AGREEMENT


           This Agreement dated as of March 3, 1998, between
XCL   Ltd.,  a  Delaware  corporation  ("XCL"),  and   Arbco
Associates,    L.P.,    Kayne    Anderson    Non-Traditional
Investments,   L.P.,   Offense   Group   Associates,   L.P.,
Opportunity  Associates,  L.P., each  a  California  limited
partnership (collectively "Buyer").


                    W I T N E S S E T H:

          WHEREAS, simultaneously herewith Buyer has entered
into  a  Stock Purchase Agreement (the "Purchase Agreement")
with   China  Investment  and  Development  Corporation,   a
Delaware  corporation  ("CIDC"),  and  China  Investment   &
Development Co. Ltd., a Republic of China corporation ("CIDC-
ROC,"  and  together with CIDC, the "Sellers"), relating  to
the  sale  by  the  Sellers to Buyer of all the  outstanding
shares  (the  "Shares")  of Series B,  Cumulative  Preferred
Stock,  par  value $1.00 per share (the "Series B  Preferred
Stock")  of  XCL and warrants (the "Warrants")  to  purchase
221,666  shares  of the common stock, par  value  $0.01  per
share (the "Common Stock"), of XCL; and

           WHEREAS,  the  purchase of  the  Shares  and  the
Warrants  as  provided for in the Purchase  Agreement  is  a
condition  of  the  settlement  and  dismissal  of   certain
litigation by CIDC and CIDC-ROC against XCL and others; and

          WHEREAS, in partial consideration for the services
of  Buyer in effectuating the transactions provided  for  in
the Purchase Agreement in order to facilitate the settlement
and  dismissal  of such litigation and in  order  to  induce
Buyer  to  take such actions to enable XCL to  complete  the
conditions  to  the  settlement of the litigation,  XCL  has
agreed to create a class of Preferred Stock entitled Amended
Series  B,  Cumulative Convertible Preferred Stock ("Amended
Series  B  Preferred Stock") and to exchange the  Shares  of
Series   B  Preferred  Stock  purchased  by  Buyer  for   an
equivalent  number of shares of Amended Series  B  Preferred
Stock  and  to issue to Buyer certain new warrants  for  the
purchase of Common Stock of XCL as provided for herein;

           WHEREAS,  the parties hereto wish to provide  for
the  exchange  of the Shares, the issuance  of  certain  new
warrants  to  Buyer and the cancellation of the Warrants  on
the terms and conditions set forth below.

           NOW,  THEREFORE, in consideration of the premises
and  mutual agreements herein contained and other  good  and
valuable consideration, the receipt and sufficiency of which
are  hereby  acknowledged and confirmed, the parties  hereto
hereby agree as follows:

           1.      Return of Warrants.  In consideration  of
     XCL's covenants and agreements contained herein, on the
     date  hereof, Buyer hereby transfers to XCL all Buyer's
     right,  title  and interest in and to the Warrants  and
     the  warrant  certificates (the "Warrant Certificates")
     representing  the  Warrants and acknowledges  that  XCL
     will  cancel such Warrants, and from and after the date
     hereof, the Warrants shall be deemed null and void  and
     of  no  further force and effect and no holder  of  any
     Warrant  Certificate shall be entitled  to  any  rights
     thereunder or with respect thereto and Buyer  covenants
     that if the Warrant Certificates ever come into Buyer's
     possession  or  control, Buyer will promptly  surrender
     them to XCL for cancellation.

           2.      Redemption Notice.  Buyer agrees that any
     and all notices of redemption given with respect to the
     Series B Preferred Stock prior to the date hereof shall
     be  deemed to have been revoked and withdrawn and  that
     no such notice of redemption shall be of any continuing
     force and effect with respect to the Series B Preferred
     Stock.

           3.      Issuance  of  New Warrants.   As  partial
     consideration  for  the  return  of  the  Warrants  for
     cancellation  and  Buyer  entering  into  the  Purchase
     Agreement, XCL shall issue warrants to purchase 250,000
     shares  of Common Stock, at an exercise price of  $5.50
     per  share  (the number of shares of Common Stock  that
     may  be  purchased  pursuant to such warrants  and  the
     exercise  price to be subject to adjustment as provided
     in  the warrant certificate) and to be evidenced  by  a
     warrant  certificate  substantially  in  the  form   of
     Exhibit A hereto.

           4.      Exchange of the Series B Preferred Stock.
     As partial consideration for the return of the Warrants
     for  cancellation and Buyer entering into the  Purchase
     Agreement,   XCL   shall  take  all  corporate   action
     necessary  to  create the Amended  Series  B  Preferred
     Stock  as  set  forth  in Exhibit B  hereto  and  shall
     exchange for and in consideration of the 44,465  Shares
     of  Series  B Preferred Stock purchased by  Buyer  from
     Sellers  44,465  shares of Amended Series  B  Preferred
     Stock and Buyer hereby consents to such exchange.

           5.     Accrued Dividends.  XCL acknowledges that,
     as  of March 3, 1998, dividends in the aggregate amount
     of  $261,919.55  remain accrued  and  unpaid  upon  the
     outstanding  Series  B Preferred Stock  and  that  such
     dividends  shall be paid by XCL on the date  hereof  by
     the issuance to Buyer of 2,620 shares of Amended Series
     B  Preferred Stock (which includes one additional share
     of  Amended  Series  B Preferred  Stock  to  cover  the
     fractional shares represented by the dividend arrearage
     and  the  purchase  price  of the  Series  B  Preferred
     Stock).

           6.     Issuance of Certificates.  Upon return  by
     Buyer   to   XCL  of  the  Series  B  Preferred   Stock
     Certificate(s) received by Buyer from Sellers  pursuant
     to  the  Purchase Agreement and the Warrants, XCL  will
     issue    to    each   individual   Buyer   certificates
     representing shares of Amended Series B Preferred Stock
     issued in exchange therefor, shares of Amended Series B
     Preferred Stock paid as dividend arrearages and warrant
     certificates as listed on Exhibit C hereto.

             7.        Representations   of   Buyer.     The
     representations of each Buyer as to itself contained in
     paragraph  5(a)  of  the Purchase  Agreement  shall  be
     deemed  to  be  made  to XCL herein  as  if  they  were
     contained herein.

           8.     Survival.  All covenants contained in this
     Agreement  shall survive the execution and delivery  of
     this Agreement.

          9.     Amendment and Modification.  This Agreement
     may  be  amended or modified at any time by the parties
     hereto, pursuant to an instrument in writing signed  by
     both parties.

            10.       Entire  Agreement;  Assignment.   This
     Agreement (i) constitutes the entire agreement  between
     the  parties hereto with respect to the subject  matter
     hereof  and  supersedes all other prior agreements  and
     understandings,  both  written and  oral,  between  the
     parties  hereto  with  respect to  the  subject  matter
     hereof and (ii) shall  not be assigned, by operation of
     law  or  otherwise by either party hereto, without  the
     prior written consent of the other party.

             11.        Validity.    The    invalidity    or
     unenforceability  of  any term  or  provision  of  this
     Agreement  in any situation or jurisdiction  shall  not
     affect  the  validity or enforceability  of  the  other
     terms   or   provisions  hereof  or  the  validity   or
     enforceability  of the offending term or  provision  in
     any other situation or in any other jurisdiction.

            12.       Notices.   Unless  otherwise  provided
     herein,  all notices and other communications hereunder
     shall  be  in  writing and shall be deemed  given  upon
     receipt by the other parties at the following addresses
     or telecopy numbers:

          (a)     if to XCL, to

                  110 Rue Jean Lafitte
                  Lafayette, LA 70508
                  Telecopy No.: (318) 237-3316 or 261-0737

          (b)     if to Buyer, to

                  Kayne    Anderson    Investment Management, Inc.
                  1800 Avenue of the Stars, 2nd Floor
                  Los Angeles, CA 90067

           13.     Expenses.  XCL shall reimburse Buyer  the
     fees  of  its  in-house  counsel  for  review  of  this
     Agreement  and the transaction described  herein,  such
     fees not to exceed $5,000.

           14.      Governing Law.  This Agreement shall  be
     governed by, enforced under and construed in accordance
     with  the laws of the State of New York, without giving
     effect  to  any choice or conflict of law provision  or
     rule thereof.

           15.      Counterparts.   This  Agreement  may  be
     executed  in  any number of counterparts,  original  or
     facsimile,  each of which shall be deemed an  original,
     but  all of which together shall constitute one and the
     same instrument.

          16.     Parties in Interest.  This Agreement shall
     be binding upon and inure solely to the benefit of each
     party hereto and nothing in this Agreement, express  or
     implied, is intended by or shall confer upon any  other
     person  any rights, benefits or remedies of any  nature
     whatsoever under or by reason of this Agreement.

          17.     No Waivers.  Except as otherwise expressly
     provided  herein,  no  failure to  exercise,  delay  in
     exercising, or single or partial exercise of any right,
     power  or remedy by any party, and no course of dealing
     between the parties, shall constitute a waiver  of  any
     such right, power or remedy.  No waiver by either party
     of   any  default,  misrepresentation,  or  breach   of
     warranty or covenant hereunder, whether intentional  or
     not,  shall  be  deemed  to  extend  to  any  prior  or
     subsequent  default, misrepresentation,  or  breach  of
     warranty or covenant hereunder or affect in any way any
     rights  arising  by virtue of any prior  or  subsequent
     such  occurrence.  No waiver shall be valid  unless  in
     writing  and  signed  by the party  against  whom  such
     waiver is sought to be enforced.

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

                              XCL LTD.


                              By:___________________________
                              Name:_________________________
                                        Please Print
                              Title:________________________


                              ARBCO ASSOCIATES, L.P., KAYNE
                              ANDERSON NON-TRADITIONAL INVESTMENTS, L.P.,
                              OFFENSE GROUP ASSOCIATES, L.P.
                              and
                              OPPORTUNITY ASSOCIATES, L.P.

                              By:   KAIM Non-Traditional, L.P.
                                    The  General Partner  of
                                     each of the foregoing

                                   By:  Kayne  Anderson Investment
                                        Management, Inc.
                                        Its General Partner

                                   By:______________________________
                                        Robert V. Sinnott
                                        Vice-President