AMENDMENT
                                          TO
                                NOTE PURCHASE AGREEMENT

                                     Introduction

                 This  Agreement,   dated  as   of  December   18,  1997   (this
       "Amendment"), is by and between  HONDO OIL & GAS COMPANY (formerly  known
       as Pauley  Petroleum Inc.), a Delaware  corporation (the "Company"),  and
       LONDON AUSTRALIAN  & GENERAL PROPERTY COMPANY  LIMITED, a United  Kingdom
       corporation (the "Present Noteholder"), as assignee of Thamesedge, Ltd.

                                       Recitals

                 The  Company  and  the  Present  Noteholder  (as  assignee   of
       Thamesedge  Ltd.), being  the  sole Noteholder,  are  parties to  a  Note
       Purchase  Agreement  dated  November  28,  1988,  as  amended  by  letter
       agreements  December 17,  1993, November  10,  1994, December  22,  1995,
       December  13, 1996  and December  18, 1997  (collectively, the  "Existing
       Note  Purchase Agreement"),  pursuant to  which there  is outstanding  at
       December  18, 1997  $39,733,394.28, including  $9,233,394.28 of  interest
       which has been  added to principal in accordance  with the terms of  said
       letter agreements.  Capitalized  terms used and not otherwise defined  or
       amended in this  Amendment shall have the meanings respectively  assigned
       to them in the Existing Note Purchase Agreement.

                 The Company  has requested that the  Noteholder (a) extend  the
       mandatory redemption date of the Notes from January 1, 1998 (as same  has
       heretofore been extended  pursuant to said letter agreements) to  January
       15, 1999 and (b) consent to the past and future incurrence of  additional
       Indebtedness (and extensions  to the maturity of such Indebtedness)  from
       Lonrho Plc and its wholly-owned subsidiaries.  The Noteholder is  willing
       to so extend  the mandatory redemption date of  the Notes and consent  to
       the incurrence of such Indebtedness and maturity extensions based on  (a)
       the  Company's representation  that by  October 1,  1998 the  Noteholders
       shall have  received a  report that  the Company's  proved reserves  will
       have  increased  to  a  minimum  of  65,475,554  mcf  and  the  Company's
       agreement that if its proved reserves fail to reach such level, an  Event
       of  Default  will  occur, (b)  the  Company's  agreement  to  delete  the
       subordination  provisions contained  in Section  9 of  the Existing  Note
       Purchase Agreement  and (c)  the  Company's agreement to conform  certain
       default  provisions  contained  in Section  8.01  of  the  Existing  Note
       Purchase  Agreement  to   cross  default  provisions  contained  in   the
       Company's  other   loan  and   credit  arrangements   with  the   Present
       Noteholder.

                 The Company  has requested  that the  Present Noteholder  enter
       into  this  Amendment  in  order  to  reflect  the  foregoing,  and   the
       Noteholder has  agreed to do so,  all upon the  terms and provisions  and
       subject to the conditions hereinafter set forth.

                                       Agreement

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





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

                 (A)  In Section 1.01  of the Existing Note Purchase  Agreement,
       the definition of "Agreement" is hereby deleted in its entirety, and  the
       following new definition is hereby inserted in its place:

                 ""Agreement"  shall mean  this  Note Purchase  Agreement  dated
            November 28, 1988 between the Company and Thamesedge Ltd.,  together
            with all exhibits thereto, as amended by letter agreements  December
            17, 1993,  November 10, 1994, December  22, 1995, December 13,  1996
            and  December  18,  1997  among  the  Company  and  the  then   sole
            Noteholder  and  the  First  Amendment,  and  as  the  same  may  be
            supplemented, modified, amended or restated from time to time."

                 (B)  In Section 1.01  of the Existing Note Purchase  Agreement,
       the following new definition  of "First Amendment" is hereby inserted  in
       its proper alphabetical position without the deletion or modification  of
       any other material:

                 ""First Amendment" shall  mean the First Amendment dated as  of
            December 18, 1997  to Agreement."

                 (C)  In Section 1.01  of the Existing Note Purchase  Agreement,
       the following definitions of the following existing terms are deleted  in
       their entirety:

                 "Bank Agreements"
                 "Senior Debt"

                 (D)  In Section 1.02  of the Existing Note Purchase  Agreement,
       the  following   "Other  Definitions"  are   hereby  inserted  in   their
       respective  proper  alphabetical   positions  without  the  deletion   or
       modification of any other material:

                 "Term                              Defined in Section
                 Act                                     2.01
                 Hondo Magdalena                         8.01(4)"

                 (E)  Section 2.01  of the Existing  Note Purchase Agreement  is
       amended to delete  same in its entirety  and to substitute the  following
       in its place:

                 "Section 2.01  Issue of Notes.  The Company has authorized  the
            issuance  of $75,000,000  in aggregate  principal amount  of its  6%
            Senior Notes  due January 15,  1999 (the "Notes",  the term  "Notes"
            including the  singular number as  well as the  plural and the  term
            "Note" including the  plural number as well  as the singular).   The
            Notes shall be  substantially in the form  of Exhibit A attached  to
            the First Amendment.   The terms and  provisions in the Notes  shall
            constitute,  and  are   hereby  expressly  made,  a  part  of   this
            Agreement.   The Notes may have  notations, legends or  endorsements
            required by  law or  usage.   Each Note will  be dated  its date  of
            authentication.

                 Notwithstanding anything in the foregoing to the contrary,  if,
            in the opinion of its Board of Directors, the Company does not  have
            sufficient cash  resources to pay  interest on the  Notes when  due,


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            then  the Company  may offer  to  the Noteholder  a payment  of  the
            interest in shares of the Company's common stock, valued at (i)  the
            last reported sales  price regular way on  the interest due day  or,
            in case no such reported sale  takes place on such day, the  average
            of the  reported closing bid  and asked prices  regular way on  such
            day,  in  either  case on  the  American  Stock  Exchange  or  other
            principal  national  securities  exchange  on  which  the  Company's
            common stock is listed or, if not listed on any national  securities
            exchange, on  The Nasdaq Stock Market's  National Market System  or,
            (ii) if  (i) is not  applicable, the average  of the  bid and  asked
            prices at the  end of the interest  due day in the  over-the-counter
            market  as furnished  by any  New York  Stock Exchange  member  firm
            selected  by the  Noteholder in  good faith  for that  purpose.   In
            making  this  determination,  the  Company's  management  will  not,
            without the  consent of the Noteholder,  allocate cash resources  to
            new capital  projects not related to  the Op\n Association  Contract
            dated July  15, 1987 between  Empressa Colombiana  de Petroleos  and
            Opon  Development Company.   The  Noteholder  will then  notify  the
            Company whether  it will either  accept the payment  of interest  in
            the Company's common stock or add the amount of interest due to  the
            principal of the  Notes.  If the  Noteholder accepts the payment  of
            interest in the Company's  common stock, the Company will issue  the
            requisite number  of shares to Noteholder  within ten business  days
            after the  Company receives notice of  acceptance from Noteholder.
            The Noteholder  recognizes that any shares  of the Company's  common
            stock  that  it may  acquire  by  the payment  of  interest  in  the
            Company's  common stock  will not  have  been registered  under  the
            Securities Act of 1933, as amended (the "Act"), and may not be  sold
            in the  absence of  an effective registration  under the  Act or  an
            exemption from  the registration requirements  of the Act.   If  the
            Noteholder so requests at any time  and from time to time after  the
            date  shares  of  he  Company's  common  stock  are  issued  to  the
            Noteholder  pursuant to  this provision,  the Company  will use  its
            best efforts to effect registration  under the Act of the shares  so
            issued."

                 (F)  Section 6.05(b)  of the Existing  Note Purchase  Agreement
       is amended to delete existing  clause (xiii) thereof in its entirety  and
       to substitute the following therefor:

                      "(xii)    Indebtedness to Lonrho Plc. or to any direct  or
                 indirect wholly-owned Subsidiary of Lonrho Plc., including  any
                 and  all deferrals,  renewals,  extensions, refundings  of,  or
                 amendments,   modifications  or   supplements  to,   any   such
                 Indebtedness."

                 (G)  Section 6.06 of  the Existing Agreement is hereby  deleted
       in its entirety.

                 (H)  Section  6.07 of  the  Existing Agreement  is  amended  to
       substitute the  word "the" at  the beginning thereof  for the word  "The"
       and to add  the following before the new word  "the" at the beginning  of
       Section 6.07:

                 "Except with  respect to transactions with  Lonrho Plc. or  any
            direct or indirect wholly-owned Subsidiary of Lonrho Plc., "





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                 (I)  Section  8.01 of  the  Existing Agreement  is  amended  to
       delete  existing  clauses (1)  and  (4)  thereof and  to  substitute  the
       following therefor:

                      "(1) the Company  defaults in the  payment of interest  on
                 any Note when the same becomes due and payable and the  Default
                 continues for a period of three (3) days;

                      "(4) the  Company,  Hondo Magdalena  Oil  &  Gas  Limited,
                 presently  a wholly-owned  subsidiary  of the  Company  ("Hondo
                 Magdalena"),  and any  of their  respective subsidiaries  shall
                 (i) fail  to pay any  Indebtedness (but excluding  Indebtedness
                 evidenced  by this  Note) of  the Company,  Hondo Magdalena  or
                 such  subsidiary (as  the  case may  be),  or any  interest  or
                 premium  thereon, when  due (whether  upon scheduled  maturity,
                 required prepayment,  acceleration, demand or  other notice  or
                 formality of  any kind) and such  failure shall continue  after
                 the  applicable  grace   period,  if  any,  specified  in   the
                 agreement or instrument  relating to such Indebtedness or  (ii)
                 fail to perform or  observe any term, covenant or condition  on
                 its part  to be performed  or observed under  any agreement  or
                 instrument relating to any such Indebtedness, when required  to
                 be  performed or  observed,  and such  failure  shall  continue
                 after the  applicable grace period, if  any, specified in  such
                 agreement  or instrument,  if the  effect  of such  failure  to
                 perform  or  observe  is  to  accelerate,  or  to  permit   the
                 acceleration  of, the  maturity of  such Indebtedness;  or  any
                 such Indebtedness shall be  declared to be due and payable,  or
                 required to  be prepaid (other  than by  a regularly  scheduled
                 required prepayment), prior to the stated maturity thereof."

                 (J)  At the  conclusion of clause  (7) of Section  8.01 of  the
       Existing Note Purchase Agreement, the following is hereby inserted:

                 "; or"

                 (K)  In Section 8.01  of the Existing Note Purchase  Agreement,
       the following new subsection (8) is hereby inserted at the end thereof:

                      "(8) the Company shall  have failed to furnish to  Lender,
                 by October 1, 1998, a proved gas reserve report of  Netherland,
                 Sewell &  Associates that shows  that a  minimum of  13,000,000
                 mcf (25%)  of proved gas reserve  exists, which are subject  to
                 the Opon  Association Contract  in which  Hondo Magdalena  then
                 participates, above  the proved gas  reserve of 52,475,554  mcf
                 at September 30, 1997;"

                 (L)  Section  9 of  the  Existing Note  Purchase  Agreement  is
       amended to  deleted same  in its  entirety and  substitute the  following
       thereof:

                      "SECTION 9.  CONVERSION

                           9.01 Right  to Convert.   Certain  of the  Notes  are
                      convertible  into shares  of the  Company's Common  Stock,
                      $1.00 par value per share, to the extent indicated on  the
                      face of  such Notes and  in accordance  with the  specific
                      terms of such Notes."



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                 (M)  In Section 11.01 of the Existing Note Purchase  Agreement,
       the addresses to which notices  and other communications are to be  given
       are amended  to read  as follows  (with the  rest of  such Section  11.01
       remaining unchanged)

                 "If to the Company:

                      Hondo Oil & Gas Company
                      10375 Richmond Avenue, Suite 900
                      Houston, Texas  77042
                      Attention:  John J. Hoey

                 If to you:

                      London Australian & General Property Company Limited
                      4 Grovesnor Place
                      London, SW1X 7DL, England
                      Attention:  R. E. Whitten

                 If  to any  other  Noteholder at  such  address as  such  other
                 Noteholder may designate by notice to the Company."

                 (N)  Section 11.05 of  the Existing Note Purchase Agreement  is
       amended to delete  same in its entirety  and to substitute the  following
       in its place:

                 "Section 1.05  Governing  Law.   This Agreement  and the  Notes
                 shall be governed by the laws  of the State of New York  (other
                 than those that would defer to the substantive laws of  another
                 jurisdiction).   Without  in  any way  limiting  the  preceding
                 choice  of law,  the parties  intend  (among other  things)  to
                 thereby avail  themselves of the benefit  of Section 5-1401  of
                 the General Obligations Law of the State of New York."

       1.   Acknowledgment   of  Outstanding   Loans.     The   Company   hereby
            acknowledges,  certifies and  agrees  that:   (a)  pursuant  to  the
            Existing Note Purchase  Agreement, the Noteholder has made loans  to
            the Company that  are outstanding as of  the date of this  Amendment
            in  the  aggregate principal  amount  of  $39,733,394.28  (including
            interest of  $9,233,394.28 which has been  added to principal);  and
            (b)  the obligations  of  the Company  to  repay those  loans  (with
            interest) to the Noteholder and to perform or otherwise satisfy  its
            other obligations: (i) remain  and shall continue in full force  and
            effect, both before and after giving effect to this Amendment,  (ii)
            are not  subject   to any  defense, counterclaim,  setoff, right  of
            recoupment, abatement,  reduction or other  claim or  determination,
            and (iii)  are and shall continue  to be governed  by the terms  and
            provisions of the Existing Note Purchase Agreement as  supplemented,
            modified and amended by this Amendment.

       2.   Bringdown  of  Representations,  Etc.    As  of  the  date  of  this
            Amendment, both  before and  after giving  effect to  the terms  and
            provisions  of  this   Amendment:    (a)  the  representations   and
            warranties of the Company   set forth in the Existing Note  Purchase
            Agreement  (except  Sections  3.11, 3.12  and  3.13)  are  true  and
            correct in  all material  respects with  the same  effect as  though
            those representations and warranties had been made on and as of  the
            date hereof;  (b)  no  Event of Default or Default has occurred  and
            is continuing;  (c) the Board  of Directors of the Company has  duly


                                           5




            authorized  the  execution  and  delivery  by  the  Company  of  the
            Existing Note Purchase  Agreement and this Amendment; and (d)  there
            are  no  actions, suits  or  proceedings  pending or,  to  the  best
            knowledge  of the  undersigned, threatened  or contemplated  by  any
            person  for  the  liquidation,  dissolution  or  bankruptcy  of  the
            Company or  otherwise threatening  its existence  or challenging  or
            calling  into question  the power  or authority  of the  Company  to
            execute  or deliver  the Existing  Note Purchase  Agreement or  this
            Amendment  or  to  perform  any  of  its  obligations  hereunder  or
            thereunder.

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

       4.   Governing Law, Etc.    Sections 11.05 ("Governing Law"), as  amended
            hereby, 11.06 ("Successors"),  11.07 ("No Adverse Interpretation  of
            Other  Agreements"), 11.08  ("Severability") and  11.10  ("Amendment
            and  Waiver")   of  the   Existing  Note   Purchase  Agreement   are
            incorporated herein  by reference  and shall  pertain separately  to
            this Amendment as well as the Existing Note Purchase Agreement.

       5.   Agreement  to Continue  as  Amended.   The  Existing  Note  Purchase
            Agreement,   as supplemented, modified  and amended  by this  Amend-
            ment, shall remain and continue  in full force and effect after  the
            date hereof.

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

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

                                          HONDO OIL & GAS COMPANY

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

                                          LONDON AUSTRALIAN & GENERAL
                                          PROPERTY COMPANY LIMITED

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










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