ING (U.S.) Capital Corporation
                         135 E. 57th Street
                         New York, New York

                            April 9, 1997


TO XCL-CHINA LTD. AND THE HOLDERS OF SENIOR NOTES
WHOSE SIGNATURES ARE SET OUT BELOW:

     Re: XCL-China Ltd.

Gentlemen:

     Reference is made to (a) the Guaranty of even date herewith
(the "Guaranty") given by XCL-China Ltd. ("Guarantor") to ING
(U.S.) Capital Corporation ("ING"), and (b) those certain
promissory notes of even date herewith made by Guarantor to each
of you in the aggregate amount of $3,100,000, in the form
attached hereto.  As used in this letter, "Senior Notes" means
promissory notes in such form issued by Guarantor, on the date
hereof or subsequently, to one or more of you in an aggregate
principal amount not to exceed $6,200,000, and "Holder" means any
of you who at any time is the holder of a Senior Note.

     In connection with other transactions of even date herewith
which are described in the Guaranty or the Senior Notes, the
Holders have requested that ING subordinate its claims under the
Guaranty to the Senior Notes and ING has requested that the
Holders give ING the right to purchase the Senior Notes at any
time for a price equal to the unpaid principal amount thereof
plus accrued and unpaid interest thereon.  In consideration of
their mutual obligations hereunder, ING and the undersigned
Holders hereby agree as follows:

     1.  Guaranty is Subordinated.  The indebtedness and
obligations of Guarantor to ING under the Guaranty are herein
called the "Guarantor Liabilities".  To the extent and in the
manner hereinafter set forth in this letter, the Guarantor
Liabilities are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of the Senior
Notes.

     2.  Insolvency Proceedings.  Upon any distribution of
properties or assets of Guarantor or payment on behalf of
Guarantor with respect to the Guarantor Liabilities in the event
of any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or
liabilities, receivership, conservatorship, assignment for the
benefit of creditors, insolvency, bankruptcy, reorganization,
arrangement or composition of or with respect to Guarantor:

          (i)  the Holders of Senior Notes shall be entitled to
     receive payment in full of such Senior Notes, or provision
     must be made for such payment in full, before ING is
     entitled to receive any direct or indirect payment or
     distribution of any kind or character, whether in cash,
     property or securities, on account of any Guarantor
     Liabilities or on account of the purchase or redemption or
     other acquisition of Guarantor Liabilities; and

          (ii)  any direct or indirect payment or distribution of
     properties or assets of Guarantor of any kind or character,
     whether in cash, property or securities or by set-off or
     otherwise, to which ING would be entitled under the Guaranty
     but for the provisions of this letter shall be paid by
     Guarantor or by any liquidating trustee or agent or other
     person making such payment or distribution, whether a
     trustee in bankruptcy, a receiver or liquidating trustee or
     otherwise, directly to the Holders of Senior Notes or their
     representative or representatives, ratably according to the
     aggregate amounts remaining unpaid on account of the Senior
     Notes, to the extent necessary to make payment in full of
     all Senior Notes after giving effect to any concurrent
     payment or distribution to the Holders of such Senior Notes;
     and

          (iii)  in the event that, notwithstanding the foregoing
     provisions of this letter, ING shall have received any
     payment or distribution with respect to any Guarantor
     Liability, whether in cash, property or securities or by
     set-off or otherwise, before all Senior Notes are paid or
     provided for in full, then and in such event such payment or
     distribution shall be received and held in trust for and
     shall be paid over or delivered forthwith to the Holders of
     all Senior Notes remaining unpaid or their representatives,
     ratably according to the aggregate amounts remaining unpaid
     on account of the Senior Notes, to the extent necessary to
     pay all Senior Notes in full, after giving effect to any
     concurrent payment or distribution to or for the Holders of
     Senior Notes.

     2.  Suspension of Payment When Senior Notes in Default.

          (i)  Upon (1) the occurrence of any failure of
     Guarantor to pay punctually when due any amount (including,
     without limitation, principal or interest) payable with
     respect to any Senior Note (a "Payment Event of Default")
     and (2) receipt by ING of written notice of such occurrence,
     then no payment or distribution of any properties or assets
     of Guarantor of any kind or character shall be made by
     Guarantor on account of the Guarantor Liabilities or on
     account of the purchase or redemption or other acquisition
     of Guarantor Liabilities unless and until such Payment Event
     of Default shall have been cured or waived in writing or
     shall have ceased to exist or the Senior Notes shall have
     been paid in full or otherwise discharged.

           (ii)   Upon (1) the occurrence of any other "Event  of
     Default"  as  defined  in the Senior Notes  (a  "Non-payment
     Event  of Default") and (2) receipt by ING of written notice
     of  such occurrence, then no payment or distribution of  any
     properties  or assets of Guarantor of any kind or  character
     shall  be  made  by  Guarantor on account of  any  Guarantor
     Liabilities  or on account of the purchase or redemption  or
     other  acquisition of Guarantor Liabilities for  the  period
     specified  below  (the  "Payment  Blockage  Period").    The
     Payment  Blockage  Period will commence  upon  the  date  of
     receipt  by  ING  of  such  notice  (the  "Payment  Blockage
     Notice") from one or more of the Holders of Senior Notes and
     shall  end  on  the earliest of (i) 179 days thereafter,  or
     (ii)  the  date, as set forth in a written notice  from  the
     Holders  of  the  Senior Notes (or their representative)  to
     Guarantor or ING, on which such Non-payment Event of Default
     is cured, waived in writing or ceases to exist or the Senior
     Notes  are paid in full.  Not more than one Payment Blockage
     Period may be commenced during any period of 365 consecutive
     days.   No Non-payment Event of Default that existed or  was
     continuing  on the date of delivery of any Payment  Blockage
     Notice  to  ING will be, or can be, made the basis  for  the
     commencement of a subsequent Payment Blockage Period.

           (iii)   If,  notwithstanding the foregoing,  Guarantor
     shall make any payment of any Guarantor Liability prohibited
     by the foregoing provisions of this subsection (c), then and
     in  such event such payment shall be paid over and delivered
     forthwith  to  the Holders of the Senior Notes,  ratably  in
     accordance with the unpaid amounts thereof.

     3.  Subrogation to Rights of Holders of Senior Notes.  After
the  payment in full of all Senior Notes, ING shall be subrogated
to  the rights of the Holders of Senior Notes to receive payments
and distributions of cash, property and securities applicable  to
Senior  Notes.  For purposes of such subrogation, no payments  or
distributions to the Holders of Senior Notes by or on  behalf  of
Guarantor  or by or on behalf of ING which otherwise  would  have
been made to ING shall, as between Guarantor, its creditors other
than  Holders of Senior Notes, and ING, be deemed to be a payment
or  distribution  by  Guarantor to or on account  of  the  Senior
Notes.

      4.   Provisions  Solely  to Define  Relative  Rights.   The
provisions of this letter are, and are intended solely,  for  the
purpose of defining the relative rights of ING (as obligee of the
Guarantor Liabilities) on the one hand and the Holders of  Senior
Notes  on  the other hand.  Nothing contained in this  letter  or
elsewhere in the Guaranty is intended to or shall (i) impair,  as
between Guarantor and ING, the obligation of Guarantor, which  is
absolute  and unconditional, to pay the Guarantor Liabilities  as
and when the same shall become due and payable in accordance with
their  terms;  or  (ii) affect the relative rights  of  ING  with
respect  to any creditors of Guarantor other than the Holders  of
Senior  Notes; or (iii) prevent ING from exercising all  remedies
otherwise permitted by applicable law, subject to the rights,  if
any, under this letter of the Holders of Senior Notes.  Moreover,
nothing in this letter is intended to or shall impair the  rights
of  ING  (1) under any documents other than the Guaranty  or  (2)
with  respect  to  any of the obligations of persons  other  than
Guarantor  which are guarantied by Guarantor under the  Guaranty,
it  being  understood  and  agreed that  while  the  Guaranty  is
subordinated   hereby   such  guarantied  obligations   are   not
subordinated in any way.

      5.  No Waiver of Subordination Provisions.  No right of any
present   or  future  Holder  of  any  Senior  Notes  to  enforce
subordination as herein provided shall at any time in any way  be
prejudiced or impaired by any act or failure to act on  the  part
of  Guarantor or by any delay or omission by any such  Holder  to
exercise  its  rights  hereunder, or  by  any  non-compliance  by
Guarantor  with  the  terms of the Guaranty,  regardless  of  any
knowledge  thereof which any such Holder may have or be otherwise
charged with.

      6.  Funding of Senior Notes.  All Senior Notes will be sold
by Guarantor and purchased by the Holders at par (i.e., the loans
thereunder will equal the stated principal amount thereof).   The
purchase price of all Senior Notes will be wired directly by  the
Holders   thereof  to  Apache  Corporation   (or   one   of   its
subsidiaries)   and  used  to  satisfy  current  obligations   of
Guarantor with respect to the Zhao Dong Block, Bohai Bay, China.

     7.  Call On Senior Notes.  Each Holder hereby agrees to sell
to  ING, upon written request therefor from time to time, any  or
all  of  its  Senior Notes, for a cash price equal to the  unpaid
principal  amount  thereof plus all accrued and  unpaid  interest
thereon.   Each such sale shall be without recourse  and  without
representation  or warranty, express or implied, except  for  the
representation that such Holder is the owner of such Senior  Note
free   and   clear   of   any  liens,  participation   interests,
assignments, or other burdens or encumbrances.

      8.   Successors  and Assigns.  This letter agreement  shall
inure  to the benefit of, and be binding upon, each party  hereto
and   his   or   its  respective  heirs,  legal  representatives,
successors and assigns.

      9.  Miscellaneous.  This letter agreement shall be governed
by  and construed under the laws of the State of New York.   This
letter agreement may be executed in multiple counterparts and  by
the  separate  parties  hereto in separate counterparts,  all  of
which   shall   constitute   a   single   agreement.    Execution
counterparts  hereof  may  be  exchanged  by  facsimile,  courier
service, mail, or personal delivery.

      Please  execute one or more counterparts of this letter  to
evidence your agreement to the foregoing.

                              Yours truly,

                              ING (U.S.) CAPITAL CORPORATION


                              By: __________________________
                                  Peter Clinton, Senior Vice President

AGREED TO as of the date
first written above:

XCL-CHINA LTD.

By: ________________________
     Name:
     Title:


____________________________   as Holder of $________________ in Senior Notes
Patrick A. Tesson


____________________________   as Holder of $________________ in Senior Notes


By:________________________
     Name:
     Title:


____________________________    as Holder of $________________ in Senior Notes


By:________________________
     Name:
     Title:


____________________________    as Holder of $________________ in Senior Notes


By:________________________
     Name:
     Title:


____________________________    as Holder of $________________ in Senior Notes


By:________________________
     Name:
     Title:


____________________________    as Holder of $________________ in Senior Notes


By:________________________
     Name:
     Title:


____________________________    as Holder of $________________ in Senior Notes


By:________________________
     Name:
     Title: