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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the nine months ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______ to _______
Commission file number 0-8933
APCO ARGENTINA INC.
(Exact name of Registrant as specified in its charter)
CAYMAN ISLANDS
(State or other jurisdiction of EIN 98-0199453
incorporation or organization)
ONE WILLIAMS CENTER (MD 26-4)
TULSA, OKLAHOMA 74172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (918) 573-2164
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at October 31,
2003
Ordinary Shares, $.01 Par Value 7,360,311 Shares
APCO ARGENTINA INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 30, 2003 and December 31, 2002...................................... 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 2003 and 2002....................... 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2003 and 2002................................. 6
Notes to Consolidated Financial Statements......................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS................................................. 19
ITEM 4. CONTROLS AND PROCEDURES............................................................ 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................ 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.................................................... 22
Certain matters discussed in this report, excluding historical information,
include forward-looking statements - statements that discuss the Company's
expected future results based on current and pending business operations. The
Company makes these forward-looking statements in reliance on the safe-harbor
protections provided under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by words such as "anticipates,"
"believes," "expects," "planned," "scheduled," "could," "continues," "
estimates," "might," "potential," "projects" or similar expressions. Although
the Company believes these forward-looking statements are based on reasonable
assumptions, statements made regarding future results are subject to a number of
assumptions, uncertainties and risks that may cause future results to be
materially different from the results stated or implied in this document.
Additional information about issues that could lead to material changes in
performance is contained in the section "Forward-Looking Statements" on pages 12
and 13 of the Company's Annual Report on Form 10-K for the year ended December
31, 2002.
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APCO ARGENTINA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
(Amounts In Thousands Except Share And Per Share Amounts) 2003 2002
------------- -------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,557 $ 15,065
Accounts receivable 3,356 2,223
Inventory 232 310
Other current assets 229 144
------------- -------------
Total Current Assets 18,374 17,742
------------- -------------
Property and Equipment:
Cost, successful efforts method of accounting 64,175 61,613
Accumulated depreciation, depletion and amortization (34,704) (31,494)
------------- -------------
29,471 30,119
------------- -------------
Argentine investments, equity method 41,567 36,809
Other assets 981 1,052
------------- -------------
$ 90,393 $ 85,722
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,072 $ 917
Affiliate payable 494 220
Accrued liabilities 668 710
Argentine taxes payable 1,009 3,116
Dividends payable 1,196 1,196
------------- -------------
Total Current Liabilities 4,439 6,159
------------- -------------
Long-term liabilities 831 581
Deferred Argentine income taxes 172 269
Stockholders' Equity:
Ordinary shares, par value $.01 per share;
15,000,000 shares authorized;
7,360,311 shares outstanding 74 74
Additional paid-in capital 9,326 9,326
Accumulated other comprehensive loss (110) -
Retained earnings 75,661 69,313
------------- -------------
Total Stockholders' Equity 84,951 78,713
------------- -------------
$ 90,393 $ 85,722
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
APCO ARGENTINA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
(Amounts in Thousands, Except Per Share Amounts) 2003 2002 2003 2002
---------- ---------- ---------- ----------
REVENUES:
Operating revenue $ 6,558 $ 5,734 $ 19,556 $ 14,653
Equity income from Argentine investments 2,442 1,252 7,027 1,607
Other revenues 116 64 160 168
---------- ---------- ---------- ----------
9,116 7,050 26,743 16,428
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Operating expense 1,247 945 3,665 2,657
Provincial production tax 721 622 1,977 1,526
Transportation & storage 105 87 304 250
Selling and administrative 463 173 1,661 849
Depreciation, depletion and amortization 1,036 1,051 3,215 3,010
Exploration expense 727 - 750 -
Argentine taxes other than income 268 583 1,373 1,020
Foreign exchange (gains) losses 80 (43) 622 1,457
Other (income) expense, net (8) 63 66 133
---------- ---------- ---------- ----------
4,639 3,481 13,633 10,902
---------- ---------- ---------- ----------
Income before Argentine income taxes and
cumulative effect of change in accounting
principle 4,477 3,569 13,110 5,526
Argentine income taxes 1,009 1,198 3,175 2,863
---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 3,468 2,371 9,935 2,663
Cumulative effect of change in accounting
principle, net of Argentine income taxes of $583 - - - 2,378
---------- ---------- ---------- ----------
NET INCOME $ 3,468 $ 2,371 $ 9,935 $ 5,041
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
APCO ARGENTINA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
(Amounts in Thousands, Except Per Share Amounts) 2003 2002 2003 2002
---------- ---------- ---------- ----------
NET INCOME: $ 3,468 $ 2,371 $ 9,935 $ 5,041
========== ========== ========== ==========
Earnings per ordinary share - basic and
diluted income before cumulative effect
of change in accounting principle $ 0.47 $ 0.32 $ 1.35 $ 0.36
Cumulative effect of change in
accounting principle - - - 0.32
---------- ---------- ---------- ----------
NET INCOME $ 0.47 $ 0.32 $ 1.35 $ 0.68
========== ========== ========== ==========
Average ordinary shares outstanding -
Basic and diluted 7,360 7,360 7,360 7,360
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5
APCO ARGENTINA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
-----------------------
(Amounts in Thousands, Except Per Share Amounts) 2003 2002
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 9,935 $ 5,041
Adjustments to reconcile to net cash
Provided by operating activities:
Equity income from Argentine investment (7,027) (1,607)
Dividends from Argentine investment 4,080 2,189
Deferred income tax (82) (345)
Cumulative effect of change in accounting principle - (2,378)
Depreciation, depletion and amortization 3,215 3,010
Changes in accounts receivable (1,133) (560)
Changes in inventory 78 76
Changes in other current assets (85) 416
Changes in accounts payable and affiliate payable 429 (2,092)
Changes in accrued liabilities and Argentine taxes payable (2,149) 2,763
Changes in other assets, other liabilities and other 192 725
---------- ----------
Net cash provided by operating activities 7,453 7,238
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (2,562) (2,186)
Purchase of investments (1,811) -
---------- ----------
Net cash used in investing activities (4,373) (2,186)
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid ($0.4875/share) (3,588) (3,588)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS
(508) 1,464
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 15,065 16,048
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 14,557 $ 17,512
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for Argentine income taxes $ 5,876 $ 250
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
6
APCO ARGENTINA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The unaudited, consolidated financial statements of Apco Argentina Inc.
and subsidiaries (the "Company"), included herein, do not include all
footnote disclosures normally included in the annual financial
statements and, therefore, should be read in conjunction with the
financial statements and notes thereto included in the Company's 2002
Form 10-K.
In the opinion of the Company, all adjustments, consisting of normal
recurring matters, have been made to present fairly the results of the
three and nine month periods ended September 30, 2003 and 2002. The
results for the periods presented are not necessarily indicative of the
results for the respective complete years.
(2) REVENUE RECOGNITION
The Company recognizes revenues from sales of oil, gas, and plant
products at the time the product is delivered to the purchaser and
title has passed. Any product produced that has not been delivered is
reported as inventory and is valued at the lower of cost or market.
When cost is calculated, it includes total per unit operating cost and
depreciation. Transportation and storage costs are recorded as expenses
when incurred. The Company has had no contract imbalances relating to
either oil or gas production.
(3) PROPERTY AND EQUIPMENT
The Company uses the successful-efforts method of accounting for oil
and gas production operations, whereby costs of acquiring non-producing
acreage and costs of drilling successful exploration wells and
development costs are capitalized. Costs of unsuccessful drilling are
expensed when determined to be nonproductive. Oil and gas properties
are depreciated over their productive lives using the units of
production method based on proved producing reserves. Non oil and gas
property is recorded at cost and is depreciated on a straight-line
basis, using estimated useful lives of 3 to 15 years.
The Company reviews its proved properties for impairment on a
concession by concession basis and recognizes an impairment whenever
events or circumstances, such as declining oil and gas prices, indicate
that a property's carrying value may not be recoverable. If an
impairment is indicated, then a provision is recognized to the extent
that the carrying value exceeds the present value of the estimated
future net revenues ("fair value"). In estimating future net revenues,
the Company assumes costs will escalate annually and applies an oil and
gas price forecast that it believes to be reasonable after reviewing
long-term forecasts of professional energy consultants. Due to the
volatility of oil and gas prices, it is possible that the Company's
assumptions regarding oil and gas prices may change in the future. For
the three and nine month periods ended September 30, 2003 and 2002, the
Company did not record any impairment charges as the estimated future
undiscounted net revenues exceeded the carrying value of its
properties.
7
APCO ARGENTINA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) 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, Foreign Currency Translation, using the United States dollar as the
functional currency. Accordingly, translation gains and losses that
arise from exchange rate fluctuations applicable to transactions
denominated in a currency other than the United States dollars are
included in results of operations as incurred.
(5) INCOME TAXES
As described in Note 8 of the Notes to Consolidated Financial
Statements included in the Company's 2002 Form 10-K, the Company
believes its earnings are not subject to U.S. income taxes, nor Cayman
Islands income or corporation taxes. Income derived by the Company from
its Argentine operations is subject to Argentine income tax at a rate
of 35 percent and is included in the Consolidated Statements of
Operations as Argentine income taxes.
The effective income tax rate reflected in the Consolidated Statement
of Operations differs from Argentina's statutory rate of 35 percent
because the Company incurs income taxes only in Argentina, the country
where its income generating oil and gas activities are located. As a
result, differences between the Company's consolidated effective rate
and Argentina's statutory rate of 35 percent are caused primarily by
income and expense generated and incurred outside of Argentina that do
not affect the amount of income taxes paid by the Company. Such items
include interest income resulting from the Company's cash and cash
equivalents deposited in its Cayman Island banks, general and
administrative expenses incurred by the Company in its headquarters
office in Tulsa, Oklahoma, equity income from the Company's investment
in Petrolera that is recorded by the Company on an after tax basis, and
foreign exchange losses resulting from the devaluation of the peso
which losses are not deductible in Argentina.
Provision is made for deferred Argentine income taxes applicable to
temporary differences between the financial statement and tax basis of
the assets and liabilities.
(6) INVESTMENT IN PETROLERA (FORMERLY PETROLERA PEREZ COMPANC S.A.)
In 2002, the Perez Companc family sold its interests in Petrolera Perez
Companc S.A. ("Petrolera") to Petrolera Brasileiro S.A. and the
Company. Pursuant to requirements of the sale-purchase agreements, the
name Perez Companc can no longer be associated with Petrolera.
Therefore, the Company's name has changed to "Petrolera Entre Lomas
S.A."
The Company uses the equity method to account for its investment in
Petrolera, a non-public Argentine corporation. In January 2003, the
Company acquired an additional 1.58 percent of Petrolera for $1.8
million and increased its ownership to 40.8 percent.
8
APCO ARGENTINA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Under the equity method of accounting, the Company's share of
Petrolera's net income is reflected as an increase in its investment in
Petrolera and is also recorded as equity income from Argentine
investments. Dividends from Petrolera are recorded as a reduction of
the investment.
(7) IMPLEMENTATION OF SFAS 143
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations (SFAS
143). SFAS 143 was required to be adopted by companies for financial
statements issued for fiscal years beginning after June 15, 2002, with
earlier application encouraged. The Company elected to adopt SFAS 143
in connection with the preparation of its June 30, 2002 financial
statements.
As part of the adoption of SFAS 143, an engineering analysis was
obtained which projected that through 2016, the last year of the Entre
Lomas concession's term, the joint venture partners will be required to
plug and abandon 98 wells at an average estimated cost of $24,500 per
well. After considering inflation and present value factors, the
estimated asset retirement obligation as of January 1, 2002 for the
Company's 23 percent direct interest totaled $433 thousand ($456
thousand on September 30, 2002 and $497 thousand on September 30,
2003). The equity share of the estimated asset retirement obligation as
of January 1, 2002, imbedded in the Company's investment in Petrolera
totaled $464 thousand ($488 thousand on September 30, 2002 and $580
thousand on September 30, 2003).
The above described asset retirement obligation is based on estimates
of the number of wells expected to be abandoned in 2016, the last year
of the Entre Lomas concession's term, and an estimated cost to plug and
abandon a well as discussed with field service companies that would be
expected to perform such services. Both estimates were provided by
Petrolera's engineers and are considered to be the best estimates that
can be derived today based on present information. Such estimates are,
however, subject to significant change as time passes. Given the
uncertainty inherent in the process of estimating future oil and gas
reserves and future oil and gas production streams, the estimate of the
number of future wells to be plugged and abandoned could change as new
information is obtained. Also, given the current economic situation in
Argentina and uncertainties associated with future levels of inflation
in the country and devaluation of the peso, any future estimate of the
cost to plug and abandon a well is subject to a wide range of outcomes
as the estimate is updated as time passes. The total asset retirement
obligation included in the Company's Balance Sheets will also be
subject to change as SFAS 143 requires the Company to take into
consideration future estimates of inflation and present value factors
based on the Company's credit standing. Given the current economic
situation in Argentina, future inflation rates and interest rates, upon
which present value factors are based, as recent history demonstrates,
may be subject to large variations over short periods of time.
As the amount accrued by the Company prior to adoption of SFAS 143 was
in excess of the amount required under the provision of SFAS 143,
implementation of the standard resulted in a credit adjustment to
income of $2.4 million, which was classified as a cumulative effect of
change in accounting principle and is reflected as such in the
Consolidated Statement of Operations for 2002.
9
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(8) COMPREHENSIVE INCOME
Comprehensive income is as follows:
Nine months ended
September 30,
-----------------------
2003 2002
---------- ----------
(Amounts in Thousands)
Net Income $ 9,935 $ 5,041
Other comprehensive loss:
Minimum pension liability adjustment (169) -
Income tax benefit on other comprehensive loss 59 -
---------- ----------
Other comprehensive loss (110) -
---------- ----------
Comprehensive income $ 9,825 $ 5,041
========== ==========
Net income and comprehensive income for the third quarter 2003 and the
third quarter 2002 were equal.
(9) SUMMARIZED INCOME STATEMENT INFORMATION FOR PETROLERA
The Company accounts for its investment in Petrolera using the equity
method of accounting. Summarized unaudited income statement information
for Petrolera for the nine month periods ended September 30, 2003 and
2002 are as follows:
Nine months ended
September 30,
-----------------------
2003 2002
---------- ----------
(Amounts in Thousands)
Revenues $ 60,693 $ 43,174
---------- ----------
Operating expenses 11,594 7,767
Provincial production tax 6,083 4,722
Transportation and selling 1,457 1,104
Depreciation 8,306 9,244
Mark to market adjustment - 487
Other (income) expense - net (55) 708
Argentine taxes 14,402 11,891
Amortization of basis difference - (240)
Foreign exchange losses 1,682 2,720
---------- ----------
Total expenses 43,469 38,403
---------- ----------
Net income $ 17,224 $ 4,771
========== ==========
Apco equity income $ 7,027 $ 1,607
========== ==========
Refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on page 11 for a description of the impact
recent economic events have had on Petrolera. Because Petrolera's sole
business is its interest and operatorship of the Entre Lomas
concession, the description of how these events impact the Company
serves to explain the impact on Petrolera.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion explains the significant factors that have
affected the Company's financial condition and results of operations
during the periods covered by this report.
FINANCIAL CONDITION
Internally generated cash flow from the Company's interests in the
Entre Lomas joint venture is the Company's primary source of liquidity.
In the past, both during calm periods and turbulent periods in
Argentina's economy, the Entre Lomas operation has had the ability to
finance the Company's development and exploration expenditures with
internally generated cash flow and generate excess cash flow for the
Company. The twenty-one month period that has elapsed since December
2001 certainly qualifies as a turbulent period for Argentina's economy.
The year 2002 tested both the profitability and cash generating ability
of the Company's Argentine operations. It bears repeating here that, in
spite of Argentina's economic crisis, in 2002, the Company generated
net cash provided by operating activities of $14 million that included
dividends received from its investment in Petrolera Entre Lomas S.A.
("Petrolera") totaling $6.4 million.
In 2003, through the nine months ended September 30, the Company has
generated net cash provided by operating activities of $7.5 million
that includes dividends received from Petrolera of $4.1 million.
Reference is made to the section "Argentine Economic and Political
Environment" for a description of Argentina's economic crisis. Since
the third quarter of 2002, although Argentina has made little progress
toward solving the root causes of its economic problems, its economy,
by two of the most visible measures, seems to be stabilizing. Since
September 30, 2002, when the peso to US dollar exchange rate was 3.74:1
the Argentine peso has regained value vis-a-vis the US dollar, and by
September 30, 2003 the exchange rate was 2.92:1. Furthermore,
inflation, which surged after Argentina abandoned the convertibility
plan at the start of 2002, has slowed to an annual rate of less than 5
percent in the first nine months of 2003.
The improvement in these two measures is not evidence that Argentina
has solved its economic troubles. Progress still needs to be made in
three important areas of the economy. A significant portion of
Argentina's debt remains in default with only modest progress having
been made in negotiations between the government and international
creditors. The country's economy is barely coming out of a four year
long recession, and unemployment is still higher than 15 percent.
Nevertheless, the environment in which the Company operates improved as
2002 came to a close and during the first nine months of 2003.
Management is hopeful that the administration of newly elected
President Nestor Kirchner, who assumed the Presidency in May 2003, will
implement policies that enable these favorable trends to continue and
ultimately find solutions to the very complex economic problems facing
the country.
11
OIL PRICES
World oil prices gradually improved during the latter part of 2002 and
the first nine months of 2003, primarily the result of a national oil
strike in Venezuela, civil unrest in Nigeria, and the war in Iraq that
resulted in oil price speculation. Oil prices have remained near or
above $30 throughout the first nine months of 2003. In spite of a
specific price limitation imposed by the Argentine government during
the first quarter of 2003 that is described below, improved world oil
market conditions resulted in significantly higher prices and improved
net income for the Company during the first nine months of 2003.
As reflected in the table of sales prices and production costs on page
19, the per barrel crude oil sales price for the nine months ended
September 30, 2003 averaged $28.00 as compared with $22.22 for oil sold
during the comparable period in 2002.
In January 2003, due to the rapid increase in world oil prices and the
Argentine government's desire to maintain stability in domestic fuel
prices, the Argentine government requested that crude oil producers and
refiners agree to cap amounts payable for domestic oil sales contracts
at a price of $28.50 per barrel. In addition, producers and refiners
also agreed that the difference between the actual price of West Texas
Intermediate ("WTI"), the reference price used to determine the
Company's oil sales prices, and the $28.50 temporary cap would be
payable at such time as WTI fell below $28.50. The debt payable by
domestic refiners to producers accrues interest at an annual rate of 7
percent. This agreement that was originally scheduled to expire on
March 31, 2003, was subsequently extended to September 30, 2003.
Negotiations are currently underway to extend the agreement through
December 31, 2003. During the first quarter of 2003, the Company's
cumulative sales resulting from actual prices exceeding the price cap
totaled $560 thousand. In the second and third quarters, this total
increased by $37 thousand and $104 thousand, respectively. As of
September 30, 2003, the total amount owed to the Company from domestic
refiners pursuant to this agreement including accrued interest of $26
thousand totaled $727 thousand.
The Company exported a significant amount of its crude oil to Brazil
during the first quarter of the year. In that quarter, export sales as
a percentage of overall oil sales totaled 41 percent. Exports are not
affected by the $28.50 price cap; however, they are subjected to the
16.67 percent tax on oil exports implemented by the Argentine
government on April 1, 2002. The Entre Lomas joint venture partners and
other Neuquen basin producers that are parties to crude oil sales
arrangements currently in effect, did not export oil during the second
and third quarters because the economics of selling in country are
currently favorable as export sales are subject to the 16.67 percent
withholding tax and the price of WTI has fluctuated around the $28.50
cap throughout the second and third quarters.
NATURAL GAS PRICES
The Company's gas is sold to Argentine customers pursuant to peso
denominated contracts with occasional spot market sales. As a result of
economic Emergency Law 25,561 enacted by the Argentine government in
January of 2002, the Company's natural gas prices, when converted to US
dollars, have fallen in proportion to the devaluation of the Argentine
peso since the end of 2001 due to the pesofication of contracts and
freezing of gas prices at the wellhead required by that law.
As reflected in the table of sales prices and production costs on page
19, the Company's average natural gas sales price per thousand cubic
foot ("mcf") for the nine months ended September 30, 2003 and 2002
averaged $.46 and $.47 respectively. This compares with the average
price for the year 2001 of $1.28.
12
The price of natural gas in Argentina may improve over time as drilling
for gas in Argentina declines in response to these unfavorable prices
and the supply of gas in the country begins to decline. Indeed, the
Company, as have many other natural gas producers in Argentina, has
suspended gas development activities both in Entre Lomas and in
Acambuco until market conditions improve. It is expected that
representatives of Argentina's oil and gas industry and government
officials will begin discussions regarding natural gas prices in
Argentina later this year or early in 2004.
There is no predicting the outcome of these discussions, however, the
current government is expected to take a strong position with respect
to future increases in natural gas prices. Some energy experts in
Argentina have predicted that the current pattern of steady decline in
natural gas production and decreasing natural gas reserves in
Argentina, if and when combined with a period of lower than normal
precipitation, could eventually result in natural gas and power
shortages. This could materialize if such conditions were to cause
hydroelectric plants to operate at lower than normal levels and thermal
power plants were unable to generate sufficient power to make up the
difference due to declining gas supplies. Nevertheless, the level of
natural gas and electric power prices and the rate of inflation are
politically charged issues in a country where salaries and wages have
been significantly devalued due to the country's economic crisis and
the government feels pressure to keep natural gas prices at or near
current levels.
PRODUCT VOLUMES
During the nine months ended September 30, 2003, oil sales volumes, net
to the Company's consolidated and equity interests, totaled 1.418
million barrels ("mmbbls"), an increase of 16 percent when compared
with 1.221 mmbbls during the comparable period in 2002. The increase is
due to three factors; (1) favorable results of the 2003 Entre Lomas
development drilling campaign, (2) achieving reductions in production
declines in existing fields as a consequence of production and
injection well workovers, and continued application of polymer
injection used to improve waterflood efficiency in the Charco
Bayo/Piedras Blancas field, and (3) volume contribution attributable to
the Company's increased ownership in Petrolera resulting from the
purchase of additional shares of Petrolera described in the section
"Growth Opportunities" on page 15.
Over the same period, gas sales volumes net to the Company's
consolidated and equity interests, totaled 3.4 billion cubic feet
("bcf"), a decrease of 15 percent when compared with 4.0 bcf during the
comparable period in 2002. The reduction is due to a decrease in Entre
Lomas production volumes, partially offset by an almost doubling of
Acambuco production volumes. Entre Lomas gas production has declined
due to a lack of investments designed to increase or maintain gas
production levels resulting from the significant drop in natural gas
prices in Argentina since January of 2002. Acambuco volumes have
increased as production from existing wells in the San Pedrito field
has increased as the Acambuco joint venture partners find additional
markets for their gas.
LPG sales volumes, net to the Company's consolidated and equity
interest, totaled 11.5 thousand tons, an increase of 61 percent when
compared with 7.1 thousand tons during the comparable period in 2002.
The increase is the result of a revamp of the LPG plant that was
completed in mid 2002, and the volume contribution attributable to the
aforementioned purchase by the Company of additional shares of
Petrolera. The revamp significantly improved plant yields.
13
LIQUIDITY
The Company has always, to the extent possible, made efforts to
repatriate profits at every opportunity. Current government regulations
allow export customers to pay the Company in US dollars outside of
Argentina versus domestic customers that must make payments in
Argentina in local currency. As a result, currently exports are a means
for repatriation of profits. As described previously, during the second
and third quarters the Company sold oil exclusively in Argentina.
Consequently, all of its oil sales receipts during these periods were
paid in Argentine pesos. The current focus on domestic sales has
increased profitability and also helped meet the Company's local
currency needs during these quarters when it was in the midst of
executing its 2003 capital expenditure program and was required to fund
Argentine income tax payments totaling $5.9 million.
Through the first nine months of 2003, the Company received $4.1
million in dividends from Petrolera.
CAPITAL PROGRAM
By September 30, 2003, the Company's capital and investing
expenditures, net to its consolidated interests, totaled $4.4 million,
including $2.4 million in the Entre Lomas concession, $1.8 million
representing the purchase of Fimaipu S.A., and an additional $0.2
million for the purchase of an additional interest in the Canadon
Ramirez concession. (Including the Company's equity interest in
Petrolera, its total year to date Entre Lomas capital expenditures
totals $5.6 million.)
The original Entre Lomas investment program for 2003 provided for
drilling 10 development wells. Due to positive drilling results, and in
order to take advantage of a favorable oil price environment, in the
third quarter, the partners agreed to amend the program to include
drilling an additional 2 development wells and the acquisition of 370
square kilometers of 3D seismic over the remaining southern sectors of
the concession that to date lack 3D seismic imaging. The addition of 2
development wells was subsequently increased to 5 wells. The estimated
total cost of the additional 5 wells and seismic, net to the Company's
combined interests, equals $3 million, of which $1.3 million pertains
to its 23% direct interest, and $1.7 million to its equity interest in
Petrolera.
By early November, all additional wells had been drilled and completed
and are productive. The 3D seismic program is currently underway and is
expected to be completed by the end of the year. It will image either
side of the Borde Mocho fields in order to gain a clearer understanding
of exploration leads previously identified with 2D seismic.
No gas development expenditures were scheduled in 2003 in the Acambuco
concession. However, as a result of the successful reactivation in 2002
of oil production from the Tupambi formation in one well in the old San
Pedro oil field, the Acambuco partners will drill a well targeting the
Tupambi formation in the Macueta structure in the northern part of the
concession. Drilling this well will get underway in December 2003.
After evaluating the condition of the Tupambi reservoir in the old San
Pedro oil field, the partners are discussing whether reactivation of
additional wells in the field should be discontinued. The old San Pedro
oil field is located on the San Pedrito structure from which the
Company is currently producing gas from the San Pedrito field.
14
GROWTH OPPORTUNITIES
In the previous 21 months, the Company deployed cash resources to
increase its presence in Argentina. In 2002, when the Perez Companc
family (the "Family") sold its oil and gas interests in Argentina to
Petroleo Braisleiro S.A., the Company seized the opportunity provided
by a preferential right it had acquired in 1968 to purchase additional
shares in Petrolera and increase its overall ownership interest in the
Entre Lomas concession. The Company paid $6.9 million to acquire an
additional 5.54 percent of the outstanding shares of Petrolera, the
operator of the Entre Lomas concession and owner of a 73.15 percent
interest in the Entre Lomas joint venture. Subsequently, in January
2003, the Company purchased all outstanding shares of Fimaipu S.A. for
$1.8 million. Fimaipu is a private Argentine holding company whose sole
asset is ownership of 1.58 percent of the outstanding shares of
Petrolera. These two purchases increased the Company's combined direct
and indirect interests in the Entre Lomas joint venture to 52.85
percent.
Pursuant to requirements of the sale-purchase agreement, for the
Family's sale of its oil and gas interests, the name Perez Companc can
no longer be associated with Petrolera. As a consequence, Petrolera's
name was changed to "Petrolera Entre Lomas S.A."
Also in January, 2003, the Company purchased an additional 36.82
percent interest in the Canadon Ramirez concession for a consideration
of $155 thousand. The purchase increased the Company's interest in the
property to 81.82 percent. The Company will act as operator of the
concession. Plans are currently being developed to acquire 3D seismic
over the eastern portion of the concession and to initiate a program of
workovers and recompletions that will reactivate previously drilled
wells. These programs will get underway during 2004.
Despite the backdrop of Argentina's economic turmoil, the Company's
management continues to seek additional ways to deploy its financial
resources focusing primarily, but not exclusively, on other
opportunities in Argentina.
CAPRICORN PERMIT
In April 2003, the Company entered into a farm-in agreement with
Netherfield Corporation ("Netherfield"), a wholly owned subsidiary of
Antrim Energy Inc., a Canadian company with offices in Calgary,
Alberta. The agreement entitled the Company to earn a 50 percent
interest in an exploration permit granted over the Yacimiento Norte 1/B
Block, commonly known as the Capricorn block. Capricorn block has a
surface area of 8,182.87 square kilometers, or approximately 2.1
million acres located in the province of Salta in northern Argentina.
The Company was to acquire 40 square kilometers of 3D seismic, thereby
fulfilling Netherfield's work commitment for the first exploration
period pursuant to the terms of an exploration permit granted to it.
Prior to the farm-in, Netherfield owned a 100 percent interest in the
exploration permit granted in 2001.
The seismic acquisition commenced in May 2003 and was completed and
processed by the end of August. The total cost of the program was $646
thousand. In August, when the Company delivered the completed seismic
to Netherfield, it earned, or purchased, a 50 percent working interest
in the block and became the joint venture operator. The cost of the
seismic was charged as exploration expense during the third quarter
2003.
Interpretation of the 40 square kilometers of 3D seismic in Capricorn
was completed in September. The conclusion is that in the area of a
main fault that was the primary target of the interpretation, there is
little hope of finding a drilling location that could target a
structure of
15
sufficient size in order to make drilling economics interesting given
the risk and costs of exploration drilling, and that the probability of
finding hydrocarbons up against this fault are, in the opinion of the
partners, too low.
With the completion of the Company's seismic investment in Capricorn,
Netherfield has now fulfilled its investment commitment required during
the permit's first exploration period that commenced in August 2003.
Henceforth, the partners will have two years to evaluate the
exploration potential of the block. At the end of the two years, a
second exploration period requiring the drilling of an exploration well
is optional. If the partners choose to exercise their option, 50
percent of the original block, less any exploitation concession
granted, must be relinquished.
Capricorn acreage completely surrounds the Puesto Guardian concession
that currently produces 1,000 barrels per day of oil. The El Vinalar
concession, that is immediately to the east of Puesto Guardian and
which is also oil productive, is bounded on three sides by Capricorn.
Prospective reservoirs in Capricorn lie at depths below 3,000 meters,
or 10,000 feet.
The Company will now commence the evaluation of the entire inventory of
previously shot 2D seismic lines that it inherited when it earned its
50 percent interest.
PRESIDENTIAL ELECTIONS
Presidential elections were held on April 27, 2003. Nestor Kirchner,
the former governor of the province of Santa Cruz since 1991 emerged
victorious. As of this time, the prevailing opinion is that President
Kirchner is not expected to make changes that will alter significantly
Argentina's oil and gas industry and the environment in which the
Company currently operates.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 2003, the Company
generated net income of $3.5 million and $9.9 million, respectively.
This compares with net income of $2.4 million and $ 5.0 million for the
comparable periods in 2002. Net income for the nine months ended
September 30, 2002, included the cumulative effect of implementing SFAS
No. 143 that resulted in increasing net income by $2.4 million. Before
the cumulative effect of implementing SFAS 143, for the nine months
ended September 30, 2002, the Company generated net income of $2.6
million.
The following variance explanations will focus on a comparison of
amounts before the cumulative effect of implementing SFAS No. 143.
THIRD QUARTER COMPARISON
The increase in net income of $1.1 million is primarily due to
increased operating revenues and greater equity income from Argentine
investments. Operating revenues increased by $824 thousand, or 14
percent, due both to higher oil and plant product sales prices and
increased plant product sales volumes. Oil and plant product sales
prices during the current quarter averaged $27.44 per barrel and
$243.65 per metric ton, respectively, as compared with $24.61 per
barrel and $168.31 per metric ton, respectively, during the comparable
period in 2002. Plant product volumes increased in 2003 as a result of
the 2002 revamp of the Entre Lomas LPG plant that resulted in improved
plant yields.
16
Equity income from Argentine investments increased by $1.2 million
compared with the same quarter in 2002. Of the increase, $.4 million is
attributable to the previously described purchase by the Company of
additional shares of Petrolera. Because the Company's equity income is
comprised solely of its share of Petrolera's earnings, all other
variance explanations included herein also serve to explain the balance
of the increase in equity income. Petrolera's sole business is and has
always been its interest in and operatorship of the Entre Lomas
concession and, as a result, its revenues and expenses are essentially
derived from the same operations as the Company.
The decrease of $315 thousand in Argentine taxes other than income is
primarily the result of not paying oil export taxes during the quarter.
The above favorable variances were partially offset by the following
negative variances.
Operating expense increased by $302 thousand, selling and
administrative expense increased by $290 thousand and provincial
production taxes increased by $99 thousand, for the same reasons
described for these categories of expense in the nine months comparison
that follows.
Exploration expense increased by $727 thousand due to charging to
expense the cost of seismic acquired by the Company in the Capricorn
block pursuant to the farm-in agreement by which the Company acquired a
50 percent interest in the block, and Company expenses associated with
evaluating and interpreting the seismic.
NINE MONTHS COMPARISON
The increase in net income before the cumulative effect of change in
accounting principle of $7.3 million is primarily due to increased
operating revenues and greater equity income from Argentine
investments. Operating revenues increased by $4.9 million, or 33
percent, due both to higher oil and plant product sales prices and
increased oil and plant product sales volumes. Oil and plant product
sales prices during the nine-month period averaged $28.00 per barrel
and $253.59 per metric ton, respectively, as compared with $22.22 per
barrel and $138.55 per metric ton, respectively during the comparable
period in 2002. Oil volumes increased due to the favorable results of
the 2003 Entre Lomas development drilling campaign and by achieving
reductions in production declines in existing fields. Plant product
volumes increased in 2003 as a result of 2002 revamp of the Entre Lomas
LPG plant that resulted in significantly improved plant yields.
Equity income from Argentine investments increased by $5.4 million
compared with the first nine months of 2002. Of this increase $1.2
million is attributable to the previously described purchase by the
Company of additional shares in Petrolera. Because the Company's equity
income is comprised solely of its share of Petrolera's earnings, all
other variance explanations included herein also serve to explain the
balance of the increase in equity income. Petrolera's sole business is
now and has always been its interest in the operatorship of the Entre
Lomas concession and, as a result, its revenues and expenses are
essentially derived from the same operations as the Company.
Foreign exchange losses decreased by $835 thousand as a result of a
stabilization of the Argentine peso during 2003 compared with the
significant devaluation that occurred during the first nine months of
2002.
The above favorable variances were partially offset by the following
negative variances.
17
Operating expense increased by $1 million due to higher workover costs
and expenses associated with other oilfield services, and compensation
adjustments given to employees of Petrolera during the latter part of
2002 and the first quarter of 2003 in response to elevated levels of
inflation in 2002. During the first nine months of 2002, in spite of
inflation, the peso cost of salaries, wages and oilfield services
denominated in Argentine pesos remained relatively unchanged due to the
uncertainty in Argentina's overall business environment resulting from
the country' economic crisis. As a result, when expressed in US
dollars, by September 30, 2002, peso denominated operating expenses had
decreased approximately in proportion with the devaluation of the
Argentine peso and, as a consequence, had at that time reached
atypically low levels. Toward the end of 2002, Argentine energy
companies began to provide compensation adjustments to employees in
recognition of 2002 inflation levels and prices of oil field services
and products also began to increase.
Selling and administrative expenses increased by $812 thousand due
compensation adjustments given to the Company's branch employees during
the fourth quarter of 2002 and the first quarter of 2003, increased
costs of services associated with greater regulatory compliance and
related governance issues, engineering consulting fees, increased costs
of insurance and higher audit expenses. For the same reasons described
under operating expense, by September 30, 2002, the cost of the
Company's branch operation, when expressed in US dollars had decreased
approximately in proportion with the devaluation of the Argentine peso
and, a consequence, had at that time reached atypically low levels.
Exploration expense increased by $750 thousand due to charging to
expense the cost of seismic acquired by the Company in the Capricorn
block pursuant to the farm-in agreement by which the Company acquired a
50 percent interest in the block, and Company expenses associated with
evaluating and interpreting the seismic.
Provincial production taxes increased by $451 thousand and Argentine
income taxes increased by $312 thousand. These increases are directly
associated with the increases in operating revenues and income before
income taxes, respectively.
The increase of $353 thousand in Argentine taxes other than income is
the result of a combination of factors. Production taxes increased in
proportion with the increase in operating revenues, bank transaction
taxes increased, and the Company paid an asset tax in 2003 on its
investments in Argentina. These tax increases were partially offset by
lower oil export withholding taxes.
18
The following table illustrates total sales of crude oil, condensate,
natural gas and gas liquids and average sale prices and production
costs for the nine months ended September 30, for the years indicated.
2003 2002
--------- ---------
VOLUMES CONSOLIDATED INTERESTS
Crude oil and condensate (bbls) 623,809 594,128
Gas (mcf) 1,765,673 2,069,555
LPG (tons) 4,999 3,434
VOLUMES EQUITY INTEREST IN PETROLERA
Crude oil and condensate (bbls) 794,095 627,327
Gas (mcf) 1,634,522 1,950,072
LPG (tons) 6,480 3,679
TOTAL VOLUMES
Crude oil and condensate (bbls) 1,417,904 1,221,455
Gas (mcf) 3,400,195 4,019,627
LPG (tons) 11,480 7,113
AVERAGE SALES PRICES (IN U.S. DOLLARS)
Oil (per bbl) $ 28.00 $ 22.22
Gas (mcf) .46 .47
LPG (per ton) 253.59 138.55
AVERAGE PRODUCTION COSTS (IN U.S. DOLLARS)
Oil (per bbl) $ 9.69 $ 7.90
Gas (mcf) .26 .19
LPG (tons) 21.07 22.17
Volumes presented in the above table represent those sold to customers
and have not been reduced by the 12 percent provincial production tax
that is paid separately and is accounted for as an expense by the
Company. In calculating provincial production tax payments, Argentine
producers are entitled to deduct gathering, storage, treating and
compression costs.
Average production cost is calculated by taking into consideration all
costs of production including the costs of well workovers and
depreciation of property and equipment. The per unit cost of
depreciation included in average oil and gas production costs are for
the year 2003, $4.46 per barrel and $.18 per mcf, and for 2002, $4.17
per barrel and $.16 per mcf.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company's operations are exposed to market risks as a result of
changes in commodity prices and foreign currency exchange rates.
COMMODITY PRICE RISK
The Company produces and sells crude oil and natural gas. As a result,
the Company's financial results can be significantly impacted by
fluctuations in commodity prices due to changing market forces. The
Company has historically not entered into price hedging contracts and
no such contracts are currently in place. However, with the view to
reducing commodity price risk inherent in the exploration and
production business, the Company has adopted a hedging policy that
management can use at appropriate times as a tool with which to
mitigate volatility of crude oil prices. Argentina's current economic
crisis complicated considerably the process of hedging prices when a
company's operations are located in Argentina.
19
FOREIGN CURRENCY AND OPERATIONS RISK
The Company's operations are located in Argentina. Therefore, the
Company's financial results may be affected by factors such as risks
associated with changes in foreign currency exchange rates, weak
economic conditions, or changes in Argentina's political climate.
ARGENTINE ECONOMIC AND POLITICAL ENVIRONMENT
During the decade of the 1990's, Argentina's government pursued free
market policies, including the privatization of state owned companies,
deregulation of the oil and gas industry, tax reforms to equalize tax
rates for domestic and foreign investors, liberalization of import and
export laws and the lifting of exchange controls. The cornerstone of
these reforms was the 1991 convertibility law that established an
exchange rate of one Argentine peso to one US dollar. These policies
were successful as evidenced by the elimination of inflation and
substantial economic growth during the early to mid 1990's. However,
throughout the decade, the Argentine government failed to balance its
fiscal budget, incurring repeated significant fiscal deficits that by
the end of 2001, resulted in the accumulation of $130 billion of debt.
Late in 2001, the country was unable to obtain additional funding from
the International Monetary Fund. As economic instability increased,
substantial withdrawals of cash from the Argentine banking system
occurred over a short period of time and the government was forced to
implement monetary restrictions severely limiting the transfer of funds
out of the country without the authorization of the Central Bank of the
Republic of Argentina. Such unpopular measures ultimately led to the
resignation of President De la Rua and his entire administration. After
the resignation of President De la Rua in December 2001, there was for
a few weeks a revolving door of Presidents that were appointed to
office by Argentina's congress but quickly resigned in reaction to
public outcry. Eduardo Duhalde was appointed President of Argentina in
January 2002 to hold office until the next regularly scheduled
Presidential election in 2003.
In January 2002, the government defaulted on a significant portion of
Argentina's $130 billion of debt and the national Congress passed
Emergency Law 25,561, which among other things, overturned the long
standing but unsustainable convertibility plan. The government
eventually adopted a floating rate of exchange in February 2002.
President Duhalde, with the single exception of rescheduling
approximately $7 billion of debt in January 2003, was unable to obtain
financial assistance from international lending agencies such as the
International Monetary Fund and the World Bank and his administration's
inability to make significant progress in resolving the country's
economic crisis, resulted in an almost total loss of public support.
The abandonment of the convertibility plan and the decision to allow
the peso to float in international exchange markets, resulted in a
strong devaluation of the peso. By September 30, 2002, the peso to U.S.
dollar exchange rate had increased from 1:1 to 3.74:1. However, since
the end of the third quarter 2002, although Argentina has made little
progress toward solving the root causes of its economic problems, its
economy seems to be showing signs of stabilization.
Nestor Kirchner, the former governor of the province of Santa Cruz
since 1991 won the April 27, 2003 presidential elections. As of this
time, the prevailing opinion is that President Kirchner is not expected
to make changes that will alter significantly Argentina's oil and gas
industry and the environment in which the Company currently operates.
20
In September 2003, the Kirchner administration reached agreement with
the International Monetary Fund to reschedule $21 billion of debt with
various international lending agencies which debt was to mature over
the next three years. Subsequently, negotiations commenced in October
to restructure Argentina's debt that is currently in default. Since
December 2001, the Country's total public debt has grown by $42 billion
and now totals $172 billion.
Refer to the section "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 16 for a description of
the outcome of the April 27, 2003 election and on page 11 for a
discussion of a stabilization in the Argentine peso and a reduction in
the level of inflation.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule
13a-15(e) and 15(d) - 15(e) of the Securities Exchange Act)
("Disclosure Controls") was performed as of the end of the period
covered by this report. This evaluation was performed under the
supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial
Officer. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that, subject to the
limitations noted below, these Disclosure Controls are effective.
The Company's management, including its Chief Executive Officer and
Chief Financial Officer, does not expect that the Company's Disclosure
Controls or its internal controls over financial reporting ("Internal
Controls") will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over
time, controls may become inadequate because of changes in conditions,
or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not
be detected. The Company monitors its Disclosure Controls and Internal
Controls and makes modifications as necessary. The Company's intent in
this regard is that the Disclosure Controls and the Internal Controls
will be maintained as systems change and conditions warrant.
There has been no change in the Company's Internal Controls that
occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Company's
Internal Controls.
21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual General Meeting of Stockholders of the Company was held on
September 17, 2003. At the Annual General Meeting of Shareholders, two
individuals were elected as directors of the Company and five
individuals continue to serve as directors pursuant to their prior
election. The appointment of Ernst & Young LLP as the independent
auditor of the Company for 2003 was ratified.
A tabulation of the voting at the Annual General Meeting of
Shareholders with respect to the matters indicated is as follows:
Election of Directors
For Withheld
--------- --------
Randy L. Barnard 7,275,211 3,284
Robert J. LaFortune 7,275,192 3,303
Ratification of Appointment of Independent Auditors
For Against Abstain
--- ------- -------
7,275,348 1,883 1,264
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed below are filed as part of this report:
31.1 - Certification of Chief Executive Officer pursuant to
Rules 13a - 14(a) and 15d - 14(a) promulgated under the
Securities Exchange Act of 1934, as amended, and Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 - Certification of Chief Financial Officer pursuant to
Rules 13a - 14(a) and 15d - 14(a) promulgated under the
Securities Exchange Act of 1934, as amended, and Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 - Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by Ralph A. Hill, Chief Executive Officer of Apco
Argentina Inc., and by Landy L. Fullmer, Chief Financial
Officer of Apco Argentina Inc.
(b) The Company did not file or furnish any reports on Form 8-K
during the quarter for which this report is filed.
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
APCO ARGENTINA INC.
(Registrant)
November 12, 2003 By: /s/Thomas Bueno
-------------------
President, Chief Operating and
Chief Accounting Officer
(Duly Authorized Officer of the
Registrant)
23
EXHIBITS
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
31.1 Certification of Chief Executive Officer pursuant to Rules 13a - 14(a)
and 15d - 14(a) promulgated under the Securities Exchange Act of 1934,
as amended, and item 601(b)(31) of Regulation S-K, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rules 13a - 14(a)
and 15d - 14(a) promulgated under the Securities Exchange Act of 1934,
as amended, and item 601(b)(31) of Regulation S-K, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, by Ralph A. Hill,
Chief Executive Officer of Apco Argentina Inc., and by Landy L.
Fullmer, Chief Financial Officer of Apco Argentina Inc.