XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2017

Apr 27, 2017

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ABN 96 009 217 154

28 April 2017

ASX Limited

Electronic lodgement

March 2017

Quarterly Activity Report

Summary

• Xstate has agreed to acquire various working interests in five producing gas fields in the Sacramento Basin that materially add to current gas production with associated infrastructure.

• The operator of the Sacramento Basin gas assets has advised current production is approximately 870 mcf per day (was 165 mcf) and material production additions have been identified.

• The Company has commenced legal proceedings against the four investors to the Subscription Agreements, seeking damages resulting from the non‐performance of their funding obligations.

• The operator of XST’s Sacramento Basin acreage has advised that Dempsey‐1 well is scheduled for drilling in the first half of 2017, and targets a 1 Tcf prospect with multiple pay potential in conventional gas reservoirs beneath a producing field.

New Ventures

Xstate is pursuing multiple growth options focused on expanding the Company’s assets in its core Sacramento Basin area and acquiring conventional oil production onshore California.

During the quarter, Xstate acquired various working interests from Sacgasco Limited in five producing gas fields that significantly strengthen the joint ventures asset base in the Sacramento Basin. Importantly the assets are located nearby the Company’s existing production and exploration acreage in the Sacramento Basin.

Additionally the acquisitions materially add to current gas production and include strategically located infrastructure, gas processing plants, meter stations and pipelines adjacent to existing producing assets.

Post quarter end the vendor of the Los Angeles Basin assets advised Xstate that the existing Purchase and Sale Agreement (“PSA”) was terminated. Notwithstanding the Company’s disappointed of not closing the previously announced Los Angeles Basin acquisition, Xstate remains committed to pursue a transaction with the vendor on similar terms subject to funding.

Furthermore, the Board and Management have 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.

Xstate is advancing discussions in relation to other potential transactions and funding alternatives, which the Board believe can be progressed rapidly.

Level 2, 55 Carrington Street, Nedlands WA 6009 | Tel + 61 8 9423 3200 | Fax +61 8 6444 7408 www.xstate.com.au

ASX Release – March 2017 Quarterly Activity Report

28 April 2017

Subscription Agreements Update

Xstate advised post quarter end that it has yet to receive funds from any of the subscribers to the Company’s $25 million capital raising. As previously advised on April 4, 2017 the Company has commenced legal proceedings against the four investors for damages and has engaged legal counsel in Australia and Singapore to expedite our damages claim.

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

Cash and Liquid Assets

As at 31 March 2017 the Company held cash and cash equivalents of $0.886m.

The main expenditure item during the quarter was the payment of a US$125,000 for the LA Basin acquisition, plus associated legal and technical due diligence costs in relation to the transaction.

The Company is committed to maintain expenditure and overheads to a minimum until it has acquired an asset and associated operating activity.

Key dates

The Company is holding its Annual General Meeting of shareholders at 11:00 am (WST) on Tuesday 30 May 2017, at Level 1, 31 Cliff Street, Fremantle, Western Australia.

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 venture significantly strengthened its production profile with the acquisition of 18 operated natural gas wells across the Sacramento Basin. The acquisitions provided the joint venture with 10 producing gas wells across six gas fields and Total Gross Production currently is approximately to 870 mcf per day (was 165 mcf per day).

The 350% increase in gross production reflects production from the newly acquired wells for part of the quarter from 1 February 2017. Production for the quarter was as follows:

Production	March 2017 Quarter	December 2016 Quarter
Gross mcf **(100%)	53,107	15,174
Net XST mcf(after Royalty)	6,077	1,055

**mcf – Thousand Cubic feet gas

Effective February 1, 2017, 18 additional joint venture‐operated natural gas well were acquired. The below table outlines Xstate’s current gas fields and associated wells:

Gas Fields	Xstate Working Interest Total Wells Wells in Production
Rancho‐Capay*	6.7‐10% 6 5
Los Medanos	10% 3 2
Malton*	15‐30% 8 2
Dutch Slough*	30% 4 0
Denverton*	30% 1 1
Rice Creek East*	10% 3 0

*Includes acquisitions effective 1 February 2017

Level 2, 55 Carrington Street, Nedlands WA 6009 | Tel + 61 8 9423 3200 | Fax +61 8 6444 7408 www.xstate.com.au

ASX Release – March 2017 Quarterly Activity Report

28 April 2017

Exploration – Sacramento Basin Joint Venture – Onshore Northern California

Exploration leases have continued to be maintained within the Sacramento Basin during the quarter. Xstate has a working interest (WI) of between 10% and 25% in lease areas, which cover conventional gas prospects.

Dempsey Conventional Gas Prospect (XST 10% WI)

The Dempsey prospect remains the current focus of the Joint Venture’s exploration activities, primarily because of the potential for near term production given the prospect’s location beneath the joint ventures existing production facilities.

The operator, Sacgasco Limited (“Sacgasco”), advises that the Dempsey Prospect is a large, 3‐way dip, fault bound closure with conventional sandstone reservoir targets mapped at multiple (seven) stacked levels. The Dempsey structure sits beneath a developed gas field from which the joint venture currently produces. The gas plant has available capacity that would be utilised for a fast track development of any gas reservoirs proved up by the Dempsey 1 well.

Sacgasco maps seven target gas reservoir levels beginning with two small (1‐3 Bcf unrisked Best Estimate Deterministic recoverable Prospective Resource) seismic amplitude defined, extension of the shallow producing Forbes Sandstone reservoir system. The targets then extend down to total depth through a series of older Cretaceous reservoirs interpreted to be more broadly distributed.

Individual, unrisked Deterministic Prospective Resources for these primary targets range from 116 bcf to 352 Bcf of recoverable gas. Should all the stacked reservoirs be full of gas, the cumulative unrisked recoverable Prospective Resources within the prospect could approximate 1 Tcf.

These estimates of prospective petroleum resources must be read in conjunction with the cautionary statement that follows:

“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.”

Multi‐target conventional‐sands appraisal and Dempsey Prospect Structure Schematic exploration project located under existing gas production infrastructure.

Demspey prospect interpreted to have a very high probability of flowing commercial quantities of gas. 7 interpreted stacked independent targets ranging from 1 Bcf (shallow) to 350 Bcf (older).

Summed total (100%) un‐risked best Estimate recvoerbale Prospective Resource on a deterministic basis is 1 Tcf (~166 million BOE).

Source: Sacgasco ASX Announcement 17 January 2017

Level 2, 55 Carrington Street, Nedlands WA 6009 | Tel + 61 8 9423 3200 | Fax +61 8 6444 7408 www.xstate.com.au

ASX Release – March 2017 Quarterly Activity Report

28 April 2017

XSTATE RESOURCES LIMITED	– SACRAMENTO BASIN
TENEMENT LIST
Project name	Location	Working	WI after
	Northern California	Interest(WI)	Farm outs
Alvares Prospect	Sacramento Basin Onshore	25%	21%
Dempsey Prospect	Sacramento Basin Onshore	10%	NA
California AMI	Sacramento Basin Onshore	30%	NA
California AMI 9 Prospects	Sacramento Basin Onshore	30%*	24%*
Tenements acquired effective February 1, 2017
Malton field	Sacramento Basin Onshore	15‐30%*	NA
Dutch Slough Field	Sacramento Basin Onshore	30*%	NA
Denverton Field	Sacramento Basin Onshore	30%*	NA
Rancho Capay Field	Sacramento Basin Onshore	6.7 to 9.0%*	NA
East Rice Creek Field	Sacramento Basin Onshore	10%*	NA
*After satisfaction of previously announced farmout 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.

For and on behalf of the Board of Xstate Resources Limited

Cosimo Damiano

Managing Director Xstate Resources Limited Tel Office: +61 8 9423 3200 Email: cosimodamiano@xstate.com.au

Competent Persons Statement

The technical information provided has been reviewed by Mr Chris Hodge, Technical 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.

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.

Level 2, 55 Carrington Street, Nedlands WA 6009 | Tel + 61 8 9423 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 31 MARCH 2017

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(3 months)
			$A’000
1.	Cash flows from operating activities
1.1	Receipts from customers	-	-
1.2	Payments for
	(a) exploration & evaluation	(157)	(157)
	(b) development	-	-
	(c) production	-	-
	(d) staff costs	(87)	(87)
	(e) administration and corporate costs	(139)	(139)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	2	2
1.5	Interest and other costs of finance paid	-	-
1.6	Income taxes paid	-	-
1.7	Research and development refunds	-	-
1.8	Other (provide details if material)	-	-
1.9	Net cash from / (used in) operating	(381)	(381)
	activities
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)	(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	(3 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)	(165)
	activities
2.1(d)	US$125,000 additional deposit for a 49% interest in the LA Basin Oil Fields
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)	(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)	(16)
	activities
4.	Net increase / (decrease) in cash and
	cash equivalents for the period
4.1	Cash and cash equivalents at beginning of
	period	1,457	1,457
4.2	Net cash from / (used in) operating	(381)	(381)
	activities (item 1.9 above)
4.3	Net cash from / (used in) investing activities	(165)	(165)
	(item 2.6 above)
4.4	Net cash from / (used in) financing activities	(16)	(16)
	(item 3.10 above)
4.5	Effect of movement in exchange rates on	(9)	(9)
	cash held
4.6	Cash and cash equivalents at end of	886	886
	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		886	1,457
5.2	Call deposits		-	-
5.3	Bank overdrafts		-	-
5.4	Other (provide details)		-	-
5.5	Cash and cash equivalents at end of		886	1,457
	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	93
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				40
9.2	Development				-
9.3	Production				-
9.4	Staff costs				77
9.5	Administration and corporate costs				105
9.6	Other (provide details if material)				-
9.7	Total estimated cash outflows				222
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: 28 April 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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