INTERCOMPANY SUBORDINATION AGREEMENT

     This Subordination Agreement (this "Agreement") is made as of the 
____ day of April, 1997, by the following persons:

     XCL Ltd., a Delaware corporation (herein sometimes called "Parent"),

     XCL-Texas, Inc., a Texas corporation,

     XCL-Land, Ltd., a Delaware corporation,

     The Exploration Company of Louisiana, Inc., a Louisiana corporation, 

     XCL Acquisitions, Inc., a Delaware corporation,

     XCL-China Coal Methane, Ltd., a British Virgin Islands corporation,

     XCL-China LubeOil, Ltd., a British Virgin Islands corporation, and

     XCL-China, Ltd., a British Virgins Islands corporation (herein 
     sometimes called "Borrower"),


all of whom, other than Borrower, are herein collectively called the 
"Related Persons".


                                   RECITALS:

     1.  Borrower, Parent, and certain lenders (herein collectively called 
"Lenders") have entered into Subscription Agreements of even date herewith 
(the "Subscription Agreement"), pursuant to which Borrower has borrowed funds 
from Lenders which debt is represented by one or more unsecured note or 
unsecured notes (the "Note" or "Notes").

     2.  It is a condition precedent to Lenders' obligations to advance funds 
pursuant to the Subscription Agreement that the Related Persons shall 
subordinate all obligations owed to them by Borrower to all obligations 
owed by Borrower to Senior Creditors (as defined below);

     3.  The board of directors of each Related Person has determined that the 
execution, delivery and performance of this Agreement may reasonably be 
expected to benefit such Related Person, directly or indirectly, and is in 
the best interests of each Related Person.

     NOW, THEREFORE, in consideration of the foregoing and for other good and 
valuable consideration, the receipt and sufficiency of which are hereby 
acknowledged, the parties hereto agree as follows:

     Section 1.  Definitions.  Reference is hereby made to the Subscription 
Agreement for the meaning of certain terms which are defined therein and 
which, although not defined herein, are used herein with the same meanings.  
As used herein, the terms "Agreement" and "Subscription Agreement" shall 
have the meanings indicated above, and the following terms shall have the
following meanings:

     "Insolvency Proceeding" means, with respect to any Person, any voluntary 
or involuntary liquidation, dissolution, sale of all or substantially all 
assets, marshalling of assets or liabilities, receivership, conservatorship, 
assignment for the benefit of creditors, insolvency, bankruptcy, 
reorganization, arrangement or composition of such person or entity (whether
or not pursuant to bankruptcy, insolvency or other similar laws) and any other 
proceeding under laws for the protection of debtors involving such person or 
entity or any of its assets.

     "Lenders" means the persons purchasing Notes under the Subscription 
Agreement.

"Obligations" means, with respect to any creditor, all debts, liabilities 
and obligations (of any character whatsoever) of Borrower (whether as 
principal, surety, endorser, guarantor, accommodation party or otherwise) 
owed to such creditor now existing or hereafter incurred or arising, 
whether principal, interest, fees or expenses, direct, contingent, primary, 
secondary, joint and several, joint or several, or otherwise, and irrespective 
of the manner in which, or the person or persons in whose favor, such debts, 
liabilities, or other obligations may at their inception have been, or may 
hereafter be, created, or the manner in which such creditor may have acquired 
rights with respect thereto.

     "Senior Creditors" means each Lender.

     "Senior Obligations" means all Obligations of Borrower owed to any Senior 
Creditor, including all Obligations arising under the Subscription Agreement 
and the Notes.

     "Subordinated Obligations" means all Obligations of Borrower to any 
Related Person, including all Obligations arising out of any cash management 
activities.

     "Super Majority Lenders" means Lenders holding at least 66 2/3% of the 
principal amount of the Notes then outstanding.

     "Termination Date" means the 91st day following the earliest date after 
the date hereof on which all Senior Obligations have been paid in cash and 
satisfied in full; provided, however, that this Agreement shall continue to 
be effective or be reinstated, as though such payment had not been made, if 
at any time any payment of any of the Senior Obligations is rescinded or 
must otherwise be returned by any Senior Creditor in connection with an 
Insolvency Proceeding involving Borrower.

Unless the context otherwise requires or unless otherwise provided herein, 
references in this Agreement to a particular agreement, instrument or 
document (including references to promissory notes, loan agreements, 
guaranties and security documents) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any 
such agreement, instrument or document, provided that nothing contained in 
this Section shall be construed to authorize any party hereto to execute or 
enter into any such renewal, extension, amendment, modification, supplement 
or restatement.

Section 2.  Subordination of Obligations.  Each Related Person expressly and 
in all respects subordinates and makes junior and inferior (i) the 
Subordinated Obligations owed to it and the payment and enforcement of 
such Subordinated Obligations owed to it, to (ii) the Senior Obligations 
and the payment and enforcement of the Senior Obligations (including post 
petition interest whether or not such interest is an allowed claim enforceable 
in any Insolvency Proceeding under applicable law).  Prior to the Termination 
Date, no Related Person to whom Subordinated Obligations are owed shall 
accept, receive or collect (by set-off or other manner) any payment or 
distribution on account of, or ask for, demand or accelerate, directly or 
indirectly, any Subordinated Obligation, and Borrower shall not make any such 
payment.

     Section 3.  Assets Wrongly Received.  If any Related Person receives any 
payment or distribution of any kind (whether in cash, securities or other 
property) in contravention of this Agreement, it shall hold such payment or 
distribution in trust for Senior Creditors, shall segregate the same from 
other cash or assets it holds and shall immediately deliver the same to the 
Senior Creditors in the form received by such Related Person (together with 
any necessary endorsement) to be applied (in the case of cash) to, or held 
as collateral (in the case of non-cash property or securities) for, the 
payment or prepayment of the Senior Obligations.

     Section 4.  Specific Performance.  Super Majority Lenders may demand 
specific performance of this Agreement at any time when Borrower or any 
Related Person shall have failed to comply with any of the provisions of 
this Agreement applicable to it.  Each Related Person and Borrower hereby 
irrevocably waives any defense based upon the adequacy of a remedy at law 
which might beasserted as a bar to such remedy of specific performance and 
waives any requirement of the posting of any bond which might otherwise be 
required before such remedy of specific performance
is granted.

     Section 5.  No Acceleration or Institution of Collection Proceedings. 
Prior to the Termination Date, no Related Person shall accelerate or collect 
or attempt to collect any part of the Subordinated Obligations, whether 
through the commencement or joinder of an action or proceeding (judicial or 
otherwise) or an Insolvency Proceeding, the enforcement of any rights against
any property of Borrower, including any such enforcement by foreclosure, 
repossession or sequestration proceedings, or otherwise, except as permitted
under subsections (a) and (b) of Section 2 hereof.

     Section 6.  Insolvency Proceedings, etc.

(a)  Upon any distribution of all or any of the assets of Borrower, the 
dissolution, winding up, liquidation or reorganization of Borrower (whether
in any bankruptcy, insolvency, arrangement, reorganization or receivership 
proceedings), or upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of Borrower, any payment or 
distribution ofany kind (whether in cash, securities or other property) which 
otherwise would be payable or deliverable upon or with respect to the 
Subordinated Obligations shall be paid and delivered directly to Lenders for
application (in the case of cash) to or as Collateral (in the case of non-
cash property or securities) for the payment or prepayment (on a pro rata 
basis) of the Senior Obligations until the Senior Obligations (including post 
petition interest whether or not such interest is an allowed claim enforceable
against Borrower in an Insolvency Proceeding under applicable law) shall have 
been paid in full.

     (b)  Each Related Person hereby agrees that upon the occurrence of an 
Insolvency Proceeding it shall duly and promptly execute, deliver and file 
such instruments, as may be reasonably requested from time to time by Super 
Majority Lenders, to file appropriate proofs of claim in respect of the 
Subordinated Obligations in any such Insolvency Proceeding and to instruct any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person 
making any payment or distribution in any such Insolvency Proceeding to make
such payments which otherwise may be payable or deliverable in respect of 
the Subordinated Obligations to the extent provided for herein.

     (c)  Each Related Person further agrees that Senior Creditors may file 
appropriate proofs of claim in respect of the Subordinated Obligations in any 
proceedings relating to an Insolvency Proceeding and may take such actions as 
may be necessary to prevent the waiver or release of a claim in respect of 
the Subordinated Obligations in any proceedings relating to an Insolvency
Proceeding if such a waiver or release is not consented to by Senior 
Creditors.

     Section 7.  Assignment of Subordinated Obligations.  Prior to the 
Termination Date, no Related Person shall transfer, assign, pledge, encumber 
or otherwise dispose of any right, claim or interest in all or any part of 
the Subordinated Obligations to any person other than another Related Person 
or Lenders.

     Section 8.  Obligations Hereunder Not Affected.  No action or inaction 
of any Senior Creditor or any other person, and no change of law or 
circumstances, shall release or diminish the obligations, liabilities, 
agreements or duties hereunder of any Related Person, affect this Agreement 
in any way, or afford any person any recourse against any Senior Creditor.  
Without limiting the generality of the foregoing, none of the obligations, 
liabilities, agreements and duties of the Related Persons under this 
Agreement shall be released, diminished, impaired, reduced or affected by 
the occurrence of any of the following at any time or from time to time, 
even if occurring without notice to or without the consent of any or all 
Related Persons (any right of any of the Related Persons to be so notified
or to require such consent being hereby waived):

(a)  the release (by operation of law or otherwise) of Borrower or any Related
     Person from its duty to pay any of the Senior Obligations;

(b)  any invalidity, deficiency, illegality or unenforceability of any 
     of the Senior Obligations or the documents and instruments evidencing, 
     governing or securing the Senior Obligations, in whole or in part, any 
     bar by any statute of limitations or other law to recovery on any of the
     Senior Obligations, or any defense or excuse for failure to perform
     on account of force majeure, act of God, casualty, impracticability
     or other defense or excuse with respect to the Senior
     Obligations whatsoever;
     
(c)  the taking or accepting by any Senior Creditor of any additional security 
     for or subordination to any or all of the Senior Obligations;

(d)  any release, discharge, surrender, exchange, subordination, non-perfection
     impairment, modification or stay of actions or lien enforcement proceedings
     against, or loss of any security at any time existing with respect to, 
     the Senior Obligations;
     
(e)  the modification or amendment of, or waiver of compliance with, any terms
     of  the documents and instruments evidencing, governing or securing
     the Senior Obligations;
     
(f)  the insolvency, bankruptcy or disability of Borrower or any Related 
     Person or the filing or commencement of any Insolvency Proceeding 
     involving Borrower or any Related Person or other proceeding with 
     respect thereto;
     
(g)  any increase or decrease in the amount of the Senior Obligations or in the
     time, manner or terms in accordance with which the Senior Obligations 
     are to be paid, or any adjustment, indulgence, forbearance, waiver or 
     compromise that might be granted or given with respect to the Senior 
     Obligations;
     
(h)  any neglect, delay, omission, failure or refusal of any
     Senior Creditor to take or prosecute any action for the collection
     of the Senior Obligations or to foreclose or take or prosecute any
     action in connection with any instrument or agreement evidencing or
     securing all or part of the Senior Obligations;
     
(i)  any release of the proceeds of collateral which may come into the 
     possession of any Senior Creditor or its Affiliates;

(j)  any judgment, order or decree by any court or governmental agency or
     authority that a payment or distribution by Borrower or any Related 
     Person to any Senior Creditor upon the Senior Obligations is a 
     preference under applicable bankruptcy or similar laws for the 
     protection of creditors or is for any other reason required to be 
     refunded by such Senior Creditor or paid by such Senior Creditor to 
     any other Person;
     
(k)  the release or discharge for any reason of any other party hereto from 
     any of its obligations under this Agreement;

(l)  any modification of, or waiver of compliance with, any terms of this
     Agreement with respect to any party hereto; or

(m)  any neglect, delay, omission, failure or refusal of any Senior Creditor 
     to take or prosecute any action against any party in connection with 
     this Agreement.

     Section 9.  Waiver.  Borrower and each Related Person hereby waives 
promptness, diligence, notice of acceptance and any other notice with respect 
to any of the Senior Obligations and this Agreement, and any requirement 
that Senior Creditors exhaust any other right or take any action against 
Borrower,  any Related Person or any other Person or entity, or any collateral.

     Section     10.  No Subrogation.  No payment or distribution to any Senior
Creditor pursuant to the provisions of this Agreement shall entitle any Related
Person to exercise any rights of subrogation in respect thereof.  No Related 
Person shall have any right of subrogation to any Senior Creditor, or any 
right to receive contribution or reimbursement from any other Related Person,
on account of this Agreement or any Note.

     Section     11.  Representations and Warranties of Related Persons.   
Borrower and each Related Person hereby represents and warrants to each Senior 
Creditor that:

     (a)  The recitals at the beginning of this Agreement are true and correct
 in all respects.
                                    
     (b)  Borrower and each Related Person is duly organized, validly existing
and in good standing under the laws of the state of its organization or 
formation; and Borrower and each Related Person has all requisite power and 
authority to execute, deliver and perform this Agreement.

     (c)  The execution, delivery and performance by Borrower and the Related 
Persons of this Agreement do not and will not contravene any law or governmental
regulation or any contractual restriction binding on or affecting Borrower or 
any Related Person or any of its properties, and do not and will not result in 
or require the creation of any lien, security interest or other charge or 
encumbrance upon or with respect to any of its properties.

     (d)  No authorization or approval or other action by, and no notice to or 
filing with, any governmental authority or other regulatory body or third 
party is required for the due execution, delivery and performance by Borrower 
or any Related Person of this Agreement.

     (e)  This Agreement is a legal, valid and binding obligation of Borrower 
and each Related Person, enforceable against Borrower and each Related Persons
in accordance with its terms except as limited by bankruptcy, insolvency or 
other laws of general application relating to the enforcement of creditors' 
rights.

     (f)  There is no action, suit or proceeding pending or, to the knowledge 
of Borrower or Related Persons, threatened against or otherwise affecting 
Borrower or any Related Person before any court, arbitrator or governmental 
department, commission, board, bureau, agency or instrumentality which may 
materially and adversely affect Borrower or  any Related Person's financial 
condition or its ability to perform its obligations hereunder.

     Section     12.  No Oral Change.  No amendment of any provision of this 
Agreement shall be effective unless it is in writing and signed by Borrower, 
Related Persons and Super Majority Lenders and no waiver of any provision of
this Agreement, and no consent to any departure by Borrower or Related 
Persons therefrom, shall be effective unless it is in writing and signed by
Super Majority Lenders, and then such waiver or consent shall be effective 
only in the specific instance and for the specific purpose for which given.

          Section 13.  GOVERNING LAW.  THIS AGREEMENT SHALL BE DEEMED A
CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF
LOUISIANA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE AND THE LAWS OF THE UNITED STATES OF
AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

Section 14.  Invalidity of Particular Provisions.  If any term or provision of
this Agreement shall be determined to be illegal or unenforceable, all other
terms and provisions hereof shall nevertheless remain effective and shall be 
enforced to the fullest extent permitted by applicable law.

          Section 15.  Headings and References.  The headings used herein are 
for purposes of convenience only and shall not be used in construing the 
provisions hereof.  The words "this Agreement," "this instrument," "herein," 
"hereof," "hereby" and words of similar import refer to this Agreement as a 
whole and not to any particular subdivision unless expressly so limited.  The
word "or" is not exclusive, and the word "including" (in its various forms) 
means "including without limitation".  Pronouns in masculine, feminine and 
neuter genders shall be construed to include any other gender, and words in the 
singular form shall be construed to include the plural and vice versa, unless 
the context otherwise requires.

          Section 16.  Additional Documentation.  Borrower and each Related 
Person agrees to execute any further instruments and to take all other action 
which may become necessary or appropriate to carry out fully the purposes of 
this Agreement.

          Section 17.  Notices.  All notices, requests, consents, demands and 
other communications to Borrower, any Related Person or to any Senior Creditor 
which are required or permitted under this Agreement shall be in writing, unless
otherwise specifically provided herein, and shall be deemed sufficiently given 
or furnished if delivered by personal delivery, by telecopy, by delivery service
with proof of delivery, or by registered or certified United States mail, 
postage prepaid, to Borrower or any such Related Person at the address listed
below and to each Senior Creditor at its address specified under the 
Subscription Agreement (unless changed by similar notice in writing given by the
particular Person whose address is to be changed).  Any such notice or 
communication shall be deemed to have been given (a) in the case of personal 
delivery or delivery service, as of the date of first attempted delivery at 
the address and in the manner provided herein, (b) in the case of telecopy, 
upon receipt, or (c) in the case of registered or certified United States 
mail, three days after deposit in the mail.


Each Related Person's
Address:                       110 Rue Jean Lafitte
                               Lafayette, Louisiana 70508
                               Attention: General Counsel


     Section 18.  Successors and Assigns.    Borrower's and each Related 
Person's rights or obligations hereunder may not be assigned or delegated, 
but this Agreement and such obligations shall pass to and be fully binding upon 
the successors of Borrower and each Related Person.  This Agreement shall 
apply to and inure to the benefit of each Senior Creditor and its successors or
permitted assigns.  Without limiting the generality of the immediately preceding
sentence, each Senior Creditor may assign or otherwise transfer its rights under
this Agreement as provided in the Subscription Agreement.

     Section 19.  Counterparts.  This Agreement may be separately executed in 
any number of counterparts and by different parties hereto in separate 
counterparts, each of which when so executed shall be deemed to constitute one 
and the same Agreement.

     Section 20.  Notes Control.  If any provision of this Agreement shall 
contradict or otherwise be inconsistent or conflict with any provision of the 
Notes, the provision of the Notes to the extent of such contradiction, 
inconsistency or conflict, shall control.

     IN WITNESS WHEREOF, this Agreement is executed as of the date first above 
written.

BORROWER AND RELATED PERSONS:

                            XCL LTD.
                                  By:_________________________
                                  Name:_______________________
                                  Title:______________________
                                  
                                  
                             XCL-TEXAS, INC.
                                    
                                    
                                  By:_________________________
                                  Name:_______________________
                                  Title:_______________________
                                  
                                  
                                  
                                  
                             XCL-LAND, LTD.
                                    
                                    
                                  By:____________________________
                                  Name:_________________________
                                  Title:________________________


                             THE EXPLORATION COMPANY OF
                             LOUISIANA, INC.
                                    
                                    
                                  By:____________________________
                                  Name:_________________________
                                  Title:_________________________
                                  
                                  
                              XCL-ACQUISITIONS, INC.


                                  By:_____________________________
                                  Name:___________________________
                                  Title:__________________________
                                  
                                  
                              XCL-CHINA COAL METHANE, LTD.


                                  By:__________________________
                                  Name:_______________________
                                  Title: ________________________



                              XCL-CHINA LUBEOIL, LTD.
 

                                  By:_____________________________
                                  Name:___________________________
                                  Title:__________________________
                                  
                                  
                                  
                             XCL-CHINA, LTD.


                                  By:_________________________
                                  Name:______________________
                                  Title: