H.J. GRUY AND ASSOCIATES, INC.
-----------------------------------------------------------------
1200  Smith Street, Suite 3040, Houston, Texas  77002 o FAX (713)
739-6112 o (713) 739-1000



                              April 6, 1999




XCL, Ltd.
110 Rue Jean Laffitte
Lafayette, Louisiana 70508

                                         Re:  Proved Reserves
                                              Zhao Dong Block
                                              98-202-108

Gentlemen:

At  your  request, we estimated the reserves and future net  cash
flow  as  of January 1, 1999, attributable to interests owned  by
XCL,  Ltd.  (XCL)  in  the Zhao Dong Block, Bohai  Bay,  Offshore
Peoples  Republic  of China.  The estimated net reserves,  future
net cash flow, and discounted future net cash flow are summarized
by reserve category as follows:

                        Estimated              Estimated
                      Net Reserves      Future Net Cash Flow
                      _____________      ______________________
                                                      Discounted
                          Oil                            at 10%
                       (Barrels)     Nondiscounted      Per Year
                      ___________     ____________     ___________

Proved Undeveloped     12,837,000    $ 67,683,935    $ 34,679,634

Apache Payment                  0    $ 17,583,567    $ 15,189,347
                      ___________     ____________     ___________
Total Proved           12,837,000    $ 85,267,503    $ 49,868,980


The   Apache  Payment  reflects  an  agreement  by  Apache  China
Corporation  LDC  to  pay XCL China Ltd. sixteen  and  two-thirds
percent (16 2/3%) of the value of the Foreign contractor's  share
of  the  proved reserves in the Producing Unit(s)  located  in  C
Block (C field) in the Minghuazhen formation.

The  discounted future net cash flow is not represented to be the
fair  market value of these reserves, and the estimated  reserves
included in this report have not been adjusted for uncertainty.

Future net cash flow as presented herein is defined as the future
cash  inflow attributable to the evaluated interest in accordance
with  the  production sharing agreement with the Chinese National
Oil  and  Gas  Exploration and Development  Corporation  (CNODC).
Future  costs  of abandoning the facilities and  wells,  and  the
restoration  of  producing  properties to  satisfy  environmental
standards  are not deducted from the cash flow. Future  net  cash
flow  as  stated in this report is after consideration of Chinese
National Corporate Income Tax.

In   the  economic  projections,  prices,  operating  costs,  and
development costs remain constant for the projected life of  each
lease.

Reserves  have been estimated from volumetric calculations.   The
reserves included in this study are estimates only and should not
be  construed as exact quantities.  Future conditions may  affect
recovery  of estimated reserves and cash flow, and all categories
of  reserves may be subject to revision as more performance  data
become available.  The proved reserves in this report conform  to
the  applicable  definitions  contained  in  the  Securities  and
Exchange   Commission   Regulation  S-X,   Rule   4-10(a).    The
definitions are included in part as Attachment I.

Extent  and character of ownership, oil prices, production  data,
direct operating costs, capital expenditure estimates, and  other
data  provided  by  XCL have been accepted  as  represented.   No
independent  well  tests,  property  inspections,  or  audits  of
operating  expenses  were conducted by our staff  in  conjunction
with  this  study.   We did not verify or determine  the  extent,
character,  status, or liabilities, if any,  of  any  current  or
possible future detrimental environmental site conditions.

In  order to estimate the reserves, costs, and future cash  flows
shown  in  this  report, we have relied in  part  on  geological,
engineering, and economic data furnished by our client.  Although
we have made a best efforts attempt to acquire all pertinent data
and  to  analyze  it  carefully  with  methods  accepted  by  the
petroleum industry, there is no guarantee that the volumes of oil
or gas or the cash flows projected will be realized.

Production  rates  may  be  subject to  regulation  and  contract
provisions and may fluctuate according to market demand or  other
factors beyond the control of the operator.  The reserve and cash
flow projections presented in this report may require revision as
additional data become available.

We are unrelated to XCL and we have no interest in the properties
included in the information reviewed by us.  In particular:

     1.  We do not own a financial interest in XCL or its oil and
         gas properties.

     2.  Our fee is not contingent on the outcome of our work  or
         report.

     3.  We  have  not performed other services for or  have  any
         other  relationship  with  XCL  that  would  affect  our
         independence.

If  investments or business decisions are to be made in  reliance
on  these estimates by anyone other than our client, such  person
with  the approval of our client is invited to visit our  offices
at  his expense so that he can evaluate the assumptions made  and
the  completeness and extent of the data available on  which  our
estimates are based.

Any  distribution  or  publication of this  report  or  any  part
thereof must include this letter in its entirety.

                              Yours very truly,

                              H.J. GRUY AND ASSOCIATES, INC.

                               /s/ James H. Hartsock
                          by: ______________________________
                              
                              James H. Hartsock, PhD, PE
                              Executive Vice President
                              
                                   /s/ James F. Vincelette
                              by: ______________________________
                              
                              James F. Vincelette
                              Executive Vice President
                              Manager of Geology
                              
                                   /s/ Tommy Elkins
                              by: ______________________________
                              
                              Tommy Elkins
                              Petroleum Consultant

Attachment

                         ATTACHMENT I


           DEFINITIONS OF PROVED OIL AND GAS RESERVES1


PROVED OIL AND GAS RESERVES

Proved oil and gas reserves are the estimated quantities of crude
oil,  natural  gas, and natural gas liquid which  geological  and
engineering  data  demonstrate with reasonable  certainty  to  be
recoverable in future years from known reservoirs under  existing
economic and operating conditions, i.e., prices and costs  as  of
the  date the estimate is made.  Prices include consideration  of
changes   in   existing  prices  provided  only  by   contractual
arrangements,   but   not  on  escalations  based   upon   future
conditions.

Reservoirs  are  considered proved if economic  producibility  is
supported  by  either  actual production or conclusive  formation
test.   The  area of a reservoir considered proved  includes  (A)
that portion delineated by drilling and defined by gas-oil and/or
oil-water  contacts,  if any, and (B) the  immediately  adjoining
portions  not yet drilled, but which can be reasonably judged  as
economically productive on the basis of available geological  and
engineering  data.   In  the  absence  of  information  on  fluid
contacts,  the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.

Reserves  which can be produced economically through  application
of  improved  recovery techniques (such as fluid  injection)  are
included  in the "proved" classification when successful  testing
by  a pilot project, or the operation of an installed program  in
the  reservoir, provides support for the engineering analysis  on
which the project or program was based.

Estimates  of proved reserves do not include the following:   (A)
oil  that  may  become  available from known  reservoirs  but  is
classified  separately  as "indicated additional  reserves";  (B)
crude oil, natural gas, and natural gas liquids, the recovery  of
which is subject to reasonable doubt because of uncertainty as to
geology,  reservoir  characteristics, or  economic  factors;  (C)
crude  oil, natural gas, and natural gas liquids, that may  occur
in  undrilled  prospects; and (D) crude  oil,  natural  gas,  and
natural gas liquids, that may be recovered from oil shales, coal,
gilsonite and other such sources.


PROVED DEVELOPED OIL AND GAS RESERVES

Proved  developed oil and gas reserves are reserves that  can  be
expected  to  be recovered through existing wells  with  existing
equipment and operating methods.  Additional oil and gas expected
to  be  obtained  through the application of fluid  injection  or
other  improved recovery techniques for supplementing the natural
forces  and mechanisms of primary recovery should be included  as
"proved developed reserves" only after testing by a pilot project
or  after  the  operation of an installed program  has  confirmed
through  production  response that  increased  recovery  will  be
achieved.


PROVED UNDEVELOPED RESERVES

Proved  undeveloped oil and gas reserves are  reserves  that  are
expected to be recovered from new wells on undrilled acreage,  or
from  existing  wells  where a relatively  major  expenditure  is
required  for recompletion.  Reserves on undrilled acreage  shall
be  limited  to those drilling units offsetting productive  units
that  are reasonably certain of production when drilled.   Proved
reserves  for other undrilled units can be claimed only where  it
can  be  demonstrated with certainty that there is continuity  of
production  from  the  existing productive formation.   Under  no
circumstances should estimates for proved undeveloped reserves be
attributable  to  any acreage for which an application  of  fluid
injection  or  other improved recovery technique is contemplated,
unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
________________________
1 Contained in Securities and Exchange Commission Regulation S-X,
  Rule 4-10 (a)