_________________________________________________________________
                  Securities and Exchange Commission
                      Washington, DC  20549
                   ___________________________
                        FORM 10-K/A No. 2

                   ___________________________
     [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 of 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
_________________________________________________________________

                             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  11.   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 net proved undeveloped reserves  for  the
segments  of  the  C-D  Field drilled to date  of  11.76  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  present   value   of
estimated  future  pre-tax net cash flows is approximately  $64.8
million  as  of  January  1, 1998.  The standardized  measure  of
discounted  future net cash flows determined in  accordance  with
the  rules  prescribed  by FASB No. 69  is  $53.8  million.   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" and "Supplemental Oil  and  Gas
Information"   in   the  Notes  to  the  Consolidated   Financial
Statements.
    

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.
                                
                             PART II
                                
                                
Item 8.     Financial Statements and Supplemental Data.
   
      The  Consolidated  Financial Statements  of  XCL  Ltd.  and
Subsidiaries  and  XCL-China  Ltd.,  together  with  the  reports
thereon of PricewaterhouseCoopers LLP dated April 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.
                                    
   
                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 1(a) of this Annual Report on Form 10-K.  These consoli-
dated  financial  statements and financial   statement   schedule    
are the responsibility of the Company's management. Our responsi-
bility 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  substantial  doubt
about  its  ability to continue as a going concern.  Managements'
plans  in regard to these matters are described in Note  2.   The
consolidated financial statements do not include any  adjustments
that might result from the outcome of this uncertainty.

/s/ PRICEWATERHOUSECOOPERS LLP



Miami, Florida
April 10, 1998
    
<PAGE>

                    XCL Ltd. and Subsidiaries
                   CONSOLIDATED BALANCE SHEETS
                     (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 undeveloped properties, 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 STATEMENTS 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 STATEMENTS 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 STATEMENTS 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>
<CAPTION>
                                
                                            Preference in      1997 Dividends
                          Shares           Liquidation at      (In Thousands)
                     1997       1996      December 31, 1997       Declared   Accrued   Total
                     ----       ----      -----------------    ------------- -------   -----
<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.

   
      All of the restricted stock awards entitle the participants 
to  full  dividend  and voting  rights and are  restricted  as to
disposition  and subject to forfeiture under certain  conditions.
The shares become unrestricted upon attainment of certain increases
in the market price of the Company's Common Stock within four years
of date of grant, as provided for in the plan. Upon  issuance  of  
restricted shares, unearned  compensation is charged to shareholders' 
equity for the cost of restricted  stock and  recognized as  expense 
ratably over the earned 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 Securities and Exchange
Commission prescribed  annual rate of 10 percent.
    

      In  view  of the uncertainties inherent in developing  this
supplementary information, it is emphasized that the  information
represents approximate amounts 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 FASB No. 69, is summarized as below, and does 
not purport to present the fair market value of the Company's oil 
and gas assets, but does present the present value of future cash 
flows that would result under the assumptions used:
    
   
The Company previously excluded from this table, the effect of
income taxes because it believed it had a tax holiday in China.
Subsequent to December 31, 1997, the Company determined that it 
would be subject to future income taxes iat the maximum rate of
33% in China.  Accordingly, the table below has been revised to
include estimates of such income taxes.
    
   
<TABLE>
<CAPTION>
                                                         Year Ended December 31
                                                      ----------------------------
                                                      1997 (a)  1996 (a)  1995 (a)
                                                      --------  --------  --------
                                                         (Thousands of Dollars)
<S>                                                <C>         <C>       <C>
Future cash inflows                                $  205,765  $ 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                119,049    142,860    46,835
Future income taxes (c)                               (22,916)   (35,658)       -- (b)
                                                      -------    -------    ------
Future net cash flows                                  96,133    107,202    46,835
10% discount factor                                   (42,285)   (44,596)  (20,795)
                                                      -------    -------    ------
Transfer of properties to assets held for sale             --         --   (26,040)
                                                     --------     ------    ------
Standardized measure of discounted net cash flows  $   53,848   $ 62,606  $     --
                                                     ========    =======   =======
</TABLE>
_____________
(a)   1997  and  1996  represent  China  properties  only.   1995
represents U.S. properties being held for sale only.
(b)   No taxes have been reflected because of utilization of  net
operating loss carryforwards.
(c)   Future income taxes are computed by applying the maximum
tax rate in China applicable to foreign-funded enterprises of
33%.
    

  Changes in Standardized Measure of Discounted Future Net Cash
  --------------------------------------------------------------
               Flow From Proven Reserve Quantities
               -----------------------------------
                                
   
                                                    Year Ended December 31
                                               -------------------------------  
                                               1997 (a)   1996 (a)   1995 (a)
                                               --------   --------   --------
                                                   (Thousands of Dollars)
Standardized measure-beginning of year        $ 62,606   $    --    $  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                                       (219)       --       (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)
    Net change in income taxes                   7,857   (16,456)          --
                                               -------    ------      -------
Standardized measure-end of year              $ 53,848  $ 62,606     $     --
                                               =======   =======      =======

__________
(a)   1997  and  1996  represent  China  properties  only.   1995
represents U.S. properties being held for sale 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 substantial doubt about its 
ability  to continue  as  a going concern.  Managements' plans in  
regard  to these  matters are described in Note 2.  The financial 
statements do not include any adjustments that  might result from 
the outcome of this uncertainty.

/S/ PRICEWATERHOUSECOOPERS LLP



Miami, Florida
April 10, 1998
    
<PAGE>
                         XCL-China, Ltd.
                          BALANCE SHEETS
                     (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 undeveloped properties, 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                        4,504       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.
                                
                     STATEMENTS 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
                                
               STATEMENTS 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.
                                
                     STATEMENTS 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 FASB No. 69, is summarized as below, and does
not purport to present the fair market value of the Company's oil
and gas assets, but does present the present value of future cash
flows that would result under the assumptions used:
    
   
The Company previously excluded from this table, the effect of 
income taxes because it believed it had a tax holiday in China.
Subsequent to December 31, 1997, the Company determined that it 
would be subject to future income taxes at the maximum rate of
33% in China.  Acccordingly, the table below has been revised to
include estimates of such income taxes.
    
   
                                                   Year Ended December 31
                                                    --------------------
                                                    1997           1996
                                                    ----           ----
                                                   (Thousands of Dollars)
Future cash inflows                               $  205,765     $  222,797
Future costs:
    Production, including taxes                      (45,623)       (39,033)
    Development                                      (41,093)       (40,904) 
                                                     -------        -------
Future net inflows before income taxes               119,049        142,860
Future income taxes (1)                              (22,916)       (35,658)
                                                     -------       --------
Future net cash flows                                 96,133        107,202
10% discount factor                                  (42,285)       (44,596)
Transfer of properties to assets held for sale            --             --
                                                     -------       -------- 
Standardized measure of discounted net cash flows  $  53,848      $  62,606
                                                     =======        =======
-------------------
(1)  Future income taxws are computed by applying the maximum tax rate in China
     applicable to foreign-funded enterprises of 33%.
    
   
  Changes in Standardized Measure of Discounted Future Net Cash
               Flow From Proven Reserve Quantities
                                
                                                        Year Ended December 31
                                                        ----------------------
                                                           1997       1996
                                                           ----       ----
                                                        (Thousands of Dollars)
Standardized measure-beginning of year                $   62,606   $      --
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           (219)         --
    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      --          --
    Net change in income taxes                             7,857     (16,456)
                                                          ------     -------
Standardized measure-end of year                        $ 53,848    $ 62,606
                                                          ======     =======
    

                             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' Deficit 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 Foundation                        325,580
     Estate of J. Edgar Monroe                         976,740
     Boland Machine & Mfg. Co., Inc.                   325,580
     Construction Specialists, Inc. 
        d/b/a Con-Spec, Inc.                         1,627,900  (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. *

4.37     Form of Stock certificate representing shares of Amended
     Series B Preferred Stock. +

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

4.39     Form of Stock Purchase Warrants dated March 3, 1998
     between the Company and the following entities:

     Holder                                        Warrants

     Arbco Associates, L.P.                         85,107
     Kayne Anderson Non-Traditional 
        Investments, L.P.                           79,787
     Offense Group Associates, L.P.                 61,170
     Opportunity Associates, L.P.                   23,936 +

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:

<TABLE>
     Date           Purchaser     Principal Amount     Purchase Price

     <S>                   <C>                              <C>            <C>
     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)
</TABLE>

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     PricewaterhouseCoopers LLP ^
    
   
23.2     H.J. Gruy & Associates, Inc. ^
    
24.     Not applicable.

27.1     Financial Data Schedule for year ended December 31, 1997 *

27.2     Restated Financial Data Schedule for the year ended
         December 31, 1996 and the three, six and nine month periods
         ended March 31, June 30 and September 30, 1997 +
   
99.1     Reserve Report dated January 1, 1998 prepared by H.J.
         Gruy & Associates, Inc. ^
    
99.2     Glossary of Terms *

------------
*     Filed with Form 10-K.
+     Filed with Form 10-K Amendment No. 1.
^     Filed with this Form 10-K Amendment No. 2

(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.

                           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/ Benjamin B. Blanchet
October 16, 1998             By:_________________________________
                                   Benjamin B. Blanchet
                                   Executive Vice President