10-Q

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 June 30, 2004

OR

[   ] 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 ARGENTINA INC.

(Exact name of registrant as specified in its charter)

CAYMAN ISLANDS
(State or other jurisdiction of	EIN 98-0199453
incorporation or organization)
ONE WILLIAMS CENTER, 26th FLOOR
TULSA, OKLAHOMA	74172
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number: (918) 573-2164

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 [X]   No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]   No [X]

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 July 31, 2004
Ordinary Shares, $.01 Par Value	7,360,311 Shares

APCO ARGENTINA INC.

INDEX

	Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets –June 30, 2004 and December 31, 2003		3
Consolidated Statements of Operations – Three and Six Months Ended June 30, 2004 and 2003		4
Consolidated Statements of Cash Flows –Six Months Ended June 30, 2004 and 2003		5
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosure About Market Risks		16
Item 4. Controls and Procedures		17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K		19
Administrative Services Agreement
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer and Chief Financial Officer

Certain matters discussed in this report, excluding historical information, include forward-looking statements — statements that discuss Apco Argentina Inc.’s expected future results based on current and pending business operations. Apco Argentina Inc. makes these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by words such as “anticipates,” “believes,” “expects,” “planned,” “scheduled,” “could,” “continues,” “estimates,” “forecasts,” “might,” “potential,” “projects” or similar expressions. Although Apco Argentina Inc. believes these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks that may cause future results to be materially different from the results stated or implied in this document. Additional information about issues that could cause actual results to differ materially from forward-looking statements is contained in Apco Argentina Inc.’s 2003 report on Form 10-K.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

APCO ARGENTINA INC.

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
(Amounts in Thousands, Except Share and Per Share Amounts)	2004			2003
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	22,994		$	17,571
Accounts receivable		3,367			2,633
Inventory		130			143
Other current assets		473			75
Total Current Assets		26,964			20,422
Property and Equipment:
Cost, successful efforts method of accounting		66,283			63,884
Accumulated depreciation, depletion and amortization		(38,204	)		(35,776	)
		28,079			28,108
Argentine investments, equity method		41,294			41,540
Other assets		1,856			2,046
	$	98,193		$	92,116
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,449		$	1,109
Affiliate payable		423			458
Accrued liabilities		961			955
Argentine income taxes payable		1,291			1,119
Dividends payable		1,196			1,196
Total Current Liabilities		5,320			4,837
Long-term liabilities		1,188			947
Deferred Argentine income taxes		165			61
Stockholders’ Equity:
Ordinary shares, par value $.01 per share; 15,000,000 shares authorized; 7,360,311 shares outstanding		74			74
Additional paid-in capital		9,326			9,326
Accumulated other comprehensive loss		(231	)		(87	)
Retained earnings		82,351			76,958
Total Stockholders’ Equity		91,520			86,271
	$	98,193		$	92,116

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

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APCO ARGENTINA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Amounts in Thousands, Except Per Share Amounts)	2004			2003		2004			2003
REVENUES:
Operating revenue	$	7,625		$	6,366	$	14,670		$	12,998
Equity income from Argentine investments		3,048			2,252		5,874			4,585
Other revenues		43			20		86			44
		10,716			8,638		20,630			17,627
COSTS AND EXPENSES:
Operating expense		1,270			1,346		2,400			2,418
Provincial production tax		938			644		1,681			1,256
Transportation & storage		105			104		211			199
Selling and administrative		623			583		1,250			1,198
Depreciation, depletion and amortization		1,197			1,177		2,449			2,179
Exploration expense		1,551			23		1,741			23
Argentine taxes other than income		556			460		784			1,105
Foreign exchange (gains) losses		(52	)		211		(109	)		542
Other (income) expense, net		(29	)		24		37			74
		6,159			4,572		10,444			8,994
Income before Argentine income taxes		4,557			4,066		10,186			8,633
Argentine income taxes		1,128			1,070		2,401			2,166
NET INCOME	$	3,429		$	2,996	$	7,785		$	6,467
Net Income per share-basic and diluted	$	0.47		$	0.41	$	1.06		$	0.88
Average ordinary shares outstanding – Basic and diluted		7,360			7,360		7,360			7,360

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

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APCO ARGENTINA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
(Amounts in Thousands, Except Per Share Amounts)	2004			2003
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	7,785		$	6,467
Adjustments to reconcile to net cash provided by operating activities:
Equity income from Argentine investment		(5,874	)		(4,585	)
Dividends from investments		6,120			2,040
Deferred income tax		104			(43	)
Depreciation, depletion and amortization		2,449			2,162
Changes in accounts receivable		(734	)		(1,840	)
Changes in inventory		13			72
Changes in other current assets		(398	)		80
Changes in accounts payable		340			261
Changes in affiliate payable		(35	)		(39	)
Changes in accrued liabilities		6			725
Changes in taxes payable		172			(1,970	)
Changes in other assets, other liabilities and other		266			(207	)
Net cash provided by operating activities		10,214			3,123
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures		(2,399	)		(1,730	)
Purchase of investments		—			(1,811	)
Net cash used in investing activities		(2,399	)		(3,541	)
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid ($0.325/share)		(2,392	)		(2,393	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		5,423			(2,811	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		17,571			15,065
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	$	22,994		$	12,254

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

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APCO ARGENTINA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1)	General
	The unaudited, consolidated financial statements of Apco Argentina Inc. (the “Company”), 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 2003 Annual Report on Form 10-K.
	In the opinion of the Company, all adjustments, consisting of only normal recurring adjustments, have been made to present fairly the results of the three and six month periods ended June 30, 2004 and 2003. The results for the periods presented are not necessarily indicative of the results for the respective complete years.
(2)	Revenue Recognition
	The Company recognizes revenues from sales of oil, gas, and plant products at the time the product is delivered to the purchaser and title has passed. Any product produced that has not been delivered is reported as inventory and is valued at the lower of cost or market. When cost is calculated, it includes total per unit operating cost and depreciation. Transportation and storage costs are recorded as expenses when incurred. The Company has had no contract imbalances relating to either oil or gas production.
	In January 2003, due to the rapid increase in world oil prices, combined with the reduced purchasing power of Argentine consumers resulting from the significant devaluation of Argentina’s currency that occurred from December 2001 through the first half of 2002, the Argentine government expressed a desire to maintain stability in domestic fuel prices. In this environment, the government requested that crude oil producers and refiners enter into a price stabilization agreement to cap domestic crude oil prices for a portion of domestic oil sales contracts at a price of $28.50 per barrel. In addition, producers and refiners also agreed that the difference (the “price credit”) between the actual price of West Texas Intermediate (“WTI”), the reference price used to determine the Company’s oil sales prices, and the $28.50 temporary cap would be payable at such time as WTI fell below $28.50. The debt payable by domestic refiners to producers accrues interest at an annual rate equivalent to LIBOR. This agreement that was originally scheduled to expire on March 31, 2003 went through several iterations. The most recent renewal expired on April 30, 2004 at which time the agreement was allowed to expire.
	Considering the war in Iraq, political events in the Middle East and Venezuela and increased demand for crude oil worldwide, the price of WTI could stay above the $28.50 cap for the foreseeable future. Given this possibility and the resultant uncertainty of when Argentine producers may expect to collect balances outstanding from refiners, effective January 1, 2004, the Company ceased recognizing revenue or the related receivable for any excess between the actual sales price pursuant to its oil sales contracts with domestic refiners that were subject to the price stabilization agreement and the $28.50 price cap.
	As of June 30, 2004, the total price credit available to the Company from domestic refiners as a consequence of the expired price stability agreement, including accrued interest, totaled $1.822 million, compared with $954 thousand at the end of 2003. The $954 thousand was recognized as revenue in 2003 and is included in other long-term assets on the Consolidated Balance Sheets. The $868 thousand increase in the price credit that has occurred during the first half of 2004 has not been recognized in the financial statements and will be recognized as revenue when the price of WTI falls below $28.50 and the Company continues to receive the $28.50 price. Additionally, sales by Petrolera Entre Lomas S.A., the Company’s equity investee, were also subject to the

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APCO ARGENTINA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	$28.50 price cap. During the first half of 2004, $646 thousand of equity income related to the Company’s net share of amounts over the cap were not recorded. These amounts will be recognized as equity income when the price of WTI falls below $28.50 and Petrolera continues to receive the $28.50 price.
	The decision by Argentine oil producers and refiners to not renew the price stability agreement beyond April 30 does not terminate the obligation of refiners to reimburse producers for the balances that accumulated from January 2003 through April 2004 if and when the price of WTI falls below $28.50.
(3)	Income Taxes
	As described in Note 8 of the Notes to Consolidated Financial Statements included in the Company’s 2003 Form 10-K, the Company believes its earnings are not subject to U.S. income taxes, nor Cayman Islands income or corporation taxes. Income derived by the Company from its Argentine operations is subject to Argentine income tax at a rate of thirty five percent and is included in the Consolidated Statements of Operations as Argentine income taxes.
	The effective income tax rate reflected in the Consolidated Statement of Operations differs from Argentina’s statutory rate of 35 percent because the Company incurs income taxes only in Argentina, the country where all of its income generating activities are located. As a result, differences between the Company’s consolidated effective rate and the statutory rate of 35 percent are caused primarily by income and expense generated and incurred outside of Argentina that 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 banks, general and administrative expenses incurred by the Company in its headquarters office in Tulsa, Oklahoma, equity income from the Company’s investment in Petrolera that is recorded by the Company on an after tax basis, and foreign exchange losses resulting from the devaluation of the peso which losses are not deductible in Argentina.
	Provision is made for deferred Argentine income taxes applicable to temporary differences between the financial statement and tax basis of the assets and liabilities, if any.
(4)	Investment in Petrolera Entre Lomas S. A.
	The Company uses the equity method to account for its investment in Petrolera Entre Lomas S. A. (“Petrolera”), a non-public Argentine corporation. In January 2003, the Company acquired an additional 1.58 percent of Petrolera for $1.811 million and increased its ownership to 40.8 percent.
	Under the equity method of accounting, the Company’s share of Petrolera’s net income (loss) is reflected as an increase (decrease) in its investment in Petrolera and is also recorded as equity income (loss) from Argentine investments. Dividends from Petrolera are recorded as a reduction of the investment.

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APCO ARGENTINA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Summarized unaudited income statement information for Petrolera for the six month periods ended June 30, 2004 and 2003 are as follows:

	Six months ended
	June 30,
(Amounts in Thousands)	2004		2003
Revenues	$	45,202	$	40,340
Expenses	$	20,221	$	17,924
Net income (loss)	$	14,395	$	11,240

(5)	Comprehensive Income
	Comprehensive income is as follows:

	Six months ended
	June 30,
(Amounts in Thousands)	2004			2003
Net income	$	7,785		$	6,467
Other comprehensive loss:
Minimum pension liability adjustment		(355	)		(169	)
Income tax benefit on other comprehensive loss		124			59
		(231	)		(110	)
Comprehensive income	$	7,554		$	6,357

(6)	Pension Plan
	In April 2004, the Company formed a defined contribution retirement benefit plan for its Argentine employees that required an initial contribution of $207 thousand to recognize prior years service. This contribution was charged to administrative expense in the second quarter. Assuming the current level of staffing, it is expected that future annual contributions will approximate $20 thousand.
(7)	Subsequent Events – Future Period Price Hedges
	On July 15, 2004, the Company entered into a collar for approximately 500,000 barrels of oil that extends from August 2, 2004 through January 31, 2006. The commodity reference price being hedged is West Texas Intermediate and the collar establishes a call strike price, or ceiling, of $53 per barrel and a put strike price, or floor, of $26. The counter party to this hedging transaction is a foreign international bank.

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

The following discussion explains the significant factors that have affected the Company’s financial condition and results of operations during the periods covered by this report.

FINANCIAL CONDITION

Internally generated cash flow from the Company’s interests in the Entre Lomas concession is the Company’s primary source of liquidity. In the past, both during calm periods and turbulent periods in Argentina’s economy, the Entre Lomas operation has had the ability to finance development and exploration expenditures with internally generated cash flow. Historically, the Company has not relied on other sources of capital such as debt or equity, in part due to the Company’s focus on development of the Entre Lomas concession, but also due to the turmoil that has periodically affected Argentina’s economy and resulted in periods of severe inflation accompanied by significant currency devaluations.

Reference is made to the section “Argentine Economic and Political Environment” on page 16 for a description of the economic crisis that affected Argentina in late 2001 and early 2002. In general, although this crisis created a climate of business uncertainty for companies in Argentina, the environment for oil and gas companies operating in the country has improved since the end of 2002. During this period, the value of Argentina’s currency has stabilized and inflation has fallen to low single digit levels. Furthermore, in 2003 Argentina’s economy grew at a rate of 8 percent and oil prices strengthened significantly. Argentina’s economy has continued to grow and the price of oil has continued to increase throughout 2004.

In the first six months of 2004, the Company generated net income of $7.8 million and cash flow from operating activities of $10.2 million, which includes $6.1 million in dividends from Petrolera. These amounts compare with net income of $6.5 million, net cash provided by operating activities of $3.1 million, and Petrolera dividends of $2 million during the comparable period in 2003, respectively. Net cash provided by operating activities in 2003 included atypically large income tax payments during the second quarter that resulted from an imbalance between tax advances paid and actual taxes owed for the year 2002.

As of June 30, 2004, the Company had accumulated $23 million of cash and cash equivalents representing an increase of $5.4 million during the first six months of 2004. Of this balance, all but $1.1 million representing the Company’s consolidated proportional share of joint venture funds is deposited in the Company’s bank accounts.

Product Prices

Volatility of oil prices has a significant impact on the Company’s ability to generate earnings, fund capital requirements and pay shareholder dividends.

World oil prices gradually improved throughout 2003 remaining near or above $30 per barrel and moving higher in 2004. By the close of June 2004 and throughout July, the price of West Texas Intermediate (“WTI”), the crude oil type that serves as the reference price for crude oil sales contracts in Argentina, moved higher than $40 and has been oscillating in a range between $36 and $43. The Company has benefited from this increase, but only for the portion of its total domestic oil sales in Argentina that were not governed by the $28.50 per barrel price cap that was in effect for oil sales to Argentine refiners throughout 2003 and the first four months of 2004 which is described in the following paragraphs.

In January 2003, due to the rapid increase in world oil prices, combined with the reduced purchasing power of Argentine consumers resulting from the significant devaluation of Argentina’s currency that occurred from December 2001 through the first half of 2002, the Argentine government expressed a

9

desire to maintain stability in domestic fuel prices. In this environment, the government requested that crude oil producers and refiners enter into a price stabilization agreement to cap domestic crude oil prices for a portion of domestic oil sales contracts at a price of $28.50 per barrel. In addition, producers and refiners also agreed that the difference (the “price credit”) between the actual price of WTI, the reference price used to determine the Company’s oil sales prices, and the $28.50 temporary cap would be payable at such time as WTI fell below $28.50. The debt payable by domestic refiners to producers accrues interest at an annual rate equivalent to LIBOR. This agreement that was originally scheduled to expire on March 31, 2003 went through several iterations. The most recent renewal expired on April 30, 2004 at which time the agreement was allowed to expire. The decision by Argentine oil producers and refiners to not renew the price stability agreement beyond April 30 does not terminate the obligation of refiners to reimburse producers for the balances that accumulated from January 2003 through April 2004 if and when the price of WTI falls below $28.50.

With the price stability agreement now expired and oil prices increasing as they have during the second quarter of 2004, in order to maintain stability in Argentine gasoline and diesel prices and avoid inflationary pressures on the economy, the Argentine government encouraged producers and refiners to take actions needed to alleviate the impact of higher crude oil prices on Argentina’s economy. As a result, producers and refiners, including the Company and Petrolera, agreed to adjust the percent used to convert US dollar denominated oil prices to pesos for the purpose of invoicing and liquidating crude oil sales to Argentine refiners. The requirement that domestic oil sales in Argentina be liquidated in pesos at a percentage of the existing exchange rate dates back to May 2002 and was one of the measures implemented by the Argentine government in response to the country’s economic crisis.

As a result, beginning May 2004, as long as the price of WTI does not exceed $36, domestic oil sales are converted to pesos at 86 percent of the US dollar to peso exchange rate at the time of sale. If WTI exceeds $36, the percent to be applied becomes 80 percent.

Natural Gas Prices

The Company sells its gas to Argentine customers pursuant to peso denominated contracts with occasional spot market sales. As a result of Economic Emergency Law 25,561 enacted by the Argentine government in January of 2002 that pesofied contracts and froze gas prices at the wellhead, the Company’s natural gas sales prices, expressed in US dollars, fell in proportion to the devaluation of the Argentine peso. Reference is made to the section “Argentine Economic and Political Environment” on page 16 for a description of the economic crisis that led to the enactment of the economic Emergency Law 25,561.

As reflected in the statistical table on page 15, the Company’s average natural gas sales price per thousand cubic feet (“mcf”) for the first six months of 2003 averaged $.44. This compares with a pre-economic crisis average price of $1.28 for all of 2001. Recent events in Argentina have caused natural gas sales prices to rise. For the six months ended June 30, 2004, natural gas sales prices averaged $.64 per mcf reflecting this trend.

Since the end of 2001, as a consequence of the unfavorable gas price environment, most natural gas producers in Argentina, including the Entre Lomas and Acambuco joint venture partners, suspended gas development activities until market conditions improve. Without development of gas reserves in Argentina, supplies of gas in the country declined, while demand for gas increased because of low prices and the resurgence of growth of Argentina’s economy in 2003 and the first half of 2004. The result has been a natural gas and power supply crisis for 2004 that is projected to continue into 2005. Since the beginning of 2004, the Argentine government has taken several steps in an effort to prevent possible shortages. Recently gas exports to Chile were curtailed and the country entered into agreements to import natural gas from Bolivia. In February 2004, the Argentine government approved measures that enabled natural gas producers in the country to sell directly to large industrial users through contracts and prices negotiated directly between the parties. Subsequently, in April 2004, the government and natural gas producers entered into an agreement, the stated objective of which is to assure domestic gas supplies. The

10

agreement permits producers to renegotiate gas sales contracts, excluding those that could affect residential customers, in accordance with price increases permitted by the Secretary of Energy in exchange for investments needed to increase gas production in the country.

In response to this agreement, during the second quarter 2004, the Entre Lomas joint venture partners carried out investments required to put into production certain identified behind pipe gas reserves. Acambuco was essentially unaffected by the previously described agreement because the San Pedrito field is producing at full capacity. Gas development projects in Acambuco are of such a large scale that they require long lead times. Increasing production in Acambuco necessitates the development of the Macueta field that requires the construction of a gas pipeline and a capacity expansion of the concession’s gas treatment plant that combined are estimated to cost approximately $70 million, or $1 million net to the Company’s interest. Upon completion the Macueta x-1001(bis) well will be put on production and subsequent development wells drilled. The earliest that this field could go on production is early 2006. Engineering design and initiating materials purchases for the gas pipeline and expansion of the gas treatment plant have been accelerated and are now scheduled to proceed during the balance of 2004. Construction of the full project and completion of the Macueta x-1001(bis) will get underway in 2005.

Production Volumes

During the six months ended June 30, 2004, oil production volumes, net to the Company’s consolidated and equity interests, combined totaled 978 thousand barrels, an increase of 5 percent when compared with 928 thousand barrels during the comparable period in 2003. The increase is due to favorable results from the 2004 Entre Lomas development drilling and workover campaigns. Oil sales volumes are provided in the statistical table presented on page 15.

Over the same period, gas volumes, net to the Company’s consolidated and equity interests, totaled 2.3 billion cubic feet (“bcf”), compared with 2.2 bcf during the comparable period in 2003. The increase is due to greater Acambuco gas production volumes that resulted from operating the San Pedrito field at full capacity throughout the Argentine summer months due to increased demand for gas in northern Argentina.

LPG volumes, net to the Company’s consolidated and equity interests, totaled 8.2 thousand tons, an increase of 13 percent when compared with 7.3 thousand tons during the comparable period in 2003. The increase is due to the continued improved performance at the Entre Lomas LPG plant resulting from the plant revamp completed in mid 2002.

Tax Increases

On May 12, 2004, the Argentine government increased both the tax on oil exports from 16.67 percent to 20 percent and the tax on LPG exports from 4.67 percent to 16.67 percent while also introducing a tax on natural gas exports of 16.67 percent. The increased oil export tax was an additional response to rising oil prices. The introduction of the natural gas export tax is another measure implemented by the Argentine government aimed at assuring sufficient natural gas supplies for Argentina. The Company was immediately impacted by the increase in the tax on LPG exports.

During the last half of July and the first days of August 2004, oil prices have spiked to record levels. As a result, effective August 5, 2004, the Argentine government further increased the tax on oil exports by establishing the 20 percent rate described in the previous paragraph as the base oil export tax which would apply when the per barrel price of WTI is at $32 or less, and providing for gradual tiered increases in this tax up to a maximum rate of 31 percent as the price of WTI rises from $32 to $45. The Company is not immediately impacted by this the increased tax as it is, currently, not exporting oil.

This increase in the oil export tax creates an immediate net back disparity for Argentine producers between export oil sales and oil sold to Argentine refiners. As has occurred in the recent past, it is likely that, sooner rather than later, refiners and producers, with the encouragement of the government, will

11

promptly resolve this anomalous condition by further adjusting the percent used to convert US dollar denominated oil prices to pesos for the purpose of invoicing and liquidating crude oil sales to Argentine refiners, to create an approximate parity between the net back on domestic and export sales.

Capital Program

During the first half of 2004, the Company’s capital expenditures, net to its consolidated interests totaled $2.4 million. Including its share of capital attributable to its equity interest in Petrolera, the Company’s year to date capital expenditures totaled $5.4 million. Most of the capital expenditures to date pertain to development drilling in the Entre Lomas concession. Through June 30, 2004, the Company has participated in the drilling of 13 development wells in the Entre Lomas concession. Of these, 9 have been completed and put into production and 3 wells were at various stages of drilling and completion at the close of June. One partially drilled well experienced unexpected mechanical problems that could not be resolved. Drilling operations were halted and the well is currently under study to determine its future outcome. Entre Lomas capital spending during 2004 has also included various production facilities investments.

The planned reactivation program in the Canadon Ramirez concession was completed during the second quarter. Of six workovers performed, two wells were completed and placed on production. These two wells have demonstrated the capability to produce approximately 100 barrels per day. However, due to relative high water cuts, a combination of limited storage capacity, a lack of treating facilities, no pipeline access, and inclement weather, we are limited in our ability to maintain these wells continuously on production. With the exception of purchased production equipment, all costs associated with this program were charged to expense as incurred. During the second quarter 2004, the acquisition of 130 square kilometers of 3D seismic in Canadon Ramirez was completed. Seismic processing ended in July and interpretation is currently underway. Should seismic interpretation identify attractive drilling prospects in Canadon Ramirez, it is the Company’s intention to drill an exploration well in the near future. In the meantime, the Company intends to continue intermittent production of the two completed wells. The costs of the reactivation program up to the point of first production and the 3D seismic totaled $959 thousand.

Puesto Galdame

In March 2004, the Company entered into a farm out agreement with Chevron San Jorge S.R.L. (“Chevron”) and Advantage Resources International S.R.L. (“Advantage”), both Argentine companies, whereby the Company undertook to pay a share of the costs to drill, complete and abandon an exploration well in the CNQ 31 (“Puesto Galdame”) Exploration Permit. During April and May, the El Tigre x-1 well was drilled and reached total depth of 3,200 m (10,500 ft). The objective formations were reached, but log analysis clearly indicated water saturations that were too high and little to no indications of hydrocarbons. Consequently, the well was plugged and abandoned. The total cost of the well to the Company was $720 thousand which cost was charged to expense. The Company earned its 22.5% interest in the Puesto Galdame block, however, since the expiration date of the exploration permit was approaching, the partners returned the Puesto Galdame block to the provincial authorities.

Growth Opportunities

In the previous 30 months, the Company has deployed cash resources to increase its presence in Argentina. During this period, the Company twice increased its participation in the Entre Lomas concession by purchasing additional shares of Petrolera. The first increase occurred in 2002 with the purchase of an additional 5.54 percent of the shares of Petrolera from the Perez Companc family for $6.9 million. The second increase occurred in early 2003, with the purchase for $1.8 million of Fimaipu S.A. that owns 1.579 percent of the shares of Petrolera. The name of Fimaipu S.A. has since been changed to Apco Argentina S.A.

12

In addition to the previously described investments, the Company also purchased an additional 36.82 percent participation in the Canadon Ramirez concession, increasing its interest to 81.82 percent and subsequently invested in 3D seismic and a reactivation of previously inactive wells on that property. The Company has also acquired, by investing in 3D seismic, a 50 percent interest in the Capricorn permit, an exploration block in northern Argentina covering 2.1 million acres, and participated in the drilling of an exploration well in the Puesto Galdame exploration permit.

The Company’s management, as part of a strategy for growth, will continue to seek additional ways to deploy its financial resources for investing in exploration and reserve acquisition opportunities both in and outside of Argentina.

RESULTS OF OPERATIONS

Second Quarter Comparison

During the three months ended June 30, 2004, the company generated net income of $3.4 million, an increase of $433 thousand, compared with $3.0 million for the comparable period in 2003. The improvement in net income is due primarily to increases in operating revenues and equity income from Argentine investments, partially offset by increased exploration expense.

Operating revenues improved by $1.3 million due to increased oil, gas and LPG sales prices. During the second quarter 2004, oil, gas and plant product prices averaged $31.01 per barrel, $.70 per thousand cubic feet (“mcf”), and $290.95 per metric ton, respectively, compared with $26.04 per barrel, $.51 per mcf, and $257.63 per metric ton, respectively, for the comparable period in 2003. Quarter-to-quarter volume variances were not material.

Compared with the second quarter 2003, equity income from Argentine investments increased by $796 thousand. Because the Company’s equity income is comprised solely of its 40.803 percent share of the income of Petrolera Entre Lomas S.A., all other variances explanations included herein, except exploration expense, also serve to explain the increase in equity income. Petrolera’s sole business is its interest and operatorship of the Entre Lomas concession and, as a result, its revenues and expenses are derived from the same operations as the Company.

Foreign exchange (gains) losses improved during the period by $263 thousand. In 2003, the Company incurred exchange losses of $211 thousand compared with a gain of $52 thousand during the current quarter. In the first five months of 2003, the Company had outstanding a substantial peso denominated income tax payable during a period when the Argentine peso strengthened considerably against the US dollar.

The above favorable variances in operating revenues were offset by increases of $1.5 million in exploration expense and $294 thousand in provincial production taxes that is directly related to the improvement in operating revenues. Exploration expense during the second quarter included costs associated with 3D seismic shot in the Canadon Ramirez concession, the costs of reactivation efforts in Canadon Ramirez, and costs of drilling the unsuccessful El Tigre x-1 well in Puesto Galdame block.

Six-Month Comparison

During the six months ended June 30, 2004, the company generated net income of $7.8 million, an increase of $1.3 million, compared with $6.5 million for the comparable period in 2003. The improvement in net income is due primarily to increases in operating revenues and equity income from Argentine investments, partially offset by increased exploration expense.

Operating revenues improved by $1.7 million due to increased oil, gas and LPG sales prices. Higher oil volumes also contributed to the increase.

13

In 2004, oil, gas and plant product prices averaged $30.13 per barrel, $.64 per thousand cubic feet (“mcf”), and $292.35 per metric ton, respectively, compared with $28.29 per barrel, $.44 per mcf, and $259.31 per metric ton, respectively, for the comparable period in 2003. During the six months the Company sold 426 thousand barrels of oil, representing an increase of 14 thousand barrels, or 3 percent, compared with 412 thousand barrels for the same six months in 2003. Increases in natural gas and LPG volumes were not material contributors to the increase in operating revenues.

Compared with the six months of 2003, equity income from Argentine investments increased by $1.3 million. Because the Company’s equity income is comprised solely of its 40.803 percent share of the income of Petrolera Entre Lomas S.A., all other variances explanations included herein, except exploration expense, also serve to explain the increase in equity income. Petrolera’s sole business is its interest and operatorship of the Entre Lomas concession and, as a result, its revenues and expenses are derived from the same operations as the Company.

Argentine taxes other than income decreased by $321 thousand because in the first quarter of 2003, the Company sold crude oil to export markets which sales were subject to a 16.67 percent export tax. All oil sales in 2004 have, to date, been to Argentine refiners.

Foreign exchange (gains) losses improved during the period by $651 thousand. The reason for the improvement is the same as that described in the quarterly comparison.

The above favorable variances in operating revenues were offset by increases of $1.7 million in exploration expense, $425 thousand of provincial production taxes that is directly related to the improvement in operating revenues, $235 thousand of Argentine income taxes that is directly related to the increase in before tax income, and $270 thousand in depreciation, depletion and amortization expense. The causes described for the increase in exploration expense for the quarterly comparison serve to explain the increase over the six-month periods.

For both the quarter and six months ended June 30, 2004, oil sales prices have increased consistent with the trend in world oil prices. However, the particular oil price increases experienced by the Company have been restricted by the price increase limitations described in the section “Financial Condition” on page 9. Regarding the increase in natural gas prices for the same periods, as described on page 10, the Argentine government has taken steps needed to allow natural gas prices to rise from the depressed levels of the last two years.

14

The following table illustrates total sales volumes of crude oil, condensate, natural gas and gas liquids and average sale prices and production costs for the six months ended June 30, for the years indicated.

	2004		2003
Volumes consolidated interests
Crude oil and condensate (bbls)		425,533		411,574
Gas (mcf)		1,249,291		1,148,248
LPG (tons)		3,574		3,172
Volumes equity interest in Petrolera
Crude oil and condensate (bbls)		538,736		523,834
Gas (mcf)		1,051,265		1,065,915
LPG (tons)		4,639		4,109
Total Volumes
Crude oil and condensate (bbls)		964,269		935,408
Gas (mcf)		2,300,556		2,214,163
LPG (tons)		8,213		7,281
Average Sales Prices (in U.S. dollars)
Oil (per bbl)	$	30.13	$	28.29
Gas (per mcf)		.64		.44
LPG (per ton)		292.35		259.31
Average Production Cost (in U.S. dollars)
Oil (per bbl)	$	4.99	$	5.31
Gas (per mcf)		.13		.10
LPG (per ton)		22.96		22.55
Average Depreciation Costs (us U.S. dollars)
Oil (per bbl)	$	4.73	$	4.65
Gas (per mcf)		.30		.21

Volumes presented in the above table represent those sold to customers and have not been reduced by the 12 percent provincial production tax that is paid separately and is accounted for as an expense by the Company. In calculating provincial production tax payments, Argentine producers are entitled to deduct gathering, storage, treating and compression costs.

15

Item 3. Quantitative and Qualitative Disclosure About Market Risks

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

Commodity Price Risk

The Company produces and sells crude oil and natural gas, and the Company’s financial results can be significantly impacted by fluctuations in commodity prices due to changing market forces. Based on current levels of oil production, a variation of plus or minus $1 per barrel in oil prices, without considering the effects of hedging, would on an annual basis cause fluctuations in the Company’s operating revenue, equity income, and net income, of approximately $700 thousand, $500 thousand, and $800 thousand, respectively.

The Company has historically not used derivatives to hedge price volatility. However, in 2004, because the per barrel price of oil moved above $40 and has remained at this level for longer than expected, the Company entered into a collar for approximately 500,000 barrels of oil that extends from August 2, 2004 through January 31, 2006. The commodity reference price being hedged is West Texas Intermediate and the collar establishes a call strike price, or ceiling, of $53 per barrel and a put strike price, or floor, of $26.

Foreign Currency and Operations Risk

The Company’s operations are located in Argentina. Therefore, the Company’s financial results may be affected by factors such as changes in foreign currency exchange risks, weak economic conditions, or changes in Argentina’s political climate.

Argentine Economic and Political Environment

During the decade of the 1990’s, Argentina’s government pursued free market policies, including the privatization of state owned companies, deregulation of the oil and gas industry, tax reforms to equalize tax rates for domestic and foreign investors, liberalization of import and export laws and the lifting of exchange controls. The cornerstone of these reforms was the 1991 convertibility law that established an exchange rate of one Argentine peso to one US dollar. These policies were successful as evidenced by the elimination of inflation and substantial economic growth during the early to mid 1990’s. However, throughout the decade, the Argentine government failed to balance its fiscal budget, incurring repeated significant fiscal deficits that by the end of 2001 resulted in the accumulation of $130 billion of debt.

Today Argentina finds itself in a critical economic situation that combines high levels of external indebtedness, a financial and banking system in crisis, a country risk rating that has reached levels beyond the historical norm, atypically high levels of unemployment and an economic contraction that has lasted four years.

Late in 2001, the country was unable to obtain additional funding from the International Monetary Fund. Economic instability increased resulting in substantial withdrawals of cash from the Argentine banking system that occurred over a short period of time. The government was forced to implement monetary restrictions and placed limitations on the transfer of funds out of the country without the authorization of the Central Bank of the Republic of Argentina. Then President De la Rua and his entire administration were forced to resign in the face of public dissatisfaction. After his resignation in December 2001, there was for a few weeks a revolving door of Presidents that were appointed to office by Argentina’s congress but quickly resigned in reaction to public outcry. Eduardo Duhalde was appointed President of Argentina in January 2002 to hold office until the next Presidential election in 2003.

In January 2002, the government defaulted on a significant portion of Argentina’s $130 billion of debt and the national Congress passed Emergency Law 25,561, which among other things, overturned the long

16

standing but unsustainable convertibility plan. The government eventually adopted a floating rate of exchange in February 2002. Two specific provisions of the Emergency Law directly impact the Company. First, a tax on the value of hydrocarbon exports was established effective April 1, 2002. The second provision, was the requirement that domestic commercial transactions, or contracts for sales in Argentina that were previously denominated in US dollars were converted to pesos (“pesofication”) by liquidating those sales in Argentina at an exchange rate to be negotiated between sellers and buyers. Furthermore, the government placed a price freeze on natural gas prices at the wellhead. With the price of natural gas pesofied and frozen, the US dollar equivalent price for natural gas in Argentina fell in direct proportion to the level of devaluation.

The abandonment of the convertibility plan and the decision to allow the peso to float in international exchange markets resulted in a strong devaluation of the peso. By September 30, 2002, the peso to U.S. dollar exchange rate had increased from 1:1 to 3.74:1. However, since the end of the third quarter 2002 Argentina’s economy has shown signs of stabilization.

Nestor Kirchner, the former governor of the province of Santa Cruz since 1991, won the April 27, 2003 presidential elections. In September 2003, the Kirchner administration reached agreement with the International Monetary Fund to reschedule $21 billion of debt with various international lending agencies which debt was to mature over the next three years. Negotiations are underway to restructure Argentina’s debt that is currently in default. Since December 2001, the Country’s total public debt has grown by $50 billion and now totals $180 billion.

In 2003, the Argentine economy grew at a rate of 8 percent, and if conditions remain stable the government is projecting growth for 2004 of 6 percent. Of course this growth comes on the heels of the severe economic contraction that occurred in the previous four years but it is a positive indicator for the future. Argentina’s ability to successfully renegotiate its foreign debt depends in large part on economic growth. At June 30, 2004, the peso to US dollar exchange rate was 2.96:1.

During 2004, commodity prices, in general, have increased, in particular the price of crude oil. As a commodity exporter, Argentina’s level of exports has improved substantially, as has its fiscal balance, which is running a surplus far larger than previously projected by government economists. The government has, when possible, taken advantage of this environment by increasing certain taxes, such as the oil export tax described in the section “Tax Increases” on page 11, to increase its total tax revenues and continue improving its fiscal balance.

Item 4. Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15(d) - (e) of the Securities Exchange Act) (Disclosure Controls) was performed as of the end of the quarter covered by this report. This evaluation was performed under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, subject to the limitations noted below, these Disclosure Controls are effective.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s Disclosure Controls or its 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

17

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. The Company monitors its Disclosure Controls and Internal Controls and makes modifications as necessary; the Company’s intent in this regard is that the Disclosure Controls and the Internal Controls will be modified as systems change and conditions warrant.

Notwithstanding the above, management believes that its current controls are effective. In addition, there has been no material change in the Company’s Internal Controls that occurred during the Company’s second fiscal quarter.

18

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(a)	The exhibits listed below are filed or furnished as part of this report:
	10.1 – Administrative Services Agreement effective January 1, 2004, by and between Apco Argentina Inc. and The Williams Companies, Inc.
	31.1 – Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2 – Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32 – Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)	REPORTS ON FORM 8-K
	On May 14, 2004, the Company filed a report on Form 8-K under Items 7, 9 and 12 and furnished as an exhibit a press release announcing the Company’s financial results for the quarter ended March 31, 2004.

19

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 ARGENTINA INC.
	(Registrant)
By:	/s/ Thomas Bueno
	President, Chief Operating and
	Chief Accounting Officer
	(Duly Authorized Officer of the Registrant)

August 12, 2004

20

INDEX TO EXHIBITS

EXHIBIT
NUMBER	DESCRIPTION
10.1	Administrative Services Agreement effective as of January 1, 2004, by and between Apco Argentina Inc. and The Williams Companies, Inc.
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

21

EX-10.1

                                                                    EXHIBIT 10.1

                                                                  EXECUTION COPY

                        ADMINISTRATIVE SERVICES AGREEMENT

                                     BETWEEN

                               APCO ARGENTINA INC.

                                       AND

                          THE WILLIAMS COMPANIES, INC.

                         EFFECTIVE DATE: JANUARY 1, 2004



                                TABLE OF CONTENTS



                                                                            PAGE
                                                                         
1.   DEFINITIONS.........................................................     1

2.   TERM................................................................     4

3.   PROVISION OF SERVICES...............................................     4

4.   COMPENSATION........................................................     6

5.   INVOICING AND PAYMENTS..............................................     8

6.   RIGHT TO AUDIT......................................................     8

7.   INDEPENDENT CONTRACTOR STATUS.......................................     9

8.   INDEMNIFICATION.....................................................     9

9.   INSURANCE...........................................................    10

10.  CONFIDENTIALITY.....................................................    11

11.  LIMITATION OF LIABILITY.............................................    12

12.  NOTICES.............................................................    12

13.  CERTAIN PRACTICES...................................................    14

14.  NON-WAIVER..........................................................    14

15.  ASSIGNMENT..........................................................    15

16.  NON-EXCLUSIVE AGREEMENT.............................................    15

17.  NO THIRD PARTY BENEFICIARY..........................................    15

18.  HEADINGS............................................................    15

19.  ENTIRE AGREEMENT....................................................    15

20.  SEVERABILITY........................................................    15

21.  AMENDMENTS..........................................................    16

22.  GOVERNING LAW.......................................................    16

23.  DISPUTE RESOLUTION..................................................    16

24.  MUTUAL COOPERATION..................................................    17

25.  FORCE MAJEURE.......................................................    17


                                       -i-


                        ADMINISTRATIVE SERVICES AGREEMENT

      THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered
into as of this 1st day of January, 2004 ("Effective Date"), by and between APCO
Argentina Inc., a company organized under the laws of the Cayman Islands and its
Subsidiaries ("Company" or "Apco"), and The Williams Companies, Inc.
("Williams"), a company organized under the laws of the State of Delaware, USA.

      WHEREAS, Company is a public company whose stock is traded on the NASDAQ
but has few employees and is in need of personnel to perform administrative
services on behalf of the Company;

      WHEREAS, Williams owns approximately 69% of the issued and outstanding
stock of Company and has been providing administrative, legal and management
services ("Services") to Company without a formal written agreement.

      WHEREAS, Company desires to engage the services of Williams to perform
various Services, under the terms and conditions hereinafter provided; and

      WHEREAS, Williams is willing to perform the Services upon the terms and
conditions hereinafter set forth.

      NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Parties agree as follows:

1.    DEFINITIONS:

      (a)   The following terms have the meanings assigned herein.

            (i)   "Affiliate" of a Person means a Person (i) which is a
                  Subsidiary of that Person, (ii) of which that Person is a
                  Subsidiary, or (iii) which is a Subsidiary of a Person of
                  which that Person is a Subsidiary.

            (ii)  "Agreement" means this Administrative Services Agreement, as
                  amended or supplemented from time to time, and the exhibits
                  hereto, which are incorporated herein by reference.

            (iii) "Applicable Law" means, with respect to any Person or any
                  property or asset, all laws, ordinances, codes, rules,
                  regulations, orders, writs, injunctions, decrees, rulings,
                  determinations, awards or standards of any Governmental
                  Authority, all Governmental Authorizations and all agreements
                  with any Governmental Authority applicable to or binding on
                  such Person (or its properties or assets) or to such property
                  or asset from time to time or at the time specified in this
                  Agreement, as the case may be.

            (iv)  "Bankruptcy" of a Person means (a) Involuntary Bankruptcy or
                  (b) commencement by a Person of a voluntary case or proceeding

                                        1


                   under any applicable bankruptcy, insolvency, reorganization
                   or other similar law or of any other case or proceeding to be
                   adjudicated a bankrupt or insolvent, or the consent by such
                   Person to the entry of a decree or order for relief in
                   respect of such Person in an involuntary case or proceeding
                   under any applicable bankruptcy, insolvency, reorganization
                   or other similar law or to the commencement of any bankruptcy
                   or insolvency case or proceeding against such Person, or the
                   filing by such Person of a petition or answer or consent
                   seeking reorganization or relief under any Applicable Law; or
                   consent by such Person to the filing of such petition or to
                   the appointment of or taking possession by a custodian,
                   receiver, liquidator, assignee, trustee, sequestrator or
                   similar official of such Person or of any substantial part of
                   the property of such Person, or the making by such Person of
                   an assignment for the benefit of creditors, or the admission
                   by such Person in writing of its inability to pay its debts
                   generally as they become due, or the taking of corporate
                   action by such Person in furtherance of any such action.

            (v)    "Business Days" means any day other than Saturday, Sunday or
                   a legal holiday in New York, New York.

            (vi)   "Calendar Month" means any of January, February, March,
                   April, May, June, July, August, September, October, November
                   or December, as applicable.

            (vii)  "Claims" has the meaning specified in Section 8(a).

            (viii) "Company" has the meaning specified in the preamble to this
                   Agreement.

            (ix)   "Confidential Information" has the meaning specified in
                   Section 10(a)(i).

            (x)    "Effective Date" has the meaning specified in the preamble to
                   this Agreement.

            (xi)   "Governmental Authority" means any judicial, legislative,
                   administrative or other national, state, municipal or local
                   governmental authority, ministry, department, any
                   administrative agency, office, organization or authority
                   having jurisdiction over the Parties.

            (xii)  "Governmental Authorization" means any authorization,
                   consent, ruling, permit, certification, exemption,
                   exoneration or registration by or with any Governmental
                   Authority.

            (xiii) "Involuntary Bankruptcy" means entry by any competent
                   governmental authority of any jurisdiction or a court having
                   jurisdiction in the premises of (i) a decree or order for
                   relief in respect

                                        2



                    of such Person in an involuntary case or proceeding under
                    any applicable bankruptcy, insolvency, reorganization or
                    other similar law or (ii) an involuntary or contested decree
                    or order adjudging such Person a bankrupt or insolvent, or
                    approving as properly filed a petition seeking
                    reorganization, arrangement, adjustment or composition of or
                    in respect of such Person under any applicable law, or
                    appointing a custodian, receiver, liquidator, assignee,
                    trustee, sequestrator or other similar official of such
                    Person or of any substantial part of the property of such
                    Person, or ordering the winding up or liquidation of the
                    affairs of such Person.

            (xiv)   "Parties" and "Party" mean Company and Williams or either of
                    them.

            (xv)    "Person" means any individual, corporation, partnership,
                    joint venture, association, trust, unincorporated
                    organization or government or any agency or political
                    subdivision thereof.

            (xvi)   "Representatives" of a Party shall mean directors, officers,
                    employees, auditors, counsel, financial and other advisors
                    and other representatives and Affiliates of such Party, and
                    such Affiliates' directors, officers, employees, auditors,
                    counsel, financial and other advisors and other
                    representatives.

            (xvii)  "Services" shall have the meaning specified in the second
                    Whereas clause to this Agreement hereinabove.

            (xviii) "Subsidiary" of a Person means (i) a corporation more than
                    50% of the outstanding voting shares of which is owned,
                    directly or indirectly, by such Person or by one or more
                    other Subsidiaries of such Person or by such Person and one
                    or more Subsidiaries thereof or (ii) any other Person (other
                    than a corporation) in which such Person, or one or more
                    other Subsidiaries of such Person, or such Person and one or
                    more other Subsidiaries thereof, directly or indirectly, has
                    at least a majority ownership and power to direct the
                    policies, management and affairs thereof.

            (xix)   "US Foreign Corrupt Practices Act" means the United States
                    Foreign Corrupt Practices Act of 1977, as amended from time
                    to time.

            (xx)    "Williams" has the meaning specified in the preamble to this
                    Agreement.

            (xxi)   "Williams E&P" shall mean Williams' exploration and
                    production, business unit that conducts exploration and
                    production of hydrocarbons activities.

      (b)   For all purposes of this Agreement, except as otherwise expressly
provided or to the extent that the context otherwise requires:

                                        3


            (i)   the terms defined herein include the plural as well as the
                  singular and vice versa;

            (ii)  words importing gender include all genders;

            (iii) any reference to an "Article", "Section" or "Exhibit" refers
                  to an article, section or exhibit, as the case may be, of this
                  Agreement;

            (iv)  all references to "this Agreement" mean this Agreement,
                  including all exhibits hereto, and the words "herein",
                  "hereof", "hereto" and "hereunder" and other words of similar
                  import refer to this Agreement and its exhibits, as a whole
                  and not to any particular article, section, exhibit or other
                  subdivision;

            (v)   the symbol "$" or "US$" means United States dollars; and

            (vi)  whenever the words "include," "includes," or "including" are
                  used in this Agreement, they shall be deemed to be followed by
                  the words "without limitation".

2.    TERM:

      (a)   This Agreement shall be effective commencing upon the Effective
Date.

      (b)   This Agreement shall remain in effect for one year and shall
automatically renew on the anniversary of the Effective Date and each year
thereafter unless terminated by either party upon 90 days prior written notice
prior to any anniversary of the Effective Date. Either Williams or Company may
terminate any given Service provided hereunder at any time upon 60 days prior
written notice.

      (c)   Promptly after the date of any termination, Williams shall be paid
for any Services rendered by Williams through the date on which Williams ceases
to perform such Services.

      (d)   Termination of this Agreement in accordance with this Section 2
shall not affect the rights, privileges, duties, liabilities or obligations of
either Party which arose or accrued prior to the date of termination, and this
Section 2 and Sections 8, 9, 10, 11, 14, 17, 18, 19, 20, 22 and 23 shall survive
any termination of this Agreement.

3.    PROVISION OF SERVICES:

      (a)   Company hereby appoints and retains Williams to perform the Services
on the terms and conditions set forth in this Agreement. Williams hereby accepts
and agrees to perform the Services in accordance with the terms and conditions
of this Agreement.

      (b)   Subject to any limitations on availability and resources and such
other limitations as set forth in this Agreement, the Services shall be those
administrative, legal and financial services described below and such other
services as may be agreed upon from time to time by

                                       4


Company and Williams, which shall be performed or provided subject to and under
the direction and supervision of, Company:

            (i)    internal audit, corporate communications, controller,
                   security, human resources, storage, accounting, legal, tax,
                   risk management and insurance, administration, management,
                   corporate secretarial services and information services,
                   including without limitation, hardware support, systems
                   design, programming, production and distribution services but
                   only to the extent of current capacity levels and subject to
                   limitations set forth in any applicable agreements of
                   Williams;

            (ii)   right to use third party licensed software licensed to
                   Williams but only to the extent and subject to the
                   limitations set forth in such licenses;

            (iii)  providing Williams' personnel to hold certain executive
                   positions of the Company;

            (iv)   establishing and maintaining appropriate administrative,
                   business, accounting and financial systems; maintaining
                   Apco's home office accounts, perform consolidation
                   accounting, account analysis, financial reporting, assure
                   compliance with US GAAP and work with the Company's external
                   auditors in the US and Argentina;

            (v)    preparing and issuing monthly operations and financial
                   reports;

            (vi)   preparing and/or filing, on behalf of the Company, Securities
                   and Exchange Commission filings and other information
                   required to be filed as a public company in compliance with
                   Applicable Law;

            (vii)  obtaining, on behalf of Company, Governmental Authorizations,
                   including completing and executing any related applications
                   and filings;

            (viii) preparing and executing (upon proper authorization) on behalf
                   of Company agreements for professional services; and

            (ix)   preparation for and scheduling of meetings of the Board of
                   Directors and preparing agendas for same.

      (c)   In addition, amounts expended pursuant to Company's request with
respect to claims and litigation ( including settlement costs and reasonable
expenses associated therewith, and attorney's fees, expenses and court costs)
will be reimbursed by Company to Williams.

      (d)   Williams shall determine the number and identity of personnel to be
provided to perform the Services but shall ensure that sufficient personnel are
provided at all times. Company agrees that Williams may employ subcontractors to
perform the Services. Any individuals employed by Williams and performing
Services hereunder shall be and remain the employees of Williams and/or its
Affiliates (and not of Company). Company shall be free at any time to accept,
reject or, upon reasonable notice, ask for replacements for any such personnel.

                                        5


All equipment provided to such personnel by Company shall remain the property of
Company and all equipment provided to such personnel by Williams shall remain
the property of Williams.

      (e)   Williams shall not be required to qualify to do business in any
state or foreign country in order to provide Services requested by Company.
Notwithstanding anything to the contrary, Williams shall not be obligated or
required to provide any Service that it is not currently providing to its other
Affiliates.

      (f)   If Company should discontinue its use of equipment, third party
software or related items which items were leased, purchased, or licensed by
Williams or its Affiliates on Company's behalf and at Company's request, at any
time during the term of this Agreement or prior thereto, the Company shall
reimburse to Williams all charges, costs and expenses actually incurred by
Williams in connection with the cancellation or assignment of any applicable
leases, licenses or other contracts associated with such items; provided,
however, that Williams will allow a representative of Company to participate in
negotiations with regard to such charges prior to any assessment thereof. To the
extent Company shall have specifically requested Williams or its Affiliates to
purchase equipment for the benefit of Company, and such purchase was made,
Company shall purchase from Williams any of such equipment owned by Williams, at
a price equal to Williams' net book value for such equipment. Such obligations
apply whether the discontinuance of use occurs upon the termination of this
Agreement or prior thereto.

4.    COMPENSATION:

As full and complete compensation for Services, Company agrees to pay Williams
in the following manner:

i.    The Company will pay Williams a percentage (to be defined later herein) of
      the certain and specific corporate services allocated to Williams E&P by
      Williams using the Modified Massachusetts Formula (the "MMF"). The
      allocated services for which the Company will pay are those services that
      specifically benefit the Company and include but are not limited to Tulsa
      Facilities; Manager General Services (Call Center, Mail, Office, Park and
      Facilities scheduling); Tulsa Office Services; Tulsa Mail Services; Tulsa
      Forms Management & Purchasing; Williams Travel Service; Manager Food, TVI,
      Print, Records; Tulsa Print Services, Tulsa Record Management; Treasurer &
      Credit; Risk Management & Insurance; Corporate Secretary; Ethics; Audit;
      Investor Relations; Research Accounting and Sarbanes Oxley. Williams' cost
      centers will be analyzed at least annually by both Williams and Apco to
      determine whether the listing of cost centers utilized hereunder is
      complete and appropriate. The Company will pay Williams for its share of
      these allocated services based on a separate MMF allocation to be computed
      between it and Williams E&P.

      The MMF is a three-factor formula, which allocates costs to subsidiaries,
      divisions or business units giving equal weight to operating revenue less
      cost-of-sales, gross payroll and gross property, plant and equipment. For
      purposes of this calculation hereunder, revenues will be reported net of
      royalties. For purposes of the MMF calculation, gross payroll shall
      include total wages, salaries and other compensation, such as would be
      reportable on IRS form 941 or the Argentine equivalent. In the event of
      changes due to acquisitions, mergers or asset sales, this allocation will
      be adjusted quarterly.

                                       6


      Individual percentages for each factor will be determined by dividing the
      amount of each factor for the Company by the total of the factor for
      Williams E&P. The separate labor, operating revenue and property factors
      for the Company as a percentage of Williams E&P shall be added together
      and then divided by three to calculate the weighted average percent for
      the Company. The weighted percentage represents the percent that the
      Company will pay to Williams for its share of the named services allocated
      to Williams E&P by Williams.

      The payment by the Company to Williams based on the MMF allocation is
      intended to reimburse Williams for all Services described in Article 3.(b)
      above that are provided to the Company and for which it will not be
      charged directly. Direct charges such as legal services, rent, computer
      leasing, LAN charges, printing and reproduction services and other similar
      services which are directly identifiable to Apco will be directly charged
      to Apco.

            Williams currently uses MMF to allocate expenses to its business
      units and, as a result, MMF has been selected as the method by which
      expenses will be allocated by Williams E&P to the Company hereunder. In
      the event Williams adopts a different method for the allocation of
      corporate expenses to its business units in the future, Williams and the
      Company shall meet to determine whether the new allocation method will be
      used hereunder or whether the Parties shall continue the use of the MMF
      allocation method for purposes of this Agreement. Should the Parties
      determine to use a different allocation method, their agreement to do so
      shall be reflected in an Amendment to this Agreement. In the event the
      Parties determine to continue the use of the MMF allocation method, no
      Amendment to this Agreement shall be required.

ii    Williams shall provide the Company with the services of those positions
      set forth on Exhibit "A" that perform specific functions for the Company
      and spend either substantial time in the performance of services for the
      Company or consistently provide time to the Company every month. Exhibit
      "A" may be modified by the Parties from time to time as needed to add or
      remove positions which will be provided hereunder.

      The Parties agree that the positions described on Exhibit "A" have devoted
      and will continue to devote substantial and or consistent time to the
      business of the Company. Accordingly, time for services of the listed
      positions will be paid for by the Company on the basis of an allocation of
      the salary, and bonus of those individuals plus a factor determined
      annually by Williams (for 2004, this factor is 33%) for employee benefits
      and taxes (the "Salary Allocation").

      Unless a modification is agreed by the Parties through an agreed revision
      to Exhibit "A", the Salary Allocation percentages to be used for the
      positions described in Exhibit "A" are as follows:

                                                         
Director of International Exploration and Production        75 %
Senior Accounting Analyst                                   75 %
Administrative Assistant III                                50 %
Manager of International Exploration and Production         25 %



                                       7


      The percentages and positions shall be reviewed by the parties
      periodically and adjusted but not more than on an annual basis.

iii.  The Company will also pay Williams one hundred thousand dollars ($100,000)
      per year for the services of those Williams employees that hold the
      positions of Chairman and Chief Executive Officer and Chief Financial
      Officer of Apco as compensation for time devoted by those employees in the
      performance of their duties for the Company. Such amount is based upon a
      percentage of such individual's Salary Allocation determined by using an
      estimate of the time actually spent by such employees on behalf of APCO
      and will be periodically reviewed and adjusted by the Parties as
      appropriate to more accurately reflect the actual time spent.

iv.   The Company shall pay Williams separately for Services that are not
      included above and are directly identifiable to the Company on an as-used
      basis. Such Services include but are not limited to rent for the square
      footage of office space occupied by the Company on the 26th and the 37th
      floors of the Bank of Oklahoma Tower, One Williams Center, Tulsa,
      Oklahoma, computer leasing costs, local area network (LAN), telephone,
      printing and reproduction services and supplies and legal services. These
      services will be charged to the Company on the same rate as charged to
      other Williams' Affiliates or Subsidiaries. The Company shall also
      reimburse Williams for the cost of any insurance coverage provided to APCO
      by Williams .

5.    INVOICING AND PAYMENTS:

      Williams shall at a minimum submit quarterly invoices to Company for
Services rendered hereunder and will provide full supporting documentation upon
the request of Company. Company shall pay Williams the amounts of such invoices
within thirty (30) days after receipt; provided, that if Company shall have any
objection to all or any portion of an invoice, Company shall notify Williams of
the same within thirty (30) days after receipt of the invoice, give reasons for
its objection and pay only the portion of the invoice which is not in dispute.
Representatives of Williams and Company shall confer within sixty (60) days of
receipt of objection by Company regarding a particular invoice to resolve any
disputed invoices. In the event such representatives are unable to reach
agreement with regard to such a dispute, the matter shall be resolved in
accordance with Section 23.

6.    RIGHT TO AUDIT:

      Williams shall keep such books and records (which books and records shall
be maintained on a consistent basis and substantially in accordance with
generally accepted accounting principles) as shall readily disclose , as allowed
by law, the basis for any charges or credits, ordinary or extraordinary, billed
to Company under this Agreement. Company shall, as allowed by law, have the
right, upon reasonable notice from Company to Williams and during regular
business hours, to inspect, examine and audit or cause to be audited each year
the accounts and records of Williams reasonably related to the Services provided
hereunder, except where such accounts and records would otherwise be considered
proprietary or confidential, in which case such audit shall be conducted by an
independent auditor agreed to by the Parties, provided such right is exercised
in a manner that does not interfere with the provision of the

                                       8


Services hereunder by Williams. Any audit by Company hereunder shall be at
Company's sole cost and expense.

7.    INDEPENDENT CONTRACTOR STATUS:

      (a)   Williams hereby declares it is engaged in an independent business
and agrees to perform the Services as an independent contractor with, except as
otherwise provided for hereunder, full responsibility for the control and
direction of its employees and subcontractors. Williams, in its performance of
this Agreement, has and hereby retains the right to exercise full control and
supervision over the accomplishment of the objectives set forth herein;
provided, however, that Company shall be free at any time to accept, reject or
request replacement of any Williams personnel providing the Services. Williams
shall make reasonable efforts to complete the Services in a timely manner.
Williams shall not be required to provide personnel to work a specific number of
hours per day or specific days of the week. Williams shall not be an agent,
employee or servant for and may not bind Company. This Agreement is not intended
to and shall not create a partnership, joint venture or agency of any kind or
type. It is understood that Williams is free to contract for similar services to
be performed for others during the term of this Agreement.

      (b)   Williams hereby accepts full and exclusive liability for the payment
of its employees' compensation and benefits including any and all contributions
or taxes for unemployment insurance, old age retirement benefits, pensions or
annuities now or hereafter imposed by or under Applicable Law and which are
measured by the wages, salaries or other remuneration paid to the persons
employed by Williams with respect to Services performed under the terms of this
Agreement. Williams further warrants that it will comply with all other
Applicable Law to which it is subject as an employer regarding compensation,
hours of work or other conditions of employment, including those applicable to
minimum wage and overtime wages.

      (c)   Neither Williams nor its employees providing Services to Company
under this Agreement shall be entitled to participate in or receive benefits
under any programs maintained by Company for its employees, including, without
limitation, life, medical and disability benefits, pension, profit sharing or
other retirement plans or other fringe benefits. Nor shall any Williams
employees be entitled to any direct or indirect compensation or remuneration of
any kind from Company as a result of the Services performed under this
Agreement.

8.    INDEMNIFICATION:

      (a)   Williams shall be responsible for and shall defend and hold harmless
Company from and against all claims, demands, causes of action, liabilities,
fines, penalties, loss, or expense (including, without limitation, reasonable
attorneys' fees, costs and expenses) (collectively "Claims") of every kind and
character, whether they be direct or indirect, arising from or related to,
actions and/or omissions of any kind from personnel providing Services to
Company hereunder when not performing tasks or assignments for or on behalf of
Company. The above indemnity of this Section 8(a) shall not apply to, and
Company shall indemnify, protect, defend and hold harmless Williams, its owners,
Affiliates, and all of their officers, directors, employees, consultants and
agents (collectively, the "Williams Group") from, Claims for bodily injury,
illness or death of any member of Williams Group, or of any employee of

                                        9


Williams' contractors or subcontractors when arising out of Company's or its
contractors' (other than Williams) or subcontractors' gross negligence or
willful misconduct.

      (b)   Company shall be responsible for and shall defend and hold harmless
Williams Group from and against all Claims of every kind and character, whether
they be direct or indirect, arising from or related to actions and/or omissions
of any kind of the personnel providing Services to Company by Williams hereunder
when performing tasks or assignments for Company (including the Services), EVEN
IF SUCH CLAIMS, DEMANDS, CAUSES OF ACTION, LIABILITIES, LOSSES OR EXPENSES ARE
BASED UPON THE NEGLIGENCE (WHETHER JOINT, CONCURRENT, ACTIVE, OR PASSIVE) OF THE
WILLIAMS GROUP OR ACTIONS OR OMISSIONS (WHETHER OR NOT THE RESPONSIBILITY OF THE
WILLIAMS GROUP) WHICH IMPOSE STRICT LIABILITY. The above indemnity of this
Section 8(b) shall not apply to, and Williams shall indemnify, protect, defend
and hold harmless Company from, Claims for bodily injury, illness or death of
any employee of Company or any of Williams' contractors or subcontractors when
arising out of any member of the Williams Group's gross negligence or willful
misconduct.

      (c)   Except for claims against Company for failure to make any payments
due hereunder, Williams shall defend, protect, indemnify and hold harmless
Company from and against all Claims of every kind and character arising from or
related to Williams' failure to pay its employees or because of its failure to
withhold federal and state income taxes or any other such taxes or state, local,
municipal, national or federal governmental charges which Williams may be
required to pay with respect to Williams' employees during the period of such
employment or which otherwise accrue under any employee plan or benefit
arrangement, including without limitation, all obligations of Williams for
salaries, vacation, and holiday pay, severance payments, bonuses and other forms
of compensation, benefits or other payments, as well as all costs and expenses
with respect to any termination by Williams of its employees who performed
Services under this Agreement.

9.    INSURANCE:

      (a)   Williams shall carry or cause to be carried and maintained in force
throughout the entire term of this Agreement insurance coverage as described in
paragraphs (i) through (iii) below.

            (i)   Workers' Compensation insurance complying with the laws of the
                  state or states of the United States of America having
                  jurisdiction over each Williams employee and Employers'
                  Liability insurance with limits of $1,000,000 per each
                  accident, $1,000,000 disease per each employee and a
                  $1,000,000 disease policy limit.

            (ii)  Commercial General Liability insurance on an occurrence basis
                  with a combined single limit of $1,000,000 per each occurrence
                  for bodily injury and property damage.

            (iii) Automobile Liability insurance with a combined single limit of
                  $1,000,000 per each occurrence for bodily injury and property

                                       10


                  damage, which insurance shall include coverage for all owned,
                  non-owned and hired vehicles.

      (b)   In each of the above-described policies, Williams agrees to waive
and shall require its insurers to waive any rights of subrogation or recovery
they may have against Company to the extent of Williams' obligations set forth
in Section 8 above.

      (c)   Under the policies described in (a)(ii) and (a)(iii) above, and to
the extent of the indemnities contained within this Agreement, Company shall be
named as additional insured as respects Williams' operations and as respects any
Services performed under this Agreement.

10.   CONFIDENTIALITY:

      (a)   Confidential Information.

            (i)   "Confidential Information" shall mean all information of a
                  Party of a proprietary or confidential nature that any Party
                  (the "Disclosing Party") furnishes to the other Party (the
                  "Receiving Party"), whether such information is written or
                  oral and in whatever form or medium it is provided.

            (ii)  Information shall not be deemed to be Confidential Information
                  and the provisions of this Section 10 shall not apply to: (A)
                  information which is or becomes generally available to the
                  public other than as a result of a disclosure in violation of
                  this Agreement; (B) information which was already known to the
                  Receiving Party or its Representatives prior to being
                  furnished pursuant to this Agreement; (C) information which
                  becomes available to the Receiving Party or its
                  Representatives on a non-confidential basis from a source
                  other than a Disclosing Party or its Representatives if such
                  Receiving Party or its Representatives had no reason to
                  believe that such source was subject to any prohibition
                  against transmitting the information to such Receiving Party
                  or its Representatives; and (D) information independently
                  developed by the Receiving Party or its Representatives.

      (b)   Confidentiality Obligations.

            (i)   Each Receiving Party shall not disclose the Confidential
                  Information to third parties or any of such Receiving Party's
                  Affiliates, or to any other Person without the consent of the
                  other Party other than to: (A) such Receiving Party's
                  Representatives, (B) a financial advisor, legal counsel,
                  consultant, contractor or subcontractor that has a legitimate
                  business need to be informed; (C) a Governmental Authority, or
                  (D) a Person to which the Disclosing Party or its Affiliate is
                  required by Applicable Laws or the applicable rules of any
                  stock exchange or similar organization to disclose the
                  Confidential Information.

                                       11


            (ii)  In case of a disclosure of Confidential Information to a third
                  party permitted by paragraph (b)(i)(A) and (b)(i)(B), the
                  Receiving Party disclosing such information shall ensure that
                  such third party has signed an agreement to protect the
                  Confidential Information from further disclosure to the same
                  extent as the Parties are obligated under this Section 10.

      (c)   Notice Preceding Compelled Disclosure. If a Party or any
Representative of such Party reasonably believes it is required by Applicable
Law or the applicable rules of any stock exchange or similar organization
(whether requested by oral question, interrogatory, request for information or
documents, subpoena, civil investigative demand, similar law or legal process or
otherwise) to disclose any Confidential Information, such Party shall promptly
notify the other Party of such requirement as soon as it becomes aware of it.

      (d)   Return of Information. All written Confidential Information, except
for that portion of the Confidential Information that may be found in analyses,
compilations, studies or other documents prepared by the Disclosing Party or its
Representatives, shall be promptly returned upon written request of the
Disclosing Party or, at the election of the Receiving Party, destroyed, and no
copies shall be retained by such Receiving Party or its Representatives. That
portion of the Confidential Information that may be found in analyses,
compilations, studies or other documents and Confidential Information not so
requested or returned will be held and kept subject to the terms of this
Agreement, or destroyed.

      (e)   Specific Performance. The Parties recognize and agree that if any of
the provisions of this Section 10 are not performed in accordance with their
specific terms or are otherwise breached, immediate and irreparable harm or
injury would be caused for which money damages would not be an adequate remedy.
Accordingly, each Party agrees that, in addition to other remedies, the Parties
shall be entitled to an injunction restraining any violation or threatened
violation of the provisions of this Section 10 or to specific performance or
other equitable relief to enforce the provisions of this Section 10. In the
event that any action should be brought in equity to enforce the provisions of
this Section 10, no Party will allege, and each Party hereby waives the defense,
that there is adequate remedy at law.

11.   LIMITATION OF LIABILITY:

      NEITHER COMPANY NOR WILLIAMS SHALL BE LIABLE TO THE OTHER OR ITS EMPLOYEES
IN ANY EVENT OR FOR ANY REASON FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OR LOSS OF PROFITS, LOSS OF DATA, LOSS OF REVENUE OR LOSS
OF GOODWILL ARISING OUT OF OR RELATED TO THIS AGREEMENT.

12.   NOTICES:

      Except as specifically provided otherwise herein, all notices required or
permitted under this Agreement shall be in writing and shall be deemed given
upon actual receipt. Such notices may be given by: (a) personal delivery; (b)
facsimile; or (c) certified or registered mail for which postage is prepaid and
a return receipt is requested. Any such notices shall be sent to the

                                       12


respective addresses specified below. Any Party's address may be changed by
notice given to the other Party in accordance with this provision.

      If to Company:

            APCO Argentina Inc.
            One Williams Center
            Mail Drop 26-4
            Tulsa, Oklahoma  74172
            Attention:  Thomas  Bueno
                      President  COO and CAO
            Phone No.:  (918) 573-2164
            Facsimile No.:  (918) 573-1324

            With a copy to:

            APCO Argentina Inc.
            One Williams Center
            Suite 4100
            Tulsa, Oklahoma  74172
            Attention:  William Gault
                      Assistant Secretary
            Phone No.:  (918) 573-0454
            Facsimile No.:  (918) 573-4503

      If to Williams:

            The Williams Companies, Inc.
            One Williams Center
            Suite 2600
            Tulsa, Oklahoma 74172
            Attention:  Bryan K. Guderian
            Phone No.:  (918) 573-4680
            Facsimile No.:  (918) 573-1324

            With a copy to:

            The Williams Companies, Inc.
            One Williams Center
            Suite 4100
            Tulsa, Oklahoma  74172
            Attention:  James N. Cundiff , Senior Attorney
            Phone No.:  (918) 573-5459
            Facsimile No.:  (918) 573-4503

                                       13


13.   CERTAIN PRACTICES:

      (a)   Each of the Parties represents, warrants and covenants that neither
it nor its Affiliates, officers, directors, employees or agents has made or
shall make, any payments, loans, gifts, or promises or offers of payments,
loans, gifts or anything of value, directly or indirectly to or for the use or
benefit in whole or in part of, any foreign official or employee of any
Governmental Authority or state-owned enterprise, or to or for the use of any
political party or official thereof, or candidate for political office, or to
any other Person if any such party knows, should have known or has or had reason
to suspect, that any part of such payment, loan, gift or promise or offer (i) is
for purposes of corruptly (A) influencing any act or decision of the recipient
in its official capacity or (B) inducing such recipient to (1) do or omit to do
any act in violation of its lawful duty or (2) use its influence to affect or
influence any act or decision of the government of any foreign country or
instrumentality thereof, or (3) secure any improper advantage, in each case, in
order to assist the parties in obtaining or retaining business for or with, or
directing business to, any person.

      (b)   Each Party agrees to advise all of its and its Affiliates' employees
and Representatives engaged in implementing this Agreement regarding these
practices and Applicable Law. Each Party agrees to take appropriate steps to
ensure that it and its Affiliates and their respective Representatives comply
with these practices and Applicable Laws. Each Party shall respond promptly, and
in reasonable detail, to any notice from any other Parties or their auditors
pertaining to the above stated warranty and representation and shall furnish
documentary support for such response upon request from such other Party.

      (c)   In carrying out the terms and provisions of this Agreement, each
Party agrees: (i) to ensure that all billings and reports rendered to the other
Party under the terms of this Agreement will, to the best of its knowledge and
belief, properly reflect the facts about all activities and transactions related
to this Agreement, and (ii) to promptly notify the other Party upon discovery of
any instance in which it fails to comply with this Section 13, or if it has
reason to believe that any billings or reports covered by (i) above are no
longer accurate and complete in any material respect.

      (d)   Each Party, in performing its obligations under this Agreement,
shall establish and maintain appropriate business standards, procedures and
controls, including those necessary to avoid any real or apparent impropriety or
adverse impact on the interests of the other Party. Each Party shall review with
reasonable frequency during the term of this Agreement such business standards
and procedures including those related to the activities of its employees and
agents in their relations with the other Party's employees, agents and
representatives, and other third parties.

14.   NON-WAIVER:

      (a)   No waiver by either Party hereto of any breach or default of any
provision hereunder shall be deemed a waiver of any other provision hereof or a
waiver of any subsequent breach or default.

      (b)   Except as specifically provided otherwise herein, no failure or
delay on the part of either Party to exercise any right, power, or privilege
under this Agreement and no course of

                                       14


dealing between the Parties shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege under this Agreement
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein expressly provided are
not exclusive of any rights or remedies which either Party would otherwise have
pursuant to law or equity unless specifically provided to the contrary herein.
No notice to or demand on one Party in any case shall entitle the other Party to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of a Party to any other or further action in
any circumstances without notice or demand.

15.   ASSIGNMENT:

      Neither Party shall assign this Agreement or any of its rights or claims
hereunder without the prior written consent of the other, except to any entity
which is an Affiliate of a Party or which succeeds to all or substantially all
of a Party's assets by merger, consolidation, reorganization or purchase.
Subject to the foregoing, this Agreement shall inure to the benefit of and bind
the successors and assigns of the Parties.

16.   NON-EXCLUSIVE AGREEMENT:

      Nothing herein contained shall be construed to prevent Company from
engaging other contractors or other persons during the term of this Agreement to
perform the Services.

17.   NO THIRD PARTY BENEFICIARY

      Nothing contained in this Agreement shall be considered or construed as
conferring any right or benefit on a Person not a Party, and neither this
Agreement nor the performance hereunder shall be deemed to have created a joint
venture or partnership between the Parties.

18.   HEADINGS:

      The headings preceding the text of the sections and subsections hereof are
inserted solely for convenience of reference and shall not constitute a part of
this Agreement, nor shall they affect its meaning, construction or effect.

19.   ENTIRE AGREEMENT:

      This Agreement is the entire agreement between the Parties with respect to
the subject matter hereof. This Agreement supersedes any and all prior
negotiations, promises, understandings, agreements, arrangements,
representations, warranties, and/or contracts of any form or nature whatsoever,
whether oral or in writing, and whether explicit or implicit, which may have
been entered into prior to the execution hereof between the Parties as to the
subject matter hereof.

20.   SEVERABILITY:

      If, for any reason, any provision of this Agreement is unenforceable, the
remaining provisions hereof shall nevertheless be carried into effect.

                                       15


21.   AMENDMENTS:

      No amendment, supplement or waiver of this Agreement shall be valid unless
evidenced in writing and signed by a duly authorized representative of each
Party.

22.   GOVERNING LAW:

      THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.

23.   DISPUTE RESOLUTION:

      (a)   Negotiations; Arbitration.

            (i)   Any dispute, controversy or claim arising out of or relating
                  to this Agreement, or the performance, breach, termination or
                  invalidity hereof shall be settled by arbitration in
                  accordance with the American Arbitration Rules in effect on
                  the date hereof. The arbitration shall be the sole and
                  exclusive forum for resolution of the dispute, controversy or
                  claim, and the award shall be final and binding. Judgment
                  thereon may be entered by any court having jurisdiction. The
                  number of arbitrators shall be three, each of whom shall be
                  disinterested in the dispute, controversy or claim and shall
                  have no connection with either Party. One arbitrator will be
                  selected by each Party and one by mutual agreement of the
                  first two or, if they cannot agree, by the appointing
                  authority designated in accordance with the American
                  Arbitration Rules. The Parties shall have thirty (30) days to
                  each appoint an arbitrator. If, after such 30-day period, the
                  Parties have not made such appointment, the appointing
                  authority shall select all three arbitrators. The Parties and
                  the appointing authority may appoint from among the nationals
                  of any country, whether or not a Party is a national of that
                  country. The place of arbitration shall be The City of Tulsa,
                  Oklahoma. The arbitration shall be conducted in the English
                  language and any foreign-language documents presented at such
                  arbitration shall be accompanied by an English translation
                  thereof. The arbitrators shall apply the laws of the State of
                  Oklahoma without regard to the principles of conflicts of
                  laws.

            (ii)  In the event that there is an existing arbitration pursuant to
                  paragraph (i) above, and that the same or a similar dispute,
                  controversy or claim should arise between Persons other than
                  the parties to the existing arbitration, the arbitrators shall
                  have the power to allow the other Persons to be joined in the
                  existing arbitration with their express consent, and to make a
                  single final award determining all disputes, controversies or
                  claims among them.

            (iii) Each Party hereby submits to the jurisdiction of the United
                  States District Court for the Northern District of Oklahoma in
                  any action,

                                       16


                  suit or proceeding with respect to the enforcement of the
                  arbitration provisions of this Agreement and the jurisdiction
                  of such court with respect to the enforcement of any award
                  thereunder.

            (iv)  The compensation and expenses of the arbitrators shall be
                  borne equally by the Parties. Each Party shall bear its own
                  costs, expenses and attorneys' fees, provided that, if court
                  proceedings to stay litigation or compel arbitration are
                  necessary, the Party who unsuccessfully opposes such
                  proceedings shall pay all reasonable associated costs,
                  expenses, and attorneys' fees in connection with such court
                  proceedings.

      (b)   Waiver of Immunity. Each Party hereby irrevocably consents to and
waives any objection which it may now or hereafter have to the laying of venue
of any proceeding relating to enforcement of the arbitration provisions, or any
award thereunder brought in the courts specified, and further irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of any such proceeding in such courts.

      (c)   Judgment Currency. The obligation of a Party in respect of any sum
due from it to another Party expressed in United States Dollars, notwithstanding
any judgment in a currency other than United States Dollars, shall not be
discharged until the first Business Day following receipt by such other Party of
any sum adjudged to be so due in such other currency on which (and only to the
extent that) such other Party may in accordance with normal banking procedures
purchase United States Dollars with such other currency. If the Dollars so
purchased are less than the sum originally due to such other Party hereunder,
the obligated Party agrees, as a separate obligation and notwithstanding any
such judgment, to indemnify such other Party against such Dollar shortfall. If
the United States Dollars so purchased are greater than the sum originally due
to such other Party hereunder, such other Party agrees to the fullest extent
permitted by law to pay to the obligated Party an amount equal to the excess of
the Dollars so purchased over the sum originally due to such other Party
hereunder

24.   MUTUAL COOPERATION:

      Company and Williams will provide each other with such assistance as may
reasonably be required by any of them in connection with the performance of all
obligations under this Agreement.

25.   FORCE MAJEURE:

      Neither party hereto shall be liable in any manner for failure or delay of
performance of all or part of this Agreement (other than payment obligations),
directly or indirectly, owing to any acts of God, governmental orders or
restrictions, strikes or other labor disturbances, riots, embargoes, computer
equipment failures, power failures, telecommunication line failures,
revolutions, wars (declared or undeclared), sabotage, fires, floods, or any
other causes or circumstances beyond the control of the parties. The party,
however, experiencing such delay or

                                       17


failure shall use reasonable efforts to give prompt notice to the other party
and shall use reasonable efforts to remove the causes or circumstances of
nonperformance with dispatch and or a consistent basis.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

APCO ARGENTINA INC.                          THE WILLIAMS COMPANIES, INC.

/s/  Thomas Bueno                            /s/  Donald R. Chappel
- -----------------------------------          ----------------------------------
By                                           By

President & Chief Operating Officer          Sr.Vice-President & CFO
Title                                        Title

                                       18

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION

I, Ralph A. Hill, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Apco Argentina Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2004

By:	/s/ Ralph A. Hill
	Ralph A. Hill
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION

I, Landy L. Fullmer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Apco Argentina Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2004

By:	/s/ Landy L. Fullmer
	Landy L. Fullmer
	Chief Financial Officer
	(Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Apco Argentina Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, in his capacity as an officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ralph A. Hill

Ralph A. Hill

Chief Executive Officer

August 12, 2004

/s/ Landy L. Fullmer

Landy L. Fullmer

Chief Financial Officer

August 12, 2004

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.