XSTATE RESOURCES LIMITED — Capital/Financing Update 2015

Mar 11, 2015

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ABN 96 009 217 154

12 March 2015

ASX Limited

Electronic lodgement ASX Code: XST

Dear Shareholders

Please find attached a Corporate Update.

The purpose of the Update is to provide clarification on recent activities.

Key points are:

XST continues to have a clear strategy and future plan:

• To secure a suitably funded farminee

• To finalise leasing of prospective land

• To drill a portfolio of prospects with diversity and materiality as soon as possible

XST and AOC (Australian Oil Company) are JV partners and have an AMI agreement

• Both companies share a common view on prospectivity and strategy

• AOC has strong technical expertise and was responsible for bringing the California opportunity to XST

• AOC has the Operating and business contacts in the USA

• Corporately, both companies act completely independently enabling Mr Hodge and Mr Tchacos to promote the interests of Xstate shareholders

Both XST and AOC have been working hard to secure a farmin partner

• The market is very tight at present due primarily to the low oil price

• Very few companies are taking on new projects

• Nevertheless, both companies are confident that a partner will be secured

It is important to note that XST is also working hard to ensure that Cash is preserved. In part this is achieved by reducing costs to a minimum. For example, total Directors payments are less than $150,000.

Importantly for the longer term success of the Company, XST has access to a highly skilled and experienced management resource at a very low fixed cost.

If you have any questions or concerns about the Company’s strategy and outlook, please feel free to call me.

On behalf of the Board of Directors

Chris Hodge Managing Director

+61 8 9226 0866

Level 2, 55 Carrington Street, Nedlands WA 6009 Tel + 61 8 9423 3200 Fax +61 8 9389 8327 www.xstate.com.au

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XST

Xstate Resources Limited

Positioned for Success in a low oil price environment

Corporate Update

12 March 2015

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Portfolio of TCF–scale Prospects Onshore California

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Corporate Information
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Shares on Issue ~180 million Unlisted Options 17.0 million at 6-10 cents expire 31/12/15 19.5 million at 4-8 cents expire 31/05/16 2.5 million at 5 cents expire 31/12/16 Top 10 shareholders 35% Top 20 shareholders 48% Directors >5% Directors Chris Hodge: Managing Director Ian Tchacos: Independent NED David McArthur: NED & Company Secretary Cash $400,000

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Note: Directors are no longer part paid in shares . Total of all payments to Directors is currently <$150,000 p.a.

1 year price chart for XST (red) versus the Energy Index (blue)

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The Xstate Board and Operating Philosophy
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Xstate has a small but highly experienced Board with complementary skills

• Chris Hodge (MD) is a structural geologist and petroleum geophysicist by training. Over a career spanning 35 years he has occupied senior positions at Ampolex (exploration and country manager), Adelphi Energy (MD), Eureka Energy (Advisor) and Roc Oil (Director). Each of these companies was successful during Chris’ tenure and each was ultimately taken over. In addition he has consulted to both Mitsui and Mitsubishi where he assisted in the building of exploration portfolios and making significant wildcat oil discoveries.

• David McArthur (NED and Company Secretary) is a Chartered Accountant, having spent four years with a major international accounting firm, and has over 30 years' experience in the accounting profession. Mr McArthur has been actively involved in the financial and corporate management of a number of public listed companies over the past 27 years. He has substantial experience in capital raisings, company re-organisations and restructuring, mergers and takeovers, and asset acquisitions by public companies. Mr McArthur is an executive director of Lodestar Minerals Limited and Renewable Heat and Power Limited, and is Company Secretary for a number of public listed companies

• Ian Tchacos (NED) is a mechanical engineer with over 25 years international experience in corporate development and strategy, mergers and acquisitions, exploration, development and production, operations, marketing and finance. He has a proven management track record in a range of international company environments. In his last appointment as Managing Director of Nexus Energy he was responsible for the company's development from an onshore micro cap explorer to an ASX top 200 onshore production and operator. Mr Tchacos is currently non-executive Chairman of both ADX Energy Limited and Riedel Resources Limited

Xstate’s Operating Philosophy for its California Assets is to jointly utilise aligned consultants and contractors with its AMI partner Australian Oil Company (AOC).

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Portfolio of Assets ~19,000 leased acres (100%)
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							XST (current) WI	XST (with Option) WI **	Prospective Resource (100%)
		Basin
						Sacramento Gas
						#Alvares Appraisal	25%	25%	>2 TCF
						# Gas production	10%	25%	[0.6 mmcfgpd]
						#Dempsey	10%	25%	1 TCF
						# Strat Play on 3D	10%	25%	>0.5 TCF
						Alvares Analogues (3)	30%	30%	~6 TCF (total)
						Dempsey Analogues (2)	30%	30%	~2 TCF (total)
						Prospects on 3D (3)	10%	25%	~2 TCF (total)
						Well deepening	10%	25%	80 BCF
						Water Injection Project	13.25%	13.25%	~4,000bwpd
						Santa Maria Oil
						# Porters Ranch	22.5%	22.5%	10 mmbbls
Oil:Santa Maria Basin	Oil:Santa Maria

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Oil: Santa Maria
Basin
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** XST has the option to increase its WI to 25% in the gas prospects.

indicates prospect is leased – remaining prospects are in the process of being leased

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California Strategy – prolific old basins, new ideas
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Why California?

• Proven and prolific conventional petroleum systems and production history

• Well information, seismic data and drilling services readily available

• With good people and our history and operating experience we have the ability to find overlooked opportunities

Strategy

• Innovative geological and geophysical interpretation to identify prospects

• over

• Take up ground floor land positions prospects and prospective trends

• Build a prospect portfolio with materiality, diversity and follow-up potential

• Secure funding for drilling via farmout

• Position company to maximise value from success

• Inexpensive lease and drilling costs

• Strong gas market and infrastructure

In the current low oil price environment XST continues to seek a suitable farminee – at the same time prudently managing its cash.

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Area of Mutual Interest (AMI) with AOC
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AMI with AOC

• Xstate has an AMI with Australian Oil Company (AOC) in California

• Shared strategy and outlook

• XST is 30% & AOC is 70% and Operator

• Shared Perth office and administration allows overheads to be kept to a minimum…..

• …with drilling and leasing operations lead by a very experienced local JV operator with whom AOC and XST has a long-standing relationship

Chart showing 2-year share price comparison between XST and AOC

The AMI with AOC is similar to a Joint Venture in that both companies share a common view on prospectivity and strategy yet retain corporate independence. AOC as Operator provides the Technical and Operating capability . This close relationship is reflected in the relative share price between the 2 companies.

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The Sacramento Basin
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Sacramento
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• Up to 10km Jurassic to recent marine and nonmarine siliclastics

• Producing reservoirs Late Cretaceous, Paleocene and Eocene

• Produced ~11TCF+ 15mmbo

• 47 discovered accumulations

• Largest field Rio Vista 3.5 TCF

• • Upper Cretaceous to Pliocene aged reservoirs

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Source USGS website
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From an extensive geological database, high potential geological trends have been identified - typically adjacent to or deeper than existing gas fields

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San Francisco
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Some of the prospects are considered to have low geological risk because they rely on offsetting and/or re-entering wells with extensive shows of gas in conventional reservoirs that were not considered significant at the time of drilling in the 1940 – 1980’s

Source: Oil and Gas Journal

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Tehama Early Cretaceous Basin – our technical edge
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Historical Sacramento Gas
Basin and Production
Depth of current drilling
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= the Tehama sub-basin

The Tehama-sub Basin contains the play types that XST is chasing – older but not deeper and under-explored.

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Alvares Appraisal Project - >2 TCF 25% equity
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http://www.cirqueresources.com/
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The AMI’s Alvares Project is on trend 50km from the geologically similar multi-Tcf Tulainyo Project which is to be drilled by CRC (California's largest oil and gas company).

Alvares and Tulainyo are very large geologically similar structures - drilled in 1982 and 1947 respectively. Both wells had extensive gas shows and both wells flowed gas to surface.

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Alvares
(XST) Dempsey
(XST)
Tulainyo -1
(a redrill of James -1 by
CRC. Result is being
kept confidential)
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Alvares -1 Gas Discovery
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• The Alvares -1 gas discovery was drilled within mapped closure over 30 years ago

• Intersected >1,500 metres of strong gas shows below 2,500 metres and flowed pipeline quality gas to surface

• • Conventional clastic reservoirs

Wet sands - outside of closure Thick Seal Interpreted Gas Column 17# Mud masks shows with core and gas sample

• Best estimate deterministic prospect resource >2TCF

• High chance of commercial success (Pc) of 60%

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Alvares 1
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Easy access to drill site – open ranch land

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Dempsey Prospect - 1 TCF gas exploration well – 7 reservoir targets
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XST 10% equity - option to increase to 25% Individual reservoirs 80 – 3,700 acres

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Mapped from 3D seismic
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Santa Maria Basin
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• Porter Ranch Project (XST 22.5%)

• Covers 2 large surface anticlines

• Naturally “shattered” Monterey reservoir at a depth of <1,500m

• Prospective resource size (mean) ~10mmbbls

  • recoverable - updip from recovered oil

• Old oil wells in the area confirm the presence of oil saturated Monterey

• Principle risk is the ability of Monterey to flow at commercial rates

• Follow-up undrilled anticlines

• Cost to drill ~$1mm

• Currently finalising Government approvals

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Porter
Ranch
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Source: http://www.csulb.edu/~nonderdo/Santa_Maria_Basin.html

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2015 Activity
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• Secure farmin partner for Dempsey and Alvares prospects

• CRC drilled Alvares lookalike well “Tulainyo” in late 2014. This result is confidential but XST will continue to collect scouting data

• Potentially exercise option to secure additional interests over Dempsey (?) and other 3D prospects

• Continue to generate new prospects and lease land

• Generate new prospects / farmout

• Drill Dempsey (~1 TCF gas – via farmout)

• Drill Alvares (>2 TCF gas – via farmout)

• Drill Porter Ranch (~10mmbbls oil – via farmout or drill at equity)

A diverse portfolio of prospects

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Conclusions
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• Targeting low risk and/or multi -TCF prospects in California

• Several prospects identified - fully or partially leased

• 2 high value prospects in the process of being farmed out

• Building a prospect portfolio with diversity, materiality and follow-up potential

• Several value catalysts through 2015

Contact Info Chris Hodge Ph: +61 8 9226 0866 Chris.Hodge@Xstate.com.au

This presentation contains forward looking statements that are subject to risk factors associated with the oil and gas industry. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a many variables which could cause actual results or trends to differ materially. The technical information provided has been reviewed by Mr Chris Hodge, Managing Director of Xstate Resources Limited. He is a qualified geologist with over 30 years technical, commercial and management experience in exploration for, appraisal and development of oil and gas. Mr Hodge consents to the inclusion of the information in the form and context in which it appears.

In accordance with ASX Listing Rules, any new hydrocarbon resource information in this document has been reviewed by Australian Oil Company’s Technical Director, Mr Keith Martens, who has over 35 years of experience in the sector, with 15 years of experience in working in North America. Mr Martens is a qualified resources evaluator and consents to that information being included in the form and context in which it appears. Before investing it is recommended that you conduct your own due diligence and consult financial and technical advisors.