Xstate Resources : Borba Gas Shows Continue

ABN 96 009 217 154

Borba 1-7 Gas Shows Continue

• Drilling break with gas shows near top of key target sandstones
• A gas peak of 68 units (14 times than background) is the latest to be measured with the well drilling with 14.2 pound per gallon mud weight
• Lower Guinda Formation shows exhibited much improved properties when compared directly to Dempsey 1-15, which flowed natural gas from a correlative interval

Xstate Resources Limited (ASX:XST ("Xstate" or "the Company")) is pleased to announce that it has intersected multiple natural gas shows in zones of mud log described with apparent porosity while drilling below the excellent shows previously reported in the Lower Guinda Sandstone.

A gas peak of 68 units (14 times greater than background) in sandstone at around 8,600 feet is the latest to be measured. The well is currently drilling with 14.2 pound per gallon mud to control the background gas in accordance with good drilling practice, in what is considered to be an overpressured zone.

Drilling is continuing to the multiple remaining objectives, with the next suite of petrophysical logs to be run after reaching the TD of the well in basement rocks at around 9,700 feet.

The characteristics of the Borba 1-7 well continue to be better than previous drilling in the area. The Lower Guinda sandstone mud logs exhibited much improved properties when compared directly to Dempsey 1-15 which flowed natural gas from a correlative interval in the Guinda. The comparison below in Figure 1 shows the Borba 1-7 Lower Guinda Formation to have much improved reservoir potential and gas shows than Dempsey 1-15. The Borba sand is a blockier more continuous sand interval covering over 100 feet.

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

Xstate Resources Limited

Figure 1: Comparison of Lower Guinda Formation Mudlogs - Borba 1-7 and Dempsey 1-15

The rocks encountered as the Borba 1-7 well has penetrated into the older formations below the Guinda Formation have contained beds of high clay content which have slowed drilling progress this last week. This and the need for equipment changes and the removal of the downhole directional drilling equipment, which is no longer needed to finish the well, have resulted in slower progress. However, the well bore is in excellent condition and the drilling is proceeding to the overall evaluation plan.

The Working Interests ("WI") in the Borba 1-7 well and Borba AMI are:

Xstate Resources Limited

Xstate Managing Director, David McArthur commented: "Borba 1-7continues to deliver gas shows in sandstones consistent with our seismic interpretation. We are about to drill into the final suite of objectives before reaching TD and running wireline logs."

Xstate Resources Limited

This release is authorised by the Board of the Company.

David McArthur Managing Director +61 8 9435 3200

About Xstate Resources Limited

Xstate Resources (ASX: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.