XSTATE RESOURCES LIMITED — Capital/Financing Update 2016

Nov 14, 2016

ABN 96 009 217 154

Electronic lodgement

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15 November 2016

ASX Announcement

Los Angeles Basin Oil Field Acquisition Update

• Xstate is acquiring low cost reserves that will become cheap flowing barrels over time.

• Proven (1P) reserves of 6.2Mmboe and Proven & Probable (2) reserves of 9.9Mmboe net to Xstate that have been independently certified by respected global firm Netherland, Sewell & Associates, Inc.

• The implied reserve acquisition multiple based on 1P reserves is an attractive US$2.10/bbl.

• The implied per flowing barrel metric is anticipated to be US$56,750 per flowing bbl at Closing assuming 1,100 barrels of oil per day of gross production (“bopd”).

• The Sansinena field has significant existing strategic infrastructure for future planned production growth and associated real estate property that can be sold to fund planned development costs.

• Subject to due diligence, Xstate considers the price reflects outstanding value for existing reserves and production with high potential upside, particularly associated with the low risk infill drilling program.

Xstate Resources Limited (ASX:XST) (“Xstate” or “the Company”) is pleased to provide an update and further material information in regards to the Los Angeles Basin Oil Fields transaction announced on 4 November 2016.

The Xstate Board and management consider the proposed transaction to be a transformational event for the Company. The acquisition of the Sansinena oil field provides shareholders with immediate production, cash flow and low cost reserves that have been certified by Netherland, Sewell & Associates, Inc. (NSAI), one of the most respected global firms in independent reserves reporting.

Xstate is acquiring access to value accretive production based on future production growth. The implied per flowing barrel metric is anticipated to be US$56,750 at financial close, assuming production of 1,100 gross bopd.

The joint venture has plans to grow production to 2,000‐5,000 gross bopd from future cash flows in the medium to long term. Existing infrastructure at Sansinena is sufficient to support production at the upper end of this range.

Sansinena is a world‐class asset with significant development drilling upside that represents a multi‐ year drilling opportunity in conventional oil wells. The new Operator, Matrix Oil Corp., has identified numerous production enhancement opportunities and has gained access to significant reserves by lowering LOEs and drilling costs.

Importantly these costs reductions are sustainable and will allow the joint venture to target a vast number of new Proven Undeveloped (PUD) infill drilling locations. It is important to note these PUD targets aren’t exploration targets but rather identified wells targeting proved productive undrained reservoirs.

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

15 November 2016

ASX Release – LA Basin Oil Fields Acquisition

Development drilling is currently underway to substantially increase production from current levels (500bopd as at 31 October 2016) to +1,100bopd by financial close based on existing well enhancements and three new in‐fill wells (PUDs).

An investor briefing pack containing further details of the acquisition forms part of this announcement.

For and on behalf of the Board of Xstate Resources Limited

Media/Broker Enquiries

Further Information Media/Broker Enquiries Cosimo Damiano Luke Forrestal/Andrew Rowell Managing Director Cannings Purple +61 8 9423 3200 0411 479 144/0400 466 226 cosimodamiano@xstate.com.au lforrestal@canningspurple.com.au/ arowell@canningspurple.com.au

About Xstate Resources Limited

Xstate Resources (ASX Code: XST) is an ASX listed company focused on the oil and gas sector. The Company has existing gas exploration assets located in the Sacramento Basin, California and minor associated gas production.

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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LA BASIN OIL FIELDS ACQUISITION

LONG-LIFE PRODUCTION ASSETS IN CALIFORNIA WITH MATERIAL RESERVES BASE

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Investor Briefing Pack

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November 2016

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Disclaimer
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Extent of Information

This document has been prepared by Xstate Resources Limited (“Xstate” or “Company”). This Presentation, including the information contained in this disclaimer, does not constitute an offer, invitation or recommendation to subscribe for or purchase any security and neither the Presentation, disclaimer nor anything contained in such forms the basis of any contract or commitment. This Presentation does not take into account your individual investment objective, financial situation or particular needs. You must not act on the basis of any matter contained in this Presentation but must make your own assessment of the Company.

No representation, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information contained in this Presentation, including the accuracy, likelihood of the achievement or reasonableness of any forecast, prospects, returns or statements in relation to future matters contained in the Presentation (“Forward-looking statements”). Any such forward-looking statements that are contained in this Presentation or can be implied by the same are by their nature subject to significant uncertainties and contingencies associated with the oil and gas industry and are based on a number of estimates and assumptions that are subject to change (and in many cases are outside the control of Xstate Resources and its directors) which may cause the actual results or performance of Xstate to be materially different from any future results or performance expressed or implied by such forward-looking statements.

To the maximum extent permitted by law, none of Xstate’s, or related corporations, directors, employees, agents nor any other person accepts any liability, including without limitation arising from fault or negligence, for any loss arising from use of this Presentation or its content or otherwise arising in connection with it.

Exclusion of Financial Product Advice

This Presentation is for information purposes only and is not a prospectus or other offering under Australian law or under any others laws in the jurisdictions where the Presentation might be available. Nothing herein constitutes investment, legal, tax or other advice. This Presentation is not a recommendation to acquire shares and has been prepared without taking into account the investment objectives, financial situation or needs of individuals.

Independent Advice

You should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and seek appropriate advice, including, legal and taxation advice appropriate to your jurisdiction. Xstate is not licensed to provide financial advice in respect of its shares.

LA Basin Oil Fields Acquisition

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Los Angeles Basin Oil Fields Acquisition
Transaction Highlights
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• Xstate has entered into a Letter of Intent to acquire a working interest in two producing oil fields with materially undervalued reserves located in the prolific Los Angeles Basin.

• Transaction Details:

• Two Oil Fields:

  • Sansinena and East Los Angeles;

• Equity Interest: - 24.5% (Working) / 20.8% (Net Revenue);

• Acquisition Cost: - US$13.0MM; and

• o Key Dates: - Financial close, 3/2/2017 with effective date 1/11/2016.

• The acquisition portfolio includes the following based on an Independent Audit: o Reserves Range (gross): 1P of 25.3 Mmboe; 2P of 40.2 Mmboe; and 3P of 64.5 Mmboe[1] ; o Existing low cost oil production: ~500 gross bopd and growing[2] ;

• Near term estimated oil production growth: +1,000 gross bopd by financial close[3] ;

• Medium term estimated oil production growth: +2,000 – 3,000 gross bopd 2018/2019; and

• Significant and strategic infrastructure assets and associated real estate property.

• The assets provide Xstate with low risk production growth and access to a large reserves base at a low cost in line with the Company’s stated growth strategy.

Source:[1 ] Netherland Sewell & Associates (NSAI) as September 30, 2015. Any Reserves booking by Xstate is subject to the completion of the Purchase Sale Agreement and will be made as part of separate reporting;[2] Production as at 31 October 2016;[3] Matrix Oil Corp estimates

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Los Angeles Basin Oil Fields Acquisition
Financial Metrics
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US$13.0MM

• Acquisition Cost

• Material certified independent Reserves at Sansinena acquired at an attractive price:

Net to Xstate	Oil & Gas1 (Mmboe)	Acquisition Multiple US$/boe	NPV102 (US$MM)
Proven	6.2	$2.10	$49.6
Proven & Probable	9.9	$1.32	$80.9
Proven, Probable & Possible	15.8	$0.82	$108.1

• Per flowing barrel (“bbl”) metric forecast at financial close:

o Forecast production net to Xstate US$56,750 per flowing bbl (1,100 bopd gross[3] )

• Subject to due diligence, Xstate considers the price reflects outstanding value for existing reserves and production with high potential upside, particularly associated with the low risk in-fill drilling program.

Source:[1 & 2 ] Netherland Sewell & Associates (NSAI) as September 30, 2015. Any Reserves booking by Xstate is subject to the completion of the Purchase Sale Agreement and will be made as part of separate reporting

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Los Angeles Basin Oil Fields Acquisition
Sansinena Net Reserves to Xstate’s 24.5% WI
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Net Xstate Working Interest (“WI”) Reserves
Category
NSA September 2015
Oil (Mbbl) Gas (MMcf) Total (Mboe) NPV10 ($MM)
Proven Developed Producing 511 589 609 $2.9
Proven Developed Non Producing 173 171 202 $1.3
Proven Undeveloped 4,418 5,853 5,394 $45.4
Total Proven (1P) 5,103 6,613 6,205 $49.6
Probable 2,955 4,189 3,653 $31.3
Total Proven & Probable 8,058 10,802 9,858 $80.9
Possible 4,835 6,703 5,953 $27.2
Total Proven, Probable & Possible 12,893 17,505 15,811 $108.1
Proven Reserves Proven Reserves Reserves NPV10 (US$MM) By
by Category by Commodity by Category Reserves Category
PDP
PDP PDNP
1P 3%
10% Gas 1%
PDNP 18% 19%
Possibl
3%
e
25%
6.2 MMboe 6.2 MMboe 15.8 MMboe US$108MM
3P
PUD
50%
Probab 42%
PUD Oil 2P le
82%
87% 31% 29%
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Los Angeles Basin Oil Fields Acquisition
Sansinena Proven Production Outlook (NSA Estimates [1] )
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Sansinena Proven Production Outlook – barrels of oil per day
6,000
1P ~5,200 bopd
5,000
4,000
3,000
Forecast
Production
2,000
1,000
Current
Production
-
Time Scale Period (“P”) Month
Daily Production (bopd)
P1 P6 P11 P16 P21 P26 P31 P36 P41 P46 P51 P56 P61 P66 P71 P76 P81 P86 P91 P96 P101 P106 P111 P116 P121 P126 P131 P136 P141 P146 P151 P156 P161 P166 P171 P176 P181 P186 P191 P196 P201 P206 P211 P216 P221 P226 P231
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Source:[1 ] Netherland Sewell & Associates (NSAI) as September 30, 2015; Note P1 = October 2016

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Los Angeles Basin Oil Fields Acquisition
Forward Plan for Transaction
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• Financial close targeted by February 3, 2017.

• Effective date is November 1, 2016.

• Acquisition is subject to customary due diligence and mutually satisfactory Purchase and Sales Agreement.

• Reserves to be booked following completion of financial close.

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Indicative Timetable
Nov 2016 Dec 2016 Jan 2017 Feb 2017
Week 1 Week 2 Week 3 Week 4 Week 1 Week 2 Week 3 Week 4 Week 1 Week 2 Week 3 Week 4 Week 1
Due Diligence
Phase 1
Purchase & Sales
Agreement
Deposit Paid
Due Diligence
Phase 2
Notice of Meeting
Dispatched
Shareholder
Meeting
Closing
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Appendix
Los Angeles Basin - Field Location Map
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East Los Angeles
Sansinena
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Source: U.S.G.S; April 2012

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Appendix
Sansinena Field Location Map
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• The Sansinena oil field is located east of the City of Los Angeles, on trend to the Whittier West, Whittier Main and Brea fields.

• Sansinena is 3 miles long, approx. 3,450 acres HBP and includes 100 freehold acres.

Source: Matrix Oil Corp. Represent Drilling Pad locations.

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Appendix
Sansinena Field Highlights
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• Sansinena is a world-class asset with that a significant development drilling upside represents

• multi-year drilling opportunity in conventional oil wells.

• –

• Upside in large contiguous position Sansinena is 3 miles long and ~3,450 gross acres HBP.

• Long-life production profile - estimated +50 years of remaining production.

• –

• Low recovery factor to date 60 years of shallow vertical drilling has recovered a mere 7.3% (60 mmbo of production) of OOIP (830 MMboe[1] ); fields in the LA Basin typically recover 20%.

• Significant resource base – potentially +100 MMbbl of recoverable oil[2] . The operator is targeting a minimum 25 MMboe of Proven recoverable oil reserves in its low case.

• Existing pipelines & processing infrastructure to support production growth. Includes ownership and access to 10 strategic drilling pad locations and access to a nearby gas storage facility.

• –

• Surplus real estate ~100 acres of non-core real estate that could be sold to fund future development.

• Current production ~575 boepd[3] ; 60% oil and 40% water cut; low natural decline of 2.5% to 3.0% per annum.

• Significant oil column with associated gas, 4,000 feet thick in multiple reservoirs (crude quality 15-32 API).

• –

• Experienced operator Matrix Oil Corp. is an established basin operator with existing operations in the area and a track record of creating value in California.

1 Californian Division of Oil, Gas, and Geothermal; 2 Matrix Oil Corp estimates; 3 Californian Division of Oil, Gas, and Geothermal.

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Appendix
Sansinena - Opportunities Beyond Current Production
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• 54 active wells producing approx. 575boepd (as of 31/10/2016); 60% oil.

• 44 identified RTP (Return to Production) Wells.

• These RTPs are of a and Maintenance In the PDP base and in a typically part Repair program.

• normal environment, the prior operator would have been unlikely to leave wells shut in. But given their bank covenants, they faced restrictions on capital expenditure.

• In addition to the RTP wells, Matrix has identified 20 wells with Behind Pipe potential.

• Capital cost for the recompletion is US$70,000/well (5 projected in 2016) and a number have already been completed exceeding Matrix’s expectations.

• Proven Undeveloped (PUD) upside: 70 new in-fill drilling locations identified into proved productive undrained reservoirs to increase production and reserves. This is not exploration. o US$1.1 million drilling and completion costs (was US$1.7 million)

• 58 of the PUDs have IP of 175 BO/d and 300 MBO EUR

• Development drilling underway to substantially increase production from current levels to +1,100 bopd by financial close based on existing well enhancements and three new in-fill wells.

• Operating Permits allow wells to be re-drilled at any time.

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Appendix
Sansinena Modeled Resources – Matrix estimates
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Most likely case, 20% recovery factor

• Total STOOIP, all Miocene reservoirs 846.1MMboe (up to 1100’ from wells)

• Total STOOIP between 250’ and 1100’ from wells = 507MMboe

• @20% recovery factor= 101.4 MMboe incremental recoverable (5 acres spacing)

Worst case, 10% recovery factor

• Total STOOIP, all Miocene reservoirs 846.1MMboe (up to 1100’ from wells)

• Total STOOIP between 500’ and 1100’ from wells = 221MMboe

• @10% recovery factor= 22.1MMboe incremental recoverable (20 acres spacing)

Producing Interval (MMboe)	P50 Model STOOIP	Recoverable Resources (10% Recovery)	Recoverable Resources (20% Recovery)
Miocene C	241.6	24.2	48.3
Upper Miocene D	203.7	20.4	40.7
Lower Miocene D	400.8	40.1	80.2
Total Resources	846.1	84.6	169.2
Prior Production		(60.8)	(60.8)
Remaining Recoverable Resources		23.8	108.4

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Appendix
Sansinena Non-Core Assets – Beyond Oil Production
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• Over US$8 million invested in surface infrastructure since 2007.

• Improvements include replacing storage tanks, vessels holding pressure, vapor recovery systems, and natural gas processing equipment, significantly decreasing future maintenance capex requirements.

• Approximately 5 years after acquiring the underground mineral rights, the former operator acquired 83 acres (in addition to 13 previously owned) in the city of La Habra Heights.

• The land was appraised for $9.1MM in 2010 and the prior operator purchased this surface .

• acreage in 2011 for approximately $11.5MM[1]

• Surplus real estate, including 6 acres where the current employee field office resides, could be sold to residential real estate developers.

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Sansinena Field Office
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Sansinena Road Access Field Office

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1 Matrix Oil Corp

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Appendix
Sansinena Field Photos
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Sansinena Drill Pad & Tanks Sansinena Field Office Sansinena Drill Pad
Sansinena Tanks Sansinena Road Access Field Office Sansinena Drill Pad
Sansinena Tanks Sansinena Drill Pad Sansinena Drill Pad
Source: Matrix Oil Corp.
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Appendix
Defined Terms Used in Presentation
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“boe” is defined as barrel of oil equivalent, using the ratio of 6 mcf of Natural Gas to 1 bbl of Crude Oil. This is based on energy conversion and does not reflect the current economic difference between the value of 1 MCF of Natural Gas and 1 bbl of Crude Oil.

Capital costs used in this report were provided by Xstate and are based on authorizations for expenditure and actual costs from recent activity.

“EUR” defined as estimated ultimate recovery.

Future net revenue is after deductions for Xstate's share of production taxes, ad valorem taxes, capital costs, and operating expenses but before consideration of any income taxes. “NPV10” is defined as the discounted Net Revenues of the Company’s reserves using a 10% discount factor.

“m” is defined as a thousand.

“mm” or “MM” are defined as a million.

“mboe” is defined as a thousand barrels of oil equivalent.

“mmboe” is defined as a million barrels of oil equivalent.

Operating costs used in this report are based on operating expense records provided by Matrix.

Reserves are estimated in US dollars.

“1P Reserves” or “Proved Reserves” are defined as Reserves which have a 90% probability that the quantities actually recovered will equal or exceed the estimate.

“PUDs” or “Proved Undeveloped Reserves” and “PDP” and Proved Developed Producing” are defined as Proved developed and Undeveloped Reserves which have a 90% probability that the quantities actually recovered will equal or exceed the estimate (respectively).

“Probable Reserves” are defined as Reserves that should have at least a 50% probability that the actual quantities recovered will equal or exceed the estimate.

“2P Reserves” are defined as Proved Reserves plus Probable Reserves.

“Possible Reserves” are defined as Reserves that should have at least a 10% probability that the actual quantities recovered will equal or exceed the estimate.

“3P Reserves” are defined as Proved Reserves plus Probable Reserves plus Possible Reserves.

“WI” is defined as Working Interest

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Contact Details
Xstate Resources Limited
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For further information please contact

Cosimo Damiano

Media/Broker Enquiries

Managing Director

Email: cosimodamiano@xstate.com.au

Luke Forrestal

Cannings Purple

Registered Corporate Office – Australia

Level 2, 55 Carrington Street Nedlands W.A. 6009 Tel: +61 8 9423 3200 Fax: +61 8 9389 8327

Mobile: +61 (0) 411 479 144 Email: lforrestal@canningspurple.com.au

Andrew Rowell

Cannings Purple

Australia - Postal Address

PO Box 985 Nedlands W.A. 6909

Mobile: +61 (0) 400 466 226 Email: arowell@canningspurple.com.au

USA Corporate Office

3585 Maple Street, Suite 234 Ventura CA 93003

Internet: www.xstate.com.au

LA Basin Oil Fields Acquisition

November 2016