Xstate Resources (ASX:XST) finds its potential company-maker

Xstate Resources (ASX:XST): A gas play in Central Queensland

In April 2025 the junior oil and gas player Xstate Resources unveiled a plan to become the next gas producer in the prolific Surat Basin of central Queensland. Actually, call it the Bowen-Surat Basin, because around the town of Roma, which lies in cattle country around six hours drive west of Brisbane along the Warrego Highway, the geologically older Bowen Basin sits underneath the Surat. The Surat, you’ll recall, is famous in Australia’s economic history because of the Moonie Oil Field, which after its discovery in 1961 became the nation’s first commercial oil field.

Go about an hour south of Roma and there’s a gas storage facility AGL used to own called Silver Springs and various oil and gas fields including Waggamba, Taylor, Silver Springs, Louise and Alton. Before 2025 is out Xstate reckons there’ a good chance it can have a new gas field discovered right next door to Silver Springs, sending gas to the Wallumbilla Gas Hub near Roma and from there to the supply-constrained East Coast gas market.

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Good gas prices and good project size

If things go to plan the shareholders of Xstate Resources stand to make out very well. For one thing, gas is currently going through Wallumbilla at a very nice A$13.65 a gigajoule. For another, the size of the prize is not insignificant. Xstate is acquiring, from Elixir Energy (ASX:EXR), 51% of an exploration block where the Diona Prospect has a mean unrisked prospective resource of 12.5 BCF of gas.

Xstate Resources is currently raising the capital to drill a well at Diona that it believes it can spud as soon as the company resumes quotation on the ASX later this month. The Diona-1 well will likely only take around ten days to reach the target zones. And should this be a gas discovery – and the experts who estimated that resource gave the prospect a 55% chance of success – there’s a pipeline that passes from the Waggamba field virtually over the top of Diona that can send this gas straight to Silver Springs and from there to Wallumbilla, about 130 km to the north.

New kid on the Diona block

The origin of this deal lies in the 2022 pivot by Elixir Energy away from Mongolian coal-seam gas to a focus on the Surat-Bowen Basin. In August 2022 Elixir acquired ATP-2044, prospective for gas and condensate in the Taroom Trough, which is the deepest part of the Bowen. The Taroom Trough has been attracting a lot of attention ever since 2011 when BG Group drilled a well called Daydream-1 that flowed gas at rates of up to 3.5 million cubic feet per day. In 2025 everyone is excited about the Taroom as the next big unconventional gas play. It’s believed Shell has made a discovery here recently and last year a junior called Omega Oil and Gas made a Taroom discovery with its Canyon 1H well. Elixir also had a technical success with Daydream-2 although the market temporarily lost interest after that well was completed.

In June 2024 Elixir was awarded what became ATP-2077, a collection of three blocks near ATP-2044 that Elixir had applied for primarily to increase its Taroom Trough acreage. Two of the blocks were Taroom plays, but the third, covering 369 square kilometres, was just outside the edge of the trough. It’s this block, called the Diona sub-block, that Xstate Resources is now acquiring 51% of.

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A triple whammy

Xstate Resources’ new potential company maker may not be a Taroom play, but it’s still prospective for conventional gas. The 2D seismic highlighted what looked like three stacked reservoirs, in the Triassic-aged Showgrounds Sandstone at the top, and underneath that, in the Permian-aged Upper Tinowon and Wallabella Sandstone. Each one these reservoirs seemed to be covered by the same four-way dip closure, and a single 2,300 metre vertical well can evaluate all three.

Further, when the geophysicists look at Diona what they’re seeing is the ‘nose’, that is, the top point of the anticline where the gas is likely to be trapped, and they can infer from the way the rocks fold either side of the nose is that there’s a channels where the gas – and maybe even some oil  –  could have migrated from the Permian-aged rocks to that trap. The 12.5 BCF prospective resource we referred to above is the mean figure, but the 3U or ‘high’ estimate is 30.4 BCF.

Trading to resume after the cap raise

Xstate Resources has been suspended since August 2024 while it figures out what its next project is going to be. It had formerly been focused primarily on 10-30% working interest in various gas producing properties in the Sacramento Basin of northern California, but these properties are effectively stranded assets given that Xstate doesn’t have operatorship. The Diona sub-block is its path back to a regular ASX listing and Xstate will earn its 51% interest by funding an accelerated work programme and the Diona-1 well.

Fast results expected

This is where the deal with Elixir gets interesting. Since Diona-1 is a conventional well, the cost is a mere $2.7m and drilling it as operator is what earns Xstate Resources its 51% interest in the sub-block. Under a full re-compliance prospectus, the company is currently raising $2m (minimum) to $3m (maximum), which, added to the $2.7m it has in the bank will be enough to cover it. Assume that Xstate Resources raises $3m in this round. That’ll be 294 million shares which at 2 cents per share capitalises Xstate at $5.9m. What that means is that Xstate Resources will relist at not much more than cash backing.

The upside of a successful Diona-1 well, which, as we noted above, can start not long after the relisting, comes virtually for free. Given how quickly things can move after that, like, having well test results within two months of mobilising a rig, this transaction might just see everyone make out well – Xstate Resources , its new shareholders, and Elixir.