COASTAL CARIBBEAN OILS & MINERALS LTD, 10-K405, 1997-02-19

COASTAL CARIBBEAN OILS & MINERALS LTD
10-K405, 1997-02-19
CRUDE PETROLEUM & NATURAL GAS

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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ____________________ to ______________________

Commission file Number 1-4668

COASTAL CARIBBEAN OILS & MINERALS, LTD.

(Exact name of registrant as specified in its charter)

BERMUDA NONE

State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)

Clarendon House
Church Street
Hamilton 5, Bermuda NONE

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (809) 295-1422

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on
which registered

Common Stock, par value $.12 per share Boston Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

<PAGE>

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.

|X| Yes |_| No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

The aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $103,000,000 (U.S.) at February 11, 1997.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:

Common stock, par value $.12 per share, 40,056,358 shares outstanding as of
February 11, 1997.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy statement of Coastal Caribbean Oils & Minerals, Ltd. related to the Annual
Meeting of Shareholders for the fiscal year ended December 31, 1996, which is
incorporated into Part III of this Form 10-K.

<PAGE>

TABLE OF CONTENTS

Page

PART I

Item 1. Business. 4

Item 2. Properties. 9

Item 3. Legal Proceedings. 14

Item 4. Submission of Matters to a Vote of Security Holders. 17

PART II

Item 5. Market for the Company's Common Stock
and Related Stockholder Matters. 18

Item 6. Selected Financial Data. 20

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 21

Item 8. Financial Statements and Supplementary Data. 24

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 42

PART III

Item 10. Directors and Executive Officers of the Company. 42

Item 11. Executive Compensation. 42

Item 12. Security Ownership of Certain Beneficial Owners
and Management. 42

Item 13. Certain Relationships and Related Transactions. 42

PART IV

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. 43

- --------------------
All monetary figures set forth are expressed in United States currency.

<PAGE>

PART I

Item 1. Business.

(a) General Development of Business.

Coastal Caribbean Oils & Minerals, Ltd. (the "Company" or
"Coastal Caribbean"), a Bermuda corporation, is engaged through its majority
owned subsidiary in the exploration for oil and gas reserves. At December 31,
1996, Coastal Caribbean's principal asset was its subsidiary, Coastal Petroleum
Company ("Coastal Petroleum"). Coastal Petroleum's principal assets are its
nonproducing oil, gas and mineral leases and royalty interests in the State of
Florida. Coastal Petroleum has made no commercial discoveries on the lands
covered by these leases.

Coastal Petroleum is the lessee under State of Florida leases relating
to the exploration for and production of oil, gas and minerals on approximately
3,700,000 acres of submerged lands along the Gulf Coast and under certain inland
lakes and rivers. The leases provide for a working interest in approximately
1,250,000 acres and a royalty interest in approximately 2,450,000 acres covered
by the leases. Coastal Petroleum has made no commercial discoveries on its
leaseholds.

Coastal Petroleum has been involved in various lawsuits for many years.
Currently, Coastal Petroleum is a party to two actions (the "Florida
Litigation") in which two basic claims are being contested: Whether Coastal
Petroleum may obtain an oil and gas exploration drilling permit without further
public hearings, and whether certain royalty interests owned by Coastal
Petroleum have been confiscated by the State of Florida, entitling Coastal
Petroleum to compensation for such confiscation. In addition, Coastal Caribbean
is a party to one additional action in which Coastal Caribbean claims that
certain of its royalty interests have been confiscated by the State. During
1996, the Company actively pursued the Florida Litigation. See Item 3. "Legal
Proceedings" for a more complete discussion of the litigation.

In 1996, Coastal Petroleum continued its efforts to obtain a permit to
drill an oil and gas exploration well on its leases. Its application for such a
permit has been delayed by the Florida Department of Environmental Protection on
the basis that further public hearings are required. See Item 3. "Legal
Proceedings". Coastal Petroleum also spent approximately $282,000 in 1996 in
connection with its program to identify potential drilling prospects.

In 1990, the State of Florida enacted legislation that prohibits
drilling or exploration for oil or gas on Florida's offshore acreage. The law
does not apply to areas where Coastal Petroleum is entitled to conduct
exploration. However, in those areas where Coastal Petroleum has only a royalty
interest, the law effectively prohibits production of oil and gas, rendering it
impossible for Coastal Petroleum to collect royalties from those areas. Coastal
Petroleum's lawsuit on the issue is part of the Florida Litigation.

<PAGE>

(b) Financial Information About Industry Segments.

Because the Company is engaged in only one industry, namely,
oil, gas and mineral exploration and development, this item is not applicable to
the Company. See Item 8 for general financial information concerning the
Company.

Coastal Caribbean was organized by a special enabling act of
the Bermuda Legislature passed on January 15, 1962 which permitted the filing of
a Memorandum of Association on February 14, 1962. The Company is the successor
to Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January
31, 1953 to be the holding company for Coastal Petroleum Company.

Coastal Petroleum caused oil and gas exploration to take place
on its leases prior to the onset of litigation in 1968 but has conducted more
limited exploration since that time sufficient to meet the drilling requirements
under the leases. In 1996, the company initiated a program to identify potential
drilling prospects. No commercial oil or gas discoveries have been made on these
properties; therefore, the Company has no proved reserves of oil and gas and has
had no production. See "Item 2. "Properties".

(i) Principal Products.

Not applicable.

(ii) Status of Product or Segment.

Not applicable.

(iii) Raw Materials.

Not applicable.

(iv) Patents, Licenses, Franchises and Concessions Held.

See Item 2. "Properties".

The acreage covered by these leases is located for
the most part along offshore areas on the Gulf Coast of Florida and in submerged
and unsubmerged lands under certain bays, inlets, riverbeds and lakes, of which
Lake Okeechobee is the largest. See Item 2. The drilling requirements and annual
lease rental obligations have been suspended by order of the Circuit Court of
the Second Judicial District in Leon County.

<PAGE>

In the inverse condemnation litigation now being
appealed, the Company claims that the royalty interest has been taken by
the State of Florida and that it is entitled to compensation for such taking.
See "Item 3. Legal Proceedings".

(v) Seasonality of Business.

The Company's business is not seasonal.

(vi) Working Capital Items.

The majority of the Company's current assets are in
the form of cash and cash equivalents. See Item 8. "Financial Statements and
Supplementary Data".

(vii) Customers.

Not applicable.

(viii) Backlog.

Not applicable.

(ix) Renegotiation of Profits or Termination of Contracts
or Contract or Subcontracts at the Election of the
Government.

Not applicable.

(x) Competitive Conditions in the Business.

Competition in the oil and gas industry is intense.
The Company must compete with companies which have substantially greater
resources available to them. In addition, the industry as a whole must compete
with other industries in supplying the energy needs of commerce and the general
public. Furthermore, competitive conditions may be substantially affected by
energy legislation which may be adopted from time to time. It is not possible
to predict the nature of any such legislation which may ultimately be adopted
or its effects upon the future operations of the Company.

(xi) Research and Development.

Not applicable.

(xii) Environmental Regulation.

The operations of Coastal Caribbean and its
right to obtain interests in and hold properties or to do business
may be affected to an unpredictable extent by limitations imposed by
the laws and regulations which are now in effect or which may be

<PAGE>

adopted by the jurisdictions in which the Company carries on business. As
discussed under Item 3. "Legal Proceedings", the State of Florida has enacted
legislation that Coastal Petroleum believes has had the effect of confiscating
Coastal Petroleum's royalty interest. Further measures that have been or might
be imposed include increased bond requirements, conservation, proration,
curtailment, cessation or other forms of limiting or controlling production of
hydrocarbons or minerals, as well as price controls or rationing or other
similar restrictions. In particular, environmental control and energy
conservation laws and regulations adopted by federal, state and local
authorities may have to be complied with by leaseholders such as Coastal
Petroleum. It is not possible to predict the nature of any further legislation
or regulation that might ultimately be adopted or its effects upon the future
operations of Coastal Caribbean or Coastal Petroleum.

(xiii) Number of Persons Employed by Registrant.

The Company currently has three employees. The
Company relies heavily on consultants for legal, accounting, geological and
administrative services. The Company uses consultants because it is more cost
effective than employing a larger full time staff.

(d) Financial Information About Foreign and Domestic
Operations and Export Sales.

(1) Identifiable Assets.

All of the Company's assets are located in
the United States. See Item 1(a) "General Development of Business".

Since the Company is a development stage
company, the balance of the information required under this paragraph is not
applicable to the Company. See Item 8.

(2) Risks Attendant to Foreign Operations.

Not applicable.

(3) Data which are not Indicative of Current or
Future Operations.

Not applicable.

<PAGE>

The following graphic presentation has been omitted, but the following is a
description of the omitted material:

Map showing Coastal Lease Areas in the State of Florida

<PAGE>

Item 2. Properties.

Properties

Coastal Petroleum, a Florida corporation, holds certain working
interests in nonproducing oil, gas and mineral leases covering approximately
1,250,000 acres, and a royalty interest in approximately 2,450,000 acres, in and
offshore the State of Florida. No commercial oil or gas discoveries have been
made on the properties covered by these leases and Coastal Petroleum has no
proved reserves of oil or gas and has had no significant production.

Coastal Petroleum caused oil and gas exploration to take place on its
leases prior to the onset of litigation in 1968 but has conducted more limited
exploration since that time until 1996. The amount of exploration expenditures
during the years 1996, 1995 and 1994 was $282,000, $3,000, and $1,000,
respectively. Coastal Petroleum believes all drilling and exploration
obligations imposed by Coastal Petroleum leases have been satisfied to date.

As a result of events discussed below, Coastal Petroleum believes its
royalty interest effectively has been confiscated by the State of Florida. On
July 23, 1990, Coastal Petroleum filed a complaint against the State of Florida
(the "State") in the Circuit Court of the Second Judicial Circuit in Leon
County, Florida seeking full compensation for the confiscation of its petroleum
and mineral leases. On August 5, 1996, the Court ruled in favor of the State and
Coastal Petroleum has filed an appeal of the decision. The lawsuit was initiated
in response to (i) a policy adopted by the Governor and Cabinet on May 8, 1990
prohibiting drilling, exploration or production of oil and gas resources in the
sovereign waters of the State of Florida and (ii) a Florida statute effective
August 1, 1990 prohibiting petroleum production from offshore Florida acreage.
Pre-existing leases, such as Coastal Petroleum's leases, are exempt from the
prohibition of this law. See Item 3. "Legal Proceedings".

In 1941, Arnold Oil Explorations, Inc., later renamed Coastal Petroleum
Company in 1947, entered into a contract with the Trustees of the Internal
Improvement Trust Fund of the State of Florida (the "Trustees"), in whom title
to publicly owned lands in the State of Florida, including bottoms of salt and
fresh waters, is irrevocably vested, for the exploration of oil, gas and
minerals on such lands. Pursuant to an option to lease in this contract, the
Trustees and Coastal Petroleum entered into three leases between 1944 and 1946.
The acreage covered by these leases is located for the most part along offshore
areas on the Gulf Coast of Florida and in submerged lands under certain bays,
inlets, riverbeds and lakes, of which Lake Okeechobee is the largest.

In 1968, Coastal Petroleum sued the Secretary of the Army of the United
States in a dispute regarding certain mineral rights. In 1969, as part of that
litigation, the Trustees claimed that the leases were invalid and had been
forfeited. Coastal Petroleum and the Trustees settled their disagreement in
1976.

Under the terms of the 1976 settlement agreement, the two leases (224-A
and 224-B) bordering the Gulf Coast were divided into three areas, each running
the entire length of the coastline from Apalachicola Bay to the Naples area: (1)
The inner area, including rivers, bays, and harbors, extends seaward from the
Florida shoreline a distance of 4.36 statute miles (5,280 feet per statute mile)
into the Gulf, covers approximately 2.25 million acres, and is subject to a
royalty interest payable to Coastal Petroleum. This interest is a 6 1/4% royalty
on the wellhead value of all oil and gas, 25 cents per long ton on sulphur,
receivable in cash or in kind at Coastal Petroleum's option, and a 5% royalty on
production or the market value of other minerals. (2) The middle area, three
statute miles wide and covering more than 800,000 acres, was released by Coastal
Petroleum to the Trustees, and Coastal Caribbean has no further interest in the
area. (3) Coastal Petroleum presently owns a 100% working interest in the
outside area, which extends seaward an additional three statute miles and
borders federal offshore acreage. This area, exceeding 800,000 acres, remains
subject to royalties payable to the State of Florida of 12 1/2% on oil and gas,
$.50 per long ton of sulphur and 10% on other minerals. The Florida legislature
has enacted statutes designed to protect the Big Bend Seagrass Aquatic Preserve,
an area covering approximately one quarter of Coastal Petroleum's working
interest area. However, the legislation and legislative history recognize and
preserve Coastal Petroleum's prior rights as granted by the leases.

Coastal Petroleum retains a 100% working interest in 450,000 acre Lake
Okeechobee which is a part of Lease 248 and which is also subject to royalties
payable to the State of Florida of 12 1/2% on oil and gas, $.50 per long ton of
sulphur and 10% on other minerals. Pursuant to its settlement with the State of
Florida in 1976, Coastal Petroleum agreed not to conduct exploration, drilling
or mining operations on Lake Okeechobee without the prior approval of the State.
As to the balance of this lease, covering approximately 200,000 acres, Coastal
Petroleum retains royalty interests of 6 1/4% on oil, gas and sulphur and 5% on
other minerals.

Under the 1976 settlement agreement with the Trustees, the three leases
have a term of 40 years beginning from January 6, 1976 and require the payment
of an annual rental of $59,247; if oil, gas or minerals are being produced in
economically sustainable quantities at January 6, 2016, these operations will be
allowed to continue until they become uneconomic. Further, the settlement
agreement provides that the drilling requirements shall be governed by Chapter
20680, Laws of Florida, Acts of 1941, and that all other drilling requirements
are waived. Under the 1941 Act, a lessee is required to drill at least one test
well on lands leased in each five year period under the term of the lease.
Coastal Petroleum believes it is current in fulfilling its drilling
requirements. The Court in the Florida Litigation has suspended Coastal
Petroleum's obligations, pending the outcome of that litigation.

<PAGE>

Since 1987, Coastal Petroleum has drilled three shallow test wells on
Leases 224-A and 224-B. This exploration utilized a technique developed and
tested earlier by Coastal Petroleum which detects radiation emanating from
phosphate and associated uranium at greater depth. These tests were inconclusive
as to those minerals. These test wells had the prior approval of the Florida
Department of Natural Resources and Coastal Petroleum believes they met the
drilling requirements of the two leases.

Other work during the 1987-90 period included planning for and
attempting to acquire a permit for a seismic and gravity survey of Lake
Okeechobee. After considerable work, the application was withdrawn from
consideration because of environmental concerns expressed by the Governor and
the Trustees.

In 1992 Coastal Petroleum was granted an additional geophysical permit
for seismic, gravity and magnetic work, on its offshore leases. Magnetics were
run on a large portion of 224-A. Work was suspended for a few months and the DNR
ruled that a new permit application would be required to renew operations.
Coastal Petroleum's new application for a geophysical permit received approval
in January 1997.

See Item 3. "Legal Proceedings" for a discussion of the impact of the
current status of the Florida Litigation on exploration activities.

The following charts reflect the acreage and annual rental obligations
resulting from the 1976 settlement agreement with the Trustees and the
approximate acreage under lease at December 31, 1996:

Acreage after 1976 Settlement

Current Current Current
Working Royalty Annual
Interest Interest Rental
224-A and 224-B 800,000 2,250,000 $39,261
248 450,000 200,000 19,986
-------- --------- ------
1,250,000 2,450,000 $59,247
========= ========= =======

<PAGE>

Acreage under lease at December 31, 1996

Gross Acres (*) Net Acres (**)
Undeveloped Developed Undeveloped Developed
Working interest 1,250,000 -0- 1,250,000 -0-
Royalty interest 2,450,000 -0- 153,125 -0-
--------- ----- -------- -----
Total 3,700,000 -0- 1,403,125 -0-
========= ========== ========= =========

* A gross acre is an acre in which a working interest is owned.
** A net acre is deemed to exist when the sum of fractional ownership
working interests in gross acres equals one. The number of net acres is
the sum of the fractional working interests owned in gross acres
expressed as whole numbers and fractions thereof.

The drilling requirements and the annual rental obligations set forth
above have been suspended by order of the Circuit Court of the Second Judicial
District in Leon County.

Disclosure Concerning Oil and Gas Operations.

Since the properties in which the Company has interests are undeveloped
and nonproducing, items 2 through 4 of Securities Exchange Act Industry Guide 2
are not applicable.

(5) Undeveloped Acreage.

The Company's undeveloped acreage as of December 31, 1996 was as
follows:

Gross Acres Net Acres

Working Interest 1,250,000 1,250,000
Royalty Interest 2,450,000 153,125
--------- --------

Total 3,700,000 1,403,125
========= =========

<PAGE>

(6) Drilling Activity.

No drilling has taken place since May 1987 when two shallow mineral
test wells were drilled on lease 224-B.

(7) Present Activities.

None.

(8) Delivery Commitments.

None.

<PAGE>

Item 3. Legal Proceedings.

Coastal Petroleum has been involved in various lawsuits for many years.
Currently, Coastal Petroleum is a party to two actions in which two basic claims
are being contested: Whether Coastal Petroleum may obtain an oil and gas
exploration drilling permit without further public hearings, and whether certain
royalty interests owned by Coastal Petroleum have been confiscated by the State
of Florida, entitling Coastal Petroleum to compensation for such confiscation.
In addition, Coastal Caribbean is a party to another action in which Coastal
Caribbean claims that certain of its royalty interests have been confiscated by
the State.

1. Coastal Petroleum Company v. State Department of Environmental
Protection, (Case No. 96-03226, First District Court of Appeal). Drilling
Permit Litigation.

In 1993, Coastal Petroleum applied to the Florida Department of
Environmental Protection (the "Department") for a permit to drill an exploratory
oil and gas well off Apalachicola, Florida. The proposed well would be located
in an area included within Lease 224A. The Department subsequently denied the
application for issuance of a drilling permit for various reasons including the
requirement for a $1.9 billion bond. Coastal Petroleum appealed the actions of
the Department to the Florida First District Court of Appeal ("Court of
Appeal"). After two decisions by the Court of Appeal in favor of Coastal
Petroleum, the Florida Supreme Court in July 1996 denied the Department's
petition to review an April 1996 Court of Appeal decision. The Florida Supreme
Court had also refused to review an earlier Court of Appeal decision.

On August 16, 1996, the Department notified Coastal Petroleum that it
was prepared to issue the drilling permit subject to Coastal Petroleum
publishing a Notice of Intent to Issue ("Notice") the permit. The Notice would
allow interested parties to request administrative hearings on the permit.
Coastal Petroleum refused to publish the Notice and filed a petition with the
Court of Appeal on August 27, 1996 to order the Department to issue the permit
without the requirement of the Notice and without further delay.

On September 9, 1996, the Court of Appeal issued an order to the
Department to show cause why the permit should not be granted. On December 18,
1996, the Court of Appeal denied the Department's request for an oral argument.
On February 10, 1997, the court denied Coastal Petroleum's petition for a writ
of certiorari. Since the ruling did not address Coastal Petroleum's motion to
have the DEP issue a permit without further delay, Coastal Petroleum is
considering a motion to clarify the decision.

<PAGE>

2. Coastal Petroleum Company v. Honorable Lawton Chiles (Case No.96-03035,
First District Court of Appeal). Royalty Litigation.

In 1990, a Florida statute became effective prohibiting petroleum
production from offshore Florida acreage. The statute does not affect Coastal
Petroleum's right to drill for oil and gas in the working interest area of its
leases. However, as a result of the statute, production of oil and gas is now
prohibited in those areas of Coastal Petroleum's leases where it owns only a
royalty interest. Coastal Petroleum therefore will be unable to receive any
royalties from these areas, because oil and gas production has been prohibited.

A trial was held before the Circuit Court of the Second Judicial
Circuit in Leon County (Tallahassee) from May 6-9, 1996 on the issue of the
taking of the royalty interest. On August 5, 1996, the trial court ruled in
favor of the State and found that there was no taking of Coastal Petroleum's
royalty interest. Coastal Petroleum appealed that decision to the Court of
Appeal and oral argument is scheduled for February 25, 1997.

3. Cottingham v. State of Florida, (Case No. 94-768-CA-01, Circuit Court
of the Second Judicial Circuit in Leon County). Royalty Litigation.

The offshore areas covered by Coastal Petroleum's original leases
(prior to the 1976 Settlement Agreement) are subject to certain other royalty
interests held by third parties, including Coastal Caribbean. Several of those
third parties, including Coastal Caribbean, have instituted a separate lawsuit
against the State. That lawsuit claims that their royalty interests have been
confiscated as a result of the State's actions discussed above and that they are
entitled to compensation for that taking.

The lawsuit by the royalty holders involves issues similar to those
raised in Coastal Petroleum's lawsuit that claims that its royalty interests
have been taken, although the cases are different in certain respects. For
example, many of the royalty holders were not parties to the 1976 Settlement
Agreement, and the State's argument that the terms of the Settlement Agreement
insulate it from taking claims does not apply to those royalty holders. The case
is currently pending before the Circuit Court in Tallahassee.

Any recovery made in the royalty holder's lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean. Coastal
Petroleum would not share in any such recovery.

<PAGE>

Counsel

Mr. Robert J. Angerer of Tallahassee, Florida is Coastal Petroleum's
trial counsel in the Florida Litigation. Mr. Angerer, age 50, is a graduate of
the University of Michigan (B.S.E. 1969) and received his law degree with high
honors from Florida State University in 1974. The firm of Reasoner, Davis & Fox
of Washington, D.C. has also participated in the litigation. Mr. C. Dean
Reasoner is a member of this firm and is also a director of Coastal Caribbean.

Fee Arrangements

In connection with the Florida Litigation against the State of Florida
described herein, Coastal Petroleum has agreed to pay the following firms, in
addition to their charges on a time spent basis, a total of 6% in contingent
fees based upon any net recovery from execution on or satisfaction of judgment
or from settlement of such lawsuit as follows:

Percent of net recovery
Reasoner, Davis & Fox 2.0
Robert J. Angerer 1.5
Other counsel 2.5

Coastal Petroleum has also assigned 3.4% of net recoveries from the
Florida Litigation to its officers and others.

Uncertainty

No assurances can be given that Coastal Petroleum or Coastal Caribbean
will prevail on any of the issues set forth above, that they will recover
compensation for any of their claims, or that a drilling permit will be granted.
In addition, even if Coastal Petroleum were to prevail on any or all of the
issues to be decided, no assurance can be given that Coastal Caribbean or
Coastal Petroleum will have sufficient financial resources to survive until such
decisions become final or to drill any wells for which permits are received.
There is also no assurance that any wells drilled will be successful and lead to
production of any oil or gas in commercial quantities.

<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Executive Officers of the Company.

The following information with respect to the executive officers of
the Company is furnished pursuant to Instruction 3 to Item 401(b) of Regulation
S-K.

<TABLE>
<CAPTION>
Other Positions
Office Length of Service Held With The
Name Age Held as an Officer Company

<S> <C> <C> <C> <C>
Benjamin W. Heath 82 President Since 1953 Director
Phillip W. Ware 47 Vice President Since 1982 Director, President of Coastal Petroleum

James R. Joyce 56 Treasurer, Asst. Since June 8, 1994 Secretary-Treasurer of Coastal Petroleum
Secretary and Chief
Financial Officer
</TABLE>

All officers of the Company are elected annually by the Board of
Directors and serve at the pleasure of the Board of Directors.

The Company is not aware of any arrangements or understandings between
any of the individuals named and any other person pursuant to which any
individual named above was selected as an officer.

<PAGE>

PART II

Item 5. Market for the Company's Common Stock and Related
Stockholder Matters.

(a) Market Information.

The principal market for the Company's common stock is the
Boston Stock Exchange. The quarterly high and low closing prices on that
exchange during the last two years were as follows:
- --------------------------------------------------------------------------------

1996 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------

High 2 3/8 2 5/8 3 3/8 3 1/2
Low 1 1/4 1 9/16 1 3/4 2 1/16
- --------------------------------------------------------------------------------

1995 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------

High 2 3/8 3 1/16 2 5/8 2
Low 13/16 1 7/16 1 11/16 1 3/16
- --------------------------------------------------------------------------------

(b) Holders.

The approximate number of record holders of the Company's
common stock at February 1,1997 was 13,400.

The Company has never paid a dividend on its capital stock and
will be unable to do so until its deficit, ($23,490,000 at December 31, 1996) is
eliminated.

The Company's Memorandum of Association and By-Laws do not
permit the Company to repurchase or redeem shares of its common stock.

<PAGE>

Foreign Exchange Control Regulations

The Company is subject to the applicable laws of The Islands
of Bermuda relating to exchange control, but has the permission of the Foreign
Exchange Control of Bermuda to carry on business in, to receive, disburse and
hold United States dollars and dollar securities under its designation as an
External Account Company. The Company has been advised that, although as a
matter of law it is possible for such designation to be revoked, there is little
precedent for revocation under Bermuda law.

Taxes

Coastal Caribbean is a Bermuda corporation. Bermuda currently
imposes no taxes on corporate income or capital gains realized outside of
Bermuda. Any amounts received by Coastal Caribbean from United States sources as
dividends, interest, or other fixed or determinable annual or periodic gains,
profits and income, will be subject to a 30% United States withholding tax. In
addition, any dividends from its domestic subsidiary, Coastal Petroleum, will
not be eligible for the 100% dividends received deduction, which is allowable in
the case of a United States parent corporation. Shares of the Company held by
persons who are citizens or residents of the United States are subject to
federal estate and gift and local inheritance taxation. Any dividends received
by such persons will also be subject to federal, State and local income
taxation. The foregoing rules are of general application only, and reflect law
in force as of the date of this report.

A convention between Bermuda and the United States relating to
mutual assistance on tax matters became operative in 1988.

<PAGE>

Item 6. Selected Consolidated Financial Information

The following selected consolidated financial information for the
Company insofar as it relates to each of the five years in the period ended
December 31, 1996 has been extracted from the Company's consolidated financial
statements.

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------------

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Net loss (1,148,204) (879,576) (718,884) (223,221) (734,029)
=========== ============ ========== =========== ===========

Net loss per share (.03) (.03) (.02) (.01) (.02)
=========== ============ ========== =========== ===========

Cash and securities available 5,789,000 308,418 647,702 681,982 (173,600)
=========== ============ ========== =========== ===========

Cost associated with leasehold
interests in oil, gas and
mineral properties (unproved) 3,943,520 3,688,569 3,688,569 3,688,569 3,688,569
========= ========== ========= ========== ==========

Total assets 10,020,738 4,127,906 4,374,690 4,662,033 4,025,509
========== ========== ========= ========== ==========

Shareholders' equity:
Common stock 4,805,563 4,003,636 4,003,636 4,003,636 4,003,636
Capital in excess 28,442,983 22,395,084 21,795,084 21,165,084 20,085,084
Accumulated deficit (23,490,230) (22,342,026) (21,462,450) (20,743,565) (20,520,345)
------------ ------------ ------------- ------------ ------------
9,758,316 4,056,694 4,336,270 4,425,155 3,568,375
============ ============ ============ =========== ===========
</TABLE>

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

(1) Liquidity and Capital Resources

Short Term Liquidity

At December 31 1996, Coastal Caribbean had approximately $5.8 million
of cash and securities available. These funds are expected to be used for
general corporate purposes, including exploration and development and to
continue the litigation against the State of Florida.

On May 29, 1996, the Company concluded its offering of approximately
6.7 million shares to its shareholders at $1.00 per share. The offering was
oversubscribed and the proceeds to the Company were approximately $6.4 million
after the expenses of the offering.

Long Term Liquidity

The Company estimates that as much as $500,000 per year may be required
in connection with the Florida litigation. The Company expects that the Florida
litigation could continue at least through 1998, although the State may take
actions that could shorten or lengthen that period. The Company has a program to
evaluate its leases which is estimated to cost approximately $500,000 for 1997
and $1,000,000 for the 1998-1999 period, and is subject to the outcome of the
Florida litigation. During 1996, the Company spent approximately $282,000 under
the program to identify potential drilling prospects.

The Company's oil and gas properties are currently unproved and
undeveloped. The Company has applied for a drilling permit from the State of
Florida to drill an exploratory well in the water near Apalachicola, Florida.
The State of Florida has resisted the issuance of a drilling permit. If the
Company is successful in obtaining a state drilling permit, then the Company
must also do the following:

1. Obtain a federal drilling permit.

2. Finance drilling of the well, which is estimated to cost
between $10-15 million.

3. Begin drilling the well within one year of the date the state
permit is issued.

<PAGE>

The Company does not currently have assets sufficient to fund all these
expenditures to drill the exploration well, if a permit were granted. If oil
and/or gas is discovered in commercial quantities, a production program would
require additional permitting and construction of production, storage and
delivery systems. The Company might seek additional financing or partners to
fund these expenditures.

(2) Results of Operations

The Company has never had substantial revenues and has operated at a
loss each year since its inception in 1953. The Company has been involved in
litigation since 1968 and its total legal expenses have been approximately
$1,374,000 during the period 1996, 1995 and 1994. The legal expenses incurred
related primarily to the Florida Litigation. These fees can be expected to
continue at the same or a higher level until the Florida Litigation is resolved.
A termination date of this litigation cannot be predicted with any certainty at
this time.

1996 vs. 1995

The Company recorded a loss of $1,148,000 for 1996, compared to a loss
of $880,000 in 1995.

Interest income and other income increased to $192,000 in 1996 from
$15,000 in 1995 due to the funds available for investment from the May 1996
rights offering to shareholders.

Legal fees and costs increased 111% in 1996 to $731,000 compared to
$346,000 in the prior year. These costs increased due to increased litigation
activities in the Florida Litigation. In addition, the Company agreed to
reimburse Lykes Minerals Corp. in 1996 for certain legal expenses in the amount
of $201,416 that Lykes had incurred in connection with the Florida Litigation on
the basis that the expenses had directly benefited the Company.

Administrative expenses increased 11% in 1996 to $339,000 compared to
$306,000 in 1995. The primary reason for the increase was the first time
purchase of Director's and Officers' liability insurance.

Exploration costs increased from $3,000 in 1995 to $27,000 in 1996 in
connection with the Company's program to identify potential drilling prospects.
These expenses do not include the exploration expenditures totaling $255,000
that were capitalized.

<PAGE>

1995 vs. 1994

The Company recorded a loss of $880,000 for 1995, compared to a loss of
$719,000 in 1994.

Interest income and other income decreased 33% in 1995 to $15,000
from $22,000 in 1994 due to the decrease in funds available for investment.

Legal fees and costs increased 16% in 1995 to $346,000 compared to
$297,000 in the prior year. These costs increased due to increased litigation
activities in the Florida Litigation.

Administrative expenses increased 28% in 1995 to $306,000 compared to
$240,000 in 1994. The increase was attributable to higher administrative,
accounting and insurance costs incurred in 1995.

Salary expense increased 22% in 1995 to $150,000 compared to $122,000
in the prior year due to a salary increase for an officer of the Company and an
increase in staff.

Shareholder communications increased 12% in 1995 to $90,000 from
$81,000 in 1994. The increase was the result of increased mailing and printing
costs in 1995.

<PAGE>

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Coastal Caribbean Oils & Minerals, Ltd.

We have audited the accompanying consolidated balance sheet of Coastal Caribbean
Oils & Minerals, Ltd. (a development stage company) as of December 31, 1996 and
1995, and the related consolidated statements of operations, cash flows, and
common stock and capital in excess of par value from inception to December 31,
1996 and for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Coastal
Caribbean Oils & Minerals, Ltd. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows from inception to
December 31, 1996 and for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Hartford, Connecticut
February 10, 1997

<PAGE>

COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company

CONSOLIDATED BALANCE SHEET
(Expressed in U.S. dollars)

December 31,
1996 1995
---- ----
ASSETS

Current assets:
Cash and cash equivalents $ 424,330 $ 247,452
Accounts receivable 105,115 6,836
U.S. Government securities 3,341,820 -
Prepaid insurance 178,868 125,342
---------- ---------
Total current assets 4,050,133 379,630
--------- ---------

U.S. Government securities 2,001,441 -
Unproved oil, gas and mineral properties (full cost
method) 3,943,520 3,688,568
Other 25,644 59,708
----------- ----------
$10,020,738 $4,127,906
=========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities $ 262,422 $ 71,212
----------- ----------

Minority interests - -

Shareholders' equity:
Common stock, par value 12 per share:
Authorized - 100,000,000 shares
Outstanding - 40,046,358 and 33,363,632 shares 4,805,563 4,003,636
Capital in excess of par value 28,442,983 22,395,084
---------- ----------
33,248,546 26,398,720
Deficit accumulated during development
stage (23,490,230) (22,342,026)
------------ ------------
9,758,316 4,056,694
--------- ------------
Total shareholders' equity $10,020,738 $ 4,127,906
=========== ============

See accompanying notes.

<PAGE>

<TABLE>
<CAPTION>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company

CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in U.S. dollars)

From
inception
(Jan. 31, 1953
Year ended December 31, to December 31,)

1996 1995 1994 1996
---- ---- ---- ----

<S> <C> <C> <C> <C>
Interest and other income $ 192,369 $ 14,845 $ 22,098 $3,226,657
--------- --------- ------------ ----------

Expenses:
Legal fees and costs 730,831 345,770 297,385 10,423,124
Administrative expenses 338,594 306,011 239,719 5,921,527
Salaries 150,667 149,667 122,187 2,594,278
Shareholder communications 93,548 90,169 80,551 3,248,387
Exploration costs 26,933 2,804 1,140 700,036
Lawsuit judgments (recoveries) - - - 1,941,916
Minority interests - - - (632,974)
Other - - - 364,865
Contractual services - - 2,155,728
------------------ ---------------- ----------------- ----------------
1,340,573 894,421 740,982 26,716,887
--------- --------- ----------- ---------------

Net loss $(1,148,204) $(879,576) $(718,884)
============ ========== ==========

Deficit accumulated during
development stage $(23,490,230)

Average number of shares
outstanding 37,477,617 33,363,632 33,363,632
========== ========== ==========

Net loss per share based on
average number of shares
outstanding during the
period $(.03) $(.03) $(.02)
====== ====== ======

See accompanying notes.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)

From
inception
(Jan. 31, 1953)
Year ended December 31, to
----------------------------------------
1996 1995 1994 Dec. 31, 1996
---- ---- ---- -------------

<S> <C> <C> <C> <C>
Operating activities:
Net loss $(1,148,204) $(879,576) $(718,884) $(23,490,230)
Adjustments to reconcile net loss to net cash used
for operating activities:
Minority interest - - (632,974)
Exploration and other - - 755,974
Net change in:
Accounts receivable (98,278) 1,154 (5,906) (105,115)
Prepaid insurance and other (53,526) (446) (24,220) (178,868)
Current liabilities 191,210 32,792 (198,458) 262,422
Other 34,063 (59,708) 54,604 473,261
------------ ---------- --------- ------------
Net cash used for operating activities (1,074,735) (905,784) (892,864) (22,915,530)
----------- ---------- --------- ------------

Investing activities:
Additions to oil, gas, and mineral
properties net of assets acquired
for common stock (254,952) - - (3,943,520)
U.S. Government securities (5,343,261) - - (5,343,261)
Reimbursement of lease rentals and -
other expenses - - - 1,243,086
Purchase of fixed assets - - - (61,649)
-------------- ---------------- -------------- -----------
Net cash used for investing activities (5,598,213) - - (8,105,344)
----------- ---------------- -------------- -----------

Financing activities:
Sale of common stock less expenses 6,356,326 - - 26,342,205
Shares issued upon exercise of
options 13,500 - - 872,999
Sale of shares by subsidiary - - - 750,000
Sale of subsidiary shares 480,000 600,000 630,000 3,480,000
------- --------- ------- -----------
Net cash provided by
financing activities 6,849,826 600,000 630,000 31,445,204
--------- --------- ------- -----------
Net increase (decrease) in cash
and cash equivalents 176,878 (305,784) (262,864) 424,330
Cash and cash equivalents at
beginning of period 247,452 553,236 816,100 -
------- ------- ------- -----------
Cash and cash equivalents at
end of period $424,330 $247,452 $553,236 $424,330
======== ======== ======== ========

See accompanying notes.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENT OF COMMON STOCK
AND CAPITAL IN EXCESS OF PAR VALUE
(Expressed in U.S. dollars)
From inception (January 31, 1953) to December 31, 1996

Capital in
Number of Capital excess
Shares stock of par value
<S> <C> <C> <C>
Shares issued for net assets and unrecovered costs
at inception 5,790,210 $ 579,021 $ 1,542,868
Shares issued upon sales of common stock (Note 6) 26,829,486 3,224,014 16,818,844
Shares issued upon exercise of stock options (Note 6) 510,000 59,739 799,760
Market value ($2.375 per share) of shares issued in
1953 to acquire an investment 54,538 5,454 124,074
Shares issued in 1953 in exchange for 1/3rd of a 1/60th
overriding royalty (sold in prior year) in nonproducing
leases of Coastal Petroleum 84,210 8,421 -
Market value of shares issued for services rendered
during the period 1954-1966 95,188 9,673 109,827
Net transfers to restate the par value of common stock
outstanding in 1962 and 1970 to $0.12 per share - 117,314 (117,314)
Increase in Company's investment (equity) due to
capital transactions of Coastal Petroleum in 1976 - - 117,025
------------------ ---------------- -----------
Balance at December 31, 1990 33,363,632 4,003,636 19,395,084
Sale of subsidiary shares (Note 2) - - 300,000
------------------ --------------- -----------
Balance at December 31, 1991 33,363,632 4,003,636 19,695,084
Sale of subsidiary shares (Note 2) - - 390,000
------------------ ---------------- -----------
Balance at December 31, 1992 33,363,632 4,003,636 20,085,084
Sale of subsidiary shares (Note 2) - - 1,080,000
------------------ ---------------- ----------
Balance at December 31, 1993 33,363,632 4,003,636 21,165,084
Sale of subsidiary shares (Note 2) - - 630,000
------------------ ---------------- ------------
Balance at December 31, 1994 33,363,632 4,003,636 21,795,084
Sale of subsidiary shares (Note 2) - - 600,000
------------------ ----------------- -------------
Balance at December 31, 1995 33,363,632 4,003,636 22,395,084
Sale of common stock 6,672,726 800,727 5,555,599
Sale of subsidiary shares - - 480,000
Exercise of stock options 10,000 1,200 12,300
-------------- ------------- --------------
Balance at December 31, 1996 $40,046,358 $4,805,563 $28,442,983
=========== ========== ===========

See accompanying notes.
</TABLE>

<PAGE>

COASTAL CARIBBEAN OILS & MINERALS, LTD.
Notes to Consolidated Financial Statements
December 31, 1996

1. Summary of significant accounting policies

Consolidation

The accompanying consolidated financial statements include the accounts
of Coastal Caribbean Oils & Minerals, Ltd. ("Coastal Caribbean") and its
majority subsidiary, Coastal Petroleum Company ("Coastal Petroleum"),
hereinafter referred to collectively as the Company. During 1996, Coastal
Caribbean sold additional shares of Coastal Petroleum and reduced its interest
(See Note 2). The Company, which is engaged in a single industry, is considered
to be a development stage company since its exploration for oil, gas and
minerals has not yielded any significant revenue or reserves. All intercompany
transactions have been eliminated.

Cash and cash equivalents

The Company considers all highly liquid short term investments with
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents at December 31, 1996 were as follows:

December 31,

1996 1995
---- ----
Cash $127,990 $ 50,018
U.S. Treasury Bills 296,340 197,434
------- -------
$424,330 $247,452
======== ========

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The outcome of the litigation and the ability to develop the
Company's oil and gas properties will have a significant effect on the Company's
financial position and results of operations. Actual results could differ from
those estimates.

Unproved oil and gas properties

The Company follows the full cost method of accounting for its oil and
gas properties. All costs, whether successful or unsuccessful, associated with
property acquisition, exploration and development activities are capitalized.
Since the Company's properties are undeveloped and nonproducing, capitalized
costs are not being amortized.

<PAGE>

The Company does not expect to amortize these costs until there is production
from the properties. Production cannot begin until several events occur because
the Company must: (1) obtain state and federal drilling permits (2) finance the
drilling of an exploratory well, either with internal resources or by securing
one or more partners in the drilling activity, (3) discover commercial
quantities of oil and/or gas, and (4) finance and begin a production program.
The Company cannot predict if or when any of these events may occur; however,
the Company expects that under the most favorable circumstances production would
not begin before 2000. If the Company obtains the permits to drill, the total
cost of drilling an exploration well is currently estimated to be between $10-15
million. The Company does not currently have assets sufficient to fund all of
this cost and would be required to seek debt or equity financing from public or
private sources to drill the exploration well, if a permit were granted. If oil
and/or gas is discovered in commercial quantities, a production program would
require additional permitting and construction of production, storage and
delivery systems. The Company would be required to seek additional financing to
fund these development activities.

The Company assesses whether its unproved properties are impaired on a
periodic basis. This assessment is based upon work completed on the properties
to date, the expiration date of its leases and technical data from the
properties and adjacent areas. These properties are subject to extensive
litigation with the State of Florida. Although the property interests may be
impaired by the actions taken by the State, the likelihood of loss with respect
to the recorded costs of the leasehold interests is not probable. (See Note 5
"Litigation".) Based on the exploration activities on the properties completed
to date, the exploration and development activities of others in the Gulf of
Mexico and the laws applicable to the taking of property, the Company expects to
recover its $3.9 million of capitalized costs. However, there can be no
assurance that it will be successful and that costs associated with these
properties will be realized.

Sale of Subsidiary Shares

All amounts realized from the sale of Coastal Petroleum shares have
been credited to capital in excess of par value.

<PAGE>

2. Agreements for Sale of Coastal Petroleum Shares

In 1991, the Company agreed to sell up to 10.3% of Coastal Petroleum to
a private investor. Pursuant to the Agreement, a 4.1% interest in Coastal
Petroleum has been sold for a total consideration of $600,000.

In 1992, Coastal Caribbean agreed to sell an additional 20.5% of the
outstanding shares of Coastal Petroleum. Under the sales agreement, Lykes
Minerals Corp. ("Lykes"), a wholly owned subsidiary of Lykes Bros. Inc., had the
option to acquire 60 shares of Coastal Petroleum at $40,000 per share through
May 1, 1997. At least half of the proceeds of the sale generally are required to
be used to fund Coastal Petroleum's Florida exploration activities.

The agreement also provided for a second option for Lykes to purchase
the shares of Coastal Petroleum (also at $40,000 per share) which had been
subject to another investor's option under the 1991 agreement described above.
At December 31, 1996, Lykes had acquired the 6.2% available under this option.

As of December 31, 1996, Lykes had an unexercised option to purchase 6
additional Coastal Petroleum shares by May 1, 1997 for a total of $240,000, and
had acquired 24.7% of Coastal Petroleum at a total cost of $2,880,000.

The Lykes agreement provides that Lykes is entitled to exchange each
Coastal Petroleum share for 100,000 Coastal Caribbean shares, subject to
adjustment for dilution and other factors. If fully exercised, that entitlement
would leave Lykes with about 16% of Coastal Caribbean's outstanding shares.
Lykes also has the right to exchange Coastal Petroleum shares for overriding
royalty interests in Coastal Petroleum's properties. Were Lykes to acquire its
full 26.7% interest in Coastal Petroleum and then exchange that interest for a
royalty interest, its overriding royalty interest in Coastal Petroleum's
working-interest acreage would be 3.3%.

<PAGE>

A summary of the sale of Coastal Petroleum shares under the above
agreements is as follows:

Number of Sales
Year shares sold proceeds

1991 6 $ 300,000
1992 9 390,000
1993 27 1,080,000
1994 15 630,000
1995 15 600,000
1996 12 480,000
---- ----------
Total 84 $3,480,000
==== ==========

As of December 31, 1996, Coastal Petroleum shares were owned as
follows:

Shares %
Coastal Caribbean 179 61.3
Lykes 72 24.7
First investor 29 9.9
Second investor 12 4.1
--- -------
292 100.0
=== =====

3. U. S. Government Securities

At December 31, 1996, the Company has the following amounts invested in
U.S. government securities which are expected to be held until maturity:

<TABLE>
<CAPTION>
Amortized
Security Par value Maturity Date Cost Fair value
--------- --------- ------------- ---- ----------

<S> <C> <C> <C> <C>
U.S. Treasury Bill $ 500,000 Feb. 27, 1997 $ 487,361 $ 496,020
U.S. Treasury Bill 1,000,000 May 29, 1997 960,567 978,970
U.S. Treasury Bill 2,000,000 Aug. 21, 1997 1,893,892 1,933,860
--------- --------- ---------
Total short term 3,500,000 3,341,820 3,408,850
--------- --------- ---------

U.S. Treasury Note 500,000 May 31, 1998 497,969 500,310
U.S. Treasury Note 1,500,000 Jul. 31, 1998 1,503,472 1,507,035
--------- --------- ---------
Total long term 2,000,000 2,001,441 2,007,345
--------- --------- ---------

Total $5,500,000 $5,343,261 $5,416,195
========== ========== ==========
</TABLE>

<PAGE>

4. Unproved oil, gas and mineral properties

Coastal Petroleum holds three unproved and nonproducing oil, gas and
mineral leases granted by the Trustees of the Internal Improvement Fund of the
State of Florida (the "Trustees"). These leases cover submerged and unsubmerged
lands, principally along the Florida Gulf Coast, and certain inland lakes and
rivers throughout the State.

The two leases bordering the Gulf Coast have been divided into three
areas, each running the entire length of the coastline from Appalachicola Bay to
the Naples area. Coastal Petroleum has certain royalty interests in the inner
area, no interest in the middle area and has a 100% working interest in the
outside area.

Coastal Petroleum also has a 100% working interest in Lake Okeechobee,
and a royalty interest in other areas. Coastal Petroleum has agreed not to
conduct exploration, drilling, or mining operations on said lake, except with
prior approval of the Trustees.

The three leases have a term of 40 years from January 6, 1976 and
require the payment of annual lease rentals of $59,247; if oil, gas or minerals
are being produced in economically sustainable quantities at January 6, 2016,
these operations will be allowed to continue until they become uneconomic. The
drilling requirements are governed by Chapter 20680, Laws of Florida, Acts of
1941. The Company is current in fulfilling its drilling requirements.
Obligations on these leases have been suspended temporarily as a result of the
Florida Litigation (See Note 5).

The working interest areas of the three leases are subject to royalties
payable to the Trustees of 12 1/2% on oil and gas, $.50 per long ton of sulphur
and 10% on other minerals. The leases are subject to additional overriding
royalties which aggregate 1/16th as to oil, gas and sulphur and 13/600ths as to
other minerals. The Coastal Petroleum leases also are subject to a 10%
overriding royalty granted by Coastal Petroleum to Coastal Caribbean.

The Company has a program to evaluate its leases which is estimated to
cost approximately $500,000 for 1997 and $1,000,000 for the 1998-1999 period,
and is subject to the outcome of the Florida litigation. During 1996, the
Company spent approximately $282,000 under the program to identify potential
drilling prospects.

<PAGE>

A summary of the cost of unproved oil, gas and mineral properties,
accounted for under the full cost method, all of which are located in Florida,
at December 31, 1996 and 1995 (the balance at December 31, 1995 had been
unchanged since December 31, 1989), are as follows:

1996 1995
-----------------------
Lease acquisition costs $914,619 $ 914,619
Lease and royalty costs (principally legal fees) 591,616 591,616
Lease rentals 2,329,280 2,329,280
Dry hole costs 587,987 587,987
Other exploratory expenses 542,854 287,902
Salaries 466,983 466,983
------- ----------
5,433,339 5,178,387
--------- ----------
Deduct:
Reimbursement for lease rentals and other expenses 1,243,086 1,243,086
Proceeds from relinquishment of surface rights 246,733 246,733
------- ----------
1,489,819 1,489,819
--------- ----------
$3,943,520 $3,688,568
========== ==========

5. Litigation

Florida Litigation

Coastal Petroleum has been involved in various lawsuits for many years.
Currently, Coastal Petroleum is a party to three actions in which two basic
claims are being contested: Whether Coastal Petroleum may obtain an oil and gas
exploration drilling permit without further public hearings, and whether certain
royalty interests owned by Coastal Petroleum have been confiscated by the State
of Florida, entitling Coastal Petroleum to compensation for such confiscation.
In addition, Coastal Caribbean is a party to another action in which Coastal
Caribbean claims that certain of its royalty interests have been confiscated by
the State. The Company estimates that as much as $500,000 per year may be
required in connection with the Florida litigation. The Company expects that the
Florida litigation could continue at least through 1998, although the State may
take actions that could shorten or lengthen that period.

1. Coastal Petroleum Company v. State Department of Environmental
Protection, (Case No. 96-03226, First District Court of Appeal).
Drilling Permit Litigation.

<PAGE>

Coastal Petroleum appealed the actions of the Department to the Florida First
District Court of Appeal ("Court of Appeal"). After two decisions by the Court
of Appeal in favor of Coastal Petroleum, the Florida Supreme Court in July 1996
denied the Department's petition to review an April 1996 Court of Appeal
decision. The Florida Supreme Court had also refused to review an earlier Court
of Appeal decision.

On September 9, 1996, the Court of Appeal issued an order to the
Department to show cause why the permit should not be granted. On December 18,
1996, the Court of Appeal denied the Department's request for an oral argument.
On February 10, 1997, the court denied the Coastal Petroleum's petition for a
writ of certiorari. Since the ruling did not address Coastal Petroleum's motion
to have the DEP issue a permit without further delay, Coastal Petroleum is
considering a motion to clarify the decision.

2. Coastal Petroleum Company v. Honorable Lawton Chiles (Case No.
96-03035, First District Court of Appeal). Royalty Litigation.

<PAGE>

3. Cottingham v. State of Florida, (Case No. 94-768-CA-01, Circuit Court
of the Second Judicial Circuit in Leon County). Royalty Litigation.

Any recovery made in the royalty holder's lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean. Coastal
Petroleum would not share in any such recovery.

Counsel

Mr. Robert J. Angerer of Tallahassee, Florida is Coastal Petroleum's
trial counsel in the Florida Litigation. Mr. Angerer, age 50, is a graduate
of the University of Michigan (B.S.E. 1969) and received his law degree with
high honors from Florida State University in 1974. Also participating in the
litigation is The firm of Reasoner, Davis & Fox of Washington, D.C. has also
participated in the litigation. Mr. C. Dean Reasoner is a member of this
firm and is also a director of Coastal Caribbean.

Fee Arrangements

Percent of net recovery
Reasoner, Davis & Fox 2.0
Robert J. Angerer 1.5
Other counsel 2.5

Coastal Petroleum has also assigned 3.4% of net recoveries from the
Florida Litigation to its officers and others.

Uncertainty

6. Common Stock

The Company's Bye-Law No. 21 provides that any matter to be voted upon
must be approved not only by a majority of the shares voted at such meeting, but
also by a majority in number of the shareholders present in person or by proxy
and entitled to vote thereon.

The Company has been financing its operations primarily from sales of
common stock and sales of shares of Coastal Petroleum (See Note 2).

On May 29, 1996, the Company concluded its offering of approximately
6.7 million shares to its shareholders at $1.00 per share. The offering was
oversubscribed and the proceeds to the Company were $6,356,326 after deducting
the $316,400 cost of the offering.

<PAGE>

The following represents shares issued upon sales of common stock:

Number of Capital in excess
Shares Capital stock of par value
1953 300,000 $ 30,000 $ 654,000
1954 53,000 5,300 114,265
1955 67,000 6,700 137,937
1956 77,100 7,710 139,548
1957 95,400 9,540 152,492
1958 180,884 18,088 207,135
1959 123,011 12,301 160,751
1960 134,300 13,430 131,431
1961 127,500 12,750 94,077
1962 9,900 990 8,036
1963 168,200 23,548 12,041
1964 331,800 46,452 45,044
1965 435,200 60,928 442,391
1966 187,000 26,180 194,187
1967 193,954 27,153 249,608
1968 67,500 9,450 127,468
1969 8,200 1,148 13,532
1970 274,600 32,952 117,154
1974 398,300 47,796 60,007
1975 - - (52,618)
1976 - - (8,200)
1977 850,000 102,000 1,682,706
1978 90,797 10,896 158,343
1979 1,065,943 127,914 4,124,063
1980 179,831 21,580 826,763
1981 30,600 3,672 159,360
1983 5,318,862 638,263 1,814,642
1985 - - (36,220)
1986 6,228,143 747,378 2,178,471
1987 4,152,095 498,251 2,407,522
1990 4,298,966 515,876 26,319
1996 6,672,726 800,727 5,555,599
----------- ---------- ---------
33,502,212 $4,024,741 $22,374,443
========== ========== ===========

The following represents shares issued upon exercise of stock options:

1955 73,000 $ 7,300 $175,200
1978 7,000 840 6,160
1979 213,570 25,628 265,619
1980 76,830 9,219 125,233
1981 139,600 16,752 227,548
1996 10,000 1,200 12,300
------ ----- ------
520,000 $60,939 $812,060
======= ======= ========

Coastal Caribbean has reserved 7,800,000 shares which may be issued in
exchange for Coastal Petroleum shares, as described in Note 2.

<PAGE>

7. Stock Option Plan

The company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
Interpretations in accounting for its stock options because the alternative fair
value accounting provided under FASB Statement No. 123, "Accounting for Stock
Based Compensation ," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB No. 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

On March 7, 1995, the Company adopted a Stock Option Plan covering
1,000,000 shares of the Company's common stock. On June 17, 1996, 310,000
options to purchase common stock of the Company at $1.35 per share which were
granted in 1995 and expire on March 6, 2000, were canceled and reissued to
reflect the May 1996 rights offering.

The following table summarizes stock option activity:

Stock Options Price Per Share
Outstanding and exercisable at
December 31, 1994 - $-
Granted 320,000 1.35
-------
Outstanding and exercisable at
December 31, 1995 320,000 1.35
Exercised (10,000) 1.35
Canceled (310,000) 1.35
Granted 372,000 1.13
------- ----
Outstanding and exercisable at
December 31, 1996 372,000 $1.13
======= =====

Available for grant at December 31,1996 618,000
=======
.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model.

Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The assumptions used
in the valuation model were: risk free interest rate - 7%, expected life - 5
years and expected volatility - 1.2.

<PAGE>

Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.

For the purpose of pro forma disclosures, the estimated fair value of
the stock options is expensed in the year of grant since the options are
immediately exercisable. The Company's pro forma information follows:

Amount Per Share
Net loss as reported - December 31, 1995 $(880,000) $(.03)
Stock option expense (304,000) (.01)
--------- -----
Pro forma net loss $(1,184,000) $(.04)
------------ ------

8. Income taxes

Bermuda currently imposes no taxes on corporate income or capital gains
outside of Bermuda. The Company's subsidiary, Coastal Petroleum, has U.S. net
operating loss carryforwards at December 31, 1996, which may be used to reduce
its taxable income, if any, during future years which aggregated approximately
$10,903,000 and expire in varying amounts from 1997 through 2011.

Coastal Petroleum had a noncurrent deferred tax asset of $4,103,000 at
December 31, 1996 and $4,169,000 at December 31, 1995, relating to the above
losses. However, a valuation reserve of $4,103,000 at December 31, 1996 and
$4,169,000 at December 31, 1995 has been established because it is more likely
than not at this time that none of the carryforward losses will be realized by
Coastal Petroleum.

9. Related parties

Fees were paid or accrued by the Company for legal services rendered by
the law firm of Reasoner, Davis & Fox, of which Mr. C. Dean Reasoner, a director
of the Company, is a partner. Reasoner, Davis & Fox billed legal fees of
$102,000, $118,000 and $120,000 for 1996, 1995 and 1994, respectively.

G&O'D INC provides accounting and administrative services and office
facilities and support staff to the Company. G&O'D INC was owned during fiscal
1994 by Mr. James R. Joyce, Treasurer and Assistant Secretary (since June 8,
1994) and Mr. Arthur B. O'Donnell, Treasurer and Assistant Secretary (until June
8, 1994). Mr. O'Donnell retired from G&O'D on June 30, 1994 and Mr. Joyce is now
the sole owner of G&O'D INC. During 1996, 1995 and 1994, G&O'D billed fees of
$169,632, $176,809, and $139,305, respectively.

During 1996, the Company agreed to reimburse Lykes Minerals Corp. for
certain legal expenses in the amount of $201,416 that Lykes had incurred in
connection with the Florida Litigation on the basis that these expenses had
directly benefited the Company. This amount is included in accounts payable and
accrued liabilities.

<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

PART III

For information concerning Item 10 - Directors and Executive Officers
of the Company, Item 11 - Executive Compensation, Item 12 - Security Ownership
of Certain Beneficial Owners and Management and Item 13 - Certain Relationships
and Related Transactions, see the Proxy Statement of the Company relative to the
Annual Meeting of Stockholders for the fiscal year ended December 31, 1996,
which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning Item
10 - Executive Officers of the Company, see Part I.

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) (1) Financial Statements.

The financial statements listed below and included
under Item 8 above are filed as part of this report.
Page

Report of Independent Auditors 24

Consolidated balance sheet at December 31, 1996 and 1995 25

Consolidated statement of operations from inception and for each of
the three years in the period ended December 31, 1996 26

Consolidated statement of cash flows from inception and for each of
the three years in the period ended December 31, 1996 27

Consolidated statement of common stock and capital in excess of
par value from inception to December 31, 1996 28

Notes to consolidated financial statements 29

(2) Financial Statement Schedules:

All schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements and the notes thereto.

(3) Exhibits.

The following exhibits are filed as part of this
report:

Item Number

2. Plan of acquisition, arrangement, liquidation or succession.

None.

<PAGE>

3. Articles of incorporation and By-Laws.

Memorandum of Association as amended on June 30, 1982, May 14,
1985 and April 7, 1988 and Bye-laws, are incorporated by
reference to Registration Statement No. 33-80183 filed on
December 7, 1995.

4. Instruments defining the rights of security holders, including
indentures.

None.

9. Voting trust agreement.

None.

10. Material contracts.

(a) Drilling Lease No. 224-A, as modified, between the
Trustees of the Internal Improvement Fund of the State of Florida and Coastal
Petroleum Company dated February 27, 1947 is incorporated by reference to
Registration Statement No. 33-80183 filed on December 7, 1995.

(b) Drilling Lease No. 224-B, as modified, between the
Trustees of the Internal Improvement Fund of the State of Florida and Coastal
Petroleum Company dated February 27, 1947 is incorporated by reference to
Registration Statement No. 33-80183 filed on December 7, 1995.

(c) Drilling Lease No. 248, as modified, between the
Trustees of the Internal Improvement Fund of the State of Florida and Coastal
Petroleum Company dated February 27, 1947 is incorporated by reference to
Registration Statement No. 33-80183 filed on December 7, 1995.

(d) Settlement Agreement dated January 6, 1976 between
Coastal Petroleum Company and the State of Florida is incorporated by reference
to Registration Statement No. 33-80183 filed on December 7, 1995.

(e) Complaint of Inverse Condemnation by Coastal
Petroleum Company vs. Honorable Bob Martinez, Governor, et al filed July 23,
1990 in the Circuit Court of the Second Judicial Circuit, in and for Leon
County, Florida is incorporated by reference to Registration Statement No.
33-80183 filed on December 7, 1995.

(f) Agreement between the Company and John J.
D'Alessandro, M.D. dated December 3, 1991 is incorporated by reference to Form
8-K dated December 3, 1991.

(g) Agreement between the Company and Coastal Petroleum
dated December 3, 1991 is incorporated by reference to Form 8-K dated December
3, 1991.

(h) Agreement between Lykes Minerals Corp. and Coastal
Caribbean and Coastal Petroleum dated October 16, 1992 is incorporated by
reference to Form 10-Q dated November 10, 1992.

(i) Settlement Agreement and General Release dated January 8,
1993 by Mobil Oil Corporation, Coastal Petroleum and Coastal Caribbean is
incorporated by reference to Form 8-K dated January 11, 1993.

(j) Amended Complaint of Inverse Condemnation filed February
3, 1993 with the Circuit Court (see (e) above) is incorporated by reference to
Form 10-K filed March 18, 1993.

(k) Final Order by State of Florida dated February 22, 1993
denying Coastal Petroleum Drilling Permit Application is incorporated by
reference to Form 10-K filed March 18, 1993.

(l) Order of Summary Judgment dated September 9, 1993 in
Circuit Court of the Second Judicial Circuit ruling that the State of Florida
has not taken Coastal Petroleum's royalty interest acreage is incorporated by
reference to Form 8-K dated September 9, 1993.

11. Statement re computation of per share earnings.

See Consolidated Financial Statements under Item 8, above.

12. Statement re computation of ratios.

None.

13. Annual report to security holders.

Not applicable.

16. Letter re change in certifying accountant.

Not applicable.

18. Letter re change in accounting principles.

Not applicable.

<PAGE>

20. Previously unfiled documents.

None.

21. Subsidiaries of the Company.

The Company has one subsidiary, Coastal Petroleum Company, a
Florida corporation.

22. Published report regarding matters submitted to vote of
security holders.

Not applicable.

23. Consent of experts and counsel.

Consent of Ernst & Young LLP is filed herewith.

24. Power of Attorney.

Not applicable.

27. Financial Data Schedule.

Filed herein.

28. Information from reports furnished to state insurance
regulatory authorities.

Not applicable.

99. Additional Exhibits.

Not applicable.

(b) Reports on Form 8-K.

None.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

COASTAL CARIBBEAN OILS & MINERALS, LTD.
(Registrant)

By /s/ Benjamin W. Heath
Benjamin W. Heath, President and
Chief Executive Officer

Dated: February 18, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

By /s/ Benjamin W. Heath By /s/ James R. Joyce
Benjamin W. Heath James R. Joyce
President, Director and Chief Executive Treasurer and Chief
Officer Financial and Accounting
Officer

Dated: February 18, 1997 Dated: February 18, 1997
----------------- -----------------

By /s/ Charles T. Collis By /s/ John D. Monroe
Charles T. Collis John D. Monroe
Director Director

Dated: February 18, 1997 Dated: February 18, 1997
----------------- -----------------

By /s/ Phillip W. Ware By /s/ C. Dean Reasoner
Phillip W. Ware C. Dean Reasoner
Director Director

Dated: February 18, 1997 Dated: February 18, 1997
----------------- -----------------

<PAGE>

EXHIBIT 23

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Stock Option plan of Coastal Caribbean Oils & Minerals,
Ltd. of our report dated February 10, 1997, with respect to the consolidated
financial statements of Coastal Caribbean Oils & Minerals, Ltd. in the Annual

Report (Form 10-K) for the year ended December 31, 1996.

ERNST & YOUNG LLP

Hartford, Connecticut
February 14, 1997

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