Hondo Oil & Gas Company
                                 10375 Richmond Avenue
                                 Houston, Texas 77042


                                                    As of December 18, 1997


       London Australian & General
         Property Company Limited
       4 Grosvenor Place
       London, England SW1X 7Dl

       Dear Sirs:

            This  Agreement  is entered  into  by  and among  Hondo  Oil  &  Gas
       Company,  a  Delaware   corporation  ("Hondo"),  Via  Verde   Development
       Company,  a  California  corporation,  Newhall  Refining  Co.,  Inc.,   a
       Delaware corporation,  and London Australian  & General Property  Company
       Limited, a United Kingdom corporation ("LAGP"), with reference to:

            (a)  Note  Purchase  Agreement  dated  November  28,  1988,  between
       Pauley Petroleum  Inc. (now Hondo)  and Thamesedge, Ltd.  ("Thamesedge"),
       as amended  (the "Thamesedge Note  Purchase Agreement"),  and Note  dated
       November  30,  1988,  for  $75,000,000  from  Pauley  Petroleum  Inc.  to
       Thamesedge (the "Thamesedge Note"); and

            (b)  Amended and Restated Letter Agreement dated December 20,  1991,
       between Hondo  and Lonrho Plc  ("Lonrho"), as amended  (the "Lonrho  Loan
       Agreement"), and  Notes dated September 1,  1991, for $10,000,000,  dated
       November  1, 1991,  for  $9,000,000, and  dated  December 20,  1991,  for
       $13,000,000, from Hondo to Lonrho Plc (the "Lonrho Notes").

            On December 17, 1993, Hondo and Thamesedge and Lonrho,  predecessors
       in interest to LAGP, entered into a Letter Agreement with respect to  the
       Thamesedge Note Purchase Agreement, the Thamesedge Note, the Lonrho  Loan
       Agreement and  the Lonrho Notes.   Pursuant to Section  7 of that  Letter
       Agreement,  Thamesedge and  Lonrho agreed  that the  Thamesedge Note  and
       Lonrho  Notes would  be subordinated  in right  of payment  to the  prior
       payment in full of certain obligations of Hondo.

            This letter  will serve  to confirm that  Section 7  of said  Letter
       Agreement  was inadvertently  included in  said Letter  Agreement and  in
       consideration for  the extension of certain  credit and the extension  of
       the maturity  of obligations  of the undersigned  to LAGP,  Section 7  is
       hereby terminated.

                                           Very truly yours,

                                           HONDO OIL & GAS COMPANY


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

                                           VIA VERDE DEVELOPMENT COMPANY




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

                                           NEWHALL REFINING CO., INC.


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


        Confirmed and accepted as of the date first above written:

        LONDON AUSTRALIAN & GENERAL
        PROPERTY COMPANY LIMITED


        By: /s/ R. E. Whiiten
            --------------------------------
             R. E. Whitten, Director








































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