XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2017

Jul 30, 2017

ABN 96 009 217 154

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31 July 2017

ASX Limited

Electronic lodgement

June 2017 Quarterly Activity Report

Summary

• Successful completion of private placement to raise $470,000 (before costs) to sophisticated investors in Australia and Europe.

• The Dempsey 1‐15 well (XST 10% WI) is scheduled to spud imminently, targeting cumulative unrisked recoverable Best Case Prospective Resources of 1 Tcf[1] gross (based on Operator’s estimates) mapped on 3D seismic (Xstate share 100 Bcf[1] ).

• Dempsey 1‐15 is a material well that in the event of success would immediately add reserves, production and near term cash flow.

• The joint venture has identified and leased three lookalike prospects on trend with Dempsey, which Xstate holds working interests in these additional prospects ranging from 24% to 30%.

• A Writ of Summons has been served on three of the four investors who have until early August to enter appearances with the Supreme Court of Western Australia.

Comments

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

Post quarter end Xstate successfully completed a placement to sophisticated investors raising $470,000 (before costs), issuing 94,000,000 fully paid shares at $0.005 cents per share. The funds raised will be used in part for the Company's leasing of additional acreage on Dempsey prospect lookalikes in advance of the drilling of the Dempsey 1‐15 well. The spudding of the Dempsey 1‐15 well is another step on the path to transform Xstate into a producing company.

The Board of Xstate was encouraged by the strong support received in the Company’s capital raising which is an endorsement of the Company’s current portfolio and future growth plans. The funds will underpin an exciting exploration and development program with the aim to position Xstate for growth in 2017.

In the Sacramento Basin, the joint venture operator Sacgasco Limited (ASX:SGC) has pursued strategic production acquisitions that have delivered considerable production improvements in a short period of time and included strategic infrastructure that could fast track any exploration success.

In addition to our Sacramento Basin activities we continue 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.

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

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June 2017 Quarterly Activity Report

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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 exploration well at Dempsey.

Furthermore, Xstate is endeavoring 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. However, the Company is prepared to pursue damages through the Australian and Singapore legal system should an amicable resolution for Xstate shareholders note be reached.

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 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 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.

Litigation Update ‐ Subscription Agreements

Xstate advises despite having received numerous representations and assurances from the investors that they intend to meet their binding financial obligations to the Company, funds have not been forthcoming.

Late June 2017, Xstate advised that a Writ of Summons had been served on three of the four investors and those three investors have until early August to enter appearances with the Supreme Court of Western Australia.

Xstate is endeavoring to reach a resolution with the investors in respect of Xstate's claim for damages relating to the investors' breach of contract.

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

Cash and Liquid Assets

As at 30 June 2017 the Company held cash and cash equivalents of $0.649m and no debt. Post quarter end the Company raised $0.470m 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. These items included previously announced production acquisitions, additional leasing and pre payments for the Dempsey 1‐15 well.

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

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

31 July 2017

June 2017 Quarterly Activity Report

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Shareholder Base and Capital Raising Post Quarter End

At June 30, 2017, Xstate had 626,792,718 shares on issue and 1,528 shareholders. Its top 20 holders held 300,649,613 shares representing 48% of the Company’s issued capital.

Post quarter on July 17, 2017, the Company successfully completed a placement to sophisticated investors raising $470,000 (before costs). Xstate will issue 94,000,000 fully paid shares at $0.005 cents per share. The placement was made pursuant to Section 708 of the Corporations Act and Rule 7.1 of the ASX Listing Rules.

The Company’s revised shares on issue are 720,792,718 representing a dilution of 13% 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.

During the quarter, the joint venturers benefited from a full quarter of production from all wells, whereas in the previous quarter there was only two months of production from the newly acquired wells.

Production during the quarter averaged 820 mcf/day reflecting some compressor downtime, while the gross production in May averaged 930 mcf/day. Production for the quarter was as follows:

Production	June 2017 Quarter March 2017 Quarter
Gross mcf ** (100%)	74,116 53,107
Net XST mcf (after Royalty)	8,818 6,077

**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 July 2017

June 2017 Quarterly Activity Report

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Exploration – Dempsey 1‐15 Well Drilling Update (XST 10% WI)

Xstate’s holds a 10% working interest in the Dempsey 1‐15 well, is scheduled to spud imminently and is planned to take approximately 30 days to reach total depth. The well has an estimated cost to drill and complete for production of US$4.4mil gross (net US$0.44mil to Xstate’s 10% WI).

The well will be drilled to 3,200 metres (~10,500 feet) and is targeting seven (7) gas reservoirs mapped with 3D seismic. The targets range from the shallow producing Forbes Sandstone reservoir and extend down to total depth through a series of older Cretaceous sandstone reservoirs. These reservoir rocks exhibit structurally consistent seismic amplitude anomalies analogous to those observed elsewhere in the basin.

According to the operator, individual unrisked Deterministic Best Case Recoverable Prospective Resources for these primary targets range from 116 ‐ 352 Bcf[1] of gas for a 100% interest. Should all the stacked reservoirs be full of gas, the cumulative unrisked Best Case Recoverable Prospective Resources within the prospect could exceed 1 Tcf[1] gross (net 100 Bcf[1] to Xstate’s 10% WI).

Xstate’s Board looks forward to the drilling of the Dempsey 1‐15 well, which is a key milestone for the Company. The Dempsey well represents a highly attractive opportunity with near term cash flow potential and significant reserve additions. The JV owned and operated infrastructure (Gas Meter and associated pipelines to the Dempsey well) will facilitate rapid cash flow from any gas discovery at this location, and combined with low operating costs makes the commerciality threshold for natural gas production at Dempsey very low.

Furthermore, any success will enhance the potential of follow up leads and prospects along the Dempsey trend in which Xstate has significantly greater working interest levels (more than 20%).

Operational updates will be provided during the drilling of Dempsey 1‐15 by the operator Sacgasco (ASX:SGC).

Subject to completion of farmins by Bombora Natural Energy Pty Ltd and AIM listed Empyrean Energy PLC, respective working interests in the Dempsey 1‐15 well will be:

Company Name	Working Interests	Well Cost Exposure
Sacgasco Limited (ASX:SGC) (operator)	50%	12%
Xstate Resources Limited (ASX:XST)	10%	10%
Bombora Natural Energy Pty Ltd*	10%	20%
Empyrean Energy PLC (LON:EME)	30%	58%

• Bombora Natural Energy Pty Ltd has merged with Pancontinental Oil and Gas NL (ASX:PCL).

Cautionary Statement

1 Further details were included in the operator’s; Sacgasco Limited (ASX:SGC) Company’s ASX release dated 4 September 2014.

1 Prospective resources: The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially movable hydrocarbons.

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

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June 2017 Quarterly Activity Report

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Fig 1: Location of Sacramento Basin Projects

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Fig 2: Mapped from 3D Seismic

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Fig 3: Cross Section of the Dempsey 1‐15 Prospect

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Source: Sacgasco Limited and Xstate Resources Limited

Fig 4: Dempsey 1‐15 Drill site

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Source: Sacgasco Limited

Fig 5: Paul Graham Rig 9

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Source: Sacgasco Limited

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

31 July 2017

June 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 Prospect	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 a 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 July 2017

June 2017 Quarterly Activity Report

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Glossary

Tcf: trillion cubic feet mmbbl: million barrels JV: joint venture

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

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 9425 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 JUNE 2017

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(6 months)
			$A’000
1.	Cash flows from operating activities
1.1	Receipts from customers	-	-
1.2	Payments for
	(a) exploration & evaluation	(36)	(193)
	(b) development	-	-
	(c) production	-	-
	(d) staff costs	(73)	(160)
	(e) administration and corporate costs	(85)	(224)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	1	3
1.5	Interest and other costs of finance paid	-	-
1.6	Income taxes paid	(1)	(1)
1.7	Research and development refunds	-	-
1.8	Other (provide details if material) *	(42)	(42)
1.9	Net cash from / (used in) operating	(236)	(617)
	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	(6 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	-	-
3.2	Proceeds from issue of convertible notes	-	-
3.3	Proceeds from exercise of share options	-	-
3.4	Transaction costs related to issues of	-	(16)
	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	-	(16)
	activities
4.	Net increase / (decrease) in cash and
	cash equivalents for the period
4.1	Cash and cash equivalents at beginning of
	period	886	1,457
4.2	Net cash from / (used in) operating	(236)	(617)
	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	-	(16)
	(item 3.10 above)
4.5	Effect of movement in exchange rates on	(1)	(10)
	cash held
4.6	Cash and cash equivalents at end of	649	649
	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		649	886
5.2	Call deposits		-	-
5.3	Bank overdrafts		-	-
5.4	Other (provide details)		-	-
5.5	Cash and cash equivalents at end of		649	886
	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	74
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				77
9.5	Administration and corporate costs				91
9.6	Other (provide details if material)				-
9.7	Total estimated cash outflows				168
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:

Date: 31 July 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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