The following items were the subject
                        of a Form 12b-25 and are included herein:
                                  Items 1 through 14 and Exhibits
=================================================================
                  Securities and Exchange Commission
                      Washington, DC  20549
                 -------------------------------
                            FORM 10-K

                 ------------------------------
     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
          THE SECURITIES EXCHANGE ACT OF 1934
                                
          For the fiscal year ended December 31, 1996 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
     Lafayette, Louisiana                              70508
     (Address of principal executive offices)       (Zip Code)
                    -------------------------
 (Registrant's telephone number, including area code)   318-237-0325

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

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

Securities registered pursuant to Section 12(g) of the Act: None
                                
      Indicate by check mark whether the registrant (1) has filed
all  reports required to be filed by Section 13 or 15(d)  of  the
Securities  Exchange Act of 1934 during the preceding  12  months
(or  for such shorter period that the registrant was required  to
file  such  reports),  and (2) has been subject  to  such  filing
requirements for the past 90 days. [X] Yes        [ ] No

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

      The  aggregate  market value of the voting  stock  held  by
nonaffiliates   of  the  registrant  on  April  14,   1997,   was
approximately $51,635,346.19.

      293,633,340  shares  Common  Stock,  $.01  par  value  were
outstanding on April 14, 1997.
                                
               DOCUMENTS INCORPORATED BY REFERENCE
                              None
-----------------------------------------------------------------

                        TABLE OF CONTENTS
                                
                             PART I
                                                       Page
Item 1. and Item 2. Business and Properties
General
The Zhao Dong Block
United/XCL Lube Oil Joint Venture
Coalbed Methane Project
U.S. Exploration and Production Activities
Oil and Gas Reserves
Production, Sales and Cost Data
Oil and Gas Acreage
Drilling Activity
Well Data
Other Domestic Properties
Title to Properties
Markets
Competition.
Certain Risk Factors Relating to the Company and the Oil and Gas
Industry
Environmental Matters
Employees
Premises
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
                                
                             PART II

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

                            PART III

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

                             PART IV

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
Other Matters
Signatures
Glossary of Terms


                             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.
Based on the initial success of its first project in The People's
Republic of China ("China"), an exploration and production  joint
venture   with  China  National  Oil  and  Gas  Exploration   and
Development Corporation, a Chinese governmental agency  ("CNODC")
on the Zhao Dong Block in the shallow-water sea area of the Bohai
Bay  effective May 1, 1993, 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  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.

      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  southeast  Asian  markets.  See
"United/XCL  Lube  Oil  Joint Venture" on  page  12.   Also,  the
Company   on   December  14,  1995,  signed   a   Memorandum   of
Understanding  with  the  China National Administration  of  Coal
Geology  ("CNACG"), pursuant to which the parties have  commenced
cooperation  for  the  exploration  and  development  of  coalbed
methane  in two areas in China. See "Coalbed Methane Project"  on
page 12.

      Before  1993, the Company operated primarily  in  the  Gulf
Coast  area  of  the  United  States.  XCL  Ltd.,  formerly   The
Exploration  Company of Louisiana, Inc., is the  successor  to  a
Louisiana corporation of the same name which was incorporated  in
1981.

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

     Geology and Geophysics
     ----------------------

     The Zhao Dong Block extends from the shoreline of the Dagang
Oil  Field on Bohai Bay to water depths of approximately 5 meters
and    encompasses    approximately   197    square    kilometers
(approximately 48,677 gross acres).  The Company believes that  a
portion  of the Zhao Dong Block represents the seaward  extension
of  the  Dagang  oil  field  complex.  According  to  information
provided by Chinese sources, the Dagang oil field complex is  one
of  China's  largest  oil fields, with cumulative  production  in
excess  of  700 million barrels of oil and, based on  information
furnished  by Chinese authorities which the Company  believes  is
reasonable, has an estimated ultimate recovery of more  than  one
billion barrels of oil.

      The geology of Bohai Bay is similar in many respects to the
U.S.  Gulf Coast, with Tertiary formations contributing  a  major
portion  of  the  production.  The sediments in  Bohai  Bay  are,
however,  non-marine and oil prone as opposed to open marine  and
gas  and condensate prone sediments found in the U.S. Gulf Coast.
Interpretation of seismic and subsurface data appears to indicate
the  presence of a thick, structured sedimentary section  in  the
contract  area  with  the possibility of  excellent  source  rock
indicated by its proximity to producing fields.

     Historical Seismic
     ------------------

      Shallow  water  and transition zone seismic crews  acquired
seismic data in and around the Zhao Dong Block between 1986-1988.
The  Company's initial evaluation of the Zhao Dong Block involved
the  reprocessing of approximately 721 kilometers (448 miles)  of
this  seismic data.  While the original processing  was  fair  in
reflection  and  continuity it was dramatically improved  by  the
Company's   reprocessing   for  use  in   both   structural   and
stratigraphic interpretation.  To date a total of 390  kilometers
(242  miles) of new seismic data has been shot over the Zhao Dong
Block  and 721 kilometers (448 miles) reprocessed for a total  of
1,111 kilometers (690 miles).

      The  following  is an overview of the seismic  programs  by
year:

     1993 Seismic
     ------------

     Seismic  acquisition initiated by the Company in  late  1993
     was  shot  for the Company by Dagang Geophysical, a  Chinese
     seismic  acquisition  company, to delineate  the  structural
     styles mapped on the original seismic data.  The Company had
     already reprocessed 721 kilometers of historic data covering
     the Zhao Dong Block.  To fulfill part of the initial seismic
     acquisition requirements, the Company acquired 9 lines  (120
     kilometers)  of  new seismic data.  This data  was  used  to
     extend  existing  lines, check navigation accuracy,  provide
     additional  structural and stratigraphic  data,  and  tie-in
     existing well control.
     
     1994 Seismic
     ------------
     
     Beginning in early 1994, the Company acquired 102 kilometers
     of  new data which fulfilled the initial seismic acquisition
     requirements under the Company's agreement with CNODC.   The
     purpose  of this shooting was to infill the existing seismic
     base   already  shot  and  further  delineate  leads.   This
     acquisition was also shot by Dagang Geophysical.
     
     1995 Seismic
     ------------
     
     Beginning in early 1995, the Company and Apache acquired and
     processed   twelve   30-fold  stock   seismic   lines   (168
     kilometers)  of new seismic also shot by Dagang Geophysical.
     Four  lines were for additional dip information, three lines
     were  to  extend appraisal and wildcat well  data,  and  the
     remaining  lines  to delineate the "E" segment  and  shallow
     water near shore area of the "F" segment.
     
     Drilling Results
     ----------------

      Mapping  of  seismic  events on shallow,  medium  and  deep
reflectors   delineated   lead  areas  with   possible   prospect
potential.   Wildcat drilling on the Zhao Dong  Block  from  this
seismic analysis has resulted in two successful discoveries along
the  Zhao Bei fault system.  Appraisal tests have delineated  the
downthrown  "C" closure and have partially delineated the  aerial
extent of the upthrown "D" closure.  Geological formations  found
to  contain hydrocarbons are the Lower Minghuazhen Formation, the
Guantao Formation and Shahejie Formation.

      The  following is an overview of the drilling  programs  by
year:

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

           Zhao Dong C-1.  The Zhao Dong C-1 was spudded in April
     1994, and was drilled to a depth of 9,843 feet.  The C-1 was
     the first of three planned Phase I wildcat wells drilled  on
     the  Zhao Dong Block.  Oil was tested in two Pliocene  sands
     (Lower Minghuazhen Formation) from perforations shot between
     4,278 feet and 4,462 feet.  Results yielded a combined  test
     rate  of 2,160 barrels of oil per day with no water.   Total
     net pay for the zones tested was 97 feet.
     
           Zhao  Dong C-2.  The Zhao Dong C-2 appraisal well  was
     spudded  and  drilled  to a total depth  of  7,134  feet  in
     October  1994 and tested four intervals.  The combined  rate
     of  individual  tests from three of these  zones  was  3,640
     barrels  of  oil  per  day with no water  from  perforations
     between  4,267 feet and 4,481 feet.  Total net pay  for  the
     zones   tested  was  47  feet.   This  appraisal  well   was
     successful in confirming the Zhao Dong C-1 discovery.
     
     1995 Drilling
     -------------
     
           Zhao  Dong C-2-2. The C-2-2 appraisal well was drilled
     directionally to a total measured depth of 5,625 feet (5,034
     feet  true  vertical depth) in April 1995.  The  prospective
     sands  in  the Minghuazhen were shaled out and the  well  as
     plugged back and sidetracked as the C-2-2A.
     
           Zhao  Dong  C-2-2A.  Upon plugging and abandoning  the
     bottom  section  of  the C-2-2 well, the C-2-2A  sidetracked
     well   was   drilled  structurally  updip  of  the  original
     wellbore.   This  sidetrack was drilled to a total  measured
     depth  of  5,084  feet  (4,956 feet  true  vertical  depth).
     Although the Minghuazhen prospective section was present and
     not  shaled out, the objective sands were wet and  the  well
     was plugged and abandoned.
     
           Zhao Dong D-1.  Exploration drilling continued in 1995
     with  the spudding of the D-1 wildcat well designed to  test
     for Buried Hill potential in the Ordovician carbonates.  The
     well reached a total depth of 8,784 feet in June 1995.  This
     wildcat was unsuccessful in finding hydrocarbon potential in
     the  Ordovician  carbonates; however, it was  successful  in
     discovering  oil in the Lower Minghuazhen Formation  proving
     this shallower section to be productive upthrown to the Zhao
     Bei fault system.  Drill-stem testing confirmed the presence
     of  hydrocarbons with an initial test rate of 1,109  barrels
     of  oil per day from perforations 4,185 feet to 4,205  feet.
     The net pay for this zone was 20 feet.
     
           In  addition to this productive sand, another 15 sands
     ranging  from Pliocene Minghuazhen to Permian in age  (3,523
     feet to 6,268 feet) were found to have hydrocarbon shows  in
     mudlogs  and/or  sidewall cores.  One  Permian  sand  tested
     water  with  a  trace  of  30 degree  gravity  oil  and  one
     Minghuazhen  sand  tested water  with  2  percent  oil.   As
     stated,  the D-1 well was designed primarily to test  deeper
     Paleozoic  objectives.  It was not located at a structurally
     optimum   position  for  the  shallower  sands   where   the
     hydrocarbons occurred, but rather on the eastern edge of the
     C-D  structural  complex.  The fact that  this  well  tested
     1,109  barrels  of oil per day from one sand,  tested  water
     with  smaller amounts of oil from two other sands,  and  had
     shows in numerous additional sands suggests its proximity to
     the  limits of a significant oil accumulation.  The D-2 well
     (discussed below) was designed to appraise the D-1 discovery
     at  a  position interpreted to be structurally  higher.   An
     analogy  is  observed in the northern area of  the  C  wells
     where  the structural advantage of the C-3 well found  seven
     sands   productive  as  opposed  to  three  and  two   sands
     productive  in  the structurally lower C-2  and  C-1  wells,
     respectively.  The C-1 and C-2 wells did, however, have  oil
     shows in several sands which were found productive in the C-
     3.
     
           Zhao  Dong C-3. The Zhao Dong C-3 appraisal  well  was
     drilled in July 1995, reaching a total depth of 6,773  feet.
     The  original  proposed depth of the  C-3  was  5,004  feet.
     Analysis  of  geological information during drilling  showed
     the  well  to be high structurally to both the C-1  and  C-2
     wells,   thus  drilling  continued  to  test  the   Shahejie
     Formation   until  the  Zhao  Bei  fault  was   crossed   at
     approximately 6,595 feet.  Eight different sands had  drill-
     stem tests taken in the C-3 appraisal well.  Cumulative rate
     potential was 5,830 barrels of oil per day and 460 Mcfd from
     seven  sands.   One Shahejie sand tested oil at  a  rate  of
     1,356  barrels of oil per day until water production  began.
     Initial analysis of this test data indicates water was coned
     due  to  pressure  draw  down  during  testing.   This  well
     illustrated  that  the  Shahejie  Formation  sands  are  oil
     productive   with  significant  appraisal  and   exploration
     potential  both  in  the C-D Field  and  over  much  of  the
     undrilled portion of the Zhao Dong Block.  Total net pay for
     the   zones   tested   was   143  feet.    Initial   seismic
     stratigraphic  analysis indicates additional lacustrine  fan
     systems could be present downdip.
     
     1996 Drilling
     -------------
     
           Zhao  Dong D-2.  The Zhao Dong D-2 appraisal well  was
     spudded  in  November 1996 and drilled to a total  depth  of
     7,501 feet (6,180 feet true vertical depth).  This well  was
     drilled  on  an  upthrown  fault closure  approximately  1.5
     kilometers west of the D-1 discovery well.  It was  designed
     to  test  the  Minghuazhen (Pliocene) and Guantao  (Miocene)
     sands upthrown to the Zhao Bei fault system and structurally
     high  to  the D-1 well which had one productive sand  (1,109
     barrels  of  oil per day) and numerous sands with  shows  in
     this  interval.  In addition, the well was planned  to  test
     the   Shahejie   (Oligocene)  formation  downthrown   to   a
     bifurcated fault of the same Zhao Bei fault system.  The D-2
     well  tested  five intervals (six drill stem tests)  in  the
     Minhuazhen  and  Guantao formations at a  combined  rate  of
     11,571  barrels of oil per day from perforations 3,285  feet
     (3,277  feet true vertical depth) to 5,445 feet (4,950  feet
     true  vertical  depth).   The  well  confirmed  the  lateral
     productivity of several sands previously seen productive and
     also  established  production in several new  sands  in  the
     Guantao  formation.   The Guantao  is  one  of  the  primary
     producing  formations  in the more  than  1  billion  barrel
     onshore  Dagang  Field.   This well also  demonstrated  much
     higher  initial  flow rates without the need for  artificial
     lift.  One zone flowed 4,370 barrels of oil per day with 774
     Mcf of gas and a second zone flowed 2,472 barrels of oil per
     day with 168 Mcf of gas.  The sands seen productive in the D-
     2  well  appear to be present over the entire area  and  add
     significantly to the overall potential of the C-D  Field  as
     well as the rest of the Zhao Dong Block.
     
     Current Drilling
     ----------------
     
          Zhao Dong F-1.  The F-1 wildcat well is currently being
     drilled  with  the intention of testing approximately  1,800
     feet of Shahejie section at an optimum location for regional
     deposition  of  the  Shahejie  deep  water  lacustrine  sand
     systems and on an excellent structural closure.  The well is
     being directionally drilled from a drill pad constructed  at
     the  shoreline  and  was spudded in October  1996.   Primary
     objective  intervals for the well are the Shahejie Formation
     at  8,200  feet  (true vertical depth) and the  Pre-Tertiary
     Formation at 10,168 feet (true vertical depth).
     
     Exploration Potential
     ---------------------

      According  to  H.J. Gruy and Associates, Inc.,  independent
engineers,  in  addition to the C-D Field, 26  other  prospective
areas   with  exploratory  potential  have  been  identified   by
reconnaissance  seismic  surveys on the  Zhao  Dong  Block.   The
seismic  data  over the prospective areas have been analyzed  and
the potential reserves of each  prospect have been determined.

      Future  Drilling Plans. The Company, Apache and CNODC  have
discussed  and  preliminarily  approved  the  drilling  of   four
exploration  wells  during  the  1997  drilling  season  and  the
undertaking of a 3-D seismic program.  One of these wells  is  an
appraisal well to be drilled in the D segment and three have been
approved as wildcat wells, one in the D segment and two in the  C
segment.

     3-D  Seismic  Program.   A 3-D seismic  program  is  planned
     during  1997-1998.  The program is being designed  to  cover
     most  of  the  Zhao  Dong Block for purpose  of  delineating
     development  well  locations in the  C-D  Field  and  better
     defining the exploration prospects on the remainder  of  the
     Block.   The  3-D  seismic  program  is  estimated  to  cost
     approximately  $7 million, of which the Company's  share  is
     $3.5 million.
     
     Zhao Dong D Segment (Appraisal Well).  This location will be
     drilled north of the 1995 D-1 discovery well and east of the
     recently  completed D-2 well which tested five intervals  at
     11,571  barrels  of  oil per day.   The  new  well  will  be
     designed  to test all sands seen productive in the D-2  well
     and   to  appraise  the  extent  and  continuity  of   those
     reservoirs.   The  proposed total depth is estimated  to  be
     5,900 feet.
     
     Zhao Dong D Segment (Wildcat #1).  This wildcat well will be
     located  approximately  1.5  kilometers  south  of  the  D-1
     discovery  and will test a four-way dip structural  closure.
     The  well is prospective for all sands which have been  seen
     productive in previous wells plus additional sands, many  of
     which  had oil shows in the D-1 and D-2 wells.  The proposed
     total depth is 6,560 feet.
     
     Zhao Dong C Segment (Wildcat #2).  This wildcat well will be
     located  approximately 2 kilometers  northeast  of  the  C-1
     well,  XCL's initial Zhao Dong Block discovery.   This  well
     will  test  on  a faulted four-way dip structure  all  sands
     previously  found productive on the Block plus  it  will  be
     drilled  deeper  to  test the Ordovician  Carbonate  section
     ("Buried  Hills").  This is the section found productive  in
     1996  by Kerr-McGee north of the Zhao Dong Block and is  one
     of  the primary producing zones in northeastern China.   The
     total depth of this well will be approximately 8,860 feet.
     
     Zhao Dong C Segment (Wildcat #3).  This wildcat well will be
     located  along the Zhao Bei Fault approximately 3 kilometers
     southwest of the recently successful D-2 well.  It  will  be
     prospective in both four-way dip and fault closures for  all
     sands seen productive in the D-2 well plus other sands which
     had  oil  shows  in  the D-1, D-2, D-3 and  C-3  wells.   In
     addition,  the  well  will be designed to  test  the  deeper
     Shahejie  sands downthrown to the main Zhao Bei Fault.   The
     Shahejie  is  a  major producing interval  onshore  and  was
     productive  in  the C-3 well at a high flow  rate  from  one
     sand.   The proposed total depth will be approximately 7,200
     feet.

     Development Plans
     -----------------

      A  development program for the C-D Field (the  "Development
Program")   has  been  designed  by  an  independent  engineering
consultant for XCL to provide for oil to be produced from several
production  platforms, from each of which  as  many  as  eighteen
production and water injection wells will be drilled.   Reservoir
pressure  maintenance through water injection  will  be  utilized
from  the  beginning  of  production.  It  is  planned  that  oil
production  will  be transported to the nearby  Chinese  port  of
Tanggu,  from  which  it will be exported or sold  to  purchasers
within  China.  All sales will be based on world prices and  paid
for in U.S. dollars or other fully convertible currency.

     Assuming that CNPC exercises its right to participate in the
C-D  Field, development costs will be paid 51% by CNPC and  24.5%
by each of XCL and Apache. (See "Apache Farmout" below.) CNPC has
indicated  that it intends to participate to the full  extent  of
its  51%  share  of  such costs, although it  does  not  have  to
contractually  commit itself to do so until  30  days  after  the
Foreign  Contractor (XCL and Apache as a group working through  a
participation  agreement) has declared the C-D Field  commercial.
It  is anticipated that the C-D Field will be declared commercial
upon  final submission of a development plan for approval by  the
Chinese  government.  Such submission is anticipated  for  summer
1997.

      The  Development Program has been designed, and costs  have
been  estimated for XCL by a third party engineering firm,  based
on  bids from contractors and equipment suppliers.  Platforms and
drilling  equipment are planned to be constructed in  either  the
U.S.  Gulf  Coast area or in China pursuant to,  in  most  cases,
fixed  cost  contracts and subject to United States  construction
standards and quality control.

      The initial phase of the Development Program is designed to
produce  the oil reserves presently classified as proved  by  the
Company's  independent  engineers  (45  million  barrels).    The
Company  believes  the C-D Field contains significant  additional
reserves.   The Development Program includes expansion  plans  to
produce any such additional reserves.

       The  estimated  gross  cost  of  constructing  an  initial
production  platform and drilling eight producing wells  and  two
water  injection  wells,  including the  cost  of  the  platform,
pipelines,  barges,  barge loading facilities  and  drilling  and
completing  the  wells,  is $65 million.   (Such  activities  are
hereinafter  referred  to  collectively  as  "Phase  I   of   the
Development Program.")  XCL's share of the costs of  Phase  I  of
the Development Program is projected at $16 million.  As soon  as
the  Phase  I  platform is placed on production, the  Development
Program will proceed to Phase II.

      Phase II of the Development Program for the existing proved
oil  reserves will involve constructing and installing additional
production  platforms, and the drilling of additional  production
and  water  injection wells and related equipment.  Phase  II  is
estimated  to cost a total of $100 million, of which XCL's  share
of the costs will be $24.5 million.

      XCL  presently  projects that Phase I  of  the  Development
Program  will  be  completed to allow  for  the  commencement  of
production  in  the fourth quarter of 1998, with  estimated  peak
production of approximately 22,000 barrels of oil per  day  being
achieved  from  existing proved reserves in the year  2000  after
Phase II of the Development Program is completed.

      The F-1 exploratory well is presently being drilled from an
onshore  drilling pad.  If successful, production from  the  well
could  commence in 1997 because offshore facilities will  not  be
required.  Although Apache is paying XCL's share of the costs  of
the  F-1  well, because of cost sharing provisions  in  both  the
Production   Sharing  Agreement  with  CNODC   and   the   Apache
participation   agreement,  XCL  expects  to  initially   receive
approximately 45% of the production from the well until  XCL  has
received approximately $20 million.

     Production Sharing Agreement Summary
     ------------------------------------

       The  Company  acquired  the  rights  to  the  exploration,
development and production of the Zhao Dong Block by executing  a
Production  Sharing Agreement with CNODC, effective May  1,  1993
(the  "Contract"). The Contract obligates the Foreign  Contractor
to  pay  for  all  exploration costs. Under the  Contract,  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 Foreign
Contractor.

     The Contract includes the following additional principal
terms:

     The Contract may not continue beyond 30 consecutive contract
years   and  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 contract years from May 1, 1993,  are  the
exclusive responsibility of the Foreign Contractor.  The  Foreign
Contractor's obligations in the three Exploration phases  are  as
follows:

          1.   During   the   first  three  years,  the   Foreign
               Contractor  is  required to  drill  three  wildcat
               wells,   perform  seismic  data  acquisition   and
               processing and expend a minimum of $6 million (The
               Foreign Contractor has drilled two wildcat  wells,
               satisfied  the seismic acquisition and  processing
               and  the minimum expenditure requirements and  has
               received an extension allowing the drilling of the
               third  wildcat well during the first year  of  the
               second  exploration  phase.   Upon  completion  of
               drilling,  logging and, if applicable, testing  of
               the  F-1  well,  the first phase commitments  will
               have been met.)
          
          2.   During the next two years that began May 1,  1996,
               the  Foreign Contractor is required to  drill  two
               wildcat  wells,  perform seismic data  acquisition
               and processing and expend a minimum of $4 million.
               (The  Foreign  Contractor has elected  to  proceed
               with  the  second  phase  of  the  Contract.   The
               seismic    data    acquisition   and    processing
               requirement   for  the  second  phase   has   been
               satisfied   the  minimum  expenditure  requirement
               (including a carryover from the first phase.)
          
          3.   During  the two years beginning May 1,  1998,  the
               Foreign  Contractor  is  required  to  drill   two
               wildcat wells and expend a minimum of $4 million.
          
          4.   Work  performed and expenditures incurred  in  any
               exploration   phase  in  excess  of  the   minimum
               requirements  for  such  phase  will  be  credited
               against   the   minimum   work   and   expenditure
               requirements for the next phase.
          
      The Development period for any field discovered during  the
Exploration  period  commences on the date  of  approval  by  the
Ministry of Energy of the development plan for an oil and/or  gas
field.  The Production period of any oil and/or gas field in  the
area  covered by the Contract ("Contract Area") shall be a period
of  15 consecutive years (each of 12 months) commencing, for each
field,  on  the date of commencement of commercial production  as
determined under the Contract.  Prior to the commencement of  the
Production period, during the Development period, oil and gas may
be produced and sold during a long term testing period.
          
      After  each  of  the  first two phases of  the  Exploration
period, two segments of the Contract Area (after deducting  areas
in   which  development  and  production  activities  are   being
undertaken) must be relinquished. The first relinquishment  which
was  to  occur  on May 1, 1996, has been extended for  one  year.
Segments  on  which no wildcat wells have been drilled  shall  be
relinquished  first.   At  the end  of  the  last  phase  of  the
Exploration  period, the remaining portions of the Contract  Area
(except  for  any  development  and  production  areas)  must  be
relinquished.
     
      The Contract may be terminated by the Foreign Contractor at
the  end of each phase of the Exploration period, without further
obligation.  Such a termination would require the concurrence  of
XCL.
     
      While  the Contract requires the Foreign Contractor to  pay
all exploration costs, CNODC has the option to participate for up
to  a  51  percent  interest  in the Development  and  Production
periods,  paying  its  corresponding  share  of  development  and
operating costs and receiving the same percentage of oil and  gas
production, subject to royalty payments, cost recovery and  other
adjustments as set forth below.
     
      Operating costs incurred after the date of commencement  of
commercial  production for any given calendar  year  for  an  oil
field  shall  be  recovered by the parties, in kind,  out  of  60
percent  of  the oil production from the field during such  year.
Unrecovered costs are carried forward to the next calendar  year.
Exploration costs in the Contract Area shall be recovered by  the
Foreign  Contractor,  in  kind, out of  60  percent  of  the  oil
production from the Contract Area remaining after the recovery of
operating costs and development costs for any field, plus  deemed
interest  at  9  percent, shall, after recoupment of  exploration
costs,  be  recovered in kind out of the production remaining  in
its  60  percent of the production from such field.  Natural  gas
shall be allocated in conformity with the general principles  for
crude  oil,  but  the  percentages of  the  allocation  shall  be
adjusted  in light of actual conditions so the Foreign Contractor
shall obtain a reasonable economic benefit.
     
     Annual gross production ("AGP") of each oil and gas field in
the  Contract  Area determined separately shall be  allocated  in
kind in the following sequence and proportions:
     
          1.   Five percent (5%) of AGP shall be used to pay  the
               Chinese taxes.
          
          2.   Determined on a field-by-field basis, the  Chinese
               government  shall receive a sliding scale  royalty
               calculated as follows (as amended by the  Ministry
               of  Finance  and State Taxation Bureaus  effective
               January 1, 1995):
          
               Metric Tons of Annual
               Crude  Oil  Production (1)           Royalty Rate
               ----------------------               ------------        
          
               Less than or equal to                    1,000,000
               Exempt
               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%
          ---------------
          (1)    One  metric ton is roughly equivalent  to  seven
               barrels of crude oil.
          
          3.   60  percent of AGP shall be deemed "cost  recovery
               oil"  and  shall be used to recover costs incurred
               by   the  parties,  first  for  the  recovery   of
               operating  costs,  and then for  the  recovery  of
               exploration   and  development  costs   (including
               deemed  interest),  in  that  order.   Such   cost
               recovery oil is not subject to the royalty due the
               Chinese government.
          
          4.   The  remaining  amount of AGP  after  recovery  of
               operating costs, exploration costs and development
               costs  (including deemed interest) shall be deemed
               "remainder oil" and shall be further divided  into
               "allocable remainder oil" and "Chinese share oil."
               "Allocable remainder oil" is calculated  for  each
               field  based upon a sliding scale formula relating
               to  the amount of production for a year from  such
               oil  field,  and  is  shared  by  the  parties  in
               proportion to their respective interests.  All oil
               remaining after the above allocations are effected
               is  designated "Chinese share oil"  and  shall  be
               allocated  to  CNODC  or other Chinese  government
               designee.
          
     The Contract is administered by a Joint Management Committee
comprised of an equal number of representatives designated by the
Foreign  Contractor and CNODC.  Disputes must first  be  resolved
through negotiation and then through arbitration (although  CNODC
may  have the right to seek resolution of the dispute in  Chinese
courts).   It  should also be noted that there is  no  waiver  of
sovereign  immunity  by  CNODC in any  proceedings  commenced  in
China.   If  the parties agree, arbitration will be conducted  by
the   China  International  Economic  and  Trade  Commission   in
accordance  with its provisional rules. In the event the  parties
fail  to agree on such arbitration, the dispute may be arbitrated
before  a panel of three arbitrators, one each appointed by  each
of  the parties and the third appointed by the two arbitrators so
designated  (or  failing  such appointment,  by  the  Arbitration
Institute  of  the  Stockholm Chamber of Commerce,  Sweden).  The
arbitration  panel  shall conduct the arbitration  in  accordance
with  the rules of the United Nations Commission on International
Trade Law of 1976 (subject to the rules expressly provided in the
Contract).  Any award shall be final and binding on the parties.
     
     The Production Sharing Agreement is governed by Chinese law.
     
     Apache Farmout
     --------------

      In  March 1994, by means of a participation agreement  (the
"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 the exploration and  development
of  the  Zhao  Dong  Block.   As required  by  the  Participation
Agreement,  in June 1994, Apache and the Company entered  into  a
Joint Operating Agreement (the "Operating Agreement") relative to
the  operations  on  the Zhao Dong Block. 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  percent  of  the   Foreign
Contractor's interest, obligated itself to pay 100 percent of the
costs  to  drill  and test four exploration wells  (the  "Carried
Wells")  and  assumed operatorship of the Zhao  Dong  Block.  The
drilling  and  testing of the C-3, D-1, D-2 and  F-1  wells  will
satisfy  the  four Carried Wells.  All of these wells  have  been
drilled  and  tested  with exception of the  F-1  well  which  is
presently  drilling under a turnkey contract.  Also  the  Company
waived certain payments due it under the Participation Agreement.
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  Zhao  Dong  Block.   In
addition,  Apache  obligated itself to  pay  the  Company  16.667
percent   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 order to  insure
that the Company will receive the full market value of the 16.667
percent interest.

     All future exploration expenditures in excess of the Carried
Wells  will  be borne 50 percent by each the Company and  Apache.
Under  the Operating Agreement, approval of a successor  operator
requires  the  vote of not less than 55 percent  of  the  Foreign
Contractor's  interest; if the operator reduces its participating
interest  to less than 25 percent, 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 had 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 Joint Management  Committee.
Each  year,  the Operating Committee must submit a proposed  work
program  and budget to the Joint Management Committee.  Operating
Committee  approval of this work program and budget requires  the
vote  of  not  less  than 55 percent of the Foreign  Contractor's
interest.   If  55  percent 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 percent  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  of
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 percent of the voting shares of Apache or XCL-China
by  the  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.

      On  April  10, 1997, the Company paid to Apache  $3,114,700
representing all amounts that the company believes are due Apache
for charges under the Joint Operating Agreement.  Apache invoices
total  $979,790  greater than the amount paid.  The  Company  has
disputed the additional amounts and has submitted the dispute  to
arbitration  as  provided for in the Joint  Operating  Agreement.
The Company is of the opinion, based upon discussions with senior
Apache personnel, that the dispute will be resolved to the mutual
satisfaction  of  both  parties  without  resorting   to   formal
arbitration procedures.

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 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 percent interest,  of  which
$900,000  has been paid. The Chinese side contributed an existing
lubricating oil blending plant in Langfang, China, with  a  China
government appraised value of $2.5 million as its investment  for
51  percent of the stock.  The registration of the joint  venture
was  approved by Chinese authorities on December 20, 1995, and  a
business  license was issued. The Company's remaining  obligation
of  $1.5  million will be satisfied by a series of  payments  the
next  of which is currently due and the last of which is due June
30,  1997.  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 kilometers  southeast  of
Beijing.   The facility is built on a 10-acre site and  has  been
appraised  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  2,200
metric tons of lube oil per year.  Approximately $1.5 million  of
the  Company's  investment  is to be 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
work  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
will  eventually  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
China National Administration of Coal Geology ("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 and, which may provide  the  basis
for  coalbed  methane development in other  areas  of  China.  On
December  14,  1995, the Company signed a Memo  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 CNAGC  will
extend  the  term of the agreement upon payment of  approximately
$67,000   currently  due  for  services  performed  and  expenses
incurred by CNAGC in connection with this project.

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 ("Cox
Field")  in  South Texas and is seeking to sell or joint  venture
its interest.

      The Cox Field, initially discovered in 1986, is located  in
Webb, Zapata and Jim Hogg Counties, Texas.  Present production is
associated  with numerous deltaic sands of Wilcox age which  were
expanded across a large growth fault system, resulting in a large
rollover  anticline.   The Company holds a 60%  to  100%  working
interest  in  1,265 acres in this field on which there  are  four
producing wells (2.43 net wells).  The Company's 1996 annual  net
sales  of natural gas from the Company's interest in these  wells
was  119,000 Mcf. The December 1996 price for gas sold from  such
properties was $3.15 per Mcf.  The Company will divest itself  of
these  properties  upon  the  resolution  of  certain  litigation
affecting  such  properties.   See "Item  3.  Legal  Proceedings"
below.

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

      The  Company  holds  a  62,500 acre  undeveloped  tract  of
Louisiana  fee property located in Ascension, St. James  and  St.
John   the   Baptist  Parishes  (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.


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

      Proved reserves attributable to the Company's interest  for
the Zhao Dong Block have been estimated as of January 1, 1997, to
be  10,579,000 barrels of oil and no natural gas.  All  of  these
reserves  are  classified  as  undeveloped  in  accordance   with
definitions promulgated by the Securities and Exchange Commission
(the "Commission").  The Company's remaining domestic oil and gas
properties  are  now  classified as assets held  for  sale.   See
"Certain Risk Factors Related to the Company and the Oil and  Gas
Industry  -  Reliance on Estimates of Proved Reserves and  Future
Net Revenues."


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

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

                                   Year Ended December 31,
                                   -----------------------
                                   1996      1995     1994
                                   ----      ----     ----
Net Production: (a)
   Gas (MMcf)...................    467      1,474    2,219
   Oil (MBbl)...................      9         19       32
   Gas equivalent (MMcfe).......    522      1,588    2,414

Oil and gas sales ($ in 000's)(b)
   Gas.......................... $  955    $ 1,953  $ 3,664
   Oil and other................    181        527      672
                                 ------     ------   ------
     Total oil and gas sales.... $1,136    $ 2,480  $ 4,336
                                  =====     ======   ======

Average sales price:
   Gas ($ per Mcf)..............   1.84       1.33     1.65
   Oil ($ per Bbl)..............  19.80      19.58    15.76
   Gas equivalent ($ per Mcfe)..   2.18       1.56     1.80

Oil and gas costs ($ per Mcfe):
   Production expenses and taxes   0.74       0.71     0.70

Depreciation, depletion and 
  amortization of oil and gas 
  properties....................   0.96       1.23     1.25
     ------------
     (a)  Excludes gas consumed in operations.
     (b)  Includes  plant products recovered from  treating  and
          processing operations.

      The  following table shows the 1996 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).

                                   1996 Net Production
                                   ------------------- 
                                   (MBbls)   (MMcf)
                                    -----     ----
Field                              Oil  %    Gas   %
-----                              --- --    ---  -- 
Cox Field.....................     -    -    467   100
Frenier Field.................     9   100     -     -

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

      The  oil and gas acreage in which the Company has leasehold
or other contractual interest at December 31, 1996, 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 Production Sharing Agreement.  "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,
                                         -----------------------
                                    1996           1995           1994
                                 -----------    -----------    -----------
United States                    Gross   Net    Gross   Net    Gross   Net
-------------                    -----   ---    -----   ---    -----   ---
Exploratory:
    Productive................     -      -        -     -       2    1.0375
    Nonproductive.............     -      -        -     -       -       -
                                 ---    ---      ---   ---     ---    ------
         Total................     -      -        -     -       2    1.0375

Development:
   Productive.................     -      -        1     .2      4    1.0731
   Nonproductive..............     -      -        -     -       -       -
                                 ---    ---      ---    ---    ---    ------
        Total.................     -      -        1     .2      4    1.0731

                                         Year Ended December 31,
                                         -----------------------
                                    1996           1995 (a)        1994
                                 -----------    -----------    -----------
The People's Republic of China   Gross   Net    Gross   Net    Gross   Net
------------------------------   -----   ---    -----   ---    -----   ----
Exploratory:
    Productive................     1      .5       2    1.0      2    1.333
    Nonproductive.............     -      -        1     .5      -       -
                                 ---     ---     ---    ---    ---    -----
         Total................     1      .5       3    1.5      2    1.333

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,  1996, 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.

      Substantially all of the Company's producing properties, as
well as the stock of its major subsidiaries, have been pledged to
collateralize   borrowings  under  its  Credit   Agreement   with
Internationale  Nederlanden (U.S.) Capital  Corporation  ("INCC")
and,  on a second mortgage basis, to the holders of the Company's
Secured  Subordinated  Debt Notes due  April  5,  2000  ("Secured
Subordinated Debt").

     Detailed title examinations have not been made on all of the
Company's undeveloped oil and gas leases.  As is customary in the
oil  and  gas  industry, only a perfunctory title examination  is
conducted  at  the  time undeveloped properties  believed  to  be
suitable  for  drilling operations are acquired,  and  therefore,
undeveloped  properties can be subject to various title  defects.
Generally,  however,  prior  to  the  commencement  of   domestic
drilling  operations, a thorough title examination  is  conducted
and any significant, known defects remedied before operations are
commenced.


Markets
-------

      Substantially all of the Company's 1996 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  Production
Sharing  Agreement, 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.

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.

  Additional Financing Required
  -----------------------------
  
       Considering   the   Company's  working  capital   deficit,
outstanding  indebtedness and the capital commitments  associated
with  its business activities in China, the Company projects that
it will require substantial additional capital. See "Management's
Discussion  and  Analysis of Financial Condition and  Results  of
Operations" and Note 2 to the Consolidated Financial Statements.

     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.


Developments in Relations between China and  the United States
--------------------------------------------------------------
                                
      Relations between China and the Republic of China on Taiwan
have been strained on prior occasions prompting the United States
government  to  publicly criticize China. In addition,  the  U.S.
government  has  also  criticized  China's  failure  to   protect
intellectual  property rights, its record with respect  to  human
rights matters and certain exports of military technology,  among
other  matters.   While the Company is unable to predict  whether
these  political developments will escalate tensions to the point
that  the  Company's  Chinese  operations  may  become  adversely
affected, the Company maintains excellent relations with  Chinese
governmental authorities in charge of the development of  China's
energy  resources  and current indications are that  neither  the
Chinese  nor  the U.S. government is desirous of impairing  U.S.-
Chinese commercial relations.

  Concentration of Operations
  ---------------------------

     The Company's oil and gas activities are concentrated in the
Zhao  Dong Block.  Because of this concentration, any event which
increases  costs, limits production, or limits deliverability  of
oil  or natural gas would impact the Company more adversely  than
if the Company were more geographically diversified.

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

      There  are  numerous uncertainties inherent  in  estimating
quantities of proved reserves and in projecting future  rates  of
production and the timing of development expenditures,  including
many  factors  beyond the control of the Company. The  historical
and  projected  reserve  data  included  in  this  Annual  Report
represent  only  estimates.   In  addition,  the  historical  and
projected  estimates of future net revenue from  proved  reserves
and  the present value thereof are based upon certain assumptions
about  future  production levels, prices and costs that  may  not
prove to be correct over time.  In particular, estimates of crude
oil  and  natural gas reserves, future net revenue from  provided
reserves  and the discounted present value thereof for the  crude
oil  and  natural gas properties described in this Annual  Report
are  based  on the assumption that the Zhao Dong is developed  in
accordance  with the Company's scheduled Development Program  and
that  future crude oil prices remain the same as crude oil prices
at  December 31, 1996, with respect to production attributable to
the  Company's  existing interest in the Zhao  Dong  Block.   The
Development Program as proposed by the Company has not  yet  been
approved  by  CNODC  or Apache and is subject to  refinement  and
revision.  Accordingly, the costs and timing of development could
vary  from the Development Program that the Company has proposed.
However,   based  on  its  discussions  with  Apache  and   their
engineering  consultants,  as well  as  the  history  of  Chinese
approval  of  recommendations  by Apache  and  the  Company,  the
Company believes that its current proposed Development Program is
a  reasonable basis for its projections.  The average sales price
as  of  such dates used for purposes of such estimate were $21.06
per  Bbl of crude oil with respect to the Company's interests  in
the Zhao Dong Block.  Also assumed is the Company's making future
capital  expenditures  of  approximately  $41  million   in   the
aggregate, necessary to develop and realize the value  of  proved
undeveloped  reserves  on the Zhao Dong Block.   Any  significant
variance  in  these  assumptions  could  materially  affect   the
estimated quantity and value of reserves set forth herein.

     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 reserves.  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.
  
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.
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.

Premises
--------

      On  March  31,  1997, the Company sold its office  building
located  at  110  Rue  Jean  Lafitte, Lafayette,  Louisiana,  for
$900,000.  The Company on the same day, entered into a lease with
the  purchaser for one floor of the two story building for a term
of  22  months  with an option to extend for an additional  eight
month period.  The outstanding balance of the underlying mortgage
as  of  December 31, 1996 was $652,000, which was repaid in  full
upon the sale of the building.


Item 3.   Legal Proceedings.
----------------------------

      In  October 1991, lessors under two leases dated  July  20,
1982,  and  February 1, 1985, which were subsequently  pooled  to
form  the  R. Gonzalez No. 1 Gas Unit covering 526 acres  in  the
Berry R. Cox Field, filed suit against the Company and others who
hold  or previously held working interests in the Gas Unit in  an
action  entitled The Elia G. Gonzalez Mineral Trust,  et  al.  v.
Edwin  L.  Cox,  et  al. (341st Judicial District,  Webb  County,
Texas,  Docket No. C-91-747-D3). The suit alleged non-performance
under  certain express and implied terms of the leases, including
an  allegation that the defendants failed to protect  the  leases
against  drainage  from wells on adjacent tracts  and  failed  to
properly pay royalties, and seeking an accounting of revenues and
expenses,  damages and attorney's fees.  The Court  ordered  that
the  parties subject the dispute to non-binding mediation.  As  a
result  of the mediation, the parties agreed to an amount  for  a
settlement  payment  and to the terms of a  settlement  agreement
dispensing  with  all  issues  and  dismissing  the  suit.    The
Company's  share of the settlement payment amounted to  $750,000.
The  parties executed and consummated the settlement on  December
31, 1993.

      Two  groups filed interventions in this matter on March  5,
1993  and  March  15, 1993. The first group are  nonparticipating
royalty  owners claiming under the same group of  leases  as  the
original  plaintiffs.   The  second group  sued  under  different
leases.    The   interventions  were  opposed  by  the   original
plaintiffs and all defendants. After hearing arguments, the court
ordered the interventions stricken on July 14, 1993. During 1994,
the  first  group  appealed  and the second  group  filed  a  new
lawsuit. The Company settled the new lawsuit filed by the  second
group  with  its  share of the settlement being  $20,000.  During
December  1994,  the appellate court affirmed the  trial  court's
decision  to  deny  the  intervention to  the  first  group.  The
Company,  in March 1995, was named as a third party defendant  by
the   original  lessor  who  had  been  previously  sued  by  the
nonparticipating  royalty  owners  comprising  the  first  group.
Management believes that the outcome of the lawsuit will not have
a  material adverse effect on the Company's financial position or
results  of  operations. The Company intends to defend diligently
all claims asserted by the first group in its lawsuit.

      During  December 1993, the Company and two of  its  wholly-
owned  subsidiaries, XCL-Texas, Inc. and XCL  Acquisitions,  Inc.
were  sued  in  separate  law  suits  entitled  Ralph  Slaughter,
Secretary  of  the Department of Revenue and Taxation,  State  of
Louisiana  vs.  Exploration  Company  of  Louisiana,  Inc.  (15th
Judicial District, Parish of Lafayette, Louisiana, Docket No. 93-
5449);  Ralph Slaughter, Secretary of the Department  of  Revenue
and  Taxation,  State  of  Louisiana vs. XCL-Texas,  Incorporated
(15th  Judicial District, Parish of Lafayette, Louisiana,  Docket
No.  93-5450);  and Ralph Slaughter, Secretary of  Department  of
Revenue  and  Taxation, State of Louisiana vs. XCL  Acquisitions,
Inc.  (15th  Judicial  District, Parish of Lafayette,  Louisiana,
Docket  No.  93-5337) by the Louisiana Department of Revenue  for
Louisiana State corporate franchise and income taxes.  The claims
relate  to  assessments for the 1987 through 1991  fiscal  years.
The  aggregate amount of the assessments, including penalties and
interest,  is  approximately $2.5 million.  The Company  believes
that  these assessments have been adequately provided for in  the
consolidated financial statements.  The lawsuits are all in their
initial  stages. The Company has filed answers to each  of  these
suits  and  intends  to  defend  them  vigorously.   The  Company
believes that it has meritorious defenses and has instructed  its
counsel to contest these claims.

      During  April  1994,  the Company was  sued  in  an  action
entitled  Kathy  M.  McIlhenny vs.  The  Exploration  Company  of
Louisiana,  Inc.  (15th  Judicial  District  Court,   Parish   of
Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny, former
wife of a former director of the Company, has asserted a claim in
the  aggregate  amount of approximately $500,000  in  respect  of
compensation for certain services alleged to have been  performed
on  behalf  of the Company and under an alleged verbal employment
agreement  and,  by  amendment, asserted  a  claim  for  payments
arising  from purported rights to mineral interests. The  Company
believes  that all such claims are without merit and rejects  the
existence  of  any  such  alleged agreement.  Recently  concluded
negotiations  have resulted in a settlement of all  claims  which
will result in an exchange of mutual releases.

       On   December  1,  1995,  the  Company  submitted  certain
accounting   disputes  to  arbitration  arising   from   Apache's
operations  at  the Zhao Dong Block.  In the initial  submission,
the  Company disputed certain amounts charged to the  Company  by
Apache  in the August, September and October 1995 joint  interest
billings and the November and December 1995 cash calls.   Amounts
involved in later months' joint interest billings and cash  calls
were  subsequently added to the submission.   On April 10,  1997,
the  Company  paid to Apache $3,114,700 representing all  amounts
that  the  Company believes are due Apache for charges under  the
Joint   Operating  Agreement.   Apache  invoices  total  $979,790
greater  than  the amount paid and the Company has  disputed  the
additional amounts and such amounts are the subject of the above-
referenced  arbitration.  The Company is of  the  opinion,  based
upon  discussions with senior Apache personnel, that the  dispute
will  be  resolved  to the mutual satisfaction  of  both  parties
without resorting to formal arbitration procedures.

      On  July  26, 1996, Mr. Frank Armstrong of Corpus  Christi,
Texas,  individually and on behalf of others  (the  "Plaintiffs")
filed  three  lawsuits  against XCL-Texas, Inc.,  a  wholly-owned
subsidiary of the Company.

     The first lawsuit entitled Stroman Ranch Company Ltd., et al
v.  XCL-Texas,  Inc. (229th Judicial District, Jim  Hogg  County,
Texas,  Cause  No.  4550) alleges that in order  to  secure  from
Plaintiffs an amendment to an oil and gas lease in order to allow
for  the  creation  of  a  voluntary  pooled  unit,  the  Company
represented to the Plaintiffs, that it (1) would make a series of
payments totaling $80,000 and (2) would commence drilling a  well
prior  to  December  31,  1993, or  pay  $500,000  as  liquidated
damages.  Further,  the Plaintiffs allege that  the  Company  has
supplied  false and misleading information to them  in  order  to
deprive  them of their rightful share of an oil, gas and  mineral
estate and revenue therefrom; that being a 50 percent interest in
the  pooled  unit  rather than the 30 percent  interest  actually
received.  Plaintiffs  allege actual  damages  of  $580,000,  any
additional amounts to result from an accounting of the amount  of
damages  suffered  by  the Plaintiffs, exemplary  damages,  court
costs and interest.  The Company denies liability and expects not
only  to  enter  affirmative defenses but to  counter  claim  for
damages to the Company caused by the actions of the Plaintiffs.

      The  second lawsuit entitled Frank Armstrong, et al v. XCL-
Texas,  Inc.  (229th Judicial District, Jim Hogg  County,  Texas,
Cause  No.  4551)  alleges that the Company  did  not  adequately
represent the interests of the Plaintiffs before a Texas Railroad
Commission hearing, therefore, the Plaintiffs incurred legal  and
related   expenses   totaling  $56,473  for   which   they   seek
reimbursement.   The  Company denies  liability  and  intends  to
vigorously defend itself.

     The third lawsuit entitled Stroman Ranch Company Ltd., et al
v.  XCL-Texas,  Inc. (229th Judicial District, Jim  Hogg  County,
Texas,  Cause  No. 4552) alleges that, with respect  to  a  lease
executed  in  1938 and assigned to the Company by  Edwin  L.  and
Berry  R.  Cox  (the  "Cox Group"), ceased  producing  in  paying
quantities  prior  to November 11, 1987 and therefore  should  be
declared  terminated. In the alternative, the Plaintiffs  seek  a
declaratory  judgment that the Cox Group engaged  in  bad  faith,
invalid and wrongful pooling of the 1938 lease with another lease
executed in 1985. Further, the Plaintiffs seek damages in  excess
of  $1  million to effect environmental restoration arising  from
damage  caused  by  the  Company's operation  of  the  leases  in
question.  Finally, Plaintiffs seek an accounting and the damages
determined  from such accounting, of all oil and  gas  production
and  revenues  from the sale of the same under  the  1938  lease,
attorneys fees and court costs.  The Company believes the  claims
made  in this lawsuit are without merit and intends to vigorously
defend itself.

      In  response  to the request by the lessors'  counsel,  the
Company  has granted the lessors an extension of time to  respond
to discovery demands made by the Company to allow sufficient time
to  pursue  settlement of this litigation.  The Company  believes
that  any such settlement will not have a material adverse effect
on the Company.

      Other  than disclosed above, there are no material  pending
legal proceedings to which the Company or any of its subsidiaries
is a party or to which any of their properties are subject.

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

     No matters were submitted to a vote of holders of the Common
Stock  during  the fourth quarter of the fiscal year  covered  by
this report.
                                
                             PART II
                             -------
                                
Item  5.    Market for Registrant's Common Equity and Related
-------------------------------------------------------------
            Stockholder Matters
            -------------------

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

      The  following table shows the range of closing bid prices,
as  reported  by  the American Stock Exchange for  the  Company's
Common Stock for each quarter during 1995 and 1996. The Company's
Common  Stock  commenced trading on the American  Stock  Exchange
("AMEX")  in December 1990, under the symbol "XCL." The Company's
Common  Stock  also trades on The London Stock  Exchange  Limited
("London Stock Exchange").
                                
                             Common Stock Price Per Share
                             ----------------------------
                                 1996          1995
                                 ----          ----
                             High   Low    High   Low
                             ----   ---    ----   ---
     First Quarter......... $0.44   $0.19  $1.06  $0.50
     Second Quarter........ $0.50   $0.19  $1.06  $0.50
     Third Quarter......... $0.38   $0.13  $0.88  $0.56
     Fourth Quarter........ $0.25   $0.13  $0.63  $0.31

      On  March  31,  1997, the closing price for  the  Company's
Common Stock on the AMEX was $0.25.

      As  of March 31, 1997, the Company had approximately  4,000
shareholders of record with respect to its Common Stock.

      As  of March 31, 1997, there were reserved an aggregate  of
(i)  14,875,334  shares  of Common Stock subject  to  outstanding
options; (ii) 17,383,044 shares issuable upon conversion  of  the
Company's  outstanding Series A Preferred Stock; (iii) 41,202,263
shares  issuable  upon  exercise  of  the  Company's  outstanding
warrants; (iv) 14,940,244 shares issuable upon redemption of  the
Company's  outstanding Series B Preferred Stock;  (v)  16,000,000
shares  issuable  upon  conversion of the  Company's  outstanding
Series  E  Preferred Stock; (vi) 16,000,000 shares issuable  upon
conversion of the Company's outstanding Series F Preferred Stock;
(vii) 23,200,000 shares reserved for sale to fund working capital
for  the Company's China projects; (viii) 9,164,640 reserved  for
sale to fund general working capital requirements of the Company;
and   (ix)   12,341,546  shares  issuable  in   connection   with
contractual obligations.

      The  Registrar and U.S. Transfer Agent for the Common Stock
is  ChaseMellon  Shareholder  Services,  L.L.C.  with  a  mailing
address of Overpeck Centre, 85 Challenger Road, Ridgefield  Park,
New  Jersey  07660 (telephone 1-800-851-9677), and the  name  and
address  of  the  Company's U.K. transfer  agent  is  Independent
Registrars  Group  Limited,  Balfour House,  390/398  High  Road,
Ilford, Essex IG1 1NQ, England (telephone 181-478-8241).

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

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

     1997
     ----

o On  April 10, 1997, in connection with obtaining a loan for
  XCL-China Ltd. of $2.9 million, the Company granted an aggregate
  of  9,441,743  warrants to a group of four limited partnerships
  managed  by Kayne Anderson Investment Management, Inc. ("KAIM")
  (6,186,020); J. Edgar Monroe Foundation (325,580); Estate of J.
  Edgar  Monroe  (976,740);  Boland  Machine  &  Mfg.  Co.,  Inc.
  (325,580);  and Construction Specialists, Inc. d/b/a  Con-Spec,
  Inc.  (1,627,900), entitling such lenders the right to  acquire
  9,441,743 shares of Common Stock at $0.01 per share, exercisable
  on  or before April 9, 2002.  The warrant agreements include  a
  provision that should the Company not have a sufficient number of
  shares of Common Stock reserved at the time of exercise of  the
  warrants,  the  warrants are exercisable into a new  series  of
  preferred stock which will be created by May 10, 1997, and  the
  shares of which will be reserved for exercise of such warrants.
  All  proceeds  of  this financing were applied  to  reduce  the
  Company's indebtedness to Apache incurred in connection with Zhao
  Dong Block operations.

o On  January 9, 1997, the Company accepted subscriptions for
  an aggregate of 21,057 shares of Series F Preferred Stock, issued
  in  February to Mitch Leigh (18,448 shares); Abby Leigh  (1,731
  shares) and Arthur Rosenbloom (878 shares) at $65.00/share,  in
  exchange  for  $225,000 in cash, cancellation of  a  consulting
  agreement between the Company and Mitch Leigh, surrender by Mitch
  Leigh of Common Stock and Warrants issued in connection with the
  consulting agreement, surrender by Mitch Leigh and Abby Leigh of
  rights to acquire units of registered Common Stock and Warrants,
  surrender  of  certain registration rights  covering  3,000,000
  shares; and surrender by Arthur Rosenbloom 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.

o On  January  2,  1997, the Company issued 2,328  shares  of
  Series E Preferred Stock to the holders thereof in lieu of a cash
  dividend totaling $232,002 payable December 31, 1996, calculated
  pursuant  to the terms of the Series E Preferred  Stock.    The
  Series E Preferred Stock has a face value of $100/share.

     1996
     ----

o On  November  12,  the Company issued 5,330,594  shares  of
  Common  Stock  to four limited partnerships and four  insurance
  companies  whose  investments are managed by  KAIM;  Cumberland
  Associates; Mr. Terry Dornbush (collectively hereinafter referred
  to  as the "U.S. holders of the Secured Subordinated Debt")  in
  lieu of a cash interest payment due October 1, 1996 and penalty
  interest  through  November  12,  1996  totaling  approximately
  $905,000 at $0.2117/share pursuant to the terms of the Notes.

o On  October  30, the Company issued 1,500,000  warrants  to
  purchase Common Stock to Arthur Rosenbloom in lieu of $15,000 in
  cash compensation for past fundraising activities.  The warrant
  is exercisable at $0.25 per share on or before July 30, 2001.

o On  October 30, the Company issued 33,125 shares of  Common
  Stock and warrants to purchase an additional 33, 125 shares  of
  Common Stock to Mr. A. Rosenbloom issued in lieu of $14,326 cash
  compensation.  The shares of Common Stock and the warrants were
  subsequently  returned  to the Company by  the  receipient  for
  personal business reasons.

o On October 30, the Company issued 1,325,000 shares of Common
  Stock and warrants to purchase an additional 2,466,875 shares of
  Common Stock to Mr. Mitch Leigh in lieu of approximately $580,000
  in cash compensation under a consulting agreement dated July 10,
  1996.   In  February  1997, effective October  1996  Mr.  Leigh
  canceled  the  consulting  agreement  and  returned  the  above
  referenced shares of Common Stock and warrants to the Company.

o On  July  24, the Company issued 2,218 shares of  Series  E
  Preferred Stock to the holders thereof in lieu of a cash dividend
  totaling $222,180 payable June 30, 1996, calculated pursuant to
  the  terms  of  the Series E Preferred Stock.    The  Series  E
  Preferred Stock has a face value of $100/share.

o On  May  16, the Company issued 3,776,285 shares of  Common
  Stock  to the U.S. holders of the Secured Subordinated Debt  in
  lieu  of  cash interest payment due April 1, 1996  and  penalty
  interest through May 5, 1996 totaling approximately $901,000 at
  $0.2979/share pursuant to the terms of the Secured Subordinated
  Debt.

o On  May 16 and February 9, the Company issued 72,880 shares
  and  317,264  shares, respectively, of Common  Stock  to  EnCap
  Investments L.C. representing fees of 4% ($22,775 and  $99,145,
  respectively)  earned in connection with a  Regulation  S  unit
  offering conducted through Rauscher Pierce & Clark.  The fee was
  based on the offering price of $0.3125/share.

o On  February 9, the Company issued 50,000 shares of  Common
  Stock  to EnCap Investments L.C. in payment of a fee earned  in
  connection  with  the acquisition by Apache  for  an  increased
  interest in the Zhao Dong Block.

o On February 9, the Company sold from Treasury Stock 416,667
  units, each unit consisting of one share of Common Stock and one
  warrant to purchase Common Stock, to Longhorn Partners, at a unit
  price of $0.30/unit.  The warrants are exercisable on or before
  December 28, 2000 at an exercise price of $0.50 per share.

o On  January  9, the Company issued 307 shares of  Series  E
  Preferred  Stock  in  lieu of cash dividends  of  approximately
  $31,000 payable December 31, 1996.  The Series E Preferred Stock
  has a face value of $100/share.

o On January 5, the Company issued 1,754,133 shares of Common
  Stock  to the U.S. holders of the Secured Subordinated Debt  in
  lieu of a cash interest payment due October 1, 1995, and penalty
  interest through January 5, 1996 totaling approximately $928,000
  at $0.6563/share, pursuant to the terms of the Secured Notes.

o On  January  3, the Company sold 4,334 shares of  Series  E
  Preferred Stock to several Kayne Anderson Investment Management,
  Inc.  managed accounts, for $65/share of which one-half of  the
  purchase price was paid in cash and one-half in Common Stock of
  the Company. The Company received cash payments totaling $140,831
  and 281,758 shares of unregistered Common Stock.

  1995
  ----
o On  December 29, the Company sold 7,774 shares of Series  E
  Preferred  Stock to the J. Edgar Monroe Foundation for  a  cash
  payment of $505,343.

o On  December 29, the Company sold 2,080 shares of Series  E
  Preferred  Stock to two clients of Constitution Management  for
  cash totaling $96,250 and 171,500 shares of Common Stock.   One
  client paid for 1,780 shares of Series E Preferred Stock with one-
  half cash and one-half Common Stock while the second client paid
  for 120 shares in cash.

o On December 18, the Company sold 11,741 shares of Series  E
  Preferred Stock to several Kayne Anderson managed accounts, for
  $65/share of which one-half of the purchase price was  paid  in
  cash  and one-half in Common Stock of the Company.  The Company
  received cash payments totaling $400,834 and 724,703 shares  of
  Common Stock.

o On  December  6,  the Company sold to John  Chandler,  from
  shares of Common Stock reserved for payment to Mr. William Wang,
  186,896 shares of Common Stock at $0.35/share.  The proceeds of
  $65,414  were  applied in reduction of  a  receivable  due  the
  Company from Mr. Wang.

o During November 1 to 14, the Company sold 18,200 shares  of
  Series  E  Preferred  Stock to several Kayne  Anderson  managed
  accounts, for $65/share of which one-half of the purchase price
  was  paid  in cash and one-half in Common Stock of the Company.
  The  Company  received  cash  payments  totaling  $767,625  and
  1,618,035 shares of unregistered  Common Stock.

o On September 21, the Company issued 50,000 shares of Common
  Stock  and 100,000 warrants to purchase Common Stock to  Arthur
  Rosenbloom in lieu of $22,125 of cash compensation for  placing
  3,000,000  units  (described below).   In  February  1997,  Mr.
  Rosenbloom  returned these securities with the  value  of  such
  securities applied to Mr. Rosenbloom's subscription for Series F
  Preferred Stock issued in February 1997.

o On  September 21, the Company sold 75,000 units, each  unit
  comprised of one share of Common Stock and warrants to purchase
  Common Stock to Arthur Rosenbloom for a purchase price of $32,438
  at $0.4325/unit.  Mr. Rosenbloom exchanged these securities with
  the  value  of  such  securities  applied to  Mr.  Rosenbloom's
  subscription  for Series F Preferred Stock issued  in  February
  1997.

o On September 21, the Company sold 3,000,000 units, each unit
  comprised of one share of Common Stock and warrants to purchase
  Common Stock to Mitch Leigh for a purchase price of $1,297,500 at
  $0.4325/unit.   Mr. Leigh exchanged these securities  with  the
  value of such securities applied to Mr. Leigh's subscription for
  Series F Preferred Stock issued in February 1997.

o On  August  18, by agreement dated June 26, 1995  with  the
  three  largest  U.S. holders of the Series  A  Preferred  Stock
  (limited partnerships and insurance companies whose investments
  are managed by Kayne Anderson Investment Management; Cumberland
  Associates managed accounts; and T. Rowe Price & Associates) the
  Company issued an aggregate of 1,720,677 shares of Common Stock
  in  lieu  of cash dividends totaling $1,301,355 ($0.7563/share)
  payable June 31, 1995, and an aggregate of 2,546,184 shares  of
  Common  Stock  in  lieu of cash dividends  totaling  $1,273,098
  ($0.50/share) payable December 31, 1994

o On  June 16, the Company issued to the U.S. holders of  the
  Secured  Subordinated Debt an aggregate of 1,394,511 shares  of
  Common  Stock in lieu of cash interest due April  1,  1995  and
  penalty  interest through June 20, 1996 totaling  approximately
  $913,282 at $0.8146/share, calculated pursuant to the terms  of
  the Secured Notes.

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

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

     Under the terms of the Company's Credit Agreement with INCC,
the  Company  is restricted from paying dividends on  its  Common
Stock  (other  than with securities) without the consent  of  the
bank.


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

      The  following table sets forth selected financial data  of
the  Company  for and at the end of each of the five years  ended
December  31, 1996. The following table should also  be  read  in
conjunction   with  Management's  Discussion  and   Analysis   of
Financial Condition and Results of Operations of the Company  set
forth   in  Item  7  and  the  Company's  consolidated  financial
statements and notes  set forth in Item 8.
                                
        (Expressed in Thousands Except Per Share Amounts)
                                
<TABLE>
                                                            Year Ended December 31
                                               -----------------------------------------------------  
                                               1996(a)    1995(b)    1994(c)     1993 (d)    1992(e)
                                               -------   --------    -------     --------    --------
<S>                                           <C>        <C>        <C>         <C>         <C>
Results of Operations:
     Oil and gas revenues.................... $  1,136   $  2,480   $  4,336    $  8,499    $  10,551
     Loss before extraordinary item.......... $(12,074)  $(87,837)  $(34,880)   $(15,197)   $(23,983)
     Net loss ............................... $(12,074)  $(87,837)  $(36,622)   $(15,197)   $(23,983)
     Net loss attributable to common stock... $(17,430)  $(92,658)  $(41,529)   $(19,978)   $(29,221)
     Net loss per common and
       common  equivalent share.............. $   (.07)  $   (.38)  $   (.21)   $   (.17)   $   (.28)
     Weighted average common shares
       outstanding...........................  265,573    240,707    198,303      118,996    103,543

Balance Sheet Data:
     Total assets............................ $ 60,864   $ 72,336   $149,803    $157,377    $148,533
     Long-term debt, net..................... $  - (g)   $ 15,644   $ 41,607(f) $ 53,965(f) $  44,195
     Total shareholders' equity.............. $ 11,041   $ 16,900   $ 95,200    $ 84,609    $   87,336
</TABLE>
-------------
(a)  Includes  provision for impairment of oil and gas properties
     held  for sale of $3.85 million and a $2.4 million writedown
     and  a  $0.7  million  loss on the  sale  of  the  Company's
     investments.
(b)  Includes  provision for impairment of oil and gas properties
     of   $75.3  million  and  writedown  of  other  assets   and
     investments of $4.5 million.
(c)  Includes  provision for impairment of oil and gas properties
     of  $25.9  million  and provision for  write-down  of  other
     assets  of  $2.2 million and an extraordinary loss  of  $1.7
     million.
(d)  Includes  provision for impairment of oil and gas properties
     of $8 million.
(e)  Includes  gain  on  sale of investment of $2.2  million  and
     provision for impairment of oil and gas properties of  $22.4
     million.
(f)  Includes limited recourse debt of an aggregate $0.7  million
     and   $3.7  million  as  of  December  31,  1994  and  1993,
     respectively,   owed   by  the  Lutcher   Moore   Group   of
     subsidiaries.
(g)  All   of  the  Company's  debt  ($38.02  million)  has  been
     classified as currently due at December 31, 1996.

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

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

     Outlook
     -------

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

     This report contains "forward-looking statements" within the
meaning  of  the  federal securities laws.  These forward-looking
statements  include,  among  others,  statements  concerning  the
Company's outlook for 1997 and beyond, the Company's expectations
as  to  funding its capital expenditures and other statements  of
expectations,  beliefs, future plans and strategies,  anticipated
events or trends, and similar expressions concerning matters that
are not historical facts.  The forward-looking statements in this
report  are  subject to risks and uncertainties that could  cause
actual  results to differ materially from those expressed  in  or
implied by the statements.
                                
Liquidity and Management's Plans
--------------------------------

      At  December  31, 1996, the Company had an  operating  cash
balance  of  $113,000  and  a working capital  deficit  of  $46.7
million, which includes $17.3 million in bank debt, $15.0 million
of  Subordinated  Debt,  $5.1 million in  limited  recourse  debt
collateralized only by the Lutcher Moore Tract and  $0.7  million
in  institutional  debt  secured  by  a  first  mortgage  on  the
Company's office building.  The office building was sold on March
31, 1997 and the mortgage repaid in full.

      The  Company has incurred losses in each of its  last  five
fiscal  years and anticipates it will continue to do so in fiscal
1997  and  1998 because production from the Zhao Dong Block  will
not  commence until late 1998.  As of April 15, 1997 the  Company
is  in  the process of offering for sale Units of Senior  Secured
Discount  Notes  due  2007  (face amount  $70  million,  net  $56
million)  and  Common Stock Purchase Warrants  (the  "Offering").
Concurrently  with  the  Offering, the Company  is  offering  $25
million  of  units comprised of preferred stock and  warrants  to
acquire  Common  Stock.   Closing  of  both  the  offerings   are
contingent  on  each  other.  The successful  completion  of  the
Offering, subsequent release of such funds from a cash collateral
account,  and  the sale of domestic properties  will  enable  the
Company  to  meet  all of its obligations including  (1)  certain
exploration  costs and the Phase I Development Program  costs  of
the  Zhao Dong Block, (2) repayment of outstanding debt  and  (3)
payment  of  all  other current liabilities.  In the  event  such
Offering  is not successful the Company believes other  means  of
obtaining  working capital are available based on  the  estimated
future  nondiscounted net cash flow of $143 million ($80  million
discounted)  from  proved  China reserves,  as  reported  in  the
independent engineering report of H.J. Gruy and Associates,  Inc.
The form and timing of these alternatives are not determinable at
this  time and there can be no assurance they will occur and,  if
they   do  occur,  would  not  significantly  reduce  the  future
potential  revenue from the Company's share of oil revenues.   In
addition,  the  Company's  efforts to secure  additional  working
capital  will  be impaired if  its Common Stock is delisted  from
the AMEX.  See Note 11.

       Longer  term  liquidity  is  dependent  on  the  Company's
commencement  of  production in China  and  continued  access  to
capital  markets, including its ability to issue additional  debt
and  equity  securities, which in certain cases may  require  the
consent  of  the  Noteholders and holders of the Preferred  Stock
should the Offering be successfully completed, or the consent  of
INCC, the holders of the Company's Secured Subordinated Debt  and
the  holders  of  Preferred Stock should it not.  By  shareholder
vote  on July 30, 1996, the shareholders approved an increase  of
150,000,000  authorized  shares of  Common  Stock  and  1,200,000
authorized shares of Preferred Stock.

     The Company's Series A Preferred Stock dividend requirements
are  approximately  2.6  million pounds  sterling  (U.K.)  ($4.45
million) annually and currently insufficient liquidity exists  to
continue  to pay such amounts. The Company declared the Series  A
Preferred Stock dividend payable June 30, 1995. A portion of this
dividend  was  paid with shares of Common Stock and approximately
$900,000 remains to be paid in cash. As the Company was unable to
pay  this dividend by June 30, 1996, the holders of the Series  A
Preferred  Stock can now demand Board of Director representation.
The  December 31, 1995 dividend payment on the Series A Preferred
Stock  was  declared  payable in additional shares  of  Series  A
Preferred  Stock  and in March 1997, 63,595 shares  of  Series  A
Preferred  Stock were issued. The Board of Directors elected  not
to  declare the dividends payable June 30, 1996 and December  31,
1996.

      The  Company was, to April 10, 1997, in default under terms
of  its  Credit  Facility with INCC and its Secured  Subordinated
Debt.  On  April  10, 1997,  INCC agreed to forebear  taking  any
action pending the completion of the Offering and release of such
funds  from  a  cash collateral account.  The proceeds  from  the
Offering are expected to be used to repay such debt.  Forbearance
has been granted until May 31, 1997 when the Offering is expected
to be completed. The Offering proceeds are then to be placed in a
cash  collateral  account and the Forbearance Agreement  extended
until  September  30, 1997. The date of September  30,  1997  was
selected  because  this is the anticipated date  when  the  Joint
Management  Committee  of  the Zhao Dong  Block  is  expected  to
approve  the development plan for the C-D Field of the Zhao  Dong
Block.   Because  both  the  INCC  Credit  Facility  and  Secured
Subordinated  Debt are to be repaid from the Offering,  each  has
been classified as currently due.

     By agreement with Apache effective December 13, 1996, the D-
2  well  which  the Company spudded in November  1996,  has  been
substituted  for Apache's obligation to carry the  Company  on  a
fourth  exploration  well.  On April 10,  1997,  the  amount  due
Apache was further reduced by a payment of $3.1 million leaving a
balance due of approximately $979,790, which amount is in dispute
and is presently in arbitration.  The Company raised  the  $3.1  
million through  the placement of promissory notes of XCL-China Ltd.  
and warrants  to acquire Common Stock of the Company with a group  
of institutional  and accredited investors who are  currently  major
shareholders  in the Company.

      In  addition to capital commitments to fund the  Zhao  Dong
Block  development (estimated to be $63,589,000 to fully  develop
the  C-D  Field),  the Company has capital requirements  for  its
lubricating oil and coalbed methane projects.

       As  a  result  of  the  substantial  capital  requirements
described   above,  the  report  of  the  Company's   independent
accountants  contains  an  explanatory  paragraph  regarding  the
ability of the Company to continue as a going concern.

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

      The  Company  believes that inflation has had  no  material
impact  on  the  Company's sales, revenues or income  during  the
reporting  periods.  Drilling costs and costs  of  other  related
services during the relevant periods have remained stable.

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

Results of Operations
---------------------
                                
      1996 compared to 1995
      ---------------------

      The  Company reported a net loss for 1996 of $12.1  million
before  preferred dividends of $5.4 million or a total  of  $0.07
per share compared to a net loss for 1995 of $87.8 million before
preferred  dividends of $4.8 million or $.38 per share.  The  net
loss  for  1996 includes a $3.85 million noncash charge  for  the
provision  of  impairment  of domestic oil  and  gas  properties,
classified  as  assets  held for sale.  The  loss  in  1996  also
reflects  a $2.4 million writedown and $0.7 million loss  on  the
sale of the Company's investments.

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

      Earnings per common share are based on the weighted average
number   of  shares  of  common  and  common  equivalent   shares
outstanding  for 1996 of 265,573,020 compared to 240,707,015  for
1995.  The increase in the weighted average number of common  and
common  equivalent shares outstanding for 1996 primarily  related
to  the sale of approximately 3.8 million shares of Common  Stock
in   Regulation  S  unit  offerings  in  March  and  April  1996,
approximately 2.8 million units in a private placement  concluded
in  September  1996, approximately 1.5 million shares  of  Common
Stock  issued  in a private placement concluded in October  1996,
approximately  1.4  million  shares of  Common  Stock  issued  as
consideration  for  a  consulting  agreement,  approximately  5.5
million  shares  of  Common Stock issued in respect  of  warrants
exercised  in  November and December 1996 and approximately  12.8
million  shares of Common Stock issued in payment of interest  on
the  Secured  Subordinated Debt Notes, all as set  forth  in  the
Consolidated Statements of Shareholders' Equity.  See Notes 6 and
7 to the Consolidated Financial Statements.

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

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

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

     The Company does not anticipate significant increases in its
oil  and  gas production in the short term and expects  to  incur
annual  operating  losses until such time as sufficient  revenues
from  the  China  projects are realized  which  exceed  operating
costs.

     1995 compared to 1994
     ---------------------
                                
      The  Company reported a net loss for 1995 of $87.8  million
before preferred dividends of $4.8 million or a total of $.38 per
share  compared  to a net loss for 1994 of $36.6  million  before
preferred  dividends of $4.9 million or $.21 per share.  The  net
loss  for  1995 includes a $75.3 million noncash charge  for  the
provision  of impairment of domestic oil and gas properties.  The
carrying  amounts  of  the  Company's properties  in  Texas  were
written  down  by $16.5 million during 1995, in order  to  comply
with  the  ceiling  limitation prescribed by the  Securities  and
Exchange Commission ("SEC") principally due to downward revisions
in  estimated reserves in the second quarter and reduced  present
values   of   reserves  attributable  to  delays   in   scheduled
development  drilling  in the third quarter.  During  the  fourth
quarter, to reflect the expected results of its announced program
to  divest itself of its U.S. oil and gas properties in order  to
focus its activities in China, the Company recorded an additional
$58.8 million noncash write-down to reduce the recorded value  of
its  domestic  oil  and  gas properties to their  estimated  fair
market  value. The loss in 1995 also reflects the  effects  of  a
$4.5  million  write-down  of  the  Company's  other  assets  and
investments.

      The  net  loss  for 1994 includes a $25.9  million  noncash
charge for the provision for impairment of oil and gas properties
as a result of the ceiling limitation.

      Earnings in 1994 also reflect the effects of a $1.7 million
valuation reserve for the Lutcher Moore Tract which is one of the
Company's  assets  held  for  sale.  Additionally,  the   Company
incurred  an extraordinary charge of $1.7 million for the  write-
off of the deferred financing costs relating to a credit facility
which was retired during the year.

      Earnings per common share are based on the weighted average
number   of  shares  of  common  and  common  equivalent   shares
outstanding  for 1995 of 240,707,015 compared to 198,303,412  for
1994.  The increase in the weighted average number of common  and
common  equivalent shares outstanding for 1995 primarily  related
to  the sale of approximately 7 million shares of Common Stock in
a  Regulation  S unit offering in December 1995, approximately  3
million units in a private placement concluded in September 1995,
approximately  4.3  million  shares of  Common  Stock  issued  in
respect   of   dividends  on  Series  A   Preferred   Stock   and
approximately  1.6  million  shares of  Common  Stock  issued  in
payment of interest on the Secured Subordinated Debt, all as  set
forth  in  the  Consolidated Statements of Shareholders'  Equity.
See Notes 6 and 7 to the Consolidated Financial Statements.

      Oil and gas revenues for 1995 were $2.5 million as compared
to  $4.3  million in 1994.  Revenues in 1995 were  lower  due  to
significantly reduced production volumes. Operating  costs  as  a
percentage  of  revenues increased as a  result  of  fixed  costs
remaining  constant  while gas prices declined.  As  the  Company
decided to halt development projects on its domestic oil and  gas
properties, it does not anticipate material revenues in 1996.

     Average gas prices received by the Company declined slightly
between  1995  and 1994, with an average gas price  of  $1.33  in
1995 as compared to $1.65 in 1994. However, in the fourth quarter
of  1995  gas  prices averaged $1.50 per Mcf.  The  depreciation,
depletion  and amortization rate for 1995 amounted to  $1.23  per
Mcf,  compared  to $1.25 per Mcf in the corresponding  period  of
1994.

     The following table reflects an analysis of variances in the
Company's  oil  and gas revenues between 1995 and 1994.  Revenues
from  gas  production during 1995 comprised over  79  percent  of
total oil and gas revenues:

                                                  (In Millions)
     Oil and Gas Revenues - 1994.....................       $ 4.3
        Effect of decreases in average gas prices....         (.6)
        Effect of decreases in volume of gas production 
          and sales..................................        (1.2)
                                                             ----
     Oil and Gas Revenues - 1995.....................       $ 2.5
                                                             ====

      General  and  administrative expenses of $4.6 million  were
unchanged  for the year ended December 31, 1995, as  compared  to
the same period in 1994.

     Interest expense increased in 1995, due primarily to reduced
capitalization  of  interest costs as the balance  of  qualifying
assets continued to decline and increased interest rates in 1995.


Item 8.   Financial Statements and Supplemental Data.
-----------------------------------------------------

      The  Consolidated  Financial Statements  of  XCL  Ltd.  and
Subsidiaries,  together  with the report  thereon  of  Coopers  &
Lybrand  L.L.P.  dated  April  10, 1997,  and  the  supplementary
financial  data specified by Item 302 of Regulation S-K  are  set
forth on pages 32 through 61.  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  14(a)  of  this  Annual  Report  on  Form  10-K.  These
consolidated   financial  statements  and   financial   statement
schedule are the responsibility of the Company's management.  Our
responsibility  is  to express an opinion on  these  consolidated
financial  statements and financial statement schedule  based  on
our audits.

We  conducted  our  audits in accordance with generally  accepted
auditing  standards.  Those standards require that  we  plan  and
perform  the  audit to obtain reasonable assurance about  whether
the  financial statements are free of material misstatement.   An
audit  includes  examining, on a test basis, evidence  supporting
the  amounts  and  disclosures in the financial  statements.   An
audit also includes assessing the accounting principles used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audits provide a reasonable basis for our opinion.

In  our  opinion,  the  financial statements  referred  to  above
present  fairly,  in  all  material  respects,  the  consolidated
financial  position of XCL Ltd. and Subsidiaries as  of  December
31,  1996  and  1995,  and  the  consolidated  results  of  their
operations  and their cash flows for each of the three  years  in
the  period ended December 31, 1996, 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 has incurred recurring net losses, has  a
working  capital deficit and anticipates insufficient cash  flows
from  operations to meet its current obligations.  These  factors
raise  substantial doubt about the Company's ability to  continue
as  a  going  concern.  Management's plans  in  regard  to  these
matters  are  described  in Note 2.  The  consolidated  financial
statements do not include any adjustments that might result  from
the outcome of this uncertainty.

                                   COOPERS & LYBRAND L.L.P.



New Orleans, Louisiana
April 10, 1997

                    XCL Ltd. and Subsidiaries
                   CONSOLIDATED BALANCE SHEET
                     (Thousands of Dollars)
                                                          December 31
                                                       -----------------
                      A S S E T S                      1996         1995
                      -----------                      ----         ----
Current assets:
      Cash and cash equivalents.................   $    113       $   1,610
      Accounts receivable, net..................         23             340
      Amounts receivable from sale of assets....          -           4,151
      Subscriptions receivable..................          -             483
      Prepaid expenses..........................        212             205
      Assets held for sale......................          -           4,376
                                                     ------         -------
                       Total current assets.....        348          11,165
                                                     ------         -------

Property and equipment:
      Oil and gas (full cost method):
           Proved and unproved properties under 
            development not being amortized.....     34,305          27,315
                                                    -------         -------
                                                     34,305          27,315
      Land, at cost.............................        135             135
Other...........................................      2,492           3,017
                                                    -------         -------    
                                                     36,932          30,467
      Accumulated depreciation, depletion and
        amortization............................     (1,491)         (1,845)
                                                    -------         -------
                                                     35,441          28,622
                                                    -------         -------
Investments.....................................      2,383           5,369
Assets held for sale............................     21,058          25,395
Deferred charges and other assets...............      1,634           1,785
                                                    -------         -------
                       Total assets............. $   60,864       $  72,336
                                                    =======         =======

      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........ $    3,880       $   2,435
      Accounts payable and accrued costs due 
       to joint venture partner.................      4,202           1,449
      Royalty and production taxes payable......         21             218
      Dividends payable.........................        928             928
      Current maturities of limited recourse debt     5,091           5,229
      Collateralized credit facility............     17,279          25,115
      Current maturities of subordinated debt...     15,000               -
      Other current maturities..................        652              30
                                                    -------         ------- 
           Total current liabilities............     47,053          35,404
                                                    -------         -------
Long-term debt, net of current maturities.......          -          15,644
Other non-current liabilities...................      2,770           4,388
Commitments and contingencies (Notes 2 and 11)
Shareholders' equity:
       Preferred stock-$1.00 par value; authorized 
        2,400,000 shares at December 31, 1996 and 
        1,200,000 at December 31, 1995; issued 
        shares of 669,411 at December 31, 1996 and 
        680,570 in 1995 - liquidation preference of  
        $63.3 million at December 31, 1996.......       669             681
       Preferred stock subscribed................         -               4
      Common stock-$.01 par value; authorized 
        500 million shares at December 31, 1996 and 
        350 million shares at December 31, 1995; 
        issued shares of 285,754,151 at December 31, 
        1996 and 256,157,224 at December 31, 1995.    2,858           2,561
      Common stock held in treasury - $.01 par 
        value; 1,042,065 shares at December 31,
        1996 and 2,514,238 shares at December 31,
        1995......................................      (10)            (25)
      Additional paid-in capital..................  226,956         220,364
      Accumulated deficit......................... (219,432)       (206,685)
                                                    -------         -------
           Total shareholders' equity.............   11,041          16,900
                                                    -------         -------
                       Total liabilities and 
                        shareholders' equity......$  60,864       $  72,336
                                                    =======         =======

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


                    XCL Ltd. and Subsidiaries
                                
              CONSOLIDATED STATEMENT OF OPERATIONS
        (Thousands of Dollars, Except Per Share Amounts)
<TABLE>
                                                               Year Ended December 31
                                                            -------------------------
                                                            1996       1995      1994
                                                            ----       ----      ----
<S>                                                     <C>        <C>        <C> 
Oil and gas revenues from properties held for sale..... $  1,136   $  2,480   $   4,336
                                                          ------     ------      ------
Costs and operating expenses:
      Operating (including marketing)..................      342        985       1,341
      Depreciation, depletion and amortization.........      579      2,266       3,292
      Provision for impairment of oil and gas 
       properties......................................    3,850     75,300      25,900
      Writedown of other assets and investments........    2,444      4,461       2,230       
General and administrative costs.......................    3,487      4,551       4,553
      Taxes, other than income.........................      227        590         895
                                                          ------     ------      ------ 
                                                          10,929     88,153      38,211
                                                          ------     ------      ------
Operating loss.........................................   (9,793)   (85,673)    (33,875)
                                                          ------     ------      ------
Other income (expense):
      Interest expense, net of amounts capitalized.....   (2,415)    (2,998)     (1,831)
      Gain (loss) on sale of investments...............     (661)       613         443
      Equity in loss of affiliates.....................        -          -        (220)
      Other, net.......................................      795        221         603
                                                          ------     ------      ------
                                                          (2,281)    (2,164)     (1,005)
                                                          ------     ------      ------  

Loss before extraordinary item.........................  (12,074)   (87,837)    (34,880)
Extraordinary charge for early extinguishment of debt..        -          -      (1,742)
                                                          ------     ------      ------ 
Net loss...............................................  (12,074)   (87,837)    (36,622)
Preferred stock dividends..............................   (5,356)    (4,821)     (4,907)
                                                         -------     ------      ------ 
Net loss attributable to common stock..................$ (17,430)  $(92,658)   $(41,529)
                                                         =======     ======      ====== 

Loss per common and common equivalent share:
    Net loss before extraordinary item.................$    (.07)  $   (.38)   $   (.20)
    Extraordinary item.................................        -          -        (.01)
                                                         -------     ------      ------
Net loss per common and common equivalent share........$    (.07)  $   (.38)   $   (.21)
                                                         =======     ======      ======
Average number of common and common equivalent 
  shares outstanding..................................   265,573    240,707     198,303
                                                         =======    =======     =======
</TABLE>
                                
 The accompanying notes are an integral part of these financial statements.


                    XCL Ltd. and Subsidiaries
                                
         CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     (Thousands of Dollars)
                                
<TABLE>
                                
                                       Preferred                                                Total
                            Preferred   Stock    Common   Treasury   Paid-In   Accumulated   Shareholders                       
                              Stock   Subscribed  Stock    Stock     Capital    Deficit         Equity
                              -----   ----------  -----    -----     -------    -------         ------ 
<S>                          <C>       <C>       <C>       <C>       <C>        <C>            <C>
Balance, December 31, 1993   $   729   $   -     $ 1,327   $  (70)   $155,121   $ (72,498)     $ 84,609
    Net loss                       -       -           -        -           -     (36,622)      (36,622)
    Dividends                      -       -           -        -           -      (4,907)       (4,907)
    Preferred shares issued       25       -           -        -       1,570           -         1,595
    Preferred shares converted
       to common shares         (105)      -         258        -           -           -           153
    Common shares issued           -       -         787        -      49,550           -        50,337
    Treasury shares issued         -       -           -       35           -           -            35
                               -----    ----      ------     ----     -------     -------       -------

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       4           -        -       5,092           -         5,128
    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       681       4       2,561      (25)    220,364    (206,685)       16,900
    Net loss                       -       -           -        -           -     (12,074)      (12,074)
    Dividends                      -       -           -        -           -        (673)         (673)
    Preferred shares issued       10      (4)          -        -         128           -           134
    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
                              ======    ====      ======    =====     =======     =======        ======

</TABLE>
                                
 The accompanying notes are an integral part of these financial
                           statements.
                    XCL Ltd. and Subsidiaries
                                
              CONSOLIDATED STATEMENT OF CASH FLOWS
                     (Thousands of Dollars)
<TABLE>
                                
                                                                Year Ended December 31
                                                               --------------------
                                                               1996    1995        1994
                                                               ----    ----        ----
<S>                                                           <C>         <C>        <C>
Cash flows from operating activities:
    Net loss..............................................    $(12,074)   $(87,837)  $(36,622)
                                                               -------     -------    -------
    Adjustments to reconcile net loss to net cash used in
       operating activities:
        Depreciation, depletion and amortization..........         579       2,266      3,292
        Provision for impairment of oil and gas properties       3,850      75,300     25,900
        Extraordinary charge for early extinguishment of debt        -           -      1,742
        (Gain) loss on sale of investments................         661        (613)      (443)
        Writedown of other assets and investments.........       2,444       4,461      2,230
        Equity in loss of affiliates......................           -           -        220
        Change in assets and liabilities:
             Accounts receivable..........................         799         875       (187)
             Prepaid expenses.............................          (7)        (52)       (73)
             Accounts payable and accrued costs...........         772        (697)       168
             Royalty and production taxes payable.........        (197)        (68)      (385)
             Other, net...................................          19         855        557
                                                              --------     -------    -------   
                  Total adjustments.......................       8,920      82,327     33,021
                                                              --------     -------    -------
                  Net cash used in operating activities...      (3,154)     (5,510)    (3,601)
                                                              --------     -------    -------

Cash flows from investing activities:
    Capital expenditures..................................      (1,489)     (8,458)   (19,547)
    Investments and restricted time deposits..............        (491)     (1,624)    (1,350)
    Proceeds from sales of assets and investments.........       9,210       2,655      3,759
Other.....................................................           4          64      2,052
                                                               -------     -------    -------
                  Net cash provided by (used in) investing
                    activities............................       7,234      (7,363)   (15,086)
                                                               -------     -------    -------

Cash flows from financing activities:
    Proceeds from sales of common stock...................       1,766       3,553     31,696
    Proceeds from issuance of preferred stock.............         144       3,068      1,600
    Proceeds from sale of treasury stock..................         264       2,487          -
    Loan proceeds.........................................         315           -     29,200
    Payment of long-term debt.............................      (8,344)       (522)   (37,564)
    Proceeds from exercise of warrants and options........         691         874      3,279
    Payment of preferred stock dividends..................           -        (250)    (1,388)
    Payment for treasury stock............................        (141)     (1,257)         -
    Stock issuance costs and other........................        (272)       (221)    (3,031)
                                                               -------     -------    -------
                Net cash provided by (used in) financing
                   activities.............................      (5,577)      7,732     23,792
                                                               -------     -------    ------- 
Net increase (decrease) in cash and cash equivalents......      (1,497)     (5,141)     5,105
Cash and cash equivalents at beginning of year............       1,610       6,751      1,646
                                                               -------     -------    -------
Cash and cash equivalents at end of year..................    $    113   $   1,610   $  6,751
                                                               =======     =======    ======= 
Supplemental information:
    Cash paid for interest, net of amounts capitalized....    $  1,591   $   2,602   $  2,610
                                                               =======     =======     ======= 
</TABLE>
                                
 The accompanying notes are an integral part of these financial
                           statements.
                                
                    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.

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

      For purposes of the consolidated financial statements,  the
Company  considers deposits which can be redeemed on  demand  and
investments  which have original maturities of  less  than  three
months  to  be  cash equivalents. As of December  31,  1996,  the
Company's  cash and cash equivalents were deposited primarily  in
two financial institutions.

  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.  The
fair  value of the Series A Preferred Stock at December 31, 1996,
is  approximately $5.9 million based upon share  trading  on  the
London  Stock  Exchange with British Pound Sterling converted  to
U.S.  Dollars.  The  estimated fair value of Series  B  Preferred
Stock  at  December  31,  1996  approximates  $1.4  million.  The
estimated fair value of the Series E Preferred Stock at  December
31,  1996 approximates $2.9 million. Fair value of such financial
instruments is not necessarily representative of the amount  that
could be realized or settled.

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

      The  Company  accounts for its oil and gas exploration  and
production activities including those assets held for sale  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 Company's domestic oil and  gas
reserves  were estimated by Company engineers in 1996  and  1995,
and  foreign reserves in 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 the 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 and depletion  expense  ("DD&A").   

     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 an office
building, 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 30 years.

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

      During  fiscal 1996, 1995 and 1994, interest and associated
costs  of  approximately  $2.8 million,  $3.1  million  and  $5.3
million, respectively were capitalized on significant investments
in  unproved properties that are not being currently depreciated,
depleted,  or  amortized and on which exploration or  development
activities  are  in  progress.  Deferred  debt  issue  costs  are
amortized on the straight-line basis over the term of the related
debt agreement.

  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, 1996, the Company
did  not  have  cash in financial institutions in excess  of  the
insured amounts.
  
  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.

  Loss Per Common and Common Equivalent Share:
  -------------------------------------------

      Loss  per  common  and  common equivalent  share  has  been
computed  by  dividing net income (loss) attributable  to  common
stock  by the weighted average number of common and common  share
equivalents outstanding. Primary earnings per share are presented
for  financial reporting purposes due to the antidilutive  effect
of   convertible  notes,  preferred  stock,  warrants  and  stock
options.

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

      The  preparation of the Company's financial statements,  in
conformity   with   generally  accepted  accounting   principles,
requires management to make estimates and assumptions that affect
reported  amounts  of assets and liabilities  and  disclosure  of
contingent  assets and liabilities as of December  31,  1996  and
1995,  and  the reported amounts of revenues and expenses  during
fiscal  years  1996, 1995 and 1994.  Adjustments to the  reported
amounts of assets and liabilities may be necessary in the  future
to  the  extent  that  future estimates  or  actual  results  are
different from the estimates used in the financial statements.

     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 Plans

      At  December  31, 1996, the Company had an  operating  cash
balance  of  $113,000  and  a working capital  deficit  of  $46.7
million, which includes $17.3 million in bank debt, $15.0 million
of  Subordinated  Debt,  $5.1 million in  limited  recourse  debt
collateralized only by the Lutcher Moore Tract and  $0.7  million
in  institutional  debt  secured  by  a  first  mortgage  on  the
Company's office building.  The office building was sold on March
31, 1997 and the mortgage repaid in full.

      The  Company has incurred losses in each of its  last  five
fiscal  years and anticipates it will continue to do so in fiscal
1997  and  1998 because production from the Zhao Dong Block  will
not  commence until late 1998.  As of April 15, 1997 the  Company
is  in  the process of offering for sale Units of Senior  Secured
Discount  Notes  due  2007  (face amount  $70  million,  net  $56
million)  and  Common Stock Purchase Warrants  (the  "Offering").
Concurrently  with  the  Offering, the Company  is  offering  $25
million  of  units comprised of preferred stock and  warrants  to
acquire  Common  Stock.   Closing  of  both  the  offerings   are
contingent  on  each  other.  The successful  completion  of  the
Offering, subsequent release of such funds from a cash collateral
account,  and  the sale of domestic properties  will  enable  the
Company  to  meet  all of its obligations including  (1)  certain
exploration  costs and the Phase I Development Program  costs  of
the  Zhao Dong Block, (2) repayment of outstanding debt  and  (3)
payment  of  all  other current liabilities.  In the  event  such
Offering  is not successful the Company believes other  means  of
obtaining  working capital are available based on  the  estimated
future  nondiscounted net cash flow of $143 million ($80  million
discounted)  from  proved  China reserves,  as  reported  in  the
independent engineering report of H.J. Gruy and Associates,  Inc.
The form and timing of these alternatives are not determinable at
this  time and there can be no assurance they will occur and,  if
they   do  occur,  would  not  significantly  reduce  the  future
potential  revenue from the Company's share of oil revenues.   In
addition,  the  Company's  efforts to secure  additional  working
capital  will  be impaired if  its Common Stock is delisted  from
the AMEX.  See Note 11.

       Longer  term  liquidity  is  dependent  on  the  Company's
commencement  of  production in China  and  continued  access  to
capital  markets, including its ability to issue additional  debt
and  equity  securities, which in certain cases may  require  the
consent  of  the  Noteholders and holders of the Preferred  Stock
should the Offering be successfully completed, or the consent  of
INCC, the holders of the Company's Secured Subordinated Debt  and
the  holders  of  Preferred Stock should it not.  By  shareholder
vote  on July 30, 1996, the shareholders approved an increase  of
150,000,000  authorized  shares of  Common  Stock  and  1,200,000
authorized shares of Preferred Stock.

     The Company's Series A Preferred Stock dividend requirements
are  approximately  2.6  million pounds  sterling  (U.K.)  ($4.45
million) annually and currently insufficient liquidity exists  to
continue  to pay such amounts. The Company declared the Series  A
Preferred Stock dividend payable June 30, 1995. A portion of this
dividend  was  paid with shares of Common Stock and approximately
$900,000 remains to be paid in cash. As the Company was unable to
pay  this dividend by June 30, 1996, the holders of the Series  A
Preferred  Stock can now demand Board of Director representation.
The  December 31, 1995 dividend payment on the Series A Preferred
Stock  was  declared  payable in additional shares  of  Series  A
Preferred  Stock  and in March 1997, 63,595 shares  of  Series  A
Preferred  Stock were issued. The Board of Directors elected  not
to  declare the dividends payable June 30, 1996 and December  31,
1996.

      The  Company was, to April 10, 1997, in default under terms
of  its  Credit  Facility with INCC and its Secured  Subordinated
Debt.  On  April  10, 1997,  INCC agreed to forebear  taking  any
action pending the completion of the Offering and release of such
funds  from  a  cash collateral account.  The proceeds  from  the
Offering are expected to be used to repay such debt.  Forbearance
has been granted until May 31, 1997 when the Offering is expected
to be completed. The Offering proceeds are then to be placed in a
cash  collateral  account and the Forbearance Agreement  extended
until  September  30, 1997. The date of September  30,  1997  was
selected  because  this is the anticipated date  when  the  Joint
Management  Committee  of  the Zhao Dong  Block  is  expected  to
approve  the development plan for the C-D Field of the Zhao  Dong
Block.   Because  both  the  INCC  Credit  Facility  and  Secured
Subordinated  Debt are to be repaid from the Offering,  each  has
been classified as currently due.

     By agreement with Apache effective December 13, 1996, the D-
2  well  which  the Company spudded in November  1996,  has  been
substituted  for Apache's obligation to carry the  Company  on  a
fourth  exploration  well.  On April 10,  1997,  the  amount  due
Apache was further reduced by a payment of $3.1 million leaving a
balance due of approximately $979,790, which amount is in dispute
and is presently in arbitration.  The Company raised the $3.1 
million through  the placement of promissory notes of XCL-China Ltd.  
and warrants  to acquire Common Stock of the Company with a group  
of institutional  and accredited investors who are  currently  major
shareholders  in the Company.

      In  addition to capital commitments to fund the  Zhao  Dong
Block  development (estimated to be $63,589,000 to fully  develop
the  C-D  Field),  the Company has capital requirements  for  its
lubricating oil and  coalbed methane projects.

      As a result of the substantial capital requirements described
above, the report of the Company's independent accountants contains
an explanatory paragraph regarding the ability of the Company to
continue as a going concern.

 (3) Supplemental Cash Flow Information

     There were no income taxes paid for the years ended December
31, 1996, 1995 and 1994.

      The Company completed the following noncash transactions in
1996  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:

      1996
      ----

      In  March and April 1996, the Company sold units of  Common
Stock  and Warrants through Rauscher Pierce & Clark, as Placement
Agent,  in  a  Regulation S unit offering.  As  compensation  for
acting as Placement Agent for such unit offering, Rauscher Pierce
&  Clark  was granted warrants to acquire an aggregate of 384,000
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 50,000  shares  of
Common  Stock  to EnCap Investments, L.C. ("EnCap")  and  EnCap's
existing warrant to acquire 500,000 shares of Common Stock as  to
exercise price, expiration date and forced conversion feature  to
conform  the  terms  of  such warrant to the  terms  of  warrants
granted  to the Placement Agent in the Regulation S unit offering
noted above.

      As compensation for identifying the Placement Agent for the
Regulation S unit offering, EnCap 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 267,264 shares   of
Common  Stock in connection with the initial closing  and  during
the  second quarter issued an aggregate 122,880 shares of  Common
Stock as compensation for the subsequent closings.

     Effective March 1, 1996, the terms of warrants issued to San
Jacinto  Securities,  Inc. 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 $1.00 to  $.50  and  the
term of the warrant was extended for three years to March 1,1999.

      During  August  1996, the Company issued to Janz  Financial
Corp.  Ltd. 280,000 warrants to purchase 280,000 shares of Common
Stock,  as  compensation for the placement with their clients  of
2.8  million  units,  comprised of shares  of  Common  Stock  and
warrants to purchase Common Stock.

      During  October 1996, the Company issued approximately  1.4
million  shares  of  Common Stock plus warrants  to  acquire  2.5
million  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 1.5 million warrants
to acquire 1.5 million shares of Common Stock, as compensation to
an individual for past fund raising services.

     1995
     ----

      During the first quarter of 1995, the Company issued 18,714
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 50,000 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  50,000  shares of Common Stock as  compensation  to  an
individual  who assisted the Company with a private placement  of
approximately 3 million units.

     1994
     ----

      The  Company  conveyed certain land holdings  (fair  market
value  of $320,000) in payment of a two-year consulting agreement
which expired in 1994.


 (4) Receivables

      The  Company's  trade accounts receivable at  December  31,
1996, 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 revenues in
1996, 67 percent in 1995 and 61 percent in 1994.

 (5) Assets Held for Sale and Investments

     Assets Held for Sale
     --------------------

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

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

      During  the first quarter of 1996, two domestic gas  fields
were  sold for $5.4 million which was primarily used to pay  bank
loan  interest and principal.  The Company sold a third producing
property  in a sale completed during the second quarter  of  1996
generating gross proceeds of approximately $3 million,  of  which
$2.8 million was applied to payment of interest and prepayment of
principal on the bank loan.

      Until July 29, 1996, the Company was engaged in attempts to
sell  its remaining domestic oil and gas properties. On that  day
it  received  service of three lawsuits filed by lessors  of  the
most  productive  remaining  leases,  effectively  thwarting  the
Company's ability to consummate a 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 has taken an additional writedown
of these properties aggregating $3.85 million.

      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 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,  1996, the Company has invested approximately  $1.7
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,  1996, the Company has invested approximately  $0.5
million in the project.

     Phoenix Lake Tract
     ------------------

      On  May  18,  1995, the Company sold its 77.78 percent  fee
interest in 11,600 gross acres comprising the Phoenix Lake  Tract
retaining  75  percent of its mineral interest  underlying  those
lands,  less and except two tracts covering approximately 77  net
acres  and retained no mineral interest.  The purchase price  was
comprised  of approximately $1.7 million in cash and  a  $500,000
reduction  in  obligations owed by the Company to the  purchaser.
No  gain  or  loss  was  recognized on the sale.   The  remaining
mineral acreage prescribes in 2005.

      In  June  1996,  the  Company sold  its  remaining  mineral
interest  in the Phoenix Lake Tract.  The sale price was $417,000
in cash and the Company recorded a $661,000 loss on the sale.

     Wolf Creek Resources, Inc.
     --------------------------

       The  Company,  during  1994,  executed  and  delivered  an
agreement  which satisfied an October 1992 commitment to  acquire
an  equity interest in Wolf Creek Resources, Inc. ("Wolf  Creek")
and  certain oil and gas interests in the Galvan Ranch, a 72,000-
acre  ranch  in  south Texas, from an entity  affiliated  with  a
former  director.   To  satisfy the  acquisition  price  of  $3.7
million, the Company paid $1.0 million in cash and on October 17,
1994, issued 2.75 million shares of Common Stock for the balance.

      By  letter  agreement dated October 7,  1996,  the  Company
modified  its  arrangement with Wolf Creek with  respect  to  its
interests in the Galvan Ranch.  The Company reassigned its rights
to  certain  overriding royalty interests  and  rights  to  after
payout  participation in certain gas wells, surrendered its  note
receivable  from  Wolf Creek, and option to  purchase  additional
equity  in Wolf Creek and executed a general release in favor  of
Wolf Creek in return for:

     (a)  an immediate cash payment of $75,000;
     (b)  a  $150,000  preferred payout from  80%  of  the  net
           revenues of Wolf Creek; and
     (c)  5.44% of the Common Stock of Wolf Creek.

In recognition of the reduced value of the Galvan Ranch, the sole
property  of  Wolf  Creek, the Company recorded  a  $2.4  million
writedown in the value of this investment during 1996.

 (6) Debt

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

                                                          December 31
                                                          -----------
                                                         1996      1995
                                                         ----      ----
     Collateralized credit facility.................  $ 17,279  $ 25,115
     Subordinated debt..............................    15,000    15,000
     Office building mortgage loan..................       652       674
                                                        ------    ------
                                                        32,931    40,789
     Lutcher Moore Group Limited Recourse Debt......     5,091     5,229
                                                        ------    ------
                                                        38,022    46,018
     Less current maturities:
         Lutcher Moore Group Limited Recourse Debt..    (5,091)   (5,229)
         Collateralized credit facility.............   (17,279)  (25,115)
         Subordinated Debt..........................   (15,000)        -
         Other current maturities...................      (652)      (30)
                                                        ------    ------
                                                     $       -  $ 15,644
                                                        ======    ======
     

      Substantially  all  of the Company's  assets  collateralize
these  borrowings.   Accounts payable and accrued  costs  include
accrued  interest at December 31, 1996 and 1995 of  $1.5  million
and $0.5 million, respectively.

     Collateralized Credit Facility

      XCL-Texas, Inc. ("Borrower"), a wholly owned subsidiary  of
the   Company,   borrowed  $29.2  million   from   Internationale
Nederlanden  (U.S.)  Capital Corporation  ("INCC")  under  a  $35
million  credit  agreement  dated January  31,  1994  (the  "INCC
Agreement").  The proceeds of the borrowing were used  to  retire
the  loan  balance of a prior bank credit facility.  The  Company
recognized  a  charge for early extinguishment  of  debt  in  the
approximate  amount  of  $1.7  million  as  a  result   of   this
refinancing in 1994.

      Loans  under  the  INCC  agreement are  guaranteed  by  the
Company,   parent   of  XCL-Texas,  Inc.,   and   certain   other
subsidiaries  of  the Company and bear interest at  INCC's  prime
rate plus one percent. The Company pays a commitment fee equal to
0.5  percent  per  annum calculated on the daily  amount  of  the
unused  portion of the facility availability, payable  quarterly.
Substantially all of the Company's oil and gas properties located
in  Texas,  and the stock of certain subsidiaries of the  Company
collateralize  this credit facility. Additionally, INCC  received
warrants to purchase 2.5 million shares of Common Stock  with  an
exercise  price  of  $1.00, subject to  adjustment,  expiring  in
January 2004.  The value of such warrants was not material.

      Under  the  INCC  Agreement, the  Company  is  required  to
maintain  minimum levels of  tangible net worth, working  capital
and  cash  flow coverage, and expend a minimum amount on domestic
development drilling. Additionally, the Borrower must maintain  a
minimum  net worth. Further, the INCC Agreement contains  certain
restrictions   pertaining   to  debt,   mergers,   issuances   of
securities,  investments, sales of property, cash  dividends  and
redemptions  and  payments  related  to  subordinated  debt.  The
Borrower  may  not  advance funds to its  parent,  or  any  other
subsidiary  of  its  parent, without INCC's prior  approval.  The
Company  may  use  for  its general corporate  purposes  the  net
proceeds from the sales of equity plus any cash realized by  XCL-
China  Ltd.  and proceeds from the sale of other assets.   As  of
December  31,  1996, the Company was in violation of  certain  of
these covenants.

       The  INCC  Agreement  provides  for  scheduled  semiannual
borrowing  base  determinations by INCC  based  on  a  review  of
reserve  estimates and other factors, with the initial  borrowing
base  set  at  $29.2  million. Effective October  31,  1994,  the
borrowing base was set at $25.2 million. The net proceeds of $4.1
million  from  the  divestiture of the Mestena  Grande  Field  in
January 1996, were applied to a $2 million principal payment  due
January  2, 1996, a principal payment of $1.63 million due  April
1,  1996,  with  the  remainder applied to  the  balance  of  the
outstanding indebtedness. The net proceeds of $1.325 million from
the  sale  of  the  Gonzales Gas Unit sold in  March  1996,  were
applied to accrued interest through the date of closing and  $1.1
million of principal. The net proceeds of $2.79 million from  the
sale  of the Lopez Gas Units sold in April 1996, were applied  to
accrued interest through the date of closing then to principal of
$535,556  due  on July 1, 1996, principal of $1.625  million  due
October  1, 1996 and the remainder against principal due  January
2, 1997.

      During  1995,  the  INCC Agreement was  amended  to  modify
certain  covenants and was further amended to modify requirements
through  April 1, 1996. The credit agreement was further  amended
in  April 1996 to modify requirements through September 30, 1996,
and  accordingly the full amount of such debt has been  reflected
as  a  current  liability.  The Company  did  not  make  interest
payments of $248,000 due on October 1, 1996, and $413,000 due  on
January  2,  1997  and a principal payment  of  $664,000  due  on
January  2, 1997, resulting in events of default under the  terms
of  the  INCC  Agreement. By letters dated October  7,  1996  and
January 9, 1997, the bank acknowledged that failure to make  such
interest  and principal payments constituted an event of  default
and  advised  that such past due interest and principal  payments
bear interest at the Late Payment Rate of 12.25 percent in effect
on  such  dates.  The Company was, to April 10, 1997, in  default
under  terms  of  its Credit Facility with INCC and  its  Secured
Subordinated  Debt. On April 10, 1997,  INCC agreed  to  forebear
taking  any  action pending the completion of  the  Offering  and
release  of  such  funds  from a cash  collateral  account.   The
proceeds from the Offering are expected to be used to repay  such
debt.   Forbearance has been granted until May 31, 1997 when  the
Offering  is expected to be completed. The Offering proceeds  are
then  to  be  placed  in  a  cash  collateral  account  and   the
Forbearance Agreement extended until September 30, 1997. The date
of   September  30,  1997  was  selected  because  this  is   the
anticipated date when the Joint Management Committee of the  Zhao
Dong Block is expected to approve the development plan for the C-
D  Field  of  the Zhao Dong Block.  Because both the INCC  Credit
Facility and Secured Subordinated Debt are to be repaid from  the
Offering, each has been classified as currently due.

      During  1994, the Company entered into two Master  Interest
Rate  and Currency Exchange Agreements (the Agreements) with INCC
which  expired in 1996.  The Company paid $151,946 to  limit  the
maximum interest rate for up to approximately two-thirds  of  its
maximum  outstanding INCC debt to 9-3/4 percent  per  annum  from
April, 1995 to January, 1996 and to 10-3/4 percent per annum from
January  1996  to  July,  1996.  The Company  is  amortizing  the
payment  over the life of the Agreements. During 1996,  1995  and
1994,  the  Company  incurred approximately  $1.6  million,  $2.3
million and $1.85 million of interest costs related to this debt,
respectively.

  Secured Subordinated Debt
  -------------------------

       During  April  1993,  the  Company  issued  in  a  private
placement,  $15 million of Secured Subordinated Note  Units  (the
"Subordinated  Debt").  Each of these 40  units  consisted  of  a
$375,000 note payable, warrants to acquire 100,000 shares of  the
Company's  Common Stock at $.90 per share (which were  previously
issued  to  a group of banks in a prior credit facility),  a  net
profits  interest in certain exploration leases and a contractual
interest  in the net revenues of XCL-China, Ltd., a wholly  owned
subsidiary  of  the Company ("XCL-China"), under  the  Production
Sharing Agreement relating to the Zhao Dong Block, which was  not
material.  This borrowing bears interest at 12 percent,  if  paid
with  cash,  or 14 percent, if the Company elects to  use  Common
Stock, with payment at 125 percent of the interest due if paid in
unregistered shares. It is collateralized by a second mortgage on
all  the Company's producing properties and a second lien on  the
stock  of  XCL-China, Ltd. Payment on this debt  cannot  be  made
prior  to  payment on the INCC debt.  The terms  of  the  Secured
Subordinated Debt provide that an event of default under the INCC
Agreement  which  has  not been waived and permits  the  bank  to
accelerate  the  maturity  of its indebtedness  is  an  event  of
default  in  the Secured Subordinated Debt.  As noted  above,  an
event of default exists in the INCC Agreement, therefore an event
of default exists with respect to the Secured Subordinated Debt.

       In   April  1994,  maturities  of  the  Company's  Secured
Subordinated Debt were rescheduled to April 2000; the  expiration
date  of  the  related warrants extended to the  same  date;  the
exercise price of related warrants was reduced to $.625 per share
(fair  market  value of the Common Stock at  that  date);  and  a
subordinated lien was granted on certain assets of the Company.

      In  November 1996, the Company offered the holders  of  the
Secured  Subordinated Debt warrants a reduction in  the  exercise
price  of such warrants in exchange for their immediate exercise.
The  exercise price was reduced from $0.625 per share  to  $0.125
per  share,  with a majority of the holders accepting the  offer.
An  aggregate of 3,399,998 shares of Common Stock were issued and
the  Company  received an aggregate of approximately $400,000  in
net cash proceeds.

      The  Company  issued  approximately 12.8  million  and  1.6
million  shares  of Common Stock in payment of $4.0  million  and
$1.1 million of interest due on the Subordinated Debt in 1996 and
1995, respectively.

     Building Mortgage Loan
     ----------------------

      The outstanding balance of the building mortgage loan as of
December 31, 1996, is $652,000 and bears interest at the rate  of
14  percent per annum. During 1996 and 1995, the Company incurred
approximately  $93,000 and $97,000 in interest costs  related  to
this  debt,  respectively. Effective March 31,1997,  the  Company
sold its office building and the mortgage debt was repaid in full
(see Note 11).

     Lutcher Moore Group Limited Recourse Debt
     -----------------------------------------
 
      As  of  December  31,  1996 and 1995, Lutcher  Moore  Group
Limited Recourse Debt consisted of the following:

                                                1996     1995
                                                ----     ----
     Mortgage and Seller Notes............   $   5,091  $  5,229
     Less Current Maturities..............      (5,091)   (5,229)
                                               -------    ------
                                             $       -  $      -
                                               =======    ======

     Mortgage and Seller Notes
     -------------------------

      At  December 31, 1996 and 1995, approximately $2.3  million
and  $2.7 million of Mortgage Notes (net of amounts escrowed  for
payment)  and $2.8 million and $2.6 million of Seller Notes  were
outstanding.   In January 1996, the terms of the  Mortgage  Notes
were modified providing that the remaining principal (which bears
interest at 9.25 percent per annum) is payable on demand, and  if
no demand is made, in three monthly installments of $52,300 each,
commencing  February  15,  1996, plus  a  final  payment  of  all
outstanding principal and interest due on May 16, 1996.  In  June
1996,  upon the payment by the Company of principal and  interest
in  the  aggregate amount of $265,000 the terms of  the  Mortgage
Notes  were again modified providing that the remaining principal
(which  bears interest at 9.25 percent per annum) is  payable  on
demand,  and  if not demand is made, in five monthly installments
of  interest, commencing July 17, 1996, with a final  payment  of
all  outstanding principal and interest due on December 17, 1996.
During  the third quarter of 1996, the principal of the  Mortgage
Notes was reduced by $100,000 from payments received for oil  and
gas  leases granted on the property.  In January 1997, the  terms
of the Mortgage Notes were modified providing for an extension of
the  final payment of all outstanding principal and interest  due
until March 17, 1997. The Seller Notes bear interest at 8 percent
and  payments of principal and interest on the Seller  Notes  are
past  due.  No action has been taken by holders of the debt.  The
Company is negotiating an extension of the maturity dates of  the
Mortgage  and  Seller  Notes  however,  should  the  Company   be
unsuccessful  in negotiating further extension, the holders  have
recourse  only  to  the property itself, as the  Company  is  not
liable  for the debt.  The book value of this property  is  $12.2
million,  therefore, should the mortgagees repossess the property
for  nonpayment of the mortgage debt, the Company would  incur  a
substantial  loss.  During 1996 and 1995,  the  Company  incurred
approximately $499,000 and $501,000 in interest costs related  to
these  notes,  respectively.  In May 1994, in  consideration  for
certain  amendments to the terms of the Seller Notes, the Company
issued to the holders of the Seller Notes warrants to acquire  up
to  250,000 shares of Common Stock at $1.25 per share exercisable
for a period up to 90 days after the full repayment of the Seller
Notes.    No  material  value  was  ascribed  to  such  warrants.
Additionally, the Company issued approximately 1.1 million shares
of  Common  Stock to pay approximately $900,000 in principal  and
interest on the Seller Notes in 1994.

     During November 1996, the Company sold a 58.911% interest in
a  50%  interest in the Seller Notes held by one  of  its  wholly
owned subsidiaries ($314,500 in principal) for $250,000 net after
discount,  in  cash and the issuance of 2,665,665 stock  purchase
warrants  exercisable at $0.125 per share, expiring  on  December
31, 1999.

      During  February  1997,  the  Company  sold  its  remaining
interest  (41.089%) in the Seller Notes ($217,961  in  principal)
for  $193,916  net after discount, in cash and  the  issuance  of
1,874,467 stock purchase warrants exercisable at $0.25 per share,
expiring on December 31, 1999.

(7)  Shareholders' Equity

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

      As  of  December  31, 1996 and 1995, the  Company  had  the
following shares of Preferred Stock issued and outstanding:
<TABLE>
                                                                          1996 Dividends
                                Shares          Preference in      ----------------------------
                            --------------      Liquidation at            (In Thousands)
                            1996      1995     December 31, 1996   Declared  In Arrears   Total
                            ----      ----     -----------------   --------  ----------   -----
<S>                        <C>       <C>        <C>                <C>        <C>        <C>
Series A.................  577,803   599,244    $53,892,603 (1)    $     -    $  4,450   $ 4,450
Series B.................   44,954    45,679      4,495,400            450           -       450
Series E.................   46,654    35,647      4,889,400            222         234       456
                                                                     -----      ------    ------
                                                                   $   672    $  4,684   $ 5,356
                                                                     =====      ======    ======
</TABLE>
-------------
      (1)   50  pounds  sterling (U.K.)  per  share  (U.K.  pound
            sterling  = U.S. $1.7114 at December 31, 1996 including  
            dividend arrearages).

     Series A Preferred Stock
     ------------------------

      During  1990,  the Company completed a rights  offering  of
600,000 units at 50 pounds sterling (U.K.) per "unit," each  unit
consisting  of  1  share  of  Series  A,  Cumulative  Convertible
Preferred  Stock, par value $1.00 per share ("Series A  Preferred
Stock")  and  10 Warrants to purchase Common Stock which  expired
unexercised pursuant to their terms.

      The  Series A Preferred Stock is listed on The London Stock
Exchange,  and: ranks senior to Common Stock and pari passu  with
the  Company's  Series B, Series E and Series F Preferred  Stocks
(as hereinafter defined) with respect to the payment of dividends
and distributions on liquidation; has a liquidation preference of
50  pounds  sterling  (U.K.) per share plus  accrued  and  unpaid
dividends;   is   not  redeemable  except  in   certain   limited
circumstances;  is  nonvoting  as  a  class,  except  in  certain
circumstances,  including the right to cast  21  votes  for  each
share  of  Series  A  Preferred Stock held,  on  all  resolutions
proposed  at a meeting of shareholders if at the date  of  notice
convening a meeting of shareholders the dividend on the Series  A
Preferred  Stock  is  six months or more  in  arrears.   Whenever
dividends on the Series A Preferred Stock shall be in arrears for
in  excess  of  365 days, the holders of the Series  A  Preferred
Stock will be entitled to vote for the election of two additional
directors  until all past dividends accumulated on the  Series  A
Preferred  Stock  shall have been paid in  full.   The  Series  A
Preferred  Stock is convertible, at the holder's option,  on  the
basis  of 21 shares of Common Stock for every one share of Series
A  Preferred Stock, subject to adjustment; and bears a cumulative
dividend  fixed at an annual rate of 4.50 pounds sterling  (U.K.)
per  share,  payable semiannually in cash, or, at  the  Company's
election,  through the semiannual dividend payment due  June  30,
1994, in shares of Common Stock.

      The  Series  A  Preferred Stock dividend  requirements  are
approximately   2.6  million  pounds  sterling  (U.K.)   annually
(approximately   $4.45   million)  and   currently   insufficient
liquidity  exists to continue to pay such amounts.  Further,  the
INCC  Agreement  restricts payment of cash dividends.   With  the
approval  of its lender, the Company declared the June  30,  1995
dividend payable in cash, with such cash to be obtained from  the
sale  of  Common Stock.  In order to reduce the cash requirement,
effective June 26, 1995, the Company entered into agreements with
three  U.S.  holders  of  Series A Preferred  Stock  representing
approximately  59 percent of the class, pursuant  to  which  they
elected  to  receive  their dividends  in  Common  Stock  of  the
Company.  Cash dividends remaining to be paid with respect to the
June  30,  1995  dividend  declaration,  aggregate  approximately
$900,000.  As the Company was unable to pay this dividend by June
30,  1996,  the  holders  of the Series  A  Preferred  Stock  are
entitled to representation on the Board of Directors.

      The  December  31, 1995 dividend payment on  the  Series  A
Preferred Stock has been declared payable in additional shares of
Series A Preferred Stock. During 1996, the terms of the Series  A
Preferred Stock were amended to allow for payment of the December
31,  1995  and  subsequent  dividend  payments  to  be  made   in
additional  shares  of Series A Preferred Stock.   The  Board  of
Directors  correspondingly approved a 250,000 share  increase  in
the  number  of  shares of authorized Series  A  Preferred  Stock
authorized.  In March 1997, the Company issued 63,595  shares  of
Series  A  Preferred Stock in payment of the  December  31,  1995
dividend.  The  Board of Directors elected  not  to  declare  the
dividends payable June 30, 1996 and December 31, 1996. During the
second  quarter  of  1996, the Company issued 450,261  shares  of
Common  Stock  upon  conversion of  21,441  shares  of  Series  A
Preferred  Stock,  pursuant to the terms thereof.   During  March
1997  an  additional 39 shares of Series A Preferred  Stock  were
converted into 819 shares of Common Stock.

     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 Series  A  and  Series  E
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.

      The  Company had the option through May 1994,  to  pay  the
dividend  in  shares of Common Stock, in which  case  the  annual
dividend  rate was $12 per share, with the holder being  entitled
to  require  the  Company to use its best efforts  to  sell  such
shares  on  their  behalf and to reimburse such  holder  for  the
difference, if any, between such net proceeds and $11  per  share
per   annum.  The  Company  is  currently  entitled  to  pay  the
redemption  price of the Series B Preferred Stock  in  shares  of
Common Stock.

     Effective June 30, 1994, the terms of the Series B Preferred
Stock  were  amended  to permit the Company to  issue  shares  of
Common  Stock in lieu of cash dividends for so long as the Series
B Preferred Stock remains outstanding.  In consideration for this
amendment, the Series B Preferred Stock was further amended:  (i)
to  reduce  the  exercise  price of  the  remaining  2.5  million
warrants  outstanding  from  $2.00 to  $1.50  per  share  and  to
increase  the  number of shares of Common Stock covered  by  such
warrants to 3.325 million shares and (ii) to extend the option of
the  holders to redeem their shares of Series B Preferred  Stock,
which  were  only  redeemable  on the  third,  fourth  and  fifth
anniversaries  of  the dates of their issuance and  automatically
upon  exercise of the remaining warrants, upon ninety days notice
to  the  Company, at any time and from time to time, after August
31,  1994,  with  the  Company retaining the  right  to  pay  the
redemption price in Common Stock.

     On May 16, 1995, the Company received notice from the Series
B Preferred holder exercising its redemption rights.  The Company
has  elected to redeem in shares of Common Stock and  the  holder
has  exercised its option to have the Company sell its shares  of
Common Stock.  The aggregate redemption price is $5 million, plus
accrued dividends from January 1, 1995 to the date of redemption.
The  Company has registered 5.3 million shares for sale  and  has
reserved  additional  shares should the sale  of  the  registered
shares  not  be sufficient to fulfill the redemption  obligation.
Approximately  5,046  shares had been redeemed  at  December  31,
1996, from the sale of approximately 2.7 million shares of Common
Stock.  Proceeds  are first allocated to accrued dividends,  with
the  remainder applied toward redemption  of shares of the Series
B   Preferred  Stock.  During  the  first  quarter  of  1997,  an
additional 1 million shares of Redemption Stock were sold and the
proceeds applied against accrued dividends.

     Series E Preferred Stock
     ------------------------

      During the third quarter of 1995 and first quarter of 1996,
the  Company completed a private placement of up to an  aggregate
of  50,000  shares of a new series of Preferred Stock  designated
the  Series E, Cumulative Convertible Preferred Stock, $1.00  par
value  per share ("Series E Preferred Stock"). The Company placed
44,129  shares of Series E Preferred Stock for which it  received
approximately $1.9 million in cash and 2.8 million shares of  its
unregistered   Common   Stock   valued   at   $1.4   million   in
consideration.  The acquisition of the aforementioned  shares  of
Common Stock is recorded under the par value method of accounting
for  treasury  stock. The Series E Preferred Stock is  nonvoting,
except in certain circumstances, including the right to elect two
directors  in the event the Company fails to pay two  consecutive
semiannual  dividends; bears a fixed cumulative dividend  at  the
annual  rate of $10 per share, payable semiannually in cash,  or,
at  the  Company's  election, in additional shares  of  Series  E
Preferred Stock, subject to an increase to $12 per share  in  the
event  the Company fails to register the underlying Common  Stock
under  the  Act  by  December 31, 1996 ("Conversion  Commencement
Date")  and a further increase in the event the Company fails  to
declare  and  pay  a  dividend on a regularly scheduled  dividend
payment  date; is redeemable for cash by the Company in whole  or
in part at any time, at a price (the "Redemption Price") equal to
(i)  $125 per share if redeemed prior to March 31, 1996 and  (ii)
thereafter $120 per share, decreasing ratably over the succeeding
five  quarters to $100 per share, in each case plus  accrued  and
unpaid  dividends to the redemption date; is convertible, at  the
holder's  option,  at  any time in whole or  in  part  after  the
earlier  of the Conversion Commencement Date or the date  of  any
redemption notice into that number of shares of Common  Stock  as
shall  equal the quotient of the $100 per share divided by  $.50,
in  each case subject to adjustment; and a liquidation preference
of  $100  per  share, plus all accrued and unpaid dividends.  The
Company has reserved shares of Common Stock for conversion of the
Series  E  Preferred  Stock. The Series E Preferred  Stock  ranks
senior to the Common Stock and pari passu with the Series  A  and
Series B Preferred Stock with respect to the payment of dividends
and  distributions  upon the liquidation  of  the  Company.   The
Company  issued  2,525  shares of Series  E  Preferred  Stock  in
payment of the December 31, 1995 and June 30, 1996 dividends.  In
January  1997,  the  Company issued  2,328  shares  of  Series  E
Preferred Stock in payment of the December 31, 1996 dividend.  In
January  1997,  the  Company issued  2,328  shares  of  Series  E
Preferred Stock in payment of the December 31, 1996 dividend.

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

      In  December  1996, XCL authorized the issuance  of  up  to
50,000  shares of a new series of Preferred Stock designated  the
Series F, Cumulative Convertible Preferred Stock, $1.00 par value
per   share   ("Series  F  Preferred  Stock")  to  two   existing
stockholders  of  XCL.  The first individual  was  issued  20,179
shares of Series F Preferred Stock in consideration for: (i)  the
cancellation  of a consulting agreement between the  Company  and
such individual entered into on July 10, 1996, and the release of
the  Company from all obligations thereunder; (ii) the  surrender
of  1,325,000  shares of unregistered Common Stock and  2,466,875
warrants  issued  in  connection with such consulting  agreement;
(iii) the surrender and cancellation by such individual of rights
to  acquire  1,158,000  units comprised of  1,158,000  shares  of
registered Common Stock and 1,158,000 warrants to purchase Common
Stock  originally acquired pursuant to an agreement dated  August
1,  1996, (iv) the surrender of registration rights with  respect
to  3,000,000  shares  of  Common Stock  and  3,000,000  warrants
originally  issued in a unit offering dated September  18,  1995,
and  (v)  the  payment  of $219,125.  The second  individual  was
issued  878  shares of Series F Preferred Stock in  consideration
for:  (i)  the surrender of 83,125 shares of unregistered  Common
Stock  and  133,125  warrants issued  as  compensation  for  past
fundraising  activities; (ii) the surrender and  cancellation  of
rights  to  acquire 42,000 units comprised of  42,000  shares  of
registered  Common Stock and 42,000 warrants to  purchase  Common
Stock  originally acquired pursuant to an agreement dated  August
1,  1996; (iii) the surrender of registration rights with respect
to  75,000  shares of Common Stock and 75,000 warrants originally
issued in an unit offering dated September 18, 1995; and (iv) the
payment of $7,875.

      The Series F Preferred Stock is nonvoting except in certain
circumstances,  including  the  right  to  elect,  together  with
holders  of  Preferred  Stock  with similar  voting  rights,  two
directors  in  the  event XCL fails to pay two consecutive  semi-
annual dividends; bears a fixed cumulative dividend at the annual
rate of $12 per share, payable semi-annually in cash, or, at  the
XCL's election, in additional shares of Series F Preferred Stock,
subject  to  an  increase  in the event  XCL  fails  to  pay  any
regularly scheduled dividend; is redeemable in whole or  in  part
at the election of XCL at any time, at a redemptive price of $100
per  share,  plus accrued and unpaid dividends to the  redemption
date;  is  convertible, at the holder's option, at any  time  six
months after the date of issuance, in whole or in part, into that
number  of shares of Common Stock as shall equal the quotient  of
$100  per share divided by $0.25, subject to adjustment  and  XCL
shall  have  the right to force conversion of the shares  at  the
applicable conversion rate at any time after the shares of Common
stock  have  traded at or in excess of $0.50  per  share  for  30
consecutive  trading days; and a liquidation preference  of  $100
per  share, plus all accrued and unpaid dividends.  The Series  F
Preferred  Stock ranks senior to the Common Stock and pari  passu
with  the  Series A, Series B and Series E Preferred  Stock  with
respect  to the payment of dividends and distributions  upon  the
liquidation of XCL.

       Dividends
       ---------

      The  Series  A  Preferred Stock dividend  requirements  are
approximately   2.6  million  pounds  sterling  (U.K.)   annually
(approximately   $4.45   million)  and   currently   insufficient
liquidity  exists to continue to pay such amounts.  Further,  the
INCC  Agreement  restricts payment of cash dividends.   With  the
approval  of its lender, the Company declared the June  30,  1995
dividend payable in cash, with such cash to be obtained from  the
sale  of  Common Stock.  In order to reduce the cash requirement,
effective June 26, 1995, the Company entered into agreements with
three  U.S.  holders  of  Series A Preferred  Stock  representing
approximately  59 percent of the class, pursuant  to  which  they
elected  to  receive  their dividends  in  Common  Stock  of  the
Company.  The Company issued 4.3 million shares during the  third
quarter of 1995 under these agreements. The Company has agreed to
register  these shares of Common Stock. Cash dividends  remaining
to   be   paid  with  respect  to  the  June  30,  1995  dividend
declaration,  aggregate  approximately  $900,000.   The   Company
intends  to  either sell sufficient shares to pay  the  remaining
dividend or offer such shares of Common Stock in payment of  such
dividend. As the Company was unable to pay this dividend by  June
30,  1996,  the  holders  of the Series  A  Preferred  Stock  are
entitled  to  representation  on the  Board  of  Directors.   The
December  31,  1995  dividend payment on the Series  A  Preferred
Stock has been declared payable in additional shares of Series  A
Preferred Stock. During 1996, the terms of the Series A Preferred
Stock were amended to allow for payment of the December 31,  1995
and  subsequent dividend payments to be made in additional shares
of   Series   A   Preferred  Stock.   The  Board   of   Directors
correspondingly approved a 250,000 share increase in  the  number
of  shares of authorized Series A Preferred Stock authorized.  In
March  1997,  the  Company  issued  63,595  shares  of  Series  A
Preferred Stock in payment of the December 31, 1995 dividend. The
Board  of Directors elected not to declare the dividends  payable
June  30,  1996 and December 31, 1996 on the Series  A  Preferred
Stock.

      Dividends  during 1996 and 1995 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. During 1996,  the  Company
issued 2,525 shares of Series E Preferred Stock in payment of the
December  1995 and June 1996 dividends payable on  the  Series  E
Preferred Stock.

      The  Company's  ability  to pay future  cash  dividends  is
restricted by the INCC Agreement.
  
  Common Stock
  ------------
 
      The  Company issued 28,326,927, 18,972,814 and  104,503,217
shares  of Common Stock during 1996, 1995 and 1994, respectively.
The  Company had 284,712,086, 253,642,986 and 237,184,410  shares
of  Common Stock outstanding at December 31, 1996, 1995 and 1994,
respectively.

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

      As  of  December 31, 1996, outstanding warrants to purchase
the Company's Common Stock are as follows:
<TABLE>
                                     Common Stock 
                                    Issuable Upon    Warrant Exercise   Proceeds if
                                       Exercise           Price          Exercised
                                       -------            -----          ---------
<S>                                   <C>             <C>               <C>         
Total Warrants Expiring in 1997......          -             -          $           -
Total Warrants Expiring after 1997 .. 43,778,896      $0.125 to $1.50      27,532,923
                                      ----------                           ----------
        Total Warrants............... 43,778,896                        $  27,532,923
                                      ==========                           ==========
</TABLE>

      During November 1996, the Company offered a holder  of  (i)
2,040,00  warrants  exercisable  at  $0.35  per  share  and  (ii)
2,128,000 warrants exercisable at $0.25 per share, a reduction in
the exercise price of such warrants to $0.125 in exchange for the
immediate  exercise of such warrants and the issuance of  a  like
number  of  new  warrants.   During December  1996,  a  total  of
2,128,000 shares of Common Stock were issued as a result  of  the
exercise of such warrants and 2,128,000 new warrants were issued,
exercisable  at $0.125 per share.  The Company received  $266,000
upon  exercise  of these warrants.   In January  1997,  2,040,000
shares  of  Common  Stock were issued upon the  exercise  of  the
remaining  warrants  and   2,040,000 new  warrants  were  issued,
exercisable  at $0.125 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 5.52 million warrants  issued  in
connection with the Regulation S offerings conducted by  Rauscher
Pierce  &  Clark, as Placement Agent, in December 1995 and  March
1996,  in  exchange for their immediate exercise.  The offer  was
made  to reduce the warrant price from $0.25 to $0.22 per  share.
One holder of 2.64 million warrants accepted the offer and  as of
March  31,  1997 had exercised 1,703,100 warrants for  which  the
Company  received net proceeds of $357,651.  The Placement  Agent
agreed  to accept $0.01 per share rather than 8% of the  exercise
price as required under the Placement Agent Agreement.

(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 1996 and 1995, were as follows (000's):

                                                     1996        1995
                                                     ----        ----
Current year tax net operating loss............. $  (5,216)   $  (6,243)
Tax/book depreciation, depletion and 
  amortization difference.......................     3,046      (24,936)
Oil and gas property expenditures treated as 
  expense for income tax purposes...............        41        2,010
Other accruals..................................    (1,348)      (1,792)
Reserve for investments.........................      (855)      (1,318)
Increase (decrease) in valuation allowance......     4,332       32,279
                                                   -------      -------
                                                 $       -    $       -
                                                   =======      =======  

      The  components of the Company's deferred  tax  assets  and
liabilities as of December 31, 1996 and 1995, were as follows (in
000's):

                                                     1996         1995
                                                     ----         ----
     Deferred tax assets:
         Net operating loss carryforwards....... $  59,518     $  54,329
         Other liabilities and reserves.........     2,815         1,960
         Property and equipment, net............    15,742        17,454
         Valuation allowance....................   (78,075)      (73,743)
                                                   -------       -------
     Total deferred tax assets.................. $       -     $       -
                                                   =======       =======

      At  December  31, 1996, the Company had net operating  loss
carryforwards for tax purposes in the approximate amount of  $160
million  which  are  scheduled  to  expire  by  the  year   2011.
Additionally,  the Company has available acquired  net  operating
loss  carryforwards  in the approximate amount  of  $9.0  million
which  are  scheduled to expire by the year 2000, and  which  are
available to offset taxable income of an acquired subsidiary.

      At  December 31, 1996, the Company had alternative  minimum
tax net operating loss carryforwards in the approximate amount of
$100.0  million which are scheduled to expire by the  year  2011.
Additionally,  the Company has acquired alternative  minimum  tax
net  operating  loss carryforwards in the approximate  amount  of
$12.0 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.

(9)  Stock Option Plans

     The Company's stock option plans 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.  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. The Company's prior
stock  option  plans  will  be consolidated  into  the  LTSIP  by
replacing  options granted under the existing stock option  plans
with comparable options granted under the LTSIP for an equivalent
number of shares.

      The  Company accounts for stock option plans in  accordance
with  Accounting Principles Board Opinion No. 25, under which  no
compensation   expense  has  been  recognized.   If  compensation
expense  for  these plans had been recognized based on  the  fair
value  of  awards  at the grant dates consistent  with  Financial
Accounting Standards Board Statement No. 123, the impact  on  the
Company's  net  loss  and  loss per share  would  not  have  been
material.

      A  summary of the stock option plans activity for the years
ended December 31, 1996, 1995 and 1994 is as follows:

<TABLE>
                                
                                                                                Non-
                                                               Incentive     Qualified
                                                   Total        Options        Options
                                                   -----        -------        -------
<S>                                             <C>           <C>            <C>
Balance outstanding at December 31, 1993.....    9,008,690     3,091,473      5,917,217
Options granted in 1994 at $1.25.............    4,896,683     2,077,500      2,819,183
Options canceled during year.................   (1,300,200)     (620,200)      (680,000)
Options exercised during year................     (140,000)            -       (140,000)
                                                ----------     ---------      ---------
Balance outstanding at December 31, 1994.....   12,465,173     4,548,773      7,916,400
Options granted in 1995 at $1.25 per share...      680,000       200,000        480,000
Options canceled during year.................   (1,562,500)   (1,162,358)      (400,142)
                                                ----------     ---------      ---------
Balance outstanding at December 31, 1995.....   11,582,673     3,586,415      7,996,258
Options granted in 1996 at $1.25 per share...      242,000       140,333        101,667
Options canceled during year.................   (1,522,000)     (501,149)    (1,020,851)
                                                ----------     ---------      ---------
Balance outstanding at December 31, 1996.....   10,302,673     3,225,599      7,077,074
                                                ==========     =========      =========
Shares exercisable at December 31, 1994......    9,586,828     3,153,765      6,433,063
                                                ==========     =========      =========
Shares exercisable at December 31, 1995......   10,258,327     2,987,072      7,271,255
                                                ==========     =========      =========
Shares exercisable at December 31, 1996......   10,141,339     3,064,265      7,077,074
                                                ==========     =========      =========

Shares available for future grant under 
  the plans at December 31, 1996.............    4,572,661
                                                ==========
</TABLE>

      As  of  December  31,  1996, the 10,302,673  stock  options
outstanding  have exercise prices ranging from  $1.25  to  $2.125
with a weighted average price of $1.29 per share.  The fair value
of each option is estimated on the date of grant using an option-
pricing  model with the following assumptions used for grants  in
1996 and 1995, respectively:  dividend yield of .0 percent and .0
percent,  volatility of 100 percent and 100  percent,  risk  free
interest  rate  of  6.68 percent and 7.78  percent  and  expected
period  outstanding  for 10 years for both  years.  The  weighted
average  fair value of options granted in 1996 and 1995 was  $.28
and $.69, respectively.

(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 1996, 1995 or 1994.

 (11)     Other Commitments, Contingencies and Subsequent Events

      Other  commitments,  contingencies  and  subsequent  events
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  (The  Contractor  has
               drilled  two wildcat wells, satisfied the  seismic
               acquisition  and minimum expenditure  requirements
               and   has  received  an  extension  allowing   the
               drilling  of  the  third wildcat well  during  the
               first year of the second exploration phase.   Upon
               completion   of   drilling,   logging   and,    if
               applicable,  testing of the F-1  well now drilling,  
               the  first phase commitments will 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.

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

     o    On  December  1,  1995, the Company  submitted  certain
          accounting disputes to arbitration arising from Apache's
          operations at the Zhao Dong Block.  In the initial submission,
          the Company disputed certain amounts charged to the Company by
          Apache in the August, September and October 1995 joint interest
          billings and the November and December 1995 cash calls.  Amounts
          involved in later months' joint interest billings and cash calls
          were subsequently added to the submission.   On April 10, 1997,
          the Company paid to Apache $3,114,700 representing all amounts
          that the Company believes are due Apache for charges under the
          Joint Operating Agreement.  Apache invoices total $979,790
          greater than the amount paid and the Company has disputed the
          additional amounts and such amounts are the subject of the above-
          referenced arbitration.  The Company is of the opinion, based
          upon discussions with senior Apache personnel, that the dispute
          will be resolved to the mutual satisfaction of both parties
          without resorting to formal arbitration procedures.
     
     o    By letter dated November 8, 1996, the AMEX has informed the
          Company that they are reviewing the Company's continued listing
          eligibility because:

          (1)  the  Company has incurred net losses for  each  of
               the  past  five  fiscal years and  the  first  six
               months of the current fiscal year;
          (2)  the  Company has disclosed that  it does not  have
               sufficient cash flow from operations to  meet  its
               obligations;
          (3)  the  Company is in default of payment  of  certain
               debt;
          (4)  the  Company's  independent accountants  in  their
               report  on the Company's 1995 financial statements
               noted   that  as  a  consequence  of  the  matters
               discussed above, substantial doubt has been raised
               as to the Company's ability to continue as a going
               concern.
               
          On   December   16,   1996,  the   Company   met   with
          representatives of the AMEX to present  information  in
          support  of  a  continued  listing.   By  letter  dated
          January 16, 1997, the AMEX notified the Company that it
          has  determined to defer further consideration  of  the
          Company's  continued listing eligibility until  it  has
          reviewed the Company's 1996 Form 10-K, and the further 
          review of the Company's favorable progress in satisfying
          guidelines for continued listing.
     
     o    During  February 1997, the Company sold  its  remaining
          interest (41.089%) in the Seller Notes securing the Lutcher Moore
          Tract ($217,961 in principal) for $193,916 net after discount.
          In connection with the sale, the Company issued stock purchase
          warrants pursuant to which the purchasers can acquire 1,874,467
          shares of Common Stock at an exercise price of $0.25 per share,
          expiring December 31, 1999.
     
     o    During February 1997, the Company sold 13,458 shares of
          Series A Preferred Stock for $157,240.  The proceeds were used to
          pay the withholding taxes and fractional interests with respect
          to the December 31, 1995 dividend payment.  In March 1997, the
          Company issued an additional 50,137 shares of Series A Preferred
          Stock in payment of this dividend, therefore fulfilling its
          obligation for such dividend period.
     
     o    During February 1997, the Company offered to reduce the
          exercise price on a total of 5.52 million warrants issued in
          connection with the Regulation S offerings conducted by Rauscher
          Pierce & Clark, as Placement Agent, in December 1995 and March
          1996, in exchange for their immediate exercise of such warrants.
          The exercise price was reduced from $0.25 to $0.22 per share.
          One holder of 2.64 million warrants accepted the offer and at
          March 31, 1997, had exercised 1,703,100 warrants. The Placement
          Agent agreed to accept $0.01 per share commission rather than
          $0.02 as provided for in the Placement Agency Agreement resulting
          in the Company receiving $0.21 per share net.
     
     o    During February 1997, the Company issued a total of 21,057
          shares of Series F Preferred Stock in consideration of $225,000,
          assignment of 1,408,125 shares of Common Stock and 2,600,000
          warrants to purchase Common Stock and the release by the
          purchasers of certain claims against the Company arising from the
          Company's inability to perform under the terms of existing
          agreements.  Each share of Series F Preferred Stock  is
          convertible, at the holder's option, into 400 shares of Common
          Stock.
     
     o    On March 31, 1997, the Company sold its office building at
          110 Rue Jean Lafitte, Lafayette, Louisiana for $900,000.  The
          Company on the same day, entered into a lease with the purchasers
          for one floor of the two story building for a term of 22 months with
          an option to extend for an additional eight month period.  The
          outstanding balance of the underlying mortgage as of December 31,
          1996 was $652,000, which has been repaid in full upon the sale of
          the building.
     
     o    On April 10, 1997, a wholly owned subsidiary of the Company
          sold $3.1 million of notes and  10.1 million warrants to purchase
          a like number of shares of Common Stock of the Company at $0.01
          per share.  These notes are expected to be repaid from proceeds
          of the Offering.  The proceeds from these notes were immediately
          paid to Apache for unpaid cash calls.
     
     o    The  Company  has  future commitments of  $1.5  million
          associated with its joint venture contract to enter the
          lubricating oil business in China.
     
     o    During 1992, the Company received notice, and amendment
          thereto, of a proposed assessment for state income and franchise
          taxes. During December 1993, the Company and two of its wholly-
          owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions, Inc.
          were sued in separate law suits entitled Ralph Slaughter,
          Secretary of the Department of Revenue and Taxation, State of
          Louisiana vs. Exploration Company of Louisiana, Inc. (15th
          Judicial District, Parish of Lafayette, Louisiana, Docket No. 93-
          5449); Ralph Slaughter, Secretary of the Department of Revenue
          and Taxation, State of Louisiana vs. XCL-Texas, Incorporated
          (15th Judicial District, Parish of Lafayette, Louisiana, Docket
          No. 93-5450); and Ralph Slaughter, Secretary of the Department of
          Revenue and Taxation, State of Louisiana vs. XCL Acquisitions,
          Inc. (15th Judicial District, Parish of Lafayette, Louisiana,
          Docket No. 93-5337) by the Louisiana Department of Revenue for
          Louisiana State corporate franchise and income taxes.  The claims
          relate to assessments for the 1987 through 1991 fiscal years. The
          aggregate amount of the assessments, including penalties and
          interest, is approximately $2.5 million as of the original due
          date excluding extensions for filing of the respective returns.
          The Company believes that this contingency has been adequately
          provided for in the consolidated financial statements.  The law
          suits are all in their initial stages.  The Company has filed
          answers to each of these suits and intends to defend them
          vigorously.  The Company believes it has meritorious defenses and
          has instructed its counsel to contest these claims.
     
     o    In connection with a lawsuit entitled The Elia G. Gonzalez
          Mineral Trust, et al vs. Edwin L. Cox, et al which was settled
          and  dismissed on December 31, 1993, two groups of non-
          participating royalty owners filed interventions.  The court
          ordered the interventions stricken.  During 1994, the first group
          appealed and the second group filed a new lawsuit.  The Company
          settled the new lawsuit filed by the second group with its share
          of the settlement being $20,000.  During December 1994, the
          appellate court affirmed the trial court's decision to deny the
          intervention to the first group. The Company, in March 1995, was
          named as a third party defendant by the original lessor who had
          been previously sued by the nonparticipating royalty owners
          comprising the first group. Management believes that the outcome
          of the lawsuit will not have a material adverse effect on the
          Company's liquidity or results of operations.  The Company
          intends to defend vigorously all claims asserted by the first
          group in its lawsuit.
     
     o    During  April 1994, the Company was sued in  an  action
          entitled Kathy M. McIlhenny vs. The Exploration Company of
          Louisiana, Inc. (15th Judicial District Court, Parish of
          Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny, former
          wife of a former director of the Company, has asserted a claim in
          the aggregate amount of approximately $500,000 in respect of
          compensation for certain services alleged to have been performed
          on behalf of the Company and under an alleged verbal employment
          agreement and, by amendment, asserted a claim for payments
          arising from purported rights to mineral interests. The Company
          believes that all such claims are without merit and rejects the
          existence of any such alleged agreement. Recently concluded
          negotiations have resulted in a settlement of all claims which
          will result in an exchange of mutual releases.
     
     o    On July 26, 1996, Mr. Frank Armstrong of Corpus Christi,
          Texas, individually and on behalf of others (the "Plaintiffs")
          filed three lawsuits against XCL-Texas, Inc., a wholly-owned
          subsidiary of the Company.

          The  first lawsuit entitled Stroman Ranch Company Ltd.,
          et  al v. XCL-Texas, Inc. (229th Judicial District, Jim
          Hogg  County,  Texas, Cause No. 4550) alleges  that  in
          order to secure from Plaintiffs an amendment to an  oil
          and  gas lease in order to allow for the creation of  a
          voluntary pooled unit, the Company represented  to  the
          Plaintiffs, that it (1) would make a series of payments
          totaling $80,000 and (2) would commence drilling a well
          prior  to  December  31,  1993,  or  pay  $500,000   as
          liquidated damages. Further, the Plaintiffs allege that
          the   Company   has  supplied  false   and   misleading
          information to them in order to deprive them  of  their
          rightful  share of an oil, gas and mineral  estate  and
          revenue therefrom; that being a 50 percent interest  in
          the  pooled  unit  rather than the 30 percent  interest
          actually received. Plaintiffs allege actual damages  of
          $580,000,  any  additional amounts to  result  from  an
          accounting  of  the amount of damages suffered  by  the
          Plaintiffs,   exemplary  damages,   court   costs   and
          interest.  The Company denies liability and expects not
          only to enter affirmative defenses but to counter claim
          for damages to the Company caused by the actions of the
          Plaintiffs.
          
          The  second lawsuit entitled Frank Armstrong, et al  v.
          XCL-Texas,  Inc.  (229th Judicial  District,  Jim  Hogg
          County, Texas, Cause No. 4551) alleges that the Company
          did  not  adequately  represent the  interests  of  the
          Plaintiffs before a Texas Railroad Commission  hearing,
          therefore,  the Plaintiffs incurred legal  and  related
          expenses   totaling  $56,473  for   which   they   seek
          reimbursement.   The  Company  denies   liability   and
          intends to vigorously defend itself.
          
          The  third lawsuit entitled Stroman Ranch Company Ltd.,
          et  al v. XCL-Texas, Inc. (229th Judicial District, Jim
          Hogg  County, Texas, Cause No. 4552) alleges that, with
          respect to a lease executed in 1938 and assigned to the
          Company by Edwin L. and Berry R. Cox (the "Cox Group"),
          ceased producing in paying quantities prior to November
          11,  1987  and therefore should be declared terminated.
          In  the  alternative, the Plaintiffs seek a declaratory
          judgment  that  the  Cox Group engaged  in  bad  faith,
          invalid  and  wrongful pooling of the 1938  lease  with
          another lease executed in 1985. Further, the Plaintiffs
          seek   damages  in  excess  of  $1  million  to  effect
          environmental restoration arising from damage caused by
          the  Company's  operation of the  leases  in  question.
          Finally, Plaintiffs seek an accounting and the  damages
          determined  from such accounting, of all  oil  and  gas
          production and revenues from the sale of the same under
          the  1938  lease, attorneys fees and court costs.   The
          Company  believes the claims made in this  lawsuit  are
          without merit and intends to vigorously defend itself.
          
          In response to the request by the lessors' counsel, the
          Company has granted the lessors an extension of time to
          respond  to  discovery demands made by the  Company  to
          allow  sufficient  time to pursue  settlement  of  this
          litigation.   The  Company  believes  that   any   such
          settlement will not have a material adverse  effect  on
          the Company.
     
     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.
     
     o    The Company is subject to existing federal, state and local
          laws and regulations governing environmental quality and
          pollution control. Although management believes that such
          operations  are  in general compliance with  applicable
          environmental regulations, risks of substantial costs and
          liabilities are inherent in oil and gas operations, and there can
          be no assurance that significant costs and liabilities will not
          be incurred.
     
(12) Other Related Party Transactions

      The  Company  had  transactions with certain  officers  and
affiliates, as follows:

     o    In  connection with the scrip dividend payments on  the
          Company's Series A Preferred Stock (see Note 7  to  the
          Consolidated Financial Statements) and certain financings, an
          entity in which a former director of the Company is employed
          received approximately $13,475 in 1994 in advisory fees and
          administrative services. The parent company of the entity, acted
          as an escrow agent in the Company's registered public offering
          completed in January 1994 and received $45,000 in payment for
          such service. This entity also owns $2.25 million in principal
          amount of the Company's Secured Subordinated Notes due April 5,
          2000 and in 1994 received 292,335 shares of Common Stock in
          respect of interest due thereon.  In connection with the Net
          Revenue Interest acquired as a result of the Subordinated Debt
          investment, this entity received $733. During 1994, another
          affiliated entity, from time to time, acted on behalf of the
          Company as a placing agent for sales of the Company's securities
          in the United Kingdom and provided financial consulting services
          for the Company for which it received an aggregate of $1,169,925
          in such capacities.  Additionally, this entity was issued 417,566
          shares of Common Stock with a fair market value of $417,566 in
          lieu of a cash payment for services rendered and to be rendered
          in connection with an introduction of the Company to the Hong
          Kong Stock Exchange and other corporate advisory services related
          to the Company's activities in the Far East.
     
     o    During 1995, a director of the Company who was also a holder
          of one Lease Note unit received 14,286 shares of Common Stock
          upon exercise of a warrant comprising a portion of the Lease Note
          Unit and has received cash payments aggregating $273 under net
          revenue interests held. During 1994, he received 77,231 shares of
          Common Stock upon tender of his Lease Note ($91,712 principal and
          accrued interest). Additionally in 1994, such director received
          cash payments totaling $690 under net revenue interests held on
          certain of the Company's domestic producing properties.  Such net
          revenue interests were assigned as a portion of the Lease Note
          unit.
     
     o    In 1994, the Company purchased from a company affiliated
          with a former director an interest in a 72,000-acre ranch in
          south Texas by issuance of Common Stock (see Note 5).
     
     
(13) Oil and Gas Producing Activities

      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,  1996  are  as
follows (000's):
<TABLE>
                                                            Year Ended December 31
                                                          -------------------------
                                                          1996       1995      1994
                                                          ----       ----      ----
<S>                                                   <C>        <C>        <C>    
Revenues from oil and gas producing activities:
      Sales to unaffiliated parties.................  $   1,136  $   2,480  $   4,336
                                                        -------    -------    -------
Production (lifting) costs:
      Operating costs (including marketing).........        342        985      1,341
      State production taxes and other..............         28         51        356
                                                        -------    -------    -------
             Production costs.......................        370      1,036      1,697
Depletion and amortization..........................        437      1,989      3,059
Provision for impairment of oil and gas properties..      3,850     75,300     25,900
                                                        -------    -------    ------- 
              Total expenses........................      4,657     78,325     30,656
                                                        -------    -------    -------
Pretax loss from producing activities...............     (3,521)   (75,845)   (26,320)
Income tax expense..................................          -          -          -
                                                        -------    -------    -------
Results of oil and gas producing activities 
  (excluding corporate overhead and interest costs).  $  (3,521)  $(75,845) $ (26,320)
                                                        =======    =======    =======
</TABLE>

      The  depreciation, depletion and amortization  (DD&A)  rate
averaged $0.96, $1.23 and $1.25 per equivalent Mcf in 1996,  1995
and 1994, respectively.
  
  
  Capitalized Costs
  -----------------

      Capitalized  costs and accumulated depreciation,  depletion
and  amortization relating to the Company's proved  and  unproved
oil and gas properties, are as follows (000's):
<TABLE>
                                                                      December 31
                                                                     -------------- 
                                                                     1996      1995
                                                                     ----      ---- 
   <S>                                                            <C>       <C>
   Foreign proved and unproved properties under development.....  $ 34,305  $ 27,315
   
   Accumulated depreciation, depletion and amortization,
     and valuation allowances...................................         -         -
                                                                   -------   -------
         Total net capitalized costs............................  $ 34,305  $ 27,315
                                                                   =======   =======
</TABLE>

      The  capitalized costs for the foreign properties represent
cumulative expenditures related to the Zhao Dong Block Production
Sharing Agreement.


      The  Company's investment in oil and gas properties  as  of
December 31, 1996, consists of 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 unproved properties under 
development were incurred  as  follows (000's):

<TABLE>
                                                              Year Ended December 31
                                                      --------------------------------------
                                                                                     1993
                                          Total       1996      1995      1994     and Prior
                                          -----       ----      ----      ----     ---------
  <S>                                   <C>        <C>        <C>       <C>        <C>
  Property acquisition costs........... $ 26,408   $  4,223   $ 7,023   $  8,978   $  6,184
  Capitalized interest costs...........    7,897      2,767     2,596      1,792        742
                                          ------     ------    ------    -------    -------
         Total foreign proved and
          unproved properties
          under development............ $ 34,305   $  6,990   $ 9,619   $ 10,770   $  6,926
                                          ======     ======    ======    =======    =======
</TABLE>

  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):
<TABLE>
                                                                 Year Ended December 31
                                                           -------------------------------
                                                           1996 (a)    1995 (a)   1994 (a)
                                                           --------    --------   --------
     <S>                                                   <C>         <C>        <C>
     Costs incurred:
         Unproved properties acquired..................... $  4,223    $  7,209   $  9,458
         Capitalized internal costs.......................        -         135        660
         Capitalized interest and amortized debt costs....    2,767       3,075      5,239
     
     Exploration..........................................        -           -      2,181
     
     Development..........................................        4       1,590      3,798
                                                            -------     -------    ------- 
                       Total costs incurred............... $  6,994    $ 12,009   $ 21,336
                                                            =======     =======    =======
</TABLE>
     -----------
      (a) Includes  Zhao Dong Block expenditures net  of  partner
          reimbursements  of $4,223, $7023 and  $8,978  in  1996,
          1995  and  1994, respectively for property  acquisition
          costs  and  capitalized interest of $2,767, $2,596  and
          $1,792 in 1996, 1995 and 1994, respectively.


                   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 1996 are located in China and in 1995 and  1994
were located in the United States.

<TABLE>
                                        Crude Oil (MBbls)
                                        -----------------
                                                       1996      1995      1994
                                                       ----      ----      ----
<S>                                                  <C>          <C>       <C>
Beginning of year...................................       -       294      395

    Discoveries.....................................  10,579         -        -
    Revisions of previous estimates.................       -        24      (66)
    Production......................................       -       (19)     (31)
    Purchases (sales) of minerals in place..........       -      (241)      (4)
    Transfer of property to assets held for sale....       -       (58)       -
                                                      ------     -----    -----
End of year.........................................  10,579         -      294
                                                      ======     =====    =====
Proved developed reserves -
    Beginning of year...............................       -       126      153
                                                      ======     =====    =====
    End of year.....................................       -         -      126
                                                      ======     =====    =====
</TABLE>
                              
<TABLE>
                              Natural Gas (MMcf)
                              ------------------
                                                        1996     1995     1994
                                                        ----     ----     ----
<S>                                                    <C>     <C>       <C>
Beginning of year...................................       -    74,208   77,886
    Revisions of previous estimates.................       -    (9,003)  (9,547)
    Extensions and discoveries......................       -         -    8,227

Production..........................................       -    (1,474)  (2,218)
    Purchases (sales) of minerals in place..........       -    (6,274)    (140)
    Transfer of property to assets held for sale....       -   (57,457)       -
                                                       -----   -------   ------
End of year.........................................       -         -   74,208
                                                       =====   =======   ======
Proved developed reserves -
    Beginning of year...............................       -    34,792   38,161
                                                       =====   =======   ======
    End of year.....................................       -         -   34,792
                                                       =====   =======   ======

</TABLE>

      The  Company's estimated quantities of oil and  gas  as  of
December  31,  1996  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 and 1994.  For fiscal 1995 and 1994 significant
downward  revisions were attributed to the Company's interest  in
the  Cox  Field in Texas due largely to performance of  producing
wells.

                    Supplementary Information
                    -------------------------

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

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

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

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

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

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

Standardized Measure of Discounted Future Net Cash Flows Related
                 to Proved Oil and Gas Reserves
                                
     The standardized measure of discounted future net cash flows
from  proved oil and gas reserves, determined in accordance  with
rules prescribed by the FASB, is summarized as follows:

<TABLE>
                                                          Year Ended December 31
                                                      --------------------------------- 
                                                      1996 (a)   1995 (a)      1994 (a)
                                                      --------   --------      --------
                                                          (Thousands of Dollars)
<S>                                                  <C>         <C>          <C>
Future cash inflows................................. $222,797    $103,048     $159,666
Future costs:
    Production, including taxes.....................  (39,033)    (20,937)     (30,455)
    Development.....................................  (40,904)    (35,276)     (34,534)
                                                      -------     -------      -------
Future net inflows before income taxes..............  142,860      46,835       94,677
Future income taxes (b).............................        -           -            -
                                                      -------     -------      -------
Future net cash flows...............................  142,860      46,835       94,677
10% discount factor.................................  (63,798)    (20,795)     (34,429)
Transfer of properties to assets held for sale......        -     (26,040)           -
                                                      -------     -------      -------
Standardized measure of discounted net cash flows... $ 79,062    $      -     $ 60,248
                                                      =======     =======      =======
</TABLE>
-------------
(a)   1996  represents  China properties  only.   1995  and  1994
      represents U.S. properties only.
(b)   No taxes have been reflected because of utilization of  net
      operating loss carryforwards.

      The  standardized  measure  of discounted  net  cash  flows
included a tight gas severance tax exemption as provided  for  in
Texas  Railroad  Commission Statewide Rule 105.   This  exemption
results  in  approximately  $2.7 million  of  net  present  value
discounted at 10 percent.  The tight gas severance tax  exemption
is a temporary exemption which expires on August 31, 2001.  There
are  no  circumstances that must be met to keep the exemption  in
place.

  Changes in Standardized Measure of Discounted Future Net Cash
  -------------------------------------------------------------
               Flow From Proven Reserve Quantities
               -----------------------------------
                                
<TABLE>
                                                           Year Ended December 31
                                                       -------------------------------
                                                       1996 (a)    1995 (a)   1994 (a)
                                                       --------    --------   --------
                                                          (Thousands of Dollars)
<S>                                                    <C>       <C>         <C>
Standardized measure-beginning of year................ $     -   $  60,248   $ 65,188
Increases (decreases):
    Sales and transfers, net of production costs......       -      (1,347)    (2,639)
    Net change in sales and transfer prices, net of
       production costs...............................       -     (15,095)    (3,458)
    Extensions, discoveries and improved recovery, 
      net of future costs.............................  79,062           -      8,664
    Changes in estimated future development costs.....       -      (2,886)      (526)
    Development costs incurred during the period that
       reduced future development costs...............       -       1,117          -
    Revisions of quantity estimates...................       -      (8,003)   (14,695)
    Accretion of discount.............................       -       6,024      6,519
    Net change in income tax..........................       -           -          -
    Purchase (sales) of reserves in place.............       -      (4,654)      (157)
    Changes in production rates (timing) and other....       -      (9,364)     1,352
    Reclassification of reserves to assets held 
      for sale........................................       -     (26,040)         -
                                                        ------     -------    -------
Standardized measure-end of year...................... $79,062    $      -   $ 60,248
                                                        ======     =======    =======

</TABLE>
------------
(a)   1996  represents  China properties  only.   1995  and  1994
      represents U.S. properties only.

(14) Supplemental Financial Information

                 Quarterly Results of Operations
                 -------------------------------
<TABLE>
                                
                                                 Quarter                     Year
                               -----------------------------------------     ----
                               First       Second       Third     Fourth
                               -----       ------       -----     ------
                                 (Thousands of Dollars, Except Per Share Amounts)
<S>                           <C>         <C>         <C>        <C>        <C>
1996
----
Oil and gas revenues......... $   576     $    361    $     94   $    105   $  1,136
Loss from operations (a).....  (1,057)      (1,970)     (1,606)    (5,160)    (9,793)
Net loss (a).................  (1,641)      (3,062)     (1,733)    (5,638)   (12,074)
Net loss per share (a).......    (.01)        (.02)       (.01)      (.03)      (.07)
1995
----
Oil and gas revenues......... $   678     $    724    $    604   $    474   $  2,480
Loss from operations (b).....  (1,269)     (12,349)    (10,362)   (61,693)   (85,673)
Net loss (b).................  (1,612)     (13,263)    (10,496)   (62,466)   (87,837)
Net loss per share (b).......    (.01)        (.07)       (.04)      (.26)      (.38)
</TABLE>
--------------
(a)  1996  results include a provision for impairment of oil  and
     gas properties held for sale of $3,850.
(b)  1995  results include a provision for impairment of oil  and
     gas properties held for sale of $75,300.
                                
Item  9.    Changes  in  and  Disagreements  on  Accounting   and
Financial Disclosure.

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

                            PART III
                            --------  

Item 10.       Directors and Executive Officers of the Registrant.
               ---------------------------------------------------

      Officers  of  the Company and its wholly owned subsidiaries
serve at the pleasure of the Board of Directors and are appointed
annually  at  the  meeting of the Board of Directors  immediately
following  the  annual  meeting of  shareholders.  The  following
individuals  were officers and directors of the Company  and  its
subsidiaries during 1996.

<TABLE>
                                                                          Officer   Director
            Name                             Position               Age    Since      Since
            ----                             --------               ---    -----      -----
<C>                             <C>                                 <C>    <C>        <C>
Marsden W. Miller, Jr. .......  Chairman of the Board
                                and Chief Executive Officer (1)      55     1981      1981
John T. Chandler..............  President and Director, 
                                Chairman and Chief Executive 
                                Officer of XCL-China Ltd. (1)(6)     64     1982      1983
David A. Melman...............  Executive Vice President, General 
                                Counsel, Secretary and Director (1)  54     1983      1987
Edmund McIlhenny, Jr. ........  Director of the Company, President 
                                of XCL Land, Ltd. (4)                51     1991      1990
Fred Hofheinz.................  Director of the Company, Attorney 
                                at Law (2)(3)                        59        -      1991
Arthur W. Hummel, Jr. ........  Director of the Company, 
                                Independent Consultant (2)(3)        76        -      1994
Sir Michael Palliser..........  Director of the Company, 
                                Independent Consultant (2)(3)        74        -      1994
Francis J. Reinhardt, Jr. ....  Director of the Company, Partner 
                                in Carl H. Pforzheimer & Co. (2)(3)  67        -      1992    
Danny M. Dobbs................  Executive Vice President and 
                                Chief Operations Officer (5)         51     1991         -
Herb Hamilton.................  Executive Vice President Operations, 
                                XCL-China, Ltd. (6)                  61     1995         -
Pamela G. Shanks..............  Vice President-Finance, Chief 
                                Financial Officer and Treasurer (7)  44     1992         -
R. Carter Cline...............  Vice President-Land                  48     1990         -
John H. Haslam................  Treasurer (8)                        55     1996         -
---------------
</TABLE>
(1)  Member of the Executive Committee.  The Committee met  twice
     during 1996 and, subject to certain statutory limitations on
     its  authority,  has  all  of the powers  of  the  Board  of
     Directors  while  the  Board is not in session,  except  the
     power  to  declare  dividends, make and alter  Bylaws,  fill
     vacancies on the Board or the Executive Committee, or change
     the membership of the Executive Committee.

(2)  Member of the Compensation Committee. The Committee met once
     in   1996.   It  is  charged  with  the  responsibility   of
     administering  and interpreting the Company's  stock  option
     plans;  it also recommends to the Board the compensation  of
     employee-directors,  approves  the  compensation  of   other
     executives and recommends policies dealing with compensation
     and personnel engagements.

(3)  Member  of the Audit Committee.  The Committee met  once  in
     1996.   It reviews with the independent auditors the general
     scope  of audit coverage. Such review includes consideration
     of the Company's accounting practices, procedures and system
     of   internal  accounting  controls.   The  Committee   also
     recommends  to  the Board the appointment of  the  Company's
     independent  auditors, and at least annually, the  Committee
     reviews the services performed and the fees charged  by  the
     independent auditors engaged by the Company.

(4)  XCL  Land, Ltd. is a wholly owned subsidiary of the  Company
     through which the Company holds title to and manages its fee
     properties.   Effective  February  1,  1996,  Mr.  McIlhenny
     resigned as an officer of XCL Land, Ltd. and effective  June
     26,  1996,  Mr.  McIlhenny resigned as  a  director  of  the
     Company.

(5)  Effective  March  17, 1994, Mr. Dobbs was appointed  to  the
     position  of  Executive Vice President and Chief  Operations
     Officer of the Company.

(6)  XCL-China, Ltd. is a wholly owned subsidiary of the  Company
     which manages the Company's oil and gas operations in China.

(7)  Effective  February  1,  1996, Ms.  Shanks  resigned  as  an
     officer of the Company.

(8)  Mr. Haslam was appointed Treasurer on March 21, 1996.

      Under  the Certificate of Incorporation and Bylaws  of  the
Company, the Board of Directors is divided into three classes  of
directors serving staggered three-year terms, with one  class  of
directors  to  be elected at each annual meeting of  shareholders
and  to  hold office until the end of their term and until  their
successors have been elected and qualified. The current  Class  I
directors,  whose  terms  of office expire  at  the  1997  annual
meeting of shareholders, are  Messrs. David A. Melman, Arthur  W.
Hummel,  Jr.  and  Michael Palliser; and  the  current  Class  II
directors, whose term of office expire at the 1998 annual meeting
of  shareholders, are Messrs. Marsden W. Miller, Jr. and  Francis
J.  Reinhardt,  Jr.; and the current Class III  directors,  whose
terms   of   office  expire  at  the  1999  annual   meeting   of
shareholders,  are  Messrs. John T. Chandler and  Fred  Hofheinz.
Mr.  Edmund  McIlhenny, a Class II director,  resigned  effective
June 26, 1996.

     The Board held five meetings in 1996. The average attendance
by  directors at these meetings was 97 percent, and all directors
attended 98 percent of the Board and Committee meetings they were
scheduled to attend.

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

      Pursuant to the terms of an agreement dated April 17,  1992
between the Company and China Investment & Development Co.,  Ltd.
("CIDC"),  the  Company granted to CIDC the right  to  appoint  a
nonvoting observer to the Company's Board of Directors so long as
CIDC  owns at least 16,667 shares of Series B Preferred Stock  or
their equivalent in Common Stock on an as converted basis.  As  a
result  of certain dividend payment defaults, the holders of  the
Company's Series A Preferred Stock are entitled to elect  (voting
as  a class with all other shares of parity stock) two additional
directors until all past accumulated dividends have been paid  in
full.   In  addition,  as  a  result  of  such  dividend  payment
defaults,  the holders of the Company's Series A Preferred  Stock
are entitled to cast 21 votes for each share of such Stock voting
together  with the Common Stockholders on all matters subject  to
Common Stockholder vote.

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

Biographical Information

      MARSDEN W. MILLER, JR., is the Chairman and Chief Executive
Officer  of the Company, as well as a director, and has held  the
positions  of  Chief  Executive Officer and  director  since  its
incorporation.  Prior to 1981, from 1964, Mr. Miller  engaged  in
the oil business as an independent, was an officer in various oil
companies,  principally Westrans Industries, Inc.  from  1970  to
1973, Meridian Minerals, Inc. from 1973 to 1976, and Miller  Coal
Services,  Inc.  and  its subsidiaries from  1979  to  1981,  and
practiced law.

      JOHN  T. CHANDLER, is President of the Company and Chairman
and  Chief  Executive Officer of XCL-China Ltd., a  wholly  owned
subsidiary   of   the  Company  responsible  for  the   Company's
operations in China. He joined the Company in June 1982, becoming
a director in May 1983. From 1976 until he joined the Company, he
was  the Managing Partner of the Oil and Gas Group of GSA Equity,
Inc.,  New  York  and director of Executive Monetary  Management,
Inc.,  the parent company of GSA Equity, Inc.  From 1972 to 1976,
he  was director and Vice President of Exploration and Production
of  Westrans  Petroleum, Inc. and a director of a number  of  its
subsidiaries.   During  1971  and  1972,  he  was   a   petroleum
consultant  and  manager  of the oil  department  of  Den  Norske
Creditbank  in Oslo, Norway. Mr. Chandler was Vice President  and
Manager  of  the  Petroleum Department of  the  Deposit  Guaranty
National  Bank in Jackson, Mississippi from 1969 to  August  1971
and,  from 1967 to February 1969, was a petroleum engineer  first
for  First National City Bank and then The Bank of New York. From
March  1963  to  July 1967, he was employed by  Ashland  Oil  and
Refining  Company as a petroleum engineer. From 1959 to 1963,  he
held the same position with United Producing Company, Inc., which
was acquired by Ashland Oil.

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

      DAVID  A.  MELMAN,  is  Executive Vice  President,  General
Counsel  and  Secretary of the Company and, since  September  14,
1987, a director of the Company. Prior to joining the Company  in
December of 1983, he held senior management positions with an oil
and  gas  venture capital partnership sponsored by Citibank  N.A.
(since May 1981) and with Energy Assets International Corporation
from  September  1978  to  May 1981. His professional  experience
includes  the practice of law with Burke & Burke (1969-1971)  and
of accountancy with Coopers & Lybrand (1968-1969). He is a member
of  the  New York State Bar.  Mr. Melman holds a B.S.  degree  in
economics and J.D. and LL.M (taxation) law degrees.

     FRED HOFHEINZ, is an attorney at law in Houston, Texas. From
1984   to   1987,  he  served  as  President  of  Energy   Assets
International  Corporation,  a fund  management  company,  now  a
subsidiary  of Torch Energy Advisors, then served as a consultant
to  Torch Energy Advisors until 1989. Mr. Hofheinz also served as
the Mayor of Houston, Texas from 1974 to 1978. He, along with his
family, developed the Astrodome in Houston, and owned the Houston
Astros  baseball team until 1974. He is founder and  director  of
United  Kiev  Resources, Inc., an oil and gas production  company
operating  in  the Republic of the Ukraine in  the  name  of  its
wholly  owned  subsidiary,  Carpatsky  Petroleum  Company.    Mr.
Hofheinz  earned a Ph.D. degree in Economics from the  University
of  Texas and his law degree from the University of Houston.   He
was  appointed as a director by the Board at a meeting held March
21, 1991.

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

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

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

     SIR MICHAEL PALLISER, a director since April 1994, was until
his  retirement in March 1996, Vice Chairman of Samuel Montagu  &
Co.  Limited, the merchant bank which was owned by Midland  Bank,
of  which he was Deputy Chairman from 1987 to 1991, and which  is
now part of the Hong Kong & Shanghai Banking Corporation.  He was
Chairman of Samuel Montagu from 1984 to 1993. In 1947, he  joined
the  British  Diplomatic  Service and  served  in  a  variety  of
overseas  and Foreign Office posts before becoming  head  of  the
Planning  Staff  in  1964-1966, Private Secretary  to  the  Prime
Minister,  1966-1969, Minister in the British Embassy  in  Paris,
1969-1971,    and   the   British   Ambassador   and    Permanent
Representative to the European Communities in Brussels from 1971-
1975.   He was, from 1975 until his retirement in 1982, Permanent
Under-Secretary of State in the Foreign and Commonwealth  Office,
and Head of the Diplomatic Service.  From April to July 1982,  he
was a special adviser to the Prime Minister in the Cabinet Office
during the Falklands War.  He was appointed a Member of the Privy
Council  in  1983.   Effective December 31,  1995,  Mr.  Palliser
resigned  as  President of the China-Britain Trade  Group  and  a
director  of the UK-Japan 2000 Group, and effective February  29,
1996, he resigned as Deputy Chairman of British Invisibles.   Mr.
Palliser  currently is a member of the Trilateral  Commission,  a
director of the Royal National Theatre, and Chairman of the Major
Projects  Association, designed to assist in and for the handling
of  major  industrial projects.  He is a former Director  of  BAT
Industries, Bookers, Eagle Star, Shell and United Biscuits.

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

      FRANCIS  J.  REINHARDT, JR., is a partner in the  New  York
investment  banking  firm  of  Carl  H.  Pforzheimer  &  Co.  Mr.
Reinhardt  has  been a partner in the firm for 30 years  and  has
held  various positions, specializing in independent oil and  gas
securities,  mergers  and acquisitions, placements  participation
and  institutional sales since 1956. Mr. Reinhardt holds  a  B.S.
degree  from  Seton Hall University and received his M.B.A.  from
New  York University.  Mr. Reinhardt is a member of the New  York
Society  of  Security Analysts, is a member of and has previously
served as president of the Oil Analysts Group of New York,  is  a
member  and  past  president  of  the  National  Association   of
Petroleum  Investment Analysts and is a member of  the  Petroleum
Exploration Society of New York.  Mr. Reinhardt also serves as  a
director  of  Mallon  Resources  Corporation,  a  NASDAQ   traded
petroleum and mining company, as well as several  privately  held
companies.  Mr.  Reinhardt was appointed as  a  director  of  the
Company by the Board at a meeting held December 11, 1992.

      DANNY  M. DOBBS, is the Executive Vice President and  Chief
Operating Officer of the Company effective March 1994.  Mr. Dobbs
previously   served   as   Vice  President-Exploration   of   XCL
Exploration & Production, Inc., a wholly owned subsidiary of  the
Company,  having joined the Company in 1985 as Senior Exploration
Geologist.   From  1981  to  1985  Mr.  Dobbs  was  a  consulting
geologist. From 1976 to 1981, he held the position of Exploration
Geologist  in the South Louisiana District for Edwin  L.  Cox  in
Lafayette,  Louisiana.  He served in various  geologic  positions
with  Texaco,  Inc.  from  1971  to  1976  where  his  experience
encompassed  management,  structural and  stratigraphic  mapping,
coordination  of  seismic  programs  and  budget  evaluation  and
preparation.  Mr.  Dobbs holds B.S. and M.S. degrees  in  geology
from the University of Alabama, Tuscaloosa, Alabama.

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

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

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

Compliance with Section 16(a) Filing Requirements

      To  the  Company's knowledge, instances of failure to  file
reports  with respect to reportable transactions during the  year
ended  December  31, 1996, as required by Section  16(a)  of  the
Exchange Act are as follows:

                       Reports     Number of   Known Failure     Number of 
Reporting Person     Filed Late  Transactions  to File Form     Transactions
----------------     ----------  ------------  ------------     ------------
M. W. Miller, Jr.       Form 4         7             -               -

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


Item 11.     Executive Compensation.
             -----------------------

      The  following table sets forth information  regarding  the
total compensation of the Chief Executive Officer and each of the
four most highly compensated executive officers of the Company at
the  end of 1996, as well as the total compensation paid to  each
such  individual  for  the Company's two previous  fiscal  years.
Each  of the named individuals has held his/her respective office
throughout the entire fiscal year.
                                
                   Summary Compensation Table
                   --------------------------
<TABLE>
                                                                     Long Term Compensation
                                                            -----------------------------------------  
                                     Annual Compensation            Awards              Payouts
                                    ----------------------  --------------------  -----------------
      (1)                                    (2)     (3)       (4)        (5)
                                                    Other   Restricted                                
     Name and                                       Annual    Stock     Options/   LTIP   All Other
     Principal                      Salary  Bonus   Compen-   Awards     SARs     Payout   Compen-
     Position                Year     ($)    ($)   sation ($)   ($)       (#)      ($)     sation ($) 
--------------------------   ----   ------- -----  ---------- ------     -------  ------   ------
<C>                          <C>    <C>       <C>     <C>        <C>   <C>          <C>        <C>
Marsden W. Miller, Jr.       1996   150,000   -       -          -         -        -          -
Chairman and                 1995   150,000   -       -          -         -        -          -
 Chief Executive Officer     1994   150,000   -       -          -     1,625,000                  
                                                                       1,875,000
                                                                         525,000     -         -

John T. Chandler (6)(7)      1996   150,000   -       -          -         -         -         -
President; Chairman and      1995   150,000   -       -          -       120,000     -         -
 Chief Executive Officer     1994   150,000   -       -          -       470,000
 of XCL-China Ltd.                                                     1,025,000
                                                                         100,000     -         -

David A. Melman (8)          1996   150,000   -       -          -         -         -         -
Executive Vice President,    1995   150,000   -       -          -       300,000     -         -
 General Counsel and         1994   150,000   -       -          -       470,000
 Secretary                                                             1,025,000
                                                                         100,000     -         -

Danny M. Dobbs (9)           1996   135,000   -       -          -        97,000     -         -
Executive Vice President     1995   116,250   -       -          -         -         -         -
 and Chief Operations        1994   110,000   -       -          -       148,000     -         -
 Officer

Herbert F. Hamilton (10)     1996   144,000   -       -          -         -         -         -
Executive Vice President     1995    98,800   -       -          -       200,000     -         -
 Operations, XCL-China       1994         -   -       -          -         -         -         -
</TABLE>
___________
(1)  Prior to April 1, 1994, each executive was employed under an
     agreement  with the Company which provided that  if  his/her
     employment   was   terminated  prior  to   the   agreement's
     termination under certain circumstances he/she would receive
     compensation for 30 months. Such employment agreements  were
     surrendered, effective April 1, 1994, in exchange for  stock
     purchase warrants (see "Employment Agreements" below).
(2)  Effective March 30, 1994, the Management Incentive Plan  was
     terminated.
(3)  Excludes the cost to the Company of other compensation that,
     with  respect to any above named individual, does not exceed
     the  lesser  of  $50,000 or 10 percent of such  individual's
     salary and bonus.
(4)  Although  the  Company's  Long  Term  Stock  Incentive  Plan
     permits  grants  of restricted stock and stock  appreciation
     rights, no grants of those incentive awards have been made.
(5)  The  first amount represents awards of stock options granted
     under  the  Company's Long Term Stock Incentive  Plan.   The
     second  amount  represents  the number  of  five-year  stock
     purchase  warrants, received upon surrender of an employment
     agreement with the Company, determined based upon a  formula
     whereby  each  of  the  individuals were  to  be  offered  a
     warrant,  based  upon the length of time of employment  with
     the Company, for a maximum of two shares of Common Stock for
     each  dollar  of compensation remaining to be paid  to  such
     individual  under  his  or  her agreement  (based  upon  the
     product  of his or her highest monthly base salary  and  the
     number of months remaining under his or her contract), at an
     exercise  price  of  $1.25  per  share.   The  third  number
     represents  five-year stock purchase warrants, received  for
     each  dollar  of  salary reduction for the  15-month  period
     commencing   January  1,  1993  through  March   31,   1994,
     determined  based  on  the  same formula  and  at  the  same
     exercise  price  used  in  the  granting  of  warrants  upon
     surrender  of  the  employment agreements. (See  "Employment
     Agreements" below.)
 (6) XCL-China  Ltd. is a wholly owned subsidiary of the  Company
     which manages the Company's operations in China.
 (7) Mr.  Chandler was granted 120,000 options to replace options
     granted in 1984 which expired unexercised in December 1994.
 (8) Mr.  Melman  was granted 120,000 options to replace  options
     granted in 1984 which expired unexercised in December  1994,
     and 180,000 options to replace options granted in 1985 which
     expired unexercised in March 1995.
 (9) Mr.  Dobbs  was  granted 97,000 options to  replace  options
     granted in 1985 which expired unexercised in December 1995.
(10) Mr.  Hamilton commenced employment with the Company on April
     24,  1995.  As part of his employment package he was awarded
     200,000 options.

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

      The  Company  currently maintains three stock option  plans
which were adopted by shareholders at various times commencing in
1985.   All  of  the  plans are administered by the  Compensation
Committee  and  provide for the granting of options  to  purchase
shares  of  Common  Stock to key employees and directors  of  the
Company, and certain other persons who are not employees  of  the
Company  but who from time to time provide substantial advice  or
other assistance or services to the Company.

      The  most recent stock option plan was adopted on  June  2,
1992,  by shareholders who approved the Long Term Stock Incentive
Plan ("LTSIP"). The LTSIP was adopted with the view of conforming
the  Company's plans to certain regulatory changes adopted by the
SEC  and  affording  holders of previously  granted  options  the
opportunity  to  exchange their options  for  equivalent  options
under the LTSIP.

      The  LTSIP authorizes the Compensation Committee  to  grant
stock  options  intended to qualify as "incentive stock  options"
under Section 422 of the Internal Revenue Code of 1986 as amended
("ISOs"),  options which do not qualify under such tax  provision
("NSOs"), "ROs" (i.e., the granting of additional options,  where
an  employee  exercises  an option with previously  owned  stock,
covering  the  number of shares tendered as part of the  exercise
price),  "RSAs"  (i.e.,  stock awarded to  an  employee  that  is
subject to forfeiture in the event of a premature termination  of
employment,  failure  of the Company to meet certain  performance
objectives  or  other conditions), "PUs" (i.e., share-denominated
units credited to the employee's account for delivery or cash-out
at  some  future  date  based  upon performance  criteria  to  be
determined  by the Compensation Committee) and "tax  withholding"
(i.e.,  where the employee has the option of having  the  Company
withhold   shares  on  exercise  of  an  award  to  satisfy   tax
withholding requirements).

      The LTSIP also formally incorporates resolutions previously
adopted  by the Board regarding one-time grants of NSOs  covering
100,000  shares to each new nonemployee director upon his  taking
office.

       The   Compensation   Committee   develops   administration
guidelines  from  time to time which define specific  eligibility
criteria,  the types of awards to be employed, and the  value  of
such  awards.   Specific terms of each award,  including  minimum
performance  criteria which must be met to receive  payment,  are
provided  in  individual  award  agreements  granted  each  award
recipient.  Key employees and other individuals who the Committee
deems  may provide a valuable contribution to the success of  the
Company and its affiliates will be eligible to participate  under
the  Plan.   Award agreements generally contain change-in-control
provisions.

      Under the LTSIP, the Compensation Committee determines  the
option price of all NSOs and ISOs; provided, however, in the case
of  ISOs, the option price shall not be less than the fair market
value  of  the  Common Stock on the date of  grant.   Such  "fair
market  value"  is the average of the high and low  prices  of  a
share of Common Stock traded on the relevant date, as reported on
the   American  Stock  Exchange,  or  other  national  securities
exchange or an automated quotation system.

     On July 1, 1994, the shareholders approved amendments to the
LTSIP  to  increase  the number of shares reserved  for  issuance
under  the Plan by an additional 1,500,000 shares to an aggregate
of   16.5  million  and  corresponding  amendment  to  the   Plan
increasing  the limitation on the total number of shares  subject
to  options  that  can be granted to directors to  13,200,000  of
which  3,300,000 shares may be granted to nonemployee  directors.
At  the same time, shareholders ratified the conditional grant of
options  to  acquire  3,076,500 shares,  made  by  the  Board  of
Directors  on  March 30, 1994, to various executive officers  and
directors.   In 1994, additional options totaling 1,820,183  were
awarded  to  nonexecutive officers, employees and consultants  of
the Company.

      The  closing  price of the Company's Common  Stock  on  the
American Stock Exchange on March 31, 1997 was $0.25 per share.

      The following tables set forth, for those persons named  in
the  "Summary  Compensation Table" information on  stock  options
granted  during  1996  and all stock options  outstanding  as  of
December 31, 1996.
                                
                                
              Option/SAR Grants in Last Fiscal Year
              -------------------------------------
                                
<TABLE>
                                                                        Potential Realizable Value
                                                                          at Assumed Annual Rates
                                                                        of Stock Price Appreciation
                             Individual Grants                                for Option Term
      (a)              (b)           (c)           (d)          (e)                (f)      (g )
                                  % of Total
                                   Options/
                                     SARs
                                   Granted to
                     Options/     Employees in  Exercise or 
                       SARs          Fiscal      Base Price   Expiration
     Name           Granted (#)     Year (3)     ($/Share)       Date      0% ($)       5% ($)     10% ($)
    ------          -----------   ------------  -----------   ----------   ------       ------     -------
<S>                   <C>            <C>          <C>          <C>       <C>          <C>          <C>  
M.W. Miller, Jr.        -             0%             -             -         -            -            -
J.T. Chandler           -             0%             -             -         -            -            -
D.A. Melman             -             0%             -             -         -            -            -
D.M. Dobbs            97,000 (1)     40%          $1.25        April 10, (90,937.50)  (71,874.13)  (42,627.18)
                                                                  2000
H.F. Hamilton           -             0%             -             -         -            -            -
</TABLE>
---------------
(1)  Mr.  Dobbs  was  granted 97,000 options to  replace  options
     granted in 1985 which expired unexercised in December 1995.

       Aggregated Option/SAR Exercises In Last Fiscal Year
       ---------------------------------------------------
               and Fiscal Year-End Option/SAR Values
               -------------------------------------
<TABLE>
         (a)               (b)     (c)                 (d)                         (e)
                                              Number of Securities          Value of Unexercised
                         Shares              Underlying Unexercised            in-the-Money
                        Acquired                 Options/SARs at             Options/SARs at
                           on     Value        Fiscal Year-End (#)         Fiscal Year-End ($)(3)
                        Exercise  Realized  ---------------------------  ---------------------------  
        Name               (#)      ($)     Exercisable   Unexercisable  Exercisable   Unexercisable
       -------          --------  --------  -----------   -------------  -----------   -------------
<C>                         <C>      <C>    <C>               <C>             <C>            <C>
Marsden W. Miller, Jr.      -        -      5,025,000 (1)        -            -              -  
                            -        -      2,400,000 (2)        -            -              -
John T. Chandler            -        -      1,130,000 (1)        -            -              -
                            -        -      1,125,000 (2)        -            -              -
David A. Melman             -        -      1,130,000 (1)        -            -              -
                            -        -      1,125,000 (2)        -            -              -
Danny M. Dobbs              -        -        336,333 (1)     64,667          -              -
                            -        -        582,000 (2)        -            -              -     
Herbert F. Hamilton         -        -        133,333 (1)     66,667          -              -
</TABLE>
-------------
(1)  Represents  options  exercisable under the  Company's  Stock
     Option Plans at December 31, 1996.
(2)  Represents the aggregate number of five-year stock  purchase
     warrants,  received  (a)  upon surrender  of  an  employment
     agreement with the Company, determined based upon a  formula
     whereby  each  of  the  individuals were  to  be  offered  a
     warrant,  based  upon the length of time of  employment  the
     Company,  for  a maximum of two shares of Common  Stock  for
     each  dollar  of compensation remaining to be paid  to  such
     individual  under  his  or  her agreement  (based  upon  the
     product  of his or her highest monthly base salary  and  the
     number of months remaining under his or her contract), at an
     exercise  price of $1.25 per share, and (b) for each  dollar
     of  salary  reduction  for  the 15-month  period  commencing
     January 1, 1993 through March 31, 1994, determined based  on
     the  same formula and at the same exercise price used in the
     granting  of  warrants  upon  surrender  of  the  employment
     agreements. (See "Employment Agreements" below.)
(3)  At  December 31, 1996, the Company's Common Stock price  was
     lower than the option exercise prices.

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

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

      In 1989, the Company adopted an employee benefit plan under
Section  401(k) of the Internal Revenue Code for the  benefit  of
employees  meeting certain eligibility requirements. The  Company
has  obtained a favorable determination from the Internal Revenue
Service  regarding  the tax-favored status of  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 contributions
of each participant.

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

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

      In April 1994, the Company entered into separate consulting
agreements with two directors of the Company, upon their becoming
directors.  Each of the agreements is terminable by each  of  the
parties  thereto  upon  written  notice  and  provides  that  the
individuals  will render consulting services to  the  Company  in
their  respective areas of expertise.  Pursuant to the  terms  of
the   agreements,   both  directors  are  entitled   to   receive
compensation at the rate of $50,000 per annum, which includes the
compensation  they  would otherwise be  entitled  to  receive  as
directors  and for attending meetings of the Board.  In addition,
pursuant  to  the  terms of the LTSIP, each  were  granted  stock
options  for 100,000 shares of Common Stock exercisable at  $1.25
per share.

      During  1996  all  regular employees were  provided  health
insurance,  a  portion of the premium for which is  paid  by  the
Company, and life and disability insurance based upon a factor of
the employee's base salary.

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

      Effective  April  1, 1994, Messrs. M.W. Miller,  Jr.,  J.T.
Chandler, D.A. Melman, D.M. Dobbs, R.T. Fetters, Jr., R.C. Cline,
and  Ms.  P.G.  Shanks,  in  their capacities  as  executive  and
administrative   officers  of  the  Company   and   its   various
subsidiaries  agreed to surrender their employment agreements  in
consideration of the issuance of five-year warrants  to  purchase
Common Stock at an exercise price of $1.25 per share, subject  to
customary  anti-dilution adjustments.   The  number  of  warrants
issued  to  such individuals was determined based upon a  formula
whereby  each  of  the  individuals  was  offered  a  warrant  to
purchase,  based upon the length of time of employment  with  the
Company, a maximum of two shares of Common Stock for each  dollar
of compensation remaining to be paid to such individual under his
or  her  agreement (based upon the product of his or her  highest
monthly base salary and the number of months remaining under  his
or  her agreement).  Accordingly, Mr. Miller received warrants to
purchase  1,875,000 shares; Mr. Chandler, 1,025,000  shares;  Mr.
Melman, 1,025,000 shares; Mr. Fetters, 875,000 shares; Mr. Dobbs,
575,000  shares;  Mr.  Cline, 250,000  shares;  and  Ms.  Shanks,
500,000 shares.

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

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

      During the fiscal year ended December 31, 1996, there  were
no  repricings  of  stock options awarded to  any  of  the  named
executive officers.

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

      For  the  year  ended  December  31,  1996,  the  following
nonexecutive directors of the Company, served as members  of  the
Compensation  Committee of the Board of  Directors:   Messrs.  M.
Palliser  (Chairman),  A.W. Hummel, Jr.,  F.  Hofheinz  and  F.J.
Reinhardt, Jr.  None of the members of the Compensation Committee
were  formerly,  nor  are  any  members  currently,  officers  or
employees of the Company or any of its subsidiaries.

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

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

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

      The  Committee  believes  that  the  cash  compensation  of
executive  officers,  as well as other key employees,  should  be
competitive with other similarly situated companies while, within
the  Company,  being  fair and discriminating  on  the  basis  of
personal  performance.   In general, in establishing  total  cash
compensation  for its executives, the Committee  has  taken  into
account  the  median cash compensation of executives employed  by
competitors including some of the companies reflected in the peer
group identified in the Performance Graph found on page 74, which
the  Committee  believes  represent  the  Company's  most  direct
competition   for   executive  talent.  The  Committee   receives
recommendations from management as to executive compensation and,
in light of the Company's performance and the economic conditions
facing  the  Company, determines appropriate compensation  levels
for recommendation to the Board of Directors.  The Committee does
not  assign  relative weights to individual factors and  criteria
used  in  determining executive compensation  and  does  not  use
quantifiable targets in determining compensation.  For 1997,  the
Company  did not retain the services of a compensation consulting
firm.

      Awards  of  stock  options  are  intended  both  to  retain
executives,  key employees and other individuals who the  Company
believes  may  make significant contributions  to  the  Company's
results  and  to motivate them to improve long-term stock  market
performance.  Options  are granted at  or  above  the  prevailing
market  price  and  will have value only  if  the  price  of  the
Company's Common Stock increases. Generally, options have a  term
of  10 years and vest one-third six months after grant, one-third
one  year after grant and the remaining one-third two years after
grant.

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

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

     On March 20, 1997, the Committee reviewed the Company's 1996
financial  results and 1996 nonfinancial goals and determined  to
await  further  developments in the Company's intended  financing
program prior to assessing management's accomplishments.

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

       The   Committee,   in  connection  with  determining   the
appropriate  compensation for Marsden W.  Miller,  Jr.  as  Chief
Executive  Officer  ("CEO"),  took  into  account  the  financial
condition  of  the Company, including its liquidity requirements.
It  determined that the CEO had been successful in  disposing  of
assets  and raising capital throughout the year.  However, taking
into  consideration  the  current  cash  position  and  near-term
requirements, the Committee determined that cash was  unavailable
for either salary increase or bonus.


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

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

March 20, 1997                     COMPENSATION COMMITTEE

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

      Set  forth  below is a line graph comparing the  percentage
change  in  the  cumulative  total  shareholder  return  on   the
Company's  Common Stock against the AMEX Market Value  Index  for
the  years 1992 through 1996, with a peer group selected  by  the
Company  for the past five fiscal years. The peer group  consists
of  the  same independent oil and gas exploration and  production
companies  used in last year's comparison, with the exception  of
DeKalb  Energy Company which was acquired by Apache  Corporation,
namely:   Alta  Energy  Corporation;  Amerac  Energy  Corporation
(formerly  Wolverine  Exploration Company); American  Exploration
Company;   Bellwether  Exploration  Company;  Brock   Exploration
Corporation;  Tom Brown, Inc.; Caspen Oil, Inc.;  Cobb  Resources
Corporation; Coda Energy, Inc.; Comstock Resources, Inc.; Crystal
Oil  Company;  Edisto  Resources  Company;  Energen  Corporation;
Chemfirst  Inc. (formerly First Mississippi Corporation);  Forest
Oil   Corporation;  Geodyne  Resources,  Inc.;   Global   Natural
Resources, Inc.; Goodrich Petroleum Corporation (formerly Patrick
Petroleum  Company);  Hallador Pete  Company;  Hondo  Oil  &  Gas
Company;   Kelley   Oil  &  Gas  Partners;   Magellan   Petroleum
Corporation;  Maynard Oil Company; McFarland  Energy,  Inc.;  MSR
Exploration  Limited;  Numac Energy, Inc.;  Pacific  Enterprises;
Penn  Virginia Corporation; Plains Resources, Inc.; Presidio Oil;
Wainoco  Oil  Corporation;  Wichita  River  Oil;  and  Wiser  Oil
Company.  The relevant information with respect to the peer group
was  furnished by Standard & Poors Compustat Service.  The  graph
assumes that the value of the investment in the Company's  Common
Stock and the peer group stocks were $100 on January 1, 1991  and
that all dividends were reinvested.
                                
             [SHAREHOLDER RETURN PERFORMANCE GRAPH]
                                
             1992 Return  1993 Return  1994 Return  1995 Return  1996 Return
             -----------  -----------  -----------  -----------  -----------
XCL            200.00       100.00       144.44        66.67        33.33
Peer Group      80.38        97.96        97.65       123.35       147.19
AMEX           101.06       120.78       109.84       138.77       147.65

Item 12.       Security Ownership of Certain Beneficial Owners and Management.
               ---------------------------------------------------------------
 
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
     
     The  following table sets forth as of February 28, 1997, the
     individuals  or entities known to the Company  to  own  more
     than 5 percent of the Company's outstanding shares of voting
     securities. As of that date there were 290,083,521 shares of
     Common  Stock  issued and outstanding. Except  as  otherwise
     indicated,   all  shares  are  owned  both  of  record   and
     beneficially.

<TABLE>
                                                        Series  A               Series B
                                 Common Stock (1)    Preferred Stock(2)   Preferred Stock (3)
                            ----------------------  -------------------   -------------------
  Name and Address          Number of     Percent   Number of   Percent   Number of   Percent
  of Beneficial Owner        Shares       of Class   Shares    of Class    Shares    of Class
 --------------------       ---------    ---------  --------   --------   ---------  --------
<S>                          <C>              <C>   <C>          <C>       <C>          <C> 
China Investment &           19,905,344 (4)   6.46     -           -       44,954       100
 Development Co., Ltd.
16th Floor, No. 563
Chung Hsiao E. Road, Sec. 4
Taipei, Taiwan

Cumberland Associates         7,243,172 (5)   2.47  157,148       26.58      -           -    
1114 Avenue of the Americas
New York, New York  10036

Kayne Anderson Investment    19,679,287 (6)   6.66  159,051       26.90      -           -
  Management, Inc.
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90026

Mitch Leigh                  25,456,952 (7)   8.67     -            -        -           -
29 West 57th Street
New York, New York  10019

Phildrew Nominees Limited       686,469 (8)   0.24   32,689        5.53      -           - 
Triton Court
14 Finsbury Square
London EC2A 1PD
United Kingdom

T. Rowe Price & Assoc., Inc.  1,499,543 (9)   0.52   45,000        7.61      -           -
100 East Pratt Street, 9th Floor
Baltimore, Maryland 21202
</TABLE>
_______________
(1)  This  table  includes shares of Common Stock  issuable  upon
     conversion of the shares of Series A Preferred Stock, Series
     E  Preferred Stock and Series F Preferred Stock. Each  share
     of   Series   A   Preferred  Stock   is   convertible   into
     approximately  21  shares of Common  Stock.  Each  share  of
     Series  E  Preferred Stock is convertible into approximately
     200  shares  of  Common  Stock.   Each  share  of  Series  F
     Preferred Stock is convertible into approximately 400 shares
     of Common Stock.  The Series E and Series F Preferred Stocks
     are non-voting except in certain limited circumstances.

(2)  In  light  of  the fact that the Company is in arrears  with
     respect to the dividend payable June 30, 1995 on the  Series
     A  Preferred Stock, the holders thereof are eligible to cast
     21  votes for each share of Series A Preferred Stock held at
     any  meeting  of shareholders called until the arrearage  is
     paid.

(3)  Each  share  of Series B Preferred Stock is entitled  to  50
     votes per share.

(4)  Includes  3,325,000 shares which are issuable upon  exercise
     of outstanding Class B Warrants, 1,640,100 shares issued and
     held by a broker for sale pursuant to a notice of redemption
     and 14,940,244 shares reserved for redemption, which may  be
     issued to or sold on behalf of the holder.

(5)  Includes 3,340,108 shares issuable upon conversion of Series
     A Preferred Stock.

(6)  Includes 7,379,200 shares issuable upon conversion of Series
     A Preferred Stock, 6,602,000 shares issuable upon conversion
     of  Series E Preferred Stock, and 1,933,332 shares  issuable
     upon the exercise of outstanding stock purchase warrants.

(7)  Includes 7,379,200 shares issuable upon conversion of Series
     F  Preferred  Stock;  3,000,000  shares  issuable  upon  the
     exercise  of  outstanding stock purchase  warrants;  692,400
     shares issuable upon conversion of Series F Preferred  Stock
     owned  by  Mr.  Leigh's  wife;  1,028,026  shares  held   in
     custodial and trust accounts for Mr. Leigh's minor children;
     and  432,526  shares issuable upon exercise  of  outstanding
     stock  purchase warrants held in trust for Mr. Leigh's minor
     children.  Mr. Leigh disclaims beneficial ownership  of  all
     shares held by his wife and minor children.

(8)  Represents  shares  issuable upon  conversion  of  Series  A
     Preferred Stock.

(9)  Includes 945,000 shares issuable upon conversion of Series A
     Preferred Stock

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

      The  following table sets forth information concerning  the
shares  of the Company's Common Stock owned beneficially by  each
director  and  nominee  for  director  of  the  Company  and  all
directors and officers as a group as of  February 28, 1997. As of
that  date  there were 290,083,521 shares of Common Stock  issued
and outstanding. The mailing address for all such individuals  is
XCL Ltd., 110 Rue Jean Lafitte, Lafayette, Louisiana 70508.

                                        Common Stock
                            --------------------------------
                                  Number            Percent
Name of Beneficial Owner         of Shares          of Class
------------------------    ---------------------  ---------
Marsden W. Miller, Jr.      10,476,284 (1)(2)(3)       3.52
John T. Chandler             3,124,177 (1)(2)(3)       1.07
David A. Melman              2,377,742 (2)(3)          0.81
Fred Hofheinz                  100,000 (2)             0.03
Arthur W. Hummel, Jr.          100,000 (2)             0.03
Sir Michael Palliser           100,000 (2)             0.03
Francis J. Reinhardt, Jr.      652,017 (2)(4)          0.22
All directors and officers 
  of the Company as a group 
  (9 persons).............. 18,244,827 (2)(3)          6.29
-----------------
(1)  Includes  200,000  shares which are  subject  to  an  option
     granted  under agreement dated October 1, 1985 in  favor  of
     John  T.  Chandler.  Such shares are also  included  in  Mr.
     Chandler's  holding  inasmuch as  the  option  is  presently
     exercisable.  For  purposes of the  total  holdings  of  the
     group, the shares are included solely in Mr. Miller's  share
     holdings.

(2)  Includes  shares  of  Common Stock  which  may  be  acquired
     pursuant to options which are exercisable within 60 days.

(3)  Includes  shares  of  Common Stock  which  may  be  acquired
     pursuant  to stock purchase warrants exercisable  within  60
     days.

(4)  Includes  100,000 shares of Common Stock owned  by  Carl  H.
     Pforzheimer  &  Co.  of  which Mr. Reinhardt  is  a  general
     partner  and  200,000 shares owned by Petroleum and  Trading
     Corporation  of  which  Mr.  Reinhardt  is  an  officer  and
     director.   Mr. Reinhardt disclaims beneficial ownership  of
     the shares owned by Petroleum and Trading Corporation.

Item 13.     Certain Relationships and Related Transactions.
             ----------------------------------------------

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

                             PART IV
                             -------                                

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

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

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

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

Report of Independent Accountants....................     31
Consolidated Balance Sheet as of December 31, 1996 
  and December 31, 1995..............................     32
Consolidated Statement of Operations for each of 
  the three  years in the period ended
  December 31, 1996..................................     33
Consolidated Statement of Shareholders' Equity 
  for each of the three years in the period        
  ended December 31, 1996............................     34
Consolidated Statement of Cash Flows for each of 
  the three  years in the period ended 
  December 31, 1996..................................     35
Notes to Consolidated Financial Statements...........     36

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

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

Schedule II-Valuation and Qualifying Accounts

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

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 Sir  Michael
Palliser dated May 1, 1994. -  See Exhibit 10.22 hereto.

Consulting Agreement by and between the Company and Mr. Arthur W.
Hummel. Jr. dated May l, 1994. - See Exhibit 10.23 hereto.

(b)  Reports on Form 8-K

      A  current report on Form 8-K was filed on January 8, 1996,
to  report that it had completed the sale of its interests in the
Mestena Grande Field to Cody Energy, Inc.

      A current report on Form 8-K was filed on January 17, 1996,
to  report that the Company had sold in an unregistered  offering
in compliance with Regulation S of the Securities Act of 1933, as
amended,   an  aggregate  of 116 Units, each  Unit  comprised  of
60,000  shares  of Common Stock and a warrant to purchase  60,000
shares of Common Stock.

     A current report on Form 8-K was filed on March 18, 1996, to
report  that  the  Company had recorded a  $58.8  million  fourth
quarter noncash write-down for impairment of domestic oil and gas
properties and that the Company had reached agreement with Tesoro
E&P  Company,  L.P. for the sale of its interest in the  Gonzales
Gas Unit located in the Cox Field.

      A current report on Form 8-K was filed on April 1, 1996, to
report  that  the Company had completed the sale of the  Gonzales
Gas Unit to Tesoro E&P Company, L.P.

      A current report on Form 8-K was filed on January 10, 1997,
to  report the sale of 4,168,000 shares of Common Stock  pursuant
to  Regulation  S  of  the Securities Act of  1933,  as  amended,
through the exercise of stock purchase warrants.

     A current report on Form 8-K was filed on February 19, 1997,
to  report the sale of 1,340,200 shares of Common Stock  pursuant
to  Regulation  S  of  the Securities Act of  1933,  as  amended,
through the exercise of stock purchase warrants.

      A current report on Form 8-K was filed on March 6, 1997, to
report  the  sale of 289,900 shares of Common Stock  pursuant  to
Regulation  S of the Securities Act of 1933, as amended,  through
the exercise of stock purchase warrants.

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

1.0  Not applicable

2.0  Not applicable

3(i) Articles of incorporation

3.1  Certificate of Incorporation of the Company dated December
     28, 1987.  (A)(i)

3.2  Certificate of Amendment to the Certificate of Incorporation
     of the Company dated March 30, 1988.    (A)(ii)

3.3  Certificate of Amendment to the Certificate of Incorporation
     of the Company dated June 22, 1990. (B)(i)

3.4  Certificate of Amendment to the Certificate of Incorporation
     of the Company dated June 12, 1993. (C)

3.5  Certificate of Amendment to the Certificate of Incorporation
     of the Company dated June 8, 1992, whereby Article Fourth
     was amended to increase the number of shares of Common Stock
     authorized.  (D)(i)

3.6  Certificate of Amendment to the Certificate of Incorporation
     of the Company dated September 29, 1993, whereby Article
     Fourth was amended to increase the number of shares of
     Common Stock authorized. (E)(i)

3.7  Certificate of Amendment dated July 1, 1994, whereby Article
     Fourth was amended to increase the number of shares of
     Common Stock and the name of the Company was changed. (F)(i)

3.8  Certificate of Amendment dated June 19, 1995, whereby
     Article Fourth was amended to increase the number of shares
     of Common Stock. (N)(i)

3.9  Certificate of Amendment dated July 30, 1996, whereby
     Article Fourth was amended to increase the number of shares
     of Common Stock and Preferred Stock. (Q)(i)

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

4.0  Instruments defining rights of security holders, including
     indentures:

4.1  Form of Common Stock Certificate. (A)(iv)

4.2  Certificate of Designation of Series A, Cumulative
     Convertible Preferred Stock. (G)

4.3  Form of Series A, Cumulative Convertible Preferred Stock
     Certificate. (B)(ii)

4.4  Certificate of Designation of Series B, Cumulative Preferred
     Stock. (H)(i)

4.5  Form of Series B, Cumulative Preferred Stock Certificate.
     (H)(ii)

4.6  Form of Class B Warrants issued to China Investment &
     Development Co. Ltd. to purchase 2,500,000 shares of Common
     Stock at $2.00 per share payable upon redemption of the
     Series B, Cumulative Preferred Stock.  (H)(iii)

4.7  Form of Amendment to Certificate of Designation of Series B
     Preferred Stock dated August 7, 1992. (D)(ii)

4.8  Certificate of Designation of Series C, Cumulative
     Convertible Preferred Stock. (E)(ii)

4.9  Copy of Amendment to Certificate of Designation of Series C
     Preferred Stock dated February 18, 1994.(I)(i)

4.10 Form of Series C, Cumulative Convertible Preferred Stock
     Certificate. (I)(iii)

4.11 Certificate of Designation of Series D, Cumulative
     Convertible Preferred Stock. (I)(iv)

4.12 Form of Amendment to Certificate of Designation of Series D
     Preferred Stock dated January 24, 1994. (I)(ii)

4.13 Form of Series D, Cumulative Convertible Preferred Stock
     Certificate.  (E)(v)

4.14 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.  (I)(iii)

4.15 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 serves as the
     Company's Registrar and U.S. Transfer Agent.  (J)

4.16 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. (I)(iv)

4.17 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. (I)(v)

4.18 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. (F)(ii)

4.19 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. (F)(iii)

4.20 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.   (F)(iv)

4.21 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. (F)(v)

4.22 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.   (F)(vi)

4.23 Form of Amendment to Certificate of Designation of Series B
     Preferred Stock dated June 30, 1994. (F)(vii)

4.24 Form of Warrant Agreement and Stock Purchase Warrant dated
     January 31, 1995, to purchase 100,000 shares of Common Stock
     at an exercise price of $.75 per share, subject to
     adjustment, issued to Energy Advisors, Inc.  (L)(i)

4.25 Copy of Amendment to Certificate of Designation of Series A
     Preferred Stock dated October 31, 1995. (N)(ii)

4.26 Copy of Certificate of Designation of Series E, Cumulative
     Convertible Preferred Stock dated November 2, 1995. (N)(iii)

4.27 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  (O)(i)

4.28 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  (O)(ii)

4.29 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  (O)(iii)

4.30 Form of Amendment of Certificate of Designation of Series A
     Preferred Stock dated April 11, 1996. (O)(iv)

4.31 Stock Purchase Agreement between the Company and Janz
     Financial Corp. Ltd. dated August 14, 1996, whereby clients
     of Janz Financial Corp. Ltd. purchased 2,800,000 units
     comprised of one shares of Common Stock and one warrant to
     purchase one share of Common Stock in a Regulation S
     transaction. (P)(i)

4.32 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.
     (P)(ii)

4.33 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. (P)(iii)

4.34 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. (P)(iv)

4.35 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 *

4.36 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. *

4.37 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 *

4.38 Certificate of Designation of Series F, Cumulative
     Convertible Preferred Stock, par value $1.00 per share *

4.39 Form of Subscription Agreement for Series F, Cumulative
     Convertible Preferred Stock with respect to the following
     purchases:

     Subscriber                              Shares
     ----------                              ------
     Mitch Leigh                             18,448
     Abby Leigh                               1,731
     Arthur Rosenbloom                          878 *

4.40 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  *

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. (E)(vi)

10.2 $35,000,000 Credit Agreement dated as of January 31, 1994
     between the Company and Internationale Nederlanden (U.S.)
     Capital Corporation ("INCC"), as Agent. (I)(vi)

10.3 Copy of Subordination Agreement among the Company, INCC and
     the holders of the Secured Notes dated.  (I)(vii)

10.4 Form of First Amendment of Secured Subordinated Note dated
     January 31, 1994. (I)(viii)

10.5 Form of First Amendment of Limited Recourse Secured Lease
     Note dated January 31,  1994. (I)(ix)

10.6 Stock Pledge Agreement dated January 31, 1994, among the
     Company and INCC.  (I)(x)

10.7 Deed of Trust, Mortgage, Assignment, Security Agreement and
     Financing Statement from XCL-Texas, Inc. to INCC dated
     January 31, 1994. (I)(xi)

10.8 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.
     (I)(xii)

10.9 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. (I)(xiii)

10.10 Letter Agreement dated May 25, 1994 between the
      Company, L.M. Holdings Associates, L.P. and vendors holding
      Purchase Note B with respect to the Lutcher Moore Tract.
      (E)(vii)

10.11 Letter Agreement dated June 30, 1994 between the
      Company, China Investment & Development Co. Ltd. and China
      Investment and Development Corporation. (F)(ix)

10.12 Letter Agreement dated July 10, 1994 between the
      Company and holders of the Lease Notes. (F)(x)

10.13 Stock Purchase Agreement between the Company and
      Provincial Securities Limited dated May 17, 1994. (F)(xi)

10.14 Consulting agreement between the Company and Sir
      Michael Palliser dated April 1, 1994. (K)(i)

10.15 Consulting agreement between the Company and Mr. Arthur
      W. Hummel, Jr. dated April 1, 1994. (K)(ii)

10.16 Letter Agreement between the Company and Mr. William
      Wang dated June 2, 1992, executed effective February 10,
      1993. (K)(iii)

10.17 First Amendment to Credit Agreement between the Company
      and Internationale Nederlanden (U.S.) Capital Corporation
      dated April 13, 1995. (L)(ii)

10.18 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. (L)(iii)

10.19 Purchase and Sale Agreement dated May 10, 1995, between
      XCL Land, Ltd., a wholly owned subsidiary of the Company
      ("Seller") and The Succession of Edward M. Carmouche,
      Matilda Gray Stream, Harold H. Stream, III, The Opal Gray
      Trust, Matilda Geddings Gray Trust for    Harold H. Stream,
      III, Matilda Geddings Gray Trust for William Gray Stream,
      Matilda Geddings Gray Trust for Sandra Gray Stream, M.G.
      Stream Trust for Harold H. Stream, III, M.G. Stream Trust
      for William Gray Stream, and M.G. Stream Trust for Sandra
      Gray Stream ("Purchasers") whereby the Purchasers will
      acquire Seller's fee interest in and to a parcel of
      southwestern   Louisiana land known as the Phoenix Lake
      Tract. (L)(iv)

10.20 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. (L)(v)

10.21 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. (M)(i)

10.22 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. (M)(ii)

10.23 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. (M)(iii)

10.24 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. (M)(iv)

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

10.26 Form  of  Letter Agreement dated  June  26,  1995
      between  the  Company and three of its U.S.  holders  of
      Series  A  Preferred Stock, whereby the  following  such
      holders have agreed to accept Common Stock in respect of
      dividends payable December 31, 1994 and June 30, 1995 in the
      amounts set forth:

                              12/31/94        6/30/95
        Holder                Dividend        Dividend      Shares
        ------                --------        --------      ------
    Kayne Anderson
    Investment Management    $627,788.12     $689,238.87   2,225,024
    Cumberland Associates    $429,056.51     $445,838.59   1,487,294
    T. Rowe Price &
     Associates, Inc.        $159,975.00     $166,232.25      554,543 (M)(vi)

10.27 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. (N)(iv)

10.28 Copy of  Second Amendment to Credit Agreement between
      the Company and Internationale  Nederlanden (U.S.)  Capital
      Corporation  dated  effective as of  September 29, 1995.  (N)(v)

10.29 Copy of Fee Agreement dated October 26, 1995, between
      the Company and EnCap Investments L.C. for past services and
      proposed European equity offering. (N)(vi)

10.30 Copy of  Engagement Letter dated November 9, 1995,
      between  the Company and Rauscher Pierce & Clark for a
      proposed  Unit  offering  to  be  conducted  in  Europe. (N)(vii)

10.31 Memo of Understanding dated December 14, 1995, between
      XCL Ltd. and China National Administration of Coal Geology. (O)(v)

10.32 Copy of Purchase and Sale Agreement dated December 28,
      1995,  between XCL Ltd., XCL-Texas, Inc. and Cody Energy
      Corporation, for the sale to Cody Energy of  the Mestena
      Grande Field located in Texas. (O)(vi)

10.33 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. (O)(vii)

10.34 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. (O)(viii)

10.35 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. (O)(ix)

10.36 Copy  of  Limited  Waiver  between  the Company  and
      Internationale  Nederlanden (U.S.)  Capital  Corporation
      dated April 3, 1996. (O)(x)

10.37 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. (P)

10.38 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.  (Q)(ii)

10.39 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. *

10.40 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:

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

10.41 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. *

10.42 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. *

10.43 Amendment No. 1 to the May 1, 1995 Agreement with
      Apache Corp. dated April 3, 1997, effective December 13, 1996. *

10.44 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. *

10.45 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. *

10.46 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. *

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

10.48 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 *

10.49 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. *

10.50 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. *

11.  Statement re computation of per share earnings *

18.  Not applicable.

20.  Not applicable.

21.  Subsidiaries *

22.  Not applicable.

23.1 Consent of Coopers & Lybrand LLP*

23.2 Consent of H.J. Gruy and Associates, Inc.*

24.  Not applicable.

27.  Financial Data Schedule *

99.1 Reserve Report prepared by H.J. Gruy and Associates, Inc. *

99.2 Glossary of Terms *

______________
*    Filed herewith.

(A)  Incorporated by reference to the Registration Statement on
     Form 8-B filed on July 28, 1988, where it appears as: (i)
     through (iii) as Exhibits 3(a) through 3(c), respectively;
     and (iv) as Exhibit 4.1.

(B)  Incorporated by reference to a Quarterly Report on Form 10-Q
     filed on August 14, 1990, where it appears as: (i) Exhibit 3
     and (ii) Exhibit 4.4.

(C)  Incorporated by reference to an Annual Report on Form 10-K
     filed on March 30, 1992, where it appears as Exhibit (3)(g).

(D)  Incorporated by reference to a Quarterly Report on Form 10-Q
     filed August 14, 1992, where it     appears as:  (i) Exhibit
     4.25 and (ii) Exhibit 4.28.

(E)  Incorporated by reference to a Registration Statement on
     Form S-3 (File No. 33-68552) where it appears as: (i)
     Exhibit 4.27; (ii) Exhibit 4.14; (iii) Exhibit 4.16; (iv)
     Exhibit 4.17; (v) Exhibit 4.19; (vi) Exhibit 10.1; and (vii)
     Exhibit 10.6.

(F)  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) through (iii) Exhibits 4.28 through
     4.30, respectively; (iv) through (viii) Exhibits 4.34
     through 4.38, respectively; and (ix) through (xi) Exhibits
     10.8 through 10.10, respectively.

(G)  Incorporated by reference to a Current Report on Form 8-K
     filed on August 13, 1990, where it appears  as Exhibit 4.

(H)  Incorporated by reference to Quarterly Report on Form 10Q
     filed May 15, 1991, where it appears as:  (i) Exhibit 4.1;
     (ii) Exhibit 4.2; and (iii) Exhibit 4.5.

(I)  Incorporated by reference to Amendment No. 1 to Annual
     Report on Form 10-K filed April 15, 1994, where it appears
     as:  (i) Exhibit 4.35; (ii) Exhibit 4.31; (iii) Exhibit
     4.32; (iv) Exhibit 4.36; (v) Exhibit 4.37; (vi) through
     (xii) Exhibit 10.41 through Exhibit 10.47, respectively; and
     (xii) Exhibit 10.49.

(J)  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.

(K)  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 (iii) Exhibits 10.22 through 10.24,
     respectively.

(L)  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 4.28;  and  (ii)
     through  (v) Exhibits  10.25  through 10.28, respectively.

(M)  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  (vi) Exhibits 10.29
     through 10.34, respectively.

(N)  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:   (i) Exhibit  3.8;  (ii)
     and (iii) Exhibits 4.29  and  4.30, respectively;  and  (iv)
     through (vii)  Exhibits  10.35 through 10.38, respectively.

(O)  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  (iv) Exhibits  4.28
     through  4.31,  respectively;  and  (v)  through (x)
     Exhibits 10.31 through 10.36, respectively.

(P)  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.

(Q)  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 (i) Exhibit 3.9 and (ii) Exhibit 10.38.

(P)  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 (iv) Exhibits 4.31
     through 4.34.

                          OTHER MATTERS
                          -------------

      For  purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act  of  1933,  the undersigned registrant hereby  undertakes  as
follows,  which  undertaking shall be incorporated  by  reference
into registrant's Registration Statement on Form S-8 No. 33-21891
(filed May 13, 1988):

     Insofar as indemnification for liabilities arising under the
Securities  Act  of 1933 may be permitted to directors,  officers
and  controlling  persons  of  the  registrant  pursuant  to  the
foregoing  provisions,  or otherwise,  the  registrant  has  been
advised  that  in  the  opinion of the  Securities  and  Exchange
Commission  such  indemnification is  against  public  policy  as
expressed  in  the  Securities Act of  1933  and  is,  therefore,
unenforceable.   In  the event that a claim  for  indemnification
against  such  liabilities  (other  than  the  payment   by   the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any  action,  suit or proceeding) is asserted by  such  director,
officer  or  controlling person in connection with the securities
being  registered, the registrant will, unless in the opinion  of
its counsel the matter has been settled by controlling precedent,
submit  to  a  court  of  appropriate jurisdiction  the  question
whether  such indemnification by it is against public  policy  as
expressed  in  the  Act  and  will  be  governed  by  the   final
adjudication of such issue.


                    XCL Ltd. and Subsidiaries
                                
          Schedule II-Valuation and Qualifying Accounts
                                
      For the Years Ended December 31, 1996, 1995 and 1994
                     (thousands of dollars)
<TABLE>
                                                        Additions
                                               ------------------------
                              Balance at        Charged        Charges             Balance at
                              Beginning of      to costs        to other             End of
     Description                   Year        and expenses     accounts  Deduction   Year
     -----------              ------------     ------------    ---------  ---------  --------
1996:
----
<S>                               <C>           <C>             <C>       <C>        <C>
Allowance for doubtful trade 
 accounts receivable              $    103      $      -        $     -    $    2    $    101
                                   =======       =======         ======     =====     =======
Deferred tax valuation allowance  $ 73,743      $  4,332        $     -    $    -    $ 78,075
                                   =======       =======         ======     =====     =======  
1995:
----
Allowance for doubtful trade 
 accounts receivable              $    113      $      -        $     -    $   10    $    103
                                   =======       =======         ======     =====     =======
Deferred tax valuation allowance  $ 41,464      $ 32,279        $     -    $    -    $ 73,743
                                   =======       =======         ======     =====     =======
1994:
----
Allowance for doubtful trade 
 accounts receivable              $    163      $      -        $     -    $   50    $    113
                                   =======       =======         ======     =====     =======
Deferred tax valuation allowance  $ 28,306      $ 13,158        $     -    $    -    $ 41,464
                                   =======       =======         ======     =====     =======
</TABLE>

                           SIGNATURES
                           ----------

      Pursuant to the requirements of Section 13 or 15(d) of  the
Securities Exchange Act of  1934, the registrant has duly  caused
this  report  to  be  signed on its behalf  by  the  undersigned,
thereunto duly authorized.

                              XCL LTD.

                              /s/ Marsden W. Miller, Jr.
April 11, 1997            By:_________________________________
                              Marsden W. Miller, Jr.
                              Chairman and 
                              Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act
of  1934,  this  report has been signed below  by  the  following
persons on behalf of the registrant and in the capacities and  on
the dates indicated.

     Signature                       Title                    Date

/a/ Marsden W. Miller, Jr.
__________________________   Chairman of the Board         April 11, 1997
Marsden W. Miller, Jr.        Chief Executive Officer and
                              Principal Financial Officer

/s/ Angel Barron
______________________       Principal Accounting Officer  April 11, 1997
Angel Barron


/s/ John T. Chandler
______________________       Director                      April 11, 1997
John T. Chandler

/s/ David A. Melman
______________________       Director                      April 11, 1997
David A. Melman

/s/ Fred Hofheinz
______________________       Director                      April 11, 1997
Fred Hofheinz

/s/ Arthur W. Hummel, Jr.
________________________     Director                      April 11, 1997
Arthur W. Hummel, Jr.

/s/ Michael Palliser
_____________________        Director                      April 11, 1997
Michael Palliser

/s/ Francis J. Reinhardt, Jr.
____________________________ Director                      April 11, 1997
Francis J. Reinhardt, Jr.