_________________________________________________________________
                       
                  Securities and Exchange Commission
                      Washington, DC  20549
                   ___________________________
                            FORM 10-K

                   ___________________________
     [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
          THE SECURITIES EXCHANGE ACT OF 1934
                                
          For the fiscal year ended December 31, 1998 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 1-10669
                  _____________________________
                            XCL Ltd.
     (Exact name of registrant as specified in its charter)
                  _____________________________
          Delaware                                        51-0305643
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

             110 Rue Jean Lafitte, 2nd Floor
                Lafayette, Louisiana             70508
     (Address of principal executive offices)  (Zip Code)
                  _____________________________
 (Registrant's telephone number, including area code)    318-237-0325

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.01 par value                      American Stock Exchange
    Title of each class                             Name on each exchange
    on which registered

Securities registered pursuant to Section 12(g) of the Act:   None
                                
      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.  [X]   Yes          [  ]  No

      Indicate  by check mark if disclosure of delinquent  filers
pursuant  to Item 405 of Regulation S-K is not contained  herein,
and will not be contained, to the best of registrant's knowledge,
in  definitive  proxy or information statements  incorporated  by
reference in Part III of this Form 10-K or any amendment to  this
Form 10-K.  [  ]

      The aggregate market value of the common stock held by non-
affiliates of the registrant on March 31, 1999, was approximately
$32.7 million.

       23,377,941  shares  of the registrant's Common  Stock,  $.01  
par  value,  were outstanding on April 15, 1999.
                                
               DOCUMENTS INCORPORATED BY REFERENCE
                              None
_________________________________________________________________
<PAGE>                     
                                
                        TABLE OF CONTENTS
                                
                             PART I
                                                          Page
Item 1. and Item 2. Business and Properties                 3
   General                                                  3
   The Zhao Dong Block                                      4
   United/XCL Lube Oil Joint Venture                       12
   Coalbed Methane Project                                 12
   The Zhang Dong Block                                    12
   Domestic Properties                                     16
   Oil Reserves                                            16
   Production, Sales and Cost Data                         17
   Oil Acreage                                             18
   Drilling Activity                                       18
   Producing Well Data                                     18
   Title to Properties                                     18
   Markets                                                 19
   Competition                                             19
   Certain Risk Factors Relating to the Company and the 
     Oil and Gas Industry                                  19
   Employees                                               26
Item 3. Legal Proceedings                                  26
Item 4. Submission of Matters to a Vote of 
          Security Holders                                 27

                             PART II

Item 5.  Market for Registrant's Common Equity and Related
          Stockholder Matters                              28
Item 6.  Selected Financial Data                           29
Item 7.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations              32
Item 7a Quantitative and Qualitative Disclosures About 
          Market Risk                                      38
Item 8.  Financial Statements and Supplemental Data        38
             XCL Ltd. and Subsidiaries                     39
             XCL-China Ltd.                                69
Item 9.  Changes in and Disagreements With Accountants on
           Accounting and Financial Disclosure             82

                            PART III

Item 10.  Directors and Executive Officers of the 
            Registrant                                     83
Item 11. Executive Compensation                            89
Item 12. Security Ownership of Certain Beneficial Owners
           and Management                                 100
Item 13. Certain Relationships and Related Transactions   102

                             PART IV

Item 14. Exhibits, Financial Statement Schedules, and
           Reports on Form 8-K                            103
Other Matters                                             116
Signatures                                                117
Glossary of Terms                                         118
<PAGE>
<PAGE>
                             PART I

      This  Annual  Report includes "forward-looking  statements"
within the meaning of Section 27A of the Securities Act of  1933,
as  amended  (the  "Securities  Act")  and  Section  21E  of  the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All statements other than statements of historical facts included
in  this  Annual  Report,  including, without  limitation,  those
regarding  the  Company's financial position, business  strategy,
budgets,   reserve   estimates,  development   and   exploitation
opportunities and projects, behind-pipe zones, classification  of
reserves,  projected financial, operating and  reserve  data  and
plans  and  objectives of management for future  operations,  are
forward-looking statements.  Although the Company  believes  that
the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations  will
prove  to have been correct.  Important factors that could  cause
actual   results   to  differ  materially  from   the   Company's
expectations ("Cautionary Statements") are disclosed in  "Certain
Risk  Factors  Relating  to  the Company  and  the  Oil  and  Gas
Industry,"  "Management's Discussion and  Analysis  of  Financial
Condition and Results of Operations" and elsewhere in this Annual
Report  including,  without limitation, in conjunction  with  the
forward-looking statements included in this Annual  Report.   All
subsequent    written   and   oral   forward-looking   statements
attributable to the Company, or persons acting on behalf  of  the
Company,  are  expressly  qualified  in  their  entirety  by  the
Cautionary Statements.

Item 1. and Item 2.  Business and Properties.

     See the Glossary of Terms attached hereto for definitions of
certain  commonly  used  industry terms.   The  Company  operates
through  several  wholly  owned subsidiaries.   Accordingly,  all
references   herein   to  the  Company  or   XCL   include   such
subsidiaries.

General
-------

      XCL Ltd. (together with its consolidated subsidiaries,  the
"Company" or "XCL") is engaged principally in the exploration for
and  the development and production of crude oil and natural  gas
in The People's Republic of China ("China").  Its exploration and
development efforts are, at this time, focused primarily  on  the
Zhao Dong and Zhang Dong Blocks in the shallow-water sea area  of
Bohai Bay in China.  XCL's activities on the Zhao Dong Block have
been  undertaken pursuant to an exploration and production  joint
venture   with  China  National  Oil  and  Gas  Exploration   and
Development Corporation ("CNODC"), a subsidiary of China National
Petroleum Corporation ("CNPC"), one of the national oil companies
of  China. The Zhao Dong Block Production Sharing Contract became
effective  May 1, 1993. In March 1994, the Company farmed  out  a
one-third  interest  in  the  Foreign Contractor's  (as  defined)
interest,  subsequently increased to 50%, to  Apache  Corporation
("Apache"). See "The Zhao Dong Block" commencing  at  page 4  for
a description in greater detail of the Company's business and its
interest in the Zhao Dong Block.

      Based on the initial success of its first project in China,
the  Company's growth strategy is to expand its participation  in
the  Chinese energy industry by continuing to explore and develop
the  Zhao  Dong Block and by selectively entering into additional
energy related joint ventures. This strategy is the result of the
Company's  opinion  that China has extensive  undeveloped  energy
resources,  is experiencing and will continue for the foreseeable
future to experience high growth in demand for energy and  has  a
policy of encouraging foreign participation in the development of
its  energy resources.  The Company believes, as evidenced by its
own  experience in China, that Chinese policy offers  opportunity
for  participation by independent oil and gas  companies  in  the
development  of  the Chinese energy business.  Additionally,  the
Company believes, because of its early success in China, that  it
has  an  excellent relationship with the Chinese  authorities  in
charge  of the development of China's energy resources  and  that
the Company can, therefore, be competitive in China.

      In  furtherance of the Company's objective of expanding its
involvement  in  the Chinese energy business and  developing  its
relationships  with the Chinese authorities responsible  for  the
development  of China's energy resources, on July 17,  1995,  the
Company  signed a contract with CNPC United Lube Oil  Corporation
to  engage  in  the manufacturing, distribution and marketing  of
lubricating  oil  in  China and in southeast Asian  markets.  See
"United/XCL Lube Oil Joint Venture"  on page 12.   The  Company's
required capital contribution to the joint venture has been  made
and  the  Company  is  not obligated to expend  further  amounts.
However,  the  Company believes, based on CNPC's  plans  for  and
strong  support  of the lubrication oil joint venture,  that  the
joint  venture business will grow and that the Company will  make
additional investments in the joint venture.

      On  December  14, 1995, the Company signed a Memorandum  of
Understanding  with  the  China National Administration  of  Coal
Geology   ("CNACG"),  pursuant  to  which   the   parties   began
cooperative exploration and development of coalbed methane in two
areas in China. See "Coalbed Methane Project" below.

      In  August  1998  the  Company, through  its  wholly  owned
subsidiary XCL-Cathay Ltd., signed a production sharing  contract
with CNODC for the 12,000-acre Zhang Dong Block that was approved
during September 1998, effective October 1, 1998.  See "The Zhang
Dong  Block"  below for a description in greater  detail  of  the
Company's business and its interest in the Zhang Dong Block.

      Before 1993, the Company operated primarily onshore in  the
Gulf  Coast area of the United States. Since it decided  in  late
1995 to focus on operations in China, the Company has sold or  is
in  the  process of selling its other assets. XCL Ltd.,  formerly
The  Exploration Company of Louisiana, Inc., was incorporated  in
Delaware in 1987.  It is the successor to a Louisiana corporation
of the same name, which was incorporated in 1981.

The Zhao Dong Block
-------------------

     Geology
     -------

     The Zhao Dong Block extends from the shoreline of the Dagang
oil field complex on Bohai Bay to water depths of approximately 5
meters.  It  encompasses  approximately 197  square  km  (roughly
50,000  gross  acres). Geologic and geophysical data  demonstrate
that the Zhao Dong Block is a seaward extension of the Dagang oil
field complex, which is one of China's largest.

      Tertiary formations constitute a major portion of the  Zhao
Dong Block's productive zones, its geology being in many respects
similar  to  the  U.S. Gulf Coast. Bohai Bay sediments  are  non-
marine  and  oil  prone. Seismic and subsurface data  indicate  a
thick,  structured  sedimentary section  in  the  contract  area.
Proximity to producing fields and highly productive test  results
from  the  wells that have been drilled suggest excellent  source
and reservoir rocks.

     Seismic
     -------

      From 1986 to 1988 shallow water and transition zone seismic
crews  acquired seismic data in and around the Zhao  Dong  Block.
While  the original processing of the data was fair in reflection
continuity,    the   Company's   initial   evaluation    involved
reprocessing 721 km of 2D data, resulting in dramatic improvement
for   both  structural  and  stratigraphic  interpretation.  This
reprocessing, plus the acquisition of 390 km of new seismic  data
(outlined below), make available a current total of 1,111  km  of
2D seismic data in and around the Zhao Dong Block.

      From  1993  through 1995 the Company acquired an additional
390  km  of 2D seismic data shot by Dagang Geophysical, a Chinese
firm,  all  of which assisted the Company in assessing  the  Zhao
Dong Block's potential.

      A  1997  3-D  seismic  program was  designed  to  delineate
development well locations in the C-D Field and to better  define
exploration  prospects on the remainder of the Zhao  Dong  Block.
The   program  covered  approximately  100  square  km  and  cost
approximately $4.7 million; the Company's share was approximately
$2.3  million.  In 1998 additional 3-D seismic data  designed  to
better define exploration prospects was acquired over most of the
rest   of  the  Zhao  Dong  Block.   This  1998  program  covered
approximately 110 square km and cost approximately $5.9  million;
the Company's share was approximately $3.0 million.
     
     Drilling Results
     ----------------

      Mapping  of  seismic events on shallow,  medium,  and  deep
reflections delineated possibly productive lead areas. Subsequent
exploratory  drilling  resulted in three  successful  discoveries
along   the   Zhao  Bei  fault  system.  Appraisal   tests   have
structurally  and stratigraphically delineated a portion  of  the
aerial  extent of both the "C" and the "D" segments  of  the  C-D
Field  and  the C-4 Field. Hydrocarbons have been  found  in  the
Lower Minghuazhen (Pliocene), the Guantao (Miocene), the Shahejie
(Oligocene),  the  Cretaceous,  the  Jurassic  and  the   Permian
formations.  A total of 21 sands have been found productive, with
a total thickness of approximately 970 feet.  Combined test rates
and  indicated test rates (based solely on log and core  analyses
on  comparable  zones) have a cumulative total  of  approximately
55,000 barrels of oil per day.

      The Company's drilling programs, year by year, have been as
follows:

     1994 Drilling
     -------------

           Zhao  Dong C-1. The first of three Phase 1 exploratory
     wells, C-1 was spudded in April 1994, and drilled to a depth

     of  9,843 feet. Oil was tested in two Pliocene sands of  the
     Lower  Minghuazhen Formation, from perforations shot between
     4,278  and 4,462 feet, and yielded a combined test  rate  of
     2,160 BOPD with no water. Total net pay for the zones tested
     was 97 feet.
     
          Zhao Dong C-2. Spudded and drilled in October 1994, the
     C-2  appraisal well was drilled to a depth of 7,134 feet and
     confirmed  the  C-1 discovery. Tested from  four  intervals,
     between 4,267 and 4,481 feet, the combined rate of three  of
     the  zones was 3,640 BOPD with no water. Total net  pay  for
     the zones tested was 47 feet.
     
     1995 Drilling
     -------------

          Zhao Dong C-2-2. Drilled directionally in April 1995 to
     a  measured  depth of 5,625 feet (5,034 feet  true  vertical
     depth),  the  C-2-2 appraisal was shaled out for prospective
     sands   in  the  Minghuazhen  and  then  plugged  back   and
     sidetracked as C-2-2A.
     
           Zhao  Dong  C-2-2A. After plugging and abandoning  the
     bottom section of the C-2-2 well, the C-2-2A sidetrack  well
     was drilled structurally updip of the original wellbore to a
     measured  depth  of 5,084 feet (4,956 true vertical  depth).
     Although Minghuazhen prospective sands were present and  not
     shaled out, the objective sands were water wet. Accordingly,
     the well was plugged and abandoned.

            Zhao  Dong  D-1.  Designed  to  test  the  Ordovician
     Carbonate section, the D-1 exploratory well reached a  depth
     of   8,784  feet  in  June  1995.  Although  no  hydrocarbon
     potential  was found in the Ordovician Carbonates,  oil  was
     found  in  the  Lower  Minghuazhen, proving  this  shallower
     section  to  be  productive upthrown to the Zhao  Bei  fault
     system.  Drill-stem testing, with perforations at  4,185  to
     4,205  feet, confirmed hydrocarbons with an initial rate  of
     1,330 BOPD. The net pay for this zone was 20 feet.
     
           Although the D-1 was designed primarily to test deeper
     Paleozoic  objectives, from 3,523 to 6,268 feet  it  yielded
     another 15 sands ranging in age from Pliocene Minghuazhen to
     Permian  with hydrocarbon shows in mud logs and/or  sidewall
     cores.  One  Permian sand tested water with a  trace  of  30
     gravity oil; one Minghuazhen sand tested water with 2% oil.

            Located  on  the eastern edge of the  C-D  structural
     complex,  the  D-1 was not optimally placed to  explore  the
     shallower hydrocarbon-containing sands. But the fact that it
     tested  1,330 BOPD from one sand, tested water with  smaller
     amounts  of  oil  from two other sands,  and  had  shows  in
     numerous additional sands, suggests proximity to the  limits
     of  a  significant  oil accumulation. Accordingly,  the  D-2
     well, discussed under 1996 Drilling, below, was designed  to
     appraise  the D-1 discovery at a higher structural position.
     See  also  the discussion, immediately below, of a  parallel
     relationship between and among the C-3, C-2, and C-1 wells.

           Zhao  Dong  C-3.  Although scheduled to be drilled  to
     5,004  feet,  this  appraisal well, drilled  in  July  1995,
     reached  a total depth of 6,773 feet. Analysis of geological
     information  during  drilling had shown  that  the  C-3  was
     structurally  higher  than both the  C-1  and  C-2,  and  so
     drilling  continued  to test the Shahejie  Formation.  Eight
     different sands had drill-stem tests; seven were found to be
     productive,  as compared to only three and two for  the  C-2
     and  C-1,  respectively.  (The C-1 and C-2 did however  have
     oil shows in several sands found to be productive in the  C-
     3.)  Cumulative rate potential was 5,830 BOPD and 460 Mcfpd,
     including  one Shahejie sand that tested oil at  1,356  BOPD
     until  water  production began. (Initial analysis  indicates
     the  water  was  produced  due to pressure  drawdown  during
     testing.) Total net pay for the zones tested was 143 feet.

          The C-3 thus demonstrated that Shahejie Formation sands
     are   oil   productive   with  significant   appraisal   and
     exploration potential, both in the C-D Field and  over  much
     of  the  as  yet undrilled portion of the Zhao  Dong  Block.
     Initial  seismic stratigraphic analysis indicates additional
     lacustrine fan systems could be present downdip.
     
     1996 Drilling
     -------------

           Zhao  Dong  D-2.  Spudded in November  1996,  the  D-2
     appraisal   well  was  designed  to  test  the   Minghuazhen
     (Pliocene) and Guantao (Miocene) sands upthrown to the  Zhao
     Bei  fault  system,  as  well as  the  Shahejie  (Oligocene)
     Formation downthrown to a bifurcated fault of the same fault
     system.  It  was drilled to a measured depth of  7,501  feet
     (6,180  feet  true  vertical depth), on  an  upthrown  fault
     closure approximately 1.5 km west of and structurally higher
     than the D-1 discovery well.

          Five intervals (six drill-stem tests) from perforations
     at  3,285  to 5,445 feet (3,277 to 4,950 feet true  vertical
     depth)  tested at a combined rate of 11,571 BOPD, confirming
     the  lateral  productivity of several sands previously  seen
     productive  and,  in  the  Guantao  Formation,  establishing
     production in several new sands. This well also demonstrated
     much  higher  initial  flow  rates  without  the  need   for
     artificial lift, one zone flowing 4,370 BOPD with 774  Mcfpd
     of  gas, and a second zone flowing 2,471 BOPD with 168 Mcfpd
     of gas.
     
          Sands seen productive in this well appear to be present
     over  the  entire area, adding significantly to the  overall
     potential of the C-D Field as well as the rest of  the  Zhao
     Dong  Block.   Total net pay for the zones  tested  was  243
     feet.
     
     1997 Drilling
     -------------

           Zhao  Dong  F-1.  Planned as an  exploratory  well  to
     fulfill  Phase I drilling commitments, the F-1 was  designed
     to  test  an  1,800+  foot  thick section  of  the  Shahejie
     Formation  on  a  four-way  dip  structural  closure.   This
     exploratory   well   was  spudded  in   October   1996   and
     directionally  drilled,  from  a  drill  pad  built  at  the
     shoreline,  to a measured depth of 14,501 feet (10,968  true
     vertical  depth). Severe mechanical problems  prevented  the
     well  from being fully evaluated, and two sidetrack attempts
     were  unsuccessful.  Drilling  operations  under  a  turnkey
     contract  have  been abandoned.  A number of Shahejie  sands
     were encountered, with some apparent oil shows.
     
           Zhao  Dong D-3. The second appraisal well for the  D-1
     discovery, located approximately 1 km north of the D-1,  the
     D-3 was spudded in June 1997 and drilled to a depth of 5,740
     feet.  No  drill-stem tests were performed (since  the  data
     collected  were sufficient to confirm the productive  nature
     of  the reservoirs and since the rig was needed to drill the
     C-4  well),  using  wireline tools, oil was  recovered  from
     several sands, most of which had tested oil in the D-2 and D-
     1  wells, as well as from three new productive sands for the
     "D"  segment.  Total net pay for the productive zone was  89
     feet.  The D-3 well thus solidified the structural interpre-
     tation and confirmed productive areas.
     
         Zhao Dong C-4. An exploratory well designed to test Pre-
     Tertiary  and  Shahejie Formations, the C-4 was  spudded  in
     July  1997,  on  a  separate structure  approximately  2  km
     northeast  of the C-1, and was drilled to a depth  of  8,993
     feet.  Eight zones tested at a combined rate of 15,349 BOPD,
     6,107  Mcfpd of gas, and 14 barrels of condensate  per  day.
     Total net pay for the zones tested was 209 feet.
     
           The  C-4  proved  the  presence  and  productivity  of
     multiple  Oligocene  Age Shahejie sands  on  the  Zhao  Dong
     Block's northern portion. The C-4 also found multiple  high-
     quality  Cretaceous and Jurassic sands, not  encountered  in
     previous  drilling, present and productive, indicating  that
     such   sands  may  be  present  and  prospective  elsewhere.
     Significantly,  the Shahejie, Cretaceous and Jurassic  sands
     contained higher gravity oil (28 to 38 degree API) and  more
     gas,  indicating  higher  reservoir energy  than  previously
     encountered. All zones tested exhibited natural flow.

     1998 Drilling
     -------------

          Zhao Dong C-4-2.  An appraisal well for the C-4 (the C-
     4-2),  located approximately 1.3 km south of  the  C-4,  was
     spudded  in  August  1998. The C-4-2  well  was  drilled  to
     delineate the size of the reservoir encountered in  the  C-4
     well.   The  well  was drilled to a true vertical  depth  of
     9,184   feet  and  successfully  appraised  the  C-4   well,
     confirming reserves in the Oligocene Shahejie Formation that
     were productive in the C-4-2 well.  Several additional sands
     of Miocene and Pliocene ages (which were fault separated and
     wet  in  the C-4 well) are productive in the C-4-2  well  as
     determined by formation tests, logs and core analysis. A new 
     deeper  zone not  encountered in the C-4 well was drill stem  
     tested  and found productive in Permian age sediments.  This 
     zone flowed up to 2,500 barrels of oil per day. The estimated 
     total net pay was 122 feet.

            Zhao  Dong  C-5.   Also  in  August  1998,  the   C-5
     exploration well located approximately 3 km southwest of the
     D-2 well commenced drilling.  The C-5 well was drilled to  a
     depth  of  7,646  feet.   No  commercial  oil  and  gas  was
     encountered and the well was plugged and abandoned.

     Exploration Potential
     ---------------------

      Reconnaissance  2D seismic surveys on the Zhao  Dong  Block
have  led  the  Company's  independent  petroleum  engineers   to
identify,  in  addition to the C-D Field and the  C-4  discovery,
twenty-six  prospective  areas  with  exploratory  potential.  3D
seismic data over most of these prospective areas has  been  shot  
and interpreted and the potential reserves are being evaluated.

     Future Drilling Plans
     ---------------------

      Two  additional wells are required by the  Contract  to  be
drilled prior to the end of the Exploration Period (which expires
April  30, 2000).  The Company anticipates that at least  one  of
these wells will be drilled in 1999.  If the exploratory well  is
successful, an appraisal well may also be drilled in 1999.

     Development Program
     -------------------

      Zhao  Dong  Block.   The C-D Field was  discovered  by  the
drilling  of the C-1 and D-1 wells. The Field has been  appraised
by  the  C-2,  C-2-2, C-2-2 sidetrack, C-3, D-2, and  D-3  wells.
Apache,  XCL and CNODC have prepared an Overall Development  Plan
("ODP")  for the Field.  The ODP initially projected the drilling
of  45  wells, of which 28 were to be producers, 11  were  to  be
water  injection  wells  for the purpose  of  reservoir  pressure
maintenance  to  achieve higher levels of  recovery  of  ultimate
reserves  and 6 were to be water source wells.  The ODP has  been
approved  by  the  Joint  Management  Committee  ("JMC"),   which
oversees operations on the Zhao Dong Block, and has been approved
by  CNPC subject to certain substantial modifications as to which
XCL   and  Apache  are  seeking  approvals  through  an  existing
agreement between CNODC, Apache and XCL that provided for changes
being  made.  CNODC has given notice that it will participate  as
to its full 51% share in the C-D Field.

      Since  the approval of the ODP, XCL, Apache and CNODC  have
and  are  continuing  to  collaborate on engineering  studies  to
refine the ODP.  Based on such refinements, the parties expect to
reduce  capital  commitments  for development  by  18.5  percent,
reduce operating costs from $265 million to $180 million, and  to
begin  production  before all development  operations  have  been
completed.   The current schedule adopted by the JMC contemplates
that  initial production from the C-D Field will commence in late
2000  or early 2001.  Commencement of production from other wells
drilled on the Zhao Dong Block on a more accelerated schedule  is
being  explored by XCL.  The revised ODP is phase one of  a  two-
phase  development  program designed to  develop  the  C-D  Field
reserves.

      Apache's and XCL's current phase one estimate of the  costs
remaining to be expended to develop the reserves in the C-D Field
that  are  identified  in the ODP by Apache (the  "Operator")  is
approximately  $136  million  (of  which  XCL's  share  would  be
approximately $33.4 million).  This estimate will continue to  be
revised  as the project moves forward. This estimate of remaining
costs  is  substantially  less  than  amounts  projected  by  the
Operator in the original ODP for several reasons. Cost reductions
are  expected  based  on design changes to  the  ODP  that  would
eliminate  one  drilling platform, one production  platform,  one
production  train and a barge loading facility from the  ODP  and
reduce  the number of wells to be drilled from 45 to  25.   While
formal  Chinese  approval  for these changes  has  not  yet  been
obtained,  all parties believe that such approval can be  secured
through  the  JMC.  Further, cost reductions are  expected  as  a
result  of  preliminary bids that suggest that cost estimates  in
the ODP have been too high. In addition, the initial ODP included
estimates  of  contingencies larger than the  industry  standard.
Cost reductions from the Operator's projections are also based on
the  assumption  that  the  current  weakness  of  certain  Asian
currencies could result in reductions in the costs of  steel  and
fabrication  for the project.  Finally, the current  slowdown  in
the oil industry may result in reduced drilling costs.

      The revised ODP design anticipates that once production and
loading  facilities have been installed in the field, wells  will
be  placed on production as they are drilled.  In this case, cash
flow  from  this production would be available to  fund  part  of
XCL's  capital requirements for the development of the C-D Field.
The  Company's financial plans include the use of such cash  flow
as part of the Company's source of funds.

      Phase two anticipates drilling an additional 12 wells for a
total  cost  of  $26  million  (of which  XCL's  share  would  be
approximately $6.4 million).

            Production  tests  of  the  C-4  well,  the   initial
exploration  well  in  the C-4 area, were  announced  by  XCL  on
October  7,  1997. The C-4 well tested at a combined  daily  rate
from  8 zones of 15,359 barrels of oil per day, and 6,107 Mcf  of
gas, plus a ninth zone daily rate of 4,600 Mcf and 14 barrels  of
condensate. This well was a new field discovery on the Zhao  Dong
Block.   In  November 1998, CNODC, XCL, and Apache concluded  the
drilling  of the C-4-2 appraisal well that successfully appraised
the   C-4  well  in  the  Oligocene  Shahejie  Formation,   found
additional  production in the Miocene and Pliocene  age  sections
that  are  productive  elsewhere  on  the  Zhao  Dong  Block  and
discovered a new, deeper Permian age zone.  XCL is exploring  the
possibility of commencing early production from the C-4  area  in
1999 (although there is no assurance that this will be possible).
The  capital costs attributable to such early production are  not
included  in  the  cost estimates described  above.   It  is  now
anticipated  that  permanent production from the  C-4  area  will
utilize  the production facilities constructed in the C-D  Field.
This  will  substantially  reduce  capital  and  operating  costs
required for development and production of the C-4 area.


     The Contract
     ------------

       The  Company  acquired  the  rights  to  the  exploration,
development and production of the Zhao Dong Block by executing  a
Production   Sharing  Agreement  with  CNODC,  a  Chinese   state
enterprise, effective May 1, 1993 (the "Contract").  The Contract
includes the following terms:

      The  Foreign Contractor (the Company and Apache as a group,
working  through  a participation agreement)  must  pay  for  all
exploration  costs.  If a commercial discovery  is  made  and  if
CNODC  exercises  its  option  to  participate,  development  and
operating  costs and allocable remainder oil and  gas  production
are  shared  up to 51% by CNODC and the remainder by the  Foreign
Contractor.

       The   work  under  the  Contract  is  divided  into  three
categories,     Exploration,    Development    and    Production.
Exploration,  Development  and Production  operations  can  occur
concurrently  on  different areas of the Zhao  Dong  Block.   The
Contract  is  not to continue beyond 30 consecutive  years.   All
exploration work must be completed during the Exploration  Period
(which  expires April 30, 2000).  The Production Period for  each
oil  field covered by the Contract is 15 years, starting with the
date of first production for that field.

     Exploration Period
     ------------------

     Work performed and expenses incurred during this period,
consisting of three phases totaling seven contract years and
beginning as of May 1, 1993, are the exclusive responsibility of
the Foreign Contractor. The Contract mandates certain minimum
requirements for drilling, seismic and expenditures during each
phase of the Exploration Period.  The Foreign Contractor has
elected to enter the third exploration phase (expiring April 30,
2000). The minimum work requirements for seismic and the minimum
expenditures for the balance of the Contract have been met. This
leaves only the drilling requirements left to be satisfied.  The
Foreign Contractor is required to drill two exploratory wells
prior to the expiration of the Exploration Period.  This will
complete its requirements in the Exploration Period. At least one
of these wells is expected to be drilled in 1999.

     Development Period
     ------------------

      The Development Period for any field discovered during  the
Exploration  Period commences on the date the  requisite  Chinese
governmental authority approves the development plan for  an  oil
and/or  gas  field.   The  C-D Field is now  in  the  Development
Period.

     Production Period
     -----------------

      The  Production Period for any oil and/or gas field covered
by  the  Contract  (the "Contract Area") will be  15  consecutive
years (each of 12 months), commencing for each such field on  the
date  of  commencement  of commercial production  (as  determined
under  the  terms  of  the  Contract).  However,  prior  to   the
Production Period, and during the Development Period, oil  and/or
gas may be produced and sold during a long-term testing period.

     Relinquishment
     --------------

      The Company expects that no relinquishment will be required
until  Exploration Phase 3 has been concluded.  After  April  30,
2000,  the  portions of the Contract area, other  than  areas  in
which   development  and/or  production  activities   have   been
undertaken, must be relinquished.

     Termination of the Contract
     ---------------------------

      The Contract may be terminated by the Foreign Contractor at
the  end of each phase of the Exploration Period, without further
obligation.

     Post-Production Operating and Exploration Costs
     ------------------------------------------------

      After commercial production has begun, the operating  costs
incurred  in  any given calendar year for an oil field  shall  be
recovered  in kind from 60% of that year's oil production.  After
recovery  of  operating costs, the 60% is applied to  exploration
costs. Unrecovered operating costs shall be carried forward.

      After  recovery of operating and exploration costs for  any
field,  development costs plus deemed interest  at  9%  shall  be
recovered  by the Foreign Contractor and CNODC from  60%  of  the
remaining oil production.

      Costs  associated with natural gas shall be recovered  from
production according to the same general principles, but in order
to  ensure  reasonable  benefit for the  Foreign  Contractor  the
allocation percentages shall be adjusted in the light  of  actual
economic conditions.

      Annual  gross production ("AGP") of each oil and gas  field
shall  be  allocated  in  kind  in the  following  sequences  and
percentages:

      (1)     5 percent of AGP shall be allocated to pay Chinese
taxes.

      (2)       The  Chinese government shall receive  a  sliding
scale  royalty, determined on a field by field basis,  calculated
as follows (as amended by the Ministry and State Taxation Bureau,
effective January 1, 1995):

          METRIC TONS OF ANNUAL
          CRUDE OIL PRODUCTION                         ROYALTY RATE
          (One metric ton is roughly equivalent to 
           seven barrels of crude oil)

          Up to and including 1,000,000 ..................Zero
          1,000,000 to 1,500,000 .........................  4%
          1,500,000 to 2,000,000 .........................  6%
          2,000,000 to 3,000,000 .........................  8%
          3,000,000 to 4,000,000 ......................... 10%
          Over 4,000,000.................................. 12.5%

      (3)     60% of AGP shall be deemed "cost recovery oil"  and
used for cost recovery, first of operating costs, and second  for
exploration  and  development costs (including deemed  interest).
Any  royalty  due  the Chinese government shall not  reduce  cost
recovery oil.

      (4)      After  recovery  of  operating,  exploration,  and
development  costs (including deemed interest), the remainder  of
AGP  shall  be  considered "remainder oil," which shall  then  be
further divided into "allocable remainder oil" and "Chinese share
oil." Allocable remainder oil shall be calculated for each field,
based  upon a sliding scale formula applied to each such  field's
annual  production,  and  shall  be  shared  by  the  parties  in
proportion to their respective interests under the Contract.  All
oil  remaining  after the above allocations shall  be  designated
Chinese  share  oil  and  allocated to  CNODC  or  other  Chinese
government designee.

     Administration of the Contract; Arbitration
     -------------------------------------------

      The  Contract is administered by the JMC, consisting of  an
equal  number of representatives designated by CNODC and  by  the
Foreign  Contractor.  Disputes must be  resolved,  first  through
negotiation,  and  then arbitration (though CNODC  may  have  the
right to seek resolution in Chinese courts). CNODC has not waived
sovereign immunity in any proceedings commenced in China.

     If accepted by the parties, arbitration will be conducted by
the China International Economic and Trade Commission under its
provisional rules. If that is not accepted by the parties,
disputes may be arbitrated by a panel of three arbitrators, each
party to appoint one and the third appointed by the two thus
chosen or, failing such appointment, by the Arbitration Institute
of the Stockholm (Sweden) Chamber of Commerce. Arbitration shall
be conducted under the rules of the UN Commission on
International Trade Law of 1976 (subject however to such rules as
expressly provided in the Contract). Awards shall be final and
binding on the parties.  Chinese law governs the Contract.

      Apache Farmout
      --------------

      In  March  1994,  by  means  of a  participation  agreement
("Participation Agreement"), the Company farmed out  a  one-third
interest  in the Foreign Contractor's interest in the  Zhao  Dong
Block  to  Apache. In exchange for the interest Apache agreed  to
make  certain cash payments and to assume its pro rata  share  of
expenditures  and  liabilities with respect  to  exploration  and
development.  As required by the Participation Agreement, in June
1994,  Apache  and  the Company entered into  a  Joint  Operating
Agreement  (the  "Operating Agreement").  To further  reduce  the
Company's  exploration capital requirements  and  accelerate  the
development  of  the  Zhao Dong Block,  the  Company  and  Apache
entered   into  an  agreement  on  May  10,  1995  (the   "Second
Participation  Agreement").  Pursuant to the Second Participation
Agreement Apache increased its interest in the Contract to 50% of
the  Foreign  Contractor's  interest  and  assumed  operatorship,
obligating  itself  to  pay 100% of the  costs  of  drilling  and
testing four exploratory wells (the "Carried Wells") on the  Zhao
Dong Block.  The drilling and testing of the C-3, D-1, D-2 and F-
1  wells  satisfied the obligations regarding  the  four  Carried
Wells.  All of these wells have been drilled and tested with  the
exception of the F-1 well, drilling operations on which have been
abandoned.  The Company does not believe that such operations  on
the  F-1  well to date satisfy Apache's obligations to deliver  a
fourth  Carried  Well.  The amounts advanced by  Apache  for  the
Company's  share  of  the Carried Wells are  recoverable  from  a
portion of the Company's share of cost recovery revenues from the
Zhao   Dong   Block.   In  addition,  pursuant  to   the   Second
Participation  Agreement,  Apache obligated  itself  to  pay  the
Company  16.667% of the value of the recoverable proved  reserves
attributable to the portion of the Zhao Dong Block delineated  by
the  drilling of the C-1 and C-2 and C-3 wells, the combined area
designated  in the agreement as the "C Field." Payment  for  this
purchase   will   be  computed  in  accordance  with   evaluation
methodology  as  set forth in the Second Participation  Agreement
and  made to the Company from time to time as each segment of the
field is placed on production.

      In  consideration of the above described  payments,  Apache
assumed  operatorship of the Zhao Dong Block  and  increased  its
interest  from  33.33% to 50% of the Foreign Contractor's  share.
All  future  exploration expenditures in excess  of  the  Carried
Wells  will  be borne 50% each by the Company and Apache.   Under
the   Operating  Agreement,  approval  of  a  successor  operator
requires   the  vote  of  not  less  than  55%  of  the   Foreign
Contractor's  interest. If the operator reduces its participating
interest  to  less  than 25%, a committee established  under  the
Operating  Agreement comprised of Apache and XCL (the  "Operating
Committee") shall vote on whether a successor operator should  be
named.   The  appointment of a successor or replacement  operator
requires  government  approval.  CNODC has the  right  to  become
operator   of  production  operations  in  certain  circumstances
described in the Contract.

      All  work  under the Contract must be pursuant  to  a  work
program and budget approved by the JMC.  Each year, the Operating
Committee must submit a proposed work program and budget  to  the
JMC.   Operating  Committee approval of  this  work  program  and
budget  requires  the vote of not less than 55%  of  the  Foreign
Contractor's  interest.   If  55%  of  the  Foreign  Contractor's
interest  does not vote in favor of a proposed work  program  and
budget,  the  operator must submit the minimum work  program  and
budget  necessary  to  meet the contractual  obligations  of  the
Foreign Contractor under the Contract.

       Under   the  Participation  Agreement  and  the  Operating
Agreement,  Apache  and the Company each has  a  right  of  first
refusal with respect to any sale or transfer of interest  in  the
Foreign  Contractor's share of the Contract.  In addition,  under
the  Participation Agreement, Apache and the Company each  has  a
right of first refusal with respect to the sale of 50% or more of
outstanding   voting   capital   stock   of   their    respective
subsidiaries'   party  to  the  Contract  and  the  Participation
Agreement. In addition, each party has the option to purchase the
other  party's  interest in the Contract upon the  occurrence  of
certain "option events." Option events include the failure to pay
sums  due  under the Operating Agreement more than twice  in  one
year  after  receiving written notice of default and  failing  to
cure  such default within any applicable cure period provided  by
the Operating Agreement, (if nonpayment is the subject of dispute
and  arbitration  under  the Operating  Agreement,  it  does  not
constitute  a  "failure  to pay" until an  arbitral  decision  is
rendered against the nonpayor); the inability of a party  to  pay
its  debts as they fall due; or a final unappealable order  by  a
court  of  competent  jurisdiction  liquidating  the  party,   or
appointing  a receiver to take possession of all of  the  party's
assets; the transfer of more than 49% of the voting shares of the
Apache  subsidiary holding Apache's interest  in  the  Zhao  Dong
Block  or  XCL-China,  Ltd.  ("XCL-China"),  the  XCL  subsidiary
holding  XCL's  interest  in  the  Zhao  Dong  Block,  by   their
respective parents; or certain other defaults under the Operating
Agreement or the Contract.  The consideration to be paid  on  the
exercise  of the option to purchase is the fair market  value  of
the  interest assigned.  If the parties cannot agree on the  fair
market  value  of  the  interest,  it  is  to  be  determined  by
arbitration.  This option runs only to the benefit of Apache  and
XCL-China  and may not be transferred by either of  them  to  any
third party.

      The  Company has not yet paid certain cash calls to  Apache
totaling  $6.9  million  through  April  1999  ($4.1  million  at
December  31,  1998), including amounts in dispute,  which  could
develop  into  an  event that would trigger  Apache's  option  to
purchase the Company's interest in the Contract.  The Company and
Apache are in discussions concerning the timing and manner of the
payment  of  these  amounts.   See "Management's  Discussion  and
Analysis  of  Financial Condition and Results of Operations"  and
"Legal Proceedings."

United/XCL Lube Oil Joint Venture
---------------------------------

      On  July 17, 1995, the Company signed a contract with  CNPC
United  Lube Oil Corporation to form a joint venture  company  to
engage  in  the  manufacturing,  distribution  and  marketing  of
lubricating  oil  in China and in Southeast Asian  markets.   The
joint venture has a 30-year life unless extended.  The registered
capital of the joint venture is $4.9 million, with the Company to
contribute   $2.4  million  for  its  49%  interest,   the   last
installment  of  which was paid in late 1997.  As its  investment
for  51%  of  the  stock,  the Chinese  contributed  an  existing
lubricating oil blending plant in Langfang, China, with a Chinese
government  appraised value of $2.5 million. Chinese  authorities
approved the registration of the joint venture, and the effective
date  of  the  joint venture is January 1, 1998. In a  letter  of
intent  executed contemporaneously with the contract, the parties
agreed  to consider the feasibility of contributing to the  joint
venture  a  second existing plant in southwest China,  and  other
projects, including, constructing oil terminals on the north  and
south  coasts of China and engaging in upgrading certain existing
refineries  within  China.   To date, the  Company  has  invested
approximately $4.1 million in this project and it has met all  of
its  minimum capital requirements for this project.

      The  Langfang plant is located 50-km southeast of  Beijing.
The facility is built on a 10-acre site and has been evaluated on
the basis of U.S. Gulf Coast costs at a replacement value of $7.0
million,  without taking into account the land value.  The  plant
currently produces and markets approximately 5,000 metric tons of
lube  oil  per year.  Approximately $1.5 million of the Company's
investment  has been allocated to the physical upgrading  of  the
facility,  including the installation of automated filling  lines
and  packaging  systems. Upon completion of  the  upgrading,  the
plant's  production capacity will be approximately 20,000  metric
tons per year, assuming one eight hour shift, five days per week.
Additional  capacity  will  be available  by  adding  shifts  and
expanding  the work-week.  Further capital improvements estimated
to  cost  $15  million could increase capacity  to  approximately
100,000 metric tons per year.

     It is the Company's opinion that an essential element to the
success of the lube oil business in China will be the ability  to
distribute the product.  In order to assure adequate distribution
of  the joint venture's products, the Company has entered into  a
memorandum of understanding with the Coal Ministry in China  that
is expected to be reduced to a formal distribution contract.  The
Coal  Ministry operates 125 major integrated distribution centers
throughout  China  and the Company expects to  market  the  joint
venture's products through this system.

      China's state-owned oil companies were reorganized  at  the
end  of  1998.  CNPC acquired approximately 70 percent of China's
lubrication  oil  facilities  in  that  reorganization.   XCL  is
discussing  with CNPC the possibility of expanding  its  existing
lubrication  oil  joint  venture to include  portions  of  CNPC's
expanded lubrication oil business in the joint venture.  If  this
occurs,  XCL  plans to include a major international  lubrication
oil company in the joint venture.

Coalbed Methane Project
-----------------------

      On March 31, 1995, the Company signed an agreement with the
CNACG,  pursuant  to which the parties will commence  cooperation
for  the  exploration and development of coalbed methane  in  two
areas  in  China.   During the study period contemplated  by  the
agreement, the Company will evaluate the properties, after  which
the  parties are expected to enter into a comprehensive agreement
as  to the specific designated areas, which may provide the basis
for  coalbed  methane development in other areas  of  China.   On
December   14,   1995,  the  Company  signed  a   Memorandum   of
Understanding  with CNACG to develop a contract for  exploration,
development and utilization of coalbed methane in the two  areas.
The March 31, 1995 agreement expired by its terms on December 31,
1996; however, the Company has been informally advised that CNACG
will  extend  the  term of the agreement.   The  project  is  not
currently  active, but may be reactivated in  the  last  half  of
1999.   To  date,  the  Company has invested  approximately  $0.9
million  in  this  project,  which  is  currently  classified  as
unevaluated oil and gas properties in the accompanying  financial
statements.   The  Company has met all  of  its  minimum  capital
requirements for this project.

The Zhang Dong Block
---------------------

      On  August 20, 1998, XCL (through its subsidiary XCL-Cathay
Ltd.) signed a production-sharing contract (the "Contract")  with
CNPC  for  the 12,000-acre Zhang Dong Block. The Chinese Ministry
of  Foreign Trade and Economic Cooperation approved the  Contract
on  September  15, 1998, with the Contract effective  October  1,
1998.  The Zhang Dong Block is located north and adjacent to  the
Zhao Dong Block in the offshore area of Bohai Bay. The subsidiary
of  CNPC  that  operates  onshore fields  in  this  area,  Dagang
Oilfield (Group) Co. Ltd. ("Dagang") has drilled and tested  nine
wells in the offshore block.  All but one of these wells has been
drilled  from  an artificial island or a causeway extending  into
the  bay.  All nine wells were tested with five having commercial
oil production rates, one having gas production, two with low oil
production  rates and one well that produced water. The  Contract
includes the following terms:

      The  Foreign  Contractor (the Company)  must  pay  for  all
appraisal costs.  If a commercial discovery is made and  if  CNPC
exercises  its  option to participate, development and  operating
costs  and allocable remainder oil and gas production are  shared
up to 51% by CNPC and the remainder by the Foreign Contractor.

       The   work  under  the  Contract  is  divided  into  three
categories,  Appraisal,  Development and Production.   Appraisal,
Development  and Production operations can occur concurrently  on
different areas of the Zhang Dong Block.  The Contract is not  to
continue beyond 30 consecutive years.  All appraisal work must be
completed during the Appraisal Period.  The Production Period for
each oil field covered by the Contract is 20 years, starting with
the date of first commercial production for that field.

   Appraisal Period
   -----------------   

     Work  performed  and expenses incurred during  this  period,
consisting  of  three  phases totaling five  contract  years  and
beginning as of October 1, 1998, are the exclusive responsibility
of  the Foreign Contractor. The Contract mandates certain minimum
requirements for drilling, seismic and other expenditures  during
each phase of the Appraisal Period, as follows:
     
     o During the first phase of the appraisal period (1 year), the
       Contractor shall:

          (a)      reprocess and reinterpret a minimum of
               approximately    three   hundred     (300)
               kilometers  of existing 2-D  seismic  data
               and  seventy  (70)  square  kilometers  of
               existing   3-D   seismic  data,   provided
               necessary   support  data  is   available.
               Contractor  will have access to additional
               seismic data outside the Contract Area  as
               needed  to make geological and geophysical
               evaluations of the Contract Area;
          
          (b)      drill  one  (1)  Appraisal  Well  with
               footage of  three thousand (3,000) meters;

          (c)       spend   a   minimum  of  one   million
               ($1,000,000)  U.S.  dollars  to upgrade  the
               artificial  island and to  recondition  the
               causeway  and  causeway  drilling  pad   in
               preparation for Petroleum Operations; and
       
          (d)       spend   a  minimum  of  four  million
               ($4,000,000)  U.S. dollars (including  the
               expenditures described in (c), above)  for
               such Appraisal Operations.

     o During the second phase of the appraisal period (2 years),
       the Contractor shall:
          
          (a)     drill two (2) Appraisal Wells, one with
               footage  of three thousand (3,000) meters,
               and  one  with  footage of three  thousand
               five hundred (3,500) meters;
     
          (b)      if  the decision is made to drill from
               the artificial island, the Contractor will
               spend  a  minimum  of  an  additional  one
               million    ($1,000,000)    U.S.    dollars
               upgrading  the  drilling  rig  and   other
               facilities on the artificial island;
     
          (c)      if  Contractor concludes and  the  JMC
               agrees   that  it  is  feasible  from   an
               engineering,   geological   and   economic
               viewpoint  to  reevaluate  the  nine   (9)
               existing  wellbores on the Contract  Area,
               Contractor  will commit to  re-evaluate  a
               minimum  of  three  (3)  of  the  existing
               wells;
     
          (d)       spend   a  minimum  of  six   million
               ($6,000,000) U.S. dollars as its  expected
               minimum  appraisal expenditures  for  such
               Appraisal Operations; and
     
          (e)       formulate   an  Overall   Development
               Program if appraisal of any potential  Oil
               Field and/or Gas Field indicates that such
               a field is commercial.

     o During the third phase of the appraisal period (2 years),
       the Contractor shall:
     
          (a)      drill  two  (2) Appraisal  Wells  with
               footage  of three thousand (3,000)  meters
               each; and
     
          (b)       spend   a  minimum  of  six   million
               ($6,000,000) U.S. dollars as its  expected
               minimum  appraisal expenditures  for  such
               Appraisal Operations.

   Development Period
   ------------------

      The Development Period for any field discovered during  the
Appraisal  Period  commences on the date  the  requisite  Chinese
governmental authority approves the development plan for  an  oil
and/or gas field.


   Production Period
   ------------------

      The  Production Period for any oil and/or gas field covered
by  the  Contract  (the "Contract Area") will be  20  consecutive
years (each of 12 months), commencing for each such field on  the
date  of  commencement  of commercial production  (as  determined
under  the  terms  of  the  Contract).  However,  prior  to   the
Production Period, and during the Development Period, oil  and/or
gas may be produced and sold during a long-term testing period.

   Relinquishment
   --------------

       In  general,  no  relinquishment  is  required  until  the
expiration  of  the  last  appraisal  and  development   periods.
Thereafter, the portions of the Contract area, other  than  areas
in  which  development  and/or production  activities  have  been
undertaken, must be relinquished.

   Termination of the Contract
   ---------------------------

     The Foreign Contractor may terminate the Contract at the end
of   each   phase  of  the  Appraisal  Period,  without   further
obligation.

   Post-Production Operating and Appraisal Costs
   ---------------------------------------------

      After commercial production has begun, the operating  costs
incurred  in  any given calendar year for an oil field  shall  be
recovered  in kind from 60% of that year's oil production.  After
recovery  of  operating costs, the 60% is  applied  to  appraisal
costs. Unrecovered operating costs shall be carried forward.

      Development  costs  plus deemed interest  at  9%  shall  be
recovered  by  the Foreign Contractor and CNPC from  60%  of  the
remaining  oil  production,  after  recovery  of  operating   and
appraisal costs for any field.

      Costs  associated with natural gas shall be recovered  from
production according to the same general principles, but in order
to  ensure  reasonable  benefit for the  Foreign  Contractor  the
allocation percentages shall be adjusted in the light  of  actual
economic conditions.

      Annual  gross production ("AGP") of each oil and gas  field
shall  be  allocated  in  kind  in the  following  sequences  and
percentages:

     (1)     5 percent of AGP shall be allocated to pay Chinese
taxes.

     (2)      The  Chinese  government  shall  receive  a
          sliding scale royalty, determined on a field by
          field  basis, calculated as follows (as amended
          by  the  Ministry  and State  Taxation  Bureau,
          effective January 1, 1995):

          METRIC TONS OF ANNUAL
          CRUDE OIL PRODUCTION                        ROYALTY RATE
          (One metric ton is roughly equivalent to 
           seven barrels of crude oil)

          Up to and including 1,000,000 ..................Zero
          1,000,000 to 1,500,000 .........................  4%
          1,500,000 to 2,000,000 .........................  6%
          2,000,000 to 3,000,000 .........................  8%
          3,000,000 to 4,000,000 ......................... 10%
          Over 4,000,000.................................. 12.5%

     (3)  60% of AGP shall be deemed "cost recovery oil" and used for
          cost recovery, first for operating costs, and second for
          appraisal and development costs (including deemed interest). Any
          royalty due the Chinese government shall not reduce cost recovery
          oil.  In general, appraisal cost recovery will be shared 51% for
          CNPC and 49% for the Foreign Contractor until CNPC recoups its
          preexisting appraisal investment of $19,312,000 appraisal costs
          on the Block.  Thereafter, the Foreign Contractor shall be
          entitled to 100% of appraisal cost recovery until the Foreign
          Contractor has recouped all of its appraisal costs.  Development
          cost recovery will be based on the proportionate share of
          development expenses to be borne by CNPC and Foreign Contractor
          in the development of each field.  However, in the case of the
          first field to be developed, CNPC's proportionate share of
          development cost recovery shall be increased by the amount of
          CNPC's preexisting development costs expended  ($11,681,000 US).

     (4)      After recovery of operating, appraisal, and
          development costs (including deemed  interest),
          the   remainder  of  AGP  shall  be  considered
          "remainder  oil," which shall then  be  further
          divided  into  "allocable  remainder  oil"  and
          "Chinese  share oil." Allocable  remainder  oil
          shall be calculated for each field, based  upon
          a  sliding  scale formula applied to each  such
          field's annual production, and shall be  shared
          by   the   parties  in  proportion   to   their
          respective  interests under the  Contract.  All
          oil remaining after the above allocations shall
          be  designated Chinese share oil and  allocated
          to CNPC or other Chinese government designee.

   Administration of the Contract; Arbitration
   -------------------------------------------

      The  Contract is administered by the JMC, consisting of  an
equal  number of representatives designated by CNPC  and  by  the
Foreign  Contractor.  Disputes must be  resolved,  first  through
negotiation, and then arbitration (though CNPC may have the right
to  seek  resolution  in Chinese courts).  CNPC  has  not  waived
sovereign immunity in any proceedings commenced in China.

     If accepted by the parties, the China International Economic
and  Trade  Commission under its provisional rules  will  conduct
arbitration. If that is not accepted by the parties, disputes may
be  arbitrated  by a panel of three arbitrators,  each  party  to
appoint  one and the third appointed by the two thus  chosen  or,
failing  such  appointment, by the Arbitration Institute  of  the
Stockholm  (Sweden)  Chamber of Commerce.  Arbitration  shall  be
conducted  under the rules of the UN Commission on  International
Trade  Law  of  1976 (subject however to such rules as  expressly
provided  in the Contract). Awards shall be final and binding  on
the parties. Chinese law governs the Contract.

Domestic Properties
-------------------

     U.S. Exploration and Production Activities.  The Company has
sold  substantially all of its U.S. producing  properties  except
for  an  interest in the Berry R. Cox Field (the "Cox Field")  in
South  Texas and is seeking to sell or joint venture its interest
in  that  property.  The  Company holds a  60%  to  100%  working
interest  in  1,265 acres in this field on which there  are  four
producing  wells  (3.45 net wells). During 1996,  litigation  was
instituted against the Company in connection with the Cox  Field,
which has effectively impeded the Company's ability to consummate
a  sale of such property.  Upon resolution of the litigation, the
Company  will  continue  its efforts to divest  itself  of  these
properties.

     Lutcher Moore Tract.  The Company holds, in partnership with
one  of  its  subsidiaries,  a fee  interest  in  a  62,500  acre
undeveloped tract of Louisiana fee property located in Ascension,
St.  James  and  St.  John the Baptist Parishes,  Louisiana  (the
"Lutcher Moore Tract").  Expressions of interest to purchase  the
property have been received from several parties.  The Company is
also evaluating the possibility of developing the property into a
source  of  wetland mitigation credits, selling portions  of  the
land  for high value recreational uses and, selling the extensive
timber on the property. In connection with the acquisition of the
Lutcher  Moore  Tract, the Company's indirect ownership  of  such
tract  is  subject to a first mortgage, and a number of  sellers'
notes   (collectively,  the  "Lutcher  Moore  Debt").  The  first
mortgage  has  a current principal balance of approximately  $1.0
million,  and  the  sellers'  notes  have  an  aggregate  current
principal balance of approximately $0.5 million.  Recourse by the
holder  of  the  first mortgage and the holders of  the  sellers'
notes  is  limited to the Lutcher Moore Tract, with  neither  the
Company nor its wholly-owned subsidiaries, XCL Land Ltd. and  The
Exploration Company of Louisiana, Inc., liable for the debt.  The
partners  in  the partnership that owns the Lutcher  Moore  Tract
have   also  granted  security  interests  in  their  partnership
interest  to  several lenders of one of the partners.  See  also,
"Management's Discussion and Analysis of Financial Condition  and
Results of Operations."


Oil Reserves
------------

      Based  on  the  report  of H.J. Gruy and  Associates,  Inc.
("Gruy"),  the Company's independent petroleum engineering  firm,
net  proved  reserves in the C-D Field are estimated to  be  12.8
million  barrels as of January 1, 1999.  CNODC has exercised  its
option to pay 51% of all development costs and receive 51% of oil
production.  At January 1, 1999, the standarized  measure  of
discounted  future net cash flows determined in  accordance  with
the  rules  prescribed by FASB No. 69 was $37.9  million.  Future
reserve  values are based on 1998 year-end prices  and  operating
costs,  production and future development costs based on  current
costs  with no escalation. These figures were based on an assumed
price  of  an unescalated $12.52 over the life of the field.  See
"Certain Risk Factors Relating to the Company and the Oil and Gas
Industry  -- Reliance on Estimates of Proved Reserves and  Future
Net  Revenue" and "Supplemental Oil Information" in the Notes  to
the Consolidated Financial Statements.

      Gruy has been preparing reserve estimates for the Company's
oil  reserves  since August 1996. The Company selected  Gruy  for
this task based upon its reputation, experience and expertise  in
this  area.   Gruy is an international petroleum-consulting  firm
with  offices in Houston and Dallas, Texas.  Their staff includes
petroleum  engineers  and  geologic consultants.   Services  they
provide   include  reserve  estimates,  fair  value   appraisals,
geologic  studies, expert witness testimony and arbitration.   In
1998  the  Company paid Gruy approximately $78,600  in  fees  for
reserve  report  valuations and other services.  No  instructions
are given and the Company imposes no limitations on the scope  of
or methodology to be used in preparing the reserve estimates.

Production, Sales and Cost Data
-------------------------------

     The following table sets forth certain information regarding
the  production  volumes, revenues, average prices  received  and
average  production costs associated with the Company's  sale  of
oil  and  gas  from  properties held for  sale  for  the  periods
indicated.

                                     Year Ended December 31,
                                     ------------------------
                                     1998      1997      1996
                                     ----      ----      ---- 
Net Production: (a)
   Gas (MMcf)                           58       72       467
   Oil (MBbl)                            1        4         9
   Gas equivalent (MMcfe)               61       95       522

Oil and gas sales ($ in 000's): (b)
   Gas                              $  106   $  166   $   955
   Oil and other                         6       70       181
                                     -----    -----    ------
       Total oil and gas sales      $  112   $  236   $ 1,136
                                     =====    =====    ====== 

Average sales price:
   Gas ($ per Mcf)                    1.82     2.28      1.84
   Oil ($ per Bbl)                   13.00    18.34     19.80
   Gas equivalent ($ per Mcfe)        1.84     2.47      2.18

Oil and gas costs ($ per Mcfe):
   Production expenses and taxes      3.48     2.41      0.74
      Depreciation, depletion and 
       amortization of oil and 
       gas properties                 0.86     0.81      0.96
     ________________
     (a)     Excludes gas consumed in operations.
     (b)     Includes plant products recovered from treating and
              processing operations.

      The  following table shows the 1998 production of  oil  and
natural gas liquids and natural gas by major fields. All  of  the
Company's  net production was attributable to the Cox  Field  and
the Frenier Field (on the Lutcher Moore Tract).

                          1998 Net Production
                      --------------------------  
                        (MBbls)         (MMcf)
                      ------------   -----------
   Field              Oil      %     Gas      %
-------------         ---     ---    ---     --- 
Cox Field              --      --     58     100
Frenier Field           1     100     --      --

Oil Acreage
-----------

      The oil acreage in which the Company has leasehold or other
contractual  interest at December 31, 1998,  and  which  are  not
classified  as  assets  held  for  sale  are  summarized  in  the
following  table.  "Gross" acres are the total  number  of  acres
subject  to the Contract.  "Net" acres are gross acres multiplied
by  the  Company's  fractional share of the costs  of  production
before CNODC's reversionary interest.

                                               Undeveloped
                                            ----------------
                                            Gross        Net
                                            ------     ------ 
     The People's Republic of China:
          Zhao Dong Block (a)               48,677     22,403
          Zhang Dong Block                  12,355     12,355
______________
(a)      CNODC  has  elected  to participate  for  its  full  51%
     reversionary interest in the 5,911 acres in the  C-D  Field.
     Net  undeveloped  acreage would be  11,926  acres  if  CNODC
     elects to participate for its full 51% reversionary interest
     in the entire Zhao Dong Block.

Drilling Activity
-----------------

      The following table sets forth wells drilled by the Company
in  China during the periods indicated.  The Company did not have
any drilling activity in the U.S. during these periods.

                                       Year Ended December 31,
                      ---------------------------------------------------- 
                           1998              1997               1996
                      --------------    --------------    ---------------- 
                      Gross     Net     Gross     Net     Gross       Net
                      -----     ---     ------    ----    -----       ----
Exploratory:
    Productive           1        .5        2      1.0        1        .5 
    Nonproductive        1        .5        1       .5       --        --
                       ---       ---      ---      ---      ---       ---
         Total           2       1.0        3      1.5        1        .5
                       ===       ===      ===      ===      ===       === 


Producing Well Data
--------------------

      At  December  31,  1998, the Company  had  interests  in  4
producing  gas  wells  (3.45 net) in the  Cox  Field,  which  are
included in assets held for sale.

Title to Properties
-------------------

      The  Company  believes  that title  to  its  properties  is
generally  acceptable in accordance with prevailing standards  in
the  oil  and  gas industry, subject to exceptions  that  do  not
materially  detract  from  the  value  of  such  properties.  The
Company's properties are subject to royalty, overriding  royalty,
carried  and other similar interests and contractual arrangements
customary  in  the  oil and gas industry, to  liens  incident  to
operating agreements, to liens for current taxes not yet due  and
other relatively minor encumbrances.

      The Company's stock of its major subsidiary, XCL-China, has
been pledged to the holders of the Company's 13.5% Senior Secured
Notes  due  May  1,  2004 (the "Notes"). Under the  Participation
Agreement between the Company and Apache, each of the Company and
Apache has a right of first refusal with respect to: (i) any sale
or  transfer of interest in the Foreign Contractor's share of the
Contract;  and  (ii) any sale of 50% or more of  the  outstanding
voting  capital  stock  of the other's subsidiary  party  to  the
Contract,  and the Participation Agreement. Absent a waiver  from
Apache, foreclosure on the shares of XCL-China pledged to  secure
the Notes could trigger one of these rights.


Markets
-------

      Substantially all of the Company's 1998 gas production from
the  Cox Field was dedicated to MidCon Texas Pipeline Corp. under
contracts dated May 1, 1991, as amended.

      With respect to China, under the terms of the Contract, the
Company  has  both  the  right and obligation  in  each  calendar
quarter  to  take  and separately dispose of  its  share  of  oil
produced at the Zhao Dong Block.  However, the Company shall  not
deliver its oil to prohibited destinations, which are those  that
infringe on the political interests of China.  During 1994, China
became  a net importer of oil, therefore the Company believes  it
can  sell  its  share of oil produced in China  at  world  market
prices.  Additionally, the oil to be produced from the C-D  Field
area  is  ideally  suited for lubrication oil  feed  stock.   The
Company's lubrication oil joint venture gives the Company certain
rights  to market lubrication oil and lubrication oil feed  stock
within  and outside China.  Through the lubrication joint venture
the Company expects to receive a premium for its share of the oil
produced from the C-D Field.

Competition
-----------

      The oil and gas industry is competitive in all phases, both
domestic and internationally.  In pursuing its growth strategy of
expanding  its participation in the Chinese energy industry,  the
Company  is  in  competition  with  the  "major"  integrated  oil
companies,  national  oil  companies and  other  independent  oil
companies.  Although  many  of these competitors  have  financial
resources greater than the Company's, management believes,  based
upon  its  accomplishments to date that the Company is positioned
to continue to compete effectively.

Certain Risk Factors Relating to the Company and the Oil
--------------------------------------------------------
 and Gas Industry
 ----------------

     General Industry Risks
     ----------------------

      The  Company's  business is affected by the  general  risks
associated with the oil and gas industry.  The availability of  a
ready market for oil and gas purchased, sold and produced by  the
Company  depends  upon numerous factors beyond its  control,  the
exact   effects   of   which  cannot  be  accurately   predicted.
Generally, these factors include, among other things,  the  level
of  production and economic activity, the availability of oil and
gas   supplies,  action  taken  by  oil-producing  nations,   the
availability  of  transportation capacity, the  availability  and
marketing  of  other competitive fuels, fluctuating and  seasonal
demand  for  oil,  gas and refined products, and  the  extent  of
governmental  regulation  and taxation (under  both  present  and
future  legislation) of the production, refining, transportation,
pricing, use and allocation of oil, natural gas, refined products
and   substitute  fuels.  Accordingly,  in  view  of   the   many
uncertainties  affecting the supply and  demand  for  crude  oil,
natural  gas and refined products, it is not possible to  predict
accurately  either the prices or marketability  of  oil  and  gas
produced from any property that the Company has or may acquire an
interest in.

     General Exploration and Production Risks
     ----------------------------------------

     The Company's oil and gas drilling and production activities
involve  a  high  degree  of risk. The  ratio  of  dry  holes  to
commercially  productive  oil and  gas  wells  is  high  for  the
industry  as  a whole. Hazards, such as formations  with  unusual
pressures,   or   other  unforeseen  conditions   are   sometimes
encountered  in drilling wells which could result in  loss  of  a
well  and in substantial liabilities or injuries to other persons
or  property.  In addition, the Company may encounter delays  due
to  adverse  weather  conditions  and  difficulties  in  securing
supplies, drilling and production equipment and access to trained
personnel. The Company seeks to minimize the risks of  damage  to
the  environment, property and persons present  in  its  drilling
operations  and  obtains  insurance  coverage  that  it  believes
prudent.

     High Degree of Leverage
     -----------------------

      The  Company  is currently highly leveraged. Its  level  of
indebtedness  will significantly affect future operations.   Much
of  its  cash flow from operations will be dedicated to  interest
payments. Large amounts of money will be required to continue its
operations   in   China.   Covenants  in   the   Indenture   (the
"Indenture") governing the Company's 13.50% Senior Secured  Notes
due  May  1,  2004  (the  "Notes") may  limit  certain  financial
transactions of the Company and the Company's ability to  dispose
of  assets  or  to borrow additional funds. These  covenants  may
affect  the  Company's business flexibility, and  could  possibly
limit  acquisition activity.  The Company's interest in the Zhang
Dong  Block, which is held by XCL-Cathay Ltd., may not be subject
to   all   of  the  foregoing  restrictions.   See  "Management's
Discussion  and  Analysis of Financial Condition and  Results  of
Operations --  Liquidity,  Capital  Resources  and   Management's
Plans."

      The Company's earnings to fixed charges ratio and preferred
stock  is  insufficient to cover preferred dividend payments  and
payments  on the Notes.  The Company's ability to meet  its  debt
service  obligations and to reduce its indebtedness  will  depend
upon  its  future  performance. This, in turn, will  depend  upon
successful  completion of the activities called for in  the  ODP,
the  Company's  access  to additional capital,  general  economic
conditions, as well as on financial, business, and other factors,
many of which are beyond the Company's control.

     Restrictions Imposed by Terms of the Company's Indebtedness
     -----------------------------------------------------------

      The  Indenture restricts, among other things, the Company's
ability to incur additional debt, incur liens, pay dividends,  or
make  certain  other  restricted payments.  It  also  limits  the
Company's  ability to consummate certain asset sales, enter  into
certain  transactions  with affiliates,  enter  into  mergers  or
consolidations,  or dispose of substantially  all  the  Company's
assets.  The Company's ability to comply with such covenants  may
be  affected by events beyond its control. The breach of  any  of
these covenants could result in a default.  A default could allow
holders  of  the  Notes  to declare all amounts  outstanding  and
accrued  interest  immediately  due  and  payable.  Absent   such
payment, the holders could proceed against any collateral granted
to  them to secure such indebtedness, which includes all  of  the
stock  of the Company's principal operating subsidiary, XCL-China
Ltd. ("XCL-China"), which has guaranteed such indebtedness with a
full  and unconditional guaranty.  A foreclosure on the stock  of
XCL-China could trigger Apache's right of first refusal under the
Participation Agreement to purchase such stock or its  option  to
purchase the Company's interest in the Contract.  There can be no
assurance  that  the  assets  of the  Company  and  XCL-China  (a
"Subsidiary Guarantor"), or any other Subsidiary Guarantors  (if,
in  the  future, there are others) would be sufficient  to  fully
repay the Notes and the Company's other indebtedness.

      As  of  April 15, 1999, the Company does not have the  cash
necessary  to  make the interest payment due May  1,1999  on  the
Notes.   See  "Management's Discussion and Analysis of  Financial
Condition  and  Results  of  Operations  --  Liquidity,   Capital
Resources and Management's Plans."

     Qualified Accountants' Report
     -----------------------------

     In reporting on the Company's audited consolidated financial 
statements and XCL-China's audited financial statements as of and
for the fiscal years ended December 31, 1998, 1997 and 1996, the 
report of the Company's independent accountants contained an 
explanatory paragraph indicating factors which create substantial 
doubt about the  Company's  and  XCL-China's  ability to  continue 
as a going concern.  Such factors include the Company's  ability 
to generate additional cash flows to satisfy its development  and 
exploratory obligations with respect to its China properties.
  
     Oil and Gas Properties; Capital Expenditures
     --------------------------------------------

      The  Company's  total proved reserves, as of  December  31,
1998, were all classified as proved and undeveloped. Recovery  of
such  reserves will require both significant capital expenditures
and  successful  drilling, completion and production  operations.
The  Company  will also have additional capital expenditures  for
exploration  activity on the Zhao Dong Block and for activity  on
the Zhang Dong Block and its other interests in China.

      The  Company plans to generate the additional  cash  needed
through  the  sale or financing of its domestic assets  held  for
sale,  a  financing involving the Lutcher Moore Tract,  the  Zhao
Dong  Block  or  the  Zhang  Dong Block,  or  the  completion  of
additional equity, debt or joint venture transactions.  There  is
no  assurance, however, that the Company will be able to sell  or
finance  such  assets  or to complete other transactions  in  the
future  on commercially reasonable terms, if at all, or  that  it
will  be  able  to meet its future contractual obligations.   The
Indenture limits the Company's ability to obtain additional  debt
financing, and there can be no assurance that additional debt  or
equity  financing,  or additional cash from operations,  will  be
available.  If funds are raised on an equity basis, there may  be
a dilutive effect to current shareholders.

       When production from the oil and gas properties commences,
the  Company's proportionate share of the related cash flow  will
be  available  to  help  satisfy some of its  cash  requirements.
However,  there  is  no assurance that such development  will  be
successful and production will commence, and that such cash  flow
will  be available. See "Management's Discussion and Analysis  of
Financial  Condition  and  Results of  Operations  --  Liquidity,
Capital  Resources and Management's Plans," "Legal  Proceedings,"
and "Domestic Properties -- Lutcher Moore Tract."

     Joint Venture Cash Call Obligations
     -----------------------------------

      The Company's failure to meet certain financial obligations
under  the  Joint  Operating Agreement between  the  Company  and
Apache  (in  addition  to  certain  other  actions)  may  trigger
Apache's  option  to  purchase  the  Company's  interest  in  the
Contract.   The  Company has not yet paid certain cash  calls  to
Apache, totaling $6.9 million through April 1999 ($4.1 million at
December  31,  1998), including amounts in dispute,  which  could
develop into an event that would also trigger Apache's option  to
purchase the Company's interest in the Contract.  The Company and
Apache are in discussions concerning the timing and manner of the
payment of these amounts.

      On  December  1, 1995, XCL-China submitted  to  arbitration
certain accounting disputes arising from operations in the  Bohai
Bay  Shallow  Water  Sea  Area, People's Republic  of  China  and
governed  by  a  Zhao  Dong Block Operating  Agreement.   By  the
initial submission, XCL-China disputed certain amounts charged to
it  by  Apache  in the August, September and October  1995  joint
interest billings and the November and December 1995 cash  calls.
Thereafter,  disputes involving joint interest  billings  through
1998  were added to the submission.  In 1997, XCL-China made some
payments  with  respect  to  the disputed  amounts  although  the
arbitration  proceeding remains unresolved and inactive  inasmuch
as  a third arbitrator has not been selected.   See "Management's
Discussion  and  Analysis of Financial Condition and  Results  of
Operations," "The Zhao Dong Block -- Apache Farmout," and  "Legal
Proceedings."


  Reliance  on  Estimates  of  Proved  Reserves  and  
  --------------------------------------------------
    Future  Net Revenues
    --------------------

      The reserve data included herein are only estimates and may
not  prove  to be correct.  In addition, estimates of future  net
revenue  from  proved reserves are also estimates  that  may  not
prove  to be correct.  In particular estimates of crude  oil  and
natural gas reserves, and future net revenue from proved reserves
described herein are based on fixed crude oil prices as in effect
for  December  31, 1998, and the assumption that  the  Zhao  Dong
Block  is  developed  in accordance with  the  ODP,  modified  to
accelerate   production  and  reduce  costs.   These  assumptions
include,  the Company receiving a premium for the C-D  Field  oil
because of its potential for use as a lubricating oil base stock,
the  Company's  49% ownership in the CNPC lubricating  oil  joint
venture and the Company's right under the joint venture to market
both  lubricating  oil  and lubrication oil  feed  stock.   These
assumptions  may prove to be inaccurate, which could  reduce  the
Company's projected economic return from the project and may make
obtaining   financing  for  the  project  more  difficult.    See
"Management's Discussion and Analysis of Financial Condition  and
Results  of  Operations  --  Liquidity,  Capital  Resources   and
Management's Plans" and "Oil Reserves."

     Reserve Value Ceiling Test
     --------------------------

      Under  the  SEC's full cost accounting rules,  the  Company
reviews  the  carrying value of its oil and gas  properties  each
quarter  on  a  country-by-country  basis.   Under  such   rules,
capitalized  costs of oil and gas properties may not  exceed  the
present  value  of  estimated future  net  revenues  from  proved
reserves,  discounted at 10 percent, plus the lower  of  cost  or
fair  value  of unproved properties as adjusted for  related  tax
effects  and deferred tax liabilities.  Application of this  rule
generally  requires pricing future production at the  unescalated
oil  and  gas prices in effect at the end of each fiscal  quarter
and  requires a write-down if the "ceiling" is exceeded, even  if
prices  declined for only a short period of time. If a write-down
is  required,  the charge to earnings does not impact  cash  flow
from   operating   activities.  As  unproved  properties   become
evaluated,  their  costs  will  be  reclassified  to  proved  and
evaluated properties, and any associated future revenue  will  be
included in the calculation of the present value of the Company's
proved  reserves. Costs in excess of the present value  of  added
reserves,  or any material reductions in the net future  revenues
from  oil  and gas reserves resulting from such factors as  lower
prices  or downward revisions in estimates of reserve quantities,
causes  a  charge  for  a  full cost  ceiling  impairment  absent
offsetting improvements.
  
     Foreign Operations
     -------------------

      The  Company's future operations and earnings  will  depend
upon  the results of the Company's operations in China.  If these
operations are not successful, the Company's financial  position,
results of operations and cash flows will suffer greatly.

      The  success of the Company's operations is subject to many
matters  beyond management's control, like general  and  regional
economic  conditions,  prices for  crude  oil  and  natural  gas,
competition, and changes in regulation.  Also, since the  Company
is  dependent on international operations, specifically those  in
China,  it  will  be  subject  to various  additional  political,
economic  and other uncertainties. The Company's operations  will
be  subject  to the risks of restrictions on transfer  of  funds;
export  duties, quotas and embargoes; domestic and  international
customs  and  tariffs;  and changing taxation  policies,  foreign
exchange  restrictions,  political conditions,  and  governmental
regulations.

      The  United States government has publicly criticized China
from  time to time with respect to various matters.  The  Company
cannot  predict  whether political developments like  these  will
adversely  affect the Company's Chinese operations.  The  Company
believes  that neither the Chinese nor the U.S. government  wants
to  impair  U.S.-Chinese commercial relations.  The  Company  has
excellent  relations  with  Chinese governmental  authorities  in
charge of the development of China's energy resources.

      Since  the  middle  of  1998 there  have  been  substantial
disruptions  in  several Asian financial markets and  many  Asian
currencies have undergone significant devaluation.  These  events
can  be  expected to have negative near-, and possibly long-term,
effects  on the flow of investment capital into and out of  Asian
currency  denominated assets.  It is impossible  to  predict  the
ultimate  outcome  of  these events and their  possible  negative
effect on the Company's investments in China.

     Currency/Exchange Rate Fluctuations
     -----------------------------------

      For  the  foreseeable future the Company's  only  material
revenues will be from its oil and gas activities in China. These
revenues  will be in U.S. dollars.  To the extent that  at  some
future time revenues are paid to the Company in Chinese Renminbi
rather  than in U.S. dollars, the Company's earnings, operations
and  cash  flows would then be subject to currency and  exchange
rate  fluctuations, and to restrictions imposed by  the  Chinese
government  on  the  transfer and exchange of  funds.   If  that
occurs  the  Company will evaluate the currency requirements  of
each  venture  and,  if  possible, enter into  forward  exchange
contracts to hedge foreign currency transactions.  There can  be
no assurance, however, that such forward exchange contracts will
be  available at the time of any such occurrence.   The  Company
does  not  intend  to engage in currency speculation.   Renminbi
earnings, if any, must be converted to pay dividends or to  make
other  payments to the Company in U.S. dollars or  other  freely
convertible currencies.  As of December 1, 1996, as  to  foreign
investment  enterprises, the Renminbi became  fully  convertible
for  current  account  items,  including  profit  distributions,
interest  payments  and  receipts and expenditures  from  trade.
Conversion  into U.S. dollars is based on the rate  set  by  The
People's Bank of China (which is based on the previous day's PRC
interbank  foreign  exchange market rate and with  reference  to
currency exchange rates on the world financial markets). Certain
ministerial approvals are needed to acquire foreign exchange for
a current account transaction.  Strict foreign exchange controls
continue  for capital account transactions (including  repayment
of  loan principal and return of direct capital investments  and
transactions in investments in negotiable securities).   In  the
past, there have been shortages of U.S. dollars or other foreign
currency  available  for  conversion  of  Renminbi,  and  it  is
possible  such  shortages could recur, or that  restrictions  on
conversion  could be reimposed in the future at times  when  the
Company  is  seeking to convert Renminbi.  Prior  to  1994,  the
Renminbi experienced a significant net devaluation against  most
major   currencies,  and  during  certain  periods,  significant
volatility  in  the  market-based  exchange  rate.   Since   the
beginning of 1994, the Renminbi to U.S. dollar exchange rate has
largely stabilized.  However, there can be no assurance that the
Chinese  government  will not devalue the  Renminbi,  that  such
exchange  rate  will  otherwise remain stable  (particularly  in
light  of the recent currency crisis experienced by a number  of
other  Asian  countries), that the Company will continue  to  be
able  to remit foreign currency abroad or that the Company  will
be  able  to  convert sufficient amounts of Renminbi in  China's
foreign exchange markets to meet its future needs. Additionally,
there   can   be  no  assurance  that  approvals  for   exchange
transactions  will be available in the future or, if  available,
will  be  granted  to the Company.  The Chinese  government  has
issued  certain international loan procedures (the "Procedures")
that  apply to foreign invested enterprises, including  Chinese-
foreign  equity and cooperative joint ventures.  The  Procedures
may  require  the  approval of China's State  Administration  of
Exchange  ("SAFE") for certain international  loans  to  foreign
invested enterprises extended in connection with project finance
transactions,  as  well as the terms of such transactions.   The
Company  plans to obtain funds for certain development  projects
through project finance transactions.  There can be no assurance
that  SAFE approval for such transactions, if necessary, can  be
obtained  at  all or on terms advantageous to the Company.   The
failure  of  the  Company  to  obtain  SAFE  approval  for  such
transactions, if required, could adversely affect the  Company's
ability to fund its operations.

     Depletion of Reserves
     ---------------------

      The  rate  of  production from crude oil  and  natural  gas
properties  declines  as reserves are depleted.   Except  to  the
extent  the  Company  acquires additional  properties  containing
proved  reserves, conducts successful exploration and development
activities or, through engineering studies, identifies additional
behind-pipe  zones  or  secondary recovery reserves,  the  proved
reserves  of  the Company will decline as reserves are  produced.
Future  crude oil and natural gas production is therefore  highly
dependent  upon  the Company's level of success in  acquiring  or
finding additional reserves.
  
     Environmental Matters
     ----------------------

      The Company is subject to existing federal, state and local
laws  and  regulations governing the discharge of materials  into
the  environment or otherwise relating to the protection  of  the
environment.   The  Company believes that its U.S.  oil  and  gas
properties,  which  are held for sale, are in general  compliance
with  applicable  environmental regulations.  Environmental  laws
and  regulations have changed substantially and rapidly over  the
last  20  years, and the Company anticipates that there  will  be
continuing  changes.  The clear trend in environmental regulation
is  to place more restrictions and limitations on activities that
may  impact  the  environment, such as emissions  of  pollutants,
generation  and  disposal  of wastes  and  use  and  handling  of
chemical    substances.    Increasingly   strict    environmental
restrictions and limitations have resulted in increased operating
costs  throughout the United States, and it is possible that  the
costs of compliance with environmental laws and regulations  will
continue  to  increase.  The Company will attempt  to  anticipate
future regulatory requirements that might be imposed and to  plan
accordingly  in  order  to  remain in  compliance  with  changing
environmental  laws  and  regulations minimizing  costs  of  such
compliance.

      The  Company  is  and  will  be  required  to  comply  with
environmental laws in China.


     Government Regulation
     ---------------------

      The  Company's business is subject to certain  Chinese  and
United  States  federal, state, and local  laws  and  regulations
relating  to the exploration for and development, production  and
marketing  of crude oil and natural gas, as well as environmental
and   safety   matters.   In  addition,  the  Chinese  government
regulates various aspects of foreign company operations in China.
Such laws and regulations have generally become more stringent in
recent  years  in  the  United  States,  often  imposing  greater
liability on a larger number of potentially responsible  parties.
It  is  not  unreasonable to expect that the same trend  will  be
encountered in China.  Because the requirements imposed  by  such
laws  and  regulations  are frequently changed,  the  Company  is
unable to predict the ultimate cost of compliance.  There  is  no
assurance  that laws and regulations enacted in the  future  will
not  adversely  affect  the  Company's  financial  condition  and
results of operations.

     History of Losses
     -----------------

     The Company has experienced recurring losses.  For the years
ended  December 31, 1994, 1995, 1996, 1997 and 1998, the  Company
recorded  net  losses  of  approximately  $36.6  million,   $87.8
million,   $12.1  million,  $13.4  million  and  $13.8   million,
respectively.   See "Selected Financial Data." There  can  be  no
assurance that the Company will be profitable in the future.  See
"Management's Discussion and Analysis of Financial Condition  and
Results  of Operations" and the Company's Consolidated  Financial
Statements and the notes thereto.

       Limitations  on  the  Availability of  the  Company's  Net
       ----------------------------------------------------------
       Operating Loss Carryforwards
       ----------------------------

       The  Company  has  incurred  net  operating  loss  ("NOL")
carryforwards  as  at  December 31, 1998  of  approximately  $193
million.   Use  of  the  NOLs  by  the  Company  is  subject   to
limitations  under Section 382 of the Internal  Revenue  Code  of
1986  relating to ownership changes. The various stock  offerings
made  by  the  Company  may have triggered  those  limits.   Also
uncertainties  as to the future use of the NOLs exist  under  the
criteria  set  forth  in  Financial  Accounting  Standards  Board
("FASB")  Statement No. 109, "Accounting for Income Taxes."   The
Company  established a valuation allowance of $86.6  million  and
$83.6  million for deferred tax assets at December 31,  1998  and
1997, respectively.

     Dependence on Key Personnel
     ---------------------------

      The Company depends to a large extent on Marsden W. Miller,
Jr.,  its Chairman of the Board and Chief Executive Officer,  for
its  management and business and financial contacts in China  and
its  relationship with Chinese authorities.  The Company does not
have  an  employment contract with Mr. Miller or with  any  other
officer  or employee, other than employment agreements or similar
arrangements with certain operational employees of the  Company's
subsidiaries.  See "Management." The unavailability of Mr. Miller
would  have a material adverse effect on the Company's  business.
The  Company's  success is also dependent  upon  its  ability  to
retain skilled technical personnel.  While the Company has not to
date  experienced  difficulties in employing  or  retaining  such
personnel,  its  failure to do so in the future  could  adversely
affect its business.  The Company does not maintain key man  life
insurance on any of its executives or other personnel.

     Possible Delisting of Common Stock
     ----------------------------------

      The AMEX has, since November 1996, continued to review  the
Company's  listing  eligibility since the  Company  has  not  met
certain financial requirements for continued listing. The Company
intends  to try to satisfy the Exchange's concerns. In the  event
the  Common Stock is delisted from the AMEX, the liquidity of the
Common  Stock and the Company's ability to continue  funding  its
activities  through the sale of securities may  be  significantly
impaired.

     Certain Anti-takeover Provisions
     --------------------------------

      A  Change  of  Control  or other Fundamental  Change  gives
holders  of  Amended Series A Preferred Stock special  conversion
rights  for  45 days. These rights are intended to provide  those
holders  with  limited loss protection in certain  circumstances.
The  rights  may also render more costly or otherwise  discourage
certain takeovers or other business combinations.

       The   Company's   Amended  and  Restated  Certificate   of
Incorporation  contains provisions that the  Board  of  Directors
believes  may  impede  or discourage a takeover  of  the  Company
without the support of the incumbent Board.

     Year 2000 Compliance
     --------------------

      The  Year  2000 problem is the result of computer  programs
being  written using two digits (rather than four) to define  the
applicable  year  and  equipment  with  time-sensitive   embedded
components.   Any  of  the  Company's programs  that  have  time-
sensitive software or equipment that has time-sensitive  embedded
components  may  recognize a date using "00"  as  the  year  1900
rather  than the year 2000.  This could result in a major  system
failure  or miscalculations.  Although no assurance can be  given
because  of  the  potential  wide scale  manifestations  of  this
problem  which  may  affect the Company's business,  the  Company
presently  believes  that the Year 2000  problem  will  not  pose
significant operational problems for its computer systems.

      The  goal  of the Company's Year 2000 project is to  ensure
that all of the critical systems and processes that are under the
Company's direct control remain functional.  Certain systems  and
processes  may  be  interrelated with or dependent  upon  systems
outside  the Company's control, and systems within the  Company's
control   may   have  unpredicted  problems.   The  Company   has
established a project team to coordinate the phases of Year  2000
compliance to assure that the Company's key automated systems and
related  processes will remain functional through the year  2000.
Those  phases consist of (i) assessment; (ii) remediation;  (iii)
testing; (iv) implementation of the necessary modifications;  and
(v) contingency planning.   All phases of the Company's Year 2000
plan  will  continue to be modified and adjusted  throughout  the
year, as additional information becomes available.

      The  Company's  assessment phase consists of  conducting  a
company-wide inventory of its key automated systems  and  related
processes, analyzing and assigning levels of criticality to those
systems  and  processes,  identifying and  prioritizing  resource
requirements, developing validation strategies and testing plans,
and  evaluating business partner relationships.  The portions  of
the  assessment  phase related to internally  developed  computer
applications,  hardware  and equipment, and  embedded  chips  are
substantially  complete.   The  Company  estimates  that  it  has
completed more than 90 percent of the assessment to determine the
nature  and  impact of the Year 2000 date change for third-party-
developed  software.  The assessment phase of  the  project  also
involves  efforts to obtain representations and  assurances  from
third parties, including third party vendors, that their hardware
and  equipment  products,  embedded chip  systems,  and  software
products  being used by or impacting the Company are or  will  be
modified to be Year 2000 compliant.  To date, the responses  from
such   third   parties,  although  generally   encouraging,   are
inconclusive.   As  a  result,  the Company  cannot  predict  the
potential consequences if these or other third parties  or  their
products  are not Year 2000 compliant.  The Company is  currently
evaluating  the  exposure associated with such  business  partner
relationships.

       The  remediation  phase  involves  converting,  modifying,
replacing or eliminating key automated systems identified in  the
assessment  phase.  The Company estimates that it  has  completed
approximately 90 percent of the remediation phase.   The  Company
has  to  date  spent approximately $160,000 for  upgrades  and/or
replacement  of certain of its hardware and software to  hardware
and  software  that  purports to be  Year  2000  compliant.   The
Company  estimates that an additional expense of $50,000 will  be
required  to  replace  and/or  modify  and  install  hardware  or
software identified to date as non-Year 2000 compliant.

      The testing phase involves the validation of the identified
key  automated systems. The Company is utilizing test  tools  and
written  test procedures to document and validate, as  necessary,
its  systems  testing.   The Company estimates that approximately
75  percent of the testing phase has been completed, and  expects
to be substantially completed by mid-1999.

      The implementation phase involves placing the converted  or
replaced  key automated systems into operation.  In  some  cases,
this  phase  will also involve the implementation of  contingency
plans needed to support business functions and processes that may
be  interrupted  by Year 2000 failures that are  outside  of  the
Company's  control.  The Company has completed  approximately  75
percent   of  the  implementation  phase,  and  expects   to   be
substantially completed by mid-1999.

     The contingency planning phase consists of developing a risk
profile  of  the Company's critical business processes  and  then
providing  for  actions  the Company will  pursue  to  keep  such
processes operational in the event of Year 2000 disruptions.  The
focus  of such contingency planning is on prompt response to  any
adverse Year 2000 events and a plan for subsequent resumption  of
normal operations.  The plan is expected to assess the risk of  a
significant  failure  to  critical  processes  performed  by  the
Company, and to address the mitigation of those risks.  The  plan
will  also consider any significant failures related to the  most
reasonably likely worst case scenario, discussed below,  as  they
may  occur.   In addition the plan is expected to factor  in  the
severity  and  duration of the impact of a  significant  failure.
The  Company plans to have its contingency plan completed by mid-
1999.

     The Company's present analysis of its most reasonably likely
worst  case scenario for Year 2000 disruptions includes  failures
in  the  telecommunications and electricity industries,  and  its
partners  in  its  international operations to become  Year  2000
compliant.

      The  Company  does not expect the costs of  its  Year  2000
project  to  have  a  material adverse effect  on  its  financial
position,  results  of  operations,  or  cash  flows.   Based  on
information  available at this time the Company  cannot  conclude
that disruptions caused by internal or external Year 2000 related
failures  will  not have such an effect.  Specific  factors  that
might  affect the success of the Company's Year 2000 efforts  and
the  occurrence  of Year 2000 disruption or expense  include  the
failure  of  the Company or its outside consultants  to  properly
identify  deficient systems, the failure of the selected remedial
action to adequately address the deficiencies, the failure of the
Company's  outside consultants to complete the remediation  in  a
timely  manner  (due  to shortages of qualified  labor  or  other
factors),  unforeseen  expenses related  to  the  remediation  of
existing  systems or the transition to replacement  systems,  the
failure  of  third parties to become Year 2000  compliant  or  to
adequately notify the Company of potential noncompliance.

Employees
----------

       The  Company  currently  employs  a  total  of  23  people
(including  executive  officers). None of the  employees  of  the
Company  or its affiliates have employment contracts, other  than
employment  agreements  or  similar  arrangements  with   certain
operational employees of the Company's subsidiaries.  None of the
Company's  employees  are  represented by  collective  bargaining
agreements.    The   Company  considers  its  relationship   with
employees to be satisfactory.

Item 3.     Legal Proceedings.

      During  December 1993, the Company and two of  its  wholly-
owned  subsidiaries, XCL-Texas, Inc. and XCL Acquisitions,  Inc.,
were   sued   in  separate  lawsuits  entitled  Ralph  Slaughter,
Secretary  of  the Department of Revenue and Taxation,  State  of
Louisiana versus The Exploration Company of Louisiana, Inc. (15th
Judicial District, Parish of Lafayette, Louisiana, Docket No. 93-
5449);  Ralph Slaughter, Secretary of the Department  of  Revenue
and  Taxation, State of Louisiana versus XCL-Texas,  Incorporated
(15th  Judicial District, Parish of Lafayette, Louisiana,  Docket
No.  93-5450);  and  Ralph  Slaughter, Secretary,  Department  of
Revenue  and  Taxation vs. XCL Acquisitions, Inc. (15th  Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-5337) for
Louisiana State corporate franchise and income taxes for the 1987
through  1991  fiscal  years  in an aggregate  amount  (including
penalties   and   interest  through   September   1,   1993)   of
approximately $2.2 million.  Statutory interest at  the  rate  of
15%  per  annum  on the principal will continue  to  accrue  from
September  1,  1993 until paid. The Company believes  that  these
assessments have been adequately provided for in the consolidated
financial statements.  The Company has filed answers to  each  of
these  suits  and intends to defend them vigorously. The  Company
believes that it has meritorious defenses and has instructed  its
counsel to contest these claims.

      In  December 1998, the Company and one of its wholly  owned
subsidiaries,  XCL  Acquisitions, Inc.,  were  sued  in  separate
lawsuits  entitled John Neely Kennedy, Secretary,  Department  of
Revenue,  State  of  Louisiana versus  XCL  Ltd.  (15th  Judicial
District  Court,  Parish  of  Lafayette,  Louisiana,  Docket  No.
986010,   Division   A);  and  John  Neely  Kennedy,   Secretary,
Department   of   Revenue,   State  of   Louisiana   versus   XCL
Acquisitions,  Inc.  (19th Judicial District  Court,  East  Baton
Rouge Parish, State of Louisiana, Docket No. 456553, Division  J)
for  Louisiana State corporate franchise and income taxes for the
1992  through 1996 fiscal years in an aggregate amount (including
penalties   and   interest  through   November   16,   1997)   of
approximately $3 million.  Statutory interest at the rate of  15%
per  annum on the principal will continue to accrue from November
16,  1997 until paid. The Company believes that these assessments
have  been  adequately provided for in the consolidated financial
statements.  The Company intends to defend each  of  these  suits
vigorously. The Company believes that it has meritorious defenses
and has instructed its counsel to contest these claims.

      On  July  26, 1996, three lawsuits were filed against  XCL-
Texas,  Inc., a wholly-owned subsidiary of the Company,  entitled
Stroman  Ranch  Company  Ltd., et al. v. XCL-Texas,  Inc.  (229th
Judicial District, Jim Hogg County, Texas, Cause No. 4550), Frank
Armstrong,  et  al. v. XCL-Texas, Inc. (229th Judicial  District,
Jim  Hogg  County,  Texas,  Cause No. 4551),  and  Stroman  Ranch
Company Ltd., et al. v. XCL-Texas, Inc. (229th Judicial District,
Jim  Hogg  County, Texas, Cause No. 4552).  The  lawsuits  allege
various  claims, including a claim that one of the  oil  and  gas
leases  in  the  Berry  R. Cox Field should  be  terminated.  The
Company believes the claims made in the lawsuit are without merit
and  intends  to  vigorously defend itself.   The  lawsuits  have
prevented the Company from selling its interest in the Cox Field.

      On  January 24, 1997, a subsidiary of the Company filed  an
action   captioned  L.M.  Holding  Associates,  L.P.  v.  LaRoche
Chemicals, Inc. (23rd Judicial District Court, St. James  Parish,
Louisiana,  No.  24,  338, Section A).  The lawsuit  claims  that
LaRoche  failed to properly maintain its 8" brine line that  runs
10  miles  across the subsidiary's property in St. James  Parish,
Louisiana,  discharged brine from this line onto the subsidiary's
property  and no longer has the right to operate said  line.   In
1998, the court issued a preliminary injunction enjoining LaRoche
from  discharging  brine  onto  the  subsidiary's  property   and
enjoining  LaRoche from continued operation of the 8" brine  line
without  a  scientific system for early detection  of  leaks  and
without  periodic monitoring of the line. In September 1998,  the
court  denied the Company's request for a preliminary  injunction
to  prevent  LaRoche from installing a new line on the  property.
In  October  1998,  the  Company was  granted  an  injunction  to
prohibit  LaRoche from conducting operations off  the  servitude.
The  Company  is  seeking damages and cancellation  of  LaRoche's
right  to  operate the brine line.  No trial date has  been  set.
The Company intends to vigorously prosecute the lawsuit.

     On December 1, 1995, XCL China Ltd. submitted to arbitration
certain accounting disputes arising from operations in the  Bohai
Bay  Shallow  Water  Sea  Area, People's Republic  of  China  and
governed  by  a  Zhao  Dong Block Operating  Agreement.   By  the
initial  submission,  XCL  China Ltd.  disputed  certain  amounts
charged to it by Apache in the August, September and October 1995
joint  interest billings and the November and December 1995  cash
calls.   Thereafter, disputes involving joint  interest  billings
through  1998 were added to the submission.  In 1997,  XCL  China
Ltd.  made  some  payments with respect to the  disputed  amounts
although  the  arbitration  proceeding  remains  unresolved   and
inactive inasmuch as a third arbitrator has not been selected.

     Other than as disclosed above, there are no material pending
legal proceedings to which the Company or any of its subsidiaries
is  a party or to which any of their properties are subject, that
would  have  a  material  adverse  effect  on  the  business   or
properties of the Company.

Item 4.      Submission of Matters to a Vote of Security Holders.

      No  matters  were  submitted to a vote of security  holders
during the quarter ended December 31, 1998.
                                
                             PART II
                                
Item  5.       Market for Registrant's Common Equity and  Related
               Stockholder Matters

Market Price for Common Stock
-----------------------------

      The  following table shows the range of closing bid prices,
as  reported  by  the American Stock Exchange for  the  Company's
Common Stock for each quarter during 1997 and 1998. The Company's
Common  Stock  commenced trading on the American  Stock  Exchange
("AMEX")  in December 1990, under the symbol "XCL." The Company's
Common  Stock  also trades on The London Stock  Exchange  Limited
("London  Stock  Exchange").  On December 17, 1997,  the  Company
effected  a  one-for-fifteen reverse split of its  Common  Stock.
The  high and low prices for the periods shown in 1997 have  been
adjusted to reflect the reverse split.
                                
                          Common Stock Price Per Share
                          ---------------------------- 
                             1998                1997
                       ---------------      -------------- 
                        High      Low       High      Low
                        ----      ---       ----      ---
     First Quarter     $6.50     $3.50     $5.63     $2.81
     Second Quarter    $5.00     $3.31     $4.69     $2.81
     Third Quarter     $4.13     $2.75     $6.56     $2.81
     Fourth Quarter    $3.94     $1.81     $13.13    $3.88

      On  March  31,  1999, the closing price for  the  Company's
Common Stock on the AMEX was $1.50.

      As  of March 31, 1999, the Company had approximately  3,430
shareholders of record with respect to its Common Stock.

      As  of March 31, 1999, there were reserved an aggregate  of
(i)  4,991,691  shares  of Common Stock  subject  to  outstanding
options; (ii) 14,840,593 shares issuable upon conversion  of  the
Company's  outstanding  Amended Series A Preferred  Stock;  (iii)
1,250,000   shares  issuable  upon  exercise  of  the   Company's
outstanding  Amended  Series B Preferred Stock;  (iv)  17,578,113
shares  issuable  upon  exercise  of  the  Company's  outstanding
warrants;  (v)  64,443 shares reserved for sale to  fund  working
capital for the Company's China projects; and (vi) 36,373  shares
issuable in connection with contractual obligations.  The Company
would receive a total of approximately $98 million if all options
and  warrants were exercised and all stock reserved for sale  was
sold at $1.50 per share.

      ChaseMellon Shareholder Services, L.L.C., Overpeck  Centre,
85  Challenger Road, Ridgefield Park, New Jersey 07660 (telephone
1-800-851-9677) (internet www.chasemellon.com), is the  Registrar
and  U.S.  Transfer Agent for the Common Stock. IRG plc,  Balfour
House,   390/398  High  Road,  Ilford,  Essex  IG1  1NQ,  England
(telephone 181-478-8241) is the Company's U.K. Transfer Agent for
the Common Stock.

Recent Sales of Unregistered Securities
---------------------------------------

      The  following sets forth all recent sales of  unregistered
securities not previously reported.

      The following were private transactions intended to qualify
for  the exemption from registration afforded by Section 4(2)  of
the  Securities  Act  between the Company and individuals  and/or
entities  who certified to the Company that they were "accredited
investors" as defined under the Securities Act.

o Under a consulting agreement entered into during June 1998,
  the Company agreed to issue warrants to acquire 17,000 shares of
  Common  Stock,  at  an  exercise  price  of  $3.75  per  share,
  exercisable  on  or before June 30, 2003 and 35,000  shares  of
  Common Stock in payment for consulting services to be performed.
  The warrants were issued in June 1998 and  the Company issued the
  35,000 shares of Common Stock during November 1998.

o On  November 6, 1998, the Company, through its wholly owned
subsidiary, XCL Land, Ltd., ("XCL Land"), issued an aggregate of
  15 units, each unit comprised of a secured note in the principal
  amount of $100,000 each and five-year warrants, exercisable  at
  $3.50 per share, to purchase 21,705 shares of Common Stock of the
  Company  in  a  short term financing with three  lenders.   The
  lenders  were  granted a security interest in  the  partnership
  interests of XCL Land and The Exploration Company of Louisiana,
  Inc., in L.M. Holding Associates, L.P., the owner of the Lutcher
  Moore Tract.  The notes bear interest at 15% per annum and  are
  payable  in 90 days, with the option for two 90-day extensions,
  the  second of which must be approved by the lenders.  XCL Land
  received $1.5 million in proceeds, of which $0.7 million was used
  to pay outstanding indebtedness associated with the Lutcher Moore
  Tract and the remaining $0.8 million was paid as a dividend  to
  the Company to be used by the Company as working capital.

o On January 15, 1999, the Company issued an aggregate of five
  additional  units,  on the same terms as the  units  issued  on
  November 6, 1998, except that the exercise price of the warrants
  was   $2.00  per  share.  In  connection  with  the  additional
  subscriptions, the exercise price for the warrants issued in the
  November 6, 1998, offering were reduced to $2.00 per share. XCL
  Land  received $0.5 million in proceeds, all of which was paid as
  a  dividend to the Company to be used by the Company as working
  capital.

o During March 1999, the Company issued an aggregate  of  two
  additional  units,  on the same terms as the  units  issued  on
  January 15, 1999, except that the exercise price of the warrants
  was  $1.50  per  share.   In  connection  with  the  additional
  subscriptions,  and pursuant to the terms of  the  subscription
  agreements, the exercise price for the warrants issued  in  the
  November 6, 1998 and January 15, 1999 offerings, were reduced to
  $1.50 per share.  XCL Land received $200,000 in proceeds, all of
  which  was paid as a dividend to the Company to be used by  the
  Company as working capital.

o Also  during  March 1999, the Company,  through  XCL  Land,
  issued  one  unit comprised of a secured note in the  principal
  amount of $100,000 and five-year warrants, exercisable at $1.25
  per  share,  to purchase 10,000 shares of Common Stock  of  the
  Company in a short term financing with one lender.  The  lender
  was granted a security interest in the partnership interests of
  XCL Land and The Exploration Company of Louisiana, Inc., in L.M.
  Holding Associates, L.P., the owner of the Lutcher Moore Tract.
  The notes bear interest at 15% per annum and are payable in  45
  days.  XCL Land  received $100,000 in proceeds, all of which was
  paid as a dividend to the Company to be used by the Company  as
  working capital.

Dividends on Common Stock
--------------------------

      The  Company has not paid any cash dividends on its  Common
Stock since inception. The payment of future cash dividends  will
be  dependent  on  the  Company's earnings, financial  condition,
capital requirements and other factors.

      Under  the  terms of the Company's Notes,  the  Company  is
restricted from paying dividends on its Common Stock (other  than
with  certain securities) without the consent of the  Noteholders
unless  certain conditions have been met, which they have not  at
this time.  See "Certain Risk Factors Relating to the Company and
the  Oil and Gas Industry -- Restrictions Imposed by Terms of the
Company's Indebtedness."

Reverse Stock Split
-------------------

      All  information in this Form 10-K concerning the Company's
Common  Stock  reflects a one-for-fifteen reverse split  of  such
stock approved by the shareholders of the Company on December 17,
1997.

Item 6.        Selected Financial Data.

       The  following  table  sets  forth  selected  consolidated
financial  data  of the Company as of and for  the   years  ended
December   31,  1994  through  1998  derived  from  the   audited
consolidated financial statements of the Company.  The  following
table  should  also  be  read in conjunction  with  "Management's
Discussion  and  Analysis of Financial Condition and  Results  of
Operations" and the Consolidated Financial Statements  and  notes
thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                
                                                       Year Ended December 31,
                                       -------------------------------------------------------
                                       1994(a)     1995(c)   1996(d)   1997(f)(h)   1998(h)(i)
                                       -------     -------   -------   ----------   ---------- 
                                                (In thousands, except per share data)
<S>                                   <C>        <C>        <C>        <C>        <C>   
Statement of Operations Data:
  Revenues                            $  4,336   $  2,480   $  1,136   $   --     $     --
  Operating expenses                     1,341        985        342       --           --
  General and administrative 
    expenses                             4,553      4,551      3,487     5,167       6,251
  Depreciation, depletion and
       amortization                      3,292      2,266        579       --           --
  Other, net                                --         --         --    2,891          154
  Operating loss                       (33,875)   (85,673)    (9,793)  (8,058)     (10,601)
  Interest expense                       1,831      2,998      2,415    8,450        4,855
  Interest income                          508        133          8    2,212          913
  Net loss                             (36,622)   (87,837)   (12,074) (13,446)     (13,754)
  Net loss attributable to 
    common stock                       (41,529)   (92,658)   (17,430) (20,922)     (19,861)
  Net loss per common share:
      Basic                              (3.14)     (5.77)     (0.98)   (1.03)       (0.87)
      Diluted                            (3.14)     (5.77)     (0.98)   (1.03)       (0.87)
  Weighted average common
     shares outstanding - basic         13,220     16,047    17,705    20,451       22,797
  Weighted average common
       shares outstanding - diluted     13,220     16,047    17,705    20,451       22,797

Balance Sheet Data (at end of year):
  Total working capital (deficit)     $ (1,563)  $(24,239) $(46,705) $22,399     $ (79,040)
  Total assets                         149,803     72,336    60,864  119,089       114,673
  Long-term debt, net of current
    maturities                          41,607(b)  15,644        --(e) 61,310(g)        -- (j)
  Shareholders' equity                  95,200     16,900    11,041    40,825       29,474
</TABLE>
------------
(a)     Includes provision for impairment of domestic oil and gas
     properties of $25.9 million and provision for write-down  of
     other  assets of $2.2 million and an extraordinary  loss  of
     $1.7 million.

(b)      Includes non-recourse debt of an aggregate $0.7  million
     as of December 31, 1994, included in the Lutcher Moore Debt.

(c)     Includes provision for impairment of domestic oil and gas
     properties of $75.3 million and provision for write-down  of
     other assets of $4.5 million.

(d)     Includes provision for impairment of domestic oil and gas
     properties  of  $3.85 million; provision for  write-down  of
     investment  of $2.4 million; and loss on sale of investments
     of $0.7 million.

(e)     All of the Company's debt ($38.02 million) was classified
     as currently due at December 31, 1996.

(f)      Includes extraordinary loss for early extinguishment  of
     debt of $551,000.

(g)      Long  term debt is net of unamortized discount of  $13.7
     million  as of December 31, 1997,  associated with the value
     allocated  to  the stock purchase warrants issued  with  the
     Senior Secured Notes.

(h)      Revenues and operating expenses associated with oil  and
     gas  properties held for sale have become insignificant and,
     accordingly,  are  recorded  in other  costs  and  operating
     expenses  in  the  accompanying consolidated  Statements  of
     Operations.

(i)     Includes provision for impairment of domestic oil and gas
     properties  held  for  sale and other  investments  of  $4.2
     million.

(j)     At December 31, 1998, the long-term portion of the Senior
     Secured Notes was reclassified to a current liability due to
     the  uncertainty surrounding the Company's ability  to  make
     its next interest payment (in the approximate amount of $5.6
     million) due in May 1999.

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations.

      The  following discussion and analysis should  be  read  in
conjunction   with   the   accompanying  consolidated   financial
statements, the notes thereto and the supplemental data  included
in this Annual Report.
                                
General
-------

     Outlook
     -------

      Cautionary Statement Pursuant to Safe Harbor Provisions  of
the Private Securities Litigation Reform Act of 1995.

     This report contains "forward-looking statements" within the
meaning  of  the  federal securities laws.  These forward-looking
statements  include,  among  others,  statements  concerning  the
Company's outlook for 1998 and beyond, the Company's expectations
as  to  funding its capital expenditures and other statements  of
expectations,  beliefs, future plans and strategies,  anticipated
events or trends, and similar expressions concerning matters that
are not historical facts.  The forward-looking statements in this
report  are  subject to risks and uncertainties that could  cause
actual  results to differ materially from those expressed  in  or
implied by the statements.
                                
Liquidity, Capital Resources and Management's Plan
--------------------------------------------------

      Background
      ----------

      After  initial drilling success in China in 1994 and  1995,
the Company's management decided in the fourth quarter of 1995 to
focus  on the Company's operations in China and to sell its other
assets.   The excellent well test results on the Zhao Dong  Block
and the Company's reserve assessments support this decision. From
a  financial  standpoint, the Company has focused on (i)  raising
funds  to meet capital requirements for Chinese operations,  (ii)
selling its domestic properties and (iii) simplifying its capital
structure  to  make  it  easier to raise  capital.   The  Company
intends to continue these activities and to work with Apache  and
CNODC  to  refine the ODP to reduce expenditures  and  accelerate
production. The Company's only historic revenues have  been  from
the Company's financing activities and from properties previously
sold  and  those  currently held for  sale  or  investment.   The
Company  is  in  the  development  stage  with  respect  to   its
operations  in  China  and has not generated  any  revenues  from
operations related to its properties and interests in China.

      The Company has made significant capital expenditures since
acquiring  its interest in the Zhao Dong Block in 1992.   Despite
incurring  losses since 1992, the Company, because  of  the  high
quality  of  the  Zhao Dong Block, has been able to  obtain funds 
for the exploration and development of  the  Zhao Dong Block.

      On  August  20, 1998, the Company entered into a production
sharing contract with CNODC for the 12,000-acre Zhang Dong  Block
and  on  September  15, 1998, the contract was  approved  by  the
Ministry  of  Foreign  Trade and Economic Cooperation  of  China,
effective October 1, 1998.

      Liquidity and Capital Resources
      -------------------------------

      At December 31, 1998, the Company had a net working capital
deficit of $79.0 million. The Company does not have, as of  April
15, 1999, sufficient funds to cover the Company's working capital
requirements and capital expenditure obligations on the Zhao Dong
and Zhang Dong Blocks during 1999.

      In addition, the Company does not currently have sufficient
funds  to  make  the  next interest payment (in  the  approximate
amount  of $5.6 million) due in May 1999.  Failure by the Company
to  make  such  payment could allow the holders of the  Notes  to
declare  all  amounts  outstanding under the  Notes  and  accrued
interest immediately due and payable.  The ramifications of  this
are discussed under "Certain Risk Factors Relating to the Company
and the Oil and Gas Industry -- Restrictions Imposed by Terms  of
the  Company's Indebtedness."  The possible results  include  the
Company's  loss of the stock of XCL-China and/or its interest  in
the  Contract.  The Company is exploring options for meeting  its
obligations  under  the  Notes  and  expects  to  arrive   at   a
satisfactory  resolution.  There can be  no  assurance,  however,
that a satisfactory resolution will result.

      The  Company presently projects and plans that these  funds
will  be  available from the sale or refinancing of domestic  oil
and  gas  properties  held for sale and/or  investment  in  land,
project  financing, an increase in the amount of  senior  secured
notes,  supplier  financing,  additional  equity  (including  the
exercise of currently outstanding warrants to buy common  stock),
joint  ventures  with  other  oil  companies,  or  proceeds  from
production.   Based   on   continuing  discussions   with   major
shareholders, investment bankers, potential purchasers and  other
oil companies, the Company believes that such required funds will
be available. However, there is no assurance that such funds will
be available and, if available, on commercially reasonable terms.
Any  new debt could require approval of the holders of the  Notes
and there is no assurance that such approval could be obtained.

      The  Company has not yet paid certain cash calls to  Apache
totaling  $6.9  million  through  April  1999  ($4.1  million  at
December  31,  1998), including amounts in dispute,  which  could
develop  into  an  event that would trigger  Apache's  option  to
purchase the Company's interest in the Contract.  The Company and
Apache are in discussions concerning the timing and manner of the
payment of these amounts.

      Since  December  31, 1997, world oil prices  have  declined
significantly. The Company believes that its plans for  the  Zhao
Dong  Block  continue  to  be economically  feasible  at  current
prices.   Should such reduced prices continue in effect, it  will
reduce  the Company's projected economic return from the  project
and  may further impair the Company's  ability to  meet its  debt  
service requirements.

      As a result of the Company's decision to focus on China and
sell  its  U.S. assets, the Company presently has  no  source  of
significant revenues. The Company incurred a loss for fiscal 1998
of  $13.8  million and expects to incur a loss in  1999  as  well
because  production and related cash flow from the Zhao Dong  and
Zhang  Dong  Blocks  are not expected until  late  1999,  at  the
earliest.

      Management's Plan
      -----------------

      With respect to the C-D Field on the Zhao Dong Block, CNODC
has  given written notice that it will participate as to its full
51%  share  and  has  urged  that production  begin  as  soon  as
reasonably practicable.  Except for certain exploratory wells  on
which  Apache  has an obligation to pay for the Company's  costs,
the   Company   is  required  to  fund  50%  of  all  exploration
expenditures   and  24.5%  of  all  development  and   production
expenditures.

     The Company estimates that its share of development expenses
for  1999  will be approximately $13.7 million and its  share  of
exploration expenses for  the remaining two obligatory  wells  to
be  drilled  prior  to the end of the Exploration  Period  (which
expires  April  30,  2000)  is approximately  $5.0  million.  The
Company  expects that at least one of these wells will be drilled
in  1999.  The  Company presently projects and plans  that  these
funds  will be available from the sale or refinancing of domestic
oil  and gas properties held for sale and/or investment in  land,
project  financing, an increase in the amount of  senior  secured
notes,  supplier  financing,  additional  equity  (including  the
exercise of currently outstanding warrants to buy common  stock),
joint  ventures  with  other  oil  companies,  or  proceeds  from
production.   Based   on   continuing  discussions   with   major
shareholders, investment bankers, potential purchasers and  other
oil companies, the Company believes that such required funds will
be available. However, there is no assurance that such funds will
be available and, if available, on commercially reasonable terms.
Any  new debt could require approval of the holders of the  Notes
and  there  is no assurance that such approval could be obtained.
"Certain Risk Factors Relating to the Company and the Oil and Gas
Industry  --  Restrictions  Imposed by  Terms  of  the  Company's
Indebtedness."

      The $18.7 million estimated to be necessary for exploration
and  development in 1999 on the Zhao Dong Block does not  include
the  cost of accelerating production from the C-4 Well area  into
1999.  If  the Company pursues this option, the Company estimates
this  would require additional expenditures of approximately $1.5
million,  which  the  Company believes it  can  obtain  from  the
sources described above.

      In  addition, the Company is the operator of the Zhang Dong
Block  and,  as such, is required to cover the costs  of  initial
appraisal   drilling,   upgrading   production   facilities   and
additional  studies  of seismic data.  The contract  commits  the
Company to drill at least one well during the first year.   Under
the  contract, the Company is entitled to 49% of the  production.
The  Company estimates that its minimum capital requirements over
the next year to satisfy the terms of the Zhang Dong contract are
approximately  $6.5 million. This amount is not included  in  the
$18.7 million the Company expects to spend on the Zhao Dong Block
during  1999.  Funds  are expected to come  from  the  previously
mentioned sources.

     Longer-term liquidity is dependent upon the Company's future
performance,  including commencement of production in  China,  as
well  as  continued access to capital markets. In  addition,  the
Company's  efforts  to  secure  additional  financing  could   be
impaired if its Common Stock is delisted from the AMEX.

      If  funds for the purposes described above and for  general
and administrative expenses are not available, the Company may be
required  substantially to curtail its operations or to  sell  or
surrender  all or part of its interest in the Zhao  Dong  or  the
Zhang Dong Blocks and/or its other interests in China in order to
meet  its obligations and continue as a going concern.  If  those
properties  are sold, there can be no assurance that the  Company
would recover its carrying value.

      The Company is not obligated to make any additional capital
payments  to  its  lubricating oil and coalbed methane  projects.
The  Company is in discussions with the Chinese government  about
expansion  of  its  lube oil venture. The  Company  will  require
additional   capital   investments  if  these   discussions   are
successfully  concluded; however, at this time it  is  not  known
what  the  extent  or  timing  for  such  investments  might  be.
Similarly,  if  the  Company's coalbed  methane  project  becomes
active  and  is  successful,  the  Company  may  make  additional
investments  in that business.  Again, the extent and  timing  of
such investment, if any, is unknown at this time.

Other General Considerations
----------------------------

      The  Company  believes that inflation has had  no  material
impact  on  its  sales, revenues or income during  the  reporting
periods.

      The  Company  is subject to existing domestic  and  Chinese
federal,   state   and  local  laws  and  regulations   governing
environmental quality and pollution control.  Although management
believes  that  such  operations are in general  compliance  with
applicable environmental regulations, risks of substantial  costs
and liabilities are inherent in oil and gas operations, and there
can  be no assurance that significant costs and liabilities  will
not be incurred.

New Accounting Pronouncements
-----------------------------

      In  June  1997,  the Financial Accounting  Standards  Board
("FASB")  issued  Statement  of  Financial  Accounting  Standards
("SFAS")  No.  130,  "Reporting Comprehensive Income,"  which  is
effective for the Company's fiscal year ending December 31, 1998.
SFAS  No.  130  establishes  standards  for  the  reporting   and
displaying of comprehensive income and its components.

      In  June  1997, the FASB Issued SFAS No. 131,  "Disclosures
about  Segments of an Enterprise and Related Information,"  which
is  effective  for the Company's fiscal year ended  December  31,
1998.   This  statement establishes standards  for  reporting  of
information about operating segments.

      The  Company adopted SFAS No. 130 and SFAS No.  131  during
1998,  which  did  not have a material effect  on  the  Company's
financial statements.

      In  June  1998,  FASB issued SFAS No. 133, "Accounting  for
Derivative  Instruments and Hedging Activities."   The  statement
requires companies to report the fair market value of derivatives
on  the balance sheet and record in income or other comprehensive
income,  as  appropriate, any changes in the fair  value  of  the
derivative.  SFAS No. 133 will become effective with  respect  to
the  Company  on  January  1, 2000.   The  Company  is  currently
evaluating the impact of the statement.

Results of Operations
---------------------

   1998 compared to 1997
   ---------------------

      Revenue and operating expenses associated with oil and  gas
properties   held   for  sale  have  become   insignificant   and
accordingly,  are recorded in other costs and operating  expenses
in the accompanying consolidated statements of operations.

     Interest expense, net of amounts capitalized, decreased $3.6
million in 1998 primarily as a result of increased capitalization
of interest costs due to increased balances of qualifying assets.
In  addition,  interest  expense includes  amortization  of  $2.1
million  relating to the value assigned to warrants  issued  with
the $75 million debt offering completed in May 1997.

           The  Company incurred a loss of $13.8 million in 1998,
as  compared with a loss of $13.4 million in 1997. The net  loss,
for 1998 and 1997, includes non-cash compensation charges of $0.8
million  and  $0.9 million, respectively, related  to  stock  and
appreciation  options,  which  are  classified  in  general   and
administrative expenses.  The net loss for 1998 includes  a  $4.2
million  non-cash  charge  for the  provision  of  impairment  of
domestic  oil  and gas properties classified as assets  held  for
sale  and  other investments. In addition, 1997 includes  a  $2.8
million  provision for estimated settlements in  connection  with
various   disputes  and  litigation  matters.   Such  amount   is
reflected  in  "Other" in the Statement of Operations.   The  net
loss  in  1997  also  includes $0.6 million of  non-cash  charges
related to early extinguishment of debt.

     Interest income decreased $1.3 million during the year ended
December  31, 1998, compared with 1997.  The primary  reason  for
this decrease was due to the use of deposited funds raised in the
May  1997  debt  and equity offerings, which funds were  released
from escrow in October 1997.

       As  the  Company  continues  to  focus  its  resources  on
exploration  and  development of the Zhao  Dong  and  Zhang  Dong
Blocks,  future oil and gas revenues will initially  be  directly
related  to  the  degree  of drilling success  experienced.   The
Company does not anticipate significant increases in its oil  and
gas  production in the short-term and expects to incur  operating
losses  until  such time as net revenues from the China  projects
are realized.

      General and administrative expenses increased $1.1  million
during  1998 as compared with 1997, as reflected in the following
table.

                                         1998         1997
                                        ------       ------
                                            (In Thousands)
Payroll, benefits and travel          $  2,222     $  1,554
Non-cash compensation cost                 778          853
Legal and professional                   1,453        1,284
Public company and corporate expenses      855          710
Office expense                             629          425
Corporate insurance                        314          341
                                        ------       ------ 
                                      $  6,251     $  5,167
                                        ======       ======

      The  increase of $1.1 million during 1998, compared to 1997
was  primarily  the result of a $0.7 million increase  in  travel
associated with the Company's projects in China.

   1997 compared to 1996
   ---------------------

       The  Company incurred a loss of $13.4 million in 1997,  as
compared with a loss of $12.1 million in 1996.  Included  in  the
loss   for  1997  is  a  charge  of  $0.9  million  for  non-cash
compensation charges, related to stock and appreciation  options,
which are classified in general and administrative expenses.   In
addition,  1997 includes a $2.8 million provision  for  estimated
settlements  in  connection with various disputes and  litigation
matters.   Such amount is reflected in Other in the Statement  of
Operations.  In addition, $0.6 million of non-cash charges relate
to early extinguishment of debt.

     Interest expense, net of amounts capitalized, increased $6.0
million in 1997 primarily as a result of increased borrowings and
higher  interest  rates on the new debt.  In  addition,  interest
expense  includes amortization of $1.3 million  relating  to  the
value  assigned  to  warrants issued with the  $75  million  debt
offering completed in May 1997.

The  net loss for 1996 includes a $3.85 non-cash charge  for
the  provision  of impairment of domestic oil and gas  properties
classified as held for sale.  The loss in 1996 also reflects  the
effect of a $2.4 million write-down and $0.7 million loss on sale
of the Company's investments.

      Oil and gas revenues from properties held for sale for  the
year   ended  December  31,  1997  were  $236,000,  compared   to
approximately $1.1 million during 1996. Revenues will continue to
decline as the Company completes its announced program of selling
substantially  all  of  its U.S. producing properties.   Interest
income increased $2.2 million during the year ended December  31,
1997,  compared with 1996.  The primary reason for this  increase
was  the  interest earned on the $75 million held in escrow  from
the Note Offering.

      General and administrative expenses increased $1.7  million
during  1997 as compared with 1996, as reflected in the following
table.

                                         1997          1996
                                        ------        ------
                                            (In Thousands)
Payroll, benefits and travel          $  1,554     $   1,683
Non-cash compensation cost                 853            --
Legal and professional                   1,284           510
Public company and corporate expenses      710           539
Lafayette office expense                   425           374
Corporate insurance                        341           381
                                        ------        ------
                                     $   5,167     $   3,487
                                        ======        ======

      The increase in legal and professional fees of $774,000 was
principally  related  to  fees of $214,000  on  one  lawsuit,  an
increase of $287,000 for outside consulting and the remainder  of
the  increase  for  general and corporate  legal  and  accounting
services.   The  increase  in  non-cash  compensation  costs  was
related   to   stock   and  appreciation  options   approved   by
shareholders in December 1997.

Year 2000 Compliance
--------------------

      The  Year  2000 problem is the result of computer  programs
being  written using two digits (rather than four) to define  the
applicable  year  and  equipment  with  time-sensitive   embedded
components.   Any  of  the  Company's programs  that  have  time-
sensitive software or equipment that has time-sensitive  embedded
components  may  recognize a date using "00"  as  the  year  1900
rather  than the year 2000.  This could result in a major  system
failure  or miscalculations.  Although no assurance can be  given
because  of  the  potential  wide scale  manifestations  of  this
problem  which  may  affect the Company's business,  the  Company
presently  believes  that the Year 2000  problem  will  not  pose
significant operational problems for its computer systems.

      The  goal  of the Company's Year 2000 project is to  ensure
that all of the critical systems and processes that are under the
Company's direct control remain functional.  Certain systems  and
processes  may  be  interrelated with or dependent  upon  systems
outside  the Company's control, and systems within the  Company's
control   may   have  unpredicted  problems.   The  Company   has
established a project team to coordinate the phases of Year  2000
compliance to assure that the Company's key automated systems and
related  processes will remain functional through the year  2000.
Those  phases consist of (i) assessment; (ii) remediation;  (iii)
testing; (iv) implementation of the necessary modifications;  and
(v) contingency planning.   All phases of the Company's Year 2000
plan  will  continue to be modified and adjusted  throughout  the
year, as additional information becomes available.

      The  Company's  assessment phase consists of  conducting  a
company-wide inventory of its key automated systems  and  related
processes, analyzing and assigning levels of criticality to those
systems  and  processes,  identifying and  prioritizing  resource
requirements, developing validation strategies and testing plans,
and  evaluating business partner relationships.  The portions  of
the  assessment  phase related to internally  developed  computer
applications,  hardware  and equipment, and  embedded  chips  are
substantially  complete.   The  Company  estimates  that  it  has
completed more than 90 percent of the assessment to determine the
nature  and  impact of the Year 2000 date change for third-party-
developed  software.  The assessment phase of  the  project  also
involves  efforts to obtain representations and  assurances  from
third parties, including third party vendors, that their hardware
and  equipment  products,  embedded chip  systems,  and  software
products  being used by or impacting the Company are or  will  be
modified to be Year 2000 compliant.  To date, the responses  from
such   third   parties,  although  generally   encouraging,   are
inconclusive.   As  a  result,  the Company  cannot  predict  the
potential consequences if these or other third parties  or  their
products  are not Year 2000 compliant.  The Company is  currently
evaluating  the  exposure associated with such  business  partner
relationships.

       The  remediation  phase  involves  converting,  modifying,
replacing or eliminating key automated systems identified in  the
assessment  phase.  The Company estimates that it  has  completed
approximately 90 percent of the remediation phase.   The  Company
has  to  date  spent approximately $160,000 for  upgrades  and/or
replacement  of certain of its hardware and software to  hardware
and  software  that  purports to be  Year  2000  compliant.   The
Company  estimates that an additional expense of $50,000 will  be
required  to  replace  and/or  modify  and  install  hardware  or
software identified to date as non-Year 2000 compliant.

      The testing phase involves the validation of the identified
key  automated systems. The Company is utilizing test  tools  and
written  test procedures to document and validate, as  necessary,
its  systems  testing.   The Company estimates that approximately
75  percent of the testing phase has been completed, and  expects
to be substantially completed by mid-1999.

      The implementation phase involves placing the converted  or
replaced  key automated systems into operation.  In  some  cases,
this  phase  will also involve the implementation of  contingency
plans needed to support business functions and processes that may
be  interrupted  by Year 2000 failures that are  outside  of  the
Company's  control.  The Company has completed  approximately  75
percent   of  the  implementation  phase,  and  expects   to   be
substantially completed by mid-1999.

     The contingency planning phase consists of developing a risk
profile  of  the Company's critical business processes  and  then
providing  for  actions  the Company will  pursue  to  keep  such
processes operational in the event of Year 2000 disruptions.  The
focus  of such contingency planning is on prompt response to  any
adverse Year 2000 events and a plan for subsequent resumption  of
normal operations.  The plan is expected to assess the risk of  a
significant  failure  to  critical  processes  performed  by  the
Company, and to address the mitigation of those risks.  The  plan
will  also consider any significant failures related to the  most
reasonably likely worst case scenario, discussed below,  as  they
may  occur.   In addition the plan is expected to factor  in  the
severity  and  duration of the impact of a  significant  failure.
The  Company plans to have its contingency plan completed by mid-
1999.

     The Company's present analysis of its most reasonably likely
worst  case scenario for Year 2000 disruptions includes  failures
in  the  telecommunications and electricity industries,  and  its
partners  in  its  international operations to become  Year  2000
compliant.

      The  Company  does not expect the costs of  its  Year  2000
project  to  have  a  material adverse effect  on  its  financial
position,  results  of  operations,  or  cash  flows.   Based  on
information  available at this time the Company  cannot  conclude
that disruptions caused by internal or external Year 2000 related
failures  will  not have such an effect.  Specific  factors  that
might  affect the success of the Company's Year 2000 efforts  and
the  occurrence  of Year 2000 disruption or expense  include  the
failure  of  the Company or its outside consultants  to  properly
identify  deficient systems, the failure of the selected remedial
action to adequately address the deficiencies, the failure of the
Company's  outside consultants to complete the remediation  in  a
timely  manner  (due  to shortages of qualified  labor  or  other
factors),  unforeseen  expenses related  to  the  remediation  of
existing  systems or the transition to replacement  systems,  the
failure  of  third parties to become Year 2000  compliant  or  to
adequately notify the Company of potential noncompliance.


Item 7A.   Quantitative and Qualitative Disclosures About Market
           Risk.

     The Company had no interest in investments subject to market
risk during the period covered by this report.

Item 8.     Financial Statements and Supplemental Data.

      The  Consolidated  Financial Statements  of  XCL  Ltd.  and
Subsidiaries  and  XCL-China  Ltd.,  together  with  the  reports
thereon  of PricewaterhouseCoopers LLP dated April 12, 1999,  and
the  supplementary  financial  data  specified  by  Item  302  of
Regulation  S-K are set forth on the pages listed  in  the  Index
under Items 14a(1) and (2).


<PAGE>

       REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                
                                

To the Board of Directors and Shareholders of XCL Ltd.

In  our opinion, the consolidated financial statements listed  in
the  index appearing under item 14(a)(1) and (2) present  fairly,
in  all material respects, the financial position of XCL Ltd. and
its  subsidiaries at December 31, 1998 and 1997, and the  results
of  its operations and its cash flows for each of the three years
in  the  period  ended  December 31,  1998,  in  conformity  with
generally   accepted  accounting  principles.   These   financial
statements  are the responsibility of the Company's   management;
our  responsibility is to express an opinion  on these  financial
statements based on our audits.  We conducted our audits of these
statements   in  accordance  with  generally  accepted   auditing
standards  which require that we plan and perform  the  audit  to
obtain   reasonable   assurance  about  whether   the   financial
statements are free of material misstatement.  An audit  includes
examining,  on a test basis, evidence supporting the amounts  and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating  the  overall  financial statement  presentation.   We
believe  that  our  audits  provide a reasonable  basis  for  the
opinion expressed above.

The  accompanying  consolidated financial  statements  have  been
prepared  assuming  that the Company will  continue  as  a  going
concern.   As  discussed in Note 2 to the consolidated  financial
statements, the Company is generating minimal revenues and has  a
working  capital deficit of $79.0 million at December  31,  1998,
after  reclassification of the Senior Secured Notes in the amount
of  $63.5  million. In addition, there is no assurance  that  the
Company  will be able to generate the necessary funds to  satisfy
the  contractual  development  and exploratory  obligations  with
respect  to  its  China  properties  and  to  ultimately  achieve
profitable operations, which creates substantial doubt about  its
ability  to continue as a going concern.  Managements'  plans  in
regard   to  these  matters  are  described  in  Note   2.    The
consolidated financial statements do not include any  adjustments
that might result from the outcome of this uncertainty.

As explained in Note 1, the Company  restated  its 1997 net loss, 
preferred stock dividends, net loss attributable  to common stock 
and the related net loss per share.



PRICEWATERHOUSECOOPERS LLP



Miami, Florida
April 12, 1999
<PAGE>

                    XCL Ltd. and Subsidiaries
                   CONSOLIDATED BALANCE SHEETS
                         (In Thousands)
                                                          December 31,
                                                      -------------------
                              A S S E T S               1998       1997
                              -----------               -----      -----
Current assets:
      Cash and cash equivalents                      $    83     $ 21,952
      Cash held in escrow (restricted)                   205       10,263
      Refundable deposits                                 --        1,200

      Other                                              443          552
                                                      ------      -------
             Total current assets                        731       33,967
                                                      ------      -------
Property and equipment:
      Oil and gas (full cost method):
           Proved undeveloped properties, 
              not being amortized                     28,274       21,172
           Unevaluated properties                     58,403       33,765
                                                     -------      -------
                                                      86,677       54,937
      Other                                            1,344        1,163
                                                     -------      -------
                                                      88,021       56,100
      Accumulated depreciation, depletion 
        and amortization                                (761)      (1,000)
                                                     -------      ------- 
                                                      87,260       55,100
                                                     -------      -------
Investments                                            4,078        3,540
Investment in land                                    12,200       12,200
Oil and gas properties held for sale                   5,099        8,955
Debt issue costs, less amortization                    3,763        4,268
Other assets                                           1,542        1,059
                                                     -------      -------  
                       Total assets                $ 114,673    $ 119,089
                                                     =======      =======

L I A B I L I T I E S  A N D  S H A R E H O L D E R S'  E Q U I T Y

Current liabilities:
      Accounts payable and accrued expenses        $  1,465     $     907
      Accrued interest                                2,049         1,820
      Due to joint venture partner                    8,168         4,504
      Dividends payable                               1,658         1,813
      Current maturities of long term debt            2,974         2,524
                                                    -------       -------
                                                     16,314        11,568
       Senior secured notes reclassification         63,457            --
                                                    -------       -------
           Total current liabilities                 79,771        11,568
                                                    -------       -------
Long-term debt, net of current maturities                --        61,310
Other liabilities                                     5,428         5,386
Commitments and contingencies (Notes 2 and 10)
Shareholders' equity:
       Preferred stock-$1.00 par value; 
         authorized 2.4 million shares at 
         December 31, 1998 and 1997; issued 
         shares of 1,282,745 at December 31,
         1998 and 1,196,236 at December 31, 
         1997 - liquidation preference of  
         $110 million at December 31, 1998.           1,283         1,196
      Common stock-$.01 par value; authorized 
         500 million shares at December 31, 1998
         and 1997; issued shares of 23,447,441 
         at December 31, 1998 and 21,710,257 at
         December 31, 1997                              234           217
      Common stock held in treasury - $.01 par 
         value; 69,470 shares at December 31, 
         1998 and 1997                                   (1)           (1)
      Additional paid-in capital                    296,373       290,788
      Accumulated deficit                          (260,215)     (240,354)
      Unearned compensation                          (8,200)      (11,021)
                                                    -------       -------
           Total shareholders' equity                29,474        40,825
                                                    -------       -------
                 Total liabilities and 
                  shareholders' equity            $ 114,673     $ 119,089
                                                    =======       =======
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>
                    XCL Ltd. and Subsidiaries
                                
              CONSOLIDATED STATEMENTS OF OPERATIONS
            (In Thousands, Except Per Share Amounts)

                                               Year Ended December 31,
                                         ---------------------------------
                                            1998        1997         1996
                                           ------      ------       ------
                                                   (As Restated)
Oil and gas revenues from 
  properties held for sale              $      --     $   --     $   1,136

Costs and operating expenses:

Operating                                      --         --           342
      Depreciation, depletion and
        amortization                           --         --           579
      Provision for impairment of 
        oil and gas properties held for
        sale and other investments          4,196         --         6,294
      General and administrative costs      6,251      5,167         3,487
      Other, net                              154      2,891           227
                                          -------    -------       -------  
            Total costs and operating 
              expenses                     10,601      8,058        10,929
                                          -------    -------       -------
Operating loss                            (10,601)    (8,058)       (9,793)
                                          -------    -------       -------

Other income (expense):
      Interest expense, net of 
        amounts capitalized                (4,855)    (8,450)       (2,415)
      Loss on sale of
        investments/assets                     --         --          (661)
      Interest income                         913      2,212             8
      Other, net                              789      1,401           787
                                          -------     ------        ------
                                           (3,153)    (4,837)       (2,281)
                                          -------     ------        ------
Loss before extraordinary item            (13,754)   (12,895)      (12,074)
Extraordinary charge for early 
  extinguishment of debt                       --       (551)           --
                                          -------     ------        ------- 
Net loss                                  (13,754)   (13,446)      (12,074)
Preferred stock dividends                  (6,107)    (7,476)       (5,356)
                                          -------    -------       -------
Net loss attributable to common stock    $(19,861)  $(20,922)    $ (17,430)
                                          =======    =======       ======= 

Loss per share (basic):
    Net loss before extraordinary item   $  (0.87)  $  (1.00)    $    (.98)
    Extraordinary item                         --       (.03)           --
                                           ------     ------       -------
    Net loss per share                   $  (0.87)  $  (1.03)    $    (.98)
                                           ======     ======       =======
Loss per share (diluted):
    Net loss before extraordinary item   $  (0.87)  $  (1.00)    $    (.98)
    Extraordinary item                         --       (.03)           --
                                           ------     ------        ------
    Net loss per share                   $  (0.87)  $  (1.03)    $    (.98)
                                           ======     ======        ======
Weighted average number of shares 
  used in per share computations:
Basic                                      22,797    20,451         17,705
Diluted                                    22,797    20,451          17,705
                                
 The accompanying notes are an integral part of these financial statements.

<PAGE>
                    XCL Ltd. and Subsidiaries
                                
         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         (In Thousands)
                                
<TABLE>
<CAPTION>
                                
                                                  Common
                                                   Stock   Additional                              Total
                              Preferred  Common   Held In   Paid-In  Accumulated    Unearned     Shareholders'
                                Stock     Stock   Treasury  Capital    Deficit    Compensation     Equity
                              ---------  -------  --------  -------  -----------  -------------  -----------
<S>                            <C>      <C>      <C>       <C>       <C>            <C>         <C>
Balance, December 31, 1995     $  685   $ 2,561  $   (25)  $220,364  $ (206,685)    $    --     $ 16,900
    Net loss                       --       --        --         --     (12,074)         --      (12,074)
    Dividends                      --       --        --         --        (673)         --         (673)
    Preferred shares issued        10       --        --        128          --          --          138
    Preferred shares subscribed    (4)      --        --         --          --          --           (4)
    Preferred shares converted
       to common shares           (22)       5        --         17          --          --           --
    Common shares issued           --      292        --      6,339          --          --        6,631 
    Treasury shares purchased      --       --        (3)      (138)         --          --         (141)
    Treasury shares issued         --       --        18        246          --          --          264
                                -----    -----     -----    -------     -------       -----       ------
Balance, December 31, 1996        669    2,858       (10)   226,956    (219,432)         --       11,041
    Net loss                       --       --        --         --     (13,446)         --      (13,446)
    Dividends                      --       --        --         --      (7,476)         --       (7,476)
    Preferred shares issued       507       --       --      14,717          --          --       15,224
    Common shares issued           --      198       --       4,395          --          --        4,593
    Issuance of stock purchase
      warrants                     --       --       --      30,036          --          --       30,036
    Unearned compensation          20       13       --      11,841          --     (11,021)         853
    Reverse stock split 1 for 15   --   (2,852)       9       2,843          --          --           --
                                -----    -----     ----    --------     -------      ------      ------- 
Balance, December 31, 1997
   (as restated)                1,196      217       (1)    290,788    (240,354)    (11,021)      40,825
    Net loss                       --      --        --          --     (13,754)         --      (13,754)
    Dividends                      --      --        --          --      (6,107)         --       (6,107)
    Preferred shares issued       110      --        --       5,646          --          --        5,756
    Preferred shares converted
      to common shares            (23)      6        --          17          --          --           --
    Common shares issued           --       2        --         558          --          --          560
    Issuance of stock purchase
      warrants                     --       9        --       1,407          --          --        1,416
    Unearned compensation          --      --        --      (2,821)         --       2,821           --
    Earned compensation -
       stock options               --      --        --         778          --          --          778
                                -----   -----      ----     -------     -------      ------       ------
Balance, December 31, 1998     $1,283  $  234     $  (1)   $296,373   $(260,215)    $(8,200)     $29,474
                                =====   =====      ====     =======     =======      ======       ======
</TABLE>
                                
 The accompanying notes are an integral part of these financial statements.

<PAGE>
                    XCL Ltd. and Subsidiaries
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (In Thousands)

                                                    Year Ended December 31,
                                              ---------------------------------
                                                 1998         1997       1996
                                                ------       ------     ------
Cash flows from operating activities:
    Net loss                                $  (13,754)   $ (13,446)  $ (12,074)
                                               -------      -------     -------
    Adjustments to reconcile net 
       loss to net cash used in
       operating activities:
        Depreciation, depletion and
          amortization                             106         126          579
        Provision for impairment of 
          oil and gas properties held
          for sale and other investments         4,196          --        6,294
        Extraordinary charge for early  
          extinguishment of debt                    --         551           --
        Loss on sale of investments/assets          --          --          661
        Amortization of discount on senior 
          secured notes                          2,147       1,342           --
        Stock compensation programs                778         853           --
        Stock issued for outside  
          professional services                    565          --           --

Other                                              207         248           --
        Change in assets and liabilities:
             Accounts receivable                    --          --          799
             Refundable deposits                 1,200      (1,200)          --
             Accounts payable and accrued
               expenses                            558        (424)       1,471
             Accrued interest                      229         292         (896)
             Other, net                           (219)      2,577           12
                                               -------      ------       ------ 
                  Total adjustments              9,767       4,365        8,920
                                               -------      ------       ------
                  Net cash used in operating
                    activities                  (3,987)     (9,081)      (3,154)
                                               -------      ------       ------

Cash flows from investing activities:
    Change in cash held in escrow (restricted)  10,058     (10,263)          --
    Capital expenditures                       (28,783)    (16,097)      (1,489)

Investments                                      (734)      (1,790)        (491)
    Proceeds from sales of assets and
      investments                                   3          797        9,210
Other                                              --           --            4
                                               ------      -------      -------
         Net cash (used in) provided by 
           investing activities               (19,456)     (27,353)       7,234
                                               ------      -------      -------

Cash flows from financing activities:
    Proceeds from sales of common stock            --          652        1,766
    Proceeds from issuance of 
      preferred stock                              --       25,000          144
    Proceeds from sale of treasury stock           --           --          264
    Proceeds from Senior Secured Notes             --       75,000           --
    Loan proceeds                               1,500        6,100          315
    Payment of long-term debt                  (1,050)     (35,503)      (8,344)
    Payment of notes payable                       --       (6,100)          --
    Proceeds from exercise of options 
      and warrants                              1,209        1,590          691
    Payment for treasury stock                     --           --         (141)
    Stock/note issuance costs and other           (85)      (8,466)        (272)
                                               ------       ------       ------
            Net cash provided by (used in) 
              financing activities              1,574       58,273       (5,577)
                                               ------       ------       ------
Net increase (decrease) in cash and cash
  equivalents                                 (21,869)      21,839       (1,497)
Cash and cash equivalents at beginning of
  year                                         21,952          113        1,610
                                               ------       ------       ------
Cash and cash equivalents at end of year     $     83     $ 21,952     $    113
                                               ======       ======       ======
Supplemental information:
    Cash paid for interest, net of 
      amounts capitalized                    $ 1,458     $  7,441     $  1,591
                                               ======       ======       ======

 The accompanying notes are an integral part of these financial statements.
<PAGE>
                    XCL Ltd. and Subsidiaries
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)       Nature   of  Operations  and  Summary  of   Significant
          Accounting Policies:

   Nature of Operations:
   --------------------
  
      XCL Ltd. (together with its consolidated subsidiaries,  the
"Company" or "XCL") is engaged principally in the exploration for
and  the development and production of crude oil and natural gas.
Its  exploration  and  development efforts  are,  at  this  time,
focused primarily on the Zhao Dong and Zhang Dong Blocks  in  the
shallow-water sea area of Bohai Bay in The People's  Republic  of
China  ("China").  XCL's activities on the Zhao Dong  Block  have
been  undertaken pursuant to an exploration and production  joint
venture   with  China  National  Oil  and  Gas  Exploration   and
Development Corporation ("CNODC"), a subsidiary of China National
Petroleum  Corporation ("CNPC), one of the national oil companies
of China.
  
  Principles of Consolidation:
  ---------------------------

      The  consolidated financial statements include the accounts
of  XCL  Ltd.  and its wholly owned subsidiaries  ("XCL"  or  the
"Company")  after the elimination of all significant intercompany
accounts and transactions.   Certain reclassifications have  been
made  to  prior year financial statements to conform  to  current
year  presentation.   

   Reclassifications and Adjustments:
   ---------------------------------

     The 1997 dividends on the Amended Series A  Preferred  Stock  
have  been   restated  by approximately $6.3 million  to  reflect  
the  fair  value  of the  preferred  stock issued in satisfaction 
of such amounts and will be accreted to the  mandatory redemption  
date applying the effective interest method.  This adjustment had  
the  effect of reducing  the  1997 loss per share attributable to 
common stock  from $1.36 per share to $1.03 per share.

     Use of Estimates in the Preparation of Financial Statements:
     -----------------------------------------------------------

      The  preparation of the Company's financial  statements  in
conformity   with   generally  accepted  accounting   principles,
requires management to make estimates and assumptions that affect
reported  amounts  of assets and liabilities  and  disclosure  of
contingent  assets and liabilities at the date of  the  financial
statements  and  the  reported amounts of revenues  and  expenses
during  the  reporting period.  Actual results could differ  from
those estimates.

  Cash and Cash Equivalents:
  -------------------------

      The  Company  considers deposits which can be  redeemed  on
demand  and  investments which have original maturities  of  less
than three months, when purchased, to be cash equivalents. As  of
December  31, 1998, the Company's cash and cash equivalents  were
deposited primarily in three financial institutions.

  Fair Value of Financial Instruments:
  -----------------------------------
  
      The fair value  of current assets and liabilities approximate 
carrying value, due to the  short-term nature of these items. There
is no  quoted market  value for  the Senior Secured Notes, however,
management estimates that, based on current market conditions, such
Notes have a fair value of  approximately 45%-55% of the face value 
of such Notes.  Fair value of such   financial  instruments is  not   
necessarily  representative of the  amount that  could be  realized 
or settled.

  Oil and Gas Properties:
  ---------------------- 

      The  Company  accounts for its oil and gas exploration  and
production  activities using the full cost method of  accounting.
Accordingly,  all costs associated with acquisition, exploration,
and  development  of oil and gas reserves, including  appropriate
related costs, are capitalized.  The Company capitalizes internal
costs  that  can  be  directly identified with  its  acquisition,
exploration  and development activities and does  not  capitalize
any  costs  related to production, general corporate overhead  or
similar activities.

      The  capitalized costs of oil and gas properties, including
the  estimated  future  costs  to develop  proved  reserves,  are
amortized on the unit-of-production method based on estimates  of
proved oil and gas reserves.  The Company's domestic oil and  gas
reserves  were estimated by Company engineers in 1998  and  1997,
and  foreign  reserves in 1998 and 1997 by independent  petroleum
engineers.   Investments  in  unproved   properties   and   major
development  projects  are not amortized  until  proved  reserves
associated  with  the  projects  can  be  determined   or   until
impairment occurs. If the results of an assessment indicate  that
properties are impaired, the amount of the impairment is added to
the  capitalized  costs to be depleted. The  Company  capitalizes
interest on expenditures made in connection with exploration  and
development   projects   that  are   not   subject   to   current
amortization.   Interest  is  capitalized  for  the  period  that
activities  are  in  progress to bring these  projects  to  their
intended use.

      During  the fourth quarter of 1995, the Company decided  to
concentrate  on  the  development of its China  investments,  and
decided to dispose of its domestic properties.  Accordingly,  the
recorded  value of the Company's domestic properties was  reduced
to  their  estimated fair market value and the resulting balances
were transferred to assets held for sale.

     The Company reviews the carrying value of its proved oil and
gas  properties each quarter on a country-by-country  basis,  and
limits capitalized costs of oil and gas properties to the present
value  of  estimated  future net revenues from  proved  reserves,
discounted at 10 percent, plus the lower of cost or fair value of
unproved  properties  as  adjusted for related  tax  effects  and
deferred  tax reserves. If capitalized costs exceed  this  limit,
the excess is charged to depreciation, depletion and amortization
expense ("DD&A") in the period in which it occurs.

     Proceeds from the sale of proved and unproved properties are
accounted for as reductions to capitalized costs with no gain  or
loss  recognized unless such sales would significantly alter  the
relationship between capitalized costs and proved reserves of oil
and  gas.  Abandonments  of  properties  are  accounted  for   as
adjustments of capitalized costs with no loss recognized.

     The Company accounts for site restoration, dismantlement and
abandonment  costs  in  its  estimated  future  costs  of  proved
reserves.   Accordingly, such costs are amortized on  a  unit  of
production  basis  and  reflected with accumulated  depreciation,
depletion and amortization.  The Company identifies and estimates
such  costs  based  upon its assessment of applicable  regulatory
requirements, its operating experience and oil and  gas  industry
practice  in  the areas within which its properties are  located.
To  date the Company has not been required to expend any material
amounts to satisfy such obligations.  The standardized measure of 
discounted future net cash flows includes a deduction for any such 
costs.

    Other Property and Equipment:
    ----------------------------

     Other property and equipment primarily consists of furniture
and   fixtures,  equipment  and  software.   Major  renewals  and
betterments  are  capitalized while  the  costs  of  repairs  and
maintenance  are charged to expense as incurred.   The  costs  of
assets  retired  or  otherwise disposed  of  and  the  applicable
accumulated depreciation are removed from the accounts,  and  the
resulting  gain  or  loss  is  reflected  in  operations.   Other
property  and equipment costs are depreciated using the straight-
line  method over the estimated useful lives of the assets, which
range from 3 to 15 years.

     Capitalized Interest and Amortized Debt Costs:
     ---------------------------------------------

      During  fiscal 1998, 1997 and 1996, interest and associated
costs  of  approximately  $9.7 million, $5.8  million,  and  $2.8

million,   respectively   were  capitalized   with   respect   to
significant  investments in oil and gas properties that  are  not
being  currently depreciated, depleted, or amortized and on which
exploration or development activities are in progress.   Deferred
debt  issue  costs  and  discount on  senior  secured  notes  are
amortized on the straight-line basis over the term of the related
debt agreement.

  Income Taxes:
  ------------
     
      The  Company  accounts for income taxes in compliance  with
Statement  of  Financial Accounting Standards No. 109  (SFAS  No.
109) "Accounting for Income Taxes." Requirements by this standard
include  recognition of future tax benefits, measured by  enacted
tax  rates,  attributable to:  deductible  temporary  differences
between  financial statement and income tax bases of  assets  and
liabilities; and, net operating loss carryforwards.   Recognition
of  such tax assets are limited to the extent that realization of
such benefit is more likely than not.

      Foreign Operations:
      ------------------

      The  Company's future operations and earnings  will  depend
upon the results of the Company's operations in China.  There can
be  no  assurance  that the Company will be able to  successfully
conduct  such  operations, and a failure to do so  would  have  a
material  adverse  effect  on the Company's  financial  position,
results of operations and cash flows.  Also, the success  of  the
Company's  operations will be subject to numerous  contingencies,
some   of   which   are  beyond  management's   control.    These
contingencies  include general and regional economic  conditions,
prices for crude oil and natural gas, competition and changes  in
regulation.   Since  the  Company is dependent  on  international
operations,  specifically those in China,  the  Company  will  be
subject  to  various  additional political,  economic  and  other
uncertainties.  Among other risks, the Company's operations  will
be  subject  to the risks of restrictions on transfer  of  funds;
export  duties, quotas and embargoes; domestic and  international
customs  and  tariffs;  and changing taxation  policies,  foreign
exchange  restrictions,  political  conditions  and  governmental
regulations.

  Stock Based Compensation:
  ------------------------
  
       Statement  of  Financial  Accounting  Standards  No.   123
"Accounting  for  Stock-Based  Compensation,"  ("SFAS  No.  123")
encourages, but does not require companies to record compensation
costs  for  stock-based compensation plans at  fair  value.   The
Company  has  chosen  to  continue  to  account  for  stock-based
employee compensation using the intrinsic value method prescribed
in  Accounting  Principles Board Opinion No. 25, "Accounting  for
Stock  Issued to Employees."  Accordingly, compensation cost  for
stock options, awards and warrants is measured as the excess,  if
any,  of  the quoted market price of the Company's stock  at  the
date of the grant over the amount an employee must pay to acquire
the stock.

  Earnings Per Share:
  ------------------

      During  1997,  the Company adopted Statement  of  Financial
Accounting  Standards  No. 128 "Earnings Per  Share"  ("SFAS  No.
128")   and  has  restated  all  years  presented  in  accordance
therewith.   SFAS No. 128 requires a dual presentation  of  basic
and  diluted  earnings  per share ("EPS")  on  the  face  of  the
statement of operations. Basic EPS is computed by dividing income
available  to common stockholders by the weighted average  number
of  common  shares  for  the period.  Diluted  EPS  reflects  the
potential  dilution  that  could occur  if  securities  or  other
contracts to issue common stock were exercised or converted  into
common  stock  or resulted in the issuance of common  stock  that
would then share in earnings.

     Environmental Expenditures:
     --------------------------

      Environmental  expenditures relating to current  operations
are expensed or capitalized, as appropriate, depending on whether
such  expenditures provide future economic benefits.  Liabilities
are  recognized when the expenditures are considered probable and
can be reasonably estimated.  Measurement of liabilities is based
on  currently  enacted laws and regulations, existing  technology
and    undiscounted   site-specific   costs.    Generally,   such
recognition coincides with the Company's commitment to  a  formal
plan of action.

     Recent Accounting Pronouncements:
     -------------------------------- 

      In  June  1997,  the FASB issued SFAS No.  130,  "Reporting
Comprehensive Income", which is effective for the Company's  year
ended December 31, 1998.  SFAS No. 130 establishes standards  for
the  reporting  and displaying of comprehensive  income  and  its
components.

      In  June  1997, the FASB Issued SFAS No. 131,  "Disclosures
about  Segments of an Enterprise and Related Information",  which
is  effective the Company's year ended December 31,  1998.   This
statement  establishes  standards for  reporting  of  information
about operating segments.

      The  Company adopted SFAS No. 130 and SFAS No.  131  during
1998,  which  did  not have a material effect  on  the  Company's
financial statements.

      In  June  1998,  FASB issued SFAS No. 133, "Accounting  for
Derivative  Instruments and Hedging Activities."   The  statement
requires companies to report the fair market value of derivatives
on  the balance sheet and record in income or other comprehensive
income,  as  appropriate, any changes in the fair  value  of  the
derivative.  SFAS No. 133 will become effective with  respect  to
the  Company  on  January  1, 2000.   The  Company  is  currently
evaluating the impact of the statement.
                                
(2)     Liquidity and Management's Plan

     The Company, in connection with its 1995 decision to dispose
of its domestic properties, is generating minimal annual revenues
and  is devoting all of its efforts toward the development of its
China  properties.  The Company has cash available in the  amount
of  approximately $83,000 as of December 31, 1998 and  a  working
capital deficit of $79.0 million. The Senior Secured Notes in the 
amount  of  $63.5 million  have  been  reclassified  because  the 
Company does not currently have sufficient funds to make the next 
interest payment (in the approximate  amount of $5.6 million) due 
in May 1999.  Failure by the Company to  make such  payment could 
allow the holders of the Notes to declare all amounts outstanding
immediately due and payable.   Additional funds will be needed to 
meet the Company's development and  exploratory obligations until  
sufficient cash flows are generated  from  anticipated production  
to  sustain   its  operations   and  to  fund  future development 
and exploration obligations.

      Management  plans  to generate the additional  cash  needed
through  the  sale or financing of its domestic assets  held  for
sale  and  the  completion of additional equity,  debt  or  joint
venture  transactions.  There is no assurance, however, that  the
Company will be able to sell or finance its assets held for  sale
or  to  complete other transactions in the future at commercially
reasonable terms, if at all, or that it will be able to meet  its
future  contractual obligations.  If production  from  the  China
properties commences in late 1999, as anticipated, the  Company's
proportionate share of the related cash flow will be available to
help  satisfy a portion of cash requirements.   However, there is  
likewise  no  assurance that  such development will be successful 
and production will commence, and  that  such  cash  flow will be 
available.

(3)     Supplemental Cash Flow Information

     There were no income taxes paid for the years ended December
31, 1998, 1997 and 1996.

The Company completed the following non-cash transactions in
1998  and  prior years in order to conserve cash for use  in  its
core  activities  and  to meet other obligations  while  honoring
restrictions  on  cash use imposed by its Senior  Secured  Notes.
Such transactions not reported elsewhere herein are as follows:

     1998
     ----
   
      In January 1998, the  Company  issued warrants to holders of 
its Series F Preferred Stock at $0.15 per share which was recorded 
as a preferred  stock dividend of approximately $523,000.

      In January 1998, the Company issued 55,625 shares of Common
Stock to an individual, in respect of $222,500 payable in shares  
of Common Stock, pursuant to an agreement effective October 1, 1997, 
between the Company and such individual.

      In  August  1998,  the Company issued an additional  65,622
shares  of  Common  Stock  to that same individual, in payment of
the  remaining  $222,500  payable  under the same agreement.

     In November 1998, the Company issued 35,000 shares of Common
Stock  to a consultant in payment for consulting services  to  be
performed under a consulting agreement dated June 15, 1998.

       1997
       ----

      On  January 9, 1997, the Company accepted subscriptions for
an aggregate of 21,057 shares of Series F Preferred Stock, issued
at $65.00 per share, in February, to three individuals for 18,448
shares;   1,731   shares  and  878  shares,  respectively.    The
subscriptions  were paid for with $225,000 in cash,  cancellation
of a consulting agreement, surrender of Common Stock and Warrants
issued  in  connection with a consulting agreement, surrender  of
rights  to acquire units of registered Common Stock and Warrants,
surrender  of  certain  registration  rights  covering  3,000,000
shares,  and  surrender of certain shares  of  Common  Stock  and
Warrants   issued  in  connection  with  compensation  for   past
fundraising activities, surrender of rights to acquire  units  of
registered  Common  Stock and Warrants and  certain  registration
rights covering 75,000 shares.

     On May 20, 1997, the Company issued 11,816 shares of Amended
Series  A Preferred Stock and 133,914 warrants to acquire  shares
of  Common  Stock, in respect of approximately  $1.0  million  of
accrued  interest  payable  to certain institutional  holders  of
Secured  Subordinated  Debt.  The  warrants  issued   are   first 
exercisable on May 20, 1998,  at  an  exercise price of $3.0945 
per share, and expire on November 1, 2000.

     In October, 1997, the Company issued 30,000 shares of Common
Stock  and granted .003215% in aggregate Net Revenue Interest  on
the  Zhao Dong Block to a former employee of the Company, and her
attorneys, in settlement of litigation against the Company.

     In October  1997, pursuant to an agreement effective October
1,  1997,  the  Company issued an aggregate of 53,333  shares  of
Common Stock  as compensation to an individual who  has performed 
services for the Company.

      On  November 11, 1997, the Company issued 26,667 shares  of
Common Stock and stock purchase warrants to acquire 13,333 shares
of  Common Stock to a consultant, as compensation pursuant to  an
agreement dated effective as of February 20, 1997.

      1996
      ----

      In  March and April 1996, the Company sold units of  Common
Stock  and  Warrants through a placement agent in a Regulation  S
unit  offering.   As  compensation for  such  unit  offering  the
Company granted warrants to acquire an aggregate of 25,600 shares
of Common Stock.

      As  compensation  for services performed that  resulted  in
Apache  Corp. purchasing an additional interest in the Zhao  Dong
Block, during the first quarter of 1996 the Company issued  3,333
shares  of  Common Stock to a finder.  In addition, the  finder's
existing  warrants to acquire 33,333 shares of Common Stock  were
amended,  as  to  exercise  price,  expiration  date  and  forced
conversion feature, to conform the terms of such warrants to  the
terms of warrants granted in the Regulation S unit offering noted
above.

      The  finder  earned a four percent stock fee of  the  gross
proceeds  of  the  offering as compensation for  identifying  the
placement  agent for the Regulation S unit offering.  In  payment
of  this fee, the Company during the first quarter, issued 17,817
shares of Common Stock in connection with the initial closing and
during  the  second quarter issued an aggregate 8,192  shares  of
Common Stock as compensation for the subsequent closings.

      Effective March 1, 1996, the terms of warrants issued to  a
financial  advisor  were  amended as  partial  consideration  for
introducing  to  the Company the purchaser of  the  Gonzalez  Gas
Unit,  comprising  a  portion of the Berry  R.  Cox  Field.   The
warrant  exercise price was reduced from $15.00 to $7.50 and  the
term  of  the  warrant was extended for three years to  March  1,
1999.

      During  August 1996, the Company issued to a finder  18,666
warrants   to  purchase  18,666  shares  of  Common   Stock,   as
compensation  for  the placement with their  clients  of  186,666
units,  comprised  of  shares of Common  Stock  and  warrants  to
purchase Common Stock.

     During October 1996, the Company issued approximately 93,333
shares of Common Stock plus warrants to acquire 166,666 shares of
Common  Stock,  as compensation to an individual in consideration
for  a  consulting  arrangement,  whereby  the  consultant  would
introduce  persons interested in investing in China  through  the
Company.   During  February  1997, the  consultant  canceled  the
consultant  agreement and returned to the Company the shares  and
warrants issued in connection therewith.

      During October 1996, the Company issued 100,000 warrants to
acquire  100,000  shares of Common Stock, as compensation  to  an
individual for past fund raising services.


 (4)     Oil and Gas Properties Held for Sale and Investments

Oil and Gas Properties Held for Sale
------------------------------------

     Domestic Oil and Gas Properties
     -------------------------------

     During 1996, the Company was engaged in attempts to sell its
remaining  domestic oil and gas properties and had a contract  in
place  for  the  sale of the property. Prior to  the  sale  being
consummated, the Company received service of three lawsuits filed
by  lessors  of the most productive remaining leases, effectively
thwarting the Company's ability to consummate the sale by casting
doubt  as  to  the Company's rights to certain interests  in  the
leases  and  demanding damages.  While the Company believes  that
the  charges  are  without merit, it is of the opinion  that  the
property  cannot  be sold until such time as  the  litigation  is
concluded  or settled.  In response to a request by the  lessors'
counsel, the Company has granted the lessors an extension of time
to  respond to discovery demands made by the Company and to allow
sufficient  time to pursue settlement of this litigation.   As  a
result of these lawsuits and other matters related to the oil and
gas  industry, the carrying value of these properties  have  been
reduced by $3.85 million in 1996 and $4.0 million in 1998.

Investments
-----------

     Investment in Land
     ------------------

      During  1993,  the Company completed the acquisition  of  a
group  of  corporations which together owned 100  percent  of  an
unevaluated  62,500-acre  tract in  southeastern  Louisiana  (the
"Lutcher  Moore Tract"). This property is pledged  as  collateral
for  the Lutcher Moore limited recourse debt.  During the  second
quarter of 1998, this property was reclassified from "oil and gas
properties held for sale" to "investment in land" as the  Company
is   presently  exploring  various  development  and  alternative
economic plans.

      Lube Oil Investment
      -------------------

      On  July 17, 1995, the Company signed a contract with  CNPC
United  Lube Oil Corporation to form a joint venture  company  to
engage  in  the  manufacturing,  distribution  and  marketing  of
lubricating  oil  in  China and Southeast Asian  markets.  As  of
December  31,  1998, the Company has invested approximately  $4.1
million in the project.


(5)     Debt

     Long-term debt consists of the following (000's):

                                                       December 31,
                                                     -----------------
                                                     1998        1997
                                                     ----        ----
     Senior secured notes, net of 
       unamortized discount of 
       $11,453 and $13,690, respectively          $  63,457    $ 61,310
     
     Lutcher Moore Group Limited Recourse Debt        1,474       2,524
     XCL Land, Ltd. secured notes                     1,500          --
                                                     ------      ------
                                                     66,431      63,834
                                                     ------      ------
     Less current maturities:
         Lutcher Moore Group Limited Recourse Debt   (1,474)     (2,524)
         XCL Land, Ltd. secured notes                (1,500)         --
                                                     ------      ------
                                                     (2,974)     (2,524)
                                                     ------      ------
                                                  $  63,457    $ 61,310
                                                     ======      ======
     

      Substantially  all  of the Company's  assets  collateralize
these borrowings.

      At  December 31, 1998, the long-term portion of the  Senior
Secured Notes was reclassified to a current liability due to  the
uncertainty  surrounding the Company's ability to make  its  next
interest payment (in the approximate amount of $5.6 million)  due
in May 1999.

     Senior Secured Notes
     --------------------

      The  Company sold in an unregistered offering to  qualified
institutional  buyers and accredited institutional investors,  on
May 20, 1997  (the "Note Offering"), 75,000 Note Units. Each Note
Unit consisted of $1,000 principal amount of 13.5% Senior Secured
Notes  due May 1, 2004 (collectively, the "Notes") and one Common
Stock  Purchase  Warrant (collectively the  "Note  Warrants")  to
purchase 85 shares of the Company's common stock, par value $0.01
per share (the "Common Stock"), at an exercise price of $3.09 per
share,  first  exercisable  after  May  20,  1998.   Total  funds
received  of $75 million were allocated $15 million to  the  Note
Warrants  and  $60 million to the Notes.  The value allocated  to
the Note Warrants is being amortized to interest expense over the
term  of  the  Notes.   At  December 31,  1998,  the  unamortized
discount on the Notes is approximately $11.5 million.  Since  the
Notes have not been registered at December 31, 1998, the interest
rate  has been increased to 15% pursuant to the terms of the Note
Offering.

      Interest on the Notes is payable semi-annually on May 1 and
November 1.  The Notes will mature on May 1, 2004. The Notes  are
not redeemable at the option of the Company prior to May 1, 2002,
except that the Company may redeem, at its option prior to May 1,
2002, up to 35% of the original aggregate principal amount of the
Notes, at a redemption price of 113.5% of the aggregate principal
amount of the Notes, plus accrued and unpaid interest, if any, to
the  date  of  redemption, with the net proceeds  of  any  equity
offering  completed  within  90 days prior  to  such  redemption;
provided  that  at  least $48.75 million in  aggregate  principal
amount of the Notes remain outstanding.  On or after May 1, 2002,
the  Notes are redeemable at the option of the Company, in  whole
or  in  part,  at an initial redemption price of 106.75%  of  the
aggregate principal amount of the Notes until May 1, 2003, and at
par  thereafter, plus accrued and unpaid interest, if any, to the
date  of redemption.  Upon the occurrence of a change of control,
as  defined,  the Company will be obligated to make an  offer  to
purchase  all outstanding Notes at a price equal to 101%  of  the
principal  amount thereof, plus accrued and unpaid  interest,  if
any, to the date of purchase.  Total interest expense incurred on
the  Notes  was  approximately $10.9 million for the  year  ended
December 31, 1998.

      The Senior Secured Notes restrict, among other things,  the
Company's  ability  to incur additional debt,  incur  liens,  pay
dividends, or make certain other restricted payments.  They  also
limit  the  Company's ability to consummate certain asset  sales,
enter  into  certain  transactions with  affiliates,  enter  into
mergers  or consolidations, or dispose of substantially  all  the
Company's  assets.  The Company's ability  to  comply  with  such
covenants  may  be  affected by events beyond  its  control.  The
breach  of  any  of these covenants could result in  default.   A
default  could allow holders of the Notes to declare all  amounts
outstanding  and  accrued interest immediately due  and  payable.
Absent  such  payment,  the  holders could  proceed  against  any
collateral  granted  to them to secure such  indebtedness,  which
includes  all  of the stock of the Company's principal  operating
subsidiary, XCL-China, which has guaranteed such indebtedness.  A
foreclosure  on  the  stock of XCL-China could  trigger  Apache's
right  of  first  refusal  under the Participation  Agreement  to
purchase  such  stock  or  its option to purchase  the  Company's
interest  in  the Contract.  There can be no assurance  that  the
assets  of  the Company and XCL-China (a "Subsidiary Guarantor"),
or  any other Subsidiary Guarantors would be sufficient to  fully
repay the Notes and the Company's other indebtedness.

      During 1998, the Company paid an aggregate of $10.7 million
in interest to the holders of the Senior Secured Notes.

     XCL Land, Ltd. Secured Notes
     ----------------------------

      On  November 6, 1998, the Company, through its wholly owned
subsidiary,  XCL Land, Ltd., ("XCL Land"), issued an aggregate  of
15  units, each unit comprised of a secured note in the principal
amount  of  $100,000 each and five-year warrants, exercisable  at
$3.50 per share, to purchase 21,705 shares of Common Stock of the
Company  in  a  short  term financing with  three  lenders.   The
lenders  were  granted  a security interest  in  the  partnership
interests  of XCL Land and The Exploration Company of  Louisiana,
Inc.,  in L.M. Holding Associates, L.P., the owner of the Lutcher
Moore  Tract.  The notes bear interest at 15% per annum  and  are
payable  in  90 days, with the option for two 90-day  extensions,
the  second of which must be approved by the lenders.   XCL  Land
received $1.5 million in proceeds, of which $0.7 million was used
to pay outstanding indebtedness associated with the Lutcher Moore
Tract  and  the remaining $0.8 million was paid as a dividend  to
the Company to be used by the Company as working capital.

     On January 15, 1999, the Company issued an aggregate of five
additional  units,  on  the same terms as  the  units  issued  on
November  6, 1998, except that the exercise price of the warrants
was   $2.00   per  share.  In  connection  with  the   additional
subscriptions, the exercise price for the warrants issued in  the
November  6, 1998, offering were reduced to $2.00 per share.  XCL
Land  received $0.5 million in proceeds, all of which was paid as
a  dividend  to the Company to be used by the Company as  working
capital.

      During March 1999, the Company issued an aggregate  of  two
additional  units,  on  the same terms as  the  units  issued  on
January  15, 1999, except that the exercise price of the warrants
was   $1.50   per  share.   In  connection  with  the  additional
subscriptions,  and  pursuant to the terms  of  the  subscription
agreements,  the exercise price for the warrants  issued  in  the
November 6, 1998 and January 15, 1999 offerings, were reduced  to
$1.50 per share.  XCL Land received $200,000 in proceeds, all  of
which  was  paid as a dividend to the Company to be used  by  the
Company as working capital.

      Also  during  March 1999, the Company,  through  XCL  Land,
issued  one  unit  comprised of a secured note in  the  principal
amount  of $100,000 and five-year warrants, exercisable at  $1.25
per  share,  to  purchase 10,000 shares of Common  Stock  of  the
Company  in  a short term financing with one lender.  The  lender
was  granted a security interest in the partnership interests  of
XCL  Land and The Exploration Company of Louisiana, Inc., in L.M.
Holding  Associates, L.P., the owner of the Lutcher Moore  Tract.
The  notes bear interest at 15% per annum and are payable  in  45
days.  XCL Land  received $100,000 in proceeds, all of which  was
paid  as  a dividend to the Company to be used by the Company  as
working capital.

(6)     Shareholders' Equity

  Preferred Stock
  ---------------

      As  of  December  31, 1998 and 1997, the  Company  had  the
following shares of Preferred Stock issued and outstanding:

<TABLE>
<CAPTION>
                                         Preference in         1998 Dividends
                           Shares        Liquidation at         (In Thousands)
                       1998      1997  December 31, 1998 Declared Accrued  Total
                       ----      ----  ----------------- -------- -------  -----
<S>                 <C>        <C>        <C>            <C>      <C>      <C>
Amended Series A    1,231,897  1,129,453  $104,711,245   $ 3,507  $ 1,658  $ 5,165
Amended  Series B      50,848         --     5,084,800       419       --      419
Series B                   --     44,465            --        --       --       --
Series F                   --     22,318            --       523       --      523
                    ---------  ---------  -----------     ------   ------  -------
                    1,282,745  1,196,236 $109,796,045    $ 4,449  $ 1,658  $ 6,107
                    =========  =========  ===========     ======   ======   ======
</TABLE>
  
     Amended Series A Preferred Stock
     --------------------------------

      On  May  20,  1997,  the Company sold, in  an  unregistered
offering   to  qualified  institutional  buyers  and   accredited
institutional  investors (the "Equity Offering")  294,118  Equity
Units.  Each Equity Unit consisted of one share of Amended Series
A,  Cumulative Convertible Preferred Stock, par value  $1.00  per
share  ("Amended Series A Preferred Stock"), and one Common Stock
Purchase   Warrant  (collectively,  the  "Equity  Warrants")   to
purchase  approximately 22 shares of the Company's Common  Stock,
at   an   initial  exercise  price  of  $3.09  per  share,  first
exercisable on May 20, 1998. Total funds received of $25  million
were  allocated,  $15  million to the  Equity  Warrants  and  $10
million to the Amended Series A Preferred  Stock.  The difference
between the fair value of  the preferred stock and its redemption
value of $85.00 per share is  being amortized to  preferred stock 
dividends over the 10-year mandatory redemption period.

      Each  share  of  Amended Series A  Preferred  Stock  has  a
liquidation  value of $85.00, plus accrued and unpaid  dividends.
Dividends  on  the Amended Series A Preferred Stock  are  payable
semi-annually, at an annual rate of $8.075 per share.   Dividends
are  payable  in additional shares of Amended Series A  Preferred
Stock (determined  based on $85.00 per share) through November 1, 
2000, and thereafter in cash, or at the election of the  Company,  
in  additional  shares of Amended Series A Preferred Stock.   The 
fair  value of  preferred shares issued in lieu of cash dividends 
is  $35 per  share  as  of  December 31, 1998, and the difference 
between this  value and $85  per share  is  being accreted to the 
mandatory redemption date using the effective  interest   method.
Accordingly, the amount charged to dividends does not reflect the
stated rate.  The Amended Series A Preferred Stock is convertible
into  Common Stock, at any time after May 20, 1998, at the option
of  the  holder thereof, unless previously redeemed. The  initial
conversion  price is $7.50 per share of Common Stock  (equivalent
to  a  rate  of 11.333 shares of Common Stock for each  share  of
Amended  Series  A Preferred Stock), subject to adjustment  under
certain   conditions.   The  Company  is  entitled   to   require
conversion  of  all the outstanding shares of  Amended  Series  A
Preferred  Stock,  at any time after November  20,  1997  if  the
Common Stock shall have traded for 20 trading days during any  30
consecutive  trading day period at a market  value  equal  to  or
greater than 150% of the prevailing conversion rate.

      The  Amended Series A Preferred Stock is redeemable at  any
time  on or after May 1, 2002, in whole or in part, at the option
of  the  Company.   The initial redemption price  is  $90.00  per
share,  and after May 1, 2002, at redemption prices that decrease
ratably  annually to $85.00 per share, on and after May 1,  2006,
plus  accrued and unpaid dividends to the redemption  date.   The
Amended  Series  A Preferred Stock is mandatorily redeemable,  in
whole, on May 1, 2007, at a redemption price of $85.00 per share,
plus accrued and unpaid dividends to the redemption date, payable
in cash, or at the election of the Company, in Common Stock.

      Upon the occurrence of a change in control or certain other
fundamental changes, the conversion price of the Amended Series A
Preferred Stock will be reduced, for a limited period, in certain
circumstances,  in order to provide holders with loss  protection
at  a time when the market value of the Common Stock is less than
the then prevailing conversion price.

     The Amended Series A Preferred Stock will entitle the holder
thereof to cast the same number of votes as the shares of  Common
Stock then issuable upon conversion thereof on any matter subject
to  the  vote  of the holders of the Common Stock.  Further,  the
holders  of the Amended Series A Preferred Stock will be entitled
to  vote  as a separate class (i) to elect two directors  if  the
Company  is in arrears in payment of three semi-annual dividends,
and (ii) for the issuance of any class or series of stock ranking
prior  to  the Amended Series A Preferred Stock, as to dividends,
liquidation  rights and for certain amendments to  the  Company's
Certificate of Incorporation that adversely affect the rights  of
holders  of  the  Amended Series A Preferred  Stock  (subject  to
approval  by two-thirds of the then outstanding Amended Series  A
Preferred Stock).

      Effective November 10, 1997, by consent of in excess of  88
percent  of  the  outstanding shares of Series A Preferred  Stock
such  series  of  preferred stock was amended,  reclassified  and
converted  to Amended Series A Preferred Stock.  As a consequence
of  such consent all dividend arrearages, and accrued and  unpaid
dividends  were  paid in additional shares of  Amended  Series  A
Preferred   Stock.   This  amendment  resulted  in  approximately
726,907  shares of Amended Series A Preferred Stock being  issued
in respect of such reclassification and payment of dividends.

      Effective November 10, 1997, by consent of in excess of  67
percent  of the outstanding Series E Preferred Stock such  series
of  preferred  stock was amended, reclassified and  converted  to
Amended  Series  A  Preferred Stock.  As a  consequence  of  such
consent  all accrued and unpaid dividends were paid in additional
shares  of  Amended  Series A Preferred  Stock.   This  amendment
resulted  in  approximately 63,706 shares  of  Amended  Series  A
Preferred  Stock being issued in respect of such reclassification
and payment of dividends.

     Amended Series B Preferred Stock
     --------------------------------

     On May 16, 1995, the Company received notice from the Series
B Preferred holder exercising its redemption rights.  The Company
elected  to  redeem  in  shares of Common Stock  and  the  holder
exercised  its  option to have the Company  sell  its  shares  of
Common  Stock.   The aggregate redemption price was  $5  million,
plus  accrued  dividends from January 1,  1995  to  the  date  of
redemption.  Approximately  5,535 shares  had  been  redeemed  at
December 31, 1997, from the sale of approximately 353,333  shares
of  Common  Stock.  In  July 1997, the holder  of  the  Series  B
Preferred  Stock sued the Company and each of its directors  with
respect  to  the  alleged failure of the Company  to  redeem  the
Series  B  Preferred Stock in accordance with the  terms  of  the
Purchase Agreement and Certificate of Designation.  In settlement
of  that  lawsuit  in  March 1998, the holder  of  the  Series  B
Preferred  Stock revoked and withdrew its redemption  notice  and
sold  its  shares  of Series B Preferred Stock  and  accompanying
warrants.

     The purchasers of the Series B Preferred Stock, concurrently
with  such purchase, exchanged the stock and warrants for  44,465
shares  of  Amended  Series B Preferred  Stock  and  warrants  to
purchase  250,000  shares  of Common  Stock.   The  warrants  are
exercisable at $5.50 per share, subject to adjustment, and expire
March  2,  2002.  The purchasers also received  2,620  shares  of
Amended  Series B Preferred Stock in payment of all  accrued  and
unpaid dividends on the Series B Preferred Stock.

      Each  share  of  Amended Series B  Preferred  Stock  has  a
liquidation  value  of $100, plus accrued and  unpaid  dividends.
Dividends  on  the Amended Series B Preferred Stock  are  payable
semi-annually  on  June 30 and December 31 of each  year,  at  an
annual  rate  of  $9.50 per share if paid in cash.   In  lieu  of
payment in cash, the Company may, at its option, elect to pay any
dividend  in  kind  in shares of either Common Stock  or  Amended
Series  B Preferred Stock at the option of the holder.   If  such
dividend  is paid in shares of Amended Series B Preferred  Stock,
the dividend will be 0.0475 shares of dividend stock per share of
Amended  Series B Preferred Stock held.  If the dividend is  paid
in shares of Common Stock, the dividend shall equal the number of
shares of Common Stock equal to the quotient obtained by dividing
$4.75  by  the lowest average closing price per share  of  Common
Stock  as  calculated  for the last 5, 10  and  30  trading  days
preceding the dividend payment date.  Fractional shares  will  be
paid in cash or aggregated and sold on behalf of the holders.

       Each  share  of  Amended  Series  B  Preferred  Stock   is
convertible  into Common Stock, at the option of the  holder,  at
the  rate of 21.0526 shares of Common Stock, provided such Common
Stock  is registered under the Securities Act, and 26.3158 shares
of  Common  Stock  if such Common Stock is not  registered.   The
Amended Series B Preferred Stock is convertible at the option  of
the  Company,  provided that the shares of  Common  Stock  to  be
issued  upon conversion have been registered under the Securities
Act,  and the market price of the Common Stock equals or  exceeds
$11.25 per share for 20 out of 30 consecutive trading days.

      The  Amended Series B Preferred Stock is redeemable at  the
option of the holder at any time after December 21, 2001 at  $100
per  share  plus  accrued and unpaid dividends to the  redemption
date.   The  redemption price may be paid at the  option  of  the
Company, in either cash or shares of Common Stock.

     The Amended Series B Preferred stock votes together with the
Common  Stock  of the Company as a single class  on  all  actions
taken  by the shareholders of the Company.  Each share of Amended
Series  B Preferred Stock entitles the holder thereof to cast  50
votes.   Further, the holders of the Amended Series  B  Preferred
Stock  will  be  entitled to vote as a separate class  to  amend,
alter   or  repeal  the  provisions  of  the  Company's  Restated
Certificate of Incorporation or the Certificate of Designation of
the Amended Series B Preferred Stock.

     Series F Preferred Stock
     ------------------------

     In January 1998, the holders of the Series F Preferred Stock
approved  an  amendment to the "forced conversion" terms  of  the
Series  F  Preferred  Stock.  Effective  January  16,  1998,  the
Company forced conversion of the Series F Preferred Stock and  an
aggregate  of  633,893 shares of Common Stock  were  issued  upon
conversion  and in payment of accrued and unpaid  dividends.   In
consideration  for such amendment the holders  of  the  Series  F
Preferred  Stock were issued warrants to acquire an aggregate  of
153,332 shares of Common Stock at an exercise price of $0.15  per
share, which resulted in an increase of preferred stock dividends
of  approximately $523,000.  These warrants expire  December  31,
2001.

       Dividends
       ---------

      During  1998,  the Company issued an aggregate  of  106,910
shares of Amended Series A Preferred Stock in payment of the  May
1,  1998  and November 1, 1998 dividends on the Amended Series  A
Preferred Stock.

     During 1998, the Company issued an aggregate of 3,763 shares
of  Amended Series B Preferred Stock, in payment of the June  30,
1998  and  December 31, 1998 dividends on the  Amended  Series  B
Preferred Stock.

     Prior to November 1997, dividends with respect to the Series
A Preferred Stock were in arrearage. Effective November 10, 1997,
the  Series  A  Preferred  Stock was  amended,  reclassified  and
converted  to Amended Series A Preferred Stock.  As a consequence
of  such consent all dividend arrearages, and accrued and  unpaid
dividends  were  paid in additional shares of  Amended  Series  A
Preferred Stock.

      Dividends during 1997 on the Series B Preferred Stock  were
paid  from  proceeds  of sales of redemption  stock,  which  were
applied  first  to  accrued dividends then to the  redemption  of
shares  of  Series  B  Preferred Stock.  On March  3,  1998,  all
accrued and unpaid dividends on the Series B Preferred Stock were
paid in shares of Amended Series B Preferred Stock.

      During  1997, the Company issued 5,261 shares of  Series  E
Preferred Stock in payment of the December 31, 1996 and June  30,
1997  dividends  on  the  Series E  Preferred  Stock.   Effective
November  10,  1997,  the Series E Preferred Stock  was  amended,
reclassified  and converted to Amended Series A Preferred  Stock.
As  a  consequence of such consent all dividend  arrearages,  and
accrued  and unpaid dividends were paid in additional  shares  of
Amended Series A Preferred Stock.

      During  1997, the Company issued 1,261 shares of  Series  F
Preferred Stock in payment of the June 30, 1997 dividends payable
on the Series F Preferred Stock.

      On  November  3,  1997, 12,906 shares of Amended  Series  A
Preferred  Stock  were issued in respect of the dividend  payable
November 1, 1997, in the amount of $1.1 million.  Upon conversion
of the Series A and Series E Preferred Stocks into Amended Series
A  Preferred  Stock, approximately $9.23 million in  accrued  and
unpaid   dividends   on  the  Series  A  Preferred   Stock,   and
approximately  $200,000 in accrued and unpaid  dividends  on  the
Series  E  Preferred  Stock, were paid through  the  issuance  of
790,613 additional shares of Amended Series A Preferred Stock.
  
  Common Stock
  ------------

      The  Company  issued  1,737,184, 2,479,361,  and  1,888,461
shares  of Common Stock during 1998, 1997 and 1996, respectively.
The  Company had 23,373,358, 21,705,644 and 19,226,283 shares  of
Common  Stock  outstanding at December 31, 1998, 1997  and  1996,
respectively.

      Common Stock Warrants
      ---------------------

      As  of  December 31, 1998, outstanding warrants to purchase
the Company's Common Stock are as follows:

                                   Common Stock
                                   Issuable Upon  Warrant Exercise   Proceeds if
                                     Exercise         Price           Exercised
                                   -------------  ---------------    -----------
Total Warrants Expiring in 1999        715,114   $1.848 to $17.56   $  9,637,574
Total Warrants Expiring after 1999  16,721,062   $0.15 to $17.56      54,472,765
                                    ----------                        ----------
        Total Warrants              17,436,176                      $ 64,110,339
                                    ==========                        ==========

      During  January 1998, the Company issued 11,333  shares  of
Common Stock upon exercise of warrants exercisable at an exercise
price  of $1.875 per share, and received an aggregate of  $21,249
upon exercise of such warrants.

      During  March  1998, the Company issued 128,887  shares  of
Common Stock upon exercise of warrants exercisable at an exercise
price  of $1.875 per share, and received an aggregate of $241,663
in  proceeds.    Also in March 1998, the Company  issued  455,809
shares  of Common Stock upon exercise of warrants exercisable  at
$0.15  per  share,  and received an aggregate  of   $68,371  upon
exercise of such warrants.

     Pursuant to a warrant exchange agreement dated September 17,
1998,  a  holder of an aggregate of 351,015 warrants, exercisable
at $3.09 per share, received 351,105 new warrants, exercisable at
$2.50  per share, provided such warrants were exercised prior  to
September 30, 1998.  The holder exercised all 351,105 warrants at
$2.50  per share and the Company received $877,537 in payment  of
the exercise price. The approximate fair value of the new warrants
issued of $207,000 was recorded as interest expense in 1998.

     Loss Per Share
     --------------

      The following table sets forth the computation of basic and
diluted loss per share.

                                                For the Years Ended December 31,
                                                ______________________________
                                
                                                     1998       1997      1996
                                                     ----       ----      ----
    Weighted average number of shares on which
    basic loss per share is calculated:             22,797    20,451     17,705
    
    Weighted average number of shares on which
    diluted loss per share is calculated:           22,797    20,451     17,705
    
    Net loss applicable to common shareholders    $(19,861) $(20,922)  $(17,430)
    
    Basic loss per share                          $  (0.87) $  (1.03)  $  (0.98)
    Diluted loss per share                        $  (0.87) $  (1.03)  $  (0.98)

     The effect of 35,552,370, 33,902,036 and 5,103,082 shares of
potential common stock were anti-dilutive in 1998, 1997 and 1996,
respectively, due to the losses in all three years and are excluded
from the above totals.

(7)     Income Taxes

      The  Company has significant loss carryforwards  that  have
been  recorded as deferred tax assets. Due to realization of such
amounts being deemed uncertain with respect to the provisions  of
SFAS  No.  109, a valuation allowance has been recorded  for  the
entire amount.

      The  significant components of the net deferred tax expense
(benefit) for 1998, 1997 and 1996, were as follows (000's):

                                            1998         1997         1996
                                            ----         ----         ----
Current year domestic net 
  operating loss                         $ (4,850)   $ (4,758)   $  (4,387)
Current year Chinese deferred costs          (454)       (356)        (829)
Expiration of net operating loss            1,033          --           --
Prior year under accrual of Chinese 
  deferred costs                               --        (537)          --
Tax/book depreciation, depletion and 
  amortization difference                     578       3,149        3,046
Oil and gas property expenditures 
  treated as expense for income tax
  purposes                                     --          --           41
Other accruals                                (19)         13       (1,348)
Reserve for investments                       (69)         --         (855)
Other                                         777          --           --
Increase (decrease) in valuation
 allowance                                  3,004       2,489        4,332
                                            -----       -----       ------
                                          $    --     $    --      $    --
                                            =====       =====       ====== 

      The  components of the Company's deferred  tax  assets  and
liabilities as of December 31, 1998, 1997 and 1996, were as follows (in
000's):

                                               1998     1997     1996
                                               ----     ----     ----
     Deferred tax assets:
         Domestic net operating loss
           carryforwards                    $ 67,698  $ 63,730  $ 58,972
         Chinese deferred costs                3,968     4,439     3,546
         Other liabilities and reserves        2,890     2,802     2,815
         Property and equipment, net          12,015    12,593    15,742
         Valuation allowance                 (86,571)  (83,564)  (81,075)
                                             -------   -------   -------
     Total deferred tax assets              $     --  $     --  $     --
                                             =======   =======   =======

      At  December  31, 1998, the Company had net operating  loss
carryforwards for tax purposes in the approximate amount of  $193
million  which expire through the year ending December 31,  2018.
Additionally,  the Company has available acquired  net  operating
loss  carryforwards, in the approximate amount of  $2.2  million,
which  are  scheduled to expire by the year ending  December  31,
1999,  and  which are available to offset taxable  income  of  an
acquired  subsidiary. Use of the net operating loss carryforwards
is  subject  to  limitations under Section 382  of  the  Internal
Revenue Code.

      At  December 31, 1998, the Company had alternative  minimum
tax net operating loss carryforwards in the approximate amount of
$187  million  which will expire through the year ending December
31,  2018.   Additionally, the Company has  acquired  alternative
minimum  tax  net operating loss carryforwards in the approximate
amount  of  $12  million  which expire through  the  year  ending
December 31, 1999, and which are available for use by an acquired
subsidiary.   The  Company  also  has  $1.0  million  of  general
business credit carryforwards which are available until the  year
2000  to offset future tax liabilities of an acquired subsidiary.
The  Company also has deferred costs associated with its  Chinese
operations  of  approximately $11.3 million.  The costs  will  be
amortized  and  deducted  for  Chinese  tax  purposes  upon   the
generation of revenue from its Chinese operations.

(8)     Stock Option Plans

      The  Company's  stock  option plans,  administered  by  the
compensation committee, provide for the issuance of incentive and
nonqualified  stock options.  Under these plans  the  Company  is
authorized to grant options to selected employees, directors  and
consultants to purchase shares of the Company's Common  Stock  or
Preferred Stock at an exercise price (for the Company's incentive
stock options) of not less than the market value at the time such
options are granted.  The Company's options are accounted for  in
accordance with Accounting Principles Board Opinion No.  25.   In
June  1992, the shareholders of the Company approved the adoption
of  the Company's Long-Term Stock Incentive Plan ("LTSIP")  under
which  the  Company is authorized to issue an  aggregate  of  1.1
million  shares of Common Stock pursuant to future awards granted
thereunder.

      In  December 1997, the shareholders of the Company approved
the  amendment and restatement of the Company's LTSIP,  effective
as  of June 1, 1997, (i) increasing the number of shares issuable
under  the  LTSIP  by  4  million shares of  Common  Stock,  (ii)
authorizing 200,000 shares of preferred stock for issuance  under
the  LTSIP,  and (iii) ratifying certain grants of  non-qualified
stock options and restricted stock awards to certain officers and
directors  of  the Company.  The LTSIP, as amended and  restated,
also  allows for the grant of appreciation option awards. A grant
of  an  appreciation option award to Mr. Miller was  ratified  at
that same meeting.

      All of the restricted stock awards entitle the participants
to  full  dividend  and voting rights and are  restricted  as  to
disposition  and subject to forfeiture under certain  conditions.
The   shares  become  unrestricted  upon  attainment  of  certain
increases  in  the  market price of the  Company's  Common  Stock
within  four  years from date of grant, as provided  for  in  the
plan.   Upon issuance of restricted shares, unearned compensation
is  charged  to  shareholders' equity for the cost of  restricted
stock and recognized as expense over the lapsing of restrictions.

     The appreciation option awarded to the Chairman provides him
with  the  right upon his payment of the exercise price  (20%  of
amount entitled to receive) to additional compensation payable in
cash or in shares of Common Stock based upon 5% of the difference
between the market capitalization (as defined) of the Company  as
of June 1, 1997, and the date the option is exercised (no earlier
than June 1, 2002).  Because the option contemplates compensation
determined   with   reference  to   increases   in   the   market
capitalization  without restriction, there is no effective  limit
on   the   amount  of  compensation  which  may  become   payable
thereunder.  Since the market capitalization as of  December  31,
1998  is  below that of June 1, 1997 the original  unearned  
compensation  of  $3.1  million  recorded  in connection  with the  
option  was   adjusted   during   1998,  and   accordingly,  no 
compensation expense was recognized in 1998.  The appreciation 
option expires on June 1, 2007.

      Non-qualified options granted on June 1, 1997 for an option
price  of  $3.75 per share resulted in compensation  expense  for
1998  and  1997  of  $778,000  and $481,000,  respectively.   The
measurement date was established on December 17, 1997,  the  date
of shareholder approval.

      Effective  June 1, 1997, the Company granted  non-qualified
stock  options  to  purchase 170,000 shares of Amended  Series  A
Preferred  stock  for  an option price of $85  per  share.  Those
options  vest ratably over a three-year period beginning June  1,
2000  and  expire on June 1, 2007. Upon exercise of such options,
the number of shares of Amended Series A Preferred Stock shall be
increased, without increase in the option price, by a  number  of
shares of preferred stock equal to the dividends that would  have
been  received by the option holder had the option  holder  owned
the  shares of Amended Series A Preferred Stock as to  which  the
option  is being exercised from the date of grant of such  option
to  the  date of exercise, and assuming the Company had  declared
and  paid  in kind all regularly scheduled dividends as  provided
under  the terms of the Amended Series A Preferred Stock.   These
options are considered a variable plan issued significantly above
the current fair value of the Amended Series A  Preferred  Stock.
Therefore, the Company will mark to market the options and record
compensation expense at the time, if any, the value of the option
exceeds the exercise price of $85 per share.

      A summary of the Common Stock option plans activity for the
years ended December 31, 1998, 1997 and 1996 is as follows:

                                                   Option Price Weighted Average
                                          Shares     Per Share    Exercise Price
                                          ------     ------------  ------------
Outstanding at December 31, 1995           772,178   $12.50-$31.88    $18.91
Granted                                     16,133      $18.75        $18.75
Forfeited                                 (101,467)  $18.75 - $22.50  $20.14
                                         ---------   ---------------  ------
Outstanding at December 31, 1996           686,844   $12.50 - $31.88  $18.72
Granted                                  1,999,995       $3.75         $3.75
Forfeited                                   (7,238)  $18.75 - $22.50  $19.12
                                         ---------   ---------------  ------
Outstanding at December 31, 1997         2,679,601   $3.75 - $31.88    $7.55
Granted                                    711,666       $3.75         $3.75
Forfeited                                 (574,680)  $3.75 - $31.88    $8.82
                                         ---------  ----------------   ------  
Outstanding at December 31, 1998         2,816,587   $3.75 - $31.88    $6.48
                                         =========

Options exercisable at December 31, 1996   676,089
                                           =======
Options exercisable at December 31, 1997   676,451
                                           =======
Options exercisable at December 31, 1998   908,804
                                           =======

      The  following  table summarizes information  about  Common
Stock options outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                      Options Outstanding                                    Options Exercisable
____________________________________________________________________ ___________________________________
                                   Weighted Average
   Range of       Outstanding at    Remaining Life  Weighted Average  Exercisable at    Weighted Average
Exercise Prices  December 31, 1998      Years        Exercise Price  December 31, 1998   Exercise Price
---------------  -----------------  --------------- ---------------  -----------------  ----------------
<C>                <C>                   <C>              <C>            <C>               <C>
     $3.75         2,311,661             5.4               $3.75         403,878           $ 3.75
$18.75-$31.59        504,926             3.4              $18.98         504,926           $18.98
                   ---------                                             -------            
                   2,816,587                                             908,804
                   =========                               =======
</TABLE>

The  weighted average fair value of Common Stock options  granted
during  1998, 1997 and 1996 was $2.93, $5.50 and $4.20 per share,
respectively.

      If  compensation  expense for the stock  options  had  been
determined and recorded based on the fair value on the grant date
using  the  Black-Scholes option pricing model  to  estimate  the
theoretical future value of those options, the Company's net loss
per  share  amounts  would have been reduced  to  the  pro  forma
amounts indicated below (000's, except per share data):

                                   1998           1997           1996
                                   ----           ----           ----
     Net loss as reported      $ (19,861)     $ (20,922)     $ (17,430)
     Compensation expense          4,483          1,012            126
                                 -------        -------        -------
     Pro forma loss            $ (24,344)     $ (21,934)     $ (17,556)
                                 =======        =======        =======
     
     Pro forma loss per share:
        Basic                  $   (1.07)     $   (1.07)     $   (0.99)
                                ========       ========       ========
        Diluted                $   (1.07)     $   (1.07)     $   (0.99)
                                ========       ========       ========
     
     Weighted average shares      22,797         20,451         17,705
                                ========       ========       ========

Due  to  uncertainties in these estimates, such as market prices,
exercise  possibilities and the possibility of future awards  and
cancellations, these pro forma disclosures are not likely  to  be
representative  of  the  effects on reported  income  for  future
years.

      For pro forma purposes, the fair value of each option grant
is  estimated  on  the date of grant with the following  weighted
average assumptions:

                             1998        1997        1996
                             ----        ----        ---- 
Expected life (years)          7          10          10
Interest rate                 5.52%      5.87%       6.68%
Volatility                   78.00%    135.00%     100.00%
Dividend yield                --          --          --

(9)     Employee Benefit and Incentive Compensation Plans

      In 1989, the Company adopted an employee benefit plan under
Section  401(k) of the Internal Revenue Code, for the benefit  of
employees  meeting certain eligibility requirements. The  Company
has  received a favorable determination letter from the  Internal
Revenue  Service regarding the tax-favored status of  the  401(k)
plan.  Employees  can  contribute  up  to  10  percent  of  their
compensation.   The  Company, at its discretion  and  subject  to
certain  limitations,  may contribute up to  75  percent  of  the
amount  contributed by each participant.  There were  no  Company
contributions in 1998, 1997 or 1996.   Effective January 1, 1999,
the  401(k) plan was amended to (i) allow employees to contribute
up  to  15  percent  of their compensation, and  (ii)  allow  the
Company to make matching contributions, at its option, in cash or
equity securities of the Company.

 (10)     Commitments and Contingencies

     Other commitments and contingencies include:

     o The  Company  acquired the rights to the  exploration,
       development and production of the Zhao Dong Block by executing a
       Production Sharing Agreement with CNODC in February 1993. Under
       the terms of the Production Sharing Agreement, the Company and
       its partner are responsible for all exploration costs. If a
       commercial discovery is made, and if CNODC exercises its option
       to participate in the development of the field, all development
       and operating costs and related oil and gas production will be
       shared up to 51 percent by CNODC and the remainder by the Company
       and its partner.

          The Production Sharing Agreement includes the following
          additional principal terms:

          The  Production Sharing Agreement is basically  divided
          into   three  periods:  the  Exploration  period,   the
          Development period and the Production period.  Work  to
          be performed and expenditures to be incurred during the
          Exploration  period,  which consists  of  three  phases
          totaling  seven  years  from  May  1,  1993,  are   the
          exclusive responsibility of the Contractor (the Company
          and   its   partner  as  a  group).  The   Contractor's
          obligations  in  the three exploration  phases  are  as
          follows:
     
          1.      During the first three years, the Contractor is
               required  to  drill three wildcat  wells,  perform
               seismic data acquisition and processing and expend
               a  minimum of $6 million.  These obligations  have
               been met.
          
          2.      During  the  next two years, the Contractor  is
               required  to  drill  two  wildcat  wells,  perform
               seismic data acquisition and processing and expend
               a  minimum  of  $4  million. (The  Contractor  has
               elected  to proceed with the second phase  of  the
               Contract.     The    seismic   data    acquisition
               requirement   for  the  second  phase   has   been
               satisfied.)
          
          3.      During  the  last two years, the Contractor  is
               required  to drill two wildcat wells and expend  a
               minimum of $4 million.
          
          4.      The  Production Period for any oil  and/or  gas
               field  covered  by  the  Contract  (the  "Contract
               Area")  will be 15 consecutive years (each  of  12
               months),  commencing for each such  field  on  the
               date of commencement of commercial production  (as
               determined  under  the  terms  of  the  Contract).
               However,  prior  to  the  Production  Period,  and
               during the Development Period, oil and/or gas  may
               be  produced  and sold during a long-term  testing
               period.

          The Contractor   may   terminate  the   Production   Sharing
          Agreement  at the end of each phase of the  Exploration
          period, without further obligation.

     o The Company, through its wholly owned subsidiary XCL-Cathay
       Ltd.,  acquired  the rights to appraisal, development  and
       production of the Zhang Dong Block, in the Bohai Bay shallow
       water  sea  area, by executing a Petroleum  Contract  (the
       "Contract") with China National Petroleum Corporation ("CNPC") in
       August 1998.  The Company is the Contractor.  The Contractor
       shall pay all appraisal costs. If CNPC exercises its option to
       participate in the development of the field, all development and
       operating costs and related oil and gas production will be shared
       up to 51 percent by CNPC and the remainder by the Company.

          The  Contract is basically divided into three  periods:
          the  Appraisal period, the Development period  and  the
          Production   period.    Work  to   be   performed   and
          expenditures  to  be  incurred  during  the   Appraisal
          period,  which  consists of three phases totaling  five
          years   from   October  1,  1998,  are  the   exclusive
          responsibility   of  the  Company.   The   Contractor's
          obligations  in  the  three  appraisal  phases  are  as
          follows:
     
          1.       During  the  first  year,  the  Contractor  is
               required  to  drill  one appraisal  well,  perform
               seismic  data  processing, upgrade the  artificial
               island  and causeway, and expend a minimum  of  $4
               million.
          
          2.      During  the  next two years, the Contractor  is
               required  to  drill  two  appraisal  wells,   make
               additional  improvements to the artificial  island
               if  Contractor elects to drill from such facility,
               re-evaluate a minimum of three existing wellbores,
               formulate  a  development program  for  any  field
               determined to be commercial, and expend a  minimum
               of $6 million.
          
          3.      During  the  last two years, the Contractor  is
               required to drill two appraisal wells and expend a
               minimum of $6 million.

          4.      The  Production Period for any oil  and/or  gas
               field   covered  by  the  Agreement  will  be   20
               consecutive years (each of 12 months),  commencing
               for each such field on the date of commencement of
               commercial  production (as  determined  under  the
               terms  of  the  Contract). However, prior  to  the
               Production  Period,  and  during  the  Development
               Period,  oil and/or gas may be produced  and  sold
               during a long-term testing period.

          The Contractor may terminate the Contract at the end of
          either the first or second phase of the Appraisal
          period, without further obligation.  The Company currently
          estimates that its share of the development costs on
          proved reserves associated with the Zhao Dong Block to be
          approximately $35.5 million.

     o    On December 1, 1995, XCL-China submitted to arbitration
          certain accounting disputes arising from operations in the Bohai
          Bay Shallow Water Sea Area, People's Republic of China and
          governed by a Zhao Dong Block Operating Agreement.  By the
          initial submission, XCL-China disputed certain amounts charged to
          it by Apache in the August, September and October 1995 joint
          interest billings and the November and December 1995 cash calls 
          which could develop into an event that would trigger Apache's
          option to purchase the Company's interest in the Contract.
          Thereafter, disputes involving joint interest billings through
          December 1998 were added to the submission.  In 1997, XCL-China
          made some payments with respect to the disputed amounts although
          the arbitration proceeding remains unresolved and inactive
          inasmuch as a third arbitrator has not been selected.

     o    The  Company  is in dispute over a 1992 tax  assessment
          (including penalties and interest through December 31, 1988) 
          by the Louisiana Department of Revenue and Taxation for the years 
          1987 through 1991 in the approximate amount of approximately $3.1  
          million.  The Company is in dispute over a 1997 assessment (including 
          penalties and interest through December 31, 1998) from the Louisiana 
          Department of Revenue and Taxation for income tax years 1991 and 
          1992, and franchise tax years 1992 through 1996 in the approximate 
          amount of approximately $3.3 million. The Company has filed written
          protests as to these assessments, and will vigorously contest the
          asserted deficiencies through the administrative appeals process
          and, if necessary, litigation. The Company believes that adequate
          provision has been made in the financial statements for any
          liability.

     o    On July 26, 1996, an individual filed three lawsuits against
          a wholly owned subsidiary with respect to oil and gas properties
          held for sale.  One suit alleges actual damage of $580,000 plus
          additional amounts that could result from an accounting of a
          pooled interest.  Another seeks legal and related expenses of
          $56,473 from an allegation the plaintiff was not adequately
          represented before the Texas Railroad Commission.  The third suit
          seeks a declaratory judgement that a pooling of a 1938 lease and
          another in 1985 should be declared terminated and further
          plaintiffs seek damages in excess of $1 million to effect
          environmental restoration.  The Company believes these claims are
          without merit and intends to vigorously defend itself.
     
     o    The Company is subject to other legal proceedings that arise
          in the ordinary course of its business.  In the opinion of
          Management, the amount of ultimate liability with respect to
          these actions will not materially affect the financial position
          of the Company or results of operations of the Company.

(11)     Supplemental Financial Information
                                
           Quarterly Results of Operations (Unaudited)
                                
                                                Quarter
                              ________________________________________
                                First     Second     Third  Fourth (a) Year
                                ------    ------     -----  --------- ------
                                       (In Thousands, Except Per Share Amounts)
1998
----
Loss from operations         $ (1,653)  $ (1,334) $ (1,677) $(5,937) $(10,601)
Net loss                       (2,015)    (2,105)     (886)  (8,748)  (13,754)
Net loss attributable to
    common stock               (4,442)    (4,557)   (3,366)  (7,496)  (19,861)
Weighted average number of
 shares used in per share 
 calculations:
    Basic                      22,318     22,922    22,922   23,017    22,797
    Diluted                    22,318     22,922    22,922   23,017    22,797
Net loss per share:
    Basic                       (0.20)     (0.20)    (0.15)   (0.32)    (0.87)
    Diluted                     (0.20)     (0.20)    (0.15)   (0.32)    (0.87)

1997
----
Loss from operations         $   (816)   $ (774)   $ (976) $  (5,492) $ (8,058)
Net loss                       (1,211)   (1,215)     (417)   (10,603)  (13,446)
Net loss attributable to
    common stock               (2,615)   (3,127)   (2,121)   (13,059)  (20,922)
Weighted average number of
 shares used in per share 
 calculations:
    Basic                      19,204    19,569    19,725     21,360    20,451
    Diluted                    19,204    19,569    19,725     21,360    20,451
Net loss per share:
   Basic                        (0.15)    (0.16)    (0.11)     (0.61)    (1.03)
   Diluted                      (0.15)    (0.16)    (0.11)     (0.61)    (1.03)

________________

(a)  The fourth quarter of 1997 was restated.  (See Note 1.)

<PAGE>
              Supplemental Oil and Gas Information
              ------------------------------------

      The  following  supplementary information is  presented  in
accordance  with  the  requirements  of  Statement  of  Financial
Accounting  Standards  No. 69 - "Disclosures About  Oil  and  Gas
Producing Activities."

 Results of Operations from U.S. Oil and Gas Producing Activities
 ----------------------------------------------------------------

      The  results  of  operations from  oil  and  gas  producing
activities  for the three years ended December 31,  1998  are  as
follows (000's):

                                            Year Ended December 31,
                                        ----------------------------
                                         1998       1997        1996
                                         ----       ----        ----
Revenues from oil and gas 
  producing activities:
      Sales to unaffiliated parties    $  112     $  236     $   1,136
                                        -----      -----       -------
Production (lifting) costs:
      Operating costs (including
        marketing)                        210        210           342
      State production taxes and other      3         13            28
                                        -----      -----       -------
             Production costs             213        223           370
Depletion and amortization                 53         77           437
Provision for impairment of oil and gas
  properties                               --         --         3,850
                                       ------      -----       -------
              Total expenses              266        300         4,657
                                       ------      -----       -------
Results of oil and gas producing 
  activities (excluding
  corporate overhead and 
  interest costs)                     $  (154)    $  (64)    $  (3,521)
                                       ======      =====       =======


      The  depreciation, depletion and amortization  (DD&A)  rate
averaged $0.86, $0.81 and $0.96 per equivalent Mcf in 1998,  1997
and 1996, respectively.
  
  
  Capitalized Costs
  -----------------

      Capitalized  costs  relating to the  Company's  proved  and
unevaluated oil and gas properties are as follows (000's):

                                              December 31,
                                         ----------------------
                                            1998        1997
                                            ----        ----
   Foreign proved and unevaluated 
     properties under development       $  86,677     $  54,937
                                           ======        ======
   
      The  capitalized costs for the foreign properties represent
cumulative expenditures related to the Zhao Dong Block and  Zhang
Dong  Block  Production  Sharing  Agreements  and  will  not   be
depreciated, depleted or amortized until production is achieved.

      The  Company's investment in oil and gas properties  as  of
December  31,  1998,  includes proved and unevaluated  properties
which  have been excluded from amortization.  Such costs will  be
evaluated  in future periods based on management's assessment  of
exploration activities, expiration dates of licenses, permits and
concessions, changes in economic conditions and other factors. As
these  properties become evaluated or developed, their  cost  and
related  estimated  future  revenue  will  be  included  in   the
calculation of the DD&A rate.

      Costs  for foreign proved and unevaluated properties  under
development were incurred as follows (000's):


                                                   Year Ended December 31,
                                             -----------------------------------
                                                                        1995 and
                                    Total     1998     1997     1996      Prior
                                    -----     ----     -----    ----     -------
  Property acquisition costs      $ 63,322  $ 22,073 $ 14,841 $ 4,223 $ 22,185
  Capitalized interest costs        23,355     9,667    5,791   2,767    5,130
                                    ------    ------   ------   -----   ------
      Total foreign proved and
          unevaluated properties
           under development      $ 86,677  $ 31,740 $ 20,632 $ 6,990 $ 27,315
                                    ======    ======   ======   =====   ====== 

  Capitalized Costs Incurred
  ---------------------------

     Total capitalized costs incurred by the Company with respect
to  its oil and gas producing activities including those held for
sale were as follows (000's):

                                               Year Ended December 31,
                                            ---------------------------    
                                             1998      1997       1996
                                             ----      ----       ----
     Costs incurred:
         Unproved properties acquired      $  765     $   --     $   --
         Capitalized internal costs         2,058      2,466        822
         Capitalized interest and 
           amortized debt costs             9,667      5,791      2,767
     
     Exploration                           11,623      7,466      3,401
     
     Development                            7,627      4,909          4
                                           ------     ------      ----- 
              Total costs incurred        $31,740    $20,632     $6,994
                                           ======     ======      =====
                                
                 Proved Oil Reserves (Unaudited)
                 -------------------------------
                                
      The  following table sets forth estimates of the  Company's
net  interests in proved reserves of oil and changes in estimates
of  proved  reserves.  The Company did not have proved  developed
oil  or  proved gas reserves in 1998, 1997 or 1996. The Company's
net  interests in 1998, 1997 and 1996 were located  in  the  Zhao
Dong Block in China.

                                                 Crude Oil (MBbls)
                                          -----------------------------
                                           1998        1997       1996
                                           ----        ----       ----
Proved reserves -
   Beginning of year                     11,762      10,579         --

     Discoveries                            249       1,183     10,579
     Revisions of previous estimates        826          --         --
     Production                              --          --         --
     Purchases (sales) of minerals 
       in place                              --          --         --
     Transfer of property to assets 
       held for sale                         --          --         --
                                         ------      ------     ------
   End of year                           12,837      11,762     10,579
                                         ======      ======     ======

     The Company's estimated quantities of oil as of December 31,
1998,   were   prepared  by  H.J.  Gruy  and  Associates,   Inc.,
independent petroleum engineers.

              Supplementary Information (Unaudited)
              -------------------------------------

      The  supplementary  information set  forth  below  presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates.  This information has
been  prepared in accordance with requirements prescribed by  the
Financial  Accounting Standards Board (FASB).   Inherent  in  the
underlying  calculations  of such data  are  many  variables  and
assumptions, the most significant of which are briefly  described
below:

      Future cash flows from proved oil reserves were computed on
the  basis of the posted price for  oil in  effect  at  year-end.  
Probable and  possible  reserves  -  a portion  of  which,  
experience has indicated,  generally  become proved once further 
development work has been conducted - are not considered.   
Additionally,  estimated  future  cash  flows   are dependent upon  
the  assumed quantities  of  oil  delivered  and purchased  from  
the Company. Such deliverability  estimates  are highly   complex  
and  are  not  only  based  on   the   physical characteristics  
of  a  property  but  also  include  assumptions relative to 
purchaser demand. Future prices actually received may differ from 
the estimates in the standardized measure.

      Future  net  cash  flows have been  reduced  by  applicable
estimated   operating   costs,  production   taxes   and   future
development costs, all of which are based on current costs.

      Future net cash flows are further reduced by future  income
taxes  that  are  calculated by applying  the  statutory  federal
income tax rate to pretax future net cash flows after utilization
of available tax carryforwards.

      To  reflect the estimated timing of future net cash  flows,
such  amounts have been discounted by the Securities and Exchange
Commission prescribed annual rate of 10 percent.

      In  view  of the uncertainties inherent in developing  this
supplementary information, it is emphasized that the  information
represents approximate amounts that may be imprecise and  extreme
caution should accompany its use and interpretation.

Standardized Measure of Discounted Future Net Cash Flows Related
----------------------------------------------------------------
                 to Proved Oil and Gas Reserves
                 ------------------------------
                                
     The standardized measure of discounted future net cash flows
from  proved oil and gas reserves, determined in accordance  with
rules prescribed by FASB No. 69 is summarized below, and does not
purport to present the fair market value of the Company's oil and
gas  assets,  but  does present the present  value  of  estimated
future cash flows from the Company's China properties, that would
result under the assumptions used.

                                              Year Ended December 31,
                                      -----------------------------------
                                       1998          1997          1996
                                       ----          ----          ----
                                               (In Thousands)
Future cash inflows                $ 178,304     $ 205,765     $  222,797
Future costs:
    Production, including taxes      (44,679)      (45,623)       (39,033)
    Development                      (41,021)      (41,093)       (40,904)
                                     -------       -------        -------
Future net inflows before income
  taxes                               92,604       119,049        142,860
Future income taxes (a)              (17,441)      (22,916)       (35,658)
                                     -------       -------        -------
Future net cash flows                 75,163        96,133        107,202
10% discount factor                  (37,218)      (42,285)       (44,596)
                                     -------       -------        ------- 
Standardized measure of discounted 
 net cash flows                     $ 37,945     $  53,848      $  62,606
                                     =======       =======        =======

_____________
 (a)     Future income taxes are computed by applying the maximum
     tax  rate  in China applicable to foreign-funded enterprises
     of 33%.

  Changes in Standardized Measure of Discounted Future Net Cash
  -------------------------------------------------------------
               Flow From Proven Reserve Quantities
               -----------------------------------
                                
                                                Year Ended December 31,
                                               -------------------------
                                                1998      1997     1996
                                                -----    -----     -----
                                                     (In Thousands)
Standardized measure-beginning of year       $ 53,848  $ 62,606   $    --
Increases (decreases):
    Net change in sales and transfer prices, 
      net of production costs                 (30,027)  (24,847)       --
    Extensions, discoveries and improved 
      recovery, net of future costs             6,860        --    79,062
    Changes in estimated future development
      costs                                     1,492      (219)       --
    Accretion of discount                       6,413     8,451        --
    Changes in production rates (timing) 
      and other                                (3,942)       --        --
    Net change in income taxes                  3,301     7,857   (16,456)
                                               ------    ------   -------
Standardized measure-end of year             $ 37,945   $53,848  $ 62,606
                                               ======    ======    ======
<PAGE>

                    XCL Ltd. and Subsidiaries
                                
          Schedule II-Valuation and Qualifying Accounts
                                
      For the Years Ended December 31, 1998, 1997 and 1996
                         (In Thousands)

                                                 Additions
                                          -------------------------
                              Balance at     Charged                 Balance at
                             Beginning of   to costs                   End of
Description                      Year     and expenses   Deduction      Year
-----------                  -----------  ------------   ---------   ---------
1998:
Allowance for doubtful 
  trade accounts receivable    $     65     $    53    $    --     $    118
                                =======      ======     ======      =======
Deferred tax valuation 
  allowance                    $ 83,564     $ 3,007    $    --     $ 86,571 
                                =======      ======     ======      =======
1997:
Allowance for doubtful 
  trade accounts receivable    $    101     $    --    $    36     $     65
                                =======      ======     ======      =======
Deferred tax valuation 
  allowance                    $ 81,075     $ 2,489    $    --     $  83,564
                                =======      ======     ======      ========
1996:
Allowance for doubtful 
  trade accounts receivable    $    103     $    --    $     2     $     101
                                =======      ======     ======      ========
Deferred tax valuation 
  allowance                    $ 76,743     $ 4,332    $    --     $  81,075
                                =======      ======     ======      ========

<PAGE>
                                
                                
       REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                
                                

To the Board of Directors and Shareholder of XCL-China, Ltd.

In  our opinion, the financial statements listed  in the  index 
appearing under item 14(a)(1) and (2) present  fairly, in  all  
material respects, the financial position of  XCL-China, Ltd. and 
its subsidiaries at December 31, 1998 and 1997, and  the results  
of  its operations and its cash flows for  each  of  the three  
years in the period ended December 31, 1998, in conformity with  
generally accepted accounting principles.  These  financial
statements  are the responsibility of the Company's   management;
our  responsibility is to express an opinion on these  financial
statements based on our audits.  We conducted our audits of these
statements   in  accordance  with  generally  accepted   auditing
standards  which require that we plan and perform  the  audit  to
obtain   reasonable   assurance  about  whether   the   financial
statements are free of material misstatement.  An audit  includes
examining,  on a test basis, evidence supporting the amounts  and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating  the  overall  financial statement  presentation.   We
believe  that  our  audits  provide a reasonable  basis  for  the
opinion expressed above.

The  accompanying  financial  statements  have  been prepared  
assuming  that the Company will  continue  as  a  going
concern.   As  discussed in Note 2 to the financial statements, 
the Company has not generated production revenues, is dependent  
on  its parent to meet its cash flow requirements  and must, in 
conjunction with its parent company, generate additional cash 
flows to satisfy its development and exploratory obligations
with respect to its oil and gas properties. There is no assurance
that  the  Company  or its parent will be able  to  generate  the
necessary  funds  to satisfy these contractual  obligations  with
respect  to  its  China  properties  and  to  ultimately  achieve
profitable operations, which creates substantial doubt about  its
ability  to continue as a going concern.  Managements'  plans  in
regard   to  these  matters  are  described  in  Note   2.    The
financial statements do not include any  adjustments that might 
result from the outcome of this uncertainty.




PRICEWATERHOUSECOOPERS LLP


Miami, Florida
April 12, 1999
<PAGE>

                         XCL-China, Ltd.
                         BALANCE SHEETS
                         (In Thousands)
                                
                                                       December 31,
                                                  --------------------
                      A S S E T S                   1998          1997
                      -----------                   ----          ----
Current assets:
      Cash and cash equivalents                   $     2     $    --
      Cash held in escrow (restricted)                102          --
      Other                                            70         103
                                                   ------      ------
              Total current assets                    174         103
                                                   ------      ------
Property and equipment:
      Oil and gas (full cost method):
           Proved undeveloped properties, 
             not being amortized                   28,274      21,172
           Unevaluated properties                  56,708      33,132
                                                   ------      ------
                                                   84,982      54,304
      Other                                           416         167
                                                   ------      ------
                                                   85,398      54,471
      Accumulated depreciation                         (5)         (1)
                                                   ------      ------
                                                   85,393      54,470
                                                   ------      ------
Other assets                                          359         668
                                                   ------      ------
               Total assets                     $  85,926    $ 55,241
                                                   ======      ======

L I A B I L I T I E S  A N D  S H A R E H O L D E R `S  D E F I C I T
---------------------------------------------------------------------

Current liabilities:
      Accounts payable and accrued expenses     $     229    $    285
      Due to joint venture partner                  8,168       4,503
                                                   ------      ------ 
           Total current liabilities                8,397       4,788
                                                   ------      ------
Due to parent                                      80,425      52,383
Commitments and contingencies (Notes 2 and 5)
Shareholder's deficit:
   Common stock-$.01 par value; authorized 
     5 million shares at December 31, 1998
     and 1997; issued shares of 1,000 shares 
     at December 31, 1998 and 1997                     --         --
      Accumulated deficit                          (2,896)    (1,930)
                                                   ------     ------
           Total shareholders' deficit             (2,896)    (1,930)
                                                   ------     ------
                Total liabilities and 
                  shareholder's deficit         $  85,926   $ 55,241
                                                  =======     ======
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>                                
                         XCL-China, Ltd.
                                
                    STATEMENTS OF OPERATIONS
                         (In Thousands)

                                                  Year Ended December 31,
                                                ---------------------------
                                                1998      1997       1996
                                                ----      ----       -----
Costs and operating expenses:
Depreciation                                  $    4     $    1     $   --
      General and administrative costs           573        578        702
                                               -----      -----      -----  
                                                 577        579        702
                                               -----      -----      -----
Operating loss                                  (577)      (579)      (702)
                                               -----      -----      -----
Interest expense, net of amounts
  capitalized                                   (389)      (134)        --
                                               -----      -----      -----
Net loss                                      $ (966)    $ (713)    $ (702)
                                               =====      =====      =====
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>
                         XCL-China, Ltd.
                                
               STATEMENTS OF SHAREHOLDER'S DEFICIT
                         (In Thousands)
                                
              
              Balance, December 31, 1995     $  (515)
                   Net loss                     (702)
                                               -----
              Balance, December 31, 1996      (1,217)
                   Net loss                     (713)
                                               -----
              Balance, December 31, 1997      (1,930)
                   Net loss                     (966)
                                               ----- 
              Balance, December 31, 1998     $(2,896)
                                               =====
                                
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>                                
                         XCL-China, Ltd.
                                
                    STATEMENTS OF CASH FLOWS
                         (In Thousands)
                                
                                                      Year Ended December 31,
                                                   ---------------------------
                                                     1998      1997     1996
                                                     ----      ----     ----
Cash flows from operating activities:
    Net loss                                      $  (966)  $  (713)  $   (702) 
                                                   ------     -----     ------
    Adjustments to reconcile net loss to 
       net cash (used in) provided by
       operating activities:

Depreciation                                           4          1          --
        Change in assets and liabilities:
             Accounts payable and accrued expenses   (56)        30       2,825
             Other, net                              442       (604)         25
                                                    ----      -----     -------
                  Total adjustments                  390       (573)      2,850
                                                    ----      -----     -------
                  Net cash (used in) provided by 
                    operating activities            (576)    (1,286)      2,148
                                                    ----      -----     -------

Cash flows from investing activities:
    Change in cash held in escrow (restricted)      (102)        --          --
    Capital expenditures                         (27,262)   (15,889)     (4,237)
Other                                                 --         --         249
                                                  ------     ------      ------
                  Net cash used in investing 
                   activities                    (27,364)   (15,889)     (3,988)
                                                  ------     ------      ------
Cash flows from financing activities:
    Loan proceeds                                     --      6,100          --
    Payment of long-term debt                         --     (6,100)         --
    Due to parent                                 28,042     17,175       1,840
    Other, net                                      (100)        --          --
                                                  ------     ------       -----
                  Net cash provided by financing
                    activities                    27,942     17,175       1,840
                                                  ------     ------       -----
Net increase in cash and cash equivalents              2         --          --
Cash and cash equivalents at beginning of year        --         --          --
                                                  ------     ------       -----
Cash and cash equivalents at end of year        $      2    $    --      $   --
                                                  ======     ======       =====
 The accompanying notes are an integral part of these financial statements.
<PAGE>

                         XCL-China Ltd.
                                
                  NOTES TO FINANCIAL STATEMENTS

                                
(1)       Nature   of  Operations  and  Summary  of   Significant
          Accounting Policies:

  Nature of Operations:
  --------------------
  
      XCL-China, Ltd. (the "Company" or "XCL-China")  is  engaged
principally  in  the  exploration for  and  the  development  and
production  of  crude oil and natural gas.  Its  exploration  and
development efforts are, at this time, focused primarily  on  the
Zhao Dong Block in the shallow-water sea area of Bohai Bay in The
People's Republic of China ("China").  XCL-China's activities  on
the  Zhao  Dong  Block  have  been  undertaken  pursuant  to   an
exploration and production joint venture with China National  Oil
and  Gas  Exploration  and Development Corporation  ("CNODC"),  a
subsidiary of China National Petroleum Corporation ("CNPC"),  one
of the national oil companies of China.
  
  Basis of Presentation:
  ---------------------

      The financial statements include the accounts of XCL-China,
a wholly owned subsidiary of XCL Ltd. (the "parent").

     Use of Estimates in the Preparation of Financial Statements:

      The  preparation of the Company's financial  statements  in
conformity   with   generally  accepted  accounting   principles,
requires management to make estimates and assumptions that affect
reported  amounts  of assets and liabilities  and  disclosure  of
contingent  assets and liabilities at the date of  the  financial
statements  and  the  reported amounts of revenues  and  expenses
during  the  reporting period.  Actual results could differ  from
those estimates.

  Oil and Gas Properties:
  ----------------------

      The  Company  accounts for its oil and gas exploration  and
production  activities using the full cost method  of  accounting
for  oil  and gas properties.  Accordingly, all costs  associated
with  acquisition, exploration, and development of  oil  and  gas
reserves,  including appropriate related costs, are  capitalized.
The  Company  capitalizes internal costs  that  can  be  directly
identified  with  its  acquisition, exploration  and  development
activities   and  does  not  capitalize  any  costs  related   to
production, general corporate overhead or similar activities.

      The  capitalized costs of oil and gas properties, including
the  estimated  future  costs  to develop  proved  reserves,  are
amortized on the unit-of-production method based on estimates  of
proved  oil  and  gas reserves.  Independent petroleum  engineers
estimated the reserves in 1998 and 1997. Investments in  unproved
properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or
until impairment occurs. If the results of an assessment indicate
that  properties  are impaired, the amount of the  impairment  is
added  to  the  capitalized  costs to be  depleted.  The  Company
capitalizes  interest  on expenditures made  in  connection  with
exploration  and  development projects that are  not  subject  to
current  amortization.  Interest is capitalized  for  the  period
that  activities are in progress to bring these projects to their
intended use.

      The  Company reviews the carrying value of its oil and  gas
properties each quarter on a country-by-country basis, and limits
capitalized costs of oil and gas properties to the present  value
of estimated future net revenues from proved reserves, discounted
at  10  percent, plus the lower of cost or fair value of unproved
properties  as adjusted for related tax effects and deferred  tax
reserves.  If capitalized costs exceed this limit, the excess  is
charged to depreciation and depletion expense.

     Proceeds from the sale of proved and unproved properties are
accounted for as reductions to capitalized costs with no gain  or
loss  recognized unless such sales would significantly alter  the
relationship between capitalized costs and proved reserves of oil
and  gas.  Abandonments  of  properties  are  accounted  for   as
adjustments of capitalized costs with no loss recognized.

     The Company accounts for site restoration, dismantlement and
abandonment  costs  in  its  estimated  future  costs  of  proved
reserves.   Accordingly, such costs are amortized on  a  unit  of
production  basis  and  reflected with accumulated  depreciation,
depletion and amortization.  The Company identifies and estimates
such  costs  based  upon its assessment of applicable  regulatory
requirements, its operating experience and oil and  gas  industry
practice  in  the areas within which its properties are  located.
To  date the Company has not been required to expend any material
amounts to satisfy such obligations.  The Company does not expect
that  future  costs will have a material adverse  effect  on  the
Company's  operations, financial condition or  cash  flows.   The
standardized measure of discounted future net cash flows includes
a deduction for any such costs.

    Capitalized Interest:
    --------------------

     During fiscal 1998, 1997 and 1996, interest (incurred by the
parent) and associated costs of approximately $9.7 million,  $5.8
million  and  $2.8  million, respectively  were  capitalized with 
respect to significant  investments in oil and gas properties that  
are not being currently depreciated, depleted, or amortized and on 
which exploration or development activities are in progress.

     Foreign Operations:
     ------------------

      The  Company's future operations and earnings  will  depend
upon the results of the Company's operations in China.  There can
be  no  assurance  that the Company will be able to  successfully
conduct  such  operations, and a failure to do so  would  have  a
material  adverse  effect  on the Company's  financial  position,
results of operations and cash flows.  Also, the success  of  the
Company's  operations will be subject to numerous  contingencies,
some   of   which   are  beyond  management's   control.    These
contingencies  include general and regional economic  conditions,
prices for crude oil and natural gas, competition and changes  in
regulation.   Since  the  Company is dependent  on  international
operations,  specifically those in China,  the  Company  will  be
subject  to  various  additional political,  economic  and  other
uncertainties.  Among other risks, the Company's operations  will
be  subject  to the risks of restrictions on transfer  of  funds;
export  duties, quotas and embargoes; domestic and  international
customs  and  tariffs;  and changing taxation  policies,  foreign
exchange  restrictions,  political  conditions  and  governmental
regulations.

   Recent Accounting Pronouncements:
   --------------------------------

      In  June  1997,  the FASB issued SFAS No.  130,  "Reporting
Comprehensive Income", which is effective for the Company's  year
ending December 31, 1998.  SFAS No. 130 establishes standards for
the  reporting  and displaying of comprehensive  income  and  its
components.

      In  June  1997, the FASB Issued SFAS No. 131,  "Disclosures
about  Segments of an Enterprise and Related Information",  which
is  effective the Company's year ended December 31,  1998.   This
statement  establishes  standards for  reporting  of  information
about operating segments.

      The  Company adopted SFAS No. 130 and SFAS No.  131  during
1998.  which  did  not have a material effect  on  the  Company's
financial statements.

      In  June  1998,  FASB issued SFAS No. 133, "Accounting  for
Derivative  Instruments and Hedging Activities."   The  statement
requires companies to report the fair market value of derivatives
on  the balance sheet and record in income or other comprehensive
income,  as  appropriate, any changes in the fair  value  of  the
derivative.  SFAS No. 133 will become effective with  respect  to
the  Company  on  January  1, 2000.   The  Company  is  currently
evaluating the impact of the statement.
                               
(2)     Liquidity and Management's Plan

      The  Company's parent, in connection with its 1995 decision
to  dispose  of its domestic properties, is devoting all  of  its
efforts toward the development of the Company's properties.   The
Company  has historically relied on its parent to meet  its  cash
flow  requirements.  The parent has cash available in the  amount
of  approximately $83,000 as of December 31, 1998 and  a  working
capital  deficit of $79.0 million. The Senior Secured Notes in 
the amount of  $63.5 million  have  been  reclassified  because 
the Company's parent does not currently have sufficient funds to 
make the next interest payment (in the approximate  amount of 
$5.6 million) due in May 1999.  Failure by the parent to  make 
such  payment could allow the holders of the Notes to declare all 
amounts outstanding immediately due and payable.  The Company and 
its parent will need additional funds to meet the development and 
exploratory obligations until sufficient cash flows are generated  
from anticipated  production  to  sustain operations and  to fund  
future development  and  exploration obligations.


      The  parent  plans to generate the additional  cash  needed
through  the  sale or financing of its domestic assets  held  for
sale  and  the  completion of additional equity,  debt  or  joint
venture  transactions.  There is no assurance, however, that  the
parent  will be able to sell or finance its assets held for  sale
or  to  complete other transactions in the future at commercially
reasonable terms, if at all, or that the Company will be able  to
meet its future contractual obligations.  If production from  the
parent's other properties commences in late 1999, as anticipated,
the  parent's  cash  flow  will be  available to help  satisfy  a 
portion of its cash requirements.   However, there is likewise no 
assurance that such development will be successful and production 
will commence,  and that such cash flow will be available.
                                
(3)     Supplemental Cash Flow Information

     There were no income taxes paid for the years ended December
31, 1998, 1997 and 1996.

(4)     Income Taxes

      Foreign  income  taxes  are accounted  for  under  the  tax
structure in that country, principally China.  As of December 31,
1998,  the Company does not have undistributed earnings available
to  its  parent  because  of accumulated losses.   Further,  such
losses  have  provided no tax benefit to the parent  company  and
accordingly,  there  has been no tax impact. When  necessary  the
Company  will  enter into an appropriate tax sharing  arrangement
with its parent.

(5)     Other Commitments and Contingencies

     Other commitments and contingencies include:

     o The  Company  acquired the rights to the  exploration,
       development and production of the Zhao Dong Block by executing a
       Production Sharing Agreement with CNODC in February 1993. Under
       the terms of the Production Sharing Agreement, the Company and
       its partner are responsible for all exploration costs. If a
       commercial discovery is made, and if CNODC exercises its option
       to participate in the development of the field, all development
       and operating costs and related oil and gas production will be
       shared up to 51 percent by CNODC and the remainder by the Company
       and its partner.

          The Production Sharing Agreement includes the following
          additional principal terms:

          The  Production Sharing Agreement is basically  divided
          into   three  periods:  the  Exploration  period,   the
          Development period and the Production period.  Work  to
          be performed and expenditures to be incurred during the
          Exploration  period,  which consists  of  three  phases
          totaling  seven  years  from  May  1,  1993,  are   the
          exclusive responsibility of the Contractor (the Company
          and   its   partner  as  a  group).  The   Contractor's
          obligations  in  the three exploration  phases  are  as
          follows:
     
          1.      During the first three years, the Contractor is
               required  to  drill three wildcat  wells,  perform
               seismic data acquisition and processing and expend
               a  minimum of $6 million.  These obligations  have
               been met.
          
          2.      During  the  next two years, the Contractor  is
               required  to  drill  two  wildcat  wells,  perform
               seismic data acquisition and processing and expend
               a  minimum  of  $4  million. (The  Contractor  has
               elected  to proceed with the second phase  of  the
               Contract.     The    seismic   data    acquisition
               requirement   for  the  second  phase   has   been
               satisfied.)
          
          3.      During  the  last two years, the Contractor  is
               required  to drill two wildcat wells and expend  a
               minimum of $4 million.
          
          4.      The  Production Period for any oil  and/or  gas
               field  covered  by  the  Contract  (the  "Contract
               Area")  will be 15 consecutive years (each  of  12
               months),  commencing for each such  field  on  the
               date of commencement of commercial production  (as
               determined  under  the  terms  of  the  Contract).
               However,  prior  to  the  Production  Period,  and
               during the Development Period, oil and/or gas  may
               be  produced  and sold during a long-term  testing
               period.

          The Contractor   may   terminate  the   Production   Sharing
          Agreement  at the end of each phase of the  Exploration
          period, without further obligation.

     o    On December 1, 1995, XCL-China submitted to arbitration
          certain accounting disputes arising from operations in the Bohai
          Bay Shallow Water Sea Area, People's Republic of China and
          governed by a Zhao Dong Block Operating Agreement.  By the
          initial submission, XCL-China disputed certain amounts charged to
          it by Apache in the August, September and October 1995 joint
          interest billings and the November and December 1995 cash calls 
          which could develop into an event that would trigger Apache's 
          option to purchase the Company's interest in the Contract.
          Thereafter, disputes involving joint interest billings through
          1998 were added to the submission.  In 1997, XCL-China made some
          payments with respect to the disputed amounts although the
          arbitration proceeding remains unresolved and inactive inasmuch
          as a third arbitrator has not been selected.

(6)     Related Party Transactions

      The Company has consistently borrowed money from its parent
for   the  acquisition  and  development  of  its  oil  and   gas
properties.  The amount due the parent as of December 31, 1998 is
approximately  $80.4  million.  All of the Common  Stock  of  the
Company  has  been pledged as collateral for parent company  debt
and  the  Company is a guarantor on certain Senior Secured  Notes
described below.
     
     Senior Secured Notes of Parent Company
     --------------------------------------

      On May 20, 1997, the parent company sold in an unregistered
offering   to  qualified  institutional  buyers  and   accredited
institutional  investors  75,000  Note  Units.  Each  Note   Unit
consisted  of  $1,000  principal amount of 13.5%  Senior  Secured
Notes  due  May 1, 2004 and one Common Stock Purchase Warrant  to
purchase 85 shares of the parent's common stock, par value  $0.01
per share (the "Common Stock"), at an exercise price of $3.09 per
share,  first  exercisable after May 20, 1998.  Since  the  Notes
have  not been registered at December 31, 1998 the interest  rate
has  been  increased to 15% pursuant to the  terms  of  the  Note
Offering.

      Interest on the Notes is payable semi-annually on May 1 and
November 1.  The Notes will mature on May 1, 2004. The Notes  are
not  redeemable at the option of the parent prior to May 1, 2002.
The parent may redeem, at its option prior to May 1, 2002, up  to
35% of the original aggregate principal amount of the Notes, at a
redemption price of 113.5% of the aggregate principal  amount  of
the  Notes, plus accrued and unpaid interest, if any, to the date
of  redemption,  with  the net proceeds of  any  equity  offering
completed within 90 days prior to such redemption; provided  that
at  least  $48.75 million in aggregate principal  amount  of  the
Notes remain outstanding.  On or after May 1, 2002, the Notes are
redeemable at the option of the parent, in whole or in  part,  at
an initial redemption price of 106.75% of the aggregate principal
amount  of  the  Notes until May 1, 2003, and at par  thereafter,
plus  accrued  and  unpaid interest,  if  any,  to  the  date  of
redemption.

      The Senior Secured Notes restrict, among other things,  the
parent's  and its subsidiaries ability to incur additional  debt,
incur  liens,  pay  dividends, or make certain  other  restricted
payments.   They  also limit the parent's ability  to  consummate
certain  asset  sales,  enter  into  certain  transactions   with
affiliates, enter into mergers or consolidations, or  dispose  of
substantially  all the parent's assets. The parent's  ability  to
comply  with such covenants may be affected by events beyond  its
control.  The  breach of any of these covenants could  result  in
default.   A default could allow holders of the Notes to  declare
all  amounts outstanding and accrued interest immediately due and
payable. A foreclosure on the stock of the Company could  trigger
Apache's right of first refusal under the Participation Agreement
to  purchase  such stock or its option to purchase  the  parent's
interest  in  the Contract.  There can be no assurance  that  the
assets  of  the  parent and the Company, or any other  Subsidiary
Guarantors would be sufficient to fully repay the Notes  and  the
parent's other indebtedness.

              Supplemental Oil and Gas Information
              ------------------------------------

      The  following  supplementary information is  presented  in
accordance  with  the  requirements  of  Statement  of  Financial
Accounting  Standards  No. 69 - "Disclosures About  Oil  and  Gas
Producing Activities."
  
  Capitalized Costs
  -----------------

      Capitalized  costs  relating to the  Company's  proved  and
unevaluated oil and gas properties, are as follows (000's):

                                                December 31,
                                            --------------------
                                              1998         1997
                                              ----         ----
   Proved and unevaluated properties 
     under development                    $  84,982     $  54,304
                                            =======       =======

      The  capitalized  costs  for the  oil  and  gas  properties
represent cumulative expenditures related to the Zhao Dong  Block
Production   Sharing  Agreement  and  will  not  be  depreciated,
depleted or amortized until production is achieved.

      The  Company's investment in oil and gas properties  as  of
December  31,  1998,  includes proved and unevaluated  properties
which  have been excluded from amortization.  Such costs will  be
evaluated  in future periods based on management's assessment  of
exploration activities, expiration dates of licenses, permits and
concessions, changes in economic conditions and other factors. As
these  properties become evaluated or developed, their  cost  and
related  estimated  future  revenue  will  be  included  in   the
calculation  of  the  DD&A  rate. Such  costs  were  incurred  as
follows:

       Costs   for   proved  and  unevaluated  properties   under
development were incurred as follows (000's):


                                                   Year Ended December 31,
                                           -------------------------------------
                                                                        1995 and
                                   Total     1998      1997      1996      Prior
                                   -----     -----     ----      ----   --------
  Property acquisition costs     $ 61,627  $ 21,011  $ 14,208  $  4,223  $22,185
  Capitalized interest costs       23,355     9,667     5,791     2,767    5,130
                                  -------   -------   -------    ------   ------
      Total proved and
        unevaluated  properties
         under development       $ 84,982  $ 30,678  $ 19,999  $  6,990  $27,315
                                  =======   =======   =======    ======   ======

  Capitalized Costs Incurred
  --------------------------

     Total capitalized costs incurred by the Company with respect
to its oil and gas producing activities were as follows (000's):

                                                      Year Ended December 31,
                                                  ----------------------------
                                                   1998       1997       1996
                                                   ----       ----       ----
     Costs incurred:
         Unproved properties acquired            $    --     $   --     $     --
         Capitalized internal costs                2,023      2,466          822
         Capitalized interest and amortized debt
           costs                                   9,667      5,791        2,767
     
     Exploration                                  11,361      6,833        3,401
     
     Development                                   7,627      4,909           --
                                                  ------     ------       ------
                  Total costs incurred           $30,678    $19,999     $  6,990
                                                  ======     ======       ======
<PAGE>                                
                                
                Proved Oil  Reserves (Unaudited)
                                
      The  following table sets forth estimates of the  Company's
net interests in proved  reserves of oil and changes in estimates
of  proved  reserves.  The Company did not have proved  developed
oil or proved gas reserves in 1998 or 1997.

                                                   Crude Oil (MBbls)
                                                 --------------------
                                                 1998            1997
                                                 ----            ----
Proved reserves -
   Beginning of year                            11,762          10,579

     Discoveries                                   249           1,183
     Revisions of previous estimates               826              --
     Production                                     --              --
     Purchases (sales) of minerals in place         --              --
     Transfer of property to assets held for
       sale                                         --              --
                                                ------          ------
   End of year                                  12,837          11,762
                                                ======          ======

      H.J.  Gruy  and  Associates,  Inc.,  independent  petroleum
engineers  prepared estimated quantities of oil for the  Company,
as of December 31, 1998.

              Supplementary Information (Unaudited)
              ------------------------------------

      The  supplementary  information set  forth  below  presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates.  This information has
been  prepared in accordance with requirements prescribed by  the
Financial  Accounting Standards Board (FASB).   Inherent  in  the
underlying  calculations  of such data  are  many  variables  and
assumptions, the most significant of which are briefly  described
below:

      Future cash flows from proved oil reserves were computed on
the  basis of the posted price for oil in effect at year-end.  
Probable and possible reserves, a portion of  which, experience 
has indicated, generally become proved once further  development 
work has been conducted, are not considered. Additionally, 
estimated future cash flows are dependent upon  the assumed  
quantities  of  oil delivered  and  purchased  from  the Company. 
Such deliverability estimates are highly complex and are not only 
based on the physical characteristics of a property but also 
include  assumptions relative to purchaser demand.  Future prices  
actually  received may differ from the estimates  in  the 
standardized measure.

      Future  net  cash  flows have been  reduced  by  applicable
estimated   operating   costs,  production   taxes   and   future
development costs, all of which are based on current costs.

      Future net cash flows are further reduced by future  income
taxes  that  are  calculated by applying  the  statutory  federal
income tax rate to pretax future net cash flows after utilization
of available tax carryforwards.

      To  reflect the estimated timing of future net cash  flows,
such  amounts have been discounted by the Securities and Exchange
Commission prescribed annual rate of 10 percent.

      In  view  of the uncertainties inherent in developing  this
supplementary information, it is emphasized that the  information
represents approximate amounts that may be imprecise and  extreme
caution should accompany its use and interpretation.

Standardized Measure of Discounted Future Net Cash Flows Related
----------------------------------------------------------------
                     to Proved Oil Reserves
                     ----------------------
                                
     The standardized measure of discounted future net cash flows
from  proved  oil reserves, determined in accordance  with  rules
prescribed by FASB No. 69 is summarized below.  Such standardized
measure  of discounted future net cash flows does not purport  to
present  the  fair market value of the Company's oil assets,  but
does  present  the present value of estimated future  cash  flows
that would result under the assumptions used.


                                               Year Ended December 31,
                                               -----------------------
                                                1998           1997
                                                ----           ----
                                                   (In Thousands)
Future cash inflows                         $  178,304     $  205,765
Future costs:
    Production, including taxes                (44,679)       (45,623)
    Development                                (41,021)       (41,093)
                                                ------        -------
Future net inflows before income taxes          92,604        119,049
Future income taxes (1)                        (17,441)       (22,916)
                                                ------        -------
Future net cash flows                           75,163         96,133
10% discount factor                            (37,218)       (42,285)
                                               -------        -------
Standardized measure of discounted net 
  cash flows                                $   37,945     $   53,848
                                              ========       ========
_______________
(1)      Future income taxes are computed by applying the maximum
     tax  rate  in China applicable to foreign-funded enterprises
     of 33%.

  Changes in Standardized Measure of Discounted Future Net Cash
  -------------------------------------------------------------
               Flow From Proven Reserve Quantities
               -----------------------------------
                                
                                               Year Ended December 31,
                                              --------------------------
                                                1998      1997     1996
                                                ----      ----     ----
                                                     (In Thousands)
Standardized measure-beginning of year       $ 53,848  $ 62,606  $    --
Increases (decreases):
    Net change in sales and transfer prices, 
      net of production costs                 (30,027)  (24,847)      --
    Extensions, discoveries and improved 
      recovery, net of future costs             6,860        --    79,062
    Changes in estimated future development
     costs                                      1,492      (219)       --
    Accretion of discount                       6,413     8,451        --
    Changes in production rates (timing) 
     and other                                 (3,942)       --        --
     Net change in income taxes                 3,301     7,857   (16,456)
                                               ------    ------    ------ 
Standardized measure-end of year             $ 37,945  $ 53,848  $ 62,606
                                               ======    ======    ======
                                

Item  9.       Changes  in and Disagreements  on  Accounting  and
               Financial Disclosure.

     There have been no changes in and there are no disagreements
with  the  Company's  accountants  on  accounting  and  financial
disclosure.

                            PART III
                                

Item 10.     Directors and Executive Officers of the
             Registrant.

      Officers  of  the Company and its wholly owned subsidiaries
serve at the pleasure of the Board of Directors and are appointed
annually  at  the  meeting of the Board of Directors  immediately
following  the  annual  meeting of  shareholders.  The  following
individuals  are  officers and directors of the Company  and  its
subsidiaries as of March 31, 1999:

<TABLE>
<CAPTION>
                                                                          Officer  Director
       Name                         Position                        Age    Since    Since
-----------------------   -----------------------------------      -----  -------  --------
<S>                       <C>                                        <C>    <C>      <C>
Marsden W. Miller, Jr.    Chairman of the Board and Chief            57     1981     1981
                          Executive Officer of the Company
                          and Principal Financial Officer (1)

John T. Chandler          Vice Chairman of the Board of the          66     1982     1983
                          Company and Chairman and Chief
                          Executive Officer of XCL-China Ltd. (1)(4)

Danny M. Dobbs            President and Chief Operating Officer       52    1991      --
                          of the Company and President of XCL-
                          China Ltd.(4)

Benjamin B. Blanchet      Executive Vice President and Director       46    1997     1997
                          of the Company(1)

Richard K. Kennedy        Vice President of Engineering of the        45    1989     --
                          Company

Joseph T. K. Chan         Vice President, XCL-China LubeOil           52    1998     --
                          Ltd.(5)

John H. Haslam            Treasurer of the Company                    57    1996     --

Lisha C. Falk             Secretary of the Company                    37    1997     --

Fred Hofheinz             Director of the Company, Attorney at        61      --    1991
                           Law(2)(3)

Arthur W. Hummel, Jr.        Director of the Company, Independent     78      --     1994
                             Consultant(2)(3)

Sir Michael Palliser        Director of the Company, Independent      76      --     1994
                            Consultant(2)(3)
 
Francis J. Reinhardt, Jr.   Director of the Company, Partner in       69      --     1992
                            Carl H. Pforzheimer & Co.(2)(3)

R. Thomas Fetters, Jr.      Director of the Company, Independent      59      --     1997
                            Consultant (2)(3)
 
Peter F. Ross               Director of the Company, Chairman of      60      --     1998
                            Dawnay Day Capital Markets
</TABLE>
_______________

(1)      Member  of  the Executive Committee.  The Committee  met
     four  times  during  1998 and, subject to certain  statutory
     limitations on its authority, has all of the powers  of  the
     Board of Directors while the Board is not in session, except
     the  power to declare dividends, make and alter Bylaws, fill
     vacancies on the Board or the Executive Committee, or change
     the membership of the Executive Committee.

(2)      Member of the Compensation Committee.  The Committee met
     once  in  1998.   It  is charged with the responsibility  of
     administering  and interpreting the Company's  stock  option
     plans;  it also recommends to the Board the compensation  of
     employee-directors,  approves  the  compensation  of   other
     executives and recommends policies dealing with compensation
     and personnel engagements.

(3)     Member of the Audit Committee.  The Committee met once in
     1998.   It reviews with the independent auditors the general
     scope of audit coverage.  Such review includes consideration
     of the Company's accounting practices, procedures and system
     of   internal  accounting  controls.   The  Committee   also
     recommends  to  the Board the appointment of  the  Company's
     independent  auditors, and at least annually  the  Committee
     reviews the services performed and the fees charged  by  the
     independent auditors engaged by the Company.

(4)      XCL-China  Ltd.  is  an International  Business  Company
     incorporated  under the laws of the British Virgin  Islands,
     wholly owned by the Company, which manages the Company's oil
     and gas operations on the Zhao Dong Block.

(5)      XCL-China  LubeOil  Ltd.  is an  International  Business
     Company  incorporated under the laws of the  British  Virgin
     Islands,  wholly  owned by the Company, which  holds  a  49%
     interest  in  a  joint  venture  with  CNPC  United  LubeOil
     Corporation for the production and sale of lubricants.

     Under the Amended and Restated Certificate of Incorporation,
as  amended, and Amended and Restated Bylaws of the Company,  the
Board  Directors  is  divided  into three  classes  of  directors
serving  staggered three-year terms, with one class to be elected
at  each annual meeting of shareholders and to hold office  until
the  end  of  their  term and until their  successors  have  been
elected  and  qualified.  The current Class  I  directors,  whose
terms   of   office  expire  at  the  2000  annual   meeting   of
shareholders, are Messrs. Arthur W. Hummel, Jr., Michael Palliser
and  Benjamin B. Blanchet; the current Class II directors,  whose
terms   of   office  expire  at  the  2001  annual   meeting   of
shareholders,  are  Messrs. Marsden W.  Miller,  Jr.,  R.  Thomas
Fetters, Jr. and Francis J. Reinhardt, Jr.; and the current Class
III  directors, whose terms of office expire at the  1999  annual
meeting  of  shareholders, are Messrs.  John  T.  Chandler,  Fred
Hofheinz and Peter F. Ross.   Mr. Ross was appointed as  a  Class
III director on April 7, 1998.

     The Board held six meetings in 1998.  The average attendance
by  directors  at  these  meetings was  91%,  and  all  directors
attended  95%  of  the  Board and Committee  meetings  they  were
scheduled to attend.

      Under Delaware law and the Bylaws, incumbent directors have
the  power  to  fill  any vacancies on the  Board  of  Directors,
however  occurring,  whether by an  increase  in  the  number  of
directors,   death,  resignation,  retirement,  disqualification,
removal  from office or otherwise.  Any director elected  by  the
Board to fill a vacancy would hold office for the unexpired  term
of  the  director  whose  place has been filled,  except  that  a
director  elected to fill a newly-created directorship  resulting
from  an increase in the number of directors, whether elected  by
the Board or shareholders, would hold office for the remainder of
the  full  term  of  the  class of directors  in  which  the  new
directorship was created or the vacancy occurred, and  until  his
successor is elected and qualified.  If the size of the Board  is
increased,  the  additional directors would be apportioned  among
the  three  classes  to  make  all classes  as  nearly  equal  as
possible.

      The  holders  of the Amended Series A Preferred  Stock  are
entitled  to cast the same number of votes (voting together  with
the  Common Stock as a single class) as the number of  shares  of
Common  Stock  issuable upon conversion of the Amended  Series  A
Preferred Stock.

      The  holders  of the Amended Series B Preferred  Stock  are
entitled  to  cast 50 votes per share (voting together  with  the
Common Stock as a single class).

      There  are  no  arrangements  or  understandings  with  any
directors pursuant to which they have been elected a director nor
are  there  any  family  relationships  among  any  directors  or
executive officers.

Biographical Information
------------------------

      MARSDEN  W. MILLER, JR., Chairman, has been Chief Executive
Officer and a director since the Company's incorporation in 1981.
He  has engaged in the independent domestic and international oil
business since 1964 on an individual basis, as a stockholder  and
officer  in  several companies and as a practicing attorney.   In
addition  to the U.S. and China, he has been involved in  various
aspects  of  the oil business in Southeast Asia, Africa,  Europe,
South  America, several former Soviet Republics and  Canada.  Mr.
Miller  graduated from Louisiana State University, cum laude,  in
1964.

      JOHN T. CHANDLER is Vice Chairman of the Board and Chairman
and  Chief Executive Officer of XCL-China.  He joined the Company
in  June 1982, becoming a director in May 1983.  From 1976  until
he  joined the Company he was the Managing Partner of the Oil and
Gas Group of GSA Equity, Inc., New York and director of Executive
Monetary Management, Inc., the parent company of GSA Equity, Inc.
From  1972  to  1976,  he  was director  and  Vice  President  of
Exploration  and  Production of Westrans Petroleum,  Inc.  and  a
director  of a number of its subsidiaries. During 1971 and  1972,
he  was  a petroleum consultant and manager of the oil department
of  Den norske Creditbank in Oslo, Norway.  Mr. Chandler was Vice
President and Manager of the Petroleum Department of the  Deposit
Guaranty  National  Bank  in Jackson, Mississippi  from  1969  to
August  1971  and,  from 1967 to February 1969  was  a  petroleum
engineer  first  for  First National  City  Bank  (now  known  as
Citibank, N.A.) and then The Bank of New York. From March 1963 to
July  1967,  he  was  a petroleum engineer for  Ashland  Oil  and
Refining  Company,  and  from 1959 to  1963,  he  held  the  same
position  with United Producing Company, Inc., which was acquired
by Ashland Oil.

      Mr.  Chandler graduated from the Colorado School  of  Mines
with  a  Professional degree in petroleum engineering  and  is  a
Registered  Professional Engineer in the States of  Colorado  and
Texas,  a member of the Society of Petroleum Evaluation Engineers
and a member of AIME.

      DANNY M. DOBBS is the President and Chief Operating Officer
of the Company effective December 17, 1997.  Mr. Dobbs previously
served as Executive Vice President and Chief Operating Officer of
the  Company  and prior to that as Vice President-Exploration  of
XCL Exploration & Production, Inc., a wholly-owned subsidiary  of
the  Company,  having  joined  the  Company  in  1985  as  Senior
Exploration  Geologist.   From 1981 to  1985  Mr.   Dobbs  was  a
consulting geologist. From 1976 to 1981, he held the position  of
Exploration Geologist in the South Louisiana District  for  Edwin
L.  Cox  in Lafayette, Louisiana.  He served in various  geologic
positions  with  Texaco, Inc. from 1971 to 1976,  his  experience
encompassing  management, structural and  stratigraphic  mapping,
coordination  of  seismic  programs  and  budget  evaluation  and
preparation.   Mr. Dobbs holds B.S. and M.S. degrees  in  geology
from the University of Alabama, Tuscaloosa, Alabama.

      BENJAMIN  B.  BLANCHET  is  Executive  Vice  President  and
director of the Company.  Prior to joining the Company in  August
1997, and since 1983, he was a partner in the law firm of Gordon,
Arata,  McCollam & Duplantis, L.L.P. in its Lafayette,  Louisiana
office.   During  that  time,  he  practiced  in  the  areas   of
commercial  litigation, corporate mergers and  acquisitions,  oil
and  gas  transactions, secured financings, securities,  tax  and
international   law  matters.  Since  1985,   he   has   provided
substantial  legal  services to the Company,  and  has  been  the
Company's  lead  attorney in China. He served on  the  Management
Committee  of  Gordon, Arata, McCollam & Duplantis,  L.L.P.  from
1991  to  1997 and as the Managing Partner of the firm  for  four
years from 1992 through 1995.  He practiced law with the firm  of
Monroe & Lemann in New Orleans from 1978 through 1983.  He  is  a
member  of the Louisiana Bar and admitted to practice before  the
United States Tax Court.  Mr. Blanchet holds a B.A. degree,  with
highest   distinction,  from  the  University   of   Southwestern
Louisiana and a J.D., cum laude, from Harvard Law School.

      RICHARD  K.  KENNEDY is Vice President of  Engineering  and
responsible for certain engineering aspects of the Company's  oil
and  gas  operations.  From 1987, until he joined the Company  in
1989,  he was an operations engineer for Wintershall Corporation.
From  1981  to  1986 he was with Borden Energy, originally  as  a
petroleum  engineer  and  later as regional  operations  manager.
From  1979  to  1981, Mr. Kennedy was employed with Marathon  Oil
Company as a reservoir engineer, then as a drilling engineer.  He
was  employed with Shell Oil Company as a petroleum engineer  and
reservoir engineer from 1977 to 1979.  Mr. Kennedy graduated from
Louisiana  Tech  University  with  a  B.S.  degree  in  petroleum
engineering.   He  is a registered professional engineer  in  the
State  of  Louisiana  and a member of the  Society  of  Petroleum
Engineers.

      JOSEPH  T.  K. CHAN is Vice President of XCL-China  LubeOil
Ltd., having joined the Company in 1998.  Mr. Chan has more  than
20  years experience in the oil industry with major American  oil
companies.  From August 1994 until joining the Company, Mr.  Chan
was  an  agent  and consultant for Asian importers of  U.S.  made
chemical,  petrochemical and industrial products.  From  1991  to
1994  he was Regional Manager of Sun Oil Far East, Inc. and  Head
of  Technical Support of China Sun Lubeoil joint venture plant in
Skekou,  China,  responsible for regional  sales,  marketing  and
production operations in Asia and the Pacific Rim under  Sun  Oil
Trading,  Inc., a wholly owned subsidiary of Sun Oil  Corp.  From
1988  to  1990,  Mr.  Chan  was Marketing  Director  to  De  Huns
International  Ltd.  with  chemicals  and  garment  manufacturing
investments  and  operations in China.  From  1986  to  1988,  he
served  as  General  Manager of Sales & Marketing  and  Technical
Services for U.K. based Castrol Oil Hong Kong. Mr. Chan served as
Divisional  Import  Manager  for Li &  Fung  Trading  in  Taiwan,
Marketing  Director of CDW Manufacturing Group in Hong  Kong  and
Project Manager of Cha Chi Ming (China Investment) Ltd. from 1982
to  1986.   From  1976 to 1981, he served as Industrial  Sales  &
Marketing  Manager for Caltex Oil Hong Kong, a joint  venture  of
Chevron  and  Texaco in Asia.  From 1975 to 1976  he  was  Senior
Sales   Engineer  and  Area  Sales  Manager  for  Drew   Chemical
Corporation.  Mr. Chan was employed with Esso Standard  Oil  Hong
Kong as International Sales Supervisor from 1972 to 1975 and as a
Marine and Aviation Sales and Technical Representative from  1970
to  1972.  Mr. Chan holds a Bachelor of Commercial Science degree
from  CH  University of Hong Kong and has completed  the  Masters
Study Program from Caltex Management Institute in Indonesia.  Mr.
Chan   has  also  attended  comprehensive  training  in   lubeoil
engineering from the Esso Research Center in Abington Oxford, and
leadership  and  refinery  operations programs  with  Texaco  and
Chevron.

      JOHN H.  HASLAM is Treasurer, having joined the Company  in
1990.   From  1988 until joining the Company, he was employed  by
United  Gas  Pipeline as Credit Manager.  From 1986 to  1988,  he
served  as  Director of Internal Audit for TransAmerican  Natural
Gas  Corporation.  From 1981 to 1986 he was the Audit Manager for
ENSTAR Corporation.  He was with Getty Oil from 1963 until  1981,
as  Audit  Manager of Joint Venture Operations and various  other
accounting  positions.   Mr. Haslam  holds  a  B.B.A.  degree  in
Marketing from Baylor University.

     LISHA FALK is corporate Secretary, having joined the Company
in 1981. Since joining the Company Ms. Falk has served in various
administrative positions, most recently as Assistant Secretary.

      R.  THOMAS  FETTERS,  JR., a director  since  1997,  is  an
independent  oil  and gas consultant.  He has over  25  years  of
exploration, production and management experience, both  domestic
and  foreign.   From  1995 to 1997 Mr. Fetters  was  Senior  Vice
President of Exploration of National Energy Group, Inc.,  Dallas,
Texas, and from February 1990, until September 1995, he was  Vice
President  of Exploration of XCL Ltd., and President of XCL-China
Ltd.   During  1989,  until joining the  Company,  he  served  as
Chairman  and  Chief  Executive  Officer  of  Independent  Energy
Corporation. From 1984 to 1989, he served as President and  Chief
Executive  Officer  of  CNG Producing  Company  in  New  Orleans,
Louisiana,  and  from  1983 to 1984 as  General  Manager  of  the
Planning  and  Technology  Division of Consolidated  Natural  Gas
Service  Co. in Pittsburgh, Pennsylvania.  From 1966 to 1983,  he
served  in  various  positions,  from  Geologist  to  Exploration
Manager,  with several divisions of Exxon, primarily in the  Gulf
Coast  region  of the U.S. and internationally, in  Malaysia  and
Australia.   Mr. Fetters holds B.S. and M.S. degrees  in  geology
from the University of Tennessee.

      FRED HOFHEINZ, a director since 1991, is an attorney at law
in  Houston, Texas.  From 1984 to 1987, he served as President of
Energy   Assets  International  Corporation,  a  fund  management
company, now a subsidiary of Torch Energy Advisors, serving as  a
consultant to Torch Energy Advisors until 1989. Mr. Hofheinz also
served  as  the Mayor of Houston, Texas from 1974 to  1978.   He,
along  with  his family, developed the Astrodome in Houston,  and
owned  the Houston Astros baseball team until 1974. He is founder
and  director  of United Kiev Resources, Inc.,  an  oil  and  gas
production  company operating in the Republic of the  Ukraine  in
the  name  of  its  wholly-owned subsidiary, Carpatsky  Petroleum
Company.   Mr.  Hofheinz earned a Ph.D. degree in Economics  from
the University of Texas and his law degree from the University of
Houston.

      ARTHUR W. HUMMEL, JR., a director since April 1994, is  the
former  U.S. Ambassador to the People's Republic of China  during
the  period  1981  to 1985.  Since his 1985 retirement  from  the
State  Department, after 35 years of service, he has been  active
in  consulting  with  firms  doing business  in  East  Asia,  and
participating in academic and scholarly conferences in  the  U.S.
and  in the East Asia region.  He is a member and trustee of many
academic,  business, and philanthropic organizations involved  in
international affairs.

      Mr.  Hummel was born in China.  After education in the U.S.
he  returned  to  China prior to Pearl Harbor.  Interned  by  the
Japanese,  he escaped and fought behind the Japanese  lines  with
Chinese guerrillas in north China until the end of the war.

     He obtained an M.A. (Phi Beta Kappa) in Chinese studies from
the   University  of  Chicago  in  1949,  and  joined  the  State
Department  in 1950.  His early foreign assignments include  Hong
Kong,  Japan and Burma.  He was Deputy Director of the  Voice  of
America  in  1961-1963; Deputy Chief of Mission of  the  American
Embassy  in  Taiwan, 1965-1968; Ambassador to  Burma,  1968-1970;
Ambassador to Ethiopia, 1975-1976; Ambassador to Pakistan,  1977-
1981; and Ambassador to the Peoples Republic of China, 1981-1985.
He  was Assistant Secretary of State for East Asia 1976-1977.  He
has received numerous professional awards from within and outside
the Government.

      SIR MICHAEL PALLISER, a director since April 1994, was from
1984 to 1993 Chairman of Samuel Montagu & Co. Limited, the London
merchant  bank  owned  by Midland Bank, of which  he  was  Deputy
Chairman from 1987 to 1991, and that is now part of the Hong Kong
&  Shanghai Banking Corporation.  He was Vice Chairman of  Samuel
Montagu  from  1993  to  1996. He is a  former  Director  of  BAT
Industries, Bookers, Eagle Star, Shell and United Biscuits.

     In 1947, he joined the British Diplomatic Service and served
in a variety of overseas and Foreign Office posts before becoming
head  of  the  Planning  Staff from 1964-1966.   He  was  Private
Secretary to the Prime Minister from 1966-1969, Minister  in  the
British   Embassy  in  Paris  from  1969-1971,  and  the  British
Ambassador   and   Permanent  Representative  to   the   European
Communities in Brussels from 1971-1975.  He was, from 1975  until
his retirement in 1982, Permanent Under-Secretary of State in the
Foreign  and  Commonwealth Office, and  Head  of  the  Diplomatic
Service.   From April to July 1982, he was a special  adviser  to
the  Prime  Minister in the Cabinet Office during  the  Falklands
War.   He  was appointed a Member of the Privy Council  in  1983.
Effective  December 31, 1995, Mr. Palliser resigned as  President
of  the  China-Britain Trade Group and a director of the UK-Japan
2000  Group,  and  effective February 29, 1996,  he  resigned  as
Deputy  Chairman of British Invisibles.  Mr. Palliser is  also  a
former  member of the Trilateral Commission and director  of  the
Royal  National  Theatre. He is a former Chairman  of  the  Major
Projects  Association, designed to assist in and for the handling
of  major industrial projects. Mr. Palliser also serves as  Vice-
Chairman  of  the  Salzburg Seminar, a  center  for  intellectual
exchange based in Middlebury, Vermont, with its conference center
in Salzburg, Austria.

      Sir Michael Palliser was educated at Wellington College and
Merton  College, Oxford.  He saw wartime service in  the  British
Army with the Coldstream Guards.

      FRANCIS  J.  REINHARDT, JR., a director since  1992,  is  a
partner  in  the  New York investment banking  firm  of  Carl  H.
Pforzheimer & Co.  Mr. Reinhardt has been a partner in  the  firm
for over 30 years and has held various positions, specializing in
independent  oil  and gas securities, mergers  and  acquisitions,
placements participation and institutional sales since 1956.  Mr.
Reinhardt  holds  a  B.S. degree from Seton Hall  University  and
received his M.B.A. from New York University.  Mr. Reinhardt is a
member of the New York Society of Security Analysts, a member and
former  president of the Oil Analysts Group of New York, a member
and  past  president  of  the National Association  of  Petroleum
Investment  Analysts  and a member of the  Petroleum  Exploration
Society of New York.  Mr. Reinhardt also serves as a director  of
Mallon  Resources  Corporation, a  Nasdaq  traded  petroleum  and
mining company, as well as several privately held companies.

      PETER F. ROSS, a director since 1998, is Chairman of Dawnay
Day  Capital Markets.  Dawnay Day & Co. is a London based private
investment  banking  firm.   Mr.  Ross  retired  as  Chairman  of
Henderson Crosthwaite Institutional Brokers on December 31, 1996,
after holding that position since 1987.  Under Mr. Ross' term  as
Chairman,  Henderson Crosthwaite became one of the leading  firms
in  London in the area of oil and gas placements.  From  1977  to
1986  he was head of Henderson Crosthwaite's institutional  sales
department,  with  special responsibility for  the  oil  and  gas
division, until its acquisition by Guinness Mahon Bank in 1986.

     Mr. Ross was commissioned into the British Army serving with
the 5th Royal Inniskilling Dragoon Guards, his last posting being
to  Libya  where  he  retired and set up an  industrial  services
business.  Following the Islamic Revolution in 1971, he  returned
to the United Kingdom and joined London stockbrokers Northcote  &
Co.   In  1974,  he  joined George Henderson &  Co.,  becoming  a
partner in 1975, upon the merger with Fenn and Crosthwaite.

Compliance with Section 16(a) Filing Requirements
-------------------------------------------------

      To  the  Company's knowledge, there were  no  instances  of
failure  to  file reports with respect to reportable transactions
during  the year ended December 31, 1998, as required by  Section
16(a) of the Exchange Act.

Item 11.     Executive Compensation.

      The  following table sets forth information  regarding  the
total compensation of the Chief Executive Officer and each of the
four most highly compensated executive officers of the Company at
the  end  of 1998, and the total compensation paid to  each  such
individual for the Company's two previous fiscal years.  Each  of
the   named  individuals  has  held  his/her  respective   office
throughout the entire fiscal year.

<TABLE>
<CAPTION>
                              Summary Compensation Table

                                                                        Long Term Compensation
                                                                -------------------------------------- 
                                    Annual Compensation                Awards            Payouts
                                   --------------------------   -------------------  ----------------- 
                                                       (1)        (2)         (3)
                                                     Other     Restricted
    Name and                                         Annual       Stock    Options/  LTIP   All Other
    Principal                        Salary   Bonus  Compen-      Awards    SARs    Payout   Compen-
    Position                Year       ($)      ($)  sation ($)    (#)      (#)       ($)   sation ($)
  ---------------           ----     ------   -----  ---------  --------   --------  ------ ---------- 
<S>                         <C>      <C>         <C>    <C>     <C>        <C>         <C>   <C> 
Marsden W. Miller, Jr.      1998     150,000     -      -           -         -        -     -
 Chairman and               1997     150,000     -      -       1,000,000     -        -     -
 Chief Executive Officer                                                   110,000
                            1996     150,000     -      -           -         -        -     -

John T. Chandler (4)        1998     200,000     -      -           -         -        -     -
 Vice Chairman;  Chairman   1997     150,000     -      -         333,333  133,333     -     -
 and Chief Executive                                               20,000    5,000
 Officer of XCL-China       1996     150,000     -      -           -         -        -     -

Danny M. Dobbs              1998     180,000     -      -           -         -        -     -
 President and Chief        1997     136,875     -      -           -      400,000     -     -
 Operating Officer                                                          25,000          
                            1996     135,000     -      -           -        6,466     -     -

Richard K. Kennedy          1998     115,000     -      -     -     -         -        -     -
 Vice President             1997     112,500     -      -     -     -      266,666     -     -
 Engineering                                                                 5,000
                            1996     75,000      -      -     -     -         -        -     -

Herbert F. Hamilton (4)(5)  1998     144,000     -      -     -   150,000     -     -
 Executive Vice President   1997     144,000     -      -     -      -        -     -
 Operations, XCL-China      1996     144,000     -      -     -      -        -     -

</TABLE>
_______________

 (1)      Excludes  the cost to the Company of other compensation
     that,  with respect to any above named individual, does  not
     exceed  the  lesser  of $50,000 or 10% of such  individual's
     salary and bonus.

(2)      Represents grants of restricted stock awards  under  the
     Long-Term  Stock Incentive Plan as amended and  restated  in
     1997.   The first line under 1997 reflects restricted  stock
     awards  for  shares  of Common Stock  and  the  second  line
     reflects  restricted  stock awards  for  shares  of  Amended
     Series A Preferred Stock.  See "Awards to Management."

(3)      Represents  awards of stock options  granted  under  the
     Company's  Long-Term  Stock Incentive Plan  as  amended  and
     restated in 1997.  1998 and 1996 amounts reflect options for
     shares  of Common Stock. The first line under 1997  reflects
     non-qualified stock options for shares of Common  Stock  and
     the  second  line reflects non-qualified stock  options  for
     shares  of Amended Series A Preferred Stock. See "Awards  to
     Management."

(4)      XCL-China  is a wholly owned subsidiary of  the  Company
     that  manages  the  Company's operations on  the  Zhao  Dong
     Block.

(5)     Mr. Hamilton's services terminated on January 15, 1999.

Stock Options
-------------

      The  Company currently maintains one stock option plan that
was  adopted by shareholders in 1992. The Compensation  Committee
administers  the Company's stock option plans. The plans  provide
for the granting of options to purchase shares of Common Stock to
key  employees  and directors of the Company, and  certain  other
persons who are not employees of the Company but who from time to
time  provide substantial advice or other assistance or  services
to the Company.

      On  June 2, 1992, shareholders approved the Long-Term Stock
Incentive  Plan ("1992 LTSIP").  The 1992 LTSIP was adopted  with
the  view of conforming the Company's plans to certain regulatory
changes  adopted  by  the  Commission and  affording  holders  of
previously  granted  options the opportunity  to  exchange  their
options  for equivalent options under the 1992 LTSIP.   The  1992
LTSIP  was  amended and restated (hereinafter,  the  "1997  LTSIP
Restatement"),  and  certain  awards  were  granted   thereunder,
effective  June 1,1997, by shareholder approval on  December  17,
1997.

     1997 LTSIP Restatement
     ----------------------

      As  described  above, prior to June 1,  1997,  the  Company
maintained  the 1992 LTSIP, previously approved by  shareholders,
which was initially effective on June 2, 1992, for employees  and
certain  other  individuals connected with  the  Company  or  its
affiliates.   The  1992 LTSIP did not contemplate  the  grant  of
stock  options  to purchase shares of any issue of the  Company's
Serial Preferred Stock or the grant of Appreciation Options.

     On June 5, 1997, the Board of Directors unanimously approved
the  1997 LTSIP Restatement, effective as of June 1, 1997,  which
was subsequently approved by shareholders on December 17, 1997.

      Nature  of  Awards.      The 1997 LTSIP  Restatement  makes
available  to  the  Compensation Committee  the  power  to  grant
certain  awards  ("Awards") to acquire shares  of  the  Company's
Preferred Stock as well as shares of Common Stock. In common with
the 1992 LTSIP, the 1997 LTSIP Restatement makes available to the
Compensation Committee a number of incentive devices, in addition
to  Incentive Stock Options ("ISOs") (that are not available with
respect  to  Preferred  Stock)  and  Nonqualified  Stock  Options
("NSOs"),  including  reload  options  ("ROs")  (that   are   not
available  with  respect  to Preferred Stock),  restricted  stock
awards  ("RSAs"), and performance units ("PUs")  or  appreciation
options  ("AOs") (that were not authorized under the 1992 LTSIP),
each   of  which  is  described  below  and  in  the  1997  LTSIP
Restatement.  NSOs to acquire Preferred Stock, a new feature, may
include  an  accrued  dividend feature. The Board  believes  that
these award alternatives will enable the Committee to tailor  the
type  of compensation to be granted to key personnel to meet both
the  Company's  and  such  employee's requirements  in  the  most
efficient manner possible.

      Number  of  Awards.     For Common Stock Awards,  the  1997
LTSIP Restatement authorizes an aggregate of 4 million shares  of
Common  Stock for issuance pursuant to awards granted thereunder,
including grants to non-employee directors.  For Preferred  Stock
Awards,  the  1997 LTSIP Restatement authorizes an  aggregate  of
200,000 shares of the Company's Amended Series A Preferred  Stock
or  any  other  series  of Preferred Stock  of  the  Company,  as
designated by the Committee with respect to an Award.

      Description of Awards.  As set forth above, and  in  common
with  the  1992 LTSIP, the 1997 LTSIP Restatement authorizes  the
Compensation  Committee  to  grant NSOs,  ISOs,  ROs  (i.e.,  the
granting  of  additional options, where an employee exercises  an
option with previously owned stock, covering the number of shares
tendered  as  part  of  the exercise price),  RSAs  (i.e.,  stock
awarded to an employee, subject to forfeiture in the event  of  a
premature  termination of employment, failure of the  Company  to
meet  certain  performance objectives or other  conditions),  PUs
(i.e., share-denominated units credited to the employee's account
for   delivery  or  cash-out  at  some  future  date  based  upon
performance   criteria  to  be  determined  by  the  Compensation
Committee),  and "tax-withholding" (i.e., where the employee  has
the  option of having the Company withhold shares on exercise  of
an  award  to satisfy tax withholding requirements).  AOs  (i.e.,
awards in which payments are based upon appreciation in shares or
other  criteria determined by the Compensation Committee)  are  a
new feature added to the 1992 LTSIP.

      Outside  Director Awards.  The 1997 LTSIP Restatement  also
authorizes  the  Board to grant Awards to non-employee  directors
and  to set the terms and conditions of such Awards, without  the
restrictions  previously set forth in the 1992 LTSIP  which  were
required by certain federal securities law rules since abolished.

      Administration of Plan.  In keeping with the provisions  of
the   1992   LTSIP,  the  Compensation  Committee  will   develop
administration  guidelines from time to  time  that  will  define
specific  eligibility  criteria,  the  types  of  awards  to   be
employed, whether such awards relate to Common Stock or Preferred
Stock,  and  the value of such awards.  Specific  terms  of  each
Award  will  be  provided in individual Award agreements  granted
each Award recipient.  Key employees and other individuals who in
the judgment of the Committee may provide a valuable contribution
to  the  success  of  the  Company and  its  affiliates  will  be
eligible.  The  Committee may establish different  general  Award
eligibility  criteria for Awards involving Preferred  Stock  that
may  require  a  higher  level of management  responsibility  and
authority.

      Change  in  Control Provisions.  The 1997 LTSIP Restatement
contains  change-in-control provisions,  that  provide  that  the
threshold  for determining if a "change in control  of  XCL"  has
occurred  as  a  result of a person or entity  acquiring  Company
stock,  has  been  lowered  from 30%  to  20%  (disregarding  the
acquisition  of  such  stock  by  certain  shareholders  of   the
Company).   The 1997 LTSIP Restatement retains the  1992  LTSIP's
provisions pursuant to which a "change in control of XCL" will be
deemed  to  occur  as  a  result of certain  contested  Board  of
Director  elections.   If  a "change in control  of  XCL"  occurs
pursuant  to the provisions described above, ISOs and  NSOs  then
outstanding   become   exercisable  in   full,   the   forfeiture
restrictions on any RSAs to the extent then applicable will lapse
and  amounts payable with respect to PUs and AOs then outstanding
become  payable in full.   Also, under certain Awards made  under
the 1997 LTSIP Restatement (see discussion below), the occurrence
of  a  "change in control of XCL" could obligate the  Company  to
make payments with respect to Awards in cash rather than in kind,
or  obligate  the  Company to repurchase individuals'  shares  of
Common Stock or Preferred Stock received under certain 1997 LTSIP
Restatement  Awards.   Under  certain  circumstances  which   are
unforeseen  at this time, the existence of the change in  control
protections for individuals receiving Awards under the 1997 LTSIP
Restatement and resulting obligations to the Company  may  impede
the consummation of a change in control of the Company.

      Option  Exercise Price.  Under the 1997 LTSIP  Restatement,
the  Compensation Committee shall determine the option  price  of
all  NSOs  and ISOs; provided, however, in the case of ISOs,  the
option price shall not be less than the fair market value of  the
Common  Stock on the date of grant.  Such "fair market value"  is
the  average of the high and low prices of a share of  Common  or
Preferred Stock traded on the relevant date, as reported  on  the
Exchange,  or other national securities exchange, or an automated
quotation  system, or pursuant to a good faith  determination  by
the Board of Directors, if not so traded in a public market.

      The 1997 LTSIP Restatement does not extend the term of  the
1992  LTSIP  and,  therefore,  the 1997  LTSIP  Restatement  will
terminate  (and  no  further awards thereunder  will  be  granted
after) June 2, 2002.

Awards to Management
--------------------

      On  June 30, 1998, the Board made certain Awards under  the
1997  LTSIP  Restatement.  Certain  employees  and  non-executive
officers were granted options to acquire an aggregate of  495,000
shares  of Common Stock; on executive officer was granted options
to  acquire 150,000 shares of Common Stock, and one non-executive
director  was granted options to acquire 66,666 shares of  Common
Stock.   Upon  acceptance of the Awards to certain  non-executive
officers  and employees of the Company certain options previously
granted  under  the Company's 1983, 1985, 1986,  and  1987  stock
option plans were cancelled.

      The following tables set forth, for those persons named  in
the  "Summary  Compensation Table," information on stock  options
granted  during  1998  and all stock options  outstanding  as  of
December 31, 1998. The closing price of the Common Stock  on  the
AMEX on December 31, 1998 was $1.75 per share.

<TABLE>
<CAPTION>
                  Option/SAR Grants in Last Fiscal Year

                                                                                Potential Realizable Value
                                                                                  at Assumed Annual Rates
                                                                                 of Stock Price Appreciation
                                       Individual Grants                               for Option Term
                            ___________________________________________         _______________________________

          (a)               (b)         (c)            (d)         (e)           (f)        (g)        (h)
                                     % of Total
                                      Options/
                                        SARs
                                     Granted to
                          Options/  Employees in   Exercise or
                            SARs       Fiscal      Base Price   Expiration
          Name            Granted(#)    Year        ($/Share)      Date         0% ($)     5% ($)    10% ($)
_____________________     _________  __________    _________    __________     _______   ________    _________

<S>                        <C>           <C>          <C>       <C>               <C>    <C>         <C>
Herbert F. Hamilton (1)    150,000       21%          $3.75     June 29, 2008     --     $339,093    $1,989,136

</TABLE>
_______________

      (1)      Effective June 30, 1998, Mr. Hamilton was  granted
options   to  acquire  150,000  shares  of  Common  Stock.    Mr.
Hamilton's services terminated effective January 15,  1999.   All
of  Mr.  Hamilton's options will expire 90-days after termination
unless exercised.
<TABLE>
<CAPTION>
              Aggregated Option/SAR Exercises in Last Fiscal Year
                    and Fiscal Year-End Option/SAR Values

        (a)           (b)     (c)                (d)                         (e)
                    Shares               Number of Securities          Value of Unexercised
                   Acquired             Underlying Unexercised            in-the-Money
                      on      Value          Options/SARs at            Options/SARs at
        Name       Exercise  Realized       Fiscal Year-End(#)       Fiscal Year-End($)(4)(5)
                      (#)     ($)    Exercisable    Unexercisable  Exercisable  Unexercisable
      ----------   --------  ------- -----------   --------------  -----------  -------------
<S>                     <C>    <C>    <C>             <C>               <C>        <C> 
Marsden W. Miller, Jr.  --     --     308,328 (1)          --           --         --
                        --     --          -- (2)     110,000 (2)       --         --
                        --     --     160,000 (3)          --           --         --

John T. Chandler        --     --      39,332 (1)     133,333 (1)       --         --
                        --     --          -- (2)       5,000 (2)       --         --
                        --     --      74,999 (3)          --           --         --

Richard K. Kennedy      --     --     104,852 (1)     177,777 (1)       --         --
                        --     --          -- (2)       5,000 (2)       --         --

Danny M. Dobbs          --     --      22,329 (1)     400,000 (1)       --         --
                        --     --          -- (2)      25,000 (2)       --         --
                        --     --      38,799 (3)          --           --         --

Herbert F. Hamilton     --     --      50,000 (1)     100,000 (1)       --         --

</TABLE>
_______________

(1)      Represents  options to purchase shares of  Common  Stock
     exercisable  under  the  Company's  Stock  Option  Plans  at
     December 31, 1998.

(2)     Represents options to purchase shares of Amended Series A
     Preferred  Stock exercisable under the Company's  Long  Term
     Stock Incentive Plan at December 31, 1998.

(3)      Represents  the  aggregate  number  of  five-year  stock
     purchase  warrants,  received  (a)  upon  surrender  of   an
     employment agreement with the Company, determined based upon
     a  formula whereby each of the individuals was to be offered
     a  warrant, based upon the length of time of employment with
     the Company, for a maximum of two shares of Common Stock for
     each  dollar  of compensation remaining to be paid  to  such
     individual  under his agreement (based upon the  product  of
     his  highest  monthly base salary and the number  of  months
     remaining  under  his  contract), at an  exercise  price  of
     $18.75  per  share,  and  (b)  for  each  dollar  of  salary
     reduction for the 15-month period commencing January 1, 1993
     through March 31, 1994, as based on the same formula and  at
     the  same  exercise price used in the granting  of  warrants
     upon  surrender  of employment agreements.  See  "Employment
     Agreements;  Termination of Employment and Change-in-Control
     Arrangements" below.

(4)      At  December 31, 1998, the Company's Common Stock  price
     was lower than the option and/or warrant exercise prices.

(5)      At  December  31, 1998, the Company's Amended  Series  A
     Preferred  Stock  price was lower than the  option  exercise
     price.

     These  options  were all awarded under the  Company's  Stock
     Option Plans described above.

     Appreciation Option for M.W. Miller, Jr.
     ----------------------------------------

     An Appreciation Option for M. W. Miller, Jr. was approved by
shareholders  at  the December 17, 1997 Special  Meeting  of  the
Shareholders   pursuant  to  the  1997  LTSIP  Restatement.   The
Appreciation Option provides Mr. Miller with additional incentive
to  increase  the  value  of the Company based  upon  its  market
capitalization,  thereby directly benefiting the shareholders  of
the  Company by increasing the value of their investments in  the
Company.   The Appreciation Option Agreement provides Mr.  Miller
with  the  right,  upon  his payment of the  Exercise  Price  (as
defined below), to additional compensation (payable in cash or in
shares  of  Common  Stock  or Preferred Stock  or  a  combination
thereof,  as  elected  by  the Company)  based  upon  5%  of  the
difference between the market capitalization of the Company as of
June  1, 1997 and the market capitalization of the Company as  of
the  date that Mr. Miller exercises the Appreciation Option.  For
purposes  of  the  Appreciation  Option,  the  Company's   market
capitalization  is the total fair market value of  the  Company's
outstanding   shares  of  Common  Stock,  Preferred   Stock   and
outstanding  options and warrants. In general, fair market  value
is determined based on the trading price of marketable securities
and  by  the Board of Directors as to the fair market  value  for
securities for which there is no ready market. Fair market  value
as  of the date of exercise of the Option is based on the average
fair market value of the 30-day period immediately preceding  the
date  of the Appreciation Option exercise.  On June 1, 1997,  the
aggregate  market capitalization of the Company was $161,547,223.
Upon  exercise of his Option, in the event the Company elects  to
settle  the Option with shares of Stock, Mr. Miller must pay  the
Company  twenty  percent (20%) of the amount he  is  entitled  to
receive  upon  exercise of the Appreciation  Option  (before  any
reduction as hereinafter set forth), or any increment thereof, up
to  an aggregate maximum of $5 million (the "Exercise Price")  in
cash.   In  the event the Company elects to settle the Option  in
cash,  the amount of cash Mr. Miller will receive will be reduced
by  the  amount  of  the  Exercise Price.  Because  Mr.  Miller's
Appreciation  Option  contemplates compensation  determined  with
reference  to  increases in the Company's  market  capitalization
without restriction, there is no effective limit on the amount of
compensation which may become payable thereunder.  Mr. Miller may
exercise  his Appreciation Option as of any June 1 or December  1
commencing June 1, 2002, upon 45 days written notice, in whole or
in  10%  increments.  In the event that Mr. Miller exercises  his
Appreciation  Option  for less than the  total  amount  available
thereunder, the percentage increment as to which it is  exercised
will  cease  to  be  available to create additional  compensation
opportunity for Mr. Miller based upon subsequent appreciation  in
the  Company's market capitalization.  Mr. Miller's  Appreciation
Option expires on June 1, 2007 and will remain exercisable at any
time prior to such expiration notwithstanding his termination  of
employment  with the Company unless such employment is terminated
by the Company for "cause" or is terminated by Mr. Miller without
"good  reason."  In keeping with the provisions of the 1997 LTSIP
Restatement  discussed  in "1997 LTSIP Restatement  -  Change  of
Control Provisions," in the event of a "change in control of XCL"
the  Appreciation Option will become immediately exercisable  and
the  Company will be obligated to pay Mr. Miller, in  cash,  upon
any  exercise of his Appreciation Option, at least 40% of the net
amount payable.  This obligation may impede the consummation of a
change of control of the Company.

Certain Federal Income Tax Effects
----------------------------------

      The following is a general summary of the principal federal
income  tax  effects  to the Company under  current  law  of  the
various  awards  that  may  be  granted  under  the  1997   LTSIP
Restatement.   These  descriptions do not purport  to  cover  all
potential tax consequences.

      Section  162(m) of the Internal Revenue Code  of  1986,  as
amended   (the   "Code"),   limits   deductibility   of   certain
compensation  for the Company's Chief Executive Officer  and  the
additional  four executive officers of the Company  who  are  the
highest  paid and employed at year end, to $1 million  per  year,
unless  certain  conditions are met that result  in  compensation
being  characterized as "performance-based."   Awards  under  the
Plan  will  not  satisfy the conditions necessary  to  cause  the
compensation  earned under them to qualify as "performance-based"
compensation, which is not subject to the deductibility limit  of
Section  162(m) of the Code.  It is the position of the Board  of
Directors that the approach necessary for the design of incentive
compensation that will satisfy the criteria under Section  162(m)
of  the  Code would compromise the best interests of the  Company
and its shareholders.

      Certain provisions in the 1997 LTSIP Restatement may afford
the  recipient of an Award under the 1997 LTSIP Restatement  with
special protections or payments that are contingent upon a change
in  the  ownership or effective control of the Company or in  the
ownership  of a substantial portion of the Company's assets.   To
the  extent that they are triggered by the occurrence of any such
event,  these  special  protections or  payments  may  constitute
"parachute payments" which, when aggregated with other "parachute
payments"  received  by  the  recipient,  could  result  in   the
recipient  receiving  "excess parachute payments."   The  Company
would  not  be allowed a deduction for any such "excess parachute
payments"  and the recipient of such "excess parachute  payments"
would  be  subject to a nondeductible 20% excise  tax  upon  such
payments in addition to income tax otherwise owed with respect to
such payments.

Section 401(k) Plan
--------------------

      In 1989, the Company adopted an employee benefit plan under
Section  401(k) of the Internal Revenue Code for the  benefit  of
employees meeting certain eligibility requirements.  The  Company
has  obtained a favorable determination from the Internal Revenue
Service regarding the tax-favored status of this plan.  Employees
can contribute up to 10% of their compensation.  The Company,  at
its discretion and subject to certain limitations, may contribute
up  to 75% of the contributions of each participant.  The Company
did  not  make  any  contributions to the 401(k)  Plan  in  1998.
Effective January 1, 1999, the Company's 401(k) plan was  amended
to:  (i)  allow  employees  to contribute  up  to  15%  of  their
compensation,  and  (ii)  allow  the  Company  to  make  matching
contributions in cash or equity securities of the Company, at the
option of the Company.

Compensation of Directors and Other Arrangements
------------------------------------------------

      The Company reimburses its directors for travel and lodging
expenses   incurred  in  attending  meetings  of  the  Board   of
Directors.   Effective  January 1, 1990,  directors  (other  than
Messrs.  Hummel and Palliser and those directors who are officers
of the Company) are paid an annual retainer of $18,000 plus a fee
of  $1,000  for  each Board meeting attended.  In addition,  such
directors  are  paid a fee of $1,000 for each  committee  meeting
attended.

      In April 1994, the Company entered into separate consulting
agreements with Messrs. Hummel and Palliser, upon their  becoming
directors.  Each of the agreements is terminable by either of the
parties  thereto  upon  written  notice  and  provides  that  the
individuals  will render consulting services to  the  Company  in
their  respective areas of expertise.  Pursuant to the  terms  of
the agreements, each of those directors receives compensation  at
the  rate  of  $50,000 per annum, which includes the compensation
they would otherwise be entitled to receive as directors and  for
attending meetings of the Board.

      In  June  1997,  the  Company  entered  into  a  consulting
agreement  with  Mr.  Fetters, a director of the  Company,  which
expired on July 31, 1998, and continued thereafter on a month  to
month  basis.   In  January  1999, the Company  entered  into  an
extended  and  revised  consulting agreement  with  Mr.  Fetters.
Either  party may terminate the agreement on ninety days  written
notice. Pursuant to the terms of the agreement, Mr. Fetters is to
consult  with  the  Company  on  all  aspects  of  the  Company's
exploration,  development  and  production  projects.   For   his
services Mr. Fetters is to receive $60,000 per annum, which is in
addition  to the compensation he would receive as a director  for
attending  meetings  of  the Board.  In  addition  to  the  above
compensation, Mr. Fetters is entitled to receive a  finder's  fee
on certain specifically identified projects.

      Effective  June 30, 1998, Mr. Ross was granted nonqualified
stock   options  to  purchase  66,666  shares  of  Common   Stock
exercisable at $3.75 per share.  Effective June 1, 1997,  Messrs.
Hummel,  Palliser,  Reinhardt, Hofheinz  and  Fetters  were  each
granted  nonqualified stock options to purchase 66,666 shares  of
Common Stock exercisable at $3.75 per share under the 1997  LTSIP
Restatement.   See  "Stock  Options - 1997  LTSIP  Restatement  -
Awards to Management" herein.

      Benjamin  B.  Blanchet, in his capacity as  Executive  Vice
President,  is paid a salary of $80,000 per year  for  up  to  80
hours per month.

      Effective  August  1,  1997, the  Company  entered  into  a
Services   Agreement  with  Mr.  Blanchet.   The   Agreement   is
terminable by either party at any time without cause.  Under  the
Agreement,  Mr.  Blanchet is engaged to act  as  counsel  to  the
Company to perform from time to time such services as the Company
may request of him in that capacity.  Effective January 15, 1999,
the  Services Agreement was amended to provide that Mr.  Blanchet
would bill the Company at a flat rate of $10,000 per month rather
than  $175  per  hour, for up to 80 hours per month  of  service.
Also,  under  the  Services Agreement, the Company  provides  Mr.
Blanchet  with office space, supplies, secretarial assistance,  a
library   allowance,   professional  liability   insurance,   and
reimbursement  of  continuing legal education  expenses  and  bar
dues.  Under the Services Agreement, Mr. Blanchet may, except  as
prohibited   by  law  or  the  Louisiana  Rules  of  Professional
Responsibility,  represent other clients and engage  in  business
for his own account.

      In  connection  with  his employment by  the  Company,  Mr.
Blanchet  received from the Company a $100,000  loan  to  replace
benefits  that  he forfeited when he withdrew  as  a  partner  of
Gordon,  Arata, McCollam & Duplantis, L.L.P. to become  Executive
Vice  President  of the Company.  The loan is to be  repaid  over
eight years from annual bonus payments equal to interest, at  the
rate of 6.5% per annum, plus one-eighth of the original principal
balance to be paid by the Company to Mr. Blanchet each year.  The
loan will be forgiven in its entirety if the Company fails to pay
timely any such bonus payment, breaches the Services Agreement or
terminates  his  employment  without  "cause,"  or  Mr.  Blanchet
terminates his employment with "good reason," in either  case  as
such terms are defined in the note evidencing the loan.

      During  1998  all  regular employees were  provided  health
insurance,  a  portion of the premium for which is  paid  by  the
Company, and life and disability insurance based upon a factor of
the employee's base salary.

Employment Agreements; Termination of Employment and
----------------------------------------------------
Change-in-Control Arrangements
------------------------------

      Effective  April  1, 1994, Messrs. M.W. Miller,  Jr.,  J.T.
Chandler,  and  D.M. Dobbs, in their capacities as executive  and
administrative   officers  of  the  Company   and   its   various
subsidiaries, agreed to surrender their employment agreements  in
consideration of the issuance of five-year warrants  to  purchase
Common Stock at an exercise price of $18.75 per share, subject to
customary  anti-dilution adjustments.   The  number  of  warrants
issued  to  such individuals was determined based upon a  formula
whereby each of the individuals was offered a warrant to purchase
(based upon the length of time of employment with the Company)  a
maximum  of  two  shares  of  Common Stock  for  each  dollar  of
compensation  remaining to be paid to such individual  under  his
agreement  (based  upon the product of his highest  monthly  base
salary  and  the number of months remaining under his agreement).
Accordingly,  Mr.  Miller received warrants to  purchase  125,000
shares;  Mr.  Chandler,  68,333 shares;  and  Mr.  Dobbs,  38,333
shares.

      Effective  January 1, 1989, the Company  adopted  a  policy
addressing  severance upon separation from  the  Company.   Under
this  policy  benefits  due upon a change-in-control  as  therein
defined  range from three months salary for employees  with  less
than  one year of service to 24 months salary for employees  with
more than 10 years of service.

Report on Repricing of Options/SARs
-----------------------------------

      During the fiscal year ended December 31, 1998, there  were
no  repricings  of  stock options awarded to  any  of  the  named
executive officers.

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

      For  the  year  ended  December  31,  1998,  the  following
nonexecutive directors of the Company, served as members  of  the
Compensation  Committee  of the Board of  Directors:  Messrs.  M.
Palliser,  A.W.  Hummel,  Jr., F. Hofheinz  (Chairman)  and  F.J.
Reinhardt, Jr. None of the members of the Compensation  Committee
were  formerly,  nor  are  any  members  currently,  officers  or
employees of the Company or any of its subsidiaries.
<PAGE>

     Compensation Committee Report on Executive Compensation
     --------------------------------------------------------
                                
      The  Compensation  Committee  of  the  Board  of  Directors
("Committee")  establishes the general compensation  policies  of
the  Company,  establishes the compensation  plans  and  specific
compensation  levels  for executive officers  and  certain  other
managers,  and administers the Stock Option Plans and  Long  Term
Stock  Incentive Plan. The Committee currently consists  of  four
independent,  nonemployee  directors: Messrs.  F.  Hofheinz,  who
serves  as  Chairman,  M. Palliser, Arthur  W.  Hummel,  Jr.  and
Francis J. Reinhardt, Jr.

Compensation Policies and Philosophy
------------------------------------

      The  Committee has determined that the compensation program
of  the  Company should not only be adequate to attract, motivate
and  retain executives, key employees and other individuals  whom
the  Company believes may make significant contributions  to  the
Company's  results,  but  should also  be  linked  to  the  value
delivered  to  shareholders as reflected  in  the  price  of  the
Company's Common Stock.

      The  Committee  believes  that  the  cash  compensation  of
executive  officers,  as well as other key employees,  should  be
competitive with other similarly situated companies while, within
the  Company,  being  fair and discriminating  on  the  basis  of
personal  performance.   In general, in establishing  total  cash
compensation  for its executives, the Committee  has  taken  into
account  the  median cash compensation of executives employed  by
competitors,  including some of the companies  reflected  in  the
peer  group identified in the Performance Graph set forth  below,
and  that  the  Committee believes represent the  Company's  most
direct  competition for executive talent. The Committee  receives
recommendations from management as to executive compensation and,
in light of the Company's performance and the economic conditions
facing  the  Company, determines appropriate compensation  levels
for recommendation to the Board of Directors.  The Committee does
not  assign  relative weights to individual factors and  criteria
used  in  determining executive compensation, and  does  not  use
quantifiable  targets in determining compensation.   The  Company
did not retain the services of a compensation-consulting firm  in
1998.

      Awards  of  stock  options  are  intended  both  to  retain
executives,  key employees and other individuals who the  Company
believes  may  make significant contributions  to  the  Company's
results  and  to motivate them to improve long-term stock  market
performance.  Options  are granted at  or  above  the  prevailing
market  price  and  will have value only  if  the  price  of  the
Company's Common Stock increases.

      Effective  January 1, 1994, Section 162(m) of the  Internal
Revenue  Code  of  1986  (the  "Code")  generally  denies  a  tax
deduction to any publicly held corporation for compensation  that
exceeds $1 million paid to certain senior executives in a taxable
year,    subject   to   an   exception   for   "performance-based
compensation"  as  defined in the Code, and  subject  to  certain
transition  provisions.  Gains on the  exercise  of  nonqualified
stock  options  granted through December 31, 1994,  will  be  tax
deductible  under the transition rules.  Restricted stock  awards
by definition granted after February 17, 1993 are not deductible.
At  present the Committee does not intend to recommend  amendment
to the Stock Option Plans to meet the restrictive requirements of
the Code.

      The  Committee believes that annual incentive awards should
be  commensurate with performance.  It further believes  that  in
order  to  meet  this objective it needs to have the  ability  to
exercise  its  judgment  or discretion  to  evaluate  performance
against qualitative criteria. It is the Committee's opinion  that
the  benefits to the Company of the use of a qualitative approach
to  the  compensation of senior executives, such as the Chairman,
outweigh  the  nonmaterial loss of a portion  of  the  deductions
associated with that compensation.

     On April 14, 1999, the Committee reviewed the Company's 1998
financial   results   and  nonfinancial  goals.   The   Committee
determined  that,  in  light  of  (i)  the  Company's   continued
successful drilling results in the Zhao Dong Block in  the  Bohai
Bay  in  China, (ii) the Company's success in securing the  Zhang
Dong Block in the Bohai Bay in China, and (iii) the fact that top
officials in China's oil industry have indicated that the Company
will   be   offered   additional  exploration,  development   and
downstream  projects  in  China, the Company's  nonfinancial  and
operating  goals  for  1998  had  been  met  and  exceeded.   The
Committee  further  recognized  the  fact  that  the   delay   in
commencing  production on the Zhao Dong Block, coupled  with  the
decline  in  worldwide oil prices, had been  detrimental  to  the
Company's financial goals.

     Company Performance and Chief Executive Officer Compensation
     ------------------------------------------------------------

       The   Committee,   in  connection  with  determining   the
appropriate  compensation for Marsden W.  Miller,  Jr.  as  Chief
Executive  Officer  ("CEO"),  took  into  account  the  financial
condition  of  the Company, including its liquidity requirements.
It determined that the CEO had been successful in raising capital
throughout the year. Taking into consideration the performance of
the  CEO, as well as the Company's current cash position and near
term  requirements, the Committee decided that the 1997  NSO  and
Appreciation Option awards should serve in lieu of a cash  salary
increase to the CEO for the present time.

Compensation of Other Executive Officers
----------------------------------------

      The  Committee noted that effective January 1, 1999, salary
reductions  of  5%-20%  were  recognized  by  substantially   all
executive  officers,  non-executive  officers  and  employees  to
conserve cash.

      At  the  April 14, 1999, meeting the Committee adopted  the
1999  Bonus  Plan and set specific project-related objectives  in
connection  therewith.  These  bonuses  are  designed   to   give
employees  incentive  to  work  to  achieve  the  Company's  1999
objectives,  and to help retain qualified employees.   Under  the
Plan  the Committee would set bonuses at year-end based on  those
objectives.  Clerical and secretarial employees are eligible  for
a  bonus  of  up  to 5% of their December 31, 1998  base  salary;
administrative and technical employees are eligible for  a  bonus
of up to 10%; managers are eligible for a bonus of up to 15%; and
senior  management are eligible for a bonus  of  up  to  20%.  An
employee  could earn up to the maximum percentage in his  or  her
category if the objectives set by the Committee are met in  full.
The  Committee has the discretion to award no bonus at all or any
amount  up to the maximum percentage, to any particular  employee
based   on   the   Committee's  finding  of   that   individual's
contribution  to the meeting of the objectives. If the  Committee
determined  that  most, but not all, of the objectives  had  been
met,  it  has the discretion to award a lesser bonus to some,  or
all,  eligible employees.  If the Committee determines that  most
of  the objectives were not met, no bonuses will be awarded.   Up
to  one-fourth  of  a  bonus payable  to  any  member  of  senior
management,  in  the  sole discretion of the  Committee,  may  be
payable  in Common Stock of the Company.  A larger percentage  of
the  bonus paid to a member of senior management may be  paid  in
Common Stock, if so requested by that employee and agreed  to  by
the Committee.



April 14, 1999                     COMPENSATION COMMITTEE

                                   Fred Hofheinz, Chairman
                                   Arthur W. Hummel
                                   Michael Palliser
                                   Francis J. Reinhardt, Jr.
<PAGE>
                                
Shareholder Return Performance Presentation
-------------------------------------------

      Set  forth  below is a line graph comparing the  percentage
change  in  the  cumulative  total  shareholder  return  on   the
Company's  Common Stock against the AMEX Market Value  Index  for
the  years 1994 through 1998, with a peer group selected  by  the
Company  for the past five fiscal years. The peer group  consists
of  the  same independent oil and gas exploration and  production
companies  used  in last year's comparison, namely:  Alta  Energy
Corporation  (acquired by Devon Energy in  1994);  Amerac  Energy
Corporation  (merged  with  First  Boston  in  1998);  Bellwether
Exploration  Company; Brock Exploration Corporation (acquired  by
Key  Production  in  1996); Tom Brown  Inc.;  Caspen  Oil,  Inc.;
Chemfirst  Inc.  (formerly First Mississippi  Corporation);  Cobb
Resources  Corporation;  Coda Energy,  Inc.  (acquired  by  Joint
Energy  in 1996); Comstock Resources, Inc.; Crystal Oil  Company;
DeKalb  Energy  Company; Edisto Resources  Company  (acquired  by
Forcenergy in 1997); Energen Corporation; Forest Oil Corporation;
Frontier Oil (name changed from Wainoco Oil Corporation);  Global
Natural  Resources, Inc. (acquired by Seagull  Energy  in  1996);
Goodrich   Petroleum  Corporation  (formerly  Patrick   Petroleum
Company);  Hallador Petroleum Company; Hondo Oil &  Gas  Company;
Kelley  Oil  & Gas Partners; Louis Dreyfus Natural Gas  (formerly
American  Exploration  Company); Magellan Petroleum  Corporation;
Maynard Oil Company; Monterey Resources, Inc. (acquired by Texaco
in  1997);  MSR  Exploration Limited; Numac  Energy,  Inc.;  Penn
Virginia  Corporation;  Plains  Resources,  Inc.;  Presidio   Oil
(acquired by Tom Brown Inc. in 1998); Sempra Energy (name changed
from  Pacific  Enterprises); Wichita River  Oil;  and  Wiser  Oil
Company.  The relevant information with respect to the peer group
was  furnished by Standard & Poors Compustat Service.  The  graph
assumes that the value of the investment in the Company's  Common
Stock and the peer group stocks were $100 on January 1, 1993  and
that all dividends were reinvested.

                                
                   [SHAREHOLDER RETURN GRAPH]
                                
                                
           1994 Return  1995 Return 1996 Return 1997 Return 1998 Return
           -----------  ----------- ----------- ----------- -----------
XCL           144.48       55.52       33.28       49.69       22.25
AMEX           90.89      114.90      122.24      143.48      144.40
Peer Group     99.39      124.83      146.85      168.22      134.00



Item 12.   Security Ownership of Certain Beneficial Owners
           and Management.

Security Ownership of Certain Beneficial Owners
-----------------------------------------------
     
     The  following table sets forth as of March 31,  1999,  unless
     otherwise indicated, the individuals or entities known to  the
     Company   to  own  more  than  5  percent  of  the   Company's
     outstanding shares of voting securities. As of that date there
     were  23,377,941 shares of Common Stock; 1,231,897  shares  of
     Amended Series A Preferred Stock; and 50,848 shares of  Series
     B  Preferred Stock issued and outstanding. Except as otherwise
     indicated,   all  shares  are  owned  both   of   record   and
     beneficially.

<TABLE>
<CAPTION>
                                                             Amended Series A        Amended Series B
                                    Common Stock (1)        Preferred Stock (2)     Preferred Stock (3)
                               ------------------------   ----------------------   --------------------
    Name and Address            Number of      Percent     Number of    Percent    Number of    Percent
   of Beneficial Owner           Shares        of Class     Shares     of Class     Shares     of Class
  --------------------         ------------   ---------   ----------  ----------   ---------   ---------
<S>                            <C>               <C>       <C>           <C>      <C>          <C>
Cumberland Associates          3,143,266 (4)     12.04     212,581       17.26       --         --
1114 Avenue of the Americas
New York, New York  10036

KAIM Non-Traditional, L.P.     7,304,364 (5)     25.25     336,620 (6)   27.33   50,848 (7)    100
1800 Avenue of the Stars,
2nd Floor
Los Angeles, California 90026

Mitch Leigh                    2,218,832 (8)     9.39           --          --       --         --
29 West 57th Street
New York, New York  10019

Marsden W. Miller, Jr.         1,639,047 (9)     6.87           --          --       --         --
110 Rue Jean Lafitte, 2nd Floor
Lafayette, Louisiana 70508

Putnam Investment, Inc.        2,522,874 (10)    11.1     222,613 (10)    18.07      --         --
One Post Office Square
Boston, MA  02109

</TABLE>
______________
(1)      This table includes shares of Common Stock issuable upon
     conversion  of  the  shares of Amended  Series  A  Preferred
     Stock.   Each share of Amended Series A Preferred  Stock  is
     convertible into 11.333 shares of Common Stock.

(2)      The  holders  of  Amended Series A Preferred  Stock  are
     entitled  to cast the same number of votes as the shares  of
     Common   Stock   then   issuable  upon  conversion   thereof
     (currently  11 votes) on any matter subject to the  vote  of
     Common Stockholders.

(3)      Each  share  of  Amended Series  B  Preferred  Stock  is
     convertible into approximately 26.3 shares of Common  Stock,
     if  the  Common Stock issuable on conversion  has  not  been
     registered  and  21 shares of Common Stock,  if  the  Common
     Stock issuable on conversion has been registered, subject to
     adjustment.  Each share of Amended Series B Preferred  Stock
     is entitled to 50 votes per share.

(4)      Includes  shares  issuable upon the  exercise  of  stock
     purchase warrants exercisable within the next 60 days.

(5)     KAIM Non-Traditional, L.P. ("KAIM") and Richard A. Kayne,
     have  shared  voting  and dispositive power  over  4,751,482
     shares,  which include 144,401 shares which may be  acquired
     within  60  days  upon  exercise of warrants  and  3,816,568
     shares  which may be acquired within 60 days upon conversion
     of preferred shares. The shares are owned by nine investment
     accounts  (including  four investment limited  partnerships,
     three  insurance  companies  and  an  offshore  corporation)
     managed, with discretion to purchase or sell securities,  by
     KAIM, a registered investment adviser.  KAIM is the sole  or
     managing   general  partner  of  the  limited  partnerships.
     Richard  A.  Kayne  is the controlling  shareholder  of  the
     corporate  owner  of  Kayne Anderson Investment  Management,
     Inc., the sole general partner of KAIM.  Mr. Kayne is also a
     limited  partner of each of the limited partnerships.   KAIM
     is  an investment manager of the offshore corporation.   Mr.
     Kayne  is  a  director  of one of the  insurance  companies.
     KAIM  disclaims beneficial ownership of the shares reported,
     except  those  shares attributable to it by  virtue  of  its
     general partner interests in the limited partnerships.   Mr.
     Kayne disclaims beneficial ownership of the shares reported,
     except  those shares held by him or attributable to  him  by
     virtue  of his limited and general partner interests in  the
     limited  partnerships and by virtue of his indirect interest
     in the interests of KAIM in the limited partnerships.

(6)      KAIM  and  Richard  A.  Kayne, have  shared  voting  and
     dispositive power over 336,620 shares. The shares are  owned
     by  nine  investment  accounts  (including  four  investment
     limited  partnerships,  three  insurance  companies  and  an
     offshore  corporation) managed, with discretion to  purchase
     or   sell  securities,  by  KAIM,  a  registered  investment
     adviser.   KAIM is the sole or managing general  partner  of
     the   limited  partnerships.   Richard  A.  Kayne   is   the
     controlling  shareholder  of the corporate  owner  of  Kayne
     Anderson  Investment  Management,  Inc.,  the  sole  general
     partner  of  KAIM.  Mr. Kayne is also a limited  partner  of
     each  of  the  limited partnerships.  KAIM is an  investment
     manager  of  the  offshore  corporation.   Mr.  Kayne  is  a
     director of one of the insurance companies.   KAIM disclaims
     beneficial  ownership of the shares reported,  except  those
     shares  attributable to it by virtue of its general  partner
     interests  in the limited partnerships.  Mr. Kayne disclaims
     beneficial  ownership of the shares reported,  except  those
     shares  held  by him or any shares attributable  to  him  by
     virtue  of his limited and general partner interests in  the
     limited  partnerships and by virtue of his indirect interest
     in the interests of KAIM in the limited partnerships.

(7)      KAIM  and  Richard  A.  Kayne, have  shared  voting  and
     dispositive power over these shares.  The shares  are  owned
     by   four  investment  limited  partnerships  managed,  with
     discretion  to  purchase  and sell securities,  by  KAIM,  a
     registered investment adviser. KAIM is the sole or  managing
     general  partner  of the limited partnerships.   Richard  A.
     Kayne  is the controlling shareholder of the corporate owner
     of  Kayne  Anderson Investment Management,  Inc.,  the  sole
     general  partner  of  KAIM.  Mr. Kayne  is  also  a  limited
     partner  of  each  of  the limited  partnerships.  .    KAIM
     disclaims  beneficial  ownership  of  the  shares  reported,
     except  those  shares attributable to it by  virtue  of  its
     general partner interests in the limited partnerships.   Mr.
     Kayne disclaims beneficial ownership of the shares reported,
     except  those  shares attributable to him by virtue  of  his
     limited   and  general  partner  interests  in  the  limited
     partnerships and by virtue of his indirect interest  in  the
     interests of KAIM in the limited partnerships.

(8)      Includes 70,052 shares and 12,600 warrants owned by  Mr.
     Leigh's wife.  Does not include shares and warrants held  in
     custodial and trust accounts for Mr. Leigh's minor  children
     that  Mr.  Leigh  does  not  control.  Mr.  Leigh  disclaims
     beneficial  ownership of all shares held  by  his  wife  and
     minor children.

(9)      Includes  shares  issuable upon the  exercise  of  stock
     options  exercisable within the next 60 days; and  1,000,000
     shares  of  restricted stock subject to  certain  forfeiture
     provisions.

(10)      Information  as to the amount and nature of  beneficial
     ownership  was obtained from a Schedule 13G filed  with  the
     SEC on February 9, 1999. Putnam Investments, Inc. ("PI")  is
     a  wholly  owned subsidiary of Marsh & McClennan  Companies,
     Inc.  (M&MC).   PI owns two registered investment  advisors,
     Putnam  Investment  Management, Inc. ("PIM")  which  is  the
     investment adviser to the Putnam family of mutual funds, and
     The  Putnam  Advisory  Company, Inc. ("PAC")  which  is  the
     investment  advisor to Putnam's institutional clients.  Both
     subsidiaries  have  dispository  power  of  the  shares   as
     investment managers, but each of the mutual fund's  trustees
     have  voting power of the shares held by each fund, and  PAC
     has  shared  voting  power  over  the  shares  held  by  the
     institutional  clients.  PIM  beneficially  owns   2,354,136
     shares  of  Common Stock and PAC beneficially  owns  168,738
     shares  of Common Stock, in both instances including  shares
     of Common Stock that may be acquired within the next 60 days
     upon conversion of preferred stock and exercise of warrants.
     PI and M&MC disclaim beneficial ownership of the shares.

Security Ownership of Management
--------------------------------

      The  following table sets forth information concerning  the
shares  of the Company's Common Stock owned beneficially by  each
director of the Company, and all directors and executive officers
as  a  group  as  of March 31, 1999. As of that date  there  were
23,377,941  shares  of Common Stock issued  and  outstanding  and
1,231,897  shares of Amended Series A Preferred Stock issued  and
outstanding. The mailing address for all such individuals is  XCL
Ltd.,  110  Rue  Jean  Lafitte, 2nd Floor,  Lafayette,  Louisiana
70508.

<TABLE>
<CAPTION>
                                        Common Stock              Amended Series A 
                                                                   Preferred Stock
                             _____________________________      _____________________
                                Number             Percent         Number    Percent
Name of Beneficial Owner       of Shares          of Class (7)   of Shares  of Class
-----------------------     ------------------    ------------   ---------  ---------
<S>                        <C>                         <C>        <C>          <C>
Marsden W. Miller, Jr.     1,639,047 (1)(2)(3)(4)      6.87           --        --
John T. Chandler             585,430 (1)(2)(3)(4)(5)   2.48       20,000 (2)   1.62
Benjamin B. Blanchet             200 (6)                 --           --        --
Fred Hofheinz                 39,998 (3)               0.17           --        --
Arthur W. Hummel, Jr.         39,998 (3)               0.17           --        --
Sir Michael Palliser          39,998 (3)               0.17           --        --
Francis J. Reinhardt, Jr.     75,797 (3)(7)            0.32           --        --
R. Thomas Fetters, Jr.        96,031 (4)               0.41           --        --
Peter F. Ross                     --                     --           --        -- 
All directors and officers 
 of the Company as a group 
 (14 persons)              2,962,532 (3)(4)           11.98       20,000 (2)   1.62

</TABLE>
____________

(1)      Includes  13,333 shares that are subject  to  an  option
     granted  by  Mr.  Miller, under agreement dated  October  1,
     1985,  in  favor of John T. Chandler.  Such shares are  also
     included in Mr. Chandler's holding inasmuch as the option is
     presently  exercisable.  For purposes of the total  holdings
     of the group, the shares are included solely in Mr. Miller's
     share holdings.
(2)      Includes  shares of restricted stock awarded to  Messrs.
     Miller  and  Chandler that are subject to certain forfeiture
     provisions.
(3)      Includes  shares of Common Stock that  may  be  acquired
     pursuant to options that are exercisable within 60 days.
(4)      Includes  shares of Common Stock that  may  be  acquired
     pursuant  to  stock purchase warrants that  are  exercisable
     within 60 days.
(5)     Includes shares of Common Stock that may be acquired upon
     conversion of Amended Series A Preferred Stock.
(6)     Represents shares of Common Stock owned by Mr. Blanchet's
     children.  Mr. Blanchet disclaims ownership of these shares.
(7)      Includes 6,666 shares of Common Stock owned by  Carl  H.
     Pforzheimer  &  Co.  of  which Mr. Reinhardt  is  a  general
     partner  and  15,000 shares owned by Petroleum  and  Trading
     Corporation  of  which  Mr.  Reinhardt  is  an  officer  and
     director.   Mr. Reinhardt disclaims beneficial ownership  of
     the shares owned by Petroleum and Trading Corporation.


Item 13.     Certain Relationships and Related Transactions.

      As a matter of policy the Company approves all transactions
involving  insiders  through the majority vote  of  disinterested
directors.

                             PART IV
                                

Item 14.      Exhibits, Financial Statement Schedules, and
              Reports on Form 8-K.

(a)       The  following documents are filed as a  part  of  this
          report.

(1)   Financial Statements

      The following documents are included in Part II, Item 8  of
this report:
                                                                 Page

XCL Ltd. and Subsidiaries:
-------------------------

Report of Independent Certified Public Accountants                 39
Consolidated Balance Sheets as of December 31, 1998 and
  December 31, 1997                                                40
Consolidated Statements of Operations for each of the years
  ended December 31, 1996, 1997 and 1998                           41
Consolidated Statements of Shareholders' Equity for each of
  the years ended December 31, 1996, 1997 and 1998                 42
Consolidated Statements of Cash Flows for each of the years
  ended December 31, 1996, 1997 and 1998                           43 
Notes to Consolidated Financial Statements                         44

XCL-China Ltd. (wholly-owned):
-----------------------------

Report of Independent Certified Public Accountants                 69
Balance Sheets as of December 31, 1998 and December 31, 1997       70
Statements of Operations for each of the years ended 
  December 31, 1996, 1997 and 1998                                 71
Statements of Shareholders' Deficit for each of the years
  ended December 31, 1996, 1997 and 1998                           72
Statements of Cash Flows for each of the years ended 
  December 31, 1996, 1997 and 1998                                 73
Notes to Financial Statements                                      74

(2)   Financial Statement Schedule

XCL Ltd. and Subsidiaries:
-------------------------

Schedule II-Valuation and Qualifying Accounts                     68


(3)   Executive Compensation Plans and Arrangements

Form  of  Amendment dated January 15, 1999, to Services Agreement
dated  August  1, 1997, between the Company and Mr.  Benjamin  B.
Blanchet,  an officer and director of the Company. - See  Exhibit
10.61 filed herewith .

Consulting Agreement by and between the Company and Mr. R. Thomas
Fetters,  Jr.  dated January 1, 1999. - See Exhibit  10.60  filed
herewith.

Form  of  Long Term Stock Incentive Plan as Amended and  Restated
Effective  as of June 1, 1997 - See Appendix C to Proxy Statement
dated November 20, 1997.

Form of Appreciation Grant Agreement between the Company and  Mr.
M.W.  Miller,  Jr.  -  See Appendix D to  Proxy  Statement  dated
November 20, 1997.

Form  of  Services  Agreement dated August 1, 1997,  between  the
Company and Mr. Benjamin B. Blanchet, an officer and director  of
the Company. - See Exhibit 10.46 hereto.

Form  of  Promissory Note dated August 1, 1997,  in  a  principal
amount  of $100,000, made in favor of the Company by Mr. Benjamin
B.  Blanchet,  an  officer  of the Company.   See  Exhibit  10.47
hereto.

Consulting Agreement by and between the Company and Mr. R. Thomas
Fetters,  Jr.  dated  June  1, 1997.  -   See  Exhibit  10.63  to
Quarterly Report on Form 10-Q filed November 14, 1997.

Consulting  Agreement by and between the Company and Sir  Michael
Palliser dated May 1, 1994. -  See Exhibit 10.22 to Annual Report
on Form 10-K/A No. 1 filed April 17, 1995.

Consulting Agreement by and between the Company and Mr. Arthur W.
Hummel,  Jr.,  dated May l, 1994. - See Exhibit 10.23  to  Annual
Report on Form 10-K/A No. 1 filed April 17, 1995.

Long  Term  Stock Incentive Plan between the Company and  certain
employees. - See Exhibit A to Proxy Statement dated May 11, 1992.

Amended and Restated 1987 Incentive Stock Option and Stock Option
Plans  -  See  Exhibit  4 to Current Report  on  Form  8-K  filed
February 10, 1989.

Form of Indemnification Agreement by and between the Company  and
various  officers  and  directors -  See  Appendix  II  to  Proxy
Statement dated November 13, 1987.

Stock Option Agreement by and between the Company and Marsden  W.
Miller,  Jr.  dated July 11, 1987 - See Appendix  VIII  to  Proxy
Statement dated November 13, 1987.


(b)     Reports on Form 8-K

No  reports  on  Form  8-K were filed during  the  quarter  ended
December 31, 1998.

(c)     Exhibits required by Item 601 of Regulation S-K

2.0     Not applicable

3.1     Amended and Restated Certificate of Incorporation of the
     Company.  (Q)(i)

3.2     Amended and Restated By-Laws of the Company.  (A)(i)

4.1     Forms of Common Stock Certificates.  (P)(i)

4.2     Form of Warrant dated January 31, 1994 to purchase
     2,500,000 shares of Common Stock at an exercise price of
     $1.00 per share, subject to adjustment, issued to INCC.
     (D)(i)

4.3     Form of Registrar and Stock Transfer Agency Agreement,
     effective March 18, 1991, entered into between the Company
     and Manufacturers Hanover Trust Company (predecessor to
     Chemical Bank), whereby Chemical Bank (now known as
     ChaseMellon Shareholder Services) serves as the Company's
     Registrar and U.S. Transfer Agent.  (E)

4.4     Copy of Warrant Agreement and Stock Purchase Warrant
     dated March 1, 1994 to purchase 500,000 shares of Common
     Stock at an exercise price of $1.00 per share, subject to
     adjustment, issued to EnCap Investments, L.C. (D)(ii)

4.5     Copy of Warrant Agreement and form of Stock Purchase
     Warrant dated March 1, 1994 to purchase an aggregate 600,000
     shares of Common Stock at an exercise price of $1.00 per
     share, subject to adjustment, issued to principals of San
     Jacinto Securities, Inc. in connection with its financial
     consulting agreement with the Company. (D)(iii)

4.6     Form of Warrant Agreement and Stock Purchase Warrant
     dated April 1, 1994, to purchase an aggregate 6,440,000
     shares of Common Stock at an exercise price of $1.25 per
     share, subject to adjustment, issued to executives of the
     Company surrendering all of their rights under their
     employment contracts with the Company. (C)(i)

4.7     Form of Warrant Agreement and Stock Purchase Warrant
     dated April 1, 1994, to purchase an aggregate 878,900 shares
     of Common Stock at an exercise price of $1.25 per share,
     subject to adjustment, issued to executives of the Company
     in consideration for salary reductions sustained under their
     employment contracts with the Company. (C)(ii)

4.8     Form of Warrant Agreement and Stock Purchase Warrant
     dated April 1, 1994, to purchase 200,000 shares of Common
     Stock at an exercise price of $1.25 per share, subject to
     adjustment, issued to Thomas H. Hudson.   (C)(iii)

4.9     Form of Warrant Agreement and Stock Purchase Warrant
     dated May 25, 1994, to purchase an aggregate 100,000 shares
     of Common Stock at an exercise price of $1.25 per share,
     subject to adjustment, issued to the holders of Purchase
     Notes B, in consideration of amendment to   payment terms of
     such Notes. (C)(iv)

4.10     Form of Warrant Agreement and Stock Purchase Warrant
     dated May 25, 1994, to purchase an aggregate 100,000 shares
     of Common Stock at an exercise price of $1.25 per share,
     subject to adjustment, issued to the holders of Purchase
     Notes B, in consideration for the granting of an option to
     further extend payment terms of such Notes.   (C)(v)

4.11     Form of Purchase Agreement between the Company and each
     of the Purchasers of Units in the Regulation S Unit Offering
     conducted by Rauscher Pierce & Clark with closings as
     follows:

          December 22, 1995                   116 Units
          March 8, 1996                        34 Units
          April 23, 1996                       30 Units  (I)(i)

4.12     Form of Warrant Agreement between the Company and each
     of the Purchasers of Units in the Regulation S Unit Offering
     conducted by Rauscher Pierce & Clark, as follows:

      Closing Date          Warrants     Exercise Price
      December 22, 1995      6,960,000        $.50
      March 8, 1996          2,040,000        $.35
      April 23, 1996         1,800,000        $.35   (I)(ii)

4.13     Form of Warrant Agreement between the Company and
     Rauscher  Pierce & Clark in consideration for acting  as
     placement  agent in the Regulation S Units Offering, as
     follows:

              Closing Date            Warrants    Exercise  Price
              December 22, 1995        696,000         $.50
              March 8, 1996            204,000         $.35
              April 23, 1996           180,000         $.35   (I)(iii)

4.14     Form of a series of Stock Purchase Warrants issued to
     Janz Financial Corp. Ltd. dated August 14, 1996, entitling
     the holders thereof to purchase up to 3,080,000 shares of
     Common Stock at $0.25 per share on or before August 13,
     2001. (L)

4.15     Form of a series of Stock Purchase Warrants dated
     November 26, 1996, entitling the following holders thereto
     to purchase up to 2,666,666 shares of Common Stock at $0.125
     per share on or before December 31, 1999:

     Warrant Holder                      Warrants
     
     Opportunity Associates, L.P.        133,333
     Kayne Anderson Non-Traditional 
        Investments, L.P.                666,666
     Arbco Associates, L.P               800,000
     Offense Group Associates, L.P.      333,333
     Foremost Insurance Company          266,667
     Nobel Insurance Company             133,333
     Evanston Insurance Company          133,333
     Topa Insurance Company              200,000 (M)(i)

4.16     Form of a series of Stock Purchase Warrants dated
     December 31, 1996 (2,128,000 warrants) and January 8, 1997
     (2,040,000 warrants) to purchase up to an aggregate of
     4,168,000 shares of Common Stock at $0.125 per share on or
     before August 13, 2001. (M)(ii)

4.17     Form of Stock Purchase Warrants dated February 6, 1997,
     entitling the following holders to purchase an aggregate of
     1,874,467 shares of Common Stock at $0.25 per share on or
     before December 31, 1999:

     Warrant Holder                                   Warrants

     Donald A. and Joanne R. Westerberg               241,660
     T. Jerald Hanchey                              1,632,807  (M)(iii)

4.18     Form of a series of Stock Purchase Warrants dated April
     10, 1997, issued as a part of a unit offered with Unsecured
     Notes of XCL-China Ltd., exercisable at $0.01 per share on
     or before April 9, 2002, entitling the following holders to
     purchase up to an aggregate of 10,092,980 shares of Common
     Stock:

     Warrant Holder                                        Warrants

     Kayne Anderson Offshore L.P.                           651,160
     Offense Group Associates, L.P.                       1,627,900
     Kayne Anderson Non-Traditional Investments, L.P.     1,627,900
     Opportunity Associates, L.P.                         1,302,320
     Arbco Associates, L.P.                               1,627,900
     J. Edgar Monroe Foundation                             325,580
     Estate of J. Edgar Monroe                              976,740
     Boland Machine & Mfg. Co., Inc.                        325,580
     Construction Specialists, Inc. d/b/a Con-Spec, Inc.  1,627,900  (M)(iv)

4.19      Form  of Purchase Agreement dated May 13, 1997, between
     the  Company  and  Jefferies & Company, Inc.  (the  "Initial
     Purchaser") with respect to 75,000 Units each consisting  of
     $1,000  principal amount of 13.5% Senior Secured  Notes  due
     May  1,  2004,  Series A and one warrant to  purchase  1,280
     shares of the Company's Common Stock with an exercise  price
     of $0.2063 per share ("Note Warrants"). (N)(i)

4.20      Form  of Purchase Agreement dated May 13, 1997, between
     the  Company  and  Jefferies & Company, Inc.  (the  "Initial
     Purchaser") with respect to 294,118 Units each consisting of
     one  share  of  Amended  Series  A,  Cumulative  Convertible
     Preferred Stock ("Amended Series A Preferred Stock") and one
     warrant to purchase 327 shares of the Company's Common Stock
     with  an  exercise  price  of  $0.2063  per  share  ("Equity
     Warrants"). (N)(ii)

4.21      Form of Warrant Agreement and Warrant Certificate dated
     May  20,  1997, between the Company and Jefferies & Company,
     Inc.,  as  the Initial Purchaser, with respect to  the  Note
     Warrants. (N)(iii)

4.22      Form of Warrant Agreement and Warrant Certificate dated
     May  20,  1997, between the Company and Jefferies & Company,
     Inc.,  as the Initial Purchaser, with respect to the  Equity
     Warrants. (N)(iv)

4.23      Form of Designation of Amended Series A Preferred Stock
     dated May 19, 1997. (N)(v)

4.24      Form  of  Amended Series A Preferred Stock certificate.
     (N)(vi)

4.25      Form  of  Global  Unit  Certificate  for  75,000  Units
     consisting of 13.5% Senior Secured Notes due May 1, 2004 and
     Warrants to Purchase Shares of Common Stock. (N)(vii)

4.26      Form  of  Global  Unit Certificate  for  293,765  Units
     consisting of Amended Series A Preferred Stock and  Warrants
     to Purchase Shares of Common Stock. (N)(viii)

4.27      Form  of Warrant Certificate dated May 20, 1997, issued
     to  Jefferies  &  Company,  Inc.,  with  respect  to  12,755
     warrants  to purchase shares of Common Stock of the  Company
     at an exercise price of $0.2063 per share. (N)(ix)

4.28     Form of Stock Purchase Agreement dated effective as of
     October 1, 1997, between the Company and William Wang,
     whereby the Company issued 800,000 shares of Common Stock to
     Mr. Wang, as partial compensation pursuant to a Consulting
     Agreement. (O)(i)

4.29     Form of Stock Purchase Warrants dated effective as of
     February 20, 1997, issued to Mr. Patrick B. Collins with
     respect to 200,000 warrants to purchase shares of Common
     Stock of the Company at an exercise price of $0.25 per
     share, issued as partial compensation pursuant to a
     Consulting Agreement. (O)(ii)

4.30     Certificate of Amendment to the Certificate of
     Designation of Series F, Cumulative Convertible Preferred
     Stock dated January 6, 1998. (P)(ii)

4.31     Form of Stock Purchase Warrants dated January 16, 1998,
     issued to Arthur Rosenbloom (6,389), Abby Leigh (12,600) and
     Mitch Leigh (134,343) to purchase shares of Common Stock of
     the Company at an exercise price of $0.15 per share, on or
     before December 31, 2001. (P)(iii)

4.32     Certificate of Designation of Amended Series B,
     Cumulative Convertible Preferred Stock dated March 4, 1998.
     (P)(iv)

4.33     Correction to Certificate of Designation of Amended
     Series B, Cumulative Convertible Preferred Stock dated March
     5, 1998. (P)(v)

4.34     Second Correction to Certificate of Designation of
     Amended Series B Preferred Stock dated March 19, 1998.
     (P)(vi)

4.35     Form of Stock certificate representing shares of Amended
     Series B Preferred Stock. (Q)(ii)

4.36     Form of Agreement dated March 3, 1998 between the
     Company and Arbco Associates, L.P., Kayne Anderson Non-
     Traditional Investments, L.P., Offense Group Associates,
     L.P. and Opportunity Associates, L.P. for the exchange of
     Series B Preferred Stock and associated warrants into
     Amended Series B Preferred Stock and warrants. (Q)(iii)

4.37     Form of Stock Purchase Warrants dated March 3, 1998
     between the Company and the following entities:

     Holder                                              Warrants

     Arbco Associates, L.P.                               85,107
     Kayne Anderson Non-Traditional Investments, L.P.     79,787
     Offense Group Associates, L.P.                       61,170
     Opportunity Associates, L.P.                         23,936 (Q)(iv)

4.38     Form of Stock Purchase Warrant dated effective as of
     June 30, 1998, issued to Mr. Patrick B. Collins with respect
     to 17,000 warrants to purchase shares of Common Stock of the
     Company at an exercise price of $3.75 per share, issued as
     partial compensation pursuant to a Consulting Agreement.
     (T)(i)

4.39     Form of Warrant Exchange Agreement and Stock Purchase
     Warrant dated September 15, 1998 to purchase an aggregate of
     351,015 shares of Common Stock at an exercise price of $2.50
     per share, subject to adjustment, issued to Cumberland
     Partners in exchange for certain warrants held by Cumberland
     Partners. (T)(ii)

4.40     Form of Warrant Agreement dated October 1, 1998 to
     purchase 50,000 shares of Common Stock at an exercise price
     of $3.75 per share, subject to adjustment, issued to Steven
     B. Toon, a former officer of the Company.  (U)(i)

4.41     Form of a series of Stock Purchase Warrants dated
     November 6, 1998, issued as a part of a unit offered with
     secured Notes of XCL Land Ltd., exercisable at $3.50 per
     share on or before November 6, 2003, entitling the following
     holders to purchase up to an aggregate of 325,575 shares of
     Common Stock:

     Warrant Holder                                   Warrants

     J. Edgar Monroe Foundation                         21,705
     Estate of J. Edgar Monroe                         151,935
     Construction Specialists, Inc. 
        d/b/a Con-Spec, Inc.                           151,935 (U)(ii)

4.42     Form of a series of Stock Purchase Warrants  issued as
     part of a unit offered with Secured Notes of XCL Land Ltd.,
     entitling the following holders to purchase shares of Common
     Stock:

                                               Initial
     Warrant Holder               Warrants  Exercise Price   Date

     Estate of J. Edgar Monroe     54,262     $2.00     January 15, 1999
     Construction Specialists, Inc.
       d/b/a Con-Spec, Inc.        54,262     $2.00     January 15, 1999
     Doug Ashy                     21,705     $1.50     March 22, 1999
     Edgar D. Daigle               21,705     $1.50     March 25, 1999 *

4.43     Form of Warrant Amendment Agreement between the Company,
     J. Edgar Monroe Foundation (1976), Estate of J. Edgar
     Monroe, and Construction Specialists, Inc. d/b/a Con-Spec,
     Inc. amending the warrant exercise price of warrants dated
     November 6, 1998, from $3.50 to $2.00 per share. *

4.44     Form of a Stock Purchase Warrant dated March 15, 1999
     issued to Mr. Robert R. Durkee, Jr. as part of a unit
     offering with Secured Notes of XCL Land, Ltd., exercisable
     at $1.25 per share on or before March 15, 2004. *


4.45     Form of a Second Warrant Amendment Agreement between the
     Company, J. Edgar Monroe Foundation (1976), Estate of J.
     Edgar Monroe, and Construction Specialists, Inc. d/b/a Con-
     Spec, Inc. amending the warrant exercise price of warrants
     dated November 6, 1998, from $2.00 to $1.50 per share. *

9.0     Not applicable.

10.1     Contract for Petroleum Exploration, Development and
     Production on Zhao Dong Block in Bohai Bay Shallow Water Sea
     Area of The People's Republic of China between China
     National Oil and Gas Exploration and Development Corporation
     and XCL-China Ltd., dated February 10, 1993. (B)

10.2     Form of Net Revenue Interest Assignment dated February
     23, 1994, between the Company and the purchasers of the
     Company's Series D, Cumulative Convertible Preferred Stock.
     (D)(iv)

10.3     Modification Agreement for Petroleum Contract on Zhao
     Dong Block in Bohai Bay Shallow Water Sea Area of The
     People's Republic of China dated March 11, 1994, between the
     Company, China National Oil and Gas Exploration and
     Development Corporation and Apache China Corporation LDC.
     (D)(v)

10.4     Consulting agreement between the Company and Sir Michael
     Palliser dated April 1, 1994. (F)(i)

10.5     Consulting agreement between the Company and Mr. Arthur
     W. Hummel, Jr. dated April 1, 1994. (F)(ii)

10.6     Letter of Intent between the Company and CNPC United
     Lube Oil Corporation for a joint venture for the manufacture
     and sale of lubricating oil dated January 14, 1995. (G)(i)

10.7     Farmout Agreement dated May 10, 1995, between XCL China
     Ltd., a wholly owned subsidiary of the Company and Apache
     Corporation whereby Apache will acquire an additional
     interest in the Zhao Dong Block, Offshore People's Republic
     of China. (G)(ii)

10.8     Contract of Chinese Foreign Joint Venture dated July 17,
     1995, between United Lube Oil Corporation and XCL China Ltd.
     for the manufacturing and selling of lubricating oil and
     related products. (H)(iv)

10.9     Letter of Intent dated July 17, 1995 between CNPC United
     Lube Oil Corporation and XCL Ltd. for discussion of further
     projects. (H)(v)

10.10     Copy of Letter Agreement dated March 31, 1995, between
     the Company and China National Administration of Coal
     Geology for the exploration and development of coal bed
     methane in Liao Ling Tiefa and Shanxi Hanchang Mining Areas.
     (H)(i)

10.11     Memorandum of Understanding dated December 14, 1995,
     between XCL Ltd. and China National Administration of Coal
     Geology. (I)(iv)

10.12     Copy of Purchase and Sale Agreement dated March 8,
     1996, between XCL-Texas, Inc. and Tesoro  E&P  Company, L.P.
     for  the sale of the Gonzales Gas Unit located in south
     Texas. (I)(v)

10.13     Copy of Limited Waiver between the Company and
     Internationale Nederlanden (U.S.) Capital Corporation dated
     April 3, 1996. (I)(vi)

10.14     Copy  of Purchase and Sale Agreement dated  April 22,
     1996, between XCL-Texas, Inc. and  Dan  A.  Hughes Company
     for the sale of the Lopez Gas Units located in south Texas.
     (J)

10.15     Form of Sale of Mineral Servitude dated June 18, 1996,
     whereby the Company sold its 75 percent mineral interest in
     the Phoenix Lake Tract to the Stream Family Limited Partners
     and Virginia Martin Carmouche Gayle.  (K)(i)

10.16     Form of Act of Sale between the Company and The
     Schumacher Group of Louisiana, Inc. dated March 31, 1997,
     wherein the Company sold its office building. (M)(v)

10.17     Amendment No. 1 to the May 1, 1995 Agreement with
     Apache Corp. dated April 3, 1997, effective December 13,
     1996. (M)(vi)

10.18     Form of Guaranty dated April 9, 1997 by XCL-China Ltd.
     in favor of ING (U.S.) Capital Corporation executed in
     connection with the sale of certain Unsecured Notes issued
     by XCL-China Ltd. (M)(vii)

10.19     Form of First Amendment to Stock Pledge Agreement dated
     April 9, 1997, between the Company and ING (U.S.) Capital
     Corporation adding XCL Land Ltd. to the Stock Pledge
     Agreement dated as of January 31, 1994. (M)(viii)

10.20     Form of Agreement dated April 9, 1997, between ING
     (U.S.) Capital Corporation, XCL-China and holders of the
     Senior Unsecured Notes, subordinating the Guaranty granted
     by XCL-China in favor of ING to the Unsecured Notes. (M)(ix)

10.21     Form of Forbearance Agreement dated April 9, 1997
     between the Company and ING (U.S.) Capital Corporation.
     (M)(x)

10.22     Form of a series of Unsecured Notes dated April 10,
     1997, between the Company and the following entities:

     Note Holder                             Principal Amount

     Kayne Anderson Offshore, L.P.                 $200,000
     Offense Group Associates, L.P.                $500,000
     Kayne Anderson Non-Traditional 
        Investments, L.P.                          $500,000
     Opportunity Associates, L.P.                  $400,000
     Arbco Associates, L.P.                        $500,000
     J. Edgar Monroe Foundation                    $100,000
     Estate of J. Edgar Monroe                     $300,000
     Boland Machine & Mfg. Co., Inc.               $100,000
     Construction Specialists, Inc. 
        d/b/a Con-Spec, Inc.                       $500,000 (M)(xi)

10.23     Form of Subscription Agreement dated April 10, 1997, by
     and between XCL-China, Ltd., the Company and the subscribers
     of Units, each unit comprised of $100,000 in Unsecured Notes
     and 325,580 warrants. (M)(xii)

10.24     Form of Intercompany Subordination Agreement dated
     April 10, 1997, between the Company, XCL-Texas, Ltd., XCL
     Land Ltd., The Exploration Company of Louisiana, Inc., XCL-
     Acquisitions, Inc., XCL-China Coal Methane Ltd., XCL-China
     LubeOil Ltd., XCL-China Ltd., and holders of the Unsecured
     Notes. (M)(xiii)

10.25     Form of Indenture dated as of May 20, 1997, between the
     Company,  as  Issuer  and Fleet National  Bank,  as  Trustee
     ("Indenture"). (N)(x)

10.26      Form  of  13.5% Senior Secured Note due May  1,  2004,
     Series A issued May 20, 1997 to Jefferies & Company, Inc. as
     the Initial Purchaser (Exhibit A to the Indenture). (N)(xi)

10.27      Form  of  Pledge Agreement dated as of May  20,  1997,
     between  the  Company and Fleet National  Bank,  as  Trustee
     (Exhibit C to the Indenture). (N)(xii)

10.28      Form  of  Cash  Collateral and Disbursement  Agreement
     dated  as  of  May 20, 1997, between the Company  and  Fleet
     National Bank, as Trustee and Disbursement Agent, and Herman
     J.   Schellstede   &  Associates,  Inc.,  as  Representative
     (Exhibit F to the Indenture). (N)(xiii)

10.29      Form  of Intercreditor Agreement dated as of  May  20,
     1997,  between the Company, ING (U.S.) Capital  Corporation,
     the  holders of the Secured Subordinated Notes due April  5,
     2000 and Fleet National Bank, as trustee for the holders  of
     the 13.5% Senior Secured Notes due May 1, 2004 (Exhibit G to
     the Indenture). (N)(xiv)

10.30     Registration Rights Agreement dated as of May 20, 1997,
     by  and  between the Company and Jefferies &  Company,  Inc.
     with  respect to the 13.5% Senior Secured Notes due  May  1,
     2004 and 75,000 Common Stock Purchase Warrants (Exhibit H to
     the Indenture). (N)(xv)

10.31      Form  of  Security  Agreement,  Pledge  and  Financing
     Statement  and Perfection Certificate dated as  of  May  20,
     1997,  by  the Company in favor of Fleet National  Bank,  as
     Trustee (Exhibit I to the Indenture). (N)(xvi)

10.32     Registration Rights Agreement dated as of May 20, 1997,
     by  and  between the Company and Jefferies &  Company,  Inc.
     with  respect  to the 9.5% Amended Series A Preferred  Stock
     and Common Stock Purchase Warrants. (N)(xvii)

10.33      Form of Restated Forbearance Agreement dated effective
     as of May 20, 1997, between the Company, XCL-Texas, Inc. and
     ING (U.S.) Capital Corporation. (N)(xviii)

10.34     Form of Consulting Agreement dated February 20, 1997,
     between the Company and Mr. Patrick B. Collins, whereby Mr.
     Collins performs certain accounting advisory services.
     (O)(ii)

10.35     Form of Consulting Agreement dated effective as of June
     1, 1997, between the Company and Mr. R. Thomas Fetters, Jr.,
     a director of the Company, whereby Mr. Fetters performs
     certain geological consulting services. (O)(iii)

10.36     Form of Agreement dated October 1, 1997, between the
     Company and Mr. William Wang, whereby Mr. Wang performs
     certain consulting services with respect to its investments
     in China. (O)(iv)

10.37     Form of Services Agreement dated August 1, 1997,
     between the Company and Mr. Benjamin B. Blanchet, an officer
     of the Company. (O)(v)

10.38     Form of Promissory Note dated August 1, 1997, in a
     principal amount of $100,000, made by Mr. Benjamin B.
     Blanchet in favor of the Company. (O)(vi)

10.39     Form of Consulting Agreement dated June 15, 1998,
     between the Company and Mr. Patrick B. Collins, whereby Mr.
     Collins performs certain accounting advisory services.
     (T)(iii)

10.40     Amended and Restated Long Term Stock Incentive Plan
     effective June 1, 1997.  (R)(i)

10.41     Form of Restricted Stock Award Agreement. (T)(iv)

10.42     Form of Nonqualified Stock Option Agreement. (T)(v)

10.43     Appreciation Option for M. W. Miller, Jr. (R)(ii)

10.44     Zhang Dong Petroleum Sharing Contract. (T)(vi)

10.45     Form of a series of Secured Notes dated November 6,
     1998, between the Company and the following entities:

     Note Holder                              Principal Amount

     J. Edgar Monroe Foundation                $100,000
     Estate of J. Edgar Monroe                 $700,000
     Construction Specialists, Inc. 
        d/b/a Con-Spec, Inc.                   $700,000 (U)(iii)

10.46     Form of Subscription Agreement dated November 6, 1998,
     by and between XCL Land, Ltd., the Company and the
     subscribers of Units, each unit comprised of $100,000 in
     secured Notes and 21,705 warrants.  (U)(iv)

10.47     Form of Security Agreement dated November 6, 1998, by
     and between XCL Land, Ltd. and holders of the secured Notes
     of XCL Land, Ltd. dated November 6, 1998. (U)(v)

10.48     Form of Security Agreement dated November 6, 1998, by
     and between The Exploration Company of Louisiana, Inc. and
     holders of the secured Notes of XCL Land, Ltd. dated
     November 6, 1998. (U)(vi)

10.49     Form of Subscription Agreement by and between XCL Land,
     Ltd., the Company and the subscribers of Units, each unit
     comprised of $100,000 in Secured Notes and 21,705 warrants.
     *

          Subscriber                  Units       Date

     Estate of J. Edgar Monroe         2.5     January 15, 1999
     Construction Specialists, Inc. 
       d/b/a Con-Spec, Inc.            2.5     January 15, 1999
     Doug Ashy, Sr.                    1.0     March 22, 1999
     Edgar D. Daigle                   1.0     March 25, 1999

10.50     Form of a series of secured Notes between the Company
     and the following entities:

          Note Holder         Principal Amount     Issue Date

     Estate of J. Edgar Monroe     $250,000     January 15, 1999
     Construction Specialists, Inc. 
       d/b/a Con-Spec, Inc.        $250,000     January 15, 1999
     Doug Ashy, Sr.                $100,000     March 22, 1999
     Edgar D. Daigle               $100,000     March 25, 1999

10.51     Form of First Amendment to Security Agreement dated
     January 15, 1999, by and between XCL Land, Ltd. and holders
     of the Secured Notes of XCL Land, Ltd. dated November 6,
     1999. *

10.52     Form of First Amendment to Security Agreement dated
     January 15, 1999, by and between The Exploration Company of
     Louisiana, Inc. and holders of the secured Notes of XCL
     Land, Ltd. dated November 6, 1998. *

10.53     Acknowledgement and Agreement Regarding Security
     Interest by the J. Edgar Monroe Foundation (1976) dated
     January 15, 1999. *

10.54     Form of Security Agreement  by and between XCL Land,
     Ltd. and the following holders of the Secured Notes of XCL
     Land, Ltd.:

          Note Holder                        Date

     Doug Ashy, Sr.                     March 22, 1999
     Edgar D. Daigle                    March 25, 1999 *

10.55     Form of Security Agreement by and between The
     Exploration Company of Louisiana, Inc. and the following
     holders of the Secured Notes of XCL Land, Ltd.

          Note Holder                     Date

     Doug Ashy, Sr.                     March 22, 1999
     Edgar D. Daigle                    March 25, 1999 *

10.56     Form of Subscription Agreement dated March 15, 1999, by
     and between XCL Land, Ltd. and Robert R. Durkee, Jr. for a
     unit comprised of a $100,000 45-day secured note and 10,000
     warrants to purchase Common Stock of XCL Ltd.. *

10.57     Form of Promissory Note dated March 15, 1999, by and
     between Robert R. Durkee, Jr. in the principal amount of
     $100,000. *

10.58     Form of Security Agreement by and between XCL Land,
     Ltd. and Robert R. Durkee, Jr. dated March 15, 1999. *

10.59     Form of Security Agreement by and between The
     Exploration Company of Louisiana, Inc. and Robert R. Durkee,
     Jr. dated March 15, 1999. *

10.60     Consulting Agreement dated January 1, 1999, between the
     Company and R. Thomas Fetters, Jr., a director of the
     Company, whereby Mr. Fetters performs certain geological
     consulting services. *

10.61     Amendment to Personal Services Agreement dated January
     15, 1999, between the Company and Benjamin B. Blanchet, an
     officer and director of the Company. *

11.0     Not applicable.

12.0     Not applicable.

13.0     Not applicable.

16.0     Not applicable.

18.0     Not applicable.

21.0     Subsidiaries of the Company

     XCL-China Ltd.
     XCL-China LubeOil Ltd.
     XCL-China Coal Methane Ltd.
     XCL-Cathay Ltd.
     XCL-Texas Inc.
     XCL-Acquisitions, Inc.
     The Exploration Company of Louisiana, Inc.
     XCL Land Ltd.

22.0     Not applicable.

23.1     Consent of PricewaterhouseCoopers LLP*

23.2     Consent of H.J. Gruy and Associates, Inc.*

24.0     Not applicable.

27.1     Financial Data Schedule for year ended December 31,
1998.*

27.2     Restated Financial Data Schedule for year ended December
31, 1997. *

99.1     Summary of reserve report dated January 1, 1999,
prepared by H.J. Gruy and Associates, Inc. *

99.2     Glossary of Terms
_________________________
*Filed herewith.

(A)     Incorporated by reference to the Registration Statement
     on Form 8-B filed on July 28, 1988, where it appears as
     Exhibits 3(c).

(B)     Incorporated by reference to a Registration Statement on
     Form S-3 (File No. 33-68552) where it appears as Exhibit
     10.1.

(C)     Incorporated by reference to Post-Effective Amendment No.
     2 to Registration Statement on Form S-3 (File No. 33-68552)
     where it appears as: (i) Exhibit 4.29; (ii) Exhibit 4.30;
     and (iii) through (v) Exhibits 4.34 through 4.36,
     respectively.

(D)     Incorporated by reference to Amendment No. 1 to Annual
     Report on Form 10-K filed April 15, 1994, where it appears
     as:  (i) Exhibit 4.32; (ii) Exhibit 4.36; (iii) Exhibit
     4.37; (iv) through (v) Exhibit 10.41 through Exhibit 10.47,
     respectively; and (v) Exhibit 10.49.

(E)     Incorporated by reference to an Annual Report on Form 10-
     K for the fiscal year ended December 31, 1990, filed April
     1, 1991, where it appears as Exhibit 10.27.

(F)     Incorporated by reference to Amendment No. 1 to an Annual
     Report on Form 10-K/A No. 1 for the fiscal year ended
     December 31, 1994, filed April 17, 1995, where it appears
     as: (i) through (ii) Exhibits 10.22 through 10.23,
     respectively.

(G)     Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended March 31, 1995, filed May 15, 1995,
     where it appears as: (i) Exhibit 10.26; and (ii) Exhibit
     10.28.

 (H)     Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended September 30, 1995, filed November
     13, 1995, where it appears as Exhibit 10.35.

(I)     Incorporated by reference to Annual Report on Form 10-K
     for the year ended December 31, 1995, filed April 15, 1996,
     where it appears as:  (i) through  (iii) Exhibits 4.28
     through 4.30, respectively; and  (iv) Exhibit 10.31; (v)
     Exhibit 10.32 and (vi) Exhibit 10.36.

(J)     Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended March 31, 1996, filed May 15, 1996,
     where it appears as Exhibit 10.37.

(K)      Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended June 30, 1996, filed August 14,
     1996, where it appears as Exhibit 10.38.

 (L)     Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended September 30, 1996, filed November
     14, 1996, where it appears as Exhibits 4.32.

(M)     Incorporated by reference to Annual Report on Form 10-K
     for the year ended December 31, 1996, filed April 15, 1997,
     where it appears as (i) through (iii) Exhibits 4.35 through
     4.38; (iv) Exhibit 4.40; and (v) through (xiii) Exhibits
     10.42 through 10.50.

(N)     Incorporated by reference to Current Report on Form 8-K
     dated May 20, 1997, filed June 3, 1997, where it appears as
     (i) through (ix) Exhibits 4.1 through 4.9 and (x) through
     (xviii) Exhibits 10.51 through 10.59.

(O)     Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended September 30, 1997, filed November
     14, 1997, where it appears as (i) Exhibit 4.52; and (ii)
     through (vi) Exhibits 10.62 through 10.66.

(P)      Incorporated by reference to Annual Report on Form  10-K
     for  the year ended December 31, 1997, filed April 15, 1998,
     where  it  appears  as (i) Exhibit 4.1;  (ii)  through  (vi)
     Exhibits 4.32 through 4.36, respectively.

(Q)     Incorporated by reference to Amendment No. 1 to Annual
     Report on Form 10-K for the year ended December 31, 1997,
     filed April 22, 1998, where it appears as (i) Exhibit 3.1;
     and (ii) through (iv) Exhibits 4.37 through 4.39,
     respectively.

(R)     Incorporated by reference to Proxy Statement dated
     November 20, 1997 filed November 6, 1997, where it appears
     as (i) Appendix C; and (ii) Appendix D, respectively.

(S)     Incorporated by reference to Registration Statement on
     Form S-1 filed May 6, 1998, where it appears as Exhibit
     24.1.

(T)     Incorporated by reference to Amendment No. 2 to
     Registration Statement on Form S-1 filed October 23, 1998,
     where it appears as: (i) Exhibit 4.40; (ii) Exhibit 4.41;
     (iii) Exhibit 10.49; (iv) Exhibit 10.50; (v) Exhibit 10.51;
     and (vi) Exhibit 10.54.

(U)     Incorporated by reference to Quarterly Report on Form 10-
     Q for the quarter ended September 30, 1998, filed on
     November 16, 1998, where it appears as: (i) and (ii)
     Exhibits 4.42 and 4.43, respectively; and (iii) through (vi)
     Exhibits 10.55 through 10.58, respectively.

                          OTHER MATTERS
                          -------------

      For  purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act  of  1933,  the undersigned registrant hereby  undertakes  as
follows,  which  undertaking shall be incorporated  by  reference
into registrant's Registration Statement on Form S-8 No. 33-21891
(filed May 13, 1988):

     Insofar as indemnification for liabilities arising under the
Securities  Act  of 1933 may be permitted to directors,  officers
and  controlling  persons  of  the  registrant  pursuant  to  the
foregoing  provisions,  or otherwise,  the  registrant  has  been
advised  that  in  the  opinion of the  Securities  and  Exchange
Commission  such  indemnification is  against  public  policy  as
expressed  in  the  Securities Act of  1933  and  is,  therefore,
unenforceable.   In  the event that a claim  for  indemnification
against  such  liabilities  (other  than  the  payment   by   the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any  action,  suit or proceeding) is asserted by  such  director,
officer  or  controlling person in connection with the securities
being  registered, the registrant will, unless in the opinion  of
its counsel the matter has been settled by controlling precedent,
submit  to  a  court  of  appropriate jurisdiction  the  question
whether  such indemnification by it is against public  policy  as
expressed  in  the  Act  and  will  be  governed  by  the   final
adjudication of such issue.

                           SIGNATURES
                           ----------

      Pursuant to the requirements of Section 13 or 15(d) 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.

                              XCL LTD.

                              /s/ Marsden W. Miller, Jr.
April 15, 1999             By:_________________________________
                              Marsden W. Miller, Jr.
                              Chairman   and  
                              Chief   Executive Officer

      Pursuant to the requirements of the Securities Exchange Act
of  1934,  this  report has been signed below  by  the  following
persons on behalf of the registrant and in the capacities and  on
the dates indicated.

     Signature                    Title                            Date

/s/ Marsden W. Miller, Jr.
______________________       Chairman of the Board,           April 15, 1999
Marsden  W. Miller, Jr.      Chief Executive  Officer,
                             Principal Financial Officer and
                             Principal Accounting Officer

/s/ John T. Chandler
______________________       Director                         April 15, 1999
John T. Chandler

/s/ Benjamin B. Blanchet
______________________       Director                         April 15, 1999
Benjamin B. Blanchet

/s/ R. Thomas Fetters, Jr.
______________________       Director                         April 15, 1999
R. Thomas Fetters, Jr.

/s/ Fred Hofheinz
______________________       Director                         April 15, 1999
Fred Hofheinz

/s/ Arthur W. Hummel, Jr.
______________________       Director                         April 15, 1999
Arthur W. Hummel, Jr.

/s/ Michael Palliser
_____________________         Director                        April 15, 1999
Michael Palliser

/s/ Francis J. Reinhardt, Jr.
______________________        Director                        April 15, 1999
Francis J. Reinhardt, Jr.

/s/ Peter F. Ross
_______________________       Director                        April 15, 1999
Peter F. Ross