<PAGE>
<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, 1997

                                     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 19,
  1997, 13,781,194 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, 1997





                                                                      PAGE
                                                                      ----

PART I - FINANCIAL INFORMATION


  Item 1  Financial Statements:

          Consolidated Balance Sheets as of
            March 31, 1997 and September 30, 1996                         3

          Consolidated Statements of Operations for the three
            months ended March 31, 1997 and 1996                          4

          Consolidated Statements of Operations for the six
            months ended March 31, 1997 and 1996                          5

          Consolidated Statements of Cash Flows for the six
            months ended March 31, 1997 and 1996                          6


          Notes to Consolidated Financial Statements                      7


  Item 2  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                          12


PART II - OTHER INFORMATION

  Item 1  Legal Proceedings                                              23

  Item 4  Submission of Matters to a Vote of Security Holders            23

  Item 6  Exhibits and Reports on Form 8-K                               24


SIGNATURES                                                               24













                                     2

                                   PART I

Item 1  FINANCIAL STATEMENTS

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


                                                 March 31,    September 30,
                                                   1997           1996
                                               -------------  -------------
ASSETS                                          (Unaudited)
Current assets:
  Cash and cash equivalents                            $186           $374
  Accounts receivable, net of allowances
    of $205 and $332, respectively                      300            317
  Prepaid expenses and other                            122             79
                                               -------------  -------------
    Total current assets                                608            770

Properties, net (Note 2)                             31,302         21,248
Net assets of discontinued operations (Note 7)        2,393          2,202
Other assets                                            586            320
                                               -------------  -------------
                                                    $34,889        $24,540
                                               =============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                   $2,574         $2,849
  Current portion of long-term debt, including
    $63,994 in 1997 due to a related party           64,765            738
  Accrued expenses and other, including $2,048
    in 1997 due to a related party (Note 3)           4,463          2,292
                                               -------------  -------------
    Total current liabilities                        71,802          5,879

Long-term debt, including $25,726 and $80,109,
  respectively, due to a related party               28,686         83,334
Funding agreement (Note 4)                           17,666         11,513
Other liabilities, including $775 and $2,411,
  respectively, due to a related party (Note 5)       3,009          4,705
                                               -------------  -------------
                                                    121,163        105,431

Contingent liabilities (Note 7)

Shareholders' equity (deficit):
  Common stock, $1 par value, 30,000,000 shares
    authorized; shares issued and outstanding:
    13,781,194 and 13,776,194, respectively          13,781         13,776
  Additional paid-in capital                         53,635         53,581
  Accumulated deficit                              (153,690)      (148,248)
                                               -------------  -------------
                                                    (86,274)       (80,891)
                                               -------------  -------------
                                                    $34,889        $24,540
                                               =============  =============



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,
                                               ----------------------------

                                                   1997           1996
                                               -------------  -------------

REVENUES
Sales and operating revenue                              $1             $1
Other income                                              4             75
                                               -------------  -------------
                                                          5             76
                                               -------------  -------------

COSTS AND EXPENSES
Operating costs                                         390             90
Depreciation, depletion, and amortization                57             38
Overhead, Colombian operations                          511            439
General and administrative                              598            577
Exploration costs                                         2            846
Interest on indebtedness including $1,450
  and $1,187, respectively, to a
  related party                                       1,456          1,247
                                               -------------  -------------
                                                      3,014          3,237
                                               -------------  -------------
Loss from continuing operations
  before income taxes                                (3,009)        (3,161)
Income tax expense (benefit)                             --             --
                                               -------------  -------------
Loss from continuing operations                      (3,009)        (3,161)

Loss from discontinued operations (Note 7)               --             --
                                               -------------  -------------
Net Loss                                            $(3,009)       $(3,161)
                                               =============  =============

Loss per share:
  Continuing operations                              $(0.22)        $(0.23)
  Discontinued operations                                --             --
                                               -------------  -------------
  Net loss per share                                 $(0.22)        $(0.23)
                                               =============  =============

Weighted average common shares outstanding       13,781,194     13,573,750












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,
                                               ----------------------------

                                                   1997           1996
                                               -------------  -------------

REVENUES
Sales and operating revenue                              $1             $1
Other income                                             19            101
                                               -------------  -------------
                                                         20            102
                                               -------------  -------------

COSTS AND EXPENSES
Operating costs                                         335             97
Depreciation, depletion, and amortization               115             76
Overhead, Colombian operations                        1,127          1,724
General and administrative                              996            952
Exploration costs                                        13          1,717
Interest on indebtedness including $2,823
  and $2,375, respectively, to a
  related party                                       2,878          2,378
                                               -------------  -------------
                                                      5,464          6,944
                                               -------------  -------------
Loss from continuing operations
  before income taxes                                (5,444)        (6,842)
Income tax expense (benefit)                             (2)            --
                                               -------------  -------------
Loss from continuing operations                      (5,442)        (6,842)

Loss from discontinued operations (Note 7)               --             --
                                               -------------  -------------
Net Loss                                            $(5,442)       $(6,842)
                                               =============  =============

Loss per share:
  Continuing operations                              $(0.40)        $(0.50)
  Discontinued operations                                --             --
                                               -------------  -------------
  Net loss per share                                 $(0.40)        $(0.50)
                                               =============  =============

Weighted average common shares outstanding       13,779,527     13,569,250












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,
                                                              ----------------------------
                                                                  1997           1996
                                                              -------------  -------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Pretax loss from continuing operations                           $(5,444)       $(6,842)
  Adjustments to reconcile pretax loss from continuing
    operations to net cash used by continuing operations:
    Depreciation, depletion and amortization                           115             76
    Capitalized interest                                              (300)          (120)
    Accrued interest added to long-term debt                         2,429             17
    Accrued interest paid with common stock                             --          2,367
    Changes in operating assets and liabilities:
      Decrease (increase) in:
        Accounts receivable                                             17             20
        Prepaid expenses and other                                     (43)          (119)
        Other assets                                                  (359)             9
      Increase (decrease) in:
        Accounts payable                                               160            195
        Accrued expenses and other                                   2,187          1,554
        Funding agreement                                              936          2,553
        Other liabilities                                           (1,637)        (1,102)
                                                              -------------  -------------
      Net cash used by continuing operations                        (1,939)        (1,392)
      Net cash used by discontinued operations                        (207)          (295)
      Income taxes (paid) received                                       2             --
                                                              -------------  -------------
      Net cash used by operating activities                         (2,144)        (1,687)
                                                              -------------  -------------
Cash flows from investing activities:
  Sale of assets                                                        --             --
  Capital expenditures                                              (4,994)          (602)
                                                              -------------  -------------
      Net cash used by investing activities                         (4,994)          (602)
                                                              -------------  -------------
Cash flows from financing activities:
  Proceeds from long-term borrowings                                 7,200          1,000
  Principal payments on long-term debt                                (250)          (235)
  Issuance of stock                                                     --            251
                                                              -------------  -------------
      Net cash provided by financing activities                      6,950          1,016
                                                              -------------  -------------

Net increase (decrease) in cash and cash equivalents                  (188)        (1,273)

Cash and cash equivalents at the beginning of the period               374          1,771
                                                              -------------  -------------
Cash and cash equivalents at the end of the period                    $186           $498
                                                              =============  =============

</TABLE>Refer to Notes 2 and 4 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, 1997

                     (All Dollar Amounts in Thousands)


1)  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 70.7% of Hondo Oil & Gas Company.
    Lonrho Plc ("Lonrho"), a publicly-traded English company and the Company's
    primary lender, controls The Hondo Company and owns an additional 5.7% of
    the Company through another wholly-owned subsidiary.  In total, Lonrho
    controls 76.4% 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, 1996, other than the
    contingency described in Note 7.  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 these interim periods 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, 1996.


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

    Net income (loss) per share amounts are computed using the weighted average
    number of common shares and dilutive common equivalent shares outstanding.
    The effect of common stock equivalents is not included for periods with
    losses.  Fully diluted per share amounts are the same as primary per share
    amounts and, accordingly, are not presented.










                                     7

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               March 31, 1997

                     (All Dollar Amounts in Thousands)


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

    (c) 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 $687 which
    are accounted for by the flow-through method.


2)  Properties
    ----------

    Properties, at cost, consist of the following:

                                                 March 31,    September 30,
                                                   1997           1996
                                               -------------  -------------
                                                (Unaudited)

    Oil and gas properties (Colombia):
      Proved, undeveloped                           $11,863        $11,803
      Accumulated depletion, depreciation
        and amortization                                 --             --
                                               -------------  -------------
                                                     11,863         11,803
                                               -------------  -------------
    Other properties - Colombia:
      Wellsite facilities (a)                         3,671          2,039
      Pipelines (a)                                   8,983          5,398
      Drilling in progress                            6,657          1,858
    Other properties - domestic
      Other fixed assets                                311            311
      Accumulated depreciation                         (183)          (161)
                                               -------------  -------------

                                                    $31,302        $21,248
                                               =============  =============

    (a) Under construction.

    The balances of wellsite facilities and pipelines include non-cash increases
    of $4,042 and $4,998 for the six months ended March 31, 1997 and 1996,
    respectively, which were charged to the Funding Agreement (Note 4).


                                     8

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               March 31, 1997

                     (All Dollar Amounts in Thousands)


3)  Accrued expenses
    ----------------

    Accrued expenses consist of the following:

                                                 March 31,    September 30,
                                                   1997           1996
                                               -------------  -------------
                                                (Unaudited)

    Refining and marketing costs (Note 7)            $2,012         $2,028
    Interest payable to Lonrho Plc (Note 5)           2,048             --
    Other                                               403            264
                                               -------------  -------------
                                                     $4,463         $2,292
                                               =============  =============


4)  Funding Agreement
    -----------------

    Effective July 26, 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") for the interim financing of 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 by Amoco Colombia from prior to the date of first
    production until 365 days thereafter, 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 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, 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 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,
                                                   1997           1996
                                               -------------  -------------
                                                (Unaudited)

    Outstanding principal                           $14,417         $9,771
    Equity premiums                                   3,249          1,742
                                               -------------  -------------
                                                    $17,666        $11,513
                                               =============  =============

                                     9

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               March 31, 1997

                     (All Dollar Amounts in Thousands)


4)  Funding Agreement (continued)
    -----------------------------

    The Company has accrued equity premiums computed in accordance with the 22%
    annualized interest rate option. Equity premiums of $1,174 and $411 related
    to the financed pipeline costs and wellsite facilities have been capitalized
    for the six months ended March 31, 1997 and 1996, respectively.  The
    remainder of the equity premiums accrued to date, relating to the financed
    geological and geophysical work and overheads, have been expensed.


5)  Other Liabilities
    -----------------

    Other liabilities consist of the following:
                                                 March 31,    September 30,
                                                   1997           1996
                                               -------------  -------------
                                                (Unaudited)

    Interest payable to Lonrho Plc                     $775         $2,411
    City of Long Beach                                1,549          1,533
    Deferred compensation contracts                     535            610
    Other                                               150            151
                                               -------------  -------------
                                                     $3,009         $4,705
                                               =============  =============

    In accordance with the terms of the Company's debts to Lonrho Plc, accrued
    interest is either added to the outstanding principal or paid by issuance of
    the Company's common stock on the interest due date, at the option of Lonrho
    Plc.  Accrued interest of $2,823 (including $2,048 in accrued expenses, Note
    3) for the six months ended March 31, 1997 was added to outstanding
    principal on April 1, 1997.  Accrued interest of $2,411 for the six-month
    period ended September 30, 1996 was added to outstanding principal on
    October 1, 1996.  Accrued interest of $2,367 for the six-month period ended
    September 30, 1995 was paid by the issuance of 121,372 shares of the
    Company's common stock on October 1, 1995.


6)  Cash Flow Information
    ---------------------

    Cash interest expense, all of which arises from discontinued operations, was
    $113 and $119 for the six months ended March 31, 1997 and 1996,
    respectively.


7)  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.

                                    10

                          HONDO OIL & GAS COMPANY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               March 31, 1997

                     (All Dollar Amounts in Thousands)


7)  Discontinued Operations (continued)
    -----------------------------------

    Operating losses of discontinued operations for the quarters ended March 31,
    1997 and 1996 were $79 and $114, respectively.  Corresponding amounts for
    the six-month periods were $191 and $229, 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, 1997 or 1996.

    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 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 will 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 revised preliminary report in January 1997
    indicating taxes and penalties of $6,446 are due.  The Company expects the
    State of California to issue an assessment in late May 1997 which includes
    further reductions to the amount due.  Assessed amounts are subject to a
    process of appeal and further adjustment.  The State of California's audit
    could result in a liability different from that accrued when concluded.  The
    Company has provided its consultant to Fletcher to assist in disputing the
    audit findings.  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 Company believes the liability accrued is sufficient to provide
    for the amount that will ultimately be paid based on the information
    available.

    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, 1997 are as follows:

    Balance as of September 30, 1996                 $2,202
      Valuation provisions established                   --
      Valuation provisions used                         191
                                               -------------
    Balance at March 31, 1997 (Unaudited)            $2,393
                                               =============

    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 $62 and $65 for
    the quarters ended March 31, 1997 and 1996, respectively.  Corresponding
    amounts for the six-month periods ended March 31, 1997 and 1996 were $125
    and $131, respectively.




                                    11





       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 as commercial in May 1996.
       A pipeline and related wellsite facilities to deliver natural gas and
       condensate to a market are substantially complete, and await the
       completion of improvements to Ecopetrol's gas plant so that production
       can commence.  A third well, the Opon No. 6 well, has been drilled and
       is being tested.  As further described below, the Company will require
       additional financing to continue development of the Opon project.

       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 in
       Colombia, South America.  The Company has no operating assets which are
       presently generating cash to fund its operating and capital
       requirements.  At March 31, 1997 the Company had a deficiency in net
       assets of $86.3 million.

       Role of Ecopetrol.  As described below and in the Company's 1996 Annual
       Report on Form 10-K, Ecopetrol is a quasi-governmental corporate
       organization wholly-owned by the Colombian government, a party to the
       Opon Contract and the 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 the
       potential for a conflict of interest in Ecopetrol and/or the government.


                                         12




       If such a conflict of interest materializes, the economic value of the
       Company's interest in the Opon project could be diminished.

       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
       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 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 1997,
       the President of the United States announced that Colombia again would
       neither be certified nor granted a national interest waiver.  The
       consequences of the failure to receive certification generally include
       the following: all bilateral aid, except anti-narcotics and humanitarian
       aid, has been or will be suspended; the Export-Import Bank of the United
       States and the Overseas Private Investment Corporation will not approve
       financing for new projects in Colombia; U. S. representatives at
       multilateral lending institutions will be required to vote against all
       loan requests from Colombia, although such votes will not constitute
       vetoes; and the President of the United States and Congress retain the
       right to apply future trade sanctions.  Each of these consequences of
       the failure to receive such certification could result in adverse
       economic consequences in Colombia and could further heighten the
       political and economic risks associated with the Company's operations in
       Colombia.

       Risks of Oil and Gas Exploration.  Inherent to the oil and gas industry
       is the risk that future wells will not find hydrocarbons where 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.  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


                                         13




       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 and No.
       6 wells by the use of a top-drive drilling rig, heavy-weight and oil-
       based drilling fluids and other technical drilling enhancements.

       Laws and Regulations.  The Company may be adversely affected by new laws
       or regulations in the United States or Colombia affecting its operations
       and/or environmental compliance, or by existing laws and regulations.
       For additional information, see Other Factors Affecting the Company's
       Business in Item 1, Business of the Company's 1996 Annual Report on Form
       10-K.

       Limited Capital.  The Company has no source of current income from its
       operations.  The Company's principal asset, its investment in the Opon
       project, does not currently provide any income and will require
       additional capital for exploitation.  See Liquidity and Capital
       Resources, below.

       Losses from Operations.  The Company experienced losses of $11,056,000,
       $11,906,000 and $12,657,000 for the years ended September 30, 1994, 1995
       and 1996, respectively.  As discussed above under Limited Capital,
       because the Company's principal asset does not currently provide any
       income and requires additional capital for exploitation, the Company
       anticipates continued losses through fiscal 1998.

       Continuation of American Stock Exchange Listing.  Because of continuing
       losses and decreases in shareholders' equity, the Company does not fully
       meet all of the guidelines of the American Stock Exchange for continued
       listing of its shares.  For additional information, see Item 5, Market
       For Registrant's Equity and Related Shareholder Matters in the Company's
       1996 Annual Report on Form 10-K.  Management has kept the Exchange fully
       informed regarding the Company's present status and future plans.
       Although the Company does not or may not meet all of the guidelines, to
       date, the American Stock Exchange has chosen to allow the Company's
       shares to remain listed.  However, no assurances can be given that the
       Company's shares will remain listed on the Exchange in the future.

       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.

















                                         14




       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
       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.  An
       application for commerciality was submitted by Amoco Colombia in
       February 1996.  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: Ecopetrol, 50%,
       Amoco Colombia, 30%, Hondo Magdalena, 15.4%, and ODC, 4.6%.  The
       commercial field is substantially smaller than that requested, but may
       be enlarged by future drilling and/or additional technical information.
       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.  As described below, Ecopetrol has agreed to reimburse
       in cash certain costs related to the construction of pipeline and
       wellhead facilities incurred before commerciality was declared.

       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 (61,828 acres).  On September
       30, 1997, the Opon Contract area will be further reduced to 25% of the
       original area.  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.


                                         15




       The Opon No. 6 well commenced drilling on October 24, 1996.  This well
       is slightly more than 1 kilometer north of the Opon No. 3 well and is
       outside the presently designated commercial area.  Hondo Magdalena is
       paying 30.9% of the costs of this well presently estimated at $28.7
       million.  After the drilling was completed, several mechanical problems
       in the completion and testing of the Opon No. 6 well have occurred.  A
       second set of perforating guns were fired after there was a failure of a
       portion of the guns during the initial completion attempt in April 1997.
       Cleanup and testing on the second set of perforations commenced on May
       13, 1997 and, while all the guns fired, the well has not flowed as
       anticipated.  Based upon log indications, it appears the new
       perforations in the lower zones of the well may have become blocked.  As
       of May 20, 1997, Amoco Colombia is using a different completion
       procedure for perforating the lower zones.  Two 20-foot sections of
       perforating charges, conveyed by wireline, have been fired through the
       tubing.  The initial observations from these perforating attempts are
       positive.  However, a number of additional perforations and a full
       evaluation will be necessary before the final test results of the well
       are known.*

       Hondo Magdalena, ODC, Amoco Colombia and Ecopetrol executed a Memorandum
       of Understanding ("MOU") in July 1995 for the construction of a pipeline
       and wellhead facilities (which were not contemplated in the Opon
       Contract) and the sale of natural gas from the Opon Contract area.  The
       MOU provides that the parties will construct 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
       Barrancabermeja.  The pipeline will have a capacity of 120 million cubic
       feet per day and is now estimated to cost $53.1 million.  Under the MOU,
       Hondo Magdalena, ODC and Amoco Colombia each pay their respective share
       of the costs incurred prior to July 1, 1995, up to a maximum of 10% of
       the total pipeline costs.  Ecopetrol will pay cash for its share of
       pipeline costs incurred after July 1, 1995; the remainder of Ecopetrol's
       share of costs (those incurred prior to July 1, 1995) will be recovered
       out of production.  The investment in pipeline costs will be recovered
       through a pipeline tariff.  In the MOU, Ecopetrol agreed to construct
       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 parties agreed in the MOU
       to negotiate contracts necessary to carry out the agreements made in the
       MOU.  Ecopetrol agreed to fund 80% of its share of wellhead facilities
       (total estimated cost of $29.3 million) in cash with 20% to be recovered
       subsequently from production.

       After new regulations were adopted in late 1995 by 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, the parties began to renegotiate certain terms of
       the MOU.  The regulations set a ceiling price for natural gas and a
       maximum rate of return of 12.0% (after Colombian taxes, except for a 14%
       Remittance Tax on foreign exchange returned to the United States) for
       pipeline tariffs.  The ceiling price has been interpreted to include
       costs or fees for the processing of natural gas, thus processing costs
       cannot be passed on to the buyer as contemplated in the MOU.  Ecopetrol
       was unwilling to provide the terms outlined in the MOU related to the
       ____________________
       * This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above, for a description of
       important risk factors that may affect actual results.


                                         16




       buyer's payment of gas processing fees and the 13.2% rate of return
       (after Colombian taxes) included in the pipeline tariff because of these
       new regulations.

       After lengthy negotiations, contracts covering the sale of natural gas,
       the sale of condensate and natural gas liquids, and the processing of
       the gas stream have been completed.  Management believes that the new
       contracts achieve an arrangement that is an economic equivalent to the
       terms of the MOU and comply with the new CREG regulations.*  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$1.31 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 US$0.20 per
       thousand cubic feet of gas.

       Preliminary work for the pipeline began in late 1994 and construction
       began in July 1996. The pipeline is substantially complete.
       Construction of wellsite facilities began in August 1996 and is also
       substantially complete.  Ecopetrol has begun the improvements to the El
       Centro gas plant; completion is now estimated to occur in October 1997.*
       Work on the El Centro gas plant improvements has been interrupted by
       labor disputes.  Production will commence after the El Centro
       improvements are completed and the entire system has been tested.  The
       estimates of the completion dates of the projects are subject to delays
       due to weather, labor interruptions, guerrilla activity, unanticipated
       shortages of materials or equipment and other causes beyond the control
       of the associate parties.

       On March 3, 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 natural gas to an electric
       generation plant being built at the Opon Contract area.  The parties to
       the Opon Contract will supply natural gas to the power plant which is
       expected to begin commercial operations by the end of calendar 1997.*
       The estimate of the completion date of the power plant is subject to
       delays due to weather, labor interruptions, guerrilla activity,
       unanticipated shortages of materials or equipment and other causes
       beyond the control of Termo Santander.  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 when the
       power plant achieves a price for its electrical power in excess of
       target rates each month of the contract.  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 as and when requested by the purchaser.  The commencement


       ____________________
       * This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above, for a description of
       important risk factors that may affect actual results.


                                         17




       of the contract is contingent upon the completion of the electric
       generation plant and a determination by the sellers that there are
       sufficient reserves to supply natural gas to the purchaser for the
       entire term of the agreement.

       Amoco Colombia submitted a budget to Hondo Magdalena and ODC for
       calendar 1996 in April 1996.  Hondo Magdalena approved capital
       expenditures for wells and the pipeline projects, and certain other
       expenditures, but did not approve the proposed overhead.  Similarly,
       Amoco Colombia submitted a budget for calendar 1997 on November 5, 1996,
       and 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 and 1997.  The parties continue to try
       to resolve the dispute about overhead.  Hondo Magdalena has paid
       invoices from Amoco Colombia, including disputed overhead and has
       charged the full overhead amount to expense.  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, the joint
       operating agreement among Amoco Colombia, Hondo Magdalena and ODC
       provides for arbitration of disputes.


       Discontinued Operations
       -----------------------

       Two of the Company's former business segments, refining and marketing
       operations and real estate operations were discontinued in 1991.  Except
       as noted below, no change in the status of these discontinued operations
       from that reported in the Company's 1996 Annual Report on Form 10-K
       occurred during the current period. See Part II, Item 1, of the
       Company's Quarterly Report on Form 10-Q for the quarter ended December
       31, 1996, concerning a legal proceeding involving the sale of the
       Fletcher refinery.

       As more fully described in Note 7 to the Consolidated Financial
       Statements in Item 1, the State of California issued a preliminary
       report in June 1996 finding that the Fletcher refinery owed $10.8
       million for certain state excise taxes (and related penalties and
       interest) arising from periods when the Company owned the Fletcher
       refinery.  The State of California issued a revised preliminary report
       in January 1997 reducing this amount to $6.4 million.  The Company
       expects the State of California to issue an assessment in late May 1997
       which includes further reductions to the amount alleged to be due.*  The
       Company believes the liability it has accrued is sufficient to provide
       for the amount ultimately found to be due.*  The Company and the
       Fletcher refinery intend to further contest the forthcoming assessment
       through the appeals and hearing process.





       ____________________
       * This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above, for a description of
       important risk factors that may affect actual results.


                                         18




       RESULTS OF OPERATIONS


       Quarters Ended March 31, 1997 and 1996
       --------------------------------------

       Results of continuing operations for the quarter ended March 31, 1997
       amounted to a net loss of $3.0 million, or 22 cents per share.  The
       Company reported a net loss from continuing operations of $3.2 million,
       or 23 cents per share, for the quarter ended March 31, 1996.  No losses
       from discontinued operations were reported for either period.

       Operating costs for the quarter ended March 31, 1997 include an accrual
       of $0.4 million for revisions to estimated plugging and abandonment
       costs of an offshore unit in California.  No comparable costs were
       incurred in the quarter ended March 31, 1996.

       The Company's Colombian operations undertook a seismic exploration
       program during fiscal 1996.  The decrease of $0.8 million in exploration
       costs between the quarters arises because there were no comparable
       expenses incurred in fiscal 1997.

       The level of the Company's debts to Lonrho Plc and to Amoco Colombia
       under the Funding Agreement have increased by approximately $19.0
       million between March 31, 1996 and March  31, 1997.  Interest expense
       increased by only $0.2 million between the quarters ended March 31, 1997
       and 1996 because the majority of the charges from the Funding Agreement
       are capitalized.


       Six Months Ended March 31, 1997 and 1996
       ----------------------------------------

       Results of continuing operations for the six months ended March 31, 1997
       amounted to a net loss of $5.4 million, or 40 cents per share.  The
       Company reported a net loss from continuing operations of $6.8 million,
       or 50 cents per share, for the six months ended March 31, 1996.  No
       losses from discontinued operations were reported for either period.

       Operating costs for the six months ended March 31, 1997 include an
       accrual of $0.4 million for revisions to estimated plugging and
       abandonment costs of an offshore unit in California.  No comparable
       costs were incurred in the six months ended March 31, 1996.

       Overhead, Colombian operations decreased $0.6 million between the six
       months ended March 31, 1997 and 1996 primarily because:(i) year end
       adjustments recorded by Amoco Colombia increasing the figure in December
       1995 did not reoccur in December 1996 and (ii) Ecopetrol participated in
       overhead expenses pertaining to the commercial operations for the six
       months ended March 31, 1997.

       The Company's Colombian operations undertook a seismic exploration
       program during fiscal 1996.  The decrease of $1.7 million in exploration
       costs between the six-month periods arises because there were no
       comparable expenses incurred in fiscal 1997.






                                         19




       The level of the Company's debts to Lonrho Plc and to Amoco Colombia
       under the Funding Agreement have increased by approximately $19.0
       million between March 31, 1996 and March 31, 1997.  Interest expense
       increased by only $0.5 million between the six months ended March 31,
       1997 and 1996 because the majority of the charges from the Funding
       Agreement are capitalized.

       Management expects losses from continuing operations to continue through
       fiscal 1998.*


       LIQUIDITY AND CAPITAL RESOURCES

       During the six months ended March 31, 1997, cash inflows of $7.2 million
       arose from borrowings from Lonrho Plc under existing loan agreements.
       The Company utilized cash of $1.9 million and $0.2 million to finance
       continuing and discontinued operations, respectively, $5.0 million for
       capital expenditures, and made scheduled debt repayments of $0.3
       million.  At March 31, 1997, the Company had cash balances of $0.2
       million.

       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 an additional 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.  The facility
       is to be used for Hondo Magdalena's requirements for the Opon project
       and for general corporate expenses.  The interest rate is 13%, due
       semiannually; as provided in other debts to Thamesedge and described
       above, the Company may make payment of interest in shares of its common
       stock.  As of March 31, 1997, $7.2 million of this facility has been
       drawn.

       In December 1996, the Company obtained extensions of the maturity of its
       debts to Lonrho Plc.  The maturity of the loans from Lonrho Plc maturing
       on October 1, 1997 was extended to not earlier than January 1, 1998.  As
       consideration for the extensions and certain other financial
       undertakings, the Company has granted to Lonrho a security interest in
       all of the shares of Hondo Magdalena and agreed to give Lonrho an option
       to convert $13.5 million of existing loans with an interest rate of 6%
       into the Company's common stock.  The debt will be convertible at
       Lonrho's option at any time prior to maturity (January 1, 1998) at a
       rate of $12.375 per share.  The portion of the debt that may be
       converted into common stock will not be secured by the pledge of the
       Hondo Magdalena shares.  The option to convert the debt into common
       stock was approved by the Company's shareholders at the 1997 Annual
       Meeting on March 12, 1997.

       ____________________
       * This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above, for a description of
       important risk factors that may affect actual results.


                                         20




       The Company presently owes Lonrho Plc $89.7 million, of which $64.0
       million is due January 1, 1998.  The Company does not have the resources
       to pay the amounts due in less than twelve months.  Lonrho has
       demonstrated its willingness to work with the Company on this matter in
       the past, as evidenced by several prior modifications of the debts'
       maturity terms.  Management believes that the Company will be able to
       obtain further extensions of the maturity of the Company's debts to
       Lonrho Plc.*

       On May 5, 1995, Hondo Magdalena, ODC and Amoco Colombia entered into a
       Funding Agreement for Tier I Development Project costs (the "Funding
       Agreement") for the interim financing of costs associated with the
       construction of a pipeline from the Opon Contract area (see Note 4 to
       the Consolidated Financial Statements in Item 1, above) and certain
       other costs related to the Opon Contract.  The Funding Agreement became
       effective on July 26, 1995 with the execution of the MOU.  Hondo
       Magdalena may finance its share of the costs (including overhead) for
       the pipeline and an approved geological and geophysical work program for
       up to 365 days after the date that production from the Opon Contract
       area begins.  The Funding Agreement provides that Hondo Magdalena may
       repay the amounts financed from prior to the date of first production
       until 365 days thereafter, along with an equity premium computed on a
       22% annualized interest rate.  The equity premium will be 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 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.  If the financed amounts are not repaid within 365 days after
       the date of first production, 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 and corresponding condensate and natural gas liquids are
       pledged to secure its obligations under the Funding Agreement.




















       ____________________
       * This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above, for a description of
       important risk factors that may affect actual results.


                                         21




       Based upon the Company's budget and current information, management
       believes existing cash, available facilities, Lonrho commitments, and
       the interim Funding Agreement will be sufficient to finance the
       Company's known obligations (the pipeline and related facilities,
       unanticipated increased drilling and completion expenses of the Opon No.
       6 well, overhead obligations unrelated to capital projects and other
       business activities) during fiscal 1997.*  However, management believes
       the Company will need additional cash to participate in the drilling of
       additional wells in Colombia and to fund its corporate overheads, or to
       participate in other capital projects which may be proposed in
       Colombia.*  In addition, funds are required to retire the Funding
       Agreement since a significant portion of the anticipated cash flow is
       dedicated to servicing the Funding Agreement.  There is a financial
       incentive to prepay the Funding Agreement within 90 days after
       production begins.  If the Company becomes obligated for the drilling of
       an additional well, or other capital projects, the Company has the
       option to not participate in some or all of the capital projects.*  In
       management's view, use of this election would be a last resort to
       preserve the Company's existing interest in the Opon Contract area
       because substantial penalties would be incurred by not participating.

       Cash from operations are not expected to be a source of funds until the
       Opon Project begins commercial production, estimated in fall 1997.*
       Management is reviewing several options for raising funds including
       sale of the Company's 15.4 % interest in the pipeline.*  Management
       continues to pursue discussions with a number of financial institutions
       regarding debt or equity financing of the Company's future obligations
       for the Opon project but has received no commitments.*  Favorable
       results from Opon 6 and demonstrated production from Opon through the
       pipeline infrastructure will be important factors in obtaining third
       party financing.*  In the interim, the Company must continue to rely on
       the financial support of Lonrho.*  While the Company will 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.


















       _____________________
       *  This statement may be considered forward-looking.  See Cautionary
       Statements under General Discussion, above, for a description of
       important risk factors that may affect actual results.




                                         22




                                        Part II

       Item 1.   LEGAL PROCEEDINGS

       Refer to Item 1 of Part II of the Company's Form 10-Q for the period
       ended December 31, 1996 for a description of a legal proceeding
       involving the sale of the Fletcher refinery that arose in that quarter.
       No significant developments in this legal proceeding occurred during the
       quarter ended March 31, 1997.


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

       The Company held its Annual Meeting of Shareholders on March 12,1997,
       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 seven 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:

       <TABLE>
       <CAPTION>
       NAME                  FOR            WITHHELD
       ----                  ---            --------
       <S>                   <C>            <C>
       JOHN J. HOEY          12,929,597     373,363
       C.B. MCDANIEL         13,170,335     132,625
       DOUGLAS G. MCNAIR     13,183,435     119,525
       NICHOLAS J. MORRELL   13,182,415     120,545
       JOHN F. PRICE         13,182,315     120,645
       ROBERT K. STEER       13,182,435     120,525
       R.E. WHITTEN          13,183,415     119,545
       </TABLE>

       There were no abstentions or broker nonvotes recorded in the election of
       directors.

       The other proposals were (1) approval of amendments to the Company's
       1993 Stock Incentive Plan; (2) approval of an option for Thamesedge Ltd.
       to convert $13.5 million of the Company's debt into shares of the
       Company's common stock; and (3) approval of the appointment of Ernst &
       Young LLP as independent auditors for fiscal year 1997.  These proposals
       were approved by the following vote:

       <TABLE>
       <CAPTION>
                                   FOR           AGAINST    ABSTENTIONS
                                   ---           -------    -----------
       <S>                         <C>          <C>         <C>
       1993 Stock Incentive Plan   12,839,258     422,840   40,862
       Thamesedge option            7,732,316   4,218,765   25,622
       Ernst & Young LLP           13,265,038      32,973    4,949
       </TABLE>

       There were no broker nonvotes recorded in the above voting.




                                         23




       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)  No reports on Form 8-K were filed during the quarter ended March
            31, 1997.

                                      SIGNATURES

       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, 1997                    /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
       -------           -----------------------
         27              Financial Data Schedule





























                                         24