SECURITY INTEREST AGREEMENT

                            Security interest in Securities
                            -------------------------------

       DATED this 13th of May, 1997

       BETWEEN:-

       (1)  THAMESEDGE LIMITED a company incorporated in England whose
            registered office is at 4 Grosvenor Place, London SW1X 7DL, England
            (the "Leader")

       AND

       (2)  HONDO OIL & GAS COMPANY a Delaware corporation whose principal
            office is at 10375 Richmond Avenue, Suite 900, Houston, Texas,
            77042 USA (the "Debtor")

       AND

       (3)  FOLIO TRUST COMPANY LIMITED a company incorporated in Jersey whose
            registered office is at Westaway Chambers, 39 Don Street, St.
            Helier, Jersey, Channel Islands ("Folio Trust")

       AND

       (4)  FOLIO NOMINEES LIMITED a company incorporated in the British Virgin
            Islands whose administrative office is at Westaway Chambers, 39 Don
            Street, St. Helier, Jersey, Channel Islands ("Folio Nominees")

       WHEREAS:

       (A)  The Lender has agreed to continue to make available to the Debtor
            certain credit and loan facilities made under the Obligations (as
            hereinafter defined);

       (B)  The Debtor has therefore agreed to furnish the Lender with security
            for the Obligations from time to time owed by the Debtor to the
            Lender;

       (C)  Folio Trust and Folio Nominees (collectively referred to as the
            "Nominees") hold on trust as nominees for the benefit of the Debtor
            shares in a company known as Hondo Magdalena Oil & Gas Limited, a
            company registered in Jersey, Channel Islands ("Hondo");

       IT IS HEREBY AGREED AS FOLLOWS:

       Grant of security interest and assignment

       l.   As a continuing security for the payment on demand to the Lender
            of:

            (i)  the monies and liabilities payable under the credit and loan
                 facilities described in the First Schedule;

            (ii) any other indebtedness or liabilities whatsoever of the Debtor
                 on any account or accounts; and



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           (iii) all other costs, charges, legal or other expenses (incurred by
                 the Lender in respect of the facilities detailed in the First
                 Schedule) on a full and unqualified indemnity basis;

       (collectively the "Obligations"):

            (a)  the Debtor as beneficial owner HEREBY ASSIGNS to the Lender
                 beneficial title to the stocks, shares, bonds and other
                 securities identified in the Second Schedule together with all
                 and any property and rights arising and/or deriving therefrom
                 or in any way granted in respect thereof and any securities
                 substituted therefor or added thereto (the "Collateral") and
                 agrees that the Lender shall have a security interest in the
                 same; and

            (b)  the Nominees, contracting to this Security Interest Agreement
                 as Trustees of the Collateral, and not otherwise, as legal
                 owners do HEREBY AGREE that from the date hereof they hold the
                 Collateral on behalf of and for the benefit of the Lender
                 under the terms of this Security Interest Agreement.

       Warranty and undertaking

       2.   The Debtor and the Nominees hereby jointly and severally warrant,
            undertake and agree that:

            (a)  the Lender is and shall continue to be solely and beneficially
                 entitled to all rights in relation to the Collateral (subject
                 to the terms hereof); and

            (b)  the Debtor and the Nominees shall not take or omit to take any
                 action which will or might impair the value of the Collateral
                 or create or permit to exist any mortgage or charge upon and
                 shall procure that no lien, encumbrance or right of set-off or
                 other equities whatsoever shall in any case or in any manner
                 arise or affect the Collateral, either in priority to, or pari
                 passu with the Lender's rights hereunder;

            (c)  the Debtor and the Nominees shall not procure the issue of
                 further shares in Hondo without the prior permission of the
                 Lender in writing and any such permission shall be without
                 prejudice to, or waiver of, the Lender's rights pursuant to
                 this Security Interest Agreement.

       Restriction on the Collateral

       3.   The Debtor agrees (without prejudice to the security interests and
            other rights of the Lender pursuant to this Security Interest
            Agreement) that dealings with the Collateral are conditional upon
            the Lender having received discharge in full of the Obligations and
            until such discharge the Debtor shall not be entitled to deal with
            the Collateral PROVIDED THAT the Lender may in its absolute
            discretion permit the Debtor to deal with the Collateral subject to
            such conditions as the Lender shall from time to time specify and
            any such permission shall be without prejudice to, or waiver of,
            the Lender's rights pursuant to this Security Interest Agreement.





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       Set-off and Lien

       4.   In addition and without prejudice to any other rights of the Lender
            pursuant to this Security Interest Agreement, in the event that
            payment of the Obligations is not made when due the Lender shall
            have the benefit of any lien over securities. The Lender shall be
            entitled (as well before as after demand) to combine or consolidate
            all monies now or hereafter standing to the Debtor's credit with
            the Lender on any account and in any currency and to set off the
            Debtor's liability under the Obligations against any credit balance
            in any account whatever in the name of the Debtor (whether sole or
            joint with any other person or persons) with the Lender or any
            subsidiary of the Lender.

       The Collateral; voting, calls and other matters

       5.   (a)  The Debtor shall promptly pay or procure that the Nominees
                 promptly pay all calls and all other monies the Debtor or the
                 Nominees are lawfully required to pay (or would have lawfully
                 been required to pay had the Debtor not assigned beneficial
                 title to the Collateral to the Lender pursuant hereto) and in
                 the event of default the Lender may make such payment in which
                 event such sums paid shall be secured under this Security
                 Interest Agreement and payable on demand together with
                 interest at the then prevailing lending interest rate (as
                 determined by the Lender) compounded at such rests as the
                 Lender shall determine until actual payment by the Debtor.

            (b)  Provided that no Event of Default has occurred the Debtor may
                 continue to instruct the Nominees as to how they should
                 exercise all voting and other rights and powers attached to
                 the Collateral.

            (c)  The Lender is not under any obligation to take any step or
                 action in respect of any right of the Debtor in connection
                 with the Collateral, including without limitation any
                 obligation to pay any call or instalment or present any
                 investment coupon, bond or stock called for repayment or
                 redemption and shall have no liability for having taken or
                 abstained from taking any such step or action.

       Further assurance and agency

       6.   (a)  The Debtor and the Nominees undertake without delay or
                 impediment to execute and sign from time to time all
                 transfers, powers of attorney and other documents required by
                 the Lender to perfect its title to the Collateral or to vest
                 the Collateral in a purchaser from, or trustee or nominee of,
                 the Lender and the Debtor and the Nominees hereby appoint the
                 Lender (or any person nominated by the Lender) the agent of
                 the Debtor and the Nominees at any time after demand hereunder
                 to give effectual discharge for, or otherwise howsoever to
                 deal with, the Collateral including (without limitation) to
                 sign, seal and deliver any transfer, give and perfect any
                 assurance, deed, notice, request or do any act, in connection
                 with the Lender's rights under this Security Interest
                 Agreement.

            (b)  In accordance with Article 5(2)(a) of the Powers of Attorney


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                 (Jersey) Law, 1995 (the "Powers of Attorney Law"), for the
                 purpose of facilitating the exercise of the powers of the
                 Lender under the Law and of the powers given pursuant to this
                 Security Interest Agreement, the Debtor and the Nominees
                 hereby irrevocably jointly and severally appoint the Lender as
                 the Debtor and the Nominees' attorney (with full power of
                 substitution in accordance with Article 8 of the Powers of
                 Attorney Law) for the Debtor and the Nominees and in the name
                 and on behalf of the Debtor and the Nominees to sign, execute,
                 seal, deliver, acknowledge, tile, register and perfect any and
                 all such assurances, documents, instruments, agreements,
                 certificates and consent whatsoever and to do any and all such
                 acts and things whatsoever which the Debtor and the Nominees
                 might or could do in relation to the Collateral or in relation
                 to any matters dealt with in this Security Interest Agreement
                 and which the Lender may deem to be necessary or advisable in
                 order to give full effect to the purposes of this Security
                 Interest Agreement. Without limitation, this power of attorney
                 extends to anything referred to in clause 6(a) hereof and to
                 any sale or other disposal by the Lender of the Collateral
                 pursuant to this Security Interest Agreement. The Debtor and
                 the Nominees hereby covenant with the Lender to ratify and
                 confirm any lawful exercise or purported exercise of this
                 power of attorney.

       Events of Default

       7.   The occurrence of any of the following shall be an event of default
            (each an "Event of Default") namely:

            (a)  any breach of any of the terms of any of the Obligations or of
                 this Security Interest Agreement;

            (b)  failure to pay on demand any money or liability hereby
                 secured; or

            (c)  the Debtor: (in relation to any law or jurisdiction)

                 (i)  being unable to pay debts when due or being otherwise
                      insolvent; resolving or taking any step or procedure,
                      preparatory to ceasing trading or stopping or suspending
                      payments; being subject to any Order in respect of
                      bankruptcy, winding-up, desastre, administration,
                      receivership, reconstruction, compromise with creditors,
                      execution of judgment, sequestration or attachment of
                      assets; or

                 (ii) doing or omitting to do anything as a result of which the
                      Debtor is or is liable to be struck off the Register of
                      Companies (or its equivalent) in its place of
                      incorporation.

       Enforcement

       8.   Upon the occurrence of an Event of Default and provided that the
            Lender has served on the Debtor and the Nominees a notice in
            accordance with the Law, specifying the particular Event of Default
            complained of and the Debtor has failed to remedy such Event of
            Default (if capable of remedy) within 14 days following receipt of


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            such notice, the Lender shall be entitled without notice or further
            demand to:

            (a)  (i)  exercise and be entitled to any and all rights of an
                      owner in relation to the Collateral;

                 (ii) collect, receive or compromise and give a good discharge
                      for any and all monies and claims for monies due and to
                      become due for the time being under or in the Collateral;

                 and otherwise put into force and effect all rights, powers and
                 remedies available to it, at law or otherwise; and

            (b)  exercise the power of sale over the Collateral or any of it
                 without further process and without the necessity for any
                 application in respect thereof by the Lender to the Royal
                 Court and the power of sale may be exercised in such manner
                 and for such consideration as the Lender sees fit (and for
                 consideration payable by instalments with or without security
                 if the Lender decides and by way of sale to itself or its
                 nominees or associates at the discretion of the Lender) and
                 the Lender shall not be liable for any loss caused by
                 application of the proceeds of sale in accordance with the
                 Law.

       Other arrangements

       9.   The Lender may increase, extend or otherwise amend any facility
            given to the Debtor, give time to release or make other
            arrangements with the Debtor (or if the Debtor is more than one
            person any one or more of them) or any surety, in each case without
            prejudicing any rights or interests pursuant to this Security
            Interest Agreement and the rights of the Lender pursuant to this
            Security Interest Agreement shall not be affected by:

            (a)  the making or absence of any demand;

            (b)  the absence, or any defective exercise of the Debtor's
                 borrowing powers;

            (c)  the death, insolvency or disability of the Debtor or where the
                 Debtor is more than one person, any one or more of them; or

            (d)  any change in the constitution of the Debtor.

       10.  The rights of the Lender under this Security Interest Agreement are
            in addition to and are not to prejudice or be prejudiced by any
            guarantee or any other security which the Lender may now or
            hereafter hold for the Obligations nor are they to prejudice any
            other rights of lien or set-off the Lender may have.

       11.  The Lender may assign or otherwise transfer the benefit of this
            Security Interest Agreement.

       Conditional Discharge and Retention of Security

       12.  (a)  Any settlement, discharge or release between the Debtor and
                 the Lender shall be conditional on no security given or
                 payment made to the Lender by the Debtor or any other person


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                 being avoided or reduced by virtue of any enactment relating
                 to insolvency for the time being in force. The Lender shall be
                 entitled (subject to any limit in the total amount recoverable
                 hereunder) to recover the value or amount of any such security
                 or payment from the Debtor subsequently as if such settlement,
                 discharge or release had not occurred.

            (b)  The Lender may retain any security held by it for the Debtor's
                 liability under the Obligations for the relevant period after
                 repayment of all sums due to the Lender from the Debtor. If
                 within the relevant period after such repayment a
                 representation shall be presented for an order for the
                 winding-up or bankruptcy order, the Lender may continue to
                 retain such security or any part of it for such further period
                 as the Lender shall determine in its discretion. In this
                 clause, the "relevant period" means the relevant statutory
                 period, extended by one month, within which any payment or
                 security made to or held by the Lender may be avoided or
                 invalidated under any applicable - relating to insolvency.

       Currency

       13.  On any set-off, appropriation or exercise of a power of sale under
            this Security Interest Agreement, the Lender may from time to time
            convert the proceeds of sale of, or any other monies received in
            relation to the Collateral, into the currency or currency of the
            Obligations or any of them and such a conversion shall be at the
            then prevailing spot or forward rate of exchange (as conclusively
            determined by the Lender) for the purchase of the other currency
            with the existing currency.

       Interpretation

       14.  (a)  In this Security Interest Agreement:

                 (i)  the "Law" means the Security Interests (Jersey) Law, 1983
                      as amended from time to time;

                 (ii) the expression the "Debtor" shall include personal
                      representatives and successors and the Debtor shall be
                      the "debtor" for the purposes of the Law;

                (iii) the expression the "Lender" shall include its successors
                      and assigns and the Lender shall be the "secured party"
                      for the purposes of the Law;

                 (iv) the expression the "Obligations" shall include all monies
                      payable and all indebtedness or liability of the Debtor
                      whether actual or contingent, whether alone or jointly
                      with another, and whether as principal or surety and the
                      words "monies", "liabilities" and "indebtedness" shall be
                      construed accordingly; and

                 (v)  the singular shall include the plural;

            (b)  The headings used herein are for description only and shall
                 not affect the construction of any provision of this Security
                 Interest Agreement.



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            (c)  In the event of invalidity or unenforceability of any
                 provision hereunder that part shall be severed from the
                 remainder and shall not prejudice the validity or
                 enforceability of the remainder.

            (d)  Where this Security Interest Agreement is executed by more
                 than one person, the obligations and liabilities of each of
                 them shall be joint and several and every agreement and
                 undertaking on their part shall he construed accordingly.

            (e)  This Security Interest Agreement and any variation thereof
                 shall be deemed to constitute a separate security agreement
                 for each and every one of the securities subject hereto and no
                 defect in respect of any one of such securities shall affect
                 the validity of this Security Interest Agreement in relation
                 to the other such securities or any of them.

       Law, Jurisdiction and Notices

       15.  (a)  The parties hereto agree that this Security Interest Agreement
                 shall in all respects be governed by and construed in
                 accordance with the law of the Island of Jersey, and the
                 parties hereto hereby agree to submit to the non-exclusive
                 jurisdiction of the Courts of Jersey.

            (b)  Any notice or demand to be given or made pursuant to this
                 Security Interest Agreement or the Law shall be given or made
                 when delivered to any party to this Security Interest
                 Agreement, or posted to any party to this Security Interest
                 Agreement at that party's last known address, or sent by fax
                 to any fax number recorded for that party and shall be deemed
                 to have been received immediately upon delivery, or 48 hours
                 after posting, or immediately after completion of facsimile
                 transmission.


                                       SCHEDULES

                                    FIRST SCHEDULE
                                    --------------

                                    The Obligations

       1.   Note Purchase Agreement dated 28th November, 1988, between Pauley
            Petroleum Inc. and Thamesedge Limited ("Thamesedge"), as amended
            (the "Thamesedge Note Purchase Agreement") and a Note dated 30th
            November, 1988, for US$75,000,000.00 (seventy-five million United
            States dollars) from Pauley Petroleum Inc. to Thamesedge Limited
            (the "Thamesedge Note") excepting therefrom US$13,500,000.00
            (thirteen million five hundred thousand United States dollars) of
            the principal balance which is subject to an option to convert such
            an amount into shares in the common stock of the Debtor;

       2.   Letter agreements dated 28th November, 1988, and 18th December,
            1992, referring to and amending the Thamesedge Note Purchase
            Agreement and the Thamesedge Note;

       3.   Net Profits Share Agreement dated 18th December, 1992, by and among
            Hondo Oil & Gas Company("Hondo"), Lonrho Plc ("Lonrho") and


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            Thamesedge (the "Net Profits Share Agreement");

       4.   Amended and Restated Letter Agreement dated 20th December, 1991,
            between Hondo and Lonrho (the "Lonrho Loan Agreement") and Notes
            dated 1st September, 1991, for US$10,000,000.00 (ten million United
            States dollars), dated 1st November, 1991 for US$9,000,000.00 (nine
            million United States dollars) and dated 20th December, 1991, for
            US$13,000,000.00 (thirteen million United States dollars) (the
            "Lonrho Notes");

       5.   Letter Agreement dated 18th December, 1992 between Hondo and Lonrho
            referring to and amending the Lonrho Loan Agreement and the Lonrho
            Notes;

       6.   Note dated 30th April, 1993, for US$3,000,000.00 (three million
            United States dollars) from Via Verde Development Company ("Via
            Verde") to Lonrho (the "Via Verde Note"), secured by a deed of
            trust recorded as Instrument No. 93-840817 in the Real Property
            Records of Los Angeles County, California (the "Via Verde
            Mortgage"), guaranteed by Hondo in a Guaranty dated 30th April,
            1993, (the "Honda Guaranty") and subject to a Letter Agreement
            dated 30th April, 1993;

       7.   Note dated 25th June, 1993, for US$4,000,000.00 (four million
            United States dollars) from Hondo to Lonrho (the "Valley Gateway
            Note") secured by a deed of trust dated 30th August, 1993, granted
            by Hondo and Newhall Refining Co., Inc., ("Newhall") recorded as
            Instrument No. 93-2006475 in the Real Property Records of Los
            Angeles County, California (the "Valley Gateway Mortgage");

       8.   Letter Agreement dated 17th December, 1993, between Hondo, Via
            Verde, Newhall, Lonrho and Thamesedge, restructuring the
            aforementioned indebtedness and amending the Thamesedge Note, the
            Lonrho Notes, the Via Verde Note and the Valley Gateway Note;

       9.   Letter Agreement dated 10th November, 1994, between Hondo, Via
            Verde. Newhall. Lonrho and Thamesedge, restructuring the
            aforementioned restructured indebtedness and amending the amended
            Thamesedge Note, the amended Lonrho Notes, the amended Via Verde
            Note and the amended Valley Gateway Note; and creating a new
            US$5,000,000.00 (five million United States dollars) loan facility
            and a Note therefor dated 31st October, 1994 (the "Facility Note");

       10.  Letter Agreement dated 22nd December, 1995, between Hondo, Via
            Verde, Newhall, Lonrho and Thamesedge, restructuring the
            aforementioned restructured indebtedness, and amending the amended
            Thamesedge Note, the amended Lonrho Notes, the amended Via Verde
            Note and the amended Valley Gateway Note;

       11.  Revolving Credit Agreement dated 28th June, 1996, between Hondo and
            Thamesedge and Promissory Note for US$13,500,000.00 (thirteen
            million five hundred thousand United States dollars) from Hondo to
            Thamesedge (the "Revolving Credit Note"):

       12.  The Thamesedge Note as amended, the Lonrho Notes as amended, the
            Via Verde Notes as amended, the Valley Gateway Note as amended, the
            Facility Note as amended, and the Revolving Credit Note as amended,
            are collectively referred to hereafter as the "Indebtedness";



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       13.  Assignment dated 29th March, 1996, between Lonrho and Thamesedge
            under which Lonrho assigned all or its interests in the
            Indebtedness to Thamesedge; and

       14.  Letter Agreement dated the 13th December, 1996, between Hondo, Via
            Verde, Newhall and Thamesedge amending the dates of repayment of
            the Indebtedness and pledging, as security for the Indebtedness,
            all of the shares of Hondo Magdalena Oil & Gas Limited.


                                    SECOND SCHEDULE
                                    ---------------

                                    The Collateral

            12 shares in the share capital of Hondo Magdalena Oil & Gas
            Limited, whose registered office is at P.O. Box 1471, Westaway
            Chambers, 39 Don Street, St. Helier, Jersey, Channel Islands, JE4
            8UA, which are held by the Nominees on trust for the Debtor.



       IN WITNESS whereof the parties hereto have hereunto set their hands and
       seals the day and year first above written.

       The Common Seal of
       THAMESEDGE LIMITED
       was hereunto affixed in the presence of:-

       /s/ R.E. Whitten
       Director

       /s/ J. Hughes
       Secretary


       Signed by:

       /s/ John J. Hoey
       duly authorised
       for and on behalf of
       HONDO OIL & GAS COMPANY


       The Common Seal of
       FOLIO TRUST COMPANY LIMITED
       was hereunto affixed in the presence of:-

       /s/ Robert David Johnson
       Director

       /s/ Peter Anthony Barnes
       Director


       The Common Seal of
       FOLIO NOMINEES LIMITED
       was hereunto affixed in the presence of:



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       /s/ Robert David Johnson
       Director

       /s/ Peter Anthony Barnes
       Director
























































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