are incorporated herein by reference. EX-24 2 POWER OF ATTORNEY 1 APCO ARGENTINA INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in his capacity as a director or officer or both, as hereinafter set forth below his signature, of APCO ARGENTINA INC., a Cayman Islands corporation ("Apco"), does hereby constitute and appoint J. FURMAN LEWIS, DAVID M. HIGBEE and THOMAS BUENO his true and lawful attorneys and each of them (with full power to act without the others) his true and lawful attorney for him and in his name and in his capacity as a director or officer or both, of Apco, as hereinafter set forth below his signature, to sign Apco's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments thereto or all instruments necessary or incidental in connection therewith; and THAT the undersigned Apco does hereby constitute and appoint J. FURMAN LEWIS, DAVID M. HIGBEE and THOMAS BUENO its true and lawful attorneys and each of them (with full power to act without the others) its true and lawful attorney for it and in its name and on its behalf to sign said Form 10-K and any and all amendments thereto and any and all instruments necessary or incidental in connection therewith. Each of said attorneys shall have full power of substitution and resubstitution, and said attorneys or any of them, or any substitute appointed by any of them hereunder shall have full power and authority to do and perform in the name and on behalf of each of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully to all intents and purposes as each of the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys or any of them or of any such substitute pursuant hereto. IN WITNESS WHEREOF, the undersigned have executed this instrument, all as of the 12th day of March, 1996. /s/ Keith E. Bailey /s/ Jack D. McCarthy - ---------------------------- -------------------------- Keith E. Bailey Jack D. McCarthy Chairman of the Board Vice President and Chief Financial Officer /s/ Thomas Bueno -------------------------- Thomas Bueno Controller and Chief Accounting Officer 2 Page 2 /s/ John C. Bumgarner, Jr. /s/ John H. Williams - ------------------------------- -------------------------- John C. Bumgarner, Jr. John H. Williams Director Director APCO ARGENTINA INC. By: /s/ Jack D. McCarthy ----------------------------------- Jack D. McCarthy Vice President ATTEST: /s/ David H. Higbee - ------------------------------- Secretary EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 17,244 0 5,699 0 2,480 25,640 44,406 23,601 46,498 8,424 0 74 0 0 35,628 46,498 35,742 36,942 0 23,110 2,104 0 0 11,728 3,460 8,268 0 0 0 8,268 1.12 1.12
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