AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
                    -----------------------------------------------

            This Amended and Restated Revolving Credit Agreement (referred to
       herein as the "Agreement" or "this Agreement") is made as of July 2,
       1997 between HONDO OIL & GAS COMPANY, a Delaware corporation (the
       "Borrower"), and THAMESEDGE, LTD., a United Kingdom corporation (the
       "Lender").

                                       RECITALS
                                       --------

            Lender and Borrower entered into a Revolving Credit Agreement as of
       June 28, 1996 (the "1996 Agreement") under which Lender agreed to
       advance to Borrower $13,500,000.  The Borrower has requested that Lender
       make additional advances of $7,000,000 and to include those advances
       under the terms and conditions of the 1996 Agreement.  The Lender has
       agreed to make additional revolving advances to the Borrower from time
       to time in a new aggregate amount not to exceed $20,500,000 of principal
       at any time outstanding plus all accrued interest. The monies will be
       used exclusively as follows:

            -    $18,200,000 for Borrowers wholly owned subsidiary, Hondo
       Magdalena Oil & Gas Limited ("Hondo Magdalena"), for its requirements
       pursuant to the OPON Budget hereinafter defined; and

            -    $2,300,000 to meet Borrower's corporate general and
       administrative expenses.


                                       ARTICLE I
                            INTERPRETATION AND DEFINITIONS

            SECTION 1.01  Definitions.  The following terms, as used herein,
       shall have the following respective meanings:

            "AMEX" means the American Stock Exchange.

            "Advances" has the meaning set forth in Section 2.01.

            "Business Day" means any day of the year on which banks are not
       required or authorized to close in London or Houston, Texas.

            "Closing Date" has the meaning set forth in Section 3.01.

            "Code" means the Internal Revenue Code of 1986.

            "Commitment" has the meaning set forth in Section 2.01.

            "Credit Documents" means this Agreement, the Note, and the
       Guaranty.

            "Debt" means, as to any Person, all (a) indebtedness for borrowed
       money, (b) obligations evidenced by bonds, debentures, notes or other
       similar instruments, (c) obligations to pay the deferred purchase price
       of property or services, (d) obligations as lessee under leases that
       have been or should be, in accordance with generally accepted accounting
       principles, recorded as capital leases, (d) obligations under direct or


                                           1




       indirect guaranties in respect of, and obligations (contingent or
       otherwise) to purchase or otherwise acquire, or otherwise to assure a
       creditor against loss in respect of, indebtedness or obligations of
       others of the kinds referred to in clauses (a) through (d) above, and
       (f) liabilities in respect of unfunded vested benefits under plans
       covered by Title IV of ERISA.

            "Default" means any event or condition that would, with the giving
       of any requisite notice and/or the passage of any requisite period of
       time, constitute an Event of Default.

            "Event of Default" has the meaning set forth in Section 6.01.

            "Free Cash Flow" means that amount of Borrower's net income
       attributable to Hondo Magdalena reported each year in accordance with
       GAAP as applicable to the international petroleum industry, applied
       consistently after deduction of all expenses incurred by Borrower or
       Hondo Magdalena in each respective year which are directly related to
       the operations of Hondo Magdalena in Colombia including, but not limited
       to:  (i) Hondo Magdalena's share of royalty and other financial
       obligations due the government of Colombia; (ii) Hondo Magdalena's share
       of operating expenses under operating agreements and the Association
       Contract of 15th July 1987; (iii) overhead and general and
       administrative expenses attributable to operating agreements and the
       Association Contract of 15th July 1987; and (iv) remittance and income
       taxes.

            "GAAP" means generally accepted accounting principles for the
       United States or Colombia, as applicable.

            "Governmental Action" means any authorization, approval, consent,
       waiver, exception, license, filing registration, permit, notarization,
       special lease or other requirement of any Governmental Person.

            "Governmental Person" means, whether domestic or foreign, any
       national, federal, state or local government, any political subdivision
       thereof or any governmental, quasi-governmental (including, without
       limitation, AMEX or other markets in which Borrower's securities are
       traded), judicial, public, statutory or regulator instrumentality,
       authority, body, bureau or entity, including any central bank and any
       comparable authority.

            "Governmental Rule" means any treaty, law, rule, regulation,
       ordinance, order, code, interpretation, judgment, writ, injunction,
       decree, directive, guideline, policy or similar form of decision of any
       Governmental Person.

            "Guaranty" means the Amended and Restated Guaranty of Hondo
       Magdalena substantially in the form of Exhibit B.

            "Guarantor" means Hondo Magdalena.

            "Lien" means, with respect to any asset, (a) any lien, charge,
       claims, mortgage, security interest, pledge, negative pledge or other
       encumbrance of any kind in respect of such asset or (b) the interest of
       a vendor or lessor under any conditional sale agreement, capital lease
       or other title-retention agreement relating to such asset.




                                           2





            "Note" means the Promissory Note of the Borrower substantially in
       the form of Exhibit A.

            "OPON" means the Opon Association Contract dated July 15, 1987
       between Empresa Colombiana de Petroleos ("Ecopetrol") and Opon
       Development Company.

            "OPON Budget" means the budgets for the calendar years 1996 and
       1997 in connection with OPON, prepared by Amoco Colombia Petroleum
       Company and submitted at the operating committee meetings on April 10,
       1996, and November 5, 1996, and the drilling of Opon Well No. 14 as
       described in letter dated June 18, 1997, from Amoco Colombia Petroleum
       Company to Hondo Magdalena and Opon Development Company copies of which
       have been previously supplied to Lender.

            "Person" means any individual, partnership, corporation (including
       a business trust), joint stock company, trust, unincorporated
       association, joint venture or other entity, or any Governmental Person.

            "PIK Shares" means the securities, assets or property issued as
       payment in kind for interest on Advances pursuant to Section 2.05(b)(i).

            "Termination Date"  means January 1, 1999 or the earlier date of
       termination of the Commitment pursuant to Section 6.01.

            SECTION 1.02   Accounting Terms.  All accounting terms not
       specifically defined herein shall be construed in accordance with GAAP
       on a basis consistent with that used in the preparation of the financial
       statements referred to in Section 4.01(e).

            SECTION 1.03  Interpretation.  In the Agreement the singular
       includes the plural and the plural the singular; words importing any
       gender include the other genders; references to statutes are to be
       construed as including all statutory provisions consolidating, amending
       or replacing the statute referred to; references to "writing" include
       printing, typing, lithography and other means of reproducing words in a
       tangible visible form; the words "including," "includes" and "include"
       shall be deemed to be followed by the words "without limitation";
       references to articles, sections (or subdivisions of sections),
       exhibits, annexes or schedules are to those of this Agreement unless
       otherwise indicated; references to agreements and other contractual
       instruments shall be deemed to include all subsequent amendments and
       other modifications to such instruments, and references to Persons
       include their respective permitted successors and assigns.


                                      ARTICLE II

                           AMOUNTS AND TERMS OF THE ADVANCES

            SECTION 2.01  The Advances. The Lender agrees, on the terms and
       conditions hereinafter set forth, to make advances (the "Advances") to
       the Borrower from time to time during the period from the date hereof
       until the Termination Date in an aggregate amount not to exceed at any
       time outstanding $20,500,000, as such amount is reduced from time to
       time pursuant to Section 2.03 (the "Commitment").  Each Advance shall be
       in an amount not less than $1,000,000 and, if greater shall be in
       increments of $100,000.  Within the limits of the Commitment, the


                                           3




       Borrower may borrow, prepay pursuant to Section 2.04(a) and reborrow
       under this Section 2.01.

            SECTION 2.02  Making the Advances.  Each Advance shall be made on
       at least three Business Days notice from the Borrower to the Lender
       specifying the date and amount thereof.  Not later than 10:00 a.m.,
       London time, on the date of such Advance and upon fulfillment of the
       applicable conditions set forth in Article III, the Lender will make
       such Advance available to the Borrower in immediately available funds at
       such account and location as Borrower may designate in writing.

            SECTION 2.03  Optional and Mandatory Reductions of Commitment.
       Without any notice to the Borrower or any other action by an Person, the
       Commitment shall be automatically and permanently reduced (i) by an
       amount equal to the aggregate principal amount of the Advances repaid
       (or due but not repaid) pursuant to Section 2.04(c); (ii) advances
       repaid (or to be repaid) in kind pursuant to Section 2.05(b); and (iii)
       in accordance with Section 6.01.

            SECTION 2.04  Optional and Mandatory Prepayments of Advances.

            (a)  The Borrower may, upon at least three Business Day's notice to
       the Lender stating the proposed date and amount of the prepayment,
       prepay the Advances in whole or in part with accrued interest to the
       date of such prepayment on the amount prepaid, provided that each
       partial prepayment shall be in a principal amount not less than
       $100,000.

            (b)  The Borrower shall immediately repay to the Lender, and there
       shall become due and payable by the Borrower an amount equal to the
       amount by which the aggregate amount of the Advances outstanding exceeds
       the Commitment at any time.

            (c)  The Borrower shall immediately repay to the Lender, and there
       shall become due and payable by the Borrower, an amount equal to 75% of
       Free Cash Flow immediately upon receipt by OPON
       (for avoidance of doubt said 75% being over and above the 5% net profits
       interest agreed to be paid by Borrower to Lender pursuant to agreement
       among Borrower, Lender and Lonrho Plc dated as of December 18, 1992, as
       amended.)

            SECTION 2.05.  Principal and Interest.

            (a)  The Borrower shall repay the unpaid principal amount of each
       Advance, and shall pay interest on each Advance, in accordance with the
       terms of the Note.

            (b)  Notwithstanding the foregoing:

            (i)   Payment in Kind.  If, in the opinion of management, Borrower
            does not have sufficient cash resources to pay interest on any of
            the Advances when due, then Borrower may offer to Lender a payment
            of the interest in shares of Borrower's common stock, valued at (i)
            the last reported sales price regular way on the interest due day
            or, in case no such reported sale takes place on such day, the
            average of the reported closing bid and asked prices regular way on
            such day, in either case on AMEX or other principal national
            securities exchange on which the Borrower's Common Stock is listed
            or, if not listed on any national securities exchange, on The


                                           4




            Nasdaq Stock Market's National Market System or, (ii) if (i) is not
            applicable, the average of the bid and asked prices at the end of
            the interest due day in the over-the-counter market as furnished by
            any New York Stock Exchange member firm selected by the Lender in
            good faith for that purpose.  In making this determination, the
            Borrower's management will not, without the consent of Lender
            allocate cash resources to new capital projects not related to
            OPON.  Lender will then notify Borrower whether it will either
            accept the payment of interest in kind or add the amount of
            interest due to the principal of the note.  If Lender accepts the
            payment of interest in kind, Borrower will issue the requisite
            number of shares to Lender within ten business days after Borrower
            receives notice of acceptance from Lender in the same manner as
            provided in other loans between Borrower and Lender.

            (ii)  Unregistered Shares.  Lender recognizes that any PIK Shares
            will not have been registered under the Securities Act of 1933 and
            may not be sold in the absence of an effective registration under
            said Act or an exemption from the registration requirements of said
            Act.

            (iii)  Registration Rights.  If Lender so requests at any time and
            from time to time, Borrower will use its best efforts to promptly
            effect registration under the Securities Act of 1933 of the PIK
            shares so issued.

            SECTION 2.06  Payments and Computations.

            (a)  The Borrower shall make each payment under the Note and any
       Credit Document not later than 12:00 noon, London time, on the day when
       due in lawful money of the United States of America to the Lender at
       such account and location as it may designate, in immediately available
       funds.  All computations of interest under the Note shall be made by the
       Lender on the basis of a year of 360 days and the actual number of days
       (including the first day but excluding the last day) occurring in the
       period for which such interest is payable.

            (b)  Any amount payable under the Note or any Credit Document not
       paid when due shall bear interest until paid at the rate specified in
       the Note for late payments.

            SECTION 2.07  Payment on Non-Business Days.  Whenever any payment
       to be made under the Note or any Credit Document shall be due on a day
       other than a Business Day, such payment shall be made on the next
       succeeding Business Day, and such extension of time shall in such case
       be included in the computation of payment of interest.

                                      ARTICLE III

                                 CONDITIONS OF LENDING

            SECTION 3.01  Conditions Precedent to Effectiveness.  The Agreement
       shall become effective on the day (the "Closing Date") that is the later
       of July 2, 1997 or when the Lender shall have received all of the
       following, each dated the Closing Date and otherwise in form and
       substance satisfactory to the Lender shall have been delivered to
       Lender; provided, however, that this Agreement shall be null and void
       (and the 1996 Agreement shall remain effective) unless all the following



                                           5




       shall have occurred or been delivered to Lender on or prior to July 31,
       1997:

            (a)  the Note executed by the Borrower;

            (b)  copies of the resolutions of the Board of Directors of the
       Borrower unanimously authorizing this Agreement and the Note and the
       transactions contemplated hereby and thereby, certified by the Secretary
       of the Borrower to be in full force and effect, and all documents
       evidencing other necessary corporate action and governmental approvals,
       if any, with respect to this Agreement and the Note;

            (c)  a certificate of the Secretary of the Borrower certifying the
       names and true signatures of the officers of the Borrower authorized to
       sign this Agreement and the Note and the other documents to be delivered
       by the Borrower hereunder;

            (d)  the Guaranty executed by the Guarantor;

            (e)  copies of resolutions of the board of directors of Guarantor
       authorizing the Guaranty, certified by the Secretary or Assistant
       Secretary of such Guarantor to be in full force and effect together with
       all other documents evidencing other necessary corporate action and
       governmental approvals, if any, with respect to the Guaranty;

            (f)  a certificate of the Secretary or Assistant Secretary of
       Guarantor certifying the names and true signatures of the officers of
       the Guarantor authorized to sign the Guaranty and the other documents to
       be delivered by Guarantor hereunder;

            (g)  certificates of good standing of each of the Borrower and the
       Guarantor, dated as of a recent date, from appropriate officials of the
       state of incorporation of such company;

            (h)  a favorable opinion of Charles B. McDaniel, Esq. as counsel
       for the Borrower and as counsel for Guarantor covering such matters as
       may be required by Lender; and

            (i)  a letter from Charles B. McDaniel, Esq. as the "Process Agent"
       pursuant to which the Process Agent agrees to act as process agent for
       Borrower and Guarantor and to forward forthwith to Borrower and
       Guarantor all process received by the Process Agent.

            SECTION 3.02  Conditions Precedent to All Advances.  The obligation
       of the Lender to make each Advance shall be subject to the further
       conditions precedent that on the date of such Advance:

            (a)  the representations and warranties contained in Section 4.01
       are correct on and as of the date of such Advance as though made on and
       as of such date;

            (b)  no event has occurred and is continuing, or would result from
       such Advance, that constitutes a Default or an Event of Default; and

            (c)  The Lender shall have received such other approvals, opinions
       and documents as the Lender may reasonably request.





                                           6




                                     ARTICLE IIIA

            OPTION TO CONVERT DEBT INTO SHARES OF COMMON STOCK OF BORROWER

            SECTION 3A.01  Option to Convert.  As additional consideration and
       requirement for the increase in the commitment reflected in this
       Agreement, Lender will have the option to convert $7,000,000 of the
       principal amount of the outstanding balance of the Note Purchase
       Agreement dated November 28, 1988, between Pauley Petroleum Inc. (now
       Borrower) and Lender, as amended, and Note dated November 30, 1988, for
       $75,000,000 from Pauley Petroleum Inc. to Lender, as amended (the
       "Thamesedge Note"), into shares of common stock, $1.00 par value, of
       Borrower at the conversion price of $7.70 per share (110% of the closing
       price of such shares on the American Stock Exchange on July 1, 1997).

            SECTION 3A.02  Approval by Borrower's Stockholders.  Such
       conversion option will be subject to and conditioned upon approval by
       Borrower's stockholders at the next annual meeting of stockholders to be
       held approximately March 1998.  Lender agrees to provide a letter from
       Lonrho Plc to Borrower, substantially in the form of Exhibit C, to the
       effect that on the matter of the approval of the option to convert such
       debt, Lonrho Plc agrees to cause its subsidiaries, The Hondo Company and
       Lender, to vote at that meeting the Borrower's shares held by them in
       proportion to the votes cast by stockholders other than The Hondo
       Company and Thamesedge.  If the conversion option is not approved by the
       stockholders, then the interest rate on such $7,000,000 will become
       13.5% per annum (the original rate of the Thamesedge Note) on the date
       of the meeting at which such conversion option is not approved.


                                      ARTICLE IV

                            REPRESENTATIONS AND WARRANTIES

            SECTION 4.01  Representations and Warranties of the Borrower.  The
       Borrower represents and warrants as follows:

            (a)  The Borrower is a corporation duly organized, validly existing
       and in good standing under the laws of Delaware and is duly qualified,
       in good standing and authorized to do business in all other
       jurisdictions within the United States wherein the character of the
       properties owned or held by it or the nature of the business transacted
       by it makes such qualification necessary.  The Borrower has taken all
       actions and procedures customarily taken in order to enter, for the
       purpose of conducting business or owning property, each jurisdiction
       outside the United States wherein the character of the properties owned
       or held by it or the nature of the business transacted by it makes such
       actions and procedures desirable.

            (b)  The execution, delivery and performance by the Borrower of the
       Credit Documents to which it is a party and the consummation of the
       transactions contemplated hereby and thereby, are within the Borrower's
       corporate powers, have been duly authorized by all necessary corporate
       action and do not contravene (i) the Borrower's charter documents or
       bylaws or (ii) any applicable Governmental Rule, (including, without
       limitation, AMEX or other markets in which Borrower's securities are
       traded) or any contractual restriction binding on or affecting the
       Borrower.



                                           7




            (c)  No Governmental Action is required for the due execution,
       delivery and performance by the Borrower of this Agreement, or any
       Credit Documents or the consummation of the transactions contemplated
       hereby and thereby.

            (d)  The Credit Documents to which the Borrower is a party when
       delivered hereunder will be, legal, valid and binding obligations of the
       Borrower enforceable against the Borrower in accordance with their
       respective terms.

            (e)  The consolidated balance sheet of the Borrower and its
       subsidiaries as of September 30, 1996 and 1995 and the related
       statements of operations, changes in stockholders' equity and cash flows
       of the Borrower and its subsidiaries for the years then ended, audited
       by Ernst & Young and copies of which have been delivered to the Lender,
       fairly present in conformity with generally accepted accounting
       principles the financial position of the Borrower and its subsidiaries
       as of such dates and the results of the operations and cash flows for
       such periods.  No material adverse change has occurred in the financial
       position, results of operations or business or prospects of the Borrower
       since September 30, 1996 except as described in documents on file by
       Borrower with the Securities and Exchange Commission, copies of which
       have been delivered to Lender, or of which Lender has actual knowledge.

            (f)  There is no fact that the Borrower has not disclosed in
       writing to the Lender, or of which Lender has actual knowledge, that has
       or will have a material adverse effect on the financial condition of the
       Borrower or the ability of the Borrower to perform any of its
       obligations under any Credit Documents or the Guarantor under any Credit
       Documents.

            (g)  There are no actions, suits  or proceedings pending against
       or, to the knowledge of the Borrower, threatened against or affecting
       the Borrower or any subsidiary of the Borrower that could materially and
       adversely affect the financial condition or operations of the Borrower
       or any such subsidiary of the Borrower or the ability of the Borrower or
       the Guarantor to perform its obligations under any Credit Documents,
       except as described in the financial statements referred to in Section
       4.01(e).

            (h)  The obligations of the Borrower under this Agreement and the
       Guarantor under the Guarantee will rank at least pari passu with all
       claims of other senior creditors of the Borrower and the Guarantor, as
       the case may be.

            (i)  The Borrower, the Guarantor and each of their subsidiaries
       have good title to their respective assets, and the same are not subject
       to any Liens.

            The only permitted exceptions to the Representations and Warranties
       set forth above are set forth in Schedule 1 attached hereto.


                                       ARTICLE V

                               COVENANTS OF THE BORROWER

            SECTION 5.01 Covenants of the Borrower.  So long as any amount due
       hereunder or under the Note or any other Credit Document shall remain


                                           8




       unpaid or the Lender shall have any Commitment hereunder, the Borrower
       will, unless the Lender shall otherwise consent in writing, comply in
       all respects with the following:

            (a)  The Borrower and its subsidiaries will at all time maintain
       full and accurate books of account and records in conformity with GAAP.
       The Borrower and its subsidiaries will maintain a standard system of
       accounting and will furnish the following statements and reports to the
       Lender at the Borrower's expense:

            (i)  as soon as available and in any event within 120 days after
            the end of each fiscal year of the Borrower, complete consolidated
            financial statements of the Borrower and its subsidiaries, together
            with all notes thereto, prepared in reasonable detail in accordance
            with GAAP, together with an opinion, based on an audit using
            generally accepted auditing standards by Ernst & Young or other
            independent certified public accountants selected by the Borrower
            and acceptable to the Lender, stating without exception or
            qualification that such financial statements have been prepared in
            accordance with GAAP consistently applied and present fairly, in
            all material respects, the consolidated financial position, result
            of operations and cash flows presented, such financial statements
            to contain a balance sheet as of the end of such fiscal year and
            statements of earnings, stockholders' equity and cash flows for
            such fiscal year, each setting forth in comparative form the
            corresponding figures for the preceding fiscal year;

            (ii)  as soon as available and in any event within 120 days after
            the end of each fiscal year of Guarantor complete consolidated
            financial statements of Guarantor together with all notes thereto,
            prepared in reasonable detail in accordance with GAAP
            internationally recognized in the industry, together with an
            opinion, based on an audit using generally accepted auditing
            standards by Ernst & Young or other independent certified public
            accountants  acceptable to the Lender, stating without exception or
            qualification that such financial statements have been prepared in
            accordance with GAAP consistently applied and present fairly, in
            all material respects, the consolidated financial position, and
            result of operations and cash flows presented, such financial
            statements to contain a balance sheet as of the end of such fiscal
            year, a consolidated profit and loss statement for such fiscal year
            and a statement of cash flows for such fiscal year, each setting
            forth in comparative form the corresponding figures for the
            preceding fiscal year;

            (iii)  as soon as available, and in any event within 60 days after
            the end of each fiscal quarter of the Borrower, the Borrower's
            consolidated balance sheet as of the end of such fiscal quarter and
            statements of the Borrower's consolidated earnings, and cash flows
            for such quarter and for the period from the beginning of the then
            current fiscal year to the end of such fiscal quarter all in
            reasonable detail and prepared in accordance with GAAP, subject to
            changes resulting from normal year-end adjustments; and, together
            with each such set of financial statements and each set of
            financial statements furnished under subsection (i) of this
            section, a certificate signed by the chief financial officer of the
            Borrower stating that financial statements are accurate and
            complete and present fairly, in all material respects, the
            consolidated financial position and result of operations presented,


                                           9




            stating that the chief financial officer of the Borrower has
            reviewed this Agreement and that no Default or Event of Default
            exists at the time of such certificate or, if he concludes that a
            Default or Event of Default exists, specifying its nature and the
            action being taken or proposed to be taken with respect thereto;

            (iv)  forthwith upon the occurrence of any Default or Event of
            Default, a certificate of the chief financial officer of the
            Borrower setting forth the details thereof and the action that the
            Borrower is taking or proposes to take with respect thereto;

            (v)  promptly upon the mailing thereof to the shareholders of the
            Borrower, copies of all financial statements, reports and proxy
            statements so mailed;

            (vi)  promptly after the Borrower has become aware of the same,
            notice of all pending or threatened litigation or arbitration
            proceedings and proceedings before any Governmental Person that
            could materially and adversely affect the financial condition or
            operations of the Borrower or the Guarantor;

            (vii)  promptly upon any such occurrence, written notice to the
            Lender of any sale of assets by the Borrower in excess of $150,000
            in any one transaction; and

            (viii)  from time to time such additional information regarding the
            financial position, results of operations, cash flows or business
            or prospects of the Borrower or the Guarantor as the Lender may
            reasonably request.

            (b)  The Borrower will preserve and maintain its, and cause its
       subsidiaries to preserve and maintain their corporate existence and all
       of its right, privileges and franchises necessary or desirable in the
       normal conduct of its business and will conduct its business in a
       regular manner. The Borrower will notify the Lender 30 days in advance
       of any change in the location of its or any of its subsidiary's
       principal place of business, of the establishment or discontinuance of
       its principal place of business or of a change in the corporate name,
       trade names or articles of incorporation or bylaws of the Borrower or
       any subsidiary of the Borrower.

            (c)  The Borrower will keep, and will cause each of its
       subsidiaries to keep, all of its properties necessary, in the reasonable
       judgment of its Board of Directors, in its business in good working
       order and condition, ordinary wear and tear excepted, and will permit
       representatives of the Lender to inspect such properties and to examine
       and make extracts from the books and records of the Borrower and its
       subsidiaries during normal business hours.

            (d)  The Borrower will comply with the requirements of all
       applicable Governmental Rules, a breach of which could have a material
       adverse effect on the consolidated financial condition or the business
       taken as a whole of the Borrower and its subsidiaries, except where
       contested in good faith and by proper proceedings.

            (e)  The Borrower will, and will cause its subsidiaries to, keep
       proper books of records and accounts in which full, true and correct
       entries in conformity with GAAP shall be made of all dealings and
       transactions in relation to the Borrower's and its subsidiaries'


                                          10




       business and activities.  The Borrower will, and will cause its
       subsidiaries to,  permit representatives of the Lender to visit and
       inspect all of its and its subsidiaries' properties to the extent
       permitted by applicable law and applicable safety and security policies
       of the Borrower and its subsidiaries (and to the extent such visitation
       and inspection shall not interfere with the normal operations of the
       Borrower and its subsidiaries) and to examine, subject to proprietary
       and confidentiality policies and agreements of or binding upon the
       Borrower and its subsidiaries, any or all of their books and records and
       to discuss their affairs, finances and accounts with their officers and
       employees, subject to proprietary and confidentiality policies and
       agreements of or binding upon the Borrower and its subsidiaries, all at
       such reasonable times and as often as may reasonably be desired.

            (f)  The Borrower will pay and discharge all taxes, assessments,
       governmental charges and levies imposed on it, on its income or profits
       or on any of its property prior to the date on which interest and
       penalties attach thereto, except that the Borrower will not be required
       hereby to pay any such tax, assessment, charge or levy the payment of
       which is being contested in good faith and by proper proceedings and
       against which it is maintaining adequate reserves.

            (g)  The Borrower will, and will cause its subsidiaries to,
       maintain insurance with responsible companies in such amounts and
       against such risks as is usually carried by owners of similar businesses
       and properties in the same general areas in which they operate.

            (h)  The Borrower will not create or suffer to exist any Lien upon
       or with respect to any of its properties, whether now owned or hereafter
       acquired, or assign any right to receive income, except as set forth on
       Schedule 1.

            (i)  The Borrower will not (A) consolidate with or merge into any
       other Person or (B) sell, lease or otherwise transfer all or any
       substantial part of its assets to any other person.

            (j)  The Borrower will not take any action that would result in the
       Borrower's obligations to the Lender under this Agreement and the Note
       not ranking at least pari passu in right of payment with all senior
       obligations of the Borrower to other creditors unless approved by
       Lender.

            (k)  The Borrower will use the proceeds of this loan in the manner
       specified in the recitals first above written.

            (l)  The Borrower will undertake no new capital projects not
       related to OPON of any type for so long as any monies remain due under
       any of the Credit Documents.

            (m)  The Borrower will not sell, pledge, encumber transfer or in
       any way adversely affect the shares of or the assets held by Hondo
       Magdalena and it will similarly cause Hondo Magdalena to do likewise.


                                      ARTICLE VI

                                   EVENTS OF DEFAULT




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            SECTION 6.01  Events of Default.  If any of the following events
       (each an "Event of Default") shall occur and be continuing:

            (a)  the Borrower shall fail to pay any installment of principal
       of, or interest on, the Advances and/or other amounts payable under this
       Agreement, the Note or any Credit Document when due and such failure
       shall remain unremedied for 3 days;

            (b)  the Borrower or Guarantor shall fail to perform or observe any
       other term, covenant or agreement contained in any Credit Document on
       its part to be performed or observed and any such failure shall remain
       unremedied for 10 days after written notice thereof shall have been
       given to the Borrower or  Guarantor (as the case may be) by the Lender;

            (c)  any representation or warranty made by the Borrower or
       Guarantor (or any of their officers) in or in connection with any Credit
       Document or Advance shall prove to have been incorrect in any material
       respect when made;

            (d)  the Borrower, Guarantor and any of their respective
       subsidiaries shall (i) fail to pay any Debt (but excluding indebtedness
       evidenced by the Note) of the Borrower, Guarantor or such subsidiary (as
       the case may be), or any interest or premium thereon, when due (whether
       upon scheduled maturity, required prepayment, acceleration, demand or
       other notice or formality of any kind) and such failure shall continue
       after the applicable grace period, if any, specified in the agreement or
       instrument relating to such Debt or (ii) fail to perform or observe any
       term, covenant or condition on its part to be performed or observed
       under any agreement or instrument relating to any such Debt, when
       required to be performed or observed, and such failure shall continue
       after the applicable grace period, if any, specified in such agreement
       or instrument, if the effect of such failure to perform or observe is to
       accelerate, or to permit the acceleration of, the maturity of such Debt;
       or any such Debt shall be declared to be due and payable, or required to
       be prepaid (other than by a regularly scheduled required prepayment),
       prior to the stated maturity thereof;

            (e)  the Borrower, Guarantor or any of their respective
       subsidiaries shall generally not pay its debts as they become due, shall
       admit in writing its inability to pay its debts or shall make a general
       assignment for the benefit of creditors; or any proceeding shall be
       instituted by or against the Borrower, the Guarantor or any of their
       respective subsidiaries seeking to adjudicate it a bankrupt or
       insolvent, or seeking liquidation, winding up, reorganization,
       arrangement, adjustment, protection, relief, or composition of it or its
       Debts under any law relating to bankruptcy, insolvency or reorganization
       or relief of debtors, or seeking the entry of an order for relief or the
       appointment of a receiver, trustee, or other similar official for it or
       for any substantial part of its property; or the Borrower, Guarantor or
       any of their respective subsidiaries shall take any corporate or other
       action to authorize any of the actions set forth above in this paragraph
       (e);

            (f)  a final judgment or order for the payment of money in excess
       of $75,000 shall be rendered against the Borrower, the Guarantor or any
       of their subsidiaries, and any such judgment or order shall continue
       unsatisfied and in effect for a period of 60 consecutive days;

            (g)  any of the Credit Documents shall be terminated, repudiated or


                                          12




       contested in any respect, any material provision of any of the Credit
       Documents shall for any reason cease to be valid and binding on the
       Borrower or Guarantor, Guarantor shall breach any obligation set forth
       in its Guaranty or there shall be a material adverse change in the
       financial condition of the Borrower or Guarantor affecting the ability
       of the Borrower or Guarantor to perform their respective obligations
       under the Note or the Guaranty; then, and in any such event, the Lender
       may, by notice to the Borrower, (i) declare the Commitment to make
       Advances to be terminated, whereupon the same shall forthwith terminate,
       and/or (ii) declare all Advances, all interest thereon and all other
       amounts payable under this Agreement the Note and all Credit Documents
       to be forthwith due and payable, whereupon the Advances, all such
       interest and all such amounts shall become and be forthwith due and
       payable, without presentment, demand, protest or further notice of any
       kind, all of which are hereby expressly waived by the Borrower.


                                      ARTICLE VII

                                     MISCELLANEOUS

            SECTION 7.01  Amendments, Etc.  No amendment or waiver of any
       provision of this Agreement or the Note, or consent to any departure by
       the Borrower therefrom, shall in any event be effective unless the same
       shall be in writing and signed by the Lender, and then such waiver or
       consent shall be effective only in the specific instance and for the
       specific purpose for which given.

            SECTION 7.02  Notices, Etc.  Except as otherwise specifically
       provided in this Agreement all notices and other communications provided
       for hereunder shall be in writing and shall be delivered to the
       addressees at the applicable addresses set forth below by mail,
       telecopy, Federal Express or other equivalent overnight carrier or by
       telephone (confirmed in writing within 24 hours) or telecopy or hand-
       delivered, if to the Borrower, to it at  Hondo Oil & Gas Company, 10375
       Richmond Avenue, Suite 900, Houston, TX 77042, telephone (713) 954-4600,
       telecopier (713) 954-4601, Attention: Charles B. McDaniel, Esq.; if to
       the Lender, to it at Thamesedge, Ltd., 4 Grosvenor Place, London, SW1X
       7DL England, telephone 011-44-171-201-6000, telecopier 011-44-171-201-
       6100, Attention Robin Whitten with a copy to Rudolph H. Funke, Esq. at
       805 Third Avenue, 18th Floor, New York, NY 10022, telephone 212-715-
       7001, telecopy 212-838-8141; or, as to each party, to it at such other
       address as shall be designated by such party in a written notice to the
       other party.  All such notices and communications shall, except that
       notices to the Lender pursuant to the provisions of Article II shall not
       be effective until received by the Lender.

            SECTION 7.03  No Waiver; Remedies.  No failure on the part of the
       Lender to exercise, and no delay in exercising, any right hereunder or
       under the Note shall operate as a waiver thereof, nor shall any single
       or partial exercise of any right hereunder or under the Note preclude
       any other or further exercise thereof or the exercise of any other
       right.  The remedies herein provided are cumulative and not exclusive of
       any remedies provided by law.

            SECTION 7.04.  Costs, Expenses and Taxes.  The Borrower agrees to
       pay on demand all out-of-pocket costs and expenses in connection with
       the preparation,  execution, delivery, administration and amendment of
       this Agreement, the Note, the Guaranty  and the other Credit Documents


                                          13




       to be delivered hereunder, including the reasonable fees and out-of-
       pocket expenses of counsel for the Lender with respect thereto and with
       respect to advising the Lender as to its rights and responsibilities
       under this Agreement, and all costs and expenses, if any (including
       reasonable fees and expenses of counsel), in connection with the
       enforcement of this Agreement, the Note, the Guaranty and the other
       Credit Documents to be delivered hereunder.  In addition, the Borrower
       shall pay any and all stamp and other taxes payable or determined to be
       payable in connection with the execution and delivery of this Agreement,
       the Note and the other Credit Documents to be delivered hereunder, and
       agrees to save the Lender harmless from and against any and all
       liabilities with respect to or resulting from any delay in paying or
       omission to pay such taxes.

            SECTION 7.05  Right of Setoff.  Upon the occurrence and during the
       continuance of any Event of Default, the Lender is hereby authorized at
       any time and from time to time, without notice to the Borrower (any such
       notice being expressly waived by the Borrower), to set off and apply any
       indebtedness at any time owing by the Lender to or for the credit or the
       account of the Borrower against any and all of the obligations of the
       Borrower now or hereafter existing under this Agreement and the Note,
       irrespective of whether or not the Lender shall have made any demand
       under this Agreement or the Note and although such obligations may be
       unmatured.  The Lender agrees to notify the Borrower promptly after any
       such set off and application, provided that the failure to give such
       notice shall not affect the availability of such set off and
       application.  The rights of the Lender under this Section are in
       addition to other rights and remedies (including other rights of setoff)
       that the Lender may have.

            SECTION 7.06  Binding Effect: Governing Law.  This Agreement shall
       be binding upon and inure to the benefit of the Borrower and the Lender
       and their respective successors and assigns, except that the Borrower
       shall not have the right to assign its rights hereunder or any interest
       herein without the prior written consent of the Lender.  This Agreement
       and the Note shall be governed by, and construed in accordance with, the
       laws of the State of New York (without giving effect to New York's
       principles of conflicts of law, other than title 14 of Article 5 of New
       York's General Obligations Law).


            SECTION 7.07  Counterparts.  This Agreement may be executed in any
       number of counterparts, and all such counterparts taken together shall
       be deemed to constitute one and the same instrument.

            SECTION 7.08   Entirety of Agreement.  The Credit Documents
       represent the complete understanding between the parties with respect to
       the subject matter of this transaction.

            SECTION 7.09   Jurisdiction.

            (a)  The Borrower hereby irrevocably submits to the jurisdiction of
       any New York State or United States Federal court sitting in New York
       City over any action or proceeding arising out of or relating to this
       Agreement or the Note, and hereby irrevocably agrees that all claims in
       respect of such action or proceeding may be heard and determined in such
       New York State or Federal court.  The Borrower irrevocably consents to
       the service of any and all process in any such action or proceeding by
       sending copies of such process to it at its address and in the manner


                                          14




       determined under Section 7.02 hereof.  The Borrower 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.  The Borrower further waives any objections to
       venue in such State and any objection to an action or proceeding in such
       State on the basis of forum non conveniens.  The Borrower further agrees
       that any action or proceeding brought by it against the Lender shall be
       brought only in New York State or United States Federal court sitting in
       New York County, New York.  The Borrower and the Lender waive any right
       it may have to jury trial.

            (b)  Nothing in this Section 7.09 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
       the Borrower or any of its properties in the courts of any other
       jurisdictions.

            (c)  To the extent that the Borrower has or hereafter may acquire
       any immunity from jurisdiction of any court or from any legal process
       (whether from service or notice, attachment prior to judgment,
       attachment in aid of execution, execution or otherwise) with respect to
       itself or its property, the Borrower hereby irrevocable waives such
       immunity in respect of its obligations under the Credit Documents.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement
       to be executed by their respective officers thereunto duly authorized,
       as of the date first above written.



       HONDO OIL & GAS COMPANY


       By:       /s/ John J. Hoey
            --------------------------
                 John J. Hoey
                 President and CEO


       THAMESEDGE, LTD.


       By:       /S/ R. E. Whitten
            --------------------------
       Name:     R. E. Whitten
       Title:    Finance Director



       By:       /s/ N. J. Morrell
            --------------------------
       Name:     N. J. Morrell
       Title:    Chief Executive








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