_______________________________________________________________________

                     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, 1997 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
nonaffiliates  of  the registrant on April 13, 1998, was  approximately
$92.8 million.

     22,341,636 shares Common Stock, $.01 par value were outstanding on
April 13, 1998.
                                   
                  DOCUMENTS INCORPORATED BY REFERENCE
                                 None
_______________________________________________________________________

                        TABLE OF CONTENTS
                                
                             PART I

Item 1. and Item 2. Business and Properties
        General
        The Zhao Dong Block
        United/XCL Lube Oil JointVenture
        Coalbed Methane Project
        Domestic Properties
        Oil and Gas Reserves
        Production, Sales and Cost Data
        Oil and Gas Acreage
        Drilling Activity
        Producing Well Data
        Title to Properties
        Markets
        Competition
        Certain Risk Factors Relating to the Company and the Oil and Gas 
          Industry
        Employees
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders   

                             PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
Item 6.  Selected Financial Data
Item 7.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations
Item 8.  Financial Statements and Supplemental Data
         XCL Ltd. and Subsidiaries
         XCL-China, Ltd. 
Item 9.  Changes in and Disagreements With Accountants on Accounting and 
         Financial Disclosure

                            PART III

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

                             PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Other Matters
Signatures
Glossary of Terms
<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.
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'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,  a  Chinese governmental agency ("CNODC")  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 (i) has extensive undeveloped energy resources,  (ii)
is  experiencing and will continue for the foreseeable future  to
experience  high  growth in demand for energy  and  (iii)  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 [11].  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.  Also, 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" on page 12.   The  venture  is  not
currently active.

      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  kilometers
(roughly 50,000 gross acres). The Company believes that a portion
of  the Zhao Dong Block is a seaward extension of the Dagang  oil
field  complex,  which is one of China's largest.   According  to
published  statistics,  Dagang  has  produced  over  700  million
barrels  of  oil and has an estimated ultimate recovery  of  more
than one billion barrels.

      Tertiary formations constitute a major portion of the  Zhao
Dong  Block's potential. Its geology is in many respects  similar
to  the  U.S. Gulf Coast. Bohai Bay sediments are, however,  non-
marine  and  oil prone, while the U.S. Gulf Coast  sediments  are
open-marine  and  gas  and condensate prone. Seismic,  subsurface
data  and  drilling results from the nine wells the  Company  has
drilled  on  the  Zhao  Dong Block indicate a  thick,  structured
sedimentary section in the contract area.  Proximity to producing
fields  and  highly productive test results from the wells  which
have been drilled suggests excellent source rock.

     Seismic
     -------

     Seismic data were acquired in and around the Zhao Dong Block
by  shallow water and transition zone seismic crews from 1986  to
1988.  While  the  original processing of the data  was  fair  in
reflection continuity, the Company's initial evaluation  involved
reprocessing 721 km., resulting in dramatic improvement for  both
structural  and stratigraphic interpretation. This  reprocessing,
plus 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 kilometers and cost
approximately $5.5 million; the Company's share was approximately
$2.75 million.  A similar program (at a comparable cost) will  be
undertaken  in  1998 to cover most of the rest of the  Zhao  Dong
Block.

     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 the aerial  extent
of  both  the  "C"  and  the  "D"  segments  of  the  C-D  Field.
Hydrocarbons have been found in the Lower Minghuazhen (Pliocene),
the  Guantao  (Miocene), and the Shahejie (Oligocene) formations.
Appraisal drilling is planned for 1998 to delineate the extent of
the 1997 C-4 discovery located northeast of the C-D Field. The C-
4   well   is   productive  from  the  Shahejie  Formation   and,
additionally, from Jurassic and Permian Age sediments.

      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 between 4,278 and  4,462
feet,  and  a combined test rate of 2,160 BOPD with no water  was
realized. 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, and although the well was drilled  on  the
edge  of  the  shallow  structure, 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 mudlogs 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
much   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 until, at approximately 6,595 feet, the Zhao Bei  fault
was  crossed.  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.  (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 of gas; one Shahejie
sand  tested  oil  at  1,356 BOPD until water  production  began.
(Initial  analysis indicates the water was coned due to  pressure
draw-down during testing.) Total net pay for the zones tested was
143 feet.

     The C-3 thus indicates 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, and 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. Although 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
structural interpretation 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 kms. 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.

     Exploration Potential
     ---------------------
 
      Reconnaissance 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. Seismic  data  over
these  prospective  areas have been analyzed  and  the  potential
reserves are being evaluated.

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

      The  Company, Apache, and CNODC have approved  a  five-well
drilling  program for 1998, which will include an appraisal  well
to  appraise  the  C-4 discovery and four exploratory  wells,  at
least two of which will be in the "C" and "D" segments.

     Development Plans
     -----------------
  
      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.  On  the  basis  of  the
calculated  reserves,  Apache and XCL have  prepared  an  Overall
Development  Plan  ("ODP")  for the  Field.   The  ODP  presently
projects  the drilling of 45 wells, of which 32 are producers,  8
are  water injection wells for the purpose of reservoir  pressure
maintenance  to  achieve higher levels of  recovery  of  ultimate
reserves  and  5  are water disposal wells.   The  ODP  has  been
approved  by  the  Joint  Management  Committee  ("JMC"),   which
oversees operations on the Zhao Dong Block, has been approved  by
CNPC  subject to certain  modifications that XCL and  Apache  are
studying, and has been approved by the State Planning Commission.
CNODC  has given notice that it will participate as to  its  full
51% share in the C-D Field.

      XCL,  Apache  and  CNODC  are  currently  collaborating  on
engineering  studies to refine the ODP, both  to  reduce  capital
commitments for development and to accelerate production.  It  is
expected   that  these  studies  will  assist  the   parties   in
determining the  most efficient method for development, including
the practicability of beginning production before all development
operations have been completed. The Company has been informed  by
CNODC  that  they desire that production on the Zhao  Dong  Block
begin in 1998 and the parties are assessing how and whether  that
would  be  commercially feasible.  Initial results indicate  that
1998  production  is possible and the Company, Apache  and  CNODC
have decided to attempt to commence initial production in 1998.

      XCL's current estimate (which is subject to revision as the
project  moves forward) of the costs to develop the  reserves  in
the  C-D  Field  that are identified in the ODP by  the  Operator
(which  are  higher  than XCL's reserves) is  approximately  $185
million  (of  which  XCL's  share would  be  approximately  $45.3
million).   This  is less than amounts projected earlier  by  the
Operator  in  the  original ODP in part because  of  the  initial
inclusion in the ODP estimates of large contingencies, which  all
parties  believe are too high.  In addition, cost reductions  are
expected in part based on design changes that would eliminate one
drilling  platform  and  one production platform  from  the  ODP.
While formal Chinese approval for these changes has not yet  been
obtained, all parties believe that such approval can be  secured.
Further,  cost reductions are expected as a result of preliminary
bids  that suggest that cost estimates in the ODP have  been  too
high.  Cost reductions from the Operator's projections  are  also
based  on  the assumption that if the project moves forward  with
dispatch, the current weakness of certain Asian currencies  could
result  in  substantial  reductions in the  costs  of  steel  and
fabrication for the project.

      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.

      Production  tests  of the C-4 Well,  announced  by  XCL  on
October  7, 1997, indicate a combined daily rate from 8 zones  of
15,359  barrels 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
suggests  a  new field discovery on the Zhao Dong  Block.  CNODC,
XCL,  and  Apache have agreed to drill a well early  in  1998  to
appraise  the  C-4  Well.   If  this  proves  successful,   early
production  from the two initial wells in the C-4 Well  area  may
begin  in  late  1998; initial feasibility studies indicate  that
this  is  possible. The capital costs attributable to such  early
production are not included in the 1998 work program and  budget.
Successful  appraisal of the C-4 Well could also  cause  XCL  and
Apache to move promptly toward development of this 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 commercial 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  minimal
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  Foreign Contractor is required to drill exploratory
wells  prior  to the expiration of the Exploration  Period.   The
minimum   work   requirements  for  seismic   and   the   minimum
expenditures for the balance of the Contract have been met.

     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, not including 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.  The parties have elected to go into the third  phase
of the Exploration Period.

     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 and exploration  costs  shall  be
carried forward.

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

     Natural gas shall be allocated 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).
Cost  recovery  oil shall not be reduced by any royalty  due  the
Chinese government.

       (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.

     The Contract is governed by Chinese law.

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  certain  cash  payments  and
Apache's  agreement 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 which 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 will satisfy 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, 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,"  all
as   agreed   to  by  the  Company  and  Apache  in  the   Second
Participation  Agreement.  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 more than twice in one
year  to  pay  sums  due  under  the Operating  Agreement,  after
receiving  written notice of default and failing to  cure  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.


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. The registration  of
the  joint  venture was approved by Chinese authorities  and  the
effective  date of the joint venture is January  1,  1998.  In  a
letter  of  intent executed contemporaneously with the  contract,
the  parties  have  agreed to consider  the  feasibility  of  (i)
contributing  to  the joint venture a second  existing  plant  in
southwest  China and (ii) other projects, including  constructing
oil terminals on the north and south coasts of China and engaging
in upgrading certain existing refineries within China.

      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 which
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.

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 specifically 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.

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 and the  Company
is  presently evaluating such proposals with the intent  to  sell
the property.  The Company is also evaluating the possibility  of
developing  the  property  into a source  of  wetland  mitigation
credits. In connection with the acquisition of the Lutcher  Moore
Tract,  the Company's indirect ownership of such tract is subject
to  a  first  mortgage,  with  a  current  principal  balance  of
approximately $2.0 million, and a number of sellers' notes,  with
an  aggregate  current  principal balance of  approximately  $0.5
million (collectively, the "Lutcher Moore Debt"). 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.

Oil and Gas Reserves
--------------------

       Based   on  the  wells  drilled  to  date,  the  Company's
independent  engineering  firm, H.J. Gruy  and  Associates,  Inc.
("Gruy"),   has projected gross proved undeveloped  reserves  for
the  segments  of  the C-D Field drilled to date  of 46.26 million
barrels  of recoverable oil.  CNODC has exercised its  option  to
pay  51%  of  all  development  costs  and  receive  51%  of  oil
production.  Consequently, the Company's  net  interest  in  such
proved  undeveloped  reserves is estimated  to  be  approximately
11.76 million barrels of oil with a PV-10 of $62.5 million as  of
January 1, 1998.  The Company believes that the C-D Field and the
remainder  of  the  Zhao  Dong  Block  hold  the  potential   for
additional  significant increases in oil reserves.  See  "Certain
Risk Factors Relating to the Oil and Gas Industry -- Reliance  on
Estimates of Proved Reserves and Future Net Revenues."


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,
                                -----------------------
                                1997     1996     1995
                                ----     ----     ----
Net Production: (a)
   Gas (MMcf)......               72      467    1,474
   Oil (MBbl)......                4        9       19
   Gas equivalent (MMcfe)         95      522    1,588

Oil and gas sales ($ in 000's)(b)
   Gas....................    $  166   $  955  $ 1,953
   Oil and other..........        70      181      527
                               -----    -----   ------
     Total oil and gas sales  $  236   $1,136  $ 2,480
                               =====    =====   ======

Average sales price:
   Gas ($ per Mcf)..........        2.28     1.84     1.33
   Oil ($ per Bbl)..........       18.34    19.80    19.58
   Gas equivalent ($ per Mcfe)      2.47     2.18     1.56

Oil and gas costs ($ per Mcfe):
   Production expenses and taxes    2.41     0.74     0.71
   Depreciation, depletion and 
    amortization  of oil and gas
     properties                     0.81     0.96     1.23
     ________________
     (a)  Excludes gas consumed in operations.
     (b)   Includes  plant products recovered from  treating  and
     processing operations.

      The  following table shows the 1997 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).

                                   1997 Net Production
                                   -------------------     
                                   (MBbls)     (MMcf)
                                   ------      -------
Field                              Oil  %      Gas   %
-----                              --- ---     ---  ---
Cox Field......................    --   --     72   100
Frenier Field..................     4  100     --    --

Oil and Gas Acreage
-------------------

      The  oil and gas acreage in which the Company has leasehold
or other contractual interest at December 31, 1997, 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      48,677    24,338


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

      The following tables set forth wells drilled by the Company
in the periods indicated.

                            Year Ended December 31,
                        1997           1996           1995
                    -----------    -----------    -----------
United States       Gross   Net    Gross   Net    Gross   Net
-------------       -----   ---    -----   ---    -----   ---
Exploratory:
    Productive        --     --       --    --      --     --
    Nonproductive     --     --       --    --      --     --
                   -----   ----     ----   ---    ----    ---
         Total        --     --       --    --      --     --

Development:
   Productive         --     --       --    --       1     .2
   Nonproductive      --     --       --    --      --     --
                   -----   ----     ----  ----    ----   ---- 
        Total         --     --       --   --        1     .2

                                             Year Ended December 31,
                                       1997           1996           1995 (a)
                                   -----------    -----------    -------------
The People's Republic of China     Gross   Net    Gross   Net    Gross     Net
------------------------------     -----   ---    -----   ---    -----     ---
Exploratory:
    Productive                         2   1.0        1    .5        2     1.0
    Nonproductive                      1   0.5       --    --        1      .5
                                    ----   ---      ----  ----     ---     ----
         Total                         3   1.5        1    .5        3     1.5

Development:
   Productive                         --    --       --    --       --      --
   Nonproductive                      --    --       --    --       --      --
                                    ----  ----     ----   ----    ----     ----
      Total                           --    --       --    --       --      --
____________
(a)    Pursuant  to the Second Participation Agreement dated  May
      10,  1995,  between XCL and Apache, Apache's interest  in  the
      Zhao  Dong Block was increased from 33% to 50% of the  Foreign
      Contractor's interest.

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

      At  December  31,  1997, 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 which  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 1997 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 without 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 those of the Company, 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 in which the  Company  has  or  may
acquire an interest.

     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  which  it  believes
prudent.

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

       The   Company  is  currently  highly  leveraged.    Future
operations  will  be  significantly  affected  by  its  level  of
indebtedness.  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  governing  the  Notes (the  "Indenture")  require  the
Company  to meet certain financial tests and limit 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 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,
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.

     Oil and Gas Properties; Capital Expenditures
     --------------------------------------------

      The Company's total reserves, as of December 31, 1997, were
all  classified  as  proved  and unevaluated,  on  a  BOE  basis.
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.

      The  Company 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 oil  and
gas  properties commences in late 1998 or the first half of 1999,
as  anticipated, the Company's proportionate share of the related
cash  flow  will be available to help satisfy 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.

     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.

      In recent months there have been substantial disruptions in
several  Asian  financial markets and many Asian currencies  have
undergone significant devaluations.  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  denominated
assets.   As  of this time, China has been largely unaffected  by
these  events. However, it is impossible to predict the  ultimate
outcome of these events and their possible negative effect on the
Company's investments in China.

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

      The reserve data included in this report 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, future net revenue  from  proved
reserves and the PV-10 thereof for the crude oil and natural  gas
properties  described in this report are based on the  assumption
that the Zhao Dong Block is developed in accordance with the ODP,
modified  to  accelerate production and reduce  costs,  and  that
future  crude oil prices for production from the Zhao Dong  Block
remain  at  the  levels  assumed for December  31,  1997.   These
assumptions include an assumption that the Company will receive 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.

     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.
  
     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 which at this time are significantly
less stringent than U.S. laws.

      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, 1993, 1994, 1995, 1996 and 1997, the  Company
recorded  net  losses  of  approximately  $15.2  million,   $36.6
million,   $87.8   million,  $12.1  million  and   $14   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 included  elsewhere  in  this
report.

       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, 1997 of $183 million.   Use  of
the  NOLs by the Company are subject to limitations under Section
382  of  the Internal Revenue Code.  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 $81.1  million  and
$83.6  million for deferred tax assets at December 31,  1996  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.  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.

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  or  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)  by
the Louisiana Department of Revenue for Louisiana State corporate
franchise and income taxes for the 1987 through 1991 fiscal years
in  an aggregate amount 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
Louisiana  Department  of  Revenue has also  assessed  additional
Louisiana  State  franchise tax against the  Company  and/or  XCL
Acquisitions,  Inc.  for  the tax years  1991  through  1996  and
additional income tax against XCL Acquisitions, Inc. for the  tax
years  1991 and 1995 on the same basis as those set forth in  the
lawsuits.   The  Company  protested  the  assessments  and  small
adjustments  were  made  by  the  Department  of  Revenue.    The
additional income tax assessment for the 1991 and 1995 tax  years
is  $89,688 and the additional franchise tax assessment  for  the
tax  years  1991 through 1996 totals $1.6 million plus  statutory
interest  of  15%  per  annum from the due date  until  paid  and
penalties  not  to exceed 25% of the total tax due.  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  intends to  continue  to  protest  the
assessments.  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., el 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.

      In  July 1997, China Investment and Development Corporation
("CIDC"), holders of the Company's Series B Preferred Stock  sued
the Company and each of its directors in an action entitled China
Investment  and Development Corporation vs. XCL Ltd.; Marsden  W.
Miller,  Jr.;  John T. Chandler; David A. Melman; Fred  Hofheinz;
Arthur   W.  Hummel,  Jr.;  Michael  Palliser;  and  Francis   J.
Reinhardt, Jr. (Court of Chancery of the State of Delaware in and
for  New  Castle  County, Civil Action No. 15783-NC).   The  suit
alleged  breach  of (i) contract, (ii) corporate  charter,  (iii)
good  faith and fair dealing and (iv) fiduciary duty with respect
to  the alleged failure of the Company to redeem CIDC's Series  B
Preferred shares for a claimed aggregate redemption price of $5.0
million.   Effective  December 31, 1997,  the  Company  and  CIDC
entered  into an interim settlement agreement pursuant  to  which
the Company paid CIDC $1 million as a deposit in anticipation  of
a  final  settlement and dismissal of the lawsuit.  On  March  3,
1998,  the final settlement took place and on March 9, 1998,  the
lawsuit was dismissed with prejudice.

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

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

      On December 17, 1997, the Company held a Special Meeting in
Lieu  of  Annual  Meeting of Shareholders at the Hotel  Acadiana,
1801  West  Pinhook  Road, Lafayette, Louisiana.   A  quorum  was
present,  and the matters put to a vote at the meeting  were  (1)
election  of  three Class I directors to the Company's  Board  of
Directors,  (2) approval of an amendment and restatement  of  the
Company's  Certificate  of Incorporation  to  effect  a  one-for-
fifteen  reverse  split of the Company's  Common  Stock,  with  a
payment in cash in lieu of fractional shares, (3) approval of  an
amendment  and  restatement  of the  Company's  Long  Term  Stock
Incentive Plan, effective as of June 1, 1997, and certain  grants
made thereunder; and (4) approval of the award of an Appreciation
Option to Mr. M.W. Miller, Jr.

      The  Company's  Board of Directors is  divided  into  three
Classes,  with  each Class consisting of at least  one  executive
director  and  at least one non-executive director serving  three
year terms.  Messrs. Arthur W. Hummel, Jr., Michael Palliser  and
Benjamin  B. Blanchet were elected as Class I directors  at  this
meeting.   Mr.  David A. Melman did not stand for re-election.  A
total  of  not  fewer  than  321,288,597  votes,  constituting  a
plurality  of  all the votes cast at the meeting  by  holders  of
shares present in person or by proxy, were voted for each of  the
named  persons  elected as Class I directors to  the  Company  to
serve  until  the Annual Meeting of Shareholders to  be  held  in
2000.

      Class  II  directors are Messrs. Marsden  W.  Miller,  Jr.,
Francis J. Reinhardt, Jr. and R. Thomas Fetters, Jr., whose terms
expire  at the 1998 Annual Meeting of Shareholders and Class  III
directors  are Messrs. John T. Chandler and Fred Hofheinz,  whose
terms  expire  at  the 1999 Annual Meeting of Shareholders.   Mr.
Fetters was appointed as a Class II director on June 5, 1997.

      With respect to the resolution relating to the approval and
adoption  of  an  amendment  and  restatement  of  the  Company's
Certificate of Incorporation to effect a one-for-fifteen  reverse
split  of  the  Company's Common Stock, a  total  of  300,918,175
shares  were  cast  to approve the amendment and  restatement  as
follows:
 
                217,178,622 shares in favor
                 23,206,599 shares against
                  1,843,560 abstentions
                 47,317,866 broker non-votes

      With respect to the resolution relating to the approval and
adoption  of  an amendment and restatement of the Company's  Long
Term  Stock  Incentive Plan, effective June  1,  1997,  including
certain grants made thereunder, a total of 176,656,576 votes were
cast to approve the amendment and restatement and the grants made
thereunder as follows:

                 147,077,087 votes in favor
                  29,579,489 votes against
                   5,204,698 abstentions

      With respect to the resolution relating to the award of  an
Appreciation  Option  to  Mr.  M.W.  Miller,  Jr.,  a  total   of
175,054,879 votes were cast to approve the award as follows:

                 142,080,643 votes in favor
                  32,974,236 votes against
                   6,886,124 abstentions

                             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 1996 and 1997. 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 have been adjusted
to reflect the reverse split.
                                
                            Common Stock Price Per Share
                            ----------------------------
                                  1997          1996
                             ----------    -----------
                             High   Low    High   Low
                             ----   ---    ----   --- 
     First Quarter........   $5.63  $2.81  $6.60  $2.85
     Second Quarter.......   $4.69  $2.81  $7.50  $2.85
     Third Quarter........   $6.56  $2.81  $5.70  $1.95
     Fourth Quarter.......  $13.13  $3.88  $3.75  $1.95

      On  March  31,  1998, the closing price for  the  Company's
Common Stock on the AMEX was $5.06.

      As  of March 31, 1998, the Company had approximately  3,600
shareholders of record with respect to its Common Stock.

      As  of March 31, 1998, there were reserved an aggregate  of
(i)  2,679,601  shares  of Common Stock  subject  to  outstanding
options; (ii) 12,800,467 shares issuable upon conversion  of  the
Company's  outstanding  Amended Series A Preferred  Stock;  (iii)
17,361,286  shares  issuable  upon  exercise  of  the   Company's
outstanding   warrants;  (iv)  1,239,078  shares  issuable   upon
redemption  of  the  Company's  outstanding  Amended   Series   B
Preferred  Stock; (v) 104,375 shares reserved for  sale  to  fund
working  capital  for the Company's China projects;  (vi)  60,690
reserved for sale to fund general working capital requirements of
the  Company; and (vii) 36,373 shares issuable in connection with
contractual obligations.  The Company would receive  a  total  of
approximately  $86  million  if all  options  and  warrants  were
exercised  and all stock reserved for sale was sold at $5.06  per
share.

      The  Registrar and U.S. Transfer Agent for the Common Stock
is  ChaseMellon  Shareholder  Services,  L.L.C.  with  a  mailing
address of Overpeck Centre, 85 Challenger Road, Ridgefield  Park,
New    Jersey   07660   (telephone   1-800-851-9677)    (internet
www.chasemellon.com), and the name and address of  the  Company's
U.K. transfer agent is IRG plc, Balfour House, 390/398 High Road,
Ilford, Essex IG1 1NQ, England (telephone 181-478-8241).
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 In  December  1997, the Company issued  219,575  shares  of
  Common Stock to the holders of the Secured Subordinated Notes in
  respect of approximately $0.7 million in interest payable April
  1, 1997 and October 1, 1997, including penalty interest thereon.

o In December 1997, effective June 1, 1997, the Company issued
  20,000 shares of Amended Series A Preferred Stock to officers of
  the  Company  in  respect of restricted  stock  awards  granted
  pursuant to the Company's amended and restated Long Term  Stock
  Incentive Plan, approved by shareholders on December 17, 1997.

o In  December 1997, shareholders also approved the issuance,
  effective June 1, 1997, of an aggregate of 1,333,333 shares  of
  Common Stock to officers of the Company in respect of restricted
  stock  awards  granted  pursuant to the Company's  amended  and
  restated Long Term Stock Incentive Plan.

o On  November  3, 1997, the Company issued an  aggregate  of
  12,906 shares of Amended Series A Preferred Stock in respect of
  approximately  $1.1  million in dividends  payable  thereon  in
  additional  shares  of  Amended Series A  Preferred  Stock  due
  November 1, 1997.

   The  following  were transactions exempt from registration  as
exchanges  with  and stock issuances to existing shareholders  of
the Company.

o On  March  4,  1998, the Company issued  44,465  shares  of
  Amended Series B Preferred Stock in exchange for an equal number
  of  shares  of  Series  B Preferred Stock and  cancellation  of
  warrants.   In  addition, the Company issued  2,620  shares  of
  Amended Series B Preferred Stock in payment of accrued and unpaid
  dividends on the shares of Series B Preferred Stock through March
  3, 1998.

o Effective  January  16,  1998,  the  Series  F,  Cumulative
  Convertible Preferred Stock (the "Series F Preferred Stock") was
  mandatorily  converted into an aggregate of 633,893  shares  of
  Common Stock.

o In  November  1997,  the outstanding shares  of  Series  A,
  Cumulative Convertible Preferred Stock (the "Series A Preferred
  Stock") and Series E, Cumulative Convertible Preferred Stock (the
  "Series E Preferred Stock") were recapitalized and combined into
  672,631 shares of Amended Series A Preferred Stock.  Accrued and
  unpaid  stock dividends on the Series A and Series E  Preferred
  Stock were paid in 117,982 shares of Amended Series A Preferred
  Stock.

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.

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.   See  "Item  4.  Submission  of  Matters  to  a  Vote   of
Securityholders."

Item 6.      Selected Financial Data.
------------------------------------

      The   following  table  sets  forth  selected  consolidated
financial data of the Company for and at the end of each  of  the
five  years  ended  December 31, 1997 derived  from  the  audited
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>
                                
                                                      Year Ended December 31
                                         ----------------------------------------------------
                                           1993(a)   1994(b)    1995(c)    1996(e)   1997(g)
                                         ----------  --------  ---------   -------   --------   
                                            (In thousands, except per share data)
<CAPTION>
<S>                                      <C>         <C>        <C>        <C>         <C>  
Statement of Operations Data:
  Revenues                               $    8,499  $   4,336  $  2,480   $  1,136    $    236
  Operating expenses                          2,449      1,341       985        342         210
  General and administrative expenses         3,840      4,553     4,551      3,487       4,910
  Depreciation, depletion and
     amortization                             5,788      3,292     2,266        579         126
  Operating loss                            (12,518)   (33,875)  (85,673)    (9,793)     (8,058)
  Net interest expense                        1,329      1,831     2,998      2,415       8,450
  Interest income                               141        508       133          8       2,212
  Net loss                                  (15,197)   (36,622)  (87,837)   (12,074)    (13,994)
  Net loss attributable to common stock     (19,978)   (41,529)  (92,658)   (17,430)    (27,722)
  Net loss per common share
      Basic                                   (2.52)     (3.14)    (5.77)     (0.98)      (1.36)
      Diluted                                 (2.52)     (3.14)    (5.77)     (0.98)      (1.36)
  Weighted average common
     shares outstanding - basic               7,933     13,220    16,047     17,705      20,451
  Weighted average common
     shares outstanding - diluted             7,933     13,220    16,047     17,705      20,451

Balance Sheet Data (at end of period):
  Total working capital (deficit)          $(15,562)  $ (1,563) $(24,239) $ (46,705)    $22,399
  Total assets                              157,377    149,803    72,336     60,864     119,089
  Long-term debt, net of current
    maturities                               53,965(d)  41,607(d) 15,644         -- (f)  61,310 (h)
  Stockholders' equity                       84,609     95,200    16,900     11,041      40,825
</TABLE>
------------
(a)  Includes  provision for impairment of domestic oil  and  gas
     properties of $8 million.

(b)  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.

(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 non-recourse debt of an aggregate $0.7 million  and
     $3.7 million as of December 31, 1994 and 1993, respectively,
     included in the Lutcher Moore Debt.

(e)  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.

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

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

(h)  Long  term  debt is net of unamortized discount  of  $13,690
     associated  with the value allocated to the  stock  purchase
     warrants issued with the Senior Secured Notes.

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
      ----------

      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  China
properties  and  the Company's reserve assessments  support  this
decision. The Company has, therefore, focused financially on  (i)
raising   funds   to  meet  capital  requirements   for   Chinese
operations,   (ii)  selling  its  other  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 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  all
required  funds for the exploration and development of  the  Zhao
Dong  Block.  All  of its contractual obligations  to  CNODC  and
Apache  have  been  met  and the Company believes  that  it  will
continue to do so.

      The  Company's opinion that it will be able to  obtain  the
funds  necessary to pay its share of capital expenditures to  the
point where cash flow is sufficient to pay costs is based on  the
Company's  assessment of the ultimate quantity  of  oil  reserves
which will be produced from the Zhao Dong Block. Presently proven
gross oil reserves under the Zhao Dong Block of approximately  47
million barrels represents only 6.5% of the Company's independent
engineers'  estimates of approximately 725 million of  ultimately
recoverable  gross  oil  reserves in all  categories  of  proven,
probable,  possible and exploration.  Additionally,  the  Company
believes,  based  on  discussions with  the  Chinese  authorities
during the last year, that it will acquire additional oil and gas
exploration  and  development blocks in China,  with  proven  oil
reserves,  which  will further enhance the Company's  ability  to
timely obtain adequate funds for its obligations in China.

      Additional funds may be available from a number of sources,
including  cash flow from production on the Zhao Dong Block,  the
sale or recapitalization of the Lutcher Moore Tract and the other
assets held for sale, project financing, increasing the amount of
senior  secured  debt,  supplier  financing,  additional  equity,
including the exercise of currently outstanding warrants  to  buy
common  stock and joint ventures with other oil companies.  Based
on  continuing  discussions with major  stockholders,  investment
bankers,  potential  purchasers  and  other  oil  companies,  the
Company believes that such funds will be available. There  is  no
assurance,  however, that such funds will be  available  and,  if
available, that they will be available on commercially reasonable
terms,  or that sufficient cash flow will be available  from  the
Zhao Dong Block. New debt will require approval of the holders of
the Company's long term debt.  See "Risk Factors."

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

      The  Company offered and sold $75 million of Notes and  $25
million  of equity on May 20, 1997.  During 1997 such funds  were
used to pay costs of the offering, the Company's 1997 exploration
and  development costs and $28 million of debt.  At December  31,
1997,  the Company had an unrestricted operating cash balance  of
$22.0  million and restricted cash held in escrow for the payment
of  interest on the notes of $10.3 million.  The Company had  net
working capital of $22.4 million.

      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
material  revenues.   Revenues  for  1997  were  $236,000  versus
$1,136,000 in 1996.  The Company incurred a loss for fiscal  1997
of  $13,994,000  and  expects to incur a loss  in  1998  as  well
because production and related cash flow from the Zhao Dong Block
is not expected until late 1998 at the earliest.

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

     The Company's unrestricted cash will be required for working
capital  and exploration, development and production expenditures
on  the  Zhao Dong Block. CNODC has given written notice that  it
will  participate as to its full 51% share of the C-D  Field  and
has   urged  that  production  begin  during  1998.   Except  for
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
actual  development  expenditures  for  the  C-D  Field  for  the
remainder  of  1998  will be approximately $8 million,  which  is
available  from current unrestricted cash reserves.  The  Company
estimates that its share of unpaid exploration expenses  for  the
remainder of 1998 will be approximately $13 million.  The Company
presently  projects and plans that these funds will be  available
from  current  unrestricted cash reserves and a  portion  of  the
proceeds from the sale or refinancing of the Lutcher Moore Tract.
The  Company estimates that its share of development expenses for
1999  will  be  approximately $22 million. After  expenditure  of
those  1998 and 1999 projected development expenses, the  Company
projects  that  proceeds from production will pay for  additional
expenditures.   After participation in the projected  exploration
program  for 1998, the Company presently projects and plans  that
1999  development funds will be available from  proceeds  from  a
portion  of the sale of Lutcher Moore, a  financing of the  final
payment  which  Apache  owes XCL for  the  1995  purchase  of  an
additional 8.325% interest in the C Field and proceeds  from  the
early exercise of at least a portion of the currently outstanding
warrants  to  purchase common stock.  Furthermore,  although  the
Company   believes  that  by  the  end  of  1998  all  obligatory
exploration wells will have been drilled, the Company anticipates
that  additional exploration wells will be drilled  during  1999.
Funds for these exploratory wells will be obtained from the  same
sources.  Again, there is no assurance that the sources of  funds
projected in this paragraph will be available.  If not available,
the  Company plans to utilize other sources of funds, as referred
to above under "Background."

     Due to the successful results of the  D-3 and C-4 Wells, the
1998  work  program  and  budget  exceed  the  Company's  initial
preliminary projections earlier in 1997.  This results  from  the
necessity of drilling at least one appraisal well offsetting  the
C-4 exploratory well and the decision to extend the Contract into
its  third exploratory period because of the successful  drilling
of  the  D-3  and C-4 wells.  XCL, Apache, and CNODC are  working
together to reduce capital costs for the Zhao Dong Block  and  to
determine  whether the commencement of production  from  the  C-4
Well  area  can  be accelerated into late 1998.   This  work  has
already  resulted in reductions of capital costs of approximately
$35  million  based on a change in the conceptual design,  and  a
determination  that  it  is  technically  feasible  to   commence
production  from the C-4 well area in 1998.  The Company,  Apache
and  CNODC  have now all agreed to make every effort  to  achieve
initial production in 1998.

     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.

     Although the Company is not obligated to make any additional
capital  payments  to such projects, the Company  may  also  have
capital  requirements for its lubricating oil and coalbed methane
projects.   The  Company believes that both  businesses  will  be
successful  and  grow and that the Company will  make  additional
investments in the businesses.

Other
-----

      Pursuant  to  the Company's December 17, 1997 shareholders'
meeting,  whereby several compensation plans were  approved,  the
Company  recorded  unearned compensation of  approximately  $12.8
million.   This  amount  will be amortized  ratably  over  future
periods of up to five years and is recorded as a non-cash expense
in  the Statement of Operations.  Because certain of these awards
are based on market capitalization there may be additional amounts
earned which may become  payable.   Approximately  $0.9  million  
of  compensation expense was recorded in connection with these 
awards during 1997.

      The  Company  believes that inflation has had  no  material
impact  on  its  sales, revenues or income during  the  reporting
periods.  In light of increased oil and gas exploration  activity
worldwide,  and  in the Bohai Bay in particular, increased  rates
for equipment and services, and limited rig availability may have
an impact in the future.

      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.  See "Environmental Matters."

New 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.   The Company will be analyzing SFAS No.  130  during
1998  to  determine what, if any, additional disclosures will  be
required.

      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 will be analyzing SFAS No.
131 during 1998 to determine what, if any, additional disclosures
will be required.

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

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

      The  Company  incurred a loss of $14 million  in  1997,  as
compared  with  a loss of $12 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 noncash 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.

       As  the  Company  continues  to  focus  its  resources  on
exploration  and development of the Zhao Dong Block,  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 $1.4  million
during  1997 as compared with 1996, as reflected in the following
table.

                                            1997         1996
                                            ----         ----
                                               (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         574          539
Lafayette office expense                      304          374
Corporate insurance                           341          381
                                          -------       ------
                                        $   4,910      $ 3,487
                                          =======       ======

     The increase in legal and professional fees of $774,000 were
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.

  1996 compared to 1995

      The  Company reported a net loss for fiscal 1996  of  $12.1
million  compared to a net loss for  1995 of $87.8 million.   The
net  loss  for 1996 includes a $3.85 million noncash  charge  for
impairment  of  domestic  oil and gas properties,  classified  as
assets  held  for  sale.  The loss in 1996 also reflects  a  $2.4
million  write-down  and $0.7 million loss on  the  sale  of  the
Company's investments.

      The  net  loss  for 1995 includes a $75.3  million  noncash
charge  for the provision of impairment of domestic oil  and  gas
properties.  The carrying amounts of the Company's properties  in
Texas were written down by $16.5 million during 1995, in order to
comply  with the ceiling limitation prescribed by the Commission.
This  was  principally  due to downward  revisions  in  estimated
reserves  in  the  second quarter and reduced present  values  of
reserves attributable to delays in development drilling scheduled
in  the third quarter.  During the fourth quarter, to reflect the
expected results of its announced program to divest itself of its
U.S.  oil  and gas properties, the Company recorded an additional
$58.8 million noncash write-down, reducing the recorded value  of
its  domestic  oil  and gas properties to, their  estimated  fair
market  value.  The loss in 1995 also reflects the effects  of  a
$4.5  million  write-down  of  the  Company's  other  assets  and
investments.

      Oil  and gas revenues from properties held for sale in 1996
were  $1.1 million as compared to $2.5 million in 1995, primarily
due  to continued reduction in volume sold.  The Company does not
anticipate material revenues until late 1998 at the earliest when
production in China may commence.

      General  and  administrative expenses for  1996  were  $3.5
million  as  compared  to  $4.6 million  in  1995.   General  and
administrative costs are expected to remain relatively  unchanged
during  the  upcoming  year.  Operating  costs  are  expected  to
decline  due to the further disposition of domestic oil  and  gas
properties.

      Interest  expense decreased in 1996, due primarily  to  the
Company's  principal payments on its institutional  debt  in  the
first quarter of 1996.

Subsequent Events
-----------------

     Effective January 16, 1998, the Series F Preferred Stock was
mandatorily  converted into an aggregate  of  633,893  shares  of
Common Stock.  Due to the Series F Preferred Stock being redeemed
and the Series A and E Preferred Stock being converted to Amended
Series  A Preferred Stock, the Company's Preferred Stock dividend
obligations  in respect of such securities have been  eliminated.
The effect of the recapitalization of the Series A and the Series
E  Preferred  Stock has resulted in an increase in the  Company's
Preferred  Stock  dividend obligations of $3.7  million  annually
which  can  now  be  paid in kind in shares of Amended  Series  A
Preferred Stock (valued at $85 per share).  Aggregate liquidation
preference increased from $63.3 million  in 1996 to $103  million
in 1997.

      Effective  December 31, 1997, the Company entered  into  an
interim  settlement agreement with the holder  of  the  Series  B
Preferred  Stock whereby the Company paid such holder $1  million
as  a  deposit  in anticipation of the settlement  of  a  lawsuit
commenced by such holder for a claimed aggregate redemption price
of such stock of $5.0 million and accrued and unpaid dividends to
the redemption date. The final settlement took place on March  3,
1998,  and the lawsuit was dismissed with prejudice on  March  9,
1998.   Pursuant to the settlement, the holder of  the  Series  B
Preferred  Stock sold the stock and warrants and  the  buyer
exchanged  the  Series  B Preferred Stock  for  Amended  Series  B
Preferred  Stock and warrants, returned the old warrants  to  the
Company  for  cancellation and received payment  of  accrued  and
unpaid  dividends on the Series B Preferred Stock  in  shares  of
Amended  Series  B  Preferred Stock. The $1 million  deposit  was
returned upon receipt of the proceeds from the sale of the Series
B Preferred Stock.

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

      The  Company has conducted a review of its computer systems
to identify the systems that could be affected by the "Year 2000"
issue.   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, XCL  presently
believes  that  the Year 2000 problem will not  pose  significant
operational problems for its computer systems and that  the  Year
2000  problem will not have a material impact  on  its  costs  of
operations.

      The Company also may be vulnerable to other companies' Year
2000  issues.  The Company's current estimates of the  impact  of
the Year 2000 problem on its operations and financial results  do
not  include costs and time that may be incurred as a  result  of
any  vendors' or customers' failure to become Year 2000 compliant
on  a  timely  basis.   The Company intends  to  initiate  formal
communications with all of its significant vendors and  customers
with  respect to such persons' Year 2000 compliance programs  and
status.   However,  there  can be no assurance  that  such  other
companies  will  achieve  Year  2000  compliance  or   that   any
conversions by such companies to become Year 2000 compliant  will
be  compatible with the Company's computer system.  The inability
of  the  Company or any of its principal vendors or customers  to
become  Year  2000  compliant in a timely  manner  could  have  a
material  adverse effect on the Company's financial condition  or
results of operations.

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 Coopers & Lybrand L.L.P. dated April 10, 1998, and the
supplementary financial data specified by Item 302 of  Regulation
S-K are set forth on pages [] through [].  See Item 14 for Index.

<PAGE>
                REPORT OF INDEPENDENT ACCOUNTANTS
                                
                                

To the Board of Directors and Shareholders of  XCL Ltd.

We  have  audited the consolidated financial statements  and  the
financial statement schedule of XCL Ltd. and Subsidiaries  listed
in  Item  14(a)  of  this  Annual  Report  on  Form  10-K.  These
consolidated   financial  statements  and   financial   statement
schedule are the responsibility of the Company's management.  Our
responsibility  is  to express an opinion on  these  consolidated
financial  statements and financial statement schedule  based  on
our audits.

We  conducted  our  audits in accordance with generally  accepted
auditing  standards.  Those standards 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.   An
audit also includes assessing the accounting principles used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audits provide a reasonable basis for our opinion.

In  our  opinion,  the  financial statements  referred  to  above
present  fairly,  in  all  material  respects,  the  consolidated
financial  position of XCL Ltd. and Subsidiaries as  of  December
31,  1997  and  1996,  and  the  consolidated  results  of  their
operations  and their cash flows for each of the three  years  in
the  period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion,  the
financial  statement schedule referred to above, when  considered
in  relation to the basic consolidated financial statements taken
as  a  whole,  presents  fairly, in all  material  respects,  the
information required to be included therein.

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
although the Company has cash (including its restricted cash)  in
the  amount of approximately $32 million as of December 31, 1997,
and  a  positive  working  capital  position,  it  must  generate
additional  cash flows to satisfy its development and exploratory
obligations  with respect to its China properties.  There  is  no
assurance that the Company will be able to generate the necessary
funds  to satisfy these contractual obligations and to ultimately
achieve  profitable  operations, which creates  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.

                                   COOPERS & LYBRAND L.L.P.



Miami, Florida
April 10, 1998

<PAGE>

                    XCL Ltd. and Subsidiaries
                   CONSOLIDATED BALANCE SHEET
                     (Thousands of Dollars)
                                                                December 31
                                                           ------------------- 
                              A S S E T S                     1997      1996
                              -----------                     ----      ----
Current assets:
      Cash and cash equivalents                          $   21,952   $   113
      Cash held in escrow (restricted)                       10,263        --
      Accounts receivable, net                                  101        23
      Refundable deposits                                     1,200        --
      Other                                                     451       212
                                                           --------    ------
Total current assets                                         33,967       348
                                                           --------    ------
Property and equipment:
      Oil and gas (full cost method):
           Proved properties under development not being
            amortized                                        21,172    13,571
           Unevaluated properties                            33,132    21,238
                                                            -------   -------
                                                             54,304    34,809
      Land, at cost                                              --       135
      Other                                                   1,163     2,492
                                                            -------   ------- 
                                                             55,467    37,436
      Accumulated depreciation, depletion and
        amortization                                         (1,000)   (1,491)
                                                            -------   -------
                                                             54,467    35,945
                                                            -------   -------
Investments                                                   4,173     2,383
Assets held for sale                                         21,155    21,058
Debt issue costs, less amortization                           4,268       950
Other assets                                                  1,059       180
                                                            -------    ------
                       Total assets                     $   119,089  $ 60,864
                                                           ========   =======

  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 costs                $    2,727   $  3,901
      Due to joint venture partner                           4,504      4,202
      Dividends payable                                      1,813        928
      Current maturities of long term debt                   2,524     38,022
                                                          --------    -------   
           Total current liabilities                        11,568     47,053
                                                          --------    -------
Long-term debt, net of current maturities                   61,310         --

Other non-current liabilities                                5,386      2,770
Commitments and contingencies (Notes 2 and 11)
Shareholders' equity:
       Preferred stock-$1.00 par value; authorized 
         2.4 million shares at December 31, 1997 
         and 1996; issued shares of 1,196,236 at 
         December 31, 1997 and 669,411 at
         December 31, 1996 - liquidation preference 
         of $103 million at December 31, 1997                1,196        669
      Common stock-$.01 par value; authorized 500 
         million shares at December 31, 1997
         and 1996; issued shares of 21,710,257 at 
         December 31, 1997 and 285,754,151 at
         December 31, 1996                                     217      2,858
      Common stock held in treasury - $.01 par value; 
         69,470 shares at December 31, 1997
         and 1,042,065 shares at December 31, 1996              (1)       (10)
      Unearned compensation                                (12,021)        --
      Additional paid-in capital                           298,588    226,956
      Accumulated deficit                                 (247,154)  (219,432)
                                                          --------    -------
           Total shareholders' equity                       40,825     11,041
                                                          --------    -------
                      Total liabilities and 
                      shareholders'equity              $   119,089  $  60,864
                                                          ========    =======
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
                    XCL Ltd. and Subsidiaries
                                
              CONSOLIDATED STATEMENT OF OPERATIONS
            (In Thousands, Except Per Share Amounts)

                                                          Year Ended December 31
                                                        --------------------------
                                                         1997      1996     1995
                                                         ----      ----     ----
<CAPTION>

<S>                                                    <C>       <C>       <C>
Oil and gas revenues from properties held for sale     $   236   $ 1,136   $  2,480
                                                        ------    ------     ------
Costs and operating expenses:

Operating                                                  210       342        985
      Depreciation, depletion and amortization             126       579      2,266
      Provision for impairment of oil and gas
       properties                                           --     3,850     75,300
      Writedown of other assets and investments             --     2,444      4,461
      General and administrative costs                   4,910     3,487      4,551
      Other                                              3,048       227        590
                                                        ------    ------    -------  
                                                         8,294    10,929     88,153
                                                        ------    ------    -------
Operating loss                                          (8,058)   (9,793)   (85,673)
                                                        ------    ------    ------- 

Other income (expense):
      Interest expense, net of amounts capitalized      (8,450)   (2,415)    (2,998)
      Gain (loss) on sale ofinvestments/assets              --      (661)       613
      Interest income                                    2,212         8        133
      Other, net                                           853       787         88
                                                        ------   -------    -------
                                                        (5,385)   (2,281)    (2,164)
                                                        ------   -------    -------

Loss before extraordinary item                         (13,443)  (12,074)   (87,837)
Extraordinary charge for early extinguishment of
  debt                                                    (551)       --         --
                                                        ------    ------    -------
Net loss                                               (13,994)  (12,074)   (87,837)
Preferred stock dividends                              (13,728)   (5,356)    (4,821)
                                                       -------    ------    -------
Net loss attributable to common stock                 $(27,722) $(17,430) $ (92,658)
                                                       =======   =======    =======
Loss per share (basic):
    Net loss before extraordinary item                $  (1.33) $   (.98) $   (5.77)
    Extraordinary item                                    (.03)       --         --
                                                       -------    ------    -------
    Net loss per share                                $  (1.36) $   (.98) $   (5.77)
                                                       =======    ======    ======= 
Loss per share (diluted):
    Net loss before extraordinary item                $  (1.33) $   (.98) $   (5.77)
    Extraordinary item                                    (.03)       --         --
                                                       -------    ------    -------  
    Net loss per share                                $  (1.36) $   (.98) $   (5.77)
                                                       =======    ======    =======

Average number of shares used in per share computations:
    Basic                                               20,451    17,705     16,047
    Diluted                                             20,451    17,705     16,047
                                
</TABLE>
 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
                    XCL Ltd. and Subsidiaries
                                
         CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     (Thousands of Dollars)
                                
                                
                                                                                                        Total          
                               Preferred     Common   Treasury   Paid-In   Accumulated    Unearned   Shareholders'
                                 Stock        Stock     Stock    Capital     Deficit    Compensation    Equity
                               ---------     ------   --------   -------   -----------  ------------  -----------
<CAPTION>
<S>                                 <C>       <C>         <C>     <C>       <C>               <S>      <C>
Balance, December 31, 1994          649       2,372       (35)    206,241   (114,027)         -        95,200
    Net loss                          -           -         -           -    (87,837)         -       (87,837)
    Dividends                         -           -         -           -     (4,821)         -        (4,821)
    Preferred shares issued          32           -         -       5,092          -          -         5,124
    Preferred shares subscribed       4           -         -           -          -          -             4
    Common shares issued              -         189         -       7,936          -          -         8,125
    Treasury shares purchased         -           -       (25)     (1,232)         -          -        (1,257)
    Treasury shares issued            -           -        35       2,327          -          -         2,362
                                  -----      ------     -----     -------   --------     ------     ---------   

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                         -            -         -           -    (13,994)         -       (13,994)
    Dividends                        -            -         -           -    (13,728)         -       (13,728)
    Preferred shares issued         507           -         -      36,521           -         -        37,028
    Common shares issued              -         198         -       4,395           -         -         4,593
    Issuance of stock purchase
      warrants                        -           -         -      15,032           -         -        15,032
    Unearned compensation            20          13         -      12,841           -   (12,021)          853
    Reverse stock split 1 for 15      -      (2,852)        9       2,843           -         -             -
                                  -----       -----      ----     -------    --------   --------       -------
Balance, December 31, 1997       $1,196     $   217    $   (1)    298,588  $ (247,154) $(12,021)      $40,825
                                  =====       =====     =====     =======    ========    =======  

</TABLE>

                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>

                    XCL Ltd. and Subsidiaries
              CONSOLIDATED STATEMENT OF CASH FLOWS
                     (Thousands of Dollars)
                                                  Year Ended December 31
                                            ---------------------------------
                                               1997        1996        1995
                                               ----        ----        ----
Cash flows from operating activities:
    Net loss                             $  (13,994)   $  (12,074) $ (87,837)
                                            -------       -------    ------ 
    Adjustments to reconcile net loss 
       to net cash used in
       operating activities:
        Depreciation, depletion and
         amortization                           126           579      2,266
        Provision for impairment of oil 
         and gas properties                      --         3,850     75,300
        Extraordinary charge for early 
         extinguishment of debt                 551            --         --
        (Gain) loss on sale of
         investments/assets                      --           661       (613)
        Amortization of discount on senior 
         secured notes                        1,342            --         --
        Writedown of other assets and
         investments                             --         2,444      4,461
        Stock compensation programs             853            --         --

Other                                           796            --         --
        Change in assets and liabilities:
             Accounts receivable                (78)          799        875
             Refundable deposits             (1,200)           --         --
             Accounts payable and accrued
              costs                            (132)          575       (765)
             Non-current liabilities and
              other                           2,655            12        803
                                            -------       -------    -------
                  Total adjustments           4,913         8,920     82,327
                                            -------       -------    ------- 
                  Net cash used in operating
                   activities                (9,081)       (3,154)    (5,510)
                                            -------       -------    -------
Cash flows from investing activities:
    Capital expenditures                    (16,097)       (1,489)    (8,458)

Investments                                  (1,790)         (491)    (1,624)
    Proceeds from sales of assets and
     investments                                797         9,210      2,655

Other                                            --             4         64
                                            -------       -------     ------  
            Net cash (used in) provided 
              by investing activities       (17,090)        7,234     (7,363)
                                            -------       -------     ------
Cash flows from financing activities:
    Proceeds from sales of common stock         652         1,766      3,553
    Proceeds from issuance of preferred
     stock                                   25,000           144      3,068
    Proceeds from sale of treasury stock         --           264      2,487
    Proceeds from Senior Secured Notes       75,000            --         --
    Loan proceeds                             6,100           315         --
    Payment of long-term debt               (35,503)       (8,344)      (522)
    Payment of notes payable                 (6,100)           --         --
    Proceeds from exercise of options and
     warrants                                 1,590           691        874
    Payment of preferred stock dividends         --            --       (250)
    Payment for treasury stock                   --          (141)    (1,257)
    Stock/note issuance costs and other      (8,466)         (272)      (221)
                                            -------        ------     ------ 
                  Net cash provided by 
                   (used in) financing
                   activities                58,273        (5,577)     7,732
                                            -------        ------     ------
Net increase (decrease) in cash and cash
  equivalents                                32,102        (1,497)    (5,141)
Cash and cash equivalents at beginning of
  year                                          113         1,610      6,751
                                             ------        ------     ------
Cash and cash equivalents at end of year    $32,215       $   113    $ 1,610
                                             ======        ======      =====
Supplemental information:
    Cash paid for interest, net of amounts
      capitalized                           $ 7,441       $ 1,591    $ 2,602
                                             ======        ======     ======

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

(1)  Summary of Significant Accounting Policies:

  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.  These reclassifications had no effect on  net
loss, cash flows or shareholders' equity.

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, liabilities, revenues and  expenses,
and  disclosure  of  contingent assets and  liabilities.   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, 1997, the Company's cash and cash equivalents  were
deposited primarily in three financial institutions.

  Concentration of Credit Risk:
  
     The Company operates exclusively in the oil and gas industry
and  receivables are due from other producers who may be affected
by  economic  conditions in the industry.  The  Company  has  not
experienced any material credit losses.

      The  Company's  financial instruments that are  exposed  to
concentrations   of  credit  risk  consist  primarily   of   cash
equivalents/short-term investments and trade receivables.

      The  Company believes that no single short-term  investment
exposes  the  Company  to significant credit risk.  Additionally,
creditworthiness of its counterparties, which are major financial
institutions, are monitored. As of December 31, 1997, the Company
had  cash  in  financial institutions in excess  of  the  insured
amounts.

  Fair Value of Financial Instruments:
  
      For  the  purposes of disclosure requirements  pursuant  to
Statement  of Financial Accounting Standards No. 107 "Disclosures
About Fair Market Value of Financial Instruments," fair value  of
current assets and liabilities approximate carrying value, due to
the  short-term nature of these items. The Company  believes  the
fair  value  of long-term debt approximates carrying value.  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 1997  and  1996,
and  foreign  reserves in 1997 and 1996 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 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 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.

    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 1997, 1996 and 1995, interest and associated
costs  of  approximately  $5.8 million,  $2.8  million  and  $3.1
million, respectively were capitalized on 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.
The  discount  on senior secured notes is the amount attributable
to the detachable Common Stock purchase warrants.

  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 benefits is able to be reasonably anticipated.

  Revenue Recognition:

     Oil and gas revenues are recognized using the accrual method
at the price realized as production and delivery occurs.  Amounts
which  are  contingently  receivable  are  not  recognized  until
realized.

      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.

     Common Stock Reverse Split

      Effective  December  17,  1997,  the  Company  amended  and
restated  its Certificate of Incorporation to effect  a  one-for-
fifteen  reverse split of the Company's Common Stock.  All  share
amounts  presented  herein  have been  adjusted  to  reflect  the
reverse split.

     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.   The Company will be analyzing SFAS No.  130  during
1998  to  determine what, if any, additional disclosures will  be
required.

      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 will be analyzing SFAS No.
131 during 1998 to determine what, if any, additional disclosures
will be required.
                                
(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.  Although the Company has cash available in the
amount  of  approximately $32 million as  of  December  31,  1997
(including  restricted cash of approximately $10 million)  and  a
positive  working  capital position, management anticipates  that
additional  funds will be needed to meet all of  its  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 1998 or the first half of  1999,  as
anticipated,  the Company's proportionate share  of  the  related
cash  flow  will be available to help satisfy 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, 1997, 1996 and 1995.

      The Company completed the following noncash transactions in
1997  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 bank  agreement.   Such
transactions not reported elsewhere herein are as follows:

       1997
       ----

      On  January 9, 1997, the Company accepted subscriptions for
an aggregate of 21,057 shares of Series F Preferred Stock, issued
in  February to three individuals for 18,448 shares; 1,731 shares
and  878  shares, respectively, at $65.00/share, in exchange  for
$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  those  institutional  holders  of
Secured  Subordinated Debt who purchased $8  million  of  Amended
Series  A  Preferred  Stock.  The  shares  of  Amended  Series  A
Preferred  Stock were valued at $85.00 per share.   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 a resident of  Taiwan  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 resulting in Apache
Corp.  purchasing an additional interest in the Zhao Dong  Block,
during  the  first  quarter the Company issued  3,333  shares  of
Common  Stock  to  a  finder and amended  the  finder's  existing
warrants  to acquire 33,333 shares of Common Stock 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.

      As compensation for identifying the placement agent for the
Regulation  S  unit offering, the finder earned  a  four  percent
stock  fee of the gross proceeds of the 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.

          1995
          ----

      During the first quarter of 1995, the Company issued  1,247
shares  of Common Stock in payment of interest on funds  escrowed
in advance of purchase of Series D Preferred Stock.

      During September 1995, the Company issued 3,333 units, each
unit  comprised  of  one share of Common Stock  and  a  five-year
warrant to purchase one share of Common Stock, plus an additional
five-year  warrant  on  the same terms as  the  unit  warrant  to
purchase  3,333  shares  of Common Stock as  compensation  to  an
individual  who assisted the Company with a private placement  of
approximately 200,000 units.

 (4) Receivables

      The  Company's  trade accounts receivable at  December  31,
1997, arise primarily from business transactions with entities in
the oil and gas industry, mostly located in Texas. An oil and gas
purchaser  with  which  the Company has contractual  arrangements
accounted  for  approximately 76 percent of oil and  gas  revenue
receivables in 1997, 76 percent in 1996 and 67 percent in 1995.

 (5) Assets Held for Sale and Investments

     Assets 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 (see Note
11).   As  a  result  of  these  lawsuits  the  Company  took  an
additional  writedown  of  these  properties  aggregating   $3.85
million during 1996.

      Lutcher Moore Tract
      -------------------

      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 (see Note 6).   This
property is being held for sale.

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

  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,  1997, the Company has invested approximately  $3.3
million in the project.

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

      During 1995, the Company signed an agreement with the China
National  Administration of Coal Geology, pursuant to  which  the
parties  have  commenced  cooperation  for  the  exploration  and
development  of  coalbed methane in two areas  in  China.  As  of
December  31,  1997, the Company has invested approximately  $0.6
million in the project.

 (6) Debt

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

                                                            December 31
                                                            -----------
                                                           1997     1996
                                                           ----     ----  
     Senior secured notes, net of unamortized discount  $ 61,310   $    --
     Collateralized credit facility                           --    17,279
     Subordinated debt                                        --    15,000
     Office building mortgage loan                            --       652
                                                         -------   ------- 
                                                          61,310    32,931
     Lutcher Moore Group Limited Recourse Debt             2,524     5,091
                                                         -------    ------ 
                                                          63,834    38,022
     Less current maturities:
         Lutcher Moore Group Limited Recourse Debt        (2,524)   (5,091)
         Collateralized credit facility                       --   (17,279)
         Subordinated Debt                                    --   (15,000)
         Other current maturities                             --      (652)
                                                         -------    ------
                                                        $ 61,310   $    --
                                                         =======    ====== 
     

      Substantially  all  of the Company's  assets  collateralize
these  borrowings.   Accounts payable and accrued  costs  include
accrued  interest at December 31, 1997 and 1996 of  $1.8  million
and $1.5 million, respectively.

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

      On  May  20,  1997,  the Company sold  in  an  unregistered
offering   to  qualified  institutional  buyers  and   accredited
institutional investors (the "Note Offering") 75,000 Note  Units,
each  consisting  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, 1997, the  unamortized
discount on the Notes is approximately $13.7 million.

      Interest on the Notes is payable semi-annually on May 1 and
November  1, commencing November 1, 1997.  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
$6.2 million for the year ended December 31, 1997.

      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.   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, 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.

(7)  Shareholders' Equity

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

      As  of  December  31, 1997 and 1996, the  Company  had  the
following shares of Preferred Stock issued and outstanding:

<TABLE>
                                
                                            Preference in      1997 Dividends
                          Shares           Liquidation at      (In Thousands)
                     1997       1996      December 31, 1997       Declared   Accrued   Total
                     ----       ----      -----------------    ------------- -------   -----
<CAPTION>
<S>                  <C>         <C>           <C>              <C>          <C>     <C> 
Series A                 --      577,803       $        --      $  9,678     $   --  $ 9,678
Series B             44,465       44,954         4,446,500           262        186      448
Series E                 --       46,654                --           750         --      750
Series F             22,318           --         2,231,800           127        133      260
Amended Series A  1,129,453           --        96,003,505         1,098      1,494    2,592
                                               -----------        ------      -----   ------
                                              $102,681,805       $11,915     $1,813  $13,728
                                               ===========        ======      =====   ======
</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  consisting  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.

      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 cumulative
from  May  20,  1997  and  are payable semi-annually,  commencing
November  1,  1997,  at  an  annual rate  of  $8.075  per  share.
Dividends  are payable in additional shares of Amended  Series  A
Preferred Stock (valued at $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
Amended  Series  A  Preferred Stock is  convertible  into  Common
Stock, at any time after the first anniversary of the issue date,
at the option of the holders thereof, unless previously redeemed,
at an initial conversion price of $7.50 per share of Common Stock
(equivalent to a rate of 11 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 initially at a redemption price  of  $90.00  per
share  and thereafter at redemption prices which 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)  the  approval of two-thirds of  the  then  outstanding
Amended  Series  A  Preferred Stock  will  be  required  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.

      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.

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

      The  Series B, Cumulative Convertible Preferred Stock,  par
value  $1.00 per share (the "Series B Preferred Stock")  bears  a
cumulative  fixed dividend at an annual rate of  $10  per  share,
payable  semiannually, and is entitled to 50 votes per  share  on
all matters on which Common Stockholders are entitled to vote and
separately  as  a class on certain matters; ranks senior  to  the
Common  Stock and pari passu with the Amended Series A and Series
F  Preferred Stocks of the Company with respect to the payment of
dividends and distributions on liquidation; and has a liquidation
preference of $100 per share plus accumulated dividends.

     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 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 at an exercise price  of
$5.50  per share, subject to adjustment, expiring March 2,  2002,
and 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 cumulative
from  March 3, 1998 and 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.  The Amended Series B  Preferred
Stock  is  convertible into Common Stock, at any time  after  the
earlier of the effective date of the registration of such  Common
Stock or August 31, 1998.

     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.

       Dividends
       ---------

     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 and 1996 on the Series  B  Preferred
Stock were paid from proceeds of sales of redemption stock, which
were  applied  first to accrued dividend then 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  1996, the Company issued 2,218 shares of  Series  E
Preferred Stock in payment of the June 1996 dividends payable  on
the  Series  E  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 in accrued  and  unpaid
dividends on Series A Preferred Stock and approximately  $0.2  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  1,322,034,  1,888,461  and  1,264,854
shares  of Common Stock during 1997, 1996 and 1995, respectively.
The  Company had 20,307,454, 18,980,805 and 16,909,532 shares  of
Common  Stock  outstanding at December 31, 1997, 1996  and  1995,
respectively.

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

      As  of  December 31, 1997, 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 1998         6,667         $11.25         $    75,000
Total Warrants Expiring after 1998 17,820,088     $0.15 to $22.50     69,000,193
                                   ----------                         ----------
        Total Warrants             17,826,755                        $69,075,193
                                   ==========                         ==========

      During  November  1996, the Company  offered  a  holder  of
136,000  warrants exercisable at $5.25 per share a  reduction  in
the  exercise  price  of such warrants to  $1.875  per  share  in
exchange  for  the  immediate exercise of such warrants  and  the
issuance  of  a  like number of new warrants.  In  January  1997,
136,000  shares of Common Stock were issued upon the exercise  of
the warrants and 136,000 new warrants were issued, exercisable at
$1.875 per share.  The Company received $255,000 upon exercise of
these warrants.

      During  February 1997, the Company offered  to  reduce  the
exercise  price  on  a  total  of  368,000  warrants  issued   in
connection with Regulation S offerings in December 1995 and March
1996,  in  exchange for their immediate exercise.  The offer  was
made  to reduce the warrant price from $3.75 to $3.30 per  share.
One  holder of 176,000 warrants accepted the offer and  exercised
all  176,000 warrants for which the Company received net proceeds
of  $555,400.   The  Placement Agent agreed to accept  $0.15  per
share rather than 8% of the exercise price as required under  the
Placement Agent Agreement.

      During  April  1997,  the Company issued  an  aggregate  of
200,000 shares of Common Stock upon the exercise of  warrants  at
$1.875  per  share  and received an aggregate  of  $375,000  upon
exercise of such warrants.

       During  August  and October 1997, the  Company  issued  an
aggregate of 100,000 shares of Common Stock upon the exercise  of
warrants  at $2.8125 per share and received proceeds of  $281,250
upon exercise of such warrants.

      During  October 1997, the Company issued 24,000  shares  of
Common  Stock upon the exercise of warrants at $1.875  per  share
and received $45,000 in proceeds from such exercise.

     Loss Per Share

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

                                            For the Years Ended December 31,
                                            _________________________________
                                
                                           1997        1996            1995
                                           ----        ----            ----
Number of shares on which basic loss 
  per share is calculated:                20,541      17,705          16,047
    
Number  of  shares  on  which  diluted  
  loss per  share is calculated:          20,541      17,705          16,047
    
    Net loss applicable to common 
     shareholders                      $ (27,722)  $ (17,430)      $ (92,658)
    
    Basic loss per share               $   (1.36)  $   (0.98)      $   (5.77)
    Diluted loss per share             $   (1.36)  $   (0.98)      $   (5.77)

      The effect of 33,902,036, 5,103,082 and 4,398,380 shares of
potential common stock were anti-dilutive in 1997, 1996 and 1995,
respectively, due to the losses in all three years.

(8)  Income Taxes

      The  Company has significant loss carryforwards which  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 1997 and 1996, were as follows (000's):

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

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

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

      At  December  31, 1997, the Company had net operating  loss
carryforwards for tax purposes in the approximate amount of  $174
million  which  are  scheduled  to  expire  by  the  year   2012.
Additionally,  the Company has available acquired  net  operating
loss  carryforwards,  in the approximate amount  of  $9  million,
which  are  scheduled to expire by the year 2000, 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, 1997, the Company had alternative  minimum
tax net operating loss carryforwards in the approximate amount of
$114  million  which are scheduled to expire by  the  year  2012.
Additionally,  the Company has acquired alternative  minimum  tax
net operating loss carryforwards in the approximate amount of $12
million which are scheduled to expire by the year 2000, 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  $13  million.  The costs  will  be  amortized  and
deducted  for  Chinese  tax purposes when the  Company  generates
revenue from its Chinese operations.

(9)  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  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  and  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 16.5 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 (post-split) 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.

      The  restricted  stock  awards generally  rests  only  upon
attainment  of  certain  increases in the  market  price  of  the
Company's Common Stock within four years from date of grant.  All
of  the restricted stock awards entitle the participants to  full
dividend and voting rights.  Unvested shares are restricted as to
disposition  and subject to forfeiture under certain  conditions.
Upon  issuance  of  restricted shares, unearned  compensation  is
charged to shareholders' equity for the cost of restricted  stock
and  recognized as amortization expense ratably over the  vesting
period,  as applicable.  The amount recognized for 1997  was  not
material because the measurement date was December 17, 1997.

     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. Deferred compensation of $3.2 million was recorded in
connection  with  the appreciation option and is being  amortized
over the service period.  The appreciation option expires on June
1,   2007.    Compensation  expense  recognized   in   1997   was
approximately $373,000.

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

      A  summary of the stock option plans activity for the years
ended December 31, 1997, 1996 and 1995 is as follows:

<TABLE>                                
<CAPTION>                                                                               Weighted Average
                                             Shares    Option Price Per Share   Exercise Price
                                            -------    ----------------------  ----------------
<S>                                          <C>         <C>                        <C>
Outstanding at December 31, 1994              831,012    $12.50 - $22.50            $18.83
Granted                                        45,333        $18.75                 $18.75
Forfeited                                    (104,167)   $12.50 - $22.50            $18.23
                                            ---------    --------------- 
Outstanding at December 31, 1995              772,178    $12.50 - $22.50            $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 - $22.50            $18.72
Granted                                     2,000,000         $3.75                 $3.75
Forfeited                                      (7,238)   $18.75 - $22.50            $19.12
                                            ---------    --------------- 
Outstanding at December 31, 1997            2,679,606     $3.75 - $22.50            $7.55
                                            =========     ==============

Options exercisable at December 31, 1997      676,451
                                              =======
Options exercisable at December 31, 1998      676,089
                                              ======= 
Options exercisable at December 31, 1999      683,888
                                              =======
</TABLE>

      The  following  table  summarizes information  about  stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
                         Options Outstanding                                     Options Exercisable
______________________________________________________________________   __________________________________
                                    Weighted average                      
  Range of         Outstanding at     remaining life   Weighted average  Exercisable at     Weighted Average
Exercise Prices   December 31, 1997       years        exercise price    December 31, 1997   exercise price
---------------   ----------------   ---------------   ----------------  -----------------  ---------------
<S>                  <C>                    <C>            <C>               <C>               <C>
    $3.75            2,000,000              9.5             $3.75                 --               --
$18.75-$22.50          679,606              3.4            $18.72            676,451           $18.72
                     ---------                                              --------            -----
                     2,679,606                                               676,451           $18.72
                     =========                                              ========            =====
</TABLE>

The  weighted average fair value of options granted  during  1997
was $5.50.

      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):

                                       1997           1996         1995
                                       ----           ----         ----
     Net loss as reported          $ (27,722)     $ (17,430)   $  (92,658)
     Compensation expense              1,012            126           537
                                     -------        -------      --------
     Pro forma loss                $ (28,734)     $ (17,556)   $  (93,195)
                                     =======        =======      ========
     Pro forma loss per share:
        Basic                      $   (1.40)     $   (0.99)   $    (5.81)
                                    ========       ========      ========  
        Diluted                    $   (1.40)     $   (0.99)   $    (5.81)
                                    ========       ========      ======== 
     
     Weighted average shares          20,451         17,705        16,047
                                      ======         ======        ======

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:

                            1997             1996            1995
                            ----             ----            ----
Expected life (years)         10              10              10
Interest rate               5.87%           6.68%           6.78%
Volatility                135.00%         100.00%         100.00%
Dividend yield                --              --              --

(10) 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 1997, 1996 or 1995.

 (11)     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  Production Sharing Agreement may be terminated  by
          the  Contractor  at  the  end  of  each  phase  of  the
          Exploration period, without further obligation.

     o    The Company is in dispute over a 1992 tax assessment by the
          Louisiana Department of Revenue and Taxation for the years 1987
          through 1991 in the approximate amount of $2.5 million.  The
          Company has also received a proposed assessment 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 $3.0 million. The Company has filed written
          protests as to these proposed 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 which
          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.
     
(12) Supplemental Financial Information

                 Quarterly Results of Operations
                                
                                         Quarter
                            __________________________________
                            First     Second    Third    Fourth       Year
                            -----     ------    -----    ------       ----
                         (Thousands of Dollars, Except Per Share Amounts)
1997
----
Oil and gas revenues     $    85   $     53   $    52    $     46    $    236
Loss from operations        (816)      (774)     (976)     (5,492)     (8,058)
Net loss                  (1,211)    (1,215)     (417)    (11,151)    (13,994)
Net loss per share
    Basic                  (0.15)     (0.16)    (0.11)      (0.94)      (1.36)
    Diluted                (0.15)     (0.16)    (0.11)      (0.94)      (1.36)

1996
----
Oil and gas revenues    $    576   $    361   $    94    $    105    $  1,136
Loss from operations      (1,057)    (1,970)   (1,606)     (5,160)     (9,793)
Net loss                  (1,641)    (3,062)   (1,733)     (5,638)    (12,074)
Net loss per share
   Basic                   (0.17)     (0.20)    (0.17)      (0.38)      (0.98)
   Diluted                 (0.17)     (0.20)    (0.17)      (0.38)      (0.98)

        Supplemental Oil and Gas Information (Unaudited)

      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,  1997  are  as
follows (000's):

                                                   Year Ended December 31
                                                   ----------------------
                                                     1997     1996    1995
                                                     ----     ----    ----
Revenues from oil and gas producing activities:
      Sales to unaffiliated parties               $   236   $  1,136  $ 2,480
                                                    -----    -------   ------  
Production (lifting) costs:
      Operating costs (including marketing)           210        342      985
      State production taxes and other                 13         28       51
                                                    -----     ------   ------
             Production costs                         223        370    1,036
Depletion and amortization                             77        437    1,989
Provision for impairment of oil and gas properties     --      3,850   75,300
                                                    -----    -------  -------
              Total expenses                          300      4,657   78,325
                                                    -----    -------  -------
Pretax loss from producing activities                 (64)    (3,521) (75,845)
Income tax expense                                     --         --       --
                                                    -----    -------   ------
Results of oil and gas producing activities 
  (excluding corporate overhead and interest costs) $ (64)   $(3,521) $(75,845)
                                                     ====     ======   =======

      The  depreciation, depletion and amortization  (DD&A)  rate
averaged $0.81, $0.96 and $1.23 per equivalent Mcf in 1997,  1996
and 1995, respectively.
  
  
  Capitalized Costs

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

                                                        December 31
                                                     -----------------  
                                                       1997      1996
                                                       ----      ----
   Foreign proved and unevaluated properties under
     development                                    $ 54,304   $ 34,305
   

      The  capitalized costs for the foreign 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,  1997,  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 foreign proved and unevaluated properties  under
development were incurred as follows (000's):

  
                                                  Year Ended December 31
                                            -----------------------------------
                                                                         1994
                                 Total       1997      1996     1995   and Prior
                                 -----       ----      ----     ----   --------
  Property acquisition costs    $ 40,616  $ 14,208  $  4,223  $ 7,023  $ 15,162
  Capitalized interest costs      13,688     5,791     2,767    2,596     2,534
                                  ------    ------    ------    -----    ------
      Total foreign proved and
         unevaluated properties
         under development      $ 54,304  $ 19,999  $  6,990  $ 9,619  $ 17,696
                                  ======    ======     =====    =====    ======

  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
                                                  ------------------------
                                                   1997     1996     1995
                                                   ----     ----     ---- 
     Costs incurred:
         Unproved properties acquired            $    --  $   --   $  7,209
         Capitalized internal costs                2,466     822        135
         Capitalized interest and amortized debt
          costs                                    5,791   2,767      3,075
     Exploration                                   6,833   3,401         --
     Development                                   4,909       4      1,590
                                                  ------   -----     ------
                       Total costs incurred      $19,999  $6,994    $12,009
                                                  ======   =====     ====== 

                   Proved Oil and Gas Reserves
                                
      The  following table sets forth estimates of the  Company's
net  interests in proved and proved developed reserves of oil and
gas  and  changes in estimates of proved reserves.  The Company's
net  interests in 1997 and 1996 are located in China and in  1995
were located in the United States.

                                                        Crude Oil (MBbls)
                                                    ------------------------ 
                                                    1997      1996      1995
                                                    ----      ----      ----
Proved reserves -
   Beginning of year                                10,579        --      294
     Discoveries                                     1,183    10,579       --
     Revisions of previous estimates                    --        --       24
     Production                                         --        --      (19)
     Purchases (sales) of minerals in place             --        --     (241)
     Transfer of property to assets held for sale       --        --      (58)
                                                    ------    ------    ----- 
  End of year                                       11,762    10,579       --
                                                    ======    ======    =====
Proved developed reserves -
   Beginning of year                                    --        --      126
                                                    ------     -----    -----  
   End of year                                          --        --       --
                                                    ======     =====    =====  
   
                                                         Natural Gas (MMcf)
                                                     ------------------------
                                                     1997      1996      1995
                                                     -----     ----     -----
Proved reserves -
   Beginning of year                                    --        --   74,208
     Discoveries                                        --        --   (9,003)
     Revisions of previous estimates                    --        --       --
     Production                                         --        --   (1,474)
     Purchases (sales) of minerals in place             --        --   (6,274)
     Transfer of property to assets held for sale       --        --  (57,457)
                                                     -----    ------   ------
  End of year                                           --        --       --
                                                    ======    ======   ====== 
Proved developed reserves -
   Beginning of year                                    --        --   34,792
                                                    ------    ------   ------
   End of year                                          --        --       --
                                                    ======    ======   ======


      The  Company's estimated quantities of oil and  gas  as  of
December  31,  1997  were prepared by H.J. Gruy  and  Associates,
Inc., independent engineers.

      The revisions in the Company's estimated quantities of  gas
and   oil  are  attributable  to  revised  estimates  by  Company
engineers   in  1995.   For  fiscal  1995  significant   downward
revisions  were attributed to the Company's interest in  the  Cox
Field in Texas due largely to performance of producing wells.

                    Supplementary Information

      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 and gas  reserves  were
computed on the basis of (a) contractual prices for oil and gas -
including escalations for gas - in effect at year-end, or (b)  in
the  case  of  properties being commercially  developed  but  not
covered by contracts, the estimated market price for gas and  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  and
gas 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  which  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 FASB 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 which 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 the FASB, is summarized as follows:
<TABLE>
<CAPTION>
                                                         Year Ended December 31
                                                      ----------------------------
                                                      1997 (a)  1996 (a)  1995 (a)
                                                      --------  --------  --------
                                                         (Thousands of Dollars)
<S>                                                <C>         <C>       <C>
Future cash inflows                                $  205,358  $ 222,797 $ 103,048
Future costs:
    Production, including taxes                       (45,624)   (39,033)  (20,937)
    Development                                       (41,093)   (40,904)  (35,276)
                                                      -------    -------   -------                           
Future net inflows before income taxes                118,641    142,860    46,835
Future income taxes (b)                                    --         --        --
                                                      -------    -------    ------
Future net cash flows                                 118,641    142,860    46,835
10% discount factor                                   (56,194)   (63,798)  (20,795)
Transfer of properties to assets held for sale             --         --   (26,040)
                                                     --------     ------    ------
Standardized measure of discounted net cash flows  $   62,447   $ 79,062  $     --
                                                     ========    =======   =======
</TABLE>
_____________
(a)   1997  and  1996  represent  China  properties  only.   1995
represents U.S. properties only.
(b)   No taxes have been reflected because of utilization of  net
operating loss carryforwards.

  Changes in Standardized Measure of Discounted Future Net Cash
  --------------------------------------------------------------
               Flow From Proven Reserve Quantities
               -----------------------------------
                                
                                                    Year Ended December 31
                                               -------------------------------  
                                               1997 (a)   1996 (a)   1995 (a)
                                               --------   --------   --------
                                                   (Thousands of Dollars)
Standardized measure-beginning of year        $ 79,062   $    --    $  60,248
Increases (decreases):
    Sales and transfers, net of production
      costs                                         --        --       (1,347)
    Net change in sales and transfer prices, 
      net of production costs                  (16,396)       --      (15,095)
    Extensions, discoveries and improved 
      recovery, net of future costs                 --    79,062           --
    Changes in estimated future development
      costs                                       (189)       --       (2,886)
    Development costs incurred during the 
      period that reduced future development
      costs                                         --        --        1,117
    Revisions of quantity estimates                 --        --       (8,003)
    Accretion of discount                           --        --        6,024
    Purchase (sales) of reserves in place           --        --       (4,654)
    Changes in production rates (timing) and
     other                                          --        --       (9,364)
    Reclassification of reserves to assets 
      held for sale                                 --        --      (26,040)
                                               -------    ------      -------
Standardized measure-end of year              $ 62,477  $ 79,062     $     --
                                               =======   =======      =======

__________
(a)   1997  and  1996  represent  China  properties  only.   1995
represents U.S. properties only.

                                
<PAGE>                                
                REPORT OF INDEPENDENT ACCOUNTANTS
                                
                                

To the Board of Directors and Shareholders of  XCL-China Ltd.

We have audited the financial statements of XCL-China Ltd. listed
in Item 14(a) of this Annual Report on Form 10-K. 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 in accordance with generally  accepted
auditing  standards.  Those standards 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.   An
audit also includes assessing the accounting principles used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audits provide a reasonable basis for our opinion.

In  our  opinion,  the  financial statements  referred  to  above
present  fairly, in all material respects, the financial position
of  XCL-China  Ltd.  as of December 31, 1997 and  1996,  and  the
results of their operations and their cash flows for each of  the
three  years in the period ended December 31, 1997, in conformity
with  generally accepted accounting principles. In  addition,  in
our  opinion, the financial statement schedule referred to above,
when  considered  in  relation to the basic financial  statements
taken as a whole, presents fairly, in all material respects,  the
information required to be included therein.

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 and is dependent upon 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  and  to   ultimately   achieve
profitable  operations, which creates 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.

                                   COOPERS & LYBRAND L.L.P.



Miami, Florida
April 10, 1998
<PAGE>
                         XCL-China, Ltd.
                          BALANCE SHEET
                     (Thousands of Dollars)
                                                              December 31
                                                           --------------
                             A S S E T S                   1997      1996
                             -----------                   ----      ----
Current assets:
      Accounts receivable, net                            $  101    $   122
      Other                                                    2         45
                                                           -----      -----
                       Total current assets                  103        167
                                                           -----      -----   
Property and equipment:
      Oil and gas (full cost method):
           Proved properties under development not 
             being amortized                              21,172     13,571
           Unevaluated properties                         33,132     21,238
                                                         -------     ------
                                                          54,304     34,809
      Other                                                  167        138
                                                          ------     ------
                                                          54,471     34,947
      Accumulated depreciation                                (1)        --
                                                          ------     ------
                                                          54,470     34,947
                                                          ------     ------
Other assets                                                 668         --
                                                          ------     ------
                       Total assets                     $ 55,241   $ 35,114
                                                          ======     ======

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 costs                $   285    $    556
      Due to joint venture partner                        4,503       4,202
                                                         ------      ------
           Total current liabilities                      4,788       4,758
                                                         ------      ------
Due to parent                                            52,383      31,573
Commitments and contingencies (Notes 2 and 5)
Shareholders' equity:
      Common stock-$.01 par value; authorized 
        5 million shares at December 31, 1997 and 
        1996; issued shares of 1,000 shares at 
        December 31, 1997 and 1996                          --           --
      Retained deficit                                  (1,930)      (1,217)
                                                       -------      -------
           Total shareholders' deficit                  (1,930)      (1,217)
                                                       -------      -------
               Total liabilities and shareholders'
                 deficit                              $ 55,241     $ 35,114
                                                       =======       ======
                                
 The accompanying notes are an integral part of these financial statements.\
<PAGE>
                         XCL-China, Ltd.
                                
                     STATEMENT OF OPERATIONS
                         (In Thousands)

                                           Year Ended December 31
                                           ----------------------
                                           1997     1996      1995 
                                           ----     ----      ----   
Revenues                                $    --   $   --    $   --
                                           ----     ----     -----
Costs and operating expenses:

Depreciation                                  1       --        --
      General and administrative costs      578      702       536
                                           ----    -----     -----
                                            579      702       536
                                           ----    -----     -----
Operating loss                             (579)    (702)     (536)
                                           ----    -----     ----- 
Other income (expense):
      Interest expense, net of amounts
        capitalized                        (134)      --        --
      Interest income                        --       --        49
                                           -----    -----    -----
                                           (134)      --        49
                                           -----    -----    -----
Net loss                                 $ (713)  $ (702)   $ (487)
                                           =====    ====      ====

                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>
                            XCL-China
                                
               STATEMENT OF SHAREHOLDERS' DEFICIT
                     (Thousands of Dollars)
                                
              
              Balance, December 31, 1994      $      (28)
                   Net loss                         (487)
                                                 -------             
              Balance, December 31, 1995            (515)
                   Net loss                         (702)
                                                 -------
              Balance, December 31, 1996          (1,217)
                   Net loss                         (713)
                                                 -------
              Balance, December 31, 1997      $   (1,930)
                                                 =======
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>
                         XCL-China, Ltd.
                                
                     STATEMENT OF CASH FLOWS
                     (Thousands of Dollars)
                                
                                                       Year Ended December 31
                                                    ---------------------------
                                                    1997       1996      1995
                                                    ----       ----      ----
Cash flows from operating activities:
    Net loss                                     $  (713)    $  (702)  $  (487)
                                                   -----       -----     ----- 
    Adjustments to reconcile net loss to net 
       cash used in operating activities:

        Depreciation                                   1          --        --
        Change in assets and liabilities:
             Accounts receivable                      21         (58)      624
             Accounts payable and accrued costs       30       2,825       801
             Other, net                             (625)         83        81
                                                   -----      ------     -----
                  Total adjustments                 (573)      2,850     1,506
                                                   -----      ------     -----
                  Net cash (used in) provided 
                   by operating activities        (1,286)      2,148     1,019
                                                   -----      ------     -----
Cash flows from investing activities:
    Capital expenditures                         (15,889)     (4,237)   (7,284)

    Other                                             --         249      (179)
                                                  ------      ------    ------
                  Net cash used in investing 
                    activities                   (15,889)     (3,988)   (7,463)
                                                  ------      ------    ------
Cash flows from financing activities:
    Loan proceeds                                  6,100          --        --
    Payment of long-term debt                     (6,100)         --        --
    Due to parent                                 17,175       1,840     4,468
                                                  ------      ------    ------
                  Net cash provided by financing
                    activities                    17,175       1,840     4,468
                                                  ------      ------    ------
Net increase (decrease) in cash and cash
  equivalents                                         --          --    (1,976)
Cash and cash equivalents at beginning of year        --          --     1,976
                                                  ------      ------    ------
Cash and cash equivalents at end of year         $    --     $    --   $    --
                                                  ======       =====    ====== 
                                
 The accompanying notes are an integral part of these financial statements.
<PAGE>
                         XCL-China, Ltd.
                                
                  NOTES TO FINANCIAL STATEMENTS

                                
(1)  Summary of Significant Accounting Policies:

  Basis of Presentation:

      The  financial statements include the accounts of XCL-China
Ltd.  (the "Company"), 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, liabilities, revenues  and  expenses
and  disclosure  of  contingent assets and  liabilities.   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.  The reserves in 1997 and 1996  were
estimated  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.

      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 1997, 1996 and 1995, interest and associated
costs  of  approximately  $5.8 million,  $2.8  million  and  $3.1
million, respectively were capitalized on 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.

  Revenue Recognition:

      Oil  and gas revenues will be recognized using the  accrual
method at the price realized as production and delivery occurs.

     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.
                                
(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.  Although the parent has cash available in the
amount  of  approximately $32 million as  of  December  31,  1997
(including  restricted cash of approximately $10 million)  and  a
positive  working  capital position, management anticipates  that
the Company and its parent will need additional funds to meet all
of 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
Company's properties commences in late 1998 or the first half  of
1999,  as anticipated, the Company's proportionate share  of  the
related  cash  flow  will  be  available  to  help  satisfy  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, 1997, 1996 and 1995.

 (4) Income Taxes

      Foreign  income  taxes  are accounted  for  under  the  tax
structure in that country, principally China.  As of December 31,
1997,  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  Production Sharing Agreement may be terminated  by
          the  Contractor  at  the  end  of  each  phase  of  the
          Exploration period, without further obligation.
     
(6)  Related Party Transactions

      The  Company has consistently borrowed money from its parent
for the acquisition of its oil and gas properties.  The amount due
the parent as of December 31, 1997 is approximately $52  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  consisting  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.

      Interest on the Notes is payable semi-annually on May 1 and
November  1, commencing November 1, 1997.  The Notes will  mature
on May 1, 2004. The Notes are not redeemable at the option of the
parent  prior to May 1, 2002, except that 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.   It  also limits  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 a 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 (Unaudited)

      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
                                                          ----------------
                                                            1997     1996
                                                            ----     ----
 Proved and unevaluated properties under development    $  54,304  $  34,305
   

      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,  1997,  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
                                         -------------------------------------- 
                                                                        1994
                                 Total     1997     1996       1995   and Prior
                                 -----     ----     ----       ----   ---------
  Property acquisition costs  $ 40,616  $ 14,208  $  4,223   $  7,023  $ 15,162
  Capitalized interest costs    13,688     5,791     2,767      2,596     2,534
                               -------    ------   -------     -----     ------
      Total proved and
       unevaluated  properties
       under development      $ 54,304  $ 19,999  $  6,990   $  9,619  $ 17,696
                               =======   =======    ======     ======    ======

  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
                                                  ----------------------
                                                  1997     1996      1995
                                                  ----     ----      ----
     Costs incurred:
         Unproved properties acquired           $    --  $     --   $  5,298
         Capitalized internal costs               2,466       822        135
         Capitalized interest and amortized 
          debt costs                              5,791     2,767      2,596
     Exploration                                  6,833     3,401         --
     Development                                  4,909        --      1,590
                                                -------     -----    -------  
                       Total costs incurred    $ 19,999   $ 6,990   $  9,619
                                                =======    ======     ======

                   Proved Oil and Gas Reserves
                                
      The  following table sets forth estimates of the  Company's
net  interests in proved and proved developed reserves of oil and
gas and changes in estimates of proved reserves.
 
                                                    Crude Oil (MBbls)
                                                    ----------------
                                                    1997       1996
                                                    ----       ----
Proved reserves - 
   Beginning of year                               10,579         --
     Discoveries                                    1,183     10,579
     Revisions of previous estimates                   --         --
     Production                                        --         --
     Purchases (sales) of minerals in place            --         --
     Transfer of property to assets held for sale      --         --
                                                   ------     ------
  End of year                                      11,762     10,579
                                                   ======     ====== 
Proved developed reserves -
   Beginning of year                                   --         --
                                                    =====     ====== 
   End of year                                         --         --
                                                    =====     ======

      The  Company's estimated quantities of oil and  gas  as  of
December  31,  1997  were prepared by H.J. Gruy  and  Associates,
Inc., independent engineers.

                    Supplementary Information

      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 and gas  reserves  were
computed on the basis of (a) contractual prices for oil and gas -
including escalations for gas - in effect at year-end, or (b)  in
the  case  of  properties being commercially  developed  but  not
covered by contracts, the estimated market price for gas and  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  and
gas 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  which  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 FASB 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 which 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 the FASB, is summarized as follows:

                                                   Year Ended December 31
                                                    --------------------
                                                    1997           1996
                                                    ----           ----
                                                   (Thousands of Dollars)
Future cash inflows                               $  205,358     $  222,797
Future costs:
    Production, including taxes                      (45,624)       (39,033)
    Development                                      (41,093)       (40,904) 
                                                     -------        -------
Future net inflows before income taxes               118,641        142,860
Future income taxes                                       --             --
                                                     -------       --------
Future net cash flows                                118,641        142,860
10% discount factor                                  (56,194)       (63,798)
Transfer of properties to assets held for sale            --             --
                                                     -------       -------- 
Standardized measure of discounted net cash flows  $  62,447      $  79,062   -
                                                     =======        =======

  Changes in Standardized Measure of Discounted Future Net Cash
               Flow From Proven Reserve Quantities
                                
                                                        Year Ended December 31
                                                        ----------------------
                                                           1997       1996
                                                           ----       ----
                                                        (Thousands of Dollars)
Standardized measure-beginning of year                $   79,062   $      --
Increases (decreases):
    Sales and transfers, net of production costs              --          --
    Net change in sales and transfer prices, net of
       production costs                                  (16,396)         --
    Extensions, discoveries and improved recovery, 
       net of future costs                                    --      79,062
    Changes in estimated future development costs           (189)         --
    Development costs incurred during the period that
       reduced future development costs                       --          --
    Revisions of quantity estimates                           --          --
    Accretion of discount                                     --          --
    Purchase (sales) of reserves in place                     --          --
    Changes in production rates (timing) and other            --          --
     Reclassification of reserves to assets held for sale     --          --
                                                          ------     -------
Standardized measure-end of year                        $ 62,477    $ 79,062
                                                          ======     =======


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  were officers and directors of the Company  and  its
subsidiaries as of December 31, 1997:

<TABLE>
                                                                             Officer    Director  
          Name                      Position                        Age       Since      Since
          ----                      --------                        ---      -------    --------
<S>                       <C>                                        <C>        <C>      <C>

Marsden W. Miller, Jr.    Chairman of the Board and Chief
                          Executive Officer of the Company (1)       56         1981     1981
John T. Chandler          Vice Chairman of the                         
                          Board of the Company and Chairman 
                          and Chief Executive Officer of
                          XCL-China Ltd. (1)(4)                      65         1982     1983
Danny M. Dobbs            President and Chief Operating 
                          Officer of the Company and 
                          President of XCL-China Ltd.(4)             52         1991       --
Benjamin B. Blanchet      Executive Vice President and  
                          Director of the Company(1)                 45         1997     1997
Steven B. Toon            Chief Financial Officer of the Company     49         1997       --
Richard K. Kennedy        Vice President of Engineering 
                           of the Company                            44         1989       --
R. Carter Cline           Vice President-Land of the Company         49         1990       --
Herbert F. Hamilton       Executive Vice President Operations, 
                          XCL-China Ltd.(4)                          61         1995       --
John H. Haslam            Treasurer of the Company                   56         1996       --
Lisha C. Falk             Secretary of the Company                   36         1997       --
Fred Hofheinz             Director of the Company, 
                          Attorney at Law(2)(3)                      59           --     1991
Arthur W. Hummel, Jr.     Director of the Company, 
                          Independent Consultant(2)(3)               77           --     1994
Sir Michael Palliser      Director of the Company, 
                          Independent Consultant(2)(3)               75           --     1994
Francis J. Reinhardt, Jr. Director of the Company, Partner 
                          in Carl H. Pforzheimer & Co.(2)(3)         68           --     1992
R. Thomas Fetters, Jr..   Director of the Company,  
                          Independent Consultant (2)(3)              58           --     1997
_______________

(1)  Member  of the Executive Committee.  The Committee met  once
     during 1997 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  1997.   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
     1997.   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 in China.

     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  1998  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  and  Fred
Hofheinz.

       The  Board  held  five  meetings  in  1997.   The  average
attendance  by  directors at these meetings  was  100%,  and  all
directors attended 100% 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.

      Pursuant to the terms of an agreement dated April 17,  1992
between  the  Company and CIDC, the Company granted to  CIDC  the
right  to appoint a nonvoting observer to the Company's Board  of
Directors so long as CIDC owns at least 16,667 shares of Series B
Preferred  Stock or their equivalent in Common  Stock  on  an  as
converted  basis.   As  a result of a March  1998  settlement  of
certain  litigation instituted by CIDC against  the  Company  and
others  in respect of CIDC's shares of Series B Preferred  Stock,
CIDC is no longer a shareholder of the Company.  See "Business --
Litigation"   and  "Management's  Discussion  and   Analysis   of
Financial  Condition  and  Results of  Operations  --  Subsequent
Events."

      The  holders  of the Amended Series A Preferred  Stock  are
entitled to cast the same number 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 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 employed by Ashland Oil and Refining Company as
a  petroleum  engineer.   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.   During  that  period,  Mr.
Blanchet's  activities  in the Company's  China  operations  have
become  more oriented to management responsibilities  than  legal
ones.   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.

      STEVEN  B.  TOON has been Chief Financial  Officer  of  the
Company since October 6, 1997.  Prior to joining the Company, Mr.
Toon  provided consulting services to the Company,  beginning  in
June  1997.  Since  1995  he  engaged in  private  consulting/CPA
practice with various clients in the energy and services  sectors
in  Houston.  During the last six months of 1994,  he  served  as
Chief  Financial  Officer  of Xavier Mines,  Ltd.  He  was  Chief
Financial Officer of Lend Lease Trucks, Inc. prior to the sale of
its  assets  to  Ryder System Inc. in mid-1994. From  1977  until
1992, Mr. Toon served as Vice President Finance and Treasurer  of
United  Energy Resources, Inc. and United Gas Pipe Line  Company.
From  1971  to 1977, he was a Vice President in Bank of America's
World Banking Division.  Mr. Toon holds a B.B.A. degree from  the
University  of  Houston, an M.B.A. degree from  California  State
University, Fullerton and is a certified public accountant

      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.

      R.  CARTER CLINE is Vice President-Land, having joined  the
Company in October 1990.  He has over 20 years of exploration and
management  experience. From 1982, until joining the Company,  he
was  employed by Pacific Enterprises Oil Company (USA), successor
by merger to Sabine Corporation, as East Gulf Coast Regional Land
Manager in Houston, Texas.  From 1979 to 1982, he served as  Vice
President-Land  for  Dynamic  Exploration,  Inc.   in  Lafayette,
Louisiana.   From  1974 to 1979, he served as Region  Landman  in
Dallas  and  Division Land Manager in Houston, Texas, for  Sabine
Corporation,  and  from 1971 to 1974 was employed  by  Getty  Oil
Company in Houston, Texas and New Orleans, Louisiana.  Mr.  Cline
holds  a  B.B.A.   degree in Petroleum Land Management  from  the
University  of  Texas  at  Austin and is  a  Certified  Petroleum
Landman.

      HERBERT  F. HAMILTON is Vice President Operations  of  XCL-
China, having joined the Company in 1995.  Mr.  Hamilton has more
than  30  years  of  experience in  the  fields  of  engineering,
construction,  construction management and  consulting  on  heavy
civil   works,   offshore  platforms,  submarine  pipelines   and
construction equipment in over 35 countries.  From 1990 to  1993,
Mr.   Hamilton  served  as Senior Project Manager  for  Earl  and
Wright  in  Houston,  Texas.  From 1993 to  1994,  he  served  as
President and a consultant to Planterra, Inc.  in Houston,  Texas
and  from  1994  until joining the Company he was an  independent
consultant.   Mr. Hamilton is a Registered Professional  Engineer
and   holds  a  B.S.   in  Architectural  Engineering  from   the
University of Texas at Austin.

      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.  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 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.   He
was  appointed as a director by the Board at a meeting held March
21, 1991.

      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 with Chinese guerrillas  behind
the Japanese lines 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 which was owned by Midland Bank, of which  he  was
Deputy  Chairman from 1987 to 1991, and which 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 in 1964-1966, Private Secretary to the
Prime  Minister,  1966-1969, Minister in the British  Embassy  in
Paris,  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 currently 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., 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 of and  has
previously served as 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.   Mr.   Reinhardt was appointed as a director  of  the
Company at a Board meeting held December 11, 1992.

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

      To  the  Company's knowledge, instances of failure to  file
reports  with respect to reportable transactions during the  year
ended  December  31, 1997, as required by Section  16(a)  of  the
Exchange Act are as follows:

                                
                             Reports     Number of  Known Failure    Number of
     Reporting Person       File Late  Transactions  to File Form   Transactions
     ----------------       ---------  ------------  ------------   ------------
     Lisha C. Falk              Form 3         1            --           --
     R. Thomas Fetters, Jr.     Form 4         1            --           --
     Richard K. Kennedy         Form 3         1            --           --
     Marsden W. Miller, Jr.     Form 4         1            --           --
     Michael Palliser           Form 4         1            --           --
     Francis J. Reinhardt, Jr.  Form 4         1            --           --
     Steven B. Toon             Form 3         1            --           --

     All other reporting persons who are officers or directors of
the    Company   have   provided   the   Company   with   written
representations that no Form 5 filing was required  in  that  all
reportable  transactions  were timely filed  on  the  appropriate
forms.


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 1997, as well as 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>
<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($)
          ----------            -----  ------- ----   --------  ----------    --------    ------- ---------
<C>                              <C>   <C>      <C>     <C>    <C>             <C>
Marsden W. Miller, Jr.           1997  150,000  --      --      1,000,000       --        --       --
   Chairman and Chief                                   --       110,000 
   Executive Officer             1996  150,000  --      --         --           --        --       --
                                 1995  150,000  --      --         --           --        --       -- 
                                
John T. Chandler(4)              1997  150,000  --      --      333,333     133,333       --       --
   Vice Chairman; Chairman and                                   20,000       5,000 
   Chief Executive Officer       1996  150,000  --      --        --           --         --       --
   of XCL-China Ltd.             1995  150,000  --      --        --          8,000       --       --  

Danny M. Dobbs                   1997  136,875  --      --        --         400,000       --       -- 
   President and Chief Operating                                             25,000         
   Officer                       1996  135,000  --      --        --           6,466       --       --                  
                                 1995  116,250  --      --        --              --       --       -- 

Richard K. Kennedy               1997  112,500  --      --        --         266,666       --       -- 
     Vice President                                                           5,000 
                                 1996   75,000  --      --        --              --       --       --
                                 1995   75,000  --      --        --              --       --       --  

Herbert F. Hamilton(5)           1997  144,000  --      --        --              --       --       --  
   Executive Vice President      1996  144,000  --      --        --              --       --       --    
   Operations, XCL-China Ltd.    1995   98,800  --      --        --          13,333       --       --

</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
     (adjusted  as to Common Stock to give effect to the  Reverse
     Stock Split).  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 (adjusted as to Common Stock to give effect
     to  the  Reverse  Stock Split).  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.

(4)  XCL-China Ltd.  is a wholly-owned subsidiary of the  Company
     which manages the Company's operations in China.

(5)  Mr.  Hamilton commenced employment with the Company on April
     24,  1995.  As part of his employment package he was awarded
     options  to purchase 13,333 shares of Common Stock (adjusted
     to give effect to the Reverse Stock Split).

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

      The Company currently maintains one stock option plan which
was adopted by shareholders in 1992.  All of the option plans are
administered  by the Compensation Committee and 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.  By  action
of the Board of Directors, effective June 1, 1997, the 1992 LTSIP
was   amended   and  restated  (hereinafter,  the   "1997   LTSIP
Restatement"),  and certain awards were granted  thereunder,  all
subject  to  approval by shareholders which was  secured  at  the
Company's   Special  Meeting  in  Lieu  of  Annual   Meeting   of
Shareholders held 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, pursuant to which options to purchase 679,671  shares
of  Common  Stock were outstanding, leaving only  420,328  shares
available  for stock option grants (as adjusted for  the  Reverse
Stock  Split).  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")  (which  are  not
available with respect to Preferred Stock) and Nonqualified Stock
Options ("NSOs"), including reload options ("ROs") (which are not
available  with  respect  to Preferred Stock),  restricted  stock
awards  ("RSAs"), and performance units ("PUs")  or  appreciation
options ("AOs") (which 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  (as
adjusted  for  the  Reverse  Stock Split)  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 previously approved by shareholders, 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  which  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  which
may  require  a  higher  level of management  responsibility  and
authority.

      Change  in  Control Provisions.  The 1997 LTSIP Restatement
contains  change-in-control provisions  which  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  will  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
will  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 with respect to making payments with respect to Awards in
cash  rather  than  in  kind,  or in obligating  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.  In view of the fact that there is no public
market  for the Amended Series A Preferred Stock, the fair market
value  of  the  Amended Series A Preferred Stock on December  31,
1997,  determined in good faith by the Board of  Directors  based
upon  the last bid price of the Amended Series A Preferred  Stock
in  the  PORTAL Market, as reported to the Company by  Jefferies,
was $80.00 per share.

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

      On  June  5, 1997, the Board made certain Awards under  the
1997  LTSIP  Restatement.   These Awards  were  approved  by  the
shareholders  of the Company in connection with the  approval  of
the  1997  LTSIP Restatement voted on at the Special  Meeting  of
Shareholders.

      Effective  June 1, 1997, M. W. Miller, Jr. was  granted  an
Appreciation Option with respect to appreciation in the Company's
total  market capitalization (as defined) from and after June  1,
1997.  See "Appreciation Option for M.W. Miller, Jr." below for a
more detailed discussion of such grant.

      The following tables set forth, for those persons named  in
the  "Summary  Compensation Table," information on stock  options
granted  during  1997  and all stock options  outstanding  as  of
December  31, 1997, adjusted to reflect the Reverse Stock  Split.
The  closing  price on the AMEX on June 2, 1997  for  the  Common
Stock  was  $0.21875 (which price is not adjusted to reflect  the
Reverse  Stock Split), and the fair market value of  the  Amended
Series A Preferred Stock, based upon last sales price information
in  the  Private Offering, Resales and Trading through  Automated
Linkage   ("PORTAL")  Market  of  the  National  Association   of
Securities Dealers, Inc. as supplied by Jefferies, was $85.00  on
June  2, 1997. Mr. Miller's Appreciation Option (described below)
is not included because of the indeterminate nature of the Award.

             Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                           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>
Marsden W. Miller, Jr. (1)    110,000*      64.7           85.00     June 1, 2007   --   5,880,165    33,601,492

John T. Chandler (2)          133,333+       6.7            3.75     June 1, 2007   --     212,641     1,634,758         
                                5,000*       2.9           85.00     June 1, 2007   --     267,280     1,527.341

Danny M. Dobbs (3)            400,000+      20.0            3.75     June 1, 2007   --     637,294     4,904,287

Richard K, Kennedy (4)        266,666+      13.3            3.75     June 1, 2007   --     425,282     3,269,516 
                                5,000*       2.9           85.00     June 1, 2007   --     267,280     1,527,341

Herbert F. Hamilton                --        --               --           --       --        --           --

*Amended Series A Preferred Stock
+Common Stock
</TABLE>
------------------

      (1)   Effective June 1, 1997, M. W. Miller, Jr. was granted
an  NSO  to purchase 110,000 shares of Amended Series A Preferred
Stock for an option exercise price of $85.00 per share (aggregate
purchase  price  of  $9,350,000).  Such  NSO  is  exercisable  as
follows:   as  to  27,500 shares on June 1, 2000;  as  to  66,000
shares on June 1, 2001, and as to 16,500 shares on June 1,  2002.
Mr.  Miller's NSO will expire on June 1, 2007 or, if earlier, the
date his employment is terminated by the Company for cause or the
date  he  voluntarily  terminates  his  employment  without  good
reason.

     (2)  Effective June 1, 1997, John T. Chandler was granted an
NSO  to purchase 133,333 shares of Common Stock (adjusted for the
Reverse  Stock Split) for an option exercise price (adjusted  for
the  Reverse Stock Split) of $3.75 per share (aggregate  purchase
price  of  approximately $500,000) and an NSO to  purchase  5,000
shares of Amended Series A Preferred Stock for an option exercise
price of $85.00 per share (aggregate purchase price of $425,000).
Such  Common Stock NSO is exercisable as follows:  as  to  44,445
shares on June 1, 1999; as to 44,444 shares on June 1, 2000,  and
as  to  44,444  shares  on June 1, 2001. Such  Amended  Series  A
Preferred  Stock  NSO  is exercisable as follows:   as  to  1,250
shares  on June 1, 2000; as to 1,750 shares on June 1, 2001;  and
as  to  2,000 shares on June 1, 2002. Mr. Chandler's Common Stock
NSO and his Amended Series A Preferred Stock NSO will each expire
on  June  1,  2007  or, if earlier, the date  his  employment  is
terminated  by  the Company for cause or the date he  voluntarily
terminates his employment without good reason.

      (3)  Effective June 1, 1997, Danny M. Dobbs was granted  an
NSO  to purchase 400,000 shares of Common Stock (adjusted for the
Reverse  Stock Split) for an option exercise price (adjusted  for
the  Reverse Stock Split) of $3.75 per share (aggregate  purchase
price  of  $1,500,000) and an NSO to purchase  25,000  shares  of
Amended Series A Preferred Stock for an option exercise price  of
$85.00 per share (aggregate purchase price of $2,125,000).   Such
Common Stock NSO is exercisable as follows:  as to 133,334 shares
on  June 1, 1999; as to 133,333 shares on June 1, 2000; and as to
133,333  shares on June 1, 2001. Such Amended Series A  Preferred
Stock NSO is exercisable as follows:  as to 6,250 shares on  June
1,  2000;  as to 8,750 shares on June 1, 2001; and as  to  10,000
shares  on  June  1, 2002. Mr. Dobbs' Common Stock  NSO  and  his
Amended Series A Preferred Stock NSO will each expire on June  1,
2007 or, if earlier, the date his employment is terminated by the
Company  for  cause  or  the date he voluntarily  terminates  his
employment without good reason.

     (4)  Effective June 1, 1997, Mr. Richard Kennedy was granted
an  NSO to purchase 266,666 shares of Common Stock (adjusted  for
the  Reverse Stock Split) at an exercise price (adjusted for  the
Reverse Stock Split) of $3.75 per share (aggregate purchase price
of approximately $1,000,000), and an NSO to purchase 5,000 shares
of  Amended  Series  A Preferred Stock at an  exercise  price  of
$85.00  per  share (aggregate purchase price of  $425,000).  Such
Common  Stock NSO is exercisable as follows:  as to 88,890 shares
on  June 1, 1999; as to 88,888 shares on June 1, 2000; and as  to
88,888  shares on June 1, 2001.  Mr. Kennedy's Common  Stock  NSO
will  expire  on  June  1,  2007 or, if  earlier,  the  date  his
employment is terminated by the Company for cause or the date  he
voluntarily terminates his employment without good reason.   Such
Amended  Series A Preferred Stock NSO is exercisable as  follows:
as to 1,250 shares on June 1, 2000; as to 1,750 shares on June 1,
2001;  and  as  to  3,000 shares on June 1, 2002.  Mr.  Kennedy's
Amended  Series A Preferred Stock NSO will expire  on  August  1,
2007 or, if earlier, the date his employment is terminated by the
Company  for  cause  or  the date he voluntarily  terminates  his
employment without good reason.

<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   
           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.      --        --     334,994 (1)      --             --              --
                            --        --        --   (2)  110,000 (2)        --              --
                                             160,000 (3)      --             --              --

John T. Chandler            --        --      75,330 (1)  133,333 (1)        --              --
                            --        --        --   (2)    5,000 (2)        --           558,332
                                              74,999 (3)      --             --               --

Richard K. Kennedy          --        --      16,629 (1)  266,666 (1)        --         1,116,664
                            --        --        --   (2)    5,000 (2)        --               --

Danny M. Dobbs              --        --      22,653 (1)  402,155 (1)        --         1,675,000
                            --        --        --   (2)   25,000 (2)        --               --
                                              38,799 (3)     --              --               -- 

Herbert F. Hamilton         --         --      13,332 (1)     --             --               --
</TABLE>
_______________

(1)  Represents  options  to  purchase  shares  of  Common  Stock
     exercisable  under  the  Company's  Stock  Option  Plans  at
     December 31, 1997 (as adjusted to reflect the Reverse  Stock
     Split).

(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, 1997.

(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, 1997, the Company's Common Stock price  was
     lower  than  the option and/or warrant exercise  prices  (as
     adjusted  to  reflect  the Reverse  Stock  Split)  with  the
     exception of options granted effective June 1, 1997.

(5)  At  December  31,  1997,  the  Company's  Amended  Series  A
     Preferred  Stock  price  was equal to  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.

      Pursuant to the 1997 LTSIP Restatement  the Board  approved
an  Appreciation Option for M. W. Miller, Jr. which was  approved
by  shareholders at the December 17, 1997 Special Meeting of  the
Shareholders.  The Board determined that the Appreciation  Option
to M. W. Miller, Jr. was in the best interests of the Company and
its shareholders, and is required in order to retain the services
of  Mr.  Miller,  who  has been instrumental  in  developing  the
Company's  China  activities and in successfully  concluding  the
Company's  offerings  of Amended Series  A  Preferred  Stock  and
Senior Secured Notes.  The Appreciation Option would also provide
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.

<TABLE>
<CAPTION>
                                
                    Long-Term Incentive Plans
                   Awards in Last Fiscal Year
                                                               Estimated Future Payouts
                                                              Under Non-Stock Price Based Plans
                                                              ----------------------------------
         (a)                   (b)              (c)              (d)         (e)     (f) 
                                           Performance or
                              Number of      Other Period
                            Shares, Units   Until Maturation   Threshold   Target  Maximum   
        Name              or Other Rights     or Payout         ($ or #)  ($ or#)  ($ or #)
        -----             ---------------  ----------------    ---------   ------  --------

<S>                              <C>             <C>              <C>        <C>      <C>
Marsden W. Miller, Jr.           (1)             (1)              (1)        (1)      (1)

</TABLE>
                                
_____________

(1)   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  which  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 highest
paid  and  employed  at year end to $1 million  per  year  unless
certain  conditions  are met which 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 which  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 1997.

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) were paid an annual retainer of $18,000 plus  a
fee of $1,000 for each Board meeting attended.  In addition, such
directors  were  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 addition, pursuant  to  the
terms of the 1992 LTSIP, Messrs. Hummel, Palliser, Reinhardt  and
Hofheinz,  each a non-employee director, were each granted  stock
options  for 6,666 shares of Common Stock exercisable  at  prices
ranging from $18.75 to $31.59 per share (adjusted for the Reverse
Stock Split).

      In  June  1997,  the  Company  entered  into  a  consulting
agreement  with  Mr.  Fetters, a director of  the  Company.   The
agreement  is  for  a  one-year term ending  July  31,  1998,  to
continue thereafter on a month to month basis.  The agreement may
be  terminated  by  either party on thirty 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  $30,000 per annum, which is in addition  to  the
compensation he receives 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 1, 1997, Messrs. Hummel, Palliser, Reinhardt,
Hofheinz and Fetters were each granted nonqualified stock options
to  purchase  66,666  shares of Common Stock  (adjusted  for  the
Reverse  Stock  Split)  exercisable at $3.75  (adjusted  for  the
Reverse  Stock Split) 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 entitled to a salary of $80,000 per year for up  to
80 hours per month of services.

      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.  In general,  compensation
for services under the Services Agreement will be at the rate  of
$175  per  hour  for up to 80 hours per month.  Also,  under  the
Services  Agreement,  the  Company  has  agreed  to  provide  Mr.
Blanchet  with office space, supplies, secretarial assistance,  a
library     allowance,    professional    liability    insurance,
reimbursement  for 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  and
shall  be forgiven in its entirety if (i) the Company shall  fail
to  pay  timely any such bonus payment, shall breach the Services
Agreement  or shall terminate his employment without  "cause"  or
(ii)  Mr.  Blanchet terminates his employment with "good reason,"
in  either  case as such terms are defined in the note evidencing
such loan.

      Effective August 1, 1997, Benjamin B. Blanchet was  granted
an  NSO  to purchase 400,000 shares of Common Stock for an option
exercise  price of $3.75 per share (aggregate purchase  price  of
$1,500,000.00).   Such  Common Stock NSO  is  exercisable  as  to
133,334 shares on August 1, 1999; as to 133,333 shares on  August
1, 2000 and as to 133,333 shares on August 1, 2001.  On that same
date Mr. Blanchet was granted an NSO to purchase 25,000 shares of
Amended Series A Preferred Stock for an option exercise price  of
$85.00 per share (aggregate purchase price of $2,125,000).   Such
Amended  Series A Preferred Stock NSO is exercisable as to  6,250
shares  on August 1, 2000; as to 8,750 shares on August  1,  2001
and  as to 10,000 shares on August 1, 2002.  Mr. Blanchet's  NSOs
will  expire  on  August  1, 2007 or, if earlier,  the  date  his
employment is terminated by the Company for cause or the date  he
voluntarily terminates his employment without good reason.

      During  1997  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,   D.M.  Dobbs, and R.C.  Cline, 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
(adjusted for the Reverse Stock Split), 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; Mr.  Dobbs, 38,333 shares; and Mr.  Cline, 16,666
shares, all adjusted for the Reverse Stock Split.

      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, 1997, 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,  1997,  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.

     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  who
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, which
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.  For 1997,  the
Company  did not retain the services of a compensation consulting
firm.

      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.

      In  recognition of the efforts and sacrifices of management
that  had enabled the Company in mid-1997 to be on track to  meet
its  1997 goals, the need to retain existing management  and  the
need  to attract qualified and competent personnel, in June 1997,
the   Board  of  Directors  reassessed  the  need  for  adjusting
management's compensation to provide for additional incentives to
management.   As  a  result of this reassessment,  the  Board  of
Directors  approved  amendments  to  and  a  restatement  of  the
Company's 1992 LTSIP subject to shareholders approval, which  was
obtained  on December 17, 1997.  These amendments generally  made
available  to  the  Committee the authority to  grant  Awards  to
executives  employed by the Company entitling such executives  to
acquire shares of the Company's Preferred Stock and Common Stock.
They  also made available to the Committee the authority to grant
appreciation awards.  As described in greater detail  in  "Awards
to  Management,"  the  Board of Directors made,  subject  to  the
approval  of the shareholders of the Company, which was  obtained
on  December  17,  1997,  certain Awards  under  the  1997  LTSIP
Restatement  effective as of June 1, 1997 (except for  awards  to
the  CFO  and  an  Executive Vice President which were  effective
October  6  and  August  1, 1997, respectively).   The  Committee
believes  that the 1997 LTSIP Restatement and the Awards  granted
thereunder  effectively  encourage retention  and  continuity  of
management,   appropriately  reward  management  for   its   past
performance and align the interests of management with  those  of
the  Company's  shareholders  by providing  management  with  the
opportunity to share in the creation of the Company's value.

      On  December 17, 1997, the Committee reviewed the Company's
1997 financial results and 1997 nonfinancial goals and 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  fact  that  top  officials  in  China's  oil  industry  have
indicated that the Company will be offered additional exploration
and   development  rights  in  China  and  (iii)  the   Company's
successful  placement  in May 1997 of $100 million  of  Preferred
Stock  and  Notes, the proceeds of which allowed the  Company  to
commence   achieving  its  objectives  in  China,  the  Company's
financial and operating goals for 1997 had been met and exceeded.


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  disposing  of
assets  and  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
adoption  of  the  1997  LTSIP  Restatement  and  the   NSO   and
Appreciation  Option  awarded to the CEO  under  the  1997  LTSIP
Restatement,  the Committee decided that the 1997  awards  should
serve  in lieu of a cash salary increase or bonus to the CEO  for
the present time.

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

      The  Committee, in consultation with the CEO,  applied  the
information  and  other factors outlined above in  reviewing  and
approving  the  compensation  of the  Company's  other  executive
officers.

December 17, 1997                       COMPENSATION COMMITTEE

                                   Fred Hofheinz, Chairman
                                   Arthur W. Hummel
                                   Michael Palliser
                                   Francis J. Reinhardt, Jr.
                                
                                
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 1993 through 1997, 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;   Amerac  Energy  Corporation  (formerly   Wolverine
Exploration  Company);  Bellwether  Exploration  Company;   Brock
Exploration  Corporation;  Tom Brown,  Inc.;  Caspen  Oil,  Inc.;
Chemfirst  Inc.  (formerly First Mississippi  Corporation);  Cobb
Resources  Corporation;  Coda Energy, Inc.;  Comstock  Resources,
Inc.;   Crystal  Oil  Company;  DeKalb  Energy  Company;   Edisto
Resources  Company; Energen Corporation; Forest Oil  Corporation;
Geodyne Resources, Inc.; Global Natural Resources, Inc.; Goodrich
Petroleum   Corporation  (formerly  Patrick  Petroleum  Company);
Hallador Pete 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. (formerly  McFarland  Energy,
Inc.);  MSR  Exploration  Limited; Numac  Energy,  Inc.;  Pacific
Enterprises;  Penn Virginia Corporation; Plains Resources,  Inc.;
Presidio  Oil;  Wainoco Oil Corporation; 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, 1992 and that all dividends were reinvested.

   [SHAREHOLDER RETURN PERFORMANCE GRAPH]                             
                                
               1993 Return  1994 Return  1995 Return  1996 Return  1997 Return
               -----------  -----------  -----------  -----------  -----------
XCL               49.96        72.18        27.73        16.62        24.82
Peer Group       121.87       121.48       153.45       183.12       217.52
AMEX             119.52       108.63       137.32       146.10       171.48

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,  1998,  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 22,926,333  shares  of
     Common  Stock, excluding 69,471 shares held as treasury stock;
     and  1,129,453 shares of Amended Series A Preferred Stock  and
     47,085   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
1114 Avenue of the Americas
New York, New York  10036       2,900,228  (4)    11.28     214,909      19.03       --        --

KAIM Non-Traditional, L.P.
1800 Avenue of the Stars,
2nd Floor
Los Angeles, California 90026   4,858,366(4)(5)   18.08     311,908 (6)  27.62    47,085       100

Mitch Leigh
29 West 57th Street
New York, New York  10019       1,938,416 (4)(7) 8.33          --          --       --          --

Marsden W. Miller, Jr.
110 Rue Jean Lafitte, 2nd Floor
Lafayette, Louisiana 70508      1,665,713 (4)(8)  7.11         --          --       --          --
</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 approximately 11 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,  on  or after August 31, 1998.   Each  share  of
     Amended Series B Preferred Stock is entitled to 50 votes per
     share.

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

 (5) Includes  16,874  shares  owned  by  Richard  A.  Kayne,   a
     director,  CEO  and  President of Kayne Anderson  Investment
     Management,   Inc.,  the  general  partner  of   KAIM   Non-
     Traditional,  L.P. ("KAIM LP"). The shares  over  which  Mr.
     Kayne has sole voting and dispositive power are held by  him
     directly  or by accounts for which he serves as  trustee  or
     custodian.  The shares over which Mr. Kayne and KAIM LP have
     shared voting and dispositive power are held by accounts for
     which  KAIM  LP serves as investment adviser (and,  in  some
     cases  as  general  partner). KAIM LP  disclaims  beneficial
     ownership  of these shares, except to the extent  that  they
     are  held  by  it  or attributable to it by  virtue  of  its
     general  partner  interests in certain limited  partnerships
     holding   such  shares.   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 such limited partnerships and by virtue
     of  his indirect interest in the interest of KAIM LP in such
     limited partnerships.

(6)  Includes  2,610 shares owned by Richard Kayne,  a  director,
     CEO  and  President of Kayne Anderson Investment Management,
     Inc.,  the  general  partner of KAIM  Non-Traditional,  L.P.
     ("KAIM LP")  The shares over which Mr. Kayne has sole voting
     and  dispositive  power  are held  by  him  directly  or  by
     accounts  for which he serves as trustee or custodian.   The
     shares  over which Mr. Kayne and KAIM LP have shared  voting
     and dispositive power are held by accounts for which KAIM LP
     serves  as investment adviser (and, in some cases as general
     partner).  KAIM LP disclaims beneficial ownership  of  these
     shares,  except to the extent that they are held  by  it  or
     attributable  to  it  by  virtue  of  its  general   partner
     interests  in  certain  limited  partnerships  holding  such
     shares.   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  such
     limited  partnerships and by virtue of his indirect interest
     in the interest of KAIM LP in such limited partnerships.

(7)  Includes 104,132 shares owned by Mr. Leigh's wife. Does  not
     include  shares  and  warrants held in custodial  and  trust
     accounts  for  Mr. Leigh's minor children, which  Mr.  Leigh
     does  not  control. Mr. Leigh disclaims beneficial ownership
     of all shares held by his wife and minor children. 

(8)  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.

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 15, 1998. As of that date  there  were
22,926,333   shares  of  Common  Stock  issued  and  outstanding,
excluding  69,741 shares of Common Stock held as treasury  stock,
and  1,129,453 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.       1,665,713 (1)(2)(3)(4)        7.11             --         --
John T. Chandler               554,940 (1)(2)(3)(4)        2.40         20,000 (2)    0.02
Benjamin B. Blanchet               200 (5)                  --              --         --
Fred Hofheinz                    6,666 (3)                 0.03             --         --
Arthur W. Hummel, Jr.            6,666 (3)                 0.03             --         --
Sir Michael Palliser             6,666 (3)                 0.03             --         --
Francis J. Reinhardt, Jr.       40,798 (3)(6)              0.18             --         --
R. Thomas Fetters, Jr.          62,699 (4)                 0.27             --         --
All directors and officers of 
 the Company as a group 
  (15 persons)               2,484,064 (3)(4)             10.83          20,000 (2)   0.02
</TABLE>
____________

(1)  Includes  13,333  shares  which are  subject  to  an  option
     granted  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 which are subject to certain forfeiture
     provisions.
(3)  Includes  shares  of  Common Stock  which  may  be  acquired
     pursuant to options which are exercisable within 60 days.
(4)  Includes  shares  of  Common Stock  which  may  be  acquired
     pursuant  to stock purchase warrants exercisable  within  60
     days.
(5)  Represents  shares of Common Stock owned by  Mr.  Blanchet's
     children.  Mr. Blanchet disclaims ownership of these shares.
(6)  Includes  6,666  shares of Common Stock  owned  by  Carl  H.
     Pforzheimer  &  Co.  of  which Mr. Reinhardt  is  a  general
     partner  and  13,333 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.
(7)  Calculated  taking into account the results of  the  Reverse
     Stock Split.


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.

Financial Statements
--------------------

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

XCL Ltd. and Subsidiaries:

Report of Independent Accountants

Consolidated Balance Sheet as of December 31, 1997 and 
  December 31, 1996

Consolidated Statement of Operations for each of the three  years
  in the period ended December 31,1997

Consolidated Statement of Shareholders' Equity for  each  of  the
  three years in the period ended December 31, 1997

Consolidated Statement of Cash Flows for each of the three  years
  in the period ended December 31, 1997

Notes to Consolidated Financial Statements

XCL-China Ltd. (wholly-owned):

Report of Independent Accountants

Balance Sheet as of December 31, 1997 and December 31,1996

Statement of Operations for each of the three years in the period
  ended December 31, 1997

Statement of Shareholders' Equity for each of the three years in
  the period ended December 31, 1997

Statement of Cash Flows for each of the three years in the period
  ended December 31, 1997

Notes to Financial Statements

Financial Statement Schedules
-----------------------------

     Certain financial statement schedules are omitted because of
the absence of the conditions under which they are required.

XCL Ltd. and Subsidiaries:

Schedule II-Valuation and Qualifying Accounts


Executive Compensation Plans and Arrangements
---------------------------------------------

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 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.

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.

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.

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

Consulting Agreement by and between the Company and Mr. R. Thomas
Fetters, Jr. dated June 1, 1997. -  See Exhibit 10.44 hereto.

Consulting  Agreement by and between the Company and Sir  Michael
Palliser dated May 1, 1994. -  See Exhibit 10.4 hereto.

Consulting Agreement by and between the Company and Mr. Arthur W.
Hummel. Jr. dated May l, 1994. - See Exhibit 10.5 hereto.

(b)  Reports on Form 8-K

      A  Current  Report on Form 8-K dated October 3,  1997,  was
filed to report (i) the test results of the Company's C-4 well on
the  Zhao  Dong Block, (ii) the release of funds held  in  escrow
from the May 20, 1997 Note Offering, and (iii) the sale of 24,000
shares  of  Common Stock through the exercise of  stock  purchase
warrants, pursuant to Regulation S under the Securities Act.

      A  Current Report on Form 8-K dated October 21,  1997,  was
filed  to  report  the  sale of 100,000 shares  of  Common  Stock
through  the exercise of stock purchase warrants and the issuance
of  an aggregate of 53,333 shares of Common Stock as compensation
to  a resident of Taiwan, all pursuant to Regulation S under  the
Securities Act.

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

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

2.0  Not applicable

3(i) Articles of incorporation

3.1  Amended and Restated Certificate of Incorporation of the
     Company dated December 17, 1998.  *

3(ii)     Amended and Restated Bylaws of the Company as currently
     in effect.  (A)(i) *

4.0  Instruments defining rights of security holders, including
     indentures:

4.1  Forms of Common Stock Certificates. *

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  (J)(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  (J)(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
     (J)(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.
     (M)(i)

4.15 Stock Purchase Agreement between the Company and Provincial
     Securities Ltd. dated August 16, 1996, whereby Provincial
     purchased 1,500,000 shares of Common Stock in a Regulation S
     transaction. (M)(ii)

4.16 Stock Purchase Warrant issued to Terrenex Acquisitions Corp.
     dated August 16, 1996, entitling the holder thereof to
     purchase up to 3,000,000 shares of Common Stock at $0.25 per
     share on or before December 31, 1998. (M)(iii)

4.17 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 (N)(i)

4.18 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. (N)(ii)

4.19 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 (N)(iii)

4.20 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 Foundatio                           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  (N)(iv)

4.21 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"). (O)(i)

4.22 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"). (O)(ii)

4.23 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.
     (O)(iii)

4.24 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. (O)(iv)

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

4.26 Form  of  Amended  Series  A  Preferred  Stock  certificate.
     (O)(vi)

4.27 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. (O)(vii)

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

4.29 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. (O)(ix)

4.30 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. (Q)(i)

4.31 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. (Q)(ii)

4.32 Certificate of Amendment to the Certificate of Designation
     of Series F, Cumulative Convertible Preferred Stock dated
     January 6, 1998. *

4.33 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. *

4.34 Certificate of Designation of Amended Series B, Cumulative
     Convertible  Preferred Stock dated March 4, 1998. *

4.35 Correction to Certificate of Designation of Amended Series
     B, Cumulative Convertible  Preferred Stock dated March 5,
     1998. *

4.36 Second Correction to Certificate of Designation of Amended
     Series B Preferred Stock dated March 19, 1998. *

10.0 -     Material Contracts

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 Modification  Agreement of Non-Negotiable  Promissory Note
     and  Waiver  Agreement  between  Lutcher  &  Moore Cypress
     Lumber Company and L.M. Holding Associates, L.P. dated June
     15, 1995. (H)(i)

10.9 Third  Amendment to Credit Agreement between Lutcher-Moore
     Development Corp., Lutcher & Moore Cypress Lumber Company,
     The First National Bank of Lake Charles,  Mary Elizabeth
     Mecom, The Estate of John W. Mecom,  The  Mary Elizabeth
     Mecom Irrevocable Trust, Matilda Gray  Stream, The   Opal
     Gray  Trust,  Harold  H.  Stream  III,   The Succession  of
     Edward  M.  Carmouche,  Virginia  Martin Carmouche  and L.M.
     Holding Associates, L.P. dated  June 15, 1995. (H)(ii)

10.10      Second   Amendment  to  Appointment  of  Agent   for
     Collection and Agreement to Application of Funds between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber  Company, L.M. Holding Associates, L.P. and  The
     First  National  Bank of Lake Charles,  dated  June  15,
     1995. (H)(iii)

10.11     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)

10.12     Letter  of  Intent dated July 17, 1995  between  CNPC
     United  Lube Oil Corporation and XCL Ltd. for discussion of
     further projects. (H)(v)

10.13     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. (I)(i)

10.14     Memorandum of Understanding dated December 14, 1995,
     between XCL Ltd. and China National Administration of Coal
     Geology. (J)(iv)

10.15     Form of Fourth Amendment to Credit Agreement between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber Company, The First National Bank of Lake Charles,
     Mary Elizabeth Mecom, The Estate of  John W. Mecom, The
     Mary  Elizabeth  Mecom  Irrevocable  Trust, Matilda Gray
     Stream, The Opal Gray  Trust,  Harold  H. Stream  III, The
     Succession of  Edward  M. Carmouche, Virginia Martin
     Carmouche and L.M. Holding  Associates,  L.P. dated January
     16, 1996. (J)(v)

10.16     Form of Third Amendment to Appointment of Agent for
     Collection and Agreement to application  of  Funds between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber  Company, L.M. Holding Associates,  L.P.  and The
     First National Bank of Lake  Charles,  dated  January 16,
     1996. (J)(vi)

10.17     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. (J)(vii)

10.18     Copy  of  Limited  Waiver  between  the Company  and
     Internationale  Nederlanden (U.S.)  Capital  Corporation
     dated April 3, 1996. (J)(viii)

10.19     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.
     (K)

10.20     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.  (L)(i)

10.21     Form of Fifth Amendment to Credit Agreement between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber Company, The First National Bank of Lake Charles,
     Mary Elizabeth Mecom, The Estate of  John W. Mecom, The
     Mary  Elizabeth  Mecom  Irrevocable  Trust, Matilda Gray
     Stream, The Opal Gray  Trust,  Harold  H. Stream  III, The
     Succession of  Edward  M. Carmouche, Virginia Martin
     Carmouche and L.M. Holding  Associates,  L.P. dated August
     8, 1996. (N)(v)

10.22     Form of Assignment and Sale between XCL Acquisitions,
     Inc. and purchasers of an interest in certain promissory
     notes held by XCL Acquisitions, Inc. as follows:

     Date           Purchaser                            Principal   Purchase 
                                                          Amount       Price

     November 19, 1996   Opportunity Associates, L.P.    $15,627.39  $12,499.98
     November 19, 1996   Kayne Anderson Non-Traditional
                           Investments, L.P.             $78,126.36  $62,499.98
     November 19, 1996   Offense Group Associates, L.P.  $39,063.18  $31,249.99
     November 19, 1996   Arbco Associates, L.P.          $93,743.14  $75,000.04
     November 19, 1996   Nobel Insurance Company         $15,627.39  $12,499.98
     November 19, 1996   Evanston Insurance  Company     $15,627.39  $12,499.98
     November 19, 1996   Topa Insurance Company          $23,435.79  $18,750.01
     November 19, 1996   Foremost Insurance Company      $31,249.48  $25,000.04
     February 10,  1997  Donald A. and Joanne R. 
       Westerberg                                        $25,000.00  $28,100.00
     February 10, 1997   T. Jerald Hanchey              $168,915.74 $189,861.29 
                                                                    (N)(vi)

10.23     Form of Sixth Amendment to Credit Agreement between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber Company, The First National Bank of Lake Charles, The
     Estate of Mary Elizabeth Mecom, The Estate of  John W.
     Mecom, The  Mary  Elizabeth  Mecom  Irrevocable  Trust,
     Matilda Gray Stream, The Opal Gray  Trust,  Harold  H.
     Stream  III, The Succession of  Edward  M. Carmouche,
     Virginia Martin Carmouche and L.M. Holding  Associates,
     L.P. dated January 28, 1997. (N)(vii)

10.24     Form of Act of Sale between the Company and The
     Schumacher Group of Louisiana, Inc. dated March 31, 1997,
     where in the Company sold its office building. (N)(viii)

10.25     Amendment No. 1 to the May 1, 1995 Agreement with
     Apache Corp. dated April 3, 1997, effective December 13,
     1996. (N)(ix)

10.26     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. (N)(x)

10.27     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. (N)(xi)

10.28     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.
     (N)(xii)

10.29     Form of Forbearance Agreement dated April 9, 1997
     between the Company and ING (U.S.) Capital Corporation.
     (N)(xiii)

10.30     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 (N)(xiv)

10.31     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. (N)(xv)

10.32     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. (N)(xvi)

10.33     Form of Indenture dated as of May 20, 1997, between the
     Company,  as  Issuer  and Fleet National  Bank,  as  Trustee
     ("Indenture"). (O)(x)

10.34      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). (O)(xi)

10.35      Form  of  Pledge Agreement dated as of May  20,  1997,
     between  the  Company and Fleet National  Bank,  as  Trustee
     (Exhibit C to the Indenture). (O)(xii)

10.36      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). (O)(xiii)

10.37      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). (O)(xiv)

10.38     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). (O)(xv)

10.39      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). (O)(xvi)

10.40     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. (O)(xvii)

10.41      Form of Restated Forbearance Agreement dated effective
     as of May 20, 1997, between the Company, XCL-Texas, Inc. and
     ING (U.S.) Capital Corporation. (O)(xviii)

10.42     Form of Seventh Amendment to Credit Agreement between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber Company, The First National Bank of Lake Charles, The
     Estate of Mary Elizabeth Mecom, The Estate of  John W.
     Mecom, The  Mary  Elizabeth  Mecom  Irrevocable  Trust,
     Matilda Gray Stream, The Opal Gray  Trust,  Harold  H.
     Stream  III, The Succession of  Edward  M. Carmouche,
     Virginia Martin Carmouche and L.M. Holding  Associates,
     L.P. dated May 8, 1997.  (P)(i)

10.43     Form of Eighth Amendment to Credit Agreement between
     Lutcher-Moore Development Corp., Lutcher & Moore Cypress
     Lumber Company, The First National Bank of Lake Charles, The
     Estate of Mary Elizabeth Mecom, The Estate of  John W.
     Mecom, The  Mary  Elizabeth  Mecom  Irrevocable  Trust,
     Matilda Gray Stream, The Opal Gray  Trust,  Harold  H.
     Stream  III, The Succession of  Edward  M. Carmouche,
     Virginia Martin Carmouche and L.M. Holding  Associates,
     L.P. dated July 29, 1997. (P)(ii)

10.44     Form of Consulting Agreement dated February 20, 1997,
     between the Company and Mr. Patrick B. Collins, whereby Mr.
     Collins performs certain accounting advisory services.
     (Q)(ii)

10.45     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. (Q)(iii)

10.46     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. (Q)(iv)

10.47     Form of Services Agreement dated August 1, 1997,
     between the Company and Mr. Benjamin B. Blanchet, an officer
     of the Company. (Q)(v)

10.48     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. (Q)(vi)

11.  Not applicable.

12.  Not applicable.

13.  Not applicable

16.  Not applicable.

18.  Not applicable.

19.  Not applicable.

21.  Subsidiaries of the Registrant 
     
     XCL-China, Ltd.
     XCL-China LubeOil Ltd.
     XCL-China Coal Methane Ltd.
     XCL-Texas, Inc.
     XCL-Acquisitions, Inc.
     The Exploration Company of Louisiana, Inc.
     XCL Land Ltd.

22.  Not applicable.

23   Consents of Experts and Counsel:

23.1 Coopers & Lybrand *

23.2 H.J. Gruy & Associates, Inc. *

24.  Not applicable.

27.  Financial Data Schedule *

99.1 Reserve Report dated January 1, 1998 prepared by H.J. Gruy &
     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 10K
     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 June 30, 1995,  filed August 14,
     1995, where it appears as: (i) through  (v) Exhibits 10.29
     through 10.33, respectively.

(I)  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.

(J)  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 and
     (v) through (vii) Exhibits 10.33 through 10.36,
     respectively.

(K)  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.

(L)  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.

(M)  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 (i) through (iii) Exhibits 4.32
     through 4.34.

(N)  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 (xvi) Exhibits
     10.39 through 10.50.

(O)  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.

(P)  Incorporated by reference to Quarterly Report on Form 10-Q
     for the quarter ended June 30, 1997, filed August 14, 1997,
     where it appears as (i) and (ii) Exhibits 10.60 and 10.61.

(Q)  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 10.61 through 10.66.

                          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.
<PAGE>
<TABLE>
                    XCL Ltd. and Subsidiaries
                                
          Schedule II-Valuation and Qualifying Accounts
                                
      For the Years Ended December 31, 1997, 1996 and 1995
                     (thousands of dollars)

<CAPTION>
                                                              Additions
                                                      --------------------------
                                     Balance at        Charged          Charges               Balance at
                                     Beginning of      to costs         to other                End of
Description                              Year         and expenses      accounts    Deduction  Year
-----------                         ------------      ------------     ----------   ---------- ----------
1997:
----

<S>                                 <C>              <C>             <C>           <C>          <C>      
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
                                     ========         =======          ======       =========    ========
1995:
----
Allowance for doubtful trade 
  accounts receivable               $     113        $     --        $     --       $      10   $     103
                                     ========         =======          ======        ========    ========

Deferred tax valuation allowance    $  44,464        $  32,279       $     --       $      --   $  76,743
                                     ========         ========        =======         ========   ========
</TABLE>
<PAGE>
                         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 14, 1998         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 14, 1998
Marsden W. Miller, Jr.      Chief Executive Officer

/s/ Steven B. Toon
______________________     Principal Accounting Officer     April 14, 1998
Steven   B.   Toon          and Principal Financial Officer

/s/ John T. Chandler
______________________     Director                          April 14, 1998
John T. Chandler

/s/ Benjamin B. Blanchet
______________________     Director                          April 14, 1998
Benjamin B. Blanchet

/s/ R. Thomas Fetters, Jr.
______________________     Director                          April 14, 1998
R. Thomas Fetters, Jr.


______________________     Director                          April 14, 1998
Fred Hofheinz

/s/ Arthur W. Hummel, Jr.
______________________     Director                          April 14, 1998
Arthur W. Hummel, Jr.

/s/ Michael Palliser
_____________________      Director                          April 14, 1998
Michael Palliser

/s/ Francis J. Reinhardt, Jr.
______________________     Director                          April 14, 1998
Francis J. Reinhardt, Jr.