XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2017

Oct 30, 2017

ABN 96 009 217 154

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31 October 2017

ASX Limited

Electronic lodgement

September 2017 Quarterly Activity Report

Summary

• Successful private placement to sophisticated investors in Australia raised $752,378 (before costs) post completion of September quarter.

• Dempsey 1‐15 (XST 10% WI) exploration drilling activities have been completed and production testing with a completion rig expected to commence in early November 2017.

• The Dempsey 1‐15 well encountered several gas saturated sands consistent with significant gas shows.

• Ongoing success at Dempsey 1‐15 will enhance the potential of follow up leads and prospects along the Dempsey trend in which Xstate has significantly greater working interest (24%).

• Planning is underway to determine how best to evaluate the 1,500 metres of gas shows encountered in the Alvares ‐1 well.

• Xstate’s summary judgment application against Tanzil Hidayat, Chloe Kowk Yun Qing, Hong Hung Thiam and Kevin Lim Gunawan seeking damages for the non‐payment of A$25 million in subscription funds has been listed for a special appointment on 4 December 2017.

Comments

Xstate Resources Limited (ASX: XST) (“Xstate” or “the Company”) is pleased to provide the following operational update in relation to its September 2017 quarter activities.

The Dempsey 1‐15 appraisal and exploration well has been cased for future production testing, which is anticipated to take place in early November 2017. The well reached a total depth of 9,740 feet (2,970 metres) and a 5 1⁄2‘’ liner has been run and cemented to protect all poten�al reservoirs beneath the existing 9 5⁄8’’ casing.

Multiple sandstone reservoirs were targeted including the shallow objective which have been cased and cemented for future production.

Wireline logging runs have been completed and confirmed numerous gas zones of interest. The forward plan is to production test these zones sequentially from lowest up for operational reasons (not in priority of interpreted significance) and will cease once sufficient commercial flow is established for production. Due to the absence of regional historical production performance from these reservoirs or the existence of producing analogues, the joint venture is unable to provide any further guidance on well performance until production testing operations are completed.

In order to enable the measurement and sale of potential gas production from Dempsey 1‐15 the JV owned meter station which is adjacent to the Dempsey location is being readied for gas flows.

Level 1, 31 Cliff Street, Fremantle WA 6160 | Tel + 61 8 9435 3200 | Fax +61 8 6444 7408 | www.xstate.com.au

31 October 2017

September 2017 Quarterly Activity Report

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Post quarter end Xstate successfully completed a placement to sophisticated investors raising $752,378 (before costs), issuing 62,698,179 fully paid shares at $0.012 cents per share. The funds raised will be in part used for the Company's share of production testing, completion and connection of the Dempsey 1‐15 well and ongoing leasing of additional acreage on Dempsey prospect lookalikes. The funds raised will also accelerate an Alvares re‐entry assessment and additional leasing in the Alvares project area. Funds will be utilised to maintain existing leases, the tie in of additional wells for production and general working capital requirements.

In addition to the Sacramento Basin activities the Company continued to pursue new production opportunities onshore California that have the potential to add significant value to the Company via production enhancement, cost control, and the drilling of new development and appraisal wells.

The focus for the Company in the next quarter is to successfully conclude its new business priorities, continue to grow gas production in the Sacramento Basin and most importantly to participate in a successful testing of the Dempsey discovery well.

New Ventures

Xstate is pursuing a range of growth options focused on expanding the Company’s assets in its core Sacramento Basin area and acquiring conventional oil production onshore North America.

The Board has continued to actively seek to identify and evaluate further asset opportunities that meet Xstate’s investment criteria and are capable of being delivered in a timely manner.

The identified projects under review are typically production opportunities onshore California that have the potential to add significant value to the company via production and reserves enhancement, cost control, and the drilling of new development and appraisal wells.

Xstate is advancing discussions in relation to other potential transactions and funding alternatives, which the Board believes can be progressed rapidly. The Board remains confident of closing a favourable transaction, although timing is uncertain as commercial‐in‐confidence negotiations continue.

Legal Update on Supreme Court Action

Xstate is endeavouring to reach a resolution with the investors in respect of Xstate's claim for damages relating to the investors' breach of contract, which is a material event. The Company is prepared to pursue damages through the Australian and Singapore legal system should an amicable resolution for Xstate shareholders not be reached.

Xtsate advised the market that a directions hearing was held on 12 October 2017 before Master Sanderson of the WA Surpeme Court to rule on an extension requested by the defendants to file any affidavits in response to the summary judgment application made by the Company.

The Court agreed to grant the defendants an extension while still having the special appointment heard before the end of the year. The Court recorded that no further extension would be granted and said that the revised timetable must be honoured. The Court set the following timetable:

1. The defendants file any affidavits in response to the summary judgment application by 2 November 2017 (was 3 October 2017).

2. Xstate to file any affidavits in response by 16 November 2017 (was 24 October 2017).

Level 1, 31 Cliff Street, Fremantle WA 6160 | Tel + 61 8 9435 3200 | Fax +61 8 6444 7408 | www.xstate.com.au

31 October 2017

September 2017 Quarterly Activity Report

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1. The parties to exchange written submissions on or before 30 November 2017 (was 14 November 2017).

2. The summary judgment application be listed for a special appointment on 4 December 2017 (was 21 November 2017).

Xstate will keep the market fully informed of any further changes.

Cash and Liquid Assets

As at 30 September 2017 the Company held cash and cash equivalents of $0.199m. Post quarter end the Company raised $0.752m via a private placement to sophisticated investors.

The main expenditure items during the quarter related to Xstate funding its share of capital expenditure in the Sacramento Basin. The item of expense was the drilling of the Dempsey 1‐15 appraisal and exploration well.

The Company is committed to maintaining expenditure and overheads to a minimum until it has acquired an asset and associated operating activity. Key Management and Board members have deferred receiving payments for services rendered for the immediate future whilst Xstate is undergoing capital‐intensive activities in the Sacramento Basin.

Shareholder Base and Capital Raising Post Quarter End

At September 30, 2017 Xstate had 720,792,718 shares on issue and 1,528 shareholders. Its top 20 holders held 339,199,887 shares representing 47% of the Company’s issued capital.

On October 20, 2017, the Company successfully completed a placement to sophisticated investors raising $752,378 (before costs). Xstate issued 62,698,179 fully paid shares at $0.012 cents per share. The placement was made pursuant to Section 708 of the Corporations Act and Rule 7.1 (18,908 shares) and Rule 7.1A ( 62,679,271 shares) of the ASX Listing Rules.

The Company’s revised shares on issue are 783,490,897 representing a dilution of 8% post issue.

Production – Sacramento Basin

Xstate acquired a working interest in minor gas production rights in the Sacramento Basin onshore California in 2013 and early 2017. The purpose of the acquisitions was to acquire the leases for further exploration and to access an extensive 3D seismic database from which to generate new exploration opportunities whilst also securing strategic infrastructure and growing gas production.

Gross production during the quarter averaged 715 mcf /day reflecting some operational downtime.

Two workovers were performed at or after the quarter reporting period. Production from these will be incorporated into the December quarter report.

Production for the quarter was as follows:

Production	September 2017 Quarter June 2017 Quarter
Gross mcf ** (100%)	65,091 74,116
Net XST mcf (after Royalty)	8,117 8,818

**mcf – Thousand Cubic feet gas

Level 1, 31 Cliff Street, Fremantle WA 6160 | Tel + 61 8 9435 3200 | Fax +61 8 6444 7408 | www.xstate.com.au

31 October 2017

September 2017 Quarterly Activity Report

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XSTATE RESOURCES LIMITED	– SACRAMENTO BASIN TENEMENT	LIST NORTHERN CALIFORNIA	LIST NORTHERN CALIFORNIA
Project name	Category	Working	WI after Farm
		Interest(WI)	outs
Alvares Appraisal Well1	Appraisal	25%	21%
Alvares Project2	Exploration & Appraisal	30%	24%
Dempsey 1‐15 Well	Exploration & Appraisal	10%	NA
Dempsey AMI2	Active leasing 3 large prospects	30%	24%
Rancho Capay Field	Production	10%	NA
Malton field	Production	30%	NA
East Rice East Creek Field	Production	10%	NA
Los Medanos Gas Field	Production	10%	NA
Dutch Slough Field	Production	30%	NA
Denverton Field	Production	30%	NA
Northern California AMI	Active Prospect Generation	30%	NA
1 Assumes sale of 4% WI to Bombora Natural Energy Pty Ltd
2 Assumes sale of 6% WI to Bombora Natural Energy Pty Ltd
NA – Not Applicable; no change to WI
Projects are continuously reviewed for their strategic fit and are		expected to be modified over
time to reflect industry conditions.

Disclaimers

Exploration in the USA is conducted on leases grant by Mineral Right owners, in Xstate’s case primarily private individuals or groups. Leases can vary in size from very small parcels (part of an acre) to large landholdings (covering a few square miles). Leases generally are for 5 years and rentals are paid annually. There are no work commitments associated with the leases. Some leases are ‘Held By Production’ and royalties, generally less than 20% of revenues, are paid to mineral right owners in lieu of rentals. Xstate has not listed all it leases as it is impractical and not meaningful for potential project value assessment in a conventional gas play. A detailed listing of leases may also lead to a loss of competitive advantage and consequent reduced value to Xstate shareholders

Competent Persons Report

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 many variables which could cause actual results or trends to differ materially. The technical information provided has been reviewed by Mr Chris Hodge, Non Executive 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.

Level 1, 31 Cliff Street, Fremantle WA 6160 | Tel + 61 8 9435 3200 | Fax +61 8 6444 7408 | www.xstate.com.au

31 October 2017

September 2017 Quarterly Activity Report

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Glossary of Terms

Tcf: trillion cubic feet mmbbl: million barrels JV: joint venture AMI: area of mutual interest

Bcf: billion cubic feet mmboe: million barrels oil equivalent WI: working interest mcf: thousand cubic feet gas

For and on behalf of the Board of Xstate Resources Limited

For further details please contact:

Cosimo Damiano

Managing Director Xstate Resources Limited Tel Office: +61 8 9435 3200 Email: cosimodamiano@xstate.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 associated gas production. Xstate is presently pursuing new opportunities in the oil and gas sector onshore North America.

Level 1, 31 Cliff Street, Fremantle WA 6160 | Tel + 61 8 9435 3200 | Fax +61 8 6444 7408 | www.xstate.com.au

Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report

+Rule 5.5

Appendix 5B

Mining exploration entity and oil and gas exploration entity quarterly report

Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10, 01/05/13, 01/09/16

Name of entity

XSTATE RESOURCES LIMITED

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ABN Quarter ended (“current quarter”)

96 009 217 154 30 SEPTEMBER 2017

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(9 months)
			$A’000
1.	Cash flows from operating activities
1.1	Receipts from customers	-	-
1.2	Payments for
	(a) exploration & evaluation	(696)	(889)
	(b) development	-	-
	(c) production	-	-
	(d) staff costs	(43)	(203)
	(e) administration and corporate costs	(92)	(316)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	-	3
1.5	Interest and other costs of finance paid	-	-
1.6	Income taxes paid	-	(1)
1.7	Research and development refunds	-	-
1.8	Other (provide details if material) *	(59)	(101)
1.9	Net cash from / (used in) operating	(890)	(1,507)
	activities
* 1.8 –	costs relating to the subscription agreements	legal proceedings
2.	Cash flows from investing activities
2.1	Payments to acquire:
	(a) property, plant and equipment	-	-
	(b) tenements (see item 10)	-	-
	(c) investments	-	-
	(d) other non-current assets	-	(165)

• See chapter 19 for defined terms 1 September 2016

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Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(9 months)
			$A’000
2.2	Proceeds from the disposal of:
	(a) property, plant and equipment	-	-
	(b) tenements (see item 10)	-	-
	(c) investments	-	-
	(d) other non-current assets	-	-
2.3	Cash flows from loans to other entities	-	-
2.4	Dividends received (see note 3)	-	-
2.5	Other (provide details if material)	-	-
2.6	Net cash from / (used in) investing	-	(165)
	activities
3.	Cash flows from financing activities
3.1	Proceeds from issues of shares	460	460
3.2	Proceeds from issue of convertible notes	-	-
3.3	Proceeds from exercise of share options	-	-
3.4	Transaction costs related to issues of	(13)	(29)
	shares, convertible notes or options
3.5	Proceeds from borrowings	-	-
3.6	Repayment of borrowings	-	-
3.7	Transaction costs related to loans and	-	-
	borrowings
3.8	Dividends paid	-	-
3.9	Other (provide details if material)	-	-
3.10	Net cash from / (used in) financing	447	431
	activities
4.	Net increase / (decrease) in cash and
	cash equivalents for the period
4.1	Cash and cash equivalents at beginning of
	period	649	1,457
4.2	Net cash from / (used in) operating	(890)	(1,507)
	activities (item 1.9 above)
4.3	Net cash from / (used in) investing activities	-	(165)
	(item 2.6 above)
4.4	Net cash from / (used in) financing activities	447	431
	(item 3.10 above)
4.5	Effect of movement in exchange rates on	(7)	(17)
	cash held
4.6	Cash and cash equivalents at end of	199	199
	period

• See chapter 19 for defined terms 1 September 2016

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Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report

5.	Reconciliation of cash and cash	Current quarter	Current quarter	Previous quarter
	equivalents	$A’000		$A’000
	at the end of the quarter (as shown in the
	consolidated statement of cash flows) to the
	related items in the accounts
5.1	Bank balances		199	649
5.2	Call deposits		-	-
5.3	Bank overdrafts		-	-
5.4	Other (provide details)		-	-
5.5	Cash and cash equivalents at end of		199	649
	quarter (should equal item 4.6 above)
6.	Payments to directors of the entity and	their associates		Current quarter
				$A'000
6.1	Aggregate amount of payments to these parties included in item		1.2	43
6.2	Aggregate amount of cash flow from loans to these parties included			-
	in item 2.3
6.3	Include below any explanation necessary to understand the transactions			included in
	items 6.1 and 6.2

Includes salaries and fees paid to directors, as well as superannuation paid on behalf of directors. Also includes consultancy fees and corporate and accounting services paid to companies associated with the directors.

7. Payments to related entities of the entity and their Current quarter associates $A'000

7.1 Aggregate amount of payments to these parties included in item 1.2 - 7.2 Aggregate amount of cash flow from loans to these parties included - in item 2.3

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• 7.3 Include below any explanation necessary to understand the transactions included in items 7.1 and 7.2

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• See chapter 19 for defined terms 1 September 2016

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Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report

8.	Financing facilities available	Total facility amount	Total facility amount	Amount drawn at	Amount drawn at
	Add notes as necessary for an	at quarter end		quarter end
	understanding of the position	$A’000			$A’000
8.1	Loan facilities		-		-
8.2	Credit standby arrangements		-		-
8.3	Other (please specify)		-		-
8.4	Include below a description of each facility above, including the lender, interest rate and
	whether it is secured or unsecured. If	any additional facilities have	been entered into or are
	proposed to be entered into after quarter end, include details of those facilities as well.
9.	Estimated cash outflows for next quarter			$A’000
9.1	Exploration and evaluation				-
9.2	Development				-
9.3	Production				-
9.4	Staff costs				-
9.5	Administration and corporate costs				135
9.6	Other (provide details if material)				-
9.7	Total estimated cash outflows				135
10.	Changes in Tenement	Nature of interest	Interest at		Interest
	tenements reference		beginning		at end of
	(items 2.1(b) and and		of quarter		quarter
	2.2(b) above) location
10.1	Interests in mining N/A
	tenements and
	petroleum tenements
	lapsed, relinquished
	or reduced
10.2	Interests in mining N/A
	tenements and
	petroleum tenements
	acquired or increased

• See chapter 19 for defined terms 1 September 2016

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Appendix 5B

Mining exploration entity and oil and gas exploration entity quarterly report

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

Sign here:

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Date: 31 October 2017

Director and Company Secretary

Print name: David M McArthur

Notes

1. The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity that wishes to disclose additional information is encouraged to do so, in a note or notes included in or attached to this report.

2. If this quarterly report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report. If this quarterly report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standards apply to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. See chapter 19 for defined terms 1 September 2016

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