Hondo Executive Bets All on Single Well in Colombia

By Allen R. Myerson

N.Y. Times News Service

In an age when the oil and gas business means the avoidance of risk _ balancing production with refining and marketing, forming elaborate partnerships, hedging in the futures markets _ Robert O. Anderson's gamble was a rarity.

As the chairman and founder of Hondo Oil Gas Co., Anderson sold off or closed the company's refineries and all its producing properties to bet everything on one Colombian well.

Anderson, understand, is not some wild-eyed wildcatter. As the former chief executive of Arco, he turned that company into one of the nation's largest energy producers by discovering oil in Alaska's Prudhoe Bay.

In September, Hondo reported that its Colombian well, more than two miles deep into the Andes foothills, had indeed struck a great deal of natural gas. The company has cautiously cited published estimates that the field contains about 4 trillion cubic feet of gas, worth about $2 billion in the view of some analysts.

Petroleum liquids from the same well were worth almost as much as the natural gas itself, although the company won't project those results to the whole field. The stock, which had become a favorite of short-sellers, reached $19.875 after the September announcement, more than double the price just two months before.

But since then, Hondo has drifted back down, trading around $11.50. As the year ended, some investors were betting on further declines. Short sales amounted to 900,000 shares, with more than a third of the number not owned by insiders and available for trading.

The initial euphoria over the Colombian discovery has cooled for some logical reasons. The market value of Hondo's stock plus its debts currently comes to about $230 million.

The entire Colombian project, therefore, would have to be worth at least $2 billion to have the potential of generating the earnings to justify Hondo's current stock price. So in this cautious age, holding Hondo stock might be too great a risk for anyone not named Anderson.

Estimating the size of the reserves will require a second deep well, to be drilled beginning in about February, with completion and testing likely to take four or five months.

Even then, Hondo would end up with only a slice of the profits. To finance the Colombian project, Hondo had to give Amoco a 60 percent interest, leaving 30 percent with Hondo and 10 percent with another investor.

In addition, Ecopetrol, the Colombian petroleum company, can claim half of all earnings and the Colombian government gets a 20 percent royalty on all the remaining profits. Hondo's ultimate share would be just 12 percent.

Worse still, Hondo so far has no market for its natural gas. The nearest, earliest possible customer is a government oil refinery 30 miles away. Colombia wants to promote the industrial use of natural gas, but has not yet agreed to any purchases. Completing a pipeline could easily take two years.

In looking for broader Colombian markets, Hondo and Amoco will have to go up against large natural gas discoveries elsewhere. For the time being, the Hondo well has been closed.

Hondo, based in Roswell, N.M., has prepared to get by with greatly reduced costs. The company now has only five employees, compared with 175 before its property sales in 1992. Anderson's two sons, who had been executive vice presidents, have both left the company.

Anderson, now 77, turned the job of chief executive over to John J. Hoey, a former oil company executive, a year ago while remaining chairman.

Hondo remains heavily in debt to Lonrho, the British conglomerate, from years of losses, with about $35 million personally guaranteed by Anderson.

Lonrho owns 39 percent of the company, Anderson 31 percent and his sons 8 percent; Lonrho could increase its stake to satisfy debts.

Hondo's major detractor has been Hanifen Imhoff, a small Denver investment firm, that recommended shorting the stock at $18 a share in 1992. By the next year, Hondo was worth a third as much. The firm's clients are still short more than 300,000 shares.

Anderson has been vindicated before, but so has Hanifen Imhoff.

"Robert O. Anderson has quite a reputation in the industry," said Jeffrey Robertson, an analyst at Rauscher Pierce Refsnes, a Dallas brokerage firm. "But anytime you're looking at international exploration you're looking at a lot of risk."

Copyright 1995
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