UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A No. 1
Quarterly Report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
XCL Ltd.
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
(State of Incorporation) (I.R.S. Employer
Identification Number)
110 Rue Jean Lafitte, Lafayette, LA 70508
(Address of principal executive offices) (Zip Code)
318-237-0325
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
22,995,804 shares Common Stock, $.01 par value were
outstanding on May 13, 1998.
XCL LTD. AND SUBSIDIARIES
March 31, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Outlook
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Cautionary Statement Pursuant to Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995.
This report contains "forward-looking statements" within the
meaning of the federal securities laws. These forward-looking
statements include, among others, statements concerning the
Company's outlook for 1998 and beyond, the Company's expectations
as to funding its capital expenditures and other statements of
expectations, beliefs, future plans and strategies, anticipated
events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this
report are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in or
implied by the statements.
Liquidity, Capital Resources
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The Company has generated minimal cash from operations since
the fourth quarter of 1995, when management made the decision to
focus its attention on operations in China and to sell its other
assets. This decision is supported by the excellent well test
results on the China properties. However, the Company has not
generated any profits from its operations in China and is in the
development stage with respect to such operations. The Company's
only historic revenues have been from the Company's financing
activities and from properties currently held for sale or
investment or previously sold.
At March 31, 1998, the Company had an operating cash balance
of $28.4 million, including $10.3 million held in a restricted
escrow account for payment of interest through November 1, 1998,
on the outstanding senior secured notes. The Company's
unrestricted cash will be used for working capital (primarily
general and administrative expenses) and exploration, development
and production expenditures on the Zhao Dong Block. CNODC has
given notice that it will participate as to its full 51% share of
the C-D Field and has urged that production begin during 1998.
Except for exploratory wells on which Apache has an obligation to
pay for the Company's costs, the Company is required to fund 50%
of all exploration expenditures and 24.5% of all development and
production expenditures. The Company estimates that its share of
actual exploration and development expenditures for the C-D Field
for the remainder of 1998 will be approximately $21 million. The
Company presently projects that these funds will be available
from current unrestricted cash reserves and a portion of the
proceeds from the sale or refinancing of the Lutcher Moore Tract.
The Company estimates that its share of development expenses for
1999 will be approximately $22 million. After expenditure of
these projected development expenses, the Company projects that
proceeds from production will pay for additional expenditures.
XCL, Apache, and CNODC are working together to reduce
capital costs and to determine whether the commencement of
production from the C-4 Well area can be accelerated into the
first half of 1999. This work has already resulted in potential
reductions of capital costs of approximately $35 million from the
original approved ODP, based on a change in the conceptual
design, and a determination that it is technically feasible to
commence production from the C-4 Well area in mid-1999. The
Company, Apache and CNODC have now all agreed to make every
effort to achieve initial production in 1999.
The Company's opinion that it will be able to obtain the
funds necessary to pay its share of capital expenditures to the
point where cash flow is sufficient to pay costs is based on the
Company's assessment of the ultimate quantity of oil reserves
which will be produced from the Block. Additionally, the Company
believes, based on discussions with the Chinese authorities
during the last year, that it will acquire additional oil and gas
exploration and development blocks in China, with proven oil
reserves, which will further enhance the Company's ability to
timely obtain adequate funds for its obligations in China.
Additional funds may be available from a number of sources,
including cash flow from production on the Zhao Dong Block, the
sale or recapitalization of the Lutcher Moore Tract and the other
assets held for sale, project financing, increasing the amount of
senior secured debt, supplier financing, additional equity,
including the exercise of currently outstanding warrants to buy
common stock and joint ventures with other oil companies. Based
on continuing discussions with major stockholders, investment
bankers, potential purchasers and other oil companies, the
Company believes that such funds will be available. There is no
assurance, however, that such funds will be available and, if
available, that it will be available on commercially reasonable
terms, or that sufficient cash flow will be available from the
Zhao Dong Block. Any new debt would require approval of the
holders of the Company's senior secured notes and there is no
assurance that such approval would be obtained.
If funds for the purposes described above are not available,
the Company may be required to substantially curtail its
operations or to sell or surrender all or part of its interests
in China in order to meet its obligations and continue as a going
concern.
The Company is not obligated to make any additional capital
payments to its lubricating oil and coalbed methane projects. The
Company believes that both the lubricating oil and coalbed
methane projects will be successful and grow. If successful, the
Company may make additional investments in these businesses.
Other
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Pursuant to the Company's December 17, 1997 shareholders'
meeting, whereby several compensation plans were approved, the
Company recorded unearned compensation of approximately $12.8
million. This amount will be amortized ratably over future
periods of up to five years and is recorded as a non-cash expense
in the Statement of Operations. Because certain of these awards
are based on market capitalization there may be additional
amounts which may become payable. Approximately $0.9 million of
compensation expense was recorded in connection with these awards
during 1997. An additional $0.4 million of compensation expense
was recorded in the first three months of 1998.
The Company believes that inflation has had no material
impact on its sales, revenues or income during the reporting
periods. In light of increased oil and gas exploration activity
worldwide, and in the Bohai Bay in particular, increased rates
for equipment and services, and limited rig availability may have
an impact in the future.
The Company is subject to existing domestic and Chinese
federal, state and local laws and regulations governing
environmental quality and pollution control. Although management
believes that such operations are in general compliance with
applicable environmental regulations, risks of substantial costs
and liabilities are inherent in oil and gas operations, and there
can be no assurance that significant costs and liabilities will
not be incurred.
New Accounting Pronouncements
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In June 1997, the FASB Issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
is effective for the Company's year ended December 31, 1998.
This statement establishes standards for reporting of information
about operating segments. The Company will be analyzing SFAS No.
131 during 1998 to determine what, if any, additional disclosures
will be required.
Results of Operations
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During the three months ended March 31, 1998 and March 31,
1997, the Company incurred net losses of $2.0 million and $1.2
million, respectively.
Oil and gas revenues for the three month period ended March
31, 1998, were $32,000 compared to $85,000 during the
corresponding period in 1997. Revenues will continue to decline
as the Company completes its announced program of selling
substantially all of its U.S. producing properties.
Interest expense, net of amounts capitalized for the three
months ended March 31, 1998 was $762,000 compared to $634,000 for
the same period in 1997. The increase of $128,000 was the result
of higher debt levels and interest rates. Also included in
interest expense was amortization of warrant costs and offering
expenses on the senior secured notes issued in May 1997.
Preferred stock dividends were $2.4 million for the three
months ended March 31, 1998, as compared to $1.4 million for the
same period in 1997. The increase is the result of the issuance
of additional shares in the equity offering concluded in May
1997. These dividends will be paid in additional shares of
preferred stock at the option of the Company.
Interest income for the three months ended March 31, 1998
was $409,000 and resulted from the short-term investment of cash
still available from the May 1997 debt and equity offerings.
General and administrative expenses were $1.6 million for
the three months ended March 31, 1998, as compared to $0.7
million for the same period in 1997. The increase of $0.9
million was primarily attributable to an increases of $0.4
million in non-cash compensation charges related to stock and
appreciation options approved by shareholders in December, 1997.
Public company expenses increased $0.1 million in the first
quarter of 1998 because of the reverse stock split and related
transactions. Legal, accounting and consulting expenses also
increased $0.2 million during the first quarter of 1998 because
of additional services required.
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.
By:_______________________________________
Name:____________________________________
Title:_____________________________________
Date: _________________________, 1998