FIRST AMENDMENT
                                          TO
                    AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT

                                     Introduction

                 This FIRST AMENDMENT  TO AMENDED AND RESTATED REVOLVING  CREDIT
       AGREEMENT (this  "Amendment"), is dated  as of December  18, 1997 and  is
       entered  into by  and  between   HONDO  OIL  & GAS  COMPANY,  a  Delaware
       corporation (the  "Borrower"), and LONDON  AUSTRALIAN & GENERAL  PROPERTY
       COMPANY  LIMITED,  a  United  Kingdom  corporation  (the  "Lender"),   as
       assignee of Thamesedge, Ltd.

                                       Recitals

                 The Borrower  and the Lender (as  assignee of Thamesedge  Ltd.)
       are parties to  a Revolving Credit Agreement dated  as of June 28,  1996,
       as  same  has been  amended  and  restated pursuant  to  an  Amended  and
       Restated  Revolving Credit  Agreement dated  as  of   July 2,  1997  (the
       "Existing Loan Agreement"), pursuant to which there has been  established
       a  $20,500,000 revolving  credit  facility in  favor  of the  Borrower.
       Capitalized  terms used  and not  otherwise defined  or amended  in  this
       Amendment shall  have the meanings respectively  assigned to them in  the
       Existing Loan Agreement.

                 The  Borrower  has  requested  that  the  Lender  increase  the
       Lender's  Commitment to  $27,500,000 and  $7,500,000 to  cover  potential
       interest that may be added to  principal pursuant to Section 2.05 of  the
       Existing  Loan Agreement.   The  Lender  is willing  to so  increase  the
       Commitment based  on the Borrower's  representation that,  by October  1,
       1998, the  Lender shall  have received  a report  that Borrower's  proved
       reserves  will have  increased to  a minimum  of 65,475,554  mcf and  the
       Borrower's  agreement that  if its  proved reserves  fail to  reach  such
       level, an Event of Default will occur.

                 The  Borrower has  requested that  the Lender  enter into  this
       Amendment in order to reflect the foregoing and certain other  amendments
       to the Existing Loan Agreement, and  the Lender has agreed to do so,  all
       upon the terms and  provisions and subject to the conditions  hereinafter
       set forth.

                                       Agreement

                 In consideration of the foregoing and the mutual covenants  and
       agreements  hereinafter set  forth, the  parties hereto  hereby agree  as
       follows:

                 Section   1.     Amendment to  Existing  Loan Agreement.    The
       Existing Loan Agreement  is hereby amended as  of the date first  written
       above as follows:

                 (A)  The   definition  of   the  terms   "Agreement"  ,   "this
       Agreement" and "Lender" in the introductory paragraph are hereby  amended
       to read as follows:

                 "Agreement" and  "this Agreement"  shall mean  the Amended  and
            Restated  Revolving Credit  Agreement, together  with all  schedules


                                           1




            and exhibits  thereto, as amended by  the First Loan Amendment,  and
            as the same may be supplemented, modified, amended or restated  from
            time to time.

                 "Lender"  shall  mean  London  Australian  &  General  Property
            Company Limited, a United Kingdom corporation.

                 (B)  In  Section  1.01 of  the  Existing  Loan  Agreement,  the
       definitions  of "Credit  Documents" ,  "Guaranty" and  "Note" are  hereby
       deleted in their entirety,  and the following new definitions are  hereby
       inserted in their respective places:

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

                 "Guaranty" shall mean the  Guaranty  from the Guarantor to  the
            Original  Lender dated  as  of July  2,  1997, as  assigned  by  the
            Original Lender  to the  Lender, as  amended by  the First  Guaranty
            Amendment and as the same may be supplemented, modified, amended  or
            restated from time to time.

                 "Note" shall mean  the Amended and Restated Promissory Note  of
            the Borrower  substantially in the  form of Exhibit  A to the  First
            Loan Amendment.

                 (C)  In  Section  1.01 of  the  Existing  Loan  Agreement,  the
       following  new definitions  of "First  Guaranty Amendment",  "First  Loan
       Amendment",  "First Security  Agreement Amendment",  "Interest  Advance",
       "Original Lender" and  "Security Agreement" are hereby inserted in  their
       respective  proper  alphabetical   positions  without  the  deletion   or
       modification of any other material:

                 "First  Guaranty  Amendment" shall  mean  the  First  Amendment
            dated as of December 18,  1997 to the Guaranty in substantially  the
            form of Exhibit B to the First Loan Amendment.

                 "First Loan Amendment" shall mean the First Amendment dated  as
            of  December 18,  1997  to  Amended and  Restated  Revolving  Credit
            Agreement between the Borrower and the Lender.

                 "First  Security  Agreement Amendment"  shall  mean  the  First
            Amendment  dated December  18, 1997  to  the Security  Agreement  in
            substantially the form of Exhibit C to the First Loan Amendment.

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

                 "Original Lender" shall mean Thamesedge Ltd.

                 "Security   Agreement"  shall   mean  the   Security   Interest
            Agreement  dated May  13,  1997  between the  Original  Lender  (and
            assigned to  Lender), the Borrower, Folio  Trust Company Limited,  a
            Jersey  company,  and  Folio  Nominees  Limited,  a  British  Virgin
            Islands  company,  as   mended  by  the  First  Security   Agreement
            Amendment and as the same may be supplemented, modified, amended  or
            restated from time to time.

                 (D)  Section  2.01 of  the Existing  Loan Agreement  is  hereby
       deleted  in  its  entirety, and  the  following  new  section  is  hereby
       inserted in its place:


                                           2





                      "SECTION 2.01   The Advances.  The Lender  agrees, on  and
                 subject to the  terms and conditions hereinafter set forth  and
                 provided no  Event of Default has  occurred and is  continuing,
                 to make advances (the "Advances") to the Borrower from time  to
                 time  during  the  period  from  the  date  hereof  until   the
                 Termination Date  in an aggregate amount  not to exceed at  any
                 time outstanding  $35,000,000, as such  amount is reduced  from
                 time  to time  pursuant  to Section  2.03  (the  "Commitment");
                 provided, however, that  $7,500,000 of the Commitment may  only
                 be  used  to fund  interest  added  to principal  of  the  note
                 pursuant  to Section  2.05  (the "Interest  Advances").    Each
                 Advance shall be in an  amount not less than $100,000.   Within
                 the limits of  the Commitment, the Borrower may borrow,  prepay
                 pursuant to  Section 2.04(a)  and reborrow  under this  Section
                 2.01."

                 (E)  Section  2.02 of  the Existing  Loan Agreement  is  hereby
       deleted  in  its  entirety, and  the  following  new  section  is  hereby
       inserted in its place:

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

                 (F)  Section  2.03 of  the Existing  Loan Agreement  is  hereby
       deleted  in  its  entirety, and  the  following  new  section  is  hereby
       inserted in its place:

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

                 (G)  At  the conclusion  of Section   6.01(g)  of the  Existing
       Loan Agreement, the following is hereby inserted:

                 "; and"

                 (H)  In  Section  6.01 of  the  Existing  Loan  Agreement,  the
       following  new subsection  (h)   is hereby  inserted at  the end  thereof
       without  deletion   or  (except  as   provided  in   clause  (E)   above)
       modification of any other material:

                 "(h)  the Borrower shall  have failed to furnish to Lender,  by
                 October 1,  1998, a proved  gas reserve  report of  Netherland,
                 Sewell &  Associates that shows  that a  minimum of  13,000,000
                 mcf (25%)  of proved gas reserve  exists, which are subject  to
                 the Opon  Association Contract  in which  Hondo Magdalena  then


                                           3




                 participates, above  the proved gas  reserve of 52,475,554  mcf
                 at September 30, 1997."

                 (I)  In  Section  7.02 of  the  Existing  Loan  Agreement,  the
       address of  the Lender  is amended by  deleting the  present address  and
       inserting the following:

                 "if  to  the Lender,  to  it  at London  Australian  &  General
                 Property Company Limited, 4 Grosvenor Place, London, SW1X  7DL,
                 England, telephone  011-44-171-201-600, telecopier  011-44-171-
                 201-6100, Attention  Robin Whitten with  a copy  to Rudolph  H.
                 Funke, Esq.  at 805  Third Avenue, 18th  Floor, New  York, NY
                 10022, telephone 212-715-7001, telecopy 212-838-8141;"

                 (J)  Exhibit  A  to  the  Existing  Loan  Agreement  is  hereby
       deleted  in its  entirety, and  Exhibit  A to  this Amendment  is  hereby
       inserted in its place.

                 Section   2.     Acknowledgment  of  Outstanding  Loans.    The
       Borrower hereby  acknowledges, certifies and agrees  that:  (a)  pursuant
       to  the  Existing Loan  Agreement,  the  Lender has  made  loans  to  the
       Borrower that  are outstanding as of  the date of  this Amendment in  the
       aggregate  principal  amount of  $18,866,026.56  (including  interest  of
       $1,166,026.56  that  has  been added  to  principal  in  accordance  with
       Section 2.05 of the Agreement);  and (b) the obligations of the  Borrower
       to repay  those loans (with  interest) to the  Lender and  to perform  or
       otherwise  satisfy  its  other  obligations,  as  well  as  the  security
       interests  in the  Collateral  (as  defined in  the  Security  Agreement)
       granted by the Borrower to the  Lender in the Security Agreement and  the
       obligations of the Guarantor in  the Guaranty: (i) each remain and  shall
       continue in full  force and effect, both  before and after giving  effect
       to this Amendment,  (ii) are not subject   to any defense,  counterclaim,
       setoff,  right of  recoupment, abatement,  reduction  or other  claim  or
       determination, and  (iii) are and  shall continue to  be governed by  the
       terms and  provisions of  the Existing  Loan Agreement  and other  Credit
       Documents as supplemented, modified and amended by this Amendment.

                 Section  3.     Bringdown of Representations,  Etc.  As of  the
       date of this Amendment, both before and after giving effect to the  terms
       and provisions  of this  Amendment, and both  prior to  and after  giving
       effect to any requested Advance: (a)  the representations and  warranties
       of the  Borrower  set  forth in the  Existing Loan Agreement  and in  the
       Security Agreement  and of the  Guarantor set forth  in the Guaranty  are
       true and correct in all material respects with the same effect as  though
       those representations and warranties had been made on and as of the  date
       hereof;   (b)    no Event  of  Default or  Default  has occurred  and  is
       continuing;   (c)   the  Board  of Directors  of  the Borrower  has  duly
       authorized the  execution and delivery  by the Borrower  of the  Existing
       Loan  Agreement,  the  First  Loan  Amendment  and  the  First   Security
       Agreement Amendment by  the Borrower; (d) the  Board of Directors of  the
       Guarantor and  the Borrower, as sole  shareholder of the Guarantor  (with
       authorization by the Board of Directors of the Borrower), has  authorized
       the  execution and  delivery by  the Guarantor  of the  Guaranty and  the
       First  Guaranty Amendment;  and   (e)   there are  no actions,  suits  or
       proceedings  pending  or,  to the  best  knowledge  of  the  undersigned,
       threatened  or   contemplated  by   any  person   for  the   liquidation,
       dissolution or bankruptcy of  the Borrower or the Guarantor or  otherwise
       threatening their  respective existences or  challenging or calling  into
       question  the power  or authority  of the  Borrower or  the Guarantor  to


                                           4




       execute or deliver any Credit Document to which it is or will be a  party
       or to perform any of its obligations thereunder.

                 Section  4.    Counterparts.   This Amendment may be signed  in
       two or  more counterpart copies  of the entire  document or of  signature
       pages to the  document, each of which may be  executed by one or more  of
       the  parties  hereto,  but all  of  which,  when  taken  together,  shall
       constitute a single agreement binding upon all of the parties hereto.

                 Section  5.     Governing Law, Etc.    Sections 7.06  ("Binding
       Effect"; Governing Law")  and 7.09 ("Jurisdiction") of the Existing  Loan
       Agreement  are  incorporated  herein  by  reference  and  shall   pertain
       separately to  this First  Loan Amendment as  well as  the Existing  Loan
       Agreement and the Agreement.

                 Section  6.    Agreement to Continue as Amended.  The  Existing
       Loan Agreement,   as supplemented,  modified and amended  by this  Amend-
       ment,  and  the  other Credit  Documents,  as  amended  pursuant  to  the
       amendments    and/or   restatements    thereto   being    entered    into
       contemporaneously herewith, shall  remain and continue in full force  and
       effect after the date hereof.

                 Section  7.     Entire Agreement.  This Amendment contains  the
       entire  agreement  of  the  parties  and  supersedes  all  other   repre-
       sentations,   warranties,   agreements  and   understandings,   oral   or
       otherwise, among  the parties with  respect to the  matters contained  in
       this Amendment.

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

                                          HONDO OIL &GAS COMPANY


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

                                          LONDON AUSTRALIAN & GENERAL
                                          PROPERTY COMPANY LIMITED


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

                                     [END OF PAGE]

                                       EXHIBIT A

                          AMENDED AND RESTATED PROMISSORY NOTE

       As of December 18, 1997                                     $35,000,000

            FOR  VALUE RECEIVED,  the undersigned, HONDO  OIL &  GAS COMPANY,  a
       Delaware  corporation (the  "Borrower"), hereby  promises to  pay to  the
       order  of LONDON AUSTRALIAN & GENERAL PROPERTY COMPANY LIMITED, a  United
       Kingdom corporation (the "Lender"), on January 1, 1999 the principal  sum


                                           5




       of  $35,000,000  or,  if less  than  $35,000,000,  the  aggregate  unpaid
       principal  amount of all Advances (as defined  below) made by the  Lender
       to  the Borrower pursuant to the  Agreement (as defined below),  together
       with  all accrued  but unpaid  interest  and all  interest added  to  the
       principal  of  this Note  (as  such has  been  and may  be  supplemented,
       modified, amended or restated from time to time, "this Note").

            The  Borrower  promises to  pay  interest on  the  unpaid  principal
       amount  of  each  Advance  from  the date  of  such  Advance  until  such
       principal  amount is paid  in full, at  the rate per  annum equal at  all
       times  to 13% (or the maximum interest  rate permitted by law,  whichever
       is  less)  on  each October  1  and  April 1  until  maturity;  provided,
       however, that any amount of principal on Advances that are not paid  when
       due  (whether at  stated maturity,  by acceleration  or otherwise)  shall
       bear  interest from  the date  on which  such amount  is due  until  such
       amount is  paid in full, payable on demand, at a rate per annum equal  at
       all  time  to  18%  (or  the maximum  interest  rate  permitted  by  law,
       whichever is less).

            As  used herein, "Business Day" means any  day of the year on  which
       banks  are not  required or  authorized to  close in  London or  Houston,
       Texas.   All computations of interest shall be made by the Lender on  the
       basis  of a year of 360 days and  the actual number of days occurring  in
       the  period from which such  interest is payable.   Whenever any  payment
       hereunder  shall be due on a day other than a Business Day, such  payment
       shall be made on the next succeeding Business Day, and such extension  of
       time  shall in such  case be included  in the computation  of payment  of
       interest.

            Both  principal and interest are payable  not later than 12:00  noon
       London time  on the day when due in lawful money of the United States  of
       America  to  the  Lender  at  such account  and  place  as  Lender  shall
       designate  in immediately  available funds.   Each  Advance made  by  the
       Lender  to the Borrower pursuant to the Agreement, and all payments  made
       on  account of principal thereof,  may, but need not  be recorded by  the
       Lender  on its books  and records on  the grid attached  hereto and  such
       books  and records shall be  conclusive as to  the existence and  amounts
       thereof  absent  manifest error.    Failure to  make  any such  entry  or
       endorsement  shall not effect the actual principal amount outstanding  or
       the enforceability of this Note.

            This  Amended and Restated Note (i) has  been issued by Borrower  to
       renew,  extend, amend, restate and  replace the Note  dated July 2,  1997
       issued  by Borrower in  the principal amount  of $20,500,000 (the  "Prior
       Note"),  (ii)  is the  "Note" referred  to  in, and  is entitled  to  the
       benefits of, the Amended and Restated Revolving Credit Agreement  between
       the  Borrower and the Lender dated as of  July 2, 1997 (as same has  been
       and  may be  supplemented, modified,  amended or  restated from  time  to
       time,  the  "Agreement"),  (iii) evidences  all  indebtedness  and  other
       amounts  outstanding  from time  to time  under  the Agreement  and  (iv)
       although  issued in substitution for and  restatement of the Prior  Note,
       this  Note  shall  not  be  deemed  to  have  been  issued  in   payment,
       satisfaction,   cancellation  or  novation  of  the  Prior  Note.     The
       Agreement,  among other things:  (1) provides for the making of  advances
       (the  "Advances")  by  the  Lender  to  the  Borrower  and  (2)  contains
       provisions for acceleration of the maturity hereof upon the happening  of
       certain  stated events and also for  prepayments an account of  principal
       hereof  prior  to the  maturity  hereof  upon the  terms  and  conditions
       specified therein.


                                           6





            This  Note is a renewal and replacement  of that certain other  note
       in the amount of $20,500,000 from Borrower to Lender dated as of July  2,
       1997  which, in turn, replaced a note  in the amount of $13,500,000  from
       Borrower to Lender dated June 28, 1996.

            This  Note is  guaranteed by the  Amended and  Restated Guaranty  of
       Hondo  Magdalena Oil & Gas  Limited dated July 2,  1997 (as the same  has
       been and may be supplemented, modified, amended or restated from time  to
       time, the "Guaranty").

            Payment  of this note is secured pursuant to the Security  Agreement
       dated May 13, 1997 between the Lender, the Borrower, Folio Trust  Company
       Limited, a Jersey company, and Folio Nominees  Limited, a British  Virgin
       Islands company (as the same has been and may be supplemented,  modified,
       amended or restated from time to time, the "Security Agreement").

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

            The  Borrower hereby irrevocably submits to the jurisdiction of  any
       New  York State or United States Federal  court sitting in New York  City
       over any action or proceeding arising out of or relating to this Note  or
       the  Agreement, and hereby irrevocably agrees that all claims in  respect
       of  such action or  proceeding may be  heard and determined  in such  New
       York  State or Federal court.  The  Borrower irrevocably consents to  the
       service  of any  and all  process in  any such  action or  proceeding  by
       sending  copies of such process  to it at its  address and in the  manner
       determined  under Section  7.02 of the  Agreement.   The Borrower  agrees
       that  a  final  judgment  in  any such  action  or  proceeding  shall  be
       conclusive  and may be  enforced in other  jurisdictions by  suit on  the
       judgment  or in any other manner provided  by law.  The Borrower  further
       waives  any objections to  venue in such  State and any  objection to  an
       action or proceeding in such State on the basis of forum non  conveniens.
        The Borrower further agrees that any action or proceeding brought by  it
       against  the Lender shall  be brought only  in New York  State or  United
       States Federal court sitting in New York County, New York.  The  Borrower
       and the Lender waive any right it may have to jury trial.

            Nothing  herein shall affect the right of the Lender to serve  legal
       process  in any other manner permitted by law or affect the right of  the
       Lender  to bring any action or proceeding against the Borrower or any  of
       its properties in the courts of any other jurisdictions.

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

                                          HONDO OIL & GAS COMPANY




                                           7




                                          By:
                                               -------------------------------
                                               John J. Hoey; President
                                     [END OF PAGE]

                                   SCHEDULE TO NOTE

                      Amount of      Principal      Principal      Notation
            Date      Advance        Paid           Outstanding    Made By
            ----      ---------      ---------      -----------    --------
                      Carryover
            12/18/97  from Prior          --        $18,866,026.56
                      Note
                                     [END OF PAGE]

                                       EXHIBIT B

                               FIRST GUARANTY AMENDMENT

                                                    As of December 18, 1997

       Hondo Magdalena Oil & Gas Limited
       c/o Hondo Oil & Gas Company
       10375 Richmond Avenue, Suite 900
       Houston, Texas 77042

              Re:     Guaranty

       Gentlemen:

           As you know, London Australian & General Property Company Limited  is
       in  the process of amending its  existing Amended and Restated  Revolving
       Credit  Agreement, dated as of July 2, 1997 (as currently in effect,  the
       "Existing   Loan  Agreement"),  with  Hondo   Oil  &  Gas  Company   (the
       "Borrower"), which you guarantied pursuant to your Guaranty executed  and
       delivered  as of  July 2,  1997 (as  currently in  effect, the  "Existing
       Guaranty")  in our favor (as assignee  of Thamesedge Ltd., the  "Original
       Lender").   Under  the proposed  amendment, among  other things  (a)  the
       Commitment  and,  accordingly,  the  principal  amount  subject  to   the
       Guaranty,  is being increased to  $35,000,000 (including $7,500,000  that
       may  represent interest added to principal), (b)  an Event of Default  is
       being  added to the Existing Loan Agreement  to the effect that it  shall
       be  an Event of Default if the  Borrower shall have failed to furnish  to
       Lender,  by October 1, 1998, a proved  gas reserve report of  Netherland,
       Sewell & Associates that shows that a minimum of 13,000,000 mcf (25%)  of
       proved  gas reserve  exists, which are  subject to  the Opon  Association
       Contract  in which Hondo  Magdalena then participates,  above the  proved
       gas  reserve  of  52,475,554  mcf  at September  30,  1997  and  (c)  the
       definition  of the term  "Credit Documents" is  being amended to  include
       that certain Security Agreement dated May 13, 1997, as amended as of  the
       date  hereof (as same may be supplemented, modified, amended or  restated
       from time to time).

           We understand that you have reviewed  a copy of the final version  of
       the  proposed First Amendment to the Existing Loan Agreement,  including,
       without  limitation, the proposed  Amended and  Restated Promissory  Note
       relating  thereto and  the Security  Agreement (collectively,  the  "Loan
       Agreement  Amendments").  Capitalized terms used but not defined in  this
       letter  are used as they are defined  in the Existing Guaranty.  For  all


                                           8




       purposes,  "Guaranty" means the  Existing Guaranty, as  modified by  this
       letter,  and as the same may  be further supplemented, modified,  amended
       and restated from time to time in the manner provided therein.

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

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

              i. London  Australian  &  General  Property  Company  Limited  has
                   become  the  "Lender"  for  purposes  of  the  Existing  Loan
                   Agreement,  as amended by the Loan Agreement Amendments,  the
                   Guaranty and the other Credit Documents;

              ii.     The Guaranty now  covers, among other things, all  amounts
                   borrowed and to be borrowed (and interest thereon) under  the
                   Existing  Loan Agreement, as  amended by  the Loan  Agreement
                   Amendments;

              iii.    You represent  and warrant that  your representations  and
                   warranties  set forth in the  Existing Guaranty are true  and
                   correct  in all material respects  on and as  of the date  of
                   this  letter,  after  giving effect  hereto,  with  the  same
                   effect  as though  those representations  and warranties  had
                   been made on and as of the date hereof; and

              iv.     Section 7 of the  Existing Guaranty is amended to read  as
       follows:

              "SECTION 7.  Consent to Jurisdiction; Waiver of Immunities.

                 (a)  Guarantor hereby  irrevocably submits to the  jurisdiction
              of  any New  York or  federal court  sitting in  New York  in  any
              action or proceeding arising out of or relating to this  Guaranty,
              and  the Guarantor hereby  irrevocably agrees that  all claims  in
              respect of such  action or proceeding may be heard and  determined
              in  such  New  York  or  federal  court.    The  Guarantor  hereby
              irrevocably waives, to the fullest extent they may effectively  do
              so,  the defense of  an inconvenient forum  to the maintenance  of
              such  action  or proceeding.    The Guarantor  hereby  irrevocably
              appoints  John J. Hoey  (the "Process Agent"),  with an office  on
              the  date  hereof at  Hondo  Oil  & Gas  Company,  10375  Richmond
              Avenue,  Suite 900, Houston, TX  77042, telephone (713)  954-4600,
              telecopier (713) 954-4601,  as its agent to receive, on behalf  of
              the Guarantor and  its property, service of copies of the  summons
              and  complaint and any  other process that  may be  served in  any
              such action  or proceeding.  Such service  may be made by  mailing
              or delivering a  copy of such process to the Guarantor in care  of
              the Process  Agent at the Process  Agent's address above, and  the
              Guarantor  hereby irrevocably authorizes  and directs the  Process


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              Agent  to accept such service  on its behalf.   As an  alternative
              method  of service,  Guarantor also  irrevocably consents  to  the
              service of  any and all process in  any such action or  proceeding
              by  the mailing  of copies  of such  process to  Guarantor at  its
              address specified  in Section 11.   Guarantor agrees that a  final
              judgment in any such action or proceeding shall be conclusive  and
              may be enforced in other jurisdictions by suit on the judgment  or
              in any other manner provided by law.

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

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

              v. Notices, requests  and demands to the  Lender, as set forth  in
                 Section  11 of the Existing Guaranty,  shall be in writing  and
                 shall  be effective  when  delivered to  the Lender  at  London
                 Australia  & General  Property Company,  Four Grosvenor  Place,
                 London,  SW1X  7DL,  England,  telephone   011-44-171-201-6000,
                 telecopier  011-44-171-201-6100,  Attention:   R.  E.  Whitten,
                 with  a copy to  Rudolph H. Funke,  Esq. at  805 Third  Avenue,
                 18th  Floor,  New  York, NY    10022,  telephone  212-715-7001,
                 telecopier 212-838-8141.

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

              Your signature,  where indicated below, also will constitute  your
       acknowledgment  of and agreement and certification that: (a) pursuant  to
       the  Existing Loan Agreement, the Lender has made  Advances (as  defined)
       to  the Borrower that are  outstanding as of the  date of this letter  in
       the    aggregate   principal   amount   of   $18,866,026.56    (including
       $1,166,026.56  of interest added  to principal); (b)  the obligations  of
       the  Borrower to repay all Advances (including those to be made  pursuant
       to  the Loan Agreement Amendments)  with interest, to  the Lender and  to
       perform  or  otherwise satisfy  all other  obligations,  as well  as  the
       security  interests  in  the  Collateral  (as  defined  in  the  Security
       Agreement)  granted by the Borrower  to the Lender,  (i) each remain  and
       shall  continue in full force  and effect, both  before and after  giving
       effect  to the  transactions contemplated by  this letter,  (ii) are  not
       subject  to  any  defense, counterclaim,  setoff,  right  of  recoupment,
       abatement,  reduction or other claim or determination, and (iii) are  and
       shall  continue  to  be governed  by  the  terms and  provisions  of  the
       Existing  Loan Agreement and  other Credit Documents,  as amended by  the
       Loan  Agreement Amendments  and as  same may  be supplemented,  modified,


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       amended  or restated in the future; (e) your absolute, unconditional  and
       irrevocable guarantee to the Lender of the full and punctual payment  and
       satisfaction  of the  foregoing and  any and  all other  obligations  the
       Borrower  (i) remains and shall continue in  full force and effect,  both
       before  and after giving effect to the transactions contemplated by  this
       letter,  (ii) is not subject to any defense, counterclaim, setoff,  right
       of recoupment, abatement, reduction or other claim or determination,  and
       (iii)  is and shall continue to be  governed by the terms and  provisions
       of  the Existing  Guaranty and  other Credit  Documents as  supplemented,
       modified and amended.

                                          Very truly yours,

                                          LONDON AUSTRALIAN & GENERAL
                                          PROPERTY COMPANY LIMITED


                                          By:
                                               -------------------------------

       ACKNOWLEDGED AND AGREED:

       HONDO MAGDALENA OIL & GAS LIMITED


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