UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
XCL Ltd.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
- ------------------------ -------------
(State of Incorporation) (I.R.S. Employer
Identification
Number)
110 Rue Jean Lafitte, Lafayette, LA 70508
- ------------------------------------ -------
(Address of principal executive offices) (Zip Code)
318-237-0325
----------------
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
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. YES [X] NO [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
249,079,623 shares Common Stock, $.01 par value were
outstanding on November 10, 1995.
The Index to Exhibits is Located at page ___.
XCL LTD.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
PART II
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
</PAGE.
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
September 30 December 31
------------ -----------
Assets 1995 1994
- ------ ---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 558 $ 6,751
Accounts receivable, net 656 1,720
Prepaid expenses 295 153
------- -------
Total current assets 1,509 8,624
------- -------
Property and equipment:
Oil and gas (full cost method):
Proved and evaluated properties 160,224 158,634
Unproved and unevaluated properties:
Domestic 38,663 37,856
Foreign 24,726 17,696
------- -------
63,389 55,552
Land, at cost 135 135
Other 2,908 3,018
------- -------
226,656 217,339
Accumulated depreciation, depletion
and amortization (118,289) (100,079)
------- -------
108,367 117,260
------- -------
Investments and assets held for sale 17,360 20,948
Deferred charges and other assets 1,988 2,971
------- -------
Total assets $ 129,224 $ 149,803
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,050 $ 3,640
Royalty and production taxes payable 177 286
Dividends payable 446 965
Current maturities of limited recourse debt 5,231 5,267
Other current maturities 5,282 29
-------- --------
Total current liabilities 14,186 10,187
-------- --------
Long-term debt, net of current maturities 35,517 41,607
Other non-current liabilities 3,461 2,809
Commitments and contingencies (Note 7)
Shareholders' equity (Note 6):
Preferred stock-$1.00 par value; authorized
1.2 million shares; issued shares of
646,747 at September 30, 1995 and 649,244 at
December 31, 1994-liquidation preference of
$52.1 million at September 30, 1995 647 649
Common stock-$.01 par value; authorized
350 million shares at September 30, 1995
and 325 million shares at December 31, 1994;
issued shares of 248,590,428 at September 30,
1995 and 237,184,410 at December 31, 1994 2,486 2,372
Common stock held in treasury - $.01 par value;
3.5 million shares at December 31, 1994 -- (35)
Additional paid-in capital 214,892 206,241
Accumulated deficit (141,965) (114,027)
------- -------
Total shareholders' equity 76,060 95,200
------- -------
Total liabilities and shareholders'
equity $ 129,224 $ 149,803
======= =======
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)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
Oil and gas revenues $ 604 $ 1,118 $ 2,006 $ 3,665
-------- ------- -------- --------
Oil and gas operating expenses:
Operating (including marketing) 231 355 795 999
Depreciation, depletion and amortization 535 885 1,831 2,646
Provision for impairment of oil and
gas properties 5,800 7,200 16,500 16,700
Writedown/loss on sale of other assets 2,740 -- 2,740 --
General and administrative 1,452 1,139 3,562 3,362
Taxes, other than income 208 330 558 920
-------- ------ -------- --------
10,966 9,909 25,986 24,627
-------- ------ -------- --------
Operating loss (10,362) (8,791) (23,980) (20,962)
-------- ------ -------- --------
Other income (expenses):
Interest expense, net of amounts
capitalized (797) (626) (2,186) (1,505)
Gain on sale of investments 613 -- 613 --
Other, net 50 (303) 182 (260)
-------- ------ ------- --------
(134) (929) (1,391) (1,765)
-------- ------ ------- --------
Loss before extraordinary item (10,496) (9,720) (25,371) (22,727)
Extraordinary charge for early
extinguishment of debt -- -- -- (1,742)
-------- ------ ------- --------
Net loss (10,496) (9,720) (25,371) (24,469)
Preferred stock dividends (103) -- (2,567) (2,554)
-------- ------ ------- --------
Net loss attributable to common stock $ (10,599) $ (9,720) $ (27,938) $ (27,023)
======== ====== ======= =======
Loss per common and common equivalent share:
Net loss before extraordinary item $ (.04) $ (.05) $ (.11) $ (.13)
Extraordinary item -- -- -- (.01)
-------- ------ ------ ------
Net loss per common and common
equivalent share $ (.04) $ (.05) $ (.11) $ (.14)
======== ====== ====== ======
Average number of common and common
equivalent shares outstanding 242,533 210,485 238,029 187,217
======== ======= ======= =======
The accompanying notes are an integral part of these
financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Nine Months Ended
-----------------
September 30
------------
1995 1994
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss $ (25,371) $ (24,469)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization 1,831 2,646
Provision for impairment of oil and gas properties 16,500 16,700
Gain on sale of investments (613) --
Loss on sale of other assets 383 --
Writedown of other assets 2,357 --
Extraordinary charge for extinguishment of debt -- 1,742 Change in assets and liabilities:
Accounts receivable 1,041 341
Prepaid expenses (142) (130)
Accounts payable and accrued expenses (273) (1,145)
Royalty and production taxes payable (109) (19)
Other, net 87 1,082
-------- -------
Total adjustments 21,062 21,217
-------- -------
Net cash used in operating activities (4,309) (3,252)
-------- -------
Cash flows from investing activities:
Capital expenditures (7,679) (16,011)
Investments (1,162) (1,350)
Proceeds from sale of assets 2,643 --
Other 304 2,709
-------- -------
Net cash used in investing activities (5,894) (14,652)
-------- -------
Cash flows from financing activities:
Proceeds from sales of common stock 1,378 30,218
Proceeds from sales of treasury stock 2,364 --
Proceeds from issuance of preferred stock -- 1,600
Loan proceeds -- 29,200
Proceeds from exercise of warrants and options 874 3,209
Payment of long-term debt (425) (33,471)
Payment of preferred stock dividends (250) --
Stock issuance costs and other 69 (3,047)
------- -------
Net cash provided by financing activities 4,010 27,709
------- -------
Net increase (decrease) in cash and cash equivalents (6,193) 9,805
Cash and cash equivalents at beginning of period 6,751 1,646
------- -------
Cash and cash equivalents at end of period $ 558 $ 11,451
======= =======
The accompanying notes are an integral part of these
financial statements.
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(1) General
The consolidated financial statements at September 30,
1995, and for the three months and nine months then ended
have been prepared by the Company, without audit, pursuant
to the Rules and Regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such Rules and
Regulations. The Company believes that the disclosures are
adequate to make the information presented herein not
misleading. These consolidated financial statements should
be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, as amended.
In the opinion of the Company, all adjustments, consisting
only of normal recurring adjustments, necessary to present
fairly the financial position of XCL Ltd. (formerly The
Exploration Company of Louisiana, Inc.) and subsidiaries as
of September 30, 1995, and December 31, 1994, and the
results of their operations for the three months and nine
months ended September 30, 1995 and 1994 and their cash
flows for the nine months ended September 30, 1995 and 1994,
have been included. Certain reclassifications, including
reclassifying accrued interest on the subordinated debt to
be paid in Common Stock and the reserve for franchise tax to
long-term liabilities, have been made to prior period
financial statements to conform to current period
presentation. These reclassifications had no effect on net
income or shareholders' equity. The results of the
Company's operations for such interim periods are not
necessarily indicative of the results for the full year.
The year-end balance sheet data was derived from audited
financial statements, but all disclosures required by
generally accepted accounting principles are not included
herein.
(2) Liquidity and Capital Resources
At September 30, 1995, the Company had an operating
cash balance of $.6 million and a working capital deficit of
$12.7 million, which includes $5.4 million in limited
recourse debt collateralized only by the Lutcher Moore Tract
and $5.25 million in bank debt, of which $2 million is due
January 1, 1996. The Company is currently pursuing a plan
to generate funds to satisfy these working capital
requirements by the sale of its domestic assets and the sale
of corporate securities.
To provide for immediate required near-term liquidity,
the Company sold 12,982 shares of a newly designated Series
E, Cumulative Convertible Preferred Stock ("Series E
Preferred Stock") for an aggregate consideration of $548,000
in cash and 1,160,647 shares of restricted Common Stock.
The offering period will continue until December 31, 1995
unless sooner terminated by the Company. The Company
expects to realize up to an additional $4.5 million from
additional sales of this issue, which carries a 10% annual
dividend, payable semiannually in cash, or at the Company's
election, in additional shares of Series E Preferred Stock.
Further, the Company has engaged a U.K. financial
institution to place units of Common Stock and warrants in
an offshore transaction in compliance with Regulation S,
promulgated under the Securities Act of 1933, as amended
(the "Act"). Gross proceeds from the offering, which is
being done on a best efforts basis, will be not less than $2
million nor more than $7 million. The scheduled closing
date is December 22, 1995.
In order to provide additional liquidity, the Company
is currently in negotiations with several parties interested
in acquiring the Lutcher Moore Tract. Should a sale be
effected, approximately $5.4 million of the proceeds would
be applied to retire the Lutcher Moore limited recourse
debt, and $5 million would be applied to reduce the
Company's bank debt if the domestic producing properties
have not been sold. The remainder would be applied to other
working capital requirements. Payments of principal and
interest on $2.6 million of the Lutcher Moore limited
recourse debt are past due. The Company is negotiating with
the holders of this debt to defer payments until the Lutcher
Moore Tract can be sold in consideration for which the
Company would further secure the debt with preferred stock.
Should the deferral not be obtained the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Management has historically had the ability to generate
funds through the sale of assets or securities and to
negotiate required amendments to its credit agreements.
Management believes that it can timely realize sufficient
cash resources to adequately meet its obligations and its
ongoing requirements. The timing of receipts from the
various sources of funds is not entirely within the
Company's control. Thus, the Company's ability to continue
to develop its principal assets could be significantly
curtailed should the Company be unable to obtain cash as needed.
In light of the Company's decision to focus its
activities in China, management is exploring the possibility
of selling substantially all of its U.S. producing
properties (the Cox and Mestena Grande Fields in Texas) or
joint venturing the development of these fields with a
partner. Information has been made available to several
potential purchasers, and the Company has retained
Internationale Nederlanden (U.S.) Securities Corporation to
assist in obtaining and evaluating offers that it expects to
receive prior to year end 1995. Any such disposition would
result in a substantial reduction in the Company's
outstanding indebtedness, since such properties are
presently pledged to secure approximately $25.1 million in
senior bank debt and $15 million in subordinated debt. A
sale or joint venture could result in a material non-cash
loss, which management believes may be justified in order to
eliminate the requirement for additional investment in the
Company's domestic fields so that funds can instead be
invested in China.
Management is encouraged about the Company's prospects
in China because of successful drilling activities to date
at the Zhao Dong Block, where four out of the five wells
drilled have tested at significant flow rates. Further, the
Company has been offered additional investment opportunities
in China as a result of its successful performance on the
Zhao Dong Block.
Pricing for a significant portion of the Company's gas
reserves in the Cox Field is subject to a price floor
established by a long-term gas contract. The continued
applicability of this price floor is dependent upon the
Company being able to meet certain minimum gas production
volumes which were not achieved for the contract year ending
April 30, 1995, and may not be achieved for the contract
year ending April 30, 1996, due to the downward revision in
reserve estimates at June 30, 1995. The Company's proved
reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year
ending April 30, 1997.
The Company currently has approximately $25.1 million
in bank debt collateralized by the Company's domestic oil
and gas reserves and the stock of certain subsidiaries.
During 1995 the Company's bank agreement was amended to
modify certain covenant requirements through September 29,
1995. These covenants were subsequently amended to modify
requirements through April 1, 1996. Should improvements in
the Company's financial position not occur, the Company
would be in violation of its credit agreement subsequent to
April 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. The
Company would have to pursue the sale of other assets, a
joint-venture or the issuance of additional equity
securities to fund any such accelerated payments. Further,
the borrowing base under this credit agreement is
determined, in part, by the value of the Company's proved
reserves. During the second quarter two unsuccessful
recompletions in the Cox Field caused a downward revision in
reserve quantities. This revision, coupled with an
impairment recorded in the third quarter as a result of
reduced present values of reserves attributable to delays in
scheduled development drilling, may negatively impact the
next borrowing base determination which has been rescheduled
for March 31, 1996.
The Company is currently pursuing additional
alternatives for raising capital for its planned capital
expenditures in China during the next twelve months. On
August 10, 1995, Chinese authorities approved the agreement
reached on May 10, 1995, between the Company and Apache
Corporation ("Apache") pursuant to which Apache will pay 100
percent of the costs to drill, test and complete two wildcat
wells and one appraisal well on the Zhao Dong Block. If
Apache elects to drill a third wildcat well, it will also
pay 100 percent of those costs. The amounts advanced by
Apache are recoverable from revenues generated from Zhao
Dong Block production. Future expenditures beyond those
described above will be borne 50 percent each by the Company
and Apache. Pursuant to this agreement Apache also purchased
an additional 16.67 percent interest in the foreign
contractor's share of the oil and gas reserves of the "C"
Field. Payment for this purchase will be computed 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 16.67
percent interest. In consideration for the above described
payments, Apache has assumed operatorship of the Zhao Dong
Block and increased its interest in the Zhao Dong Block from
33.33 percent to 50 percent. The Company estimates that
Apache will pay for all but approximately $10 million of its
exploration expenditures related to the Zhao Dong Block
during the next twelve months. The Company expects to fund
these expenditures from the sale of its domestic assets and
issuance of additional equity securities.
The Company and its partners in the Zhao Dong Block are
currently preparing the development plan for the "C" area
initial discovery. The Company plans to finance its share
of development costs primarily through project debt
financing. Alternatives available to the Company to obtain
development funds also include joint venturing the
development with another oil company or financial group.
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 will have a 30 year life unless
extended. The registered capital of the joint venture will
be $4.9 million, with the Company to contribute $2.4 million
for its 49 percent interest, of which $0.6 million has been
paid. The remaining $1.8 million is due pursuant to a
schedule, with the first payment due after a business
license is issued and the last payment due June 30, 1996.
The Chinese side will contribute an existing lubricating oil
blending plant in Langfang, China, with a value of $2.5
million as its investment for fifty-one percent of the
stock. The contract must be approved by Chinese authorities
before a business license can be issued and the joint
venture commences operations. Certain additional documents
must be submitted in connection with the application for the
business license. The Company expects the license to be
issued by January 31, 1996. In a letter of intent executed
contemporaneously with the contract, the parties have agreed
to consider the feasibility of (i) constructing a second
lubricating oil blending plant at a port facility near
Tianjin, China, (ii) contributing to the joint venture a
second existing plant in southwest China, and (iii) other
projects, including constructing oil terminals on the north
and south coasts of China, and engaging in upgrading certain
existing refineries within China. The Company expects to
fund its share of payments by bringing in a joint venture
partner.
The Company has signed an agreement with the China
National Administration of Coal Geology, pursuant to which
the parties will commence cooperation for the exploration
and development of coal bed 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, which may provide the basis for coal bed methane
development in other areas of China. Costs of the project
are not expected to be significant during the next twelve
months.
The Company has been approached by several U.S. and
foreign companies seeking joint venture arrangements with
respect to the lube oil, coal bed methane, and additional
future China business opportunities. Discussions have
commenced, with the Company's objective being to obtain
funding for its overhead and capital requirements in return
for providing these companies with access to these and other
China business opportunities.
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 Internationale Nederlanden (U.S.)
Capital Corporation ("INCC") and holders of the Company's
Subordinated Debt and Preferred Stock.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million pounds sterling
(U.K.) annually. The Company declared cash dividend payments
on its Series A Preferred Stock of $2.3 million and $2.2
million for the six months ended December 31, 1994, and
June 30, 1995, respectively. 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
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 $.9 million, of which $0.5 million has been
delivered to the Company's registrar. The Company's credit
agreement restricts the payment of cash dividends and
currently, insufficient liquidity exists to continue to pay
such amounts.
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. The
Company sold 1 million shares of Common Stock during the
third quarter with proceeds allocated first to accrued
dividends of $353,000 and the remainder towards redemption
of 2,497 shares of the Series B Preferred Stock. During the
fourth quarter the Company sold 419,900 shares of Common
Stock with $40,000 of the proceeds allocated to accrued
dividends and the remainder toward redemption of an
additional 1,824 shares of the Series B Preferred Stock.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the nine month
periods ended September 30, 1995 and 1994. (See Note 7).
Interest and associated capitalized costs for the three
and nine month periods ended September 30 totaled $.6
million and $2.2 million, respectively for 1995, and $1.2
million and $4.3 million, respectively for the corresponding
periods in 1994. Interest paid during the three and nine
month periods ended September 30, 1995 and 1994, amounted to
$.7 million and $2.0 million, and $.6 million and $1.9
million, respectively.
(4) Investments and Assets Held for Sale
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. (See Note 2.)
Coal Bed Methane Project
------------------------
The Company has signed an agreement with the China
National Administration of Coal Geology, pursuant to which
the parties will commence cooperation for the exploration
and development of coal bed methane in two areas in China.
(See Note 2)
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 in which XCL retained no mineral
interest. The purchase price was comprised of approximately
$1.7 million in cash and a $.5 million reduction in
obligations owed by the Company to the purchaser. No gain
or loss was recognized on the sale.
Terrenex Warrants
-----------------
During the third quarter of 1995, the Company exercised
its warrants to purchase 700,000 shares of Terrenex common
stock and recognized $613,000 in net proceeds from the sale
of the Terrenex stock. As there was no remaining basis
attributed to these warrants, the Company recognized a gain
in the third quarter.
(5) Debt
Long-term debt at September 30, 1995 consists of the
following (000's):
Current Long-Term
Maturities Portion Total
---------- ------- -----
Collateralized credit facility $ 5,250 $19,865 $25,115
Subordinated debt (due April 5, 2000) -- 15,000 15,000
Building Mortgage 32 652 684
------ ------ ------
Total $ 5,282 $35,517 $40,799
====== ====== ======
Lutcher Moore Group
Limited Recourse Debt $ 5,231 $ -- $ 5,231
====== ====== ======
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
expenses include interest accrued at September 30, 1995, of
approximately $.5 million.
Lutcher Moore Group Limited Recourse Debt
-----------------------------------------
At September 30, 1995, approximately $2.7 million of
Mortgage Notes (net of amounts escrowed for payment) and
$2.6 million of Seller Notes were outstanding. In June
1995, the terms of the Mortgage Notes were modified
providing that the remaining principal (which bears interest
at 10% per annum) is payable on demand, and if no demand is
made, in six monthly installments of $52,300 each,
commencing July 15, 1995, plus a final payment of all
outstanding principal and interest due on January 15, 1996.
Seller Notes bear interest of 8 percent and have a final
maturity in June 1996. Payments of principal and interest on
the Seller Notes are past due. The Company is negotiating
with the holders of this debt to defer payments until the
Lutcher Moore Tract can be sold in consideration for which
the Company would further secure the debt with preferred
stock. Should the deferral not be obtained, the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Collateralized Credit Facility
------------------------------
During 1995, the Company's bank agreement was amended
to modify certain covenant requirements through September
29, 1995. These covenants were subsequently amended to
modify requirements through April 1, 1996. (See Note 2.)
Secured Subordinated Debt
-------------------------
Approximately 1.6 million and 1.9 million shares of
Common Stock, were issued during the nine months ended
September 30, 1995, and September 30,1994, respectively in
payment of $1.3 million of interest due on the Subordinated
Debt for the six month period ended April 1, 1995, and in
payment of $2.1 million of interest due on the Subordinated
Debt for the six month periods ended April 1, 1994 and
October 1,1994.
8% Subordinated Convertible Notes
---------------------------------
Effective May 31, 1994, holders of the 8% Subordinated
Convertible Notes exercised their conversion rights and
converted the remaining $2.25 million in principal amount
into an aggregate 2.5 million shares of Common Stock.
(6) Preferred Stock and Common Stock
As of September 30, 1995, the Company had the following
shares of Preferred Stock outstanding:
Shares Liquidation Value
------ -----------------
Series A 599,244 $47,340,276 *
Series B 47,503 4,750,300
* 50 pounds sterling (U.K.) per share (U.K. 1 pound
sterling = U.S. $1.58 at September 30, 1995).
On May 16, 1995, the Company received notice from its
Series B Preferred holder exercising their option to have
their shares of preferred stock redeemed. (See Note 2.)
Series E Preferred Stock
------------------------
On November 1, 1995 the Company completed a private
placement of the initial tranche of up to an aggregate of
50,000 shares of a new series of Preferred Stock designated
the Series E Preferred Stock. The Company received
approximately $548,000 in cash and 1,160,647 shares of its
unregistered Common Stock in consideration for the sale of
12,982 shares of Series E Preferred Stock. The reacquisition
of the aforementioned shares of Common Stock will be
recorded under the cost method of accounting for treasury
stock. The Company presently intends to effect additional
sales of Series E Preferred Stock during the offering period
which ends on December 31, 1995, unless sooner terminated by
the Company. 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 semi-annual dividends; bears a fixed
cumulative dividend at the annual rate of $10 per share,
payable semi-annually 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 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.
Dividends
---------
The Company declared cash dividend payments on its
Series A and Series B Preferred Stocks of $2.6 million and
$2.5 million for the six months ended December 31, 1994 and
June 30, 1995, respectively. 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
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 $.9 million, of which $0.5 million has been
delivered to the Company's registrar.
During the nine months ended September 30, 1994, the
Company issued approximately 6 million shares of Common
Stock in lieu of cash dividends on its Series A and Series B
Preferred Stock in respect of dividends due June 30, 1993,
December 31, 1993, and June 30, 1994, and 2,119 and 20
shares of Series C Preferred Stock and Series D Preferred
Stock, respectively, for in-kind dividends due December 31,
1993. Additionally, the Company issued 1,751 of Series D
Preferred Stock for in-kind dividends due June 30, 1994
(7) Commitments and Contingencies and Subsequent
Events
Other commitments, contingencies and subsequent
events include:
The Company has future commitments of $1.8 million
associated with its joint venture contract to enter the
lubricating oil business in China (see Note 2).
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 $2.25 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
that it has meritorious defenses and it has instructed its
counsel to contest these claims.
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 remaining intervention will not have a
material adverse effect on the Company's financial position
or results of operations. The Company intends to defend
vigorously all claims asserted by the first group in its
lawsuit.
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,
the former wife of an officer and director of the Company,
has asserted a claim in the aggregate amount of
approximately $.5 million 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 such claim is without merit and rejects the
existence of any such alleged agreement.
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 or results of operations of the Company.
XCL LTD. AND SUBSIDIARIES
September 30, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
REVIEW OF FINANCIAL RESOURCES
- -----------------------------
Liquidity and Capital Resources
- -------------------------------
At September 30, 1995, the Company had an operating
cash balance of $.6 million and a working capital deficit of
$12.7 million, which includes $5.4 million in limited
recourse debt collateralized only by the Lutcher Moore Tract
and $5.25 million in bank debt, of which $2 million is due
January 1, 1996. The Company is currently pursuing a plan
to generate funds to satisfy these working capital
requirements by the sale of its domestic assets and the sale
of corporate securities.
To provide for immediate required near-term liquidity,
the Company sold 12,982 shares of a newly designated Series
E, Cumulative Convertible Preferred Stock ("Series E
Preferred Stock") for an aggregate consideration of $548,000
in cash and 1,160,647 shares of restricted Common Stock.
The offering period will continue until December 31, 1995
unless sooner terminated by the Company. The Company
expects to realize up to an additional $4.5 million from
additional sales of this issue, which carries a 10% annual
dividend, payable semiannually in cash, or at the Company's
election, in additional shares of Series E Preferred Stock.
Further, the Company has engaged a U.K. financial
institution to place units of Common Stock and warrants in
an offshore transaction in compliance with Regulation S,
promulgated under the Securities Act of 1933, as amended
(the "Act"). Gross proceeds from the offering, which is
being done on a best efforts basis, will be not less than $2
million nor more than $7 million. The scheduled closing
date is December 22, 1995.
In order to provide additional liquidity, the Company
is currently in negotiations with several parties interested
in acquiring the Lutcher Moore Tract. Should a sale be
effected, approximately $5.4 million of the proceeds would
be applied to retire the Lutcher Moore limited recourse
debt, and $5 million would be applied to reduce the
Company's bank debt if the domestic producing properties
have not been sold. The remainder would be applied to other
working capital requirements. Payments of principal and
interest on $2.6 million of the Lutcher Moore limited
recourse debt are past due. The Company is negotiating with
the holders of this debt to defer payments until the Lutcher
Moore Tract can be sold in consideration for which the
Company would further secure the debt with preferred stock.
Should the deferral not be obtained the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Management has historically had the ability to generate
funds through the sale of assets or securities and to
negotiate required amendments to its credit agreements.
Management believes that it can timely realize sufficient
cash resources to adequately meet its obligations and its
ongoing requirements. The timing of receipts from the
various sources of funds is not entirely within the
Company's control. Thus, the Company's ability to continue
to develop its principal assets could be substantially
curtailed should the Company be unable to obtain cash as needed.
In light of the Company's decision to focus its
activities in China, management is exploring the possibility
of selling substantially all of its U.S. producing
properties (the Cox and Mestena Grande Fields in Texas) or
joint venturing the development of these fields with a
partner. Information has been made available to several
potential purchasers, and the Company has retained
Internationale Nederlanden (U.S.) Securities Corporation to
assist in obtaining and evaluating offers that it expects to
receive prior to year end 1995. Any such disposition would
result in a substantial reduction in the Company's
outstanding indebtedness, since such properties are
presently pledged to secure approximately $25.1 million in
senior bank debt and $15 million in subordinated debt. A
sale or joint venture could result in a material non-cash
loss, which management believes may be justified in order to
eliminate the requirement for additional investment in the
Company's domestic fields so that funds can instead be
invested in China.
Management is encouraged about the Company's prospects
in China because of successful drilling activities to date
at the Zhao Dong Block, where four out of the five wells
drilled have tested at significant flow rates. Further, the
Company has been offered additional investment opportunities
in China as a result of its successful performance on the
Zhao Dong Block.
Pricing for a significant portion of the Company's gas
reserves in the Cox Field is subject to a price floor
established by a long-term gas contract. The continued
applicability of this price floor is dependent upon the
Company being able to meet certain minimum gas production
volumes which were not achieved for the contract year ending
April 30, 1995, and may not be achieved for the contract
year ending April 30, 1996, due to the downward revision in
reserve estimates at June 30, 1995. The Company's proved
reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year
ending April 30, 1997.
The Company currently has approximately $25.1 million
in bank debt collateralized by the Company's domestic oil
and gas reserves and the stock of certain subsidiaries.
During 1995 the Company's bank agreement was amended to
modify certain covenant requirements through September 29,
1995. These covenants were subsequently amended to modify
requirements through April 1, 1996. Should improvements in
the Company's financial position not occur, the Company
would be in violation of its credit agreement subsequent to
April 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. The
Company would have to pursue the sale of other assets, a
joint-venture or the issuance of additional equity
securities to fund any such accelerated payments. Further,
the borrowing base under this credit agreement is
determined, in part, by the value of the Company's proved
reserves. During the second quarter two unsuccessful
recompletions in the Cox Field caused a downward revision in
reserve quantities. This revision, coupled with an
impairment recorded in the third quarter as a result of
reduced present values of reserves attributable to delays in
scheduled development drilling, may negatively impact the
next borrowing base determination which has been rescheduled
for March 31, 1996.
The Company is currently pursuing additional
alternatives for raising capital for its planned capital
expenditures in China during the next twelve months. On
August 10, 1995, Chinese authorities approved the agreement
reached on May 10, 1995, between the Company and Apache
Corporation ("Apache") pursuant to which Apache will pay 100
percent of the costs to drill, test and complete two wildcat
wells and one appraisal well on the Zhao Dong Block. If
Apache elects to drill a third wildcat well, it will also
pay 100 percent of those costs. The amounts advanced by
Apache are recoverable from revenues generated from Zhao
Dong Block production. Future expenditures beyond those
described above will be borne 50 percent each by the Company
and Apache. Pursuant to this agreement Apache also purchased
an additional 16.67 percent interest in the foreign
contractor's share of the oil and gas reserves of the "C"
Field. Payment for this purchase will be computed 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 16.67
percent interest. In consideration for the above described
payments, Apache has assumed operatorship of the Zhao Dong
Block and increased its interest in the Zhao Dong Block from
33.33 percent to 50 percent. The Company estimates that
Apache will pay for all but approximately $10 million of its
exploration expenditures related to the Zhao Dong Block
during the next twelve months. The Company expects to fund
these expenditures from the sale of its domestic assets and
issuance of additional equity securities.
The Company and its partners in the Zhao Dong Block are
currently preparing the development plan for the "C" area
initial discovery. The Company plans to finance its share
of development costs primarily through project debt
financing. Alternatives available to the Company to obtain
development funds also include joint venturing the
development with another oil company or financial group.
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 will have a 30 year life unless
extended. The registered capital of the joint venture will
be $4.9 million, with the Company to contribute $2.4 million
for its 49 percent interest, of which $0.6 million has been
paid. The remaining $1.8 million is due pursuant to a
schedule, with the first payment due after a business
license is issued and the last payment due June 30, 1996.
The Chinese side will contribute an existing lubricating oil
blending plant in Langfang, China, with a value of $2.5
million as its investment for fifty-one percent of the
stock. The contract must be approved by Chinese authorities
before a business license can be issued and the joint
venture commences operations. Certain additional documents
must be submitted in connection with the application for the
business license. The Company expects the license to be
issued by January 31, 1996. In a letter of intent executed
contemporaneously with the contract, the parties have agreed
to consider the feasibility of (i) constructing a second
lubricating oil blending plant at a port facility near
Tianjin, China, (ii) contributing to the joint venture a
second existing plant in southwest China, and (iii) other
projects, including constructing oil terminals on the north
and south coasts of China, and engaging in upgrading certain
existing refineries within China. The Company expects to
fund its share of payments by bringing in a joint venture
partner.
The Company has signed an agreement with the China
National Administration of Coal Geology, pursuant to which
the parties will commence cooperation for the exploration
and development of coal bed 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, which may provide the basis for coal bed methane
development in other areas of China. Costs of the project
are not expected to be significant during the next twelve
months.
The Company has been approached by several U.S. and
foreign companies seeking joint venture arrangements with
respect to the lube oil, coal bed methane, and additional
future China business opportunities. Discussions have
commenced, with the Company's objective being to obtain
funding for its overhead and capital requirements in return
for providing these companies with access to these and other
China business opportunities.
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 Internationale Nederlanden (U.S.)
Capital Corporation ("INCC") and holders of the Company's
Subordinated Debt and Preferred Stock.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million pounds sterling
(U.K.) annually. The Company declared cash dividend payments
on its Series A Preferred Stock of $2.3 million and $2.2 million
for the six months ended December 31, 1994, and June 30, 1995,
respectively. 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 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 $.9 million, of which $0.5 million has been
delivered to the Company's registrar. The Company's credit
agreement restricts the payment of cash dividends and
currently, insufficient liquidity exists to continue to pay
such amounts.
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. The
Company sold 1 million shares of Common Stock during the
third quarter with proceeds allocated first to accrued
dividends of $353,000 and the remainder towards redemption
of 2,497 shares of the Series B Preferred Stock. During the
fourth quarter the Company sold 419,900 shares of Common
Stock with $40,000 of the proceeds allocated to accrued
dividends and the remainder toward redemption of an
additional 1,824 shares of the Series B Preferred Stock.
Other General Considerations
- ----------------------------
The Company believes that inflation has had no material
impact on the Company's sales, revenues or income during
such 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.
New Accounting Pronouncement
- ----------------------------
In April 1995, the Financial Accounting Standards Board
issued Statement No. 121 "Accounting For The Impairment Of
Long-Lived Assets And For Long-Lived Assets To Be Disposed
Of," effective for fiscal years beginning after December 15,
1995. This standard describes circumstances which may
result in assets being impaired and provides criteria for
recognition and measurement of asset impairment. The Company
has not analyzed the impact of this statement on the
financial position and results of operations of the Company.
Results of Operations
- ---------------------
During the three and nine month periods ended September
30, 1995, the Company incurred net losses of $10.5 million
and $25.4 million, respectively, as compared to net losses
of $9.7 million and $24.5 million, respectively, during the
corresponding periods in 1994. The nine months results for
1995 include a $16.5 million provision for impairment of oil
and gas properties as compared to a $16.7 provision in 1994.
The carrying amounts of the Company's properties in Texas
were written down by $10.7 million in the second quarter of
1995, and $5.8 million in the third quarter of 1995, in
order to comply with the ceiling limitation prescribed by
the Securities and Exchange Commission (the "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. Poor results in two recent recompletions
(the BMT 69 No. 1 and the Armstrong 258 No. 1) caused the
deletion of approximately 7.0 net BCF of gas in the Berry R.
Cox Field in the second quarter of 1995. The loss in 1995
also reflects the effects of a $2.4 million valuation
reserve for the Company's assets held for sale. The 1994
nine months results additionally reflect an extraordinary
charge of $1.7 million for early extinguishment of debt
resulting from the refinancing of the Company's $29.2
million credit facility in February 1994.
Oil and gas revenues for the three and nine month
periods ended September 30, 1995, were $.6 million and $2.0
million compared to $1.1 million and $3.7 million during the
corresponding periods in 1994. Revenues declined due to
reduced production volumes and decreases in gas prices which
were not offset by new production resulting from additional
drilling in the Cox Field. Operating costs as a percent of
revenues increased as a result of fixed costs remaining
constant while prices declined. As the Company has not
undertaken significant development projects on its domestic
oil and gas properties, it does not anticipate a material
change in its short-term production volumes and expects
continued operating losses. The Company realized an average
gas price of $1.28 per Mcf for the nine month period ended
September 30, 1995, as compared to an average of $1.76 per
Mcf for the nine month period in 1994, and $1.65 per Mcf for
the year ended December 31, 1994.
The depreciation, depletion and amortization rate for
the nine month period in 1995 averaged $1.24 per Mcf
compared to $1.25 per Mcf in the corresponding period of
1994.
As the Company continues to focus its resources on
exploration and development of the Zhao Dong Block and other
China projects, future oil and gas revenues will be directly
related to the degree of drilling success initially
experienced in the Zhao Dong Block.
Net capitalized costs for the Company's domestic oil
and gas properties at September 30, 1995, approximate the
"ceiling-test" limitation as prescribed by the "SEC"
guidelines. Remaining unproved and unevaluated properties at
September 30, 1995, include primarily the costs of leases
located adjacent to the Company's Berry R. Cox producing
properties. The Company drilled two exploration wells in
1994, and if the Cox Field is not sold, exploration
operations will continue in 1995. As these unproved
properties become evaluated, their costs are reclassified to
proved and evaluated properties, and any associated future
revenue is included in the calculation of the present value
of the Company's proved reserves. Prospectively, any such
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,
would cause a charge for a full-cost ceiling impairment,
absent offsetting improvements. Management is exploring the
possibility of selling substantially all of its U.S.
producing properties (the Cox and Mestena Grande Fields in
Texas) or joint venturing the development of these fields
with a partner. A sale or joint venture may result in a
material loss, which management believes may be justified in
order to eliminate the requirement for additional investment
in the Company's domestic fields so that funds can instead
be invested in China. Downward revisions in estimates of
reserve quantities may also adversely affect the Company's
borrowing base calculation under its credit facility with
INCC, which may then requirement prepayments of principal.
Effects on revenues are summarized on the following
table:
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
Oil and Gas Revenues - 1994 $ 1.1 $ 3.7
Effect of changes in volume of
gas production and sales (0.3) (0.7)
Effect of changes in gas prices (0.2) (0.9)
Effect of oil and liquid revenues, net -- (0.1)
---- ---
Oil and Gas Revenues - 1995 $ 0.6 $ 2.0
==== ===
General and administrative expenses increased in 1995
as a result of higher corporate insurance costs, an increase
in expenses associated with the Company's ongoing
investments in the energy industry in China, as well as a
decline in capitalized costs associated with the Cox Field.
These costs were partially offset by a decline in legal fees
incurred by the Company. Interest expense will continue to
increase throughout the year as the Company will not
capitalize interest on the debt directly associated with the
Cox Field because it is considering the sale or exchange of
this property.
Net proceeds received from the exercise of warrants and
subsequent sale of shares of Terrenex common stock during
the third quarter of 1995 resulted in a gain of $613,000
which was offset by a $383,000 loss recorded from the sale
of minor assets.
XCL LTD. AND SUBSIDIARIES
September 30, 1995
PART II - OTHER INFORMATION
Item 1. 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 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 non-
participating 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 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 non-participating
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 it's
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 $2.25 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
believes that its has meritorious defenses and it 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,
the former wife of an officer and director of the Company,
has asserted a claim in the aggregate amount of
approximately $.5 million 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 such claim is without merit and rejects the
existence of any such alleged agreement.
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
By a Circular dated September 8, 1995, the Company
solicited the written consent of the holders of the
Company's Series A Preferred Stock for approval to amend the
terms of such preferred stock by eliminating the provision
therein prohibiting the Company from participating in
business opportunities associated with downstream
activities, such as petroleum refining and retailing of
refined products. The consent of two-thirds of the issued
and outstanding shares of Series A Preferred Stock held of
record on August 18, 1995 was required for approval. A total
of 449,381 votes were cast with respect to the amendment to
eliminate Paragraph 11(a)(i) from the Certificate of
Designation and to renumber the remaining paragraphs:
Consenting: 404,381
Non-Consenting: 45,000
No matters were submitted to a vote of holders of the
Common Stock holders during the three month period ended
September 30, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number Description
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. *
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, 1944 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 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 375,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Ivory & Sime Enterprise
Capital Plc. (F)(iv)
4.21 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 100,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Henry D. Owen. (F)(v)
4.22 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 1,000,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Provincial Securities
Limited. (F)(vi)
4.23 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)(vii)
4.24 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)(viii)
4.25 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)(ix)
4.26 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(x)
4.27 Form of Warrant Agreement and Stock Purchase Warrant
dated July 1, 1994, to purchase 100,000 shares of Common
Stock at an exercise price of $1.50 per share, subject
to adjustment, issued to Joe T. Rye. (F)(xi)
4.28 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)
4.29 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995. *
4.30 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November 2,
1995. *
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 Copy of Employment Agreement dated May 1, 1993,
between a subsidiary of the Company and Roy F.C. Chase
(I)(vi)
10.3 Copy of Amendment Agreement to Second Agreement to
Substitute Collateral dated December 6, 1993, between
the Company and the holders of the Company's Lease
Notes. (I)(vii)
10.4 Copy of Net Revenue Interest Assignment dated
December 6, 1993, between the Company and the Company's
Lease Note holders. (I)(viii)
10.5 Copy of Net Profits Royalty Conveyance dated December
6, 1993, between the Company and the Company's Lease
Note Holders. (I)(ix)
10.6 Copy of Prepayment and Termination Agreement dated
January 31, 1994, between the Company, Manufacturers
Hanover Trust Company (predecessor to Chemical Bank), as
agent, and Banque Paribas, Christiania Bank and Den
norske Bank. (I)(x)
10.7 $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)(xi)
10.8 Copy of Subordination Agreement among the Company,
INCC and the holders of the Secured Notes dated.
(I)(xii)
10.9 Form of First Amendment of Secured Subordinated Note
dated January 31, 1994. (I)(xiii)
10.10 Form of First Amendment of Limited Recourse Secured
Lease Note dated January 31, 1994. (I)(xiv)
10.11 Stock Pledge Agreement dated January 31, 1994, among
the Company and INCC. (I)(v)
10.12 Deed of Trust, Mortgage, Assignment, Security
Agreement and Financing Statement from XCL-Texas, Inc.
to INCC dated January 31, 1994. (I)(xvi)
10.13 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)(xvii)
10.14 Copy of financial consulting agreement between the
Company and San Jacinto Securities, Inc. dated.
(I)(xviii)
10.15 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 Chine Corporation
LDC. (I)(xvix)
10.16 Amendment of Loan Agreement and Promissory Notes, and
option to Purchase Shares dated December 21, 1993
between the Company and Estate of J. Edgar Monroe, J.
Edgar Monroe Foundation and Patrick A. Tesson. (E)(vii)
10.17 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)(viii)
10.18 Pledge of Shares, Security Agreement and Financing
Statement, dated effective April 15, 1994, between the
Company and Estate of J. Edgar Monroe, J. Edgar Monroe
Foundation and Patrick A. Tesson. (F)(xii)
10.19 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and
China Investment and Development Corporation. (F)(xiii)
10.20 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(xiv)
10.21 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994. (F)(xv)
10.22 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.23 Consulting agreement between the Company and Mr.
Arthur W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.24 Letter Agreement between the Company and Mr. William
Wang dated June 2, 1992, executed effective February 10,
1993. (K)(iii)
10.25 First Amendment to Credit Agreement between the
Company and Internationale Nederlanden (U.S.) Capital
Corporation dated April 13, 1995. (L)(ii)
10.26 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)
10.27 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)
10.28 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)
10.29 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)
10.30 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)
10.31 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)
10.32 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)
10.33 Letter of Intent dated July 17, 1995 between CNPC
United Lube Oil Corporation and XCL Ltd. for discussion
of further projects. (M)(v)
10.34 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)
10.35 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. *
10.36 Copy of Second Amendment to Credit Agreement
between the Company and Internationale Nederlanden
(U.S.) Capital Corporation dated effective as of
September 29, 1995. *
10.37 Copy of Fee Agreement dated October 26, 1995, between
the Company and EnCap Investments L.C. for past services
and proposed European equity offering. *
10.38 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. *
11. Statement re computation of per share earnings *
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27.1 Financial Data Schedule *
99.1 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; (vii) Exhibit 10.5; and (viii) 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
(xi) Exhibits 4.28 through 4.38, respectively; and
(xii) through (xv) Exhibits 10.7 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 (xvix) Exhibit 10.36 through
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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and 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/ Pamela G. Shanks
By: __________________________
Pamela G. Shanks
Vice President-Finance and
Chief Financial Officer
Date: November 10, 1995