TEXOIL INC /NV/, 10KSB40, 1997-03-31

TEXOIL INC /NV/
10KSB40, 1997-03-31
CRUDE PETROLEUM & NATURAL GAS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

Commission file number: 0-12633

TEXOIL, INC.
(Name of small business issuer in its charter)

NEVADA
(State or other 88-0177083
jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)

1600 SMITH STREET
SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices)

(713) 652-5741
(Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:
======================================== =======================================

Title of Each Class Name of Each Exchange on Which
so Registered Each Class is so Registered
======================================== =======================================

Common Stock, par value $.01 per share Boston Stock Exchange
======================================== =======================================

Class A Warrants exercisable to
purchase one share of Common Stock Boston Stock Exchange
======================================== =======================================

Class B Warrants exercisable to
purchase one share of Common Stock Boston Stock Exchange
======================================== =======================================

Securities registered under section 12(g) of the Exchange Act: Common Stock, par
value $.01 per share

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $972,739

The aggregate market value of the Common Stock held by non-affiliates of the
registrant was $6,821,641 as of March 24, 1997. On such date, the last sales
price of registrant's Common Stock was $1.625 per share.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,197,933 shares of Common Stock,
$.01 par value, issued and outstanding at March 24, 1997.

DOCUMENTS INCORPORATED BY REFERENCE
None

Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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TABLE OF CONTENTS

PART I

PAGE
----
Item 1. Description of Business ........................................... 3

Item 2. Description of Property ........................................... 8

Item 3. Legal Proceedings ................................................. 16

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

PART II

Item 5. Market for Common Equity and Related Stockholder Matters .......... 18

Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 19

Item 7. Financial Statements .............................................. 25

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............... 27

Item 10. Executive Compensation ........................................... 28

Item 11. Security Ownership of Certain Beneficial Owners and Management ... 30

Item 12. Certain Relationships and Related Transactions ................... 32

Item 13. Exhibits and Reports on Form 8-K ................................. 32

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Texoil, Inc. ("Texoil" or the "Company") explores for, develops and produces
oil and natural gas. Founded in 1964, the Company is currently focusing its
operations on exploratory drilling in South Louisiana and the Texas Gulf Coast
for oil and natural gas reserves on relatively deep prospects, typically based
on interpretations of three-dimensional ("3-D") seismic surveys. The Company's
address is 1600 Smith Street, Suite 4000, Houston, Texas 77002 and its telephone
number is (713) 652-5741.

The Company's business has been conducted since 1964 by its wholly-owned
subsidiary, Texoil Company, a Tennessee corporation. Texoil Company became a
subsidiary of the Company in March 1993 after surviving a merger with a
wholly-owned subsidiary of the Company. At the time of the merger the Company,
which then was named Comet Entertainment, Inc., a Nevada corporation ("Comet"),
was a Securities and Exchange Commission ("SEC") reporting company, but had no
substantive assets or operations. Upon consummation of the merger (the "Comet
Merger"), Texoil Company's stockholders and management became Comet's management
and controlling stockholders, Comet changed its name to Texoil, Inc. and,
accordingly, Texoil Company, as a wholly-owned subsidiary of Texoil, Inc.,
survived the Comet Merger and continues its business under the same management
and control as it had before the Comet Merger. Unless otherwise indicated, all
future references herein to "Texoil" or the "Company" relate to Texoil Company
for the period prior to the Comet Merger and to Texoil, Inc. and its
subsidiaries for the period after the Comet Merger.

RECENT DEVELOPMENTS

To fund its initial 3-D seismic exploration program, in September 1996, the
Company and its wholly-owned operating subsidiary Texoil Company ("Subsidiary"),
entered into a Note Purchase Agreement with four limited partnerships of which
Resource Investors Management Company Limited Partnership ("RIMCO") is the
controlling general partner ("RIMCO Agreement" or "RIMCO Financing"). Under the
RIMCO Financing, the lenders have agreed to provide up to $8,000,000 in two
separate financings. In connection with the RIMCO Financing, Gary J. Milavec, a
Vice President of RIMCO Associates, Inc., was elected to the Company's Board of
Directors. (See Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cash Flow From Financing.)

The recently completed 3-D seismic interpretations over the Raceland and
Greens Lake Prospects have identified locations on which drilling operations are
scheduled to commence in the second quarter of 1997. The Raceland and Greens
Lake Prospects are located in Lafourche Parish, Louisiana, and Galveston County,
Texas, respectively. (See Item 2. Description of Property - Exploration
Prospects - Texoil Exploration Prospects). Due to the extensive amount of
7rospective areas indicated by the 3-D seismic interpretations, Texoil has
acquired approximately double the amount of lease acreage and it plans to
explore into deeper horizons than originally planned. In connection with these
developments, Texoil is seeking additional debt capital or equity as may be
necessary.

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BUSINESS STRATEGY

The Company's strategy is to apply cost effective business measures and
newer, more efficient prospecting technologies to its exploration and production
operations. The objective of the Company's near-term strategy is maximization of
the value of its existing exploratory prospect inventory while reducing its cost
and risk exposure. The Company endeavors to spread its potential risk and
expense by participating for a lower working (i.e., "cost") interest in wells,
typically one-eighth to one-fourth, and selling additional interests on a
promoted basis such that the Company will ultimately own a 25% to 50% interest
in each prospect that it operates. Additionally, the Company is seeking to
evaluate a wider array of exploratory prospects than it has in the past and
intends to participate in the drilling of prospects operated by others where
warranted. To lower the risk of exploration, the Company generally limits its
participation in exploratory drilling to those prospects for which geological
evaluation has been obtained through the advanced and cost-effective technology
of 3-D seismic surveys.

As an early step in implementing its strategy, the Company entered into a
simultaneous prospect sale and participation agreement with Texas Meridian
Resources Corp. ("Texas Meridian") in December 1992 (the "Texoil-Texas Meridian
Agreement"). Under the terms of the agreement, Texoil sold 14 of its unleased
exploratory prospect areas to Texas Meridian for $500,000 cash, overriding
royalties ranging from 2.0% to 3.75% on production from wells drilled within a
defined area on the prospects, and retained a prospect-by-prospect option (but
no obligation) to acquire from Texas Meridian on an unpromoted basis up to a 10%
working interest in wells drilled within the defined area on the Texoil
generated prospects. The working interest option arrangement provides Texoil
with the opportunity to review the 3-D seismic survey data and other prospect
information assembled by Texas Meridian before Texoil's commitment to
participate in drilling and prior to any expenditure on Texoil's part, thus
decreasing Texoil's cost and risk exposure prior to its decision to participate.
The unleased exploratory prospects transferred to Texas Meridian consisted of
geological and geophysical data, maps, files, and interpretations relating to
several geographically delineated areas believed to overlay geological features
potentially productive of hydrocarbons, all of which are located in South
Louisiana.

Continuing its strategy, the Company completed its preliminary geological
and geophysical evaluation of several of its exploratory prospects during the
first quarter of 1995 (this process was begun in 1994) and shot and processed
two proprietary 3-D seismic surveys in 1996. The preliminary evaluation, a
multi-month process, included the purchase of existing so-called "2-D" seismic
data, the reprocessing of that data, and the integration of the reprocessed
data, along with subsurface geological information from existing wells, into the
final geological and geophysical interpretation of each prospect. The goal of
the preliminary evaluation is to determine whether a prospect qualifies as a
candidate for the application of, and the expenditure required for conducting
additional 3-D seismic surveys. Based upon the results of the evaluations,
Texoil then acquires oil and gas lease options and leases covering the prospects
and permits only around the perimeter of the prospective acreage. It then
conducts 3-D seismic surveys and makes determinations to drill based on the
interpretation of the 3-D seismic data.

Since the Company does not employ an in-house exploration staff it uses
expert independent consultants as its primary source of prospect generation and
early prospect evaluation. Upon qualifying prospects to initiate 3-D seismic
surveys, the Company seeks to enter into contractual arrangements with partners
specializing in 3-D seismic design, quality control and interpretation. In 1994,
the Company entered into a strategic alliance and later a working interest
partnership with 3DX Technologies, Inc., a well-regarded industry leader in the
field of 3-D seismic technology, on its Raceland Prospect. On other non-operated
prospects, the Company works integrally with the operator's 3-D seismic
technical staff such as Phillips Petroleum on its Laurel Grove Prospect and
Burlington Resources on its Greens Lake Prospect.

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THREE-DIMENSIONAL SEISMIC SURVEYS

Seismic surveys are digital recordings of shock waves reflected off of
underground formations. Three-dimensional seismic is the application of powerful
computer workstations and sophisticated software to seismic data acquired from a
dense pattern of shot points to create computer-generated, three-dimensional
displays of subsurface geological formations. Extensive arrays of listening
devices gather thousands of times more detail than conventional, "2-D" seismic
surveys, and permit a more complete, clear picture of the subsurface. This
detail enables explorationists to detect seismic anomalies and structural
features that are not apparent in 2-D surveys, thus improving their view of
target formations and the areal extent of potential pay sands. Management
believes that 3-D seismic surveys are particularly suited to exploration in
geologically complex areas of the Texas and Louisiana Gulf Coast. Both the
Miocene and Oligocene Frio geological formations of South Louisiana and the
Texas Gulf Coast are believed by management to offer opportunities for discovery
of significant oil and gas reserves that were previously overlooked or which
underlie previously found productive fields. Management believes that 3-D
seismic surveys are capable of delineating complex and subtle traps, often
adjacent to dry holes.

Industry statistics have shown that 3-D seismic technology, properly used,
will reduce exploration risks and costs by reducing the number of dry holes,
optimizing well locations, and reducing the number of wells required to develop
a discovery. In the case of the Company, 75% ( three of four) of the exploratory
test wells drilled by Texas Meridian within three areas subject to the
Texoil-Texas Meridian Agreement have been successful. Likewise, in two other
areas subject to the Texoil-Texas Meridian Agreement, exploratory wells were not
drilled after the 3-D seismic interpretation indicated the areas were not
prospective for commercial quantities of oil or gas. In this manner expensive,
potentially dry holes were not drilled.

COMPETITION

The Company encounters strong competition from major oil companies and
independent operators in acquiring properties and leases for exploration for
crude oil and natural gas. The principal competitive factors in the acquisition
of such oil and gas properties include the staff and data necessary to identify,
investigate and purchase such leases, and the financial resources necessary to
acquire and develop such leases. Many of the Company's competitors have
financial resources, staffs and facilities substantially greater than those of
the Company.

REGULATION

ENVIRONMENTAL REGULATION. Operations of the Company are subject to numerous
federal, state, and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of a permit
before drilling commences; restrict or prohibit the types, quantities and
concentration of substances that can be released into the environment in
connection with drilling and production activities; prohibit drilling activities
on certain lands lying within wetlands or other protected areas; and impose
substantial liabilities for pollution resulting from drilling and production
operations. Moreover, state and federal environmental laws and regulations may
become more stringent. These environmental laws and regulations may affect the
Company's operations and costs as a result of their effect on oil and gas
development, exploration, and production operations. For instance, legislation
has been proposed in Congress from time to time that would amend the federal
Resource Conservation and Recovery Act of 1976 ("RCRA") to reclassify oil and
gas production wastes as "hazardous waste." If such legislation were enacted, it
could have a significant impact on the Company's operating costs, as well as on
the oil and gas industry in general. It is not

Page 5 of 36
<PAGE>
anticipated that the Company will be required in the near future to expend
amounts that are material in relation to its total capital expenditures program
by reason of environmental laws and regulations, but inasmuch as such laws and
regulations are frequently changed, the Company is unable to predict the
ultimate cost of compliance. In addition, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") and
certain state laws and regulations impose liability for cleanup of waste sites.

The Federal Clean Water Act, including the National Pollutant Discharge
Elimination System ("NPDES") permit program, and similar state environmental
laws regulate discharges by oil and gas producers of produced water into Coastal
Waters (waters of the U.S. inland from the territorial seas). The Company has
permits from the Louisiana Department of Environmental Quality ("LDEQ") to
operate its Main Pass 3 and Main Pass 4 facilities in Louisiana state waters.
However, under the applicable NPDES General Permit for Produced Water and
Produced Sand Discharges from the Oil and Gas Extraction Point Source Category
to Coastal Waters in Louisiana and an associated administrative order,
discharges of produced water are prohibited after December 31, 1996 except by
exception, on a case by case basis, by the LDEQ acting under its WP023E and
WP023E-A Declaration of Emergency, "Extension of Time to Achieve Compliance with
Prohibition Against Produced Water Discharges in Freshwater Areas and in
Intermediate, Brackish, and Saline Water Areas Inland of the Territorial Seas
(LAC 33:IX.708.C)". Under this Declaration of Emergency, the Company is
temporarily authorized by the LDEQ until July 1, 1997 to discharge produced
water into Coastal Waters at its Main Pass 3 Field facilities in Louisiana . It
is not discharging produced water at its Main Pass 4 Field facility because the
well is shut in awaiting on completion to a new zone. When the Company is
required to cease discharge of produced water at Main Pass 3, and when
production is restored at its Main Pass 4 Field facility, it must either install
underground injection facilities, which themselves require regulatory permits,
to dispose of the produced water, or evaluate other means of disposing of the
produced water, or abandon the remaining reserves from water-bearing reservoirs.
An inactive well exists at each of the Main Pass 3 and Main Pass 4 facilities
that could be permitted to be converted into underground injection wells. The
Company is also evaluating a proposal from another operator to route the
production flow stream from the Main Pass 3 oil well to an adjacent platform
where underground injection facilities already exist.

OIL AND GAS REGULATION. Complex regulations, concerning all phases of energy
development at the local, state and federal levels, apply to the Company's
operations and often require interpretation by the Company's professional staff
or outside advisors. The federal government and various state governments have
adopted numerous laws and regulations respecting the production, transportation,
marketing and sale of oil and natural gas. Regulation by state and local
governments usually covers matters such as the spacing of wells, allowable
production rates, environmental protection, pollution control, taxation and
other related matters. In Louisiana, the Commissioner of the Office of
Conservation is empowered to create geographic or geological units for drilling
and producing wells which units contain, in the Commissioner's sole judgment,
the production acreage likely to be efficiently and economically drained by such
well. These units are created only after notice to interested parties and a
hearing at which time the Commissioner will accept geological and engineering
testimony from the interested parties. The creation of these units can combine
the Company's leasehold interest with lease acreage held by competing producers
and can have the effect of decreasing (or increasing) the interest to which the
Company would otherwise be entitled.

Domestic exploration for, and production and sale of, oil and gas are
extensively regulated at both the federal and state levels. Legislation
affecting the oil and gas industry is under constant review for amendment or
expansion, frequently increasing the regulatory burden. Numerous departments and
agencies, both federal and state, are also authorized by statute to issue, and
have issued, rules and regulations binding on the oil and gas industry that
often are costly to comply with and that carry

Page 6 of 36
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substantial penalties for non-compliance. In addition, production operations are
affected by changing tax and other laws relating to the petroleum industry, by
constantly changing administrative regulations, and possible interruption or
termination by government authorities. Moreover, future changes in local, state
or federal laws and regulations could affect the profitability of the Company.

OPERATIONAL HAZARDS AND INSURANCE

The Company's operations are subject to all of the risks normally incident
to the production of oil and gas, including blowouts, cratering, pipe failure,
casing collapse, oil spills and fires, each of which could result in severe
damage to or destruction of oil and gas wells, production facilities or other
property, or injury to persons. The energy business also is subject to
environmental hazards, such as oil spills, gas leaks, and ruptures and discharge
of toxic substances or gases that could expose the Company to substantial
liability due to pollution and other environmental damage. Although the Company
maintains insurance coverage considered to be customary in the industry, it is
not fully insured against certain of these risks, either because such insurance
is not available or because of high premium costs. The occurrence of a
significant event that is not fully insured against could have a material
adverse effect on the Company's financial position.

EMPLOYEES

At December 31, 1996, the Company's management and administrative functions
were conducted by 4 persons, 2 full time employees and 2 contract personnel.

FACILITIES

The Company currently occupies approximately 6,700 square feet of office
space, net of approximately 2,300 square feet it has subleased, located at 1600
Smith, Suite 4000, Houston, Texas 77002. The lease provides for gross rent of
$122,540 per year and expires September 30, 2000. Under the terms of the lease,
the Company received a partial year's free rent (such free rent was from June 1,
1995 to February 1, 1996) and has the option to terminate the lease in October
1998 by paying a one-time penalty of $33,403. In the event this option is
exercised, the approximate future minimum payments under the terms of the lease
agreement would be reduced by approximately $214,000. The Company believes its
current facility is sufficient for the foreseeable future. The rent expense is
currently offset by proceeds from a sublease which expires in the year 2000,
making the Company's net lease expense approximately $81,000 per year.

FORWARD-LOOKING INFORMATION

This annual report on Form 10-KSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this report including,
without limitation, statements regarding the Company's business strategy, plans,
objectives and beliefs of management for future operations are forward looking
statements. Although the Company believes the expectations and beliefs reflected
in such forward-looking statements are reasonable, it can give no assurance that
such expectation will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are discussed in Item 1 "Business", Item 2
"Properties" and Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

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ITEM 2. DESCRIPTION OF PROPERTY

EXPLORATION PROSPECTS

The Company's domestic exploratory drilling is expected to be conducted
primarily along the Gulf Coast in South Louisiana and the Texas Gulf Coast where
substantial natural oil and gas reserve addition opportunities exist. The
Company expects to exploit these opportunities through exploratory drilling on
prospects generated by Texoil for its own operations and on prospects generated
by others and presented to Texoil for possible acquisition, as well as through
exploratory drilling programs with other experienced South Louisiana and Texas
Gulf Coast operators.

A prospect is a geographic area which the Company believes encompasses one
or more subsurface features that may be productive of oil or natural gas if
drilled. In order for a prospect to be drilled, it typically is necessary for
the operator of the prospect to obtain oil and gas leases covering the prospect
from the owners of the mineral interests underlying the prospect. References to
"prospect areas" or "prospects" mean geographic areas of exploratory interest
that may be entirely unleased or in various stages of leasing and should not be
understood to imply that all oil and gas leases necessary for drilling of the
prospects are owned by an operating partner or the Company, as the case may be.

The Company will continue to evaluate generating or acquiring new prospects
and will continue to evaluate its participation rights related to the
Texoil-Texas Meridian Agreement. "Texoil Exploration Prospects" refers to
prospects in which Texoil has retained certain working interest ownership of
possible future drilling and production operations. "Texas Meridian-Operated
Prospects" refers to those certain prospects generated by the Company and sold
to Texas Meridian under the Texoil-Texas Meridian Agreement.

TEXOIL EXPLORATION PROSPECTS.
As of December 31, 1996 Texoil had a number of exploratory prospects in
various stages of geological and geophysical evaluation, all but one of which
are located in South Louisiana. Each of these prospects contain several
prospective fault blocks typically with multiple stacked prospective sand
targets. For the Company's exploratory prospects and, generally, for any
additional third-party generated prospects that it may decide to acquire in the
future, the Company has sought industry and other partners to participate in
such prospects.

The following are summaries of the Raceland, Greens Lake and Laurel Grove
Prospects on which Texoil anticipates conducting drilling or significant 3-D
seismic acquisition activities during 1997.

RACELAND 3-D EXPLORATION PROSPECT. The Company announced plans to commence
exploratory drilling operations on the Raceland Prospect in the second quarter
1997. It currently owns a 29.26% working interest in this prospect located in
Lafourche Parish, Louisiana approximately 30 miles southwest of New Orleans.
Texoil Company is the operator and its working interest partners include Pogo
Producing Company, Southwest Gas Supply (a subsidiary of MCN Corp.), GEDD, Inc.,
3DX Technologies, Inc., and Shore Oil Company. Approximately 62 square miles of
proprietary 3-D seismic data was acquired in 1996 and processing was completed
early in 1997. Texoil assembled a land block of over 40,000 acres consisting of
seismic lease options and/or seismic permits, of which approximately 10,600
acres are now under lease. Interpretation of the complete 3-D data set continues
over other prospective areas within the 3-D survey area

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Raceland is an exploration project containing exploitation possibilities on
the flanks of the producing Raceland Field salt dome. The Raceland Field was
discovered by Amerada Hess prior to World War II and has produced approximately
27 million barrels of oil and 175,000 mcf gas. It has not been analyzed by
modern exploration techniques such as 3-D seismic surveys. It lies in the
vicinity of the Lake Boeuf and Southwest Lake Boeuf fields and targets
Miocene-age sand objectives ranging from 12,000 to 17,000 feet in depth. Within
the Miocene section, multiple Cib op and Robulus reservoirs around the salt dome
are highly prolific, but development of these intervals has been confined to the
northwest flank. The dome is regarded as underexploited and substantially
unexplored in these horizons. The Raceland Prospect is expected to generate
multiple drillable prospects consisting of exploration in fault traps lying on
the untested southwest, south and southeast flanks of the salt dome and
exploitation around the producing Raceland Field with associated fault and
pinchout traps.

GREENS LAKE 3-D PROSPECT. The Company also expects to commence exploratory
drilling operations on the Greens Lake Prospect in the second quarter 1997. The
Company owns a 30% non-operated working interest in this prospect located in
Galveston County, Texas. Burlington Resources is the operator and owns 70%
working interest. Burlington Resources has proposed, and the Company has elected
to participate in, the first exploratory test well which is scheduled to spud
after the drilling rig is released from the well it is currently drilling for
Burlington Resources. The Greens Lake Prospect initial test well is scheduled to
drill to a total depth of 11,750 feet to test an abnormally pressured Frio gas
sand, locally referred to as the Big Gas Sand, and potentially four other deeper
Frio sands, locally referred to as the Houston Farms Sands. Approximately 22
square miles of proprietary 3-D seismic data was acquired in 1996 and processing
was completed in 1997. Interpretation of the complete 3-D data set continues
over other prospective areas within the 3-D survey area

LAUREL GROVE PROSPECT. The Company owns a 30% working interest in its Laurel
Grove 3-D Prospect in Lafourche Parish, Louisiana. Phillips Petroleum is the
operator and owns a 70% working interest. Proprietary 3-D seismic data
acquisition operations in the field have commenced and the Company anticipates
completion of data acquisition for this prospect in the third quarter 1997. Data
processing and interpretation is expected to proceed throughout 1997 and into
1998. Under the terms of the sale of the Laurel Grove Prospect, Phillips
Petroleum will pay for 100% of the 3-D seismic survey. The Company will pay for
30% of leases and drilling costs to Phillips Petroleum and has begun to make
capital expenditures by electing to participate in all lease acquisitions
exercised to date by Phillips Petroleum.

The Laurel Grove Prospect is a multi-pay 3-D exploratory prospect consisting
of two principal objectives: the Miles Timber and Marginulina "A" sands at a
depth of approximately 14,000 feet and 15,000 feet, respectively. A third
possible objective is the deeper Siphonina davisi sand at approximately 16,500
feet. The prospect is defined by subsurface control and 2-D seismic data. A 3-D
seismic survey is required to locate the optimum structural position and the
precise placement of the trapping fault(s).

The Company presently has four other prospects in inventory which are
unleased and awaiting further evaluation.

TEXAS MERIDIAN-OPERATED PROSPECTS.

Under the Texoil-Texas Meridian Agreement, the Company sold certain
prospects to Texas Meridian for cash, plus overriding royalty interests of 2.0%
to 3.75% in wells drilled (depending on landowner and certain other royalty
burdens) as well as the right to participate on a proportional cost basis for up
to a 10% working interest in a defined area within each prospect. The Company's
overriding royalty interests and working interest options relate to lease
acreage which Texas Meridian may choose to assemble with respect to each
prospect within a defined geographic prospect area. In addition, Texas Meridian
has leased

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or is expected to seek leases for its own account on acreage adjacent to or near
(but not within) the prospect areas identified by Texoil in the Texoil-Texas
Meridian Agreement. The Company will therefore not participate in net revenues
from any exploratory or development wells drilled on leases in which it has no
overriding royalty or working interest, unless lease acreage in which the
Company owns an interest is included within a producing unit ordered by the
Louisiana Office of Conservation or otherwise created.

Texoil currently owns certain interests in the Bayou Lafourche, Lake Boeuf,
and East Cameron Prospects on which Texas Meridian has completed producing
wells. The following is a summary of each of those three prospects.

BAYOU LAFOURCHE PROSPECT. In October 1994, the first well drilled under the
Texoil-Texas Meridian Agreement was placed on production from the Rob A sand.
This well, the Ariel Corp. No.1, was drilled on the Bayou Lafourche Prospect in
Lafourche Parish, Louisiana approximately 30 miles southwest of New Orleans,
Louisiana. The Company does not anticipate additional drilling will occur on
this prospect in the near future.

LAKE BOEUF PROSPECT. The Lake Boeuf Prospect, located adjacent to the Bayou
Lafourche Prospect, is the second prospect area subject to the Texoil-Texas
Meridian Agreement in which the Company owns an interest. Texas Meridian
announced in October 1994 the successful completion of the Pacific Enterprises
No. 1 exploratory test well in the Rob C sand at a location immediately adjacent
to acreage in which Texoil owns participation rights in the Lake Boeuf Prospect
area in Lafourche Parish. Texas Meridian drilled a development well, the Pacific
Enterprises No. 2 (now named the Edward Caire No. 1), and completed it as a
producer during the third quarter of 1995, having been bottomed on the Texoil
participation rights acreage. Unitization by Louisiana regulatory authorities
resulted in approximately 22% of the Rob C producing unit being comprised of
acreage in which Texoil owns participation rights. Texas Meridian later drilled
a third well on acreage in which Texoil owns participation rights during the
fourth quarter of 1995 and it was abandoned as a dry hole. Texas Meridian
subsequently drilled a fourth well on acreage in which Texoil does not own
participation rights and it too was abandoned as a dry hole. The Company does
not anticipate additional drilling will occur on this prospect in the near
future.

EAST CAMERON PROSPECT. The East Cameron Prospect, located in Cameron Parish,
Louisiana, approximately 25 miles south of Lake Charles, Louisiana, is the third
prospect area subject to the Texoil-Texas Meridian Agreement in which the
Company owns an interest. In April 1996, Texas Meridian successfully completed
the Henry No. 1 exploratory test well in the Abbeville 2 sand at a location
immediately adjacent to acreage in which Texoil owns participation rights. Texas
Meridian drilled a development well, the Henry No. 2, and completed it as a
producer in August 1996, having been bottomed on the Texoil participation rights
acreage. Unitization by Louisiana regulatory authorities resulted in
approximately 27% of the Abbeville producing unit being comprised of acreage on
which Texoil owns participation rights. Texas Meridian subsequently drilled two
additional discovery wells on separate fault blocks, one to the west and the
other one to the east of the initial discovery fault block in which Texoil now
owns certain interests. Texoil currently owns no interest in these two wells.
Texas Meridian announced it expects to drill at least three additional wells in
the field. The Company's right to acquire additional interests in wells drilled
by Texas Meridian depends on the locations of future drilled and completed
wells, and unitization hearings to be held before the Commissioner of
Conservation of the State of Louisiana.

Page 10 of 36
<PAGE>
OTHER TEXAS MERIDIAN OPERATED PROSPECTS. Texas Meridian has recently
completed the acquisition of proprietary 3-D seismic data on two additional
Texas Meridian-Operated prospects and data processing is in progress. The Crown
Point Prospect is located in Plaquemines Parish, Louisiana approximately 10
miles southeast of New Orleans and the Main Pass Block 5 Prospect is located in
state water bottoms off the coast of St. Bernard Parish, Louisiana.

DRILLING ACTIVITIES

The following table lists the number of gross and net exploratory and
development wells drilled in which the Company has participation rights since
the inception of its strategy to drill based on 3-D seismic survey
interpretations. Presently, all these represent wells drilled by Texas Meridian
as operator since the Texoil Exploration Prospects are not scheduled to commence
drilling operations until later in the second quarter of 1997.

EXPLORATORY DEVELOPMENT
---------------------------- ----------------------------
PRODUCTIVE DRY PRODUCTIVE DRY
YEAR ENDED ------------ ------------ ------------ ------------
DECEMBER 31 GROSS NET GROSS NET GROSS NET GROSS NET
- ----------- ----- --- ----- --- ----- --- ----- ---
1994 2 .116 0 .000 0 .000 0 .000
1995 0 .000 1 .025 1 .006 0 .000
1996 1 .007 0 .000 1 .007 0 .000
---- ----- ---- ----- ---- ----- ---- ----
Total 3 0.123 1 0.025 2 0.013 0 0.0

This limited data represents an exploratory drilling success rate of 75%
(three of four gross wells) and a development drilling success rate of 100% (two
gross wells). Prior to implementing its present strategy to focus on drilling
based on 3-D seismic interpretations, the Company drilled 57 gross exploratory
wells with a 27% success rate on a gross well basis and 14 gross development
wells with an 86% success rate on a gross well basis from 1980 to 1995. Texoil
was the operator in the drilling of approximately 80% of these 71 wells which
were based on conventional subsurface and 2-D seismic techniques.

PRODUCING PROPERTIES AND DEVELOPMENT DRILLING

The Company's oil and gas producing activities are conducted in six South
Louisiana fields. Presented below are brief descriptions of each producing field
which include disclosures of the proved reserve quantities as of December 31,
1996, the latest date as of which the Company has disclosed such information
(see "-Oil and Gas Reserves").

SOUTHWEST LAKE BOEUF FIELD, LAFOURCHE PARISH (CONTAINS THE BAYOU LAFOURCHE
PROSPECT AND THE LAKE BOEUF PROSPECT). The Field was originally discovered by
Bradco Oil & Gas Company in 1969. In the late 1980's, Texoil generated a
prospect, referred to as the Bayou Lafourche Prospect, covering approximately
750 acres in an untested portion of the field with multiple potential objectives
ranging from 13,500 to 17,500 feet. In 1994, following 3-D seismic evaluation,
Texas Meridian, successfully drilled and completed the Ariel Corp. No.1 well in
June 1994. Texoil owns a 9.9% working interest and 11.1% net revenue interest.
The well is producing approximately 500 barrels of oil and approximately 2,000
mcf of gas per day. Proved reserves applicable to Texoil's interest in the Ariel
Corp. No.1 well at December 31, 1996 amounted to approximately 57,300 barrels of
oil and 328,500 mcf of gas. Also located in the Southwest Lake Boeuf Field are
two producing wells related to the Lake Boeuf Prospect, a second prospect area
subject to the Texoil Texas Meridian Agreement. As described in " Exploration
Prospects - Texas Meridian-Operated Exploration Prospects", Texoil acquired
participation rights following a unitization

Page 11 of 36
<PAGE>
hearing. Texoil's interest in the two wells is a net 0.56% overriding royalty.
Together the two wells are producing approximately 790 barrels of oil and 1,400
mcf of gas per day. Proved reserves applicable to Texoil's interest in the Lake
Boeuf Prospect at December 31, 1996 amounted to 6,400 barrels of oil and
approximately 13,600 mcf of gas.

BACKRIDGE FIELD, CAMERON PARISH. The third prospect area subject to the
Texoil-Texas Meridian Agreement in which the Company owns an interest, is the
Backridge Field related to the East Cameron Prospect. As described in " -
Exploration Prospects - Texas Meridian-Operated Exploration Prospects", Texoil
acquired participation rights in two producing wells following a unitization
hearing. Texoil interest in the two wells is a net 0.669% overriding royalty.
Together the two wells are producing approximately 600 barrels of oil and 750
mcf of gas per day. Proved reserves applicable to Texoil's interest in the East
Cameron Prospect in the Backridge Field at December 31, 1996 amounted to
approximately 15,600 barrels of oil and 7,100 mcf of gas.

BURAS FIELD, PLAQUEMINES PARISH. The Buras Field was discovered originally
by Shell Oil Company in the early 1950's. In 1980, when the field was no longer
producing, Texoil extended the productive limits of the field to the south and
subsequently drilled eight producing wells, three of which were dually completed
in various portions of the newly extended field. Cumulative gross production
from the Texoil wells has been approximately 654,000 barrels of oil and 8,200
mcf of gas. Texoil owns a 14.6% working interest in the Rusich No.1, formerly
known as the Mistich No.1, well which was completed in January 1994 and went on
production in March 1994. The well is currently producing approximately 30
barrels of oil per day along with a small amount of gas. Proved reserves
applicable to Texoil's interest in this field at December 31, 1996 amounted to
approximately 558 barrels of oil and 1,300 mcf of natural gas.

DORCYVILLE FIELD, IBERVILLE PARISH. The Dorcyville Field was discovered by
Texoil in 1985. Field cumulative gross production to date has been approximately
1,911,000 barrels of oil and 1,920,000 mcf of gas. Four producing wells were
subsequently drilled and completed in the field and one well currently remains
active, producing approximately 20 barrels of oil per day. Proved reserves
applicable to Texoil's interest in this field at December 31, 1996 amounted to
approximately 4,400 barrels of oil and no gas reserves. The Company's working
interest is approximately 27.9%.

MAIN PASS 3 FIELD, ST. BERNARD PARISH. The Main Pass 3 Field is within the
Chandeleur Sound Block 71 productive area. In 1989, Texoil established
production in several gas and oil zones which were found at a shallower depth
and to the south of the main field production. An additional productive interval
was found in one of the regular field pay sands. This provided the necessary
evidence to extend the productive limits of the reservoir onto the Texoil
acreage. As a consequence of unitization, Texoil shares in oil and gas revenue
from this reservoir which is produced in a non-operated well. Of the shallower
zones discovered by Texoil, cumulative gross production to date from the well
drilled by Texoil has been approximately 154,000 barrels of oil and 1,200,000
mcf of gas. Texoil has a 73.7% working interest in the Company-operated State
Lease 12503 No.1 well which is currently shut-in while awaiting repairs to the
production barge facilities. Proved reserves applicable to Texoil's interest in
this field at December 31, 1996 amounted to approximately 36,200 barrels of oil
and approximately 14,100 mcf of gas.

MAIN PASS 4 FIELD, ST. BERNARD PARISH. The Main Pass 4 Field was discovered
by Texoil in 1986. Cumulative gross production to date has been approximately
3,550,000 mcf of gas and 23,000 barrels of oil and condensate. One well remains
capable of production but is presently shut in pending workover operations. The
Company's working interest is approximately 98.5%. Proved reserves applicable to
Texoil's interest in this field at December 31, 1996 amounted to approximately
69,400 barrels of oil and approximately 137,600 mcf of gas.

Page 12 of 36
<PAGE>
OIL AND GAS RESERVES

Presented below are the estimated quantities of proved and proved developed
reserves of crude oil and natural gas owned by Texoil as of December 31, 1995
and 1996, and the principal components of the changes in the quantities of
reserves which has been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. Texoil's oil and gas reserves were
estimated by Gruy Engineering Corporation, independent petroleum engineers, for
the years ended December 31, 1995 and 1996. 100% of the Company's proved
reserves are developed as of December 31, 1996. Approximately 44% were
classified as proved developed producing and approximately 56% were classified
as proved developed non-producing.

OIL GAS
PROVED NET RESERVES: (MBBLS) (MMCF)
------- ------
Balance at December 31, 1995 212 693
Discoveries and extensions 17 8
Revisions of previous extimates (6) (16)
Production (29) (105)
Balance at December 31, 1996 194 580

The following table shows the present value (discounted at 10%) as of
December 31, 1995 and 1996 of estimated pre-tax future net revenue from the
production and sale of Texoil's proved reserves. These estimated discounted
present values are derived from the independent petroleum engineer's reserve
reports and Company estimates described above and are calculated in accordance
with the rules and regulations of the SEC. The estimates are therefore not
intended to represent the current fair market value of the estimated oil and gas
reserves owned by the Company.

NET PRESENT VALUE DISCOUNTED AT
10% PER YEAR
--------------------------
1995 1996
---------- ----------
Proved developed producing................ $2,225,307 $2,124,637
Proved developed non-producing............ 12,916 1,109,482
Proved undeveloped........................ 0 0
---------- ----------
Total proved............ $3,138,222 $3,234,119
---------- ----------

The net reserve information listed above are only estimates. There are
numerous uncertainties inherent in estimating quantities of proved reserves and
in projecting future rates of production and timing of development expenditures,
including many factors beyond the control of Texoil. Reserve engineering is a
subjective process of estimating underground accumulations of crude oil and
natural gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. The quantities of oil
and gas that are ultimately recovered, production and operating costs, the
amount and timing of future development expenditures and future oil and gas
sales prices may all differ from those assumed in these estimates. Therefore,
the present value shown above should not be construed as the current market
value of the estimated oil and gas reserves attributable to Texoil's properties.

Page 13 of 36
<PAGE>
In this regard, the information set forth in the foregoing tables includes
revisions of certain volumetric reserve estimates attributable to proved
properties included in the preceding year's estimates. The revisions were the
result of additional information from subsequent completions and production
history from the properties involved. In accordance with SEC guidelines,
estimates of future net revenues from Texoil's properties and the present value
thereof are made using oil and gas sales prices in effect as of the dates of
such estimates and are held constant throughout the life of the properties
except where such guidelines permit alternate treatment, including, in the case
of gas contracts, the use of fixed and determinable contractual price
escalations. The averages of the product prices as of December 31, 1996, were
$23.43 per barrel of oil and $3.80 per thousand cubic feet of gas, which compare
to December 31, 1995 prices of $18.99 per barrel of oil and $3.81 per thousand
cubic feet of gas. Prices for gas and, to a lesser extent, oil are subject to
substantial seasonal fluctuations, and prices for each are subject to
substantial fluctuations as a result of numerous other factors.

The net oil and gas reserves for the Company include discoveries and
extensions totaling 17,359 barrels of oil and 7,867 mcf of gas attributable to
its participation in the Texas Meridian-Operated Prospect discovery in the East
Cameron Prospect.

The net oil and gas reserves of the Company were revised downward at
December 31, 1996 by 5,758 barrels of oil and 16,342 mcf of gas. This revision
resulted from downward revisions in recoverable reserves attributable primarily
to a reduction in recoverable reserves from the Murrel No. 4 and No. 5 in the
Dorcyville Field and the S.L. 11046 No.1 in the Main Pass Block 4 Field. These
downward revisions were partially offset by upward revisions in the Ariel Corp.
No.1 in the Southwest Lake Boeuf Field and the S.L. 12503 No.1 in the Main Pass
3 Field area.

Since December 31, 1995, Texoil has not filed any estimates of proved oil or
gas reserves with any federal authority or agency (see Note 12 to the
Consolidated Financial Statements for certain additional information concerning
Texoil's proved reserves).

PRODUCTION AND SALES

The following table presents certain information with respect to oil and gas
production attributable to Texoil's interest in its properties, the revenue
derived from the sale of such production, average sales price received and
average production costs during the two years ended December 31, 1995 and 1996.

YEARS ENDED DECEMBER 31
-------------------
1995 1996
------ -------
Production: Oil (Mbbl) 41 29
Gas (mmcf) 152 105
Revenue (000's) Oil (Mbbl) $ 759 $ 649
Gas (mmcf) 352 324
------ -------
Total $1,111 $ 973
------ -------
Average Sales Price: Oil (Mbbl) $18.51 $ 22.38
Gas (mmcf) $ 2.32 $ 3.08
Per BOE (1) $16.83 $ 20.92
Production costs per BOE $ 4.17 $ 4.08
- -----------
(1) "BOE" means barrels of oil equivalent. Gas is equated to oil on an energy
equivalent basis of six mcf of gas per barrel of oil.

Page 14 of 36
<PAGE>
Texoil's oil production is sold primarily to large petroleum company
purchasers in South Louisiana. Because of the quality of its crude oil
production, Texoil generally receives a premium of between $.50 and $1.50 a
barrel over the periodic "posted" prices in the area. Texoil's gas production is
sold primarily to pipelines and/or gas marketers in South Louisiana under
short-term contracts (usually 90 days) at prices which are pegged to the "spot"'
market for gas sold in South Louisiana.

Revenues received (or receivable) from companies comprising more than 10% of
Texoil's total sales in each of the last two years were as follows:

YEARS ENDED DECEMBER 31
----------------
1995 1996
---- ----
Koch Oil Company ....................... 14% 9%
Murphy Oil Corporation ................. 18% 1%
Texas Meridian Resources Corporation ... 58% 86%

PRODUCTIVE WELLS AND ACREAGE

Texoil had working interests in 7 gross (2.17 net) producing oil wells and 7
gross (2.17 net) producing gas wells. The following table shows Texoil's
developed and undeveloped acreage over its producing property interests in
Louisiana and Texas, as of December 31, 1996. The table does not include
Texoil's share of approximately 7,100 gross acres leased in 1997 and current
lease options over the Raceland Prospect in which Texoil owns a 29.26% working
interest. It also does not include acreage attributable to any options held by
Texoil to acquire working interests of up to 10% within defined areas of any of
the Texas Meridian-Operated Prospects, upon which Texas Meridian has not yet
commenced drilling operations.

GROSS NET
------ -----
Developed Acreage (1) ................ 1,584 227
Undeveloped Acreage (2) .............. 8,887 2,218
------ -----
10,471 2,445
------ -----
- ------------

(1) Developed acreage is comprised of acres pooled with, unitized from, or
assigned to productive wells.

(2) Undeveloped acres are acres on which wells have not been drilled or have not
been completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether or not such acreage contains
proved reserves.

TITLE TO PROPERTIES

It is customary in the oil and gas industry to make only a cursory review of
title to undeveloped oil and gas leases at the time they are acquired. It is
also customary to obtain more extensive title examinations prior to the
commencement of drilling operations on undeveloped leases or prior to the
acquisition of producing oil and gas properties. With respect to the future
acquisition of both undeveloped and developed leaseholds, the Company plans to
conduct title examinations on such properties in a manner generally consistent
with such industry practices. The Company has obtained title opinions, title
reports or otherwise conducted title investigations covering substantially all
of its producing properties and believes it has satisfactory title to such
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
overriding royalty interests, liens for current taxes and other burdens which
the Company believes do not materially interfere with the use or affect the
value of such properties.

Page 15 of 36
<PAGE>
Substantially all of the Company's oil and gas properties are and may
continue to be mortgaged to secure borrowings under the RIMCO Agreement (see
"Item 6. Management's Discussion and Analysis or Plan of Operation - Liquidity
and Capital Resources - Cash Flow from Financing").

RELIANCE ON OPERATORS; JOINT OPERATIONS; CERTAIN RISKS

The Company will be a non-operating working interest owner in any Texas
Meridian prospect in which it chooses to participate, and may be a non-operating
interest owner in other wells in which it acquires a working interest. In such
instances, the Company will depend on the operator of the wells to properly
conduct lease acquisition, drilling, completion and production operations. The
failure of an operator, or the drilling contractors and other service providers
selected by the operator to properly perform services, could adversely affect
the Company.

The Company anticipates that it will typically own less than a 50% working
interest in its prospects and will therefore engage in joint operations with
other working interest owners as is typical in oil and gas exploration. If the
Company owns or controls less than 50% of the working interest in a prospect,
decisions affecting the prospect could be made by the owners of more than 50% of
the working interest with which the Company disagrees. For instance, if the
Company is unwilling or unable to participate in the costs of operations
approved by a majority of the working interest in a well, its working interest
in the well (and possibly other wells on the prospect) will likely be subject to
contractual "non-consent penalties." These penalties may include full or partial
forfeiture of the Company's interest in the well or a relinquishment of the
Company's interest in production from a well in favor of the participating
working interest owners until the participating working interest owners have
recovered a multiple of the costs which would have been borne by the Company had
it elected to participate, often from 300% to 400% of such costs.

FORWARD-LOOKING INFORMATION

ITEM 3. LEGAL PROCEEDINGS

Texoil presently is not a party to any pending legal proceedings. Moreover,
the Company is not aware of any such proceedings that are contemplated by
government authorities with respect to Texoil, its domestic oil and gas
properties or its wholly-owned (inactive) subsidiary, Texoil de Argentina, S.A.

Page 16 of 36
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of the Company was held on October 17,
1996. The items of business noticed and transacted at the Meeting were: (i) to
elect a board of seven directors to serve until the next annual Meeting of
Stockholders and until their successors are elected and qualified; and (ii) to
consider and act upon such other business as may properly be presented to the
meeting or any adjournment thereof. A total of 4,157,073 shares of the Company's
Common Stock, par value $.01 per share, and 23,000 shares of Series A Preferred
Stock, par value $.01 per share were issued and outstanding as of August 22,
1996, the record date for determining the stockholders entitled to notice of,
and the number of shares entitled to vote at the Meeting as one class. The
holders of 3,733,526 shares of Common Stock and 23,000 shares of Series A
Preferred Stock were represented at the Meeting in person or by proxy. These
shares were voted as follows:

PRESENT SHARES
FOR WITHHELD NOT VOTING
Directors --------- -------- -------------
T.W. Hoehn, Jr. 3,755,500 1,026 423,547
Ruben Medrano 3,755,525 1,001 423,547
T.W. Hoehn, III 3,755,525 1,001 423,547
Gary J. Milavec 3,755,525 1,001 423,547
Joe C. Richardson, Jr. 3,129,589 626,937 423,547
William F. Seagle 3,129,589 626,937 423,547
Walter L. Williams 3,755,525 1,001 423,547

As a result of voting at the Meeting, all seven director nominees were elected.
No other business was presented to the meeting.

Page 17 of 36
<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table lists high and low sales prices for the years 1995, 1996
and first quarter through March 24, 1997 of the Common Stock, Class A Warrants
and Class B Warrants, each of which trade publicly in the NASDAQ Small-Cap
Market under the symbols "TXLI", "TXLIW" and "TXLIZ", respectively.

TXLI TXLIW TXLIZ
--------------- ------------ ------------
HIGH LOW HIGH LOW HIGH LOW
1995 ------ ----- ----- --- ----- ---
First Quarter 2 7/16 1 5/6 45/64 1/4 7/16 1/8
Second Quarter 2 3/8 1 1/4 9/16 1/4 11/32 1/8
Third Quarter 2 3/8 1 1/2 11/16 1/2 5/16 1/4
Fourth Quarter 1 15/16 1 7/16 37/64 7/16 11/32 1/4

1996
First Quarter 1 11/16 1 3/16 9/16 3/8 5/16 1/4
Second Quarter 1 7/16 7/8 3/8 3/16 3/8 1/8
Third Quarter 1 7/8 1 1/2 5/32 1/4 1/8
Fourth Quarter 1 7/8 1 1/16 5/8 3/8 3/8 5/32

1997
First Quarter 1 7/8 1 1/16 1/2 1/4 1/8 1/32
(Through March 24, 1997)

As of March 24, 1997, the Company's Common Stock, Class A Warrants and Class
B Warrants were held by approximately 837, 21 and 20 holders of record
respectively.

The Company granted stock options to Ruben Medrano in May 1996, and to
William F. Seagle in June 1996, as described later in Item 10. Executive
Compensation - Option Grants. In September 1996, the Company granted J. D.
Hughes a non-qualified stock option exercisable for 20,000 shares of the
Company's common stock at an exercise price of $1.25 for services in making
various financing alternatives to the Company. In May and September 1996 the
Company issued convertible debt securities in connection with various financings
as described in Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cash Flow from Financing - RIMCO Financing
and - 1996 Director Loans. All such options and convertible debt securities were
issued pursuant to negotiated transactions with sophisticated persons in
accordance with the exemption from the registration requirements under the
Securities and Exchange Act of 1933 provided by Section 4(2) thereof for
transactions not involving any public offering.

DIVIDEND POLICY

The Company never has paid dividends on its Common Stock. The terms of the
Company's Series A Preferred Stock also prohibit the payment of dividends on
Common Stock unless cumulative dividends on the Series A Preferred Stock for all
prior dividend periods and for the then current quarterly dividend

Page 18 of 36
<PAGE>
period have been paid or set aside out of legally available funds for payment.
The annual dividend amount on the currently outstanding Series A Preferred Stock
is $276,000.

Under the RIMCO Financing, the Company, with the consent of both holders of
all of the Company's outstanding Series A Preferred Stock, amended the
Certificate of Stock Designation covering the Series A Preferred Stock to
provide that the annual cumulative dividends of $276,000 are payable only if, as
and when declared by the Company's Board of Directors, provided that Board has
no obligation to declare such dividends before October 1, 2002.
Before the amendment, such dividends were payable quarterly.

The payment of future dividends on Common Stock, if any, will be reviewed
periodically by the Company's Board of Directors and will depend upon, among
other things, the Company's financial condition, funds available from
operations, the amount of anticipated capital and other expenditures, the
Company's future business prospects, any restrictions imposed by the Company's
present or future credit arrangements, and dividend restrictions imposed by the
terms of the Series A Preferred Stock or any other series of preferred stock
which may be established. It is likely, however, that for the foreseeable
future, funds otherwise available for dividends on Common Stock, if any, will be
retained by the Company to finance the growth of its business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto reflected in the Index to
Consolidated Financial Statements on page F-1.

GENERAL

The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method, all costs of acquisition,
exploration and development of oil and natural gas reserves are capitalized into
a "full cost pool" for each cost center (generally defined as a country). Oil
and gas properties in the pool are depleted and charged to operations using the
unit of production method based on the ratio of current production to total
proved recoverable oil and natural gas reserves. Under the full cost method, to
the extent that capitalized costs (net of depreciation, depletion and
amortization) exceed the discounted future net revenues of estimated proved oil
and natural gas reserves on an after-tax basis, such excess costs are charged to
operations as additional depreciation, depletion and amortization expense.
Certain costs associated with the acquisition and evaluation of unproved
properties may, however, be excluded from amortization until it is determined
whether or not proved reserves can be assigned to the properties. At December
31, 1996 the Company had costs of $1,577,469 associated with evaluation and
marketing of various unproved drilling prospects, some of which management is
continuing to evaluate (see Note 4 to Consolidated Financial Statements).

At December 31, 1996, the Company's estimated discounted future net
revenues from estimated proved reserves on an after-tax basis exceed the net
capitalized costs in the Company's full cost pool by approximately $170,000. Any
excess of the Company's full cost pool over the discounted future net revenues
from proved reserves on an after-tax basis may result in charges to the
Company's operations. Such excesses could result from writedowns of proved
reserve quantities or declines in oil and gas prices. Certain events and
conditions that may cause such charges cannot be reasonably predicted by the
Company. Once incurred, a writedown of oil and gas properties cannot be reversed
at a later date even if reserve quantities are subsequently increased or oil and
gas prices subsequently rise.

Page 19 of 36
<PAGE>
At December 31, 1996, the average prices received by the Company for its oil
and gas production were $23.43 per barrel of oil and $3.80 per mcf of gas. This
results in a weighted average price per barrel of oil equivalent ("BOE") of
$23.21, which is an increase of approximately $2.84 per BOE, or 14%, from the
year end 1995 level.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996

The Company recorded a net operating loss of $726,415 and $2,328,849 in the
years ended December 31, 1995 and 1996, respectively. The $1,602,434 increase in
the Company's comparative net losses resulted from the following factors:

AMOUNT CONTRIBUTING TO
DECREASE (INCREASE) IN NET LOSS
-------------------------------
Depreciation, depletion and amortization expense ....... $ 106,998
Net general and administrative expenses ................ 259,918
Oil and gas production income
(revenues less lease operating expenses and production
taxes) ............................................... (94,580)
Interest Expense ....................................... (1,770,133)
Other Income ........................................... (104,637)
-----------
$(1,602,434)
-----------

The $106,998 decrease in depreciation, depletion and amortization ("DD&A")
expenses is primarily due to the decrease in oil and gas production volumes
resulting from the shutting in of the Main Pass Block 3 field wells and normal
decline of the Ariel Corp. No. 1 in the non-operated Southwest Lake Boeuf field.
Partially offsetting the effect of lower production volumes were increases in
the Company's DD&A rates from $9.83 per BOE during the twelve months ended
December 31, 1995 to $11.79 per BOE during the twelve months ended December 31,
1996. The increased DD&A rates in 1996 reflect relatively high cost additions
with workover costs on the S.L. 12503 No. 1 in Main Pass Block 3 field, a dry
hole drilled on the Company's Buras Landing Prospect in the second and third
quarter 1995 and reclassification of certain formerly unevaluated costs to
evaluated properties.

The $259,918 decrease in net general and administrative expenses is
comprised primarily of salary reductions due to the reduction in the number of
employees subsequent to May 1996 and a one time reimbursement paid to the
Company during the first half of 1996 by its working interest partners in the
Raceland Prospect.

The $94,580 decrease in oil and gas production income is primarily
attributable to the decrease in production volumes occurring primarily in the
Main Pass Block 3 field and at the non-operated Southeast Lake Boeuf field where
normal decline in the Ariel Corp. No. 1 well continues. Production taxes
increased due to the reinstatement of revenue taxes as provided for in Act. No.
2 of Louisiana statutory taxation after the Ariel Corp. No. 1 achieved payout.

Page 20 of 36
<PAGE>
Interest expense increased by $1,770,133 primarily due to the issuance of
debt instruments with below market conversion privileges under the RIMCO
Financing and the 1996 Director Loans (See - Liquidity and Capital Resources -
Conversion Privileges on Certain Debt Instruments).

Other income in 1995 was $104,637 higher than in 1996 due to the Company
recognizing approximately $101,000 in 1995 related to a Louisiana Intrastate Gas
(LIG) settlement in the Main Pass Block 4 Field where the Company had increased
its working interest ownership to 98.5%.

LIQUIDITY AND CAPITAL RESOURCES

GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS.
The Company has suffered recurring operating losses and has a working
capital deficit that raise substantial doubt about its ability to meet future
expenditure obligations necessary to fully evaluate and develop its oil and gas
properties and to continue as a going concern. In this regard the Company
entered into certain financing arrangements in order to meet its working capital
requirements and to pursue its exploration opportunities. Despite the Company's
successful efforts to obtain initial financing for its 1997 exploratory drilling
program there can be no assurance that such financing will be sufficient to
fully fund the drilling program or that the results of the drilling operations
will be successful. Accordingly, the Company will continue to seek additional
sources of financing as may be necessary. The report of the Company's
independent accountants includes an explanatory paragraph describing the
substantial doubt about the Company's ability to continue as a going concern.

CASH FLOW FROM OPERATIONS.
The Company's net cash flow from operations resulted in a deficit of $34,191
and a surplus of $94,802 for the years ended December 31, 1995 and 1996
respectively. This represents an increase in net cash flow of $128,993 for the
year 1996.

CASH FLOW FROM FINANCING

RIMCO FINANCING. To fund its initial 3-D seismic exploration program, in
September 1996, the Company and its wholly-owned operating subsidiary Texoil
Company ("Subsidiary"), entered into a Note Purchase Agreement with four limited
partnerships of which Resource Investors Management Company Limited Partnership
("RIMCO") is the controlling general partner ("RIMCO Agreement" or "RIMCO
Financing"). Under the RIMCO Agreement, the lenders have agreed to provide up to
$8,000,000 in two separate financings. In connection with the RIMCO financing,
Gary J. Milavec, a Vice President of RIMCO Associates, Inc. was elected to the
Company's Board of Directors.

The first financing under the RIMCO Agreement is in the form of Senior
Exchangeable General Obligation Notes issued by the Subsidiary in the maximum
amount of $3,000,000 (the "Exchangeable Notes"). As of March 24, 1997,
Subsidiary had borrowed $1,642,134 under the Exchangeable Notes and the Company
intends to use this facility to fund 3D seismic, leasehold, and drilling and
completion costs for Subsidiary's initial exploratory test wells in the Raceland
and Greens Lake Prospects.

The second financing is in the form of Senior Secured General Obligation
Notes (the "Senior Notes") issued by Subsidiary in the maximum amount of
$5,000,000. The Subsidiary has not yet borrowed under this second facility. The
Company intends to use this facility to fund future leasehold, drilling and
completion costs for the Laurel Grove Prospects in Lafourche Parish, Louisiana,
subsequent wells in the Raceland and Greens Lake Prospects, and up-front land
and other costs associated with new 3-D seismic projects.

Page 21 of 36
<PAGE>
Under the RIMCO Agreement, Subsidiary may borrow under the Exchangeable
Notes until September 1, 1997. The Exchangeable Notes will mature September 1,
1999. Amounts advanced under the Exchangeable Notes will accrue interest at a
fixed, annual rate of 10%, with interest payable monthly and all outstanding
principal plus all accrued and unpaid interest due and payable at maturity.

After $2,800,000 in principal has been advanced under the Exchangeable
Notes, Subsidiary may, if it satisfies a borrowing base requirement, borrow
under the Senior Notes until September 1, 1999. The Senior Notes will mature
September 1, 2002. Amounts advanced under the Senior Notes will accrue interest
at a fixed, annual rate of 10%, with interest and principal paid monthly from
certain revenues generated by the assets pledged to RIMCO to secure the notes.
Advances under the Senior Notes for future drilling and completion costs will be
contingent upon Subsidiary maintaining an agreed upon borrowing base.

Indebtedness outstanding under the Exchangeable Notes is exchangeable, in
whole or in part, for Common Stock at an initial per share price equal to $.80,
subject to anti-dilution adjustments. Subsidiary can require the RIMCO lenders
to make such an exchange if they have funded at least $2,800,000 and the average
trading price of the Common Stock for any consecutive 20-day trading period is
$3.00 or more. The Company granted the RIMCO lenders certain registration rights
in respect of shares of Common Stock issuable upon exchange of debt under the
Exchangeable Notes. The $1,642,134 the Subsidiary has borrowed under the
Exchangeable Notes is exchangeable for 2,052,668 shares of Common Stock or
approximately 49% of outstanding Common Stock. Obligations under the
Exchangeable Notes and the Senior Notes contain a financial covenant related to
current assets to liability ratios. The Company was not in compliance with such
covenant as of December 31, 1996 and had requested and received a waiver from
RIMCO with respect to such covenant through June 30, 1997.

Obligations under the Exchangeable Notes and the Senior Notes are secured by
all of the existing and future oil and gas assets of Subsidiary, and the Company
guarantees Subsidiary's obligations thereunder. In addition, the RIMCO lenders
will receive an assignment of a 1.0% of 8/8ths overriding royalty interest,
proportionately reduced to the interest of Subsidiary, in all wells drilled
and/or completed with proceeds from the Senior Notes.

1996 DIRECTOR LOANS

In May 1996, four directors of the Company loaned it an aggregate
$1,100,000. Each loan was made pursuant to a promissory note bearing interest at
an annual rate of 12%, maturing May 6, 1997, and convertible at the option of
the lender into shares of Common Stock at a price of $.80 per share, subject to
anti-dilution adjustments. Each note was guaranteed by Subsidiary and the
guaranty was secured by substantially all of the Subsidiary's assets. The
lenders also were issued warrants exercisable until May 2001 for an aggregate
1,100,000 shares of Common Stock at $1.3125 per share, subject to anti-dilution
adjustments. The four lender were T. W. Hoehn, Jr., who loaned $550,000 and
received a warrant exercisable for 550,000 shares; T. W. Hoehn, III, who loaned
$300,000 and received a warrant exercisable for 300,000 shares; Joe C.
Richardson, Jr., Trustee UDT 5-17-91, as amended who loaned $200,000 and
received a warrant exercisable for 200,000 shares; William F. Seagle, who loaned
$50,000 and received a warrant exercisable for 50,000 shares. The lenders were
granted certain registration rights in respect of shares of Common Stock
issuable upon exercise or conversion of the warrants or convertible notes.
Proceeds of the loans were used to fund the Company's share of 3-D seismic
survey costs associated with its exploration projects in progress in Lafourche
Parish, Louisiana and Galveston County, Texas, and for general corporate
purposes. Loan proceeds also were used to pay the March 31, 1996 dividend of
$69,000

Page 22 of 36
<PAGE>
on the Company's outstanding Series A Preferred Stock, all of which is held by
lending director Mr. Hoehn, Jr. and his son Robert A. Hoehn, and to repay the
Company's remaining indebtedness of approximately $260,000 to First Interstate
Bank of Texas, N.A. which was guaranteed by Mr. Hoehn, Jr.

In connection with the RIMCO financing, the $200,000 owed to Joe C.
Richardson, Jr., Trustee, UDT 5-17-91, as amended, was repaid in September 1996.
The notes payable to T.W. Hoehn, Jr., T. W. Hoehn, III, and William F. Seagle,
respectively, were canceled and replaced by Replacement 12% Convertible Notes
dated September 6, 1996 (the "Replacement Notes"), which are convertible into
shares of Common Stock at an initial conversion price of $.80 per share, subject
to anti-dilution adjustments, and which mature upon the earlier to occur of
October 1, 2002 and the date occurring 30 days after the RIMCO debt has been
paid in full or exchanged for Common Stock. The Replacement Note to each of T.W.
Hoehn, Jr. is in the amount of $550,000, to T.W. Hoehn, III is in the amount of
$300,000, and to William F. Seagle is in the amount of $50,000. Interest on each
of the Replacement Notes accrues at a fixed rate of 12% per annum and monthly
payments of interest are due on the 10th day of each moth. Although no
prepayments of principal are permitted, the Company may require these lenders to
convert the outstanding principal amount under their Replacement Notes into
Common Stock if at least $2,800,000 has been funded by the RIMCO lenders and the
average trading price of the Common Stock for any consecutive 20-day trading
period is $3.00 or more, or the Company requires the RIMCO lenders to exchange
Subsidiary's indebtedness to them for Common Stock. The Company granted certain
registration rights to Messrs. Hoehn, Hoehn and Seagle in respect of shares of
Common Stock into which their Replacement Notes may be converted. As part of May
1996 debt restructuring evidenced by the Replacement Notes, the warrants,
registration rights and Subsidiary guaranty issued and granted in May 1996 were
canceled. These lenders and Wells Fargo Bank (Texas), N.A. (f/k/a First
Interstate Bank of Texas, N.A.) released all liens against the assets of the
Company or Subsidiary.

The Company's performance of obligations under the Replacement Notes are
subordinate to performance of obligations under the RIMCO financings. In this
regard, the Company, with the consent of both holders of all of the Company's
outstanding Series A Preferred Stock, amended the Certificate of Stock
Designation covering the Series A Preferred Stock to provide that the annual
cumulative dividends of $12 per share are payable only if, as and when declared
by the Company's Board of Directors, provided that Board has no obligation to
declare such dividends before October 1, 2002. Before the amendment, such
dividends were payable quarterly.

CONVERSION PRIVILEGES ON CERTAIN DEBT INSTRUMENTS

The Securities and Exchange Commission staff recently in 1997 adopted a new
position on accounting for convertible debt instruments, which are convertible
at a discount to the market price. This new SEC position was expressed after the
closing date of the RIMCO Financing and the 1996 Director Loans, Replacement
Notes, discussed above, and after those debt instruments were reported on the
previously filed form 10-QSB. Pursuant to this new position, the excess of the
fair value of the Company's common stock over the conversion prices stipulated
in the debt instruments is considered an additional return on those debt
instruments. In this case, the fair value was assumed to be the closing price of
the Company's common stock, as listed by NASDAQ, on the date the debt
instruments closed. The stipulated conversion price is $0.80 per share of common
stock. Accordingly, the Company has recorded the excess amount of $1,683,694 as
a non cash, non recurring interest expense, and as additional paid in capital in
1996. This non recurring interest expense contributed a signifigant portion
toward the reported net loss per share of $0.59.

OTHER AFFILIATE LOANS

Nine individuals, some of whom are directors and/or stockholders of the
Company, have, from time to time, made interim debt financing available to the
Company for working capital purposes. All of these

Page 23 of 36
<PAGE>
loans have been repaid, except those made by the Company's director, T.W. Hoehn,
Jr. from whom the Company has borrowed an aggregate $1,450,000 at various times
since 1993. Of this $1,450,000 in loans, $400,000 was repaid in June 1994 and
$50,000 was repaid in March 1996. The remaining $1,000,000 now is evidenced by a
promissory note, which is dated September 1, 1996, and matures upon the earlier
to occur of October 1, 2002 and 30 days after the RIMCO debt has been paid in
full, or exchanged for Common Stock, accrues interest at a variable rate equal
to 2% plus the prime rate announced by Wells Fargo Bank (Texas), N.A., is
payable to the T.W. Hoehn, Jr. and Betty Jo Hoehn Revocable Trust, and is
subordinate to the RIMCO financing. Monthly interest payments are due on the
10th day of each month and scheduled quarterly principal payments may be made if
certain liquidity conditions are satisfied and after the first $2,800,000 of the
RIMCO loans have been funded. Unpaid quarterly principal payments are cumulative
and amounts in excess of the scheduled quarterly payments may be paid if the
liquidity conditions are satisfied. In June 1996, the Company borrowed $50,000
from Opal Air, Inc., a company owned by T. W. Hoehn, Jr. In September 1996, the
$50,000 loan from Opal Air, Inc., was restructured and is evidenced by a
promissory note from the Company to Opal Air, Inc. dated September 1, 1996,
which matures on the same date and is otherwise subject to substantially the
same terms as the Company's September 1996 $1,000,000 note to the T. W. Hoehn,
Jr. and Betty Jo Hoehn Revocable Trust.

CAPITAL EXPENDITURES.

The Company's net capital expenditures totaled $1,778,436 in the year ended
December 31, 1996. This amount is comprised primarily of leasehold and seismic
costs totaling $1,353,966 in the Company's operated Raceland 3-D seismic
exploration prospect in Lafourche parish, Louisiana. The remaining $424,470 is
in capitalized general and administrative costs, capitalized costs at the Main
Pass Block 3 field, and initial lease acquisition costs in the Greens Lake and
Laurel Grove Prospects operated by Burlington Resources and Phillips Petroleum
respectively.

FUTURE CAPITAL REQUIREMENTS.

Texoil continues to incur capital expenditures during 1997 to complete the
processing of 3-D seismic data in its Raceland prospect and to acquire leases by
exercising existing lease options on the Texoil-operated Raceland prospect and
the non-operated Greens Lake prospects, operated by Burlington Resources, and
the non-operated Laurel Grove Prospect, operated by Phillips Petroleum. The
Company anticipates making additional capital expenditures to drill the test
wells that have been recommended on the Raceland and Greens Lake Prospects.
Together these capital costs are estimated to total approximately $3,000,000 in
1997. Due to the extensive amount of prospective areas indicated by the 3-D
seismic interpretations, Texoil has acquired approximately double the amount of
lease acreage and it plans to explore into deeper horizons than originally
planned. In connection with these developments, Texoil is seeking additional
debt capital or equity.

The Company also expects to make capital expenditures in 1997 with respect
to certain exploratory prospects currently in its inventory and possible new
prospects to be evaluated. These capital expenditures are expected to include
costs for further geological and geophysical evaluation of the prospects,
including 3-D seismic surveys where warranted, and leasehold acquisition and
other costs necessary for Texoil to obtain working interest participants in the
prospects. The Company will continue to evaluate acquiring or generating new
prospects and will continue to evaluate its participation rights related to the
Texoil-Texas Meridan Agreement.

CHANGING PRICES.

Texoil's revenues and the carrying value of its oil and natural gas
properties are affected by changes in oil and natural gas prices. Moreover,
Texoil's ability to obtain additional capital on attractive terms also is
substantially dependent upon oil and natural gas prices. Oil and natural gas
prices are subject to substantial

Page 24 of 36
<PAGE>
seasonal, political and other fluctuations which are beyond the ability of
Texoil to control or accurately predict.

TAX NET OPERATING LOSS CARRYFORWARDS

Texoil had approximately $5,602,000 of tax net operating loss ("NOL")
carryforwards at December 31, 1996. Additionally, approximately $2,249,000 in
depletion carryforwards and $52,000 of investment tax credit ("ITC")
carryforwards remain at December 31, 1996. Section 382 of the Internal Revenue
Code of 1986, as amended, limits the availability of the NOL and ITC
carryforwards if there is a change of ownership of more than 50% of the Company
within a retroactive three year period. This limitation, if applied, would limit
the utilization of the NOL and ITC carryforwards in each taxable year to an
amount equal to the product of the federal long-term tax-exempt bond rate
prescribed by the Internal Revenue Service and the fair market value of the
Company immediately prior to the time of the ownership change. Texoil's
management anticipates, however, that should a cumulative change in ownership of
Texoil in excess of 50% be deemed to occur within a retroactive three year
period in connection with any recent or proposed securities transaction, the
resulting limitation would not have a material impact on the Company's financial
position because no deferred tax asset has been established for the Company's
significant net operating loss carryforwards.

NEW ACCOUNTING PRONOUNCEMENTS

Effective for the year ended December 31, 1996, the Company has adopted the
disclosure provisions of the Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock Based Compensation" as more fully described in
Note 10 of the consolidated financial statements.

On March 3, 1997, the Financial Standards Board (FASB) issued Statement of
Financial Accounting Standards no. 128, EARNINGS PER SHARE (SFAS 128). This
pronouncement provides a different method of calculating earnings per share than
is currently used in accordance with APB 15, EARNINGS PER SHARE. SFAS 128
provides for calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company will adopt SFAS 128 in 1997 and
its implementation is not expected to have a material effect on the consolidated
financial statements.

ITEM 7. FINANCIAL STATEMENTS

See page F-1 for Index to Financial Statements.

Page 25 of 36
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK

Page 26 of 36
<PAGE>
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages and positions of the directors and
executive officers of the Company. All directors are elected for a term of one
year and serve until their successors are elected and qualified. All executive
officers hold office until their successors are elected and qualified.

NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
T.W. Hoehn, III (1)......... 46 Chairman of the Board and a Director

Ruben Medrano (1) .......... 39 President, Chief Executive Officer, and
a Director

Gary J. Milavec (1)(2)...... 35 Secretary and a Director

T.W. Hoehn, Jr. (2)......... 68 Director

Joe C. Richardson, Jr. (2).. 69 Director

William F. Seagle .......... 69 Director

Walter L. Williams ......... 69 Director
- ------------
(1) Member of Executive Committee

(2) Member of Compensation and Audit Committees

T.W. Hoehn, III has been a director of the Company since 1984. He is
President and General Manager of Hoehn Motors, Inc., a multi-line automobile
agency located in Carlsbad, California, where he has been employed since 1975.
He is a graduate of Stanford University and a son of T.W. Hoehn, Jr.

Ruben Medrano has been President, Chief Executive Officer and a Director of
the Company since October 1996. He served as interim President of the Company
from May 1996 to October 1996 and as Vice President - Operations from July 1994
to May 1996. He joined the Company as a consultant in November 1992. From 1980
to 1992, Mr. Medrano was employed by Exxon Company, U.S.A. as a reservoir and
production engineer. Mr. Medrano received a B.S. degree in Mechanical
Engineering from the University of Texas at El Paso in 1979. He is a member of
the Society of Petroleum Engineers, and is a registered professional engineer in
the State of Texas.

Gary J. Milavec has been a director of the Company since September 1996 (see
"Certain Transactions") and became its Secretary in October 1996. He has been a
Vice President of RIMCO Associates, Inc. and active in its investment management
and corporate finance activities since October 1990. He is also a director of
Universal Seismic Associates, Inc. From May 1989 to October 1990 he was an
investment banker with Rauscher Pierce Refsnes, Inc. From July 1986 to May 1989
he was a geologist with Shell Oil Company. Mr. Milavec received a B.A. in
Geology from the University of Rochester, an M.S. in Geology from the University
of Oklahoma, and an M.B.A. from the University of Houston.

T.W. Hoehn, Jr. has been a director of the Company since he co-founded it in
1964. He also is Chairman of Hoehn Motors, Inc., a multi-line automobile agency
located in Carlsbad, California, which he founded in 1975.

Page 27 of 36
<PAGE>
Joe C. Richardson, Jr. has been a director of the Company since April, 1992.
He has been President of Vital Energy, Inc. since 1980. Prior to that he was
Manager of Drilling and Production for Shamrock Oil & Gas Corporation, formed
and operated a consulting petroleum engineering firm, and formed and operated a
public oil and gas company. Mr. Richardson received a Bachelor of Science degree
in Petroleum Engineering and a Bachelor of Science degree in Mechanical
Engineering from Texas A&M in 1950 and is a registered professional engineer in
the State of Texas.

William F. Seagle has been a director of the Company since 1977. For a
number of years he has had business and personal interests in construction, real
estate and investments.

Walter L. Williams has been a director of the Company since he co-founded it
in 1964, served as its Chairman and Chief Executive Officer from July 1995 to
May 1996, and served as its President from 1971 to July 1995. He currently is
Vice Chairman of Cheniere Energy, Inc., a publicly-held oil and gas company.
Prior to forming the Company, Mr. Williams was an independent petroleum
consultant for six years and Manager of Drilling and Production for an
independent oil company prior to that period. He received a Bachelor of Science
degree in Petroleum Engineering from Texas A&M in 1949 and is a registered
professional engineer in both the States of Texas and Louisiana.

SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company under Rule 16a-3(d) during 1995 and Forms 5 and amendments
thereto furnished to the Company with respect to 1995, the Company is not aware
of any director, officer, or beneficial owner of more than 10% of any class of
equity securities of the Company registered pursuant to Section 12 of the
Securities Exchange Act of 1934 that failed to file on a timely basis, as
disclosed in the above forms, reports required by Section 16(a) of the Exchange
Act during such year.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table reflects all forms of compensation for each of the years
ended December 31, 1996, 1995, and 1994 for Ruben Medrano's and Walter L.
Williams' services to the Company. No executive officer had salary and bonus
which in 1996 exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS SATION(1) AWARDS SARS(#) PAYOUTS COMPENSATION
-------- ---- ------ ----- -------- ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ruben Medrano, 1996 $67,200 $ -- $28,800 $ -- 30,000(2) $ -- $ --
President and Chief 1995 $74,400 $ -- $21,600 $ -- -- $ -- $ --
Executive Officer 1994 $48,000(3) $ -- $ -- $ -- 20,000(2) $ -- $ --
(May 1996 to
Present)
Walter L. Williams, 1996 $55,000 $ -- $20,915 $ -- -- $ -- $ --
President and Chief 1995 $84,000 $ -- $42,645 $ -- -- $ -- $ --
Executive Officer 1994 $99,000 $ -- $ 8,532 $ -- 50,000(2) $ -- $ --
(through May 1996)
</TABLE>
- ------------
(1) See "--1995 Stock Compensation Plan," "--Amended and Restated 1996 Stock
Compensation Plan" and "--Employee Overriding Royalty Plans" below.

(2) See "--Option Grants" below.

(3) Includes salary commencing in July 1994 when Mr. Medrano became an
employee and Vice-President of the Company.

Page 28 of 36
<PAGE>
1995 STOCK COMPENSATION PLAN

In July 1995, the Company's stockholders approved the 1995 Stock
Compensation Plan, which provides for the issuance of shares of common stock to
certain employees and consultants whose cash compensation was reduced by 30%
effective April 1, 1995. Pursuant to the 1995 Stock Compensation Plan, a total
of 20,976 shares of common stock were issued to such individuals on recognition
of their reduced cash compensation for the months of January through February,
1996 and for services rendered and reimbursement of expenses incurred. The
Company recognized compensation expense in the amount of $28,860 representing
the fair market value of such shares issued in lieu of reduced cash compensation
for the months of January through February 1996.

AMENDED AND RESTATED 1996 STOCK COMPENSATION PLAN

By consent dated June 10, 1996, the Company's Board of Directors adopted the
1996 Stock Compensation Plan after the 1995 Stock Compensation Plan expired
March 31, 1996 with an insufficient number of shares of Common Stock reserved
for issuance thereunder remaining to cover issuances which otherwise would have
been made after February 1996. The 1996 Stock Compensation Plan required
shareholder approval thereof before shares could be issued thereunder.
Shareholder approval was a requirement of Rule 16b-3 promulgated under Section
16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). After
the Board's adoption of the 1996 Stock Compensation Plan, Rule 16b-3 was amended
and shareholder approval was no longer mandatory thereunder. Since the 1996
Stock Compensation Plan had not been implemented and no common stock issued
thereunder, the Company's Board of Directors amended and restated the 1996 Stock
Compensation Plan to make it more consistent with amended Rule 16b-3.
Accordingly, the Amended and Restated 1996 Stock Compensation Plan (the "1996
Plan") superseded the 1996 Stock Compensation Plan in its entirety. Pursuant to
the 1995 Stock Compensation Plan, a total of 40,860 for the 1996 Plan shares of
common stock were issued to such individuals on recognition of their reduced
cash compensation for the months of March through December, 1996 and for
services rendered and reimbursement of expenses incurred. The Company recognized
compensation expense in the amount of $53,840 for the 1996 Plan representing the
fair market value of such shares issued in lieu of reduced cash compensation for
the months of March through December 1996.

EMPLOYEE OVERRIDING ROYALTY PLANS

In previous years, Texoil granted to Walter L. Williams and other former
officers overriding royalty interests in exploration prospects generated,
acquired and sold through their respective efforts. This arrangement provided
performance-based incentive compensation for these officers in lieu of
Company-sponsored retirement or savings plans. The awarded overriding royalty
interests are not subject to continued employment and remain the grantee's
property for so long as the underlying lease remains in effect. No overriding
royalty interests were granted by Texoil to its management or other personnel on
the 14 prospects sold to Texas Meridian and none are expected to be granted on
Texoil's present exploratory prospect inventory, with the exception of a 2% of
8/8ths overriding royalty granted to Dennis A. Drake, the Company's consulting
geologist, as the generator of the Greens Lake Prospect. Overriding royalty
interest payments made to Walter L. Williams during the years ended December 31,
1995 and 1996 were as follows:

OFFICER/GROUP YEARS ENDED DECEMBER 31
------------- ---------------------------
1995 1996
------- -------
Walter L. Williams ...................... $ 6,645 5,915

Page 29 of 36
<PAGE>
OPTION GRANTS

The following table sets forth additional information with respect to a
non-qualified stock option granted to Ruben Medrano for services rendered in
1996. This option to purchase Common Stock was granted in May 1996 under the
Company's 1994 Stock Option Plan, under which, the Company granted Mr. Medrano
options to purchase 30,000 shares of Common Stock at an exercise price of
$1.3125 per share. No other executive or employee was granted stock options in
1996. The table also shows information with respect to a non-qualified stock
option granted to W. L. Williams for services rendered in 1994 and which expired
on August 1, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS/SARS GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR 1996 ($/SHARE) DATE
- ---- ----------- --------- --------- ----
<S> <C> <C> <C> <C>
Ruben Medrano 30,000 100% $1.3125 May 2, 2006(1)

Walter Williams 50,000 0% $3.000 August 1, 1996
</TABLE>
- -----------
(1) Option expires 10 years after the date of grant, and vests 100% on first
anniversary of date of grant. If prior to exercise or expiration of the
option a "change of control" occurs, the entire option generally becomes
immediately exercisable. Such a "change of control" occurs when (i) any
person acquires ownership of the Company's securities representing more than
50% of the combined voting power of the Company's then outstanding
securities, or (ii) at any given time, less than 50% of the then incumbent
members of the Board of Directors have been continuously incumbent during
the preceding 18 months.

In June 1996, the Company granted William F. Seagle a director of the
Company, a non-qualified stock option exercisable for 50,000 shares of Common
Stock at an exercise price of $1.5625 for his service on a special committee
charged with seeking out and considering significant transactions to maximize
shareholder value. Mr. Seagle's option is exercisable until June 2006. No
options were granted under any stock option plan during 1995.

DIRECTOR COMPENSATION

Directors who are not employed by the Company are authorized to be paid a
fee of $500 for each meeting of the Board of Directors attended (including
committee meetings, if any, held in conjunction therewith). No such fee was paid
during 1996. The Company reimburses each director for his actual and necessary
expenses reasonably incurred in connection with attending meetings of the Board
and its committees.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 24, 1997 the number of shares of
the Company's equity securities owned by (i) each person known by the Company
(based on publicly-available filings with the Commission) to be the holder of
more than five percent of its voting securities, (ii) each director and
executive officer of the Company, and (iii) all of the Company's directors and
executive officers as a group. Unless otherwise indicated, each holder has sole
voting and investment power with respect to the shares of capital stock owned by
such holder.

Page 30 of 36
<PAGE>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF
(ADDRESS INDICATED IF BENEFICIAL
NOT A DIRECTOR OR AN OFFICER) OWNERSHIP PERCENT OF CLASS
- ------------------------------ ------------------ ----------------
COMMON STOCK:
T. W. Hoehn, Jr. ................. 2,118,566(1)(2) 41.3%
T. W. Hoehn, III ................. 607,519(3) 13.2%
Walter L. Williams ............... 433,262(4) 10.3%
Joe C. Richardson, Jr. ........... 281,384(5) 6.3%
William F. Seagle ................ 178,696(6) 4.8%
Ruben Medrano .................... 83,966(7) 2.0%
Officers, Directors and Executive
as a Group (6 persons)(8) ........ 3,703,393(1)(9) 61.9%
RIMCO ............................ 2,052,668(10) 32.8%
600 Travis Street, Suite 6875
Houston, TX 77002
Wellington Management Company .... 330,000(11) 7.9%
75 State Street
Boston, MA 02109
John L. Graves ................... 404,439(12) 9.0%
3421 Overbrook
Houston, TX 77027
SERIES A PREFERRED STOCK:
T. W. Hoehn, Jr. ................. 20,000(13) 87.0%
Robert A. Hoehn .................. 3,000(14) 13.0%
Directors and Executive Officers
as a (Group 7 persons) ........... 20,000(13)(14) 87.0%
- ------------
(1) Excludes shares of Common Stock issuable upon conversion of an aggregate
23,000 outstanding shares of Series A Preferred Stock, of which 20,000 may
be deemed held by T. W. Hoehn, Jr. and are presently convertible into
666,667 shares of Common Stock.

(2) Includes 240,000 shares issuable to Mr. Hoehn pursuant to presently
exercisable warrants, and 687,500 shares issuable upon conversion of
presently convertible debt.

(3) Includes 15,000 shares issuable pursuant to presently exercisable warrants,
and 375,000 shares issuable upon conversion of presently convertible debt.

(4) Includes 72,268 shares owned by Betty B. Williams, wife of Mr. Williams.
Mr. Williams disclaims beneficial ownership of such shares.

(5) Includes 281,384 shares issuable pursuant to a presently exercisable
option.

(6) Includes 8,000 shares issuable pursuant to presently exercisable warrants,
50,000 shares issuable pursuant to a presently exercisable option and
62,500 shares issuable upon conversion of presently convertible debt.

(7) Includes 50,000 shares issuable upon exercise of a presently exercisable
options.

(8) Excludes Gary J. Milavec who became a director of the Company in September
1996. Although Mr. Milavec does not own any Common Stock, he is an
executive officer of RIMCO Associates, Inc. which as of March 24 , 1997 is
the indirect holder of debt presently convertible into 2,052,668 shares of
Common Stock. See "Item 6. Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Cash Flow from Financing -
RIMCO Financing".

(9) Includes an aggregate 1,789,384 shares of Common Stock issuable upon
exercise of presently exercisable options, warrants, and exchangeable or
convertible debt.

(10) Includes 2,052,668 shares issuable upon exchange of presently exchangeable
debt; see 8.

(11) Wellington Management Company, in its capacity as investment advisor, may
be deemed beneficial owner of these shares which are owned by numerous
investment counseling clients.

(12) Includes 281,384 shares issuable to Mr. Graves pursuant to a presently
exercisable option and 99,414 shares owned by Ms. Lynn W. Graves, wife of
Mr. Graves. Mr. Graves disclaims beneficial ownership of such shares.

(13) These shares presently are convertible into 666,667 shares of Common Stock.
Of these shares, 4,000 shares are owned of record by The BJH Foundation, a
charitable foundation of which Mr. Hoehn is a trustee, and 2,000 shares are
owned of record by Mr. Hoehn's wife, Carolina Vivanco Hoehn. Mr. Hoehn
shares voting and investment power with two co-trustees of the Foundation
with respect to these 4,000 shares. Mr. Hoehn disclaims beneficial
ownership of such shares.

(14) These shares presently are convertible into 100,000 shares of Common Stock.
Robert A. Hoehn is a son of T.W. Hoehn, Jr. and a brother of T.W. Hoehn,
III.

Page 31 of 36
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See "Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Cash Flow From
Financing - 1996 Director Loans and - Other Affiliate Loans."

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

2.1 - Agreement and Plan of Merger, by and between Comet Entertainment,
Inc., Comet Acquisition Subsidiary, Inc. and Texoil Company, dated as
of November 4, 1992 (incorporated by reference to Exhibit A to Item 7
of Form 8-K filed on November 18, 1992).

3.1 - Restated Articles of Incorporation of Texoil, Inc., as amended
(incorporated by reference to Exhibit 3.1 to Form 8-K, dated September
6, 1996, reporting the RIMCO Financing).

3.2 - Amended and Restated Bylaws of Texoil, Inc., as amended
(incorporated by reference to Exhibit 4.1 to Form 10-QSB filed on
August 3, 1994).

4.1 - Form of Warrant Agreement between Texoil, Inc. as Issuer and First
Interstate Bank of Texas, N.A. as Warrant Agent, dated May 26, 1994
(incorporated by reference to Exhibit 4.1 to Form SB-2 Registration
Statement No. 33-72082 filed on May 26, 1994).

4.2 - Specimen certificate for Class A Warrant (incorporated by reference
to Exhibit 4.2 to Form SB-2 Registration Statement No. 33-72082 filed
on May 26, 1994).

4.3 - Specimen certificate for Class B Warrant (incorporated by reference
to Exhibit 4.3 to Form SB-2 Registration Statement No. 33-72082 filed
on May 26, 1994).

4.4 - Specimen certificate for Underwriters Class A Warrant (incorporated
by reference to Exhibit 4.4 to Form SB-2 Registration Statement No.
33-72082 filed on May 26, 1994).

4.5 - Specimen certificate for Underwriters Class B Warrant (incorporated
by reference to Exhibit 4.5 to Form SB-2 Registration Statement No.
33-72082 filed on May 26, 1994).

4.6 - Specimen certificate for shares of Common Stock, par value $.01 per
share (incorporated by reference to Exhibit 4.6 to Form SB-2
Registration Statement No. 33-72082 filed on May 26, 1994).

10.1 - Agreement dated as of December 31, 1992 by and between Texas
Meridian Resources Exploration, Inc. and Texoil Company (incorporated
by reference to Exhibit 19.7 to Form 10-QSB filed on May 3, 1993).

10.2 - Form of Non-Qualified Stock Option Agreement entered into by and
between Texoil, Inc. and each of John L. Graves and Joe C. Richardson,
Jr. dated April 16, 1993 (incorporated by reference to Exhibit 19.10
to Form 10-QSB filed on May 3, 1993).

Page 32 of 36
<PAGE>
10.3 - Replacement Gas Purchase Contract between Texoil Company, ET al. and
Delta Gas, Inc. dated January 1, 1987 (incorporated by reference to
Exhibit 19.11 to Form 10-QSB filed on May 3, 1993).

10.4 - Sublease Agreement between Presidio Exploration, Inc. and Texoil
Company dated as of January 1, 1990 (incorporated by reference to
Exhibit 19.12 to Form 10-QSB filed on May 3, 1993).

10.5 - Agreement, dated September 20, 1994, between Texoil Company and 3DX
Technologies, Inc. (incorporated by reference to Exhibit 10.11 to Form
10-KSB for the year ended December 31, 1994).

10.6 - Stock Surrender Agreement, as amended, by, between and among Texoil,
Inc. and certain of its stockholders identified therein, dated
February 24, 1994 (incorporated by reference to Exhibit 10.23 to Form
SB-2 Registration Statement No. 33-72082 filed on May 26, 1994).

10.7 - Form of Warrant, dated June 1, 1994, issued by Texoil, Inc. to nine
individuals to purchase an aggregate 154,375 shares of common stock
(incorporated by reference to Exhibit 10.1 through 10.9 to Form 10-QSB
filed on August 3, 1994).

10.8 - 1994 Stock Option Plan, dated July 25, 1994 (incorporated by
reference to Exhibit 10.1 to Form 10-QSB filed on November 2, 1994).

10.9 - Non-Qualified Stock Option Agreement, dated July 26, 1994, between
Texoil, Inc. and Walter L. Williams (incorporated by reference to
Exhibit 10.2 to Form 10-QSB filed on November 2, 1994).

10.10 - Non-Qualified Stock Option Agreement, dated July 26, 1994, between
Texoil, Inc. and Ruben Medrano (incorporated by reference to Exhibit
10.4 to Form 10-QSB filed on November 2, 1994).

10.11 - Non-Qualified Stock Option Agreement, dated September 15, 1994,
between Texoil, Inc. and Marcus L. Countiss (incorporated by reference
to Exhibit 10.5 to Form 10-QSB filed on November 2, 1994).

10.12 - Lease Agreement between 1600 Smith Street Venture (Landlord) and
Texoil, Inc. (Tenant), dated June 1, 1995 (incorporated by reference
to Exhibit 10.23 to Form 10-QSB filed on August 4, 1995).

10.13 - 1995 Stock Compensation Plan (incorporated by reference to Exhibit
10.5 to Form 10-QSB filed on November 14, 1995).

10.14 - 1995 Stock Compensation Plan Participation Agreement, dated April
1, 1995 between Texoil, Inc. and Walter L. Williams (incorporated by
reference to Exhibit 10.6 to Form 10-QSB filed on November 14, 1995).

Page 33 of 36
<PAGE>
10.15 - 1995 Stock Compensation Plan Participation Agreement, dated April
1, 1995 between Texoil, Inc. and John L. Graves (incorporated by
reference to Exhibit 10.7 to Form 10-QSB filed on November 14, 1995).

10.16 - 1995 Stock Compensation Plan Participation Agreement, dated April
1, 1995 between Texoil, Inc. and Ruben Medrano (incorporated by
reference to Exhibit 10.8 to Form 10-QSB filed on November 14, 1995).

10.17 - 1995 Stock Compensation Plan Participation Agreement, dated April
1, 1995 between Texoil, Inc. and Lynn W. Graves (incorporated by
reference to Exhibit 10.9 to Form 10-QSB filed on November 14, 1995).

10.18 - 1995 Stock Compensation Plan Participation Agreement, dated April
1, 1995 between Texoil, Inc. and Dennis A. Drake (incorporated by
reference to Exhibit 10.10 to Form 10-QSB filed on November 14, 1995).

10.19 - 1995 Stock Compensation Plan Participation Agreement, dated August
1, 1995 between Texoil, Inc. and Warren M. Shimmerlik (incorporated by
reference to Exhibit 10.11 to Form 10-QSB filed on November 14, 1995).

10.20 - Non-Qualified Stock Option Agreement dated May 2, 1996 between
Texoil, Inc. and Ruben Medrano (filed herewith).

10.21 - Non-Qualified Stock Option Agreement dated June 20, 1996 between
Texoil, Inc. and William F. Seagle (filed herewith).

10.22 - Non-Qualified Stock Option Agreement dated September 18, 1996
between Texoil, Inc. and J. D. Hughes (filed herewith).

10.23 - Amended and Restated 1996 Stock Compensation Plan Participation
Agreement, dated January 3, 1997 between Texoil, Inc. and Lynn W.
Graves (filed herewith).

10.24 - Amended and Restated 1996 Stock Compensation Plan Participation
Agreement, dated January 3, 1997 between Texoil, Inc. and Walter L.
Williams (filed herewith).

10.25 - Amended and Restated 1996 Stock Compensation Plan Participation
Agreement, dated January 3, 1997 between Texoil, Inc. and Dennis A.
Drake (filed herewith).

10.26 - Amended and Restated 1996 Stock Compensation Plan Participation
Agreement, dated January 3, 1997 between Texoil, Inc. and Ruben
Medrano (filed herewith).

10.27 - Amended and Restated 1996 Stock Compensation Plan Participation
Agreement, dated January 8, 1997 between Texoil, Inc. and Warren M.
Shimmerlik (filed herewith).

10.28 - Amended and Restated 1996 Stock Compensation Plan Participation
Agreement, dated February 4, 1997 between Texoil, Inc. and John L.
Graves (filed herewith).

Page 34 of 36
<PAGE>
21.1 - Following are the Company's subsidiaries:

OTHER NAME UNDER WHICH JURISDICTION OF
NAME OF SUBSIDIARY SUBSIDIARY CONDUCTS BUSINESS INCORPORATION
------------------ ---------------------------- ---------------
Texoil Company None Tennessee
Texoil de Argentina, S.A. None Nevada

23.1 - Consent of BDO Seidman, LLP (filed herewith).

27.1 - Financial Data Schedule (filed herewith).

(b) Reports on Form 8-K

1. Report on Form 8-K, dated February 5, 1996, reporting the board of
directors' decision to seek "significant transactions," including equity
financing, merger and/or asset sale transactions.

2. Report on Form 8-K, dated April 17, 1996, reporting the execution of a
non-binding letter of intent to merge the Company into Fortune Petroleum
Corporation.

3. Report on Form 8-K, dated September 6, 1996 reporting the RIMCO financing.

Page 35 of 36
<PAGE>
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

TEXOIL, INC.

By: /s/ RUBEN MEDRANO
Ruben Medrano,
President and Chief
Executive Officer

Date: March 31, 1997

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ RUBEN MEDRANO President and Chief March 31, 1997
Ruben Medrano Executive Officer
(Principal Executive Officer)

/s/ T. W. HOEHN, III Chairman of the Board and March 31, 1997
T. W. Hoehn, III Director

/s/ GARY J. MILAVEC Secretary and Director March 31, 1997
Gary J. Milavec

/s/ T. W. HOEHN, JR. Director March 31, 1997
T. W. Hoehn, Jr.

/s/ JOE C. RICHARDSON, JR. Director March 31, 1997
Joe C. Richardson, Jr.

/s/ WILLIAM F. SEAGLE Director March 31, 1997
William F. Seagle

/s/ WALTER L. WILLIAMS Director March 31, 1997
Walter L. Williams

Page 36 of 36
<PAGE>
TEXOIL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants ............. F-2

Consolidated Balance Sheet as of December 31, 1996 ............. F-3

Consolidated Statements of Loss and Deficit
for the years ended December 31, 1995 and 1996 ........ F-4

Consolidated Statements of Cash Flows for the years
ended December 31, 1995 and 1996 .................... F-5

Notes to Consolidated Financial Statements ..................... F-6 to F-18

F - 1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Texoil, Inc.

We have audited the consolidated balance sheet of Texoil, Inc. as of December
31, 1996 and the related consolidated statements of loss and deficit and cash
flows for the years ended December 31, 1995 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Texoil, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles.

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
financial statements, the Company has suffered recurring operating losses and
has a working capital deficit and, accordingly, there is substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

BDO SEIDMAN, LLP
Houston, Texas
March 27, 1997

F - 2
<PAGE>
TEXOIL, INC.

CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1996
------------
ASSETS (NOTE 5)
Current:
Cash ....................................................... $ 1,812
Accounts receivable (Note 3) ............................... 468,539
Other ...................................................... 58,457
-----------
Total current assets .................................. 528,808
-----------
Oil and gas properties, net (on the basis of full cost
accounting) (Note 4) ...................................... 4,641,327
Other equipment, net .......................................... 1,550

Other Assets .................................................. 50,222
-----------
$ 5,221,907
===========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities (Note 3) .......... $ 966,012
Current portion - notes payable (Note 5) ................... 1,194,794
-----------
Total current liabilities ............................. 2,160,806
-----------

Notes payable (Note 5) ........................................ 1,950,000

Other long-term liabilities ................................... 206,359

Commitments and Contingency (Notes 2, 8 and 10)

Stockholders' equity (Notes 6 and 9):
Series A preferred stock, $.01 par; redeemable and
convertible with liquidation preference of $100 per
share; 10,000,000 shares authorized; 23,000 shares
issued and outstanding .................................. 2,300,000
Common stock, $.01 par; 50,000,000 shares authorized;
4,157,073 shares issued and outstanding ................. 41,571
Additional paid-in capital ................................. 6,299,629
Deficit .................................................... (7,736,458)
-----------
904,742
-----------
$ 5,221,907
===========

See accompanying notes to consolidated financial statements.

F - 3
<PAGE>
TEXOIL, INC.

CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

YEAR
ENDED DECEMBER 31,
--------------------------
1995 1996
----------- -----------
Revenues:
Oil and gas sales ............................. $ 1,110,581 $ 972,739
----------- -----------
Costs and expenses:
Lease operating expenses ...................... 275,139 189,667
Depreciation, depletion and amortization ...... 656,081 549,083
Production taxes .............................. 43,872 86,082
General and administrative expenses, net ...... 821,137 561,219

Other (income) expense:
Interest expense .............................. 149,377 235,816
Non recurring, non cash interest
expense (Note 5) ............................. - 1,683,694
Interest income and other .................... (108,610) (3,973)
----------- -----------
1,836,996 3,301,588
----------- -----------
Net loss ......................................... (726,415) (2,328,849)
Dividends on preferred stock ..................... (276,000) (138,000)
----------- -----------
Net loss applicable to common stock .............. (1,002,415) (2,466,849)

Deficit at beginning of year ..................... (4,267,194) (5,269,609)
----------- -----------
Deficit at end of year ........................... $(5,269,609) $(7,736,458)
=========== ===========
Net loss per share of common stock ............... $ (0.25) $ (0.59)
=========== ===========
Weighted average number of shares of
Common Stock outstanding ...................... 4,079,929 4,154,381
=========== ===========

See accompanying notes to consolidated financial statements.

F - 4
<PAGE>
TEXOIL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR
ENDED DECEMBER 31,
-------------------------------
1995 1996
--------- -----------
<S> <C> <C>
Operating activities:
Net loss .............................................................................. $(726,415) $(2,328,849)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Non-cash interest expense ........................................................ -- 1,683,694
Depreciation, depletion and amortization ......................................... 656,081 549,083
Non-cash compensation expense and consulting fees ................................ 127,871 82,700
Increase in accounts receivable .................................................. (23,193) (42,513)
Decrease (increase) in other current assets ...................................... 129,574 (22,290)
Increase in other assets ......................................................... -- (50,222)
Increase (decrease) in accounts payable and accrued liabilities .................. (240,293) 233,474
Increase (decrease) in other long-term liabilities ............................... 42,184 (10,275)
--------- -----------
Net cash provided by (used in) operating activities ......................... (34,191) 94,802
--------- -----------
Investing activities:
Capital expenditures .................................................................. (812,718) (1,778,436)
Proceeds from sales of prospects ...................................................... 636,533 130,738
--------- -----------
Net cash used in investing activities ....................................... (176,185) (1,647,698)
--------- -----------
Financing activities:
Proceeds from borrowings .............................................................. 439,000 2,494,794
Payments on borrowings ................................................................ (151,000) (735,500)
Preferred stock dividends paid ........................................................ (276,000) (207,000)
--------- -----------
Net cash provided by financing activities ................................... 12,000 1,552,294
--------- -----------
Net decrease in cash ..................................................................... (198,376) (602)
Cash at beginning of year ................................................................ 200,790 2,414
--------- -----------
Cash at end of year ...................................................................... $ 2,414 $ 1,812
========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ................................................ $ 149,377 $ 201,230
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.

F - 5
<PAGE>
TEXOIL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND BASIS OF PRESENTATION

Texoil, Inc. and its wholly-owned subsidiary Texoil Company (collectively
"Texoil" or the "Company") are engaged in the exploration for and production of
oil and natural gas, primarily in South Louisiana and to a lesser extent in
Texas. In March 1993 Texoil Company merged with a wholly-owned subsidiary of
Comet Entertainment, Inc. ("Comet"), a Nevada corporation. In conjunction with
the merger, Comet changed its name to Texoil, Inc. The merger was accounted for
as a "reverse acquisition" with Texoil as the acquirer and surviving entity.

CONSOLIDATION

The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiary.

LOSS PER COMMON SHARE

The loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding and common stock equivalents, if
dilutive.

OIL AND GAS PROPERTIES

The Company follows the full cost method of accounting for oil and gas property
acquisition, exploration and development activities. Under this method, all
productive and nonproductive costs incurred in connection with the acquisition
of, exploration for and development of oil and gas reserves for each cost center
are capitalized. Capitalized costs include lease acquisitions; geological and
geophysical work; delay rentals; costs of drilling, completing and equipping oil
and gas wells; and administrative costs applicable to the Company's personnel
directly engaged in exploration and development activities. Gains or losses are
recognized only upon sales or dispositions of significant amounts of oil and gas
reserves. Proceeds from all other sales or dispositions are treated as
reductions to capitalized costs.

The capitalized costs of oil and gas properties, plus estimated future
development costs relating to proved reserves and estimated costs of plugging
and abandonment, net of estimated salvage value, are amortized on the
unit-of-production method based on total proved reserves. The costs of unproved
properties are excluded from amortization until the properties are evaluated,
subject to an annual assessment of whether impairment has occurred. The
Company's proved oil and gas reserves were estimated by Gruy Engineering
Corporation, independent petroleum engineers, as of December 31, 1995 and 1996.

F - 6
<PAGE>
The capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, if any, are
generally limited to an amount (the ceiling limitation) equal to the sum of: (a)
the present value of estimated future net revenues computed by applying current
prices in effect as of the balance sheet date (with consideration of price
changes only to the extent provided by contractual arrangements) to estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on current costs) to be incurred in developing and producing
the reserves using a discount factor of 10% and assuming continuation of
existing economic conditions; and (b) the cost of investments in unevaluated
properties excluded from the costs being amortized.

OTHER PROPERTY AND EQUIPMENT

Property and equipment, other than oil and gas properties, is recorded at
historical cost and is presented net of accumulated depreciation of $314,142 in
the accompanying consolidated balance sheet. Depreciation is provided generally
on a straight-line basis over the estimated useful lives of the assets which
range from five to ten years.

INCOME TAXES

The Company uses the liability approach for accounting for income taxes. Under
the liability approach, recognition is given to the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities.

ACCOUNTING ESTIMATES

The accompanying financial statements are prepared in conformity with generally
accepted accounting principles which requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The actual results could differ from those estimates.

SIGNIFICANT RISKS AND UNCERTAINTIES

The Company's operations are subject to all of the environmental and operational
risks normally associated with the oil and gas industry. The Company maintains
insurance that is customary in the industry; however, there are certain risks
for which the Company does not maintain full insurance coverage. The occurrence
of a significant event that is not fully covered by insurance could have a
significant adverse effect on the Company's financial position.

RECLASSIFICATIONS

Certain amounts have been reclassified in the accompanying 1995 consolidated
financial statements to conform to the 1996 presentation.

F - 7
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS

On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS
128). This pronouncement provides a different method of calculating earnings per
share than is currently used in accordance with Accounting Principles Board
Opinion (APB) No. 15 , EARNINGS PER SHARE. SFAS 128 provides for the calculation
of "Basic" and "Diluted" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted earnings per
share. The Company will adopt SFAS 128 in 1997 and its implementation is not
expected to have a material effect on the consolidated financial statements.

NOTE 2 - GOING CONCERN UNCERTAINTY AND MANAGEMENT PLANS

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring operating losses and has a working capital deficit that raise
substantial doubt about its ability to meet future expenditure obligations
necessary to fully evaluate and develop its oil and gas properties and to
continue as a going concern. The consolidated financial statements do not
reflect any adjustments that might result from the outcome of these
uncertainties. In this regard the Company entered into the financing
arrangements (as described in Note 5) in order to meet its working capital
requirements and to pursue its exploration opportunities. Despite the Company's
successful efforts to obtain initial financing for its 1997 exploratory drilling
program there can be no assurance that such financing will be sufficient to
fully fund the drilling program or that the results of drilling operations will
be successful. Accordingly, the Company will continue to seek additional sources
of financing as may be necessary.

NOTE 3 - CONCENTRATIONS AND WORKING CAPITAL DATA

The Company's accounts receivable are primarily from purchasers of oil and
natural gas products and exploration and production companies which own
interests in properties operated by the Company. Accordingly, the Company's
principal credit risk rests with customers operating in the oil and natural gas
industry. Revenues from companies comprising more than 10% of total sales in the
years ended December 31, were as follows:

1995 1996
---- ----
Customer A 58% 86%
Customer B 18% 1%
Customer C 14% 9%

F - 8
<PAGE>
Accounts receivable at December 31, 1996 consist of the following:

Oil and gas revenues receivable $ 182,522
Joint interest receivables 286,017
---------
$ 468,539
=========

Accounts payable and accrued liabilities at December 31, 1996 consist of the
following :

Trade payables and other $ 614,348
Oil and gas revenues payable 351,664
---------
$ 966,012
=========

NOTE 4 - OIL AND GAS PROPERTIES

The following table sets forth information concerning the Company's oil and gas
properties at December 31, 1996:

AMOUNT
------------
Evaluated $ 17,602,922
Unevaluated 1,577,469
------------
19,180,391
Accumulated depreciation,
depletion and amortization (14,539,064)
------------
$ 4,641,327
============

Unevaluated costs excluded from amortization at December 31, 1996 include
geological and geophysical and leasehold costs which are related to the
Company's exploration activities in South Louisiana and Texas.

Capitalized administrative costs applicable to the Company's personnel directly
engaged in exploration and development activities amounted to approximately
$180,000 and $111,000 in 1995 and 1996, respectively.

F - 9
<PAGE>
NOTE 5 - NOTES PAYABLE

At December 31, 1996, notes payable consisted of the following:
<TABLE>
<C> <C>
10% Exchangeable notes due September 1, 1999, interest only payable
monthly, collateralized by substantially all of the assets of the Company ...................... $ 1,194,794

12% convertible subordinated loans from directors due October 2002 or upon
earlier settlement of all debt under the RIMCO agreement, interest
only payable monthly ........................................................................... 900,000

Prime plus 2% (10.25% at December 31, 1996) subordinated notes from a director
and his affiliate due October 2002 or upon earlier settlement of
all debt under the RIMCO agreement, interest only payable monthly .............................. 1,050,000
-----------
3,144,794

Less: current portion ...................................................................... (1,194,794)
-----------
Long term portion .......................................................................... $ 1,950,000
===========
</TABLE>
In September 1996, the Company entered into a financing agreement (the RIMCO
agreement) to provide up to $8,000,000 in two separate financings.

Under the first financing, the Company may issue up to $3,000,000 in
exchangeable notes through September 1, 1997. Any indebtedness under the
exchangeable notes is exchangeable for the Company's common stock at $.80 per
share.

Under the second financing, which may occur after advances of $2,800,000 have
been made on the exchangeable notes, the Company may issue up to $5,000,000 in
senior notes through September 1, 1999. Advances under the senior notes will
bear interest at 10% with interest and principal payable monthly through
September 2002 and will be collateralized by substantially all of the Company's
assets. At December 31, 1996, no advances had been made under the senior notes.

The 12% directors loans were entered into by the Company in conjunction with the
RIMCO agreement and replaced previously existing loans with directors. The loans
are convertible into shares of the Company's common stock at $.80 per share.

The Company can require conversion of the exchangeable notes issued under the
RIMCO agreement or the 12% directors loans if funding of at least $2,800,000 has
occurred from the exchangeable notes and the average common stock price for any
consecutive 20-day trading period is $3.00 or more. The Company has granted
registration rights for any shares to be issued under conversion privileges of
the 12% directors loans and the exchangeable notes.

F - 10
<PAGE>
A recent Securities and Exchange Commission staff position has established the
appropriate accounting treatment for debt possessing conversion privileges that
are below market. Pursuant to this ruling, the excess of the fair market value
of the Company's common stock over the conversion prices stipulated in the RIMCO
agreement and the 12% directors loan agreements, is considered an additional
return on those debt instruments. Accordingly, the Company has recorded the
excess amount of $1,683,694 as additional interest expense and as paid in
capital in 1996, in accordance with the SEC requirements.

At December 31, 1996, the Company was in default of one of the RIMCO loan
covenants. The Company requested and obtained a waiver of this violation from
RIMCO effective through June 30, 1997. Accordingly, the debt has been classified
as current at December 31, 1996 in the accompanying consolidated balance sheet.

Interest payments on notes to stockholders amounted to $101,012 and $178,184 in
1995 and 1996, respectively.

NOTE 6 - SERIES A PREFERRED STOCK

The Series A Preferred Stock is convertible into common stock at any time with
the number of shares issuable determined by dividing the liquidation value of
the surrendered preferred stock by $3.00. Series A Preferred Stock dividends of
$3.00 per share for every quarter of 1995 and for the first and second quarters
of 1996 were declared and subsequently paid. Preferred stock dividends are only
payable when declared by the Company's Board of Directors and the Board has no
obligation to declare any such dividends before October 2002. No dividends were
declared for the third and fourth quarters of 1996.

NOTE 7 - INCOME TAXES

The Company is subject to domestic federal and state income taxes. There were no
such taxes currently payable in 1995 or 1996 due to the Company's operating
losses. Deferred income tax assets are comprised of the following at December
31, 1996:

Tax loss carryforwards .......................... $1,905,000
Credit carryforwards ............................ 52,000
Property and equipment bases differences ........ (710,000)
Statutory depletion carryforwards ............... 765,000
Other ........................................... (13,000)
----------
1,999,000
Valuation allowance ............................. (1,999,000)
----------
$ --
==========

F - 11
<PAGE>
The income tax benefit differs from the amount of income tax determined by
applying the applicable statutory federal income tax rate to pretax loss from
operations due to the effect of net operating losses that are not currently
utilizable.

Approximately $5,602,000 of tax loss carryforwards remain at December 31, 1996.
The carryforwards expire in the following years: 2000 ($906,800); 2001
($714,100); and thereafter ($3,981,100). Additionally, approximately $2,249,000
of depletion carryforwards and $52,000 of investment tax credit carryforwards
remain at December 31, 1996. Section 382 of the Internal Revenue Code of 1986,
as amended, limits the availability of the net operating loss ("NOL") and
investment tax credit ("ITC") carryforwards if there is a change of ownership of
more than 50% of the Company within a retroactive three year period. This
limitation, if applied, would limit the utilization of the NOL and ITC
carryforwards in each taxable year to an amount equal to the product of the
federal long-term tax-exempt bond rate prescribed by the Internal Revenue
Service and the fair market value of the Company immediately prior to the time
of the ownership change. Texoil's management anticipates, however, that should a
cumulative change in ownership of Texoil in excess of 50% be deemed to occur
within a retroactive three year period in connection with any recent or proposed
securities transaction, the resulting limitation would not have a material
impact on the Company's financial position because no deferred tax asset has
been established for the Company's significant net operating loss carryforwards.

NOTE 8 - COMMITMENTS

During 1995, the Company negotiated a renewal of its agreement to lease office
space. Under the terms of the agreement, the Company received a partial year's
free rent (such free rent was from June 1, 1995 to February 1, 1996) and has the
option to terminate the lease in October 1998 by paying a one-time penalty of
$33,403. In the event this option is exercised, the approximate future minimum
payments under the terms of the lease agreement would be reduced by
approximately $214,000.

The Company's rent obligation is currently offset by the $2,356 monthly proceeds
from a sublease commencing in June 1995 and expiring in the year 2000. This
sublease arrangement reduces the Company's net lease expense to approximately
$81,000 per year. The sublease has a 90 day cancellation clause and accordingly,
the Company's future operating lease commitments in the following table have not
been reduced by the sublease rentals.

YEAR ENDING
DECEMBER 31, AMOUNT
------------ -------------
1997 $ 122,540
1998 122,540
1999 122,540
2000 91,900
-------------
$ 459,520
=============

F - 12
<PAGE>
Net lease payments made under the terms of the operating lease totaled $12,777
in 1995 and $90,769 in 1996.

As is common within the industry, the Company has entered into various
commitments and operating agreements related to exploration and the development
of and production from certain proved oil and natural gas properties. It is
management's belief that such commitments will be met without a material adverse
effect on the Company's financial position.

NOTE 9 - ISSUANCES OF COMMON STOCK, OPTIONS AND WARRANTS

The following table presents the changes in the Company's common stock accounts
since January 1, 1995:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------------ PAID-IN
SHARES AMOUNT CAPITAL
--------- ------- ---------------
<S> <C> <C> <C>
Balance, January 1, 1995 ....................................... 4,058,643 $40,586 $4,460,189
Stock issued pursuant to 1995 Stock
Compensation Plan ......................................... 77,447 775 127,096
--------- ------- ----------
Balance, December 31, 1995 ..................................... 4,136,090 41,361 4,587,285

Incremental yield on convertible
debt issued (Note 5) ...................................... -- -- 1,683,694
Stock issued pursuant to 1996 Stock
Compensation Plan ......................................... 20,983 210 28,650
--------- ------- ----------
Balance December 31, 1996 ...................................... 4,157,073 $41,571 $6,776,192
========= ======= ==========
</TABLE>
The Company has outstanding options granted to two directors to each purchase
281,384 shares of common stock at approximately $.46 per share. The options are
exercisable in blocks of at least 5,000 shares through December 31, 1999. During
1996, the Company's board of directors authorized the issuance of options to a
director to purchase 50,000 shares of the Company's common stock at an exercise
price of $1.56 per share with an expiration of June, 2006. In accordance with
the provisions of SFAS No. 123, "Accounting for Stock Based Compensation", the
Company recorded consulting expense during 1996 of $54,099 with respect to these
options. The net loss per share of common stock for the years ended December 31,
1995 and 1996 does not reflect the weighted average number of shares that would
be outstanding assuming exercise of these options as the effect of such exercise
would be anti-dilutive.

In conjunction with a public offering of the Company's common stock in 1994, the
Company issued an underwriters' warrant to purchase 75,000 units at $7.50 per
unit through May, 1999.

F - 13
<PAGE>
NOTE 10 - STOCK OPTION AND COMPENSATION PLANS

In July 1994, the Board of Directors adopted the 1994 Stock Option Plan (the
"1994 Plan"), subject to approval by the Company's stockholders. The 1994 Plan
was approved by the Company's stockholders at their annual meeting in August
1994. Pursuant to the 1994 Plan, options to purchase up to 250,000 shares of
common stock may be granted. The terms of such options are determined by the
Compensation Committee of the Board of Directors and the exercise price of
options may not be less than the market value of the common stock on the date of
the grant. In July 1994, the Company granted three officers options to purchase
an aggregate of 110,000 shares of common stock at an exercise price of $3.00 per
share and in September 1994, the Company granted an option to a non-employee
consultant to purchase 5,000 shares of common stock at an exercise price of
$3.50 per share. These options are subject to a one year vesting period. There
are no other options outstanding under the 1994 Plan. As of December 31, 1996,
none of the options had been exercised.

The 1995 and 1996 Stock Compensation Plans, which provide for the issuance of
shares of common stock to certain employees and consultants whose cash
compensation was reduced by 30% effective April 1, 1995. Pursuant to the Plans,
a total of 77,447 and 61,836 shares of common stock were issued to such
individuals in 1995 and 1996, respectively on recognition of their reduced cash
compensation and for services rendered and reimbursement of expenses incurred.
During 1995 and 1996, the Company recognized compensation, travel and consulting
expense in the amount of $127,871 and $82,700, respectively, representing the
fair market value of such shares issued in lieu of reduced cash.

The Company has elected to continue to account for stock options issued to
employees in accordance with APB opinion 25, "Accounting for Stock Issued to
Employees". In May 1996, the Company granted options to the president of the
Company at an exercise price equal to the market price of the Company's common
stock at the date of grant. Accordingly, no compensation cost was recorded as a
result of this transaction.

Effective for the year ended December 31, 1996, the Company was required to
adopt the disclosure provisions of SFAS No. 123. This statement requires the
Company to provide pro forma information regarding net income or loss applicable
to common shareholders and net income or loss per share as if compensation cost
for the Company's stock options had been determined in accordance with the fair
value assumptions used for grants in 1996 as follows: dividend yield of 0% for
all years; expected volatility of 81%; a risk free interest rate of 6.6%; and an
expected life of 5 years.

F - 14
<PAGE>
Had compensation cost for the options issued during 1996 been determined based
on the fair value at the grant date consistent with the provisions of SFAS No.
123, the Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:

Net loss applicable to common shareholders:

As reported ...................... $ 2,466,849
------------
Pro forma ........................ $ 2,494,179
------------
Net loss per share:

As reported ...................... $ (0.59)
----------------
Pro forma ........................ $ (0.60)
----------------

NOTE 11 - SUPPLEMENTAL OIL AND GAS INFORMATION

Information with respect to the Company's oil and gas producing activities is
presented in the following tables. Estimates of reserve quantities, as well as
future production and discounted cash flows, were determined by Gruy Engineering
Corporation, independent petroleum engineers, as of December 31, 1995 and 1996.

OIL AND GAS RELATED COSTS

The following table sets forth information concerning costs related to the
Company's oil and gas property acquisition, exploration and development
activities in the United States during the years ended December 31, 1995 and
1996:

1995 1996
----------- -----------
Property acquisition costs - proved .............. $ -- $ --
- unproved ............ 341,614 1,395,249
Less - proceeds from sale of prospect interests .. (636,532) (130,738)
Exploration costs, net ........................... 397,836 --
Development costs ................................ 156,863 382,373
----------- -----------
$ 259,781 $ 1,646,884
=========== ===========

F - 15
<PAGE>
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES

The following table sets forth the Company's results of operations from oil and
gas producing activities for the years ended December 31, 1995 and 1996:

1995 1996
----------- ---------
Revenues ....................................... $ 1,110,581 $ 972,739
Production costs and taxes ..................... (319,011) (275,749)
Depreciation, depletion and amortization ....... (654,125) (548,652)
----------- ---------
Results of operations before income taxes ...... 137,445 148,338
Income taxes ................................... -- --
----------- ---------
Results of operations from oil and gas
producing activities ......................... $ 137,445 $ 148,338
=========== =========

In the presentation above, no deduction has been made for indirect costs such as
corporate overhead or interest expense. No income taxes are reflected due to the
fact that the Company is not currently in a tax-paying position as well as the
fact that the deferred tax liabilities reflected in the provision for income
taxes (see Note 7), while substantially related to Texoil's oil and gas
producing activities, are more than offset by tax loss carryforwards and
depletion carryforwards applicable to the Company's oil and gas producing
activities. For the years ended December 31, 1995 and 1996, the depreciation,
depletion and amortization rate per barrel of oil equivalent of production was
$9.83 and $11.79, respectively.

OIL AND GAS RESERVES (UNAUDITED)

The following table sets forth the Company's net proved oil and gas reserves at
December 31, 1995 and 1996 and the changes in net proved oil and gas reserves
for the years then ended. Proved reserves represent the estimated quantities of
crude oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. The reserve information
indicated below requires substantial judgment on the part of the reserve
engineers, resulting in estimates which are not subject to precise
determination. Accordingly, it is expected that the estimates of reserves will
change as future production and development information becomes available and
that revisions in these estimates could be significant.

F - 16
<PAGE>
OIL GAS
------- ------
(Mbbls) (Mmcf)
Proved reserves:
Balance at January 1, 1995 ...... 354 774
Discoveries and extensions .... 8 16
Revisions of previous estimates (109) 55
Production .................... (41) (152)
---- ----
Balance at December 31, 1995 .... 212 693
Discoveries and extensions .... 17 8
Revisions of previous estimates (5) (16)
Production .................... (29) (105)
---- ----
Balance at December 31, 1996 .... 195 580
==== ====

Proved developed reserves at December 31:

1995 212 693
=== ====
1996 195 580
=== ====

Of the Company's total proved reserves as of December 31, 1996, approximately
44% were classified as proved developed "producing" and approximately 56% were
classified as proved developed non-producing. All of the Company's reserves are
located in the continental United States.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)

The standardized measure of discounted future net cash flows from the Company's
proved oil and gas reserves at December 31, 1995 and 1996 is presented in the
following table:

1995 1996
----------- -----------
Future cash inflows .......................... $ 6,670,825 $ 6,759,564
Future production costs and taxes ............ (2,114,558) (2,098,310)
Future development costs ..................... (387,054) (370,787)
Future income tax expenses ................... -- --
----------- -----------
Net future cash flows ................... 4,169,213 4,290,467
Discount at 10% for timing of cash flows ..... (1,030,991) (1,056,348)
----------- -----------
Discounted future net cash flows from
proved reserves at December 31 .............. $ 3,138,222 $ 3,234,119
=========== ===========

F - 17
<PAGE>
The following table sets forth the changes in the standardized measure of
discounted future net cash flows from proved reserves during 1995 and 1996:

1995 1996
----------- -----------
Balance at beginning of year ................. $ 3,239,989 $ 3,138,222

Sales, net of production costs and taxes ..... (791,570) (696,990)
Discoveries and extensions ................... 183,470 339,479
Changes in prices and production costs ....... 1,247,487 517,060
Revisions of quantity estimates .............. (955,000) (102,000)
Interest factor - accretion of discount ...... 323,999 313,822
Development costs incurred ................... 156,863 213,035
Changes in future development costs .......... (199,238) (451,258)
Changes in production rates and other ........ (67,778) (37,251)
----------- -----------
Balance at end of year ....................... $ 3,138,222 $ 3,234,119
=========== ===========

Estimated future net cash flows represent an estimate of future net revenues
from the production of proved reserves using current sales prices, along with
estimates of the production costs, ad valorem and production taxes and future
development and abandonment costs (less salvage value) necessary to produce such
reserves. The average prices used at December 31, 1995 and 1996 were $18.99 and
$23.43 per barrel of oil and $3.81 and $3.80 per mcf of gas, respectively. No
deduction has been made for depreciation, depletion or any indirect costs such
as general corporate overhead or interest expense.

Operating costs and production taxes are estimated based on current costs with
respect to producing oil and gas properties. Future development costs are based
on the best estimate of such costs assuming current economic and operating
conditions.

Income tax expense is computed based on applying the appropriate statutory tax
rate to the excess of future cash inflows less future production and development
costs over the current tax basis of the properties involved, less applicable
carryforwards, for both regular and alternative minimum tax (AMT). On such
basis, no regular tax or AMT resulted for either 1995 or 1996.

The future net revenue information assumes no escalation of costs or prices,
except for gas sales made under terms of contracts which include fixed and
determinable escalation. Future costs and prices could significantly vary from
current amounts and, accordingly, revisions in the future could be material.

F - 18

EXHIBIT 10.20
TEXOIL, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

TEXOIL, INC., a Nevada corporation (the "COMPANY"), hereby grants to
Reuben Medrano (the "OPTIONEE") a non-qualified stock option (the "OPTION") to
purchase a total of 30,000 shares (the "SHARES") of the Company's common stock,
par value $.01 per share (the "COMMON STOCK"), at the price determined as
provided herein, and in all respects subject to the terms and conditions of the
Company's 1994 Stock Option Plan (the "PLAN"), which is incorporated herein in
its entirety by reference and a copy of which is attached hereto. Capitalized
terms not otherwise defined in this agreement (the "OPTION AGREEMENT") shall
have the meaning given to such terms in the Plan.

1. NATURE OF OPTION. This Option is intended to constitute a non-qualified
stock option.

2. EXERCISE PRICE. The exercise price of this Option is $1.3125 per share
of Common Stock acquired on exercise.

3. TERM OF OPTION. The Committee granted this Option on May 2, 1996 and
exercised its discretion under Section 4 of the Plan to accelerate the date upon
which this Option otherwise first would be exercisable under the Plan from May
3, 1997 to November 4, 1996. This Option may not be exercised after May 2, 2006;
PROVIDED, HOWEVER, that this Option may be exercised during such term only in
accordance with the terms and conditions of the Plan and this Option Agreement,
subject specifically to Section 6 of the Plan and Sections 4 and 6 of this
Option Agreement.

4. TERMINATION OF OPTIONEE'S EMPLOYMENT. If the Optionee's employment with
the Company is terminated for reasons other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended ("Code")), or death of the Optionee, those Shares that had
vested under the terms of this Option Agreement shall remain exercisable for a
period of three months after the date of such termination of the Optionee's
employment with the Company; PROVIDED, HOWEVER, that after the expiration of
this three-month period, this Option Agreement, and the Optionee's right to
exercise any vested portion of this Option, shall terminate. If the Optionee's
employment with the Company is terminated because of the "permanent or total
disability" (within the meaning of Section 22(e)(3) of the Code) or death of the
Optionee, those Shares that had vested in accordance with this Option Agreement
shall remain exercisable for a period of one year after the date of such
termination; PROVIDED, HOWEVER, that after the expiration of one year period,
this Option Agreement, and the Optionee's right to exercise any vested portion
of this Option, shall terminate. If the Optionee's employment with the Company
terminates for Cause, this Option Agreement, and the Optionee's right to
exercise any vested portion of this Option, shall terminate at the commencement
of business on the date of such termination.

5. TERM OF EMPLOYMENT. This Option shall not grant to Optionee any right
to continue serving as an employee or consultant of the Company.

6. EXERCISE OF OPTION. This Option shall be exercisable during its term,
subject to the provisions of Sections 3 and 4 hereof and Section 6 of the Plan,
as follows:
<PAGE>
(i) VESTING. This Option cannot be exercised before November 4, 1996
when this Option shall vest and become 100% exercisable.

(ii) RIGHT OF EXERCISE. This Option is exercisable at any time
during the term of this Option Agreement, in whole or in part, to acquire those
Shares that have vested in accordance with this Option Agreement; PROVIDED,
HOWEVER, that this Option may only be exercisable to acquire whole shares of
Common Stock.

(iii) METHOD OF EXERCISE. This Option is exercisable by delivery of
this Option Agreement and a written notice to the attention of the Secretary of
the Company, no fewer than five business days before the proposed effective date
of exercise, signed by the Optionee, specifying the number of Shares to be
acquired on, and the effective date of, such exercise. The Optionee may withdraw
notice of exercise of this Option at any time before close of business on the
business day preceding the proposed exercise date, and in this instance, the
Company will return this Option Agreement to the Optionee.

(iv) METHOD OF PAYMENT. Payment of the exercise price for the Shares
purchased under this Option shall be delivered, by certified mail to the
attention of the Secretary of the Company, on the effective date of exercise
either (i) in cash, or by certified check, bank cashier's check, or wire
transfer, or (ii) subject to the approval of the Committee, in whole or in part
in shares of Common Stock owned by the Optionee and valued at their Fair Market
Value on the effective date of exercise. Such shares must be delivered to the
Secretary, duly endorsed in blank or accompanied by stock powers duly executed
in blank, and any other documents that the Secretary may require.

7. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares or the method of payment of the consideration for such
Shares would constitute a violation of any applicable federal or state
securities or other laws or regulations, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by
the Federal Reserve Board, or any rules or regulations of any stock exchange or
quotation system on which the Common Stock may be listed or quoted.

This Option may only be exercised in accordance with the terms and
conditions of the Plan and this Option Agreement. If a conflict exists between
any term or provision contained in this Option Agreement and a term or provision
in the Plan, the applicable terms and provisions of the Plan shall govern and
prevail.

8. NON-TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option may only be exercised by the Optionee. This Option is not assignable
or transferable otherwise than by will or by the laws of descent and
distribution. The Plan limits the vesting and exercise period of this Option on
the Optionee's termination of employment, "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) or death. The terms of this
Option Agreement shall be binding on the Optionee's heirs and legatees and on
the administrators and executors of the Optionee's estate.

9. INDEPENDENT LEGAL AND TAX ADVICE. The Optionee has and will obtain
independent legal and tax advice regarding the grant and exercise of this Option
and the disposition of any Shares acquired thereby.
<PAGE>
10. AMENDMENT. This Option Agreement may not be amended, modified or
waived except by a written instrument signed by the party against whom
enforcement of any such modification, amendment or waiver is sought.

11. GOVERNING LAW. This Option Agreement shall be governed by and shall be
construed and enforced in accordance with the corporate laws of the State of
Nevada as they apply to a Nevada corporation and the laws of the State of Texas.

12. SUPERSEDES PRIOR AGREEMENTS. This Option Agreement supersedes and
replaces all prior agreements and understandings, oral or written, between the
Company and the Optionee regarding the grant of an Option under the Plan on May
2, 1996 exercisable for 30,000 shares of Common Stock.

IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed effective as May 2, 1996 on its behalf by its President or a member of
the Committee, and Optionee has hereunto set his hand as of the same date, which
date is the date of grant of this Option.

TEXOIL, INC.,
a Nevada corporation

By: /s/ T. W. HOEHN, JR.
President or Committee Member

Date Signed: 6-15-96

OPTIONEE:

/s/ REUBEN MEDRANO
Reuben Medrano

Date Signed: JUNE 10, 1996

EXHIBIT 10.21

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "AGREEMENT") is made and entered into as
of this 20th day of June 1996 by and between Texoil, Inc., a Nevada corporation
(the "COMPANY"), and William F. Seagle ("GRANTEE").

W I T N E S S E T H:

WHEREAS, Grantee is a director of the Company and has been appointed by
the Company's Board of Directors to serve on a special committee thereof charged
with seeking out and considering significant transactions to maximize
shareholder value;

WHEREAS, in consideration for Grantee's service on such special committee,
the Company's Board of Directors authorized the Company to grant to Grantee an
option exercisable for 50,000 shares of the Company's common stock, par value
$.01 per share (the "COMMON STOCK"), at an exercise price of $1.5625, being the
last sales price for the Common Stock as reported in the consolidated reporting
system for NASDAQ Small Cap Issues on January 30, 1996, the date the Board of
Directors authorized the granting of such option pursuant to a written option
agreement; and

WHEREAS, Grantee desires to have the opportunity to purchase shares of the
Company's Common Stock subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:

ARTICLE 1

OPTION GRANT

1.1 GRANT OF NONQUALIFIED OPTION. Subject to the terms and conditions set
forth herein, the Company grants to Grantee the right and option to purchase all
or any part of an aggregate of 50,000 shares of Common Stock (this "OPTION").
This Option is a nonqualified stock option and not an "incentive stock option"
as that term is defined in Section 422 of the Internal Revenue Code of 1986, as
amended.

1.2 PURCHASE PRICE. The purchase price of the shares of Common Stock
covered by this Option shall be $1.5625 per share, subject to adjustment as
herein provided.

1.3 NON-TRANSFERABILITY. This Option and the rights and privileges
conferred by this Agreement unto Grantee (i) shall not be sold, transferred,
assigned, pledged or otherwise hypothecated (whether or not by operation of law)
except that this Option shall be transferable by Grantee by will or the laws of
descent and distribution, and (ii) shall not be subject to sale under execution,
attachment or similar process. Upon any attempt to sell, transfer, assign,
pledge or otherwise hypothecate this Option or any right or privilege conferred
unto Grantee by this Agreement, in breach of the provisions hereof, or upon any
attempted sale under any execution, attachment or similar process upon the
rights and privileges conferred hereby, this Option and the rights and
privileges conferred unto Grantee hereby shall immediately terminate and become
null and void. This Option may be exercised (i) only by Grantee during his
lifetime, and (ii) during the one year period following Grantee's death, only by
the person(s) who acquires this Option by will or the laws of descent and
distribution.
<PAGE>
ARTICLE 2

OPTION EXERCISE AND ADJUSTMENT

2.1 EXERCISE OF OPTION.

(a) EXERCISE. This Option may be exercised in whole or in part
for a whole number of shares of Common Stock at any time and from time to time
before June 21, 2006 when this Option shall expire unless sooner terminated as
hereinafter provided.

(b) MANNER OF EXERCISE. This Option may be exercised in whole
or in part only by delivery to the Company of written notice specifying the
number of shares of Common Stock to be purchased and accompanied by payment of
the full purchase price thereof in cash. Upon an exercise of this Option, the
Company may be required to withhold federal and local tax with respect to the
realization of compensation upon such exercise. The Company is hereby authorized
to satisfy any such withholding requirement out of (i) any cash distribution
upon such exercise and (ii) any other cash compensation then or thereafter
payable to Grantee. To the extent that the Company in its sole discretion
determines that such sources are or may be insufficient to satisfy fully such
withholding requirements, Grantee as a condition to the exercise of this Option
shall deliver to the Company cash in an amount determined by the Company to be
sufficient to satisfy fully such withholding requirements.

(c) INVESTMENT INTENT. Grantee does hereby acknowledge,
represent and agree, on his behalf and on behalf of any holder who may acquire
this Option upon Grantee's death that:

(i) the shares of Common Stock subject to this Option have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
or under any applicable state securities laws,

(ii) the Company legally cannot and shall not accept any consideration
for, or issue any shares of, Common Stock otherwise issuable upon exercise
of this Option unless the sale of such Common Stock is registered under
the 1933 Act and applicable state securities laws, or is exempt from such
registration requirements,

(iii) the Company shall be under no obligation to register the Common
Stock under the 1933 Act or any applicable state securities laws or comply
with an appropriate exemption therefrom in connection with Grantee's
exercise of this Option, or transfer or sale of Common Stock which he
acquires thereupon,

(iv) Grantee's acquisition of Common Stock upon any exercise of this
Option shall be solely for his own account for investment, and will not be
acquired for the account of any other person or with a view toward resale,
assignment, fractionalization, or distribution thereof,

(vi) since the shares of Common Stock subject to this Option have not been
registered under the 1933 Act or applicable state securities laws, Grantee
must bear the economic risk of his investment in such Common Stock for an
indefinite period of time,
<PAGE>
(vii) each certificate evidencing shares of Common Stock issuable pursuant
to any exercise of this Option will bear conspicuous restrictive legends
worded substantially as follows, in addition to any other legends required
by law or any agreement by which the Company is bound:

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH STATE LAWS OR UPON DELIVERY
TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

THE SECURITIES EVIDENCED HEREBY MAY BE DEEMED HELD BY AN AFFILIATE OF THE
ISSUER WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND THEREFORE SUBJECT TO CERTAIN RESALE LIMITATIONS IMPOSED BY
RULE 144.

Grantee and any holder who may acquire this Option upon Grantee's death shall,
upon each exercise of this Option and as a condition precedent to the issuance
of any shares of Common Stock hereunder, make the foregoing acknowledgements,
representations and agreements to the Company, and/or execute and deliver to the
Company any other acknowledgements, representations, agreements, documents or
instruments necessary to comply with the 1933 Act and applicable state
securities laws, or in lieu thereof, deliver to the Company an opinion of
counsel satisfactory to the Company that no violation of the 1933 Act and such
state laws will occur in the absence of such acknowledgements, representations,
agreements, documents and instruments.

2.2 EFFECT OF OPTION. Unless and until a certificate or certificates
representing shares of Common Stock shall have been issued by the Company to
Grantee, Grantee (or the person permitted to exercise this Option in the event
of Grantee's death) shall not be, or have any of the rights or privileges of, a
stockholder of the Company with respect to shares of Common Stock subject to
this Option. The existence of the Option granted hereunder shall not affect in
any way the right or power of the Board of Directors or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization,
or other change in the Company's capital structure or its business, any merger
or consolidation of the Company, any issue of bonds, debentures, preferred, or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, the dissolution or liquidation of the Company or any sale or transfer
of all or any part of its assets or business, or any other corporate act or
proceeding.

2.3 ADJUSTMENT.

(a) INCREASE OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION. Subject
to any required action by the stockholders of the Company, in the event of any
increase or decrease in the number of issued shares of Common Stock resulting
from a subdivision or consolidation of shares of Common Stock or the payment of
a stock dividend (but only on the shares of Common Stock), or any other increase
or decrease in the number of such shares effected without receipt of
consideration by the Company, the Company's Board of Directors or committee
thereof shall adjust the number of shares and the exercise price per share of
Common Stock subject to this Option. Conversion of any of the Company's
convertible securities shall not be deemed to have been "effected without
receipt of consideration by the Company."
<PAGE>
(b) CERTAIN MERGERS. Subject to any required action by the stockholders of
the Company, if the Company shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of which the holders
of shares of Common Stock receive securities of another corporation), this
Option, to the extent outstanding on the date of such merger or consolidation,
shall entitle the holder hereof to acquire upon exercise the securities which a
holder of the number of shares of Common Stock then subject to this Option would
have received in such merger or consolidation.

(c) CERTAIN OTHER TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, a sale of all or substantially all of the Company's
assets, a merger or consolidation involving the Company in which the Company is
not the surviving corporation or a merger or consolidation involving the Company
in which the Company is the surviving corporation but the holders of shares of
Common Stock receive securities of another corporation and/or other property,
including cash, the Company's Board of Directors or a committee thereof shall,
in its absolute discretion, have the power to:

(1) cancel, effective immediately prior to the occurrence of such
event, this Option, to the extent outstanding immediately prior to such
event, and, in full consideration of such cancellation, pay to Grantee an
amount in cash, for each share of Common Stock then subject to this Option
equal to the excess of (A) the value, as determined by the Board of
Directors or committee thereof in its absolute discretion, of the property
(including cash) received by the holder of a share of Common Stock as a
result of such event over (B) the exercise price of this Option; or

(2) provide for the exchange of this Option, to the extent
outstanding immediately prior to such event, for an option on some or all
of the property for which this Option is exchanged and, incident thereto,
make an equitable adjustment, as determined by the Board of Directors or
committee thereof its absolute discretion, in the exercise price of this
Option, or the number of shares or amount of property subject to this
Option or, if appropriate, provide for a cash payment to Grantee in
partial consideration for the exchange of this Option.

(d) OTHER CHANGES. In the event of any change in the capitalization of the
Company or corporate change other than those specifically referred to in
subsections (a), (b) or (c) of this Section 2.3, the Board of Directors or
committee thereof may, in its absolute discretion, make such adjustments in the
number and class of shares subject to this Option, to the extent outstanding on
the date on which such change occurs, and in the per share exercise price of
this Option as the Board of Directors or committee thereof may consider
appropriate to prevent dilution or enlargement of rights.

(e) NO OTHER RIGHTS. Except as expressly provided in this Agreement,
Grantee shall have no any rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class, or any dissolution,
liquidation, merger or consolidation of the Company or any other corporation.
Except as expressly provided in this Agreement, no issuance by the Company of
any securities (including, without limitation, shares of stock of any class or
securities convertible into, or exercisable for, shares of any such stock) shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to this Option or the exercise price
hereof.

ARTICLE 3

MISCELLANEOUS

3.1 NOTICES. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service,
<PAGE>
addressed to the parties hereto at the principal offices of the Company at the
address indicated beneath its signature on the execution page of this Agreement,
and also to Grantee at his address indicated beneath his signature on the
execution page of this Agreement, or at such other address and number as a party
shall have previously designated by written notice given to the other party in
the manner hereinabove set forth. Notices shall be deemed given when received,
if sent by facsimile means (confirmation of such receipt by confirmed facsimile
transmission being deemed receipt of communications sent by facsimile means);
and when delivered and receipted for (or upon the date of attempted delivery
where delivery is refused), if hand-delivered, sent by express courier or
delivery service, or sent by certified or registered mail, return receipt
requested.

3.2 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any waiver
of the terms, provisions, covenants, representations, warranties, or conditions
hereof shall be made only by a written instrument executed and delivered by the
party waiving compliance. Any waiver granted by the Company shall be effective
only if executed and delivered by a duly authorized executive officer of the
Company other than Grantee. The failure of any party at any time or times to
require performance of any provisions hereof, shall in no manner effect the
right to enforce the same. No waiver by any party of any condition or provision,
or the breach of any term, provision, representation, or warranty contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or the breach of any other term, provision, covenant,
representation, or warranty.

3.3 SUCCESSORS AND ASSIGNS. Subject to the limitations which this
Agreement imposes upon transferability of this Option and shares of Common Stock
held by Grantee, this Agreement shall be bind, be enforceable by and inure to
the benefit of the Company and its successors and assigns, and Grantee, the
beneficiaries of this estate by will or the laws of descent and distribution,
and by his permitted assigns.

3.4 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this Agreement,
each parenthetically or quoted capitalized term in the introduction, recitals
and other Sections of this Agreement shall have the meaning so ascribed to it.
Whenever the context requires, the gender of all words used herein shall include
the masculine, feminine and neuter, and the number of all words shall include
the singular and plural. References to Articles or Sections shall be to Articles
or Sections of this Agreement unless otherwise specified. The headings and
captions used in this Agreement are solely for convenient reference and shall
not affect the meaning or interpretation of any article, section or paragraph
herein, or this Agreement. The terms "hereof," "herein" or "hereunder" shall
refer to this Agreement as a whole and not to any particular Section.

3.6 DISPUTE RESOLUTION. The parties expressly intend, desire and agree
that any dispute arising out of, or in connection with any term or provision of
this Agreement shall be resolved by binding arbitration in Houston, Texas in
accordance with the Commercial Rules of the American Arbitration Association
then in effect; that judgment on the award rendered by the arbitrator(s) may be
entered in any court of competent jurisdiction; and that if any such dispute is
pending in any court, the parties agree to move that the court refer the matter
to such arbitration. The location of such arbitration in Houston, Texas shall be
selected by the Company in its sole and absolute discretion. All costs and
expenses, including attorneys' fees, relating to the resolution of any such
dispute shall be borne by the party incurring such costs and expenses.
<PAGE>
3.7 ENTIRE AGREEMENT. No agreements or representations, oral or otherwise,
express or implied, have been made by any party hereto with respect to the
subject matter hereof that are not set forth expressly in this Agreement. This
Agreement supersedes and cancels any prior agreement, arrangement or
understanding entered into between the Company and Grantee relating to the
subject matter hereof.

3.8 COUNTERPARTS. The parties may execute this Agreement in any number of
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.

[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.

COMPANY:

TEXOIL, INC.

By: /s/ RUBEN MEDRANO
Ruben Medrano, President

Address: 1600 Smith, Suite 4000
Houston, Texas 77002

Telecopy No.: (713) 652-9601

Attention: President

GRANTEE:

/s/ WILLIAM F. SEAGLE
William F. Seagle

Address: P. O. BOX 1932
CASHIERS, N. C. 28717

or: Wade Hampton Golf Club-
Telecopy No.: CASHIERS, N. C. 28717

EXHIBIT 10.22

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "AGREEMENT") is made and entered into as
of this 18th day of September 1996 by and between Texoil, Inc., a Nevada
corporation (the "COMPANY"), and J. D. Hughes ("GRANTEE").

W I T N E S S E T H:

WHEREAS, Grantee has been instrumental in making various financing
alternatives available to the Company, including the Company's recent financing
transactions with affiliates of RIMCO Associates, Inc. consummated on September
6, 1996;

WHEREAS, on July 17, 1996 the Company agreed that if any such financing
alternatives were consummated, the Company would grant to Grantee an option
exercisable for 20,000 shares of the Company's common stock, par value $.01 per
share (the "COMMON STOCK"), for five years at an exercise price of $1.25; and

WHEREAS, the Company desires to satisfy such obligation by granting such
an option to Grantee and Grantee desires to accept such satisfaction, all
subject to the terms and conditions of this Agreement.

ARTICLE 1

OPTION GRANT

1.1 GRANT OF NONQUALIFIED OPTION. Subject to the terms and conditions set
forth herein, the Company grants to Grantee the right and option to purchase all
or any part of an aggregate of 20,000 shares of Common Stock (this "OPTION").
This Option is a nonqualified stock option and not an "incentive stock option"
as that term is defined in Section 422 of the Internal Revenue Code of 1986, as
amended.

1.2 PURCHASE PRICE. The purchase price of the shares of Common Stock
covered by this Option shall be $1.25 per share, subject to adjustment as herein
provided.

OPTION EXERCISE AND ADJUSTMENT

2.1 EXERCISE OF OPTION.

(a) EXERCISE. This Option may be exercised in whole or in part
for a whole number of shares of Common Stock at any time and from time to time
before September 19, 2001 when this Option shall expire unless sooner terminated
as hereinafter provided.

(c) INVESTMENT INTENT. Grantee does hereby acknowledge,
represent and agree, on his behalf and on behalf of any holder who may acquire
this Option upon Grantee's death, as of the date hereof and as of the date of
any exercise of this Option, that:

(i) the shares of Common Stock subject to this Option have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
or under any applicable state securities laws,

(v) Grantee shall not offer for sale, sell, transfer, pledge or otherwise
hypothecate any shares of Common Stock which he acquires upon any exercise
of this Option except in accordance with the registration requirements of
the 1933 Act and applicable state securities laws or upon delivery to the
Company of an opinion of legal counsel satisfactory to the Company that an
exemption from registration is available,
<PAGE>
(vi) since the shares of Common Stock subject to this Option have not been
registered under the 1933 Act or applicable state securities laws, Grantee
must bear the economic risk of his investment in such Common Stock for an
indefinite period of time,

(vii) each certificate evidencing shares of Common Stock issuable pursuant
to any exercise of this Option will bear a conspicuous restrictive legend
worded substantially as follows, in addition to any other legends required
by law or any agreement by which the Company is bound:

Grantee and any holder who may acquire this Option upon Grantee's death shall,
upon each exercise of this Option and as a condition precedent to the issuance
of any shares of Common Stock hereunder, make or be deemed to have made the
foregoing acknowledgements, representations and agreements to the Company,
and/or execute and deliver to the Company any other acknowledgements,
representations, agreements, documents or instruments necessary to comply with
the 1933 Act and applicable state securities laws, or in lieu thereof, deliver
to the Company an opinion of counsel satisfactory to the Company that no
violation of the 1933 Act and such state laws will occur in the absence of such
acknowledgements, representations, agreements, documents and instruments.

2.3 ADJUSTMENT.

(a) INCREASE OR DECREASE IN ISSUED SHARES WITHOUT Consideration.
Subject to any required action by the stockholders of the Company, in the event
of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Company's Board of Directors or committee
thereof shall adjust the number of shares and the exercise price per share of
Common Stock subject to this Option. Conversion of any of the Company's
convertible securities shall not be deemed to have been "effected without
receipt of consideration by the Company."
<PAGE>
(b) CERTAIN MERGERS. Subject to any required action by the
stockholders of the Company, if the Company shall be the surviving corporation
in any merger or consolidation (except a merger or consolidation as a result of
which the holders of shares of Common Stock receive securities of another
corporation), this Option, to the extent outstanding on the date of such merger
or consolidation, shall entitle the holder hereof to acquire upon exercise the
securities which a holder of the number of shares of Common Stock then subject
to this Option would have received in such merger or consolidation.

(1) cancel, effective immediately prior to the occurrence of
such event, this Option, to the extent outstanding immediately prior to
such event, and, in full consideration of such cancellation, pay to
Grantee an amount in cash, for each share of Common Stock then subject to
this Option equal to the excess of (A) the value, as determined by the
Board of Directors or committee thereof in its absolute discretion, of the
property (including cash) received by the holder of a share of Common
Stock as a result of such event over (B) the exercise price of this
Option; or

(d) OTHER CHANGES. In the event of any change in the capitalization
of the Company or corporate change other than those specifically referred to in
subsections (a), (b) or (c) of this Section 2.3, the Board of Directors or
committee thereof may, in its absolute discretion, make such adjustments in the
number and class of shares subject to this Option, to the extent outstanding on
the date on which such change occurs, and in the per share exercise price of
this Option as the Board of Directors or committee thereof may consider
appropriate to prevent dilution or enlargement of rights.

(e) NO OTHER RIGHTS. Except as expressly provided in this Agreement,
Grantee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class, or any dissolution,
liquidation, merger or consolidation of the Company or any other corporation.
Except as expressly provided in this Agreement, no issuance by the Company of
any securities (including, without limitation, shares of stock of any class or
securities convertible into, or exercisable for, shares of any such stock) shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to this Option or the exercise price
hereof.
<PAGE>
ARTICLE 3

MISCELLANEOUS

3.1 NOTICES. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
the Company at the address indicated beneath its signature on the execution page
of this Agreement, and also to Grantee at his address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.

3.3 SUCCESSORS AND ASSIGNS. Subject to the limitations which this
Agreement imposes upon transferability of this Option and shares of Common Stock
held by Grantee, this Agreement shall be bind, be enforceable by and inure to
the benefit of the Company and its successors and assigns, and Grantee, the
beneficiaries of his estate by will or the laws of descent and distribution, and
by his permitted assigns.

3.5 GOVERNING LAW AND SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY
THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS. The
invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
<PAGE>
3.6 DISPUTE RESOLUTION. The parties expressly intend, desire and agree
that any dispute arising out of, or in connection with any term or provision of
this Agreement shall be resolved by binding arbitration in Houston, Texas in
accordance with the Commercial Rules of the American Arbitration Association
then in effect; that judgment on the award rendered by the arbitrator(s) may be
entered in any court of competent jurisdiction; and that if any such dispute is
pending in any court, the parties agree to move that the court refer the matter
to such arbitration. The location of such arbitration in Houston, Texas shall be
selected by the Company in its sole and absolute discretion. All costs and
expenses, including attorneys' fees, relating to the resolution of any such
dispute shall be borne by the party incurring such costs and expenses.

3.7 ENTIRE AGREEMENT. No agreements or representations, oral or otherwise,
express or implied, have been made by any party hereto with respect to the
subject matter hereof that are not set forth expressly in this Agreement. This
Agreement supersedes and cancels any prior agreement, arrangement or
understanding entered into between the Company and Grantee relating to the
subject matter hereof.

3.8 COUNTERPARTS. The parties may execute this Agreement in any number of
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.

[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.

COMPANY:

TEXOIL, INC.

By: /s/ RUBEN MEDRANO
Ruben Medrano, President

Address: 1600 Smith, Suite 4000
Houston, Texas 77002

Telecopy No.: (713) 652-9601

Attention: President

GRANTEE:

/s/ J. D. HUGHES
J. D. Hughes

Address: 3303 NORTHLAND, NO. 200
AUSTIN, TX 78731
Telecopy No. 512-467-2424

EXHIBIT 10.23

PARTICIPATION AGREEMENT

THIS PARTICIPATION AGREEMENT (the "Agreement") is made and entered into on
the 3RD day of JANUARY 1997 by and between Texoil, Inc., a Nevada corporation
(the "Company"), and the undersigned participant ("Participant"), pursuant to
the Company's Amended and Restated 1996 Stock Compensation Plan, as may be
amended (the "Plan").

WHEREAS, Participant currently is eligible to participate in the Plan;

WHEREAS, Participant desires to participate in the Plan for so long as he/she
is eligible to participate in the Plan, subject to the terms and conditions of
the Plan and this Agreement; and

WHEREAS, the Company desires to accept Participant's election to participate
in the Plan.

NOW, THEREFORE, for and in consideration of the premises, and the mutual and
dependent promises contained herein, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:

1. Participant acknowledges that the Company has delivered to
Participant a copy of the Plan. Participant represents to the Company that
he/she has read the Plan, has had an opportunity to ask questions of the Company
and his/her tax and legal counsel concerning the Plan, and understands the Plan
and participation therein.

2. Participant hereby elects to participate in the Plan subject to the
terms and conditions of the Plan and this Agreement. Participant agrees to be
bound by the Plan's terms and conditions and conduct his/her participation in
the Plan in accordance therewith.

3. By its execution hereof, the Company accepts Participant's election
to participate in the Plan in accordance herewith and therewith.

4. This agreement is not an employment agreement and creates no express
or implied employment relationship between the Company (or any of its
subsidiaries) and Participant.

5. This Agreement shall be governed by the internal laws, and not the
laws of conflict, of the State of Texas.

6. This Agreement may be executed in one or more counterparts, each of
which is an original and all of which together constitute one and the same
instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.

TEXOIL, INC. PARTICIPANT

By: /s/ RUBEN MEDRANO /s/LYNN W. GRAVES
PRESIDENT AND CEO LYNN W. GRAVES
[Printed Name and Title] [Printed Name of Participant]

EXHIBIT 10.24

PARTICIPATION AGREEMENT

WHEREAS, Participant currently is eligible to participate in the Plan;

WHEREAS, Participant desires to participate in the Plan for so long as he/she
is eligible to participate in the Plan, subject to the terms and conditions of
the Plan and this Agreement; and

WHEREAS, the Company desires to accept Participant's election to participate
in the Plan.

1. Participant acknowledges that the Company has delivered to Participant a
copy of the Plan. Participant represents to the Company that he/she has read the
Plan, has had an opportunity to ask questions of the Company and his/her tax and
legal counsel concerning the Plan, and understands the Plan and participation
therein.

2. Participant hereby elects to participate in the Plan subject to the terms
and conditions of the Plan and this Agreement. Participant agrees to be bound by
the Plan's terms and conditions and conduct his/her participation in the Plan in
accordance therewith.

3. By its execution hereof, the Company accepts Participant's election to
participate in the Plan in accordance herewith and therewith.

4. This agreement is not an employment agreement and creates no express or
implied employment relationship between the Company (or any of its subsidiaries)
and Participant.

5. This Agreement shall be governed by the internal laws, and not the laws of
conflict, of the State of Texas.

6. This Agreement may be executed in one or more counterparts, each of which
is an original and all of which together constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.

TEXOIL, INC. PARTICIPANT

By: /s/ RUBEN MEDRANO /s/WALTER L. WILLIAMS
PRESIDENT AND CEO WALTER L. WILLIAMS
[Printed Name and Title] [Printed Name of Participant]

EXHIBIT 10.25