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                 [LETTERHEAD OF HONDO OIL & GAS COMPANY APPEARS HERE]

       December 13, 1996

       Thamesedge, Ltd.
       4 Grosvenor Place
       London, England  SW1X 7DL

       Dear Sirs:

            This  Agreement  is entered  into  by  and among  Hondo  Oil  &  Gas
       Company,  a   Delaware  corporation  ("Hondo"),   and  its   wholly-owned
       subsidiaries,  Via Verde  Development Company,  a California  corporation
       ("Via Verde"),  and Newhall Refining  Co., Inc.,  a Delaware  corporation
       ("Newhall"), and Thamesedge, Ltd. ("Thamesedge"), with reference to:

            a) Note  Purchase Agreement  dated November  28, 1988,  between
            Pauley Petroleum  Inc. (now Hondo)  and Thamesedge, as  amended
            (the  "Thamesedge Note  Purchase  Agreement"), and  Note  dated
            November 30, 1988,  for $75,000,000 from Pauley Petroleum  Inc.
            to Thamesedge (the "Thamesedge Note");

            b) Letter agreements  dated November 28, 1988 and December  18,
            1992, between  Hondo and Thamesedge  referring to and  amending
            the  Thamesedge  Note Purchase  Agreement  and  the  Thamesedge
            Note;

            c) Net Profits Share Agreement dated December 18, 1992, by  and
            among Hondo,  Lonrho Plc  ("Lonrho") and  Thamesedge (the  "Net
            Profits Share Agreement");

            d) Amended  and Restated  Letter Agreement  dated December  20,
            1991, between  Hondo and Lonrho  (the "Lonrho Loan  Agreement")
            and  Notes dated  September  1, 1991,  for  $10,000,000,  dated
            November 1, 1991, for $9,000,000, and dated December 20,  1991,
            for $13,000,000, from Hondo to Lonrho (the "Lonrho Notes");

            e) Letter Agreement dated December 18, 1992, between Hondo  and
            Lonrho referring to and amending the Lonrho Loan Agreement  and
            the Lonrho Notes;

            f) Note dated April 30, 1993, for $3,000,000 from Via Verde  to
            Lonrho (the "Via Verde  Note"), secured by Deed of Trust  dated
            recorded  as Instrument  No. 93-840817  in   the Real  Property
            Records  of Los  Angeles County,  California, (the  "Via  Verde
            Mortgage"), guaranteed  by Hondo  in Guaranty  dated April  30,
            1993 (the "Hondo Guaranty"), and subject to a letter  agreement
            dated April 30, 1993;

            g)  Note dated  June 25,  1993, for  $4,000,000 from  Hondo  to
            Lonrho (the  "Valley Gateway Note"), secured  by Deed of  Trust
            dated August 30,  1993, granted by Hondo and Newhall,  recorded
            as Instrument  No. 93-2006475 in the  Real Property Records  of
            Los   Angeles   County,  California,   (the   "Valley   Gateway
            Mortgage");






       Thamesedge, Ltd. Letter Agreement
       December 13, 1996
       Page 2


            h) Letter  Agreement dated  December 17,  1993, between  Hondo,
            Via Verde,  Newhall, and Lonrho  and Thamesedge,  restructuring
            the above-described  indebtedness and  amending the  Thamesedge
            Note,  the Lonrho  Notes, the  Via Verde  Note and  the  Valley
            Gateway Note;

            i) Letter  Agreement dated  November 10,  1994, between  Hondo,
            Via Verde,  Newhall, and Lonrho  and Thamesedge,  restructuring
            the above-described  indebtedness and  amending the  Thamesedge
            Note,  the Lonrho  Notes, the  Via Verde  Note and  the  Valley
            Gateway Note, and  creating a new $5,000,000 loan facility  and
            a Note therefor dated October 31, 1994 (the "Facility Note");

            j) Letter  Agreement dated  December 22,  1995, between  Hondo,
            Via Verde,  Newhall, and Lonrho  and Thamesedge,  restructuring
            the above-described  indebtedness and  amending the  Thamesedge
            Note,  the Lonrho  Notes, the  Via Verde  Note and  the  Valley
            Gateway Note; and

            k)  Revolving Credit  Agreement  dated  as of  June  28,  1996,
            between   Hondo   and   Thamesedge   (the   "Revolving   Credit
            Agreement") and Promissory  Note (the "Revolving Credit  Note")
            for $13,500,000 from Hondo to Thamesedge.

            On  March  29,  1996, Lonrho  assigned  to  Thamesedge  all  of  its
       interest in  the above-described agreements  and notes.   The  Thamesedge
       Note, the Lonrho Notes, the Via Verde Note, the Valley Gateway Note,  the
       Facility  Note,   and the  Revolving Credit  Note, each  as amended,  are
       collectively referred to herein as the "Indebtedness".

            Hondo and  Thamesedge have agreed  to extend the  date of  repayment
       for the  Indebtedness (i) by changing  the mandatory redemption dates  on
       the Thamesedge Note from November 1,  1997 and 1998, to January 1,  1998;
       and  (ii) extend  the principal  repayment  date of  each of  the  Lonrho
       Notes, the  Via Verde Note,  the Valley Gateway  Note, the Facility  Note
       and the Revolving Credit Note from October 1, 1997 to January 1, 1998.

            Hondo,  Via Verde  and Newhall,  and  Lonrho and  Thamesedge  hereby
       agree, as follows:

            1. Effective Date.   This Agreement shall be effective for  all
            purposes on September 30, 1996.


            2. Amendment of Notes.   The Thamesedge Note, the Lonrho  Notes
            (collectively), the  Via Verde Note,  the Valley Gateway  Note,
            the Facility Note and  the Revolving Credit Note, each will  be
            amended as  provided, respectively, in Exhibits  A, B, C, D,  E
            and F to this Agreement.   Hondo and Via Verde, as  applicable,
            will execute the note amendments, Thamesedge will execute  them
            to acknowledge  consent thereto, and  the note amendments  will
            be attached to the original notes held by Thamesedge.









       Thamesedge, Ltd. Letter Agreement
       December 13, 1996
       Page 3


            3. Conversion  of Part of the  Indebtedness into Common  Stock.
            Thamesedge will have  the option to convert $13,500,000 of  the
            principal amount of  the Thamesedge Note into shares of  common
            stock, $1.00  par value, of  Hondo at the  conversion price  of
            $12.325 per share (110% of the closing price of such shares  on
            the  American Stock  Exchange  on  December 11,  1996).    Such
            conversion  option will  be  subject  to the  approval  of  the
            stockholders  of  Hondo.   If  the  conversion  option  is  not
            approved by  the stockholders, then the  interest rate on  such
            $13,500,000 of the Thamesedge debt will become 13.5% per  annum
            (the original  rate of the  Thamesedge Note) at  the time  such
            conversion is not approved.


            4. Pledge of Shares of  Hondo Magdalena.  Hondo will pledge  as
            security for the  Indebtedness, except the $13,500,000 that  is
            subject to  the conversion option above,  all of the shares  of
            Hondo's  subsidiary,  Hondo Magdalena  Oil  &  Gas  Limited,  a
            Jersey, Channel Islands corporation.


            5. Effect on Other Agreements.   Except as amended by the  note
            amendments, the   terms and  provisions of the  above-described
            agreements relating to the Lonrho Indebtedness shall remain  in
            full  force  and   effect,  including,  without  limiting   the
            generality  of  the  foregoing,  the  Letter  Agreements  dated
            December 17,  1993, November 10,  1994 and  December 22,  1995.
            The parties agree  to execute such other and further  documents
            as  may be  necessary  to  effect the  understandings  of  this
            latter agreement.   Nothing in this  letter agreement shall  be
            construed as an agreement  on the part of Lonrho or  Thamesedge
            to provide  extensions of the  maturity or other  restructuring
            of the Indebtedness in the future.




























       Thamesedge, Ltd. Letter Agreement
       December 13, 1996
       Page 4


            Please  confirm  that   the  foregoing  correctly  sets  forth   the
       agreement between us.

                                     Very truly yours,

                                     HONDO OIL & GAS COMPANY


                                     By:  /s/ John J. Hoey
                                          -----------------------
                                          John J. Hoey, President


                                     VIA VERDE DEVELOPMENT COMPANY


                                     By:  /s/ John J. Hoey
                                          -----------------------
                                          John J. Hoey, President


                                     NEWHALL REFINING CO., INC.

                                     By:  /s/ John J. Hoey
                                          -----------------------
                                          John J. Hoey, President

       Confirmed and accepted as of the date of first above written:

       THAMESEDGE, LTD.


       By:  /s/ R.E. Whitten
            -----------------------
            R. E. Whitten, Director


























                                      Exhibit A
                                   Thamesedge Note


               This Note  Amendment dated  September 30,  1996 amends  that
          certain 13.5% Senior  Subordinated Note due  1998 dated  November
          28, 1988 in the original principal amount of US$75,000,000,  from
          Pauley  Petroleum  Inc.  (now  Hondo  Oil  &  Gas  Company),   to
          Thamesedge, Ltd., as amended  by Note Amendments dated  September
          30,  1993,  September  30,  1994  and  September  30,  1995  (the
          "Original  Note"),  and  is   attached  to  the  Original   Note.
          Effective on September 30, 1996, the Original Note is amended  as
          follows:

               1. Principal Amount.   As  of September  30, 1996,  the
               principal amount  of the  Original  Note owing  is  US$
               36,361,684.44, and  interest  accrued  thereon  is  US$
               1,090,850.52.

               2. Principal Repayment.  The mandatory Redemption dates
               on the Original  Note are amended  to January 1,  1998,
               with the aggregate principal of the Original Note  then
               outstanding, plus  accrued interest,  being payable  on
               such date.

               3. Letter Agreement.  This Note Amendment is issued and
               delivered under  that  certain letter  agreement  dated
               December 13,  1996,  by  and  among  Hondo  Oil  &  Gas
               Company, Via  Verde  Development Company,  and  Newhall
               Refining Co., Inc., and Thamesedge, Ltd.

                                             HONDO OIL & GAS COMPANY


                                             By:
                                                  -----------------------
                                                  John J. Hoey, President

          The undersigned  hereby acknowledges  and consents  to this  Note
          Amendment.

          THAMESEDGE, LTD.

          By:
                    -------------------------
          Name:
                    -------------------------
          Title:
                    -------------------------

















                                      Exhibit B
                                    Lonrho Notes


               This Note Amendment  dated September 30,  1996 amends  those
          certain Promissory Notes dated September 1, 1991, in the original
          principal amount of US$10,000.000, dated November 1, 1991, in the
          original principal amount of US$9,000,000, and dated December 20,
          1991, in  the original  principal amount  of US$13,000,000,  each
          from Hondo Oil & Gas Company,  to Lonrho Plc, as amended by  Note
          Amendments dated  September  30,  1993, September  30,  1994  and
          September 30, 1995 (the "Original Notes"), and is attached to the
          Original Notes.  On  March  29,  1996,  Lonrho  Plc  assigned  to
          Thamesedge, Ltd.  all  of its  interest  in the  Original  Notes.
          Effective on September 30, 1996,  the Original Notes are  amended
          as follows:

               1. Principal Amount.   As  of September  30, 1996,  the
               principal amount  of the  Original Notes  owing is  US$
               31,199,830.26, and  interest  accrued  thereon  is  US$
               951,594.81.

               2. Principal Repayment.  The principal of the  Original
               Notes, together with all accrued interest to such date,
               is payable on January 1, 1998.

               3. Letter Agreement.  This Note Amendment is issued and
               delivered under  that  certain letter  agreement  dated
               December 13,  1996,  by  and  among  Hondo  Oil  &  Gas
               Company, Via  Verde  Development Company,  and  Newhall
               Refining Co., Inc., and Thamesedge, Ltd.

                                             HONDO OIL & GAS COMPANY

                                             By:
                                                  -----------------------
                                                  John J. Hoey, President

          The undersigned  hereby acknowledges  and consents  to this  Note
          Amendment.

          THAMESEDGE, LTD.


          By:
                    -------------------------
          Name:
                    -------------------------
          Title:
                    -------------------------
















                                      Exhibit C
                                   Via Verde Note

               This Note  Amendment dated  September 30,  1996 amends  that
          certain Promissory Note  dated April  30, 1993,  in the  original
          principal amount of US$3,000.000, from Hondo Oil & Gas Company to
          Lonrho Plc, as  amended by  Note Amendments  dated September  30,
          1993, September 30,  1994 and September  30, 1995 (the  "Original
          Note"), and is attached to the Original Note.  On March 29, 1996,
          Lonrho Plc assigned to  Thamesedge, Ltd. all  of its interest  in
          the Original Note.  Effective on September 30, 1996, the Original
          Note is amended as follows:

               1. Principal Amount.   As  of September  30, 1996,  the
               principal amount  of the  Original  Note owing  is  US$
               3,277,161.85,  and  interest  accrued  thereon  is  US$
               99,953.43.

               2. Principal Repayment.  The principal of this note  is
               payable on the earlier of (i) the sale of the  property
               securing the  loan  or  (ii) in  ten  (10)  semi-annual
               installments, commencing on January 1, 1998.

               3. Letter Agreement.  This Note Amendment is issued and
               delivered under  that  certain letter  agreement  dated
               December 13,  1996,  by  and  among  Hondo  Oil  &  Gas
               Company, Via  Verde  Development Company,  and  Newhall
               Refining Co., Inc., and Thamesedge, Ltd.

                                             VIA VERDE DEVELOPMENT COMPANY


                                             By:
                                                  -----------------------
                                                  John J. Hoey, President

          The undersigned  hereby acknowledges  and consents  to this  Note
          Amendment.

          THAMESEDGE, LTD.


          By:
                    -------------------------
          Name:
                    -------------------------
          Title:
                    -------------------------


















                                      Exhibit D
                                 Valley Gateway Note


               This Note  Amendment dated  September 30,  1996 amends  that
          certain Promissory  Note dated  June 25,  1993, in  the  original
          principal amount of US$4,000.000, from Hondo Oil & Gas Company to
          Lonrho Plc, as  amended by  Note Amendments  dated September  30,
          1993, September 30,  1994 and September  30, 1995 (the  "Original
          Note"), and is attached to the Original Note.  On March 29, 1996,
          Lonrho Plc assigned to  Thamesedge, Ltd. all  of its interest  in
          the Original  Note.     Effective  on  September  30,  1996,  the
          Original Note is amended as follows:

               1. Principal Amount.   As  of September  30, 1996,  the
               principal amount  of the  Original  Note owing  is  US$
               4,270,796.24,  and  interest  accrued  thereon  is  US$
               130,259.28.

               2. Principal Repayment.  The principal of this note  is
               payable on the earlier of (i) the sale of the  property
               securing the  loan  or  (ii) in  ten  (10)  semi-annual
               installments, commencing on January 1, 1998.

               3. Letter Agreement.  This Note Amendment is issued and
               delivered under  that  certain letter  agreement  dated
               December 13,  1996,  by  and  among  Hondo  Oil  &  Gas
               Company, Via  Verde  Development Company,  and  Newhall
               Refining Co., Inc., and Thamesedge, Ltd.

                                             HONDO OIL & GAS COMPANY

                                             By:
                                                  -----------------------
                                                  John J. Hoey, President

          The undersigned  hereby acknowledges  and consents  to this  Note
          Amendment.

          THAMESEDGE, LTD.


          By:
                    -------------------------
          Name:
                    -------------------------
          Title:
                    -------------------------


















                                      Exhibit E
                                    Facility Note


               This Note  Amendment dated  September 30,  1996 amends  that
          certain Promissory Note dated October  31, 1994, in the  original
          principal amount of US$5,000.000, from Hondo Oil & Gas Company to
          Lonrho Plc, as amended by Note Amendment dated September 30, 1995
          (the "Original Note"), and is attached to the Original Note.   On
          March 29, 1996, Lonrho  Plc assigned to  Thamesedge, Ltd. all  of
          its interest in the  Original Note.   Effective on September  30,
          1996, the Original Note is amended as follows:

               1. Principal Amount.   As  of September  30, 1996,  the
               principal amount  of the  Original  Note owing  is  US$
               5,000,000.00,  and  interest  accrued  thereon  is  US$
               138,216.67.

               2. Principal Repayment.  The principal of the  Original
               Note is payable on January 1, 1998.

               3. Letter Agreement.  This Note Amendment is issued and
               delivered under  that  certain letter  agreement  dated
               December 13,  1996,  by  and  among  Hondo  Oil  &  Gas
               Company, Via  Verde  Development Company,  and  Newhall
               Refining Co., Inc., and Thamesedge, Ltd.


                                             HONDO OIL & GAS COMPANY

                                             By:
                                                  -----------------------
                                                  John J. Hoey, President

          The undersigned  hereby acknowledges  and consents  to this  Note
          Amendment.

          THAMESEDGE, LTD.


          By:
                    -------------------------
          Name:
                    -------------------------
          Title:
                    -------------------------




















                                      Exhibit F
                                Revolving Credit Note


               This Note  Amendment dated  September 30,  1996 amends  that
          certain Promissory  Note dated  June 28,  1996, in  the  original
          principal amount of US$13,500.000, from  Hondo Oil & Gas  Company
          to Thamesedge, Ltd..  (the "Original Note"),  and is attached  to
          the Original Note.  Effective on September 30, 1996, the Original
          Note is amended as follows:

          1.   Principal  Amount.    As  of  September  30,  1996,  no
          principal amounts have been advanced.

          2. Principal Repayment.  The principal of the Original  Note
          is payable on January 1, 1998.


          3. Interest  Payment Dates.   In  addition to  the  interest
          payment dates specified  in the Original  Note, interest  on
          the unpaid principal  advanced shall be  paid on October  1,
          1997.

          4. Letter  Agreement.   This Note  Amendment is  issued  and
          delivered under that certain letter agreement dated December
          13, 1996, by and  among Hondo Oil &  Gas Company, Via  Verde
          Development Company,  and Newhall  Refining Co.,  Inc.,  and
          Thamesedge, Ltd.


                                             HONDO OIL & GAS COMPANY


                                             By:
                                                  -----------------------
                                                  John J. Hoey, President

          The undersigned  hereby acknowledges  and consents  to this  Note
          Amendment.

          THAMESEDGE, LTD.


          By:
                    -------------------------
          Name:
                    -------------------------
          Title:
                    -------------------------