XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2020

Jul 30, 2020

ABN 96 009 217 154

31 July 2020

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Announcement to ASX

June 2020

Quarterly Activity & Cashflow Report

Summary

• Completion of Convertible Note issue raising $562,000 post quarter-end

• Low-cost work-over program completed with increased gas and cash flows

• Timing for Borba drilling to reflect COVID-19 situation risk assessment

• New venture opportunities are being reviewed in line with the Company’s strategic objectives to secure a producing asset

• Appointment of Non-Executive Director Andrew Childs and resignation of Non-Executive Director Richard Lorentz

Operations

Xstate is a participant in the following projects in the Sacramento Basin of California.

• Gas Production (Various 10 - 30%)

Xstate holds various working interests in minor gas production rights in the Sacramento Basin onshore California. The purpose of the initial investment 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.

The Operator of the Sacramento Basin projects, Sacgasco Limited ( ASX:SGC ), completed a low-cost work-over program which resulted in modest increases in gas flows from two existing natural gas wells. Other similar workovers are being assessed for the coming quarter by the Operator to enhance gas flows from other existing gas wells.

Gross production during the quarter averaged 388 mcf/day compared to 404 mcf/day during the previous quarter.

Production for the quarter was as follows:

Production	June 2020 Quarter	March 2020 Quarter
Gross mcf ** (100%)	35,367	36,832
Net XST mcf (after Royalty)	3,528	3,529

**mcf – Thousand Cubic feet gas

Gas flows were slightly reduced in the quarter by operational interruptions exacerbated by COVID-19 restrictions. Changes in flow rates as a result of workovers were only effective for one month in the quarter.

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

31 July 2020

June 2020 Quarterly Activity & Cash Flow Report

• Borba Prospect (Xstate 24%)

Sacgasco, as Operator, have advised Xstate that the drilling of the Borba well has been delayed by practical and risk considerations associated with uncertainties around COVID-19 limitations on personnel and equipment deployment capabilities. However, planning and design work for the well continues.

When the risks can be better quantified and managed, the Operator will provide further timing guidance.

• Alvares Project (Xstate 25%)

The Alvares project involves the appraisal of the Alvares-1 gas discovery made in 1982 on a large structure mapped on 2D seismic. The plan is to re-enter the original well bore, test the integrity of the casing, wireline log to select perforation zones - and if warranted, to test the main objective. Regulatory approvals have been recieved.

Xstate is awaiting guidance from the Operator as to timing for this operation.

Corporate

On 24 April, the Company was pleased to appoint Mr Andrew Childs to the Board as a Non-Executive Director. Mr Childs is a Petroleum Geologist with over 35 years’ of Oil and Gas experience working in Technical and Commercial roles for small to mid capped Companies on the ASX, AIM and TSX markets. Additionally, Mr Richard Lorentz stepped down from the Board in his capacity as a Non-Executive Director.

Post quarter-end, the Company was successful in raising $562,000 in additional capital via the issue of unsecured convertible notes. Funds will be utilised for Xstate’s share of costs for well work-overs designed to enhance gas flows, as noted in the Operations review, and for for ongoing exploration and production costs associated with these working interests. Additionally, this capital raising provides funds to assess additional oil and gas production acquisitions.

Appendix 5B Related Party Disclosures

The Company makes the following disclosures in relation to the $1,000 noted as paid to related parties of the Company as detailed in section 6 of the accompanying Appendix 5B to this report.

Payments of superannuation on behalf of Directors $1,200

It is noted that this payment on behalf of Directors for superannuation was a payment of outstanding liabilities owed in previous quarters.

Strategic and New Business

The primary strategic objective remains for Xstate is to secure a producing asset or producing assets.

Cash and Liquid Assets

As at 30 June 2020 the Company held cash and cash equivalents of $56,000. As noted in the Corporate review above, an additional $562,000 was added to this post quarter end via convertible note issue.

Shareholder Base

As at 30 June 2020, Xstate had 1,425,490,898 shares on issue and 1,559 shareholders. The top 20 holders held 671,788,361 shares representing 47.13% of the Company’s issued capital.

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

31 July 2020

June 2020 Quarterly Activity & Cash Flow Report

Post quarter-end, a total of 23,750,000 ordinary shares were issued as approved by shareholders at the AGM, held on 21 July 2020.

Tenement Listing

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 - (Includes Borba)	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.

For and on behalf of the Board of Xstate Resources Limited

For further details please contact:

David McArthur

Managing Director Xstate Resources Limited Tel Office: +61 8 9435 3200

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

Rule 5.5

Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Name of entity Xstate Resources Limited ABN Quarter ended (“current quarter”) 96 009 217 154 30 June 2020

Consolidated statement of cash flows	Current quarter $A’000	Year to date (6 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 Government grants and tax incentives 1.8 Other (provide details if material) 1.9 Net cash from / (used in) operating activities*	- (54) - - (4) (26) - - - (1) 10 -	- (175) - - (150) (92) - - - (4) 10 (62)
	(75)	(473)
* 1.8 – net outflow relating to the subscription agreements legal proceedings
2. Cash flows from investing activities 2.1 Payments to acquire or for: (a) entities (b) tenements (c) property, plant and equipment (d) exploration & evaluation (e) investments (f) other non-current assets	- - - - - -	- - - - - -

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Consolidated statement of cash flows	Current quarter $A’000	Year to date (6 months) $A’000
2.2 Proceeds from the disposal of: (a) entities (b) tenements (c) property, plant and equipment (d) investments (e) 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 equity securities (excluding convertible debt securities) 3.2 Proceeds from issue of convertible debt securities 3.3 Proceeds from exercise of options 3.4 Transaction costs related to issues of equity securities or convertible debt securities 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	- - - - (13) - - - -	- - - (17) (13) - - - -
	(13)	(30)
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)	145 (75) - (13)	541 (473) - (30)

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Consolidated statement of cash flows	Current quarter $A’000	Year to date (6 months) $A’000
4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end of period	(1)	18
	56	56
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)	56 - - -	145 - - -
	56	145
6. Payments to related parties of the entity and their associates		Current quarter $A'000
6.1 Aggregate amount of payments to related parties and their associates included in item 1 1 6.2 Aggregate amount of payments to related parties and their associates included in item 2 - Note: if any amounts are shown in items 6.1 or 6.2, your quarterly activity report must include a description of, and an explanation for, such payments.		1
		-

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B Mining exploration entity or oil and gas exploration entity quarterly cash flow report

7. 7.1 7.2 7.3 7.4 7.5 7.6	Financing facilities Note: the term “facility’ includes all forms of financing arrangements available to the entity. Add notes as necessary for an understanding of the sources of finance available to the entity. Total facility amount at quarter end $A’000 Amount drawn at quarter end $A’000 Loan facilities Credit standby arrangements Other (please specify) Total financing facilities Unused financing facilities available at quarter end Include in the box below a description of each facility above, including the lender, interest rate, maturity date and whether it is secured or unsecured. If any additional financing facilities have been entered into or are proposed to be entered into after quarter end, include a note providing details of those facilities as well.	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000
	Unsecured convertible note facility entered into post quarter-end on 9 July 2020 with sophisticated investors. Notes are unsecured, accruing interest at 10% pa payable quarterly in arrears, maturing 9 July 2021.

8.	Estimated cash available for future operating activities	$A’000
8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8	Net cash from / (used in) operating activities (item 1.9) (75) (Payments for exploration & evaluation classified as investing activities) (item 2.1(d)) - Total relevant outgoings (item 8.1 + Item 8.2) (75) Cash and cash equivalents at quarter end (item 4.6) 56 Unused finance facilities available at quarter end (item 7.5) - Total available funding (item 8.4 + item 8.5) 56 Estimated quarters of funding available (item 8.6 divided by item 8.3) 0.75 Note: if the entity has reported positive relevant outgoings (ie a net cash inflow) in item 8.3, answer item 8.7 as “N/A”. Otherwise, a figure for the estimated quarters of funding available must be included in item 8.7. If item 8.7 is less than 2 quarters, please provide answers to the following questions: 8.8.1 Does the entity expect that it will continue to have the current level of net operating cash flows for the time being and, if not, why not?	(75) - (75) 56 -
		56
		0.75
	Answer: Yes. The entity expects the cash outflows from operating activities to remain comparable in the forthcoming two quarters.
	8.8.2 Has the entity taken any steps, or does it propose to take any steps, to raise further cash to fund its operations and, if so, what are those steps and how likely does it believe that they will be successful?
	Answer: Yes. The entity has raised funds via a convertible note issue as announced to the market on 9 July 2020. A total of $562,000 was raised in this issue for utilisation on existing Californian exploration & production portfolio assets, for assessment of additional production acquisitions and for working capital purposes.

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

• 8.8.3 Does the entity expect to be able to continue its operations and to meet its business objectives and, if so, on what basis?

Answer:

Yes. The entity believe operations will be able to be continued through the methods identified in points 1. and 2. above, being deferral and reduction in certain expenditures in conjunction with capital raised post quarter-end.

Note: where item 8.7 is less than 2 quarters, all of questions 8.8.1, 8.8.2 and 8.8.3 above must be answered.

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.

Date: 31 July 2020

Authorised by: David McArthur – Managing Director

(Name of body or officer authorising release – see note 4)

Notes

1. This quarterly cash flow report and the accompanying activity report provide a basis for informing the market about the entity’s activities for the past quarter, how they have been financed and the effect this has had on its cash position. An entity that wishes to disclose additional information over and above the minimum required under the Listing Rules is encouraged to do so.

2. If this quarterly cash flow 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 cash flow 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. If this report has been authorised for release to the market by your board of directors, you can insert here: “By the board”. If it has been authorised for release to the market by a committee of your board of directors, you can insert here: “By the [ name of board committee – eg Audit and Risk Committee ]”. If it has been authorised for release to the market by a disclosure committee, you can insert here: “By the Disclosure Committee”.

5. If this report has been authorised for release to the market by your board of directors and you wish to hold yourself out as complying with recommendation 4.2 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations , the board should have received a declaration from its CEO and CFO that, in their opinion, the financial records of the entity have been properly maintained, that this report complies with the appropriate accounting standards and gives a true and fair view of the cash flows of the entity, and that their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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