FIRST AMENDMENT
                                          TO
                              SECURITY INTEREST AGREEMENT

                            Security interest in Securities

       DATED this 18th day of March 1998

       BETWEEN:

       (1)  LONDON  AUSTRALIAN &  GENERAL PROPERTY  COMPANY LIMITED,  a  company
            incorporated in  England whose registered  office is  a 4  Grosvenor
            Place,  London  SW1X   7DL,  England  ("Lender"),  as  assignee   of
            THAMESEDGE  LIMITED,  a   company  incorporated  in  England   whose
            registered office is a  4 Grosvenor Place, London SW1X 7DL,  England
            ("Original Lender")

       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  Debtor  has  entered  into  a  certain  Security  Interest
       Agreement,  dated   May  13,  1997   (the  "Original  Security   Interest
       Agreement"), in favor of the Original Lender, in which the Debtor  (among
       other things) granted a lien and security interest in certain  Collateral
       to the Original Lender;

            (B)  London  Australian  &  General  Property  Company  Limited  has
       received an assignment  from Thamesedge Limited ("Thamesedge") of all  of
       the  Obligations and  all of  Thamesedge's rights  and duties  under  the
       Original Security Interest Agreement;

            (C)  The  Lender has  agreed  to  extend additional  credit  to  the
       Debtor and to extend the maturity dates of the Obligations;

            (D)  As  a condition  thereto, the  Lender  has requested,  and  the
       Debtor has agreed, to enter into this Amendment;

            (E)  Capitalized terms used and not otherwise defined or amended  in
       this Amendment shall have  the meanings respectively assigned to them  in
       (or  determined  in  accordance  with)  the  Original  Security  Interest
       Agreement.


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            In  consideration of  the foregoing  and  the mutual  covenants  and
       agreements hereinafter set forth, IT IS HEREBY AGREED AS FOLLOWS:

            1.   Amendment  to  Original  Security  Interest  Agreement.     The
       Original Security  Interest Agreement is  hereby amended as  of the  date
       first written above as follows:

                 (A)  All   references  in   the  Original   Security   Interest
       Agreement or  in this  Amendment to  "this Agreement"  or "this  Security
       Interest  Agreement", or  similar  references, shall  mean  the  Original
       Security Interest  Agreement, as amended  by this Amendment,  and as  the
       same  may  be   further  amended,  restated  or  otherwise  modified   or
       supplemented from  time to time  in accordance with  the terms thereof.
       This  Amendment may  be  referred to  in  this Agreement  as  the  "First
       Security Interest Agreement Amendment".

                 (B)  In Section 1 of the Original Security Interest  Agreement,
       clauses (i), (ii) and (iii) are amended to read:

                      "(i) all monies and  liabilities payable under the  credit
                           and  loan facilities  (as same  has been  and may  be
                           supplemented,  modified,  amended  or  restated  from
                           time to time) described in the First Schedule;

                      (ii) any other  indebtedness or liabilities whatsoever  of
                           the Debtor now existing or hereafter incurred on  any
                           account or accounts in favor of the Lender; and

                      (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"):"

                 (C)  In Section  8,  the  following new paragraph  is added  at
       the  end  thereof without  the  deletion  or modification  of  any  other
       material:

                 "With respect  to any Collateral  and subject  to any  contrary
                 requirement of  applicable law,  (x) the  Lender shall  collect
                 the cash proceeds  received from any sale or other  liquidation
                 or  disposition  or  from  any  other  source  and  (y)   after
                 deducting all  costs and expenses  incurred by  the Lender  and
                 any person designated by the Lender to take any of the  actions
                 in  connection   with  such  collection   and  sale  or   other
                 liquidation     or    disposition     (including     attorneys'
                 disbursements, expenses and  fees), the Lender in its sole  and
                 absolute  discretion  may retain  the  same  as  additional  or
                 substitute Collateral or may apply the same (first to  interest
                 then  to principal)  to the  Obligations  described in  and  in
                 direct order  set forth on  the First Schedule.   In the  event
                 any  funds remain  after satisfaction  in full  of all  of  the
                 Obligations,  then  the remainder  shall  be  returned  to  the
                 Debtor, subject, however, to any other rights or interests  the
                 Lender may have  therein under any other instrument,  agreement
                 or document or applicable law.   If the amount of all  proceeds
                 received with respect  to and in liquidation of the  Collateral


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                 that shall  be applied to payment  of the Obligations shall  be
                 insufficient  to pay  and satisfy  all  of the  Obligations  in
                 full, the Debtor acknowledges and agrees that the Debtor  shall
                 remain and be jointly and severally liable for any deficiency.

                 (D)  The First Schedule is amended to read as follows:

                                    FIRST SCHEDULE

                                    The Obligations

                 1.   Amended and Restated Note dated as of 18th December,  1997
                      in  the principal  amount of  US$7,500,000 (seven  million
                      five  hundred   thousand  United  States  dollars)   which
                      amends,  restates and  replaces  that certain  Note  dated
                      31st  October,   1994,  in  the   principal  amount  of
                      US$5,000,000.00 (five  million United States dollars),  as
                      assigned to Thamesedge and, in turn, to London  Australian
                      &  General  Property Company  ("LAGP"),  as  same  may  be
                      supplemented, modified, amended  or restated from time  to
                      time (the "Facility Note");

                 2.   Amended and Restated Revolving Credit Agreement dated  2nd
                      July, 1997  between Debtor and Lender,  as same has  been,
                      and as  same may  be, supplemented,  modified, amended  or
                      restated from time to time, including any Promissory  Note
                      or Notes issued thereunder, as same has been, and as  same
                      may be, supplemented,  modified, amended or restated  from
                      time to time (the "Revolving Credit Note");

                 3.   Amended and Restated Note dated as of 18th December,  1997
                      in  the principal  amount  of US$4,500,000  (four  million
                      five  hundred   thousand  United  States  dollars)   which
                      amends,  restates and  replaces  that certain  Note  dated
                      30th   April,   1993,   in   the   principal   amount   of
                      US$3,000,000.00  (three  million  United  States  dollars)
                      from  Via  Verde  Development  Company  ("Via  Verde")  to
                      Lonrho, as assigned  to Thamesedge and, in turn, to  LAGP,
                      as  same  may   be  supplemented,  modified,  amended   or
                      restated  from  time to  time,  including  to  add  unpaid
                      interest to principal  (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    as  same has  been,  and  as  same  may  be,
                      supplemented, modified, amended  or restated from time  to
                      time (the "Via Verde Mortgage"), and guaranteed by  Debtor
                      in a  Guaranty dated 30th  April, 1993 as  same has  been,
                      and as  same may  be, supplemented,  modified, amended  or
                      restated from time to time (the "Hondo Guaranty");

                 4.   Amended and Restated Note dated as of 18th December,  1997
                      in  the principal  amount  of US$5,500,000  (five  million
                      five  hundred   thousand  United  States  dollars)   which
                      amends,  restates and  replaces  that certain  Note  dated
                      25th   June,   1993,   in   the   principal   amount    of
                      US$4,000,000.00 (four million United States dollars)  from
                      Hondo to Lonrho,  as assigned to Thamesedge and, in  turn,
                      to LAGP,  as same may  be supplemented, modified,  amended
                      or restated  from time to  time, including  to add  unpaid


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                      interest  to   principal  (the  "Valley  Gateway   Note"),
                      secured  by a  deed  of  trust dated  30th  August,  1993,
                      granted  by  Borrower  and  Newhall  Refining  Co.,   Inc.
                      ("Newhall") recorded as  Instrument No. 93-2006475 in  the
                      Real Property Records of Los Angeles, California, as  same
                      has  been, and  as same  may be,  supplemented,  modified,
                      amended  or  restated  from  time  to  time  (the  "Valley
                      Gateway Mortgage");

                 5.   Consolidated,  Amended   and  Restated  Note  dated   18th
                      December, 1997  in the principal  amount of  US$40,000,000
                      (forty million United States dollars) which  consolidates,
                      amends,  restates and  replaces that  certain Notes  dated
                      1st September, 1991,  in the original principal amount  of
                      US$10,000,000.00  (ten  million  United  States  dollars);
                      dated 1st November, 1991 in the original principal  amount
                      of US$9,000,000.00  (nine million United States  dollars);
                      and dated 20th  December, 1991, in the original  principal
                      amount  of   US$13,000,000.00  (thirteen  million   United
                      States dollars) from  Debtor to Lonrho Plc ("Lonrho"),  as
                      assigned to Thamesedge and, in turn, to LAGP, as each  has
                      been,  and  as   each  may  be,  supplemented,   modified,
                      amended, consolidated and/or  restated from time to  time,
                      including  to  add  unpaid  interest  to  principal   (the
                      "Lonrho Notes");

                 6.   Note  Purchase   Agreement  dated  28th  November,   1988,
                      between Debtor (formerly  known as Pauley Petroleum  Inc.)
                      and Thamesedge Limited  ("Thamesedge"), as same has  been,
                      and  as same  may be,  supplemented, modified  amended  or
                      restated from time to time (the "Thamesedge Note  Purchase
                      Agreement") and an  Amended and Restated Note dated as  of
                      18th   December,  1997   in   the  principal   amount   of
                      US$75,000,000   (seventy-five   million   United    States
                      dollars) which amends, restates and replaces that  certain
                      Note  dated  30th  November,  1988,  for  US$75,000,000.00
                      (seventy-five million  United States dollars) from  Debtor
                      to  Thamesedge, as  same  may be  supplemented,  modified,
                      amended or  restated from time to  time, including to  add
                      unpaid interest to principal (the "Thamesedge Note");

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

                      By assignment dated  29th March, 1996, between Lonrho  and
                      Thamesedge, Lonrho  assigned all of  its interests in  any
                      Indebtedness owed to it to Thamesedge; and

                      By assignment dated 29th August, 1997, between  Thamesedge
                      and LAGP, Thamesedge  assigned all of its interest in  any
                      Indebtedness owed to it to LAGP.

            2.   Acknowledgment.  The  Debtor hereby acknowledges and  certifies
       and agrees  that: (a)  the pledge and  security interest  granted by  the
       Debtor  to  the  Lender  under  this  Agreement  as  Collateral  for  the
       Obligations (i)  remains and  shall continue  in full  force and  effect,
       both  before and  after giving  effect  to this  Amendment, (ii)  is  not


                                           4




       subject  to any  defence, counterclaim,  set  off, right  of  recoupment,
       abatement, reduction  or other claim or  determination, and (iii) is  and
       shall  continue  to be  governed  by  the terms  and  provisions  of  the
       Original Security  Interest Agreement, as amended  by this Amendment  and
       as the  same may be further  amended or otherwise  modified from time  to
       time in accordance with the terms thereof.

            3.   Representations and Warranties.  To induce the Lender to  enter
       into this Amendment and consummate the transactions contemplated  hereby,
       the Debtor hereby  represents and warrants to the  Lender that as of  the
       date of  this Amendment the representations  and warranties set forth  in
       the Agreement  are true  and correct in  all material  respects with  the
       same effect as though those representations and warranties had been  made
       on and as of the date hereof.

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

            5.   Governing Law,  Etc.  This Amendment  shall be governed by  and
       construed in accordance with  the applicable terms and provisions of  the
       Original Security  Interest Agreement  (as amended  hereby), which  terms
       and provisions are incorporated herein by reference.

                                     [END OF PAGE]


            6.   Agreement  to  Continue as  Amended.    The  Original  Security
       Interest  Agreement, as  amended  by  this Amendment,  shall  remain  and
       continue in full force and effect from and after the date hereof.

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

       The Common Seal of
       LONDON AUSTRALIAN & GENERAL PROPERTY
       COMPANY LIMITED
       was hereunto affixed
       in the presence of:

       /s/ R.E. Whitten                 Director
       -------------------------------

       /s/ N. J. Morrell                 Director
       -------------------------------

       Signed by
       duly authorized
       for and on behalf of:
       HONDO OIL & GAS
       COMPANY

       /s/ John J. Hoey                   President
       -------------------------------

       The Common Seal of
       FOLIO TRUST COMPANY
       LIMITED


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       was hereunto affixed
       in the presence of:

       /s/ R. David Johnson              Director
       -------------------------------

       /s/ Nicholas St. Clair Morgan     Director
       -------------------------------

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

       /s/ R. David Johnson              Director
       -------------------------------

       /s/ Nicholas St. Clair Morgan     Director
       -------------------------------










































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