<PAGE>
                                 FORM 10-Q

                     SECURITIES AND EXCHANGE COMMISSION

                          WASHINGTON, D.C.  20549


      (Mark One)

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

               For the quarterly period ended: March 31, 1998

                                     OR

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

               For the transition period from              to


                                   1-8979
                          (Commission File Number)


                          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 Ave, Ste. 900, Houston, Texas                  77042
        (Address of principal executive offices)                  (Zip Code)

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

  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
                                                     ---    ---


  The registrant has one class of common stock outstanding.  As of May 18, 1998,
  13,798,424 shares of registrant's $1 par value common stock were outstanding.














                                     1




                          HONDO OIL & GAS COMPANY

                   INDEX TO QUARTERLY REPORT ON FORM 10-Q

                  FOR THE SIX MONTHS ENDED MARCH 31, 1998





                                                                      PAGE
                                                                      ----

PART I - FINANCIAL INFORMATION


  Item 1  Financial Statements:

          Consolidated Balance Sheets as of
           March 31, 1998 and September 30, 1997                          3

          Consolidated Statements of Operations for the three
            months ended March 31, 1998 and 1997                          4

          Consolidated Statements of Operations for the six
            months ended March 31, 1998 and 1997                          5

          Consolidated Statements of Cash Flows for the six
            months ended March 31, 1998 and 1997                          6


          Notes to Consolidated Financial Statements                      7


  Item 2  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                          15


PART II - OTHER INFORMATION

  Item 4  Submission of Matters to a Vote of Security Holders            30

  Item 6  Exhibits and Reports on Form 8-K                               30


SIGNATURES                                                               31















                                     2

                                   PART I

Item 1  FINANCIAL STATEMENTS

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


                                                 March 31,    September 30,
                                                   1998           1997
                                               -------------  -------------
ASSETS                                          (Unaudited)
Current assets:
  Cash and cash equivalents                            $717         $1,019
  Accounts receivable                                 1,435            296
  Prepaid expenses and other                            127              1
                                               -------------  -------------
    Total current assets                              2,279          1,316

Properties, net (Notes 1 and 3)                      40,728         40,612
Net assets of discontinued operations (Note 8)        2,280          2,137
Other assets                                          1,569            865
                                               -------------  -------------
                                                    $46,856        $44,930
                                               =============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                   $7,751         $3,464
  Accrued expenses and other, including $3,868
    in 1998 due to a related party (Note 4)           9,866          3,421
  Current portion of long-term debt, including
    $101,217 in 1998 due to a related               101,497            265
    party (Notes 1 and  5)
  Funding agreement (Notes 1 and 6)                  25,843             --
                                               -------------  -------------
    Total current liabilities                       144,957          7,150

Long-term debt, including $7,433 and $99,943,
  respectively, due to a related party
  (Notes 1 and 5)                                    10,113        102,903
Funding agreement (Notes 1 and 6)                        --         22,788
Other liabilities, including $3,407 in 1997
  due to a related party (Note 7)                        --          5,262
                                               -------------  -------------
                                                    155,070        138,103

Contingencies (Notes 1 and 8)

Shareholders' equity (deficit):
  Common stock, $1 par value, 30,000,000 shares
    authorized; shares issued and outstanding:
    13,798,424 and 13,788,424, respectively          13,798         13,788
  Additional paid-in capital                         53,737         53,675
  Accumulated deficit                              (175,749)      (160,636)
                                               -------------  -------------
                                                   (108,214)       (93,173)
                                               -------------  -------------
                                                    $46,856        $44,930
                                               =============  =============

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

                                     3

                          HONDO OIL & GAS COMPANY
             CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
               (In Thousands Except Share and Per Share Data)


                                                For the three months ended
                                                        March 31,
                                               ----------------------------

                                                   1998           1997
                                               -------------  -------------

REVENUES
Sales and operating revenue                          $1,721             $1
Other income                                              4              4
                                               -------------  -------------
                                                      1,725              5
                                               -------------  -------------

COSTS AND EXPENSES
Operating costs                                         334            390
Depreciation, depletion, and amortization               559             57
Overhead, Colombian operations                          501            511
General and administrative                              769            598
Costs of exploration and dry holes                    8,452              2
Interest on indebtedness including $1,947
  and $1,450, respectively, to a
  related party                                       3,010          1,456
                                               -------------  -------------
                                                     13,625          3,014
                                               -------------  -------------
Loss from continuing operations
  before income tax expense                         (11,900)        (3,009)
Income tax expense                                       --             --
                                               -------------  -------------
Loss from continuing operations                     (11,900)        (3,009)

Loss from discontinued operations (Note 8)               --             --
                                               -------------  -------------
Net Loss                                           $(11,900)       $(3,009)
                                               =============  =============

Loss per share:
  Continuing operations                              $(0.87)        $(0.22)
  Discontinued operations                                --             --
                                               -------------  -------------
  Net loss per share                                 $(0.87)        $(0.22)
                                               =============  =============

Weighted average common shares outstanding       13,798,424     13,781,194












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

                                     4

                          HONDO OIL & GAS COMPANY
             CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
               (In Thousands Except Share and Per Share Data)


                                                 For the six months ended
                                                        March 31,
                                               ----------------------------

                                                   1998           1997
                                               -------------  -------------

REVENUES
Sales and operating revenue                          $1,864             $1
Other income                                              8             19
                                               -------------  -------------
                                                      1,872             20
                                               -------------  -------------

COSTS AND EXPENSES
Operating costs                                         650            335
Depreciation, depletion, and amortization               655            115
Overhead, Colombian operations                          976          1,127
General and administrative                            1,233            996
Costs of exploration and dry holes                    8,482             13
Interest on indebtedness including $3,868
  and $2,823, respectively, to a
  related party                                       4,989          2,878
                                               -------------  -------------
                                                     16,985          5,464
                                               -------------  -------------
Loss from continuing operations
  before income tax expense                         (15,113)        (5,444)
Income tax expense (benefit)                             --             (2)
                                               -------------  -------------
Loss from continuing operations                     (15,113)        (5,442)

Loss from discontinued operations (Note 8)               --             --
                                               -------------  -------------
Net Loss                                           $(15,113)       $(5,442)
                                               =============  =============

Loss per share:
  Continuing operations                              $(1.10)        $(0.40)
  Discontinued operations                                --             --
                                               -------------  -------------
  Net loss per share                                 $(1.10)        $(0.40)
                                               =============  =============

Weighted average common shares outstanding       13,793,424     13,779,527












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

                                     5

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


                                                                For the six months ended
                                                                       March 31,
                                                              ----------------------------
                                                                  1998           1997
                                                              -------------  -------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Pretax loss from continuing operations                          $(15,113)       $(5,444)
  Adjustments to reconcile pretax loss from continuing
    operations to net cash used by continuing operations:
    Cost of dry holes                                                7,953             --
    Depreciation, depletion and amortization                           655            115
    Capitalized interest                                              (677)          (300)
    Accrued interest added to long-term debt                         3,407          2,429
    Changes in operating assets and liabilities:
      Decrease (increase) in:
        Accounts receivable                                         (1,139)            17
        Prepaid expenses and other                                    (126)           (43)
        Other assets                                                  (753)          (359)
      Increase (decrease) in:
        Accounts payable                                               236            160
        Accrued expenses and other                                   6,445          2,187
        Funding agreement                                            2,248            936
        Other liabilities                                           (5,190)        (1,637)
                                                              -------------  -------------
      Net cash used by continuing operations                        (2,054)        (1,939)
      Net cash used by discontinued operations                        (143)          (207)
      Income taxes (paid) received                                      --              2
                                                              -------------  -------------
      Net cash used by operating activities                         (2,197)        (2,144)
                                                              -------------  -------------
Cash flows from investing activities:
  Sale of assets                                                         2             --
  Capital expenditures                                              (3,142)        (4,994)
                                                              -------------  -------------
      Net cash used by investing activities                         (3,140)        (4,994)
                                                              -------------  -------------
Cash flows from financing activities:
  Proceeds from long-term borrowings                                 5,300          7,200
  Principal payments on long-term debt                                (265)          (250)
                                                              -------------  -------------
      Net cash provided by financing activities                      5,035          6,950
                                                              -------------  -------------

Net increase (decrease) in cash and cash equivalents                  (302)          (188)

Cash and cash equivalents at the beginning of the period             1,019            374
                                                              -------------  -------------
Cash and cash equivalents at the end of the period                    $717           $186
                                                              =============  =============

</TABLE>Refer to Notes 3, 5 and 6 for descriptions of non-cash transactions.



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

                                              6

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


1)  Going Concern
    -------------

    The accompanying consolidated financial statements have been prepared on the
    basis that the Company is a going-concern. During the quarter ended March
    31, 1998, the Company encountered two important events whose consequences
    may lead to the Company no longer being a going-concern:

    -   The Company's fourth well drilled at the Opon project, the Opon No. 14
        well, was unsuccessful and did not discover significant quantities of
        hydrocarbons.
    -   The Company began producing its two successful wells in December 1997.
        Since production began, greater than expected decreases in the flowing
        pressure of both wells have occurred.

    The associate parties to the Opon Contract have commenced a new analysis of
    the Opon structure, reservoir, and reserves.  Initially, the analysis will
    focus on the drop in pressure and production of the producing wells and
    should be completed by early June.  The analysis of the entire Opon Contract
    area should be completed by the end of July.

    As more fully described in Note 5, the Company's debts to Lonrho Plc include
    an event of default which is triggered if the Company does not increase its
    reserves by October 1, 1998. The failure of the Opon No. 14 well to find
    additional reserves makes it unlikely the Company will be able to avoid the
    event of default on October 1, 1998.  The failure of the Opon No. 14 well
    makes it unlikely that the Company will be able to obtain third-party
    financing of its obligations under the Funding Agreement (see Note 6). It is
    reasonably possible that the Company will incur the Funding Agreement's 100%
    penalty in January 1999.  If incurred, management estimates the penalty
    would be a minimum of $18,246 (the current principal balance) and would be
    charged to income.  The declines in pressure and production from the Opon
    No. 3 and No. 4 wells cause uncertainty as to whether the Company's reported
    proved reserves are accurate.  If the results of the analysis described
    above lead to the conclusion that the Company's proved reserve estimates
    need to be revised downward, it is likely the Company will incur additional
    charges to income as it writes down its assets.  The magnitude of such
    write-downs cannot presently be estimated.

    As more fully described under the caption Liquidity and Capital Resources in
    Item 2, the Company has made arrangements with its two primary creditors,
    Lonrho Plc and Amoco Colombia, to prevent actions on their part which could
    lead to the Company's bankruptcy or impairment of its rights under the Opon
    Association Contract until at least October 15, 1998.  This should allow the
    Company to continue as a going concern until the value of the Opon project
    has been determined and acted upon.  Under the circumstances, there can be
    no assurances if, or how long, the Company will remain a going concern.










                                     7

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


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

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

    Hondo Oil & Gas Company ("Hondo Oil" or "the Company") is an independent oil
    and gas exploration and development company.  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.  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.

    The accompanying consolidated financial statements have been prepared in
    accordance with generally accepted accounting principles for interim
    financial information and with the instructions to Form 10-Q and Article 10
    of Regulation S-X.  Accordingly, they do not include all of the information
    and footnotes required by generally accepted accounting principles for
    complete financial statements.  There has not been any change in the
    Company's significant accounting policies for the periods presented.  There
    have not been any significant developments or changes in contingent
    liabilities and commitments since September 30, 1997. Certain
    reclassifications have been made to the prior year's amounts to make them
    comparable to the current presentation.  These changes had no impact on
    previously reported results of operations or shareholders' equity (deficit).

    In the opinion of management, all adjustments (consisting of normal
    recurring accruals) considered necessary for a fair presentation have been
    included.  The results for this interim period are not necessarily
    indicative of results for the entire year.  These statements should be read
    in conjunction with the financial statements and notes thereto included in
    the Company's Annual Report on Form 10-K for the fiscal year ended September
    30, 1997.

    (b) Earnings Per Share
        ------------------

    The Company implemented SFAS No. 128, Earnings per Share, beginning with the
    quarter ended December 31, 1997.  The Company has incurred losses in each of
    the periods presented in these financial statements, thereby making the
    inclusion of stock options in the basic earnings per share computation
    antidilutive.  Accordingly, stock options have not been included in the
    present, or previously reported, basic earnings per share computations and
    restatement of previously reported amounts is not necessary.  Diluted per
    share amounts are the same as basic per share amounts and, accordingly,
    are not presented.

    (c) 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.
                                     8

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


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

    (d) 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.

    The Company provides for income taxes in interim periods based on estimated
    annual effective rates.  The Company records current income tax expense to
    the extent that federal, state or alternative minimum tax is projected to be
    owed.  The Company has investment tax credit carryforwards of $428 which
    are accounted for by the flow-through method.


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

    Properties, at cost, consist of the following:
                                                 March 31,    September 30,
                                                   1998           1997
                                               -------------  -------------
                                                (Unaudited)
    Oil and gas properties - Colombia:
      Proved                                        $12,019        $11,923
      Accumulated depletion, depreciation
        and amortization                               (285)            --
                                               -------------  -------------
                                                     11,734         11,923
                                               -------------  -------------
    Other properties - Colombia:
      Wellsite facilities                             4,671          4,689
      Pipelines                                      12,891         12,061
      Accumulated depreciation                         (302)            --
      Drilling in progress                           11,637         11,821
                                               -------------  -------------
                                                     28,897         28,571
                                               -------------  -------------
    Other properties - domestic
      Other fixed assets                                309            323
      Accumulated depreciation                         (212)          (205)
                                               -------------  -------------

                                                    $40,728        $40,612
                                               =============  =============

    The balances of wellsite facilities and pipelines include non-cash increases
    of $184 and $4,042 for the six months ended March 31, 1998 and 1997,
    respectively, which were charged to the Funding Agreement (Note 6).
    Additions to drilling in progress of $5,800 and $929 for the six months
    ended March 31, 1998 and 1997, respectively, were unpaid and
    are reflected in the balance of accounts payable.
                                     9

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


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

    Accrued expenses consist of the following:

                                                 March 31,    September 30,
                                                   1998           1997
                                               -------------  -------------
                                                (Unaudited)

    Refining and marketing costs (Note 8)            $3,197         $3,198
    Interest payable to Lonrho Plc (Note 5)           3,868             --
    City of Long Beach                                1,642             --
    Accrued dry hole costs                              500             --
    Unearned tariff revenue                             377             --
    Other                                               282            223
                                               -------------  -------------
                                                     $9,866         $3,421
                                               =============  =============


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

    Long-term debt consists of the following:
                                                 March 31,    September 30,
                                                   1998           1997
                                               -------------  -------------
    Notes payable to Lonrho Plc (a),(b):        (Unaudited)
      Note A (c)                                     $3,585         $3,479
      Note B (c)                                      4,673          4,535
      Note C (a),(d)                                 39,734         38,577
      Note D (d)                                     34,137         33,126
      Note E (e)                                      5,455          5,294
      Note F (f)                                     21,066         14,932
    Pollution Control Revenue Bonds (g)               1,960          2,225
    Industrial Development Revenue Bonds (g)          1,000          1,000
                                               -------------  -------------
                                                    111,610        103,168
    Less current maturities                        (101,497)          (265)
                                               -------------  -------------

                                                    $10,113       $102,903
                                               =============  =============

    Maturities are as follows for the years ending March 31:
    1999                                           $101,497
    2000                                              1,947
    2001                                              1,967
    2002                                              1,987
    2003                                              2,007
    Thereafter                                        2,205
                                               -------------
                                                   $111,610
                                               =============


                                    10

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


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

    (a) 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 on
        May 13, 1997. 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 $7,000 of Note C into the
        Company's common stock at a rate of $7.70 per share.  The debt is
        convertible at Lonrho's option at any time prior to maturity.  The
        option to convert the debt into common stock given in 1997 was
        approved at the Company's 1998 annual meeting.

    (b) The following terms apply to Notes A through F:
        (1) Interest is payable semiannually on October 1 and April 1 at a
        rate of 6% (except Note F which is 13%).
        (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 $3,868, $3,407, $2,823 and $2,411 has been
        added to the outstanding debt as of April 1, 1998, October 1, 1997,
        April 1, 1997, and October 1, 1996,  respectively.  Accrued interest
        has not been paid by the issuance of common stock since fiscal 1996.
        (4) As consideration for past deferrals of interest and principal
        payments due under the terms of the first four notes, the Company
        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 F 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.

    (e) In October 1994, the Company received $4,800, net of withholding
        taxes, from Amoco Colombia under the terms of a Farmout Agreement.
        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.

                                    11

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


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

    (f) In June 1996, Lonrho Plc agreed to provide the Company a 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.  In December 1997, the loan
        was again amended to revise the amount available to $27,500.  The loan
        is secured by free cash flow, as defined, from Hondo Magdalena's
        operations.  The Company drew $14,600 during fiscal 1997 and has drawn
        $5,300 during the six months ended March 31, 1998.

    (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.

    Cash interest expense, all of which arises from discontinued operations, was
    $105 and $113 for the six months ended March 31, 1998 and 1997,
    respectively.


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

    In May 1995, the Company's wholly-owned subsidiary, Hondo Magdalena Oil &
    Gas Limited ("Hondo Magdalena"), Amoco Colombia Petroleum Company ("Amoco
    Colombia"), and Opon Development Company entered into a Funding Agreement
    for Tier I Development Project costs (the "Funding Agreement") to finance
    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 up to 365 days after the date
    of first production and sales, 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 and sales 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 and sales, an additional penalty of 100% of the
    amount then due would be recovered out of Hondo Magdalena's revenues.
                                    12

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


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

    The associate parties have agreed that the date of first production for
    purposes of this agreement is January 30, 1998.  Hondo Magdalena was not
    able to avail itself of the 125% option.  Subsequent to the end of the
    365-day option period, 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.

    The balance of the Funding Agreement consists of the following:

                                                 March 31,    September 30,
                                                   1998           1997
                                               -------------  -------------
                                                (Unaudited)

    Outstanding principal                           $18,246        $17,566
    Equity premiums                                   7,597          5,222
                                               -------------  -------------
                                                    $25,843        $22,788
                                               =============  =============

    The Company has accrued equity premiums computed in accordance with the 22%
    annualized interest rate option. Equity premiums related to the financed
    pipeline and wellsite facilities costs were capitalized until the
    commencement of production (December 1997), including $624 and $1,174 for
    the six months ended March 31, 1998 and 1997, respectively.  The remainder
    of the equity premiums accrued, relating to the financed geological and
    geophysical work, overheads, and pipeline and wellsite costs subsequent to
    the commencement of production, have been expensed.


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

    Other liabilities consist of the following:
                                                 March 31,    September 30,
                                                   1998           1997
                                               -------------  -------------
                                                (Unaudited)

    Interest payable to Lonrho Plc (Note 5)             $--         $3,407
    City of Long Beach                                   --          1,594
    Other                                                --            261
                                               -------------  -------------
                                                        $--         $5,262
                                               =============  =============








                                    13

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MARCH 31, 1998

                     (All Dollar Amounts in Thousands)


8)  Discontinued Operations
    -----------------------

    In 1991, the Company adopted plans of disposal for its refining and
    marketing and real estate segments.  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.

    Operating losses of discontinued operations for the quarters ended March 31,
    1998 and 1997 were $70 and $79, respectively.  Corresponding  amounts for
    the six months ended March 31, 1998 and 1997 were $143 and $191,
    respectively, and were charged against loss provisions established in
    earlier periods.  The Company recorded no loss provisions for discontinued
    operations for the six months ended March 31, 1998 and 1997.

    The balance of net assets of discontinued operations is comprised solely of
    two parcels of land in the real estate segment.  Changes in this balance for
    the six months ended March 31, 1998 are as follows:

    Balance as of September 30, 1997                 $2,137
      Valuation provisions established                   --
      Valuation provisions used                         143
                                               -------------
    Balance at March 31, 1998 (Unaudited)            $2,280
                                               =============

    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 $49 and $62 for
    the quarters ended March 31, 1998 and 1997, respectively.  Comparable
    amounts for the six-month periods were $99 and $125, respectively.

    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 trial is scheduled to commence on
    August 26, 1998.  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.

                                    14





       Item 2. 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 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, but were suspended at the end
       of March 1998 due to unanticipated drops in pressure and corresponding
       production from the Opon No. 3 and No. 4 wells.  The Company continues
       to supply gas and liquids to Ecopetrol at production levels less than
       required under the contracts.  The Company is not incurring any
       penalties under the contracts.  During 1997, the Opon No. 6 well
       encountered mechanical problems during completion operations and was
       temporarily suspended to evaluate information and develop plans for
       further operations on the well.*  The associate parties have deferred
       commencing production of the Opon No. 6 well until they have completed a
       review and analysis of the reservoir and reserves.  Drilling of the Opon
       No. 14 well began in October 1997 and has been completed and tested.
       The Opon No. 14 well did not produce any hydrocarbons and has been
       temporarily suspended.  The Company will require additional financing to
       continue development of the Opon project.*


       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
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          15




       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 have approached Ecopetrol for
       clarification of its 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 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 $30.6 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
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          16




       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 recently decided to connect the well in its present
       condition and commence production in hopes debris from past mechanical
       problems will be evacuated.  However, this decision has been suspended
       and is under review pending completion of the analysis of the unexpected
       drops in pressure and production from the Opon No. 3 and No. 4 wells.
       Further workover alternatives will be evaluated after a production
       history has been accumulated.*

       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.  The claims relate to the failure of
       perforating guns, problems with the installation of the production
       tubing and failure of a downhole safety valve provided by Colombian
       branches of U.S. and multinational oil service companies.  The claims
       are based upon contract and purchase order terms providing for
       warranties, adequate supervision of assembly of components and other
       work, equipment to be in good working order, and work to be performed in
       a workmanlike manner.  The disputed charges aggregate approximately $4.9
       million, of which Hondo Magdalena's share is approximately $1.5 million.
       Consequential losses, depending on how measured, could make the claims
       larger.  If a settlement is not reached, the next step will be either
       non-binding mediation or 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 $26.3 million, of which Hondo Magdalena will bear
       30.9%.*  The well was planned and intended to confirm the existence of
       the La Paz gas and condensate reservoir in the south of the Opon
       Contract area.*  The well has been drilled to a depth of 12,200 feet.
       The associate parties have completed testing of both the La Paz
       formation and the deeper Lisama formation.  The results were
       unsuccessful and the well did not flow any significant hydrocarbons and
       has been plugged and temporarily suspended in such a manner that it may
       be re-entered in the future.  The adverse results of the Opon No. 14
       well have caused Amoco Colombia and the other associate parties to
       commence a new analysis of the Opon structure, reservoir, and reserves.
       The initial part of the analysis will focus on the drop in pressure and
       production of the producing wells and should be completed in early
       June.*  The analysis of the entire Opon Contract Area should be
       completed by the end of July.*  In the interim, the associate parties
       have released the Parker 216 drilling rig and have not budgeted any
       additional wells.*

       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 the
       pipeline is to be recovered through a pipeline tariff, but see the
       discussion in the next paragraph concerning the action of the
       governmental agency on the associate parties' tariff application.*
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          17




       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 pipeline tariff of 60.4 cents per
       thousand cubic feet of gas; CREG has responded by rejecting the proposed
       tariff, instead approving a tariff of 25.0 cents per thousand cubic feet
       of gas.  Amoco Colombia has appealed this decision.  In the interim, the
       associate parties are charging (and through March production, Ecopetrol
       has paid) the higher 60.4 cents tariff.  The Company is recognizing
       revenue using the 25.0 cent rate, the remainder of the cash being
       received is recorded as a liability.

       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$1.15 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.  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 its electric generation plant at the Opon
       Contract area.  Under the contract, that is not yet in effect, 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 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 January 1, 1999.  The gas
       sales price under the interim agreement is equivalent to the price,
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          18




       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 associate parties have not supplied gas to Termo
       Santander since March 31, 1998.  The power plant has not been able to
       locate another supply of gas and has temporarily ceased operation.  The
       associate parties have no liability for failing to supply gas to the
       power plant under the interim agreement.

       The pipeline and wellsite facilities were completed in June 1997.
       Ecopetrol completed the improvements to the El Centro gas processing
       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 occurred on December 5, 1997.

       The associate parties have submitted invoices to Ecopetrol under the gas
       sales agreement for payments under the take-or-pay clause, which
       provides that Ecopetrol will pay 200% of the gas price for the Company's
       share of 100 million cubic feet per day if the gas pipeline is completed
       and ready and the El Centro gas plant improvements have not been
       completed.  The associate parties believe the pipeline was complete on
       June 25, 1997, and submitted invoices accordingly.  Ecopetrol has
       indicated that it will not pay these invoices.  The Company has not
       accrued its $5.2 million invoice in its financial statements.  The
       associate parties are reviewing their legal options to pursue the
       collection of these invoices, which could include negotiation of a
       settlement and arbitration in a Colombian forum.*

       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 for 1998.  Pursuant to a Stand-Still Agreement reached
       with Amoco Colombia on May 19, 1998, and further described under
       Liquidity and Capital Resources, Hondo Magdalena has agreed to approve
       the original 1996 and 1997 budgets in their entirety at the next
       scheduled operating committee meeting.  Hondo Magdalena has paid
       invoices from Amoco Colombia, including disputed overhead and has
       charged the full overhead amount to expense for 1998.  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 for calendar year 1998, the joint operating agreement among
       Amoco Colombia, Hondo Magdalena and ODC provides for arbitration of
       disputes.

       Hondo Magdalena, on behalf of itself and ODC, has conducted audits of
       the joint account with Amoco Colombia for 1994, 1995, and 1996. Attempts
       to resolve the audit exceptions for 1994 and 1995 have been ineffective.
       In March 1998, the Company submitted audit exceptions of $1.9 million
       (gross charges to the joint account) to arbitration.  The report for the
       1996 audit was submitted to Amoco Colombia in March 1998.  The Company
       has not accrued in its financial statements any potential recoveries
       which may arise from these audits.
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          19






       American Stock Exchange Listing
       -------------------------------
       The Company has been informed of a decision by the American Stock
       Exchange to remove the Company's stock from listing on the Exchange.
       The Exchange has advised the Company that this action is necessary
       because the Company no longer satisfies all the guidelines of the
       American Stock Exchange for continued listing.  The Company is appealing
       this decision and has been advised by the Exchange that during the
       pendency of the appeal, which could take several months, the Exchange
       will continue the current halt in trading.  There can be no assurances
       that the appeal will be successful.  For additional information, see
       Item 5, Market For Registrant's Equity and Related Shareholder Matters
       in the Company's 1997 Annual Report on Form 10-K.


       Discontinued Operations
       -----------------------
       Two of the Company's former business segments, refining and marketing
       operations and real estate operations were discontinued in 1991.  No
       change in the status of these discontinued operations from that reported
       in the Company's 1997 Annual Report on Form 10-K occurred during the
       current period except that Via Verde Development Company, a wholly-owned
       subsidiary of the Company, entered into a contract for sale of one of
       the Company's two real estate tracts in May 1998.   The contract for the
       Via Verde property, consisting of 11.5 acres of undeveloped land, is for
       $3.13 million and is expected to close in October 1998.





























       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          20




       RESULTS OF OPERATIONS

       Quarters Ended March 31, 1998 and 1997
       --------------------------------------

       Results of continuing operations for the quarter ended March 31, 1998
       amounted to a net loss of $11.9 million, or 87 cents per share.  The
       Company reported a net loss from continuing operations of $3.0 million,
       or 22 cents per share, for the quarter ended March 31, 1997.  No losses
       from discontinued operations were reported for either period.

       In the current period, the Company reported a full quarter of operating
       revenue for the first time since 1993.  The Company's Colombian
       operations began delivering gas to Ecopetrol in December 1997.  The
       Company's share of Opon production amounted to 913,131 mmbtu sold for an
       average price of $1.16 per mmbtu and 34,211 barrels of condensate and
       natural gas liquids sold for an average price of $12.66 per barrel.  In
       addition, the Company recorded tariff revenues on 880,689 mcf at an
       average price of $28.5 cents per mcf.  Due to an unexpected drop in
       pressure and related production from the Opon No. 3 and No. 4 wells
       during the second quarter, the revenue was considerably lower than
       planned and anticipated.

       Net operating profit (defined as operating revenue less operating
       expenses, depreciation, depletion, and amortization, and overhead,
       Colombian operations) improved by $1.3 million between the periods as a
       result of the commencement of production this year.

       The Company has charged its entire cost of $8.5 million for the
       unsuccessful Opon No. 14 well to costs of exploration and dry holes
       during the current period.  No comparable expense was incurred in the
       prior period.

       The level of the Company's debts to Lonrho Plc and to Amoco Colombia
       under the Funding Agreement have increased by approximately $27.1
       million between March 31, 1997 and March 31, 1998.  Interest expense
       increased by $1.6 million between the quarters because of the increased
       debt levels and because interest is no longer being capitalized for the
       pipeline construction.


       Six months ended March 31, 1998 and 1997
       ----------------------------------------

       Results of continuing operations for the six months ended March 31, 1998
       amounted to a net loss of $15.1 million, or $1.10 per share.  The
       Company reported a net loss from continuing operations of $5.4 million,
       or 40 cents per share, for the six months ended March 31, 1997.  No
       losses from discontinued operations were reported for either period.

       Net operating profit (defined as operating revenue less operating
       expenses, depreciation, depletion, and amortization, and overhead,
       Colombian operations) improved by $1.2 million between the periods as a
       result of the commencement of production in December 1997.

       The Company has charged its entire cost of $8.5 million for the
       unsuccessful Opon No. 14 well to costs of exploration and dry holes
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          21




       during the current period.  No comparable expense was incurred in the
       prior period.

       The level of the Company's debts to Lonrho Plc and to Amoco Colombia
       under the Funding Agreement have increased by approximately $27.1
       million between March 31, 1997 and March 31, 1998.  Interest expense
       increased by $2.1 million between the six-month periods because of the
       increased debt levels and because interest is no longer being
       capitalized for the pipeline construction.


       LIQUIDITY AND CAPITAL RESOURCES

       During the six months ended March 31, 1998, cash inflows of $5.3 million
       arose from borrowings from Lonrho Plc.  The Company utilized cash of
       $2.1 million and $0.1 million to finance continuing and discontinued
       operations, respectively, $3.1 million for capital expenditures, and
       made scheduled debt repayments of $0.3 million.  At March 31, 1998, the
       Company had cash balances of $0.7 million.

       The Company has had an obligation to Phillips Petroleum arising from a
       1992 decision to plug and abandon certain California offshore wells in
       which the Company owns a working interest.  In December 1997, the
       Company entered into an agreement to settle the $1.1 million obligation
       (included in accounts payable on the balance sheet) by issuing 178,848
       shares of common stock valued at a price of $6.91 per share (the average
       closing price for the ten days prior to filing of a registration
       statement and provided for) a warrant to purchase 29,808 additional
       shares from the Company at a price of $1.00 per share if the price of
       the Company's common stock was below $5.415 per share for 20 consecutive
       business days.  A registration statement on Form S-3 was filed on
       January 7, 1998, but has subsequently been withdrawn.  This agreement
       was terminated in May 1998 by mutual consent, the shares and warrants
       were not issued, and the Company has acknowledged in writing its debt to
       Phillips of $1.1 million with interest to be accrued at 10% per annum
       from April 28, 1998.

       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.  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.

       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,
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          22




       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
       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 was approved by the Company's
       shareholders at its annual meeting in March 1998.  As of March 31, 1998,
       $19.9 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, bringing
       the total commitment under the Revolving Credit Agreement to $27.5
       million.  Also in December 1997, Lonrho Plc committed to provide $3.2
       million to the Company in fiscal 1998 for payment of a contingent
       liability arising from the 1993 sale of the Company's Fletcher refinery,
       should the contingency become payable in 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.  Based on advice of the Company's engineering
       consultants given at the time the loan amendments were executed,
       management believed the results of drilling the Opon No. 14 well would
       be sufficient to meet this requirement.*  Since the Opon No. 14 well was
       unsuccessful and no additional well can be drilled before October 1,
       1998, and because the analysis of the pressure and production declines
       in the Opon No. 3 and No. 4 wells could reduce the 1997 proved reserve
       figure, the Company is of the opinion that it will not meet the required
       reserve increase by October 1, 1998 and it will not be able to avoid an
       event of default.*  The Company presently owes Lonrho Plc $108.7
       million, of which $101.2 million is due by January 15, 1999.

       In May 1995, Hondo Magdalena, ODC and Amoco Colombia entered into a
       Funding Agreement for Tier I Development Project costs (the "Funding
       Agreement") to finance 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 up to 365 days after the date of first production and
       sales, 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 and sales 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.  The parties have agreed that
       the date of first production for purposes of this agreement is January
       30, 1998.  The alternative repayment election expired on April 30, 1998,
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          23




       unused by the Company.  If the financed amounts are not repaid within
       365 days after the date of first production and sales, 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 per day and corresponding
       condensate and natural gas liquids subsequent to the end of the 365 day
       option period are pledged to secure its obligations under the Funding
       Agreement.  The Company does not presently have commitments or funds to
       repay the Funding Agreement within the 365 day period.*  If the Company
       does not secure financing to repay the Funding Agreement prior to 365
       days after the date of first production and sales, it will incur the
       100% penalty and will pay the increased amount out of production, as
       described above.

       The Company and Hondo Magdalena entered into a 150 day Stand-Still
       Agreement with Amoco Colombia on May 19, 1998 whereby the Company's
       obligation to pay cash calls and invoices is suspended from May 15, 1998
       to October 15, 1998.  The Company has agreed to assign all of its
       revenue, net of processing costs and pipeline operating expenses, to
       Amoco Colombia for the months of April, May, June, July and August 1998
       and to assign the revenue due to Hondo Magdalena from Ecopetrol's
       reimbursement of its share of pipeline and wellsite construction costs.
       Hondo Magdalena will receive the net difference from Amoco Colombia at
       any time the cumulative revenue exceeds the cumulative expenses during
       this 150 day stand-still period.  Lonrho, Plc has confirmed to Amoco
       Colombia that it will not initiate any action to place the Company or
       its subsidiary, Hondo Magdalena, into bankruptcy during this stand-still
       period.  The Company hopes to use the stand-still period to determine
       the reasons for the decline in pressure and production from the
       producing wells, and to review the analysis of Amoco Colombia and its
       own technical advisor on the reservoir and reserve study currently in
       progress.*  The stand-still period should also allow the Company to
       determine Amoco Colombia's future development plans for the Opon
       project.*

       Based upon the Company's budget and current information, management
       believes existing cash, the Stand-Still Agreement, and available
       facilities will be sufficient to finance the Company's known obligations
       during fiscal 1998.*  However, management believes the Company will need
       additional cash to repay obligations to third parties whose debts may
       become accelerated.*

       If the Company becomes obligated for the drilling of an additional well
       in subsequent years, the Company has the option to not participate in
       the drilling of wells under the sole risk provisions of the joint
       operating agreement among Amoco Colombia, Hondo Magdalena and ODC. These
       provisions provide for penalties of 200% to 1000% (depending on the
       nature of the well) of the costs attributable to the Company. These sole
       risk provisions do not apply to other capital projects if the projects
       are approved in accordance with the operating agreement.  In
       management's view, use of this sole risk election would be a last resort
       to preserve the Company's existing interest in the Opon Contract area
       because of the substantial penalties that would be incurred by not
       participating.

       Cash flow from operations which commenced in December 1997 is not
       expected to be a significant source of free funds in the near future
       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          24




       since, pursuant to the Stand-Still Agreement, Amoco Colombia receives
       the proceeds from all revenue for the months of April, May, June, July
       and August 1998.*  Any additional free cash flow (as defined in the
       Company's loan agreements with Lonrho Plc) 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.*
       However, this alternative is now very difficult in view of the declines
       in tariff and throughput rates.  Any proceeds realized from a sale of
       the pipeline must be applied first to repayment of the Funding
       Agreement.  Management has discontinued discussions with a number of
       financial institutions regarding debt or equity financing of the
       Company's future obligations for the Opon project in view of the current
       uncertainty about the future of the Opon project.*  Additional
       deliverability from additional yet to be proposed drilling projects and
       adequate production capability through the pipeline infrastructure are
       important factors in obtaining third party financing.*  In the interim,
       the Company must continue to rely on the financial support of Lonrho.*
       Recently, in its annual report, Lonrho stated that it intends to sell
       its investment in the Company.  The Company has relied upon Lonrho to
       provide funds for capital investment and operations when such funds have
       not been available from third parties.  If and when Lonrho sells its
       investment in the Company, the Company will need to find another source
       of financing, from outside sources or a new controlling shareholder.
       The Company cannot predict the effect that a sale of Lonrho's interest
       to a third party will have on the Company's ability to secure financing
       nor can the Company predict the success of a sale in view of the
       unsuccessful results of the Opon No. 14 well and the production declines
       from the Opon No. 3 and No. 4 wells.  While the Company may 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, since the
       success of the Opon No. 14 well was critical to obtaining third party
       financing (either debt or equity) and for the decision by the associate
       parties to continue the development of the Opon project, there can be no
       assurances that the Opon project will be further developed or that Hondo
       Oil will be a viable company.*





















       ____________________
       *  This statement may be considered to be forward-looking.  See
       Cautionary Statements following Liquidity and Capital Resources.

                                          25




       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, a oil and
       gas exploration concession in Colombia, South America.  The Opon project
       began producing natural gas and condensate in December 1997 and is the
       Company's only source of operating revenue.

       Ecopetrol's Inherent Conflict of Interest and Role.  Ecopetrol is a
       quasi-governmental corporate organization wholly-owned by the Colombian
       government, a party to the Opon Contract and a purchaser of natural gas
       and liquid hydrocarbons under contracts for the sale of production from
       the Opon field.  At present, the price of natural gas is set by law
       enacted by the legislature of Colombia in 1983.  The 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 an
       inherent conflict of interest in Ecopetrol and the government.
       Disputes with Ecopetrol, including a recent disagreement about the
       obligation to make take-or-pay payments under a gas sales agreement,
       must be resolved in non-judicial or judicial proceedings in Colombia.
       These conflicts may affect the value of the Company's interest in the
       Opon project.

       Under the terms of the Opon Contract, an application for commerciality
       must be submitted to, and approved by, Ecopetrol before production of
       the wells in that area can begin.  Ecopetrol cannot prevent the other
       contract parties from producing discovered hydrocarbons by disapproving
       the application, but Ecopetrol can delay the commencement of production
       for up to one year by requiring additional work (which can cost no more
       than $1.0 million).

       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.

       Foreign Operations.  The Company's operations in Colombia are 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, as well as, (iv) changes in laws


                                          26




       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 immediate 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.

       Colombia is among several nations whose progress in stemming the
       production and transit of illegal drugs is subject to annual
       certification by the President of the United States.  In February 1998,
       the President of the United States announced that Colombia again would
       not be certified but was granted a national interest waiver.

       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 (there
       are presently two producing wells), 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,
       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.  These potential problems were substantially overcome
       in the drilling of the Opon No. 3, No. 4, No. 6, and No. 14 wells by the
       use of a top-drive drilling rig, heavy-weight and oil-based drilling
       fluids and other technical drilling enhancements.

       Acreage Relinquishments.  The terms of the Opon Contract include
       provisions which require the associate parties to relinquish portions of
       the concession acreage which have not been found to contain hydrocarbons
       in commercial quantities.  Management believes the relinquishments of
       acreage to date have not deprived the associate parties of significant
       undiscovered reserves.  Ecopetrol has agreed to extend contractual
       relinquishment requirements in light of current exploration activity on
       more than one occasion.  Nonetheless, there can be no assurances that
       Ecopetrol will agree to additional extensions in the future, or that
       other factors (including for example: lack of capital, rig availability
       or political unrest) will prevent the parties from completing assessment
       of unproved acreage before the acreage must be released.

       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.
       The Colombian governmental agency responsible for setting pipeline
       tariffs has set a tariff substantially lower than that requested by the
       Company.  This action has been appealed, but no prediction can be made


                                          27




       about the outcome and the final determination of the tariff.  A
       reduction of the tariff will impair the Company's ability to recover its
       investment in the pipeline through tariff revenue and/or sale of the
       pipeline.  For additional information, see Other Factors Affecting the
       Company's Business in Item 1, Business of the Company's 1997 Annual
       Report on Form 10-K.

       Highly Leveraged.  As of March 31, 1998, the Company owed debts to its
       principal shareholder, Lonrho Plc, of $108.7 million, of which $101.2
       million is due by January 15, 1999.  The terms of this debt require the
       Company to increase its September 30, 1997 proved reserves of 52.5
       billion cubic of gas by 13.0 billion cubic feet of gas by October 1,
       1998 to avoid an acceleration of the maturity of all of the debt to that
       date.  Acquisition of the additional reserves was dependent on the
       results of drilling of the Opon No. 14 well and additional work to be
       performed on the Opon No. 6 well, if any.  As described above, the
       Company does not believe it will discover the reserves necessary to
       prevent the debts from being accelerated if Lonrho Plc declares an event
       of default.  The Company does not have the resources to repay the
       indebtedness when it is due.  Over the past five years, Lonrho Plc has
       demonstrated a willingness to extend the repayment terms of the
       Company's debts.  However, there can be no assurances that Lonrho Plc
       will continue to extend the maturity of the Company's debts in the
       future.  See Limited Capital and Change of Control and Financial Support
       Shareholder, below.

       Limited Capital.  At March 31, 1998, the Company had a deficiency in net
       assets of $108.2 million.  The Company's principal asset, its investment
       in the Opon project, will require additional capital for further
       exploration works (additional exploratory wells and the related surface
       facilities to put newly discovered hydrocarbons into production) if the
       associate parties elect to proceed with further development of the Opon
       project.  The Opon project commenced production in December 1997.
       However, net revenue from the sale of the first 80 million cubic feet of
       natural gas per day and associated condensate (estimated to be in excess
       of the Company's net revenue) is pledged to repayment of amounts
       advanced by the operator under a Funding Agreement.  Cash from
       operations after Funding Agreement repayments will not be sufficient to
       fund Colombian operating costs and capital expenditures, and U.S.
       overhead, during fiscal 1998.  The Company has been unable to secure
       financing from sources other than its principal shareholder.  Management
       believed successful completion of the Opon No. 14 well was critical to
       obtaining third party financing and such efforts have now been suspended
       pending the analysis and review of the Opon project described above.
       See Highly Leveraged, above, and Change of Control and Financial Support
       Shareholder, below.

       Change of Control and Financial Support of Shareholder.  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).  Recently, in its annual report, Lonrho stated that it
       intends to sell its investment in the Company.  The Company has relied


                                          28




       upon Lonrho to provide funds for capital investment and operations when
       such funds have not been available from third parties, and at March 31,
       1998, was indebted to Lonrho in the amount of $108.2 million.  If and
       when Lonrho sells its investment in the Company, the Company will need
       to find another source of financing, from outside sources or a new
       controlling shareholder.  The Company cannot predict the effect that a
       sale of Lonrho's interest to a third party will have on the Company's
       ability to secure financing.  See Highly Leveraged and Limited Capital,
       above.

       Limited Revenues and Losses From Operations.  The Opon Project commenced
       production in December 1997.  The Company reported its first full
       quarter operating revenue of $1.7 million for the quarter ended March
       31, 1998.  This is the only full quarter of operating revenue the
       Company has had since it sold its domestic operations in 1992.  The
       Company experienced losses of $12,388,000, $12,657,000 and $11,906,000
       for the years ended September 30, 1997, 1996 and 1995, respectively.
       The Company anticipates continued losses through fiscal 1998.


       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.




































                                          29




                                        Part II

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

       The Company held its Annual Meeting of Shareholders on March 10, 1998,
       during which the shareholders of the Company voted on and approved the
       following proposals by the votes indicated.

       The first proposal was the election of six directors to serve until the
       next annual meeting of shareholders or until their respective successors
       have been duly elected and qualified.  The directors elected and the
       votes cast for or withheld were as follows:


       NAME                          FOR            WITHHELD
       --------------------          ----------     --------

       JOHN J. HOEY                  12,701,414     627,069
       DOUGLAS G. MCNAIR             13,245,714     117,359
       NICHOLAS J. MORRELL           13,244,694     118,379
       JOHN F. PRICE                 13,245,694     117,379
       ROBERT K. STEER               13,245,714     117,359
       R.E. WHITTEN                  13,238,594     124,479

       There were no abstentions or broker non-votes recorded in the election
       of directors.

       The other proposals were (1) approval of an option for London Australian
       & General Property Company Limited to convert $7.0 million of the
       Company's debt into shares of the Company's common stock; (2) approval
       of grant, cancellation and regrant of stock options to certain directors
       and employees during fiscal year 1997; and (3) approval of the
       appointment of Ernst & Young LLP as independent auditors for fiscal year
       1998.  These proposals were approved by the following vote:

                                  FOR       AGAINST    ABSTENTIONS
                               ----------  ---------   -----------
       LAGP Conversion          7,485,502  4,300,647     15,917
       Option Regrants         12,171,229  1,109,058     11,984
       Ernst & Young LLP       13,335,426     12,597      6,050

       There were no broker non-votes recorded in the above voting.


       Item 6. EXHIBITS AND REPORTS ON FORM 8-K

       (a)  Exhibits required by Item 601 of Regulations S-K are incorporated
            by reference.  Refer to Exhibit Index below.

       (b)  One report on Form 8-K was filed during the quarter ended March 31,
            1998:

            1) Form 8-K filed March 25, 1998 to report that preliminary results
               from drilling of the Opon No. 14 well were disappointing.



                                      SIGNATURES



                                          30




       Pursuant to the requirements of the Securities Exchange Act of 1934, the
       registrant has duly caused this report to be signed on its behalf by the
       undersigned, thereunto duly authorized.

                                             HONDO OIL & GAS COMPANY
                                             (Registrant)

       Date: May 20, 1998                    /s/ Stanton J. Urquhart
             -----------------               -----------------------
                                             Stanton J. Urquhart
                                             Vice President and Controller

       The above officer of the registrant has signed this report as its duly
       authorized representative and as its chief accounting officer.


                                     EXHIBIT INDEX

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

       10.1              Amendment to Note Purchase Agreement dated December 18,
                         1997 between the Company and London Australian &
                         General Property Company Limited, amending Note
                         Purchase Agreement dated November 28, 1988, excluding
                         exhibits.

       10.2             Amended and Restated $75,000,000 6% Senior Note due
                        January 15, 1999 dated December 18, 1997 between the
                        Company and London Australian & General Property
                        Company Limited, executed in conjunction with the
                        amendment in Exhibit 10.1.

       10.3              Consolidated, Amended and Restated $40,000,000
                         Promissory Note dated December 18, 1997 between the
                         Company and London Australian & General Property
                         Company Limited, which replaces Promissory Notes
                         previously issued in conjunction with a loan agreement
                         dated December 20, 1991.

       10.4              Amended and Restated $4,500,000 Promissory Note dated
                         December 18,1997 between Via Verde Development Company
                         and London Australian & General Property Company
                         Limited, which replaces a $3,000,000 note dated April
                         30, 1993.

       10.5              First Guaranty Amendment dated December 18, 1997
                         between the Company and London Australian & General
                         Property Company Limited, in regard to Exhibit 10.4,
                         above.

       10.6              Amended and Restated $5,500,000 Promissory Note dated
                         December 18,1997 between Newhall Refining Co., Inc. and
                         London Australian & General Property Company Limited,
                         which replaces a $4,000,000 note dated June 25,1993.





                                          31





                               EXHIBIT INDEX (continued)

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

       10.7              Letter agreement dated December 18, 1997 between the
                         Company and London Australian & General Property
                         Company Limited, amending a letter agreement dated
                         December 17, 1993.

       10.8              Amended and Restated $7,500,000 Promissory Note dated
                         December 18, 1997 between the Company and London
                         Australian & General Property Company Limited which
                         replaces a $5,000,000 note dated October 31, 1994.

       10.9              First Amendment to Security Interest Agreement dated
                         March 18, 1998 between the Company, Folio Trust Company
                         Ltd., Folio Nominees Limited and London Australian &
                         General Property Company Limited, amending
                         Security Interest Agreement dated May 13, 1997.

       10.10             First Amendment to Amended and Restated $35,000,000
                         Revolving Credit Agreement dated December 18, 1997
                         between the Company and London Australian & General
                         Property Company Limited, amending a revolving credit
                         agreement dated July 2, 1997.

       10.11             First Guaranty Amendment dated December 18, 1997
                         between Hondo Magdalena Oil & Gas Limited and London
                         Australian & General Property Company Limited amending
                         a guaranty dated July 2, 1997.

       10.12             Stand-Still Letter Agreement dated May 15, 1998 among
                         the Company (Hondo together with all of its
                         direct and indirect subsidiaries, which include
                         without limitation, Hondo Magdalena Oil and Gas
                         Limited, Newhall Refining Company, Inc., and Via
                         Verde Development Company), Lonrho Plc, Thamesedge,
                         Ltd., London Australian & General Property Company
                         Limited (collectively, together with any of their
                         respective affiliates, parent corporations and direct
                         and indirect subsidiaries that assert claims against
                         Hondo), and Amoco Colombia Petroleum Company.

          27             Financial Data Schedule














                                          32