UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 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.
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(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
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(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. [X] YES [ ] NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
266,040,305 shares Common Stock, $.01 par value were
outstanding on May 15, 1996.
<PAGE>
XCL LTD.
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements............................ 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...16
PART II
Item 1. Legal Proceedings...............................20
Item 4. Submission of Matters to a Vote of Security
Holders.........................................21
Item 6. Exhibits and Reports on Form 8-K................22
<PAGE>
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
March 31 December 31
-------- -----------
Assets 1996 1995
------ ---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 366 $ 1,610
Accounts receivable, net 364 340
Amounts receivable from sale of assets -- 4,151
Subscriptions receivable -- 483
Prepaid expenses 210 205
Assets held for sale 3,030 4,376
------- -------
Total current assets 3,970 11,165
------- -------
Property and equipment:
Oil and gas (full cost method):
Unproved and unevaluated foreign
properties 28,974 27,315
Land, at cost 135 135
Other 3,024 3,017
------- -------
32,133 30,467
Accumulated depreciation, depletion and
amortization (1,902) (1,845)
------- -------
30,231 28,622
------- -------
Investments 5,529 5,369
Assets held for sale 25,072 25,395
Deferred charges and other assets 1,688 1,785
------- -------
Total assets $ 66,490 $ 72,336
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,940 $ 3,884
Royalty and production taxes payable 195 218
Dividends payable 928 928
Current maturities of limited
recourse debt 5,123 5,229
Collateralized credit facility 19,897 25,115
Other current maturities 31 30
------- -------
Total current liabilities 30,114 35,404
------- -------
Long-term debt, net of current maturities 15,634 15,644
Other non-current liabilities 3,491 4,388
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock-$1.00 par value;
authorized 1,200,000 shares; issued
shares of 688,634 at March 31, 1996
and 680,570 at December 31,1995-
liquidation preference of $54.7 million
at March 31, 1996 689 681
Preferred stock subscribed -- 4
Common stock-$.01 par value; authorized
350 million shares; issued shares of
260,960,910 at March 31, 1996 and
256,157,224 at December 31, 1995 2,610 2,561
Common stock held in treasury -
$.01 par value; 2,062,065 shares at
March 31, 1996 and 2,514,238 at
December 31, 1995 (21) (25)
Additional paid-in capital 222,330 220,364
Accumulated deficit (208,357) (206,685)
------- -------
Total shareholders' equity 17,251 16,900
------- -------
Total liabilities and
shareholders' equity $ 66,490 $ 72,336
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
Three Months Ended
March 31
------------------
1996 1995
---- ----
(Unaudited)
Oil and gas revenues $ 576 $ 678
------ ------
Oil and gas operating expenses:
Operating (including marketing) 152 281
Depreciation, depletion and amortization 56 658
Depletion - oil and gas assets held for sale 276 --
General and administrative 1,075 882
Taxes, other than income 74 126
------ ------
1,633 1,947
------ ------
Operating loss (1,057) (1,269)
------ ------
Other income (expense):
Interest expense, net of amounts capitalized (636) (356)
Other, net 52 13
------ ------
(584) (343)
------ ------
Net loss (1,641) (1,612)
Preferred stock dividends (31) --
------ ------
Net loss attributable to common stock $(1,672) $(1,612)
====== ======
Net loss per common and common equivalent share $ (.01) $ (.01)
====== ======
Average number of common and common equivalent
shares outstanding 256,807 234,499
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
March 31
------------------
1996 1995
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss $ (1,641) $ (1,612)
------ -------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 332 658
Change in assets and liabilities:
Accounts receivable 453 1,186
Prepaid expenses (5) 5
Accounts payable and accrued expenses (93) (768)
Royalty and production taxes payable (23) (82)
Other, net 36 518
------ -------
Total adjustments 700 1,517
------ -------
Net cash used in operating activities (941) (95)
------ -------
Cash flows from investing activities:
Capital expenditures (1,123) (4,095)
Investments (160) (759)
Proceeds from sale of assets 5,700 --
Other 24 (517)
------ -------
Net cash provided by (used in)
investing activities 4,441 (5,371)
------ -------
Cash flows from financing activities:
Proceeds from sales of common stock 510 48
Proceeds from sales of treasury stock -- 1,603
Payment for treasury stock (141) --
Proceeds from issuance of preferred stock 282 --
Proceeds from exercise of warrants and options -- 69
Payment of long-term debt (5,352) (181)
Payment of preferred stock dividends -- (250)
Stock issuance costs and other (43) (105)
------ -------
Net cash provided by (used in)
financing activities (4,744) 1,184
------ -------
Net decrease in cash and cash equivalents (1,244) (4,282)
Cash and cash equivalents at beginning of period 1,610 6,751
------ -------
Cash and cash equivalents at end of period $ 366 $ 2,469
====== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(1) General
The consolidated financial statements at March 31,
1996, and for the three 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. 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 March
31, 1996, and December 31, 1995, and the results of their
operations for the three months ended March 31, 1996 and
March 31, 1995, have been included. Certain
reclassifications have been made to prior period financial
statements to conform to current period presentation,
including reclassifying accrued interest on the subordinated
debt to be paid in Common Stock and the reserve for
franchise tax to long-term liabilities. These
reclassifications had no effect on net income or
shareholders' equity. The results of the Company's
operations for such interim periods are not necessarily
indicative of the results for the full year. The year-end
balance sheet data was derived from audited financial
statements, but all disclosures required by generally
accepted accounting principles are not included herein.
(2) Liquidity and Capital Resources
The Company has incurred recurring net losses and
currently has a 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. Management believes that it will
be able to continue to meet its financial obligations and
fund the development of its investments through joint
ventures with partners, continued sales of assets and
continued sales of equity instruments. However, as of May
15, 1996, the Company did not have sufficient commitments in
place to insure that the Company's obligations for 1996
could be satisfied. Included in such obligations are trade
payables of approximately $1.2 million as of May 15, 1996,
of which 43 percent are unpaid in excess of 120 days from
the invoice date. Further, in addition to such trade
payables, as of May 15, 1996, the Company has accrued
liabilities of approximately $2.1 million in dispute with
Apache China Corporation LDC ("Apache") arising from joint
interest billings and cash calls. While the Company
believes that certain of the charges are valid, it does not
have sufficient liquidity to make payment at this time.
Until alternative sources of funds are obtained, sub-
stantial doubt exists regarding the Company's ability to
continue as a going concern. Management is presently
pursuing several financing arrangements, which if consum-
mated, may provide the necessary funds to satisfy its
working capital requirements.
At March 31, 1996, the Company had an operating cash
balance of $366,000 and a working capital deficit of $26.1
million, which includes $5.1 million in limited recourse
debt collateralized only by the Lutcher Moore Tract and
$19.9 million in bank debt, of which $2.6 million has been
repaid through May 15, 1996, from proceeds of property
sales. The bank debt is collateralized by the Company's
domestic oil and gas properties and the stock of certain
subsidiaries. During 1995, the Company's bank agreement was
amended to modify certain covenant requirements through
September 29, 1995. These covenants were subsequently
amended to modify requirements through April 1, 1996, and
again amended through September 30, 1996. Should
improvements in the Company's financial position not occur,
the Company would be in violation of its credit agreement
subsequent to October 1, 1996, giving the bank the right to
accelerate payment of the debt after applicable grace
periods. Further, the borrowing base under this credit
agreement is determined, in part, by the value of the
Company's domestic proved reserves which are applicable to
properties classified in the balance sheet as assets held
for sale. The next borrowing base determination has been
rescheduled for June 30, 1996.
The Company also has $5.1 million of Limited Recourse
debt outstanding which is collateralized by the Lutcher
Moore Tract, of which $2.6 million is due on May 16, 1996.
Payments of principal and interest on the remaining $2.5
million of the Lutcher Moore limited recourse debt are past
due. The Company is negotiating with the holders of these
obligations to defer payments until the Lutcher Moore Tract
can be sold. Should the deferral not be obtained the holders
have recourse only to the property itself, as the Company is
not liable for the debt.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 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. Should the Company be unable to pay this dividend
by June 30, 1996, the holders of Series A Preferred Stock
can 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 Company's cash flow forecast (including scheduled
debt requirements) for 1996 projects that approximately $22
million ($7.5 million which was available or utilized as of
March 31, 1996) of additional working capital will be
required to fund operational and development activities.
Management's plans to obtain the necessary capital include:
o The sale of domestic oil and gas properties. Two
domestic oil and gas properties have been sold through March
31, 1996, providing proceeds of $5.4 million which was used
to repay accrued interest and $5.2 million of principal on
the Company's bank debt. On May 6, 1996, the Company sold a
third lease generating gross proceeds of approximately $3.0
million of which $2.8 million was used to prepay principal
and interest on the Company's bank debt. As a result of
this transaction the Company has satisfied all of its 1996
scheduled principal payments on its bank debt.
o The sale of the Lutcher Moore Tract. The Company is in
ongoing negotiations for the sale of this property. Should
a sale be completed, $5.1 million of the proceeds would be
applied to the limited recourse debt with additional
proceeds used to further prepay bank debt and satisfy
working capital requirements.
o The sale of corporate securities. On March 8, 1996, the
Company sold 34 Units in an offshore transaction with each
Unit priced at $15,000. The Company received approximately
$400,000 of net proceeds, after deduction of offering costs
and expenses. An aggregate of 2,040,000 shares of Common
Stock and Warrants to acquire an additional 2,040,000 shares
of Common Stock were issued at closing. On April 23, 1996,
the Company sold an additional 30 Units of Common Stock and
Warrants at $15,000 per Unit. The Company received
approximately $349,000 of net proceeds, after deduction of
offering costs and expenses. An aggregate of 1,800,000
shares of Common Stock and Warrants to acquire an additional
1,800,000 shares of Common stock were issued at closing.
With the sale of these Units, the Company has issued
essentially all authorized shares of Common Stock not
reserved to fulfill other obligations. Therefore, until
approval is sought and received from the shareholders to
increase the authorized shares of Common Stock, the Company
can only place approximately 5,800 additional shares of
Series E Preferred Stock.
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 The sale or joint venture of its remaining oil and gas
properties. The Company is attempting to sell its remaining
domestic oil and gas properties. If a satisfactory sale
transaction cannot be negotiated, the Company will consider
a contribution of these properties to a joint venture for
further development in exchange for a joint venture
partner's contribution of all required monies for
development costs. The Company's share of revenues from
such a venture would be applied to reduce its bank debt.
With respect to short term requirements to fund the
Company's ongoing general and administrative costs, the
Company believes that working capital will be made available
from certain of its major stockholders or other investors,
should the Company enter into a letter(s) of intent with
potential joint venture participants to provide funds for the
Company's further overhead expenditures and for the capital
requirements of the China projects.
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.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the three month
periods ended March 31, 1996 and 1995. (See Note 7 herein).
Interest and associated capitalized costs for the three
month period ended March 31, 1996 and 1995 totaled $549,000
and $1.0 million, respectively. Interest paid during the
three month periods ended March 31, 1996 and 1995 amounted
to $870,000 and $583,000, respectively.
During the three months ended March 31, 1996, the
Company completed the following noncash transactions:
o As compensation for services performed resulting in
Apache Corp. purchasing an additional interest in the Zhao
Dong Block the Company issued 50,000 shares of Common Stock
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 in connection with the initial closing and
during the second quarter will issue an aggregate 122,880
shares of Common Stock as compensation for the subsequent
closings.
During the three months ended March 31, 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. The
fair market value of these three properties has been reflec-
ted as current assets in the Company's December 31, 1995
consolidated balance sheet.
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 6 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. This property is
being held for sale.
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. As of March 31, 1996, the Company has invested
approximately $1.5 million in the project. Additional
payments totaling $1.8 million are to be made, the first of
which, in the amount of $550,000, is past due.
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 March 31, 1996, the Company has invested
approximately $391,000 in the project.
(5) Debt
Long-term debt at March 31, 1996 consists of the following
(000's):
Current Long-Term
Maturities Portion Total
---------- ---------- -----
Collateralized credit facility $ 19,897 $ -- $19,897
Subordinated debt (due April 5, 2000) -- 15,000 15,000
Building Mortgage 31 634 665
------- ------- ------
Total $ 19,928 $ 15,634 $35,562
======= ======= ======
Lutcher Moore Group
Limited Recourse Debt $ 5,123 $ -- $ 5,123
======= ======= ======
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
expenses include interest accrued at March 31, 1996, of
approximately $234,000.
Lutcher Moore Group Limited Recourse Debt :
- ------------------------------------------
Mortgage and Seller Notes.
- --------------------------
At March 31, 1996, approximately $2.6 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.
The Seller Notes bear interest at 8 percent and have a final
maturity of June 1996. Payments of principal and interest on
the Seller Notes are past due. The Company is negotiating
an extension of the maturity dates of the Mortgage and
Seller Notes however, should the Company be unsuccessful in
negotiating further extension, 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 credit 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. Absent these
modifications, the Company would have been in violation of
several covenants and should improvements in the Company's
financial position not occur, the Company would be in
violation of its credit agreement subsequent to October 1,
1996, giving the bank the right to accelerate payment of the
debt after applicable grace periods. The Company would need
to pursue the sale of other assets, a joint-venture or the
issuance of additional equity securities to fund any such
accelerated payments. Further, the borrowing base under
this credit agreement is determined, in part, by the value
of the Company's domestic proved reserves. The next borrow-
ing base determination, which will be based on reserves
related to oil and gas properties reflected as assets held
for sale, has been rescheduled for June 30, 1996.
(6) Preferred Stock and Common Stock
As of March 31, 1996, the Company had the following
shares of Preferred Stock issued and outstanding:
Liquidation
Shares Value
------- -----------
Series A 599,244 $ 45,743,291 (1)
Series B 44,954 4,495,400
Series E 44,436 4,443,600
- -----------
(1) 50 pounds sterling (U.K.) per share (U.K. 1 pound sterling
= U.S. $1.5267 at March 31, 1996).
Series A Preferred Stock
------------------------
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million pounds sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. Further, the Company's
credit 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.
Should the Company be unable to pay this dividend by June
30, 1996, the holders of Series A Preferred Stock can 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 shares of
Series A Preferred Stock authorized. 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.
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
and the holder has exercised its option to have the Company
sell its shares of Common Stock. The aggregate redemption
price is $5 million, plus accrued dividends from January 1,
1995 to the date of redemption. The Company has registered
5.3 million shares for sale and has reserved additional
shares should the sale of the registered shares not be
sufficient to fulfill the redemption obligation.
Approximately 4,321 shares had been redeemed at December 31,
1995, from the sale of 919,900 shares of Common Stock. An
additional 725 shares have been redeemed during the first
quarter of 1996 from the sale of 700,000 shares of Common
Stock. Proceeds are first allocated to accrued dividends,
with the remainder applied toward redemption of shares of
the Series B Preferred Stock. During the second quarter an
additional 100,000 shares were sold and 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.
(7) Commitments and Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
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 particpate in the develop-
ment 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 accelerate
the development of the Zhao Dong Block, the Com-
pany signed an agreement on May 10, 1995, with
Apache (approved by Chinese authorities on August
10, 1995) pursuant to which Apache became obliga-
ted 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 dilling and
testing costs of a third wildcat well. The
amounts advanced by Apache are recoverable from
revenues generated from Zhao Dong Block produc-
tion. Future expenditures beyond those described
above will be borne 50 percent each by the Com-
pany 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 Produc-
tion period. Work to be performed and expend-
itures 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 process-
ing 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 Contrac-
tor 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. Amounts involved in later months joint
interest billings and cash calls were subsequently
added to the submission. As of May 15, 1996, the
total amount in dispute and claimed by Apache to be
owed by the Company was $2.1 million. 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 $1.8 million
associated with its joint venture contract to enter
the lubricating oil business in China. Additional
payments totaling $1.8 million are to be made, the
first of which, in the amount of $550,000, is past
due.
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 subsi-
diaries, 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 assess-
ments, including penalties and interest, is approx-
imately $2.25 million as of the original due date
excluding extensions for filing of the respective
returns. The Company believes that this contingency
has been adequately provided for in the consoli-
dated 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 settle-
ment 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 pre-
viously 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 director
of the Company, has asserted a claim in the aggre-
gate 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 amend-
ment, 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 The Company may be subject to other legal proceed-
ings 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 federal, state and
local laws and regulations governing environmental
quality and pollution control. Although management
believes that such operations are in general compli-
ance 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.
XCL LTD. AND SUBSIDIARIES
March 31, 1996
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company has incurred recurring net losses and
currently has a 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. Management believes that it will
be able to continue to meet its financial obligations and
fund the development of its investments through joint
ventures with partners, continued sales of assets and
continued sales of equity instruments. However, as of May
15, 1996, the Company did not have sufficient commitments in
place to insure that the Company's obligations for 1996
could be satisfied. Included in such obligations are trade
payables of approximately $1.2 million as of May 15, 1996,
of which 43 percent are unpaid in excess of 120 days from
the invoice date. Further, in addition to such trade
payables, as of May 15, 1996, the Company has accrued
liabilities of approximately $2.1 million in dispute with
Apache China Corporation LDC ("Apache") arising from joint
interest billings and cash calls. While the Company
believes that certain of the charges are valid, it does not
have sufficient liquidity to make payment at this time.
Until alternative sources of funds are obtained, sub-
stantial doubt exists regarding the Company's ability to
continue as a going concern. Management is presently
pursuing several financing arrangements, which if consum-
mated, may provide the necessary funds to satisfy its
working capital requirements.
At March 31, 1996, the Company had an operating cash
balance of $366,000 and a working capital deficit of $26.1
million, which includes $5.1 million in limited recourse
debt collateralized only by the Lutcher Moore Tract and
$19.9 million in bank debt, of which $2.6 million has been
repaid through May 15, 1996, from proceeds of property
sales. The bank debt is collateralized by the Company's
domestic oil and gas properties and the stock of certain
subsidiaries. During 1995, the Company's bank agreement was
amended to modify certain covenant requirements through
September 29, 1995. These covenants were subsequently
amended to modify requirements through April 1, 1996, and
again amended through September 30, 1996. Should
improvements in the Company's financial position not occur,
the Company would be in violation of its credit agreement
subsequent to October 1, 1996, giving the bank the right to
accelerate payment of the debt after applicable grace
periods. Further, the borrowing base under this credit
agreement is determined, in part, by the value of the
Company's domestic proved reserves which are applicable to
properties classified in the balance sheet as assets held
for sale. The next borrowing base determination has been
rescheduled for June 30, 1996.
The Company also has $5.1 million of Limited Recourse
debt outstanding which is collateralized by the Lutcher
Moore Tract, of which $2.6 million is due on May 16, 1996.
Payments of principal and interest on the remaining $2.5
million of the Lutcher Moore limited recourse debt are past
due. The Company is negotiating with the holders of these
obligations to defer payments until the Lutcher Moore Tract
can be sold. Should the deferral not be obtained the holders
have recourse only to the property itself, as the Company is
not liable for the debt.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 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. Should the Company be unable to pay this dividend
by June 30, 1996, the holders of Series A Preferred Stock
can 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 Company's cash flow forecast (including scheduled
debt requirements) for 1996 projects that approximately $22
million ($7.5 million which was available or utilized as of
March 31, 1996) of additional working capital will be
required to fund operational and development activities.
Management's plans to obtain the necessary capital include:
o The sale of domestic oil and gas properties. Two
domestic oil and gas properties have been sold through March
31, 1996, providing proceeds of $5.4 million which was used
to repay accrued interest and $5.2 million of principal on
the Company's bank debt. On May 6, 1996, the Company sold a
third lease generating gross proceeds of approximately $3.0
million of which $2.8 million was used to prepay principal
and interest on the Company's bank debt. As a result of
this transaction the Company has satisfied all of its 1996
scheduled principal payments on its bank debt.
o The sale of the Lutcher Moore Tract. The Company is in
ongoing negotiations for the sale of this property. Should
a sale be completed, $5.1 million of the proceeds would be
applied to the limited recourse debt with additional
proceeds used to further prepay bank debt and satisfy
working capital requirements.
o The sale of corporate securities. On March 8, 1996, the
Company sold 34 Units in an offshore transaction with each
Unit priced at $15,000. The Company received approximately
$400,000 of net proceeds, after deduction of offering costs
and expenses. An aggregate of 2,040,000 shares of Common
Stock and Warrants to acquire an additional 2,040,000 shares
of Common Stock were issued at closing. On April 23, 1996,
the Company sold an additional 30 Units of Common Stock and
Warrants at $15,000 per Unit. The Company received
approximately $349,000 of net proceeds, after deduction of
offering costs and expenses. An aggregate of 1,800,000
shares of Common Stock and Warrants to acquire an additional
1,800,000 shares of Common stock were issued at closing.
With the sale of these Units, the Company has issued
essentially all authorized shares of Common Stock not
reserved to fulfill other obligations. Therefore, until
approval is sought and received from the shareholders to
increase the authorized shares of Common Stock, the Company
can only place approximately 5,800 additional shares of
Series E Preferred Stock.
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 The sale or joint venture of its remaining oil and gas
properties. The Company is attempting to sell its remaining
domestic oil and gas properties. If a satisfactory sale
transaction cannot be negotiated, the Company will consider
a contribution of these properties to a joint venture for
further development in exchange for a joint venture
partner's contribution of all required monies for
development costs. The Company's share of revenues from
such a venture would be applied to reduce its bank debt.
With respect to short term requirements to fund the
Company's ongoing general and administrative costs, the
Company believes that working capital will be made available
from certain of its major stockholders or other investors,
should the Company enter into a letter(s) of intent with
potential joint venture participants to provide funds for the
Company's further overhead expenditures and for the capital
requirements of the China projects.
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.
Other General Considerations
- ----------------------------
The Company believes that inflation has had no material
impact on the Company's sales, revenues or income during the
reporting periods. Drilling costs and costs of other
related services during the relevant periods have remained
stable.
The Company is subject to existing federal, state and
local laws and regulations governing environmental quality
and pollution control. Although management believes that
such operations are in general compliance with applicable
environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and
there can be no assurance that significant costs and
liabilities will not be incurred.
New Accounting Pronouncement
- ----------------------------
In April 1995, the Financial Accounting Standards Board
("FASB") issued Statement No. 121 "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To
Be Disposed Of." This standard describes circumstances
which may result in assets being impaired and provides
criteria for recognition and measurement of asset
impairment. The Company does not believe the implementation
of this statement will have a material impact on the
financial position, results of operations or cash flows of
the Company.
In October 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 establishes a fair value-based method of accounting for
employee stock options. This method provides for compensa-
tion cost to be charged to results of operations at the
grant date. However, the statement allows companies to
continue to follow the accounting treatment prescribed by
Accounting Principles Board Opinion No. 25. Opinion 25
generally requires compensation cost to be recognized only
for the excess of the quoted market price at the grant date
over the price that an employee must pay to acquire the
stock. Companies electing to continue with Opinion 25 must
make disclosure of net income as if SFAS 123 had been
adopted. The Company has not yet determined the method of
accounting that it will follow for stock options. However,
it does not expect that adoption of the requirements of SFAS
123 would have a material impact on the financial position,
results of operations or cash flows of the Company.
Results of Operations
- ---------------------
During the three month periods ended March 31, 1996 and
March 31, 1995, the Company incurred net losses of $1.6
million.
Oil and gas revenues for the three month period ended
March 31, 1996, were $576,000 compared to $678,000 during
the corresponding period in 1995. Revenues will continue to
decline as the Company completes its announced program of
selling substantially all of its U.S. producing properties.
Interest expense increased in the first quarter of 1996 as
compared to the corresponding period in 1995, due primarily
to reduced capitalization of interest costs as the balance
of qualifying assets declined. 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, future
oil and gas revenues will initially be directly related to
the degree of drilling success experienced in 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.
XCL LTD. AND SUBSIDIARIES
March 31, 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 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 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 has
filed answers to each of these suits and intends to defend
them vigorously. The Company believes that it has
meritorious defenses and 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,
wife of an 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.
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 May 15, 1996, the total amount in
dispute and claimed by Apache to be owed by the Company was
$2.1 million. The Company believes that these charges have
been fully provided for in the consolidated financial
statements.
Other than disclosed above, there are no material
pending legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of their properties
are subject.
Item 4. Submission of Matters to a Vote of Security-
Holders
By a Circular dated January 31, 1996, the Company
solicited the written consent of the holders of the
Company's Series A Preferred Stock for approval to an
amendment to the terms thereof, to allow the December 31,
1995, and subsequent semi-annual dividend payments to be
made in additional shares of Series A Preferred Stock. To
provide a sufficient number of shares to make "in kind"
dividend payments, the Board of Directors authorized a
250,000 share increase in the number of shares of preferred
stock designated as Series A Preferred Stock. The consent of
two-thirds of the issued and outstanding shares of Series A
Preferred Stock held of record on December 29, 1995, was
required for approval. A total of 485,662 votes were cast
as follows with respect to the amendment:
Consenting: 485,662
Non-Consenting: --
No matters were submitted to a vote of holders of the
Common Stock during the fourth quarter of the fiscal year
covered by this report.
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(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 July 1, 1994, to purchase 100,000 shares of Common
Stock at an exercise price of $1.50 per share, subject
to adjustment, issued to Joe T. Rye. (F)(vii)
4.25 Form of Warrant Agreement and Stock Purchase Warrant
dated January 31, 1995, to purchase 100,000 shares of
Common Stock at an exercise price of $.75 per share,
subject to adjustment, issued to Energy Advisors, Inc.
(L)(i)
4.26 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995. (N)(ii)
4.27 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November 2,
1995. (N)(iii)
4.28 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 (O)(i)
4.29 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 $.50
March 8, 1996 2,040,000 $.35 (O)(ii)
4.30 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 $.50
March 8, 1996 204,000 $.35 (O)(iii)
4.31 Form of Amendment of Certificate of Designation of
Series A Preferred Stock dated April 11, 1996. (O)(iv)
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. *
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.
(b) Reports on Form 8-K
A current report on Form 8-K was filed on January 8,
1996, to report that it had completed the sale of its
interests in the Mestena Grande Field to Cody Energy, Inc.
A current report on Form 8-K was filed on January 17,
1996, to report that the Company had sold in an unregistered
offering in compliance with Regulation S of the Securities
Act of 1933, as amended, an aggregate of 116 Units, each
Unit comprised of 60,000 shares of Common Stock and a
warrant to purchase 60,000 shares of Common Stock.
A current report on Form 8-K was filed on March 18,
1996, to report that the Company had recorded a $58.8
million fourth quarter noncash write-down for impairment of
domestic oil and gas properties and that the Company had
reached agreement with Tesoro E&P Company, L.P. for the sale
of its interest in the Gonzales Gas Unit located in the Cox
Field.
A current report on Form 8-K was filed on April 1,
1996, to report that the Company had completed the sale of
the Gonzales Gas Unit to Tesoro E&P Company, L.P.
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: May 15, 1996
PURCHASE AND SALE AGREEMENT
---------------------------
This Purchase and Sale Agreement (this "Agreement") is
made and entered into this 22nd day of April, 1996, by and
between XCL -Texas, Inc., whose address is 110 Rue Jean Lafitte,
Lafayette, Louisiana 70308, hereinafter referred to as "Seller",
and Dan A. Hughes Company, whose address is P. 0. Drawer 669,
Beeville, Texas 78104-0669, hereinafter referred to as "Buyer
For and in consideration of the mutual covenants
contained herein, Buyer and Seller do hereby agree as follows;
ARTICLE I
Sale of Interest
----------------
1.01 Seller does hereby agree to sell, assign and
convey to Buyer all of Seller's right, title and interest in and
to the following (herein collectively referred to as
"Interests"):
(a) All of Seller's right, title and interest as
is known to exist this date, which is represented on Exhibit "A-
1", as well as Seller's interest to the oil and gas leases
described on Exhibit "A", attached hereto, it being the intent
and desire and stipulated intent between the parties that Seller
is conveying all right, title and interest of any kind or
character for the consideration herein expressed. Seller shall
deliver to Buyer all the working interest, net revenue interest
and any overriding royalty interest or royalty interest, owned by
Seller as of the date of this agreement, reserving and retaining
no interest of any kind or character other than set forth on
Exhibit "A", and being hereinafter referred to as the "Land".
(b) All of Seller's interest in and to the oil and
gas wells, equipment, personal property, fixtures and
improvements located on the Land as of the Effective Time,
hereinafter defined, appurtenant thereto or directly used or
obtained in connection with the Land or with the production,
treatment, sale or disposal of hydrocarbons or waste produced
therefrom or attributable thereto;
(c) All other leasehold interests owned by Seller
in and to the Land or attributable to production therefrom as of
the Closing Date.
(d) All unitization, farmout agreements,
participation letter agreements, pooling and operating
agreements, and the units created thereby to the extent they
relate to the Land, including any and all units formed under
orders, regulations, rules and other official acts of the
governmental authority having jurisdiction, together with any
right, title and interest of Seller created thereby in the Land.
Any portion of the foregoing described rights and interests may
sometimes hereafter be referred to as an "Interest".
1.02 The Purchase and Sale of the Interests shall be
effective as of the 1st day of May, 1996 at 7:00 a.m. C.S.T.
(herein referred to as "Effective Time").
ARTICLE II
Purchase Price
--------------
2.01 As consideration for the sale of the Interests, Buyer
does hereby agree to pay Seller the sum of Three Million and
Thirty Thousand Dollars ($3,030,000.00) (herein referred to as
the "Purchase Price") of which Ten Thousand Dollars ($10,000)
herein referred to as "Earnest Money") shall be paid to Seller
upon execution of this Agreement. The balance of Three Million
and Twenty Thousand Dollars ($3,020,000.00) shall be paid by
Buyer to Seller at closing, which is to take place on May 6, 1996
at 11:00 a.m. in the offices of Seller.
The Purchase Price shall be adjusted at closing as follows:
The Purchase Price shall be increased by;
(i) All merchantable allowable oil and/or condensate in
storage above the pipeline connections at the
Effective Time shall be valued at the price per barrel
(net of severance tax) received by Seller for the
first sale of production in April, 1996 attributable
to the Interests.
(ii) All expenditures paid by or on behalf of Seller or
accrued in connection with operation of the Interests
from the Effective Time to the Closing Date; and
(iii) All prepaid expenses attributable to the
Interests and paid or incurred by Seller from the
Effective Time to the Closing Date; and
(iv) Any other amount agreed upon by Buyer and Seller;
and shall be reduced by:
(i) all proceeds received or receivable by Seller from
sales of production attributable to the Interests from
the Effective Time to the Closing Date; and
(ii) any other amount provided for herein or agreed
upon by the Buyer and Seller.
2.02 If Buyer fails to perform closing as provided
herein then this Agreement shall terminate and be null and void,
then Seller shall be entitled to retain the Earnest Money, but
shall have no other remedy or recourse at law.
2.03 If Seller fails to perform at Closing as provided
herein then this Agreement shall terminate and be null and void,
then Buyer shall be entitled to an immediate refund of the
Earnest Money and shall have no other remedy or recourse at law.
2.04 The balance of the Purchase Price shall be
tendered to XCL - Texas, Inc., Seller, at time of closing.
2.05 Ownership of all production attributable to the
Interests conveyed to Buyer shall pass as of the Effective Time
and all other attributes of ownership shall pass as of the
Closing Date.
ARTICLE III
Representations and Warranties
------------------------------
3.01 Seller represents and warrants that:
(a) Seller, if a corporation, is validly existing
and in good standing under the laws of the State of
Incorporation, with the corporate power and authority to own
properties and assets and to carry on business as now being
conducted.
(b) Seller has the power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
by Seller and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the
part of the Seller. This Agreement constitutes the valid and
binding obligation of Seller, enforceable against it in
accordance with the terms hereof, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium and similar
laws in effect from time to time, and no other corporate act,
approval or proceeding on the part of Seller or the holders of
any class of capital or any other party is required to authorize
the execution and delivery of this Agreement by Seller or the
consummation of the transactions contemplated hereby.
(c) This Agreement and the execution and delivery
hereof by Seller does not, and the consummation of the
transactions contemplated hereby will not, violate any provision
of or constitute a default (whether with notice or the lapse of
time or both) under the charter or by-laws of Seller or any law
or regulation (excepting any United States federal or state
antitrust law or regulation, as to which no representation or
warranty is made) to which Seller is subject, or any provision of
any indenture, mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgement or decree to which Seller is
a party or by which Seller or any of its assets or properties is
bound, which violation, breach or default would materially
adversely affect the business or financial condition of Seller.
(d) To the best of Seller's knowledge and belief,
Seller has not been advised in writing by any lessor under any
Lease of any default under any Lease which has not been remedied
or waived by Buyer.
(e) To the best of Seller's knowledge and belief,
all royalties, rentals and other payments due under the Leases
have been properly and timely paid, except for those amounts in
suspense, and all conditions necessary to keep the Leases in
force have been duly performed.
(f) To the best of Seller's knowledge and belief,
Seller is not obligated, by virtue of a prepayment arrangement
under any contract for the provision, for a production payment or
for any other arrangement, to deliver hydrocarbons produced from
the Interests at some future time without then or thereafter
receiving hill payment therefor.
(g) The gas production from the properties are
subject to a gas sales contract No. 1133 dated April 12, 1991
between United Texas Transmission Company, Buyer and XCL - Texas,
Inc., et al, as Seller, as amended. Buyer will have negotiated
and entered into a separate Gas Purchase Contract with United
Texas Transmission Company, covering the properties, prior to the
closing date hereunder. All gas production should be put in
balance in the event there is any imbalance between Seller and
any third parties. Any oil or distillate produced from the
premises is freely marketable by Buyer.
(h) To the best of Seller's knowledge and belief,
all tax returns of Seller required by law to be filed concerning
the Leases have been filed and are complete and correct in all
material respects, and all taxes, assessments, fees and other
governmental charges concerning the Leases which have been
assessed against Seller or against the Leases and which have
become due and payable, have been paid.
(i) Seller has not incurred any liability,
contingent or otherwise, for brokers' or finders' fees relating
to the transactions contemplated by this Agreement for which
Buyer shall have any responsibility whatsoever.
(j) To the best of Seller's knowledge and belief,
there are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened, against Seller
or any of its respective properties, assets, operations or
businesses which might materially delay, prevent or hinder the
consummation of the transactions contemplated hereby or
materially adversely affect the title to or value of any of the
Interests.
(k) To the best of Seller's knowledge and belief,
Seller has not failed to comply with any laws, regulations or
orders of governmental agencies having jurisdiction over the
interests, which failure would materially adversely affect any of
the Interests.
(l) To the best of Seller's knowledge and belief,
there are no bankruptcy, reorganization, or arrangement
proceedings pending, being contemplated by or threatened against
Seller.
(m) To the best of Seller's knowledge and belief,
Seller is not aware of any violations, whether alleged or
acknowledged, of any applicable regulations, rules or orders
promulgated by the Federal Energy Regulatory Commission, the
Department of Energy, or any other federal or state agency, or
any of their predecessor agencies, which materially affect the
value of the Interests or the production therefrom.
3.02 THIS AGREEMENT IS EXECUTED WITHOUT ANY EXPRESS OR
IMPLIED WARRANTY OR REPRESENTATION AS TO THE MERCHANTABILITY OF
ANY KIND WHATSOEVER WITH RESPECT TO THE QUANTITY, QUALITY,
CONDITION, SIZE, WEIGHT, SERVICEABILITY OR ANY OTHER ASPECT OF
THE WELLS, WELLBORES, FIXTURES, EQUIPMENT OR PERSONAL PROPERTY,
WHICH SHALL BE CONVEYED TO BUYER AS IS, WHERE IS, AND WITH ALL
FAULTS AND DEFECTS. SELLER SPECIFICALLY DISCLAIMS, WITHOUT
LIMITATION, ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
3.03 Buyer represents and warrants to Seller that:
(a) Buyer is a knowledgeable purchaser, owner and
operator of oil and gas properties, has the ability to evaluate
(and in fact has evaluated) the Interests for purchase, and is
acquiring the Interests for its own account and not with the
intent to make a distribution within the meaning of the
Securities Act of 1933, as amended, and the rules and regulations
thereto, or a distribution thereof in violation of any other
applicable securities laws.
(b) This Agreement and the execution and delivery
hereby buy Buyer does not and the consummation of the
transactions contemplated hereby will not, violate any provision
of or constitute a default (whether with notice or the lapse of
time or both) under the charter or by-laws of Buyer, or any law
or regulation (excepting any United States federal or state
antitrust law or regulation as to which no representation or
warranty is made) for which Buyer or any of its subsidiaries or
any of their assets or properties is bound, which violation,
breach or default would materially adversely affect the business
or financial condition of Buyer or its subsidiaries taken as a
whole.
(c) To the best of Buyer's knowledge and belief,
there are no actions, suits, proceedings or governmental
investigations or inquiries pending, or threatened, against Buyer
or any of its subsidiaries or their respective properties,
assets, operations or businesses which might materially delay,
prevent or hinder the consummation of the transactions
contemplated hereby or which might result in any material adverse
change in the financial ability of Buyer to consummate the
transactions contemplated hereby.
(d) Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the
transactions contemplated by this Agreement for which Seller
shall have any responsibility whatsoever.
ARTICLE IV
Covenants
---------
4.01 Seller covenants and agrees with Buyer that:
(a) Seller will provide to Buyer for examination
and possession at time of closing, all lease and land files,
title opinions, legal files, gas purchase contract files,
division order files, accounting files, well files, production
files, seismic data and information (original film), all electric
logs, mud logs, production logs, all maps and cross sections,
operating reports and any and all contracts, geological and
geophysical reports, as well as any and all well information
which will be provided to Buyer by Seller at closing. Buyer shall
be entitled to all original records and files pertaining to the
properties herein conveyed.
(b) During the period from the date of this
Agreement to the Effective Time, without the prior written
consent of Buyer, Seller will not convey or dispose of any part
of the Interests (other than Interests set forth in subsection
(c) below, and personal property and equipment and oil, gas and
other liquid products produced form the Interests in the regular
course of business). After the Closing Date, Seller will not
convey or dispose of any part of the Interests including oil, gas
or other liquid products produced from the Interests. Buyer shall
have the hill power and right to sell and market the oil and/or
gas produced from the Interests from and after the Closing Date
and Seller shall not sell or market any oil and/or gas produced
from the Interests from and after the Closing Date.
(c) Prior to the Closing Date, Seller shall use
reasonable efforts to cause the Interests to be maintained and
operated in a good and workmanlike manner, shall maintain any
insurance now in force with respect to the Interests, shall pay
or cause to be paid all costs and expenses incurred in connection
therewith, shall keep the Leases in full force and effect,
excepting those Leases which expire according to their terms, and
shall use its best efforts to perform and comply with the
covenants and conditions contained in the Leases and agreements
relating to the Interests. As of the Closing Date, Seller will
surrender to Buyer control of all operations of the Interests at
which time Seller and Buyer will execute Change of Operator (RRC
Form PA) for the wells being sold and Buyer will assume liability
for plugging of said wells. Seller shall give its contract
operator ninety (90) days notice of its intent to terminate
contract operations relative to the XCL - Texas, Inc. - J. Lopez
#3 Well. Buyer will provide the Texas Railroad Commission all
bonds and sureties necessary to act as Operator.
(d) Prior to the Closing Date, Seller shall carry
on the business with respect to the Interests in substantially
the same manner as Seller has heretofore, and shall not introduce
any new method of operation or accounting with respect to the
Interests.
(e) Without the prior written consent of Buyer,
Seller shall not enter into any new agreements or commitments
with respect to the Interests which extend beyond the Closing
Date, shall not make any capital expenditures on any of the
Interests in excess of amounts permitted to be expended in
applicable joint operating agreements without authorities for
expenditure, shall not abandon any well located on the interests
or release or abandon all or any portion of any of the Leases,
shall not modify or terminate any of the agreements relating to
the Interests and shall not encumber, sell or otherwise dispose
of any of the Interests other than personal property which is
replaced by equivalent property or consumed in the normal
operation of the Interests.
(f) Seller shall promptly notify Buyer of any
suit, action or other proceeding before any court or governmental
agency and any cause of action which relate to the Interests or
which might result in impairment or loss of Seller's title to any
of the Interests or of the value thereof or which might hinder or
impede the operation of the Leases, arising or threatened prior
to the Closing, of which Seller has knowledge.
(g) Seller shall exercise its customary diligence
in safeguarding and maintaining secure all engineering,
geological and geophysical data, reports and maps, and all other
confidential data in its possession directly relating to the
Interests and to be transferred to the Buyer hereunder.
(h) All laws, regulations and orders of all
governmental agencies having jurisdiction over the Interests
shall, in all material respects, be complied with by Seller until
the Closing.
(i) Seller shall use reasonable efforts to cause
all the representations and warranties of Seller contained in
this Agreement to be true and correct on and as of the Closing
Date and, to the extent the conditions precedent to the
obligations of Buyer are within the control of Seller, Seller
shall use reasonable efforts to cause such conditions to be
satisfied on or prior to the Closing Date.
4.02 Buyer severally covenants and agrees with Seller
that:
(a) Buyer shall use reasonable efforts to cause
all the representations and warranties of Buyer contained in this
Agreement to be true and correct on and as of the Closing Date
and, to the extent the conditions precedent to the obligations of
Seller are within the control of Buyer, shall cause such
conditions to be satisfied on or prior to the Closing Date.
(b) Buyer shall promptly make all regulatory
filings to be made by a purchaser.
ARTICLE V
Title to Interests
------------------
5.01 At any time before Closing, Buyer may notify Seller
in writing of any of the Interests by title defects. "Title
Defects" shall mean any material encumbrance, lien, irregularity
or defect in Seller's title to any of the Interests that renders
such title not marketable to a reasonably prudent purchaser.
Seller may, at its option, elect to cure such Title Defects at
its own expense. If such Title Defects have not been cured to
Buyer's satisfaction by Closing, the following shall occur:
(a) Buyer may nevertheless elect in writing to
waive such Title Defects and proceed to close; or
(b) In the case of interests discrepancies, (i.e.
a lease that covers less interests than represented or Seller
owns less interest in a lease than represented) which can be
substantiated, the Purchase Price shall be adjusted by an amount
to be agreed upon between Buyer and Seller; or
(c) In the case of the Title Defects, other than
interest discrepancies which Seller has elected not to cure or
has been unable to cure to Buyer's satisfaction, the Interests so
impaired may be excluded from this Agreement and the Purchase
Price shall be reduced by an amount to be agreed upon by Buyer
and Seller.
(d) In the case of material Title Defects which
Seller has elected not to cure or has been unable to cure to
Buyer's satisfaction, Buyer may, upon written notice to Seller,
cancel this Agreement and Seller shall return to Buyer the
Earnest Money paid by Buyer prior to the Closing, and this
Agreement shall be of no further force and effect and neither
Seller nor Buyer shall have further recourse or remedy. A
material Title Defect shall be any defect in title which reduces
the quantity of interest to be conveyed from Seller to Buyer
greater than ten percent (10%) of the Interests shown on Exhibit
"A-1" attached hereto.
5.02 Title Defects discovered after the Closing Date
shall not cause an adjustment to Purchase Price and shall not be
actionable. The Purchase Price shall not be adjusted for any of
the following permitted encumbrances which shall not be
considered Title Defects:
(a) Preferential rights to purchase and required
third part consents to assignments and similar agreements with
respect to which waivers or consents are obtained from the
appropriate parties or the appropriate time period for asserting
the rights has expired without an exercise of the rights;
(b) Materialman's, mechanic's, repairman's,
employee's, contractor's, operator's, tax and other similar liens
or charges arising in the ordinary course of business (i) if they
have not been filed pursuant to law, (ii) if filed, they have not
yet become due and payable or payment is being withheld as
provided by law, or (iii) if their validity is being contested in
good faith by appropriate action;
(c) All rights to consent by, required notices to,
filings with, or other actions by governmental entities in
connection with the sale or conveyance of oil and gas leases or
interests therein if they are customarily obtained subsequent to
the sale or conveyance;
(d) Easements, rights-of-way, servitudes, permits,
surface leases and other rights in respect of surface operations;
and
(e) All rights reserved to or vested in any
governmental, statutory or public authority to control or
regulate any of the Interests in any manner, and all applicable
laws, rules and orders of governmental authority.
(f) The agreements listed on Exhibit "A-2".
ARTICLE VI
Conditions to Closing
---------------------
6.01 The obligations of Seller to consummate the
transaction contemplated by this Agreement are subject, at the
option of Seller, to the satisfaction or waiver of the condition
that all representations and warranties of Buyer contained in
this Agreement shall be true in all material respects at and as
of the Closing as if such representations and warranties were
made at and as of Closing, and Buyer shall have performed and
satisfied all covenants and agreements required by this Agreement
to be performed and satisfied by Buyer at or prior to the
Closing. The obligations of Buyer to consummate the transaction
contemplated by this Agreement are subject, at the option of
Buyer, to the satisfaction or waiver of the condition that all
representations and warranties of Seller contained in this
Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at
and as of the Closing, and Seller shall have performed and
satisfied all covenants and agreements required by this Agreement
to be performed and satisfied by Seller at or prior to Closing.
6.02 The obligations of each party to consummate the
transactions contemplated by this Agreement are subject, at the
option of such party, to the satisfaction or waiver by such party
of the following conditions:
(a) All necessary consents, permissions, notations and
approvals by third parties or governmental authorities (except
consents, permissions and approvals of governmental authorities
customarily obtained subsequent to transfer) in connection with
the sale and transfer by Seller and purchase by Buyer of the
Interests and in connection with the transfer by Seller of all
permits and licenses necessary or appropriate for the operation
of the Interests, shall have been obtained, waived by the party
adversely affected or the period for exercise shall have expired,
and all necessary regulatory filings shall have been made.
(b) At the Closing, there shall not be pending or
instituted, threatened or proposed, any action or proceeding by
or before any court or administrative agency or any other person
challenging or complaining of, or seeking to collect damages or
other relief in connection with the transactions contemplated by
this Agreement.
(c) At the Closing, no state or federal statute, rule,
regulation or action shall exist or shall have been adopted or
taken and no judicial or administrative decision shall have been
entered (whether on a preliminary or final basis, which would
prohibit, restrict or delay the consummation of the transactions
contemplated by this Agreement or make illegal the payments due
hereunder.
ARTICLE VII
Closing
-------
7.01 The consummation of the transactions contemplated
hereby (the "Closing") shall be held at the offices of XCL -
Texas, Inc., 110 Rue Jean Lafitte, Lafayette, Louisiana 70508, at
11:00 a.m. on May 6, 1996.
7.02 At the Closing:
(a) Seller shall execute, acknowledge, and deliver
to Buyer an Assignment, Bill of Sale and Agreement in form
substantially the same as set forth in Exhibit "B". hereto
conveying the Interests to Buyer.
(b) Seller and Buyer shall execute and deliver a
Settlement Statement prepared by Seller that shall set forth the
Closing Amount and each adjustment and the calculation of such
adjustments used to determine such amount. The term Closing
Amount shall mean the Purchase Price adjusted as provided in
Article V, using for such adjustment the best information then
available.
(c) Buyer shall deliver to Seller by wire transfer
in the amount of Three Million and Twenty Thousand Dollars
($3,020,000.00) to Seller.
(d) Seller shall deliver to Buyer original lease
and land files, title opinions, legal files, gas purchase
contract files, division order files, accounting files, well
files, production files, seismic data and information (original
film), (to the extent that Seller is contractually able to do
so), all electric logs, mud logs, production logs, all maps and
cross sections, operating reports and any and all contracts,
geological and geophysical reports, as well as any and all well
information pertaining to the Leases and wells conveyed. Seller
makes no warranty as to the correctness or accuracy of the
materials contained with the files furnished hereunder.
(e) Seller and Buyer shall execute, acknowledge
and deliver transfer orders or letters in lieu, prepared by
Buyer, directing all purchasers of production to make payment to
Buyer of proceeds attributable to production from the Interests
conveyed.
(f) Seller and Buyer shall execute PA Forms ,
Change of Operator, with the State of Texas and such other
documents as are necessary to effectuate the transfer to Buyer on
May 1, 1996.
ARTICLE VIII
Obligations After The Closing
8.01 Within ninety (90) days after the Closing, the
parties shall undertake to agree with respect to the adjustments
or payments that were not finally determined as of the Closing,
and the amount due from Buyer or Seller, as the case may be,
pursuant to such post-closing adjustment.
8.02 Buyer shall pay all taxes occasioned by the sale
of the Interests and all documentary, filing and recording fees
required in connection with the filing and recording of any
assignments.
8.03 Promptly After the Closing.
(a) Buyer shall:
(i) immediately record and file all
counterparts of the Assignment and Bill of
Sale and provide Seller with proof thereof;
(ii) erect or install such lease and well
signs as may be required by applicable
regulations, indicating that Buyer is owner
of the Interests; and
(b) Seller shall:
(i) remove all lease and well signs
indicating Seller's ownership; and
(ii) advise applicable state and federal
agencies of this sale.
8.04 After Closing, Seller and Buyer shall execute,
acknowledge and deliver such instruments and take such other
action as may be necessary or advisable to carry out their
obligations under this Agreement.
8.05 The representations, warranties, covenants and
agreements included in this Agreement or in any exhibit,
document, certificate, or other instrument delivered pursuant
hereto (except the Exhibit "B" Assignment, Bill of Sale and
Agreement) shall survive the Closing for a period of six (6)
months. The provisions of Article VIII, Article IX, and the
Assignment, Bill of Sale and Conveyance provided for hereunder,
as well as all indemnities included or provided in this
Agreement, shall survive Closing for so long as permitted by law.
The provisions of Article 11.07 shall survive the Closing for a
period of twelve (12) months.
ARTICLE IX
Indemnities
-----------
9.01 Buyer expressly agrees to fully protect, defend,
indemnify and hold harmless Seller, its employees, officers, and
agents, successors and assigns from and against each and every
claim, demand, action, cause of action, or lawsuit, and any
liability, cost, expense, damage, or loss, including court costs
and attorneys' fees, and including claims based upon theories of
negligence (collectively, referred to as "Claim") arising from or
relating to' wholly or in part, the operation or ownership of
Interests on or after the Closing Date, as well as any Claim
excluded from Seller's indemnity obligation.
9.02 Seller expressly agrees, to fully protect, defend,
indemnify and hold harmless Buyer, their employees and agents,
successors and assigns from and against each and every Claim
solely arising from or relating to the operation or ownership of
the Interests prior to the Closing Date; provided however,
Seller's indemnity obligation shall not apply to:
(a) Any Claim of which Buyer has knowledge or
notice on or prior to the Closing Date; or
(b) Any claim of the type which may be encountered
in spite of the conduct of Operations consistent with normal oil
field practices (e.g. Claims relating to surface reclamation,
well plugging, asbestos, naturally occurring radioactive
materials, ordinary wear and tear, etc.).
ARTICLE X
Seismic Consent and Approval
----------------------------
10.01 Seller agrees to grant to Buyer as to its right,
title and interest, a non-exclusive permit, in order that Buyer
may conduct 3-D seismic surveys under all the leases in the South
Berry R. Cox Field, as well as other interests that Seller may
have in the vicinity thereof.
ARTICLE XI
Miscellaneous
-------------
11.01 This Agreement supersedes all prior agreements
between the parties (written or oral) with regard to the subject
matter hereof. This instrument contains the entire agreement
between the parties and may be supplemented, altered, amended,
modified or revoked by writing only, signed by both parties.
11.02 All of the Exhibits referred to in this Agreement
are hereby incorporated by reference.
11.03 Buyer may not assign all or any portion of its
rights or delegate all or any portion of its duties hereunder
unless Buyer obtains the prior written consent of Seller, which
consent shall not be unreasonably withheld. Except as otherwise
provided herein, this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and
assigns.
11.04 THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY,
THE LAWS OF THE STATE OF TEXAS.
11.05 All notices and communications required or
permitted under this Agreement, including address changes, shall
be in writing and communication or delivery hereunder shall be
deemed to have been duly made if actually delivered, transmitted
by telecopier or if mailed by registered or certified mail,
postage prepaid, addressed as follows:
If to Seller: If to Buyer:
Dan A. Hughes Company XCL - Texas, Inc.
Attention: Ronald P. Stasny Attn.: David Melman
P. 0. Drawer 669 110 Rue Jean Lafitte
Beeville, Texas 78104-0669 Lafayette, Louisiana 70508
(512) 358-3752 - phone (318) 237-0325 - phone
(512) 362-2839 - fax (318) 237-3316 - fax
11.06 For one (1) year after the Closing, Seller agrees
to execute, acknowledge and deliver to Buyer any additional
instruments, notices, division orders and other documents which
may be necessary to more fully and effectively assign and convey
to Buyer the subject Interests.
11.07 The terms and conditions of this Agreement are
deemed privileged and confidential and neither party hereto shall
disclose the terms hereof without the prior written consent of
the other, except as required to meet corporate disclosure
obligations.
11.08 This Agreement may be executed in multiple
counterparts, each of which shall be an original, and all of
which, when considered together, shall constitute one and the
same instrument.
Executed as of the date first above mentioned.
BUYER: DAN A. HUGHES COMPANY
/s/ Dan A. Hughes
----------------------------
BY: Dan A. Hughes, President
SELLER: XCL - TEXAS, INC.
/s/ David A. Melman
-----------------------------
BY: David Melman, Vice President
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common
Equivalent Share
(Amounts in thousands except, per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
1996 1995
---- -----
PRIMARY:
<C> <S> <S>
Net loss $ (1,641) $ (1,612)
Dividends on preferred stock (31) -
------- --------
Net loss attributable to common stock $ (1,672) $ (1,612)
======= ========
Weighted average number of shares common
stock outstanding 256,807 234,499
Common stock equivalents (computed using treasury
stock method) - -
------- -------
Average number of shares of common stock and common
stock equivalents outstanding 256,807 234,499
======= =======
Net loss per common and common equivalent share $ (.01) $ (.01)
======= =======
FULLY DILUTED:
Fully diluted net loss per common and common
equivalent share (1) (1)
- ------------
(1) All amounts are anti-dilutive or immaterial and
therefore not presented in the financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of XCL Ltd. and Subsidiaries for the three
month period ended March 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 366
<SECURITIES> 0
<RECEIVABLES> 467
<ALLOWANCES> 103
<INVENTORY> 0
<CURRENT-ASSETS> 3,970
<PP&E> 28,974
<DEPRECIATION> 1,902
<TOTAL-ASSETS> 66,490
<CURRENT-LIABILITIES> 30,114
<BONDS> 0
0
689
<COMMON> 2,610
<OTHER-SE> 13,952
<TOTAL-LIABILITY-AND-EQUITY> 66,490
<SALES> 576
<TOTAL-REVENUES> 576
<CGS> 1,633
<TOTAL-COSTS> 1,633
<OTHER-EXPENSES> (52)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 636
<INCOME-PRETAX> (1,641)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,641)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
GLOSSARY OF TERMS
The following is a glossary of commonly used terms in the
oil and gas industry which is being provided for ease of
reference and convenience purposes only.
"area of mutual interest" or "AMI" - An agreement by which
parties attempt to describe a geographical area within which
they agree to share certain existing and additional leases
acquired by any of them in the future.
"APO/BPO" - After payout/before payout.
"Btu/MMBtu" - British Thermal Units, a measure of the
heating value of fuel. MMBtu stands for one million Btu.
"Bbls/MBbls" - A Bbl. or barrel is 42 U.S. gallons of crude
oil or condensate measured at 60 degrees Fahrenheit. MBbls
stands for one thousand Bbls.
"carried interest" - A fractional working interest in an oil
and gas lease, the holder of which is carried and has no
liability for a portion or all of the attirubtable
development and operating costs. The person advancing the
costs is the carrying party; the other is the carried party.
"casing point" - The time when the operator recommends that
a completion attempt be made, or when the well is plugged
and abandoned without a completion attempt being made.
"choke/choke size" - A pipe section having an orifice for
restricting and controlling the flow of oil and gas. Choke
size is the orifice diameter and is commonly expressed in
64ths of an inch.
"continuous drilling" - A lease clause providing that
drilling of another well be commenced within a specified
time after completion of the preceding well. As a general
rule, if this is not done, all undeveloped acreage must be
released.
"development" - The drilling of a well within the productive
area of an oil or gas reservoir, as indicated by reasonable
interpretation of available data, with the object of
completing the well in that reservoir.
"exploration" - Operations conducted in search of
undiscovered oil, gas and/or condensate.
"farmout/farmin" - An agreement providing for assignment of
a lease. A typical characteristic of a farmout is the
obligation of the assignee to conduct drilling operations on
the assigned acreage as a pre-requisite to completion of the
assignment. The assignor will usually reserve some type of
interest in the lease. The transaction is characterized as
a farmout to the assignor and farmin to the assignee.
"field" - An area within a lease or leases where production
of oil, gas and/or condensate has been established and which
has been so designated by the appropriate regulatory
authority.
"gathering facilities" - Pipelines and other facilities
used to collect gas from various wells and bring it by
separate and individual lines to a central point where it is
delivered into a single line.
"gathering gas" - The first taking or the first retaining of
possession of gas for transmission through a pipeline, after
the severance of such gas, and after the passage of such gas
through any separator, drip, trap or meter that may be
located at or near the well. In the case of gas containing
gasoline or liquid hydrocarbons that are removed or
extracted in commercial quantities at a plant by scrubbing,
absorption, compression, or any similar process, the term
means the first taking or the first retaining of possession
of such gas for transmission through a pipeline after such
gas has passed through the outlet of such plant. The act of
collecting gas after it has been brought from the earth.
"gathering line" - Pipes used to transport oil or gas from
the lease to the main pipeline in the area. In the case of
oil, the lines run from the lease tanks to a central pump
station at the beginning of the main pipeline. In the case
of gas, the flow is continuous from the well head to the
ultimate consumer, since gas cannot be stored. Gathering
lines collect gas under fluctuating pressures which are then
regulated by regulating stations before the gas is
introduced into trunk or transmission lines.
"gathering system" - The gathering lines, pumps, auxiliary
tanks (in the case of oil), and other equipment used to move
oil or gas from the well site to the main pipeline for
eventual delivery to the refinery or consumer, as the case
may be. In the case of gas, the gathering system includes
the processing plant (if any) in which the gas is prepared
for the market.
"gross/net" - The term "gross" is used when reference is
made, for example, to the total acreage of a lease. The
term "net" is used when reference is made to the working
interest or net revenue interest in a lease of one
particular leaseholder. The same term may be applied to a
leaseholder's interest in reserves and/or production from a
lease.
"held by production" or "HBP" - A provision in a lease to
the effect that such lease will be kept in force as long as
there is production from the lease in paying quantities.
"lease bonus" - A cash payment by the lessee for the
execution of an oil and gas lease by the mineral owner.
"lease" or "leasehold" - An interest for a specified term in
property allowing for the exploration for and production of
oil, gas and/or condensate.
"log" - A record of the formations penetrated by a well,
from which their depth, thickness, rock properties and (if
possible) contents may be obtained.
"Mcf/MMcf/Bcf" - Mcf stands for one thousand cubic feet of
gas, measured at 60 degrees Fahrenheit and at atmospheric
pressure of 14.7 pounds per square inch. MMcf stands for one
million cubic feet of gas. Bcf stands for one million Mcf.
"net revenue interest" or "NRI" - The share of revenues to
which the holder of a working interest is entitled upon
fulfilling the obligations, after deduction of all
royalties, overriding royalties or similar burdens,
attributable to his working interest.
"operator" - The person or company having the operational
management responsibility for the drilling of or production
from any oil, gas and/or condensate well.
"overriding royalty" - A form of royalty, entitling the
holder to receive a percentage of oil, gas and/or condensate
produced from the wells on a specified lease, or the
revenues arising from the sale thereof, free of all expenses
arising therefrom, save for production taxes. Generally, the
rights accruing to working interest holders are subject to
the rights of overriding royalty holders and any rights of
overriding royalty holders terminate upon cancellation or
reversion of the underlying lease.
"pay" - The geological deposit in which oil, gas and/or
condensate is found in commercial quantities.
"payout" - Generally, that point in time, determined by
agreement, when a person has recouped his investment in the
drilling, development, equipping and operating of a well or
wells.
"permeability" - A measure of the resistance offered by rock
to the movement of fluids through it.
"porosity" - The volume of the pore spaces between mineral
grains as compared to the total rock volume. Porosity is a
measure of the capacity of rock to hold oil, gas and water.
"probable reserves" - The estimated quantities of
commercially recoverable hydrocarbons associated with known
accumulations, which are based on engineering and geological
data similar to those used in the estimates of proved
reserves but, for various reasons, these data lack the
certainty required to classify the reserves as proved. In
some cases, economic or regulatory uncertainties may dictate
the probable classification. Probable reserves are less
certain to be recovered than proved reserves.
"prospect" - One lease comprising, or several leases which
together comprise, a geographical area believed to contain
commercial quantities of oil, gas and/or condensate.
"prospective" - A geographical area or structure believed to
contain commercial quantities of oil, gas and/or condensate.
"proved reserves" - Estimated quantities of crude oil,
condensate, natural gas, and natural gas liquids that
geological and engineering data demonstrate with reasonable
certainty to be commercially recoverable in the future from
known reservoirs under existing conditions using established
operating procedures and under current governmental
regulations.
"psig" - Pounds per square inch, gauge.
"rental payment" - A sum of money payable to the lessor by
the lessee for the privilege of deferring the commencement
of drilling operations or the commencement of production
during the primary term of the lease.
"reserves" - The estimated value of oil, gas and/or
condensate which is economically recoverable. Reserves may
be categorized as proved or probable.
"reservoir" - A porous, permeable, sedimentary rock
containing commercial quantities of oil, gas and/or
condensate.
"salt dome" - A mass or plug of salt which has pushed or
domed up sedimentary beds around it; this type structure is
favorable to oil and gas accumulation.
"sand" - A sedimentary rock consisting mostly of sand
grains.
"shut-in royalty" - A payment made when a gas well, capable
of producing in paying quantities, is shut-in for lack of a
market for the gas.
"structure" - A configuration of subsurface rock formations
considered, on the basis of geological or geographical
interpretation, to be capable of containing a reservoir.
"target depth" - The primary geological formation or depth
identified in an agreement applicable to the relevant well
or wells.
"test well" - An exploratory well.
"tight formation" - A zone of relatively low permeability
and thus low well productivity. Wells in such zones usually
require fracturing or other stimulation. Typically, the
productive capacity of a new well completed in a tight zone
declines rapidly for several months or longer after
completion.
"working interest" or "WI" - An interest in a lease carrying
the obligation to bear a proportion of drilling and
operating costs and the right to receive a proportion of the
production or gross revenues attributable thereto.
"workover" - Remedial operations on a well with the
intention of restoring or increasing production.
