_________________________________________________________________
Securities and Exchange Commission
Washington, DC 20549
___________________________
FORM 10-K/A No. 2
___________________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to
__________________
Commission file number 1-10669
_____________________________
XCL Ltd.
(Exact name of registrant as specified in its charter)
_____________________________
Delaware 51-0305643
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 Rue Jean Lafitte, 2nd Floor
Lafayette, Louisiana 70508
(Address of principal executive offices) (Zip Code)
_____________________________
(Registrant's telephone number, including area code) 318-237-0325
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value American Stock Exchange
Title of each class Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by
nonaffiliates of the registrant on April 13, 1998, was
approximately $92.8 million.
22,341,636 shares Common Stock, $.01 par value were
outstanding on April 13, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
None
_________________________________________________________________
PART I
This Annual Report includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All statements other than statements of historical facts included
in this Annual Report, including, without limitation, those
regarding the Company's financial position, business strategy,
budgets, reserve estimates, development and exploitation
opportunities and projects, behind-pipe zones, classification of
reserves, projected financial, operating and reserve data and
plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed in "Certain
Risk Factors Relating to the Company and the Oil and Gas
Industry," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Annual
Report including, without limitation, in conjunction with the
forward-looking statements included in this Annual Report. All
subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on behalf of the
Company, are expressly qualified in their entirety by the
Cautionary Statements.
Item 1. and Item 2. Business and Properties .
See the Glossary of Terms attached hereto for definitions of
certain commonly used industry terms. The Company operates
through several wholly owned subsidiaries. Accordingly, all
references herein to the Company or XCL include such
subsidiaries.
General
- -------
XCL Ltd. (together with its consolidated subsidiaries, the
"Company" or "XCL") is engaged principally in the exploration for
and the development and production of crude oil and natural gas.
Its exploration and development efforts are, at this time,
focused primarily on the Zhao Dong Block in the shallow-water sea
area of Bohai Bay in The People's Republic of China ("China").
XCL's activities on the Zhao Dong Block have been undertaken
pursuant to an exploration and production joint venture with
China National Oil and Gas Exploration and Development
Corporation, a Chinese governmental agency ("CNODC") effective
May 1, 1993. In March 1994, the Company farmed out a one-third
interest in the Foreign Contractor's (as defined) interest,
subsequently increased to 50%, to Apache Corporation ("Apache").
See "The Zhao Dong Block" commencing at page 4 for a description
in greater detail of the Company's business and its interest in
the Zhao Dong Block. Based on the initial success of its first
project in China, the Company's growth strategy is to expand its
participation in the Chinese energy industry by continuing to
explore and develop the Zhao Dong Block and by selectively
entering into additional energy related joint ventures. This
strategy is the result of the Company's opinion that China (i)
has extensive undeveloped energy resources, (ii) is experiencing
and will continue for the foreseeable future to experience high
growth in demand for energy and (iii) has a policy of encouraging
foreign participation in the development of its energy resources.
The Company believes, as evidenced by its own experience in
China, that Chinese policy offers opportunity for participation
by independent oil and gas companies in the development of the
Chinese energy business. Additionally, the Company believes,
because of its early success in China, that it has an excellent
relationship with the Chinese authorities in charge of the
development of China's energy resources and that the Company can,
therefore, be competitive in China.
In furtherance of the Company's objective of expanding its
involvement in the Chinese energy business and developing its
relationships with the Chinese authorities responsible for the
development of China's energy resources, on July 17, 1995, the
Company signed a contract with CNPC United Lube Oil Corporation
to engage in the manufacturing, distribution and marketing of
lubricating oil in China and in southeast Asian markets. See
"United/XCL Lube Oil Joint Venture" on page 11. The Company's
required capital contribution to the joint venture has been made
and the Company is not obligated to expend further amounts.
However, the Company believes, based on CNPC's plans for and
strong support of the lubrication oil joint venture, that the
joint venture business will grow and that the Company will make
additional investments in the joint venture. Also, on December
14, 1995, the Company signed a Memorandum of Understanding with
the China National Administration of Coal Geology ("CNACG"),
pursuant to which the parties began cooperative exploration and
development of coalbed methane in two areas in China. See
"Coalbed Methane Project" on page 11. The venture is not
currently active.
Before 1993, the Company operated primarily onshore in the
Gulf Coast area of the United States. Since it decided in late
1995 to focus on operations in China, the Company has sold or is
in the process of selling its other assets. XCL Ltd., formerly
The Exploration Company of Louisiana, Inc., was incorporated in
Delaware in 1987. It is the successor to a Louisiana corporation
of the same name which was incorporated in 1981.
The Zhao Dong Block
- -------------------
Geology
-------
The Zhao Dong Block extends from the shoreline of the Dagang
oil field complex on Bohai Bay to water depths of approximately 5
meters. It encompasses approximately 197 square kilometers
(roughly 50,000 gross acres). The Company believes that a portion
of the Zhao Dong Block is a seaward extension of the Dagang oil
field complex, which is one of China's largest. According to
published statistics, Dagang has produced over 700 million
barrels of oil and has an estimated ultimate recovery of more
than one billion barrels.
Tertiary formations constitute a major portion of the Zhao
Dong Block's potential. Its geology is in many respects similar
to the U.S. Gulf Coast. Bohai Bay sediments are, however, non-
marine and oil prone, while the U.S. Gulf Coast sediments are
open-marine and gas and condensate prone. Seismic, subsurface
data and drilling results from the nine wells the Company has
drilled on the Zhao Dong Block indicate a thick, structured
sedimentary section in the contract area. Proximity to producing
fields and highly productive test results from the wells which
have been drilled suggests excellent source rock.
Seismic
-------
Seismic data were acquired in and around the Zhao Dong Block
by shallow water and transition zone seismic crews from 1986 to
1988. While the original processing of the data was fair in
reflection continuity, the Company's initial evaluation involved
reprocessing 721 km., resulting in dramatic improvement for both
structural and stratigraphic interpretation. This reprocessing,
plus 390 km. of new seismic data (outlined below), make available
a current total of 1,111 km. of 2D seismic data in and around the
Zhao Dong Block.
From 1993 through 1995 the Company acquired an additional
390 km of 2D seismic data shot by Dagang Geophysical, a Chinese
firm, all of which assisted the Company in assessing the Zhao
Dong Block's potential.
A 1997 3-D seismic program was designed to delineate
development well locations in the C-D Field and to better define
exploration prospects on the remainder of the Zhao Dong Block.
The program covered approximately 100 square kilometers and cost
approximately $5.5 million; the Company's share was approximately
$2.75 million. A similar program (at a comparable cost) will be
undertaken in 1998 to cover most of the rest of the Zhao Dong
Block.
Drilling Results
----------------
Mapping of seismic events on shallow, medium, and deep
reflections delineated possibly productive lead areas. Subsequent
exploratory drilling resulted in three successful discoveries
along the Zhao Bei fault system. Appraisal tests have
structurally and stratigraphically delineated the aerial extent
of both the "C" and the "D" segments of the C-D Field.
Hydrocarbons have been found in the Lower Minghuazhen (Pliocene),
the Guantao (Miocene), and the Shahejie (Oligocene) formations.
Appraisal drilling is planned for 1998 to delineate the extent of
the 1997 C-4 discovery located northeast of the C-D Field. The C-
4 well is productive from the Shahejie Formation and,
additionally, from Jurassic and Permian Age sediments.
The Company's drilling programs, year by year, have been as
follows:
1994 Drilling
- -------------
Zhao Dong C-1. The first of three Phase 1 exploratory wells,
C-1 was spudded in April 1994, and drilled to a depth of 9,843
feet. Oil was tested in two Pliocene sands of the Lower
Minghuazhen Formation, from perforations between 4,278 and 4,462
feet, and a combined test rate of 2,160 BOPD with no water was
realized. Total net pay for the zones tested was 97 feet.
Zhao Dong C-2. Spudded and drilled in October 1994, the C-2
appraisal well was drilled to a depth of 7,134 feet and confirmed
the C-1 discovery. Tested from four intervals, between 4,267 and
4,481 feet, the combined rate of three of the zones was 3,640
BOPD with no water. Total net pay for the zones tested was 47
feet.
1995 Drilling
- -------------
Zhao Dong C-2-2. Drilled directionally in April 1995 to a
measured depth of 5,625 feet (5,034 feet true vertical depth),
the C-2-2 appraisal was shaled out for prospective sands in the
Minghuazhen and then plugged back and sidetracked as C-2-2A.
Zhao Dong C-2-2A. After plugging and abandoning the bottom
section of the C-2-2 well, the C-2-2A sidetrack well was drilled
structurally updip of the original wellbore to a measured depth
of 5,084 feet (4,956 true vertical depth). Although Minghuazhen
prospective sands were present and not shaled out, the objective
sands were water wet. Accordingly, the well was plugged and
abandoned.
Zhao Dong D-1. Designed to test the Ordovician Carbonate
section, the D-1 exploratory well reached a depth of 8,784 feet
in June 1995. Although no hydrocarbon potential was found in the
Ordovician Carbonates, and although the well was drilled on the
edge of the shallow structure, oil was found in the Lower
Minghuazhen, proving this shallower section to be productive
upthrown to the Zhao Bei fault system. Drill-stem testing, with
perforations at 4,185 to 4,205 feet, confirmed hydrocarbons with
an initial rate of 1,330 BOPD. The net pay for this zone was 20
feet.
Although the D-1 was designed primarily to test deeper
Paleozoic objectives, from 3,523 to 6,268 feet it yielded another
15 sands ranging in age from Pliocene Minghuazhen to Permian with
hydrocarbon shows in mudlogs and/or sidewall cores. One Permian
sand tested water with a trace of 30 gravity oil; one Minghuazhen
sand tested water with 2% oil.
Located on the eastern edge of the C-D structural complex,
the D-1 was not optimally placed to explore the shallower
hydrocarbon-containing sands. But the fact that it tested 1,330
BOPD from one sand, tested water with smaller amounts of oil from
two other sands, and had shows in numerous additional sands,
suggests proximity to the limits of a significant oil
accumulation. Accordingly, the D-2 well, discussed under "1996
Drilling," below, was designed to appraise the D-1 discovery at a
much higher structural position. See also the discussion,
immediately below, of a parallel relationship between and among
the C-3, C-2, and C-1 wells.
Zhao Dong C-3. Although scheduled to be drilled to 5,004
feet, this appraisal well, drilled in July 1995, reached a total
depth of 6,773 feet. Analysis of geological information during
drilling had shown that the C-3 was structurally higher than both
the C-1 and C-2, and so drilling continued to test the Shahejie
Formation until, at approximately 6,595 feet, the Zhao Bei fault
was crossed. Eight different sands had drill-stem tests; seven
were found to be productive, as compared to only three and two
for the C-2 and C-1. (The C-1 and C-2 did however have oil shows
in several sands found to be productive in the C-3.) Cumulative
rate potential was 5,830 BOPD and 460 Mcfpd of gas; one Shahejie
sand tested oil at 1,356 BOPD until water production began.
(Initial analysis indicates the water was coned due to pressure
draw-down during testing.) Total net pay for the zones tested was
143 feet.
The C-3 thus indicates that Shahejie Formation sands are oil
productive with significant appraisal and exploration potential,
both in the C-D Field and over much of the as yet undrilled
portion of the Zhao Dong Block. Initial seismic stratigraphic
analysis indicates additional lacustrine fan systems could be
present downdip.
1996 Drilling
- -------------
Zhao Dong D-2. Spudded in November 1996, the D-2 appraisal
well was designed to test the Minghuazhen (Pliocene) and Guantao
(Miocene) sands upthrown to the Zhao Bei fault system, as well as
the Shahejie (Oligocene) Formation downthrown to a bifurcated
fault of the same fault system. It was drilled to a measured
depth of 7,501 feet (6,180 feet true vertical depth), on an
upthrown fault closure approximately 1.5 km. west of and
structurally higher than the D-1 discovery well.
Five intervals (six drill-stem tests) from perforations at
3,285 to 5,445 feet (3,277 to 4,950 feet true vertical depth)
tested at a combined rate of 11,571 BOPD, confirming the lateral
productivity of several sands previously seen productive and, in
the Guantao Formation, establishing production in several new
sands. This well also demonstrated much higher initial flow rates
without the need for artificial lift, one zone flowing 4,370 BOPD
with 774 Mcfpd of gas, and a second zone flowing 2,471 BOPD with
168 Mcfpd of gas.
Sands seen productive in this well appear to be present over
the entire area, adding significantly to the overall potential of
the C-D Field as well as the rest of the Zhao Dong Block. Total
net pay for the zones tested was 243 feet.
1997 Drilling
- -------------
Zhao Dong F-1. Planned as an exploratory well to fulfill
Phase I drilling commitments, the F-1 was designed to test an
1,800+ foot thick section of the Shahejie Formation on a four-way
dip structural closure. This exploratory well was spudded in
October 1996 and directionally drilled, from a drill pad built at
the shoreline, to a measured depth of 14,501 feet (10,968 true
vertical depth). Severe mechanical problems prevented the well
from being fully evaluated, and two sidetrack attempts were
unsuccessful. Drilling operations under a turnkey contract have
been abandoned. A number of Shahejie sands were encountered,
with some apparent oil shows.
Zhao Dong D-3. The second appraisal well for the D-1
discovery, and located approximately 1 km. north of the D-1, the
D-3 was spudded in June 1997 and drilled to a depth of 5,740
feet. Although no drill-stem tests were performed (since the data
collected were sufficient to confirm the productive nature of the
reservoirs and since the rig was needed to drill the C-4 Well),
using wireline tools, oil was recovered from several sands, most
of which had tested oil in the D-2 and D-1 wells, as well as from
three new productive sands for the "D" segment. Total net pay
for the productive zone was 89 feet. The D-3 Well thus solidified
structural interpretation and confirmed productive areas.
Zhao Dong C-4. An exploratory well designed to test Pre-
Tertiary and Shahejie Formations, the C-4 was spudded in July
1997, on a separate structure approximately 2 kms. northeast of
the C-1, and was drilled to a depth of 8,993 feet. Eight zones
tested at a combined rate of 15,349 BOPD, 6,107 Mcfpd of gas, and
14 barrels of condensate per day. Total net pay for the zones
tested was 209 feet.
The C-4 proved the presence and productivity of multiple
Oligocene Age Shahejie sands on the Zhao Dong Block's northern
portion. The C-4 also found multiple high-quality Cretaceous and
Jurassic sands, not encountered in previous drilling, present and
productive, indicating that such sands may be present and
prospective elsewhere. Significantly, the Shahejie, Cretaceous
and Jurassic sands contained higher gravity oil (28 to 38 degree
API) and more gas, indicating higher reservoir energy than
previously encountered. All zones tested exhibited natural flow.
Exploration Potential
---------------------
Reconnaissance seismic surveys on the Zhao Dong Block have
led the Company's independent petroleum engineers to identify, in
addition to the C-D Field and the C-4 discovery, twenty-six
prospective areas with exploratory potential. Seismic data over
these prospective areas have been analyzed and the potential
reserves are being evaluated.
Future Drilling Plans
---------------------
The Company, Apache, and CNODC have approved a five-well
drilling program for 1998, which will include an appraisal well
to appraise the C-4 discovery and four exploratory wells, at
least two of which will be in the "C" and "D" segments.
Development Plans
------------------
The C-D Field was discovered by the drilling of the C-1 and
D-1 Wells. The Field has been appraised by the C-2, C-2-2, C-2-2
sidetrack, C-3, D-2, and D-3 Wells. On the basis of the
calculated reserves, Apache and XCL have prepared an Overall
Development Plan ("ODP") for the Field. The ODP presently
projects the drilling of 45 wells, of which 32 are producers, 8
are water injection wells for the purpose of reservoir pressure
maintenance to achieve higher levels of recovery of ultimate
reserves and 5 are water disposal wells. The ODP has been
approved by the Joint Management Committee ("JMC"), which
oversees operations on the Zhao Dong Block, has been approved by
CNPC subject to certain modifications that XCL and Apache are
studying, and has been approved by the State Planning Commission.
CNODC has given notice that it will participate as to its full
51% share in the C-D Field.
XCL, Apache and CNODC are currently collaborating on
engineering studies to refine the ODP, both to reduce capital
commitments for development and to accelerate production. It is
expected that these studies will assist the parties in
determining the most efficient method for development, including
the practicability of beginning production before all development
operations have been completed. The Company has been informed by
CNODC that they desire that production on the Zhao Dong Block
begin in 1998 and the parties are assessing how and whether that
would be commercially feasible. Initial results indicate that
1998 production is possible and the Company, Apache and CNODC
have decided to attempt to commence initial production in 1998.
XCL's current estimate (which is subject to revision as the
project moves forward) of the costs to develop the reserves in
the C-D Field that are identified in the ODP by the Operator
(which are higher than XCL's reserves) is approximately $185
million (of which XCL's share would be approximately $45.3
million). This is less than amounts projected earlier by the
Operator in the original ODP in part because of the initial
inclusion in the ODP estimates of large contingencies, which all
parties believe are too high. In addition, cost reductions are
expected in part based on design changes that would eliminate one
drilling platform and one production platform from the ODP.
While formal Chinese approval for these changes has not yet been
obtained, all parties believe that such approval can be secured.
Further, cost reductions are expected as a result of preliminary
bids that suggest that cost estimates in the ODP have been too
high. Cost reductions from the Operator's projections are also
based on the assumption that if the project moves forward with
dispatch, the current weakness of certain Asian currencies could
result in substantial reductions in the costs of steel and
fabrication for the project.
The revised ODP design anticipates that once production and
loading facilities have been installed in the field, wells will
be placed on production as they are drilled. In this case, cash
flow from this production would be available to fund part of
XCL's capital requirements for the development of the C-D Field.
The Company's financial plans include the use of such cash flow
as part of the Company's source of funds.
Production tests of the C-4 Well, announced by XCL on
October 7, 1997, indicate a combined daily rate from 8 zones of
15,359 barrels per day, and 6,107 Mcf of gas, plus a ninth zone
daily rate of 4,600 Mcf and 14 barrels of condensate. This well
suggests a new field discovery on the Zhao Dong Block. CNODC,
XCL, and Apache have agreed to drill a well early in 1998 to
appraise the C-4 Well. If this proves successful, early
production from the two initial wells in the C-4 Well area may
begin in late 1998; initial feasibility studies indicate that
this is possible. The capital costs attributable to such early
production are not included in the 1998 work program and budget.
Successful appraisal of the C-4 Well could also cause XCL and
Apache to move promptly toward development of this area.
The Contract
------------
The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by executing a
Production Sharing Agreement with CNODC, a Chinese state
enterprise, effective May 1, 1993 (the "Contract"). The Contract
includes the following terms:
The Foreign Contractor (the Company and Apache as a group,
working through a participation agreement) must pay for all
exploration costs. If a commercial discovery is made and if
CNODC exercises its option to participate, development and
operating costs and allocable remainder oil and gas production
are shared up to 51% by CNODC and the remainder by the Foreign
Contractor.
The work under the Contract is divided into three
categories, Exploration, Development and Production.
Exploration, Development and Production operations can occur
concurrently on different areas of the Zhao Dong Block. The
Contract is not to continue beyond 30 consecutive years. All
exploration work must be completed during the Exploration Period
(which expires April 30, 2000). The Production Period for each
oil field covered by the Contract is 15 years, starting with the
date of first commercial production for that field.
Exploration Period
------------------
Work performed and expenses incurred during this period,
consisting of three phases totaling seven contract years and
beginning as of May 1, 1993, are the exclusive responsibility of
the Foreign Contractor. The Contract mandates certain minimal
requirements for drilling, seismic and expenditures during each
phase of the Exploration Period. The Foreign Contractor has
elected to enter the third exploration phase (expiring April 30,
2000). The Foreign Contractor is required to drill exploratory
wells prior to the expiration of the Exploration Period. The
minimum work requirements for seismic and the minimum
expenditures for the balance of the Contract have been met.
Development Period
------------------
The Development Period for any field discovered during the
Exploration Period commences on the date the requisite Chinese
governmental authority approves the development plan for an oil
and/or gas field. The C-D Field is now in the Development
Period.
Production Period
-----------------
The Production Period for any oil and/or gas field covered
by the Contract (the "Contract Area") will be 15 consecutive
years (each of 12 months), commencing for each such field on the
date of commencement of commercial production (as determined
under the terms of the Contract). However, prior to the
Production Period, and during the Development Period, oil and/or
gas may be produced and sold during a long-term testing period.
Relinquishment
--------------
The Company expects that no relinquishment will be required
until Exploration Phase 3 has been concluded. After April 30,
2000, the portions of the Contract area, not including areas in
which development and/or production activities have been
undertaken, must be relinquished.
Termination of the Contract
---------------------------
The Contract may be terminated by the Foreign Contractor at
the end of each phase of the Exploration Period, without further
obligation. The parties have elected to go into the third phase
of the Exploration Period.
Post-Production Operating and Exploration Costs
-----------------------------------------------
After commercial production has begun, the operating costs
incurred in any given calendar year for an oil field shall be
recovered in kind from 60% of that year's oil production. After
recovery of operating costs, the 60% is applied to exploration
costs. Unrecovered operating and exploration costs shall be
carried forward.
After recovery of operating and exploration costs for any
field, development costs shall be recovered by the Foreign
Contractor and CNODC from 60% of the remaining oil production,
plus deemed interest at 9% per annum.
Natural gas shall be allocated according to the same general
principles, but in order to ensure reasonable benefit for the
Foreign Contractor, the allocation percentages shall be adjusted
in the light of actual economic conditions.
Annual gross production ("AGP") of each oil and gas field
shall be allocated in kind in the following sequences and
percentages:
(1) 5 percent of AGP shall be allocated to pay Chinese
taxes.
(2) The Chinese government shall receive a sliding
scale royalty, determined on a field by field basis, calculated
as follows (as amended by the Ministry and State Taxation Bureau,
effective January 1, 1995):
METRIC TONS OF ANNUAL
CRUDE OIL PRODUCTION ROYALTY RATE
(One metric ton is roughly equivalent to seven
barrels of crude oil.)
Up to and including 1,000,000.................. Zero
1,000,000 to 1,500,000......................... 4%
1,500,000 to 2,000,000......................... 6%
2,000,000 to 3,000,000......................... 8%
3,000,000 to 4,000,000......................... 10%
Over 4,000,000................................. 12.5%
(3) 60% of AGP shall be deemed "cost recovery oil" and
used for cost recovery, first of operating costs, and second for
exploration and development costs (including deemed interest).
Cost recovery oil shall not be reduced by any royalty due the
Chinese government.
(4) After recovery of operating, exploration, and
development costs (including deemed interest), the remainder of
AGP shall be considered "remainder oil," which shall then be
further divided into "allocable remainder oil" and "Chinese share
oil." Allocable remainder oil shall be calculated for each field,
based upon a sliding scale formula applied to each such field's
annual production, and shall be shared by the parties in
proportion to their respective interests under the Contract. All
oil remaining after the above allocations shall be designated
Chinese share oil and allocated to CNODC or other Chinese
government designee.
Administration of the Contract; Arbitration
-------------------------------------------
The Contract is administered by the JMC, consisting of an
equal number of representatives designated by CNODC and by the
Foreign Contractor. Disputes must be resolved, first through
negotiation, and then arbitration (though CNODC may have the
right to seek resolution in Chinese courts). CNODC has not waived
sovereign immunity in any proceedings commenced in China.
If accepted by the parties, arbitration will be conducted by
the China International Economic and Trade Commission under its
provisional rules. If that is not accepted by the parties,
disputes may be arbitrated by a panel of three arbitrators, each
party to appoint one and the third appointed by the two thus
chosen or, failing such appointment, by the Arbitration Institute
of the Stockholm (Sweden) Chamber of Commerce. Arbitration shall
be conducted under the rules of the UN Commission on
International Trade Law of 1976 (subject however to such rules as
expressly provided in the Contract). Awards shall be final and
binding on the parties. The Contract is governed by Chinese law.
Apache Farmout
--------------
In March 1994, by means of a participation agreement
("Participation Agreement"), the Company farmed out a one-third
interest in the Foreign Contractor's interest in the Zhao Dong
Block to Apache in exchange for certain cash payments and
Apache's agreement to assume its pro rata share of expenditures
and liabilities with respect to exploration and development. As
required by the Participation Agreement, in June 1994, Apache and
the Company entered into a Joint Operating Agreement (the
"Operating Agreement'). To further reduce the Company's
exploration capital requirements and accelerate the development
of the Zhao Dong Block, the Company and Apache entered into an
agreement on May 10, 1995 (the "Second Participation Agreement")
pursuant to which Apache increased its interest in the Contract
to 50% of the Foreign Contractor's interest and assumed
operatorship, obligating itself to pay 100% of the costs of
drilling and testing four exploratory wells (the "Carried Wells")
on the Zhao Dong Block. The drilling and testing of the C-3, D-
1, D-2 and F-1 wells will satisfy the obligations regarding the
four Carried Wells. All of these wells have been drilled and
tested with the exception of the F-1 Well, drilling operations on
which have been abandoned. The Company does not believe that such
operations on the F-1 Well to date satisfy Apache's obligations
to deliver a fourth Carried Well. The amounts advanced by Apache
for the Company's share of the Carried Wells are recoverable from
a portion of the Company's share of cost recovery revenues from
the Zhao Dong Block. In addition, Apache obligated itself to pay
the Company 16.667% of the value of the recoverable proved
reserves attributable to the portion of the Zhao Dong Block
delineated by the drilling of the C-1 and C-2 and C-3 wells, the
combined area designated in the agreement as the "C Field," all
as agreed to by the Company and Apache in the Second
Participation Agreement. Payment for this purchase will be
computed in accordance with evaluation methodology as set forth
in the Second Participation Agreement and made to the Company
from time to time as each segment of the field is placed on
production.
In consideration of the above described payments, Apache
assumed operatorship of the Zhao Dong Block and increased its
interest from 33.33% to 50% of the Foreign Contractor's share.
All future exploration expenditures in excess of the Carried
Wells will be borne 50% each by the Company and Apache. Under
the Operating Agreement, approval of a successor operator
requires the vote of not less than 55% of the Foreign
Contractor's interest; if the operator reduces its participating
interest to less than 25%, a committee established under the
Operating Agreement comprised of Apache and XCL (the "Operating
Committee") shall vote on whether a successor operator should be
named. The appointment of a successor or replacement operator
requires government approval. CNODC has the right to become
operator of production operations in certain circumstances
described in the Contract.
All work under the Contract must be pursuant to a work
program and budget approved by the JMC. Each year, the Operating
Committee must submit a proposed work program and budget to the
JMC. Operating Committee approval of this work program and
budget requires the vote of not less than 55% of the Foreign
Contractor's interest. If 55% of the Foreign Contractor's
interest does not vote in favor of a proposed work program and
budget, the operator must submit the minimum work program and
budget necessary to meet the contractual obligations of the
Foreign Contractor under the Contract.
Under the Participation Agreement and the Operating
Agreement, Apache and the Company each has a right of first
refusal with respect to any sale or transfer of interest in the
Foreign Contractor's share of the Contract. In addition, under
the Participation Agreement Apache and the Company each has a
right of first refusal with respect to the sale of 50% or more of
outstanding voting capital stock of their respective subsidiaries
party to the Contract and the Participation Agreement. In
addition, each party has the option to purchase the other party's
interest in the Contract upon the occurrence of certain "option
events." Option events include the failure more than twice in one
year to pay sums due under the Operating Agreement, after
receiving written notice of default and failing to cure within
any applicable cure period provided by the Operating Agreement
(if nonpayment is the subject of dispute and arbitration under
the Operating Agreement, it does not constitute a "failure to
pay" until an arbitral decision is rendered against the
nonpayor), the inability of a party to pay its debts as they fall
due or a final unappealable order by a court of competent
jurisdiction liquidating the party or appointing a receiver to
take possession of all of the party's assets, the transfer of
more than 49% of the voting shares of the Apache subsidiary
holding Apache's interest in the Zhao Dong Block or XCL-China,
Ltd. ("XCL-China"), the XCL subsidiary holding XCL's interest in
the Zhao Dong Block, by their respective parents, or certain
other defaults under the Operating Agreement or the Contract.
The consideration to be paid on the exercise of the option to
purchase is the fair market value of the interest assigned. If
the parties cannot agree on the fair market value of the
interest, it is to be determined by arbitration. This option
runs only to the benefit of Apache and XCL-China and may not be
transferred by either of them to any third party.
United/XCL Lube Oil Joint Venture
- ---------------------------------
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 in southeast Asian markets. The
joint venture has a 30-year life unless extended. The registered
capital of the joint venture is $4.9 million, with the Company to
contribute $2.4 million for its 49% interest, the last
installment of which was paid in late 1997. As its investment
for 51% of the stock, the Chinese contributed an existing
lubricating oil blending plant in Langfang, China, with a Chinese
government appraised value of $2.5 million. The registration of
the joint venture was approved by Chinese authorities and the
effective date of the joint venture is January 1, 1998. In a
letter of intent executed contemporaneously with the contract,
the parties have agreed to consider the feasibility of (i)
contributing to the joint venture a second existing plant in
southwest China and (ii) other projects, including constructing
oil terminals on the north and south coasts of China and engaging
in upgrading certain existing refineries within China.
The Langfang plant is located 50 km. southeast of Beijing.
The facility is built on a 10-acre site and has been evaluated on
the basis of U.S. Gulf Coast costs at a replacement value of $7.0
million, without taking into account the land value. The plant
currently produces and markets approximately 5,000 metric tons of
lube oil per year. Approximately $1.5 million of the Company's
investment has been allocated to the physical upgrading of the
facility, including the installation of automated filling lines
and packaging systems. Upon completion of the upgrading, the
plant's production capacity will be approximately 20,000 metric
tons per year, assuming one eight hour shift, five days per week.
Additional capacity will be available by adding shifts and
expanding the work week. Further capital improvements estimated
to cost $15 million could increase capacity to approximately
100,000 metric tons per year.
It is the Company's opinion that an essential element to the
success of the lube oil business in China will be the ability to
distribute the product. In order to assure adequate distribution
of the joint venture's products, the Company has entered into a
memorandum of understanding with the Coal Ministry in China which
is expected to be reduced to a formal distribution contract. The
Coal Ministry operates 125 major integrated distribution centers
throughout China and the Company expects to market the joint
venture's products through this system.
Coalbed Methane Project
- -----------------------
On March 31, 1995, the Company signed an agreement with the
CNACG, pursuant to which the parties will commence cooperation
for the exploration and development of coalbed methane in two
areas in China. During the study period contemplated by the
agreement, the Company will evaluate the properties, after which
the parties are expected to enter into a comprehensive agreement
as to the specifically designated areas, which may provide the
basis for coalbed methane development in other areas of China.
On December 14, 1995, the Company signed a Memorandum of
Understanding with CNACG to develop a contract for exploration,
development and utilization of coalbed methane in the two areas.
The March 31, 1995 agreement expired by its terms on December 31,
1996; however, the Company has been informally advised that CNACG
will extend the term of the agreement.
Domestic Properties
- -------------------
U.S. Exploration and Production Activities. The Company has
sold substantially all of its U.S. producing properties except
for an interest in the Berry R. Cox Field (the "Cox Field") in
South Texas and is seeking to sell or joint venture its interest
in that property. The Company holds a 60% to 100% working
interest in 1,265 acres in this field on which there are four
producing wells (3.45 net wells). During 1996, litigation was
instituted against the Company in connection with the Cox Field
which has effectively impeded the Company's ability to consummate
a sale of such property. Upon resolution of the litigation, the
Company will continue its efforts to divest itself of these
properties.
Lutcher Moore Tract. The Company holds, in partnership with
one of its subsidiaries, a fee interest in a 62,500 acre
undeveloped tract of Louisiana fee property located in Ascension,
St. James and St. John the Baptist Parishes, Louisiana (the
"Lutcher Moore Tract"). Expressions of interest to purchase the
property have been received from several parties and the Company
is presently evaluating such proposals with the intent to sell
the property. The Company is also evaluating the possibility of
developing the property into a source of wetland mitigation
credits. In connection with the acquisition of the Lutcher Moore
Tract, the Company's indirect ownership of such tract is subject
to a first mortgage, with a current principal balance of
approximately $2.0 million, and a number of sellers' notes, with
an aggregate current principal balance of approximately $0.5
million (collectively, the "Lutcher Moore Debt"). Recourse by the
holder of the first mortgage and the holders of the sellers'
notes is limited to the Lutcher Moore Tract, with neither the
Company nor its wholly-owned subsidiaries, XCL-Land Ltd. and The
Exploration Company of Louisiana, Inc., liable for the debt.
Oil and Gas Reserves
- --------------------
Based on the wells drilled to date, the Company's
independent engineering firm, H.J. Gruy and Associates, Inc.
("Gruy"), has projected net proved undeveloped reserves for the
segments of the C-D Field drilled to date of 11.76 million
barrels of recoverable oil. CNODC has exercised its option to
pay 51% of all development costs and receive 51% of oil
production. Consequently, the Company's present value of
estimated future pre-tax net cash flows is approximately $64.8
million as of January 1, 1998. The standardized measure of
discounted future net cash flows determined in accordance with
the rules prescribed by FASB No. 69 is $53.8 million. The
Company believes that the C-D Field and the remainder of the Zhao
Dong Block hold the potential for additional significant
increases in oil reserves. See "Certain Risk Factors Relating to
the Oil and Gas Industry -- Reliance on Estimates of Proved
Reserves and Future Net Revenues" and "Supplemental Oil and Gas
Information" in the Notes to the Consolidated Financial
Statements.
Production, Sales and Cost Data
- -------------------------------
The following table sets forth certain information regarding
the production volumes, revenues, average prices received and
average production costs associated with the Company's sale of
oil and gas from properties held for sale for the periods
indicated.
Year Ended December 31,
-------------------------
1997 1996 1995
---- ---- ----
Net Production: (a)
Gas (MMcf) 72 467 1,474
Oil (MBbl) 4 9 19
Gas equivalent (MMcfe) 95 522 1,588
Oil and gas sales ($ in 000's)(b)
Gas $ 166 $ 955 $ 1,953
Oil and other 70 181 527
----- ------ ------
Total oil and gas sales $ 236 $ 1,136 $ 2,480
===== ====== ======
Average sales price:
Gas ($ per Mcf) 2.28 1.84 1.33
Oil ($ per Bbl) 18.34 19.80 19.58
Gas equivalent ($ per Mcfe) 2.47 2.18 1.56
Oil and gas costs ($ per Mcfe):
Production expenses and taxes 2.41 0.74 0.71
Depreciation, depletion
and amortization
of oil and gas properties 0.81 0.96 1.23
________________
(a) Excludes gas consumed in operations.
(b) Includes plant products recovered from treating and
processing operations.
The following table shows the 1997 production of oil and
natural gas liquids and natural gas by major fields. All of the
Company's net production was attributable to the Cox Field and
the Frenier Field (on the Lutcher Moore Tract).
1997 Net Production
-----------------------
(MBbls) (MMcf)
--------- ----------
Field Oil % Gas %
- ----- --- ---- --- ----
Cox Field -- -- 72 100
Frenier Field 4 100 -- --
Oil and Gas Acreage
- -------------------
The oil and gas acreage in which the Company has leasehold
or other contractual interest at December 31, 1997, and which are
not classified as assets held for sale are summarized in the
following table. "Gross" acres are the total number of acres
subject to the Contract. "Net" acres are gross acres multiplied
by the Company's fractional share of the costs of production
before CNODC's reversionary interest.
Undeveloped
Gross Net
------ ------
The People's Republic of China 48,677 24,338
Drilling Activity
- -----------------
The following tables set forth wells drilled by the Company
in the periods indicated.
Year Ended December 31,
-------------------------------------------------
1997 1996 1995
------------- ------------- ------------
United States Gross Net Gross Net Gross Net
- ------------- ----- --- ----- --- ----- ---
Exploratory:
Productive -- -- -- -- -- --
Nonproductive -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total -- -- -- -- -- --
Development:
Productive -- -- -- -- 1 .2
Nonproductive -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total -- -- -- -- 1 .2
Year Ended December 31,
----------------------------------------------------
1997 1996 1995 (a)
------------- -------------- --------------
The People's
Republic of China Gross Net Gross Net Gross Net
- ------------------- ----- --- ----- --- ----- ---
Exploratory:
Productive 2 1.0 1 .5 2 1.0
Nonproductive 1 0.5 -- -- 1 .5
---- ---- ----- ---- ---- ----
Total 3 1.5 1 .5 3 1.5
Development:
Productive -- -- -- -- -- --
Nonproductive -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total -- -- -- -- -- --
____________
(a) Pursuant to the Second Participation Agreement dated May
10, 1995, between XCL and Apache, Apache's interest in the
Zhao Dong Block was increased from 33% to 50% of the Foreign
Contractor's interest.
Producing Well Data
- -------------------
At December 31, 1997, the Company had interests in 4
producing gas wells (3.45 net) in the Cox Field, which are
included in assets held for sale.
Title to Properties
- -------------------
The Company believes that title to its properties is
generally acceptable in accordance with prevailing standards in
the oil and gas industry, subject to exceptions which do not
materially detract from the value of such properties. The
Company's properties are subject to royalty, overriding royalty,
carried and other similar interests and contractual arrangements
customary in the oil and gas industry, to liens incident to
operating agreements, to liens for current taxes not yet due and
other relatively minor encumbrances.
The Company's stock of its major subsidiary, XCL-China, has
been pledged to the holders of the Company's 13.5% Senior Secured
Notes due May 1, 2004 (the "Notes"). Under the Participation
Agreement between the Company and Apache, each of the Company and
Apache has a right of first refusal with respect to (i) any sale
or transfer of interest in the Foreign Contractor's share of the
Contract and (ii) any sale of 50% or more of the outstanding
voting capital stock of the other's subsidiary party to the
Contract and the Participation Agreement. Absent a waiver from
Apache, foreclosure on the shares of XCL-China pledged to secure
the Notes could trigger one of these rights.
Markets
- -------
Substantially all of the Company's 1997 gas production from
the Cox Field was dedicated to MidCon Texas Pipeline Corp. under
contracts dated May 1, 1991, as amended.
With respect to China, under the terms of the Contract, the
Company has both the right and obligation in each calendar
quarter to take and separately dispose of its share of oil
produced at the Zhao Dong Block. However, the Company shall not
deliver its oil to prohibited destinations, which are those that
infringe on the political interests of China. During 1994, China
became a net importer of oil, therefore the Company believes it
can sell its share of oil produced in China at world market
prices. Additionally, the oil to be produced from the C-D Field
area is ideally suited for lubrication oil feed stock. The
Company's lubrication oil joint venture gives the Company certain
rights to market lubrication oil and lubrication oil feed stock
within and without China. Through the lubrication joint venture
the Company expects to receive a premium for its share of the oil
produced from the C-D Field.
Competition
- -----------
The oil and gas industry is competitive in all phases, both
domestic and internationally. In pursuing its growth strategy of
expanding its participation in the Chinese energy industry, the
Company is in competition with the "major" integrated oil
companies, national oil companies and other independent oil
companies. Although many of these competitors have financial
resources greater than those of the Company, management believes,
based upon its accomplishments to date, that the Company is
positioned to continue to compete effectively.
Certain Risk Factors Relating to the Company and the Oil and Gas
Industry
- ----------------------------------------------------------------
General Industry Risks
----------------------
The Company's business is affected by the general risks
associated with the oil and gas industry. The availability of a
ready market for oil and gas purchased, sold and produced by the
Company depends upon numerous factors beyond its control, the
exact effects of which cannot be accurately predicted.
Generally, these factors include, among other things, the level
of production and economic activity, the availability of oil and
gas supplies, action taken by oil-producing nations, the
availability of transportation capacity, the availability and
marketing of other competitive fuels, fluctuating and seasonal
demand for oil, gas and refined products and the extent of
governmental regulation and taxation (under both present and
future legislation) of the production, refining, transportation,
pricing, use and allocation of oil, natural gas, refined products
and substitute fuels. Accordingly, in view of the many
uncertainties affecting the supply and demand for crude oil,
natural gas and refined products, it is not possible to predict
accurately either the prices or marketability of oil and gas
produced from any property in which the Company has or may
acquire an interest.
General Exploration and Production Risks
----------------------------------------
The Company's oil and gas drilling and production activities
involve a high degree of risk. The ratio of dry holes to
commercially productive oil and gas wells is high for the
industry as a whole. Hazards, such as formations with unusual
pressures, or other unforeseen conditions are sometimes
encountered in drilling wells which could result in loss of a
well and in substantial liabilities or injuries to other persons
or property. In addition, the Company may encounter delays due
to adverse weather conditions and difficulties in securing
supplies, drilling and production equipment and access to trained
personnel. The Company seeks to minimize the risks of damage to
the environment, property and persons present in its drilling
operations and obtains insurance coverage which it believes
prudent.
High Degree of Leverage
------------------------
The Company is currently highly leveraged. Future
operations will be significantly affected by its level of
indebtedness. Much of its cash flow from operations will be
dedicated to interest payments. Large amounts of money will be
required to continue its operations in China. Covenants in the
Indenture governing the Notes (the "Indenture") require the
Company to meet certain financial tests and limit the Company's
ability to dispose of assets or to borrow additional funds. These
covenants may affect the Company's business flexibility, and
could possibly limit acquisition activity.
The Company's ability to meet its debt service obligations
and to reduce its indebtedness will depend upon its future
performance. This, in turn, will depend upon successful
completion of the activities called for in the ODP, the Company's
access to additional capital, general economic conditions, as
well as on financial, business, and other factors, many of which
are beyond the Company's control.
Restrictions Imposed by Terms of the Company's Indebtedness
------------------------------------------------------------
The Indenture restricts, among other things, the Company's
ability to incur additional debt, incur liens, pay dividends, or
make certain other restricted payments. It also limits the
Company's ability to consummate certain asset sales, enter into
certain transactions with affiliates, enter into mergers or
consolidations, or dispose of substantially all the Company's
assets. The Company's ability to comply with such covenants may
be affected by events beyond its control. The breach of any of
these covenants could result in a default. A default could allow
holders of the Notes to declare all amounts outstanding and
accrued interest immediately due and payable. Absent such
payment, the holders could proceed against any collateral granted
to them to secure such indebtedness, which includes all of the
stock of the Company's principal operating subsidiary, XCL-China,
which has guaranteed such indebtedness. A foreclosure on the
stock of XCL-China could trigger Apache's right of first refusal
under the Participation Agreement to purchase such stock or its
option to purchase the Company's interest in the Contract. There
can be no assurance that the assets of the Company and XCL-China
(a "Subsidiary Guarantor"), or any other Subsidiary Guarantors
would be sufficient to fully repay the Notes and the Company's
other indebtedness.
Oil and Gas Properties; Capital Expenditures
--------------------------------------------
The Company's total reserves, as of December 31, 1997, were
all classified as proved and unevaluated, on a BOE basis.
Recovery of such reserves will require both significant capital
expenditures and successful drilling, completion and production
operations. The Company will also have additional capital
expenditures for exploration activity on the Zhao Dong Block.
The Company plans to generate the additional cash needed
through the sale or financing of its domestic assets held for
sale and the completion of additional equity, debt or joint
venture transactions. There is no assurance, however, that the
Company will be able to sell or finance its assets held for sale
or to complete other transactions in the future at commercially
reasonable terms, if at all, or that it will be able to meet its
future contractual obligations. If production from the oil and
gas properties commences in late 1998 or the first half of 1999,
as anticipated, the Company's proportionate share of the related
cash flow will be available to help satisfy cash requirements.
However, there is likewise no assurance that such development
will be successful and production will commence, and that such
cash flow will be available.
Foreign Operations
------------------
The Company's future operations and earnings will depend
upon the results of the Company's operations in China. If these
operations are not successful, the Company's financial position,
results of operations and cash flows will suffer greatly.
The success of the Company's operations is subject to many
matters beyond management's control, like general and regional
economic conditions, prices for crude oil and natural gas,
competition, and changes in regulation. Also, since the Company
is dependent on international operations, specifically those in
China, it will be subject to various additional political,
economic and other uncertainties. The Company's operations will
be subject to the risks of restrictions on transfer of funds;
export duties, quotas and embargoes; domestic and international
customs and tariffs; and changing taxation policies, foreign
exchange restrictions, political conditions, and governmental
regulations.
The United States government has publicly criticized China
from time to time with respect to various matters. The Company
cannot predict whether political developments like these will
adversely affect the Company's Chinese operations. The Company
believes that neither the Chinese nor the U.S. government wants
to impair U.S.- Chinese commercial relations. The Company has
excellent relations with Chinese governmental authorities in
charge of the development of China's energy resources.
In recent months there have been substantial disruptions in
several Asian financial markets and many Asian currencies have
undergone significant devaluations. These events can be expected
to have negative near, and possibly long term, effects on the
flow of investment capital into and out of Asian denominated
assets. As of this time, China has been largely unaffected by
these events. However, it is impossible to predict the ultimate
outcome of these events and their possible negative effect on the
Company's investments in China.
Reliance on Estimates of Proved Reserves and Future Net
Revenues
----------------------------------------------------------------
The reserve data included in this report are only estimates
and may not prove to be correct. In addition, estimates of
future net revenue from proved reserves are also estimates that
may not prove to be correct. In particular, estimates of crude
oil and natural gas reserves, future net revenue from proved
reserves and the PV-10 thereof for the crude oil and natural gas
properties described in this report are based on the assumption
that the Zhao Dong Block is developed in accordance with the ODP,
modified to accelerate production and reduce costs, and that
future crude oil prices for production from the Zhao Dong Block
remain at the levels assumed for December 31, 1997. These
assumptions include an assumption that the Company will receive a
premium for the C-D Field oil because of its potential for use as
a lubricating oil base stock, the Company's 49% ownership in the
CNPC lubricating oil joint venture and the Company's right under
the joint venture to market both lubricating oil and lubrication
oil feed stock. These assumptions may prove to be inaccurate.
Reserve Value Ceiling Test
---------------------------
Under the SEC's full cost accounting rules, the Company
reviews the carrying value of its oil and gas properties each
quarter on a country-by-country basis. Under such rules,
capitalized costs of oil and gas properties may not exceed the
present value of estimated future net revenues from proved
reserves, discounted at 10 percent, plus the lower of cost or
fair value of unproved properties as adjusted for related tax
effects and deferred tax liabilities. Application of this rule
generally requires pricing future production at the unescalated
oil and gas prices in effect at the end of each fiscal quarter
and requires a write-down if the "ceiling" is exceeded, even if
prices declined for only a short period of time. If a write-down
is required, the charge to earnings does not impact cash flow
from operating activities. As unproved properties become
evaluated, their costs will be reclassified to proved and
evaluated properties, and any associated future revenue will be
included in the calculation of the present value of the Company's
proved reserves. Costs in excess of the present value of added
reserves, or any material reductions in the net future revenues
from oil and gas reserves resulting from such factors as lower
prices or downward revisions in estimates of reserve quantities,
causes a charge for a full cost ceiling impairment, absent
offsetting improvements.
Depletion of Reserves
---------------------
The rate of production from crude oil and natural gas
properties declines as reserves are depleted. Except to the
extent the Company acquires additional properties containing
proved reserves, conducts successful exploration and development
activities or, through engineering studies, identifies additional
behind-pipe zones or secondary recovery reserves, the proved
reserves of the Company will decline as reserves are produced.
Future crude oil and natural gas production is therefore highly
dependent upon the Company's level of success in acquiring or
finding additional reserves.
Environmental Matters
----------------------
The Company is subject to existing federal, state and local
laws and regulations governing the discharge of materials into
the environment or otherwise relating to the protection of the
environment. The Company believes that its U.S. oil and gas
properties, which are held for sale, are in general compliance
with applicable environmental regulations. Environmental laws
and regulations have changed substantially and rapidly over the
last 20 years, and the Company anticipates that there will be
continuing changes. The clear trend in environmental regulation
is to place more restrictions and limitations on activities that
may impact the environment, such as emissions of pollutants,
generation and disposal of wastes and use and handling of
chemical substances. Increasingly strict environmental
restrictions and limitations have resulted in increased operating
costs throughout the United States, and it is possible that the
costs of compliance with environmental laws and regulations will
continue to increase. The Company will attempt to anticipate
future regulatory requirements that might be imposed and to plan
accordingly in order to remain in compliance with changing
environmental laws and regulations minimizing costs of such
compliance.
The Company is and will be required to comply with
environmental laws in China which at this time are significantly
less stringent than U.S. laws.
Government Regulation
---------------------
The Company's business is subject to certain Chinese and
United States federal, state, and local laws and regulations
relating to the exploration for and development, production and
marketing of crude oil and natural gas, as well as environmental
and safety matters. In addition, the Chinese government
regulates various aspects of foreign company operations in China.
Such laws and regulations have generally become more stringent in
recent years in the United States, often imposing greater
liability on a larger number of potentially responsible parties.
It is not unreasonable to expect that the same trend will be
encountered in China. Because the requirements imposed by such
laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance. There is no
assurance that laws and regulations enacted in the future will
not adversely affect the Company's financial condition and
results of operations.
History of Losses
-----------------
The Company has experienced recurring losses. For the years
ended December 31, 1993, 1994, 1995, 1996 and 1997, the Company
recorded net losses of approximately $15.2 million, $36.6
million, $87.8 million, $12.1 million and $14 million,
respectively. See "Selected Financial Data." There can be no
assurance that the Company will be profitable in the future. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial
Statements and the notes thereto included elsewhere in this
report.
Limitations on the Availability of the Company's Net
Operating Loss Carryforwards
- ----------------------------------------------------------------
The Company has incurred net operating loss ("NOL")
carryforwards as at December 31, 1997 of $183 million. Use of
the NOLs by the Company are subject to limitations under Section
382 of the Internal Revenue Code. The various stock offerings
made by the Company may have triggered those limits. Also
uncertainties as to the future use of the NOLs exist under the
criteria set forth in Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes." The
Company established a valuation allowance of $81.1 million and
$83.6 million for deferred tax assets at December 31, 1996 and
1997, respectively.
Dependence on Key Personnel
---------------------------
The Company depends to a large extent on Marsden W. Miller,
Jr., its Chairman of the Board and Chief Executive Officer, for
its management and business and financial contacts in China and
its relationship with Chinese authorities. See "Management." The
unavailability of Mr. Miller would have a material adverse effect
on the Company's business. The Company's success is also
dependent upon its ability to retain skilled technical personnel.
While the Company has not to date experienced difficulties in
employing or retaining such personnel, its failure to do so in
the future could adversely affect its business. The Company does
not maintain key man life insurance on any of its executives or
other personnel.
Employees
The Company currently employs a total of 23 people
(including executive officers). None of the employees of the
Company or its affiliates have employment contracts or are
represented by collective bargaining agreements. The Company
considers its relationship with employees to be satisfactory.
PART II
Item 8. Financial Statements and Supplemental Data.
The Consolidated Financial Statements of XCL Ltd. and
Subsidiaries and XCL-China Ltd., together with the reports
thereon of PricewaterhouseCoopers LLP dated April 10, 1998, and the
supplementary financial data specified by Item 302 of Regulation
S-K are set forth on pages [] through []. See Item 14 for Index.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of XCL Ltd.
We have audited the consolidated financial statements and the
financial statement schedule of XCL Ltd. and Subsidiaries listed
in Item 1(a) of this Annual Report on Form 10-K. These consoli-
dated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsi-
bility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of XCL Ltd. and Subsidiaries as of December
31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered
in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the
information required to be included therein.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company is generating minimal revenues and
although the Company has cash (including its restricted cash) in
the amount of approximately $32 million as of December 31, 1997,
and a positive working capital position, it must generate
additional cash flows to satisfy its development and exploratory
obligations with respect to its China properties. There is no
assurance that the Company will be able to generate the necessary
funds to satisfy these contractual obligations and to ultimately
achieve profitable operations, which creates substantial doubt
about its ability to continue as a going concern. Managements'
plans in regard to these matters are described in Note 2. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PRICEWATERHOUSECOOPERS LLP
Miami, Florida
April 10, 1998
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31
-------------------
A S S E T S 1997 1996
----------- ---- ----
Current assets:
Cash and cash equivalents $ 21,952 $ 113
Cash held in escrow (restricted) 10,263 --
Accounts receivable, net 101 23
Refundable deposits 1,200 --
Other 451 212
-------- ------
Total current assets 33,967 348
-------- ------
Property and equipment:
Oil and gas (full cost method):
Proved undeveloped properties, not being
amortized 21,172 13,571
Unevaluated properties 33,132 21,238
------- -------
54,304 34,809
Land, at cost -- 135
Other 1,163 2,492
------- -------
55,467 37,436
Accumulated depreciation, depletion and
amortization (1,000) (1,491)
------- -------
54,467 35,945
------- -------
Investments 4,173 2,383
Assets held for sale 21,155 21,058
Debt issue costs, less amortization 4,268 950
Other assets 1,059 180
------- ------
Total assets $ 119,089 $ 60,864
======== =======
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
-------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued costs $ 2,727 $ 3,901
Due to joint venture partner 4,504 4,202
Dividends payable 1,813 928
Current maturities of long term debt 2,524 38,022
-------- -------
Total current liabilities 11,568 47,053
-------- -------
Long-term debt, net of current maturities 61,310 --
Other non-current liabilities 5,386 2,770
Commitments and contingencies (Notes 2 and 11)
Shareholders' equity:
Preferred stock-$1.00 par value; authorized
2.4 million shares at December 31, 1997
and 1996; issued shares of 1,196,236 at
December 31, 1997 and 669,411 at
December 31, 1996 - liquidation preference
of $103 million at December 31, 1997 1,196 669
Common stock-$.01 par value; authorized 500
million shares at December 31, 1997
and 1996; issued shares of 21,710,257 at
December 31, 1997 and 285,754,151 at
December 31, 1996 217 2,858
Common stock held in treasury - $.01 par value;
69,470 shares at December 31, 1997
and 1,042,065 shares at December 31, 1996 (1) (10)
Unearned compensation (12,021) --
Additional paid-in capital 298,588 226,956
Accumulated deficit (247,154) (219,432)
-------- -------
Total shareholders' equity 40,825 11,041
-------- -------
Total liabilities and
shareholders'equity $ 119,089 $ 60,864
======== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Year Ended December 31
--------------------------
1997 1996 1995
---- ---- ----
<CAPTION>
<S> <C> <C> <C>
Oil and gas revenues from properties held for sale $ 236 $ 1,136 $ 2,480
------ ------ ------
Costs and operating expenses:
Operating 210 342 985
Depreciation, depletion and amortization 126 579 2,266
Provision for impairment of oil and gas
properties -- 3,850 75,300
Writedown of other assets and investments -- 2,444 4,461
General and administrative costs 4,910 3,487 4,551
Other 3,048 227 590
------ ------ -------
8,294 10,929 88,153
------ ------ -------
Operating loss (8,058) (9,793) (85,673)
------ ------ -------
Other income (expense):
Interest expense, net of amounts capitalized (8,450) (2,415) (2,998)
Gain (loss) on sale ofinvestments/assets -- (661) 613
Interest income 2,212 8 133
Other, net 853 787 88
------ ------- -------
(5,385) (2,281) (2,164)
------ ------- -------
Loss before extraordinary item (13,443) (12,074) (87,837)
Extraordinary charge for early extinguishment of
debt (551) -- --
------ ------ -------
Net loss (13,994) (12,074) (87,837)
Preferred stock dividends (13,728) (5,356) (4,821)
------- ------ -------
Net loss attributable to common stock $(27,722) $(17,430) $ (92,658)
======= ======= =======
Loss per share (basic):
Net loss before extraordinary item $ (1.33) $ (.98) $ (5.77)
Extraordinary item (.03) -- --
------- ------ -------
Net loss per share $ (1.36) $ (.98) $ (5.77)
======= ====== =======
Loss per share (diluted):
Net loss before extraordinary item $ (1.33) $ (.98) $ (5.77)
Extraordinary item (.03) -- --
------- ------ -------
Net loss per share $ (1.36) $ (.98) $ (5.77)
======= ====== =======
Average number of shares used in per share computations:
Basic 20,451 17,705 16,047
Diluted 20,451 17,705 16,047
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars)
Total
Preferred Common Treasury Paid-In Accumulated Unearned Shareholders'
Stock Stock Stock Capital Deficit Compensation Equity
--------- ------ -------- ------- ----------- ------------ -----------
<CAPTION>
<S> <C> <C> <C> <C> <C> <S> <C>
Balance, December 31, 1994 $ 649 $ 2,372 $ (35) $206,241 $(114,027) $ - $ 95,200
Net loss - - - - (87,837) - (87,837)
Dividends - - - - (4,821) - (4,821)
Preferred shares issued 32 - - 5,092 - - 5,124
Preferred shares subscribed 4 - - - - - 4
Common shares issued - 189 - 7,936 - - 8,125
Treasury shares purchased - - (25) (1,232) - - (1,257)
Treasury shares issued - - 35 2,327 - - 2,362
----- ------ ----- ------- -------- ------ ---------
Balance, December 31, 1995 685 2,561 (25) 220,364 (206,685) - 16,900
Net loss - - - - (12,074) - (12,074)
Dividends - - - - (673) - (673)
Preferred shares issued 10 - - 128 - - 138
Preferred shares subscribed (4) - - - - - (4)
Preferred shares converted
to common shares (22) 5 - 17 - - -
Common shares issued - 292 - 6,339 - - 6,631
Treasury shares purchased - - (3) (138) - - (141)
Treasury shares issued - - 18 246 - - 264
------ ------ ----- ------- ------- ------ ------
Balance, December 31, 1996 669 2,858 (10) 226,956 (219,432) - 11,041
Net loss - - - - (13,994) - (13,994)
Dividends - - - - (13,728) - (13,728)
Preferred shares issued 507 - - 36,521 - - 37,028
Common shares issued - 198 - 4,395 - - 4,593
Issuance of stock purchase
warrants - - - 15,032 - - 15,032
Unearned compensation 20 13 - 12,841 - (12,021) 853
Reverse stock split 1 for 15 - (2,852) 9 2,843 - - -
----- ----- ---- ------- -------- -------- -------
Balance, December 31, 1997 $1,196 $ 217 $ (1) $298,588 $ (247,154) $(12,021) $40,825
===== ===== ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Year Ended December 31
---------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net loss $ (13,994) $ (12,074) $ (87,837)
------- ------- ------
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation, depletion and
amortization 126 579 2,266
Provision for impairment of oil
and gas properties -- 3,850 75,300
Extraordinary charge for early
extinguishment of debt 551 -- --
(Gain) loss on sale of
investments/assets -- 661 (613)
Amortization of discount on senior
secured notes 1,342 -- --
Writedown of other assets and
investments -- 2,444 4,461
Stock compensation programs 853 -- --
Other 796 -- --
Change in assets and liabilities:
Accounts receivable (78) 799 875
Refundable deposits (1,200) -- --
Accounts payable and accrued
costs (132) 575 (765)
Non-current liabilities and
other 2,655 12 803
------- ------- -------
Total adjustments 4,913 8,920 82,327
------- ------- -------
Net cash used in operating
activities (9,081) (3,154) (5,510)
------- ------- -------
Cash flows from investing activities:
Capital expenditures (16,097) (1,489) (8,458)
Investments (1,790) (491) (1,624)
Proceeds from sales of assets and
investments 797 9,210 2,655
Other -- 4 64
------- ------- ------
Net cash (used in) provided
by investing activities (17,090) 7,234 (7,363)
------- ------- ------
Cash flows from financing activities:
Proceeds from sales of common stock 652 1,766 3,553
Proceeds from issuance of preferred
stock 25,000 144 3,068
Proceeds from sale of treasury stock -- 264 2,487
Proceeds from Senior Secured Notes 75,000 -- --
Loan proceeds 6,100 315 --
Payment of long-term debt (35,503) (8,344) (522)
Payment of notes payable (6,100) -- --
Proceeds from exercise of options and
warrants 1,590 691 874
Payment of preferred stock dividends -- -- (250)
Payment for treasury stock -- (141) (1,257)
Stock/note issuance costs and other (8,466) (272) (221)
------- ------ ------
Net cash provided by
(used in) financing
activities 58,273 (5,577) 7,732
------- ------ ------
Net increase (decrease) in cash and cash
equivalents 32,102 (1,497) (5,141)
Cash and cash equivalents at beginning of
year 113 1,610 6,751
------ ------ ------
Cash and cash equivalents at end of year $32,215 $ 113 $ 1,610
====== ====== =====
Supplemental information:
Cash paid for interest, net of amounts
capitalized $ 7,441 $ 1,591 $ 2,602
====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies:
Principles of Consolidation:
---------------------------
The consolidated financial statements include the accounts
of XCL Ltd. and its wholly owned subsidiaries ("XCL" or the
"Company") after the elimination of all significant intercompany
accounts and transactions. Certain reclassifications have been
made to prior year financial statements to conform to current
year presentation. These reclassifications had no effect on net
loss, cash flows or shareholders' equity.
Use of Estimates in the Preparation of Financial Statements:
- -----------------------------------------------------------
The preparation of the Company's financial statements, in
conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues and expenses,
and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Cash and Cash Equivalents:
-------------------------
The Company considers deposits which can be redeemed on
demand and investments which have original maturities of less
than three months, when purchased, to be cash equivalents. As of
December 31, 1997, the Company's cash and cash equivalents were
deposited primarily in three financial institutions.
Concentration of Credit Risk:
----------------------------
The Company operates exclusively in the oil and gas industry
and receivables are due from other producers who may be affected
by economic conditions in the industry. The Company has not
experienced any material credit losses.
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash
equivalents/short-term investments and trade receivables.
The Company believes that no single short-term investment
exposes the Company to significant credit risk. Additionally,
creditworthiness of its counterparties, which are major financial
institutions, are monitored. As of December 31, 1997, the Company
had cash in financial institutions in excess of the insured
amounts.
Fair Value of Financial Instruments:
-----------------------------------
For the purposes of disclosure requirements pursuant to
Statement of Financial Accounting Standards No. 107 "Disclosures
About Fair Market Value of Financial Instruments," fair value of
current assets and liabilities approximate carrying value, due to
the short-term nature of these items. The Company believes the
fair value of long-term debt approximates carrying value. Fair
value of such financial instruments is not necessarily
representative of the amount that could be realized or settled.
Oil and Gas Properties:
----------------------
The Company accounts for its oil and gas exploration and
production activities using the full cost method of accounting.
Accordingly, all costs associated with acquisition, exploration,
and development of oil and gas reserves, including appropriate
related costs, are capitalized. The Company capitalizes internal
costs that can be directly identified with its acquisition,
exploration and development activities and does not capitalize
any costs related to production, general corporate overhead or
similar activities.
The capitalized costs of oil and gas properties, including
the estimated future costs to develop proved reserves, are
amortized on the unit-of-production method based on estimates of
proved oil and gas reserves. The Company's domestic oil and gas
reserves were estimated by Company engineers in 1997 and 1996,
and foreign reserves in 1997 and 1996 by independent petroleum
engineers. Investments in unproved properties and major
development projects are not amortized until proved reserves
associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that
properties are impaired, the amount of the impairment is added to
the capitalized costs to be depleted. The Company capitalizes
interest on expenditures made in connection with exploration and
development projects that are not subject to current
amortization. Interest is capitalized for the period that
activities are in progress to bring these projects to their
intended use.
During the fourth quarter of 1995, the Company decided to
concentrate on the development of its China investments, and
decided to dispose of its 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.
The Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis, and limits
capitalized costs of oil and gas properties to the present value
of estimated future net revenues from proved reserves, discounted
at 10 percent, plus the lower of cost or fair value of unproved
properties as adjusted for related tax effects and deferred tax
reserves. If capitalized costs exceed this limit, the excess is
charged to depreciation, depletion and amortization expense
("DD&A") in the period in which it occurs.
Proceeds from the sale of proved and unproved properties are
accounted for as reductions to capitalized costs with no gain or
loss recognized unless such sales would significantly alter the
relationship between capitalized costs and proved reserves of oil
and gas. Abandonments of properties are accounted for as
adjustments of capitalized costs with no loss recognized.
The Company accounts for site restoration, dismantlement and
abandonment costs in its estimated future costs of proved
reserves. Accordingly, such costs are amortized on a unit of
production basis and reflected with accumulated depreciation,
depletion and amortization. The Company identifies and estimates
such costs based upon its assessment of applicable regulatory
requirements, its operating experience and oil and gas industry
practice in the areas within which its properties are located.
To date the Company has not been required to expend any material
amounts to satisfy such obligations. The Company does not expect
that future costs will have a material adverse effect on the
Company's operations, financial condition or cash flows. The
standardized measure of discounted future net cash flows includes
a deduction for any such costs.
Other Property and Equipment:
----------------------------
Other property and equipment primarily consists of furniture
and fixtures, equipment and software. Major renewals and
betterments are capitalized while the costs of repairs and
maintenance are charged to expense as incurred. The costs of
assets retired or otherwise disposed of and the applicable
accumulated depreciation are removed from the accounts, and the
resulting gain or loss is reflected in operations. Other
property and equipment costs are depreciated using the straight-
line method over the estimated useful lives of the assets, which
range from 3 to 15 years.
Capitalized Interest and Amortized Debt Costs:
---------------------------------------------
During fiscal 1997, 1996 and 1995, interest and associated
costs of approximately $5.8 million, $2.8 million and $3.1
million, respectively were capitalized on significant investments
in oil and gas properties that are not being currently
depreciated, depleted, or amortized and on which exploration or
development activities are in progress. Deferred debt issue
costs and discount on senior secured notes are amortized on the
straight-line basis over the term of the related debt agreement.
The discount on senior secured notes is the amount attributable
to the detachable Common Stock purchase warrants.
Income Taxes:
------------
The Company accounts for income taxes in compliance with
Statement of Financial Accounting Standards No. 109 (SFAS No.
109) "Accounting for Income Taxes." Requirements by this standard
include recognition of future tax benefits, measured by enacted
tax rates, attributable to: deductible temporary differences
between financial statement and income tax bases of assets and
liabilities; and, net operating loss carryforwards. Recognition
of such tax assets are limited to the extent that realization of
such benefits is able to be reasonably anticipated.
Revenue Recognition:
-------------------
Oil and gas revenues are recognized using the accrual method
at the price realized as production and delivery occurs. Amounts
which are contingently receivable are not recognized until
realized.
Foreign Operations
------------------
The Company's future operations and earnings will depend
upon the results of the Company's operations in China. There can
be no assurance that the Company will be able to successfully
conduct such operations, and a failure to do so would have a
material adverse effect on the Company's financial position,
results of operations and cash flows. Also, the success of the
Company's operations will be subject to numerous contingencies,
some of which are beyond management's control. These
contingencies include general and regional economic conditions,
prices for crude oil and natural gas, competition and changes in
regulation. Since the Company is dependent on international
operations, specifically those in China, the Company will be
subject to various additional political, economic and other
uncertainties. Among other risks, the Company's operations will
be subject to the risks of restrictions on transfer of funds;
export duties, quotas and embargoes; domestic and international
customs and tariffs; and changing taxation policies, foreign
exchange restrictions, political conditions and governmental
regulations.
Stock Based Compensation:
------------------------
Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS No. 123")
encourages, but does not require companies to record compensation
costs for stock-based compensation plans at fair value. The
Company has chosen to continue to account for stock-based
employee compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation cost for
stock options, awards and warrants is measured as the excess, if
any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire
the stock.
Earnings Per Share:
------------------
During 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS No.
128") and has restated all years presented in accordance
therewith. SFAS No. 128 requires a dual presentation of basic
and diluted earnings per share ("EPS") on the face of the
statement of operations. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number
of common shares for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that
would then share in earnings.
Environmental Expenditures
--------------------------
Environmental expenditures relating to current operations
are expensed or capitalized, as appropriate, depending on whether
such expenditures provide future economic benefits. Liabilities
are recognized when the expenditures are considered probable and
can be reasonably estimated. Measurement of liabilities is based
on currently enacted laws and regulations, existing technology
and undiscounted site-specific costs. Generally, such
recognition coincides with the Company's commitment to a formal
plan of action.
Common Stock Reverse Split
--------------------------
Effective December 17, 1997, the Company amended and
restated its Certificate of Incorporation to effect a one-for-
fifteen reverse split of the Company's Common Stock. All share
amounts presented herein have been adjusted to reflect the
reverse split.
Recent Accounting Pronouncements
--------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which is effective for the Company's year
ending December 31, 1998. SFAS No. 130 establishes standards for
the reporting and displaying of comprehensive income and its
components. The Company will be analyzing SFAS No. 130 during
1998 to determine what, if any, additional disclosures will be
required.
In June 1997, the FASB Issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which
is effective the Company's year ended December 31, 1998. This
statement establishes standards for reporting of information
about operating segments. The Company will be analyzing SFAS No.
131 during 1998 to determine what, if any, additional disclosures
will be required.
(2) Liquidity and Management's Plan
The Company, in connection with its 1995 decision to dispose
of its domestic properties, is generating minimal annual revenues
and is devoting all of its efforts toward the development of its
China properties. Although the Company has cash available in the
amount of approximately $32 million as of December 31, 1997
(including restricted cash of approximately $10 million) and a
positive working capital position, management anticipates that
additional funds will be needed to meet all of its development
and exploratory obligations until sufficient cash flows are
generated from anticipated production to sustain its operations
and to fund future development and exploration obligations.
Management plans to generate the additional cash needed
through the sale or financing of its domestic assets held for
sale and the completion of additional equity, debt or joint
venture transactions. There is no assurance, however, that the
Company will be able to sell or finance its assets held for sale
or to complete other transactions in the future at commercially
reasonable terms, if at all, or that it will be able to meet its
future contractual obligations. If production from the China
properties commences in late 1998 or the first half of 1999, as
anticipated, the Company's proportionate share of the related
cash flow will be available to help satisfy cash requirements.
However, there is likewise no assurance that such development
will be successful and production will commence, and that such
cash flow will be available.
(3) Supplemental Cash Flow Information
There were no income taxes paid for the years ended December
31, 1997, 1996 and 1995.
The Company completed the following noncash transactions in
1997 and prior years in order to conserve cash for use in its
core activities and to meet other obligations while honoring
restrictions on cash use imposed by its bank agreement. Such
transactions not reported elsewhere herein are as follows:
1997
----
On January 9, 1997, the Company accepted subscriptions for
an aggregate of 21,057 shares of Series F Preferred Stock, issued
in February to three individuals for 18,448 shares; 1,731 shares
and 878 shares, respectively, at $65.00/share, in exchange for
$225,000 in cash, cancellation of a consulting agreement,
surrender of Common Stock and Warrants issued in connection with
a consulting agreement, surrender of rights to acquire units of
registered Common Stock and Warrants, surrender of certain
registration rights covering 3,000,000 shares; and surrender of
certain shares of Common Stock and Warrants issued in connection
with compensation for past fundraising activities, surrender of
rights to acquire units of registered Common Stock and Warrants
and certain registration rights covering 75,000 shares.
On May 20, 1997, the Company issued 11,816 shares of Amended
Series A Preferred Stock and 133,914 warrants to acquire shares
of Common Stock, in respect of approximately $1.0 million of
accrued interest payable to those institutional holders of
Secured Subordinated Debt who purchased $8 million of Amended
Series A Preferred Stock. The shares of Amended Series A
Preferred Stock were valued at $85.00 per share. The warrants
issued are first exercisable on May 20, 1998, at an exercise
price of $3.0945 per share, and expire on November 1, 2000.
In October, 1997, the Company issued 30,000 shares of Common
Stock and granted .003215% in aggregate Net Revenue Interest on
the Zhao Dong Block to, a former employee of the Company, and her
attorneys in settlement of litigation against the Company.
In October 1997, pursuant to an agreement effective October
1, 1997, the Company issued an aggregate of 53,333 shares of
Common Stock as compensation to a resident of Taiwan who has
performed services for the Company.
On November 11, 1997, the Company issued 26,667 shares of
Common Stock and stock purchase warrants to acquire 13,333 shares
of Common Stock to a consultant, as compensation pursuant to an
agreement dated effective as of February 20, 1997.
1996
----
In March and April 1996, the Company sold units of Common
Stock and Warrants through a placement agent in a Regulation S
unit offering. As compensation for such unit offering the
Company granted warrants to acquire an aggregate of 25,600 shares
of Common Stock.
As compensation for services performed resulting in Apache
Corp. purchasing an additional interest in the Zhao Dong Block,
during the first quarter the Company issued 3,333 shares of
Common Stock to a finder and amended the finder's existing
warrants to acquire 33,333 shares of Common Stock as to exercise
price, expiration date and forced conversion feature, to conform
the terms of such warrants to the terms of warrants granted in
the Regulation S unit offering noted above.
As compensation for identifying the placement agent for the
Regulation S unit offering, the finder earned a four percent
stock fee of the gross proceeds of the offering. In payment of
this fee, the Company during the first quarter, issued 17,817
shares of Common Stock in connection with the initial closing
and during the second quarter issued an aggregate 8,192 shares of
Common Stock as compensation for the subsequent closings.
Effective March 1, 1996, the terms of warrants issued to a
financial advisor were amended as partial consideration for
introducing to the Company the purchaser of the Gonzalez Gas
Unit, comprising a portion of the Berry R. Cox Field. The
warrant exercise price was reduced from $15.00 to $7.50 and the
term of the warrant was extended for three years to March 1,
1999.
During August 1996, the Company issued to a finder 18,666
warrants to purchase 18,666 shares of Common Stock, as
compensation for the placement with their clients of 186,666
units, comprised of shares of Common Stock and warrants to
purchase Common Stock.
During October 1996, the Company issued approximately 93,333
shares of Common Stock plus warrants to acquire 166,666 shares of
Common Stock, as compensation to an individual in consideration
for a consulting arrangement, whereby the consultant would
introduce persons interested in investing in China through the
Company. During February 1997, the consultant canceled the
consultant agreement and returned to the Company the shares and
warrants issued in connection therewith.
During October 1996, the Company issued 100,000 warrants to
acquire 100,000 shares of Common Stock, as compensation to an
individual for past fund raising services.
1995
----
During the first quarter of 1995, the Company issued 1,247
shares of Common Stock in payment of interest on funds escrowed
in advance of purchase of Series D Preferred Stock.
During September 1995, the Company issued 3,333 units, each
unit comprised of one share of Common Stock and a five-year
warrant to purchase one share of Common Stock, plus an additional
five-year warrant on the same terms as the unit warrant to
purchase 3,333 shares of Common Stock as compensation to an
individual who assisted the Company with a private placement of
approximately 200,000 units.
(4) Receivables
The Company's trade accounts receivable at December 31,
1997, arise primarily from business transactions with entities in
the oil and gas industry, mostly located in Texas. An oil and gas
purchaser with which the Company has contractual arrangements
accounted for approximately 76 percent of oil and gas revenue
receivables in 1997, 76 percent in 1996 and 67 percent in 1995.
(5) Assets Held for Sale and Investments
Assets Held for Sale
--------------------
Domestic Oil and Gas Properties
-------------------------------
During 1996, the Company was engaged in attempts to sell its
remaining domestic oil and gas properties and had a contract in
place for the sale of the property. Prior to the sale being
consummated, the Company received service of three lawsuits filed
by lessors of the most productive remaining leases, effectively
thwarting the Company's ability to consummate the sale by casting
doubt as to the Company's rights to certain interests in the
leases and demanding damages. While the Company believes that
the charges are without merit, it is of the opinion that the
property cannot be sold until such time as the litigation is
concluded or settled. In response to a request by the lessors'
counsel, the Company has granted the lessors an extension of time
to respond to discovery demands made by the Company and to allow
sufficient time to pursue settlement of this litigation (see Note
11). As a result of these lawsuits the Company took an
additional writedown of these properties aggregating $3.85
million during 1996.
Lutcher Moore Tract
-------------------
During 1993, the Company completed the acquisition of a
group of corporations which together owned 100 percent of an
unevaluated 62,500-acre tract in southeastern Louisiana (the
"Lutcher Moore Tract"). This property is pledged as collateral
for the Lutcher Moore limited recourse debt (see Note 6). 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
December 31, 1997, the Company has invested approximately $3.3
million in the project.
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
December 31, 1997, the Company has invested approximately $0.6
million in the project.
(6) Debt
Long-term debt consists of the following (000's):
December 31
-----------
1997 1996
---- ----
Senior secured notes, net of unamortized discount $ 61,310 $ --
Collateralized credit facility -- 17,279
Subordinated debt -- 15,000
Office building mortgage loan -- 652
------- -------
61,310 32,931
Lutcher Moore Group Limited Recourse Debt 2,524 5,091
------- ------
63,834 38,022
Less current maturities:
Lutcher Moore Group Limited Recourse Debt (2,524) (5,091)
Collateralized credit facility -- (17,279)
Subordinated Debt -- (15,000)
Other current maturities -- (652)
------- ------
$ 61,310 $ --
======= ======
Substantially all of the Company's assets collateralize
these borrowings. Accounts payable and accrued costs include
accrued interest at December 31, 1997 and 1996 of $1.8 million
and $1.5 million, respectively.
Senior Secured Notes
--------------------
On May 20, 1997, the Company sold in an unregistered
offering to qualified institutional buyers and accredited
institutional investors (the "Note Offering") 75,000 Note Units,
each consisting of $1,000 principal amount of 13.5% Senior
Secured Notes due May 1, 2004 (collectively, the "Notes") and one
Common Stock Purchase Warrant (collectively the "Note Warrants")
to purchase 85 shares of the Company's common stock, par value
$0.01 per share (the "Common Stock"), at an exercise price of
$3.09 per share, first exercisable after May 20, 1998. Total
funds received of $75 million were allocated, $15 million to the
Note Warrants and $60 million to the Notes. The value allocated
to the Note Warrants is being amortized to interest expense over
the term of the Notes. At December 31, 1997, the unamortized
discount on the Notes is approximately $13.7 million.
Interest on the Notes is payable semi-annually on May 1 and
November 1, commencing November 1, 1997. The Notes will mature
on May 1, 2004. The Notes are not redeemable at the option of the
Company prior to May 1, 2002, except that the Company may redeem,
at its option prior to May 1, 2002, up to 35% of the original
aggregate principal amount of the Notes, at a redemption price of
113.5% of the aggregate principal amount of the Notes, plus
accrued and unpaid interest, if any, to the date of redemption,
with the net proceeds of any equity offering completed within 90
days prior to such redemption; provided that at least $48.75
million in aggregate principal amount of the Notes remain
outstanding. On or after May 1, 2002, the Notes are redeemable
at the option of the Company, in whole or in part, at an initial
redemption price of 106.75% of the aggregate principal amount of
the Notes until May 1, 2003, and at par thereafter, plus accrued
and unpaid interest, if any, to the date of redemption. Upon the
occurrence of a change of control, as defined, the Company will
be obligated to make an offer to purchase all outstanding Notes
at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase.
Total interest expense incurred on the Notes was approximately
$6.2 million for the year ended December 31, 1997.
The Senior Secured Notes restrict, among other things, the
Company's ability to incur additional debt, incur liens, pay
dividends, or make certain other restricted payments. It also
limits the Company's ability to consummate certain asset sales,
enter into certain transactions with affiliates, enter into
mergers or consolidations, or dispose of substantially all the
Company's assets. The Company's ability to comply with such
covenants may be affected by events beyond its control. The
breach of any of these covenants could result in a default. A
default could allow holders of the Notes to declare all amounts
outstanding and accrued interest immediately due and payable.
Absent such payment, the holders could proceed against any
collateral granted to them to secure such indebtedness, which
includes all of the stock of the Company's principal operating
subsidiary, XCL-China, which has guaranteed such indebtedness. A
foreclosure on the stock of XCL China could trigger Apache's
right of first refusal under the Participation Agreement to
purchase such stock or its option to purchase the Company's
interest in the Contract. There can be no assurance that the
assets of the Company and XCL-China (a "Subsidiary Guarantor"),
or any other Subsidiary Guarantors would be sufficient to fully
repay the Notes and the Company's other indebtedness.
(7) Shareholders' Equity
Preferred Stock
---------------
As of December 31, 1997 and 1996, the Company had the
following shares of Preferred Stock issued and outstanding:
<TABLE>
<CAPTION>
Preference in 1997 Dividends
Shares Liquidation at (In Thousands)
1997 1996 December 31, 1997 Declared Accrued Total
---- ---- ----------------- ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Series A -- 577,803 $ -- $ 9,678 $ -- $ 9,678
Series B 44,465 44,954 4,446,500 262 186 448
Series E -- 46,654 -- 750 -- 750
Series F 22,318 -- 2,231,800 127 133 260
Amended Series A 1,129,453 -- 96,003,505 1,098 1,494 2,592
----------- ------ ----- ------
$102,681,805 $11,915 $1,813 $13,728
=========== ====== ===== ======
</TABLE>
Amended Series A Preferred Stock
--------------------------------
On May 20, 1997, the Company sold, in an unregistered
offering to qualified institutional buyers and accredited
institutional investors (the "Equity Offering") 294,118 Equity
Units, each consisting of one share of Amended Series A,
Cumulative Convertible Preferred Stock, par value $1.00 per share
("Amended Series A Preferred Stock"), and one Common Stock
Purchase Warrant (collectively, the "Equity Warrants") to
purchase approximately 22 shares of the Company's Common Stock,
at an initial exercise price of $3.09 per share, first
exercisable on May 20, 1998.
Each share of Amended Series A Preferred Stock has a
liquidation value of $85.00, plus accrued and unpaid dividends.
Dividends on the Amended Series A Preferred Stock are cumulative
from May 20, 1997 and are payable semi-annually, commencing
November 1, 1997, at an annual rate of $8.075 per share.
Dividends are payable in additional shares of Amended Series A
Preferred Stock (valued at $85.00 per share) through November 1,
2000, and thereafter in cash, or at the election of the Company,
in additional shares of Amended Series A Preferred Stock. The
Amended Series A Preferred Stock is convertible into Common
Stock, at any time after the first anniversary of the issue date,
at the option of the holders thereof, unless previously redeemed,
at an initial conversion price of $7.50 per share of Common Stock
(equivalent to a rate of 11 shares of Common Stock for each share
of Amended Series A Preferred Stock), subject to adjustment under
certain conditions. The Company is entitled to require
conversion of all the outstanding shares of Amended Series A
Preferred Stock, at any time after November 20, 1997 if the
Common Stock shall have traded for 20 trading days during any 30
consecutive trading day period at a market value equal to or
greater than 150% of the prevailing conversion rate.
The Amended Series A Preferred Stock is redeemable at any
time on or after May 1, 2002, in whole or in part, at the option
of the Company initially at a redemption price of $90.00 per
share and thereafter at redemption prices which decrease ratably
annually to $85.00 per share on and after May 1, 2006, plus
accrued and unpaid dividends to the redemption date. The Amended
Series A Preferred Stock is mandatorily redeemable, in whole, on
May 1, 2007, at a redemption price of $85.00 per share, plus
accrued and unpaid dividends to the redemption date, payable in
cash, or at the election of the Company, in Common Stock.
Upon the occurrence of a change in control or certain other
fundamental changes, the conversion price of the Amended Series A
Preferred Stock will be reduced, for a limited period, in certain
circumstances in order to provide holders with loss protection at
a time when the market value of the Common Stock is less than the
then prevailing conversion price.
The Amended Series A Preferred Stock will entitle the holder
thereof to cast the same number of votes as the shares of Common
Stock then issuable upon conversion thereof on any matter subject
to the vote of the holders of the Common Stock. Further, the
holders of the Amended Series A Preferred Stock will be entitled
to vote as a separate class (i) to elect two directors if the
Company is in arrears in payment of three semi-annual dividends,
and (ii) the approval of two-thirds of the then outstanding
Amended Series A Preferred Stock will be required for the
issuance of any class or series of stock ranking prior to the
Amended Series A Preferred Stock, as to dividends, liquidation
rights and for certain amendments to the Company's Certificate of
Incorporation that adversely affect the rights of holders of the
Amended Series A Preferred Stock.
Effective November 10, 1997, by consent of in excess of 88
percent of the outstanding shares of Series A Preferred Stock
such series of preferred stock was amended, reclassified and
converted to Amended Series A Preferred Stock. As a consequence
of such consent all dividend arrearages, and accrued and unpaid
dividends were paid in additional shares of Amended Series A
Preferred Stock. This amendment resulted in approximately
726,907 shares of Amended Series A Preferred Stock being issued
in respect of such reclassification and payment of dividends.
Effective November 10, 1997, by consent of in excess of 67
percent of the outstanding Series E Preferred Stock such series
of preferred stock was amended, reclassified and converted to
Amended Series A Preferred Stock. As a consequence of such
consent all accrued and unpaid dividends were paid in additional
shares of Amended Series A Preferred Stock. This amendment
resulted in approximately 63,706 shares of Amended Series A
Preferred Stock being issued in respect of such reclassification
and payment of dividends.
Series B Preferred Stock
------------------------
The Series B, Cumulative Convertible Preferred Stock, par
value $1.00 per share (the "Series B Preferred Stock") bears a
cumulative fixed dividend at an annual rate of $10 per share,
payable semiannually, and is entitled to 50 votes per share on
all matters on which Common Stockholders are entitled to vote and
separately as a class on certain matters; ranks senior to the
Common Stock and pari passu with the Amended Series A and Series
F Preferred Stocks of the Company with respect to the payment of
dividends and distributions on liquidation; and has a liquidation
preference of $100 per share plus accumulated dividends.
On May 16, 1995, the Company received notice from the Series
B Preferred holder exercising its redemption rights. The Company
elected to redeem in shares of Common Stock and the holder
exercised its option to have the Company sell its shares of
Common Stock. The aggregate redemption price was $5 million,
plus accrued dividends from January 1, 1995 to the date of
redemption. Approximately 5,535 shares had been redeemed at
December 31, 1997, from the sale of approximately 353,333 shares
of Common Stock. In July 1997, the holder of the Series B
Preferred Stock sued the Company and each of its directors with
respect to the alleged failure of the Company to redeem the
Series B Preferred Stock in accordance with the terms of the
Purchase Agreement and Certificate of Designation. In settlement
of that lawsuit in March 1998, the holder of the Series B
Preferred Stock revoked and withdrew its redemption notice and
sold its shares of Series B Preferred Stock and accompanying
warrants. The purchasers exchanged the stock and warrants for
44,465 shares of Amended Series B Preferred Stock and warrants to
purchase 250,000 shares of Common Stock at an exercise price of
$5.50 per share, subject to adjustment, expiring March 2, 2002,
and received 2,620 shares of Amended Series B Preferred Stock in
payment of all accrued and unpaid dividends on the Series B
Preferred Stock.
Each share of Amended Series B Preferred Stock has a
liquidation value of $100, plus accrued and unpaid dividends.
Dividends on the Amended Series B Preferred Stock are cumulative
from March 3, 1998 and are payable semi-annually on June 30 and
December 31 of each year, at an annual rate of $9.50 per share if
paid in cash. In lieu of payment in cash, the Company may, at
its option, elect to pay any dividend in kind in shares of either
Common Stock or Amended Series B Preferred Stock at the option
of the holder. If such dividend is paid in shares of Amended
Series B Preferred Stock, the dividend will be 0.0475 shares of
dividend stock per share of Amended Series B Preferred Stock
held. If the dividend is paid in shares of Common Stock, the
dividend shall equal the number of shares of Common Stock equal
to the quotient obtained by dividing $4.75 by the lowest average
closing price per share of Common Stock as calculated for the
last 5, 10 and 30 trading days preceding the dividend payment
date. Fractional shares will be paid in cash or aggregated and
sold on behalf of the holders. The Amended Series B Preferred
Stock is convertible into Common Stock, at any time after the
earlier of the effective date of the registration of such Common
Stock or August 31, 1998.
Series F Preferred Stock
------------------------
In January 1998, the holders of the Series F Preferred Stock
approved an amendment to the "forced conversion" terms of the
Series F Preferred Stock. Effective January 16, 1998, the
Company forced conversion of the Series F Preferred Stock and an
aggregate of 633,893 shares of Common Stock were issued upon
conversion and in payment of accrued and unpaid dividends. In
consideration for such amendment the holders of the Series F
Preferred Stock were issued warrants to acquire an aggregate of
153,332 shares of Common Stock at an exercise price of $0.15 per
share.
Dividends
---------
Prior to November 1997, dividends with respect to the Series
A Preferred Stock were in arrearage. Effective November 10, 1997,
the Series A Preferred Stock was amended, reclassified and
converted to Amended Series A Preferred Stock. As a consequence
of such consent all dividend arrearages, and accrued and unpaid
dividends were paid in additional shares of Amended Series A
Preferred Stock.
Dividends during 1997 and 1996 on the Series B Preferred
Stock were paid from proceeds of sales of redemption stock, which
were applied first to accrued dividend then the redemption of
shares of Series B Preferred Stock. On March 3, 1998, all
accrued and unpaid dividends on the Series B Preferred Stock were
paid in shares of Amended Series B Preferred Stock.
During 1996, the Company issued 2,218 shares of Series E
Preferred Stock in payment of the June 1996 dividends payable on
the Series E Preferred Stock. During 1997, the Company issued
5,261 shares of Series E Preferred Stock in payment of the
December 31, 1996 and June 30, 1997 dividends on the Series E
Preferred Stock. Effective November 10, 1997, the Series E
Preferred Stock was amended, reclassified and converted to
Amended Series A Preferred Stock. As a consequence of such
consent all dividend arrearages, and accrued and unpaid dividends
were paid in additional shares of Amended Series A Preferred
Stock.
During 1997, the Company issued 1,261 shares of Series F
Preferred Stock in payment of the June 30, 1997 dividends payable
on the Series F Preferred Stock.
On November 3, 1997, 12,906 shares of Amended Series A
Preferred Stock were issued in respect of the dividend payable
November 1, 1997, in the amount of $1.1 million. Upon conversion
of the Series A and Series E Preferred Stocks into Amended Series
A Preferred Stock, approximately $9.23 in accrued and unpaid
dividends on Series A Preferred Stock and approximately $0.2 in
accrued and unpaid dividends on the Series E Preferred Stock were
paid through the issuance of 790,613 additional shares of Amended
Series A Preferred Stock.
Common Stock
------------
The Company issued 1,322,034, 1,888,461 and 1,264,854
shares of Common Stock during 1997, 1996 and 1995, respectively.
The Company had 20,307,454, 18,980,805 and 16,909,532 shares of
Common Stock outstanding at December 31, 1997, 1996 and 1995,
respectively.
Common Stock Warrants
----------------------
As of December 31, 1997, outstanding warrants to purchase
the Company's Common Stock are as follows:
Common Stock
Issuable Upon Warrant Exercise Proceeds if
Exercise Price Exercised
---------- --------------- ---------
Total Warrants Expiring in 1998 6,667 $11.25 $ 75,000
Total Warrants Expiring after 1998 17,820,088 $0.15 to $22.50 69,000,193
---------- ----------
Total Warrants 17,826,755 $69,075,193
========== ==========
During November 1996, the Company offered a holder of
136,000 warrants exercisable at $5.25 per share a reduction in
the exercise price of such warrants to $1.875 per share in
exchange for the immediate exercise of such warrants and the
issuance of a like number of new warrants. In January 1997,
136,000 shares of Common Stock were issued upon the exercise of
the warrants and 136,000 new warrants were issued, exercisable at
$1.875 per share. The Company received $255,000 upon exercise of
these warrants.
During February 1997, the Company offered to reduce the
exercise price on a total of 368,000 warrants issued in
connection with Regulation S offerings in December 1995 and March
1996, in exchange for their immediate exercise. The offer was
made to reduce the warrant price from $3.75 to $3.30 per share.
One holder of 176,000 warrants accepted the offer and exercised
all 176,000 warrants for which the Company received net proceeds
of $555,400. The Placement Agent agreed to accept $0.15 per
share rather than 8% of the exercise price as required under the
Placement Agent Agreement.
During April 1997, the Company issued an aggregate of
200,000 shares of Common Stock upon the exercise of warrants at
$1.875 per share and received an aggregate of $375,000 upon
exercise of such warrants.
During August and October 1997, the Company issued an
aggregate of 100,000 shares of Common Stock upon the exercise of
warrants at $2.8125 per share and received proceeds of $281,250
upon exercise of such warrants.
During October 1997, the Company issued 24,000 shares of
Common Stock upon the exercise of warrants at $1.875 per share
and received $45,000 in proceeds from such exercise.
Loss Per Share
--------------
The following table sets forth the computation of basic and
diluted loss per share.
For the Years Ended December 31,
_________________________________
1997 1996 1995
---- ---- ----
Number of shares on which basic loss
per share is calculated: 20,541 17,705 16,047
Number of shares on which diluted
loss per share is calculated: 20,541 17,705 16,047
Net loss applicable to common
shareholders $ (27,722) $ (17,430) $ (92,658)
Basic loss per share $ (1.36) $ (0.98) $ (5.77)
Diluted loss per share $ (1.36) $ (0.98) $ (5.77)
The effect of 33,902,036, 5,103,082 and 4,398,380 shares of
potential common stock were anti-dilutive in 1997, 1996 and 1995,
respectively, due to the losses in all three years.
(8) Income Taxes
The Company has significant loss carryforwards which have
been recorded as deferred tax assets. Due to realization of such
amounts being deemed uncertain with respect to the provisions of
SFAS No. 109, a valuation allowance has been recorded for the
entire amount.
The significant components of the net deferred tax expense
(benefit) for 1997 and 1996, were as follows (000's):
1997 1996
---- ----
Current year domestic net operating loss $ (4,758) $ (4,387)
Current year Chinese deferred costs (356) (829)
Prior year under accrual of Chinese deferred costs (537) --
Tax/book depreciation, depletion and amortization
difference 3,149 3,046
Oil and gas property expenditures treated as
expense for income tax purposes -- 41
Other accruals 13 (1,348)
Reserve for investments -- (855)
Increase (decrease) in valuation allowance 2,489 4,332
------- -------
$ -- $ --
======= =======
The components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1996, were as follows (in
000's):
1997 1996
---- ----
Deferred tax assets:
Domestic net operating loss carryforwards $ 63,730 $ 58,972
Chinese deferred costs 4,439 3,546
Other liabilities and reserves 2,802 2,815
Property and equipment, net 12,593 15,742
Valuation allowance (83,564) (81,075)
------- ---------
Total deferred tax assets $ -- $ --
======== ========
At December 31, 1997, the Company had net operating loss
carryforwards for tax purposes in the approximate amount of $174
million which are scheduled to expire by the year 2012.
Additionally, the Company has available acquired net operating
loss carryforwards, in the approximate amount of $9 million,
which are scheduled to expire by the year 2000, and which are
available to offset taxable income of an acquired subsidiary. Use
of the net operating loss carryforwards is subject to
limitations under Section 382 of the Internal Revenue Code.
At December 31, 1997, the Company had alternative minimum
tax net operating loss carryforwards in the approximate amount of
$114 million, which are scheduled to expire by the year 2012.
Additionally, the Company has acquired alternative minimum tax
net operating loss carryforwards in the approximate amount of $12
million which are scheduled to expire by the year 2000, and which
are available for use by an acquired subsidiary. The Company
also has $1.0 million of general business credit carryforwards,
which are available until the year 2000 to offset future tax
liabilities of an acquired subsidiary. The Company also has
deferred costs associated with its Chinese operations of
approximately $13 million. The costs will be amortized and
deducted for Chinese tax purposes when the Company generates
revenue from its Chinese operations.
(9) Stock Option Plans
The Company's stock option plans, administered by the
compensation committee, provide for the issuance of incentive and
nonqualified stock options. Under these plans the Company is
authorized to grant options to selected employees, directors and
consultants to purchase shares of the Company's Common Stock at
an exercise price (for the Company's incentive stock options) of
not less than the market value at the time such options are
granted and are accounted for in accordance with Accounting
Principles Board Opinion No. 25. In June 1992, the shareholders
of the Company approved the adoption of the Company's Long-Term
Stock Incentive Plan ("LTSIP") under which the Company is
authorized to issue an aggregate of 16.5 million shares of Common
Stock pursuant to future awards granted thereunder.
In December 1997, the shareholders of the Company approved
the amendment and restatement of the Company's LTSIP, effective
as of June 1, 1997, (i) increasing the number of shares issuable
under the LTSIP by 4 million (post-split) shares of Common Stock,
(ii) authorizing 200,000 shares of preferred stock for issuance
under the LTSIP, and (iii) ratifying certain grants of non-
qualified stock options and restricted stock awards to certain
officers and directors of the Company. The LTSIP, as amended and
restated, also allows for the grant of appreciation option
awards. A grant of an appreciation option award to Mr. Miller was
ratified at that same meeting.
All of the restricted stock awards entitle the participants
to full dividend and voting rights and are restricted as to
disposition and subject to forfeiture under certain conditions.
The shares become unrestricted upon attainment of certain increases
in the market price of the Company's Common Stock within four years
of date of grant, as provided for in the plan. Upon issuance of
restricted shares, unearned compensation is charged to shareholders'
equity for the cost of restricted stock and recognized as expense
ratably over the earned period, as applicable. The amount recognized
for 1997 was not material because the measurement date was
December 17, 1997.
The appreciation option awarded to the Chairman provides him
with the right upon his payment of the exercise price (20% of
amount entitled to receive) to additional compensation payable in
cash or in shares of Common Stock based upon 5% of the difference
between the market capitalization (as defined) of the Company as
of June 1, 1997, and the date the option is exercised (no earlier
than June 1, 2002). Because the option contemplates compensation
determined with reference to increases in the market
capitalization without restriction, there is no effective limit
on the amount of compensation which may become payable
thereunder. Deferred compensation of $3.2 million was recorded in
connection with the appreciation option and is being amortized
over the service period. The appreciation option expires on June
1, 2007. Compensation expense recognized in 1997 was
approximately $373,000.
Non-qualified options granted on June 1, 1997 for an option
price of $3.75 per share resulted in compensation expense for
1997 of $481,000. The measurement date was established on
December 17, 1997, the date of shareholder approval.
A summary of the stock option plans activity for the years
ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION> Weighted Average
Shares Option Price Per Share Exercise Price
------- ---------------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 831,012 $12.50 - $22.50 $18.83
Granted 45,333 $18.75 $18.75
Forfeited (104,167) $12.50 - $22.50 $18.23
--------- ---------------
Outstanding at December 31, 1995 772,178 $12.50 - $22.50 $18.91
Granted 16,133 $18.75 $18.75
Forfeited (101,467) $18.75 - $22.50 $20.14
--------- ---------------
Outstanding at December 31, 1996 686,844 $12.50 - $22.50 $18.72
Granted 2,000,000 $3.75 $3.75
Forfeited (7,238) $18.75 - $22.50 $19.12
--------- ---------------
Outstanding at December 31, 1997 2,679,606 $3.75 - $22.50 $7.55
========= ==============
Options exercisable at December 31, 1997 676,451
=======
Options exercisable at December 31, 1998 676,089
=======
Options exercisable at December 31, 1999 683,888
=======
</TABLE>
The following table summarizes information about stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
______________________________________________________________________ __________________________________
Weighted average
Range of Outstanding at remaining life Weighted average Exercisable at Weighted Average
Exercise Prices December 31, 1997 years exercise price December 31, 1997 exercise price
- --------------- ---------------- --------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$3.75 2,000,000 9.5 $3.75 -- --
$18.75-$22.50 679,606 3.4 $18.72 676,451 $18.72
--------- -------- -----
2,679,606 676,451 $18.72
========= ======== =====
</TABLE>
The weighted average fair value of options granted during 1997
was $5.50.
If compensation expense for the stock options had been
determined and recorded based on the fair value on the grant date
using the Black-Scholes option pricing model to estimate the
theoretical future value of those options, the Company's net loss
per share amounts would have been reduced to the pro forma
amounts indicated below (000's, except per share data):
1997 1996 1995
---- ---- ----
Net loss as reported $ (27,722) $ (17,430) $ (92,658)
Compensation expense 1,012 126 537
------- ------- --------
Pro forma loss $ (28,734) $ (17,556) $ (93,195)
======= ======= ========
Pro forma loss per share:
Basic $ (1.40) $ (0.99) $ (5.81)
======== ======== ========
Diluted $ (1.40) $ (0.99) $ (5.81)
======== ======== ========
Weighted average shares 20,451 17,705 16,047
====== ====== ======
Due to uncertainties in these estimates, such as market prices,
exercise possibilities and the possibility of future awards and
cancellations, these pro forma disclosures are not likely to be
representative of the effects on reported income for future
years.
For pro forma purposes, the fair value of each option grant is
estimated on the date of grant with the following weighted
average assumptions:
1997 1996 1995
---- ---- ----
Expected life (years) 10 10 10
Interest rate 5.87% 6.68% 6.78%
Volatility 135.00% 100.00% 100.00%
Dividend yield -- -- --
(10) Employee Benefit and Incentive Compensation Plans
In 1989, the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code, for the benefit of
employees meeting certain eligibility requirements. The Company
has received a favorable determination letter from the Internal
Revenue Service regarding the tax favored status of the 401(k)
plan. Employees can contribute up to 10 percent of their
compensation. The Company, at its discretion and subject to
certain limitations, may contribute up to 75 percent of the
amount contributed by each participant. There were no Company
contributions in 1997, 1996 or 1995.
(11) Commitments and Contingencies
Other commitments and contingencies 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
its partner are responsible for all exploration costs. If a
commercial discovery is made, and if CNODC exercises its option
to participate in the development of the field, all development
and operating costs and related oil and gas production will be
shared up to 51 percent by CNODC and the remainder by the
Company and its partner.
The Production Sharing Agreement includes the following
additional principal terms:
The Production Sharing Agreement is basically divided
into three periods: the Exploration period, the
Development period and the Production period. Work to
be performed and expenditures to be incurred during the
Exploration period, which consists of three phases
totaling seven years from May 1, 1993, are the
exclusive responsibility of the Contractor (the Company
and its partner as a group). The Contractor's
obligations in the three exploration phases are as
follows:
1. During the first three years, the Contractor is
required to drill three wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $6 million. These obligations have
been met.
2. During the next two years, the Contractor is
required to drill two wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $4 million (The Contractor has
elected to proceed with the second phase of the
Contract. The seismic data acquisition
requirement for the second phase has been
satisfied.)
3. During the last two years, the Contractor is
required to drill two wildcat wells and expend a
minimum of $4 million.
4. The Production Period for any oil and/or gas field
covered by the Contract (the "Contract Area") will
be 15 consecutive years (each of 12 months),
commencing for each such field on the date of
commencement of commercial production (as
determined under the terms of the Contract).
However, prior to the Production Period, and
during the Development Period, oil and/or gas may
be produced and sold during a long-term testing
period.
The Production Sharing Agreement may be terminated by
the Contractor at the end of each phase of the
Exploration period, without further obligation.
o The Company is in dispute over a 1992 tax assessment by the
Louisiana Department of Revenue and Taxation for the years 1987
through 1991 in the approximate amount of $2.5 million. The
Company has also received a proposed assessment from the
Louisiana Department of Revenue and Taxation for income tax years
1991 and 1992, and franchise tax years 1992 through 1996 in the
approximate amount of $3.0 million. The Company has filed written
protests as to these proposed assessments, and will vigorously
contest the asserted deficiencies through the administrative
appeals process and, if necessary, litigation. The Company
believes that adequate provision has been made in the financial
statements for any liability.
o On July 26, 1996, an individual filed three lawsuits against
a wholly owned subsidiary with respect to oil and gas properties
held for sale. One suit alleges actual damage of $580,000 plus
additional amounts that could result from an accounting of a
pooled interest. Another seeks legal and related expenses of
$56,473 from an allegation the plaintiff was not adequately
represented before the Texas Railroad Commission. The third suit
seeks a declaratory judgement that a pooling of a 1938 lease and
another in 1985 should be declared terminated and further
plaintiffs seek damages in excess of $1 million to effect
environmental restoration. The Company believes these claims are
without merit and intends to vigorously defend itself.
o The Company is subject to other legal proceedings which
arise in the ordinary course of its business. In the opinion of
Management, the amount of ultimate liability with respect to
these actions will not materially affect the financial position
of the Company or results of operations of the Company.
(12) Supplemental Financial Information
Quarterly Results of Operations
Quarter
__________________________________
First Second Third Fourth Year
----- ------ ----- ------ ----
(Thousands of Dollars, Except Per Share Amounts)
1997
- ----
Oil and gas revenues $ 85 $ 53 $ 52 $ 46 $ 236
Loss from operations (816) (774) (976) (5,492) (8,058)
Net loss (1,211) (1,215) (417) (11,151) (13,994)
Net loss per share
Basic (0.15) (0.16) (0.11) (0.94) (1.36)
Diluted (0.15) (0.16) (0.11) (0.94) (1.36)
1996
- ----
Oil and gas revenues $ 576 $ 361 $ 94 $ 105 $ 1,136
Loss from operations (1,057) (1,970) (1,606) (5,160) (9,793)
Net loss (1,641) (3,062) (1,733) (5,638) (12,074)
Net loss per share
Basic (0.17) (0.20) (0.17) (0.38) (0.98)
Diluted (0.17) (0.20) (0.17) (0.38) (0.98)
Supplemental Oil and Gas Information (Unaudited)
The following supplementary information is presented in
accordance with the requirements of Statement of Financial
Accounting Standards No. 69 - "Disclosures About Oil and Gas
Producing Activities."
Results of Operations from U.S. Oil and Gas Producing
Activities
The results of operations from oil and gas producing
activities for the three years ended December 31, 1997 are as
follows (000's):
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
Revenues from oil and gas producing activities:
Sales to unaffiliated parties $ 236 $ 1,136 $ 2,480
----- ------- ------
Production (lifting) costs:
Operating costs (including marketing) 210 342 985
State production taxes and other 13 28 51
----- ------ ------
Production costs 223 370 1,036
Depletion and amortization 77 437 1,989
Provision for impairment of oil and gas properties -- 3,850 75,300
----- ------- -------
Total expenses 300 4,657 78,325
----- ------- -------
Pretax loss from producing activities (64) (3,521) (75,845)
Income tax expense -- -- --
----- ------- ------
Results of oil and gas producing activities
(excluding corporate overhead and interest costs) $ (64) $(3,521) $(75,845)
==== ====== =======
The depreciation, depletion and amortization (DD&A) rate
averaged $0.81, $0.96 and $1.23 per equivalent Mcf in 1997, 1996
and 1995, respectively.
Capitalized Costs
Capitalized costs relating to the Company's proved and
unevaluated oil and gas properties, are as follows (000's):
December 31
-----------------
1997 1996
---- ----
Foreign proved and unevaluated properties under
development $ 54,304 $ 34,305
The capitalized costs for the foreign properties represent
cumulative expenditures related to the Zhao Dong Block Production
Sharing Agreement and will not be depreciated, depleted or
amortized until production is achieved.
The Company's investment in oil and gas properties as of
December 31, 1997, includes proved and unevaluated properties
which have been excluded from amortization. Such costs will be
evaluated in future periods based on management's assessment of
exploration activities, expiration dates of licenses, permits and
concessions, changes in economic conditions and other factors. As
these properties become evaluated or developed, their cost and
related estimated future revenue will be included in the
calculation of the DD&A rate. Such costs were incurred as
follows:
Costs for foreign proved and unevaluated properties under
development were incurred as follows (000's):
Year Ended December 31
-----------------------------------
1994
Total 1997 1996 1995 and Prior
----- ---- ---- ---- --------
Property acquisition costs $ 40,616 $ 14,208 $ 4,223 $ 7,023 $ 15,162
Capitalized interest costs 13,688 5,791 2,767 2,596 2,534
------ ------ ------ ----- ------
Total foreign proved and
unevaluated properties
under development $ 54,304 $ 19,999 $ 6,990 $ 9,619 $ 17,696
====== ====== ===== ===== ======
Capitalized Costs Incurred
---------------------------
Total capitalized costs incurred by the Company with respect
to its oil and gas producing activities including those held for
sale were as follows (000's):
Year Ended December 31
------------------------
1997 1996 1995
---- ---- ----
Costs incurred:
Unproved properties acquired $ -- $ -- $ 7,209
Capitalized internal costs 2,466 822 135
Capitalized interest and amortized debt
costs 5,791 2,767 3,075
Exploration 6,833 3,401 --
Development 4,909 4 1,590
------ ----- ------
Total costs incurred $19,999 $6,994 $12,009
====== ===== ======
Proved Oil and Gas Reserves
The following table sets forth estimates of the Company's
net interests in proved and proved developed reserves of oil and
gas and changes in estimates of proved reserves. The Company's
net interests in 1997 and 1996 are located in China and in 1995
were located in the United States.
Crude Oil (MBbls)
------------------------
1997 1996 1995
---- ---- ----
Proved reserves -
Beginning of year 10,579 -- 294
Discoveries 1,183 10,579 --
Revisions of previous estimates -- -- 24
Production -- -- (19)
Purchases (sales) of minerals in place -- -- (241)
Transfer of property to assets held for sale -- -- (58)
------ ------ -----
End of year 11,762 10,579 --
====== ====== =====
Proved developed reserves -
Beginning of year -- -- 126
------ ----- -----
End of year -- -- --
====== ===== =====
Natural Gas (MMcf)
------------------------
1997 1996 1995
----- ---- -----
Proved reserves -
Beginning of year -- -- 74,208
Discoveries -- -- (9,003)
Revisions of previous estimates -- -- --
Production -- -- (1,474)
Purchases (sales) of minerals in place -- -- (6,274)
Transfer of property to assets held for sale -- -- (57,457)
----- ------ ------
End of year -- -- --
====== ====== ======
Proved developed reserves -
Beginning of year -- -- 34,792
------ ------ ------
End of year -- -- --
====== ====== ======
The Company's estimated quantities of oil and gas as of
December 31, 1997 were prepared by H.J. Gruy and Associates,
Inc., independent engineers.
The revisions in the Company's estimated quantities of gas
and oil are attributable to revised estimates by Company
engineers in 1995. For fiscal 1995 significant downward
revisions were attributed to the Company's interest in the Cox
Field in Texas due largely to performance of producing wells.
Supplementary Information
The supplementary information set forth below presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates. This information has
been prepared in accordance with requirements prescribed by the
Financial Accounting Standards Board (FASB). Inherent in the
underlying calculations of such data are many variables and
assumptions, the most significant of which are briefly described
below:
Future cash flows from proved oil and gas reserves were
computed on the basis of (a) contractual prices for oil and gas -
including escalations for gas - in effect at year-end, or (b) in
the case of properties being commercially developed but not
covered by contracts, the estimated market price for gas and the
posted price for oil in effect at year-end. Probable and
possible reserves - a portion of which, experience has indicated,
generally become proved once further development work has been
conducted - are not considered. Additionally, estimated future
cash flows are dependent upon the assumed quantities of oil and
gas delivered and purchased from the Company. Such deliverability
estimates are highly complex and are not only based on the
physical characteristics of a property but also include
assumptions relative to purchaser demand. Future prices actually
received may differ from the estimates in the standardized
measure.
Future net cash flows have been reduced by applicable
estimated operating costs, production taxes and future
development costs, all of which are based on current costs.
Future net cash flows are further reduced by future income
taxes which are calculated by applying the statutory federal
income tax rate to pretax future net cash flows after utilization
of available tax carryforwards.
To reflect the estimated timing of future net cash flows,
such amounts have been discounted by the Securities and Exchange
Commission prescribed annual rate of 10 percent.
In view of the uncertainties inherent in developing this
supplementary information, it is emphasized that the information
represents approximate amounts which may be imprecise and extreme
caution should accompany its use and interpretation.
Standardized Measure of Discounted Future Net Cash Flows Related
- ----------------------------------------------------------------
to Proved Oil and Gas Reserves
-------------------------------
The standardized measure of discounted future net cash flows
from proved oil and gas reserves, determined in accordance with
rules prescribed by FASB No. 69, is summarized as below, and does
not purport to present the fair market value of the Company's oil
and gas assets, but does present the present value of future cash
flows that would result under the assumptions used:
The Company previously excluded from this table, the effect of
income taxes because it believed it had a tax holiday in China.
Subsequent to December 31, 1997, the Company determined that it
would be subject to future income taxes iat the maximum rate of
33% in China. Accordingly, the table below has been revised to
include estimates of such income taxes.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1997 (a) 1996 (a) 1995 (a)
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Future cash inflows $ 205,765 $ 222,797 $ 103,048
Future costs:
Production, including taxes (45,624) (39,033) (20,937)
Development (41,093) (40,904) (35,276)
------- ------- -------
Future net inflows before income taxes 119,049 142,860 46,835
Future income taxes (c) (22,916) (35,658) -- (b)
------- ------- ------
Future net cash flows 96,133 107,202 46,835
10% discount factor (42,285) (44,596) (20,795)
------- ------- ------
Transfer of properties to assets held for sale -- -- (26,040)
-------- ------ ------
Standardized measure of discounted net cash flows $ 53,848 $ 62,606 $ --
======== ======= =======
</TABLE>
_____________
(a) 1997 and 1996 represent China properties only. 1995
represents U.S. properties being held for sale only.
(b) No taxes have been reflected because of utilization of net
operating loss carryforwards.
(c) Future income taxes are computed by applying the maximum
tax rate in China applicable to foreign-funded enterprises of
33%.
Changes in Standardized Measure of Discounted Future Net Cash
--------------------------------------------------------------
Flow From Proven Reserve Quantities
-----------------------------------
Year Ended December 31
-------------------------------
1997 (a) 1996 (a) 1995 (a)
-------- -------- --------
(Thousands of Dollars)
Standardized measure-beginning of year $ 62,606 $ -- $ 60,248
Increases (decreases):
Sales and transfers, net of production
costs -- -- (1,347)
Net change in sales and transfer prices,
net of production costs (16,396) -- (15,095)
Extensions, discoveries and improved
recovery, net of future costs -- 79,062 --
Changes in estimated future development
costs (219) -- (2,886)
Development costs incurred during the
period that reduced future development
costs -- -- 1,117
Revisions of quantity estimates -- -- (8,003)
Accretion of discount -- -- 6,024
Purchase (sales) of reserves in place -- -- (4,654)
Changes in production rates (timing) and
other -- -- (9,364)
Reclassification of reserves to assets
held for sale -- -- (26,040)
Net change in income taxes 7,857 (16,456) --
------- ------ -------
Standardized measure-end of year $ 53,848 $ 62,606 $ --
======= ======= =======
__________
(a) 1997 and 1996 represent China properties only. 1995
represents U.S. properties being held for sale only.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of XCL-China Ltd.
We have audited the financial statements of XCL-China Ltd. listed
in Item 14(a) of this Annual Report on Form 10-K. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of XCL-China Ltd. as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has not
generated production revenues and is dependent upon its parent to
meet its cash flow requirements and must, in conjunction with its
parent company, generate additional cash flows to satisfy its
development and exploratory obligations with respect to its oil
and gas properties. There is no assurance that the Company or its
parent will be able to generate the necessary funds to satisfy
these contractual obligations and to ultimately achieve
profitable operations, which creates substantial doubt about its
ability to continue as a going concern. Managements' plans in
regard to these matters are described in Note 2. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/S/ PRICEWATERHOUSECOOPERS LLP
Miami, Florida
April 10, 1998
<PAGE>
XCL-China, Ltd.
BALANCE SHEETS
(Thousands of Dollars)
December 31
--------------
A S S E T S 1997 1996
----------- ---- ----
Current assets:
Accounts receivable, net $ 101 $ 122
Other 2 45
----- -----
Total current assets 103 167
----- -----
Property and equipment:
Oil and gas (full cost method):
Proved undeveloped properties, not
being amortized 21,172 13,571
Unevaluated properties 33,132 21,238
------- ------
54,304 34,809
Other 167 138
------ ------
54,471 34,947
Accumulated depreciation (1) --
------ ------
54,470 34,947
------ ------
Other assets 668 --
------ ------
Total assets $ 55,241 $ 35,114
====== ======
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
- -------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued costs $ 285 $ 556
Due to joint venture partner 4,504 4,202
------ ------
Total current liabilities 4,788 4,758
------ ------
Due to parent 52,383 31,573
Commitments and contingencies (Notes 2 and 5)
Shareholders' equity:
Common stock-$.01 par value; authorized
5 million shares at December 31, 1997 and
1996; issued shares of 1,000 shares at
December 31, 1997 and 1996 -- --
Retained deficit (1,930) (1,217)
------- -------
Total shareholders' deficit (1,930) (1,217)
------- -------
Total liabilities and shareholders'
deficit $ 55,241 $ 35,114
======= ======
The accompanying notes are an integral part of these financial statements.\
<PAGE>
XCL-China, Ltd.
STATEMENTS OF OPERATIONS
(In Thousands)
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
Revenues $ -- $ -- $ --
---- ---- -----
Costs and operating expenses:
Depreciation 1 -- --
General and administrative costs 578 702 536
---- ----- -----
579 702 536
---- ----- -----
Operating loss (579) (702) (536)
---- ----- -----
Other income (expense):
Interest expense, net of amounts
capitalized (134) -- --
Interest income -- -- 49
----- ----- -----
(134) -- 49
----- ----- -----
Net loss $ (713) $ (702) $ (487)
===== ==== ====
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China
STATEMENTS OF SHAREHOLDERS' DEFICIT
(Thousands of Dollars)
Balance, December 31, 1994 $ (28)
Net loss (487)
-------
Balance, December 31, 1995 (515)
Net loss (702)
-------
Balance, December 31, 1996 (1,217)
Net loss (713)
-------
Balance, December 31, 1997 $ (1,930)
=======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China, Ltd.
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Year Ended December 31
---------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net loss $ (713) $ (702) $ (487)
----- ----- -----
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 1 -- --
Change in assets and liabilities:
Accounts receivable 21 (58) 624
Accounts payable and accrued costs 30 2,825 801
Other, net (625) 83 81
----- ------ -----
Total adjustments (573) 2,850 1,506
----- ------ -----
Net cash (used in) provided
by operating activities (1,286) 2,148 1,019
----- ------ -----
Cash flows from investing activities:
Capital expenditures (15,889) (4,237) (7,284)
Other -- 249 (179)
------ ------ ------
Net cash used in investing
activities (15,889) (3,988) (7,463)
------ ------ ------
Cash flows from financing activities:
Loan proceeds 6,100 -- --
Payment of long-term debt (6,100) -- --
Due to parent 17,175 1,840 4,468
------ ------ ------
Net cash provided by financing
activities 17,175 1,840 4,468
------ ------ ------
Net increase (decrease) in cash and cash
equivalents -- -- (1,976)
Cash and cash equivalents at beginning of year -- -- 1,976
------ ------ ------
Cash and cash equivalents at end of year $ -- $ -- $ --
====== ===== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China, Ltd.
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies:
Basis of Presentation:
---------------------
The financial statements include the accounts of XCL-China
Ltd. (the "Company"), a wholly owned subsidiary of XCL Ltd. (the
"parent").
Use of Estimates in the Preparation of Financial Statements:
-----------------------------------------------------------
The preparation of the Company's financial statements, in
conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues and expenses
and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Oil and Gas Properties:
----------------------
The Company accounts for its oil and gas exploration and
production activities using the full cost method of accounting
for oil and gas properties. Accordingly, all costs associated
with acquisition, exploration, and development of oil and gas
reserves, including appropriate related costs, are capitalized.
The Company capitalizes internal costs that can be directly
identified with its acquisition, exploration and development
activities and does not capitalize any costs related to
production, general corporate overhead or similar activities.
The capitalized costs of oil and gas properties, including
the estimated future costs to develop proved reserves, are
amortized on the unit-of-production method based on estimates of
proved oil and gas reserves. The reserves in 1997 and 1996 were
estimated by independent petroleum engineers. Investments in
unproved properties and major development projects are not
amortized until proved reserves associated with the projects can
be determined or until impairment occurs. If the results of an
assessment indicate that properties are impaired, the amount of
the impairment is added to the capitalized costs to be depleted.
The Company capitalizes interest on expenditures made in
connection with exploration and development projects that are not
subject to current amortization. Interest is capitalized for the
period that activities are in progress to bring these projects to
their intended use.
The Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis, and limits
capitalized costs of oil and gas properties to the present value
of estimated future net revenues from proved reserves, discounted
at 10 percent, plus the lower of cost or fair value of unproved
properties as adjusted for related tax effects and deferred tax
reserves. If capitalized costs exceed this limit, the excess is
charged to depreciation and depletion expense.
Proceeds from the sale of proved and unproved properties are
accounted for as reductions to capitalized costs with no gain or
loss recognized unless such sales would significantly alter the
relationship between capitalized costs and proved reserves of oil
and gas. Abandonments of properties are accounted for as
adjustments of capitalized costs with no loss recognized.
The Company accounts for site restoration, dismantlement and
abandonment costs in its estimated future costs of proved
reserves. Accordingly, such costs are amortized on a unit of
production basis and reflected with accumulated depreciation,
depletion and amortization. The Company identifies and estimates
such costs based upon its assessment of applicable regulatory
requirements, its operating experience and oil and gas industry
practice in the areas within which its properties are located.
To date the Company has not been required to expend any material
amounts to satisfy such obligations. The Company does not expect
that future costs will have a material adverse effect on the
Company's operations, financial condition or cash flows. The
standardized measure of discounted future net cash flows includes
a deduction for any such costs.
Capitalized Interest:
- --------------------
During fiscal 1997, 1996 and 1995, interest and associated
costs of approximately $5.8 million, $2.8 million and $3.1
million, respectively were capitalized on significant investments
in oil and gas properties that are not being currently
depreciated, depleted, or amortized and on which exploration or
development activities are in progress.
Revenue Recognition:
-------------------
Oil and gas revenues will be recognized using the accrual
method at the price realized as production and delivery occurs.
Foreign Operations
------------------
The Company's future operations and earnings will depend
upon the results of the Company's operations in China. There can
be no assurance that the Company will be able to successfully
conduct such operations, and a failure to do so would have a
material adverse effect on the Company's financial position,
results of operations and cash flows. Also, the success of the
Company's operations will be subject to numerous contingencies,
some of which are beyond management's control. These
contingencies include general and regional economic conditions,
prices for crude oil and natural gas, competition and changes in
regulation. Since the Company is dependent on international
operations, specifically those in China, the Company will be
subject to various additional political, economic and other
uncertainties. Among other risks, the Company's operations will
be subject to the risks of restrictions on transfer of funds;
export duties, quotas and embargoes; domestic and international
customs and tariffs; and changing taxation policies, foreign
exchange restrictions, political conditions and governmental
regulations.
(2) Liquidity and Management's Plan
The Company's parent, in connection with its 1995 decision
to dispose of its domestic properties, is devoting all of its
efforts toward the development of the Company's properties. The
Company has historically relied on its parent to meet its cash
flow requirements. Although the parent has cash available in the
amount of approximately $32 million as of December 31, 1997
(including restricted cash of approximately $10 million) and a
positive working capital position, management anticipates that
the Company and its parent will need additional funds to meet all
of the development and exploratory obligations until sufficient
cash flows are generated from anticipated production to sustain
operations and to fund future development and exploration
obligations.
The parent plans to generate the additional cash needed
through the sale or financing of its domestic assets held for
sale and the completion of additional equity, debt or joint
venture transactions. There is no assurance, however, that the
parent will be able to sell or finance its assets held for sale
or to complete other transactions in the future at commercially
reasonable terms, if at all, or that the Company will be able to
meet its future contractual obligations. If production from the
Company's properties commences in late 1998 or the first half of
1999, as anticipated, the Company's proportionate share of the
related cash flow will be available to help satisfy cash
requirements. However, there is likewise no assurance that such
development will be successful and production will commence, and
that such cash flow will be available.
(3) Supplemental Cash Flow Information
There were no income taxes paid for the years ended December
31, 1997, 1996 and 1995.
(4) Income Taxes
Foreign income taxes are accounted for under the tax
structure in that country, principally China. As of December 31,
1997, the Company does not have undistributed earnings available
to its parent because of accumulated losses. Further, such
losses have provided no tax benefit to the parent company and
accordingly, there has been no tax impact. When necessary the
Company will enter into an appropriate tax sharing arrangement
with its parent.
(5) Other Commitments and Contingencies
Other commitments and contingencies 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
its partner are responsible for all exploration costs. If a
commercial discovery is made, and if CNODC exercises its option
to participate in the development of the field, all development
and operating costs and related oil and gas production will be
shared up to 51 percent by CNODC and the remainder by the
Company and its partner.
The Production Sharing Agreement includes the following
additional principal terms:
The Production Sharing Agreement is basically divided
into three periods: the Exploration period, the
Development period and the Production period. Work to
be performed and expenditures to be incurred during the
Exploration period, which consists of three phases
totaling seven years from May 1, 1993, are the
exclusive responsibility of the Contractor (the Company
and its partner as a group). The Contractor's
obligations in the three exploration phases are as
follows:
1. During the first three years, the Contractor is
required to drill three wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $6 million. These obligations have
been met;
2. During the next two years, the Contractor is
required to drill two wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $4 million (The Contractor has
elected to proceed with the second phase of the
Contract. The seismic data acquisition
requirement for the second phase has been
satisfied.);
3. During the last two years, the Contractor is
required to drill two wildcat wells and expend a
minimum of $4 million.
4. The Production Period for any oil and/or gas field
covered by the Contract (the "Contract Area") will
be 15 consecutive years (each of 12 months),
commencing for each such field on the date of
commencement of commercial production (as
determined under the terms of the Contract).
However, prior to the Production Period, and
during the Development Period, oil and/or gas may
be produced and sold during a long-term testing
period.
The Production Sharing Agreement may be terminated by
the Contractor at the end of each phase of the
Exploration period, without further obligation.
(6) Related Party Transactions
The Company has consistently borrowed money from its parent
for the acquisition of its oil and gas properties. The amount due
the parent as of December 31, 1997 is approximately $52 million.
All of the Common Stock of the Company has been pledged as collateral
for parent company debt and the Company is a guarantor on certain
Senior Secured Notes described below.
Senior Secured Notes of Parent Company
--------------------------------------
On May 20, 1997, the parent company sold in an unregistered
offering to qualified institutional buyers and accredited
institutional investors 75,000 Note Units, each consisting of
$1,000 principal amount of 13.5% Senior Secured Notes due May 1,
2004 and one Common Stock Purchase Warrant to purchase 85 shares
of the parent's common stock, par value $0.01 per share (the
"Common Stock"), at an exercise price of $3.09 per share, first
exercisable after May 20, 1998.
Interest on the Notes is payable semi-annually on May 1 and
November 1, commencing November 1, 1997. The Notes will mature
on May 1, 2004. The Notes are not redeemable at the option of the
parent prior to May 1, 2002, except that the parent may redeem,
at its option prior to May 1, 2002, up to 35% of the original
aggregate principal amount of the Notes, at a redemption price of
113.5% of the aggregate principal amount of the Notes, plus
accrued and unpaid interest, if any, to the date of redemption,
with the net proceeds of any equity offering completed within 90
days prior to such redemption; provided that at least $48.75
million in aggregate principal amount of the Notes remain
outstanding. On or after May 1, 2002, the Notes are redeemable
at the option of the parent, in whole or in part, at an initial
redemption price of 106.75% of the aggregate principal amount of
the Notes until May 1, 2003, and at par thereafter, plus accrued
and unpaid interest, if any, to the date of redemption.
The Senior Secured Notes restrict, among other things, the
parent's and its subsidiaries ability to incur additional debt,
incur liens, pay dividends, or make certain other restricted
payments. It also limits the parent's ability to consummate
certain asset sales, enter into certain transactions with
affiliates, enter into mergers or consolidations, or dispose of
substantially all the parent's assets. The parent's ability
to comply with such covenants may be affected by events beyond
its control. The breach of any of these covenants could result
in a default. A default could allow holders of the Notes to declare
all amounts outstanding and accrued interest immediately due and payable.
A foreclosure on the stock of the Company could trigger Apache's
right of first refusal under the Participation Agreement to
purchase such stock or its option to purchase the parent's
interest in the Contract. There can be no assurance that the
assets of the parent and the Company, or any other Subsidiary
Guarantors would be sufficient to fully repay the Notes and the
parent's other indebtedness.
Supplemental Oil and Gas Information (Unaudited)
The following supplementary information is presented in
accordance with the requirements of Statement of Financial
Accounting Standards No. 69 - "Disclosures About Oil and Gas
Producing Activities."
Capitalized Costs
-----------------
Capitalized costs relating to the Company's proved and
unevaluated oil and gas properties, are as follows (000's):
December 31
----------------
1997 1996
---- ----
Proved and unevaluated properties under development $ 54,304 $ 34,305
The capitalized costs for the oil and gas properties
represent cumulative expenditures related to the Zhao Dong Block
Production Sharing Agreement and will not be depreciated,
depleted or amortized until production is achieved.
The Company's investment in oil and gas properties as of
December 31, 1997, includes proved and unevaluated properties
which have been excluded from amortization. Such costs will be
evaluated in future periods based on management's assessment of
exploration activities, expiration dates of licenses, permits and
concessions, changes in economic conditions and other factors. As
these properties become evaluated or developed, their cost and
related estimated future revenue will be included in the
calculation of the DD&A rate. Such costs were incurred as
follows:
Costs for proved and unevaluated properties under
development were incurred as follows (000's):
Year Ended December 31
--------------------------------------
1994
Total 1997 1996 1995 and Prior
----- ---- ---- ---- ---------
Property acquisition costs $ 40,616 $ 14,208 $ 4,223 $ 7,023 $ 15,162
Capitalized interest costs 13,688 5,791 2,767 2,596 2,534
------- ------ ------- ----- ------
Total proved and
unevaluated properties
under development $ 54,304 $ 19,999 $ 6,990 $ 9,619 $ 17,696
======= ======= ====== ====== ======
Capitalized Costs Incurred
--------------------------
Total capitalized costs incurred by the Company with respect
to its oil and gas producing activities were as follows (000's):
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
Costs incurred:
Unproved properties acquired $ -- $ -- $ 5,298
Capitalized internal costs 2,466 822 135
Capitalized interest and amortized
debt costs 5,791 2,767 2,596
Exploration 6,833 3,401 --
Development 4,909 -- 1,590
------- ----- -------
Total costs incurred $ 19,999 $ 6,990 $ 9,619
======= ====== ======
Proved Oil and Gas Reserves
The following table sets forth estimates of the Company's
net interests in proved and proved developed reserves of oil and
gas and changes in estimates of proved reserves.
Crude Oil (MBbls)
----------------
1997 1996
---- ----
Proved reserves -
Beginning of year 10,579 --
Discoveries 1,183 10,579
Revisions of previous estimates -- --
Production -- --
Purchases (sales) of minerals in place -- --
Transfer of property to assets held for sale -- --
------ ------
End of year 11,762 10,579
====== ======
Proved developed reserves -
Beginning of year -- --
===== ======
End of year -- --
===== ======
The Company's estimated quantities of oil and gas as of
December 31, 1997 were prepared by H.J. Gruy and Associates,
Inc., independent engineers.
Supplementary Information
The supplementary information set forth below presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates. This information has
been prepared in accordance with requirements prescribed by the
Financial Accounting Standards Board (FASB). Inherent in the
underlying calculations of such data are many variables and
assumptions, the most significant of which are briefly described
below:
Future cash flows from proved oil and gas reserves were
computed on the basis of (a) contractual prices for oil and gas -
including escalations for gas - in effect at year-end, or (b) in
the case of properties being commercially developed but not
covered by contracts, the estimated market price for gas and the
posted price for oil in effect at year-end. Probable and
possible reserves - a portion of which, experience has indicated,
generally become proved once further development work has been
conducted - are not considered. Additionally, estimated future
cash flows are dependent upon the assumed quantities of oil and
gas delivered and purchased from the Company. Such deliverability
estimates are highly complex and are not only based on the
physical characteristics of a property but also include
assumptions relative to purchaser demand. Future prices actually
received may differ from the estimates in the standardized
measure.
Future net cash flows have been reduced by applicable
estimated operating costs, production taxes and future
development costs, all of which are based on current costs.
Future net cash flows are further reduced by future income
taxes which are calculated by applying the statutory federal
income tax rate to pretax future net cash flows after utilization
of available tax carryforwards.
To reflect the estimated timing of future net cash flows,
such amounts have been discounted by the FASB prescribed annual
rate of 10 percent.
In view of the uncertainties inherent in developing this
supplementary information, it is emphasized that the information
represents approximate amounts which may be imprecise and extreme
caution should accompany its use and interpretation.
Standardized Measure of Discounted Future Net Cash Flows Related
to Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows
from proved oil and gas reserves, determined in accordance with
rules prescribed by FASB No. 69, is summarized as below, and does
not purport to present the fair market value of the Company's oil
and gas assets, but does present the present value of future cash
flows that would result under the assumptions used:
The Company previously excluded from this table, the effect of
income taxes because it believed it had a tax holiday in China.
Subsequent to December 31, 1997, the Company determined that it
would be subject to future income taxes at the maximum rate of
33% in China. Acccordingly, the table below has been revised to
include estimates of such income taxes.
Year Ended December 31
--------------------
1997 1996
---- ----
(Thousands of Dollars)
Future cash inflows $ 205,765 $ 222,797
Future costs:
Production, including taxes (45,623) (39,033)
Development (41,093) (40,904)
------- -------
Future net inflows before income taxes 119,049 142,860
Future income taxes (1) (22,916) (35,658)
------- --------
Future net cash flows 96,133 107,202
10% discount factor (42,285) (44,596)
Transfer of properties to assets held for sale -- --
------- --------
Standardized measure of discounted net cash flows $ 53,848 $ 62,606
======= =======
- -------------------
(1) Future income taxws are computed by applying the maximum tax rate in China
applicable to foreign-funded enterprises of 33%.
Changes in Standardized Measure of Discounted Future Net Cash
Flow From Proven Reserve Quantities
Year Ended December 31
----------------------
1997 1996
---- ----
(Thousands of Dollars)
Standardized measure-beginning of year $ 62,606 $ --
Increases (decreases):
Sales and transfers, net of production costs -- --
Net change in sales and transfer prices, net of
production costs (16,396) --
Extensions, discoveries and improved recovery,
net of future costs -- 79,062
Changes in estimated future development costs (219) --
Development costs incurred during the period that
reduced future development costs -- --
Revisions of quantity estimates -- --
Accretion of discount -- --
Purchase (sales) of reserves in place -- --
Changes in production rates (timing) and other -- --
Reclassification of reserves to assets held for sale -- --
Net change in income taxes 7,857 (16,456)
------ -------
Standardized measure-end of year $ 53,848 $ 62,606
====== =======
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) The following documents are filed as a part of this report.
Financial Statements
- --------------------
The following documents are included in Part II, Item 8 of
this report:
Page
XCL Ltd. and Subsidiaries:
Report of Independent Accountants
Consolidated Balance Sheet as of December 31, 1997 and December 31, 1996
Consolidated Statement of Operations for each of the three years
in the period ended December 31, 1997
Consolidated Statement of Shareholders' Equity for each of the
three years in the period ended December 31, 1997
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 31, 1997
Notes to Consolidated Financial Statements
XCL-China Ltd. (wholly-owned):
- -----------------------------
Report of Independent Accountants
Balance Sheet as of December 31, 1997 and December 31,1996
Statement of Operations for each of the three years in the period
ended December 31, 1997
Statement of Shareholders' Deficit for each of the three years in
the period ended December 31, 1997
Statement of Cash Flows for each of the three years in
the period ended December 31, 1997
Notes to Financial Statements
Financial Statement Schedules
- -----------------------------
Certain financial statement schedules are omitted because of
the absence of the conditions under which they are required.
XCL Ltd. and Subsidiaries:
Schedule II-Valuation and Qualifying Accounts
Executive Compensation Plans and Arrangements
- ----------------------------------------------
Form of Long Term Stock Incentive Plan as Amended and Restated
Effective as of June 1, 1997 - See Appendix C to Proxy Statement
dated November 20, 1997.
Form of Appreciation Grant Agreement between the Company and Mr.
M.W. Miller, Jr. - See Appendix D to Proxy Statement dated
November 20, 1997.
Form of Services Agreement dated August 1, 1997, between the
Company and Mr. Benjamin B. Blanchet, an officer of the Company.
- - See Exhibit 10.46 hereto.
Form of Promissory Note dated August 1, 1997, in a principal
amount of $100,000, made in favor of the Company by Mr. Benjamin
B. Blanchet, an officer of the Company. See Exhibit 10.47
hereto.
Form of Indemnification Agreement by and between the Company and
various officers and directors - See Appendix II to Proxy
Statement dated November 13, 1987.
Stock Option Agreement by and between the Company and Marsden W.
Miller, Jr. dated July 11, 1987 - See Appendix VIII to Proxy
Statement dated November 13, 1987.
Amended and Restated 1987 Incentive Stock Option and Stock Option
Plans - See Exhibit 4 to Current Report on Form 8-K filed
February 10, 1989.
Long Term Stock Incentive Plan between the Company and certain
employees - See Exhibit A to Proxy Statement dated May 11, 1992.
Consulting Agreement by and between the Company and Mr. R. Thomas
Fetters, Jr. dated June 1, 1997. - See Exhibit 10.44 hereto.
Consulting Agreement by and between the Company and Sir Michael
Palliser dated May 1, 1994. - See Exhibit 10.4 hereto.
Consulting Agreement by and between the Company and Mr. Arthur W.
Hummel. Jr. dated May l, 1994. - See Exhibit 10.5 hereto.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated October 3, 1997, was
filed to report (i) the test results of the Company's C-4 well on
the Zhao Dong Block, (ii) the release of funds held in escrow
from the May 20, 1997 Note Offering, and (iii) the sale of 24,000
shares of Common Stock through the exercise of stock purchase
warrants, pursuant to Regulation S under the Securities Act.
A Current Report on Form 8-K dated October 21, 1997, was
filed to report the sale of 100,000 shares of Common Stock
through the exercise of stock purchase warrants and the issuance
of an aggregate of 53,333 shares of Common Stock as compensation
to a resident of Taiwan, all pursuant to Regulation S under the
Securities Act.
(c) Exhibits required by Item 601 of Regulation S-K
(a) Exhibits required by Item 601 of Regulation S-K.
2.0 Not applicable
3(i) Articles of incorporation
3.1 Amended and Restated Certificate of Incorporation of the
Company dated December 17, 1998. +
3(ii) Amended and Restated Bylaws of the Company as currently
in effect. (A)(i)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Forms of Common Stock Certificates. *
4.2 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.
(D)(i)
4.3 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 (now known as
ChaseMellon Shareholder Services) serves as the Company's
Registrar and U.S. Transfer Agent. (E)
4.4 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. (D)(ii)
4.5 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. (D)(iii)
4.6 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. (C)(i)
4.7 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. (C)(ii)
4.8 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. (C)(iii)
4.9 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. (C)(iv)
4.10 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. (C)(v)
4.11 Form of Purchase Agreement between the Company and each
of the Purchasers of Units in the Regulation S Unit Offering
conducted by Rauscher Pierce & Clark with closings as
follows:
December 22, 1995 116 Units
March 8, 1996 34 Units
April 23, 1996 30 Units (J)(i)
4.12 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
April 23, 1996 1,800,000 $.35 (J)(ii)
4.13 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
April 23, 1996 180,000 $.35 (J)(iii)
4.14 Form of a series of Stock Purchase Warrants issued to
Janz Financial Corp. Ltd. dated August 14, 1996, entitling
the holders thereof to purchase up to 3,080,000 shares of
Common Stock at $0.25 per share on or before August 13,
2001. (M)(i)
4.15 Stock Purchase Agreement between the Company and
Provincial Securities Ltd. dated August 16, 1996, whereby
Provincial purchased 1,500,000 shares of Common Stock in a
Regulation S transaction. (M)(ii)
4.16 Stock Purchase Warrant issued to Terrenex Acquisitions
Corp. dated August 16, 1996, entitling the holder thereof to
purchase up to 3,000,000 shares of Common Stock at $0.25 per
share on or before December 31, 1998. (M)(iii)
4.17 Form of a series of Stock Purchase Warrants dated
November 26, 1996, entitling the following holders thereto
to purchase up to 2,666,666 shares of Common Stock at $0.125
per share on or before December 31, 1999:
Warrant Holder Warrants
Opportunity Associates, L.P. 133,333
Kayne Anderson Non-Traditional
Investments, L.P. 666,666
Arbco Associates, L.P. 800,000
Offense Group Associates, L.P. 333,333
Foremost Insurance Company 266,667
Nobel Insurance Company 133,333
Evanston Insurance Company 133,333
Topa Insurance Company 200,000 (N)(i)
4.18 Form of a series of Stock Purchase Warrants dated
December 31, 1996 (2,128,000 warrants) and January 8, 1997
(2,040,000 warrants) to purchase up to an aggregate of
4,168,000 shares of Common Stock at $0.125 per share on or
before August 13, 2001. (N)(ii)
4.19 Form of Stock Purchase Warrants dated February 6, 1997,
entitling the following holders to purchase an aggregate of
1,874,467 shares of Common Stock at $0.25 per share on or
before December 31, 1999:
Warrant Holder Warrants
Donald A. and Joanne R. Westerberg 241,660
T. Jerald Hanchey 1,632,807 (N)(iii)
4.20 Form of a series of Stock Purchase Warrants dated April
10, 1997, issued as a part of a unit offered with Unsecured
Notes of XCL-China Ltd., exercisable at $0.01 per share on
or before April 9, 2002, entitling the following holders to
purchase up to an aggregate of 10,092,980 shares of Common
Stock:
Warrant Holder Warrants
Kayne Anderson Offshore L.P. 651,160
Offense Group Associates, L.P. 1,627,900
Kayne Anderson Non-Traditional
Investments, L.P. 1,627,900
Opportunity Associates, L.P. 1,302,320
Arbco Associates, L.P. 1,627,900
J. Edgar Monroe Foundation 325,580
Estate of J. Edgar Monroe 976,740
Boland Machine & Mfg. Co., Inc. 325,580
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. 1,627,900 (N)(iv)
4.21 Form of Purchase Agreement dated May 13, 1997, between
the Company and Jefferies & Company, Inc. (the "Initial
Purchaser") with respect to 75,000 Units each consisting of
$1,000 principal amount of 13.5% Senior Secured Notes due
May 1, 2004, Series A and one warrant to purchase 1,280
shares of the Company's Common Stock with an exercise price
of $0.2063 per share ("Note Warrants"). (O)(i)
4.22 Form of Purchase Agreement dated May 13, 1997, between
the Company and Jefferies & Company, Inc. (the "Initial
Purchaser") with respect to 294,118 Units each consisting of
one share of Amended Series A, Cumulative Convertible
Preferred Stock ("Amended Series A Preferred Stock") and one
warrant to purchase 327 shares of the Company's Common Stock
with an exercise price of $0.2063 per share ("Equity
Warrants"). (O)(ii)
4.23 Form of Warrant Agreement and Warrant Certificate dated
May 20, 1997, between the Company and Jefferies & Company,
Inc., as the Initial Purchaser, with respect to the Note
Warrants. (O)(iii)
4.24 Form of Warrant Agreement and Warrant Certificate dated
May 20, 1997, between the Company and Jefferies & Company,
Inc., as the Initial Purchaser, with respect to the Equity
Warrants. (O)(iv)
4.25 Form of Designation of Amended Series A Preferred Stock
dated May 19, 1997. (O)(v)
4.26 Form of Amended Series A Preferred Stock certificate.
(O)(vi)
4.27 Form of Global Unit Certificate for 75,000 Units
consisting of 13.5% Senior Secured Notes due May 1, 2004 and
Warrants to Purchase Shares of Common Stock. (O)(vii)
4.28 Form of Global Unit Certificate for 293,765 Units
consisting of Amended Series A Preferred Stock and Warrants
to Purchase Shares of Common Stock. (O)(viii)
4.29 Form of Warrant Certificate dated May 20, 1997, issued
to Jefferies & Company, Inc., with respect to 12,755
warrants to purchase shares of Common Stock of the Company
at an exercise price of $0.2063 per share. (O)(ix)
4.30 Form of Stock Purchase Agreement dated effective as of
October 1, 1997, between the Company and William Wang,
whereby the Company issued 800,000 shares of Common Stock to
Mr. Wang, as partial compensation pursuant to a Consulting
Agreement. (Q)(i)
4.31 Form of Stock Purchase Warrants dated effective as of
February 20, 1997, issued to Mr. Patrick B. Collins with
respect to 200,000 warrants to purchase shares of Common
Stock of the Company at an exercise price of $0.25 per
share, issued as partial compensation pursuant to a
Consulting Agreement. (Q)(ii)
4.32 Certificate of Amendment to the Certificate of
Designation of Series F, Cumulative Convertible Preferred
Stock dated January 6, 1998. *
4.33 Form of Stock Purchase Warrants dated January 16, 1998,
issued to Arthur Rosenbloom (6,389), Abby Leigh (12,600) and
Mitch Leigh (134,343) to purchase shares of Common Stock of
the Company at an exercise price of $0.15 per share, on or
before December 31, 2001. *
4.34 Certificate of Designation of Amended Series B,
Cumulative Convertible Preferred Stock dated March 4, 1998. *
4.35 Correction to Certificate of Designation of Amended
Series B, Cumulative Convertible Preferred Stock dated
March 5, 1998. *
4.36 Second Correction to Certificate of Designation of
Amended Series B Preferred Stock dated March 19, 1998. *
4.37 Form of Stock certificate representing shares of Amended
Series B Preferred Stock. +
4.38 Form of Agreement dated March 3, 1998 between the
Company and Arbco Associates, L.P., Kayne Anderson Non-
Traditional Investments, L.P., Offense Group Associates,
L.P. and Opportunity Associates, L.P. for the exchange of
Series B Preferred Stock and associated warrants into
Amended Series B Preferred Stock and warrants. +
4.39 Form of Stock Purchase Warrants dated March 3, 1998
between the Company and the following entities:
Holder Warrants
Arbco Associates, L.P. 85,107
Kayne Anderson Non-Traditional
Investments, L.P. 79,787
Offense Group Associates, L.P. 61,170
Opportunity Associates, L.P. 23,936 +
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. (B)
10.2 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.
(D)(iv)
10.3 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.
(D)(v)
10.4 Consulting agreement between the Company and Sir Michael
Palliser dated April 1, 1994. (F)(i)
10.5 Consulting agreement between the Company and Mr. Arthur
W. Hummel, Jr. dated April 1, 1994. (F)(ii)
10.6 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. (G)(i)
10.7 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. (G)(ii)
10.8 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. (H)(i)
10.9 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. (H)(ii)
10.10 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. (H)(iii)
10.11 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. (H)(iv)
10.12 Letter of Intent dated July 17, 1995 between CNPC
United Lube Oil Corporation and XCL Ltd. for discussion of
further projects. (H)(v)
10.13 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. (I)(i)
10.14 Memorandum of Understanding dated December 14, 1995,
between XCL Ltd. and China National Administration of Coal
Geology. (J)(iv)
10.15 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. (J)(v)
10.16 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. (J)(vi)
10.17 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. (J)(vii)
10.18 Copy of Limited Waiver between the Company and
Internationale Nederlanden (U.S.) Capital Corporation
dated April 3, 1996. (J)(viii)
10.19 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 Units located in south Texas.
(K)
10.20 Form of Sale of Mineral Servitude dated June 18, 1996,
whereby the Company sold its 75 percent mineral interest in
the Phoenix Lake Tract to the Stream Family Limited Partners
and Virginia Martin Carmouche Gayle. (L)(i)
10.21 Form of Fifth 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 August
8, 1996. (N)(v)
10.22 Form of Assignment and Sale between XCL Acquisitions,
Inc. and purchasers of an interest in certain promissory
notes held by XCL Acquisitions, Inc. as follows:
<TABLE>
Date Purchaser Principal Amount Purchase Price
<S> <C> <C> <C>
November 19, 1996 Opportunity Associates, L.P. $15,627.39 $12,499.98
November 19, 1996 Kayne Anderson Non-Traditional
Investments, L.P. $78,126.36 $62,499.98
November 19, 1996 Offense Group Associates, L.P. $39,063.18 $31,249.99
November 19, 1996 Arbco Associates, L.P. $93,743.14 $75,000.04
November 19, 1996 Nobel Insurance Company $15,627.39 $12,499.98
November 19, 1996 Evanston Insurance Company $15,627.39 $12,499.98
November 19, 1996 Topa Insurance Company $23,435.79 $18,750.01
November 19, 1996 Foremost Insurance Company $31,249.48 $25,000.04
February 10, 1997 Donald A. and Joanne R.
Westerberg $25,000.00 $28,100.00
February 10, 1997 T. Jerald Hanchey $168,915.74 $189,861.29 (N)(vi)
</TABLE>
10.23 Form of Sixth Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, The First National Bank of Lake Charles, The
Estate of 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 28, 1997. (N)(vii)
10.24 Form of Act of Sale between the Company and The
Schumacher Group of Louisiana, Inc. dated March 31, 1997,
where in the Company sold its office building. (N)(viii)
10.25 Amendment No. 1 to the May 1, 1995 Agreement with
Apache Corp. dated April 3, 1997, effective December 13,
1996. (N)(ix)
10.26 Form of Guaranty dated April 9, 1997 by XCL-China Ltd.
in favor of ING (U.S.) Capital Corporation executed in
connection with the sale of certain Unsecured Notes issued
by XCL-China Ltd. (N)(x)
10.27 Form of First Amendment to Stock Pledge Agreement dated
April 9, 1997, between the Company and ING (U.S.) Capital
Corporation adding XCL Land Ltd. to the Stock Pledge
Agreement dated as of January 31, 1994. (N)(xi)
10.28 Form of Agreement dated April 9, 1997, between ING
(U.S.) Capital Corporation, XCL-China and holders of the
Senior Unsecured Notes, subordinating the Guaranty granted
by XCL-China in favor of ING to the Unsecured Notes.
(N)(xii)
10.29 Form of Forbearance Agreement dated April 9, 1997
between the Company and ING (U.S.) Capital Corporation.
(N)(xiii)
10.30 Form of a series of Unsecured Notes dated April 10,
1997, between the Company and the following entities:
Note Holder Principal Amount
Kayne Anderson Offshore, L.P. $200,000
Offense Group Associates, L.P. $500,000
Kayne Anderson Non-Traditional Investments, L.P. $500,000
Opportunity Associates, L.P. $400,000
Arbco Associates, L.P. $500,000
J. Edgar Monroe Foundation $100,000
Estate of J. Edgar Monroe $300,000
Boland Machine & Mfg. Co., Inc. $100,000
Construction Specialists, Inc. d/b/a Con-Spec, Inc. $500,000 (N)(xiv)
10.31 Form of Subscription Agreement dated April 10, 1997, by
and between XCL-China, Ltd., the Company and the subscribers
of Units, each unit comprised of $100,000 in Unsecured Notes
and 325,580 warrants. (N)(xv)
10.32 Form of Intercompany Subordination Agreement dated
April 10, 1997, between the Company, XCL-Texas, Ltd., XCL
Land Ltd., The Exploration Company of Louisiana, Inc., XCL-
Acquisitions, Inc., XCL-China Coal Methane Ltd., XCL-China
LubeOil Ltd., XCL-China Ltd., and holders of the Unsecured
Notes. (N)(xvi)
10.33 Form of Indenture dated as of May 20, 1997, between the
Company, as Issuer and Fleet National Bank, as Trustee
("Indenture"). (O)(x)
10.34 Form of 13.5% Senior Secured Note due May 1, 2004,
Series A issued May 20, 1997 to Jefferies & Company, Inc. as
the Initial Purchaser (Exhibit A to the Indenture). (O)(xi)
10.35 Form of Pledge Agreement dated as of May 20, 1997,
between the Company and Fleet National Bank, as Trustee
(Exhibit C to the Indenture). (O)(xii)
10.36 Form of Cash Collateral and Disbursement Agreement
dated as of May 20, 1997, between the Company and Fleet
National Bank, as Trustee and Disbursement Agent, and Herman
J. Schellstede & Associates, Inc., as Representative
(Exhibit F to the Indenture). (O)(xiii)
10.37 Form of Intercreditor Agreement dated as of May 20,
1997, between the Company, ING (U.S.) Capital Corporation,
the holders of the Secured Subordinated Notes due April 5,
2000 and Fleet National Bank, as trustee for the holders of
the 13.5% Senior Secured Notes due May 1, 2004 (Exhibit G to
the Indenture). (O)(xiv)
10.38 Registration Rights Agreement dated as of May 20, 1997,
by and between the Company and Jefferies & Company, Inc.
with respect to the 13.5% Senior Secured Notes due May 1,
2004 and 75,000 Common Stock Purchase Warrants (Exhibit H to
the Indenture). (O)(xv)
10.39 Form of Security Agreement, Pledge and Financing
Statement and Perfection Certificate dated as of May 20,
1997, by the Company in favor of Fleet National Bank, as
Trustee (Exhibit I to the Indenture). (O)(xvi)
10.40 Registration Rights Agreement dated as of May 20, 1997,
by and between the Company and Jefferies & Company, Inc.
with respect to the 9.5% Amended Series A Preferred Stock
and Common Stock Purchase Warrants. (O)(xvii)
10.41 Form of Restated Forbearance Agreement dated effective
as of May 20, 1997, between the Company, XCL-Texas, Inc. and
ING (U.S.) Capital Corporation. (O)(xviii)
10.42 Form of Seventh Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, The First National Bank of Lake Charles, The
Estate of 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 May 8, 1997. (P)(i)
10.43 Form of Eighth Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, The First National Bank of Lake Charles, The
Estate of 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 July 29, 1997. (P)(ii)
10.44 Form of Consulting Agreement dated February 20, 1997,
between the Company and Mr. Patrick B. Collins, whereby Mr.
Collins performs certain accounting advisory services.
(Q)(ii)
10.45 Form of Consulting Agreement dated effective as of June
1, 1997, between the Company and Mr. R. Thomas Fetters, Jr.,
a director of the Company, whereby Mr. Fetters performs
certain geological consulting services. (Q)(iii)
10.46 Form of Agreement dated October 1, 1997, between the
Company and Mr. William Wang, whereby Mr. Wang performs
certain consulting services with respect to its investments
in China. (Q)(iv)
10.47 Form of Services Agreement dated August 1, 1997,
between the Company and Mr. Benjamin B. Blanchet, an officer
of the Company. (Q)(v)
10.48 Form of Promissory Note dated August 1, 1997, in a
principal amount of $100,000, made by Mr. Benjamin B.
Blanchet in favor of the Company. (Q)(vi)
11. Not applicable.
12. Not applicable.
13. Not applicable
16. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of the Registrant
XCL-China Ltd.
XCL-China LubeOil Ltd.
XCL-China Coal Methane Ltd.
XCL-Texas, Inc.
XCL-Acquisitions, Inc.
The Exploration Company of Louisiana, Inc.
XCL Land Ltd.
22. Not applicable.
23 Consents of Experts and Counsel:
23.1 PricewaterhouseCoopers LLP ^
23.2 H.J. Gruy & Associates, Inc. ^
24. Not applicable.
27.1 Financial Data Schedule for year ended December 31, 1997 *
27.2 Restated Financial Data Schedule for the year ended
December 31, 1996 and the three, six and nine month periods
ended March 31, June 30 and September 30, 1997 +
99.1 Reserve Report dated January 1, 1998 prepared by H.J.
Gruy & Associates, Inc. ^
99.2 Glossary of Terms *
- ------------
* Filed with Form 10-K.
+ Filed with Form 10-K Amendment No. 1.
^ Filed with this Form 10-K Amendment No. 2
(A) Incorporated by reference to the Registration Statement
on Form 8-B filed on July 28, 1988, where it appears as
Exhibits 3(c).
(B) Incorporated by reference to a Registration Statement on
Form S-3 (File No. 33-68552) where it appears as Exhibit
10.1.
(C) 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) Exhibit 4.29; (ii) Exhibit 4.30;
and (iii) through (v) Exhibits 4.34 through 4.36,
respectively.
(D) Incorporated by reference to Amendment No. 1 to Annual
Report on Form 10-K filed April 15, 1994, where it appears
as: (i) Exhibit 4.32; (ii) Exhibit 4.36; (iii) Exhibit
4.37; (iv) through (v) Exhibit 10.41 through Exhibit 10.47,
respectively; and (v) Exhibit 10.49.
(E) 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.
(F) 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 (ii) Exhibits 10.22 through 10.23,
respectively.
(G) 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 10.26; and (ii)
Exhibit 10.28.
(H) 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 (v) Exhibits 10.29
through 10.33, respectively.
(I) 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 Exhibit 10.35.
(J) 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 (iii) Exhibits 4.28
through 4.30, respectively; and (iv) Exhibit 10.31 and
(v) through (vii) Exhibits 10.33 through 10.36,
respectively.
(K) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended March 31, 1996, filed May 15, 1996,
where it appears as Exhibit 10.37.
(L) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended June 30, 1996, filed August 14,
1996, where it appears as Exhibit 10.38.
(M) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended September 30, 1996, filed November
14, 1996, where it appears as (i) through (iii) Exhibits
4.32 through 4.34.
(N) Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1996, filed April 15, 1997,
where it appears as (i) through (iii) Exhibits 4.35 through
4.38; (iv) Exhibit 4.40; and (v) through (xvi) Exhibits
10.39 through 10.50.
(O) Incorporated by reference to Current Report on Form 8-K
dated May 20, 1997, filed June 3, 1997, where it appears as
(i) through (ix) Exhibits 4.1 through 4.9 and (x) through
(xviii) Exhibits 10.51 through 10.59.
(P) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended June 30, 1997, filed August 14,
1997, where it appears as (i) and (ii) Exhibits 10.60 and
10.61.
(Q) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997, filed November
14, 1997, where it appears as (i) Exhibit 4.52; and (ii)
through (vi) Exhibits 10.61 through 10.66.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
XCL LTD.
/s/ Benjamin B. Blanchet
October 16, 1998 By:_________________________________
Benjamin B. Blanchet
Executive Vice President
CONSENT OF INDEPENDENT ACCOUNTANTS
October 20, 1998
We consent to the incorporation by reference in the
registration statements of XCL Ltd. and Subsidiaries on Form
S-3 (File Nos. 33-41458, 33-83122 and 33-68552) and on Form
S-8 (File No. 33-62956 and 33-59799) of our report, which
includes an explanatory paragraph regarding the Company's
ability to continue as a going concern, dated April 10,
1998, on our audits of the consolidated financial statements
and financial statement schedule of XCL Ltd. and
Subsidiaries as of December 31, 1997 and 1996, and for each
of the years ended December 31, 1997, 1996 and 1995, which
report is included in this Annual Report on Form 10-K/A.
/s/ PRICEWATERHOUSECOOPERS LLP
Miami, Florida
CONSENT OF H.J. GRUY AND ASSOCIATES, INC.
The Board of Directors
XCL, Ltd.
110 Rue Jean Lafitte
Lafayette LA 70508
Gentlemen:
We hereby consent to the use of the name H.J. Gruy and
Associats, Inc. and references to H.J. Gruy and Associates,
Inc. and to the references to our report dated October 12,
1998 (Proved Reserves, Zhao Dong Block, China) prepared for
XCL Ltd. in the filing of Amendment No. 2 to the Annual Report
on form 10-K for the fiscal year ended December 31, 1998 of
XCL Ltd.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
/s/ James H. Hartsock
By:James H.Hartsock, PhD,PE
Title:Executive Vice President
Houston, Texas
October 12, 1998
H.J. GRUY AND ASSOCIATES, INC. 1200 Smith Street, Suite 3040, Houston,
Texas 77002 o (713)739-1000
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 o FAX
(713) 739-6112 o (713) 739-1000
October 12, 1998
XCL, Ltd.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Proved Reserves
Zhao Dong Block, China
98-202-104
Gentlemen:
At your request, we estimated the proved reserves and
future net cash flow as of January 1, 1998, attributable to
interests owned by XCL, Ltd. in the Zhao Dong Block, Bohai
Bay, China.
The estimated reserves, future net cash flow and
discounted future net cash flow before Chinese income tax are summarized by
reserve category as follows:
Estimated Estimated
Net Reserves Future Net Cash Flow
------------- ---------------------------
Discounted
Oil at 10%
(Barrels) Nondiscounted Per Year
--------- ------------- -----------
Proved Undeveloped 11,762,000 $ 109,668,000 $ 57,069,000
Apache Payment -0- $ 9,381,000 $ 7,752,000
----------- ------------ -----------
Total Proved 11,762,000 $ 119,049,000 $ 64,821,000
========== ============ ===========
The Apache Payment reflects an agreement by Apache
China Corporation LDC to pay XCL - China Ltd. sixteen and
two-thirds percent (16 2/3%) of the value of the Foreign
Contractor's share of the recoverable proved reserves in
the Producing Unit(s) located in the C field through the
Minghuazhen.
The discounted future net cash flows summarized in the
above table are computed using a discount rate of 10 percent
per annum. Proved reserves are estimated in accordance with the
definitions contained in Securities and Exchange Commission
Regulation S-X, Rule 4-10 (a). The definitions are
included in part as Attachment I.
Future net cash flow as presented herein is defined as the
future cash inflow attributable to the evaluated interest
in accordance with the production sharing agreement with
the Chinese National Oil and Gas Exploration and
Development Corporation (CNODC). Future costs of
abandoning the facilities and wells, and the restoration
of producing properties to satisfy environmental
standards are not deducted from the cash flow.
Estimates of future net cash flow and discounted future net
cash flow are not to be interpreted to represent the fair
market value for the estimated reserves. The estimated
reserves included in this report have not been adjusted for
risk.
For the economic forecasts presented in this report, the
oil prices are held constant at the initial value. Direct
operating costs and future capital expenditures are not
escalated and therefore remain constant for the
projected life of each property.
In conducting this evaluation, we relied on data supplied by
XCL, Ltd. The extent and character of ownership, oil
prices, direct operating costs, future capital
expenditures, accounting, geological, and engineering
data were accepted as represented. The development schedule
for currently undeveloped properties was supplied by XCL,
Ltd. No independent well tests, property inspections,
or audits of operating expenses were conducted by our
staff in conjunction with this evaluation. We did not
verify or determine the extent, character, status, or
liability, if any, of any current or possible future
detrimental environmental conditions.
Reserve estimates for these undeveloped reserves are
based on volumetric calculations and analogy with the
performance of comparable wells. Reserves estimates from
volumetric methods and from analogy comparisons are often
less certain than reserve estimates based on well
performance obtained over a period during which a
substantial portion of the reserve was produced. The
reserves reported herein are estimates only and should
not be construed as exact quantities. Future conditions
may affect recovery of estimated reserves and cash flows,
and reserves of all categories may be subject to revision
as more performance data become available.
In order to estimate the reserves, costs, and future cash
flows shown in this report, we have relied in part on
geological, engineering, and economic data furnished by our
client. Although we have made a best efforts attempt to
acquire all pertinent data and to analyze it carefully
with methods accepted by the petroleum industry, there
is no guarantee that the volumes of oil or the cash flows
projected will be realized. The reserve and cash flow
projections presented in this report may require
revision as additional data become available.
If investments or business decisions are to be made in
reliance on these estimates by anyone other than our
client, such person, with the approval of our client, is
invited to visit our offices at his expense so that he can
evaluate the assumptions made and the completeness and
extent of the data available on which our estimates are
based.
Any distribution or publication of this report or any
part thereof must include this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
/s/ James H. Hartsock
James H. Hartsock, Ph.D., P.E.
Executive Vice President
/s/ Tommy Elkins
Tommy Elkins
Petroleum Consultant
JHH:akr
Attachment
C:\XCL\PROVRES2.LTR
<PAGE>
ATTACHMENT I
DEFINITIONS OF PROVED OIL AND GAS RESERVES (1)
Proved Oil and Gas Reserves
- ----------------------------
Proved oil and gas reserves are the estimated quantities of
crude oil, natural gas, and natural gas liquid which
geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the
estimate is made. Prices include consideration of changes
in existing prices provided only by contractual
arrangements, but not on escalations based upon
future conditions.
Reservoirs are considered proved if economic
producibility is supported by either actual production
or conclusive formation test. The area of a reservoir
considered proved includes (A) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts,
if any, and (B) the immediately adjoining portions not
yet drilled, but which can be reasonably judged as
economically productive on the basis of available geological
and engineering data. In the absence of information
on fluid contacts, the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the
reservoir.
Reserves which can be produced economically through
application of improved recovery techniques (such as fluid
injection) are included in the "proved" classification
when successful testing by a pilot project, or the
operation of an installed program in the reservoir,
provides support for the engineering analysis on which the
project or program was based.
Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs
but is classified separately as "indicated additional
reserves"; (B) crude oil, natural gas, and natural gas
liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; c crude oil, natural
gas, and natural gas liquids, that may occur in
undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil
shales, coal, gilsonite and other such sources.
Proved Developed Oil and Gas Reserves
- -------------------------------------
Proved developed oil and gas reserves are reserves that
can be expected to be recovered through existing wells
with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the
application of fluid injection or other improved recovery
techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as
"proved developed reserves" only after testing by a pilot
project or after the operation of an installed program
has confirmed through production response that increased
recovery will be achieved.
Proved Undeveloped Reserves
- ---------------------------
Proved undeveloped oil and gas reserves are reserves that
are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves
on undrilled acreage shall be limited to those drilling
units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of
production from the existing productive formation.
Under no circumstances should estimates for proved
undeveloped reserves be attributable to any acreage for
which an application of fluid injection or other
improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the
area and in the same reservoir.
(1) Contained in Securities and Exchange Commission Regulation
S-X, Rule 4-10 (a)
<PAGE>
XCL CHINA, LTD.
PROJECTED CASH FLOWS - PRELIMINARY SEC CASE
ZHAO DONG CONCESSION: 47 MM BBL CASE
(CHINESE INCOME TAX CASE)
1996 1997 1998 1999
---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) - - - 1,809
CONS IND & COMM TAX
(MBBLS) - - - 90
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) - - - 1,085
OPERATING EXPENSES (M$) - - - 4,803
OPERATING EXPENSE VOLUME
(MBBLS) - - - 287
INVESTMENT RECOVERY OIL
(MBBLS) - - - 798
EXPLORATION COSTS (M$) 80,452 - - -
EXPLORATION RECOVERY
(MBBLS) 4,820 - - -
EXPLORATION RECOVERY
ADJUSTMENT (227) - - -
EXPLORATION RECOVERY
UTILIZED - - - 697
EXPLORATION COST CARRYOVER
(MBBLS) 4,593 4,593 4,593 3,896
DEVELOPMENT COSTS (M$) - - 33,346 89,744
DEVELOPMENT RECOVERY
(MBBLS) - - 1,998 5,372
DEVELOPMENT RECOVERY
UTILIZED - - - 101
DEVELOPMENT COST CARRYOVER
(MBBLS) - - 1,998 7,269
DEEMED INTEREST (MBBLS) - - - 180
TOTAL COST RECOVERY OIL
(MBBLS) - - - 798
REMAINDER OIL (MBBLS) - - - 633
X FACTOR 0.950 0.950 0.950 0.932
CHINESE SHARE OIL (MBBLS) - - - 32
ALLOCABLE REMAINDER OIL
(MBBLS) - - - 601
CONTRACTOR ALLOCABLE OIL
- - 49% (MBBLS) - - - 295
TOTAL CONTRACTOR OIL
(MBBLS) - - - 1,182
2000 2001 2002 2003
---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 7,118 7,537 5,595 4,253
CONS IND & COMM TAX
(MBBLS) 356 377 280 213
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 4,271 4,522 3,357 2,552
OPERATING EXPENSES (M$) 17,661 19,743 17,009 15,075
OPERATING EXPENSE VOLUME
(MBBLS) 1,057 1,182 1,019 903
INVESTMENT RECOVERY OIL
(MBBLS) 3,214 3,340 2,338 1,649
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY
(MBBLS) - - - -
EXPLORATION RECOVERY
ADJUSTMENT - - - -
EXPLORATION RECOVERY
UTILIZED 3,058 839 - -
EXPLORATION COST CARRYOVER
(MBBLS) 839 - - -
DEVELOPMENT COSTS (M$) 44,636 - - -
DEVELOPMENT RECOVERY
(MBBLS) 2,674 - - -
DEVELOPMENT RECOVERY
UTILIZED 68 2,461 2,327 1,649
DEVELOPMENT COST CARRYOVER
(MBBLS) 9,875 7,420 5,094 3,445
DEEMED INTEREST (MBBLS) 670 949 753 526
TOTAL COST RECOVERY OIL
(MBBLS) 3,126 3,300 2,327 1,649
REMAINDER OIL (MBBLS) 2,579 2,678 1,970 1,489
X FACTOR 0.840 0.835 0.865 0.879
CHINESE SHARE OIL (MBBLS) 263 294 186 115
ALLOCABLE REMAINDER OIL
(MBBLS) 2,316 2,384 1,784 1,373
CONTRACTOR ALLOCABLE OIL
- - 49% (MBBLS) 1,135 1,168 874 673
TOTAL CONTRACTOR OIL
(MBBLS) 4,744 3,792 2,513 1,923
2004 2005 2006 2007
---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 3,435 2,833 2,415 2,130
CONS IND & COMM TAX
(MBBLS) 172 142 121 106
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 2,061 1,700 1,449 1,278
OPERATING EXPENSES (M$) 14,023 13,266 12,742 12,087
OPERATING EXPENSE VOLUME
(MBBLS) 840 795 763 724
INVESTMENT RECOVERY OIL
(MBBLS) 1,221 905 685 554
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY
(MBBLS) - - - -
EXPLORATION RECOVERY
ADJUSTMENT - - - -
EXPLORATION RECOVERY
UTILIZED - - - -
EXPLORATION COST CARRYOVER
(MBBLS) - - - -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY
(MBBLS) - - - -
DEVELOPMENT RECOVERY
UTILIZED 1,221 905 685 554
DEVELOPMENT COST CARRYOVER
(MBBLS) 2,225 1,319 634 80
DEEMED INTEREST (MBBLS) 357 - - -
TOTAL COST RECOVERY OIL
(MBBLS) 1,221 905 685 554
REMAINDER OIL (MBBLS) 1,202 992 845 754
X FACTOR 0.893 0.909 0.916 0.923
CHINESE SHARE OIL (MBBLS) 79 59 44 37
ALLOCABLE REMAINDER OIL
(MBBLS) 1,123 933 801 708
CONTRACTOR ALLOCABLE OIL
- - 49% (MBBLS) 550 457 392 347
TOTAL CONTRACTOR OIL
(MBBLS) 1,560 1,290 1,102 973
2008 2009 2010 2011
---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 1,926 1,741 1,580 1,395
CONS IND & COMM TAX
(MBBLS) 96 87 79 70
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 1,156 1,044 948 837
OPERATING EXPENSES (M$) 11,472 10,916 5,425 4,922
OPERATING EXPENSE VOLUME
(MBBLS) 687 654 325 295
INVESTMENT RECOVERY OIL
(MBBLS) 468 390 623 542
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY
(MBBLS) - - - -
EXPLORATION RECOVERY
ADJUSTMENT - - - -
EXPLORATION RECOVERY
UTILIZED - - - -
EXPLORATION COST CARRYOVER
(MBBLS) - - - -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY
(MBBLS) - - - -
DEVELOPMENT RECOVERY
UTILIZED 80 - - -
DEVELOPMENT COST CARRYOVER
(MBBLS) - - - -
DEEMED INTEREST (MBBLS) - - - -
TOTAL COST RECOVERY OIL
(MBBLS) 80 - - -
REMAINDER OIL (MBBLS) 1,062 999 1,176 1,031
X FACTOR 0.928 0.934 0.941 0.950
CHINESE SHARE OIL (MBBLS) 53 50 59 52
ALLOCABLE REMAINDER OIL
(MBBLS) 1,009 949 1,117 979
CONTRACTOR ALLOCABLE OIL
- - 49% (MBBLS) 494 465 547 480
TOTAL CONTRACTOR OIL
(MBBLS) 871 786 707 624
2012 2013 2014 2015
---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 1,250 1,140 821 -
CONS IND & COMM TAX
(MBBLS) 63 57 41 -
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 750 684 493 -
OPERATING EXPENSES (M$) 9,504 9,241 8,329 -
OPERATING EXPENSE VOLUME
(MBBLS) 569 554 499 -
INVESTMENT RECOVERY OIL
(MBBLS) 181 130 (6) -
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY
(MBBLS) - - - -
EXPLORATION RECOVERY
ADJUSTMENT - - - -
EXPLORATION RECOVERY
UTILIZED - - (6) -
EXPLORATION COST CARRYOVER
(MBBLS) - - 6 -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY
(MBBLS) - - - -
DEVELOPMENT RECOVERY
UTILIZED - - - -
DEVELOPMENT COST CARRYOVER
(MBBLS) - - - -
DEEMED INTEREST (MBBLS) - - - -
TOTAL COST RECOVERY OIL
(MBBLS) - - (6) -
REMAINDER OIL (MBBLS) 618 529 287 -
X FACTOR 0.950 0.950 0.950 -
CHINESE SHARE OIL (MBBLS) 31 26 14 -
ALLOCABLE REMAINDER OIL
(MBBLS) 587 503 273 -
CONTRACTOR ALLOCABLE OIL
- - 49% (MBBLS) 288 246 134 -
TOTAL CONTRACTOR OIL
(MBBLS) 567 518 372 -
FOREIGN CONTRACTOR CASH FLOW BEFORE CHINESE INCOME TAX (M$)
1996 1997 1998 1999
---- ---- ---- ----
COST RECOVERY REVENUES - - - 14,833
ALLOCABLE REVENUES - - - 4,934
EXPLORATION EXPENSE (80,452) - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - (16,340) (43,975)
OPERATING EXPENSE - - - (2,353)
----- ----- ----- -----
NET CASH FLOW (80,452) - (16,340) (26,561)
====== ===== ====== ======
2000 2001 2002 2003
---- ---- ---- ----
COST RECOVERY REVENUES 60,261 43,804 27,361 20,869
ALLOCABLE REVENUES 18,984 19,512 14,594 11,232
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE (21,872) - - -
OPERATING EXPENSE (8,654) (9,674) (8,334) (7,387)
----- ----- ----- -----
NET CASH FLOW (48,719) 53,642 33,621 24,714
====== ===== ====== ======
2004 2005 2006 2007
---- ---- ---- ----
COST RECOVERY REVENUES 16,853 13,902 11,848 10,452
ALLOCABLE REVENUES 9,183 7,631 6,551 5,792
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING EXPENSE (6,871) (6,500) (6,243) (5,923)
----- ----- ----- -----
NET CASH FLOW 19,165 15,033 12,155 10,321
====== ===== ====== ======
2008 2009 2010 2011
---- ---- ---- ----
COST RECOVERY REVENUES 6,279 5,349 2,658 2,412
ALLOCABLE REVENUES 8,252 7,765 9,137 8,008
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING EXPENSE (5,621) (5,349) (2,658) (2,412)
----- ----- ----- -----
NET CASH FLOW 8,909 7,765 9,137 8,008
====== ===== ====== ======
2012 2013 2014 2015
---- ---- ---- ----
COST RECOVERY REVENUES 4,657 4,528 3,977 -
ALLOCABLE REVENUES 4,803 4,114 2,233 -
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING EXPENSE (4,657) (4,528) (4,081) -
----- ----- ----- -----
NET CASH FLOW 4,803 4,114 2,129 -
====== ===== ====== ======
TOTALS
------
COST RECOVERY REVENUES 250,042
ALLOCABLE REVENUES 142,725
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT
EXPENSE (82,186)
OPERATING EXPENSE (91,246)
-----
NET CASH FLOW 219,336
=======
CASH FLOW TO EACH PARTNER BEFORE CHINESE INCOME TAX (M$)(50%) INTEREST)
1996 1997 1998 1999
---- ---- ---- ----
TOTAL OIL REVENUES - - - 9,884
EXPLORATION EXPENSE (40,226) - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - (8,170) (21,987)
OPERATING EXPENSE - - - (1,177)
PARTNER PAYMENT - - - -
(40,226) - (8,170) (13,280)
----- ----- ----- -----
NET CASH FLOW (40,226) - (8,170) (13,280)
====== ===== ====== ======
2000 2001 2002 2003
---- ---- ---- ----
TOTAL OIL REVENUES 39,622 31,658 20,978 16,050
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE (10,936) - - -
OPERATING EXPENSE (4,327) (4,837) (4,167) (3,693)
PARTNER PAYMENT 9,381 - - -
24,360 26,821 16,811 12,357
----- ----- ----- -----
NET CASH FLOW 33,741 26,821 16,811 12,357
====== ===== ====== ======
2004 2005 2006 2007
---- ---- ---- ----
TOTAL OIL REVENUES 13,018 10,767 9,199 8,122
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING EXPENSE (3,436) (3,250) (3,122) (2,961)
PARTNER PAYMENT - - - -
9,582 7,517 6,078 5,160
----- ----- ----- -----
NET CASH FLOW 9,582 7,517 6,078 5,160
====== ===== ====== ======
2008 2009 2010 2011
---- ---- ---- ----
TOTAL OIL REVENUES 7,265 6,557 5,898 5,210
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING EXPENSE (2,811) (2,674) (1,329) (1,206)
PARTNER PAYMENT - - - -
4,455 3,883 4,568 4,004
----- ----- ----- -----
NET CASH FLOW 4,455 3,883 4,568 4,004
====== ===== ====== ======
2012 2013 2014 2015
---- ---- ---- ----
TOTAL OIL REVENUES 4,730 4,321 3,105 -
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING EXPENSE (2,328) (2,264) (2,041) -
PARTNER PAYMENT - - - -
2,402 2,057 1,065 -
----- ----- ----- -----
NET CASH FLOW 2,402 2,057 1,065 -
====== ===== ====== ======
TOTALS
------
TOTAL OIL REVENUES 196,384
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT
EXPENSE (41,093)
OPERATING EXPENSE (45,623)
PARTNER PAYMENT 9,381
-----
NET CASH FLOW 119,049
======
INTERNAL RATE OF RETURN BEFORE CHINESE INCOME TAX 77%
NET PRESENT VALUES @ 10% AS OF 1-1-1998 BEFORE
CHINESE INCOME TAX, (M$) 64,821
FOREIGN CONTRACTOR CASH FLOW AFTER CHINESE INCOME TAX (M$)
1996 1997 1998 1999
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) (80,452) - (16,340) (26,561)
SUBSEQUENT DEVELOPMENT
EXPENSE - - (16,340) (43,975)
OPERATING CASH INCOME (80,452) - (0) 17,414
DEPRECIATION BASIS - - (2,723) (10,052)
TAXABLE INCOME (BEFORE
TAX LOSS) (80,452) - (2,723) 7,362
TAX LOSS - (80,452) (80,452) (83,175)
INTEREST EXPENSE
TAXABLE INCOME (AFTER
TAX LOSS) (80,452) (80,452) (83,175) (75,814)
TAXES - - - -
------ ------ ------ ------
NET CASH FLOW (80,452) - (16,340) (26,561)
====== ====== ====== ======
2000 2001 2002 2003
---- ----- ----- ----
NET CASH FLOW (BEFORE TAX) 48,719 53,642 33,621 24,714
SUBSEQUENT DEVELOPMENT
EXPENSE (21,872) - - -
OPERATING CASH INCOME 70,591 53,642 33,621 24,714
DEPRECIATION BASIS (13,698) (13,698) (13,698) (13,698)
TAXABLE INCOME (BEFORE
TAX LOSS) (56,893) 39,944 19,923 11,016
TAX LOSS (75,814) (18,920) - -
INTEREST EXPENSE
TAXABLE INCOME (AFTER
TAX LOSS) (18,920) 21,024 19,923 11,016
TAXES - 6,938 6,575 3,635
------ ------ ------ ------
NET CASH FLOW 48,719 46,704 27,046 21,079
====== ====== ====== ======
2004 2005 2006 2007
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 19,165 15,033 12,155 10,321
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING CASH INCOME 19,165 15,033 12,155 10,321
DEPRECIATION BASIS (10,974) (3,645) - -
TAXABLE INCOME (BEFORE
TAX LOSS) 8,191 11,388 12,155 10,321
TAX LOSS - - - -
INTEREST EXPENSE
TAXABLE INCOME (AFTER
TAX LOSS) 8,191 11,388 12,155 10,321
TAXES 2,703 3,758 4,011 3,406
------ ------ ------ ------
NET CASH FLOW 16,462 11,275 8,144 6,915
2008 2009 2010 2011
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 8,909 7,765 9,137 8,008
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING CASH INCOME 8,909 7,765 9,137 8,008
DEPRECIATION BASIS - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) 8,909 7,765 9,137 8,008
TAX LOSS - - - -
INTEREST EXPENSE
TAXABLE INCOME (AFTER
TAX LOSS) 8,909 7,765 9,137 8,008
TAXES 2,940 2,562 3,015 2,643
------ ------ ------ ------
NET CASH FLOW 5,969 5,203 6,122 5,366
2012 2013 2014 2015
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 4,803 4,114 2,129 -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - -
OPERATING CASH INCOME 4,803 4,114 2,129 -
DEPRECIATION BASIS - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) 4,803 4,114 2,129 -
TAX LOSS - - - -
INTEREST EXPENSE
TAXABLE INCOME (AFTER
TAX LOSS) 4,803 4,114 2,129 -
TAXES 1,585 1,357 703 -
------ ------ ------ ------
NET CASH FLOW 3,218 2,756 1,427 -
TOTAL
-----
NET CASH FLOW (BEFORE TAX) 219,336
SUBSEQUENT DEVELOPMENT
EXPENSE (82,186)
OPERATING CASH INCOME 301,522
DEPRECIATION BASIS (82,186)
TAXABLE INCOME (BEFORE
TAX LOSS) 219,336
TAX LOSS (338,813)
INTEREST EXPENSE -
TAXABLE INCOME (AFTER
TAX LOSS) (119,477)
TAXES 45,832
------
NET CASH FLOW 173,504
CASH FLOW TO EACH PARTNER AFTER CHINESE INCOME TAX (M$)(50% INTEREST)
1996 1997 1998 1999
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) (40,226) - (8,170) (13,280)
PARTNER PAYMENT - - - -
TAXES - - - -
------ ------ ------ ------
NET CASH FLOW (40,226) - (8,170) (13,280)
====== ====== ====== ======
2000 2001 2002 2003
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 24,360 26,821 16,811 12,357
PARTNER PAYMENT 9,381 - - -
TAXES - 3,469 3,287 1,818
------ ------ ------ ------
NET CASH FLOW 33,741 23,352 13,523 10,539
====== ====== ====== ======
2004 2005 2006 2007
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 9,582 7,517 6,078 5,160
PARTNER PAYMENT - - - -
TAXES 1,351 1,879 2,006 1,703
------ ------ ------ ------
NET CASH FLOW 8,231 5,638 4,072 3,458
====== ====== ====== ======
2008 2009 2010 2011
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 4,455 3,883 4,568 4,004
PARTNER PAYMENT - - - -
TAXES 1,470 1,281 1,508 1,321
------ ------ ------ ------
NET CASH FLOW 2,985 2,601 3,061 2,683
====== ====== ====== ======
2012 2013 2014 2015
---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 2,402 2,057 1,065 -
PARTNER PAYMENT - - - -
TAXES 792 679 351 -
------ ------ ------ ------
NET CASH FLOW 1,609 1,378 713 -
====== ====== ====== ======
TOTALS
----
NET CASH FLOW (BEFORE TAX) 109,668
PARTNER PAYMENT 9,381
TAXES 22,916
------
NET CASH FLOW 96,133
======
INTERNAL RATE OF RETURN AFTER CHINESE INCOME TAX 86%
NET PRESENT VALUES @ 10% AS OF 1-1-1998 AFTER CHINESE INCOME TAX (M$) 53,848
<PAGE>
XCL CHINA, LTD.
PROJECTED CASH FLOWS - PRELIMINARY SEC CASE
ZHAO DONG CONCESSION: 1 MM BBL CASE
(C-4 WELL: SEC CASE)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OIL PRICE ($BBL) 17.16 17.16 17.16 17.16 17.16 17.16
GROSS OIL VOLUME (MBBLS) 0 208 342 132 32 -
CONS IND & COMM TAX (MBBLS) 0 10 17 7 2 -
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 0 125 205 79 19 -
OPERATING EXPENSES (M$) - 405 843 564 125 -
OPERATING EXPENSE VOLUME (MBBLS) - 24 49 33 7 -
INVESTMENT RECOVERY OIL (MBBLS) 0 101 156 46 12 -
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - 2,915 - - - -
DEVELOPMENT RECOVERY (MBBLS) - 170 - - - -
DEVELOPMENT RECOVERY UTILIZED - 101 68 6 1 -
DEVELOPMENT COST CARRYOVER (MBBLS) - 68 - - - -
DEEMED INTEREST (MBBLS) - - 6 1 - -
TOTAL COST RECOVERY OIL (MBBLS) - 101 68 6 1 -
REMAINDER OIL (MBBLS) 0 73 208 86 23 -
X FACTOR 0.950 0.950 0.950 0.950 0.950 -
CHINESE SHARE OIL (MBBLS) 0 4 10 4 1 -
ALLOCABLE REMAINDER OIL (MBBLS) 0 69 197 82 22 -
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 0 34 97 40 11 -
TOTAL CONTRACTOR OIL (MBBLS) 0 95 154 59 15 -
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ----
OIL PRICE ($BBL) 17.16 17.16 17.16 17.16 17.16
17.16
GROSS OIL VOLUME (MBBLS) - - - - - -
CONS IND & COMM TAX (MBBLS) - - - - - -
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) - - - - - -
OPERATING EXPENSES (M$) - - - - - -
OPERATING EXPENSE VOLUME (MBBLS) - - - - - -
INVESTMENT RECOVERY OIL (MBBLS) - - - - - -
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - - -
DEEMED INTEREST (MBBLS) - - - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - - - -
REMAINDER OIL (MBBLS) - - - - - -
X FACTOR - - - - - -
CHINESE SHARE OIL (MBBLS) - - - - - -
ALLOCABLE REMAINDER OIL (MBBLS) - - - - - -
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) - - - - - -
TOTAL CONTRACTOR OIL (MBBLS) - - - - - -
2010 2011 2012 2013 2014 2015
---- ----- ---- ---- ---- ----
OIL PRICE ($BBL) 17.16 17.16 17.16 17.16 17.16 17.16
GROSS OIL VOLUME (MBBLS) - - - - - -
CONS IND & COMM TAX (MBBLS) - - - - - -
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) - - - - - -
OPERATING EXPENSES (M$) - - - - - -
OPERATING EXPENSE VOLUME (MBBLS) - - - - - -
INVESTMENT RECOVERY OIL (MBBLS) - - - - - -
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - - -
DEEMED INTEREST (MBBLS) - - - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - - - -
REMAINDER OIL (MBBLS) - - - - - -
X FACTOR - - - - - -
CHINESE SHARE OIL (MBBLS) - - - - - -
ALLOCABLE REMAINDER OIL (MBBLS) - - - - - -
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) - - - - - -
TOTAL CONTRACTOR OIL (MBBLS) - - - - - -
</TABLE>
<TABLE>
<CAPTION>
TOTALS
------
<S> <C>
OIL PRICE ($BBL)
GROSS OIL VOLUME (MBBLS) 715
CONS IND & COMM TAX (MBBLS) 36
ROYALTY (MBBLS) -
COST RECOVERY OIL (MBBLS) 429
OPERATING EXPENSES (M$) 1,937
OPERATING EXPENSE VOLUME (MBBLS) 113
INVESTMENT RECOVERY OIL (MBBLS) 316
EXPLORATION COSTS (M$) -
EXPLORATION RECOVERY (MBBLS) -
EXPLORATION RECOVERY ADJUSTMENT -
EXPLORATION RECOVERY UTILIZED -
EXPLORATION COST CARRYOVER (MBBLS) -
DEVELOPMENT COSTS (M$) 2,915
DEVELOPMENT RECOVERY (MBBLS) 170
DEVELOPMENT RECOVERY UTILIZED 177
DEVELOPMENT COST CARRYOVER (MBBLS) 68
DEEMED INTEREST (MBBLS) 7
TOTAL COST RECOVERY OIL (MBBLS) 177
REMAINDER OIL (MBBLS) 390
X FACTOR -
CHINESE SHARE OIL (MBBLS) 19
ALLOCABLE REMAINDER OIL (MBBLS) 370
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 181
TOTAL CONTRACTOR OIL (MBBLS) 323
</TABLE>
FOREIGN CONTRACTOR CASH FLOW (M$)
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
COST RECOVERY REVENUES - 1,051 989 328 66 -
ALLOCABLE REVENUES 0 582 1,658 689 183 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - (1,428) - - - -
OPERATING EXPENSE - (198) (413) (277) (61) -
----- ----- ----- ---- ----- ----
NET CASH FLOW 0 7 2,234 741 188 -
===== ===== ====== ==== ==== ====
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- -----
COST RECOVERY REVENUES - - - - - -
ALLOCABLE REVENUES - - - - - -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE - - - - - -
----- ---- ---- ---- ---- ----
NET CASH FLOW - - - - - -
==== ==== ==== ==== ==== ====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
COST RECOVERY REVENUES - - - - - -
ALLOCABLE REVENUES - - - - - -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE - - - - - -
---- ---- ---- ---- ---- ----
NET CASH FLOW - - - - - -
==== ==== ==== ==== ==== ====
TOTALS
------
COST RECOVERY REVENUES 2,434
ALLOCABLE REVENUES 3,113
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (1,428)
OPERATING EXPENSE (949)
-----
NET CASH FLOW 3,170
=====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 0 817 1,323 509 125 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - (714) - - - -
OPERATING EXPENSE - (99) (207) (138) (31) -
---- ---- ----- ---- ---- ----
NET CASH FLOW 0 3 1,117 371 94 -
===== ==== ===== ===== ===== ====
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES - - - - - -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE - - - - - -
---- ---- ---- ---- ---- ----
NET CASH FLOW - - - - - -
==== ==== ==== ==== ==== ====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
TOTAL OIL REVENUES - - - - - -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE - - - - - -
---- ---- ---- ---- ---- ----
NET CASH FLOW - - - - - -
==== ==== ==== ==== ==== ====
TOTALS
------
TOTAL OIL REVENUES 2,774
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (714)
OPERATING EXPENSE (475)
-----
NET CASH FLOW 1,585
======
NET PRESENT VALUES @ 10% AS OF 1-1-1998, (M$) 1,202
FOREIGN CONTRACTOR CASH FLOW AFTER CHINESE INCOME TAX (M$)
NET CASH FLOW (BEFORE TAX) - 7 2,234 741 188 -
SUBSEQUENT DEVELOPMENT
EXPENSE - (1,428) - - - -
OPERATING CASH INCOME - 1,435 2,234 741 188 -
DEPRECIATION BASIS - (1,428) - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) - 7 2,234 741 188 -
TAX LOSS - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) - 7 2,234 741 188 -
TAXES - 2 737 245 62 -
---- ---- ---- ---- ---- ----
NET CASH FLOW - 5 1,497 497 126 -
==== ==== ==== ==== ==== ====
NET CASH FLOW (BEFORE TAX) - - - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - - - -
OPERATING CASH INCOME - - - - - -
DEPRECIATION BASIS - - - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) - - - - - -
TAX LOSS - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) - - - - - -
TAXES - - - - - -
---- ---- ---- ---- ---- ----
NET CASH FLOW - - - - - -
==== ==== ==== ==== ==== ====
NET CASH FLOW (BEFORE TAX) - - - - - -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - - - -
OPERATING CASH INCOME - - - - - -
DEPRECIATION BASIS - - - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) - - - - - -
TAX LOSS - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) - - - - - -
TAXES - - - - - -
---- ---- ---- ---- ---- ----
NET CASH FLOW - - - - - -
==== ==== ==== ==== ==== ====
NET CASH FLOW (BEFORE TAX) 3,170
SUBSEQUENT DEVELOPMENT
EXPENSE (1,428)
OPERATING CASH INCOME 4,598
DEPRECIATION BASIS (1,428)
TAXABLE INCOME (BEFORE
TAX LOSS) 3,170
TAX LOSS -
TAXABLE INCOME (AFTER
TAX LOSS) 3,170
TAXES 1,046
----
NET CASH FLOW 2,124
CASH FLOW TO EACH PARTNER AFTER CHINESE INCOME TAX (M$)(50% INTEREST)
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) - 3 1,117 371 94 -
TAXES - 1 369 122 31 -
NET CASH FLOW - 2 748 248 63 -
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) - - - - - -
TAXES - - - - - -
NET CASH FLOW - - - - - -
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) - - - - - -
TAXES - - - - - -
NET CASH FLOW - - - - - -
TOTALS
------
NET CASH FLOW (BEFORE TAX) 1,585
TAXES 523
NET CASH FLOW 1,062
NET PRESENT VALUES @ 10% AS OF 1-1-1998 AFTER CHINESE INCOME TAX (M$) 805
<PAGE>
XCL CHINA, LTD.
PROJECTED CASH FLOWS - PRELIMINARY CASE
ZHAO DONG CONCESSION: 18 MM BBL CASE
(C BLOCK: SEC CASE)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 0 0 0 629 2,664 2,912 2,187 1,672
CONS IND & COMM TAX (MBBLS) 0 0 0 31 133 146 109 84
ROYALTY (MBBLS) - - - - - - - -
COST RECOVERY OIL (MBBLS) 0 0 0 378 1,598 1,747 1,312 1,003
OPERATING EXPENSES (M$) - - - 1,729 6,613 7,541 6,639 5,927
OPERATING EXPENSE VOLUME (MBBLS) - - - 304 396 452 398 355
INVESTMENT RECOVERY OIL (MBBLS) 0 0 0 274 1,202 1,295 915 648
EXPLORATION COSTS (M$) 31,634 - - - - - - -
EXPLORATION RECOVERY (MBBLS) 1,895 - - - - - - -
EXPLORATION RECOVERY ADJUSTMENT (89) - - - - - - -
EXPLORATION RECOVERY UTILIZED 0 0 0 274 1,202 330 - -
EXPLORATION COST CARRYOVER (MBBLS) 1,806 1,806 1,806 1,532 330 - - -
DEVELOPMENT COSTS (M$) - - 13,112 34,141 17,551 - - -
DEVELOPMENT RECOVERY (MBBLS) - - 786 2,046 1,052 - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - 965 915 648
DEVELOPMENT COST CARRYOVER (MBBLS) - 7 786 2,831 3,883 2,917 2,003 1,355
DEEMED INTEREST (MBBLS) - - - 71 261 373 296 207
TOTAL COST RECOVERY OIL (MBBLS) 0 0 0 274 1,202 1,295 915 648
REMAINDER OIL (MBBLS) 0 0 0 220 932 1,019 766 585
X FACTOR 0.950 0.950 0.950 0.950 0.912 0.907 0.921 0.937
CHINESE SHARE OIL (MBBLS) 0 0 0 11 82 95 60 37
ALLOCABLE REMAINDER OIL (MBBLS) 0 0 0 209 850 924 705 548
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 0 0 0 103 417 453 346 269
TOTAL CONTRACTOR OIL (MBBLS) 0 0 0 427 1,813 1,477 989 760
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 1,350 1,114 949 838 757 684
CONS IND & COMM TAX (MBBLS) 68 56 47 42 38 34
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 810 668 570 503 454 411
OPERATING EXPENSES (M$) 5,514 5,216 5,010 4,753 4,511 4,292
OPERATING EXPENSE VOLUME (MBBLS) 330 313 300 285 270 257
INVESTMENT RECOVERY OIL (MBBLS) 480 356 269 218 184 153
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED 480 356 269 218 32 -
DEVELOPMENT COST CARRYOVER (MBBLS) 875 519 249 32 - -
DEEMED INTEREST (MBBLS) 141 - - - - -
TOTAL COST RECOVERY OIL (MBBLS) 480 356 269 218 32 -
REMAINDER OIL (MBBLS) 473 390 332 293 418 393
X FACTOR 0.950 0.950 0.950 0.950 0.950 0.950
CHINESE SHARE OIL (MBBLS) 24 19 17 15 21 20
ALLOCABLE REMAINDER OIL (MBBLS) 449 370 316 278 397 373
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 220 182 155 136 194 183
TOTAL CONTRACTOR OIL (MBBLS) 617 509 434 383 342 309
2010 2011 2012 2013 2014 2015
---- ----- ---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 621 549 492 448 323 -
CONS IND & COMM TAX (MBBLS) 31 27 25 22 16 -
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 373 329 295 269 194 -
OPERATING EXPENSES (M$) 1,599 1,401 3,737 3,634 3,275 -
OPERATING EXPENSE VOLUME (MBBLS) 96 84 224 218 196 -
INVESTMENT RECOVERY OIL (MBBLS) 277 245 71 51 (2) -
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - (2) -
EXPLORATION COST CARRYOVER (MBBLS) - - - - 2 -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - - -
DEEMED INTEREST (MBBLS) - - - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - - (2) -
REMAINDER OIL (MBBLS) 494 437 243 208 113 -
X FACTOR 0.950 0.950 0.950 0.950 0.950 -
CHINESE SHARE OIL (MBBLS) 25 22 12 10 6 -
ALLOCABLE REMAINDER OIL (MBBLS) 470 415 231 198 107 -
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 230 204 113 97 53 -
TOTAL CONTRACTOR OIL (MBBLS) 277 245 223 204 146 -
</TABLE>
TOTALS
------
OIL PRICE ($BBL)
GROSS OIL VOLUME (MBBLS) 18,190
CONS IND & COMM TAX (MBBLS) 910
ROYALTY (MBBLS) -
COST RECOVERY OIL (MBBLS) 10,914
OPERATING EXPENSES (M$) 71,391
OPERATING EXPENSE VOLUME (MBBLS) 4,277
INVESTMENT RECOVERY OIL (MBBLS) 6,637
EXPLORATION COSTS (M$) 31,634
EXPLORATION RECOVERY (MBBLS) 1,895
EXPLORATION RECOVERY ADJUSTMENT (89)
EXPLORATION RECOVERY UTILIZED 1,804
EXPLORATION COST CARRYOVER (MBBLS) 5,476
DEVELOPMENT COSTS (M$) 64,804
DEVELOPMENT RECOVERY (MBBLS) 3,883
DEVELOPMENT RECOVERY UTILIZED 3,883
DEVELOPMENT COST CARRYOVER (MBBLS) 15,449
DEEMED INTEREST (MBBLS) 1,348
TOTAL COST RECOVERY OIL (MBBLS) 5,686
REMAINDER OIL (MBBLS) 7,317
X FACTOR -
CHINESE SHARE OIL (MBBLS) 475
ALLOCABLE REMAINDER OIL (MBBLS) 6,842
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 3,353
TOTAL CONTRACTOR OIL (MBBLS) 9,155
<TABLE>
<CAPTION>
FOREIGN CONTRACTOR CASH FLOW (M$)
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COST RECOVERY REVENUES 0 0 0 5,419 23,306 17,094 10,732 8,206
ALLOCABLE REVENUES 0 0 0 1,711 6,955 7,555 5,767 4,485
EXPLORATION EXPENSE (31,634) - - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - (6,425) (16,729) (8,600) - - -
OPERATING EXPENSE - - - (847) (3,240) (3,695) (3,253) (2,904)
----- ----- ----- ---- ----- ------ ------ -----
NET CASH FLOW (31,634) 0 (6,425) (10,446) 18,420 20,955 13,247 9,786
====== ===== ====== ====== ====== ====== ====== =====
</TABLE>
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ----- -----
COST RECOVERY REVENUES 6,627 5,466 4,659 4,110 2,469 2,103
ALLOCABLE REVENUES 3,672 3,029 2,582 2,277 3,244 3,053
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (2,702) (2,556) (2,455) (2,329) (2,210) (2,103)
----- ----- ----- ----- ----- -----
NET CASH FLOW 7,597 5,940 4,785 4,058 3,503 3,053
===== ===== ===== ===== ===== =====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
COST RECOVERY REVENUES 784 687 1,831 1,780 1,564 -
ALLOCABLE REVENUES 3,841 3,397 1,889 1,617 878 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (784) (687) (1,831) (1,780) (1,605) -
---- ---- ----- ----- ----- ----
NET CASH FLOW 3,841 3,397 1,889 1,617 837 -
===== ===== ===== ===== ==== ====
TOTALS
------
COST RECOVERY REVENUES 96,836
ALLOCABLE REVENUES 55,954
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (31,754)
OPERATING EXPENSE (34,981)
------
NET CASH FLOW 86,055
======
<TABLE>
<CAPTION>
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> < c> <C> <C> <C>
TOTAL OIL REVENUES 0 0 0 3,565 15,130 12,325 8,250 6,345
EXPLORATION EXPENSE (15,817) - - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - (3,212) (8,365) (4,300) - - -
OPERATING EXPENSE - - - (424) (1,620) (1,848) (1,626) (1,452)
---- ---- ----- ---- ----- ----- ----- -----
NET CASH FLOW (15,817) 0 (3,212) (5,223) 9,210 10,477 6,623 4,893
====== ==== ===== ===== ===== ====== ===== =====
</TABLE>
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 5,150 4,248 3,620 3,193 2,857 2,578
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (1,351) (1,278) (1,227) (1,164) (1,105) (1,052)
----- ----- ----- ----- ----- -----
NET CASH FLOW 3,799 2,970 2,393 2,029 1,752 1,527
===== ===== ===== ===== ===== =====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 2,312 2,042 1,860 1,699 1,221 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (392) (343) (916) (890) (802) -
---- ---- ---- ---- ---- ----
NET CASH FLOW 1,921 1,699 944 809 419 -
===== ===== ==== ==== ==== ====
TOTALS
------
TOTAL OIL REVENUES 76,395
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (15,877)
OPERATING EXPENSE (17,491)
------
NET CASH FLOW 43,028
======
INTERNAL RATE OF RETURN 75%
NET PRESENT VALUES @ 10% AS OF 1-1-1998 BEFORE CHINESE INCOME TAX (M$) 22,224
<TABLE>
FOREIGN CONTRACTOR CASH FLOW AFTER CHINESE INCOME TAX (M$)
1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH FLOW (BEFORE TAX) (31,634) - (6,425) (10,446) 18,420 20,955 13,247
SUBSEQUENT DEVELOPMENT
EXPENSE - - (6,425) (16,729) (8,600) - -
OPERATING CASH INCOME (31,634) - - 6,283 27,020 20,955 13,247
DEPRECIATION BASIS - - (1,071) (3,859) (5,292) (5,292) (5,292)
TAXABLE INCOME (BEFORE
TAX LOSS) (31,634) - (1,071) 2,424 21,728 15,662 7,954
TAX LOSS - (31,634) (31,634) (32,705)(30,281) (8,553) -
TAXABLE INCOME (AFTER
TAX LOSS) (31,634)(31,634) (32,705) (30,281) (8,553) 7,110 7,954
TAXES - - - - - 2,346 2,625
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (31,634) - (6,425) (10,446) 18,420 18,608 10,622
==== ==== ==== ==== ==== ==== ====
2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 9,786 7,597 5,940 4,785 4,058 3,503 3,053
SUBSEQUENT DEVELOPMENT
EXPENSE - - - - - - -
OPERATING CASH INCOME 9,786 7,597 5,940 4,785 4,058 3,503 3,053
DEPRECIATION BASIS (5,292) (4,222) (1,433) - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) 4,494 3,376 4,507 4,785 4,058 3,503 3,053
TAX LOSS - - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) 4,494 3,376 4,507 4,785 4,058 3,503 3,053
TAXES 1,483 1,114 1,487 1,579 1,339 1,156 1,008
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW 8,303 6,483 4,453 3,206 2,719 2,347 2,046
==== ==== ==== ==== ==== ==== ====
2010 2011 2012 2013 2014 2015
---- ----- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 3,841 3,397 1,889 1,617 837 -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - - - -
OPERATING CASH INCOME 3,841 3,397 1,889 1,617 837 -
DEPRECIATION BASIS - - - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) 3,841 3,397 1,889 1,617 837 -
TAX LOSS - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) 3,841 3,397 1,889 1,617 837 -
TAXES 1,268 1,121 623 534 276 -
---- ---- ---- ---- ---- ----
NET CASH FLOW 2,574 2,276 1,265 1,084 561 -
==== ==== ==== ==== ==== ====
TOTALS
------
NET CASH FLOW (BEFORE TAX) 86,055
SUBSEQUENT DEVELOPMENT
EXPENSE (31,754)
OPERATING CASH INCOME 117,809
DEPRECIATION BASIS (31,754)
TAXABLE INCOME (BEFORE
TAX LOSS) 86,055
TAX LOSS (134,805)
TAXABLE INCOME (AFTER
TAX LOSS) (48,750)
TAXES 17,959
----
NET CASH FLOW 68,096
</TABLE>
<TABLE>
CASH FLOW TO EACH PARTNER AFTER CHINESE INCOME TAX (M$)(50% INTEREST)
1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH FLOW (BEFORE TAX) (15,817) - (3,212) (5,223) 9,210 10,477 6,623
TAXES - - - - - 1,173 1,312
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (15,817) - (3,212) (5,223) 9,210 9,304 5,311
==== ==== ==== ==== ==== ==== ====
2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 4,893 3,799 2,970 2,393 2,029 1,752 1,527
TAXES 741 557 744 790 670 578 504
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW 4,152 3,242 2,226 1,603 1,359 1,174 1,023
==== ==== ==== ==== ==== ==== ====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 1,921 1,699 944 809 419 -
TAXES 634 561 312 267 138 -
---- ---- ---- ---- ---- ----
NET CASH FLOW 1,287 1,138 633 542 280 -
---- ---- ---- ---- ---- ----
TOTALS
------
NET CASH FLOW (BEFORE TAX) 43,028
TAXES 8,980
NET CASH FLOW 34,048
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XCL CHINA, LTD.
PROJECTED CASH FLOWS - PRELIMINARY SEC CASE
ZHAO DONG CONCESSION: 28 MM BBL CASE
(D BLOCK: SEC CASE)
1996 1997 1998 1999 2000 2001 2002 2003
--- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 0 0 0 971 4,111 4,493 3,375 2,581
CONS IND & COMM TAX (MBBLS) 0 0 0 49 206 225 169 129
ROYALTY (MBBLS) - - - - - - - -
COST RECOVERY OIL (MBBLS) 0 0 0 583 2,467 2,696 2,025 1,548
OPERATING EXPENSES (M$) - - - 2,669 10,205 11,638 10,245 9,147
OPERATING EXPENSE VOLUME (MBBLS) - - - 160 611 697 614 548
INVESTMENT RECOVERY OIL (MBBLS) 0 0 0 423 1,855 1,999 1,411 1,000
EXPLORATION COSTS (M$) 48,818 - - - - - - -
EXPLORATION RECOVERY (MBBLS) 2,925 - - - - - - -
EXPLORATION RECOVERY ADJUSTMENT (138) - - - - - - -
EXPLORATION RECOVERY UTILIZED 0 0 0 423 1,855 509 - -
EXPLORATION COST CARRYOVER (MBBLS) 2,787 2,787 2,787 2,364 509 - - -
DEVELOPMENT COSTS (M$) - - 20,234 52,688 27,085 - - -
DEVELOPMENT RECOVERY (MBBLS) - - 1,212 3,157 1,623 - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - 1,490 1,411 1,000
DEVELOPMENT COST CARRYOVER (MBBLS) - - 1,212 4,369 5,992 4,502 3,091 2,091
DEEMED INTEREST (MBBLS) - - - 109 403 576 457 319
TOTAL COST RECOVERY OIL (MBBLS) 0 0 0 423 1,855 1,999 1,411 1,000
REMAINDER OIL (MBBLS) 0 0 0 340 1,439 1,573 1,181 903
X FACTOR 0.950 0.950 0.950 0.950 0.881 0.876 0.895 0.913
CHINESE SHARE OIL (MBBLS) 0 0 0 17 171 195 124 78
ALLOCABLE REMAINDER OIL (MBBLS) 0 0 0 323 1,268 1,378 1,057 825
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 0 0 0 158 621 675 518 404
TOTAL CONTRACTOR OIL (MBBLS) 0 0 0 659 2,776 2,256 1,510 1,163
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 2,084 1,719 1,465 1,292 1,169 1,056
CONS IND & COMM TAX (MBBLS) 104 86 73 65 58 53
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 1,250 1,032 879 775 701 634
OPERATING EXPENSES (M$) 8,509 8,050 7,732 7,334 6,961 6,624
OPERATING EXPENSE VOLUME (MBBLS) 510 482 463 439 417 397
INVESTMENT RECOVERY OIL (MBBLS) 741 549 416 336 284 237
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED 741 549 416 336 49 -
DEVELOPMENT COST CARRYOVER (MBBLS) 1,350 801 385 49 - -
DEEMED INTEREST (MBBLS) 217 - - - - -
TOTAL COST RECOVERY OIL (MBBLS) 741 549 416 336 49 -
REMAINDER OIL (MBBLS) 729 602 513 452 644 606
X FACTOR 0.924 0.935 0.946 0.950 0.950 0.950
CHINESE SHARE OIL (MBBLS) 56 39 27 23 32 30
ALLOCABLE REMAINDER OIL (MBBLS) 674 563 485 430 612 576
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 330 276 238 211 300 282
TOTAL CONTRACTOR OIL (MBBLS) 943 781 669 591 528 477
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
OIL PRICE ($BBL) 16.69 16.69 16.69 16.69 16.69 16.69
GROSS OIL VOLUME (MBBLS) 959 847 759 692 498 -
CONS IND & COMM TAX (MBBLS) 48 42 38 35 25 -
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 575 508 455 415 299 -
OPERATING EXPENSES (M$) 3,826 3,520 5,767 5,608 5,054 -
OPERATING EXPENSE VOLUME (MBBLS) 229 211 346 336 303 -
INVESTMENT RECOVERY OIL (MBBLS) 346 297 110 79 (4) -
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - (4) -
EXPLORATION COST CARRYOVER (MBBLS) - - - - 4 -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - - -
DEEMED INTEREST (MBBLS) - - - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - - (4) -
REMAINDER OIL (MBBLS) 682 593 375 321 174 -
X FACTOR 0.950 0.950 0.950 0.950 0.950 -
CHINESE SHARE OIL (MBBLS) 34 30 19 16 9 -
ALLOCABLE REMAINDER OIL (MBBLS) 648 564 356 305 166 -
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 317 276 175 150 81 -
TOTAL CONTRACTOR OIL (MBBLS) 430 380 344 314 226 -
</TABLE>
TOTALS
------
OIL PRICE ($BBL)
GROSS OIL VOLUME (MBBLS) 28,072
CONS IND & COMM TAX (MBBLS) 1,404
ROYALTY (MBBLS) -
COST RECOVERY OIL (MBBLS) 16,843
OPERATING EXPENSES (M$) 112,889
OPERATING EXPENSE VOLUME (MBBLS) 6,764
INVESTMENT RECOVERY OIL (MBBLS) 10,079
EXPLORATION COSTS (M$) 48,818
EXPLORATION RECOVERY (MBBLS) 2,925
EXPLORATION RECOVERY ADJUSTMENT (138)
EXPLORATION RECOVERY UTILIZED 2,783
EXPLORATION COST CARRYOVER (MBBLS) 8,451
DEVELOPMENT COSTS (M$) 100,007
DEVELOPMENT RECOVERY (MBBLS) 5,992
DEVELOPMENT RECOVERY UTILIZED 5,992
DEVELOPMENT COST CARRYOVER (MBBLS) 23,842
DEEMED INTEREST (MBBLS) 2,081
TOTAL COST RECOVERY OIL (MBBLS) 8,775
REMAINDER OIL (MBBLS) 11,129
X FACTOR -
CHINESE SHARE OIL (MBBLS) 900
ALLOCABLE REMAINDER OIL (MBBLS) 10,229
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 5,012
TOTAL CONTRACTOR OIL (MBBLS) 14,046
<TABLE>
<CAPTION>
FOREIGN CONTRACTOR CASH FLOW (M$)
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COST RECOVERY REVENUES 0 0 0 8,363 35,966 26,381 16,563 12,663
ALLOCABLE REVENUES 0 0 0 2,640 10,371 11,268 8,644 6,747
EXPLORATION EXPENSE (48,818) - - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - (9,915) (25,817) (13,272) - - -
OPERATING EXPENSE - - - (1,308) (5,001) (5,702) (5,020) (4,482)
------ ----- ----- ----- ----- ------ ------ ------
NET CASH FLOW (48,818) 0 (9,915) (16,121) 28,065 31,946 20,186 14,928
===== ===== ====== ====== ====== ====== ====== ======
</TABLE>
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ----- -----
COST RECOVERY REVENUES 10,227 8,436 7,189 6,342 3,810 3,246
ALLOCABLE REVENUES 5,511 4,602 3,969 3,515 5,007 4,712
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (4,169) (3,944) (3,789) (3,594) (3,411) (3,246)
----- ----- ----- ----- ----- ----
NET CASH FLOW 11,568 9,094 7,370 6,263 5,406 4,712
====== ===== ===== ===== ===== =====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
COST RECOVERY REVENUES 1,875 1,725 2,826 2,748 2,413 -
ALLOCABLE REVENUES 5,296 4,611 2,914 2,496 1,355 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (1,875) (1,725) (2,826) (2,748) (2,476) -
----- ----- ----- ----- ----- ----
NET CASH FLOW 5,296 4,611 2,914 2,496 1,292 -
===== ===== ===== ===== ===== ====
TOTALS
------
COST RECOVERY REVENUES 150,772
ALLOCABLE REVENUES 83,657
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (49,004)
OPERATING EXPENSE (55,315)
------
NET CASH FLOW 130,110
=======
<TABLE>
<CAPTION>
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL OIL REVENUES 0 0 0 5,502 23,169 18,824 12,603 9,705
EXPLORATION EXPENSE (24,409) - - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - (4,957) (12,909) (6,636) - - -
OPERATING EXPENSE - - - (654) (2,500) (2,851) (2,510) (2,241)
---- ---- ----- ----- ----- ------ ------ -----
NET CASH FLOW (24,409) 0 (4,957) (8,061) 14,033 15,973 10,093 7,464
===== ==== ===== ===== ====== ====== ====== =====
</TABLE>
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 7,869 6,519 5,579 4,928 4,409 3,979
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (2,085) (1,972) (1,894) (1,797) (1,706) (1,623)
----- ----- ----- ----- ----- ----
NET CASH FLOW 5,784 4,547 3,685 3,131 2,703 2,356
===== ===== ===== ===== ===== =====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 3,585 3,168 2,870 2,622 1,884 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (937) (863) (1,413) (1,374) (1,238) -
----- ----- ----- ----- ----- ----
NET CASH FLOW 2,648 2,305 1,457 1,248 646 -
===== ===== ===== ===== ===== ====
TOTALS
------
TOTAL OIL REVENUES 117,215
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (24,502)
OPERATING EXPENSE (27,658)
------
NET CASH FLOW 65,055
======
INTERNAL RATE OF RETURN 74% NET
PRESENT VALUES @ 10% AS OF 1-1-1998 BEFORE CHINESE INCOME TAX (M$) 33,642
<TABLE>
FOREIGN CONTRACTOR CASH FLOW AFTER CHINESE INCOME TAX (M$)
1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH FLOW (BEFORE TAX) (48,818) - (9,915) (16,121) 28,065 31,946 20,186
SUBSEQUENT DEVELOPMENT
EXPENSE - - (9,915) (25,817)(13,272) - -
OPERATING CASH INCOME (48,818) - - 9,696 41,337 31,946 20,186
DEPRECIATION BASIS - - (1,652) (5,955) (8,167) (8,167) (8,167)
TAXABLE INCOME (BEFORE
TAX LOSS) (48,818) - (1,652) 3,741 33,170 23,779 12,019
TAX LOSS - (48,818) (48,818) (50,471)(46,730)(13,561) -
TAXABLE INCOME (AFTER
TAX LOSS) (48,818)(48,818) (50,471) (46,730)(13,561) 10,218 12,019
TAXES - - - - - 3,372 3,966
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (48,818) - (9,915) (16,121) 28,065 28,574 16,220
==== ==== ==== ==== ==== ==== ====
2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 14,928 11,568 9,094 7,370 6,263 5,406 4,712
SUBSEQUENT DEVELOPMENT
EXPENSE - - - - - - -
OPERATING CASH INCOME 14,928 11,568 9,094 7,370 6,263 5,406 4,712
DEPRECIATION BASIS (8,167) (6,515) (2,212) - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) 6,761 5,053 6,882 7,370 6,263 5,406 4,712
TAX LOSS - - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) 6,761 5,053 6,882 7,370 6,263 5,406 4,712
TAXES 2,231 1,667 2,271 2,432 2,067 1,784 1,555
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW 12,697 9,900 6,823 4,938 4,196 3,622 3,157
==== ==== ==== ==== ==== ==== ====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
NET CASH FLOW (BEFORE TAX) 5,296 4,611 2,914 2,496 1,292 -
SUBSEQUENT DEVELOPMENT
EXPENSE - - - - - -
OPERATING CASH INCOME 5,296 4,611 2,914 2,496 1,292 -
DEPRECIATION BASIS - - - - - -
TAXABLE INCOME (BEFORE
TAX LOSS) 5,296 4,611 2,914 2,496 1,292 -
TAX LOSS - - - - - -
TAXABLE INCOME (AFTER
TAX LOSS) 5,296 4,611 2,914 2,496 1,292 -
TAXES 1,748 1,522 962 824 426 -
---- ---- ---- ---- ---- ----
NET CASH FLOW 3,548 3,089 1,953 1,672 866 -
==== ==== ==== ==== ==== ====
TOTALS
------
NET CASH FLOW (BEFORE TAX) 130,110
SUBSEQUENT DEVELOPMENT
EXPENSE (49,004)
OPERATING CASH INCOME 179,114
DEPRECIATION BASIS (49,004)
TAXABLE INCOME (BEFORE
TAX LOSS) 130,110
TAX LOSS (208,398)
TAXABLE INCOME (AFTER
TAX LOSS) (78,287)
TAXES 26,826
----
NET CASH FLOW 103,284
</TABLE>
<TABLE>
CASH FLOW TO EACH PARTNER AFTER CHINESE INCOME TAX (M$)(50% INTEREST)
1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH FLOW (BEFORE TAX) (24,409) - (4,957) (8,061) 14,033 15,973 10,093
TAXES - - - - - 1,686 1,983
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (24,409) - (4,957) (8,061) 14,033 14,287 8,110
==== ==== ==== ==== ==== ==== ====
2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 7,464 5,784 4,547 3,685 3,131 2,703 2,356
TAXES 1,116 834 1,135 1,216 1,033 892 777
---- ---- ---- ---- ---- ---- ----
NET CASH FLOW 6,348 4,950 3,411 2,469 2,098 1,811 1,578
==== ==== ==== ==== ==== ==== ====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
NET CASH FLOW (BEFORE TAX) 2,648 2,305 1,457 1,248 646 -
TAXES 874 761 481 412 213 -
---- ---- ---- ---- ---- ----
NET CASH FLOW 1,774 1,545 976 836 433 -
---- ---- ---- ---- ---- ----
TOTALS
------
NET CASH FLOW (BEFORE TAX) 65,055
TAXES 13,413
NET CASH FLOW 51,642
</TABLE>
INTERNAL RATE OF RETURN AFTER CHINESE INCOME TAX 69%
NET PRESENT VALUES @ 10% AS OF 1-1-1998 AFTER CHINESE INCOME TAX (M$) 27,300
<PAGE>
XCL CHINA, LTD.
PROJECTED CASH FLOWS - PRELIMINARY SEC CASE
ZHAO DONG CONCESSION: 46 MM BBL CASE
(ESTIMATE OF PAYMENT: PROVED ONLY - ESCALATED PRICING)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OIL PRICE ($BBL) 16.32 17.32 18.32 19.14 19.99 20.88 21.80 22.76
GROSS OIL VOLUME (MBBLS) 0 0 0 1,600 6,775 7,405 5,563 4,253
CONS IND & COMM TAX (MBBLS) 0 0 0 80 339 370 278 213
ROYALTY (MBBLS) - - - - - 16 - -
COST RECOVERY OIL (MBBLS) 0 0 0 960 4,065 4,443 3,338 2,552
OPERATING EXPENSES (M$) - - - 3,914 16,818 19,179 16,884 15,075
OPERATING EXPENSE VOLUME (MBBLS) - - - 205 841 919 774 662
INVESTMENT RECOVERY OIL (MBBLS) 0 0 0 756 3,224 3,524 2,563 1,889
EXPLORATION COSTS (M$) 24,000 - - - - - - -
EXPLORATION RECOVERY (MBBLS) 1,471 - - - - - - -
EXPLORATION RECOVERY ADJUSTMENT (207) - - - - - - -
EXPLORATION RECOVERY UTILIZED 0 0 0 756 508 - - -
EXPLORATION COST CARRYOVER (MBBLS) 1,263 1,263 1,263 508 - - - -
DEVELOPMENT COSTS (M$) - - - - 164,811 - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - 8,244 - - -
DEVELOPMENT RECOVERY UTILIZED - - - - 2,716 3,524 2,500 225
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - 5,527 2,003 - -
DEEMED INTEREST (MBBLS) - - - - - 497 225 20
TOTAL COST RECOVERY OIL (MBBLS) 0 0 0 756 3,224 3,524 2,500 225
REMAINDER OIL (MBBLS) 0 0 0 560 2,371 2,576 2,010 3,153
X FACTOR 0.950 0.950 0.950 0.940 0.845 0.837 0.865 0.879
CHINESE SHARE OIL (MBBLS) 0 0 0 34 367 420 271 381
ALLOCABLE REMAINDER OIL (MBBLS) 0 0 0 526 2,004 2,156 1,739 2,772
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 0 0 0 258 982 1,056 852 1,358
TOTAL CONTRACTOR OIL (MBBLS) 0 0 0 1,114 3,233 3,233 2,457 1,793
2004 2005 2006 2007 2008 2009
----- ---- ---- ---- ---- ----
OIL PRICE ($BBL) 23.76 24.80 25.88 27.00 28.17 29.38
GROSS OIL VOLUME (MBBLS) 3,435 2,833 2,415 2,130 1,926 1,741
CONS IND & COMM TAX (MBBLS) 172 142 121 106 96 87
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 2,061 1,700 1,449 1,278 1,156 1,044
OPERATING EXPENSES (M$) 14,023 13,266 12,742 12,087 11,472 10,916
OPERATING EXPENSE VOLUME (MBBLS) 590 535 492 448 407 372
INVESTMENT RECOVERY OIL (MBBLS) 1,471 1,165 956 830 748 673
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED 20 2 - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - - -
DEEMED INTEREST (MBBLS) 2 - - - - -
TOTAL COST RECOVERY OIL (MBBLS) 20 2 - - - -
REMAINDER OIL (MBBLS) 2,652 2,155 1,801 1,576 1,423 1,282
X FACTOR 0.893 0.909 0.916 0.923 0.928 0.934
CHINESE SHARE OIL (MBBLS) 283 196 151 122 102 84
ALLOCABLE REMAINDER OIL (MBBLS) 2,370 1,959 1,651 1,454 1,320 1,198
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 1,161 960 809 712 647 587
TOTAL CONTRACTOR OIL (MBBLS) 1,460 1,223 1,050 932 847 769
2010 2011 2012 2013 2014 2015
----- ---- ---- ---- ---- ----
OIL PRICE ($BBL) 30.64 31.95 33.32 34.74 36.22 37.75
GROSS OIL VOLUME (MBBLS) 1,580 1,395 1,250 1,140 821 -
CONS IND & COMM TAX (MBBLS) 79 70 63 57 41 -
ROYALTY (MBBLS) - - - - - -
COST RECOVERY OIL (MBBLS) 948 837 750 684 493 -
OPERATING EXPENSES (M$) 7,925 7,422 9,504 9,241 8,329 -
OPERATING EXPENSE VOLUME (MBBLS) 259 232 285 266 230 -
INVESTMENT RECOVERY OIL (MBBLS) 689 605 465 418 263 -
EXPLORATION COSTS (M$) - - - - - -
EXPLORATION RECOVERY (MBBLS) - - - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - - - -
EXPLORATION RECOVERY UTILIZED - - - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - - - -
DEVELOPMENT COSTS (M$) - - - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - - - -
DEVELOPMENT RECOVERY UTILIZED - - - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - - -
DEEMED INTEREST (MBBLS) - - - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - - - -
REMAINDER OIL (MBBLS) 1,242 1,093 902 817 550 -
X FACTOR 0.941 0.950 0.950 0.950 0.950 -
CHINESE SHARE OIL (MBBLS) 73 55 45 41 28 -
ALLOCABLE REMAINDER OIL (MBBLS) 1,169 1,039 857 776 523 -
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 573 509 420 380 256 -
TOTAL CONTRACTOR OIL (MBBLS) 700 623 560 511 369 -
</TABLE>
TOTALS
------
OIL PRICE ($BBL)
GROSS OIL VOLUME (MBBLS) 46,263
CONS IND & COMM TAX (MBBLS) 2,313
ROYALTY (MBBLS) 16
COST RECOVERY OIL (MBBLS) 27,758
OPERATING EXPENSES (M$) 188,796
OPERATING EXPENSE VOLUME (MBBLS) 7,517
INVESTMENT RECOVERY OIL (MBBLS) 20,240
EXPLORATION COSTS (M$) -
EXPLORATION RECOVERY (MBBLS) -
EXPLORATION RECOVERY ADJUSTMENT (207)
EXPLORATION RECOVERY UTILIZED 1,263
EXPLORATION COST CARRYOVER (MBBLS) 3,035
DEVELOPMENT COSTS (M$) 164,811
DEVELOPMENT RECOVERY (MBBLS) 8,244
DEVELOPMENT RECOVERY UTILIZED 8,988
DEVELOPMENT COST CARRYOVER (MBBLS) 7,530
DEEMED INTEREST (MBBLS) 745
TOTAL COST RECOVERY OIL (MBBLS) 10,252
REMAINDER OIL (MBBLS) 26,164
X FACTOR -
CHINESE SHARE OIL (MBBLS) 2,652
ALLOCABLE REMAINDER OIL (MBBLS) 23,512
CONTRACTOR ALLOCABLE OIL - 49% (MBBLS) 11,521
TOTAL CONTRACTOR OIL (MBBLS) 20,872
<TABLE>
<CAPTION>
FOREIGN CONTRACTOR CASH FLOW (M$)
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COST RECOVERY REVENUES 0 0 0 16,381 45,003 45,457 34,984 9,896
ALLOCABLE REVENUES 0 0 0 4,938 19,632 22,055 18,579 30,919
EXPLORATION EXPENSE (24,000) - - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - 0 - (80,757 - - -
OPERATING EXPENSE - - - (1,918) (8,241) (9,398) (8,273) (7,387)
------ ----- ----- ----- ------ ------ ----- -----
NET CASH FLOW (24,000) 0 0 (19,401) 24,363 58,114 45,289 33,429
====== ===== ====== ====== ====== ====== ====== ======
</TABLE>
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ----- -----
COST RECOVERY REVENUES 7,107 6,522 6,243 5,923 5,621 5,349
ALLOCABLE REVENUES 27,587 23,798 20,930 19,232 18,222 17,243
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (6,871) (6,500) (6,243) (5,923) (5,621) (5,349)
----- ------ ------ ------ ------ ------
NET CASH FLOW 27,823 23,820 20,930 19,232 18,222 17,243
====== ====== ====== ====== ====== ======
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
COST RECOVERY REVENUES 3,883 3,637 4,657 4,528 4,081 -
ALLOCABLE REVENUES 17,551 16,264 13,997 13,214 9,277 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (3,883) (3,637) (4,657) (4,528) (4,081) -
------ ------ ------ ----- ----- ----
NET CASH FLOW 17,551 16,264 13,997 13,214 9,277 -
====== ====== ====== ====== ===== ====
TOTALS
------
COST RECOVERY REVENUES 209,273
ALLOCABLE REVENUES 293,437
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (80,757)
OPERATING EXPENSE (92,510)
------
NET CASH FLOW 329,442
=======
<TABLE>
<CAPTION>
CASH FLOW TO EACH PARTNER (M$) (5.9% INTEREST)
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL OIL REVENUES 0 0 0 1,258 3,813 3,983 3,160 2,408
EXPLORATION EXPENSE (1,416) - - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - 0 - (4,765) - - -
OPERATING EXPENSE - - - (113) (486) (554) (488) (436)
----- ---- ----- ---- ----- ----- ----- -----
NET CASH FLOW (1,416) 0 0 1,145 (1,437) 3,429 2,672 1,972
===== ==== ===== ===== ===== ===== ===== =====
</TABLE>
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 2,047 1,789 1,603 1,484 1,407 1,333
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (405) (384) (368) (349) (332) (316)
----- ---- ----- ----- ----- -----
NET CASH FLOW 1,642 1,405 1,235 1,135 1,075 1,017
===== ==== ===== ===== ===== =====
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- -----
TOTAL OIL REVENUES 1,265 1,174 1,101 1,047 788 -
EXPLORATION EXPENSE - - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - - -
OPERATING EXPENSE (229) (215) (275) (267) (241) -
----- ----- ----- ----- --- ----
NET CASH FLOW 1,036 960 826 780 547 -
===== ==== ==== ==== ==== ====
TOTALS
------
TOTAL OIL REVENUES 29,660
EXPLORATION EXPENSE -
SUBSEQUENT DEVELOPMENT EXPENSE (4,765)
OPERATING EXPENSE (5,458)
-----
NET CASH FLOW 19,437
======
NET PRESENT VALUES @ 12% AS OF 1-1-2000, (M$) 9,381 (AMOUNT OF PAYMENT
IN YEAR 2000)
NET PRESENT VALUES @ 10% AS OF 1-1-1998, (M$) 7,752 (DISCOUNTED PAYMENT)
