ITEM 2. PROPERTIES
See ITEM 1(c) for a description of properties.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 1994, there were 1,637 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).
During 1993, the Company modified its dividend policy and began paying a fixed quarterly dividend at the initial rate of $.32 1/2 per share. The Company expects that it will be able to maintain its current level of dividend payment at least throughout the year 1995, while still maintaining a prudent amount of cash reserves. However, future dividends are necessarily dependent upon numerous factors including, among others, earnings, increases in capital expenditure programs, governmental regulations and changes in crude oil and natural gas prices, and the Company retains the right to alter the level of dividend payments or to discontinue or suspend such payments at any time and from time to time, at the discretion of the Directors.
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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Revenues and total assets for the years 1990-1993 have been restated as described in Note 2 of Notes to Consolidated Financial Statements.
ITEM 7.
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 1994, the Company received $12.8 million in distributions and dividends compared with $9.8 million received in each 1993 and 1992.
In 1994, oil prices rebounded from the depressed levels reached during the last six months of 1993 and the first quarter of 1994. The Entre Lomas joint venturers reacted to the drop in prices by curtailing development expenditures in the concession, which upon recovery of prices later in 1994, contributed to the increased distributions and dividends received by the Company during the year.
The joint venturers approved a capital program of $25.7 million for the fiscal year 1994-1995 which included a continuation of development drilling in the Entre Lomas field, which field has been the location of the most productive wells drilled during the last three years. Drilling in the CB/PB field complex has not yet been reactivated, as wells in this field, at its current stage of development, are more sensitive to fluctuations in the price of oil. Although management believes current oil prices support additional drilling in this field, and the joint venturers intend to continue development, the unpredictability of prices in today's environment requires caution before proceeding. In any event, a review of drilling possibilities is currently underway.
As described on pages 7 and 14 under "Gas Development" and "Exploration", respectively, work is underway to identify drilling locations to confirm the potential of Petrolifera production which has occurred to date in the Entre Lomas 4 well. The joint venturers are hopeful that these efforts will lead to sizeable gas development potential. In addition, seismic analysis has identified several structures as possible exploration targets, the most promising of which will be drilled in the coming years.
The slow down in development drilling in the Entre Lomas concession over the past two years has led to insufficient new oil production to replace declines which normally occur in fields over time. Investments during 1993 and 1994 focused on methods designed to arrest production declines from existing wells. In 1994, daily oil production in the concession averaged 9,750 barrels, down from 10,750 barrels in the prior year. Should the joint venturers proceed to accelerate drilling in existing oil fields in the near future, succeed in confirming gas potential in the Petrolifera formation, requiring additional drilling, and aggressively pursue exploration prospects, funds available for distribution and dividends to the joint venturers could diminish, reducing the Company's cash flow.
RESULTS OF OPERATIONS
REFER TO CONSOLIDATED STATEMENT OF OPERATIONS ON PAGE 26.
1994 VS 1993
Operating revenues for 1994 were $2.1 million higher compared with 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.
Financial and 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.
1993 VS 1992
Operating revenues for 1993 were $4.1 million lower compared with 1992 due to the negative effect on oil sales of reduced oil prices. In addition, the drop in prices slowed development drilling activity in the concession thereby contributing to lower oil sales volumes.
Financial and other revenues decreased by $640 thousand compared with 1992. Interest income generated by the outstanding balance of the Entre Lomas gas capital account declined over time as it was repaid by YPF. In addition, the Company maintained a lower balance of funds invested throughout 1993, compared with the prior year, resulting in lower returns from these investments.
Operating expense declined by $2 million, compared with 1992, due to the reduced number of well workovers performed in the concession.
Province royalties were lower in 1993 as a result of lower oil sales.
Selling and administrative expense decreased by $534 thousand, compared with 1992, resulting from staff reductions at the Company's Argentine branch office, which reductions were the consequence of the Company resigning as operator of the Anticlinal Campamento concession effective December 31, 1992.
Depreciation, depletion and amortization increased by $773 thousand compared with 1992. Prior to the effective date of the conversion agreement described on page 2, under "Deregulation", all investments made by the Entre Lomas joint venture were charged to separate oil and gas capital accounts. The conversion agreement eliminated the oil capital account. All oil related investments made by the joint venture after January 22, 1991, began to be recorded as property and equipment, and as such, depreciation will continue to rise for the foreseeable future as long as capital expenditures exceed depreciation and depletion expense.
Exploration expense increased by $1 million, compared with 1992, due to the substantial seismic expenditures incurred in 1993.
Argentine taxes decreased in 1993, compared with the prior year, due to the combined effect of the variations described in the preceding paragraphs.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given retroactive effect to the change in accounting for its interests in oil and gas properties from the equity method to the proportional consolidation method.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma March 10, 1995
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
*Restated as discussed in Note 2.
The accompanying notes are an integral part of these consolidated statements.
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
*Restated as discussed in Note 2.
The accompanying notes are an integral part of these consolidated statements.
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated statements.
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
*Restated as discussed in Note 2.
The accompanying notes are an integral part of these consolidated statements.
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 holds investments in Argentina. All significant intercompany accounts and transactions have been eliminated.
The Williams Companies, Inc. ("Williams") owns 64.5 percent of the outstanding ordinary shares of the Company.
PROPERTY AND EQUIPMENT
Property is recorded at cost and is depreciated on a straight-line basis, using estimated useful lives of 3 to 15 years.
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.
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(2) ACCOUNTING CHANGE
Effective January 1, 1994, the Company changed its method of accounting for its interests in the Entre Lomas joint venture and Petrolera Perez Companc S.A. ("Petrolera") from the equity method to the proportional consolidation method. Under the equity method, these interests were previously reported in the Company's Consolidated Balance sheets as "Argentine Investments", and the Company's proportionate share of earnings was previously reported in the Consolidated Statement of Operations as "Equity Income from Argentine Investments".
This change in methodology does not require restatement of the Company's retained earnings nor does it affect the Company's results of operations. Proportional consolidation has been applied by including in the Company's Consolidated Financial Statements its proportionate share of the assets, liabilities, revenues and expenses of the Entre Lomas joint venture and Petrolera. The impact of the change has been reflected in the Consolidated Financial Statements presented herein for 1993 and 1992.
(3) 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 $4.6 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.
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.
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(4) 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 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 2, 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 14.
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(5) 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.
The carrying amount reported in the balance sheet for short-term investments is equivalent to fair value.
(6) RELATED PARTY TRANSACTIONS
The Company paid approximately $204,000, $201,000 and $134,000 in 1994, 1993 and 1992, 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, 1994 and December 31, 1993, of approximately $25,000 and $32,000, were paid in 1995 and 1994, 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
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
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.
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 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 Company's, 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
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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, 1994 as the rate of exchange remains 1 to 1.
APCO ARGENTINA INC. AND SUBSIDIARY
QUARTERLY FINANCIAL DATA (Unaudited)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) IDENTIFICATION OF DIRECTORS
(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.
(C) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES
None.
(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.
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.
(E) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
None.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AT DECEMBER 31,
(B) SECURITY OWNERSHIP OF MANAGEMENT AT DECEMBER 31, 1994
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and related-party transactions are disclosed elsewhere herein in Notes 1, 3 and 6 to the Notes to Consolidated Financial Statements.
PART IV
ITEM 14.
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
* 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.
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: April 11, 1995 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.
EXHIBIT INDEX
* 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.