Xstate Resources Limited (ASX:XST) released its June 2026 Quarterly Activities Report on 31 July 2026, providing an update on the Diona-1 well within the Taroom Trough on ATP 2077 in Queensland's Surat Bowen Basin. The headline outcome is confirmation that over-pressured Hydrocarbons are present in Diona-1, with gas flowing continuously to surface and producing a flare — validating the presence of a hydrocarbon system. However, the well has been suspended pending a review of artificial lift alternatives, as recovery of the approximately 6,400 barrels of completion fluids has stalled with approximately 1,900 metres of stimulation fluid remaining in the wellbore.

Stimulation and Fluid Recovery

During the June quarter, Xstate and joint venture partner Elixir Energy Limited (ASX:EXR) completed a two-stage stimulation of Diona-1, targeting the upper formations comprising the Tinowon, Black Alley, and Banadana formations. Following stimulation, the operator commenced removing the approximately 6,400 barrels of completion fluids using a rocking process, which uses the reservoir's over-pressure (estimated at approximately 4,300 psi) and surfactants to lift fluids out of the well. Approximately 45% of the completion fluids were recovered, after which progress slowed. Despite a 1,900-metre column of stimulation fluid remaining in the well — representing a significant hydrostatic head — gas continued to flow to surface throughout the process.

Well Suspension and Artificial Lift Review

The decision was made to suspend the well and shut it in while alternative artificial lift methods are evaluated. JJM Consulting was engaged to conduct a review of artificial lift Options to remove the remaining completion fluids and establish unimpeded gas flow. This review is now with the Operator (Elixir Energy) for review and finalisation. The company's intention is to flow test the well and determine a sustained flow rate as soon as possible. If a commercial flow rate can be established, the plan is to connect the well to the nearby OGT-owned pipeline via an above-ground connection approximately 1 km west of the well pad.

Financial Position

During the quarter, Xstate raised $1.69 million to fund completion works. Total completion costs incurred were $2.759 million. The company's cash balance at the end of the quarter was A$1.248 million. Exploration expenditure during the quarter totalled $2.792 million on the Diona-1 project. Xstate holds a 51% interest in the Diona block within ATP 2077, with Elixir Energy holding the remaining 49%.

About the Company

Xstate Resources Limited is an ASX-listed oil and gas exploration company with its primary interest in the Diona block (51% working interest) within ATP 2077 in the Surat Bowen Basin of Queensland. The Taroom Trough — where Diona-1 is located — is an emerging gas play with analogues to the Taroom Trough producers being developed to the south.

Risks

With only $1.248 million in cash at quarter end against completion costs of $2.759 million already incurred, Xstate has very limited financial runway to fund the artificial lift programme or further testing without additional Capital raising.

The JJM Consulting artificial lift review recommends options, but the final decision rests with the Operator (Elixir Energy). Xstate holds 51% but is not the designated operator, meaning it cannot unilaterally determine the pace or nature of the next operational phase.

Gas flowing to surface despite the 1,900-metre fluid column is encouraging, but no sustained flow rate measurement has been obtained. Commercial viability cannot be confirmed until unimpeded flow testing is completed.

The two-stage stimulation was limited to the upper Tinowon, Black Alley, and Banadana formations. If these formations prove sub-commercial, deeper stimulation (targeting additional formations) would require additional capital and time.

The Taroom Trough play is early-stage with limited comparable production data in the immediate area. Analogues from the broader Surat Bowen Basin suggest commercial potential but do not guarantee success at Diona.

What to Watch Ahead

Finalisation of the JJM Consulting artificial lift options review by the Operator and announcement of the chosen method — this determines the technical pathway back to production testing.

Mobilisation of the chosen artificial lift solution and commencement of fluid recovery — the timeline for this will determine when meaningful production test data can be obtained.

Any capital raising announcement to fund the next operational phase, given the $1.248 million cash balance is insufficient to fully fund the artificial lift programme.

First sustained gas flow rate measurement from Diona-1, which will be the key commercial milestone for the project.

Any announcement of a connection timeline to the OGT-owned pipeline approximately 1 km from the well pad, which would be relevant if commercial flow rates are confirmed.