Xstate Resources Limited announced the acquisition of a 25% working interest in 10,240 gross acres of leases prospective for Keg River Oil Production adjacent to Xstate's Red Earth Properties in Alberta, Canada. Xstate has acquired the 25% working interest in 10,240 gross acres (16 sections) for CAD 750,000 in a ground floor deal from Blue Sky Resources (BSR), operator of Xstate's Canadian Assets. The acquisition includes: 2 oil discovery wells that have been drilled, completed and recovered oil, which are planned to be imminently equipped and put into production.

10,240 gross acres of unencumbered crown land with no rehabilitation liabilities beyond the existing two wells. 10 Keg River Formation prospects mapped within the acreage have similar technical characteristics to the existing discoveries and fields in the region. Prospects have been identified on a 30km2 3D seismic survey acquired in 2002.

An additional net payment of CAD 66,250 per well is payable should either of the 2 discovery wells produce at rate greater than 100 BOPD each for a period of more than 45 days when production recommences (Contingent Success Payments). The acquisition has been funded from existing cash balances and the exploration drilling is expected to be funded from future cash flows from Xstate's Canadian assets. The acquired acreage is adjacent to Xstate's South Senex leases at Red Earth.

The leases are covered by a 3D seismic survey acquired in 2002 which covers 30km2. Only 2 wells have been drilled on the leases since the 3D was acquired, and both discovered and recovered oil from the Keg River Limestone. Initial mapping by Operator BSR, has identified a further 10 prospects on the leases.

These prospects all show seismic and structural characteristics similar to the 2 discoveries and fields in the local area in the Keg River reservoirs. The top priority Blue Sky Prospect for exploration, Blue Sky-1, is clearly illustrated in the figures below in the north-eastern section of the map. Drilling depths to the Keg River Targets are less than 1500 metres.

This priority target is located nearby to an existing producing well, owned and operated by BSR, which forms part of Xstate's working interest assets in the Red Earth properties. The acquisition increase Xstate's overall lease position in the Red Earth Area to 28,560 net acres. Total daily production from the Red Earth Area for December was 862 Barrels of Oil per Day (BOPD) gross (211 BOPD net to Xstate).

Xstate anticipates this production to grow significantly in the coming year with production from the discovery wells plus planned Blue Sky Prospect drilling in 2023.