XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2019

Apr 29, 2019

ABN 96 009 217 154

==> picture [151 x 69] intentionally omitted <==

30 April 2019

ASX Limited

Electronic lodgement

March 2019 Quarterly Activity & Cashflow Report

Summary

• The Company is actively progressing a number of New Venture initiatives which the Board expects will lead to drilling activity during 2019.

• During the quarter Xstate entered into a Forbearance to Sue Agreement with Hong Hung Thiam. Under the terms of the agreement Hong has agreed to pay Xstate A$500,000 in five instalments. At the date of this report Hong has paid Xstate A$400,000 and the remaining $100,000 is due mid May 2019.

• During the quarter the Singapore High Court set a date for the Contempt of Court hearing against Tanzil Hidayat. A Court Hearing is scheduled for 2[nd] to 4[th] July 2019. The Company continues to discuss possible settlement terms with Tanzil.

Comments

Xstate Resources Limited (ASX: XST) (“Xstate” or “the Company”) is pleased to provide the following operational update in relation to its March 2019 quarter activities.

The Company’s main activities during the March 2019 quarter were focused on business development activities and litigation actions in Singapore.

During the quarter the Company high graded several business development opportunities for execution in 2019. The Company’s Strategic Alliance with Hillcrest Petroluem Ltd (“ Hillcrest ”) has identified a producing asset in Western Canada that Hillcrest is pursuing on behalf of the partners. Elsewhere, the Company has identified an exploration opportunity in Texas and the Company is in advanced negotiations with the vendors.

Xstate is awaiting guidance on timing from the operator in relation to the appraisal of Alvares in the Sacramento Basin, California.

In Singapore the Company successfully reached an agreement with Hong Hung Thiam (“ Hong ”). The Board is pleased to have reached an agreement with Hong for the sum of A$500,000. Moving forward the Company’s focus in Singapore is on Contempt of Court proceedings against Tanzil Hidayat (“ Tanzil ”) and a hearing is scheduled for early July 2019. The Company fully intends to enforce its rights against Tanzil for recovery of its debt.

The focus for the Company in the next quarter is to reach an acceptable settlement with Tanzil in Singapore and to secure an appropriate business development opportunity which will lead to operational activities during 2019.

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

30 April 2019

March 2019 Quarterly Activity & Cash Flow Report

2

New Ventures

The Company 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 Company continues to seek a prudent and appropriately-sized production acquisition in California, however has also reviewed numerous assets across North America that are low risk exploration with near-term production potential and that are appropriately-sized investments for Xstate at the present time.

The first of these is located onshore Texas and, whilst this represents a strategic shift for the Company, the operating team is well known to Xstate’s management, there is near term drilling activity and there are numerous follow up additional opportunities, both exploration and production in the area of operations.

The Company is currently conducting extensive due diligence in relation to the opportunity, and is hopeful of completing an agreement in the near future.

During the quarter Xstate announced a Strategic Alliance with Hillcrest Petroleum Ltd (“ Hillcrest ”) to jointly pursue investments in North America. The core focus is on conventional oil and gas assets onshore with activities directed toward the acquisition, development and management of oil and gas assets with material upside.

Hillcrest has performed extensive due diligence in relation to a producing asset in Western Canada. The field has economic production with low risk well recompletion potential and development drilling opportunities. The field secures existing production, production enhancement and associated development drilling potential as well an independently assessed undeveloped reserve potential. The reserve and resource potential including the forecast production profile will be fully described at the conclusion of Hillcrest’s due diligence.

Should Xstate (and Hillcrest) successfully conclude a transaction, Xstate would gain access to on the ground operational capability and commercially aligned operational relationships in Western Canada through the Strategic Alliance with Hillcrest, which will enable the identification, purchase and enhancement of additional production opportunities in line with the Company’s core investment strategy.

Legal Update on Singapore Supreme Court Enforcement Action

On 25 January 2019, Xstate commenced committal proceedings against Tanzil Hidayat. A number of pre-trial conferences for the committal proceedings were held during the quarter and a further pretrial conference hearing before a judge has been scheduled for 17 May 2019. A date for the Contempt Hearing has been scheduled for 3 days from 2 to 4 July 2019. The Company fully intends to enforce its rights against Tanzil for recovery of its debt.

On 11 March 2019, Xstate advised it entered into a Forbearance to Sue Agreement (the “ Agreement ”) with Hong Hung Thiam. Under the terms of the Agreement, Hong agreed to pay Xstate A$500,000[1] in five instalments between February to mid May 2019.

At the date of this report, Hong has paid Xstate A$400,000[1] and the remaining A$100,000[1] is due mid May 2019. The Company is pleased to have achieved a successful outcome in relation to this matter with Hong Hung Thiam.

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

30 April 2019

March 2019 Quarterly Activity & Cash Flow Report

3

Xstate will continue its endeavours and determination to take all reasonable legal steps available to the Company to preserve its rights.

The Company will continue to keep shareholders fully informed of its progress.

1 The final Australian dollar amount can be impacted by changes in the currency rate between Singapore and Australia

Cash and Liquid Assets

As at 31 March 2019 the Company held cash and cash equivalents of $559,000.

Shareholder Base

As at 29 March 2019, Xstate had 1,140,490,898 shares on issue and 1,570 shareholders. The top 20 holders held 564,610,753 shares representing 49.5% of the Company’s issued capital.

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 408 mcf /day and according to the operator was lower than the previous quarter due to cold weather related equipment issues and natural decline.

Production for the quarter was as follows:

Production	March 2019 Quarter	December 2018 Quarter
Gross mcf* (100%)	36,691	51,548
Net XST mcf (after Royalty)	4,419	5,924

*mcf – Thousand Cubic feet gas

Sacramento Basin Appraisal and Exploration Activities

Alvares Appraisal Project – Xstate 25% WI

The initial planned activity is to test the Alvares-1 gas discovery drilled in 1982 on a large structure mapped on 2D seismic. The objective is to test strong natural gas shows in a 1982 well over more than 1,500 metres below a thick, sealing shale at 2,350. Wireline log data from the Alvares-1 well indicates several zones with conventional gas reservoir potential.

The operator advises that regulatory approvals have been obtained and intial program being planned is to test the integrity of the existing casing, then log through the casing to select performation zones and test the main objective.

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

30 April 2019

March 2019 Quarterly Activity & Cash Flow Report

4

Alvares Appraisal Working Interests

Xstate Resources Limited (ASX: XST)

Xstate Resources Limited (ASX: XST) 25% Sacgasco Limited (ASX: SGC) (Operator) 50% Empyrean Energy PLC (LON: EME) 25%

Figure 1: Composite well log from Alvares – 1 showing the lithology (yellow is sandstone, brown is shale) and the strong gas

Figure 2: Alvares -1 Appraisal Project

shows

==> picture [306 x 279] intentionally omitted <==

----- Start of picture text -----

500m of high gas shows
with no evaluation logs
Mud weight
choked shows
----- End of picture text -----

==> picture [144 x 160] intentionally omitted <==

Source: Sacgasco Limited

Dempsey Project Area – Xstate 10% to 24% WI

The Dempsey discovery is part of a portfolio of acreage and prospects, which the joint venture has secured in the Sacramento Basin. Xstate is very well positioned in the gas play which has been identified by the Dempsey well (in which Xstate holds 10%) due to the fact the Company has a significantly greater working interest (24%) in the wider Dempsey Area.

The presence of gas in several horizons at Dempsey has enhanced the potential of prospects and leads along the Dempsey trend – especially those with interpreted better quality reservoir porosity and permeability.

One such prospect has already been identified at the Anzus structure. This prospect has strong seismic attribute support at several levels, which based on correlation with Dempsey, can be indicative of either sandstone reservoir, or gas saturation, or both. Encouragingly, there is some amplitude conformance to structural closure.

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

30 April 2019

March 2019 Quarterly Activity & Cash Flow Report

5

XSTATE RESOURCES LIMITED – SACRAMENTO BASIN TENEMENT LIST NORTHERN CALIFORNIA	XSTATE RESOURCES LIMITED – SACRAMENTO BASIN TENEMENT LIST NORTHERN CALIFORNIA	XSTATE RESOURCES LIMITED – SACRAMENTO BASIN TENEMENT LIST NORTHERN CALIFORNIA
Project name	Category	Working Interest (WI)
Alvares Project	Appraisal	25%
Dempsey 1-15 Well	Exploration & Appraisal	10%
Dempsey Trend	Active leasing 3 large prospects	24%
Rancho Capay Field	Production	10%
Malton field	Production	30%
East Rice East Creek Field	Production	10%
Los Medanos Gas Field	Production	10%
Dutch Slough Field	Production	30%
Denverton Field	Production	30%
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.

Glossary of Terms

Tcf: trillion cubic feet Bcf: billion cubic feet mmbbl: million barrels mmboe: million barrels oil equivalent JV: joint venture WI: working interest AMI: area of mutual 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

ABN

96 009 217 154

Quarter ended (“current quarter”)

31 MARCH 2019

Consolidated statement of cash flows	Current quarter $A’000	Year to date (3 months) $A’000
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) exploration & evaluation (b) development (c) production (d) staff costs (e) administration and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 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 activities*	2 (262) - - (113) (16) - - - (4) - (41)	2 (262) - - (113) (16) - - - (4) - (41)
	(434)	(434)
* 1.8 – net outflow relating to the subscription agreements legal proceedings (A$250,000 received from Forbearance to Sue Agreement in March quarter)
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	- - - -	- - - -

• See chapter 19 for defined terms

1 September 2016

Page 1

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

Consolidated statement of cash flows	Current quarter $A’000	Year to date (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 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 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 activities	- - - - - - - - -	- - - - - - - - -
	-	-
4. Net increase / (decrease) in cash and cash equivalents for the period 4.1 Cash and cash equivalents at beginning of period 4.2 Net cash from / (used in) operating activities (item 1.9 above) 4.3 Net cash from / (used in) investing activities (item 2.6 above) 4.4 Net cash from / (used in) financing activities (item 3.10 above) 4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end of period	998 (434) - - (5)	998 (434) - - (5)
	559	559

• See chapter 19 for defined terms 1 September 2016

Page 2

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

5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A’000	Previous quarter $A’000
5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other (provide details) 5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above)	559 - - -	998 - - -
	559	998
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 1.2 100 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
		Current quarter $A'000
		100
		-

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 associates 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	Current quarter $A'000
	-
	-

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

• See chapter 19 for defined terms 1 September 2016

Page 3

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

	Appendix 5B Mining exploration entity and oil andgas exploration entity quarterly report	oil andgas exploration	Appendix 5B entity quarterly report
	8. Financing facilities available Add notes as necessary for an understanding of the position Total facility amount at quarter end $A’000 Amount drawn at quarter end $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.	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000
		-	-
		-	-
		-	-

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 9.6 Other (provide details if material) 9.7 Total estimated cash outflows	88 - - - 92 -
	180

10. Changes in tenements (items 2.1(b) and 2.2(b) above)	Tenement reference and location	Nature of interest	Interest at beginning of quarter	Interest at end of quarter
10.1 Interests in mining tenements and petroleum tenements lapsed, relinquished or reduced	N/A
10.2 Interests in mining tenements and petroleum tenements acquired or increased	N/A

• See chapter 19 for defined terms 1 September 2016

Page 4

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:

==> picture [114 x 43] intentionally omitted <==

Date: 30 April 2019

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

Page 5