form10q.htm

Index

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2012

0 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 0-8933

APCO OIL AND GAS INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

CAYMAN ISLANDS
(State or Other Jurisdiction of	EIN 98-0199453
Incorporation or Organization)	(I.R.S. Employer Identification No.)

ONE WILLIAMS CENTER, 35th FLOOR
TULSA, OKLAHOMA	74172
(Address of Principal Executive Offices)	(Zip Code)

(Registrant's Telephone Number, Including Area Code)	(539) 573-2164

NO CHANGE

(Former name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 T No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes T No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer T Accelerated Filer £ Non-Accelerated Filer £ Smaller Reporting Company £

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Class	Outstanding at October 31, 2012
Ordinary Shares, $0.01 Par Value	9,139,648 Shares
Class A Shares, $0.01 Par Value	20,301,592 Shares

Index

APCO OIL AND GAS INTERNATIONAL INC.

INDEX

PART I. FINANCIAL INFORMATION Page No.


Item 1.	Financial Statements - Unaudited

	Consolidated Balance Sheets – September 30, 2012 and
	December 31, 2011	5

	Consolidated Statements of Income and Comprehensive Income– Three
	Months and Nine Months Ended September 30, 2012 and 2011	6

	Consolidated Statements of Changes in Equity – Nine
	Months Ended September 30, 2012 and 2011	7

	Consolidated Statements of Cash Flows – Nine Months
	Ended September 30, 2012 and 2011	8

	Notes to Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative
	Disclosures about Market Risk	28

Item 4.	Controls and Procedures	32

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 6.	Exhibits	34

FORWARD-LOOKING STATEMENTS

Certain matters contained in this report include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial performance, management’s plans and business objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will exist or may occur in the future, are forward-looking statements. Forward-looking statements can be identified by various forms of words such as “anticipates,” “believes,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “forecasts,” “intends,” “might,” “objectives,” “planned,” “potential,” “projects,” “scheduled,” “will” or other similar expressions. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:

Index

·	Amounts and nature of future capital expenditures;

·	Volumes of future oil, gas and liquefied petroleum gas (“LPG”) production;

·	Expansion and growth of our business and operations;

·	Financial condition and liquidity;

·	Business strategy;

·	Estimates of proved oil and gas reserves;

·	Reserve potential;

·	Development drilling potential;

·	Cash flow from operations or results of operations;

·	Seasonality of natural gas demand; and

·	Oil and natural gas prices and demand for those products.

Forward-looking statements are based on numerous assumptions, uncertainties, and risks that could cause future events or results to be materially different from those stated or implied in this report. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:

·	Availability of supplies (including the uncertainties inherent in assessing, estimating, acquiring and developing future oil and natural gas reserves), market demand, volatility of prices and the availability and cost of capital;

·	Inflation, interest rates, fluctuation in foreign exchange rates, tax rate changes, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers);

·	The strength and financial resources of our competitors;

·	Development of alternative energy sources;

·	The impact of operational and development hazards;

·	Costs of, changes in, or the results of laws, government regulations (including climate change regulation and/or potential additional regulation of drilling and completion of wells), environmental liabilities and litigation;

·	Political conditions in Argentina, Colombia, and other parts of the world;

·	The failure to renew participation in hydrocarbon concessions granted by the Argentine government on reasonable terms;

·	Risks related to strategy and financing, including restrictions stemming from our loan agreement and the availability and cost of credit;

·	Risks associated with future weather conditions and earthquakes;

·	Acts of terrorism; and

·	Additional risks described in our filings with the Securities and Exchange Commission (“SEC”).

Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

Index

In addition to causing our actual results to differ, the factors listed above and referred to below may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011.

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

APCO OIL AND GAS INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30,			December 31,
(Amounts in Thousands)	2012			2011

ASSETS
Current assets:
Cash and cash equivalents	$	28,961		$	36,899
Accounts receivable		17,815			11,145
Advances with joint venture partners		1,235			1,264
Inventory		4,773			2,908
Restricted cash		2,889			-
Other current assets		5,616			2,636
Total current assets		61,289			54,852

Property and Equipment:
Cost, successful efforts method of accounting		301,317			256,886
Accumulated depreciation, depletion and amortization		(149,626	)		(131,021	)
		151,691			125,865

Argentine investment, equity method		105,446			90,208
Deferred income tax asset		1,946			1,472
Restricted cash		6,975			8,364
Other assets (net of allowance of $515 at September 30, 2012 and $554 at December 31, 2011)		999			2,235
Total Assets	$	328,346		$	282,996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	11,285		$	9,103
Affiliate payables		2,356			1,270
Accrued liabilities		5,493			4,845
Income taxes payable		6,088			2,527
Dividends payable		-			589
Total current liabilities		25,222			18,334

Long-term debt		8,000			2,000
Long-term liabilities		4,004			4,024
Contingent liabilities and commitments (Note 8)
Equity:
Shareholders' equity
Share capital, 60,000,000 shares authorized, par value $0.01 per share;
Ordinary shares, 9,139,648 shares issued and outstanding		91			91
Class A shares, 20,301,592 shares issued and outstanding		203			203
Additional paid-in capital		9,106			9,106
Accumulated other comprehensive loss		(1,408	)		(1,450	)
Retained earnings		282,857			250,459
Total shareholders' equity		290,849			258,409
Noncontrolling interests in consolidated subsidiaries		271			229
Total equity		291,120			258,638
Total liabilities and equity	$	328,346		$	282,996

The accompanying notes are an integral part of these consolidated financial statements.

Index

APCO OIL AND GAS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

(Amounts in Thousands Except Per Share Amounts)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
REVENUES:
Oil revenues	$	30,454		$	21,938		$	83,373		$	59,597
Natural gas revenues		3,646			2,834			11,039			9,344
LPG revenues		680			809			2,206			2,595
Other		186			589			1,391			2,293
Total revenues		34,966			26,170			98,009			73,829

COSTS AND OPERATING EXPENSES:
Production and lifting costs		8,017			7,108			20,885			17,632
Taxes other than income		6,091			5,578			17,761			14,902
Transportation and storage		655			347			1,267			678
Selling and administrative		3,134			2,826			9,221			7,607
Depreciation, depletion and amortization		7,164			5,397			18,320			14,922
Exploration expense		2,373			103			10,476			1,583
Foreign exchange losses (gains)		(153	)		344			(407	)		(29	)
Other (income) expense		271			504			(1,696	)		1,196
Total costs and operating expenses		27,552			22,207			75,827			58,491

TOTAL OPERATING INCOME		7,414			3,963			22,182			15,338

INVESTMENT INCOME:
Interest and other income		(73	)		141			(205	)		237
Equity income from Argentine investment		6,436			3,820			22,069			13,100
Total investment income		6,363			3,961			21,864			13,337

Income before income taxes		13,777			7,924			44,046			28,675
Income taxes		3,533			1,842			11,015			6,717

NET INCOME		10,244			6,082			33,031			21,958
Less: Net income attributable to noncontrolling interests		13			6			44			23
Net income attributable to Apco Oil and Gas International Inc.	$	10,231		$	6,076		$	32,987		$	21,935

OTHER COMPREHENSIVE INCOME:

Pension plan liability adjustment in consolidated and equity interests (net of Argentine taxes of $10 in 2012 and $43 in 2011)		42			(80	)		42			(80	)
Comprehensive income attributable to Apco Oil and Gas International Inc.	$	10,273		$	5,996		$	33,029		$	21,855

Amounts attributable to Apco Oil and Gas International Inc.:
Earnings per share – basic and diluted:
NET INCOME PER SHARE	$	0.35		$	0.21		$	1.12		$	0.75

Average ordinary and Class A shares outstanding – basic and diluted		29,441			29,441			29,441			29,441

Cash dividends declared per ordinary share	$	-		$	-		$	0.02		$	0.04
Cash dividends declared per Class A share	$	-		$	-		$	0.02		$	0.02

The accompanying notes are an integral part of these consolidated financial statements.

Index

APCO OIL AND GAS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

	For the nine months ended September 30,
(Amounts in Thousands)	2012									2011
	Shareholders' Equity			Noncontrolling Interests			Total			Shareholders' Equity			Noncontrolling Interests			Total

Beginning Balance	$	258,409		$	229		$	258,638		$	229,244		$	214		$	229,458
Net income		32,987			44			33,031			21,935			23			21,958
Other comprehensive income		42			-			42			(80	)		-			(80	)
Total comprehensive net income		33,029			44			33,073			21,855			23			21,878
Cash dividends declared		(589	)		-			(589	)		(1,178	)		-			(1,178	)
Dividends and distributions to
noncontrolling interests		-			(2	)		(2	)		-			(17	)		(17	)
Ending Balance	$	290,849		$	271		$	291,120		$	249,921		$	220		$	250,141

The accompanying notes are an integral part of these consolidated financial statements.

Index

APCO OIL AND GAS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
(Amounts in Thousands )	September 30,
	2012			2011

CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	33,031		$	21,958
Adjustments to reconcile to net cash provided by operating activities:
Equity income from Argentine investment		(22,069	)		(13,100	)
Dividends received from Argentine investment		6,855			8,446
Deferred income tax (benefit)		(487	)		(63	)
Depreciation, depletion and amortization		18,320			14,922
Changes in accounts receivable		(6,670	)		3,001
Changes in inventory		(1,580	)		(562	)
Changes in other current assets		(2,980	)		95
Changes in accounts payable		663			(4,050	)
Changes in advances with partners		29			131
Changes in affiliate payables, net		1,086			160
Changes in accrued liabilities		648			262
Changes in income taxes payable		3,561			(159	)
Gain on sale of properties		(2,809	)		-
Other, including changes in noncurrent assets and liabilities		1,087			(923	)
Net cash provided by operating activities		28,685			30,118
CASH FLOW FROM INVESTING ACTIVITIES:
Property plant and equipment:
Capital expenditures *		(43,029	)		(26,000	)
Sale of properties		3,087			-
Changes in restricted cash		(1,500	)		(4,375	)
Net cash used in investing activities		(41,442	)		(30,375	)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		6,000			2,000
Dividends paid to noncontrolling interest		(3	)		(17	)
Dividends paid		(1,178	)		(1,766	)
Net cash used in financing activities		4,819			217

Decrease in cash and cash equivalents		(7,938	)		(40	)
Cash and cash equivalents at beginning of period		36,899			35,234

Cash and cash equivalents at end of period	$	28,961		$	35,194
________________________
* Increases to property plant and equipment, net of asset dispositions	$	(44,709	)	$	(28,378	)
Changes in related accounts payable		1,680			2,378
Capital expenditures	$	(43,029	)	$	(26,000	)

The accompanying notes are an integral part of these consolidated financial statements.

APCO OIL AND GAS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Index

(1)	Basis of Presentation and Summary of Accounting Policies

General Information and Principles of Consolidation

Apco Oil and Gas International Inc. (“Apco”) is an international oil and gas exploration and production company with a focus on South America. Exploration and production will be referred to as “E&P” in this document.

Apco began E&P activities in Argentina in the late 1960s, and as of September 30, 2012, had interests in nine oil and gas producing concessions and two exploration permits in Argentina. E&P activities in Colombia began in 2009 where we now have three exploration and production contracts. Our producing operations are located in the Neuquén, Austral, and Northwest basins in Argentina, and in the Llanos basin in Colombia. We also have exploration activities currently ongoing in both Argentina and Colombia.

The consolidated financial statements include the accounts of Apco Oil and Gas International Inc. (a Cayman Islands limited company) and its subsidiaries, Apco Properties Ltd. (a Cayman Islands limited company), Apco Austral S.A. (an Argentine corporation), and Apco Argentina S.A. (an Argentine corporation), which as a group are at times referred to in the first person as “we,” “us,” or “our.” We also sometimes refer to Apco as the “Company.” The Company proportionately consolidates its direct interest of the accounts of its joint ventures into its consolidated financial statements. All intercompany balances and transactions between Apco and its subsidiaries have been eliminated in consolidation.

WPX Energy, Inc. (“WPX”), an independent exploration and production company with operations primarily in North America, owns 68.96 percent of our aggregate Class A and ordinary shares. We are managed by employees of WPX, and all of our executive officers and three of our directors are employees of WPX. Pursuant to an administrative services agreement between us and WPX, at our corporate headquarters in Tulsa, Oklahoma, WPX provides us with management services, office space, insurance, treasury, accounting, tax, legal, corporate communications, information technology, human resources, internal audit and other administrative corporate services. We have branch offices in Buenos Aires, Argentina and Bogotá, Colombia. These offices are staffed by employees of Apco and/or contractors retained by us.

Our core operations are located in the Neuquén basin and include our 23 percent working interests in the Entre Lomas, Bajada del Palo and Charco del Palenque concessions and the Agua Amarga exploration permit, and a 40.72 percent equity interest in Petrolera Entre Lomas S.A. (“Petrolera”, a privately owned Argentine corporation), which is accounted for using the equity method (see Note 3). Petrolera is the operator and owns a 73.15 percent working interest in the same properties. Consequently, Apco’s combined direct consolidated and indirect equity interests in the properties underlying the joint ventures total 52.79 percent. The Charco del Palenque concession is the portion of the Agua Amarga exploration permit which was converted to a 25-year exploitation concession in 2009. In the Neuquén basin we also participate in the Coirón Amargo block in which we hold a 45 percent interest. We sometimes refer to these areas in a group as our “Neuquén basin properties.”

The unaudited, consolidated financial statements of Apco included herein do not include all footnote disclosures normally included in annual financial statements and, therefore, 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 year ended December 31, 2011.

In the opinion of the Company, all normal recurring adjustments have been made to present fairly the results of the three and nine-month periods ended September 30, 2012 and 2011. The results for the periods presented are not necessarily indicative of the results for the respective complete years.

Certain line items in the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows for the 2011 periods presented herein were recast as described in Note 16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Fair Value Measurements

The carrying amount reported in the balance sheet for cash equivalents, accounts receivable and accounts payable is equivalent to fair value due to the frequency and volume of transactions in and the short-term nature of these accounts. The carrying amount for restricted cash is equivalent to fair value as the funds are invested in a short-term money market account. The fair value of our debt is estimated to approximate the carrying amount as the interest is a floating-rate based on Libor.

Revenue Recognition

The Company recognizes revenues from sales of oil, gas, and LPG at the time the product is delivered to the purchaser and title has been transferred.

Taxes Other Than Income

The Company is subject to multiple taxes in Argentina and Colombia, including provincial production taxes, severance taxes, export taxes, shareholder equity taxes and various transaction taxes.

Restricted Cash

At September 30, 2012, we had $9.9 million of restricted cash ($2.9 current and $7 million non-current) which is collateral for letters of credit related to exploration blocks in Colombia. At December 31, 2011, we had $8.4 million of restricted cash (non-current). The letters of credit expire in various dates from 2013 to 2015.

Inventory Valuation

Our inventory includes hydrocarbons of $1.7 million at September 30, 2012, and $1.1 million at December 31, 2011, which are accounted for at production cost, and spare-parts materials of $3.1 million at September 30, 2012 and $1.8 million at December 31, 2011, which are accounted for at cost.

Property and Equipment

The Company uses the successful-efforts method of accounting for oil and gas exploration and production operations, whereby costs of acquiring non-producing acreage and costs of drilling successful exploration wells and development costs are capitalized. Geological and geophysical costs, including three dimensional (“3D”) seismic survey costs and costs of unsuccessful exploratory drilling are expensed as incurred.

APCO OIL AND GAS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED

Index

Oil and gas properties are depreciated over their concession lives using the units of production method based on proved and proved producing reserves. The Company’s proved reserves are limited to the concession life even though a concession’s term may be extended for 10 years based on terms to be agreed on and with the consent of the Argentine government. Non oil and gas property is recorded at cost and is depreciated on a straight-line basis, using estimated useful lives of three to 15 years.

During the second quarter of 2012, the Company also recorded a recovery of unproved costs associated with the farm-out of 44 percent of its working interest in the exploration area within the Sur Río Deseado Este concession. This cost recovery was approximately $278 thousand and the amount received in excess of this unproved cost has been recorded in other income within the total costs and operating expenses in the financial statements.

The Company reviews its proved and unproved properties for impairment on a property by property basis and recognizes an impairment whenever events or circumstances, such as declining oil and gas prices, indicate that a property’s carrying value may not be recoverable. The Company records a liability for future asset retirement obligations in accordance with the requirements of FASB ASC 410 (Asset Retirement and Environmental Obligations).

Net Income per Share

Net income per share is calculated by dividing net income attributable to Apco Oil and Gas International Inc. shareholders by the weighted average number of ordinary and Class A shares outstanding. Basic and diluted net income per share is the same because the Company has not issued any potentially dilutive securities such as stock options. The Class A Shares and the ordinary shares have identical rights and preferences with respect to dividends.

Nonmonetary Transactions

The Company accounts for nonmonetary transactions based on the fair values of the assets involved, which is the same basis as that used in monetary transactions. During the first nine months of 2012 and 2011, we delivered a volume of our oil production to a third-party refinery to satisfy a portion of our provincial production tax obligation. The crude oil inventory that was transferred to satisfy this obligation was recognized at fair value. We recorded approximately $1.7 million in oil revenues and taxes other than income as a result of this transaction in the first nine months of 2012, and $2.1 million in the first nine months of 2011.

(2)	Income Taxes

The Company was formed in the Cayman Islands in 1979. Since then, the Company’s income, to the extent that it is derived from sources outside the U.S., has not been subject to U.S. income taxes. Also, the Company has been granted an undertaking from the Cayman Islands government, expiring in 2019, to the effect that the Company will be exempt from tax liabilities resulting from tax laws enacted by the Cayman Islands government subsequent to 1979. The Cayman Islands currently has no applicable income tax or corporation tax. All of the Company’s income during 2012 and 2011 was generated outside the United States.

Provision is made for deferred Argentine income taxes applicable to temporary differences between the financial statement and tax basis of the assets and liabilities. The table below summarizes the income tax expense for the periods shown.

APCO OIL AND GAS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED

Index

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	(in Thousands)
	2012			2011		2012			2011
Income taxes:
Current	$	3,611		$	1,835	$	11,502		$	6,780
Deferred		(78	)		7		(487	)		(63	)
Income tax expense	$	3,533		$	1,842	$	11,015		$	6,717

We are domiciled in the Cayman Islands where the income tax rate is zero. However, we are required to pay income taxes in Argentina. Our effective income tax rate reflected in theConsolidated Statements of Income differs from Argentina’s statutory rate of 35 percent. This is primarily because the Company also generates income and incurs expenses outside of Argentina that are not subject to income taxes in Argentina or in any other jurisdiction. Therefore these amounts do not affect the amount of income taxes paid by the Company. Such items include interest income resulting from the Company’s cash and cash equivalents deposited in its Cayman Island and Bahamas bank accounts, general and administrative expenses incurred by the Company in its headquarters office in Tulsa, Oklahoma, and foreign exchange gains and losses resulting from changes in the value of the peso, which do not affect taxable income in Argentina. The Company also incurred expenses related to exploration activity in Colombia that provide no benefit to income tax expense until these activities generate sufficient taxable income in Colombia. Additionally, equity income from its investment in Petrolera is recorded by the Company on an after tax basis and is not subject to Argentine income tax. As of May 16, 2012 income generated from production in the province of Tierra del Fuego in Argentina is no longer exempt from income taxes based on Executive Decree 751/2012, which removed the exemption from taxes and duties previously provided by Law 19,640.

The effective income tax rate is higher for the three and nine months ended September 30, 2012, compared with the same period of 2011 primarily due to larger expenses in Colombia during 2012 which are providing no tax benefit.

As of September 30, 2012 and December 31, 2011, the Company had no unrecognized tax benefits or reserve for uncertain tax positions.

The Company’s policy is to recognize tax related interest and penalties as a component of income tax expense. The statute of limitations for income tax audits in Argentina is six years, and begins on December 31 in the year in which the tax return is filed, therefore the tax years 2005 through 2011 remain open to examination.

(3)	Investment in Petrolera Entre Lomas S.A.

The Company uses the equity method to account for its 40.72 percent investment in Petrolera. Petrolera’s principal business is its operatorship and 73.15 percent interest in the Entre Lomas, Bajada del Palo and Charco del Palenque concessions and the Agua Amarga exploration permit.

Under the equity method of accounting, the Company's share of net income from Petrolera is reflected as an increase in its investment account and is also recorded as equity income from Argentine investment. Dividends received from Petrolera are recorded as reductions of the Company’s investment.

APCO OIL AND GAS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED

Index

The Company’s carrying amount of its investment in Petrolera is greater than its proportionate share of Petrolera’s net equity by $717 thousand. The reasons for this basis difference are: (i) goodwill recognized on its acquisition of additional Petrolera shares in 2002 and 2003; (ii) certain costs expensed by Petrolera but capitalized by the Company; (iii) recognition of a provision for doubtful account associated with a receivable held by Petrolera; and (iv) a difference from periods prior to 1991 when the Company accounted for its interest in Petrolera under the cost recovery method, which will be recognized upon full recovery of the Company’s investment.

Summarized unaudited financial position and results of operations of Petrolera are presented in the following tables.

Petrolera’s financial position at September 30, 2012 and December 31, 2011 is as follows:

	September 30,		December 31,
	2012		2011
	(in Thousands)

Current assets	$	79,622	$	66,430
Non current assets		266,998		253,239
Current liabilities		64,922		53,549
Non current liabilities		31,535		46,797

Included in Petrolera’s current assets as of September 30, 2012, is approximately $25 million of cash denominated in Argentine pesos.

Petrolera’s results of operations for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(in Thousands)

Revenues	$	83,308	$	64,636	$	245,517	$	181,651
Expenses other than income taxes		57,055		49,659		158,480		132,896
Net income		15,775		9,246		54,088		31,844

The comparative increase in Petrolera’s net income for the three and nine month periods in 2012 is primarily a result of greater revenues driven by higher oil sales prices and volumes. During the first nine months of 2012, the Company has received $6.9 million in dividends from Petrolera compared with $8.4 million during the same period in 2011. As a result of the current exchange control restrictions that have blocked the ability to move funds out of Argentina at the official rate of exchange, Petrolera has increased capital spending to the extent possible and accelerated repayment of its foreign bank loans.

APCO OIL AND GAS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED

Index

(4)	Exploration Expense

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(in Thousands)

Geologic and geophysical costs	$	475	$	103	$	8,578	$	526
Dry hole costs		1,898		-		1,898		1,057
Total exploration expense	$	2,373	$	103	$	10,476	$	1,583

During the third quarter of 2012, $1.9 million was expensed as dry hole costs related to our Neuquén basin properties. Of this amount, $1.2 million was classified as exploratory well costs pending the determination of proved reserves as of December 31, 2011. We had exploratory wells in progress of approximately $5.9 million at September 30, 2012, and $4.2 million as of December 31, 2011.

(5)	Other Current Assets

The balance of other current assets consisted of the following:

	September 30,		December 31,
	2012		2011
	(in Thousands)

Prepaid expense	$	2,566	$	355
Value added tax advances		2,554		1,657
Interest receivable		104		139
Other current assets		392		485
	$	5,616	$	2,636

(6)	Accrued Liabilities

The balance of accrued liabilities consisted of the following:

	September 30,		December 31,
	2012		2011
	(in Thousands)

Taxes other than income	$	3,858	$	2,424
Payroll and other general and adminstrative expenses		1,142		1,765
Other oil and gas activities		-		106
Other		493		550
	$	5,493	$	4,845

APCO OIL AND GAS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED

Index

(7)	Debt and Banking Arrangements

We have borrowed $8 million under our banking agreement. Our ability to draw funds from the line of credit under this agreement ended in March 2012. Borrowings under this facility are unsecured and bear interest at the six-month Libor rate plus three percent per annum. Principal amounts will be repaid in four equal semi-annual installments from each borrowing date after a two and a half year grace period. This debt agreement contains covenants that restrict or limit, among other things, our ability to create liens supporting indebtedness, purchase or sell assets outside the ordinary course of business, and incur additional debt. Aggregate minimum maturities of our long-term debt are as follows:

	(in Thousands)
2012	$0
2013	500
2014	2,500
2015	3,500
2016	1,500
Total	$8,000

(8)	Contingencies

In the third quarter of 2011, we received a claim from the Dirección General de Rentas (the “DGR,” or provincial taxation authority) in the province of Chubut, Argentina, for alleged deficiencies in exploitation canon payments applicable to the Cañadón Ramírez concession during the years 2009, 2010 and 2011. The DGR has claimed that we owe an additional $4.3 million pesos (approximately $915 thousand U.S. dollars). In making this assessment, the DGR has failed to acknowledge that we relinquished portions of the original surface area of the concession during those periods. Therefore, we believe this claim has no merit and that the exploitation canon payments made are correct. We initiated an administrative proceeding with the province to challenge the DGR claim in the fourth quarter of 2011. In February 2012, the province rejected our motion for reconsideration. We filed an administrative appeal with the Provincial Ministry of Economy in March 2012. We sold our interest in Cañadón Ramírez at the end of 2010. As of September 30, 2012 we have not been notified of any decision related to our appeal.

In the third quarter of 2012, we and our partners in Tierra del Fuego reached agreements with the provincial government to extend the term of our concessions by the ten years provided for in Hydrocarbon Law 17,319. The ten-year extensions for all three concessions run through August 17, 2026. The agreements have been signed by us and our partners and representatives of the province. The agreements will become effective upon legislative approval.

(9)	Subsequent Events

In October we drilled our first and only committed exploration well on the Turpial block. After reaching total depth and logging the Turpial-1 well, our partner decided to commence the relinquishment of its interest in the block. Initial log interpretations were favorable and Apco continued under sole risk provisions to case and cement the well for testing. By the end of 2012, we anticipate entering another exploration phase by committing to drill another well and test the Turpial-1 well. Apco will seek to become operator of the block and have a 100 percent interest.

Index

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis explains the significant factors that have affected our results of operations for the three and nine month periods ended September 30, 2012, compared with the same periods ended September 30, 2011, and our financial condition since December 31, 2011. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Part I, Item 1, “Financial Statements,” of this document and our Annual Report on Form 10-K for the year ended December 31, 2011.

Overview of Three and Nine Months Ended September 30, 2012

During the three and nine month periods ended September 30, 2012, net income attributable to Apco Oil and Gas International Inc. was $10.2 million and $33 million, respectively, compared with $6.1 million and $21.9 million for the comparable periods in 2011. Increases in net income for the quarter and first nine months of 2012 were primarily a result of the impact from greater oil sales volumes and higher oil sales prices on operating revenues and equity income. These benefits were partially offset by higher costs and operating expenses, including significantly higher exploration expense.

Net cash provided by operating activities during the first nine months of 2012 was $28.7 million, a decrease of $1.4 million compared with the first nine months of 2011. We ended the third quarter with cash and cash equivalents of $29 million, or nine percent of total assets. We believe we have sufficient liquidity and capital resources to fund our ongoing operations and planned capital expenditures during 2012. See additional discussion in Results of Operations and Financial Condition below.

Business Environment in Argentina

The business environment in Argentina continues to be a significant challenge to our business. Since the presidential election in late 2011, the government has increasingly used foreign-exchange, trade, and capital controls to manage the economic challenges faced by the country.

During 2012, the government has issued numerous decrees to regulate investments and profits and exert its influence in private sector operations in the energy industry. In the second quarter, executive decree 751/2012 removed all exemptions from taxes and duties previously provided to oil and gas companies operating in the province of Tierra del Fuego through Law 19,640. As a result of this decree, our operating revenues have decreased and our operations in this province are prospectively subject to Argentine federal income taxes.

Law 26,741 enacted by the Argentine congress on May 4, 2012, authorized the expropriation of YPF and declared the oil and gas industry a matter of public interest. In July, the government issued executive decree 1277/2012 which introduces important changes to the rules governing Argentina’s oil and gas industry. The decree repeals certain articles of deregulation decrees passed during 1989 relating to free marketability of hydrocarbons at negotiated prices, the deregulation of the oil and gas industry, freedom to import and export hydrocarbons and the ability to keep proceeds from export sales in foreign bank accounts. The repeal of these articles appears to formalize certain rules such as price controls and the repatriation of export sales proceeds which has been informally required by the government over the last several years.

In addition the decree creates a governmental strategic planning commission charged with developing investment plans for the country to increase production and reserves and to make Argentina more energy self sufficient. The decree also requires oil and gas companies, refiners and transporters of hydrocarbon products to submit annual investment plans for approval by the commission. The decree empowers the commission to issue fines and sanctions, including concession removal, for companies that do not comply with its requirements. Finally, the commission is also charged with responsibility for assuring the reasonableness of hydrocarbon prices in the domestic market and that such prices allow companies to generate a reasonable profit margin.

Index

Regulations to implement the decree are pending. Until such regulations are published, we cannot fully assess the impact of this decree on our operations and profitability. The text of this decree authorizes the federal government to enforce stricter controls over the oil and gas industry. Reaction by the provincial governments and the oil and gas industry may impact the manner in which the implementing regulations are written.

These events could discourage the influx of needed capital in Argentina for oil and gas exploration and development, especially the continued exploration of Argentina’s unconventional potential.

Although we cannot predict the impact of these events on our business, we have historically reinvested most of our earnings into the exploration and development of our properties in Argentina with positive results to both oil and natural gas production and proved reserves. For further discussion, see Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk – Economic and Political Environment.”

Colombian Properties

During the third quarter, the Maniceño No.1 discovery well drilled in the Llanos 32 exploration block had a positive impact on operating revenues as the well was put on production in July. A second exploration well, the Samaria Norte No. 1, successfully tested oil and is waiting on approval to be put on a long term production test of the Guadalupe formation. Apco has a 20 percent working interest in the Llanos 32 block.

In the Llanos 40 block where Apco has a 50 percent interest, interpretation of the 3D seismic data acquired in the first half of the year is underway. We plan to initiate drilling operations in this block during 2013. We have committed to drill four exploration wells in the area by the end of 2014.

Neuquén Basin Properties

During the third quarter and first nine months of 2012, our development drilling and exploration activities in our Neuquén basin properties continued with satisfactory results. During the first nine months of the year we completed and put on production five wells that commenced drilling in 2011. For our 2012 drilling program, 25 development wells and two exploration wells were spud during the first nine months. Of these wells, 23 were completed and put on production and four wells were in various stages of drilling or completion at the end of the third quarter.

During the first nine months of the year, we continued exploration efforts to produce from the Vaca Muerta shale. We performed a fracture stimulation of the shale in an existing well in the Bajada del Palo concession. We also completed a three-stage fracture stimulation in a well in the southern part of the Coirón Amargo block. Although the fracture stimulations in both wells resulted in production from the Vaca Muerta, these wells have produced relatively low volumes of oil and, subject to additional evaluation, we have preliminarily concluded that horizontal drilling with significantly larger fracture stimulations will be required to properly evaluate the Vaca Muerta shale. Results to date are inconclusive as the exploration of the Vaca Muerta in this basin is in the early stages and its productive behavior is not well understood. The significantly larger investments required to properly investigate the Vaca Muerta could cause the development of the shale to be uneconomic given the current political and economic conditions in Argentina.

We plan to commence drilling two more commitment wells in the Coirón Amargo block before the end of 2012.

Index

Tierra del Fuego

In the third quarter, we and our partners in Tierra del Fuego reached agreements with the provincial government to extend the term of our concessions by the ten years provided for in Hydrocarbon Law 17,319. One agreement extends the concession term for the Las Violetas concession. A second agreement extends the concession terms for the Río Cullen and Angostura concessions. The ten-year extensions for all three concessions run through August 17, 2026. The agreements have been signed by us and our partners and representatives of the province. The agreements will become effective upon legislative approval.

Results of Operations

The following table and discussion is a summary of our consolidated results of operations for the three and nine months ended September 30, 2012, compared with the three and nine months ended September 30, 2011. Please read this information in conjunction with the Consolidated Statements of Income.

	For the Three Months Ended September 30,
					$ Change		% Change
	2012		2011		from 2011		from 2011
	(in Thousands)

Total revenues	$	34,966	$	26,170	$	8,796		34	%
Total costs and operating expenses		27,552		22,207		5,345		24	%
Operating income		7,414		3,963		3,451		87	%
Investment income		6,363		3,961		2,402		61	%
Income taxes		3,533		1,842		1,691		92	%
Less: Net income attributable to noncontrolling interests		13		6		7		117	%
Net income attributable to Apco	$	10,231	$	6,076	$	4,155		68	%



	For the Nine Months Ended September 30,
					$ Change		% Change
		2012		2011	from 2011		from 2011
	(in Thousands)

Total revenues	$	98,009	$	73,829	$	24,180		33	%
Total costs and operating expenses (1)		75,827		58,491	$	17,336		30	%
Operating income		22,182		15,338		6,844		45	%
Investment income		21,864		13,337		8,527		64	%
Income taxes		11,015		6,717		4,298		64	%
Less: Net income attributable to noncontrolling interests		44		23		21		91	%
Net income attributable to Apco	$	32,987	$	21,935	$	11,052		50	%

(1)	Includes $9 million year-over-year increase in Exploration expense; see below for additional discussion.

Total Revenues

Total revenues for the third quarter of 2012 increased by $8.8 million, or 34 percent compared with third quarter 2011. For the first nine months of 2012, Total Revenues were greater by $24.2 million, or 33 percent compared with the first nine months of 2011. The following tables and discussion explain the components and variances in operating revenues.

Index

The three and nine-month comparisons of our oil, natural gas, and LPG sales volumes and average sales prices for our consolidated interests accounted for as operating revenues are shown in the following tables.

	Three Months Ended September 30,							Nine Months Ended September 30,

	2012		2011		% Change			2012		2011		% Change
Sales Volumes
Oil (bbls)		402,189		346,312		16	%		1,112,338		994,192		12	%
Natural Gas (mcf)		1,596,095		1,517,513		5	%		4,531,475		4,739,743		-4	%
LPG (tons)		2,658		2,979		-11	%		7,918		8,453		-6	%
Oil, Natural Gas and LPG (boe)		699,396		634,188		10	%		1,960,502		1,883,345		4	%

Average Sales Prices
Oil (per bbl)	$	75.72	$	63.35		20	%	$	74.95	$	59.95		25	%
Natural Gas (per mcf)		2.28		1.87		22	%		2.44		1.97		24	%
LPG (per ton)		255.84		271.58		-6	%		278.61		306.99		-9	%

Revenues ($ in thousands)
Oil revenues	$	30,454	$	21,938		39	%	$	83,373	$	59,597		40	%
Natural Gas revenues		3,646		2,834		29	%		11,039		9,344		18	%
LPG revenues		680		809		-16	%		2,206		2,595		-15	%
	$	34,780	$	25,581		36	%	$	96,618	$	71,536		35	%

The volume and price changes in the table above caused the following changes to our oil, natural gas and LPG revenues between the three and nine-months ended September 30, 2012 and 2011.

	Three Months Ended September 30,

	Oil		Gas			LPG			Total
	(in Thousands)

2011 Sales	$	21,938	$	2,834		$	809		$	25,581
Changes due to volumes		4,231		180			(83	)		4,328
Changes due to prices		4,285		632			(46	)		4,871
2012 Sales	$	30,454	$	3,646		$	680		$	34,780



	Nine Months Ended September 30,

	Oil		Gas			LPG			Total
	(in Thousands)

2011 Sales	$	59,597	$	9,344		$	2,595		$	71,536
Changes due to volumes		8,855		(507	)		(149	)		8,199
Changes due to prices		14,921		2,202			(240	)		16,883
2012 Sales	$	83,373	$	11,039		$	2,206		$	96,618

Index

Oil Revenues

The increase in Oil revenues during the third quarter and first nine months of 2012 is due to higher average oil sales prices and greater sales volumes. Our average oil sales prices increased by 20 percent compared with third quarter 2011 primarily due to higher price realizations in Argentina. The combination of declining production in Argentina, increasing gasoline prices and tighter demand for our high-quality crude oil has resulted in higher oil price realizations in the country. We also experienced a minor but positive impact on oil prices from our first sales revenues generated from our operations in Colombia during the third quarter of 2012. As production from our Colombian operations stabilizes and sales revenues grow in future periods, we expect greater favorable impacts on our oil price realizations because oil prices in Colombia are closer to international prices compared with prices in Argentina.

Successful drilling results in Coirón Amargo and Colombia resulted in an increase in sales volumes of 16 percent for the quarter and 12 percent for the first nine months of 2012. Oil revenues accounted for 87 and 85 percent of total revenues for the three and nine month periods ended September 30, 2012, respectively.

Total Costs and Operating Expenses

During the third quarter of 2012, Total costs and operating expenses increased by $5.3 million compared with third quarter 2011 primarily due to greater exploration expense. Notable variances for the comparable quarters include the following:

·	Production and lifting costs increased by $909 thousand due to greater operation and maintenance expenses related to our Neuquén basin properties. These increases were driven primarily by the impact of inflation in Argentina;

Taxes other than income increased by $513 thousand. The increase from third quarter 2011 is due primarily to higher provincial production taxes as a result of higher sales prices and greater operating revenue and is partially offset by the absence of a $972 thousand provincial production tax settlement in third quarter 2011;

·	Depreciation, depletion and amortization expense increased by $1.8 million due to higher depreciation rates and greater volumes (see additional discussion below); and

·	Exploration expense increased by $2.3 million primarily due to dry hole expense from our Neuquén basin properties;

During the first nine months of 2012, Total costs and operating expenses increased by $17.3 million compared with the first nine months of 2011 primarily due to greater production and lifting costs as well as higher exploration expense. Notable variances for the comparable periods include the following:

·	Production and lifting costs increased by $3.3 million due to greater operation and maintenance expenses related to our Neuquén basin properties. These increases were driven primarily by the impact of inflation in Argentina;

Taxes other than income increased by $2.9 million. The increase from the first nine months of 2011 is due primarily to higher provincial production taxes as a result of higher sales prices and greater operating revenues and is partially offset by the absence of a one-time $572 thousand expense for Colombian equity tax and a $972 thousand provincial production tax settlement during the first nine months of 2011;

·	Selling and administrative expense increased by $1.6 million due to increased staffing, the effect of inflation on salary and related benefits expense and other administrative costs in our Argentine branch and greater costs from our operators in Argentina;

·	Depreciation, depletion and amortization expense increased by $3.4 million primarily due to higher depreciation rates (see additional discussion below);

Index

·	Exploration expense increased by $8.9 million due to greater exploration activity including 3D seismic acquisition costs in the Llanos 40 block in Colombia and in the Sur Río Deseado Este concession in Argentina and dry hole expense in our Neuqúen basin properties; and

·	Other (income) expense decreased by $2.9 million primarily due to a gain from a farm-out agreement in the Sur Río Deseado Este concession realized in the second quarter of 2012.

Depreciation, Depletion and Amortization Expenses (“DD&A”)

The changes in our total volumes, DD&A average rates per unit and DD&A expense of oil and gas properties between the three and nine months ended September 30, 2012 and 2011 are shown in the following table:

	Three Months Ended						%			Nine Months Ended						%
	September 30,				Change		Change			September 30,				Change		Change
	2012		2011		from 2011		from 2011			2012		2011		from 2011		from 2011

Consolidated Sales Volumes (Boe)		699,396		634,188		65,208		10	%		1,960,502		1,883,345		77,157		4	%
DD&A Rate per Boe	$	10.21	$	8.49	$	1.72		20	%	$	9.30	$	7.91	$	1.39		18	%
DD&A Expense (In thousands)	$	7,143	$	5,382	$	1,761		33	%	$	18,238	$	14,897	$	3,341		22	%

The following table details the changes in DD&A expense of oil and gas properties due to changes in volumes and average rates between the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	(in Thousands)

2011 DD&A	$	5,382	$	14,897
Changes due to volumes		665		717
Changes due to rates		1,096		2,624
2012 DD&A	$	7,143	$	18,238

Our DD&A rate increased in the third quarter and first nine months of 2012 compared with the same period in 2011 because in the Río Negro province, where our largest producing field with the largest proved reserves is located, we have been adding less proved reserves per well drilled for calculating DD&A with each year that passes without obtaining the remaining ten-year extension as our proved reserves are limited to the current concession life. Furthermore, as we develop our most mature fields, proved reserves added per well decrease over time. Additionally, our weighted average DD&A rate increased in 2012 due to a greater proportion of sales volumes on a barrel of oil equivalent basis from properties with DD&A rates that are higher than the weighted average rate experienced in the third quarter and first nine months of 2011.

We are working to obtain the ten-year concession extension for our properties in Río Negro, and are waiting on legislative approval for our extensions in Tierra del Fuego. We expect to experience a favorable effect on future DD&A rates if the extensions are obtained as wells whose productive lives extend beyond 2016 will result in the addition of proved developed reserves.

Index

Investment Income

Total investment income increased by $2.4 million for the third quarter and $8.5 million for first nine months of 2012 compared with the same periods of 2011due to greater Equity income from Argentine investment. The increase in our equity income for the periods in 2012 is due to higher net income of our equity investee, Petrolera. The comparative increase in Petrolera’s net income is primarily a result of greater revenues driven by higher oil sales prices and greater sales volumes.

Index

Summary of Total Volumes, Sales Prices and Production Costs

The following table reflects our total sales volumes, average sales prices, and our average production costs per unit sold for the periods presented:

	Periods Ending September 30,
	Three Months				Nine Months

	2012		2011		2012		2011

Sales Volumes (1):
Consolidated interests
Crude oil and condensate (Bbls)		402,189		346,312		1,112,338		994,192
Gas (Mcf)		1,596,095		1,517,513		4,531,475		4,739,743
LPG (tons)		2,658		2,979		7,918		8,453
Barrels of oil equivalent (Boe)		699,396		634,188		1,960,502		1,883,345
Equity interests (2)
Crude oil and condensate (Bbls)		431,474		407,403		1,257,323		1,166,439
Gas (Mcf)		754,301		653,555		2,178,638		2,113,689
LPG (tons)		2,958		2,726		8,673		8,530
Barrels of oil equivalent (Boe)		591,906		548,323		1,722,209		1,618,815
Total volumes
Crude oil and condensate (Bbls)		833,663		753,715		2,369,661		2,160,631
Gas (Mcf)		2,350,396		2,171,068		6,710,113		6,853,432
LPG (tons)		5,616		5,705		16,591		16,983
Barrels of oil equivalent (Boe)		1,291,302		1,182,510		3,682,712		3,502,160

Total volumes by basin
Neuquén		1,081,211		980,831		3,097,931		2,882,159
Austral		138,766		149,595		425,707		466,785
Llanos		25,985		-		25,985		-
Others		45,339		52,084		133,089		153,216
Barrels of oil equivalent (Boe)		1,291,302		1,182,510		3,682,712		3,502,160

Average Sales Prices:
Consolidated interests
Oil (per bbl)	$	75.72	$	63.35	$	74.95	$	59.95
Gas (per Mcf)		2.28		1.87		2.44		1.97
LPG (per ton)		255.84		271.58		278.61		306.99
Equity interests (2)
Oil (per bbl)	$	74.83	$	63.46	$	74.93	$	60.11
Gas (per Mcf)		2.44		1.10		2.66		1.67
LPG (per ton)		217.65		247.73		257.96		298.57


Average Production Costs per Boe (3):
Production and lifting cost	$	11.46	$	11.21	$	10.65	$	9.36
Taxes other than income	$	8.71	$	8.80	$	9.06	$	7.91
DD&A	$	10.21	$	8.49	$	9.30	$	7.91

(1) Volumes presented in the above table have not been reduced by the approximately 12 to 18.5 percent provincial production tax that is accounted for as an expense by Apco. In calculating provincial production tax payments, Argentine producers are entitled to deduct gathering, storage, treatment, and compression costs.

(2) The equity interest presented above reflects our interest in our equity investee's sales volumes and prices. The revenues resulting from the equity interest sales volumes and prices are not consolidated within the Company’s revenues. See the financial statements and Note 1 and Note 3 of Notes to Consolidated Financial Statements for additional explanation of the equity method of accounting for our investment in Petrolera.

(3) Average production and lifting costs, taxes other than income and depreciation costs are calculated using total costs divided by consolidated interest sales volumes expressed in barrels of oil equivalent (“Boe”). Six Mcf of gas are equivalent to one Boe and one ton of LPG is equivalent to 11.735 Boes.

Index

Financial Condition

Outlook

Our cash flow from operations is highly sensitive to fluctuations in our oil price realizations. Oil price realizations in Argentina have increased gradually since 2009 from approximately $40 per barrel. Since the beginning of 2012, oil prices have stabilized and during the third quarter averaged approximately $75 per barrel. We derive more than 80 percent of our total revenues from the sale of oil. Since the international price of oil has decreased significantly during 2012 and the spread between the price being realized in Argentina and the international price of oil has diminished considerably, we expect our oil prices to remain at current levels or trend downward. Oil price realizations in Argentina continue to be negotiated on a short-term basis.

Dividends received from our equity investee, Petrolera, are a significant contributor to our cash flow generated by operating activities and Petrolera’s cash flows from operations and its ability to pay dividends are also highly sensitive to fluctuations in oil price realizations. Petrolera’s ability to pay dividends is dependent upon numerous factors, including its cash flows provided by operating activities, levels of capital spending, changes in crude oil and natural gas prices, debt and interest payments, and the Argentine government’s foreign exchange control policies.

Inflation in Argentina has been a persistent problem for some time. In contrast, the Argentine peso has not experienced a commensurate level of devaluation resulting in considerable increases in our U.S. dollar cost of operations and capital expenditures. Consequently, there is no assurance that operating income generated in Argentina will remain at current levels given that oil prices in Argentina have stabilized during the year, inflation continues at robust levels and the peso has not been allowed to adjust to market conditions.

Since the fourth quarter of 2011, the Argentine government has implemented various regulations restricting access to foreign exchange markets, or the purchase of foreign currency through the Central Bank of Argentina at the official rate of exchange for the purpose of depositing funds in foreign accounts. These new restrictions require both Central Bank and AFIP (“Argentina’s Taxing Authority”) approvals that are not currently being given. As a result, the current movement of funds out of Argentina through the Central Bank at the official exchange rate has been stemmed. However, the purchase of foreign currency for the repayment of debt is not limited. For a more detailed explanation refer to the section “Quantitative and Qualitative Disclosures about Market Risks” under the heading “Inflation, Foreign Currency and Operations Risk.”

We will continue to monitor our capital programs as necessary to provide Apco with the financial resources and liquidity needed to continue development drilling in our core properties over the long term, fund new investment opportunities, meet future working capital needs and fund any further cash bonus payments that may be negotiated to obtain concession extensions, if any, while maintaining sufficient liquidity to reasonably protect against unforeseen circumstances requiring the use of funds.

Liquidity

Although we have interests in several oil and gas properties in Argentina, our direct participation in those Neuquén basin properties in which we are partners with Petrolera and dividends from our equity interest in Petrolera are the largest contributors to our net cash provided by operating activities. Additionally, in the third quarter of 2012 we began producing oil from our operations in Colombia, creating a source of cash flow outside of Argentina. Although we generally fund our capital programs with internally generated cash flow, successful exploration efforts in Argentina or Colombia could lead to development capital needs that are currently beyond our ability to fund from operations.

Index

As a result of the current exchange control restrictions that have blocked the ability to move funds out of Argentina at the official rate of exchange, Apco and Petrolera have increased capital spending in Argentina to the extent possible and Petrolera has accelerated repayments of its foreign bank loans. Consequently, we have received fewer dividends from our investment in Petolera during the first nine months of 2012 compared with the same period in 2011. We continue to operate our business under the assumption that the receipt of dividends abroad from our investment in Petolera will contribute to the funding of our operations outside of Argentina. If Petrolera’s ability to pay dividends abroad with funds accumulating in Argentina is interrupted, we may need other sources of funding to meet our plans and exploration commitments outside of Argentina.

Our liquidity is affected by restricted cash balances that are pledged as collateral for letters of credit for exploration activities in Colombia. As of September 30, 2012, $9.9 million of cash is considered restricted. The restricted cash is invested in a short-term money market account with a financial institution.

With our cash and cash equivalents balance at September 30, 2012, of $29 million, or nine percent of total assets, and the ability to generally adjust capital spending as necessary, we believe we have sufficient liquidity and capital resources to effectively manage our business throughout the remainder of 2012.

Cash Flow Analysis

The following table summarizes the change in cash and cash equivalents for the periods shown.

	Nine Months Ended September 30,
	2012			2011
	(in Thousands)
Net cash provided (used) by:
Operating activities	$	28,685		$	30,118
Investing activities		(41,442	)		(30,375	)
Financing activities		4,819			217
Decrease in cash and cash equivalents	$	(7,938	)	$	(40	)

Operating Activities

Our net cash provided by operating activities totaled $28.7 million for the first nine months of 2012, compared with $30.1 million during the same period in 2011. The change in cash provided by operating activities was primarily a result of lower dividends from our Argentine investment and greater use of our working capital. See additional discussion of dividends from our Argentine investment in “Financial Condition” and “Liquidity.”

Investing Activities

During the first nine months of 2012, capital expenditures totaled $43 million, most of which was invested in drilling in our Neuquén basin properties including Coirón Amargo, and exploration drilling in Colombia, compared with $26 million of capital expenditures in 2011. Additionally, we used $1.5 million during the first nine months of 2012 as collateral for lines of credit, compared with $4.4 million used in the same period of 2011.

We also received $3.1 million during the second quarter of 2012 from the execution of a farm-out agreement related to our exploration acreage in the Sur Río Deseado Este concession.

Index

Financing Activities

During the first nine months of 2012, we paid $1.2 million of dividends to shareholders and non-controlling interests, and we received $6 million in borrowings from our banking agreement to fund capital expenditures.

Contractual Obligations

Our contractual obligations have decreased by approximately $25 million from our total obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2011, as a result of drilling and exploration activities during the first nine months of 2012. Additionally, our obligations increased due to our borrowing $6 million under our banking agreement.

Off-Balance Sheet Arrangements

We do not currently use any off-balance sheet arrangements to enhance liquidity and capital resources.

Index

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our operations are exposed to market risks as a result of changes in commodity prices and foreign currency exchange rates.

Commodity Price Risk

We have historically not used derivatives to hedge price volatility. Oil sales price realizations for oil produced and sold in Argentina are significantly influenced by Argentine governmental actions. In the current regulatory environment, the combination of hydrocarbon export taxes and strict government controls over Argentine gasoline prices directly impact price realizations for the sale of crude oil in the domestic Argentine market. As a result, our price is impacted more by government controls than changes in world oil prices. Because our oil prices are negotiated on a short-term basis, we cannot accurately predict our future sales prices, and it is difficult for us to determine what effect increases or decreases in world oil prices may have on our results of operations.

Furthermore, although our oil prices in Argentina are negotiated and denominated in US dollars, we are paid in pesos. This could make our oil price realizations sensitive to currency devaluation depending on the manner in which any possible devaluation is implemented by the government.

Inflation, Foreign Currency and Operations Risk

The majority of our operations are located in Argentina. Historically Argentina has struggled through extended periods of inflation that have eventually led to a sudden devaluation of the Argentine peso similar to what occurred during the Argentine economic crisis of 2001 and 2002.

Since the economic crisis of 2001 and 2002, when the value of the peso was suddenly reduced from an exchange rate of one peso to one US dollar to an exchange rate of three pesos to one US dollar, the Argentine economy has grown at strong rates ranging from five to ten percent annually. However, inflation escalated during this same period at rates ranging from 15 to 30 percent annually over the last several years. As a result of government efforts to support the value of the peso in this environment, the peso’s value has not declined in proportion to the level of inflation thereby substantially increasing the cost of living in Argentina and the US dollar cost of our operations and capital expenditures in the country. Because the peso has not been permitted to devalue in proportion to inflation in the country, there has been, in the recent past, capital flight out of Argentina due to a lack of confidence in the value of the peso at the official exchange rate.

In October of 2011 and again in July of 2012, the government implemented new regulations restricting access to foreign exchange markets, more specifically, the purchase of foreign currency through the Central Bank of Argentina at the official rate of exchange for the purpose of depositing funds in foreign accounts. These new restrictions require both Central Bank and AFIP approvals that are not currently being given. As a result, movement of funds out of Argentina through the Central Bank at the official exchange rate has been stemmed. The purchase of foreign currency for things such as the repayment of debt is not limited. Companies that are generating free cash flow find themselves accumulating local currency in Argentina.

An alternative rate of exchange exists which expresses the result of purchasing marketable securities in Argentina in pesos and selling them abroad in foreign currency. As of September 30, 2012, this alternate peso to US dollar exchange rate was quoted at 6.30:1, an indicator that the value of the Argentine peso in the free market is approximately 34 percent below the official rate. The spread between this alternative rate and the official rate of exchange is an indicator that an official devaluation of the Argentine peso may be required at some point.

Index

A devaluation such as the one described above could result in foreign exchange losses to the extent of cash held by us in Argentine pesos and any other net financial working capital denominated in pesos that is reported on our balance sheet at the moment of devaluation. A devaluation could also lower our product price realizations and reduce our peso denominated costs.

At December 31, 2011, the peso to US dollar official rate of exchange rate was 4.30:1. At September 30, 2012, the exchange rate was 4.70:1 and our cash balance denominated in Argentine pesos was $6.8 million. Additionally, Petrolera had a cash balance of approximately $25 million denominated in Argentine pesos as of September 30, 2012.

Economic and Political Environment

Argentina has a history of economic and political instability. Because our operations are predominately located in Argentina, our operations and financial results have been, and could be in the future, adversely affected by economic, market, currency, and political instability in Argentina, as well as measures taken by its government in response to such instability. Argentina’s economic and political situation continues to evolve, and the Argentine government may enact future regulations or policies that may materially impact, among other items, (i) the realized prices we receive for the commodities we produce and sell; (ii) the timing of repatriations of cash to the Cayman Islands; (iii) our asset valuations; (iv) the dollar value of peso-denominated monetary assets and liabilities; and (v) restrictions on imports of materials necessary for our operations.

In October 2011, President Cristina Kirchner was re-elected for a second term. Her first term was highlighted by energy policies that controlled prices of hydrocarbons, in particular natural gas prices, subsidies for the import of natural gas at prices far higher than those permitted for the sale of natural gas produced in Argentina, close alliances with labor unions, and a monetary policy designed to support the value of the peso. Additionally, the government has taken various measures to assert greater state control over different areas of the country’s economy, including nationalizing an airline and private pension funds.

Since the presidential election in late 2011, the government has increasingly used foreign-exchange, trade, and capital controls to manage the economic challenges faced by the country. During 2012, the government has issued numerous decrees to regulate investments and profits and exert its influence in private sector operations in the energy industry. These actions have created an unpredictable political and business environment in the country.

The stated objective of the Argentine government is to increase oil and natural gas production, both conventional and unconventional, in Argentina through increased investments by YPF. YPF has announced an aggressive multi-year investment plan designed to achieve that objective. It is currently seeking joint venture partners to help fund this program. As a result of these actions and events, and in spite of the YPF announcement, the share price of YPF and many other public companies with oil and gas interests in Argentina have fallen off precipitously, as have the shares of Apco.

Although we can’t predict the impact of these events on our business, we have historically reinvested most of our earnings into the exploration and development of our properties in Argentina with positive results to both oil and natural gas production and proved reserves.

Index

Item 4. Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) (“Disclosure Controls”) or our internal controls over financial reporting (“Internal Controls”) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and Internal Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls and Internal Controls will be modified as systems change and conditions warrant.

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these Disclosure Controls were not effective at a reasonable assurance level at the end of the period covered by this report.

Third Quarter 2012 Changes in Internal Controls

As previously reported in Management’s Report on Internal Control Over Financial Reporting in our Form 10-K, in the third quarter of 2011, we identified a material weakness related to the lack of technical accounting resources to help identify and assess accounting matters and appropriately present and disclose such matters in our consolidated financial statements and related footnotes. We subsequently adopted a plan to remediate the material weakness. In the third quarter of 2012, we amended the plan to include new controls and procedures related to the preparation and review of financial and non-financial disclosures and financial statement consolidation, presentation and review. We also retained additional accounting personnel and realigned the accounting and financial reporting personnel in our branch offices to report through the financial reporting department in our home office. Although we believe the steps taken to date, including the implementation of new controls and procedures in the third quarter of 2012, have strengthened our internal controls over financial reporting, as of the end of the third quarter we do not yet have sufficient evidence or instances of control performance to conclude that the steps we have taken would prevent or detect a material misstatement. Therefore, the material weakness still existed at the end of the period covered by this report.

Other than described above, there have been no changes during the third quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our Internal Controls over financial reporting.

Index

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The additional information called for by this item is provided in Note 8 Contingencies in the Notes to the Consolidated Financial Statements included under Part I, Item 1. Financial Statements of this report, which information is incorporated by reference into this item.

Item 1A. Risk Factors

Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, includes certain risk factors that could materially affect our business, financial condition or future results. Those risk factors have not materially changed, except as set forth below.

The Argentine government could take action with regard to our concessions before their contract terms expire.

During the first quarter of 2012, the Argentine government asserted that exploration and production companies operating in Argentina had not invested sufficiently to overcome domestic production declines, thereby leading to reduced levels of oil and natural gas production as well as reductions in oil and natural proved reserves. On that basis, the federal government expropriated a majority interest in YPF, the largest oil producing company in Argentina. If the government subjectively determines that we have not sufficiently invested in our properties, they could take action with regard to our concessions before their contract terms expire. See “Quantitative and Qualitative Disclosures about Market Risk – Economic and Political Environment” in Item 3 of this report.

Index

Item 6. Exhibits

3.1 – Memorandum of Association of Apco Oil and Gas International Inc., as amended, (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed with the SEC on August 7, 2007).

3.2 – Articles of Association of Apco Oil and Gas International Inc. as amended, (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed with the SEC on August 8, 2011).

4.1 – Specimen Ordinary Share Certificate of Apco Oil and Gas International Inc. (incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q filed with the SEC on August 7, 2009).

31.1 – Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.*

31.2 – Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.*

32 – Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.**

101 .INS – XBRL Instance Document**

101 .SCH – XBRL Schema Document**

101 .CAL – XBRL Calculation Linkbase Document**

101 .LAB – XBRL Label Linkbase Document**

101 .PRE – XBRL Presentation Linkbase Document**

101 .DEF – XBRL Definition Linkbase Document**

_____________________

* Filed herewith.

**Furnished herewith.

Index

SIGNATURE

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.

APCO OIL AND GAS INTERNATIONAL INC.

(Registrant)

By: /s/ Landy L. Fullmer

Chief Financial Officer,

Chief Accounting Officer and Controller

(Duly Authorized Officer

and Principal Accounting Officer)

November 8, 2012

Index

INDEX TO EXHIBITS

EXHIBIT

NUMBER DESCRIPTION

3.1	Memorandum of Association of Apco Oil and Gas International Inc., as amended, (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed with the SEC on August 7, 2007).

3.2	Articles of Association of Apco Oil and Gas International Inc. as amended, (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed with the SEC on August 8, 2011).

4.1	Specimen Ordinary Share Certificate of Apco Oil and Gas International Inc. (incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q filed with the SEC on August 7, 2009).

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.*

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.*

32	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.**

101 .INS

XBRL Instance Document**

101 .SCH

XBRL Schema Document**

101 .CAL

XBRL Calculation Linkbase Document**

101 .LAB

XBRL Label Linkbase Document**

101 .PRE

XBRL Presentation Linkbase Document**

101 .DEF

XBRL Definition Linkbase Document**

_____________________

* Filed herewith.

** Furnished herewith.

Index

Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified

3 Months Ended

9 Months Ended

Sep. 30, 2012

Sep. 30, 2011

Sep. 30, 2012

Sep. 30, 2011

Income Taxes [Abstract]

Argentina's statutory federal income tax rate (in hundredths)

35.00%

Current

$ 3,611

$ 1,835

$ 11,502

$ 6,780

Deferred

(78)

(487)

(63)

Income tax expense

$ 3,533

$ 1,842

$ 11,015

$ 6,717

Accrued Liabilities (Details) (USD $)
In Thousands, unless otherwise specified

Sep. 30, 2012

Dec. 31, 2011

Accounts Payable and Accrued Liabilities, Current [Abstract]

Taxes other than income

$ 3,858

$ 2,424

Payroll and other general and administrative expenses

1,142

1,765

Other oil and gas activities

106

Other

493

550

Total

$ 5,493

$ 4,845

Other Current Assets (Schedule of Components of Other Current Assets) (Details) (USD $)
In Thousands, unless otherwise specified

Sep. 30, 2012

Dec. 31, 2011

Other Current Assets [Abstract]

Prepaid Expense

$ 2,566

$ 355

Value Added Tax Advances

2,554

1,657

Interest Receivable

104

139

Other

392

485

Other current assets

$ 5,616

$ 2,636

Debt and Banking Arrangements (Details) (USD $)

9 Months Ended

Sep. 30, 2012

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2014

Dec. 31, 2013

Dec. 31, 2012

Debt and Banking Arrangements [Abstract]

Interest rate terms

Borrowings under this facility are unsecured and bear interest at the six-month Libor rate plus three percent per annum.

Number of years installment payments are due (in years)

Principal amounts will be repaid in four equal semi-annual installments from each borrowing date after a two and a half year grace period.

Debt restrictions

This debt agreement contains covenants that restrict or limit, among other things, our ability to create liens supporting indebtedness, purchase or sell assets outside the ordinary course of business, and incur additional debt.

Line of credit facility, amount outstanding

$ 8,000,000

Maturities of Long Term Debt [Abstract]

500,000

2,500,000

3,500,000

$ 1,500,000

Contingencies (Details) (USD $)
In Thousands, unless otherwise specified

9 Months Ended

Sep. 30, 2012

Contingencies [Abstract]

This is the amount in Argentine pesos that the taxing authority of the Province of Chubut in Argentina has claimed the Company owes for exploitation canon payments.

4,300,000

This is the approximate amount in $US dollars of the taxing authority of the Province of Chubut in Argentina has claimed the Company owes for exploitation canon payments.

$ 915

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)

9 Months Ended

Sep. 30, 2012

Sep. 30, 2011

Common Class A [Member]

CASH FLOW FROM FINANCING ACTIVITIES:

Dividends paid (in dollars per share)

$ 0.04

$ 0.02

Ordinary shares [Member]

CASH FLOW FROM FINANCING ACTIVITIES:

Dividends paid (in dollars per share)

$ 0.04

$ 0.06

Subsequent Events (Details)

Dec. 31, 2012

Subsequent Events [Abstract]

Percentage owned in Turpial exploration block in Colombia

100.00%

CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified

Sep. 30, 2012

Dec. 31, 2011

Current assets:

Cash and cash equivalents

$ 28,961

$ 36,899

Accounts receivable

17,815

11,145

Advances with joint venture partners

1,235

1,264

Inventory

4,773

2,908

Restricted cash, current

2,889

Other Assets Current

5,616

2,636

Total current assets

61,289

54,852

Property and Equipment:

Cost, successful efforts method of accounting

301,317

256,886

Accumulated depreciation, depletion and amortization

(149,626)

(131,021)

Total Property and Equipment

151,691

125,865

Argentine investment, equity method

105,446

90,208

Deferred income tax asset

1,946

1,472

Restricted cash noncurrent

6,975

8,364

Other assets (net of allowance of $515 at September 30, 2012 and $554 at December 31, 2011)

999

2,235

Total assets

328,346

282,996

Current liabilities:

Accounts payable

11,285

9,103

Affiliate payables

2,356

1,270

Accrued liabilities

5,493

4,845

Income taxes payable

6,088

2,527

Dividends payable

589

Total current liabilities

25,222

18,334

Long-term debt

8,000

2,000

Long-term liabilities

4,004

4,024

Contingent liabilites and commitments (Note 6)

Shareholders' equity

Ordinary shares, 9,139,648 shares issued and outstanding

Class A shares, 20,301,592 shares issued and outstanding

203

Additional paid-in capital

9,106

Accumulated other comprehensive loss

(1,408)

(1,450)

Retained earnings

282,857

250,459

Total shareholders' equity

290,849

258,409

Noncontrolling interests in consolidated subsidiaries

271

229

Total equity

291,120

258,638

Total liabilities and equity

328,346

282,996

Shareholders' Equity [Member]

Shareholders' equity

Total equity

$ 290,849

$ 258,409

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) (USD $)
In Thousands, unless otherwise specified

3 Months Ended

9 Months Ended

Sep. 30, 2012

Sep. 30, 2011

Sep. 30, 2012

Sep. 30, 2011

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) [Abstract]

Pension plan liability adjustment in equity and consolidated interests, net of tax effect

$ 42

$ (80)

$ 42

$ (80)

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies (Details) (USD $)

9 Months Ended

Sep. 30, 2012

Sep. 30, 2011

Dec. 31, 2011

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies [Abstract]

Number oil and gas producing concessions company has ownership interests

Number of exploration permits in Argentina company has ownership interests

Number of exploration and production contracts in Colombia company has ownership interest

Percent of company's outstanding aggregate ordinary and Class A shares owned by WPX Energy, Inc.

68.96%

Working interests in the Entre Lomas, Bajada del Palo and Charco del Palenque concessions and Nequen Basin (in hundredths)

23.00%

Equity interest in Petrolera Entre Lomas S.A. a privately owned Argentine corporation (in hundredths)

40.72%

Petrolera's ownership percentage interest in other entities (in hundredths)

73.15%

Company's combined direct and indirect equity interests in the Entre Lomas, Bajada del Palo and Charco del Palenque concessions and Nequen Basin (in hundredths)

52.79%

Effective number of years for exploitation concession received from conversion of exploration permit (in years)

Working interest in Coiron Amargo block (in hundredths)

45.00%

Restricted Cash and Investments [Abstract]

Restricted cash, noncurrent

$ 6,975,000

$ 8,364,000

Restricted cash, current

2,889,000

Inventory Valuation [Abstract]

Inventory of hydrocarbons

1,700,000

1,100,000

Inventory of spare parts materials

3,100,000

1,800,000

Property, Plant and Equipment [Abstract]

Exploratory Wells in Progress

5,900,000

4,200,000

Property and Equipment [Abstract]

Estimated useful lives of non oil and gas property, minimum (in years)

Estimated useful lives of non oil and gas property, maximum (in years)

Extension of concession term of proved reserves based on consent of Argentine government (in years)

Unproven cost recovered under terms of farm-out of exploration area within Sur Rio Deseado Este concession

278,000

Nonmonetary Transactions [Abstract]

Operating revenues and taxes other than income

$ 1,700,000

$ 2,100,000

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified

9 Months Ended

Sep. 30, 2012

Sep. 30, 2011

CASH FLOW FROM OPERATING ACTIVITIES:

Net Income

$ 33,031

$ 21,958

Adjustments to reconcile to net cash provided by operating activities:

Equity income from Argentine investment

(22,069)

(13,100)

Dividends received from Argentine investment

6,855

8,446

Deferred income tax (benefit)

(487)

(63)

Depreciation, depletion and amortization

18,320

14,922

Changes in accounts receivable

(6,670)

3,001

Changes in inventory

(1,580)

(562)

Changes in other current assets

(2,980)

Changes in accounts payable

663

(4,050)

Changes in advances with partners

131

Changes in affiliate payables, net

1,086

160

Changes in accrued liabilities

648

262

Changes in income taxes payable

3,561

(159)

Gain on sale of properties

(2,809)

Other, including changes in noncurrent assets and liabilities

1,087

(923)

Net cash provided by operating activities

28,685

30,118

Property plant and equipment:

Capital expenditures

(43,029)

(26,000)

Sale of properties

3,087

Changes in restricted cash

(1,500)

(4,375)

Net cash used in investing activities

(41,442)

(30,375)

CASH FLOW FROM FINANCING ACTIVITIES:

Proceeds from long-term debt

6,000

2,000

Dividends paid to noncontrolling interest

(3)

(17)

Dividends paid

(1,178)

(1,766)

Net cash used in financing activities

4,819

217

Increase (decrease) in cash and cash equivalents

(7,938)

(40)

Cash and cash equivalents at beginning of period

36,899

35,234

Cash and cash equivalents at end of period

28,961

35,194

Increases to property plant and equipment, net of asset dispositions

(44,709)

(28,378)

Changes in related accounts payable

1,680

2,378

Capital expenditures

$ (43,029)

$ (26,000)

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified

Sep. 30, 2012

Dec. 31, 2011

Assets

Other assets, allowance

$ 515

$ 554

Shareholders' equity

Common shares, authorized (in shares)

60,000,000

Common shares, par value (in dollars per share)

$ 0.01

Ordinary shares [Member]

Shareholders' equity

Common shares, issued (in shares)

9,139,648

Common shares, outstanding (in shares)

9,139,648

Common Class A [Member]

Shareholders' equity

Common shares, issued (in shares)

20,301,592

Common shares, outstanding (in shares)

20,301,592

Document and Entity Information (USD $)

9 Months Ended

Sep. 30, 2012

Oct. 31, 2012

Jun. 30, 2011

Entities Information [Line Items]

Entity Registrant Name

APCO OIL & GAS INTERNATIONAL INC

Entity Central Index Key

0000311471

Current Fiscal Year End Date

--12-31

Entity Well-known Seasoned Issuer

Entity Voluntary Filers

Entity Current Reporting Status

Yes

Entity Filer Category

Large Accelerated Filer

Entity Public Float

$ 794,415,099

Entity Common Stock, Shares Outstanding

9,139,648

Document Fiscal Year Focus

2012

Document Fiscal Period Focus

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Sep. 30, 2012

Common Class A [Member]

Entities Information [Line Items]

Entity Common Stock, Shares Outstanding

20,301,592

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies [Abstract]

Fair Value Measurements

Revenue Recognition

The Company recognizes revenues from sales of oil, gas, and LPG at the time the product is delivered to the purchaser and title has been transferred

Taxes Other Than Income

The Company is subject to multiple taxes in Argentina and Colombia, including provincial production taxes, severance taxes, export taxes, shareholder equity taxes and various transaction taxes.

Restricted Cash

Inventory Valuation

Property and Equipment

The Company uses the successful-efforts method of accounting for oil and gas exploration and production operations, whereby costs of acquiring non-producing acreage and costs of drilling successful exploration wells and development costs are capitalized. Geological and geophysical costs, including three dimensional ("3D") seismic survey costs and costs of unsuccessful exploratory drilling are expensed as incurred.

Oil and gas properties are depreciated over their concession lives using the units of production method based on proved and proved producing reserves. The Company's proved reserves are limited to the concession life even though a concession's term may be extended for 10 years based on terms to be agreed on and with the consent of the Argentine government. Non oil and gas property is recorded at cost and is depreciated on a straight-line basis, using estimated useful lives of three to 15 years.

During the second quarter of 2012, the Company also recorded a recovery of unproved costs associated with the farm-out of 44 percent of its working interest in the exploration area within the Sur R�o Deseado Este concession. This cost recovery was approximately $278 thousand and the amount received in excess of this unproved cost has been recorded in other income within the total costs and operating expenses in the financial statements.

The Company reviews its proved and unproved properties for impairment on a property by property basis and recognizes an impairment whenever events or circumstances, such as declining oil and gas prices, indicate that a property's carrying value may not be recoverable. The Company records a liability for future asset retirement obligations in accordance with the requirements of FASB ASC 410 (Asset Retirement and Environmental Obligations).

Net Income per Share

Nonmonetary Transactions