ENCAP INVESTMENTS L.C.
                            1100 Louisiana Street
                                   Suite 3150
                            Houston, Texas  77002
                              Tel: (713) 659-6100
                              Fax: (713) 659-6130


October 26, 1995



Mr. Marsden W. Miller, Jr.
Chairman, C.E.O.
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, LA 70508

Re:  Past Fee Arrangements and European Equity Offering

Dear Bill:

EnCap Investments L.C. (EnCap) has been a large supporter of
XCL and is pleased that you have selected Rauscher Pierce &
Clark to privately place $2 million to $5 million of XCL common
stock in Europe. Rauscher Pierce & Clark will have its own fee
arrangement with XCL of which EnCap will not be a party.
However, EnCap has acted as a finder for XCL in identifying
Rauscher Pierce & Clark as the broker for this transaction and
EnCap will act as XCL's financial advisor during this offering.

Additionally, XCL and EnCap have had a series of letter
agreements between the parties for past transactions including
the purchase by Apache of additional interest in Zhao Dong
Block. However, this letter will supersede all the past fee
agreements as set forth in those letters except should Apache
purchase the Berry Cox Field, XCL would owe to EnCap a fee of
one percent(1%) of the purchase price. Further, all indemnities
contained in those letters will remain in full force and
effect.

This fee arrangement will be in two parts - the first part sets
forth what EnCap has already earned and is presently due. The
second part of this agreement sets forth compensation to be
earned by EnCap in its capacity as finder and financial advisor
in the Rauscher Pierce European equity offering.

First, upon execution of this letter agreement, XCL agrees to
pay to EnCap 50,000 shares of common stock. These common shares
will be unregistered but EnCap will be entitled to free piggy-
back registration rights on those shares. Secondly, the
provisions in EnCap's existing 500,000 warrants of XCL stock
relating to the exercise price and the length of time the
warrants may be exercised will be adjusted to reflect the
comparable provisions in the Rauscher Pierce commission
warrants (anticipated to be $.50 per share and five year
warrants). These warrants will be subject to the same $ 1.25
forced conversion feature which the Rauscher Pierce warrants
will have. Should the European offering not proceed or should
it fail, EnCap will still retain the 500,000 five year warrants
at a price of $.50 per share and the $ 1.25 forced conversion
feature will be in effect. Additionally, XCL will keep 500,000
shares of its common stock registered and available to be
issued to EnCap upon exercise of the warrants.

Second, EnCap will be entitled to a cash fee of one and one
half percent (1.5%) of the proceeds raised in this contemplated
European equity offering and a stock fee of four percent (4%)
based on the proceeds raised payable in unregistered XCL common
stock. The number of shares to be paid to EnCap will be the fee
percentage multiplied by the gross proceeds raised divided by
the closing price of XCL's common stock at the close of
business on the day of the European funding. The stock will
have free piggyback rights.

Finally, XCL agrees to pay all reasonable out of pocket
expenses incurred by EnCap in this offering including travel
expenses on a European road show and a due diligence trip to
China by Gary Petersen.

In connection with the role of EnCap set forth in this letter,
XCL hereby agrees to indemnify and hold EnCap and its
shareholders, directors officers, employees, affiliates, agents
and representatives (the "indemnified Parties") harmless from
and against any and all losses, claims, damages, liabilities
including all expenses, such as without limitation, fees and
disbursements of counsel reasonable incurred by an Indemnified
Party in connection with the preparation for or investigation
or defense of any claim, action of proceeding whether or not
resulting in any liability to which any Indemnified Party may
become subject as a result of any action or claim in connection
with the services provided by EnCap hereunder; provided, that
XCL shall not be obligated to any Indemnified Party in any such
case to the extent that any such loss, claim, damage or
liability is found in a final judgement by a court of competent
jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnified Party. The terms of this
paragraph shall survive the termination of this Agreement and
shall be effective regardless of whether any definitive
agreements of other documents are executed.

If the foregoing is in accordance with our understanding,
kindly confirm your acceptance and agreement by signing and
returning the enclosed duplicate of this letter, which will
thereupon constitute a binding agreement between us.

Very truly yours,


/s/ Gary R. Petersen
- --------------------
Gary R. Petersen
Managing Director


Agreed and accepted
this 3rd day of November, 1995.


/s/ Marsden W. Miller, Jr.
- --------------------------
Marsden W. Miller, Jr.
Chairman and CEO