[Via Verde Guaranty]

                               FIRST GUARANTY AMENDMENT



                                                         As of December 18, 1997

       Hondo Oil & Gas Company
       10375 Richmond Avenue, Suite 900
       Houston, Texas 77042

            Re:  Guaranty

       Gentlemen:

          As  you know,  London Australian  & General  Property Company  Limited
       ("Lender")  is  in  the  process  of  amending  various  of  its   credit
       arrangements  with you,  including  that certain  Promissory  Note  dated
       April 30, 1993 in the  original principal amount of $3,000,000 issued  by
       your  wholly-owned  subsidiary,  Via  Verde  Development  Company     (as
       heretofore  amended and  as currently  in effect,  the "Existing  Note"),
       which you guarantied pursuant to your Guaranty executed and delivered  as
       of April 30, 1993  (as  currently in effect, the "Existing Guaranty")  in
       our  favor (as  assignee of  Thamesedge  Ltd., which,  in turn,  was  the
       assignee  of Lonrho  Plc.,  the "Original  Lender").   Under  a  proposed
       Amended and Restated Note being executed and delivered  contemporaneously
       herewith  by Borrower  to us  (the "Amended  and Restated  Note"),  among
       other things  (a) the amount  heretofore loaned and  which may be  loaned
       (and,  accordingly, the  principal amount  subject to  the Guaranty),  is
       being  increased   to  $4,500,000   (including  $1,500,000   representing
       interest added to principal), (b) the maturity date of the Existing  Note
       is being extended to January 15,  1999 and (c) various Events of  Default
       are being  added to  the Existing Note  to provide,  among other  things,
       that it  shall be an  Event of Default  (i) if you  shall have failed  to
       furnish to  Lender, by October 1,  1998, a proved  gas reserve report  of
       Netherland, Sewell & Associates  that shows that a minimum of  13,000,000
       mcf (25%)  of proved gas reserve  exists, which are  subject to the  Opon
       Association Contract  in which Hondo  Magdalena then participates,  above
       the proved gas reserve of 52,475,554  mcf at September 30, 1997, (ii)  if
       you, your wholly-owned subsidiary, Hondo Magdalena Oil & Gas Limited,  or
       any of their respective  subsidiaries default with respect to their  Debt
       (as defined) and (iii) to add certain other Events of Default similar  to
       those in your other loan instruments to us.

          We understand that  you have reviewed a copy  of the final version  of
       the proposed  Amended and Restated  Promissory Note.   For all  purposes,
       "Guaranty" means the Existing  Guaranty, as modified by this letter,  and
       as the same may  be further supplemented, modified, amended and  restated
       from time to time in the manner provided therein.

          Please  execute  this letter  to  acknowledge your  agreement  to  the
       Amended and Restated Note  and that your guarantee and other  obligations
       under the  Guaranty remain  and continue in  full force  and effect  both
       before  and after  giving effect  to the  Amended and  Restated Note  and
       related  documentation (including,  without limitation,  the matters  set
       forth in  this letter).   Our request to  you in this  instance does  not
       obligate us to  notify you or seek your consent  in the future as to  any
       amendment  to  the  Amended and  Restated  Note  or  other  matter  where


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       (pursuant to your Guaranty, or  otherwise) such notice or consent is  not
       required.

          Your  signature,  where indicated  below,  also will  constitute  your
       acknowledgment of  and agreement to  the following  modifications to  the
       Existing Guaranty (without limiting the prior paragraph of this letter):

              i.   All  references in  the  Existing Guaranty  to  "Lonrho  Plc"
                   shall be  to "London  Australian &  General Property  Company
                   Limited (the  "Lender")" and all  references in the  Existing
                   Guaranty to  "Lonrho" shall be to  "Lender" for all  purposes
                   of the Guaranty;

              ii.  The Guaranty  now includes, among  other things, all  amounts
                   borrowed and to be borrowed (and interest thereon) under  the
                   Amended and Restated Note;

              iii. Section  6  of  the Existing  Guaranty  is  deleted  and  the
                   following is substituted in its place:

                   "SECTION 6.   Addresses for  Notices. All  notices and  other
                   communications  provided for  hereunder shall  be in  writing
                   and  mailed  (certified  mail,  return  receipt   requested),
                   telecopied or delivered  personally, if to the Guarantor,  to
                   it at Hondo Oil  & Gas Company ,10375 Richmond Avenue,  Suite
                   900, Houston, TX 77042, telecopier (713) 954-4601,  attention
                   John  J. Hoey;  if to  Lender, to  it at  London Australia  &
                   General Property Company, Four Grosvenor Place, London,  SW1X
                   7DL, England, telecopier 011-44-171-201-6100, Attention:   R.
                   E. Whitten,  with a  copy to Rudolph  H. Funke,  Esq. at  805
                   Third Avenue,  18th Floor, New  York, NY   10022,  telecopier
                   212-838-8141; or, as to each party, at such other address  as
                   shall be designated by such party in a written notice to  the
                   other  party.   All  such notices  and  other  communications
                   shall  be  effective,   if  mailed,  72  hours  after   being
                   deposited in the  mails or, if telecopied or delivered,  when
                   received.

            iv.    Section  9  of the  Existing  Guaranty  is  deleted  and  the
                   following is substituted in its place:

                   "SECTION  9.    Governing  Laws.    This  Guaranty  shall  be
                   governed by, and  construed in accordance  with, the laws  of
                   the State of New York  (other than those that would defer  to
                   the substantive  laws of another  jurisdiction).  Without  in
                   any way  limiting the preceding  choice of  law, the  parties
                   intend (among  other things) to  thereby avail themselves  of
                   the benefit of Section 5-1401 of the General Obligations  Law
                   of the State of New York."

            v.     The following new Section 10 is hereby added to the  Existing
       Guaranty:

                   "SECTION 10.  Consent to Jurisdiction; Waiver of Immunities.

                 (a)  Guarantor hereby  irrevocably submits to the  jurisdiction
              of any  New York  or federal  court  sitting in  New York  in  any
              action or proceeding arising out of or relating to this  Guaranty,
              and the  Guarantor hereby irrevocably  agrees that  all claims  in


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              respect of such action  or proceeding may be heard and  determined
              in  such  New  York  or  federal  court.    The  Guarantor  hereby
              irrevocably waives, to the fullest extent they may effectively  do
              so, the  defense of an  inconvenient forum to  the maintenance  of
              such  action or  proceeding.   The  Guarantor  hereby  irrevocably
              appoints John  J. Hoey (the  "Process Agent"), with  an office  on
              the  date hereof  at  Hondo  Oil &  Gas  Company,  10375  Richmond
              Avenue, Suite  900, Houston, TX  77042, telephone (713)  954-4600,
              telecopier (713) 954-4601, as  its agent to receive, on behalf  of
              the Guarantor and its  property, service of copies of the  summons
              and complaint  and any  other process that  may be  served in  any
              such action or  proceeding.  Such service  may be made by  mailing
              or delivering a copy of such  process to the Guarantor in care  of
              the Process Agent  at the Process Agent's  address above, and  the
              Guarantor hereby  irrevocably authorizes and  directs the  Process
              Agent to  accept such service  on its behalf.   As an  alternative
              method of  service,  Guarantor also  irrevocably consents  to  the
              service of any  and all process in  any such action or  proceeding
              by the  mailing of  copies of  such process  to Guarantor  at  its
              address specified in  Section 10.  Guarantor  agrees that a  final
              judgment in any such action or proceeding shall be conclusive  and
              may be enforced in other jurisdictions by suit on the judgment  or
              in any other manner provided by law.

                 (b)  Nothing  in this  Section shall  affect the  right of  the
              Lender to  serve legal process  in any other  manner permitted  by
              law or  affect the  right of  the Lender  to bring  any action  or
              proceeding against Guarantor or its property in the courts of  any
              other jurisdictions.

                 (c)  To the extent that Guarantor has or hereafter may  acquire
              any immunity  from jurisdiction  of any  court or  from any  legal
              process (whether  through service of  notice, attachment prior  to
              judgment, attachment in aid of execution, execution or  otherwise)
              with  respect  to Guarantor  or  its  property,  Guarantor  hereby
              irrevocably waives  such immunity  in respect  of its  obligations
              under this Guaranty."

              Your signature, where indicated  below, also will constitute  your
       acknowledgment of and  agreement and certification that: (a) pursuant  to
       the existing Via Verde Note, the  Lender has made  loans to the  Borrower
       that are  outstanding as  of the  date of  this letter  in the  aggregate
       principal  amount of  $3,479,554.45  (including $479,554.45  of  interest
       added to  principal); (b) the  obligations of the  Borrower to repay  all
       loans (including those  to be made pursuant  to the Amended and  Restated
       Note) with interest,  to the Lender and  to perform or otherwise  satisfy
       all other obligations, (i) each  remain and shall continue in full  force
       and  effect, both  before and  after giving  effect to  the  transactions
       contemplated  by  this letter,  (ii)  are  not subject  to  any  defense,
       counterclaim, setoff, right of recoupment, abatement, reduction or  other
       claim or determination, and (iii)  are and shall continue to be  governed
       by the terms and provisions of the Amended and Restated Note as same  may
       be supplemented,  modified, amended or restated  in the future; (e)  your
       absolute, unconditional  and irrevocable guarantee to  the Lender of  the
       full and punctual payment and  satisfaction of the foregoing and any  and
       all other  obligations the  Borrower (i)  remains and  shall continue  in
       full  force and  effect,  both before  and  after giving  effect  to  the
       transactions contemplated  by this  letter, (ii)  is not  subject to  any
       defense, counterclaim, setoff, right of recoupment, abatement,  reduction


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       or other claim  or determination, and (iii) is  and shall continue to  be
       governed  by  the  terms and  provisions  of  the  Existing  Guaranty  as
       supplemented, modified and amended.

                                          Very truly yours,

                                          LONDON AUSTRALIAN & GENERAL
                                          PROPERTY COMPANY LIMITED

                                          By:  /s/ R.E. Whitten
                                               -------------------------------
       ACKNOWLEDGED AND AGREED:

       HONDO OIL & GAS COMPANY

        /s/ John J. Hoey
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