This morning the Perth-based oiler said it had entered into a letter of intent to acquire a 24.5% working interest in two oil fields in the LA urban area, subject to a 30 day due diligence period.

If successful, Xstate expects to finalise its entry into the Sansinena and East Los Angeles fields by February 2017.

Sansinena is some 50km west of LAX Airport, outside LA, while the East LA field is located downtown Los Angeles.

Xstate will need to raise $US13 million ($A17 million) to purchase its stake in the assets, which are producing a gross 450 barrels of oil per day.

The fields' operator, US-based Matrix Oil Corporation (50%), has existing operations in the nearby Whittier Main and West fields providing economies of scale and extensive local knowledge of the geology, operating conditions and regulatory environment in California, Xstate said.

The Sansinena field has operating costs below $15/bbl, and Xstate believes it should be possible to increase production to over 1000bopd with production enhancement techniques and development drilling.

The field produces 15-32 degree API oil from proven reservoirs between 450-1500m and is considered a low risk development. Wells are declining at just 2-3% per annum.

Sansinena covers some 3450 gross acres along the Whittier fault zone, which hosts some of the earliest recognised oil seeps in California.

The original Sansinena discovery, then called the La Habra Canyon field, was discovered in 1898 by Union Oil Company, although it was not until the 1940s that production reached significant levels.

The East LA field is part of a separate lease within the historic Los Angeles field that was discovered in 1890, and which peaked in 1901.

"This acquisition with associated drilling investment options provides an excellent platform from which Xstate can grow," the junior said this morning.

"Expected cash flow from the workover program can be used for further development and appraisal activities and other projects that are currently under review.

"The location of the assets adjacent to other oil discoveries also provides opportunities for growth and aggregation.

This acquisition provides cash flow, production infrastructure and more importantly access to growth opportunities consistent with Xstate's revised business strategy to generate value for shareholders through low risk field development, appraisal and production enhancement opportunities."

Private interests own the other 25.5% of both fields.

Xstate shares dropped 20% to $0.012 on the news.