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, 1996
------------------
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
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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.
276,594,965 shares Common Stock, $.01 par value were
outstanding on November 13, 1996.
XCL LTD.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
September 30 December 31
Assets 1996 1995
------ ------------ -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 74 $ 1,610
Accounts receivable, net 175 340
Amounts receivable from sale of assets -- 4,151
Subscriptions receivable -- 483
Prepaid expenses 207 205
Assets held for sale -- 4,376
------- -------
Total current assets 456 11,165
------- -------
Property and equipment:
Oil and gas (full cost method):
Unproved and unevaluated foreign
properties: 33,172 27,315
Land, at cost 135 135
Other 2,999 3,017
------- -------
36,306 30,467
Accumulated depreciation, depletion
and amortization (1,936) (1,845)
------- -------
34,370 28,622
------- -------
Investments (Note 4) 2,766 5,369
Assets held for sale (Note 4) 24,866 25,395
Deferred charges and other assets 1,554 1,785
------- -------
Total assets $ 64,012 $ 72,336
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued costs $ 7,848 $ 3,884
Royalty and production taxes payable 19 218
Dividends payable 928 928
Current maturities of limited
recourse debt 4,772 5,229
Collateralized credit facility 17,279 25,115
Current maturities of subordinated debt 15,000 --
Other current maturities 649 30
------- -------
Total current liabilities 46,495 35,404
------- -------
Long-term debt, net of current maturities -- 15,644
Other non-current liabilities 2,731 4,388
Commitments and contingencies (Note 7)
Shareholders' equity (Note 6):
Preferred stock-$1.00 par value;
authorized 2,400,000 at September 30,
1996 and 1,200,000 shares at December
31, 1996; issued shares of 669,411 at
September 30, 1996 and 680,570 at
December 31, 1995-liquidation preference
of $54.3 million at September 30, 1996 669 681
Preferred stock subscribed -- 4
Common stock-$.01 par value; authorized
500 million shares at September 30, 1996
and 350 million shares at December 31,
1995; issued shares of 272,533,740 at
September 30, 1996 and 256,157,224 at
December 31, 1995 2,725 2,561
Common stock held in treasury-$.01 par
value; 1,042,065 shares at September 30,
1996 and 2,514,238 shares at
December 31, 1995 (10) (25)
Additional paid-in capital 225,083 220,364
Accumulated deficit (213,681) (206,685)
------- -------
Total shareholders' equity 14,786 16,900
------- -------
Total liabilities and share-
holders' equity $ 64,012 $ 72,336
======= =======
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
1996 1995 1996 1995
----- ---- ---- ----
(Unaudited)
Oil and gas revenues $ 94 $ 604 $ 1,031 $ 2,006
------ ------ ------ ------
Oil and gas operating expenses:
Operating (including marketing) 43 231 280 795
Depreciation, depletion and
amortization 18 535 119 1,831
Depletion - oil and gas assets
held for sale 27 -- 409 --
Provision for impairment of oil
and gas properties -- 5,800 -- 16,500
Writedown/loss on sale of other
assets and investments 750 2,740 2,000 2,740
General and administrative 760 1,452 2,667 3,562
Taxes, other than income 102 208 189 558
------ ------- ------ -------
1,700 10,966 5,664 25,986
------ ------- ------ -------
Operating loss (1,606) (10,362) (4,633) (23,980)
------ ------- ------ -------
Other income (expenses):
Interest expense, net of amounts
capitalized (558) (797) (1,765) (2,186)
Gain (loss) on sale of investments -- 613 (661) 613
Other, net 431 50 623 182
------ ------ ------ ------
(127) (134) (1,803) (1,391)
------ ------ ------ ------
Net loss (1,733) (10,496) (6,436) (25,371)
Preferred stock dividends (113) (103) (560) (2,567)
------ ------ ------ -------
Net loss attributable to common stock $ (1,846) $(10,599) $(6,996) $(27,938)
====== ======= ====== =======
Net loss per common and common
equivalent share $ (.01) $ (.04) $ (.03) $ (.11)
====== ======= ====== =======
Average number of common and common
equivalent shares outstanding 267,542 242,533 262,651 238,029
======= ======= ======= =======
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
1996 1995
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss $ (6,436) $ (25,371)
------ -------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 528 1,831
Provision for impairment of oil and gas
properties -- 16,500
Loss (gain) on sale of investments 661 (613)
Loss on sale of other assets -- 383
Writedown of other assets and investments 2,000 2,357
Change in assets and liabilities:
Accounts receivable 647 1,041
Prepaid expenses (2) (142)
Accounts payable and accrued expenses 2,766 (273)
Royalty and production taxes payable (199) (109)
Other, net 142 87
------ ------
Total adjustments 6,543 21,062
------ ------
Net cash provided by (used in)
operating activities 107 (4,309)
------ ------
Cash flows from investing activities:
Capital expenditures (3,867) (7,679)
Investments (474) (1,162)
Proceeds from sale of assets 9,147 2,643
Other 4 304
----- ------
Net cash provided by (used in)
investing activities 4,810 (5,894)
----- ------
Cash flows from financing activities:
Proceeds from sales of common stock 1,626 1,378
Proceeds from sales of treasury stock 264 2,364
Payment for treasury stock (141) --
Proceeds from issuance of preferred stock 282 --
Proceeds from exercise of warrants and options -- 874
Payment of long-term debt (8,348) (425)
Payment of preferred stock dividends -- (250)
Stock issuance costs and other (136) 69
------ ------
Net cash provided by (used in)
financing activities (6,453) 4,010
------- ------
Net increase (decrease) in cash and cash equivalents (1,536) (6,193)
Cash and cash equivalents at beginning of period 1,610 6,751
------- -------
Cash and cash equivalents at end of period $ 74 $ 558
======= =======
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(1) General
The consolidated financial statements at September 30,
1996 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, 1995 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. and subsidiaries
as of September 30, 1996 and December 31, 1995 and the
results of their operations for the three months and nine
months ended September 30, 1996 and 1995 and their cash
flows for the nine months ended September 30, 1996 and 1995,
have been included. 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
The Company has incurred net losses for each of its
past five fiscal years and the first nine months of the
current fiscal year and currently has a significant working
capital deficit. The Company anticipates insufficient cash
flows from operations to meet its current obligations,
including expenditures required for the development of the
Company's assets. Since 1994, the Company has been able to
meet its financial obligations by obtaining funds from sales
of equity in the Company and sales of various assets.
However as of November 11, 1996, the Company did not have
sufficient commitments in place to insure that the Company's
obligations for 1996 can be satisfied and its ability to
obtain funds from further sales of equity may become
impaired if the Company's shares of Common Stock are
delisted from the American Stock Exchange. (See Note 7 -
"Commitments, Contingencies and Subsequent Events.")
Included in such obligations are trade payables (net of
disputed amounts) of approximately $1.4 million as of
November 11, 1996, of which 60 percent are unpaid in excess
of 120 days from the invoice date. On October 23, 1996, the
contract operator for the Company's remaining producing oil
and gas property filed operator's liens against the
Company's interest in such producing property in the amount
of approximately $45,000, representing costs and expenses
incurred by such contract operator for the Company's
interest in such property. Upon notice of filing of the
liens, the purchaser of the gas attributable to the
Company's interest in such property may suspend payment to
the Company of revenues attributable to such interest until
such time as the Company satisfies the amounts due and
owing. Included in accounts payable and accrued costs are
net salaries due to officers and managers of approximately
$87,000, representing two months salary due executive
officers and one month salary due other officers and
managers. Further, in addition to such trade payables, as of
November 11, 1996, the Company has accrued liabilities to
Apache arising from their joint interest billings and cash
calls in respect of the Company's interest in the Zhao Dong
Block of approximately $5.5 million ($3.7 million as of
September 30, 1996) the entire amount of which is in
arbitration. An audit of Apache conducted by Company
personnel has called into question approximately $0.3
million of charges in one category of costs in dispute.
While the Company believes that certain of the other charges
are valid, and has fully provided for them in the
consolidated financial statements, it does not have
sufficient liquidity to make payment at this time. Unless
alternative sources of funds are obtained, substantial doubt
exists regarding the Company's ability to continue as a
going concern.
At September 30, 1996, the Company had an operating
cash balance of $74,000 and a working capital deficit of $46
million, which includes $17.3 million in bank debt, $15
million in secured subordinated debt, $4.8 million in
limited recourse debt collateralized only by the Lutcher
Moore Tract, and $0.7 million in institutional debt secured
by a first mortgage on the Company's office building.
On January 31, 1994, the Company borrowed $29.2 million
from Internationale Nederlanden (U.S.) Capital Corporation
("INCC") under a $35 million credit agreement ("INCC
Agreement"). The bank debt is collateralized by the
Company's domestic oil and gas properties and the stock of
certain subsidiaries, including the stock of XCL-China,
Ltd., through which the Company owns its interest in the
Zhao Dong Block. During 1995, the INCC Agreement was amended
to modify certain covenant requirements through September
29, 1995. These covenants were subsequently amended to
modify requirements through April 1, 1996, and again amended
through September 30, 1996. The Company did not make an
interest payment of $248,600 due the bank on October 1,
1996, resulting in an event of default under the terms of
the INCC Agreement. By letter dated October 7, 1996, the
bank acknowledged that failure to make such interest payment
constituted an event of default and advised that such past
due interest payment bears interest at the Late Payment Rate
in effect on such date. From October 1, 1996, the Late
Payment Rate has been 12.25 percent. The bank has not given
formal notice to accelerate the loan, it has however,
reserved all of its rights and remedies under the INCC
Agreement. In addition to the event of default described
above, the Company is in violation of several covenants in
the INCC Agreement. The bank has informed the Company that
it will look favorably upon waiving existing defaults,
entering into a standstill agreement and modifying other
terms and conditions of the INCC Agreement in connection
with a recapitalization of the Company satisfactory to the
bank. (See Note 5 below.)
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The Company also has $4.8 million of Limited Recourse
debt outstanding which is collateralized by the Lutcher
Moore Tract, of which $2.3 million is due on December 17,
1996. Payments of principal and interest on the remaining
$2.5 million of the Lutcher Moore limited recourse debt are
past due. No action has been taken by the holders of the
debt. Should the Company not be successful in its attempts
to sell the property or refinance the debt on the property
the holders have recourse only to the property itself, as
the Company is not liable for the debt.
The outstanding balance of the building mortgage loan
as of September 30, 1996, was approximately $0.7 million,
bearing interest at the rate of 14 percent per annum. As of
November 11, 1996, the Company has not made the October and
November scheduled loan payments. By letter dated October
29, 1996, the mortgagee has advised that if the loan default
is not satisfactorily cured, it in its sole discretion will
take action to protect its security and to enforce its loan
remedies. Payment of the building mortgage is personally
guaranteed by the Chairman of the Board.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pounds Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. The Company declared the
Series A Preferred Stock dividend payable June 30, 1995. A
portion of this dividend was paid with shares of Common
Stock and approximately $900,000 remains to be paid in cash.
As the Company was unable to pay this dividend by June 30,
1996, the holders of Series A Preferred Stock can now
require Board of Director representation. The December 31,
1995 dividend payment on the Series A Preferred Stock has
been declared payable in additional shares of Series A
Preferred Stock, however such shares cannot be issued until
the shares allocated to withholding taxes are sold for cash
and the proceeds remitted to the taxing authorities. The
Board of Directors elected not to declare the dividend
payable June 30, 1996.
During the quarter ended September 30, 1996, the
Company supplemented cash generated from the sale of
oil and gas production by the completion of the following
transactions:
o In July 1996, the Company sold 50,000 shares of Common
Stock held as Treasury Stock in a Regulation S transaction
for net proceeds after fees and discounts of $12,875. (See
Part II - Item 2(c) "Changes in Securities.")
o In July 1996, the Company received approximately
$56,000 as consideration for a pipeline right-of-way granted
on the Lutcher Moore Tract.
o In August 1996, the Company sold in two separate
Regulation S transactions, (1) 2,800,000 Units, each Unit
consisting of one share of Common Stock and one warrant to
acquire one share of Common Stock, for net proceeds of
approximately $402,000 and (2) 1,500,000 shares of Common
Stock for net proceeds of $200,000, after deduction of
commissions. An aggregate of 4,300,000 shares of Common
Stock and Warrants to acquire additional 3,380,000 shares of
Common stock were issued. (See Part II - Item 2(c) "Changes
in Securities.")
o In August 1996, the Company borrowed $225,000 from an
investor and such investor was granted 1,200,000 warrants in
connection therewith. The loan is to be satisfied by the
issuance of shares of Common Stock.
o In September 1996, the Company granted two oil and gas
leases on the Lutcher Moore tract totaling 18,400 acres, for
which it received $184,000 in gross proceeds, of which
$100,000 was applied to principal reduction of the first
mortgage on that property.
o In September 1996, the Company received $75,000 in
payment for surface damages to 50 acres of the Lutcher Moore
Tract.
During the fourth quarter of 1996, the Company projects
a total trade payable position of approximately $0.9 million
and general and administrative expenses of approximately
$0.7 million. Additionally the Company has received cash
calls from Apache of approximately $5.5 million as of
November 11, 1996, the entire amount of which is in
arbitration. The Company additionally projects fourth
quarter costs of approximately $0.2 million for the China
lubrication oil project and approximately $0.2 million for
the China coalbed methane project. During the fourth quarter
the Company projects approximately $0.7 million of interest
due to INCC. Management's plans to obtain the necessary
capital include:
o The sale of the Lutcher Moore Tract and leasing
activities thereon. The Company is in ongoing negotiations
for the sale of this property. Should a sale be completed,
$4.8 million of the proceeds would be applied to the limited
recourse debt with additional proceeds used to satisfy
working capital requirements. During October 1996, the
Company granted an oil and gas lease covering 365 acres on
the property for which it received $36,500 in gross
proceeds.
o Negotiating joint venture agreements with potential
partners to supply the cash needed to pursue various China
projects. Discussions with several potential partners are in
progress.
o Negotiating a recapitalization of the Company.
o Until July 29, 1996, the Company was engaged in
attempts to sell its remaining domestic oil and gas
properties. On that day it received service of three
lawsuits filed by lessors of the most productive remaining
lease, effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are
without merit, it is of the opinion that the property cannot
be sold until such time as the litigation is concluded or
settled. In response to a request by the lessors' counsel,
the Company has granted the lessors an extension of time to
respond to discovery demands made by the Company and to
allow sufficient time to pursue settlement of this
litigation. (See Note 7 - "Commitments, Contingencies and
Subsequent Events" and Part II - Item 1. "Legal
Proceedings," herein.)
The Company believes that working capital can be made
available from certain of its major stockholders or other
investors, should the Company (1) contract for the sale of
the Lutcher Moore tract, (2) enter into a letter(s) of
intent with industry partners to provide funds for the
Company's China projects capital requirements, or (3)
conclude a plan to recapitalize the Company. However, no
assurance can be given that the Company's efforts in this
regard will be successful. In addition, the Company's
efforts to secure additional working capital will be
impaired if the Company's Common Stock is delisted from the
American Stock Exchange. (See Note 7 - "Commitments,
Contingencies and Subsequent Events.")
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 INCC and holders of the Company's
Subordinated Debt and Preferred Stock. By shareholder vote
on July 30, 1996, the shareholders approved an increase of
150,000,000 authorized shares of Common Stock and 1,200,000
authorized shares of Preferred Stock.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the nine month
periods ended September 30, 1996 and 1995. (See Note 7
herein).
Interest and associated capitalized costs for the three
and nine month periods ended September 30 totaled $0.6
million and $1.9 million, respectively for 1996 and $0.6
million and $2.2 million, respectively for the corresponding
periods in 1995. Interest paid during the three and nine
month periods ended September 30, 1996 and 1995 amounted to
$0.4 million and $1.5 million, and $0.7 million and $2.0
million, respectively.
During the nine months ended September 30, 1996, the
Company completed the following noncash transactions not
reported elsewhere herein:
o In March and April 1996, the Company sold Units of
Common Stock and Warrants through Rauscher Pierce & Clark,
as Placement Agent, in a Regulation S Unit Offering. As
compensation for acting as Placement Agent for such unit
offering, Rauscher Pierce & Clark was granted warrants to
acquire an aggregate of 384,000 shares of Common Stock.
o As compensation for services performed resulting in
Apache purchasing an additional interest in the Zhao Dong
Block, the Company issued 50,000 shares of Common Stock
(held in treasury) to EnCap Investments, L.C. ("EnCap") and
EnCap's existing warrant to acquire 500,000 shares of Common
Stock was amended as to exercise price, expiration date and
forced conversion feature to conform the terms of this
warrant to the terms of warrants granted to the Placement
Agent in the Regulation S Unit Offering
o As compensation for identifying Rauscher Pierce & Clark
as the Placement Agent for the Regulation S Unit Offering,
EnCap earned a four percent stock fee of the gross proceeds
of the Regulation S Unit Offering. In payment of this fee
the Company, during the first quarter, issued 267,264 shares
of Common Stock (held in treasury) in connection with the
initial closing and during the second quarter issued an
aggregate 122,880 shares of Common Stock as compensation for
the subsequent closings.
During the nine months ended September 30, 1995, the
Company issued 18,714 shares of Common Stock in payment of
interest on funds escrowed in advance of purchase of Series
D Preferred Stock.
(4) Assets Held for Sale and Investments
Assets Held for Sale
--------------------
Domestic Oil and Gas Properties
- -------------------------------
During the fourth quarter of 1995, in connection with
management's decision to concentrate the Company's resources
on the development of its China investments, a decision was
made to dispose of all of the Company's domestic properties.
Accordingly, the recorded value of the Company's domestic
properties was reduced to their estimated fair market value
and the resulting balances were transferred to assets held
for sale.
During the first quarter of 1996, the Company sold two
domestic gas fields producing net proceeds of $5.4 million
which was primarily used to pay interest and prepay
principal due on the Company's bank loan. The Company sold a
third property in a sale completed during the second quarter
of 1996 generating gross proceeds of approximately $3.0
million, of which $2.8 million was applied to payment of
interest and prepayment of principal on the bank loan.
Until July 29, 1996, the Company was engaged in
attempts to sell its remaining domestic oil and gas
properties. On that day it received service of three
lawsuits filed by lessors of the most productive remaining
lease, effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are
without merit, it is of the opinion that the property cannot
be sold until such time as the litigation is concluded. In
response to the request by the lessors' counsel, the Company
has granted the lessors an extension of time to respond to
discovery demands made by the Company to allow sufficient
time to pursue settlement of this litigation.
Lutcher Moore Tract
- -------------------
During 1993, the Company completed the acquisition of a
group of corporations which together owned 100 percent of a
62,500-acre tract in southeastern Louisiana (the "Lutcher
Moore Tract"). Total consideration of $15.4 million
included the assumption of $9.9 million of limited recourse
debt (see Note 5 to the Consolidated Financial Statements),
$2.7 million in cash, the issuance of 3,616,667 shares of
Common Stock and warrants to purchase an additional
4,166,667 shares of Common Stock at $1.00 per share. In
connection with the purchase, the Company capitalized
acquisition related costs of $900,000. The Company is
presently negotiating for the sale of this property.
Investments
-----------
Lube Oil Investment
- -------------------
On July 17, 1995, the Company signed a contract with
CNPC United Lube Oil Corporation to form a joint venture
company to engage in the manufacturing, distribution and
marketing of lubricating oil in China and southeast Asian
markets. The Company has invested approximately $1.7 million
in the project, including a $600,000 down payment and a
$200,000 payment made in August 1996. There remains an
additional $1.6 million in payments to be made pursuant to a
renegotiated schedule of payments.
Coalbed Methane Project
- -----------------------
During 1995, the Company signed an agreement with the
China National Administration of Coal Geology, pursuant to
which the parties have commenced cooperation for the
exploration and development of coalbed methane in two areas
in China. As of September 30, 1996, the Company has invested
approximately $504,000 in the project.
Phoenix Lake Tract
- ------------------
On May 18, 1995, the Company sold its 77.78 percent fee
interest in 11,600 gross acres comprising the Phoenix Lake
Tract retaining 75 percent of its mineral interest
underlying those lands, less and except two tracts covering
approximately 77 net acres in which XCL retained no mineral
interest. The purchase price was comprised of approximately
$1.7 million in cash and a $0.5 million reduction in
obligations owed by the Company to the purchaser. No gain
or loss was recognized on the sale.
In June 1996, the Company sold its remaining mineral
interest in the Phoenix Lake Tract. The sale price was
$417,000 in cash and the Company recorded a $661,000 loss on
the sale.
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, 1996 consists of the
following (000's):
Current Long-Term
Maturities Portion Total
---------- --------- -----
Collateralized credit facility $ 17,279 $ -- $ 17,279
Subordinated debt 15,000 -- 15,000
Building Mortgage 649 -- 649
------- ------- -------
Total $ 32,928 $ -- $ 32,928
======== ======= =======
Lutcher Moore Group
Limited Recourse Debt $ 4,772 $ -- $ 4,772
======== ======= =======
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
costs include interest accrued at September 30, 1996, of
approximately $1.6 million.
Lutcher Moore Group Limited Recourse Debt
- ------------------------------------------
Mortgage and Seller Notes
-------------------------
At September 30, 1996, approximately $2.3 million of
Mortgage Notes (net of amounts escrowed for payment) and
$2.5 million of Seller Notes were outstanding. In January
1996, the terms of the Mortgage Notes were modified
providing that the remaining principal (which bears interest
at 9.25 percent per annum) is payable on demand, and if no
demand is made, in three monthly installments of $52,300
each, commencing February 15, 1996, plus a final payment of
all outstanding principal and interest due on May 16, 1996.
In June 1996, upon the payment by the Company of principal
and interest in the aggregate amount of $265,000 the terms
of the Mortgage Notes were again modified providing that the
remaining principal (which bears interest at 9.25 percent
per annum) is payable on demand, and if no demand is made,
in five monthly installments of interest, commencing July
17, 1996, with a final payment of all outstanding principal
and interest due on December 17, 1996. During September, the
principal of the Mortgage Notes was reduced by $100,000 from
payments received for oil and gas leases granted on the
property. The Seller Notes bear interest at 8 percent and
payments of principal and interest on the Seller Notes are
past due. No action has been taken by holders of the debt.
Should the Company not be successful in its attempts to sell
the property or refinance the debt on the property, the
holders have recourse only to the property itself, as the
Company is not liable for the debt.
Collateralized Credit Facility
- ------------------------------
The INCC Agreement provides for scheduled semiannual
borrowing base determinations by INCC based on a review of
reserve estimates and other factors, with the initial
borrowing base set at $29.2 million. Effective October 31,
1994, the borrowing base was set at $25.2 million. The net
proceeds of $4.1 million from the divestiture of the Mestena
Grande Field in January 1996, were applied to a $2 million
principal payment due January 2, 1996, a principal payment
of $1.63 million due April 1, 1996, with the remainder
applied to the balance of the outstanding indebtedness. The
net proceeds of $1.325 million from the sale of the Gonzales
Gas Unit sold in March 1996, were applied to accrued
interest through the date of closing and $1.1 million of
principal. The net proceeds of $2.79 million from the sale
of the Lopez Gas Units sold in April 1996, were applied to
accrued interest through the date of closing then to
principal of $535,556 due on July 1, 1996, principal of
$1.625 million due October 1, 1996 and the remainder against
principal due January 2, 1997. The next scheduled principal
payment is due January 2, 1997, in the amount of
approximately $1.2 million with quarterly payments of $1.63
million thereafter.
During 1995, the INCC Agreement was amended to modify
certain covenants and was further amended to modify
requirements through April 1, 1996. The INCC Agreement was
further amended in April 1996 to modify requirements through
September 30, 1996, and accordingly the full amount of such
debt has been reflected as a current liability. The Company
did not make an interest payment of $248,600 due the bank on
October 1, 1996, resulting in an event of default under the
terms of the INCC Agreement. By letter dated October 7,
1996, the bank acknowledged that failure to make such
interest payment constituted an event of default and advised
that such past due interest payment bears interest at the
Late Payment Rate in effect on such date. From October 1,
1996, the Late Payment Rate has been 12.25 percent. The bank
has not given formal notice to accelerate the loan, it has
however, reserved all of its rights and remedies under the
INCC Agreement. In addition to the event of default
described above, the Company is in violation of several
covenants in the INCC Agreement. The bank has informed the
Company that it will look favorably upon waiving existing
defaults, entering into a standstill agreement and modifying
other terms and conditions of the INCC Agreement in
connection with a recapitalization of the Company
satisfactory to the bank.
Secured Subordinated Debt
- -------------------------
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The Company issued approximately 6.5 million and 1.6
million shares of Common Stock in payment of $2.7 million
and $1.3 million of interest due on the Secured Subordinated
Debt during the nine month periods ended September 30, 1996
and 1995, respectively.
(6) Preferred Stock and Common Stock
As of September 30, 1996, the Company had the following
shares of Preferred Stock issued and outstanding:
Shares Liquidation Value
------ -----------------
Series A 577,803 $ 45,166,861(1)
Series B 44,954 4,495,400
Series E 46,654 4,665,400
__________
(1) 50 Pounds Sterling (U.K.) per share (1 Pound
Sterling U.K. = U.S. $1.5634 at September 30, 1996).
Series A Preferred Stock
------------------------
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pounds Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. Further, the INCC Agreement
restricts payment of cash dividends. With the approval of
its lender, the Company declared the June 30, 1995 dividend
payable in cash, with such cash to be obtained from the sale
of Common Stock. In order to reduce the cash requirement,
effective June 26, 1995, the Company entered into agreements
with three U.S. holders of Series A Preferred Stock
representing approximately 59 percent of the class pursuant
to which they elected to receive their dividends in Common
Stock of the Company. Cash dividends remaining to be paid
with respect to the June 30, 1995 dividend declaration,
aggregate approximately $900,000. As the Company was unable
to pay this dividend by June 30, 1996, the holders of Series
A Preferred Stock are entitled to representation on the
Board of Directors.
On June 11, 1996, the holder of 21,441 shares of Series
A Preferred Stock elected, pursuant to the terms of the
Series A Preferred Stock, to convert such shares into Common
Stock of the Company. In July 1996, the Company issued
450,261 shares of Common Stock in connection with this
conversion.
The December 31, 1995 dividend payment on the Series A
Preferred Stock has been declared payable in additional
shares of Series A Preferred Stock. During 1996, the terms
of the Series A Preferred Stock were amended to allow for
payment of the December 31, 1995 and subsequent dividend
payments to be made in additional shares of Series A
Preferred Stock. The Board of Directors correspondingly
approved a 250,000 share increase in the number of
authorized shares of Series A Preferred Stock. An aggregate
of 53,932 shares of Series A Preferred Stock are to be
issued for payment of the December 31, 1995 dividend and
U.S. and U.K. withholding taxes, however such shares cannot
be issued until the shares allocated to withholding taxes
are sold for cash and the proceeds remitted to the taxing
authorities. The Board of Directors elected not to declare
the dividend payable June 30, 1996.
Series B Preferred Stock
------------------------
On May 16, 1995, the Company received notice from the
Series B Preferred holder exercising its redemption rights.
The Company has elected to redeem in shares of Common Stock
("Redemption Stock") and the holder has exercised its option
to have the Company sell its shares of Redemption Stock.
The aggregate redemption price is $5 million, plus accrued
dividends from January 1, 1995 to the date of redemption.
The Company has registered 5.3 million shares for sale and
has reserved additional shares should the sale of the
registered shares not be sufficient to fulfill the
redemption obligation. Approximately 5,046 shares had been
redeemed at September 30, 1996, from the sale of
approximately 2.6 million shares of Redemption Stock.
Proceeds are first allocated to accrued dividends, with the
remainder applied toward redemption of shares of the Series
B Preferred Stock. During the fourth quarter 1996, an
additional 57,000 shares of Redemption Stock were sold and
the proceeds applied against accrued dividends. By letter
dated April 5, 1996, the holder has advised the Company that
it is not satisfied with the rate at which the Series B
shares are being redeemed and that unless the rate of
redemption is accelerated, the holder may no longer extend
the time in which the redemption is to be completed.
Series E Preferred Stock
------------------------
The June 30, 1996 dividend on the Series E Preferred
Stock was declared payable in additional shares of Series E
Preferred Stock. In July 1996, the Company issued 2,218
shares of Series E Preferred Stock in payment of this
dividend.
(7) Commitments, Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
Commitments and Contingencies
-----------------------------
o The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by
executing a Production Sharing Agreement with CNODC in
February 1993. Under the terms of the Production Sharing
Agreement, the Company and Apache are responsible for all
exploration costs. If a commercial discovery is made, and if
CNODC exercises its option to participate in the development
of the field, all development and operating costs and
related oil and gas production will be shared up to 51
percent by CNODC and the remainder by the Company and
Apache.
In March 1994, the Company farmed out a one-third
interest in its contract rights for the Zhao Dong
Block to Apache. To further reduce the Company's
exploration capital requirements and to accelerate
the development of the Zhao Dong Block, the
Company signed an agreement on May 10, 1995, with
Apache (approved by Chinese authorities on August
10, 1995) pursuant to which Apache became
obligated to pay 100 percent of the costs to drill
and test two wildcat wells and one appraisal well
on the Zhao Dong Block, with a requirement to pay
for a third wildcat well, if Apache elected to
participate in the second phase of the Production
Sharing Agreement. In January 1996, Apache so
elected and therefore will pay the drilling and
testing costs of a third wildcat well. 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 of the
above described payments, Apache assumed
operatorship of the Zhao Dong Block and increased
its interest in the Zhao Dong Block from 33.33
percent to 50 percent of the foreign contractor's
share of the Zhao Dong Block.
The Production Sharing Agreement includes the
following additional principal terms:
The Production Sharing Agreement is basically
divided into three periods: the Exploration
period, the Development period and the Production
period. Work to be performed and expenditures to
be incurred during the Exploration period, which
consists of three phases totaling seven years from
May 1, 1993, are the exclusive responsibility of
the Contractor (the Company and Apache as a
group). The Contractor's obligations in the three
exploration phases are as follows:
1. During the first three years, the
Contractor is required to drill three wildcat
wells, perform seismic data acquisition and
processing and expend a minimum of $6 million
(The Contractor has drilled two wildcat
wells, satisfied the seismic acquisition and
minimum expenditure requirements and has
received an extension allowing the drilling
of the third wildcat well during the first
year of the second exploration phase.);
2. During the next two years, the Contractor
is required to drill two wildcat wells,
perform seismic data acquisition and
processing and expend a minimum of $4
million. (The Contractor has elected to
proceed with the second phase of the
Contract. The seismic data acquisition
requirement for the second phase has been
satisfied.);
3. During the last two years, the Contractor
is required to drill two wildcat wells and
expend a minimum of $4 million.
The Production Sharing Agreement may be terminated
by the Contractor at the end of each phase of the
Exploration period, without further obligation.
o On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from Apache's
operations at the Zhao Dong Block. In the initial
submission, the Company disputed certain amounts charged to
the Company by Apache in the August, September and October
1995 joint interest billings and the November and December
1995 cash calls. As of November 11, 1996, the Company has
accrued liabilities of approximately $5.5 million ($3.7
million as of September 30, 1996) certain amounts of which
are in dispute with Apache arising from their joint interest
billings and cash calls. An audit of Apache conducted by
Company personnel has called into question approximately
$0.3 million of charges in one category of costs in dispute.
While the Company believes that certain charges are valid,
and has fully provided for them in the consolidated
financial statements, it does not have sufficient liquidity
to make payment at this time.
o The Company has future commitments of $1.6 million
associated with its joint venture contract to enter the
lubricating oil business in China. The Company has invested
approximately $1.7 million in the project, including a
$600,000 down payment and a $200,000 payment made in August
1996. There remains an additional $1.6 million in payments
to be made pursuant to a renegotiated schedule of payments.
o During 1992, the Company received notice, and amendment
thereto, of a proposed assessment for state income and
franchise taxes. During December 1993, the Company and two
of its wholly-owned subsidiaries, XCL-Texas, Inc. and XCL
Acquisitions, Inc. were sued in separate law suits entitled
Ralph Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of the Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments as of December 31, 1995,
including penalties and interest, is approximately $2.25
million. The Company believes that this contingency has been
adequately provided for in the consolidated financial
statements. The law suits are all in their initial stages.
The Company has filed answers to each of these suits and
intends to defend them vigorously. The Company believes it
has meritorious defenses and has instructed its counsel to
contest these claims.
o In connection with a lawsuit entitled The Elia G.
Gonzalez Mineral Trust, et al vs. Edwin L. Cox, et al which
was settled and dismissed on December 31, 1993, two groups
of non-participating royalty owners filed interventions.
The court ordered the interventions stricken. During 1994,
the first group appealed and the second group filed a new
lawsuit. The Company settled the new lawsuit filed by the
second group with its share of the settlement being $20,000.
During December 1994, the appellate court affirmed the trial
court's decision to deny the intervention to the first
group. The Company, in March 1995, was named as a third
party defendant by the original lessor who had been
previously sued by the nonparticipating royalty owners
comprising the first group. Management believes that the
outcome of the lawsuit will not have a material adverse
effect on the Company's liquidity or results of operations.
The Company intends to defend vigorously all claims asserted
by the first group in its lawsuit.
o During April 1994, the Company was sued in an action
entitled Kathy M. McIlhenny vs. The Exploration Company of
Louisiana, Inc. (15th Judicial District Court, Parish of
Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny,
former wife of a former officer and director of the Company,
has asserted a claim in the aggregate amount of
approximately $500,000 in respect of compensation for
certain services alleged to have been performed on behalf of
the Company and under an alleged verbal employment agreement
and, by amendment, asserted a claim for payments arising
from purported rights to mineral interests. The Company
believes that such claim is without merit and rejects the
existence of any such alleged agreement.
o On July 26, 1996, Mr. Frank Armstrong of Corpus
Christi, Texas, individually and on behalf of others (the
"Plaintiffs") filed three lawsuits against XCL-Texas, Inc.,
a wholly-owned subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company
Ltd., et al v. XCL-Texas, Inc. (229th Judicial
District, Jim Hogg County, Texas, Cause No. 4550)
alleges that in order to secure from Plaintiffs an
amendment to an oil and gas lease in order to
allow for the creation of a voluntary pooled unit,
the Company represented to the Plaintiffs, that it
(1) would make a series of payments totaling
$80,000 and (2) would commence drilling a well
prior to December 31, 1993, or pay $500,000 as
liquidated damages. Further, the Plaintiffs allege
that the Company has supplied false and misleading
information to them in order to deprive them of
their rightful share of an oil, gas and mineral
estate and revenue therefrom; that being a 50
percent interest in the pooled unit rather than
the 30 percent interest actually received.
Plaintiffs allege actual damages of $580,000, any
additional amounts to result from an accounting of
the amount of damages suffered by the Plaintiffs,
exemplary damages, court costs and interest. The
Company denies liability and expects not only to
enter affirmative defenses but to counter claim
for damages to the Company caused by the actions
of the Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al
v. XCL-Texas, Inc. (229th Judicial District, Jim
Hogg County, Texas, Cause No. 4551) alleges that
the Company did not adequately represent the
interests of the Plaintiffs before a Texas
Railroad Commission hearing, therefore, the
Plaintiffs incurred legal and related expenses
totaling $56,473 for which they seek
reimbursement. The Company denies liability and
intends to vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company
Ltd., et al v. XCL-Texas, Inc. (229th Judicial
District, Jim Hogg County, Texas, Cause No. 4552)
alleges that, with respect to a lease executed in
1938 and assigned to the Company by Edwin L. and
Berry R. Cox (the "Cox Group"), ceased producing
in paying quantities prior to November 11, 1987
and therefore should be declared terminated. In
the alternative, the Plaintiffs seek a declaratory
judgment that the Cox Group engaged in bad faith,
invalid and wrongful pooling of the 1938 lease
with another lease executed in 1985. Further, the
Plaintiffs seek damages in excess of $1 million to
effect environmental restoration arising from
damage caused by the Company's operation of the
leases in question. Finally, Plaintiffs seek an
accounting and the damages determined from such
accounting, of all oil and gas production and
revenues from the sale of the same under the 1938
lease, attorneys fees and court costs. The
Company believes the claims made in this lawsuit
are without merit and intends to vigorously defend
itself.
In response to a request by the lessors' counsel,
the Company has granted the lessors an extension
of time to respond to discovery demands made by
the Company and to allow sufficient time to pursue
settlement of this litigation.
o The Company may be subject to other legal proceedings
which arise in the ordinary course of its business. In the
opinion of Management, the amount of ultimate liability with
respect to these actions will not materially affect the
financial position of the Company or results of operations
of the Company.
o The Company is subject to existing domestic federal,
state and local and Chinese laws and regulations governing
environmental quality and pollution control. Although
management believes that its 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.
Subsequent Events
-----------------
o By letter agreement dated October 7, 1996, the Company
modified its arrangement with Wolf Creek Resources, Inc.
("Wolf Creek") with respect to its interests in the Galvan
Ranch. The Company reassigned its rights to certain
overriding royalty interests and rights to after payout
participation in certain gas wells, surrendered its note
receivable from Wolf Creek, and option to purchase
additional equity in Wolf Creek and executed a general
release in favor of Wolf Creek and its principals in return
for:
(1) an immediate cash payment of $75,000;
(2) a $150,000 preferred payout from 80% of the
net revenues of Wolf Creek; and
(3) 5.44% of the Common Stock of Wolf Creek.
In recognition of the reduced value of the Galvan
Ranch, the sole property of Wolf Creek, the
Company on September 30, 1996, recorded a $750,000
writedown in the value of this investment.
o On October 8, 1996, Apache as operator of the Zhao Dong
Block, commenced drilling of the F(a) wildcat well. The
F(a) is a 4,378 meter test, scheduled to reach targeted
depth on or about December 4, 1996. Under an agreement
between the Company and Apache concluded on May 10, 1995,
this well is one of the two remaining wells which Apache is
obligated to pay 100% of the costs to drill and test.
Apache has advised the Company that on or about
November 16, 1996, it plans to commence drilling
of the D(c) well to appraise the D-1 discovery
well at the Zhao Dong Block. The Company is to
bear its share of the costs of this well and has
accrued $1.7 million of such costs billed to the
Company by Apache through November 11, 1996.
o By letter dated November 8, 1996, the American Stock
Exchange ("AMEX") has informed the Company that they are
reviewing the Company's continued listing eligibility
because:
(1) the Company has incurred net losses for each
of the past five fiscal years and the first six
months of the current fiscal year;
(2) the Company has disclosed that it does not
have sufficient cash flow from operations to meet
its obligations;
(3) the Company is in default of payment of
certain debt;
(4) the Company's independent accountants in
their report on the Company's 1995 financial
statements noted that as a consequence of the
matters discussed above, substantial doubt has
been raised as to the Company's ability to
continue as a going concern.
The Company has scheduled a meeting for December
10, 1996, with representatives of the AMEX to
present information in support of a continued
listing. Management believes that the Company's
AMEX listing will be continued after presentation
of the Company's operations and financial plans.
o Since September 30, 1996, John T. Chandler, the
President of the Company has made two advances to the
Company totaling $88,000, which remain outstanding.
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
- -------------------------------
The Company has incurred net losses for each of
its past five fiscal years and the first nine months of the
current fiscal year and currently has a significant working
capital deficit. The Company anticipates insufficient cash
flows from operations to meet its current obligations,
including expenditures required for the development of the
Company's assets. Since 1994, the Company has been able to
meet its financial obligations by obtaining funds from sales
of equity in the Company and sales of various assets.
However as of November 11, 1996, the Company did not have
sufficient commitments in place to insure that the Company's
obligations for 1996 can be satisfied and its ability to
obtain funds from further sales of equity may become
impaired if the Company's shares of Common Stock are
delisted from the American Stock Exchange. (See Note 7 -
"Commitments, Contingencies and Subsequent Events.")
Included in such obligations are trade payables (net of
disputed amounts) of approximately $1.4 million as of
November 11, 1996, of which 60 percent are unpaid in excess
of 120 days from the invoice date. On October 23, 1996, the
contract operator for the Company's remaining producing oil
and gas property filed operator's liens against the
Company's interest in such producing property in the amount
of approximately $45,000, representing costs and expenses
incurred by such contract operator for the Company's
interest in such property. Upon notice of filing of the
liens, the purchaser of the gas attributable to the
Company's interest in such property may suspend payment to
the Company of revenues attributable to such interest until
such time as the Company satisfies the amounts due and
owing. Included in accounts payable and accrued costs are
net salaries due to officers and managers of approximately
$87,000, representing two months salary due executive
officers and one month salary due other officers and
managers. Further, in addition to such trade payables, as of
November 11, 1996, the Company has accrued liabilities to
Apache arising from their joint interest billings and cash
calls in respect of the Company's interest in the Zhao Dong
Block of approximately $5.5 million ($3.7 million as of
September 30, 1996) the entire amount of which is in
arbitration. An audit of Apache conducted by Company
personnel has called into question approximately $0.3
million of charges in one category of costs in dispute.
While the Company believes that certain of the other charges
are valid, and has fully provided for them in the
consolidated financial statements, it does not have
sufficient liquidity to make payment at this time. Unless
alternative sources of funds are obtained, substantial doubt
exists regarding the Company's ability to continue as a
going concern.
At September 30, 1996, the Company had an operating
cash balance of $74,000 and a working capital deficit of $46
million, which includes $17.3 million in bank debt, $15
million in secured subordinated debt, $4.8 million in
limited recourse debt collateralized only by the Lutcher
Moore Tract, and $0.7 million in institutional debt secured
by a first mortgage on the Company's office building.
On January 31, 1994, the Company borrowed $29.2 million
from Internationale Nederlanden (U.S.) Capital Corporation
("INCC") under a $35 million credit agreement ("INCC
Agreement"). The bank debt is collateralized by the
Company's domestic oil and gas properties and the stock of
certain subsidiaries, including the stock of XCL-China,
Ltd., through which the Company owns its interest in the
Zhao Dong Block. During 1995, the INCC Agreement was amended
to modify certain covenant requirements through September
29, 1995. These covenants were subsequently amended to
modify requirements through April 1, 1996, and again amended
through September 30, 1996. The Company did not make an
interest payment of $248,600 due the bank on October 1,
1996, resulting in an event of default under the terms of
the INCC Agreement. By letter dated October 7, 1996, the
bank acknowledged that failure to make such interest payment
constituted an event of default and advised that such past
due interest payment bears interest at the Late Payment Rate
in effect on such date. From October 1, 1996, the Late
Payment Rate has been 12.25 percent. The bank has not given
formal notice to accelerate the loan, it has however,
reserved all of its rights and remedies under the INCC
Agreement. In addition to the event of default described
above, the Company is in violation of several covenants in
the INCC Agreement. The bank has informed the Company that
it will look favorably upon waiving existing defaults,
entering into a standstill agreement and modifying other
terms and conditions of the INCC Agreement in connection
with a recapitalization of the Company satisfactory to the
bank. (See Note 5 below.)
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The Company also has $4.8 million of Limited Recourse
debt outstanding which is collateralized by the Lutcher
Moore Tract, of which $2.3 million is due on December 17,
1996. Payments of principal and interest on the remaining
$2.5 million of the Lutcher Moore limited recourse debt are
past due. No action has been taken by the holders of the
debt. Should the Company not be successful in its attempts
to sell the property or refinance the debt on the property
the holders have recourse only to the property itself, as
the Company is not liable for the debt.
The outstanding balance of the building mortgage loan
as of September 30, 1996, was approximately $0.7 million,
bearing interest at the rate of 14 percent per annum. As of
November 11, 1996, the Company has not made the October and
November scheduled loan payments. By letter dated October
29, 1996, the mortgagee has advised that if the loan default
is not satisfactorily cured, it in its sole discretion will
take action to protect its security and to enforce its loan
remedies. Payment of the building mortgage is personally
guaranteed by the Chairman of the Board.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pounds Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. The Company declared the
Series A Preferred Stock dividend payable June 30, 1995. A
portion of this dividend was paid with shares of Common
Stock and approximately $900,000 remains to be paid in cash.
As the Company was unable to pay this dividend by June 30,
1996, the holders of Series A Preferred Stock can now
require Board of Director representation. The December 31,
1995 dividend payment on the Series A Preferred Stock has
been declared payable in additional shares of Series A
Preferred Stock, however such shares cannot be issued until
the shares allocated to withholding taxes are sold for cash
and the proceeds remitted to the taxing authorities. The
Board of Directors elected not to declare the dividend
payable June 30, 1996.
During the quarter ended September 30, 1996, the
Company supplemented cash generated from the sale of
production by completion of the following transactions:
o In July 1996, the Company sold 50,000 shares of Common
Stock held as Treasury Stock in a Regulation S transaction
for net proceeds after fees and discounts of $12,875. (See
Part II - Item 2(c) "Changes in Securities.")
o In July 1996, the Company received approximately
$56,000 as consideration for a pipeline right-of-way granted
on the Lutcher Moore Tract.
o In August 1996, the Company sold in two separate
Regulation S transactions, (1) 2,800,000 Units, each Unit
consisting of one share of Common Stock and one warrant to
acquire one share of Common Stock, for net proceeds of
approximately $402,000 and (2) 1,500,000 shares of Common
Stock for net proceeds of $200,000, after deduction of
commissions. An aggregate of 4,300,000 shares of Common
Stock and Warrants to acquire additional 3,380,000 shares of
Common stock were issued. (See Part II - Item 2(c) "Changes
in Securities.")
o In August 1996, the Company borrowed $225,000 from an
investor and such investor was granted 1,200,000 warrants in
connection therewith. The loan is to be satisfied by the
issuance of shares of Common Stock.
o In September 1996, the Company granted two oil and gas
leases on the Lutcher Moore tract totaling 18,400 acres, for
which it received $184,000 in gross proceeds, of which
$100,000 was applied to principal reduction of the first
mortgage on that property.
o In September 1996, the Company received $75,000 in
payment for surface damages to 50 acres of the Lutcher Moore
Tract.
During the fourth quarter of 1996, the Company projects
a total trade payable position of approximately $0.9 million
and general and administrative expenses of approximately
$0.7 million. Additionally the Company has received cash
calls from Apache of approximately $5.5 million as of
November 11, 1996, the entire amount of which is in
arbitration. The Company additionally projects fourth
quarter costs of approximately $0.2 million for the China
lubrication oil project and approximately $0.2 million for
the China coalbed methane project. During the fourth quarter
the Company projects approximately $0.7 million of interest
due to INCC. Management's plans to obtain the necessary
capital include:
o The sale of the Lutcher Moore Tract and leasing
activities thereon. The Company is in ongoing negotiations
for the sale of this property. Should a sale be completed,
$4.8 million of the proceeds would be applied to the limited
recourse debt with additional proceeds used to satisfy
working capital requirements. During October 1996, the
Company granted an oil and gas lease covering 365 acres on
the property for which it received $36,500 in gross
proceeds.
o Negotiating joint venture agreements with potential
partners to supply the cash needed to pursue various China
projects. Discussions with several potential partners are in
progress.
o Negotiating a recapitalization of the Company.
o Until July 29, 1996, the Company was engaged in
attempts to sell its remaining domestic oil and gas
properties. On that day it received service of three
lawsuits filed by lessors of the most productive remaining
lease, effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are
without merit, it is of the opinion that the property cannot
be sold until such time as the litigation is concluded or
settled. In response to a request by the lessors' counsel,
the Company has granted the lessors an extension of time to
respond to discovery demands made by the Company and to
allow sufficient time to pursue settlement of this
litigation. (See Note 7 - "Commitments, Contingencies and
Subsequent Events" and Part II - Item 1. "Legal
Proceedings," herein.)
The Company believes that working capital can be made
available from certain of its major stockholders or other
investors, should the Company (1) contract for the sale of
the Lutcher Moore tract, (2) enter into a letter(s) of
intent with industry partners to provide funds for the
Company's China projects capital requirements, or (3)
conclude a plan to recapitalize the Company. However, no
assurance can be given that the Company's efforts in this
regard will be successful. In addition, the Company's
efforts to secure additional working capital will be
impaired if the Company's Common Stock is delisted from the
American Stock Exchange. (See Note 7 - "Commitments,
Contingencies and Subsequent Events.")
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 INCC and holders of the Company's
Subordinated Debt and Preferred Stock. By shareholder vote
on July 30, 1996, the shareholders approved an increase of
150,000,000 authorized shares of Common Stock and 1,200,000
authorized shares of Preferred Stock.
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 domestic federal,
state and local and Chinese laws and regulations governing
environmental quality and pollution control. Although
management believes that its operations are in general
compliance with applicable environmental regulations, risks
of substantial costs and liabilities are inherent in oil and
gas operations, and there can be no assurance that
significant costs and liabilities will not be incurred. (See
Items 1 and 2 - "Business and Properties - Title to
Properties, Competition, Certain Risk Factors Relating to
the Company and the Oil and Gas Industry and Environmental
Matters" in the Annual Report on Form 10-K for the year
ended December 31, 1996.")
Results of Operations
- ---------------------
During the three and nine month periods ended September
30, 1996, the Company incurred net losses of $1.7 million
and $6.4 million, respectively, as compared to net losses of
$10.5 million and $25.4 million, respectively, during the
corresponding periods in 1995. The nine months results in
1996 include a $2 million writedown and $0.7 million loss on
sale of the Company's investments. The nine months results
for 1995 include a $16.5 million provision for impairment of
oil and gas properties. 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"). These writedowns were 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. The nine months results for 1995 also
reflect the effects of a $2.4 million valuation reserve for
the Company's assets held for sale.
Oil and gas revenues for the three and nine month
periods ended September 30, 1996, were $94,000 and $1
million compared to $0.6 million and $2 million during the
corresponding periods in 1995. Revenues and expenses
associated with the Company's U.S. producing properties will
continue to decline as the Company completes its announced
program of selling substantially all of its U.S. producing
properties. Net interest charges are not expected to
increase significantly throughout 1996, as the Company has
made $7.8 million in principal payments on its bank debt in
the first and second quarters of 1996.
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 on the Zhao Dong Block. The Company does not
anticipate significant increases in its oil and gas
production in the short-term and expects to incur operating
losses until such time as sufficient revenues from the China
projects are realized which exceed operating costs. At the
present time, the Company is unable to predict when revenues
from the China projects will exceed operating costs.
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, 1996
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 its
lawsuit.
During December 1993, the Company and two of its wholly-
owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions,
Inc. were sued in separate law suits entitled Ralph
Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 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 a former officer and director of the
Company, has asserted a claim in the aggregate amount of
approximately $0.5 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.
On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from Apache's
operations at the Zhao Dong Block. In the initial
submission, the Company disputed certain amounts charged to
the Company by Apache in the August, September and October
1995 joint interest billings and the November and December
1995 cash calls. Amounts involved in later months joint
interest billings and cash calls were subsequently added to
the submission. As of November 11, 1996, the Company has
accrued liabilities to Apache arising from their joint
interest billings and cash calls in respect of the Company's
interest in the Zhao Dong Block of approximately $5.5
million ($3.7 million as of September 30, 1996) the entire
amount of which is in arbitration. An audit of Apache
conducted by Company personnel has called into question
approximately $0.3 million of charges in one category of
costs in dispute. While the Company believes that certain
charges are valid, and has fully provided for them in the
consolidated financial statements, it does not have
sufficient liquidity to make payment at this time.
On July 26, 1996, Mr. Frank Armstrong of Corpus
Christi, Texas, individually and on behalf of others (the
"Plaintiffs") filed three lawsuits against XCL-Texas, Inc.,
a wholly-owned subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg
County, Texas, Cause No. 4550) alleges that in order to
secure from Plaintiffs an amendment to an oil and gas lease
in order to allow for the creation of a voluntary pooled
unit, the Company represented to the Plaintiffs, that it (1)
would make a series of payments totaling $80,000 and (2)
would commence drilling a well prior to December 31, 1993,
or pay $500,000 as liquidated damages. Further, the
Plaintiffs allege that the Company has supplied false and
misleading information to them in order to deprive them of
their rightful share of an oil, gas and mineral estate and
revenue therefrom; that being a 50 percent interest in the
pooled unit rather than the 30 percent interest actually
received. Plaintiffs allege actual damages of $580,000, any
additional amounts to result from an accounting of the
amount of damages suffered by the Plaintiffs, exemplary
damages, court costs and interest. The Company denies
liability and expects not only to enter affirmative defenses
but to counter claim for damages to the Company caused by
the actions of the Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al v.
XCL-Texas, Inc. (229th Judicial District, Jim Hogg County,
Texas, Cause No. 4551) alleges that the Company did not
adequately represent the interests of the Plaintiffs before
a Texas Railroad Commission hearing, therefore, the
Plaintiffs incurred legal and related expenses totaling
$56,473.00 for which they seek reimbursement. The Company
denies liability and intends to vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg
County, Texas, Cause No. 4552) alleges that, with respect to
a lease executed in 1938 and assigned to the Company by
Edwin L. and Berry R. Cox (the "Cox Group"), ceased
producing in paying quantities prior to November 11, 1987
and therefore should be declared terminated. In the
alternative, the Plaintiffs seek a declaratory judgment that
the Cox Group engaged in bad faith, invalid and wrongful
pooling of the 1938 lease with another lease executed in
1985. Further, the Plaintiffs seek damages in excess of $1
million to effect environmental restoration arising from
damage caused by the Company's operation of the leases in
question. Finally, Plaintiffs seek an accounting and the
damages determined from such accounting, of all oil and gas
production and revenues from the sale of the same under the
1938 lease, attorneys fees and court costs. The Company
believes the claims made in this lawsuit are without merit
and intends to vigorously defend itself.
In response to a request by the lessors' counsel, the
Company has granted the lessors an extension of time to
respond to discovery demands made by the Company and to
allow sufficient time to pursue settlement of this
litigation.
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 2(c). Changes in Securities.
On July 3, 1996, the Company sold 50,000 shares of
Common Stock held as Treasury Stock to an accredited non-
U.S. institutional investor in a brokered transaction
intended to qualify for exemption from registration pursuant
to Regulation S, for net proceeds after fees and discounts
of $12,875.
On August 14, 1996, the Company sold 2,800,000 Units,
each Unit consisting of one share of Common Stock and one
warrant to acquire one share of Common Stock, and an
additional 280,000 warrants, to an accredited non-U.S.
institutional investor in a private placement transaction
intended to qualify for exemption from registration pursuant
to Regulation S, for net proceeds of approximately $402,000.
The warrants are exercisable at $0.25 per share until August
13, 2001.
On August 16, 1996, the Company sold 1,500,000 shares
of Common Stock to an accredited non-U.S. institutional
investor in a private placement transaction intended to
qualify for exemption from registration pursuant to
Regulation S, for net proceeds of $200,000, after deduction
of commissions. A Canadian corporation was granted warrants
to acquire 300,000 shares of Common Stock, exercisable at
$0.25 per share expiring December 31, 1998, as compensation,
in a private placement transaction intended to qualify for
exemption from registration pursuant to Regulation S.
Item 3. Defaults Upon Senior Securities.
(a) Debt
The Company did not make an interest payment of
$248,600 due INCC on October 1, 1996, resulting in an event
of default under the terms of the INCC Agreement. By letter
dated October 7, 1996, the bank acknowledged that failure to
make such interest payment constituted an event of default
and advised that such past due interest payment bears
interest at the Late Payment Rate in effect on such date.
From October 1, 1996, the Late Payment Rate has been 12.25
percent. The bank has not given formal notice to accelerate
the loan, however, it has reserved all of its rights and
remedies under the INCC Agreement. In addition to the event
of default described above, the Company is in violation of
several covenants in the INCC Agreement. The bank has
informed the Company that it will look favorably upon
waiving existing defaults, entering into a standstill
agreement and modifying other terms and conditions of the
INCC Agreement in connection with a recapitalization of the
Company satisfactory to the bank.
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The outstanding balance of the building mortgage loan
as of September 30, 1996, was approximately $0.7 million,
bearing interest at the rate of 14 percent per annum. As of
November 11, 1996, the Company has not made the October and
November scheduled payments. By letter dated October 29,
1996, the mortgagee has advised that if the loan default is
not satisfactorily cured, it in its sole discretion will
take action to protect its security and to enforce its loan
remedies. Payment of the building mortgage is guaranteed by
the Chairman of the Board.
(b) Preferred Stock
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pound Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. Further, the INCC Agreement
restricts payment of cash dividends. With the approval of
its lender, the Company declared the June 30, 1995 dividend
payable in cash, with such cash to be obtained from the sale
of Common Stock. In order to reduce the cash requirement,
effective June 26, 1995, the Company entered into agreements
with three U.S. holders of Series A Preferred Stock
representing approximately 59 percent of the class pursuant
to which they elected to receive their dividends in Common
Stock of the Company. Cash dividends remaining to be paid
with respect to the June 30, 1995 dividend declaration,
aggregate approximately $900,000. As the Company was unable
to pay this dividend by June 30, 1996, the holders of Series
A Preferred Stock can now require Board of Director
representation.
The December 31, 1995 dividend payment on the Series A
Preferred Stock has been declared payable in additional
shares of Series A Preferred Stock. During 1996, the terms
of the Series A Preferred Stock were amended to allow for
payment of the December 31, 1995 and subsequent dividend
payments to be made in additional shares of Series A
Preferred Stock. The Board of Directors correspondingly
approved a 250,000 share increase in the number of
authorized shares of Series A Preferred Stock. An aggregate
of 53,932 shares of Series A Preferred Stock are to be
issued for payment of the December 31, 1995 dividend and
U.S. and U.K. withholding taxes, however such shares cannot
be issued until the shares allocated to withholding taxes
are sold for cash and the proceeds remitted to the taxing
authorities. The Board of Directors elected not to declare
the dividend payable June 30, 1996.
Item 4. Submission of Matters to a Vote of Security-
Holders
On July 1, 1996, the Company held an Annual Meeting of
Shareholders at the Lafayette Petroleum Club, 111 Heymann
Boulevard, Lafayette, Louisiana. A quorum was present to
convene the meeting. The matters to be considered and voted
upon at the meeting were (1) election of two Class III
directors of the Company's Board of Directors, and (2)
approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock and Preferred Stock.
The Company's Board of Directors is divided into three
Classes with each Class consisting of at least one executive
director and at least one non-executive director serving
three year terms. Messrs. John T. Chandler and Fred
Hofheinz were elected as Class III directors at this
meeting. A total of not fewer than 235,488,467 votes,
constituting a plurality of all of the votes cast at the
meeting by holders of shares present in person or by proxy,
were voted for each of the named persons elected as Class
III directors to the Company to serve until the Annual
Meeting of Shareholders to be held in 1999.
Class I directors are Messrs. David A. Melman, Arthur
W. Hummel, Jr., and Sir Michael Palliser, whose terms expire
at the 1997 Annual Meeting of Shareholders and Class II
directors are Messrs. Marsden W. Miller, Jr. and Francis J.
Reinhardt, Jr., whose terms expire at the 1998 Annual
Meeting of Shareholders. Mr. Edmund McIlhenny, a Class II
director, resigned effective June 26, 1996.
The affirmative vote of a majority of the issued and
outstanding shares of Common Stock and Series A and Series B
Preferred Stock was required to adopt the resolution
relating to the approval and adoption of an amendment to
Article FOURTH of the Company's Certificate of Incorporation
to increase the Company's total current authorized capital
stock from 351,200,000 shares to 502,400,000 shares,
consisting of 500,000,000 shares of Common Stock, par value
$.01 per share, and 2,400,000 shares of Preferred Stock, par
value $1.00 per share. The Company was unable to secure
sufficient proxies in time in order to approve the
resolution so the meeting was adjourned until July 30, 1996,
to allow for additional time in which to solicit the
required number of votes.
The adjourned Annual Meeting of Shareholders was held
July 30, 1996, at the Lafayette Petroleum Club, 111 Heymann
Boulevard, Lafayette, Louisiana, at which a quorum was
present, in order to consider and vote upon the approval of
an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock
and Preferred Stock.
With respect to the resolution relating to the approval
and adoption of an amendment to Article FOURTH of the
Company's Certificate of Incorporation to increase the
Company's total current authorized capital stock from
351,200,000 shares to 502,400,000 shares, consisting of
500,000,000 shares of Common Stock, par value $.01 per
share, and 2,400,000 shares of Preferred Stock, par value
$1.00 per share, a total of 170,273,372 votes were cast to
ratify the amendment, as follows:
144,911,492 votes in favor
20,098,783 votes against
5,263,097 abstentions
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
1.0 Not applicable
2.0 Not applicable
3(i) Articles of incorporation
3.1 Certificate of Incorporation of the Company dated
December 28, 1987. (A)(i)
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Company dated March 30, 1988. (A)(ii)
3.3 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 22, 1990. (B)(i)
3.4 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 12, 1993. (C)
3.5 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 8, 1992,
whereby Article Fourth was amended to increase the
number of shares of Common Stock authorized. (D)(i)
3.6 Certificate of Amendment to the Certificate of
Incorporation of the Company dated September 29, 1993,
whereby Article Fourth was amended to increase the
number of shares of Common Stock authorized. (E)(i)
3.7 Certificate of Amendment dated July 1, 1994, whereby
Article Fourth was amended to increase the number of
shares of Common Stock and the name of the Company was
changed. (F)(i)
3.8 Certificate of Amendment dated June 19, 1995,
whereby Article Fourth was amended to increase the
number of shares of Common Stock. (N)(i)
3.9 Certificate of Amendment dated July 30, 1996,
whereby Article Fourth was amended to increase the
number of shares of Common Stock and Preferred Stock. (Q)(i)
3(ii) Amended and Restated Bylaws of the Company as
currently in effect. (A)(iii)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred
Stock Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative
Preferred Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock
Certificate. (H)(ii)
4.6 Form of Class B Warrants issued to China Investment
& Development Co. Ltd. to purchase 2,500,000 shares of
Common Stock at $2.00 per share payable upon redemption
of the Series B, Cumulative Preferred Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated August 7, 1992. (D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of
Series C Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred
Stock Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of
Series D Preferred Stock dated January 24, 1994. (I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred
Stock Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase
2,500,000 shares of Common Stock at an exercise price
of $1.00 per share, subject to adjustment, issued to
INCC. (I)(iii)
4.15 Form of Registrar and Stock Transfer Agency
Agreement, effective March 18, 1991, entered into
between the Company and Manufacturers Hanover Trust
Company (predecessor to Chemical Bank), whereby
Chemical Bank serves as the Company's Registrar and
U.S. Transfer Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase
Warrant dated March 1, 1994 to purchase 500,000 shares
of Common Stock at an exercise price of $1.00 per
share, subject to adjustment, issued to EnCap
Investments, L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock
Purchase Warrant dated March 1, 1994 to purchase an
aggregate 600,000 shares of Common Stock at an exercise
price of $1.00 per share, subject to adjustment, issued
to principals of San Jacinto Securities, Inc. in
connection with its financial consulting agreement with
the Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase an aggregate
6,440,000 shares of Common Stock at an exercise price
of $1.25 per share, subject to adjustment, issued to
executives of the Company surrendering all of their
rights under their employment contracts with the
Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase an aggregate
878,900 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to
executives of the Company in consideration for salary
reductions sustained under their employment contracts
with the Company. (F)(iii)
4.20 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase 200,000 shares
of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to Thomas H.
Hudson. (F)(iv)
4.21 Form of Warrant Agreement and Stock Purchase
Warrant dated May 25, 1994, to purchase an aggregate
100,000 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to the
holders of Purchase Notes B, in consideration of
amendment to payment terms of such Notes. (F)(v)
4.22 Form of Warrant Agreement and Stock Purchase
Warrant dated May 25, 1994, to purchase an aggregate
100,000 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to the
holders of Purchase Notes B, in consideration for the
granting of an option to further extend payment terms
of such Notes. (F)(vi)
4.23 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(vii)
4.24 Form of Warrant Agreement and Stock Purchase
Warrant dated January 31, 1995, to purchase 100,000
shares of Common Stock at an exercise price of $0.75
per share, subject to adjustment, issued to Energy
Advisors, Inc. (L)(i)
4.25 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995. (N)(ii)
4.26 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November
2, 1995. (N)(iii)
4.27 Form of Purchase Agreement between the Company and
each of the Purchasers of Units in the Regulation S
Unit Offering conducted by Rauscher Pierce & Clark with
closings as follows:
December 22, 1995 116 Units
March 8, 1996 34 Units
April 23, 1996 30 Units (O)(i)
4.28 Form of Warrant Agreement between the Company and
each of the Purchasers of Units in the Regulation S
Unit Offering conducted by Rauscher Pierce & Clark, as
follows:
Closing Date Warrants Exercise Price
------------ --------- --------------
December 22, 1995 6,960,000 $0.50
March 8, 1996 2,040,000 $0.35
April 23, 1996 1,800,000 $0.35 (O)(ii)
4.29 Form of Warrant Agreement between the Company and
Rauscher Pierce & Clark in consideration for acting
as placement agent in the Regulation S Units Offering,
as follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 696,000 $0.50
March 8, 1996 204,000 $0.35
April 23, 1996 180,000 $0.35 (O)(iii)
4.30 Form of Amendment of Certificate of Designation of
Series A Preferred Stock dated April 11, 1996. (O)(iv)
4.31 Stock Purchase Agreement between the Company and
Janz Financial Corp. Ltd. dated August 14, 1996,
whereby clients of Janz Financial Corp. Ltd. purchased
2,800,000 units comprised of one share of Common Stock
and one warrant to purchase one share of Common Stock
in a Regulation S transaction.*
4.32 Form of a series Stock Purchase Warrants issued to
Janz Financial Corp. Ltd. dated August 14, 1996,
entitling the holders thereof to purchase up to
3,080,000 shares of Common Stock at $0.25 per share on
or before August 13, 2001.*
4.33 Stock Purchase Agreement between the Company and
Provincial Securities Ltd. dated August 16, 1996,
whereby Provincial purchased 1,500,000 shares of Common
Stock in a Regulation S transaction.*
4.34 Stock Purchase Warrant issued to Terrenex
Acquisitions Corp. dated August 16, 1996, entitled the
holder thereof to purchase up to 300,000 shares of
Common Stock at $0.25 per share on or before December
31, 1998.*
10.0 - Material Contracts
10.1 Contract for Petroleum Exploration, Development and
Production on Zhao Dong Block in Bohai Bay Shallow
Water Sea Area of The People's Republic of China
between China National Oil and Gas Exploration and
Development Corporation and XCL - China, Ltd., dated
February 10, 1993. (E)(vi)
10.2 $35,000,000 Credit Agreement dated as of January
31, 1994 between the Company and Internationale
Nederlanden (U.S.) Capital Corporation ("INCC"), as
Agent. (I)(vi)
10.3 Copy of Subordination Agreement among the Company,
INCC and the holders of the Secured Notes dated. (I)(vii)
10.4 Form of First Amendment of Secured Subordinated
Note dated January 31, 1994. (I)(viii)
10.5 Form of First Amendment of Limited Recourse Secured
Lease Note dated January 31, 1994. (I)(ix)
10.6 Stock Pledge Agreement dated January 31, 1994,
among the Company and INCC. (I)(x)
10.7 Deed of Trust, Mortgage, Assignment, Security
Agreement and Financing Statement from XCL-Texas, Inc.
to INCC dated January 31, 1994. (I)(xi)
10.8 Form of Net Revenue Interest Assignment dated
February 23, 1994, between the Company and the
purchasers of the Company's Series D, Cumulative
Convertible Preferred Stock. (I)(xii)
10.9 Modification Agreement for Petroleum Contract on
Zhao Dong Block in Bohai Bay Shallow Water Sea Area of
The People's Republic of China dated March 11, 1994,
between the Company, China National Oil and Gas
Exploration and Development corporation and Apache
China Corporation LDC. (I)(xiii)
10.10 Letter Agreement dated May 25, 1994 between the
Company, L.M. Holdings Associates, L.P. and vendors
holding Purchase Note B with respect to the Lutcher
Moore Tract. (E)(vii)
10.11 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and
China Investment and Development Corporation. (F)(ix)
10.12 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(x)
10.13 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994. (F)(xi)
10.14 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.15 Consulting agreement between the Company and Mr.
Arthur W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.16 Letter Agreement between the Company and Mr.
William Wang dated June 2, 1992, executed effective
February 10, 1993. (K)(iii)
10.17 First Amendment to Credit Agreement between the
Company and Internationale Nederlanden (U.S.) Capital
Corporation dated April 13, 1995. (L)(ii)
10.18 Letter of Intent between the Company and CNPC
United Lube Oil Corporation for a joint venture for the
manufacture and sale of lubricating oil dated January
14, 1995. (L)(iii)
10.19 Purchase and Sale Agreement dated May 10, 1995,
between XCL Land, Ltd., a wholly owned subsidiary of
the Company ("Seller") and The Succession of Edward M.
Carmouche, Matilda Gray Stream, Harold H. Stream, III,
The Opal Gray Trust, Matilda Geddings Gray Trust for
Harold H. Stream, III, Matilda Geddings Gray Trust for
William Gray Stream, Matilda Geddings Gray Trust for
Sandra Gray Stream, M.G. Stream Trust for Harold H.
Stream, III, M.G. Stream Trust for William Gray Stream,
and M.G. Stream Trust for Sandra Gray Stream
("Purchasers") whereby the Purchasers will acquire
Seller's fee interest in and to a parcel of
southwestern Louisiana land known as the Phoenix Lake
Tract. (L)(iv)
10.20 Farmout Agreement dated May 10, 1995, between XCL
China Ltd., a wholly owned subsidiary of the Company
and Apache Corporation whereby Apache will acquire an
additional interest in the Zhao Dong Block, Offshore
People's Republic of China. (L)(v)
10.21 Modification Agreement of Non-Negotiable
Promissory Note and Waiver Agreement between
Lutcher & Moore Cypress Lumber Company and L.M.
Holding Associates, L.P. dated June 15, 1995. (M)(i)
10.22 Third Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore
Cypress Lumber Company, The First National Bank of
Lake Charles, Mary Elizabeth Mecom, The Estate of John
W. Mecom, The Mary Elizabeth Mecom Irrevocable Trust,
Matilda Gray Stream, The Opal Gray Trust, Harold
H. Stream III, The Succession of Edward M.
Carmouche, Virginia Martin Carmouche and L.M.
Holding Associates, L.P. dated June 15, 1995. (M)(ii)
10.23 Second Amendment to Appointment of Agent
for Collection and Agreement to Application of Funds
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, L.M. Holding Associates,
L.P. and The First National Bank of Lake Charles,
dated June 15, 1995. (M)(iii)
10.24 Contract of Chinese Foreign Joint Venture dated
July 17, 1995, between United Lube Oil Corporation
and XCL China Ltd. for the manufacturing and
selling of lubricating oil and related products. (M)(iv)
10.25 Letter of Intent dated July 17, 1995 between
CNPC United Lube Oil Corporation and XCL Ltd. for
discussion of further projects. (M)(v)
10.26 Form of Letter Agreement dated June 26, 1995
between the Company and three of its U.S. holders
of Series A Preferred Stock, whereby the following
such holders have agreed to accept Common Stock in
respect of dividends payable December 31, 1994 and June
30, 1995 in the amounts set forth:
12/31/94 6/30/95
Holder Dividend Dividend Shares
------ -------- -------- ------
Kayne Anderson
Investment Management $627,788.12 $689,238.87 2,225,024
Cumberland Associates $429,056.51 $445,838.59 1,487,294
T. Rowe Price &
Associates, Inc. $159,975.00 $166,232.25 554,543 (M)(vi)
10.27 Copy of Letter Agreement dated March 31, 1995,
between the Company and China National Administration
of Coal Geology for the exploration and development of
coal bed methane in Liao Ling Tiefa and Shanxi
Hanchang Mining Areas. (N)(iv)
10.28 Copy of Second Amendment to Credit Agreement
between the Company and Internationale Nederlanden
(U.S.) Capital Corporation dated effective as of
September 29, 1995. (N)(v)
10.29 Copy of Fee Agreement dated October 26, 1995,
between the Company and EnCap Investments L.C. for past
services and proposed European equity offering. (N)(vi)
10.30 Copy of Engagement Letter dated November 9, 1995,
between the Company and Rauscher Pierce & Clark for a
proposed Unit offering to be conducted in
Europe. (N)(vii)
10.31 Memo of Understanding dated December 14, 1995,
between XCL Ltd. and China National Administration of
Coal Geology. (O)(v)
10.32 Copy of Purchase and Sale Agreement dated December
28, 1995, between XCL Ltd., XCL-Texas, Inc. and Cody
Energy Corporation, for the sale to Cody Energy of the
Mestena Grande Field located in Texas. (O)(vi)
10.33 Form of Fourth Amendment to Credit Agreement
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, The First National Bank
of Lake Charles, Mary Elizabeth Mecom, The Estate of
John W. Mecom, The Mary Elizabeth Mecom Irrevocable
Trust, Matilda Gray Stream, The Opal Gray Trust,
Harold H. Stream III, The Succession of Edward M.
Carmouche, Virginia Martin Carmouche and L.M. Holding
Associates, L.P. dated January 16, 1996. (O)(vii)
10.34 Form of Third Amendment to Appointment of Agent
for Collection and Agreement to application of Funds
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, L.M. Holding
Associates, L.P. and The First National Bank of Lake
Charles, dated January 16, 1996. (O)(viii)
10.35 Copy of Purchase and Sale Agreement dated March 8,
1996, between XCL-Texas, Inc. and Tesoro E&P Company,
L.P. for the sale of the Gonzales Gas Unit located in
south Texas. (O)(ix)
10.36 Copy of Limited Waiver between the Company
and Internationale Nederlanden (U.S.) Capital
Corporation dated April 3, 1996. (O)(x)
10.37 Copy of Purchase and Sale Agreement dated April
22, 1996, between XCL-Texas, Inc. and Dan A. Hughes
Company for the sale of the Lopez Gas Unites located in
south Texas. (P)
10.38 Form of Sale of Mineral Servitude dated June 18,
1996, whereby the Company sold its 75 percent mineral
interest in the Phoenix Lake Tract to the Stream Family
Limited Partners and Virginia Martin Carmouche Gayle. (Q)(ii)
11. Statement re computation of per share earnings *
16. Not applicable.
17. Not applicable.
20. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule *
99. Glossary of Terms *
- ------------
* Filed herewith.
(A) Incorporated by reference to the Registration
Statement on Form 8-B filed on July 28, 1988, where it
appears as: (i) through (iii) as Exhibits 3(a) through
3(c), respectively; and (iv) as Exhibit 4.1.
(B) Incorporated by reference to a Quarterly Report on
Form 10-Q filed on August 14, 1990, where it
appears as: (i) Exhibit 3 and (ii) Exhibit 4.4.
(C) Incorporated by reference to an Annual Report on
Form 10-K filed on March 30, 1992, where it appears as
Exhibit (3)(g).
(D) Incorporated by reference to a Quarterly Report on
Form 10-Q filed August 14, 1992, where it appears
as: (i) Exhibit 4.25 and (ii) Exhibit 4.28.
(E) Incorporated by reference to a Registration
Statement on Form S-3 (File No. 33-68552) where it
appears as: (i) Exhibit 4.27; (ii) Exhibit 4.14; (iii)
Exhibit 4.16; (iv) Exhibit 4.17; (v) Exhibit 4.19; (vi)
Exhibit 10.1; and (vii) Exhibit 10.6.
(F) Incorporated by reference to Post-Effective
Amendment No. 2 to Registration Statement on Form S-3
(File No. 33-68552) where it appears as: (i) through
(iii) Exhibits 4.28 through 4.30, respectively; (iv)
through (viii) Exhibits 4.34 through 4.38,
respectively; and (ix) through (xi) Exhibits 10.8
through 10.10, respectively.
(G) Incorporated by reference to a Current Report on
Form 8-K filed on August 13, 1990, where it appears as
Exhibit 4.
(H) Incorporated by reference to Quarterly Report on
Form 10Q filed May 15, 1991, where it appears as: (i)
Exhibit 4.1; (ii) Exhibit 4.2; and (iii) Exhibit 4.5.
(I) Incorporated by reference to Amendment No. 1 to
Annual Report on Form 10-K filed April 15, 1994, where
it appears as: (i) Exhibit 4.35; (ii) Exhibit 4.31;
(iii) Exhibit 4.32; (iv) Exhibit 4.36; (v) Exhibit
4.37; (vi) through (xii) Exhibit 10.41 through Exhibit
10.47, respectively; and (xii) Exhibit 10.49.
(J) Incorporated by reference to an Annual Report on
Form 10K for the fiscal year ended December 31, 1990,
filed April 1, 1991, where it appears as Exhibit 10.27.
(K) Incorporated by reference to Amendment No. 1 to an
Annual Report on Form 10-K/A No. 1 for the fiscal year
ended December 31, 1994, filed April 17, 1995, where it
appears as: (i) through (iii) Exhibits 10.22 through
10.24, respectively.
(L) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995,
filed May 15, 1995, where it appears as: (i) Exhibit
4.28; and (ii) through (v) Exhibits 10.25 through
10.28, respectively.
(M) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, filed
August 14, 1995, where it appears as: (i) through (vi)
Exhibits 10.29 through 10.34, respectively.
(N) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
filed November 13, 1995, where it appears as: (i)
Exhibit 3.8; (ii) and (iii) Exhibits 4.29 and 4.30,
respectively; and (iv) through (vii) Exhibits 10.35
through 10.38, respectively.
(O) Incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1995, filed April
15, 1996, where it appears as: (i) through (iv)
Exhibits 4.28 through 4.31, respectively; and (v)
through (x) Exhibits 10.31 through 10.36, respectively.
(P) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, filed
May 15, 1996, where it appears as Exhibit 10.37.
(Q) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed
August 14, 1996, where it appears as (i) Exhibit 3.9
and (ii) Exhibit 10.38.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1996.
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/ David A. Melman
By: __________________________
David A. Melman
Executive Vice President and
General Counsel
Date: November 14, 1996