<PAGE>



                                      FORM 10-K

                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549


                 [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended: September 30, 1997

                                         OR

               [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the transition period from:       to:


                           Commission file number:  1-8979


                               HONDO OIL & GAS COMPANY
               (Exact name of registrant as specified in its charter)

                            Delaware                    95-1998768
                  (State or other jurisdiction       (I.R.S. Employer
               of incorporation or organization)   Identification No.)

         10375 Richmond Avenue, Suite 900, Houston, TX    77042
            (Address of principal executive offices)    (Zip Code)

         Registrant's telephone number, including area code: (713) 954-4600


             Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each
                                                       exchange on
                      Title of each class            which registered
                      -------------------            ----------------
                       Common stock, par              American Stock
                       value $1 per share                Exchange


             Securities registered pursuant to Section 12(g) of the Act:

                                        None


                                     (continued)










                                          1




       Indicate by check mark whether the registrant (1) has filed all reports
       required to be filed by Section 13 or 15(d) of the Securities Exchange
       Act of 1934 during the preceding 12 months (or for such shorter period
       that the registrant was required to file such reports), and (2) has been
       subject to such filing requirements for the past 90 days.   Yes X    No

       Indicate by check mark if disclosure of delinquent filers pursuant to
       Item 405 of Regulation S-K (section 229.405 of this chapter) is not
       contained herein, and will not be contained, to the best of registrant's
       knowledge, in definitive proxy or information statements incorporated by
       reference in Part III of this Form 10-K or any amendment to this Form
       10-K.  [ ]

       The aggregate market value of the voting stock of the registrant held by
       non-affiliates of the registrant on December 12, 1997 based on the
       closing price on the American Stock Exchange of such stock on such date
       was $32,381,596.

       Registrant's Common Stock outstanding at December 12, 1997 was
       13,788,424 shares.

       DOCUMENTS INCORPORATED BY REFERENCE:  Portions of the proxy statement
       for the annual shareholders meeting are incorporated by reference into
       Part III.





































                                          2




                               HONDO OIL & GAS COMPANY

                         INDEX TO ANNUAL REPORT ON FORM 10-K


           Caption                                                       Page

       PART I

           Item  1.  Business ............................................. 4

           Item  2.  Properties ...........................................14

           Item  3.  Legal Proceedings ....................................15

           Item  4.  Submission of Matters to a Vote of Security
                      Holders .............................................16

       PART II

           Item  5.  Market for Registrant's Common Equity and
                      Related Stockholder Matters .........................17

           Item  6.  Selected Financial Data ..............................18

           Item  7.  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations .................20

           Item  8.  Financial Statements .................................31

           Item  9.  Changes In and Disagreements with Accountants
                      on Accounting and Financial Disclosure ..............61

       PART III

           Item 10.  Directors and Executive Officers of
                      the Registrant ......................................61

           Item 11.  Executive Compensation ...............................61

           Item 12.  Security Ownership of Certain Beneficial
                      Owners and Management ...............................61

           Item 13.  Certain Relationships and Related Transactions .......61

       PART IV

           Item 14.  Exhibits, Financial Statement Schedules, and
                      Reports on Form 8-K .................................61

       SIGNATURES  ........................................................62










                                          3




                     PART I

       As used in this report, unless the context otherwise requires, the terms
       "Registrant", "the Company" and "Hondo Oil" refer to Hondo Oil & Gas
       Company and its consolidated subsidiaries.


       Item 1.   BUSINESS

       (a)  General Development of Business

       The Company is an independent oil and gas company, presently focusing on
       international oil and gas exploration and development.  The Company was
       incorporated as Pauley Petroleum Inc. ("Pauley") in 1958.  In January
       1988, The Hondo Company ("Hondo") acquired a controlling interest in
       Pauley in exchange (the "Exchange") for all of the outstanding stock of
       Hondo's subsidiary, Hondo Oil & Gas Company.  In March 1988, the Company
       acquired Fletcher Oil and Refining Company ("Fletcher" or the "Fletcher
       refinery").  In January 1990, Pauley merged ("the Merger") with the
       wholly-owned subsidiary acquired in the Exchange, Hondo Oil & Gas
       Company.  In conjunction with the Merger, Pauley Petroleum Inc., the
       surviving corporation, changed its name to Hondo Oil & Gas Company.

       In December 1989, the Company permanently suspended operations at its
       wholly-owned subsidiary, Newhall Refining Co., Inc. ("Newhall
       refinery").  During 1991, Hondo Oil adopted plans of disposal for both
       its refining and marketing operations and its real estate operations
       (primarily the land underlying the Newhall refinery).  The Company
       suspended operations at its Fletcher refinery in October 1992 and
       completed a sale of substantially all of the refining and marketing
       operations in October 1993.

       In June 1992, the Company completed a sale of substantially all of its
       domestic oil and gas assets and repaid a substantial portion of its
       long-term debt with the proceeds.

       In January 1996, Lonrho Plc acquired control of the Company.  Prior to
       that date the control of the Company was effectively shared with Robert
       O. Anderson and his family.  In a Schedule 13D amendment filed October
       15, 1997, by Lonrho Plc and its affiliates, the filing parties said that
       Lonrho Plc had retained Morgan Stanley & Co. Incorporated to assess and
       implement strategic alternatives with respect to Lonrho's direct and
       indirect investment in the Company.  Lonrho Plc said such strategic
       alternatives could include, without limitation, a possible
       recapitalization of the Company or a sale or business combination
       involving the Company or Lonrho's direct and indirect equity interest in
       the Company (including the sale or assumption of the debt obligations of
       the Company to affiliates of Lonrho).

       The Company's principal asset is its exploration concession in Colombia.



       (b)  Financial Information About Industry Segments

       See Note 11 to the Consolidated Financial Statements in Item 8.  The
       Company presently operates in one segment.




                                          4




        (c) Narrative Description of Business


       INTERNATIONAL OPERATIONS

       The Company's wholly-owned subsidiary, Hondo Magdalena Oil & Gas Limited
       ("Hondo Magdalena"), participates in the Opon Association Contract (the
       "Opon Contract") with Empresa Colombiana de Petroleos ("Ecopetrol"),
       Opon Development Company ("ODC") and Amoco Colombia Petroleum Company
       ("Amoco Colombia").  Ecopetrol is a quasi-governmental corporate
       organization wholly-owned by the government of Colombia.  The Opon
       Contract was entered into between Ecopetrol and ODC in 1987, and
       approved by the Ministry of Mines and Energy in 1988, to explore and
       develop an area of approximately 190 square miles located in the Middle
       Magdalena Basin about 125 miles north of Bogota, Colombia.  The Opon
       Contract is divided into an exploration period and an exploitation
       period and expires in July 2015.

       The Opon Contract provides for an exploration period of six years, which
       commenced in July 1988 and was extended through September 30, 1995.  The
       minimum work obligations required by the Opon Contract for the
       exploration period were completed by the associate parties (Amoco
       Colombia, Hondo Magdalena and ODC).  The Opon Contract provides that at
       the end of the exploration period, the associate parties may seek to
       declare a field capable of producing commercial hydrocarbons (repaying
       investment and expenses and returning a profit) by presenting an
       application to Ecopetrol.  Ecopetrol has 90 days to respond to the
       associate parties' application.  If Ecopetrol agrees, then the field is
       declared to be commercial and production may commence.  Upon the
       designation of an area or field as commercial, Ecopetrol acquires a 50%
       interest in such area or field and reimburses the associate parties for
       50% of the direct exploration costs for each commercial discovery from
       its share of production.  Thereafter, Ecopetrol pays 50% of costs and
       will receive 50% of production.  Revenue from the Opon Contract area is
       subject to a 20% royalty, which is paid to the Colombian government.

       The associate parties completed the minimum work obligations for each of
       the six years of the exploration period with completion of the Opon No.
       4 well in September 1995.  An application for commerciality was
       submitted by Amoco Colombia in February 1996.  On May 8, 1996, Ecopetrol
       approved a commercial field of approximately 2,500 acres around the Opon
       No. 3 and No. 4 wells (described below).  The interests in the
       commercial field are approximately: Ecopetrol, 50%, Amoco Colombia, 30%,
       Hondo Magdalena, 15.4%, and ODC, 4.6%.  Amoco Colombia, Hondo Magdalena
       and ODC have interests in the remainder of the Opon Contract area of
       approximately 60%, 30.9% and 9.1%, respectively.  The commercial field
       is substantially smaller than that requested by Amoco Colombia.  The
       commercial field may be enlarged by future drilling and/or additional
       technical information.*  The associate parties submitted an application
       to declare the area around the Opon No. 6 well commercial in August
       1997.  Ecopetrol responded in September 1997 that it considered the
       information presented to be insufficient to evaluate the application for
       the extension of the commercial area.  The associate parties are
       evaluating Ecopetrol's response in light of the terms of the Opon
       Contract and plan to approach Ecopetrol for clarification of its
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion in Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7.


                                          5




       response.  At this date, the area around the Opon No. 6 well is not a
       part of the commercial area.  Ecopetrol will not pay for its share of
       expenditures to enlarge the commercial field until the new areas are
       proven and declared commercial.  Ecopetrol will participate in further
       development costs of the existing commercial field.

       The Opon Contract provides that at the end of the exploration period, if
       a field capable of producing hydrocarbons in commercial quantities has
       been discovered, the Opon Contract area will be reduced by 50%.  Two
       years thereafter, the Opon Contract area will be further reduced to 25%
       of the original area.  Two years thereafter, the Opon Contract area will
       be reduced to the area of the commercial field  that is in production or
       development, plus a reserve zone of five kilometers in width around the
       productive limit of such field.  The commercial field plus the zone
       surrounding such field will become the area of exploitation.  The
       associate parties designate the acreage to be released.  Additional
       wells will be required to enlarge the commercial area and to increase
       the size of the area of exploitation.

       The first acreage relinquishment of 50% occurred during 1996, effective
       September 30, 1995, reducing the area of the Opon Contract area to
       25,021.5 hectares (61,828 acres).  The Company believes that the first
       relinquishment did not cause the loss of significant exploration
       opportunities. The second acreage relinquishment was due on September
       30, 1997.  By agreement with Ecopetrol, the second relinquishment has
       been postponed until September 30, 1998.  As consideration, the
       associate parties agreed to perform, for the full Opon Contract area,
       surface geological studies and petrochemical analysis, and to undertake
       a study to determine the economic and technical viability of putting the
       shallow oil producing wells in the Opon Contract area into production.

       Hondo Magdalena acquired its interest in the Opon Contract from ODC.
       Prior to fiscal 1993, Hondo Magdalena and ODC drilled four wells to the
       shallow Mugrosa formation.  Following extended production and pressure
       testing, one of these wells was declared a dry hole.  In fiscal 1993,
       Hondo Magdalena drilled the Lilia No. 10 well to the La Paz formation at
       its sole cost.  The well was drilled to a total depth of 10,003 feet.
       The well encountered mechanical problems after the logs were run, and it
       was temporarily plugged and suspended.  The well may be re-entered at a
       future date.  By completing these operations, Hondo Magdalena acquired
       an 80% interest in the Opon Contract from ODC.

       Under a Farmout Agreement dated August 9, 1993, Amoco Colombia earned a
       60% participating interest in the Opon Contract, 50% from Hondo
       Magdalena and 10% from ODC.  Hondo Magdalena retained a 30% interest.
       Amoco Colombia paid $3.0 million in cash and paid Hondo Magdalena's
       costs related to the Opon No. 3 well, a well drilled to the La Paz
       formation.  Under the Farmout Agreement, Amoco Colombia paid Hondo
       Magdalena an additional $5.0 million in October 1994 and paid all but
       $2.0 million of Hondo Magdalena's costs related to the Opon No. 4 well,
       also drilled to the La Paz formation.

       The Opon No. 3 well, completed in September 1994, was drilled to a depth
       of 12,710 feet at a total cost of approximately $30.0 million.  The well
       tested at a daily rate of 45 million cubic feet of natural gas and 2,000
       barrels of condensate.  The hydrocarbons were tested from 1,118 feet of
       perforations in the La Paz formation through a 42/64-inch opening at the
       surface with 6,000 pounds-per-square-inch flowing tubing pressure.
       Downhole restrictions prevented the well from testing at higher rates.


                                          6




       The Opon No. 4 well, completed in September 1995, was drilled to a depth
       of 11,500 feet at a total cost of approximately $28.5 million.  The well
       tested at a daily rate of 58 million cubic feet of natural gas and 1,900
       barrels of condensate.  The hydrocarbons were tested from 1,022 feet of
       perforations in the La Paz formation through a 40/64-inch opening at the
       surface with 8,121 pounds-per-square-inch flowing tubing pressure.
       These two wells have confirmed the existence of a significant natural
       gas field.

       The Opon No. 6 well commenced drilling in October 1996.  This well is
       slightly more than 1 kilometer north of the Opon No. 3 well and is
       outside the current commercial area.  The well is presently estimated to
       cost $30.2 million, of which Hondo Magdalena's share is 30.9%.*  After
       the drilling was completed, several mechanical problems in the
       completion and testing of the Opon No. 6 well occurred.  After there was
       a failure of a portion of the guns during the initial completion attempt
       in April 1997, a second set of perforating guns were fired.  Cleanup and
       testing on the second set of perforations commenced in May 1997 and,
       while all the guns fired, the well has not flowed as anticipated.  The
       associate parties have suspended operations on the well in order to
       fully evaluate all data from the well and prepare a plan for further
       actions.  Amoco Colombia has recently proposed a workover of the Opon
       No. 6 well using propellant stimulation technology.  A decision on the
       proposal will be made in January 1998 following an economic analysis.*
       The associate parties are attempting to negotiate a settlement of claims
       against suppliers of services and equipment related to the problems
       encountered during completion operations on the Opon No. 6 well, but no
       settlement has been reached.  If a settlement is not reached, the next
       step will be arbitration.*  No prediction of the outcome of these
       matters can be made at this time.

       The Opon No. 14 well, approximately 4 kilometers south of the Opon No. 4
       well commenced drilling in October 1997.  The total cost of the well is
       estimated to be $21.5 million, of which Hondo Magdalena will bear
       30.9%.*  The well is planned for a total depth of 11,000 feet and is
       intended to confirm the existence of the La Paz gas and condensate
       reservoir in the south of the Opon Contract area.*  The drilling of the
       well has progressed in accordance with its plan to this date.

       Operations in the Opon Contract area are subject to the operating risks
       normally associated with exploration for, and production of, oil and
       gas, including blowouts, cratering, and fires, each of which could
       result in damage to, or destruction of, the oil and gas wells,
       formations or production facilities or properties.  In addition, there
       are greater than normal mechanical drilling risks at the Opon Contract
       area associated with high pressures in the La Paz and other formations.
       These pressures may: cause collapse of the well bore, impede the drill
       string while drilling, or cause difficulty in completing a well with
       casing and cement.

       Production is subject to political risks inherent in all foreign
       operations, including: (i) loss of revenue, property, and equipment as a
       result of unforeseen events such as expropriation, nationalization, war
       and insurrection, (ii) risks of increases in taxes and governmental
       royalties, (iii) renegotiation of contracts with governmental entities,
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion in Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7.


                                          7




       as well as, (iv) changes in laws and policies governing operations of
       foreign-based companies in Colombia.  Guerrilla activity in Colombia has
       disrupted the operation of oil and gas projects, including those at the
       Opon Contract area.  Security in the area has been improved and the
       associate parties have taken steps to enhance relations with the local
       population through a community relations program.  The government
       continues its efforts through negotiation and legislation to reduce the
       problems and effects of insurgent groups, including regulations
       containing sanctions such as impairment or loss of contract rights on
       companies and contractors if found to be giving aid to such groups.  The
       associate parties will continue to cooperate with the government, and do
       not expect that future guerrilla activity will have a material impact on
       the exploration and development of the Opon Project.  However, there can
       be no assurance that such activity will not occur or have such an impact
       and no opinion can be given on what steps the government may take in
       response to any such activity.

       Colombia is among several nations whose progress in stemming the
       production and transit of illegal drugs is subject to annual
       certification by the United States government.  In February 1997, the
       President of the United States announced that Colombia again would
       neither be certified nor granted a national interest waiver.  The
       consequences of the failure to receive certification generally include
       the following: all bilateral aid, except anti-narcotics and humanitarian
       aid, has been or will be suspended; the Export-Import Bank of the United
       States and the Overseas Private Investment Corporation will not approve
       financing for new projects in Colombia; U. S. representatives at
       multilateral lending institutions will be required to vote against all
       loan requests from Colombia, although such votes will not constitute
       vetoes; and the President of the United States and Congress retain the
       right to apply future trade sanctions.  Each of these consequences of
       the failure to receive such certification could result in adverse
       economic consequences in Colombia and could further heighten the
       political and economic risks associated with the Company's operations in
       Colombia.

       The government of Colombia has established a natural gas policy and is
       pursuing a program to maximize the utilization of natural gas throughout
       the country, including the industrial cities of Medellin, Cali and
       Bogota, where developed markets and infrastructure are expanding.  The
       Colombian government's policy on natural gas is intended to increase the
       consumption of natural gas in order to provide a more balanced use of
       its energy resources.  The policy includes the use of natural gas in
       place of higher cost electricity and in place of wood to reduce
       deforestation.  The government intends to encourage the development of
       markets for natural gas and is pursuing the development of pipeline
       transportation systems for new markets.  The proximity of the Opon
       Contract area to these potential gas markets will be an advantage for
       marketing the natural gas.

       In July 1995, Hondo Magdalena, ODC, Amoco Colombia and Ecopetrol agreed
       to construct a pipeline and wellhead facilities (which were not
       contemplated in the Opon Contract).  The parties  constructed a 16 inch
       pipeline approximately 88 kilometers in length from the Opon Contract
       area north to Ecopetrol's gas processing plant at El Centro, and from
       there to Ecopetrol's refinery at Barrancabermeja.  The investment in





                                          8




       pipeline costs will be recovered through a pipeline tariff.*  Ecopetrol
       has constructed improvements at its El Centro gas processing plant to
       handle incremental production from the Opon Contract area.  Ecopetrol
       will recover its investment through a gas processing fee.

       The Comision de Regulacion de Energia y Gas (Commission for the
       Regulation of Energy and Gas, "CREG"), an agency of the Ministry of
       Mines and Energy of the Colombian government, regulates natural gas
       pipelines and the sale of natural gas in Colombia.  CREG's regulations
       provide the ceiling price for natural gas and the methodology for
       establishing pipeline tariffs.  Based upon these regulations, Amoco
       Colombia, as operator applied for a tariff for the pipeline; CREG has
       not yet responded to this application.

       Contracts, covering the sale of natural gas, the sale of condensate and
       natural gas liquids, the processing of the gas stream, and
       transportation of natural gas and liquids are complete and have been
       signed by all parties.  The contracts provide for: (i) the sale of 100
       million cubic feet of natural gas per day for the life of the Opon
       Contract at the regulated price determined semi-annually by a formula
       based upon the average price received by Ecopetrol for exported fuel oil
       during the prior two six-month periods (currently US$1.08 per million
       British Thermal Units); (ii) the sale of condensate and natural gas
       liquids at market-related and market-indexed prices; and (iii) the
       processing of the gas stream at Ecopetrol's El Centro gas processing
       plant for a fee of $0.159 per thousand cubic feet of gas.  In a recent
       amendment to the gas processing agreement the associate parties agreed
       to bear the cost of processing royalty gas that is attributable to their
       interests and Ecopetrol reduced the fee for processing from $0.20 to
       $0.159 per thousand cubic feet of gas.  Ecopetrol, as purchaser, pays
       the pipeline tariff for the natural gas sold by the associate parties.

       On March 3, 1997, Hondo Magdalena, ODC, Amoco Colombia and Ecopetrol, as
       sellers, signed a contract with Termo Santander de Colombia E.S.P., as
       purchaser ("Termo Santander"), to supply, subject to the conditions
       noted below, natural gas to an electric generation plant at the Opon
       Contract area.  Termo Santander's power plant is located at the Opon
       Contract area.  Under the contract, the sellers will supply natural gas
       requested by the purchaser up to 60 million cubic feet per day.  The
       sellers will receive $4.2 million per year for making the gas available
       for purchaser's call.  Purchaser will pay 60% of the government-
       regulated price (described above) for the natural gas it takes.  The
       sellers will also receive additional bonus payments if the power plant
       achieves a price for its electrical power in excess of certain target
       rates.  Condensate associated with the natural gas that is delivered to
       the purchaser will be separately sold to Ecopetrol.  The contract
       provides for substantial penalties, decreasing over the life of the
       contract, to the sellers for the failure to deliver gas.  The
       commencement of the contract is conditioned upon the completion of the
       electric generation plant and a determination by the sellers that there
       are sufficient reserves to supply natural gas to the purchaser for the
       entire term of the agreement.  In order to begin deliveries before the
       condition concerning the sufficiency of reserves is satisfied, an
       interim agreement for the sale of gas to Termo Santander was signed on
       November 20, 1997.  The interim agreement will be effective until
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion in Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7.


                                          9




       January 1, 1999, or until sufficient reserves are determined through
       additional work on the Opon No. 6 well or the successful completion of
       the Opon No. 14 well.*  The gas sales price under the interim agreement
       will be equivalent to the price, including the pipeline tariff, that
       would have been received if the same gas were sold under the contract
       with Ecopetrol described in the preceding paragraph.

       The pipeline and wellsite facilities were completed in June 1997.
       Ecopetrol completed the improvements to the El Centro gas plant in
       November 1997.  Production from the Opon field began on December 1,
       1997, with gas supplied to Termo Santander for testing the first of two
       turbines at the power plant.  The first shipment of gas through the
       pipeline began on December 5, 1997, but was interrupted for one week
       shortly thereafter by a landslide.  The first shipment of gas was 10
       million cubic feet and the quantity is expected to increase to the
       contract quantity of 100 million cubic feet per day by calendar year end
       1997.*

       Development of the Opon Project will require significant future capital
       expenditures for which the Company will need additional funds.  See
       Management's Discussion and Analysis of Financial Condition and Results
       of Operations-Liquidity and Capital Resources in Item 7.


       DISCONTINUED OPERATIONS

       Refining and Marketing Operations

       On October 1, 1993, the Company completed the sale of the common stock
       of its Fletcher refinery and the assets of the Hilo, Hawaii asphalt
       terminal.  The Company's 41,000 bbl asphalt barge was sold in May 1993.
       An asphalt terminal in Honolulu, Hawaii and two gasoline stations
       acquired through bankruptcy proceedings against a former customer of
       Fletcher were disposed of in 1994.  There are no remaining assets of the
       refining and marketing operations.  See Note 12 to the Consolidated
       Financial Statements in Item 8.

       Real Estate Operations

       On December 15, 1989, the Company suspended operations at its Newhall
       refinery.  Subsequently, the Company adopted a plan of disposition which
       included dismantling the refinery, effecting environmental remediation
       of the land and further developing the land to a condition where it may
       be sold.  Execution of the plan was suspended in September 1993 and the
       Company is now marketing the site in its current condition and with
       existing land-use entitlements.  The Newhall refinery site consists of
       approximately 105 acres located adjacent to a major freeway intersection
       in northern Los Angeles County.  See Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7 and
       Note 12 to the Consolidated Financial Statements in Item 8.





       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion in Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7.


                                         10




       The Company owns in fee simple approximately 11 acres of undeveloped
       land located in eastern Los Angeles County.  An option to a developer on
       the Company's Via Verde tract at a price of $3.1 million expires in
       December 1997.  The option agreement will allow the Company the right to
       be released from the current agreement should there be a potential sale
       of the parcel to a ready and willing buyer.

       Each of the above real properties is subject to a mortgage in favor of
       Lonrho Plc.  See Note 5 to the Consolidated Financial Statements in Item
       8.


       COMPETITIVE FACTORS

       Other parties have developed or announced discoveries of natural gas in
       Colombia.  These reserves and potential reserves exist on the north
       coast of Colombia and in the Llanos Basin, east of the Company's
       interest at the Opon Contract area.  In the developing gas market of
       Colombia, these gas supplies will compete for existing and new markets,
       and for access to transportation facilities for natural gas.  Such
       competition may adversely affect the Company's ability to market its
       natural gas and/or the price of natural gas.  At this time, no
       prediction can be made as to the effect such competition will ultimately
       have upon the Company.


       OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS

       Environmental matters

       The Company's operations are subject to certain federal, state and local
       laws, including those of Colombia, and regulations governing the
       management of hazardous materials, the discharge of pollutants into the
       environment and the handling and disposal of solid and hazardous waste.

       (1)  General

            Minor spillage or discharge of petroleum and related substances are
            a common occurrence at oil refineries and at oil and gas production
            and drilling facilities.  Such spills and discharges could create
            liability under various federal, state and local environmental laws
            and regulations.  As is the case with other companies engaged in
            oil and gas exploration, production and refining, the Company faces
            exposure from potential claims and lawsuits involving environmental
            matters.  These matters may involve alleged soil and water
            contamination and air pollution.  The Company's policy is to accrue
            environmental and clean-up costs when it is probable that a
            liability has been incurred and the amount of the liability is
            reasonably estimable.  However, future environmental related
            expenditures cannot be reasonably quantified in many circumstances
            due to the conjectural nature of remediation and clean-up cost
            estimates and methods, the imprecise and conflicting data regarding
            the characteristics of various types of waste, the number of other
            potentially responsible parties involved and changing environmental
            laws and interpretations.  Management believes the reduced scope of
            the Company's operations following the sale of the Company's
            domestic oil and gas properties and the Fletcher refinery has
            significantly reduced the Company's potential exposure to
            environmental liability.


                                         11





       (2)  Fletcher Refinery

            Generators of hazardous substances found in disposal sites at which
            environmental problems are alleged to exist, as well as the owners
            of those sites and certain other classes of persons, are subject to
            claims brought by state and federal regulatory agencies.  Fletcher
            has been notified by the EPA that it is a potentially responsible
            party in a proceeding under the Comprehensive Environmental
            Response, Compensation and Liability Act ("CERCLA").  The notice
            relates to the Operating Industries, Inc. ("OII") dump site in
            Monterey Park, California.  During fiscal 1993, the Company sold
            the Fletcher refinery in a stock sale through which the purchaser
            assumed environmental liabilities of Fletcher, known and unknown.
            Any liability related to OII (to which Fletcher has asserted the
            defense of bankruptcy discharge and with respect to which Fletcher
            entered into a settlement with certain potentially responsible
            parties at the time of the bankruptcy) remains a liability of
            Fletcher and is no longer a liability of the Company.  However, the
            statutes impose liability on "owners" and "operators," and these
            statutes have been used to assert claims against controlling
            shareholders of corporations involved in claims under CERCLA and
            related statutes.  The Company is sole shareholder of Pauley
            Pacific Inc. which was sole shareholder of Fletcher.  The assertion
            of such a claim against the Company in the case of OII is
            considered by management to be remote, since the Company was not an
            owner of Fletcher until after the events occurred that are the
            basis of the notice to Fletcher on the OII dump site.

       (3)  Newhall Refinery Site

            The Company has evaluated the Newhall Refinery site to determine
            the impact of refining activities on the environment.  The Company
            has conducted an environmental assessment of the refinery site and
            a remediation plan for the site has been submitted to the Regional
            Water Quality Control Board and has received staff approval.  The
            Company estimates that $2.0 million would be incurred in executing
            the approved remediation plan; however, the Company expects to sell
            the property without incurring these costs by reducing the purchase
            price.  The Company's estimate of the net realizable value of this
            property has been reduced by estimated remediation costs in
            determining the carrying value of the property and therefore the
            remediation costs will not affect future results of operations.
            See Note 12 to the Consolidated Financial Statements in Item 8.

            The Newhall Refinery was recently notified by a California state
            agency that it is considered a potentially responsible party, under
            a state law that is equivalent to CERCLA, in the matter of the
            cleanup of a dump site previously operated by Environmental
            Protection Corporation, the Eastside Disposal Facility, near
            Bakersfield, California.  The Company has no record of having
            disposed of any waste at the site, and is continuing its
            investigation of the circumstances that have led to the
            notification.  Based upon the records obtained from other parties,
            the quantities of waste attributed to Newhall are minute relative
            to the total amount of waste delivered to the landfill.  However,
            management cannot assess at this time the potential exposure or
            liability, if any, to the Company.



                                         12




       Government Regulations and Legislative Proposals

       The Company is subject to governmental regulations which include various
       controls on the exploration for, production, sale, and transportation of
       crude oil and natural gas in Colombia.  See International Operations
       above.  A number of foreign, federal and other legislative proposals, if
       enacted, may have adverse effects on companies in the petroleum
       industry, including the Company.  These proposals involve, among other
       matters, the imposition of additional taxes, price controls, land use
       controls and other restrictive measures. The Company cannot determine to
       what extent future operations and earnings may be affected by new
       regulations or changes in current regulations.


       EMPLOYEES

       The Company employed 7 full-time personnel as of September 30, 1997.


       (d)  Financial Information About Foreign Operations

       See Note 11 to the Consolidated Financial Statements in Item 8.  The
       Company operates in one foreign location: Colombia, South America.  See
       International Operations, above.





































                                         13




       Item 2.   PROPERTIES

       OIL AND GAS PROPERTIES

       The Company's principal asset is its interest in the Opon Association
       Contract (the "Opon Contract"), an exploration concession for an area in
       the Middle Magdalena Valley of Colombia, South America.  Two wells
       drilled during 1994 and 1995 have confirmed the existence of a
       significant natural gas field.  The following information should be read
       in conjunction with the description of the Opon Contract contained in
       International Operations in Item 1, particularly the descriptions of
       commerciality, acreage relinquishment, and the term of the Opon
       Contract.

       (1)  For estimated net quantities of proved oil and gas reserves,
            results of operations from oil and gas producing activities and the
            standardized measure of discounted future net cash flows relating
            to proved oil and gas reserve quantities for the years ended
            September 30, 1997, 1996 and 1995, as applicable, see Supplementary
            Information about Oil and Gas Producing Activities and Reserves
            (Unaudited) following the Consolidated Financial Statements in Item
            8.

       (2)  The only estimates of total proved net oil and gas reserves filed
            with any federal agency during fiscal 1997 are those contained in
            this Annual Report on Form 10-K as filed with the Securities and
            Exchange Commission.

       (3)  No production income and cost per unit data for the years ended
            September 30, 1997, 1996 and 1995 exists and none will be reported
            until production in Colombia commences in fiscal 1998.

       (4)  The Company had two (0.3 net) wells capable of production (located
            in Colombia) at September 30, 1997.  An area of 2,500 acres (386
            net acres), which encompasses the two completed wells, was declared
            commercial in May 1996.  The Company's interest in the commercial
            area is 15.444375%.  Additional wells are permitted to be drilled
            on this acreage and additional areas reported as undeveloped in (5)
            below may be declared commercial in the future.

       (5)  Undeveloped acreage at September 30, 1997, all located in Colombia,
            consists of 59,327 gross acres, or 18,325 net acres, contained
            within the areas of the Opon Contract which have not been declared
            commercial.  The Company's interest in this area is 30.88875%.
            Portions of this acreage are subject to relinquishment to Ecopetrol
            in the future.

       (6)  Net wells completed (all located in Colombia) for the years ended
            September 30:

                                          1997      1996      1995
                                          ----      ----      ----

            Productive exploratory          -         -       0.3
            Dry exploratory                 -         -         -
            Productive development          -         -         -
            Dry development                 -         -         -




                                         14




            The Company's interest in net productive exploratory wells is
            computed at the Company's interest at the time they are drilled.
            The Company's interest in these wells is subject to a 50% reduction
            upon a declaration of commerciality.

       (7)  Present activity: The Opon No. 6 well was commenced on October 24,
            1996 in the non-commercial area of the Opon Contract and
            encountered several mechanical problems during completion and
            testing in April and May 1997. Work on the well has been suspended
            until a plan for further actions has been developed.  Amoco
            Colombia has recently proposed a workover of the Opon No. 6 well
            using propellant stimulation technology.  A decision on the
            proposal will be made in January 1998 following an economic
            analysis.*  Drilling of the Opon 14 commenced on October 23, 1997
            in the non-commercial area of the Opon Contract and is expected to
            be completed in the spring of 1998.*

       (8)  Delivery Commitments:

            The Company has executed two contracts for sales of specific
            quantities of natural gas from the Company's wells in Colombia.
            See International Operations in Item 1.  The Company believes the
            reserves discovered in the Opon No. 3 and 4 wells are adequate to
            meet these sales commitments in the near future.*  Additional wells
            are needed and will be drilled to insure the ability to meet
            delivery commitments over the life of the contract.*


       OTHER PROPERTIES

       Refer to Item 1 for descriptions of properties owned by the Company
       other than those described in Item 2, above.


       Item 3.   LEGAL PROCEEDINGS

       The Company is involved in a number of legal and administrative
       proceedings incident to the ordinary course of its business.  In the
       opinion of management, any liability to the Company relative to the
       various proceedings will not have a material adverse effect on the
       Company's operations or financial condition.

       The Company has evaluated the Newhall Refinery site to determine the
       impact of refining activities on the environment.  The Company has
       conducted an environmental assessment of the refinery site and a
       remediation plan for the site has been submitted to the Regional Water
       Quality Control Board and has received staff approval.  The Company
       estimates that $2.0 million would be incurred in executing the approved
       remediation plan; however, the Company expects to sell the property
       without incurring these costs by reducing the purchase price.  The
       Company's estimate of the net realizable value of this property has been
       reduced by estimated remediation costs in determining the carrying value
       of the property and therefore the remediation costs will not affect
       future results of operations.  See Note 12 to the Consolidated Financial
       Statements in Item 8.
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion in Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7.


                                         15





       In the agreement for the sale of Fletcher Refinery in 1993, the Company
       indemnified the buyer as to liabilities in excess of $0.3 million for
       certain federal and state excise taxes arising from periods prior to the
       sale.  Fletcher notified the Company in July 1994 that an audit for
       California Motor Vehicle Fuels Tax was underway and a preliminary review
       by then Fletcher employees indicated that a significant liability might
       exist.  The Company retained a consultant to evaluate the contingent
       liability.  In September 1994, the Company accrued $1.4 million as a
       result of the consultant's evaluation.  An additional $0.7 million was
       accrued in September 1995, primarily because of increases in the
       estimated amounts of penalties and interest which could be due.  The
       State of California issued a preliminary report in June 1996 which
       concluded taxes and penalties of $10.8 million were due as a result of
       the audit.  The State of California issued a Notice of Determination in
       July 1997 reducing the taxes and penalties due to $5.7 million.
       Assessed amounts are subject to a process of appeal and further
       adjustment, which remedies are still being pursued.  The buyer notified
       the Company that it claims indemnity in this matter and in January 1997
       filed suit in Superior Court, Los Angeles, California for a declaratory
       judgment enforcing the indemnity and for other relief.  The Company
       accrued an additional $1.2 million in September 1997.  The Company has
       accrued its best estimate of the ultimate liability and believes this is
       sufficient to provide for the amount that will ultimately be paid based
       on the information available.  No assurances can be given that the
       ultimate liability, if any, will be the amount accrued, and any such
       liability may be greater or less than the amount accrued.

       The Newhall Refinery was recently notified by a California state agency
       that it is considered a potentially responsible party, under a state law
       that is equivalent to the Federal Comprehensive Response, Compensation
       and Liability Act, in the matter of the cleanup of a dump site
       previously operated by Environmental Protection Corporation, the
       Eastside Disposal Facility, near Bakersfield, California.  The Company
       has no record of having disposed of any waste at the site, and is
       continuing its investigation of the circumstances that have led to the
       notification.  Based upon the records obtained from other parties, the
       quantities of waste attributed to Newhall are minute relative to the
       total amount of waste delivered to the landfill.  However, management
       cannot assess at this time the potential exposure or liability, if any,
       to the Company.


       Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       No matters were submitted to a vote of security holders during the
       fourth quarter of the fiscal year.














                                         16




                                       PART II

       Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                 MATTERS

       Closing stock price ranges for the quarterly periods during the fiscal
       years ended September 30, 1997 and 1996, as reported by the American
       Stock Exchange Monthly Market Statistics reports, were as follows:

                    December 31     March 31        June 30      September 30
                    -----------     --------        -------      ------------
       Fiscal 1997:
            Low       $ 10.75        $ 10.50        $  6.44        $  5.88
            High      $ 15.00        $ 14.00        $ 10.75        $  7.25

       Fiscal 1996:
            Low       $ 13.50        $  9.25        $ 11.13        $ 11.00
            High      $ 20.88        $ 13.88        $ 14.50        $ 16.88

       The common stock is listed on the American Stock Exchange under the
       symbol HOG.  The Company does not fully meet all of the guidelines of
       the American Stock Exchange for continued listing of its shares.  The
       delisting policies and procedures of the Exchange provide guidelines
       under which the Exchange will normally give consideration to suspending
       dealings in a security, or removing a security from listing.  Among
       those guidelines that may be applicable to the Company are: (i) having
       stockholders' equity of less than $2,000,000 if such company has
       sustained losses from continuing operations and/or net losses in two of
       its three most recent fiscal years; or (ii) having sustained losses
       which are so substantial in relation to its overall operations or its
       existing financial resources, or its financial condition has become so
       impaired that it appears questionable, in the opinion of the Exchange,
       as to whether such company will be able to continue operations and/or
       meet its obligations as they mature; or (iii) having sold or otherwise
       disposed of its principal operating assets or having ceased to be an
       operating company or having discontinued a substantial portion of its
       operations or business for any reason whatsoever.  Where the company has
       substantially discontinued the business that it conducted at the time it
       was listed or admitted to trading, and has become engaged in ventures or
       promotions which have not developed to a commercial stage or the success
       of which is problematical, it shall not be considered an operating
       company for the purposes of continued trading and listing on the
       Exchange.

       The number of shareholders of record on December 12, 1997 was 689.

       DIVIDEND POLICY

       The Company has not paid a dividend on its common stock in the two most
       recent fiscal years, nor has it ever done so.  The Company's loan
       agreement with Thamesedge, Ltd. restricts the payment of dividends to
       35% of the Company's Consolidated Net Adjusted Income (as defined in the
       loan agreement) plus $2.0 million.  Since the Company has incurred net
       losses during this fiscal year and prior years, the payment of dividends
       is restricted.






                                         17
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<HEADING>
                                       For the Fiscal Year Ended September 30,
                             ----------------------------------------------------------
                               1997 a      1996 a      1995 a      1994 a       1993
                             ----------   ---------   ---------   ---------   ---------
                                        (In Thousands Except Per Share Data)
<S>                          <C>          <C>         <C>         <C>         <C>      <C>
OPERATING DATA

Revenue                            $29        $112         $46        $728        $980
Gain (loss) on sale of assets       --          (6)         --      (1,240)         (8)
Operating costs and expenses     4,367       6,293       1,943       2,880       5,910
Depreciation, depletion
  and amortization                 230         156         266         220         365
Interest expense                 6,222       5,009       4,680       4,605       3,411
Provision for income taxes          (2)          5         113        (199)        (46)
                             ----------   ---------   ---------   ---------   ---------
Income (loss) from
  continuing operations        (10,788)    (11,357)     (6,956)     (8,018)     (8,668)

Loss from discontinued
  operations                    (1,600) b   (1,300) c   (4,950) b   (3,038) b  (15,176) d
                             ----------   ---------   ---------   ---------   ---------

Net Loss                      $(12,388)   $(12,657)   $(11,906)   $(11,056)   $(23,844)
                             ==========   =========   =========   =========   =========

Earnings (loss) per share
  Continuing operations         $(0.78)     $(0.83)     $(0.53)     $(0.62)     $(0.67)
  Discontinued operations        (0.12)      (0.10)      (0.37)      (0.23)      (1.16)
                             ----------   ---------   ---------   ---------   ---------

                                $(0.90)     $(0.93)     $(0.90)     $(0.85)     $(1.83)
                             ==========   =========   =========   =========   =========

Weighted average common
  shares outstanding            13,781      13,673      13,171      13,009      13,007
                             ==========   =========   =========   =========   =========
</TABLE>






















                                             18



<TABLE>
<HEADING>
                                       For the Fiscal Year Ended September 30,
                             ----------------------------------------------------------
                               1997 a      1996 a      1995 a      1994 a       1993
                             ----------   ---------   ---------   ---------   ---------
                                                   (In Thousands)
<S>                          <C>          <C>         <C>         <C>         <C>
OTHER FINANCIAL DATA

Working capital (deficit)      $(5,834)    $(5,109)    $(1,077)     $2,413      $1,729
                             ==========   =========   =========   =========   =========

Properties, net                $40,612     $21,248     $12,777     $10,855     $15,910
                             ==========   =========   =========   =========   =========

Net assets of discontinued
  operations                    $2,137  b   $2,202  c   $2,978  b   $6,851  b   $7,750  d
                             ==========   =========   =========   =========   =========

Total assets                   $44,930     $24,540     $18,398     $24,908     $30,142
                             ==========   =========   =========   =========   =========

Long-term debt                $102,903     $83,334     $82,213     $81,888     $78,828
                             ==========   =========   =========   =========   =========

Shareholders' equity(deficit) $(93,173)   $(80,891)   $(73,364)   $(66,681)   $(55,815)
                             ==========   =========   =========   =========   =========
</TABLE>









-----------------------------

a Under the terms of a Farmout Agreement, the Company's partner in the
  Company's Colombian operations paid for most costs incurred (both capitalized
  and expensed) in Colombia in 1995 and 1994.  The Company became responsible
  for its share of costs in Colombia in 1996.

b The Company recorded valuation provisions against the carrying value of its
  discontinued real estate operations and accrued for a contingent liability
  arising from its discontinued refining and marketing operations in 1997, 1995
  and 1994.

c The Company recorded valuation provisions against the carrying value of its
  discontinued real estate operations in 1996.

d The Company completed the sale of substantially all of its discontinued
  refining and marketing segment and recorded valuation provisions against the
  carrying value of its discontinued real estate segment in 1993.






                                             19





       Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS


       GENERAL DISCUSSION

       Introduction
       ------------
       Hondo Oil & Gas Company is an independent oil and gas company focusing
       on international oil and gas exploration and development.  The Company's
       principal asset is its interest in the Opon Association Contract (the
       "Opon Contract"), an exploration concession for an area in the Middle
       Magdalena Valley of Colombia, South America.  Significant reserves of
       natural gas and condensate were shown to exist in the Opon Contract area
       by two discovery wells drilled during 1994 and 1995.  In accordance with
       the terms of the Opon Contract, Empresa Colombiana de Petroleos
       ("Ecopetrol") declared a portion of the area as commercial in May 1996.
       A pipeline and related wellsite facilities to deliver natural gas and
       condensate to a market are complete, and production began in December
       1997.  Deliveries of natural gas to a power plant located at the Opon
       Contract area also began in December 1997.  The Opon No. 6 well
       encountered mechanical problems during completion operations and is
       temporarily suspended to evaluate information and develop plans for
       further operations on the well, including workover of the well.*
       Drilling of the Opon No. 14 well began in October 1997.  If no problems
       are encountered, the Opon No. 14 well should be completed and tested in
       the Spring of 1998.*  As further described below, the Company will
       require additional financing to continue development of the Opon
       project.


       Cautionary Statements
       ---------------------
       The Company believes that this report contains certain forward-looking
       statements, as defined in the Private Securities Litigation Reform Act
       of 1995, including, without limitation, statements containing the words
       "believes," "anticipates," "estimates," "expects," "may" and words of
       similar import, or statements of management's opinion.  Such forward
       looking statements involve known and unknown risks, uncertainties and
       other factors which may cause the actual results, performance or
       achievements of the Company to be materially different from any future
       results, performance or achievements expressed or implied by such
       forward-looking statements.  Such factors include, among others, the
       following:

       Substantial Reliance On Single Investment.  The Company's success
       currently is dependent on its investment in the Opon project in
       Colombia, South America.  See Note 1 to the Consolidated Financial
       Statements in Item 8.

       Role Of Ecopetrol.  Ecopetrol is a quasi-governmental corporate
       organization wholly-owned by the Colombian government, a party to the
       Opon Contract and the purchaser of natural gas and liquid hydrocarbons
       under contracts for the sale of production from the Opon field.  See
       International Operations, above.  At present, the price of natural gas
       is set by law enacted by the legislature of Colombia in 1983.  The
       ____________________
       *   This statement may be considered forward-looking.  See Cautionary
       Statements.


                                          20




       regulated price of natural gas could be changed in the future by
       governmental action.  The participation of Ecopetrol, a government-owned
       company, in the Opon project as a producer and as a purchaser, and the
       power of the government of Colombia to set the price of natural gas
       creates the potential for a conflict of interest in Ecopetrol and/or the
       government.  If such a conflict of interest materializes, the economic
       value of the Company's interest in the Opon project could be diminished.

       Marketing Of Natural Gas.  The Company must secure additional markets
       and sales contracts for natural gas in Colombia in order to increase
       production and cash flow from the Opon project.  This will depend on the
       continued development of gas markets and an infrastructure for the
       delivery of natural gas in Colombia.  Also, other producers of natural
       gas in Colombia will compete for the natural gas market and for access
       to limited pipeline transportation facilities.  See International
       Operations and Competitive Factors in Item 1.

       Foreign Operations.  The Company's operations in Colombia are subject to
       political risks inherent in all foreign operations.  See International
       Operations in Item 1.

       Risks Of Oil And Gas Exploration.  Inherent to the oil and gas industry
       is the risk that future wells will not find hydrocarbons where
       information from prior wells and engineering and geological data
       indicate hydrocarbons should be found.  Further, existing wells can
       deplete faster than anticipated, potentially causing revisions to
       reserve estimates and increasing costs due to replacement wells.  Also,
       because of the limited number of wells in the Opon Contract area, the
       impact of the loss of a single well would potentially affect the
       Company's production capability.  Operations in the Opon Contract area
       are subject to the operating risks normally associated with exploration
       for, and production of oil and gas.  See International Operations in
       Item 1.

       Laws And Regulations.  The Company may be adversely affected by new laws
       or regulations in the United States or Colombia regarding its operations
       and/or environmental compliance, or by existing laws and regulations.
       For additional information, see Other Factors Affecting the Company's
       Business in Item 1.

       Limited Capital.  At September 30, 1997 the Company had a deficiency in
       net assets of $93.2 million.  The Company's principal asset, its
       investment in the Opon project, will require additional capital for
       exploitation.  The Company has been unable to secure financing from
       sources other than its principal shareholder.  See Liquidity and Capital
       Resources below and Note 1 to the Consolidated Financial Statements in
       Item 8.

       Losses From Operations.  The Company experienced losses of $11,906,000,
       $12,657,000 and $12,388,000 for the years ended September 30, 1995, 1996
       and 1997, respectively.  The Company anticipates continued losses
       through fiscal 1998.  See Results of Operations below.

       Continuation Of American Stock Exchange Listing.  Because of continuing
       losses and decreases in shareholders' equity, the Company does not fully
       meet all of the guidelines of the American Stock Exchange for continued
       listing of its shares.  See Market for Registrant's Common Equity and
       Related Stockholder Matters in Item 5.  Management has kept the Exchange
       fully informed regarding the Company's present status and future plans.


                                          21




       Although the Company does not or may not meet all of the guidelines, to
       date, the American Stock Exchange has chosen to allow the Company's
       shares to remain listed.  However, no assurances can be given that the
       Company's shares will remain listed on the Exchange in the future.

       Given these uncertainties, prospective investors are cautioned not to
       place undue reliance on such forward-looking statements.  The Company
       disclaims any obligation to update any such factors or to publicly
       announce the result of any revisions to any of the forward-looking
       statements contained herein to reflect future events or developments.

       Opon Exploration
       ----------------
       Hondo Magdalena Oil & Gas Limited ("Hondo Magdalena"), a wholly-owned
       subsidiary, became involved in the Opon Contract through a farmout
       agreement with Opon Development Company ("ODC") in 1991.  In August
       1993, Hondo Magdalena and ODC entered into a Farmout Agreement under
       which Amoco Colombia Petroleum Company ("Amoco Colombia") earned a 60%
       participating interest in the Opon Contract.  To earn the interest,
       Amoco Colombia paid $3.0 million in cash in 1993 and paid all of the
       costs related to drilling the Opon No. 3 well in 1994.  In addition,
       Amoco Colombia paid Hondo Magdalena $5.0 million in October 1994 and
       paid all but $2.0 million of Hondo Magdalena's costs for drilling the
       Opon No. 4 well in 1995.

       The Opon No. 3 well, completed in September 1994, was drilled to a depth
       of 12,710 feet at a total cost of approximately $30.0 million.  The well
       tested at a daily rate of 45 million cubic feet of natural gas and 2,000
       barrels of condensate.  Downhole restrictions prevented the well from
       testing at higher rates.  The Opon No. 4 well, completed in September
       1995, was drilled to a depth of 11,500 feet at a total cost of
       approximately $28.5 million.  The well tested at a daily rate of 58
       million cubic feet of natural gas and 1,900 barrels of condensate.
       These two wells have confirmed the existence of a significant natural
       gas field and will supply gas for the contracts described below.

       Presently, Amoco Colombia, Hondo Magdalena and ODC have interests in the
       Opon Contract (outside the commercial area described below) of
       approximately 60%, 30.9% and 9.1%, respectively.  As provided in the
       Opon Contract, upon the designation of an area or field as commercial,
       Ecopetrol acquires a 50% interest in such area or field and will
       reimburse the associate parties for 50% of the direct exploration costs
       for each commercial discovery from its share of production.  In May
       1996, Ecopetrol approved a commercial field of approximately 2,500 acres
       around the Opon No. 3 and No. 4 wells.  The interests in the commercial
       field are approximately 50%, 30%, 15.4%, and 4.6% for Ecopetrol, Amoco
       Colombia, Hondo Magdalena, and ODC, respectively.  The commercial field
       is substantially smaller than that requested, but may be enlarged by
       future drilling and/or additional technical information.*   The
       associate parties submitted an application to declare the area around
       the Opon No. 6 well commercial in August 1997.  Ecopetrol responded in
       September 1997 that it considered the information presented to be
       insufficient to evaluate the application for the extension of the
       commercial area.  The associate parties are evaluating Ecopetrol's
       response in light of the terms of the Opon Contract and plan to approach
       Ecopetrol for clarification of its response.  At this date, the area
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          22




       around the Opon No. 6 well is not a part of the commercial area.
       Ecopetrol will not pay for its share of expenditures to enlarge the
       commercial field until the new areas are proven and declared commercial.
       Ecopetrol will participate in further development costs of the existing
       commercial field.

       The Opon Contract provides that the Opon Contract area will be reduced
       after the end of the exploration period, or September 30, 1995.  The
       first acreage relinquishment of 50% was completed during 1996.  The Opon
       Contract area now covers 25,021.5 hectares (61,827 acres).  The second
       acreage relinquishment was due on September 30, 1997.  By agreement with
       Ecopetrol, the second relinquishment has been postponed until September
       30, 1998.  As consideration, the associate parties agreed to perform,
       for the full Opon Contract area, surface geological studies and
       petrochemical analysis, and to undertake a study to determine the
       economic and technical viability of putting the shallow oil producing
       wells in the Opon Contract area into production.  On September 30, 1999,
       the Opon Contract area will be reduced to the area of the commercial
       field that is in production or development, plus a reserve zone of five
       kilometers in width around the productive limit of such field.  The
       commercial field plus the zone surrounding such field will become the
       area of exploitation.  The associate parties designate the acreage to be
       released.  Additional wells will be required to enlarge the commercial
       area and to increase the size of the area of exploitation.*

       The Opon No. 6 well commenced drilling in October 1996.  This well is
       slightly more than 1 kilometer north of the Opon No. 3 well and is
       outside the current commercial area.  The well is presently estimated to
       cost $30.2 million, of which Hondo Magdalena's share is 30.9%.*  After
       the drilling was completed, several mechanical problems in the
       completion and testing of the Opon No. 6 well occurred.  After there was
       a failure of a portion of the guns during the initial completion attempt
       in April 1997, a second set of perforating guns were fired.  Cleanup and
       testing on the second set of perforations commenced in May 1997 and,
       while all the guns fired, the well has not flowed as anticipated.  The
       associate parties have suspended operations on the well in order to
       fully evaluate all data from the well and prepare a plan for further
       actions.  Amoco Colombia has recently proposed a workover of the Opon
       No. 6 well using propellant stimulation technology.  A decision on the
       proposal will be made in January 1998 following an economic analysis.*
       The associate parties are attempting to negotiate a settlement of claims
       against suppliers of services and equipment related to the problems
       encountered during completion operations on the Opon No. 6 well, but no
       settlement has been reached.  If a settlement is not reached, the next
       step will be arbitration.*  No prediction of the outcome of these
       matters can be made at this time.

       The Opon No. 14 well, approximately 4 kilometers south of the Opon No. 4
       well, commenced drilling in October 1997.  The total cost of the well is
       estimated to be $21.5 million, of which Hondo Magdalena will bear
       30.9%.*  The well is planned for a total depth of 11,000 feet and is
       intended to confirm the existence of the La Paz gas and condensate
       reservoir in the south of the Opon Contract area.*  The drilling of the
       well has progressed in accordance with its plan to this date.


       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          23




       In July 1995, Hondo Magdalena, ODC, Amoco Colombia and Ecopetrol agreed
       to construct a pipeline and wellhead facilities (which were not
       contemplated in the Opon Contract).  The parties  constructed a 16 inch
       pipeline approximately 88 kilometers in length from the Opon Contract
       area north to Ecopetrol's gas processing plant at El Centro, and from
       there to Ecopetrol's refinery at Barrancabermeja.  The investment in
       pipeline costs will be recovered through a pipeline tariff.*  Ecopetrol
       has constructed improvements at its El Centro gas processing plant to
       handle incremental production from the Opon Contract area.  Ecopetrol
       will recover its investment through a gas processing fee.

       The Comision de Regulacion de Energia y Gas (Commission for the
       Regulation of Energy and Gas, "CREG"), an agency of the Ministry of
       Mines and Energy of the Colombian government, regulates natural gas
       pipelines and the sale of natural gas in Colombia.  CREG's  regulations
       provide the ceiling price for natural gas and the methodology for
       establishing pipeline tariffs.  Based upon these regulations, Amoco
       Colombia, as operator applied for a tariff for the pipeline; CREG has
       not yet responded to this application.

       Contracts, covering the sale of natural gas, the sale of condensate and
       natural gas liquids, the processing of the gas stream, and
       transportation of natural gas and liquids are complete and have been
       signed by all parties.  The contracts provide for: (i) the sale of 100
       million cubic feet of natural gas per day for the life of the Opon
       Contract at the regulated price determined semi-annually by a formula
       based upon the average price received by Ecopetrol for exported fuel oil
       during the prior two six-month periods (currently US$1.08 per million
       British Thermal Units); (ii) the sale of condensate and natural gas
       liquids at market-related and market-indexed prices; and (iii) the
       processing of the gas stream at Ecopetrol's El Centro gas processing
       plant for a fee of $0.159 per thousand cubic feet of gas.  In a recent
       amendment to the gas processing agreement the associate parties agreed
       to bear the cost of processing royalty gas that is attributable to their
       interests and Ecopetrol reduced the fee for processing from $0.20 to
       $0.159 per thousand cubic feet of gas.  Ecopetrol, as purchaser, pays
       the pipeline tariff for the natural gas sold by the associate parties.

       In March 1997, Hondo Magdalena, ODC, Amoco Colombia and Ecopetrol, as
       sellers, signed a contract with Termo Santander de Colombia E.S.P., as
       purchaser ("Termo Santander"), to supply, subject to the conditions
       noted below, natural gas to an electric generation plant at the Opon
       Contract area.  Termo Santander's power plant is located at the Opon
       Contract area.  Under the contract, the sellers will supply natural gas
       requested by the purchaser up to 60 million cubic feet per day.  The
       sellers will receive $4.2 million per year for making the gas available
       for purchaser's call.  Purchaser will pay 60% of the government-
       regulated price (described above) for the natural gas it takes.  The
       sellers will also receive additional bonus payments if the power plant
       achieves a price for its electrical power in excess of certain target
       rates.  Condensate associated with the natural gas that is delivered to
       the purchaser will be separately sold to Ecopetrol.  The contract
       provides for substantial penalties, decreasing over the life of the
       contract, to the sellers for the failure to deliver gas.  The
       commencement of the contract is conditioned upon the completion of the
       electric generation plant and a determination by the sellers that there
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          24




       are sufficient reserves to supply natural gas to the purchaser for the
       entire term of the agreement.  In order to begin deliveries before the
       condition concerning the sufficiency of reserves is satisfied, an
       interim agreement for the sale of gas to Termo Santander was signed on
       November 20, 1997.  The interim agreement will be effective until
       January 1, 1999, or until sufficient reserves are determined through
       additional work on the Opon No. 6 well or the successful completion of
       the Opon No. 14 well.*  The gas sales price under the interim agreement
       will be equivalent to the price, including pipeline tariff, that would
       have been received if the same gas were sold under the contract with
       Ecopetrol described in the preceding paragraph.

       The pipeline and wellsite facilities were completed in June 1997.
       Ecopetrol completed the improvements to the El Centro gas plant in
       November 1997.  Production from the Opon field began on December 1,
       1997, with gas supplied to Termo Santander for testing the first of two
       turbines at the power plant.  The first shipment of gas through the
       pipeline began on December 5, 1997, but was interrupted for one week
       shortly thereafter by a landslide.  The first shipment of gas was 10
       million cubic feet and the quantity is expected to increase to the
       contract quantity of 100 million cubic feet per day by the end of
       calendar 1997.*

       The associate parties have submitted invoices to Ecopetrol under the gas
       sales agreement for payments under the take-or-pay clause.  Ecopetrol
       has indicated that it will not pay these invoices.  The associate
       parties are reviewing their legal options to pursue the collection of
       these invoices.*

       Amoco Colombia has submitted budgets to Hondo Magdalena and ODC for
       calendar years 1996, 1997 and 1998.  Hondo Magdalena approved capital
       expenditures for wells and the pipeline projects, and certain other
       expenditures, but did not approve the proposed overhead.  As of this
       date, no final budget has been approved for calendar years 1996, 1997 or
       1998.  The parties are currently at an impasse in resolving the dispute
       about overhead.  Hondo Magdalena has paid invoices from Amoco Colombia,
       including disputed overhead and has charged the full overhead amount to
       expense.  It is management's opinion that the Company is not obligated
       to pay for overhead unless charged pursuant to an approved budget;
       however the Company has paid Amoco Colombia's invoices, under protest
       and subject to audit, in the hope of resolving the dispute.  If the
       dispute cannot be resolved, the joint operating agreement among Amoco
       Colombia, Hondo Magdalena and ODC provides for arbitration of disputes.













       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          25




       Discontinued Operations
       -----------------------

       Two of the Company's former business segments, refining and marketing
       operations and real estate operations were discontinued in 1991.

       On December 15, 1989, the Company suspended operations at its Newhall
       refinery.  Subsequently, the Company adopted a plan of disposition which
       included dismantling the refinery, effecting environmental remediation
       of the land and further developing the land to a condition where it may
       be sold.  Execution of the plan was suspended in September 1993 and the
       Company is now marketing the site in its current condition and with
       existing land-use entitlements.  The Newhall refinery site consists of
       approximately 105 acres located adjacent to a major freeway intersection
       in northern Los Angeles County.  See Management's Discussion and
       Analysis of Financial Condition and Results of Operations in Item 7 and
       Note 12 to the Consolidated Financial Statements in Item 8.

       The Company owns in fee simple approximately 11 acres of undeveloped
       land located in eastern Los Angeles County.  An option to a developer on
       the Company's Via Verde tract at a price of $3.1 million expires in
       December 1997.  The option agreement allows the Company the right to be
       released from the current agreement should there be a potential sale of
       the parcel to a ready and willing buyer.

       On October 1, 1993 the Company completed a transaction for the sale of
       its Fletcher refinery and related assets.  In the agreement for the sale
       of the Fletcher refinery, the Company indemnified the buyer as to
       liabilities in excess of $0.3 million for certain federal and state
       excise taxes arising from periods prior to the sale.  As more fully
       described in Note 12 to the Consolidated Financial Statements in Item 8,
       the State of California issued a preliminary report in June 1996 finding
       that the Fletcher refinery owed $10.8 million for certain state excise
       taxes (and related penalties and interest) arising from periods when the
       Company owned the Fletcher refinery.  The State of California issued a
       Notice of Determination in July 1997 reducing this amount to $5.7
       million.  Assessed amounts are subject to a process of appeals and may
       be further adjusted.*  The Company and the Fletcher refinery intend to
       further contest the assessment through the appeals and hearing process.
       The Company believes the liability it has accrued is sufficient to
       provide for the amount ultimately found to be due.*


       RESULTS OF OPERATIONS

       Results of operations for the year ended September 30, 1997 amounted to
       a loss of $12.4 million, or 90 cents per share, of which $10.8 million
       arose from continuing operations and $1.6 million resulted from
       discontinued operations. The Company reported a net loss of $12.7
       million, or 93 cents per share, for the year ended September 30, 1996.
       The 1996 loss included discontinued loss provisions of $1.3 million and
       a loss of $11.4 million from continuing operations.  In 1995, the
       Company reported a net loss of $11.9 million, or 90 cents per share,
       which included losses from discontinued operations of $5.0 million and a
       loss of $6.9 million from continuing operations.

       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          26




       As described previously, the Company had moved from a domestic oil and
       gas operation to a foreign oil and gas operation.  The historical
       results of continuing operations contain many non-recurring
       transactions.  As a result, they are not comparable and are a poor
       indicator of the Company's future operating results.  Management expects
       losses from continuing operations to continue through fiscal 1998.*

       1997 vs 1996
       ------------
       Operating costs for fiscal 1997 include an accrual of $0.4 million for
       revisions to estimated plugging and abandonment costs of an offshore
       unit in California.  No comparable costs were incurred in fiscal 1996.

       Overhead, Colombian operations decreased $0.4 million between the years
       ended September 30, 1997 and 1996 primarily because:(i) year end
       adjustments recorded by Amoco Colombia increasing the figure in December
       1995 did not recur in December 1996 and (ii) Ecopetrol participated in
       overhead expenses pertaining to the commercial operations for all of
       fiscal 1997, but only the last five months of fiscal 1996.

       The Company's Colombian operations undertook a seismic exploration
       program during fiscal 1996.  The decrease of $1.7 million in exploration
       costs between the years arises because there were no comparable expenses
       incurred in fiscal 1997.

       The level of the Company's indebtedness to Lonrho Plc and to Amoco
       Colombia under the Funding Agreement has increased by $31.1 million
       between September 30, 1996 and September 30, 1997.  Interest expense
       increased by only $1.2 million between the years ended September 30,
       1997 and 1996 because the majority of the charges from the Funding
       Agreement are capitalized.

       Management has the following expectations for 1998 results of
       operations: revenue and related operating costs and depreciation,
       depletion and amortization will increase significantly in conjunction
       with the commencement of production in December 1997; overhead,
       Colombian operations, general and administrative expense, and
       exploration expenses should not vary significantly from 1997.*  These
       factors are expected to combine to produce approximately break-even
       results before interest expense.*  The level of interest expense to be
       reported in 1998 is difficult to predict at the current time, but it
       will increase substantially from 1997 if no outside financing to repay
       the Funding Agreement is acquired.*

       1996 vs 1995
       ------------
       The Company's share of expenses from the Opon operation was borne solely
       by Amoco Colombia during 1995 and 1994 while the Opon Nos. 3 and 4 wells
       were being drilled.  The increases in operating expenses, overhead,
       Colombian operations and exploration costs of $0.1 million, $2.5 million
       and $1.6 million, respectively, for the year ended September 30, 1996 as
       compared to the year ended September 30, 1995, all arise from the
       Company assuming its share of these costs in 1996.  The increase in
       interest expense of $0.3 million between the years arises primarily from
       Colombian costs financed with the Funding Agreement.

       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          27




       Discontinued Operations
       -----------------------
       The Company implemented disposal accounting for its refining and
       marketing and real estate segments during 1991.  In 1997, the Company
       recorded loss provisions of $1.2 million and $0.4 million for its
       refining and marketing and real estate segments, respectively, as
       described previously.  Loss provisions of $0.4 million for the refining
       and marketing segment and $0.9 million for the real estate segment were
       recorded in 1996.  Loss provisions for 1995 amounted to $0.7 million and
       $4.3 million for refining and marketing and real estate, respectively.

       Operating losses from discontinued operations of $0.3 million, $0.1
       million, and $0.4 million for 1997, 1996, and 1995, respectively, were
       charged against loss provisions established in earlier periods.


       LIQUIDITY AND CAPITAL RESOURCES

       During fiscal, 1997, cash inflows of $14.6 million arose from borrowings
       from Lonrho Plc.  The Company utilized cash of $3.9 million and $0.4
       million to finance continuing and discontinued operations, respectively,
       $8.9 million for capital expenditures, and made scheduled debt
       repayments of $0.8 million.  At September 30, 1997, the Company had cash
       balances of $1.0 million.

       In December 1993, the Company restructured the terms of its debts to
       Lonrho Plc.  The revised terms included reduction of interest rates to a
       fixed rate of 6% and provisions allowing the Company to offer payment of
       future interest in shares of its common stock, and allowing Lonrho Plc
       to either accept such payment in kind or add the amount of the interest
       due to principal.  The ability to pay interest in kind or capitalize
       interest allows the Company to service its debt while cash resources are
       scarce.

       The Company obtained a facility loan of $13.5 million in a Revolving
       Credit Agreement dated as of June 28, 1996, between the Company and
       Thamesedge, Ltd., a subsidiary of Lonrho Plc.  This loan was amended and
       restated, as described below.  Under a December 1996 letter agreement,
       as consideration for extension of maturities and certain other financial
       undertakings, the Company granted to Lonrho a security interest in all
       of the shares of Hondo Magdalena.  The Company signed a Security
       Interest Agreement dated as of May 13, 1997 to document the pledge of
       the Hondo Magdalena shares.  The Company also agreed to give Lonrho an
       option to convert $13.5 million of existing loans with an interest rate
       of 6% into the Company's common stock.  The debt will be convertible at
       Lonrho's option at any time prior to  January 1, 1998 at a rate of
       $12.375 per share.  The portion of the debt that may be converted into
       common stock is not secured by the pledge of the Hondo Magdalena shares.
       The option to convert the debt into common stock was approved by the
       Company's shareholders at the 1997 Annual Meeting.

       In July 1997, the Company and Thamesedge, Ltd. agreed to amend and
       restate the June 1996 Revolving Credit Agreement.  Under the Amended and
       Restated Revolving Credit Agreement dated as of July 2, 1997, Thamesedge
       agreed to make additional advances of $7.0 million to the Company,
       making the total amount of the loan $20.5 million.  The interest rate
       remains 13%, due semi-annually; as provided in other debts to Thamesedge
       and described above, the Company may make interest payments in shares of
       its common stock.  The loan now matures January 1, 1999.  As additional


                                          28




       consideration for the loan, the Company  agreed to give Lonrho an option
       to convert $7.0 million of existing debt with an interest rate of 6%
       into the Company's shares at $7.70 per share (110% of the closing price
       on July 1, 1997).  The option to convert must be approved by the
       Company's shareholders at the next annual meeting.  If the option to
       convert is not approved by the shareholders, the interest rate on $7
       million of existing debt will increase to 13.5%.  Lonrho has further
       agreed to vote its shares on the matter of the option to convert in
       proportion to the votes cast by disinterested shareholders.  As of
       September 30, 1997, $14.6 million of this facility has been drawn.

       In August 1997, Thamesedge Ltd. assigned all of its interest in the
       Company's indebtedness to London Australian & General Property Company
       Limited ("LAGP"), a subsidiary of Lonrho Plc.  In December 1997 the
       Company restructured the terms of certain debt to LAGP, and obtained an
       additional funding commitment of $7.0 million for fiscal 1998.  The
       Company extended all of the above described indebtedness due on January
       1, 1998 to January 15, 1999 and amended the notes by adding a cross-
       default provision and a new event of default.  The new event of default
       requires the Company to furnish to LAGP by October 1, 1998 a reserve
       report that shows a minimum of 13 billion cubic feet of gas increase
       over the 1997 proved reserve figure.  In the event of a default under
       this new provision, LAGP has the right to declare all the loans in
       default and demand payment.  The new $7.0 million commitment from Lonrho
       Plc for fiscal 1998 will be added to the July 1997 Amended and Restated
       Revolving Credit Agreement under the same terms and condition as the
       existing agreement explained above.  The Company presently owes Lonrho
       Plc $99.9 million, of which $93.8 million is due January 15, 1999.

       On May 5, 1995, Hondo Magdalena, ODC and Amoco Colombia entered into a
       Funding Agreement for Tier I Development Project costs (the "Funding
       Agreement") for the interim financing of costs associated with the
       construction of a pipeline from the Opon Contract area (see Note 6 to
       the Consolidated Financial Statements in Item 8) and certain other costs
       related to the Opon Contract.  The Funding Agreement became effective on
       July 26, 1995.  Hondo Magdalena has financed its share of the costs
       (including overhead) for the pipeline and an approved geological and
       geophysical work program.  The Funding Agreement provides that Hondo
       Magdalena may repay the amounts financed up to 365 days after the date
       of first production, along with an equity premium computed on a 22%
       annualized interest rate.  The equity premium is computed monthly on
       Hondo Magdalena's share of expenditures (including any amounts to be
       later recouped from Ecopetrol after commerciality).  Alternatively, from
       the date of first production until 90 days thereafter, Hondo Magdalena
       may elect to repay 125% of its share (excluding any amounts to be later
       recouped from Ecopetrol after commerciality) of the total costs
       accumulated up to the date of repayment.  If the financed amounts are
       not repaid within 365 days after the date of first production, an
       additional penalty of 100% of the amount then due would be recovered out
       of Hondo Magdalena's revenues.  Hondo Magdalena's revenues from
       production of the first 80 million cubic feet of natural gas and
       corresponding condensate and natural gas liquids are pledged to secure
       its obligations under the Funding Agreement.  Production may be deemed
       to have commenced in December 1997 and the Company does not have the
       commitments or funds to repay the Funding Agreement within either the 90
       or 365 day option periods.*  If the Company does not secure financing to
       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          29




       repay the Funding Agreement prior to 365 days after the date of first
       production, it will incur the 100% penalty and will pay the increased
       amount out of production, as described above.*

       Based upon the Company's budget and current information, management
       believes existing cash, available facilities, Lonrho commitments, net
       proceeds from the sale of Opon gas and the Funding Agreement will be
       sufficient to finance the Company's known obligations (the pipeline and
       related facilities, estimated completion expenses of the Opon No. 6
       well, estimated drilling and completion expenses of the Opon No. 14
       well, overhead obligations unrelated to capital projects and other
       business activities) during fiscal 1998.*  However, management believes
       the Company will need additional cash to participate in the drilling of
       additional wells in Colombia and/or to participate in other capital
       projects.*  If the Company becomes obligated for the drilling of an
       additional well, or other capital projects, the Company has the option
       to not participate in some or all of the capital projects.*  In
       management's view, use of this election would be a last resort to
       preserve the Company's existing interest in the Opon Contract area
       because substantial penalties would be incurred by not participating.

       Cash flow from operations which commenced in December 1997 is not
       expected to be a source of free funds since pursuant to the Funding
       Agreement, Amoco receives the proceeds from the first 80 million cubic
       feet of gas and associated liquids.*  Any additional free cash flow is
       committed to existing loan obligations.  Management is reviewing several
       options for raising funds including sale of the Company's 15.4% interest
       in the pipeline.*  Management continues to pursue discussions with a
       number of financial institutions regarding debt or equity financing of
       the Company's future obligations for the Opon project but has received
       no commitments.*  Additional deliverability from current drilling
       projects and adequate production capability through the pipeline
       infrastructure will be important factors in obtaining third party
       financing.*  In the interim, the Company must continue to rely on the
       financial support of Lonrho.*  While the Company will continue to seek
       permanent financing in the near-term, there can be no assurance that the
       Opon Project will be successfully developed or that additional debt or
       equity funds will become available.*  Furthermore, the success of the
       Opon  No. 14 well is critical to obtaining third party financing (either
       debt or equity) and for the decision by the associate parties to the
       Opon Contract to continue the development of the Opon project.*















       ____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above.


                                          30
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          HONDO OIL & GAS COMPANY

                     CONSOLIDATED FINANCIAL STATEMENTS

                             SEPTEMBER 30, 1997



                       INDEX TO FINANCIAL STATEMENTS

                                                                       PAGE
                                                                       ----

  Report of Independent Auditors                                         32


  Financial Statements:
    Consolidated Balance Sheets as of
      September 30, 1997 and 1996                                        33

    Consolidated Statements of Operations for the years ended
      September 30, 1997, 1996 and 1995                                  34

    Consolidated Statements of Shareholders' Equity (Deficit)
      for the years ended September 30, 1997, 1996 and 1995              35

    Consolidated Statements of Cash Flows for the years ended
      September 30, 1997, 1996 and 1995                                  36

    Notes to Consolidated Financial Statements                           37


  Supplementary Information about Oil and Gas Producing Activities
    and Reserves (Unaudited)                                             56



























                                    31

<AUDIT-REPORT>
                       REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Hondo Oil & Gas Company


We have audited the accompanying consolidated balance sheets of Hondo Oil & Gas
Company as of September 30, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended September 30, 1997.  Our audits
also included the financial statement schedule listed in the Index at Item
14(a).  These financial statements and schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hondo
Oil & Gas Company at September 30, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles.  Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.




                                      /s/ ERNST & YOUNG LLP



Denver, Colorado
November 21, 1997,
except for Note 5 as to which the date is
December 18, 1997










</AUDIT-REPORT>






                                    32

                          HONDO OIL & GAS COMPANY
                        CONSOLIDATED BALANCE SHEETS
                  (In Thousands Except Share Information)


                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------
ASSETS
Current assets:
  Cash and cash equivalents                            $1,019         $374
  Accounts receivable, net of allowances
    of $44 and $332, respectively                         296          317
  Prepaid expenses and other                                1           79
                                                   -----------  -----------
    Total current assets                                1,316          770

Properties, net (Note 3)                               40,612       21,248
Net assets of discontinued operations (Note 12)         2,137        2,202
Other assets                                              865          320
                                                   -----------  -----------
                                                      $44,930      $24,540
                                                   ===========  ===========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                     $3,464       $2,849
  Current portion of long-term debt (Note 5)              265          738
  Accrued expenses and other (Note 4)                   3,421        2,292
                                                   -----------  -----------
    Total current liabilities                           7,150        5,879

Long-term debt, including $99,943 and
  $80,109, respectively, payable to a
  related party (Note 5)                              102,903       83,334
Funding agreement (Note 6)                             22,788       11,513
Other liabilities, including $3,407 and
  $2,411, respectively, payable to a
  related party (Note 7)                                5,262        4,705
                                                   -----------  -----------
                                                      138,103      105,431

Contingent liabilities (Notes 10 and 12)

Shareholders' equity (deficit) (Notes 5 and 8):
  Preferred stock                                          --           --
  Common stock, $1 par value, 30,000,000 shares
    authorized; shares issued and outstanding:
    13,788,424 and 13,776,194, respectively            13,788       13,776
  Additional paid-in capital                           53,675       53,581
  Accumulated deficit                                (160,636)    (148,248)
                                                   -----------  -----------
                                                      (93,173)     (80,891)
                                                   -----------  -----------
                                                      $44,930      $24,540
                                                   ===========  ===========






The accompanying notes are an integral part of these financial statements.

                                    33

<TABLE>
<CAPTION>
                                 HONDO OIL & GAS COMPANY
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands Except Share and Per Share Data)


                                                            For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
<S>                                                <C>          <C>          <C>
REVENUES
Sales and operating revenue                                $4           $2          $23
Other income                                               25          110           23
                                                   -----------  -----------  -----------
                                                           29          112           46
                                                   -----------  -----------  -----------

COSTS AND EXPENSES
Operating costs                                           575          169           47
Depreciation, depletion, and amortization                 230          156          266
Overhead, Colombian operations                          2,183        2,576          119
General and administrative                              1,582        1,779        1,608
Exploration costs                                          27        1,769          169
Interest on indebtedness including $6,222,
  $4,786 and $4,659, respectively, to a
  related party (Note 5)                                6,222        5,009        4,680
Loss on sale of assets                                     --            6           --
                                                   -----------  -----------  -----------
                                                       10,819       11,464        6,889
                                                   -----------  -----------  -----------
Loss from continuing operations
  before income taxes                                 (10,790)     (11,352)      (6,843)
Income tax expense (benefit) (Note 9)                      (2)           5          113
                                                   -----------  -----------  -----------
Loss from continuing operations                       (10,788)     (11,357)      (6,956)

Loss from discontinued operations (Note 12)            (1,600)      (1,300)      (4,950)
                                                   -----------  -----------  -----------
Net Loss                                             $(12,388)    $(12,657)    $(11,906)
                                                   ===========  ===========  ===========

Loss per share:
  Continuing operations                                $(0.78)      $(0.83)      $(0.53)
  Discontinued operations                               (0.12)       (0.10)       (0.37)
                                                   -----------  -----------  -----------
  Net loss per share                                   $(0.90)      $(0.93)      $(0.90)
                                                   ===========  ===========  ===========

Weighted average common shares outstanding         13,780,963   13,672,722   13,171,049
</TABLE>









The accompanying notes are an integral part of these financial statements.

                                         34

<TABLE>
<CAPTION>
                                       HONDO OIL & GAS COMPANY
                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                 (In Thousands Except Common Shares)


                                                         Common Stock                      Retained
                                                   ------------------------  Additional    Earnings
                                                                               Paid-In   (Accumulated
                                                     Shares       Amount       Capital     Deficit)
                                                   -----------  -----------  -----------  -----------
<S>                                                <C>          <C>          <C>          <C>
Balance at October 1, 1994                         13,032,276      $13,032      $43,972    $(123,685)
  Purchase of interest in Opon Association
    Contract with common stock (Note 3)                44,438           44          845           --
  Payment of interest with common stock (Note 5)      189,080          189        2,104           --
  Exercise of stock options (Note 8)                  157,584          158        1,883           --
  Net loss                                                 --           --           --      (11,906)
                                                   -----------  -----------  -----------  -----------
Balance at September 30, 1995                      13,423,378       13,423       48,804     (135,591)

  Payment of interest with common stock (Note 5)      319,316          319        4,423           --
  Exercise of stock options (Note 8)                   33,500           34          354           --
  Net loss                                                 --           --           --      (12,657)
                                                   -----------  -----------  -----------  -----------
Balance at September 30, 1996                      13,776,194       13,776       53,581     (148,248)

  Payment of liabilities with common stock             12,230           12           94           --
  Net loss                                                 --           --           --      (12,388)
                                                   -----------  -----------  -----------  -----------
Balance at September 30, 1997                      13,788,424      $13,788      $53,675    $(160,636)
                                                   ===========  ===========  ===========  ===========
</TABLE>




























The accompanying notes are an integral part of these financial statements.

                                                 35

<TABLE>
<CAPTION>
                                       HONDO OIL & GAS COMPANY
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (In Thousands)


                                                                         For the years ended
                                                                -------------------------------------
                                                                            September 30,
                                                                   1997         1996         1995
                                                                -----------  -----------  -----------
<S>                                                             <C>          <C>          <C>
Cash flows from operating activities:
  Pretax loss from continuing operations                          $(10,790)    $(11,352)     $(6,843)
  Adjustments to reconcile pretax loss from continuing
    operations to net cash used by continuing operations:
    Depreciation, depletion and amortization                           230          156          266
    Loss on sale of assets                                              --            6           --
    Accrued interest added to long-term debt                         5,261           34        2,385
    Accrued interest paid with common stock                             --        4,742        2,292
    Changes in operating assets and liabilities:
      Decrease (increase) in:
        Accounts receivable                                             21           10          199
        Prepaid expenses and other                                      78          (72)          26
        Other assets                                                  (731)         (12)        (201)
      Increase (decrease) in:
        Accounts payable                                               230        1,189          159
        Accrued expenses and other                                     (40)          --          123
        Funding agreement                                            1,961        3,361          275
        Other liabilities                                             (118)        (178)        (357)
                                                                -----------  -----------  -----------
      Net cash used by continuing operations                        (3,898)      (2,116)      (1,676)
      Net cash used by discontinued operations                        (366)        (210)        (473)
                                                                -----------  -----------  -----------
      Net cash used by operating activities                         (4,264)      (2,326)      (2,149)
                                                                -----------  -----------  -----------
Cash flows from investing activities:
  Sale of assets                                                        --            1        4,804
  Capital expenditures                                              (8,926)        (913)      (2,021)
                                                                -----------  -----------  -----------
      Net cash provided (used) by investing activities              (8,926)        (912)       2,783
                                                                -----------  -----------  -----------
Cash flows from financing activities:
  Proceeds from long-term borrowings                                14,600        1,825        3,175
  Principal payments on long-term debt                                (765)        (235)      (5,220)
  Issuance of stock                                                     --          251        2,041
                                                                -----------  -----------  -----------
      Net cash provided (used) by financing activities              13,835        1,841           (4)
                                                                -----------  -----------  -----------

Net increase (decrease) in cash and cash equivalents                   645       (1,397)         630

Cash and cash equivalents at the beginning of the year                 374        1,771        1,141
                                                                -----------  -----------  -----------
Cash and cash equivalents at the end of the year                    $1,019         $374       $1,771
                                                                ===========  ===========  ===========

</TABLE>Refer to Notes 3 and 6 for descriptions of non-cash transactions.



The accompanying notes are an integral part of these financial statements.

                                                 36

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


1)  Nature of Business
    ------------------

    Hondo Oil & Gas Company ("Hondo Oil" or "the Company") is an independent oil
    and gas exploration and development company.  The Hondo Company owns 62.7%
    of Hondo Oil & Gas Company.  Lonrho Plc ("Lonrho"), a publicly-traded
    English company and the Company's primary lender, owns 100% of The Hondo
    Company and owns an additional 5.7% of the Company through another
    wholly-owned subsidiary.  In total, Lonrho controls 68.4% of the Company's
    outstanding shares.

    During 1991 the Company adopted plans of disposal for its refining and
    marketing and real estate operations.  Substantially all of the refining and
    marketing assets were sold in 1993.  Following the sale of substantially all
    of its domestic oil and gas properties in 1992, the Company's sole
    continuing business activity is exploitation of an oil and gas concession in
    Colombia, South America.

    The Company's wholly-owned subsidiary, Hondo Magdalena Oil & Gas Limited
    ("Hondo Magdalena"), became involved in the Opon Association Contract (the
    "Opon Contract") in Colombia in 1991.  Amoco Colombia Petroleum Company
    ("Amoco Colombia") earned an interest in the Opon Contract through a Farmout
    Agreement executed in 1993.  Amoco Colombia, Hondo Magdalena, and Opon
    Development Company presently have working interests of approximately 60%,
    31%, and 9%, respectively.  The Colombian national oil company, Ecopetrol,
    has the right to acquire 50% of the Opon Contract when commerciality is
    declared and will reimburse the associate parties (out of future production)
    for 50% of the direct exploration costs.  In 1995, Ecopetrol agreed to
    include certain costs related primarily to construction of a pipeline and
    wellsite facilities in the commercial area, and to pay cash for its share of
    those costs.  Commerciality was declared for a portion of the Contract area
    in May 1996 and Ecopetrol reimbursed the associate parties for its share of
    the above described costs in September 1996 (See Note 6).  Subsequent to the
    declaration of commerciality, the Company's share of costs for activities
    within the commercial area is approximately 15%.

    Amoco Colombia was obligated by the 1993 Farmout Agreement to fund all but
    $2,000 of Hondo Magdalena's share of drilling and related costs during the
    drilling of two exploration wells and to make certain payments to Hondo
    Magdalena.  Amoco Colombia spent approximately $56,500 to drill the  first
    two exploratory natural gas wells in 1994 and 1995.  The combined results of
    production tests of these wells indicate they will produce at a daily rate
    of 103 million cubic feet of natural gas and 3,900 barrels of condensate.
    The Company was able to attribute proved reserves to this discovery as of
    September 30, 1996 following completion of negotiations for sales of the
    discovered hydrocarbons.  As more fully described in Note 6, Amoco Colombia
    agreed to finance the Company's share of costs to build a natural gas
    pipeline, construct wellhead facilities, and acquire seismic data, including
    related overhead.  Acquisition of the seismic data was completed during
    fiscal 1996, and construction of the pipeline and related wellhead
    facilities was completed during fiscal 1997.  The Company began earning
    revenue in December 1997.





                                    37

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


1)  Nature of Business (continued)
    ------------------------------

    A third well was drilled during fiscal 1997.  In April and May 1997, several
    mechanical problems were encountered during the completion and testing of
    the third well.  Further work on the well has been suspended until a plan
    has been finalized (estimated to occur in January 1998).  Drilling of a
    fourth well commenced in October 1997.  Both of the third and fourth wells
    are located in the non-commercial portion of the concession, therefore,
    Ecopetrol does not pay a share of the drilling costs.

    As more fully described in Note 6, a substantial portion of the Company's
    revenue is pledged to repayment of the Funding Agreement.  Cash from
    operations after Funding Agreement repayments will not be sufficient to fund
    Colombian operating costs and capital expenditures, and U.S. overheads,
    during fiscal 1998.  Based upon the Company's budget, management believes
    existing facilities and further commitments from Lonrho and the Funding
    Agreement will be sufficient to finance the Company's known cash
    requirements during fiscal 1998.  The Company will require significant
    additional funding for the continued development of the Opon Contract area
    and repayment of the Funding Agreement subsequent to fiscal 1998.  The
    Company has the option to not participate in some or all of the Opon capital
    projects which may be proposed in the future and the option to allow the
    Funding Agreement to be repaid entirely from production.  However,
    substantial penalties would be incurred by choosing either of these
    alternatives.

    The Company continues to be dependent on its majority shareholder, Lonrho
    Plc, to fund its future cash needs.  Management believes that outside
    financing will not be forthcoming until Opon 14 is successfully completed in
    the spring of 1998.  Obtaining permanent financing for development of the
    Company's Opon project is vital to the Company's ability to successfully
    exploit this concession in the future.  There can be no assurance that the
    Opon Project will be successfully developed or that additional debt or
    equity funds will become available.


2)  Summary of Significant Accounting Policies
    ------------------------------------------

    (a) Basis of Consolidation and Presentation
        ---------------------------------------

    The consolidated financial statements of Hondo Oil include the accounts of
    all subsidiaries, all of which are wholly owned.  All significant
    intercompany transactions have been eliminated.

    In 1991, the Company adopted plans of disposal for its refining and
    marketing and its real estate segments, respectively.  Accordingly, the
    results of operations and the net assets of the discontinued segments have
    been reclassified to discontinued operations for all periods presented.
    Assets of discontinued operations are recorded at the lower of cost or net
    realizable value.  Refer to Note 12.




                                    38

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


2)  Summary of Significant Accounting Policies (continued)
    ------------------------------------------------------

    (b) Cash Equivalents
        ----------------

    Cash equivalents represent highly liquid investments with original
    maturities of three months or less.

    (c) Oil and Gas Properties
        ----------------------

    Oil and gas properties are accounted for using the successful efforts
    method.  Under this method, property acquisition costs are capitalized when
    incurred.  Exploratory geological and geophysical costs and general and
    administrative costs, including salaries, are expensed as incurred. The
    Company capitalizes interest expense for individual capital projects
    requiring more than three months for completion and costing more than
    $1,000.  The costs of drilling exploratory wells are capitalized pending
    determination of whether the wells have found proved reserves.  If proved
    reserves are not discovered, such dry hole costs are expensed.  All
    developmental drilling costs, including those for unsuccessful wells, are
    capitalized.

    Acquisition costs of unproved properties which are considered to be
    individually significant are periodically assessed for impairment on a
    property-by-property basis.  Individually insignificant properties are
    assessed for impairment as a group.  Any decline in value is included in the
    statement of operations in exploration costs.

    Intangible drilling and development costs and tangible equipment are
    depleted by the units-of-production method using proved developed reserves
    on a field basis.  Leasehold costs are also depleted on a field basis using
    total proved reserves.  Estimates of proved reserves are based upon reports
    of independent petroleum engineers.

    (d) Other Fixed Assets
        ------------------

    Other fixed assets are recorded at historical cost and are depreciated by
    the straight-line method using useful lives of 7 to 10 years.

    (e) Earnings Per Share
        ------------------

    In February 1997, the Financial Accounting Standards Board issued SFAS No.
    128, Earnings per Share.  Under the new requirements, the dilutive effect of
    stock options is to be excluded from the primary earnings per share
    computation.  The Company has incurred losses in each of the periods covered
    in these financial statements, thereby making the inclusion of stock options
    in the primary earnings per share computation antidilutive. Accordingly,
    stock options have already been excluded from the primary earnings per share
    computation and previously reported primary earnings per share amounts do
    not need to be restated. Fully diluted per share amounts are the same as
    primary per share amounts and, accordingly, are not presented.


                                    39

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


2)  Summary of Significant Accounting Policies (continued)
    ------------------------------------------------------

    (f) Income Taxes
        ------------

    The Company accounts for income taxes under the provisions of SFAS No. 109,
    "Accounting For Income Taxes."  Under Statement 109, the liability method is
    used in accounting for income taxes.  Deferred tax assets and liabilities
    are determined based on reversals of differences between financial reporting
    and tax bases of assets and liabilities and are measured using the enacted
    effective tax rates and laws that will be in effect when the differences are
    expected to reverse.

    Investment tax credits are accounted for by the flow-through method which
    recognizes related benefits in the year realized.

    (g) Loan Fees
        ---------

    Capitalized loan fees pertaining to long-term loans are included in other
    assets.  The loan fees are stated at cost and are amortized by the
    straight-line method, which approximates the level yield method, over the
    life of the related loan.

    (h) Foreign Currency Translation
        ----------------------------

    The Company's Colombian business is conducted in a highly inflationary
    economic environment.  Accordingly, the financial statements of the
    Company's foreign subsidiary are remeasured as if the functional currency
    were the U.S. dollar using historical exchange rates.  Exchange gains and
    losses, which have been immaterial to date, are included in operating costs.

    (i) Use of Estimates
        ----------------

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the amounts reported in the financial statements and
    accompanying notes.  Actual results could differ from those estimates.

    (j) Fair Value of Financial Instruments
        -----------------------------------

    SFAS Statement No. 107, Disclosures About Fair Value of Financial
    Instruments, requires disclosures of fair value information about financial
    instruments for which it is practicable to estimate that value.  The
    Company's financial instruments include: cash and cash equivalents,
    receivables, accounts payable, long-term debt, the Funding Agreement, and
    certain other long-term liabilities.  Disclosures of fair values determined
    in accordance with SFAS No. 107 are included in Notes 5, 6, and 7.  The
    Company believes that the recorded values approximate fair values for
    financial instruments for which no separate disclosure of fair value is
    made.


                                    40

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


2)  Summary of Significant Accounting Policies (continued)
    ------------------------------------------------------

    (k) Stock Option Valuation
        ----------------------

    The Company implemented the disclosure requirements of SFAS No. 123,
    Accounting and Disclosure of Stock-Based Compensation as of September 30,
    1997.  The Statement gives companies the option to either follow fair value
    accounting or to continue to follow Accounting Principles Board Opinion No.
    25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
    interpretations.  The Company has elected to continue to follow APB No. 25
    for recognition of expense from stock options and stock-based awards.
    Therefore, implementation of the Statement had no impact on results of
    operations for any of the years reported.

    (l) Reclassifications
        -----------------

    Certain reclassifications have been made to the prior years' amounts to make
    them comparable to the fiscal 1997 presentation.  These additional changes
    had no impact on previously reported results of operations or shareholders'
    equity (deficit).


3)  Properties
    ----------

    Properties, at cost, consist of the following:

                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------

    Oil and gas properties (Colombia):
      Proved                                          $11,923      $11,803
      Accumulated depletion, depreciation
        and amortization                                   --           --
                                                   -----------  -----------
                                                       11,923       11,803
                                                   -----------  -----------
    Other properties - Colombia:
      Wellsite facilities                               4,689        2,039
      Pipelines                                        12,061        5,398
      Wells in progress                                11,821        1,858
    Other properties - domestic
      Other fixed assets                                  323          311
      Accumulated depreciation                           (205)        (161)
                                                   -----------  -----------

                                                      $40,612      $21,248
                                                   ===========  ===========





                                    41

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


3)  Properties (continued)
    ----------------------

    The balance of wells in progress includes non-cash increases of $674 and
    $1,225 which were accrued in accounts payable as of September 30, 1997 and
    1996, respectively.  The Company capitalized interest of $782 and $180 in
    the balance of wells in progress for the years ended September 30, 1997
    and 1996, respectively.  The balances of wellsite facilities and pipelines
    include non-cash increases of $6,538 and $7,968 for 1997 and 1996,
    respectively, which were charged to the Funding Agreement (Note 6).  The
    balances of wells in progress, wellsite facilities and pipelines include
    a non-cash decrease of $2,916 for 1996 pertaining to amounts due from
    Ecopetrol under the commerciality declaration (See Note 1), of which $2,629
    had been collected and applied to the Funding Agreement as of September 30,
    1997.  The balance of $287 was retained by Ecopetrol subject to completion
    of an audit and is included in accounts receivable as of September 30, 1997.

    Total costs incurred (both capitalized and expensed) in Colombia for oil and
    gas producing activities were:
<TABLE>
<HEADING>
                                                            For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
    <S>                                            <C>          <C>          <C>
    Property acquisition costs (a)                        $--          $38         $889
                                                   ===========  ===========  ===========
    Exploration costs                                 $10,051       $3,731         $169
                                                   ===========  ===========  ===========
    Development costs                                  $2,709       $2,558         $190
                                                   ===========  ===========  ===========
</TABLE>
    (a) In September 1995, the Company acquired an additional 0.88875%
        interest in the Opon Contract by the issuance of 44,438 shares of its
        common stock.


4)  Accrued expenses
    ----------------

    Accrued expenses consist of the following:
                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------

    Refining and marketing costs (Note 12)             $3,198       $2,028
    Other                                                 223          264
                                                   -----------  -----------
                                                       $3,421       $2,292
                                                   ===========  ===========





                                    42

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


5)  Long-Term Debt
    --------------

    Long-term debt consists of the following:           September 30,
                                                      1997         1996
                                                   -----------  -----------
    Notes payable to Lonrho Plc (a),(b):
      Note A (c)                                       $3,479       $3,277
      Note B (c)                                        4,535        4,271
      Note C (a),(d)                                   38,577       36,361
      Note D (d)                                       33,126       31,200
      Note E (e)                                        5,294        5,000
      Note F (f)                                       14,932           --
    Pollution Control Revenue Bonds (g)                 2,225        2,475
    Industrial Development Revenue Bonds (g)            1,000        1,000
    Other                                                  --          488
                                                   -----------  -----------
                                                      103,168       84,072
    Less current maturities                              (265)        (738)
                                                   -----------  -----------

                                                     $102,903      $83,334
                                                   ===========  ===========

    Maturities are as follows for the years ending September 30:
    1998                                                 $265
    1999                                               93,812
    2000                                                1,898
    2001                                                1,918
    2002                                                1,938
    Thereafter                                          3,337
                                                   -----------
                                                     $103,168
                                                   ===========


    (a) In December 1997, the Company and Lonrho agreed to defer commencement
        of principal amortization for Notes A through E.  The descriptions in
        (b) through (e) below reflect the revisions.  As consideration for
        extensions and certain other financial undertakings received from
        Lonrho in 1996, the Company granted to Lonrho a security interest in
        all of the shares of Hondo Magdalena and agreed to give Lonrho an
        option to convert $13,500 of Note C into the Company's common stock at
        a rate of $12.375 per share.  The portion of the debt that may be
        converted into common stock will not be secured by the pledge of the
        Hondo Magdalena shares.  In 1997, as consideration for extension of
        the term of Note F and the granting of $7,000 additional credit
        thereunder, the Company gave Lonrho an option to convert another
        $7,000 of Note C into the Company's common stock at a rate of $7.70
        per share.  The debt will be convertible at Lonrho's option at any
        time prior to maturity.  The option to convert the debt into common
        stock given in 1997 will be subject to shareholder approval at the
        Company's 1998 annual meeting.  If the conversion option is not
        approved by the shareholders, the interest rate on the $7,000 will
        revert to 13.5%, the rate of interest on such debt prior to the 1993
        restructuring.

                                    43

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)

5)  Long-Term Debt (continued)
    --------------------------

    (b) The following terms apply to Notes A through E:
        (1) Interest is payable semiannually at a rate of 6%.
        (2) If management determines sufficient cash is not available to pay
        interest, management may offer to issue the Company's unregistered
        stock valued at the American Stock Exchange closing price on the
        interest due date as payment in kind. Lonrho may choose to either add
        the accrued interest to the balance of the debt outstanding or accept
        the payment in kind.  The Company has an obligation to register any
        shares issued in connection with the above if so requested by Lonrho.
        (3) Accrued interest of $3,407, $2,823, $2,411 and $2,354 has been
        added to the outstanding debt as of October 1, 1997, April 1, 1997,
        October 1, 1996, and October 1, 1994, respectively.  Accrued interest
        of $2,375, $2,367 and $2,293 has been paid by the issuance of 197,944,
        121,372 and 189,080 shares, respectively, of the Company's common
        stock for amounts due on April 1, 1996, October 1, 1995 and April 1,
        1995, respectively.
        (4) As consideration for past deferrals of interest and principal
        payments due under the terms of the first four notes, the Company has
        granted Lonrho Plc a 5% share of the Company's net profits, as
        defined, under the Opon Contract.  Following repayment of these notes,
        Lonrho's entitlement will be reduced by half.
        (5) If the Company does not furnish to Lonrho by October 1, 1998 a
        report that shows an increase in proved gas reserves of 13,000,000
        mcf, then Lonrho has the right to declare Notes A through E in default
        and demand payment.

    (c) Notes A and B are secured by mortgages on the Company's real estate
        included in discontinued operations.  Absent repayment in full as a
        result of the sale of the securing real estate, principal amortization
        in ten equal semiannual installments will commence January 15, 1999.
        Note A is secured by the Company's Via Verde Bluffs real estate.  Note
        B is secured by the Company's Valley Gateway real estate.

    (d) Notes C and D are secured by the Company's Valley Gateway real estate.
        Notes C and D are due January 15, 1999 and are subordinated to the
        Company's other indebtedness existing at September 30, 1997.

    (e) In October 1994, the Company received $4,800, net of withholding
        taxes, from Amoco Colombia under the terms of the Farmout Agreement
        (See Note 1).  Also in October 1994, the Company paid $5,000 to Lonrho
        Plc to reduce the balance of Note D and the related interest expense.
        At the same time, Lonrho Plc made available $5,000 in the form of a
        new facility loan to be drawn as needed by the Company. The Company
        drew $3,175 of this facility loan during 1995 and the remaining $1,825
        during 1996.  Note E is due January 15, 1999.

    (f) In June 1996, Lonrho Plc agreed to provide the Company an additional
        facility loan of $13,500 at a rate of 13%, payable semiannually.  In
        July 1997, the loan was amended to extend the maturity date to January
        1, 1999 and revise the amount available to $20,500.  The provisions
        for payment of interest with the Company's common shares described in
        (b)(2) above apply to this loan.  The loan is secured by free cash
        flow, as defined, from Hondo Magdalena's operations.  The Company drew
        $14,600 during fiscal 1997 and additional amounts of $1,700 and $1,400
        in October and December 1997, respectively.
                                    44

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


5)  Long-Term Debt (continued)
    --------------------------

    (g) Both issues of these tax-exempt bonds were issued under the authority
        of the California Pollution Control Financing Authority.  The
        Pollution Control Revenue bonds bear interest at an average rate of
        6.15%, payable semiannually, and mature serially through  November 1,
        2003.  The Industrial Development Revenue Bonds bear interest at a
        rate of 7.5%, payable semiannually, and mature September 1, 2011.
        Both bond issues are collateralized by certain refinery facilities and
        equipment located at Valley Gateway and the Fletcher refinery. The
        collateral at the Fletcher refinery is leased to the buyer for a
        nominal annual fee.  The trustee of the bonds was notified of changes
        to the collateral in 1993 and the trustee has not taken any action to
        declare a breach of covenant or a default.  The Company routinely
        communicates with the Trustee and has received no indication that the
        Trustee is contemplating any such action.

    According to the terms of the various credit agreements, the Company is
    restricted in its ability to: (a) incur additional debt; and (b) pay
    dividends on and/or redeem capital stock.

    Hondo Oil paid interest of $219, $234 and $248 for the years ended September
    30, 1997, 1996 and 1995, respectively.  In accordance with the provisions of
    SFAS No. 107, the Company has estimated the fair value of its long-term debt
    to be $97,414 as of September 30, 1997 using a discount rate of 13%.


6)  Funding Agreement
    -----------------

    Effective July 26, 1995, Hondo Magdalena, Amoco Colombia, and Opon
    Development Company entered into a Funding Agreement for Tier I Development
    Project costs (the "Funding Agreement") for the interim financing of costs
    associated with the construction of a pipeline from the Opon Contract area,
    certain wellsite facilities, a geological and geophysical work program, and
    for related overheads.  The Funding Agreement provides that Hondo Magdalena
    may repay the amounts financed by Amoco Colombia from prior to the date of
    first production until 365 days thereafter, along with an equity premium
    computed using a 22% annualized interest rate.  The equity premium will be
    computed monthly on Hondo Magdalena's share of expenditures (including any
    amounts to be recouped from Ecopetrol after commerciality).  Alternatively,
    from the date of first production until 90 days thereafter, Hondo Magdalena
    may elect to repay 125% of its share (excluding any amounts to be recouped
    from Ecopetrol after commerciality) of the total costs accumulated up to the
    date of repayment. If the financed amounts are not repaid within 365 days
    after the date of first production, an additional penalty of 100% of the
    amount then due would be recovered out of Hondo Magdalena's revenues.  Hondo
    Magdalena's revenues from production of the first 80 million cubic feet of
    natural gas and related condensate and natural gas liquids are pledged to
    secure its obligations under the Funding Agreement.






                                    45

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


6)  Funding Agreement (continued)
    -----------------------------

    The Company has accrued equity premiums computed in accordance with the 22%
    annualized interest rate option.  Equity premiums of $2,774, $1,262 and $57
    related to the financed pipeline costs and wellsite facilities have been
    capitalized for the years ended September 30, 1997, 1996 and 1995,
    respectively.  The remainder of the equity premiums accrued to date,
    relating to the financed geological and geophysical work and overheads, have
    been expensed.

    The balance of the Funding Agreement consists of the following:

                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------

    Outstanding principal                             $17,566       $9,771
    Equity premiums                                     5,222        1,742
                                                   -----------  -----------
                                                      $22,788      $11,513
                                                   ===========  ===========

    The balance of the Funding Agreement was reduced by $2,629 in September 1996
    by application of the Company's share of payments from Ecopetrol arising
    from the declaration of commerciality (Note 1).

    In accordance with the provisions of SFAS No. 107, the Company has estimated
    the fair value of the Funding Agreement to be $24,690 as of September 30,
    1997 using a discount rate of 13%.


7)  Other Liabilities
    -----------------

    Other liabilities consist of the following:

                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------

    Interest payable to Lonrho Plc (Note 5)            $3,407       $2,411
    City of Long Beach (a)                              1,594        1,533
    Other                                                 261          761
                                                   -----------  -----------
                                                       $5,262       $4,705
                                                   ===========  ===========

    (a) Due January 1, 1999 together with interest accrued at 6%. In
        accordance with the provisions of SFAS No. 107, the Company has
        estimated the fair value of this liability to be $1,462 as of
        September 30, 1997 using a discount rate of 13%.





                                    46

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


8)  Shareholders' Equity
    --------------------

    In addition to its common shares, the Company has authorized 10,000,000
    shares of one dollar par value preferred stock.  No preferred shares have
    been issued as of September 30, 1997.

    The Company has a stock option plan under which options to purchase common
    shares of the Company are granted to certain officers, directors and key
    employees.  The options are priced equal to or greater than the market price
    in effect at the date of grant.  Accordingly, no compensation expense is
    recognized in connection with this plan.  Generally, options granted under
    the plan have a term of five years, are half vested after six months of
    service and are fully vested after eighteen months of service.  As of
    September 30, 1997 and 1996 additional options of 94,000 and 15,000,
    respectively, were available for future grants under the stock option plan.

    The information for 1995 in the table below includes the exercise of 74,700
    options priced at $19.00 per share originating from the Company's terminated
    1982 Stock Option Plan.  The Company granted an option for 25,000 shares at
    $7.50 per share to a former officer in March 1995.  The option was not
    granted under a stock option plan and was priced less than the market price
    at date of grant.  Compensation of $138 was included in general and
    administrative expense at the date of grant.  The option was exercised
    during 1996.  All other reported options originate from the Company's 1993
    Stock Incentive Plan.

    As required by SFAS 123 "Accounting for Stock-Based Compensation," the
    Company has determined the fair value of options granted in 1997 and 1996
    and the pro forma effect on net loss and net loss per share as if
    compensation expense equal to that fair value had been recorded.  The fair
    value at date of grant was determined using the Black-Scholes option pricing
    model and the assumptions listed in the table below.  The Black-Scholes
    option valuation model was developed for use in estimating the fair value of
    traded options which have no vesting restrictions and are fully
    transferable.  In addition, option valuation models require the input of
    highly subjective assumptions including the expected stock price volatility.
    Because the Company's employee stock options have characteristics
    significantly different from those of traded options, and because changes in
    the subjective input assumptions can materially affect the fair value
    estimate, management believes the model used does not necessarily provide a
    reliable single measure of the fair value of its stock options.  The
    estimated fair value of an option is included in pro forma expense as it
    vests.  Therefore, as required by the transition provisions of SFAS 123,
    options granted in 1995 and vesting in 1996 were not valued and were not
    included in the pro forma computations.











                                    47

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


8)  Shareholders' Equity (continued)
    --------------------------------

    The following table summarizes information relative to stock options
    outstanding:
    <TABLE>
    <HEADING>
                                                            For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
<S>                                                <C>          <C>          <C>

    Options outstanding - beginning of year           218,232      187,732      220,316
      Granted                                          58,000       64,000      125,000
      Exercised                                            --      (33,500)    (157,584)
                                                   -----------  -----------  -----------
    Options outstanding - end of year                 276,232      218,232      187,732
                                                   ===========  ===========  ===========

    Options exercisable - end of year                 186,232      154,232      137,732

    Weighted-average exercise prices:
      Options outstanding - beginning of year          $12.57       $11.14       $11.40
      Granted
        Contractual price                               $9.00       $14.13       $12.96
        Fair value price                                $3.99        $6.24           NA
      Exercised                                            NA        $7.50       $12.95
      Options outstanding - end of year                $11.82       $12.57       $11.14
      Options exercisable - end of year                $12.30       $11.93        $9.98

    End of year - outstanding options:
      Low exercise price                                $7.50        $7.50        $7.50
      High exercise price                              $14.63       $14.63       $14.63
      Average remaining contractual life (years)         2.81         3.32         3.29

    Fair value of options granted:
      Net loss - as reported                         $(12,388)    $(12,657)          NA
      Net loss - pro forma                           $(12,630)    $(12,773)          NA
      Loss per share - as reported                     $(0.90)      $(0.93)          NA
      Loss per share - pro forma                       $(0.92)      $(0.93)          NA

    Assumptions for fair value determination:
      Expected life (years)                              3.56         3.56           NA
      Volatility                                         0.52         0.52           NA
      Interest rate                                      6.41%        6.30%          NA
      Dividend yield                                     0.00%        0.00%          NA
</TABLE>








                                    48

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


9)  Income Taxes
    ------------

    Income tax expense (benefit) reported in the statements of operations is
    comprised entirely of current income taxes paid (received) in Colombia.
    Significant components of the Company's deferred tax assets and
    liabilities are as follows:
                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------
    Deferred tax assets, long-term:
      Domestic net operating loss carryforwards       $44,953      $43,734
      Foreign income tax basis of
        capitalized assets in excess of
        financial reporting basis                       1,178        1,432
      Income tax basis of real estate in
        excess of financial reporting basis             1,991        1,965
      Financial reporting basis of accrued
        liabilities in excess of tax basis              1,311        1,045
      Valuation allowances                            (48,850)     (47,467)
                                                   -----------  -----------
                                                          583          709
                                                   -----------  -----------
    Deferred tax liabilities, long-term:
      Foreign income tax depreciation in
        excess of financial reporting
        depreciation                                      583          709
                                                   -----------  -----------
                                                          583          709
                                                   -----------  -----------
    Net deferred tax liability                            $--          $--
                                                   ===========  ===========

    The differences between income tax expense (benefit) from continuing opera-
    tions and the amount computed by applying the statutory Federal income tax
    rate to loss from continuing operations before income taxes are as follows:
<TABLE>
<HEADING>
                                                            For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
<S>                                                <C>          <C>          <C>
    Benefit computed at the effective
      statutory rate                                  $(4,273)     $(4,499)     $(2,365)
    Nondeductible interest                              2,468        1,425           --
    Losses from foreign operations                        999        1,919          215
    Foreign income tax expense                             (2)           5          113
    Net operating loss for which no benefit
      is recognized                                       806        1,155        2,150
                                                   -----------  -----------  -----------
                                                          $(2)          $5         $113
                                                   ===========  ===========  ===========
</TABLE>


                                    49

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


9)  Income Taxes (continued)
    ------------------------

    At September 30, 1997, the Company had the following domestic net operating
    loss and investment tax credit carryforwards:
<TABLE>
<HEADING>
                                                                Alternative
                                                     Tax Net    Minimum Net  Investment
                                                    Operating   Tax Operating    Tax
    Year of Expiration                                Loss         Loss        Credit
    ------------------                             -----------  -----------  -----------
    <S>                                            <C>          <C>          <C>
    Consolidated Carryforwards:
      2003                                             $3,166           --
      2004                                             12,469      $10,917
      2005                                              2,803           --
      2006                                             26,755       22,155
      2007                                             15,807       30,041
      2008                                             25,551       23,919
      2009                                             13,115       14,517
      2010                                              7,616        7,620
      2011                                              3,388        3,393
      2012                                              2,818        2,818
                                                   -----------  -----------
                                                     $113,488     $115,380
                                                   ===========  ===========

    Separate Carryforwards (a)
      1998                                                 --           --         $144
      1999                                                 --           --          210
      2000                                            $12,397      $12,397           74
      2002                                              6,101        6,101           --
      2003                                              6,714       10,715           --
                                                   -----------  -----------  -----------
                                                      $25,212      $29,213         $428
                                                   ===========  ===========  ===========
</TABLE>
    (a) These separate carryforwards can only be used against future income
        and tax liabilities of the company within the consolidated group which
        generated the carryforwards.

    In conjunction with the sale of the Fletcher refinery in 1993 as described
    in Note 12, unrestricted net operating loss carryforwards of $59,658 and
    separate net operating loss carryforwards of $23,983 pertaining to the
    Fletcher refinery were reattributed to Hondo Oil.











                                    50

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


10) Contingent liabilities
    ----------------------

    The Company is involved in a number of legal and administrative proceedings
    incident to the ordinary course of its business.  In the opinion of
    management, any liability to the Company relative to the various proceedings
    will not have a material adverse effect on the Company's operations or
    financial condition.

    The Company is subject to various environmental laws and regulations of the
    United States and Colombia.  As is the case with other companies engaged in
    similar industries, the Company faces exposure from actual or potential
    claims and lawsuits involving environmental matters.  These matters may
    involve alleged soil and water contamination and air pollution.  The
    Company's policy is to accrue environmental and clean-up costs when it is
    probable that a liability has been incurred and the amount of the liability
    is reasonably estimable. However, future environmental related expenditures
    cannot be reasonably quantified in many circumstances due to the conjectural
    nature of remediation and clean-up cost estimates and methods, the imprecise
    and conflicting data regarding the characteristics of various types of
    waste, the number of other potentially responsible parties involved, and
    changing environmental laws and interpretations.  Management believes the
    reduced scope of the Company's operations following the sale of the
    Company's domestic oil and gas properties and the Fletcher refinery have
    significantly reduced the Company's potential exposure to environmental
    liability, including potential Superfund claims against Fletcher, which
    liability, in the opinion of management, is not material.






























                                    51

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


11) Segment information
    -------------------

    The Company's operations are concentrated in one industry segment, the
    exploration for and production of reserves of oil and natural gas.  Since
    1992, the Company's continuing activities have been limited to exploration
    for oil and gas reserves located in Colombia.  The Company has no foreign
    sales and no export sales in the reported periods, but has begun producing
    its reserves in fiscal 1998.  The Company currently has two contracts for
    the sale of its production in place.  These two customers, Ecopetrol and
    Termosantander (an affiliate of Amoco Corporation separate from the
    Company's partner in Opon), will comprise 100% of the Company's revenue.
    Information segregating the Company's continuing domestic and foreign
    operations is as follows:
<TABLE>
<HEADING>
                                                            For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
    <S>                                            <C>          <C>          <C>
    Sales and operating revenue:
      United States                                        $1           $2          $23
      Foreign                                               3           --           --
                                                   -----------  -----------  -----------
                                                           $4           $2          $23
                                                   ===========  ===========  ===========

    Operating profit (loss):
      United States                                     $(406)        $(45)       $(140)
      Foreign                                          (2,419)      (4,511)        (326)
                                                   -----------  -----------  -----------
      Operating loss                                   (2,825)      (4,556)        (466)
      Loss on sale of assets                               --           (6)          --
      Interest expense                                 (6,222)      (5,009)      (4,680)
      Corporate expense and other                      (1,743)      (1,781)      (1,697)
                                                   -----------  -----------  -----------
      Loss from continuing operations
        before income taxes                          $(10,790)    $(11,352)     $(6,843)
                                                   ===========  ===========  ===========

    Identifiable assets:
      United States                                    $3,247       $2,973       $5,645
      Foreign                                          41,683       21,567       12,753
                                                   -----------  -----------  -----------
                                                      $44,930      $24,540      $18,398
                                                   ===========  ===========  ===========
</TABLE>








                                    52

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


12) Discontinued Operations
    -----------------------

    In 1991, the Company adopted plans of disposal for its refining and
    marketing and real estate segments. A summary, by segment, of the results of
    discontinued operations is as follows:

<TABLE>
<HEADING>
                                                            For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
    <S>                                            <C>          <C>          <C>
    Refining and marketing                            $(1,200)       $(400)       $(650)
    Real estate                                          (400)        (900)      (4,300)
    Income tax expense (benefit)                           --           --           --
                                                   -----------  -----------  -----------
                                                      $(1,600)     $(1,300)     $(4,950)
                                                   ===========  ===========  ===========

    Per share                                          $(0.12)      $(0.10)      $(0.37)
                                                   ===========  ===========  ===========
</TABLE>

    In September 1993, the Company executed an agreement for the sale of its
    Fletcher refinery and its asphalt terminal in Hilo, Hawaii. These assets
    represented the material portion of the Company's refining and marketing
    segment. Loss provisions pertaining to the refining and marketing segment of
    $1,200, $400 and $650 have been required in 1997, 1996 and 1995 for reasons
    described below.

    The agreement for the sale of Fletcher included a provision allowing the
    Company to share in the proceeds from the sale of certain components of the
    refinery equipment which the buyer planned to sell.  Based on estimates of a
    broker of used refinery equipment, the Company recorded $1,000 as the
    estimated realizable value at the time of the transaction.  The buyer and
    the Company have not succeeded in selling this equipment.  In September
    1994, the Company reduced the carrying value of the receivable by $600 on
    the basis of an offer from the buyer for the Company's share of equipment
    sale proceeds.  In September 1996, the Company wrote off the remaining
    receivable of $400 as uncollectible.














                                    53

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


12) Discontinued Operations (continued)
    -----------------------------------

    In the agreement for the sale of the Fletcher refinery, the Company
    indemnified the buyer as to liabilities in excess of $300 for certain
    federal and state excise taxes arising from periods prior to the sale.
    Fletcher notified the Company in July 1994 that an audit for California
    Motor Vehicle Fuels Tax was underway and a preliminary review by then
    Fletcher employees indicated that a significant liability might exist.  The
    Company retained a consultant to evaluate the contingent liability.  In
    September 1994, the Company accrued $1,400 as a result of the consultant's
    evaluation.  An additional $650 was accrued in September 1995, primarily
    because of increases in the estimated amounts of penalties and interest
    which could be due.  The State of California issued a preliminary report in
    June 1996 which concluded taxes and penalties of $10,820 were due as a
    result of the audit.  The State of California issued a Notice of
    Determination in July 1997 reducing the taxes and penalties due to $5,740.
    Assessed amounts are subject to a process of appeal and further adjustment,
    which remedies are still being pursued.  The buyer notified the Company that
    it claims indemnity in this matter and in January 1997 filed suit in
    Superior Court, Los Angeles, California for a declaratory judgment enforcing
    the indemnity and for other relief.  The Company accrued an additional
    $1,200 in September 1997.  The Company has accrued its best estimate of the
    ultimate liability and believes this is sufficient to provide for the amount
    that will ultimately be paid based on the information available.

    In 1989, the Company permanently suspended operations at its Newhall
    refinery because of expectations of continued operating losses.  The Company
    reclassified the cost of Newhall's dismantled properties to the real estate
    segment.  All costs incurred subsequent to 1989 have been charged against
    previously established loss provisions.  In 1993, the Company suspended
    execution of a development plan for the property, now referred to as Valley
    Gateway, which included dismantling the refinery, effecting environmental
    remediation of the land and further developing the land to a condition where
    it could be sold as land ready for construction.  This decision was made as
    a result of continued declines in the local real estate market and the
    Company's limited cash resources.  Management believed that a sale of the
    property in its present condition with existing entitlements was the best
    course of action.  The Company has conducted an environmental assessment of
    the refinery site and a remediation plan for the site has been submitted to
    the Regional Water Quality Control Board and has received staff approval.
    The Company estimates that $2.0 million would be incurred in executing the
    approved remediation plan; however, the Company expects to sell the property
    without incurring these costs by reducing the purchase price.  The Company's
    estimate of the net realizable value of this property has been reduced by
    estimated remediation costs in determining the carrying value of the
    property and therefore the remediation costs will not affect future results
    of operations.

    In addition to the Valley Gateway property, the Company owns the 11 acre Via
    Verde Bluffs property, carried at $2,580 and $2,548 at September 30, 1997
    and 1996, respectively.  Both properties have been listed with brokers since
    1994.




                                    54

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


12) Discontinued Operations (continued)
    -----------------------------------

    In 1995 the carrying value of the real estate was reduced by $4,300 as a
    result of depressed demand in the local market, sale negotiations, and the
    timing of possible sales.  In September 1996, the Company revised its
    estimate of the realizable value of the Valley Gateway property to zero,
    resulting in an additional loss provision of $900.  This decision was made
    following three years of unsuccessful efforts to sell the property in its
    present state and little interest from potential buyers.  In September 1997,
    the Company provided for an additional carrying costs of $400.  Management
    believes it can dispose of the property and any associated liabilities for
    little or no additional cost.

    Changes in the balance of real estate are as follows:

                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------

    Beginning balance                                  $2,202       $2,978
      Development and dismantlement costs                  --           --
      Valuation provisions established                   (400)        (900)
      Valuation provisions used                           335          124
                                                   -----------  -----------
    Ending balance                                     $2,137       $2,202
                                                   ===========  ===========

    Remaining acres                                       116          116
                                                   ===========  ===========

    Interest expense included in the losses from discontinued operations
    pertains only to debt directly attributable to the discontinued segments.
    Allocations of interest to the real estate operations were $240, $262 and
    $274 for 1997, 1996 and 1995, respectively.






















                                    55

                          HONDO OIL & GAS COMPANY
           SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
                    ACTIVITIES AND RESERVES (UNAUDITED)
                             September 30, 1997

                     (All Dollar Amounts in Thousands)

The following supplemental information regarding the oil and gas activities of
Hondo Oil is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission ("SEC") and Statement of Financial
Accounting Standards ("SFAS") No. 69, "Disclosures About Oil and Gas Producing
Activities."  Estimated Reserve Quantities and the Standardized Measure of
Discounted Future Net Cash Flows Relating to Proved Reserves are presented on
the basis of reserve reports prepared by Netherland, Sewell & Associates.
Information regarding capitalized costs relating to oil and gas producing
activities and costs incurred for property acquisition, exploration, and
development activities are included in Note 3 to the consolidated financial
statements.  SEC rules restrict the disclosure of reserves to proved reserves.
Proved reserves are estimated quantities of crude oil, condensate, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.  Proved reserves do not
include hydrocarbons the recovery of which is subject to reasonable doubt
because of uncertainty as to economic factors.

During fiscal 1996, three contracts covering the sale of natural gas, the sale
of condensate and natural gas liquids, and the processing of the gas stream
were executed with the Colombian national oil company, Ecopetrol.  These
provide for (i) the sale of 100 million cubic feet of natural gas per day for
the life of the concession (July 2015) at the regulated price determined
semi-annually by a formula based upon the average price received by Ecopetrol
for exported fuel oil during the prior two six-month periods; (ii) the sale of
condensate and natural gas liquids at market-related and market-indexed prices;
and (iii) the processing of the gas stream at Ecopetrol's El Centro gas
processing plant for a fee of $0.20 per thousand cubic feet of gas.  In March
1997, a contract was executed for the sale of up to 60 million cubic feet of
natural gas per day to an electric generation facility being constructed
adjacent to the concession.  The contract has not and will not become effective
until the sellers determine that there are sufficient reserves to supply
natural gas to the purchaser for the life of the contract.  An interim one-year
agreement has recently been executed to allow deliveries of available gas.

The Company successfully completed drilling of a second well in Colombia in
September 1995 and commenced construction of a pipeline and related wellhead
facilities for production and transportation of the discovered natural gas and
related liquids.  Following execution of the first contract described above,
the Company reported proved reserves for the first time in it's 1996 Annual
Report.

A third well was drilled during fiscal 1997.  In April and May 1997, several
mechanical problems were encountered during the completion and testing of the
third well.  Further work on the well has been suspended until a plan has been
finalized.  Construction of the pipeline and wellhead facilities is complete
and production commenced in December 1997.  A fourth well is presently being
drilled and is expected to be completed in the spring of 1998.









                                    56

                          HONDO OIL & GAS COMPANY
           SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
                    ACTIVITIES AND RESERVES (UNAUDITED)
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


Assumptions used in determining proved reserves and future net cash flows are:

- Condensate and natural gas liquid reserves produced in association with the
  natural gas are a function of the natural gas reserves.
- The Company's share of reserves and future net cash flows is 15.444375%,
  subject to a royalty of 20% payable to the Colombian government.
- Prices of $18.64 and $21.31 per barrel of condensate and natural gas liquids
  and $1.09 and $1.20 per million British Thermal Units of natural gas are
  used in the cash flow projections for September 30, 1997 and 1996,
  respectively. These prices were determined in accordance with the terms of
  the executed sales contract described above.  Both prices are held constant
  through the life of the properties.  Production costs and capital costs were
  projected at current price levels.
- Pipeline capital and operating costs are not included in the cash flow
  projections because these costs will be recovered through pipeline tariffs.


Estimated Reserve Quantities
----------------------------

Proved reserves are estimated quantities of crude oil, condensate, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.  Proved developed reserves
are those proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods.

Estimates of oil and gas proved reserves and production, all located in
Colombia, are as follows:
                                                     Oil (a)        Gas
                                                     (MBBLS)      (MMCF)
                                                   -----------  -----------
Proved reserves, October 1, 1995                           --           --
  Revisions in previous estimates                          --           --
  Extensions, discoveries and purchases                 2,337       61,561
                                                   -----------  -----------
Proved reserves, September 30, 1996                     2,337       61,561

  Revisions in previous estimates                        (394)      (9,085)
                                                   -----------  -----------
Proved reserves, September 30, 1997                     1,943       52,476
                                                   ===========  ===========

  (a) All condensate and natural gas liquids.

As of September 30, 1997, 671 mbbls and 18,176 mmcf of the above reserves were
classified as proved developed.  None of the 1996 reserves were classified as
proved developed.

A new interpretation (by the reserve engineers) of the reservoir limits after
the drilling of the third well was the primary reason for a downward revision
of the proved reserves for fiscal 1997.




                                    57

                          HONDO OIL & GAS COMPANY
           SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
                    ACTIVITIES AND RESERVES (UNAUDITED)
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
---------------------------------------------------------------------------
Reserves
--------

The following table sets forth the computation of the standardized measure of
discounted future cash flows relating to proved reserves.  The standardized
measure is the estimated future cash inflows from proved reserves less
estimated future production and development costs, estimated future income
taxes and a discount factor.  Future cash inflows represent expected revenues
from the production of proved reserves based on prices in existence at the
fiscal year end.  Escalation based on inflation, regulatory changes and supply
and demand are not considered.  Estimated future production and development
costs related to future production of reserves are based on historical
information, as available, and estimates drawn from similar gas fields in other
locations.  Such costs include, but are not limited to, production, drilling
development wells and installation of production facilities.  Inflation and
other anticipatory costs are not considered until the actual cost change takes
effect.  Estimated future income tax expenses are computed using tax rates
legislated in Colombia.  Consideration is given to the effects of permanent
differences, utilization of net operating loss carryforwards, tax credits and
allowances.  A discount rate of 10% is applied to the annual future net cash
flows after income taxes.

The methodology and assumptions used in calculating the standardized measure
are those required by SFAS NO. 69.  It is not intended to be representative of
the fair market value of proved reserves.  The valuations of revenues and costs
do not necessarily reflect the amounts to be received or expended by the
Company. In addition to the valuations used, numerous other factors are
considered in evaluating known and prospective oil and gas reserves.

                                                      For the years ended
                                                   ------------------------
                                                        September 30,
                                                      1997         1996
                                                   -----------  -----------

Future cash inflows                                   $96,223     $126,564
Future production costs                               (40,239)     (33,934)
Future development costs                              (27,028)     (36,063)
Future income tax expenses                                 --      (14,843)
                                                   -----------  -----------
  Net future cash flows                                28,956       41,724
10% annual discount for estimated timing
  of cash flows                                       (12,942)     (22,071)
                                                   -----------  -----------
Standardized measure of discounted
  future net cash flows                               $16,014      $19,653
                                                   ===========  ===========







                                    58

                          HONDO OIL & GAS COMPANY
           SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
                    ACTIVITIES AND RESERVES (UNAUDITED)
                             September 30, 1997

                     (All Dollar Amounts in Thousands)


Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
---------------------------------------------------------------------------
Reserves (continued)
--------------------

The principal sources of changes in the standardized measure of discounted
future cash flows between September 30, 1997 and 1996 are as follows:

Net change due to changes in prices and production
  costs                                              $(12,532)
Net change due to revisions in quantity estimates      (5,530)
Previously estimated development costs incurred
  during the period                                    11,056
Changes in estimated future development costs          (1,324)
Net change in income taxes                              6,991
Accretion of discount                                   1,965
Other                                                  (4,265)
                                                   -----------

                                                      $(3,639)
                                                   ===========


Results of Operations for Oil and Gas Producing Activities
----------------------------------------------------------

The following table sets forth the results of operations from oil and gas
producing and exploration activities.  Income tax expense was computed using
the statutory tax rate for the period adjusted for utilization of net operating
loss carryforwards, permanent differences, tax credits and allowances.

<TABLE>
<HEADING>                                                   For the years ended
                                                   -------------------------------------
                                                               September 30,
                                                      1997         1996         1995
                                                   -----------  -----------  -----------
<S>                                                <C>          <C>          <C>
Revenues                                                   $4           $2          $23
Production costs                                       (2,758)      (2,745)        (166)
Exploration expenses                                      (27)      (1,769)        (169)
Depreciation, depletion and amortization                   --           --           --
                                                   -----------  -----------  -----------
                                                       (2,781)      (4,512)        (312)
Income tax benefit                                     (1,102)      (1,787)        (124)
                                                   -----------  -----------  -----------
Results of operations from exploration
  and production activities (excluding
  corporate overhead and interest)                    $(1,679)     $(2,725)       $(188)
                                                   ===========  ===========  ===========

</TABLE>




                                    59

                                       HONDO OIL & GAS COMPANY
                           Schedule II - VALUATION AND QUALIFYING ACCOUNTS
                                          September 30, 1997

                                  (All Dollar Amounts in Thousands)


<TABLE>
<HEADING>
                                                                 Additions
                                                   Balance at   charged to                  Balance
                                                    beginning    costs and                  at end
                                                    of period    expenses    Write-offs    of period
                                                   -----------  -----------  -----------  -----------
Allowance for doubtful receivables:
<S>                                                <C>          <C>          <C>          <C>
Continuing operations:
  1997                                                   $332          $--        $(288)         $44
                                                   ===========  ===========  ===========  ===========
  1996                                                   $399           $4         $(71)        $332
                                                   ===========  ===========  ===========  ===========
  1995                                                   $399          $--          $--         $399
                                                   ===========  ===========  ===========  ===========

</TABLE>







































                                                 60

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None


                                  PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item will be contained in the
Company's Proxy Statement to be filed within 120 days after fiscal
year end and is incorporated herein by reference.

Item 11. EXECUTIVE COMPENSATION

The information required by this item will be contained in the
Company's Proxy Statement to be filed within 120 days after fiscal
year end and is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be contained in the
Company's Proxy Statement to be filed within 120 days after fiscal
year end and is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be contained in the
Company's Proxy Statement to be filed within 120 days after fiscal
year end and is incorporated herein by reference.

                                  PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements:  See the Index to Financial Statements
        in Item 8 hereof.

    (2) Financial Statement Schedules:                   Page

        II.  Valuation and Qualifying Accounts              60

        Schedules other than those listed above are omitted because they are
        not required or not applicable, or because the information required in
        a schedule is otherwise included in the Notes to Consolidated
        Financial Statements.

    (3) Exhibits filed with this report:  See Item (c) below.

(b) Reports on Form 8-K:

    The Company filed no reports on Form 8-K during the quarter
    ended September 30, 1997.

(c) Exhibits: See Exhibit Index on page 63 for exhibits required by
    Item 601 of Regulation S-K.

(d) Financial statement schedules required by Regulation S-X which
    are excluded from the annual report to shareholders by Rule
    14a-3 (b)(1): See Item (a)(2) above.



                                    61

                                 SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report
on Form 10-K for the year ended September 30, 1997 to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                      HONDO OIL & GAS COMPANY

Date: December 23, 1997             By/s/ Stanton J. Urquhart
                                      ------------------------
                                      Stanton J. Urquhart
                                      Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K for the year ended September 30, 1997 has
been signed below by the following persons on behalf of the registrant
in the capacities and on the dates indicated.
<TABLE>
<HEADING>
       Signature                                Title                             Date
-----------------------               --------------------------           -----------------
<S>                                   <C>                                  <C>
/s/ John J. Hoey                      President, Chief Executive           December 23, 1997
-----------------------               Officer, and Director
JOHN J. HOEY


/s/ Douglas G. McNair                 Director                             December 23, 1997
-----------------------
DOUGLAS G. MCNAIR


/s/ Nicholas J. Morrell               Director                             December 23, 1997
-----------------------
Nicholas J. Morrell


/s/ John F. Price                     Director                             December 23, 1997
-----------------------
JOHN F. PRICE


/s/ Robert K. Steer                   Director                             December 23, 1997
-----------------------
ROBERT K. STEER


/s/ R.E. Whitten                      Director                             December 23, 1997
-----------------------
R.E. WHITTEN


/s/ Stanton J. Urquhart               Vice President, Principal            December 23, 1997
-----------------------               Financial and Principal
STANTON J. URQUHART                   Accounting Officer

</TABLE>







                                    62

                               EXHIBIT INDEX


Exhibit
Number  Subject
------- ---------------------------------------------------------------------

   3.1  Restated Certificate of Incorporation.

   3.2  Bylaws, as amended on September 5, 1995.

*  4.1  Documents relating to the $1 million principal amount of California
        Pollution Control Authority, 7 1/2% Industrial Development Revenue
        Bonds (Newhall Refining Co., Inc. Project) including Installment Sale
        Agreement and Indenture of Trust.

*  4.2  Documents relating to the $5 million principal amount of California
        Pollution Control Financing Authority Pollution Control Revenue Bonds
        (Newhall Refining Co., Inc. Project), including Pollution Control
        Facilities Lease Agreement, Indenture, U.S. Small Business
        Administration Pollution Control Facility Payment Guaranty and
        Reimbursement Agreement.

* 10.1  Note Purchase Agreement and Letter Agreement dated November 28, 1988,
        between the Company and Thamesedge, Ltd.

* 10.2  Letter Agreement dated December 18, 1992, between the Company and
        Thamesedge, Ltd., amending Note Purchase Agreement (Exhibit 10.1,
        above).

* 10.3  Loan Agreement dated December 20, 1991, by and between Hondo Oil & Gas
        Company and Lonrho Plc, including the Promissory Notes and Letter
        Agreement related thereto.

* 10.4  Letter Agreement dated December 18, 1992, between the Company and
        Lonrho Plc, amending Loan Agreement (Exhibit 10.3, above).

* 10.5  Net Profits Share Agreement dated December 18, 1992, among the
        Company, Lonrho Plc, Thamesedge, Ltd.

**10.6  Note Dated April 30, 1993, for $3,000,000, from Via Verde Development
        Company to Lonrho Plc; Guaranty of the Company (incorporated by
        reference to Exhibit 19.1 to the Company's Quarterly Report on Form
        10-Q for the quarter ended March 31, 1993, filed with the Securities
        and Exchange Commission on May 17, 1993).

**10.7  Note dated June 25, 1993 for $4,000,000 from the Company to Lonrho
        Plc; Letter Agreement relating to same (incorporated by reference to
        Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
        fiscal year ended September 30, 1993, filed with the Securities and
        Exchange Commission on December 28, 1993).

**10.8  Letter Agreement dated December 17, 1993, by and among the Company,
        Via Verde Development Company, Newhall Refining Co., Inc., Lonrho Plc
        and Thamesedge Ltd. and Note Amendments, amending prior loan
        agreements and notes (Exhibits 10.1 through 10.7, above),(incorporated
        by reference to Exhibit 10.8 to the Company's Annual Report on Form
        10-K for the fiscal year ended September 30, 1993, filed with the
        Securities and Exchange Commission on December 28, 1993).





                                    63

                         EXHIBIT INDEX (continued)


Exhibit
Number  Subject
------- ---------------------------------------------------------------------

**10.9  Letter Agreement dated November 10, 1994, by and among the Company,
        Via Verde Development Company, Newhall Refining Co., Inc., Lonrho Plc
        and Thamesedge Ltd. and Note Amendments (excluding Exhibit E to the
        Letter Agreement filed as Exhibit 10.10, below) amending prior loan
        agreements and notes (Exhibits 10.1 through 10.8, above),(incorporated
        by reference to Exhibit 10.1 to the Company's Current Report on Form
        8-K dated November 29, 1994, filed with the Securities and Exchange
        Commission on November 29, 1994).

**10.10 Promissory Note dated October 31, 1994, in the original principal
        amount of $5,000,000, from the Company to Lonrho Plc (additional loan
        facility),(incorporated by reference to Exhibit 10.2 to the Company's
        Report on Form 8-K dated November 29, 1994, filed with the Securities
        and Exchange Commission on November 29, 1994).

**10.11 Letter Agreement dated December 22, 1995, by and among the Company,
        Via Verde Development Company, Newhall Refining Co., Inc., Lonrho Plc
        and Thamesedge Ltd. and Note Amendments amending prior loan agreements
        and notes (Exhibits 10.1 through 10.10, above),(incorporated by
        reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K
        for the year ended September 30, 1995, filed with the Securities and
        Exchange Commission on December 28, 1995).

**10.12 Letter Agreement dated December 13, 1996, by and among the Company,
        Via Verde Development Company, Newhall Refining Co., Inc., and
        Thamesedge Ltd. and Note Amendments amending prior loan agreements and
        notes (Exhibits 10.1 through 10.11, above), (incorporated by reference
        to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
        year ended September 30, 1996, filed with the Securities and Exchange
        Commission on December 30, 1996).

**10.13 Security Interest Agreement dated as of May 13, 1997 by and between
        the Company, Thamesedge Ltd., Folio Trust Company Limited and Folio
        Nominees Limited, (incorporated by reference to Exhibit 10.1 to the
        Company's Quarterly Report on Form 10-Q for the period ended June 30,
        1997, filed with the Securities and Exchange Commission on August 14,
        1997).

**10.14 Amended and Restated Revolving Credit Agreement dated as of July 2,
        1997 by and between the Company and Thamesedge Ltd., (incorporated by
        reference to Exhibit 10.2 to the Company's Quarterly Report on Form
        10-Q for the period ended June 30, 1997, filed with the Securities and
        Exchange Commission on August 14, 1997).

**10.15 Promissory Note for $20,500,000 dated as of July 2, 1997 from the
        Company to Thamesedge Ltd. delivered pursuant to the Amended and
        Restated Revolving Credit Agreement (Exhibit 10.14, above),
        (incorporated by reference to Exhibit 10.3 to the Company's Quarterly
        Report on Form 10-Q for the period ended June 30, 1997, filed with the
        Securities and Exchange Commission on August 14, 1997).

**10.16 Guaranty dated as of July 2, 1997 of Hondo Magdalena Oil & Gas Limited
        to Thamesedge Ltd. guaranteeing the obligations of the Company under
        the Amended and Restated Revolving Credit Agreement (Exhibit 10.14,
        above), (incorporated by reference to Exhibit 10.4 to the Company's
        Quarterly Report on Form 10-Q for the period ended June 30, 1997,
        filed with the Securities and Exchange Commission on August 14, 1997).
                                    64

                         EXHIBIT INDEX (continued)


Exhibit
Number  Subject
------- ---------------------------------------------------------------------

  10.17 Letter Agreement dated December 18, 1997, by and among the Company,
        Via Verde Development Company, Newhall Refining Co., Inc., and Lonrho
        Australian Land & General Property Company Limited and Note
        Amendments amending prior loan agreements and notes (Exhibits 10.1
        through 10.15, above).

* 10.18 Employee Capital Appreciation Savings Plan, effective January 1, 1985.

* 10.19 Form of Indemnity Agreement between Pauley and its directors and
        officers, approved January 27, 1987.

* 10.20 Opon Association Contract (translation) dated July 15, 1987, between
        Ecopetrol and Opon Development Company, excluding exhibits and
        attachments.

**10.21 Farmout Agreement dated August 9, 1993, among Hondo Magdalena Oil &
        Gas Limited, Opon Development Company and Amoco Colombia Petroleum
        Company, excluding exhibits (incorporated by reference to Exhibit 19.1
        to the Company's Quarterly Report on Form 10-Q for the quarter ended
        June 30, 1993, filed with the Securities and Exchange Commission on
        August 16, 1993).

**10.22 New Operating Agreement dated as of August 9, 1993, among Hondo
        Magdalena Oil & Gas Limited, Amoco Colombia Petroleum Company, and
        Opon Development Company (incorporated by reference to Exhibit 10.15
        to the Company's Annual Report on Form 10-K for the fiscal year ended
        September 30, 1993, filed with Securities and Exchange Commission on
        December 28, 1993).

**10.23 Stock and Asset Purchase Agreement dated September 15, 1993, between
        Signal Oil & Refining Company, Inc. and the Company and Pauley Pacific
        Inc., excluding exhibits (incorporated by reference to Exhibit 99.1 to
        the Company's Current Report on Form 8- K dated October 12, 1993,
        filed with the Securities and Exchange Commission on October 12,
        1993).

**10.24 Letter Agreement dated February 2, 1994 between the Company and the
        City of Long Beach, excluding exhibits (incorporated by reference to
        Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
        quarter ended December 31, 1993, filed with the Securities and
        Exchange Commission on February 14, 1994).

**10.25 Amendment to Letter Agreement dated November 26, 1996 between the
        Company and the City of Long Beach, excluding exhibits, (incorporated
        by reference to Exhibit 10.23 to the Company's Annual Report on Form
        10-K for the year ended September 30, 1996, filed with the Securities
        and Exchange Commission on December 30, 1996).

**10.26 Hondo Oil & Gas Company 1993 Stock Incentive Plan as amended,
        excluding exhibits (incorporated by reference to Exhibit A to the
        Company's Proxy Statement on Schedule 14A filed with the Securities
        and Exchange Commission on February 10, 1997).





                                    65

                         EXHIBIT INDEX (continued)


Exhibit
Number  Subject
------- ---------------------------------------------------------------------

**10.27 Funding Agreement for Tier 1 Development Project dated May 5, 1995,
        among Hondo Magdalena Oil & Gas Limited, Amoco Colombia Petroleum
        Company and Opon Development Company, excluding exhibits (except
        exhibit A) (incorporated by reference to Exhibit 10.1 to the Company's
        Quarterly Report on Form 10-Q for the quarter ended June 30, 1995,
        filed with the Securities and Exchange Commission on July 28, 1995).

  21    Subsidiaries of the Company.

  23    Consent of Ernst & Young LLP.

  27    Financial Data Schedules.

































--------------------------------------

*   These exhibits, previously incorporated by reference to the Company's
    reports under file number 1-8979, have now been on file with the Commission
    for more than 5 years and are not filed with this Annual Report.  The
    Company agrees to furnish these documents to the Commission upon request.

**  Incorporated by reference



                                    66