Xstate Resources : Acquisition of Further 10% Working Interest in Red Earth

ABN 96 009 217 154

Announcement to ASX

22 March 2021

Acquisition of a Further 10% Working Interest in

Oil Producing Asset in Canada

• Additional 10% Working Interest Acquired in Red Earth Oil Producing Properties (currently equivalent to an additional 100 BOPD)
• Purchase Price is CAD $700,000 plus A$150,000 in Xstate shares
• Red Earth Acquisition expected to close by end of March 2021

Xstate Resources (ASX:XST) ("Xstate" or "the Company") is pleased to announce it has acquired a further 10% working interest (WI) in the Red Earth oil producing asset in Alberta, Canada. Xstate now holds a total of 25% WI in the asset. The Red Earth assets consists of 6 oilfields and associated infrastructure, located 450 km north of Edmonton.

Xstate has acquired the additional 10% for CAD $700,000 plus A$150,000 in Xstate shares (based on a 5-day VWAP prior to the execution of the acquisition agreement, with the issue of the shares subject to shareholder approval). The 5-day VWAP prior to execution equates to $0.0148 per share, resulting in the proposed issue (subject to shareholder approval) of 10,135,135 shares. The cash component of the acquisition is funded out of existing cash reserves.

As reported to the ASX on 20 November 2020 (Acquisition of oil producing asset in Canada), the Red Earth properties are producing approximately 1,000 BOPD (gross) and have a Proved Reserve of 2.5 MMbbls (gross). The additional acquisition means the Xstate share of current production is

250 BOPD. A full breakdown of Xstate's reserve base at the current share of 25% WI is as follows:

	100% Working	Net Entilement to
Reserve Base (31 Dec 2019)	Interest Net of	XST at 25% Working
	Royalties	Interest
	(BO)	(BO)
Proved Producing (PP)	2,506,000	551,320
Proved Developed Not Producing (PDNP)	1,411,000	310,420
Proved Undeveloped (PUD)	452,000	99,440
Probable Reserves (Prob)	2,305,000	507,100
Total Proved (1P) Reserve	4,369,000	961,180
Total Proved plus Probable (2P) Reserves	6,674,000	1,468,280

The acquisition delivers a blended purchase metric for 25% WI of CAD $5,279 per flowing barrel. It should be noted that the price of West Texas Intermediate Crude Oil has increased from USD $42/bbl in November 2020 to USD $61/bbl today, an of increase of 45%.

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

ABN 96 009 217 154

Red Earth Assets

The vendor of these assets, privately-ownedBlue-Sky Resources Limited, has recently received its approval from the Alberta Energy Regulator for the transfer of the licenses, and will now move to close before the end of March 2021.

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

ABN 96 009 217 154

Xstate Managing Director, David McArthur commented: "We are pleased to acquire a further 10% working interest in the Red Earth properties. These assets have significant upside, and we will begin the task of increasing production in April 2021."

This release is authorised by the board of the company.

David McArthur Managing Director [phone]

Additional Information Required under Chapter 5 of the ASX Listing Rules to be read as Notes to Reserve Table:

1. The Reserves were estimated by a qualified Independent Reserve Auditor GLJ Limited and have been classified in accordance with SPE-PRMS. They have been reviewed in detail by XST's Competent Person, Mr Gregory Channon. Mr Channon has more than 35 years technical, commercial and management experience in exploration appraisal and development of oil and gas. Mr Channon is a member of the American Association of Petroleum Geologists. Mr Channon has reviewed the information and supporting documentation referred to in this announcement and considers the reserve estimates to be fairly represented and consents to its release in the form and context in which it appears. His academic qualifications and industry memberships appear on the Company's website and both comply with the criteria for "Competence" under clause 3.1 of the Valmin Code 2015. Terminology and standards adopted by the Society of Petroleum Engineers "Petroleum Resources Management System" have been applied in producing this document
2. QUALIFIED PETROLEUM RESERVES AND RESOURCE EVALUATOR REQUIREMENTS: The reserves and resources information in this Sacgasco Limited Australian Stock Exchange ("ASX") document provided to GLJ Limited ("GLJ") relating to oil fields in the Red Earth Property are based on, and fairly represent information prepared by, or under the supervision of James T F Guy, Charlene A Maines, Laura M Beierbach, Sarah C. Taylor, and Kelly J. Bukowski. James T F Guy is an employee of GLJ, has a Bachelor of Science Degree in Oil and Gas Engineering from the University of Calgary and is a Registered Professional Engineer in the Province of Alberta. He is qualified in accordance with ASX listing rule 5.41. Charlene A Maines is an employee of GLJ, holding a Bachelor of Science Degree in Earth Sciences (Geology) from University of Waterloo and is a Registered Professional Geologist in the Province of Alberta. She is qualified in accordance with ASX listing rule 5.41. Laura M Beierbach P.Eng. is an employee of GLJ, has a Bachelor of Science Degree in Oil and Gas Engineering from the University of Calgary and is a Registered Professional Engineer in the Province of Alberta. She is qualified in accordance with ASX listing rule 5.41. Sarah C. Taylor P.Geol. is an employee of GLJ, holding a Bachelor of Science Degree in Geology from the university of Calgary and is a Registered Professional Geologist in the Province of Alberta. She is qualified in accordance with ASX listing rule 5.41. Kelly J. Zukowski, P.Eng. is an employee of GLJ, has a Bachelor of Science Degree in Mechanical Engineering from the University of Calgary and is a Registered Professional Engineer in the Province of Alberta. He is qualified in accordance with ASX listing rule 5.41. GLJ and its named employees have consented to be named in this manner in this release.
3. Production trends and operating cost trends are well established, enabling the reliable prediction of future production by decline curve analysis, the estimation of future revenue from oil and gas sales as

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

ABN 96 009 217 154

well as the forecasting of future costs. Economic life of reserves takes into account oil and gas revenues based on prevailing commodity pricing as well estimated operating costs, capital costs, royalties and mineral taxes.

1. The reserves are estimated at 31 December 2019 using Deterministic Methods based on GLJ estimates of future oil production using technical and economic data. Remaining oil production, based on analysis of well logs, geologic maps, seismic data, well test data. production data and property ownership information is multiplied by oil prices determined the GLJ 2020-01 price deck (based on extensive market information and professional experience and expertise) at December 31, 2019, which is part of a regular release on the GLJ website adjusted for individual field related imposts to estimate future revenues. Operator supplied field Operating Costs based on actual and projected costs are deducted from revenues on a yearly basis to determine the economic limit of the wells and summed by individual field. Royalty payments are treated as Operating Cost deductions. Estimated individual field lives based on the above methods and 2P reserves ranged from 12 to 25 years. These will vary over times due to oil prices, operating costs and other related imposts.
2. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, conclusions necessarily represent only informed professional judgement.
3. The Reserves have been estimated using Deterministic Methods and have been summed arithmetically and have not been adjusted for risk. The reserves are estimates and may increase and decrease as a result of market conditions, future operations including reactivations and fracture stimulations, enhanced recovery through waterfloods or changes in regulations, or actual reservoir performance. Estimates are based on certain assumptions including, but not limited to, that the properties will be operated in a prudent manner, that no governmental regulations or controls will be put in place that would impact the ability of the Operator to recover the volumes, and that projections of future production will prove consistent with actual performance. Because of governmental policies and uncertainties of supply and demand, the sales rates, prices received, and costs incurred may vary from assumptions made.
4. The reserve estimates in the table are Gross (100% WI- Column 1) and Net to SGC 30% WI (Column
   2). The Producing Reservoirs are predominantly conventional Keg River Formation dolomites.
5. Sacgasco will acquire its 30% WI at Closing. SGC is acquiring a Non-Operated interest. The Operator will be Blue Sky Resources Limited
6. Leases are Crown (Government awarded) Leases. Most leases are Held By Production (HBP); annual rentals are paid on leases that are not HBP. Leases cover a net to the joint venture, area of around 123,000 acres
7. Royalty paid to the Government based upon a formula where lower producing wells attract lower royalty. Based upon the current gross production of around 1,000 bopd, the production royalty averages around 12%.
8. Reserves are mostly based on normal oilfield primary recovery methods using predominantly bottom hole rod insert pumps with conventional pumpjacks; 3 wells use electric submersible pumps (ESP) Some areas of the Red Earth fields are under secondary recovery using waterflood techniques.
9. Based on local reservoir experience further fracture stimulation and waterflooding may significantly increase reserves over time. The economic benefit and use of these techniques will be determine by economic analysis in the future.
10. No specialised processing of the oil is required.

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

ABN 96 009 217 154

1. Undeveloped Reserves are based on assumptions using the local cost of development wells to access the reserves, offset and analogue producing well performance and operating costs.
2. The Red Earth Asset production is transported by tankers and owned gathering pipelines to third party access pipelines to various markets in Canada, primarily local refineries. Oil prices received are local free market prices.

PRMS Reserves Classifications used in this Release

1P Denotes low estimate of Reserves (i.e., Proved Reserves). Equal to P1.

2P Denotes the best estimate of Reserves. The sum of Proved plus Probable Reserves.

1. Developed Reserves are quantities expected to be recovered from existing wells and facilities. a. Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.
   b. Developed Non-Producing Reserves include shut-in and behind-pipe reserves with minor costs to access.
2. Undeveloped Reserves are quantities expected to be recovered through future significant investments.

A. Proved Reserves are those quantities of Petroleum that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from known reservoirs and under defined technical and commercial conditions. If deterministic methods are used, the term "reasonable certainty" is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.

B. Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate.

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 assets located in the Sacramento Basin in California and associated production interests together with production interests in Alberta Canada. Xstate is presently pursuing new opportunities in the oil and gas sector in North America.

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