TALIUS GROUP LIMITED — Capital/Financing Update 2009

Oct 29, 2009

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ADVANCE ENERGY LIMITED

ACN 111 823 762

PROSPECTUS

FOR AN OFFER OF CONVERTIBLE NOTES

THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION. IT SHOULD BE READ IN ITS ENTIRETY.

IF YOU ARE IN DOUBT ABOUT WHAT TO DO, YOU SHOULD CONSULT YOUR PROFESSIONAL ADVISER WITHOUT DELAY.

THE SECURITIES OFFERED BY THIS PROSPECTUS ARE OF A SPECULATIVE NATURE.

IMPORTANT INFORMATION

This Prospectus is dated 29 October 2009 and was lodged with the ASIC on that date. ASIC and ASX take no responsibility for the contents of this Prospectus.

No Securities will be issued on the basis of this Prospectus any later than 13 months after the date of this Prospectus.

The Convertible Notes issued pursuant to this Prospectus will be issued in accordance with the Trust Deed entered into by the Company and the Trustee on 12 October 2009 and the terms and conditions of which are summarised in Section 4.2.

The Convertible Notes to be issued pursuant to this Prospectus are classified as unsecured notes for the purposes of section 283BH of the Corporations Act.

A copy of this Prospectus is available for inspection at the registered office of the Company at Suite 2, 16 Ord Street, West Perth, Western Australia, during normal business hours. The Company will provide a copy of this Prospectus to any person on request. The Company will also provide copies of other documents on request (see Section 4.7).

The Company will apply for Official Quotation by ASX of the Securities issued pursuant to this Prospectus.

The Securities offered by this Prospectus should be considered speculative. Please refer to Section 3 for details relating to investment risks.

Expenditures disclosed in this Prospectus are recognised exclusive of the amount of goods and services tax, unless otherwise disclosed.

The Prospectus will be made available in electronic form. Persons having received a copy of this Prospectus in its electronic form may obtain an additional paper copy of this Prospectus and the Application Form (free of charge) from the Company's principal place of business during the Offer Period by contacting the Company. The offer contemplated by this Prospectus is only available in electronic form to persons receiving an electronic version of this Prospectus and Application Form within Australia.

Applications for Securities will only be accepted on an Application Form which is attached to, or provided by the Company or Lead Manager with a copy of this Prospectus either in paper or electronic form. The Corporations Act prohibits any person from passing on to another person an Application Form unless it is accompanied by a complete and unaltered copy of this Prospectus.

No person is authorised to give any information or to make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not so contained may not be relied on as having been authorised by the Company in connection with the Offer.

Applications for Securities under this Prospectus will not be processed until after expiry of the Exposure Period pursuant to Chapter 6D of the Corporations Act. No preference will be conferred on Applications received during the Exposure Period. All Applications received during the Exposure Period will be treated as if they were simultaneously received on the date on which the Convertible Note Offer opens. If the Exposure Period is extended by ASIC, Applications will not be processed until after expiry of the extended Exposure Period.

The purpose of the Exposure Period is to enable examination of this Prospectus by market participants prior to the acceptance of Applications and the raising of funds. That examination may result in the identification of deficiencies in the Prospectus and, in those circumstances any Application that has been received may need to be dealt with in accordance with section 724 of the Corporations Act.

The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and therefore persons into whose possession this document comes should seek advice on and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of those laws. This Prospectus does not constitute an offer of Securities in any jurisdiction where, or to any person to whom, it would be unlawful to issue this Prospectus or the Securities.

The Company collects information about each Applicant provided on an Application Form for the purposes of processing the Application and, if the Application is successful, to administer the Applicant’s security holding in the Company.

By submitting an Application Form, each Applicant agrees that the Company may use the information provided by an Applicant on the Application Form for the purposes set out in this privacy disclosure statement and may disclose it for those purposes to the Share Registry, the Company’s related bodies corporate, agents, contractors and third party service providers, including mailing houses and professional advisers, and to ASX and regulatory authorities.

If you do not provide the information required on the Application Form, the Company may not be able to accept or process your application.

An Applicant has a right to gain access to the information that the Company holds about that person subject to certain exemptions under law. A fee may be charged for access. Access requests must be made in writing to the Company’s registered office.

Corporate Directory

Directors

Alex Bajada Anthony Short Gordon Sklenka Kip Plankinton Paul Berresford

Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director

Securities Exchange Listing

Australian Securities Exchange

ASX Codes

Shares: AVD

Company Secretary

David Ballantyne

Principal and Registered Office Suite 2 16 Ord Street West Perth WA 6005 Tel: + 61 (0)8 9486 1122 Fax: + 61 (0)8 9486 1011 Website: www.advanceenergyltd.com.au

Trustee

Trust Company Fiduciary Services Limited Level 3, 530 Collins Street Melbourne VIC 3000

Solicitors to the Company

Hardy Bowen Level 1, 128 Ord Street West Perth WA 6005

Lead Manager

Optimus Financial Pty Ltd Level 2 41-43 Ord Street West Perth WA 6005 Tel: + 61 (0)8 9322 9222 Fax: + 61 (0)8 9481 7446 Website: www.optimusfinancial.com.au AFSL No 253120

Index

1.	Details of the Offer ...................................................................................................... 1
2.	Effect of the Offer ....................................................................................................... 6
3.	Risk factors ............................................................................................................... 10
4.	Additional Information.............................................................................................. 17
5.	Authorisation ............................................................................................................ 31
6.	Glossary of Terms .................................................................................................... 32

Letter from the Chairman

29 October 2009

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Dear Investor

On behalf of the Board of Advance Energy Ltd (“Advance”), I have pleasure in presenting this Prospectus to you and offering you the opportunity to subscribe for Advance Convertible Notes. Advance is seeking to raise up to $20m through the issue of 20,000,000 $1.00 listed convertible notes with a coupon of 9.5% per annum the proceeds of which will be used to:

• Fund the acquisition and refinancing of producing oil and gas properties in the Permian Basin of Texas;

• Enhance production and cash flow from existing assets by developing non-producing oil and gas bearing sands above those from which existing wells are already producing (Proved Behind Pipe Reserves); and

• Fund the drilling and completion of proven undeveloped (PUD) reserves.

Advance is seeking to develop it existing projects and undertake further acquisitions in accordance with its business model of acquiring producing assets, adding value through enhancement and development and divestment at a premium. The following projects highlight Advance's recent success in employing this strategy:

• The recent acquisition of the ten well Martin West project. This project was acquired for US$2.625m with funds raised from the issue of unlisted convertible notes in September 2009. This project is already producing at 48 barrels of oil equivalent net to Advance with a cash flow of US$54,000 per month;

• The acquisition and subsequent sale of its interest in the Mother Lode II project, also in Martin County, for US$2.015m. The project was acquired for US$2.1m in 2006 and contributed net revenue to Advance of over US$1.77m during the ownership of the project; and

• The acquisition and subsequent sale of its interest in the Lone Camp project for US$2m. The project was acquired for US$2.1m in 2006 and contributed net revenue to Advance of over US$1.2m during the ownership of the project.

Advance has a four-year track record of issuing and servicing unlisted convertible notes. For the first time, it will be issuing convertible notes that are to be listed and tradeable on ASX.

The Board is of the view that demand for oil and gas will remain strong and that this will provide ongoing support for energy prices. Advance has a base of producing assets and extensive reserves that it intends to grow through acquisition and development.

The terms of this Offer present an opportunity for you to earn interest at 9.5% per annum and to share in the upside of Advance’s share price through the ability to convert at a 15% discount to the prevailing market price at the time of conversion. This is an important document and should be read in its entirety, including the risks described in Section 3 when determining whether to participate in this Offer.

I commend this opportunity to you and look forward to welcoming you as an investor in Advance.

Yours faithfully,

Chairman

Alex Bajada

1. Details of the Offer

1.1 The Offer

Under this Prospectus the Company offers up to 20,000,000 Convertible Notes each at an issue price of $1.00 to raise up to $20,000,000, before costs of the offer, to the general public (" Offer "). Each Convertible Note will be unsecured, listed, have a face value of $1.00, an interest rate of 9.5% per annum on the $1.00 face value and a term ending on the date that is 5 years from when Convertible Notes are first issued pursuant to this Offer.

Further terms and conditions of the Convertible Notes are in Sections 1.4 and 4.1.

1.2 Applications and Allotment

Applications for Convertible Notes are open for any Applicant including Shareholders and the general public. Applicants should complete an Application Form which is attached to this Prospectus and return it with Application Monies in accordance with the instruction below and on the Application Form.

Convertible Notes will be issued in several tranches. All Convertible Notes, irrespective of the day on which they are issued, will have the same maturity date.

The Convertible Notes will be issued in several tranches as follows:

(a) First Tranche

The First Tranche will only be issued once the Company has received at least 50 Applications for a minimum of $5,000,000. Application Monies will be held on trust until the minimum of $5,000,000 has been achieved (" First Tranche ").

(b) Subsequent Tranches

After the issue of the First Tranche the Company will from time to time during the remainder of the Offer Period will issue further Convertible Notes (" Subsequent Tranches ").

Different entitlements to interest in respect to the First Tranche and Subsequent Tranches are described in Section 1.5.

Completed Application Forms and Application Monies must be received by the Lead Manager prior to 5.00pm WST on the last day of the Offer Period. Cheques must be made payable to “Advance Energy Limited - Subscription Account” and crossed “Not Negotiable”. All cheques must be in Australian currency. Application Forms should be delivered to the Company.

None of the Convertible Notes offered by this Prospectus will be issued if the Company does not receive 50 Applications for a minimum combined value of $5,000,000. Should Applications for the minimum number and value of Convertible Notes not be received within the Offer Period, the Company will either repay the Application Monies to Applicants or issue a supplementary prospectus or replacement prospectus and allow Applicants one month to withdraw their Applications and Application Monies will be repaid (without interest).

1.3 Key Dates

The Offer opens at 9am (WST) on 5 November 2009 (unless the Exposure Period is extended) and will remain open until 5.00pm (WST) on 13 January 2010, subject to the right of the Directors to either close the Offer at an earlier time and date or to extend the closing time and date without prior notice (" Offer Period "). No Convertible Notes will be issued under this Prospectus after the expiry of the Offer Period.

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1.4 Convertible Note Terms

The key terms of the Convertible Notes are as follows:

	Terms and Conditions
Issue Price	$1.00
Face Value	$1.00
Minimum Number of Noteholders	50
Minimum Subscription	$2,000
Maximum Number of Convertible Notes Issued under this Prospectus	20,000,000
Term	The Convertible Notes mature 5 years from the date of issue of Convertible Notes under the First Tranche.
Interest	9.5% per annum on the $1.00 face value of the Convertible Notes payable in cash quarterly in arrears.
Unsecured liability	The Convertible Notes are unsecured and rank equally with the other unsecured liabilities of the Company.
Conversion	Each Convertible Note maybe converted into shares at the greater of $0.08 or 85% of the volume weighted average price for the thirty days before conversion.
Timing of Conversion	Each Convertible Note may be converted on 31 December or 30 June after two years from the date of issue
Redemption	Redeemed Convertible Notes will be redeemed for the face value.
Trust Deed	The terms and conditions of the Convertible Notes are subject to and conditional upon the Trust Deed.
Change in Control	If there is a successful takeover bid or change in control, Noteholders may elect to convert all Convertible Notes into Shares. If Convertible Notes are not converted, the Company may elect to redeem them.

Refer to Section 4.1 for further details of the terms of Convertible Notes.

1.5 Payment of Interest

The entitlement to interest will depend on the tranche in which the Convertible Notes are issued:

• (a) Issued before First Interest Payment Date

Noteholders issued Convertible Notes before the First Interest Payment Date will earn interest in respect of those Convertible Notes on a pro rata basis for the period between the date of issue of the First Tranche and the first quarterly interest payment

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date (" First Interest Payment Date "). If the issue of the First Tranche occurs on or before 31 December 2009, the First Interest Payment Date will be 31 December 2009. If the issue of the First Tranche occurs after 31 December 2009 (but before the end of the Offer Period), the First Interest Payment Date will be 31 March 2009.

• (b) Subsequent Tranches after the First Interest Payment Date

Noteholders issued with Convertible Notes in a Subsequent Tranche after the First Interest Payment Date will be entitled to interest for the entire quarterly interest period in which they were issued, irrespective of the actual date on which they were issued.

The volatility of oil and gas prices, exchange rates and operating costs and risks (as detailed in Section 3) are such that the Company cannot predict with certainty its revenues and costs for the entire five-year term of the Convertible Notes. It is therefore not reasonable for the Company to make forecasts about the likelihood of interest being paid quarterly in arrears as provided for in the terms of the Convertible Notes.

More detail on the risks which may affect the operations of the Company and its cash reserves are in Section 3.

1.6

Lead Manager

The Company has appointed Optimus Financial Pty Ltd (" Optimus ") as Lead Manager to the Offer. The Lead Manager is an integrated financial services firm based in Western Australia. The founding director of the Lead Manager, Mr Paul Berresford, was appointed a Director of the Company in September 2009. The Lead Manager will assist the Company with the Offer on a best endeavours basis.

Fees are payable to the Lead Manager as follows:

• (a) a lodgement fee of 1% of the total amount raised under the Offer; and

• (b) an additional fee of 4% of the amount raised by the Lead Manager under the Offer.

The Lead Manager is entitled to offer to holders of either a Dealers Licence or Financial Services Licence a portion of the above fees in respect to any Convertible Notes issued under this Prospectus by such persons on behalf of the Lead Manager.

1.7

Exposure Period

Applications for Convertible Notes under this Prospectus will not be processed until after expiry of the Exposure Period pursuant to Chapter 6D of the Corporations Act. No preference will be conferred on Applications received for Convertible Notes during the Exposure Period. All Applications received during the Exposure Period will be treated as if they were simultaneously received on the date on which the Convertible Note Offer opens. If the Exposure Period is extended by ASIC, Applications will not be processed until after expiry of the extended Exposure Period.

The purpose of the Exposure Period is to enable examination of this Prospectus by market participants prior to the acceptance of Applications and the raising of funds. That examination may result in the identification of deficiencies in the Prospectus and, in those circumstances any Application that has been received may need to be dealt with in accordance with section 724 of the Corporations Act.

1.8

Application Forms

Applications for Convertible Notes will only be accepted on an Application Form which is attached to this Prospectus. Application Forms do not need to be signed to be accepted by the Company.

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If the Application Form is not completed correctly it may still be treated as valid. The Directors' decision as to whether to treat the Application as valid and how to construe, amend or complete the Application Form is final.

The Directors reserve the right to reject any Application and to issue a lesser number of Convertible Notes than applied for. Acceptance of an Application by the Company creates a legally binding contract between the Applicant and the Company for the number of Convertible Notes for which the Application is accepted.

1.9

Issue and Despatch

Noteholder statements are expected to be despatched within 6 Business Days of the issue of the Convertible Notes.

It is the responsibility of Applicants to determine their allocation prior to trading in the Convertible Notes offered by this Prospectus. Applicants who sell Convertible Notes before they receive their holding statements will do so at their own risk.

1.10 Application Monies held on trust

All Application Monies received by cheque for the Convertible Notes offered by this Prospectus will be held on trust in a bank account maintained solely for the purpose of depositing Application Monies received pursuant to this Prospectus until the Convertible Notes are issued. Such Application Monies will be returned (without interest) if the Convertible Notes are not issued.

1.11

ASX quotation

Application will be made to ASX for the Official Quotation of the Convertible Notes offered by this Prospectus within 7 days of the date of this Prospectus. If permission is not granted by ASX for the Official Quotation of the Convertible Notes offered by this Prospectus within 3 months after the date of this Prospectus (or such period as the ASX allows), the Company will repay, as soon as practicable, without interest, all Application Monies received pursuant to this Prospectus.

1.12 CHESS

The Company participates in the Clearing House Electronic Subregister System, known as CHESS. ASX Settlement and Transfer Corporation Pty Ltd ACN 008 504 532 ( "ASTC" ), a wholly owned subsidiary of ASX, operates CHESS in accordance with the Listing Rules and Securities Clearing House Business Rules.

Under CHESS, Applicants will not receive a certificate but will receive a statement of their holding of Convertible Notes.

If you are broker sponsored, ASTC will send you a CHESS statement.

The CHESS statement will set out the number of Convertible Notes issued under this Prospectus, provide details of your holder identification number and the participant identification number of the sponsor. If you are registered on the Issuer Sponsored subregister, your statement will be despatched by the Share Registry and will contain the number of Convertible Notes issued to you under this Prospectus and your security holder reference number.

A CHESS statement or Issuer Sponsored statement will routinely be sent to Noteholders at the end of any calendar month during which the balance of their Noteholding changes. Noteholders may request a statement at any other time; however, a charge may be made for additional statements.

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1.13 Overseas investors

This Prospectus and an accompanying Application Form do not, and are not intended to, constitute an offer of Convertible Notes in any place or jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer or to issue this Prospectus or the Convertible Notes. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.

1.14

Taxation implications

The Directors do not consider it appropriate to give Applicants advice regarding the taxation consequences of subscribing for Convertible Notes under this Prospectus.

The Company, its advisers and its officers do not accept any responsibility or liability for any such taxation consequences to Applicants. As a result, Applicants should consult their professional tax adviser in connection with subscribing for Convertible Notes under this Prospectus.

1.15 Major activities and financial information

The Company’s financial year ends on 31 December. A summary of the major activities and financial information relating to the Company for the six months ending 30 June 2009 is in the Half Yearly Report (announced on ASX on 28 August 2009) and for the financial year ended 31 December 2008 is in the Full Year Statutory Accounts (announced on ASX on 29 April 2009).

The Company's continuous disclosure notices (i.e. ASX announcements) since the date of lodgement of the Full Year Statutory Accounts on the 29 April 2009 are listed in Section 4.7.

Copies of these documents are available free of charge from the Company. Directors strongly recommend that potential investors review these and all other announcements prior to deciding whether or not to subscribe for Convertible Notes under this Prospectus.

1.16 Enquiries concerning Prospectus

Enquiries relating to this Prospectus should be directed to the Company Secretary by telephone on +61 8 9486 1122.

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2. Effect of the Offer

2.1 Capital structure on completion of the Offer

The capital structure of the Company on completion of the Offer is as follows:

	Shares	Unlisted Convertible Notes(1)	Listed Convertible Notes(2)	Unlisted Options(3)	Converting Preference Shares(4)
Existing Securities	156,367,720	9,550,000	0	19,350,000	9
Additional Securities to be issued if Offer fully subscribed			20,000,000
Total number of Securities on issue if Offer fully subscribed	156,367,720	9,550,000	20,000,000	19,350,000	9

1 Each unlisted convertible note is convertible into ordinary shares, conversion terms and redemption dates are as follows:

Redemption Date	Face Value	Conversion Terms
29 Jan 2010	$1,000,000	Greater of $0.10 or 70% of 30 day VWAP
9 May 2010	$1,000,000	Greater of $0.10 or 70% of 30 day VWAP
22 Nov 2010	$2,300,000	Greater of $0.08 or 70% of 30 day VWAP
20 Jan 2011	$250,000	Greater of $0.08 or 70% of 30 day VWAP
28 Sep 2012	$5,000,000	Greater of $0.08 or 70% of 30 day VWAP

2 To be issued subject to the terms of this Prospectus.

3 13,850,000 $0.25 Options exercisable by 31 December 2010.

5,000,000 $0.60 Options exercisable by 15 December 2009.

250,000 $0.65 Options exercisable by 29 December 2009.

250,000 $0.40 Options exercisable by 31 December 2010.

4 Each Converting Preference Share (CPS) convert into 1,000,000 Shares as follows:

CPS – B (5 on issue) – upon the Company achieving 500 BOPD.

CPS – C (2 on issue) – upon the Company achieving 1,000 BOPD. CPS – D (2 on issue) – upon the Company achieving 1,500 BOPD.

2.2 Use of funds

Funds raised will be used as follows:

	5,000,000 Convertible Notes Issued	20,000,000 Convertible Notes Issued
Projected use of funds raised	$’000	$’000
Acquisition and refinancing of Oil and Gas Properties	3,000	12,000
Development of Oil and Gas Properties	1,000	5,000

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	5,000,000 Convertible Notes Issued	20,000,000 Convertible Notes Issued
Working Capital	648	1,898
Expenses of Offer	352	1,102
Total	5,000	20,000

2.3 Pro forma balance sheets

Current Assets Cash and cash equivalents Receivables Derivative financial instruments Total Current Assets Non Current Assets Property Plant and Equipment Oil and Gas Properties Derivative financial instruments Total Non Current Assets Total Assets Current Liabilities Payables Provisions Derivative financial instruments Interest bearing loans and Borrowings Total Current Liabilities Non Current Liabilities Interest in joint venture accounted for using equity method Interest bearing loans and borrowings Total Non Current Liabilities Total Liabilities	Audit Pro forma Accounts Pro forma Accounts Reviewed Unaudited Unaudited Unaudited Jun-09 Sep-09 Oct-09 Oct-09 $'000 $'000 $'000 $'000 MINIMUM MAXIMUM 249 3,232 7,900 22,130 335 735 735 735 271 271 271 271 855 4,238 8,906 23,136
	1,121 1,121 1,121 1,121 19,176 19,369 19,369 19,369 - - - -
	20.297 20,490 20,490 20,490
	21.152 24,728 29,396 43,626
	1,750 865 865 865 98 98 98 98 77 77 77 77 5,509 5,109 5,109 5,109
	7,434 6,149 6,149 6,149
	79 79 79 79 8,285 12,110 17,110 12,110 8,364 12,189 17,189 32,189
	15,798 18,338 23,338 38,338

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Net Assets Equity Contributed equity Reserves Retained profits Total Equity	5,354 6,390 6,058 5,288
	12,694 15,069 15,069 15,069 1,970 1,970 1,970 1,970 (9,310) (10,649) (10,981) (11,751)
	5,354 6,390 6,058 5,288

Basis of Preparation

The pro forma balance sheet is based on the audit reviewed balance sheet as at 30 June 2009 that has been adjusted to reflect the following subsequent events and pro forma adjustments:

(a) Subsequent Events

Balance Sheet Movements between 1 July 2009 and 30 September 2009	Balance Sheet Movements between 1 July 2009 and 30 September 2009
Description	Balance Sheet Item	Movement $000
Equity Placement	Cash & Cash Equivalents Equity Retained Profits	2,375 2,500 (125)
Unlisted convertible note Placement	Cash & Cash Equivalents Non-Current Liabilities – Loans and borrowings RetainedProfits	4,987 5,250 (262)
Martin West Acquisition	Cash Oiland GasProperties	(2,949) 2,949
Mother Lode II Sale	Cash Payables Non-Current Liabilities – Loans and borrowings Oil and Gas Properties RetainedProfits	575 (575) (1,149) (2,756) (457)
Loan Repayments	Cash Current Liabilities – Loans and borrowings Non-CurrentLiabilities– Loans and borrowings	(676) (400) (276)
Operating cash flows and working capital movements	Cash Receivables Payables Retained Profits	(1,329) 400 (310) (619)

(b) Pro forma Adjustments

Pro forma Adjustment	Minimum Subscriptions Received $000	Maximum Subscriptions Received $000
Application Monies Received	5,000	20,000
Costs of the Offer	332	1,082
Net Amount Received After Costs	4,668	18,918

2.4 Market price of Securities

The highest and lowest market sale prices of the Company’s Shares on ASX during the 3 months immediately preceding the date of lodgement of this Prospectus with ASIC and the most recent date of the respective sales were:

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	Price	Date
Highest	$0.125	07/10/2009
Lowest	$0.065	22/09/2009
Most recent	$0.10	29/10/2009

2.5 Dividend policy

The Directors are not able to say when and if dividends will be paid in the future, as the payment of any dividends will depend on the future profitability, financial position and cash requirements of the Company.

2.6

Contingent Assets and liabilities

Details relating to contingent assets and contingent liabilities are set out in the Full Year Statutory Accounts and the Half Year Report.

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3. Risk factors

An investment in Convertible Notes offered by this Prospectus should be regarded as speculative. In addition to the general risks applicable to all investments in listed securities, there are specific risks associated with an investment in the Company.

The Directors consider that the following summary, which is not exhaustive, represents some of the specific risk factors which potential investors need to be aware of in evaluating the Company's business and risks of an investment or increasing your investment in the Company. Investors should carefully consider the following factors.

3.1 Specific Risks

(a) Interest Cover

The Company currently has $11.9m in unsecured borrowings (principally unlisted convertible notes and related party loans) and US$3.7m in secured borrowings. The Company's monthly revenue as at the date of this Prospectus is approximately $285,000 of which it utilises $135,000 to service a monthly interest expense. Interest costs will increase further as a result of the Offer. The Company cannot guarantee that it will have sufficient cashflow and/or cash reserves to meet this increased interest commitment.

The Company plans to acquire additional revenue-producing assets and to develop them through enhancement and drilling activities. As a result of this capital expenditure, the Company may have negative cashflows for the period in which development takes place. There is no guarantee that the Company will have sufficient cash reserves to meet interest commitments until such time as cashflows become positive. The Company intends to establish a cash reserve from which interest commitments can be met. The success of development programs and the ability to meet interest payments are also subject to the Oil and Gas Industry risks described at Section 3.2 below.

(b) Ability to Repay Convertible Notes

Section 2.1 describes the maturity dates of existing unlisted convertible notes. Convertible Notes issued under this Prospectus will be due for redemption five years from the first date of issue. In the event that all Noteholders elected to redeem their convertible notes rather than convert them, the Company would need to have sufficient cash to meet these events. Cash to redeem notes can be obtained from several sources including but not limited to equity issues, retained earnings and the sale and/or monetisation of oil and gas properties. The ability to successfully raise funds will depend on a variety of factors including but not limited to overall economic conditions, commodity prices, the established production and proved reserves of oil and gas properties and the prevailing market conditions in the USA.

(c) Nature of Convertible Notes

The Convertible Notes are a form of unsecured debt. Accordingly, Noteholders will rank equally with all other unsecured creditors and will rank below secured creditors. In the event of a winding up, Noteholders will only have a right to repayment of the face value and any interest payable in accordance with the terms and conditions of the Convertible Notes after all secured creditors, and any other creditors preferred by law, have been paid in full. If there is a shortfall in funds on winding up of the Company, Noteholders may not receive repayment of the face value or any interest payable in accordance with the terms and conditions of the Convertible Notes.

The interest payable in accordance with the terms and conditions of the Convertible Notes is at the fixed rate of 9.5% per annum. The market for interest rates is volatile

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and there is a risk that the level of interest rates may increase making the Convertible Notes less attractive when compared to other available rates of return.

The Company will apply for Official Quotation of the Convertible Notes on ASX. The Convertible Notes may trade at a price below the face value. In particular, the price at which the Convertible Notes trade may be affected by market sentiment arising from such factors including changes in interest rates, taxation implications and economic conditions and movements in the Australian and international financial markets. The price at which the Convertible Notes trade may also be affected by the price at which the Shares trade on ASX.

The market for Convertible Notes on ASX may be less liquid than the market for Shares. As a result, Noteholders may not be able to sell their Convertible Notes at a price that is in accordance with their expectations, or at all, if there is insufficient liquidity.

Under the Convertible Note terms and conditions, the Company may redeem the Convertible Notes on the occurrence of a takeover event, even if it is before the maturity date. This may be disadvantageous to Noteholders in light of interest rates, market conditions or individual circumstances at the time.

(d) Currency and Hedging Risk

The Company’s main business operations are based in the USA. As a result, revenues, cash inflows, expenses, capital expenditure and commitments will be primarily denominated in United States dollars.

To comply with Australian reporting requirements for the Company, the income, expenditure and cash flows of the Company's USA based subsidiaries will be converted to and accounted for in Australian dollars. This will result in the income, expenditure and cash flows of the Company being exposed to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar, as determined in international markets.

The Company has hedging arrangements in place for the sale of 1,000 barrels of oil per month at a floor price of $90.00 per barrel until May 2010. This results in the Company being exposed to the effects of the change in currency (exchange rate) risk, which may have an adverse impact on the profitability and/or financial position of the Company. This exposure may be magnified in the event that the Company's production profile is insufficient to meet its hedging commitments.

(e) Reliance on Key Personnel

The Company has engaged Hibernia Resources LLC to manage its operations in the USA and is therefore reliant on a small number of key personnel and consultants. The loss of one or more of these key contributors could have an adverse impact on the operations and success of the business.

It may be particularly difficult for the Company to attract and retain suitably qualified and experienced people, given the current high demand in the industry and relatively small size of the Company, compared to other industry participants.

(f) Third Party Risks

The operations of the Company require the involvement of a number of third parties, including suppliers, contractors and customers. Financial failure, default or contractual non-compliance on the part of such third parties may have a material impact on the Company’s operations and performance. It is not possible for the Company to predict or protect itself against all such risks.

(g) New Projects and Acquisitions

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The Company will consider acquisitions that are expected to add value to the Company. The acquisition of new business opportunities (whether completed or not) may require the payment of monies (as a deposit and/or exclusivity fee) after only limited due diligence and prior to the completion of comprehensive due diligence. There can be no guarantee that any proposed acquisition will be completed or be successful. If the proposed acquisition is not completed, monies already advanced may not be recoverable, which may have a material adverse effect on the Company.

If an acquisition is completed, the Company will need to reassess, at that time, the funding allocated to current projects and new projects, which may result in the Company reallocating funds from other projects and/or the raising of additional capital (if available). Furthermore, notwithstanding that an acquisition may proceed upon the completion of due diligence, the usual risks associated with oil and gas activities will remain.

(h) Acquisition Price of Additional Properties

Financial modelling has been undertaken to determine the potential cash flows of acquiring and developing additional oil and gas properties with the proceeds of the Offer. This modelling is based on recent comparable transactions, including the Martin West Project acquisition. There is no guarantee that future acquisitions can be made on the same transaction metrics.

In the event that future acquisitions were made at higher prices, cash flows and returns on investment will be adversely affected. Alternatively, the Company may need to consider other strategies for achieving value growth such as focusing on the development of production by additional drilling and development of existing projects. The Company will therefore need to consider these scenarios when budgeting for interest payments and Convertible Note redemption.

3.2 Oil and Gas Industry Risks

The Company operates in the oil and gas sector and is subject to risks relating to exploration, drilling and production of oil and gas which may not generally be associated with other industry sectors.

The exploitation of oil and gas reserves and successful project development is considered to be of a high risk nature and contains inherent risks including but not limited to:

(a) Acquisition Risks

Prior to any acquisition, the Company will conduct due diligence on the projects to satisfy themselves in relation to the potential to successfully achieve an economically recoverable hydrocarbon reserve. There can be no guarantee, however, that such a reserve will result from such an acquisition and the Company may have expended resources which do not result in discoveries being economically viable.

(b) Exploration and Development Risks

Oil and gas exploration and development involves significant risks which only occasionally provide high rewards. In addition to the normal competition for prospective ground, and the high costs of discovery and development of an economic deposit, factors such as demand for commodities, stock market fluctuations affecting access to new capital, sovereign risk, environmental issues, labour disruption, project financing, foreign currency fluctuations and technical problems all affect the ability of a company to profit from a discovery.

There is no assurance that exploration and development of the Company’s projects, or any other projects that may be acquired in the future, will result in the discovery of an economic oil and gas deposit. Even if an apparently viable deposit is identified, there is no guarantee that it can be profitably exploited.

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(c) Drilling Risks

The Company’s drilling operations may be curtailed, delayed or cancelled due to a number of factors including weather conditions, mechanical difficulties, shortage or delays in the delivery of rigs and/or other equipment and compliance with governmental requirements. While drilling may yield some hydrocarbons there can be no guarantee that the discovery will be sufficiently productive to justify commercial development or cover operating costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs.

(d) Operating Risks

Industry operating risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards such as accidental spills or leakage of petroleum liquids, gas leaks, ruptures or discharges of toxic gasses, the occurrence of any of which could result in substantial losses to the Company due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. Damages occurring as a result of such risks may give rise to claims against the Company. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, financial condition and results of operations of the Company.

(e) Commercialisation of Discoveries

It may not always be possible for the Company to participate in the exploitation of any successful discoveries which may be made in any projects in which the Company has an interest. Such exploitation will involve the need to obtain the necessary licences or clearances from the relevant authorities, which may require conditions to be satisfied and/or the exercise of discretions by such authorities. It may or may not be possible for such conditions to be satisfied. Further, the decision to proceed to further exploitation may require the participation of other companies whose interests and objectives may not be the same as the Company. As described above, such further work may require the Company to meet or commit to financing obligations for which it may not have planned.

(f) Hydrocarbon Reserve Estimates

Hydrocarbon reserve estimates are an expression of judgment based on knowledge, experience and industry practice. Estimates that were valid when made may change significantly when new information becomes available.

In addition, reserve estimates are necessarily imprecise and depend to some extent on interpretations, which may prove inaccurate. Should the Company encounter oil and/or gas deposits or formations different from those predicted by past drilling, sampling and similar examinations, reserve estimates may have to be adjusted and production plans may have to be altered in a way which could adversely affect the Company’s operations.

(g) Competition

The Company competes with other companies, including major oil companies. Some of these companies have greater financial and other resources than the Company and, as a result, may be in a better position to compete for future business opportunities. Many of the Company’s competitors not only explore for and produce oil and gas, but also carry out refining operations and market petroleum and other products on a worldwide basis. There can be no assurance that the Company can compete effectively with these companies.

(h) Insurance

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Insurance of all risks associated with oil and gas exploration and production is not always available and, where it is available, the cost may be high. The Company will have insurance in place considered appropriate for the Company’s needs. The Company may not be insured against all losses due to either the insurance not being available or due to the premium being excessive in relation to the benefits accruing.

(i) Government Regulation

The Company’s operations are in the oil and gas industry in the USA which is subject to extensive regulation and its present operations are subject to regulation by the Texas Railroad Commission. Regulations relating to the exploration, development, production, gathering and marketing of oil and gas will affect the Company’s operations. Some of the regulations set forth standards for discharge permits for drilling operations, drilling and abandonment bonds or other financial responsibility requirements, reports concerning operations, the spacing of wells, unitisation and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity to conserve supplies of oil and gas.

The Company cannot predict how existing, or future laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on the Company’s business or financial condition.

(j) Environmental and Other Regulatory Requirements

The Company’s operations will be subject to environmental laws, including but not limited to, those governing the management of waste, the protection of water and air quality, the discharge of materials into the environment, and the preservation of natural resources, impact and influence the Company’s operations. If the Company fails to comply with environmental laws regarding the discharge of oil, gas, or other materials into the air, soil or water it may be subject to liabilities to the government and third parties, including civil and criminal penalties.

Existing and possible future environmental legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted. Before exploration and production activity can commence on any property, the Company must obtain regulatory approvals and there is no assurance that such approvals will be obtained.

The Company has, and may from time to time in the future agree to, indemnify sellers of producing properties against some liabilities for environmental claims associated with these properties.

(k) Hydrocarbon Product Prices

The market price of hydrocarbon products is volatile and cannot be controlled. If the price of hydrocarbons should drop significantly and remain depressed, the economic prospects of the projects which the Company has an interest in could be significantly reduced or rendered uneconomic. There is no assurance that, even if significant quantities of hydrocarbon products are discovered, a profitable market may exist for their sale. Factors beyond the control of the Company may affect the marketability of any commodity discovered. Oil and gas prices have fluctuated widely in recent years. The marketability is also affected by numerous other factors beyond the control of the Company, including government regulations relating to royalties, allowable production and importing and exporting of oil and gas and petroleum products, the effect of which cannot be accurately predicted.

(l) Title

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The system for obtaining title to oil and gas leases in Texas and generally other areas of the United States that the Company may operate in is complex given that numerous parties may hold the undivided mineral rights to a particular tract of land. Securing the leases to those rights often requires lengthy negotiation with the various parties. In order to independently verify that the parties with whom the Company is dealing are the legal and sole holders of the mineral rights and to analyse the full rights and restrictions applying to the interest held by those parties requires that the Company obtain detailed title opinions from appropriately qualified and experienced lawyers. This can be a lengthy and expensive process and the final opinions are often the subject of numerous qualifications. It is therefore customary that such title opinions are not sought until the company proposed to conduct a drilling operation and/or expend significant amounts of money on a particular lease.

The Company has adopted this customary approach and, accordingly, may not have obtained the detailed title opinions on its leases other than those that are currently in production or on which drilling has been proposed in the near future.

As a consequence there may be third parties that hold or claim mineral rights in relation to the leases held by the Company which have not previously been identified.

Further, some of the leases in which the Company has an interest may have a fixed term and be subject to applications for renewal. The renewal of the term of each lease is usually at the discretion of the relevant lessor. If a lease is not renewed or granted, the Company may suffer significant damage through loss of the opportunity to develop and discover any oil or gas resources on that lease.

(m) Land Access

Immediate access to leases cannot in all cases be guaranteed. The Company may, from time to time, be required to seek consent of landholders or other persons or groups with an interest in real property encompassed by the Company’s leases. Compensation may be required to be paid by the Company to land holders in order that the Company may carry out exploration and/or production activities.

(n) Equipment and Personnel Availability

Due to exploration and development activities in the USA, and in Texas particularly, there may be delays in securing drilling rigs or other equipment and personnel required to carry out the Company’s planned activities.

In addition, there may also be upward pressure on costs and mechanical failure may result in delays which may result in significant cost overruns.

Any of these factors may have a material impact on the Company’s profitability, cash flows and its ability to meet interest obligations under the terms of the Convertible Notes.

3.3 General Risks

• (a) Securities Investment

Applicants should be aware that there are risks associated with any securities investment. The prices at which the Convertible Notes trade may be above or below the issue price, and may fluctuate in response to a number of factors.

Furthermore, the stock market, and in particular the market for oil and gas companies, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These factors may materially affect the market price of the Convertible Notes, regardless of the Company’s operational performance.

• (b) Share Market Conditions

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The market price of the Convertible Notes and the Shares may fall as well as rise and may be subject to varied and unpredictable influences on the market for securities in general and resource stocks in particular. Neither the Company nor the Directors warrant the future performance of the Company or any return on an investment in the Company.

• (c) General Economic Climate and Share Market Conditions

Factors such as global credit risks, inflation, currency fluctuation, interest rates and supply and demand have an impact on operating costs, commodity prices and stock market prices. The Company’s future revenues and the market price for its listed Securities may be affected by these factors, as well as fluctuations in the price of minerals, which are beyond the Company's control.

3.4 Investment Speculative

The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the Convertible Notes offered under this Prospectus. Potential investors should consider that an investment in the Company is speculative and should consult their professional adviser before deciding whether to apply for Convertible Notes pursuant to this Prospectus.

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4. Additional Information

4.1 Material Terms and Conditions of Convertible Notes

• (a) Trust Deed

The terms and conditions of the Convertible Notes are subject to and conditional upon the terms of the Trust Deed.

• (b) Terms

The Convertible Notes have a face value of $1.00, bear interest, are convertible into Shares, redeemable where the Convertible Note is not converted and matures on the date that is 5 years from the date of issue of the First Tranche.

• (c) Minimum Subscription

A minimum subscription of 2,000 Convertible Notes shall apply.

• (d) Unsecured and subordinated liability

The Convertible Notes will be an unsecured liability of the Company and rank equally with other unsecured liabilities of the Company.

• (e) Interest

• (i) Interest will be payable on the face value at the rate of 9.5% per annum and subject to Sections 4(e)(ii) and (iii), will accrue daily from the date of issue of the Convertible Note until the earlier of:

  • (A) the maturity date;

  • (B) the redemption of the Convertible Notes under Section 4.1(h); or

  • (C) the date of conversion,

and will be payable no later than 3 Business Days after the relevant interest payment date (being 31 March, 30 June, 30 September and 31 December each year) in respect of the interest that has accrued since the last Interest Payment Date.

• (ii) Convertible Notes issued before the First Interest Payment Date will earn interest in respect of those Convertible Notes on a pro rata basis for the period between the date of issue of the First Tranche and the First Interest Payment Date.

• (iii) Convertible Notes issued after the First Interest Payment Date will accrue Interest from the Interest Payment Date immediately preceding the issue date of the new Convertible Notes.

• (f) Payment of Interest upon Conversion

If the conversion option is exercised in respect of a Convertible Note after an interest payment date but before the next interest payment date then, because interest is payable in arrears, on the next interest payment date being a date following the date of conversion the Company will pay to the Noteholder on the next interest payment date an amount of interest calculated on a pro rata basis.

• (g) Payment of Interest on Redemption

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If the Convertible Note is redeemed after an interest payment date but before the next interest payment date then, interest from the last interest payment date prior to the redemption event in Section 4.1(h) until the date on which the redemption amount is paid will be paid by the Company to the Noteholder on the date of redemption as calculated on a pro rata basis.

(h) Redemption

A Convertible Note will be redeemed as follows:

• (i) in accordance with the terms of the Trust Deed; or

• (ii) after a takeover offer or change of control in accordance with Section 4.1(m); and

• (iii) at the maturity date,

by the Company delivering payment for the redemption amount to the Noteholder.

(i) Exclusion

The Noteholder will not be entitled to require redemption of any Convertible Notes held by him otherwise than pursuant to Section 4.1(h).

(j) Conversion

• (i) A Noteholder may convert all or part of the Convertible Notes held by that Noteholder in accordance with this Section 4.1(j) by delivering a conversion notice to the Company.

• (ii) A Noteholder may exercise the conversion option in respect of the whole or part of the total number of Convertible Notes or in respect of the whole of the face value of a Convertible Note and not in respect of a proportion only of the face value.

• (iii) A Noteholder will only be entitled to deliver a conversion notice to the Company and exercise a conversion option between the date that is 2 years from the date of issue of the Convertible Notes and the maturity date.

• (iv) A conversion option is deemed to be exercised on the conversion notice date and for the avoidance of doubt, provided that the conversion notice date occurs prior to the maturity date, a Noteholder will be entitled to Shares upon conversion despite that the date of conversion may fall after the maturity date.

• (v) On the date of conversion, the Company will proceed to issue to the Noteholder who delivers that conversion notice that number of Shares as calculated in accordance with Section 4.1(k), and will notify the Noteholder accordingly.

• (vi) The issue of Shares on the date of conversion will be and be deemed for all purposes to be in full satisfaction and discharge of the face value owing to the Noteholder pursuant to the relevant convertible notes held by that Noteholder but the conversion will in no way affect any liability of the Company to pay interest on the Convertible Notes the subject of the conversion in accordance with Section 4.1(f).

• (vii) The Shares issued upon the date of conversion will rank equally in all respects with all issued Shares at the date of conversion.

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• (iv) The Company will apply for official quotation by ASX of all Shares issued and deliver holding statements for the Shares issued.

(k)

Conversion Rate

Upon exercise of the conversion option each Convertible Note will convert to such number of Shares as is equal to the face value divided by the price per Share which is the greater of $0.08 and the price per Share which is 85% of the volume weighted average price of Shares traded on ASX in the 30 trading days in which trading occurred preceding the date that the conversion notice is given.

(l) Purchase of Convertible Notes

The Company (and any of its related parties) may at any time purchase Convertible Notes by purchases in the open market or by private agreement or by tender to all or only some of the Noteholders. Convertible Notes purchased by or for the account of the Company may be cancelled or re-sold at the option of the Company.

(m) Takeover or Change in Control

If a takeover bid (as defined in the Corporations Act) is made for 50% or more of the Shares and that bidder is successful in acquiring a relevant interest in 50% or more of the Shares or there is a change in control of 50% or more of the Shares at any time after the issue of the Convertible Notes and prior to the issue of a conversion notice in respect of such Convertible Notes, then:

• (i) the Company will give to each Noteholder written notice of the takeover bid or change of control within 5 Business Days of receiving notice of it; and

• (ii) the Noteholder must elect within 7 Business Days after receipt of the sale notice to either convert all the Convertible Notes held by that Noteholder to Shares in accordance with Section 4.1(j) or require the Company to redeem all the Convertible Notes held by that Noteholder in accordance with Section 4.1(h).

If no election is made under Section 4.1(m)(ii), within the time period specified in that Section, then the Company may in its discretion redeem all the Convertible Notes held by that Noteholder and on redemption interest will be paid in accordance with Section 4.1(g).

• (n) ASX Listing

The Company will apply to ASX for official quotation of the Convertible Notes.

• (o) Entry in Register

The Company must ensure that each Noteholder's details are entered in a register of Noteholders.

(p) Transfer

The Convertible Notes are transferable in accordance with the Trust Deed.

• (q) Participation in New Issues

There are no participation rights or entitlements inherent in the Convertible Notes and the Noteholder will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Convertible Notes.

• (r) Pro Rata Issue

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If the Company undertakes a pro rata rights issue or reconstruction then the Convertible Notes will be adjusted in accordance with the Listing Rules.

(s) Reconstruction

If there is a reconstruction (including, consolidation, subdivision, reduction or return of capital) of the issued capital of the Company, the basis for conversion of the Convertible Notes will be reconstructed in the same proportion as the issued capital of the Company is reconstructed and in a manner which will not result in any additional benefits being conferred on the Noteholder which are not conferred on the shareholders of the Company (subject to the same provisions with respect to rounding of entitlements as sanctioned by the meeting of Shareholders approving the reconstruction of capital) and in a manner consistent with the Listing Rules but in all other respects the terms for conversion of the Convertible Notes will remain unchanged.

(t) Bonus Share Issue

If a bonus issue is made by the Company, then the number of Shares issued to each Noteholder on conversion of a Convertible Note will be increased by the number of bonus Shares that a Noteholder would have received if the Convertible Note had been converted prior to the record date for the bonus issue. No change will be made to the conversion rate in Section 4.1(k).

(u) Foreign holders

Where the Convertible Notes are held by persons resident outside Australia, the Company will not convert Convertible Notes or issue Shares on conversion of Convertible Notes where the conversion or issue will result in a breach of any applicable laws by the Company.

• (v) Conversion of Voting Shares Precluded

The Company will not convert Convertible Notes or issue Shares on conversion of Convertible Notes where the conversion or issue will result in a breach of Australian takeovers laws or other applicable laws by the Company

(w) Non voting

The Convertible Notes do not confer on the holders any rights to attend or vote at general meetings of Shareholders but the Company will send to Noteholders copies of all material that the Company sends to Shareholders.

4.2 Trust Deed

The Company has entered into a Trust Deed with the Trustee dated 12 October 2009 ( Trust Deed ). The material terms of the Trust Deed are summarised as follows:

(a) General

The Trust Deed provides that each Convertible Note will be issued subject to conditions.

The Trust Deed provides for the appointment and role of the Trustee and outlines the basis upon which the Convertible Notes have been issued.

The conditions of the Trust Deed are binding on the Company, the Trustee, the Noteholders and all persons claiming through or under them.

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In accordance with its obligations under the Corporations Act, the Company will provide a copy of the Trust Deed to a Noteholder upon request free of charge. Noteholders are deemed to have notice of all the provisions of the Trust Deed.

(b)

Appointment of Trustee

The Trustee is appointed as trustee to perform the obligations under the Trust Deed for the benefit of Noteholders.

The Trustee holds the following in trust for the benefit of Noteholders:

• (i) the right to enforce the Company's duty to redeem or convert the Convertible Notes; and

• (ii) the rights to enforce any other duties and obligations that the Company has under the terms of the Convertible Notes, the Trust Deed and Chapter 2L of the Corporations Act.

Any action taken by the Trustee under the Trust Deed is binding on all Noteholders.

• (c) Trustee's Powers and Duties

Subject to the Trust Deed and the Corporations Act, the Trustee has all powers that are legally possible for a natural person or corporation to have in connection with the exercise of its powers under the Trust Deed.

Under the Trust Deed and the Corporations Act, the Trustee must:

• (i) exercise reasonable diligence to ascertain whether the Company has committed a breach of the terms of the Convertible Notes or the provisions of Chapter 2L of the Corporations Act;

• (ii) do everything reasonably in its power to ensure that the Company remedies any breach known to the Trustee of the terms of the Convertible Notes, the provisions of the Trust Deed or Chapter 2L of the Corporations Act unless the Trustee is satisfied that the breach will not materially prejudice the Noteholders' interests or any security for the Convertible Notes;

• (iii) use reasonable endeavours to ensure that the Company complies with Chapter 2K of the Corporations Act (to the extent it applies to the Convertible Notes);

• (iv) the Trustee must notify ASIC as soon as practicable if the Company has not complied with section 283BE, 283BF or subsection 318(1) or (4) of the Corporations Act;

• (v) notify ASIC and the Company as soon as practicable if the Trustee discovers that it cannot be a trustee under section 283AC of the Corporations Act;

• (vi) give Noteholders a statement explaining the effect of any proposal that the Company submits to the Noteholders before any meeting that the Court calls in relation to a scheme under subsection 411(1) or (1A) of the Corporations Act or that the Trustee calls under subsection 283EB(1) of the Corporations Act;

• (vii) apply to the Court for an order under section 283HB of the Corporations Act where the Company reasonably requests it to do so. Nothing in this clause shall be construed as restricting the right of the Trustee to apply to the Court for an order under section 283HB of the Corporations Act where no request is made by the Company; and

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• (viii) subject to being fully indemnified by the Company, use reasonable endeavours to comply with any directions given to it at a Noteholders meeting called under sections 283EA, 283EB or 283EC of the Corporations Act unless the Trustee is of the opinion that the direction is inconsistent with the terms of the Convertible Notes, the provisions of the Trust Deed or the Corporations Act and is otherwise objectionable and the Trustee has either obtained or is in the process of obtaining, an order from the Court under section 283HA of the Corporations Act setting aside or varying the direction.

The Trustee is not liable for anything done or omitted to be done in accordance with a direction given by the Noteholders at any meeting under sections 283EA, 283EB or 283EC of the Corporations Act.

The Trustee is not obliged to notify the Noteholders of the occurrence of any event of default under the Trust Deed or of the occurrence or existence of any contravention or non-observance of any provision of the Trust Deed.

• (d) Trustee's remuneration

The Company has paid or will pay to the Trustee by way of remuneration for its services as trustee, the following:

• (i) an establishment fee of $7,500 (exclusive of GST) payable on the date of execution of the Trust Deed;

• (ii) a minimum fee of $35,000 (exclusive of GST) per annum in respect of the period beginning on the date the first Convertible Notes are issued under the Trust Deed and ending on the maturity date, such amount to accrue daily and be paid quarterly in arrears; and

• (iii) in the absence of agreement, the Trustee shall be entitled to charge the Company reasonable hourly rates for the time spent by the Trustee's officers and employees in relation to such enforcement action and reflect the level of expertise required and be commensurate with and referrable to the hourly rates charged at the relevant time by members of the Insolvency Practitioners Association of Australia for work of the kind being performed by the Trustee's officers and employees.

• (e) Indemnity and Limitation of Trustee's liability

The Trustee is entitled to be indemnified by the Company in respect of all liabilities, charges and fees incurred by it in performing or exercising its powers or duties under the Trust Deed and against all actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted to be done other than to the extent arising out of its fraud, gross negligence or wilful default or that the Trustee is entitled to be indemnified for matters referred to in this paragraph by the Noteholders or individual Noteholders in the Trust Deed.

The Trustee has entered into the Trust Deed in its capacity as trustee and in no other capacity, incurs obligations solely in its capacity as Trustee and is liable only to the extent of its indemnity and the trust assets. The Company and each Noteholder waives its rights and releases the Trustee from liability which cannot be paid or satisfied out of the trust assets.

• (f) Termination of Trust

The Trust terminates on the earliest to occur of the Business Day immediately following conversion or redemption of all Convertible Notes or payment or repayment of all monies owing or one Business Day before the date that is the eightieth anniversary of the date of the Trust Deed provided that the Trust Deed will not terminate whilst there are costs, fees and/or expenses owing to the Trustee.

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On termination of the Trust Deed, the Trustee must distribute the balance of the capital and income of the Trust at the direction of the Company.

• (g) Obligations of the Company

The Company must:

• (i) carry on and conduct its business in a proper and efficient manner and must procure that each of its subsidiaries will do the same; and

• (ii) keep proper books of account;

• (iii) promptly give the Trustee notice of any appointment, retirement, resignation or removal of an auditor;

• (iv) provide copies of the Trust Deed to Noteholders or the Trustee upon request;

• (v) make all financial and other records available for inspection by the Trustee or its auditor;

• (vi) notify ASIC upon the replacement of the Trustee;

• (vii) provide the Trustee details of all charges created after the date of the Trust Deed and notify the Trustee if the total amount to be advanced on the security of the charge is indeterminate and the advances are not merged in a current account with bankers, trade creditors or anyone else;

• (viii) notify the Trustee when Convertible Notes are issued and provide the Trustee quarterly reports;

• (ix) notify the Trustee in writing of the occurrence of any event of default or potential event of default;

• (x) provide the Trustee with such information as the Trustee reasonably requests including annual and half yearly financial reports;

• (xi) to comply with the provisions of the Trust Deed, the conditions of the Convertible Notes and the Constitution;

• (xii) convene a meeting of Noteholders if called by Noteholders representing 10% of the principal amount of Convertible Notes outstanding;

• (xiii) do everything necessary to preserve the corporate existence of itself and of each subsidiary;

• (xiv) comply and upon request by the Trustee, do anything reasonably required by the Trustee to comply with all relevant legal requirements in relation to the Convertible Notes, the Corporations Act, the Listing Rules and ASTC Settlement Rules; and

• (xv) upon written request of the Trustee, at the Company's cost, appoint a duly qualified expert to value the Company's assets and provide a copy of the valuation to the Trustee.

(h) Events of Default

The Trust Deed specifies the following as events of default:

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• (i) non payment of any amounts owing in respect of the Convertible Notes for a period of 15 Business Days after written demand for those monies is made by the Trustee or any Noteholder;

• (ii) if the Company or any subsidiary of the Company in the reasonable opinion of the Trustee commits a material breach of a covenant, condition or obligation imposed on it by the Trust Deed or the conditions of the Convertible Notes and that breach is incapable of remedy and is reasonably likely to have a material adverse effect on the ability of the Company to observe its obligations to Noteholders or, if the default is capable of remedy, the default remains unremedied for 25 Business Days after a request is given by the Trustee to remedy the breach;

• (iii) if the Company is suspended from trading on the ASX for more than 20 consecutive business days;

• (iv) a secured creditor of the Company exercises its security in relation to its debt;

• (v) if an order is made or a resolution is passed for the winding up of the Company;

• (vi) if the Company enters liquidation; or

• (vii) if the Company or a subsidiary of the Company enters into any arrangement, reconstruction or a composition with its creditors without the prior written consent of the Trustee.

Upon the occurrence of an event of default the Trustee may issue redemption notices requiring the Company to redeem the Convertible Notes. Further, the Trustee on behalf of Noteholders may call a meeting of Noteholders, commence proceedings for the winding up of the Company and prove in the liquidation of the Company.

Whether or not an event of default has occurred, no Noteholders may demand, plead or seek to enforce, directly or indirectly, including by way of set off or counterclaim, or in any other matter, the payment of obligations of the Company in respect of the Convertible Notes other than in accordance with the Trust Deed.

(i) Noteholder meetings

Under the Trust Deed, the Trustee or the Company may convene a meeting of Noteholders by giving not less than 21 days prior notice to Noteholders and the auditor of the Company. Such notice may be given either personally, by post, by facsimile or by the Company (at request of the Trustee) posting the notice on its website or by the Trustee posting the notice on its website.

Noteholders who own not less than 10% in value of the principal amount outstanding under the Convertible Notes on issue may require the Company to convene a meeting of Noteholders. In these circumstances, the meeting must be convened by giving at least 21 days notice.

At every meeting of Noteholders, each Noteholder is entitled, on a show of hands, to one vote. On a poll, each Noteholder is entitled to one vote in respect of every Convertible Note held by that Noteholder.

4.3 Rights attaching to Shares

A summary of the rights attaching to Shares in the Company is set out below. This summary is qualified by the full terms of the Constitution (a full copy of the Constitution is available from the Company on request free of charge) and does not purport to be exhaustive or to constitute a definitive statement of the rights and liabilities of Shareholders. These rights and liabilities can

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involve complex questions of law arising from an interaction of the Constitution with statutory and common law requirements. For a Shareholder to obtain a definitive assessment of the rights and liabilities which attach to Shares in any specific circumstances, the Shareholder should seek legal advice.

(a) Voting

At a general meeting, on a show of hands every Shareholder present in person has 1 vote. At the taking of a poll, every Shareholder present in person or by proxy and whose Shares are fully paid has 1 vote for each of his or her Shares. On a poll, the holder of a partly paid share has a fraction of a vote with respect to the share. The fraction is equivalent to the proportion which the amount paid (not credited) bears to the total amount paid and payable (excluding amounts credited).

(b) General Meetings

Each Shareholder is entitled to receive notice of, attend and vote at general meetings of the Company and to receive all notices, financial statements and other documents required to be sent to Shareholders under the Constitution of the Company, the Corporations Act and the Listing Rules.

(c) Dividends

The Directors may pay to Shareholders any interim and final dividends as, in the Directors' judgement, the financial position of the Company justifies. The Directors may fix the amount, the record date for determining eligibility and the method of payment. All dividends must be paid to the Shareholders in proportion to the number and the amount paid on the Shares held.

(d) Transfer of Shares

Generally, all Shares in the Company are freely transferable subject to the procedural requirements of the Constitution, and to the provisions of the Corporations Act, the Listing Rules and the ASTC Operating Rules. The Directors may decline to register an instrument of transfer received where the transfer is not in registrable form or where refusal is permitted under the Listing Rules or the ASTC Operating Rules. If the Directors decline to register a transfer the Company must give reasons for the refusal. The Directors must decline to register a transfer when required by the Corporations Act, the Listing Rules or the ASTC Operating Rules.

(e) Variation of Rights

The Company may only modify or vary the rights attaching to any class of shares with the prior approval by a special resolution of the holders of shares of that class, or with the written consent of the holders of at least three-fourths of the issued shares of that class.

(f) Directors

The minimum number of Directors is three. Currently, there are five Directors. Directors, other than the managing Director must retire on a rotational basis so that one-third of Directors must retire at each annual general meeting. Any other Director who has been in office for three or more years must also retire. A retiring Director is eligible for re-election. The Directors may appoint a director either in addition to existing Directors or to fill a casual vacancy, who then holds office until the next annual general meeting.

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• (g) Decisions of Directors

Questions arising at a meeting of Directors are decided by a majority of votes. The Chairman has a casting vote.

(h)

• Issue of Further Shares

Subject to the Constitution, the Corporations Act and the Listing Rules, the Directors may issue, or grant options in respect of, Shares to such persons on such terms as they think fit. In particular, the Directors may issue preference shares, and may issue shares with preferred, deferred or special rights or restrictions in relation to dividends, voting, return of capital and participation in surplus on winding up.

• (i) Officers' Indemnity

To the full extent permitted by the law the Company shall indemnify each officer, auditor or agent of the Company, out of the property of the Company, against all losses and liabilities incurred by the person as an officer, auditor or agent of the Company, including costs and expenses incurred in defending proceedings, whether criminal or civil.

• (j) Alteration to the Constitution

The Constitution can only be amended by a special resolution passed by at least 75% of Shareholders present and voting at a general meeting. At least 28 days' notice of the intention to propose the special resolution must be given.

• (k) ASX Listing Rules Prevail

To the extent that there are any inconsistencies between the Constitution and the Listing Rules, the Listing Rules prevail.

4.4 Directors' interests in Company Securities

The Directors or their nominees currently each hold Securities in the Company as follows:

	Ordinary Shares	Converting Preference Shares	Options
Alex Bajada	5,177,144	1	2,000,000
Anthony Short	16,458,599	3	4,000,000
Gordon Sklenka	6,805,357	1	2,000,000
Kip Plankinton	0	0	0
Paul Berresford	5,000,000	0	0

4.5 Directors' participation in the Offer

The Directors or their nominees are not participating in the Offer.

4.6 Company is a disclosing entity

The Company is a disclosing entity under the Corporations Act. It is subject to regular reporting and disclosure obligations under both the Corporations Act and the Listing Rules.

Copies of documents lodged with the ASIC in relation to the Company may be obtained from, or inspected at, an ASIC office (see Section 4.7 below).

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4.7 Copies of documents

Copies of documents lodged by the Company in connection with its reporting and disclosure obligations may be obtained from, or inspected at, an office of ASIC. The Company will provide free of charge to any person who requests it during the period of the Offer, a copy of:

• (a) the Half Year Report;

• (b) the Full Year Statutory Accounts; and

• (c) the following continuous disclosure notices given by the Company to notify ASX of information relating to the Company during the period from the date of lodgement of the Full Year Statutory Accounts and before the date of issue of this Prospectus as follows:

follows:
Date	Announcement
28/10/2009	Finalisationof Martin WestAcquisition
14/10/2009	Corporate Update
13/10/2009	Results of Meeting
13/10.2009	Response toASXqueryreInitial DirectorsInterest
07/10/2009	Director’sInterestNotice
06/10/2009	Sale of Mother LodeII Project
14/10/2009	Corporate Update
13/10/2009	Results of Meeting
13/10/2009	Response toASXqueryreInitial Director'sInterest
30/09/2009	New Acquisition
29/09/2009	Appendix3B
22/09/2009	WaiverGranted
14/09/2009	Appointment of Mr Paul Berresford asNon-ExecutiveDirector
11/09/2009	Notice ofGeneral Meeting/proxyform
28/08/2009	Half Yearlyreport and accounts
17/08/2009	Shareholder Top20 andDistributionSchedule
12/08/2009	ProposedListed ConvertibleNote toRaise $20million
11/08/2009	Appendix3B
06/08/2009	Placement ofshares and convertiblenotes
03/08/2009	Shareholder Top20 andDistributionSchedule
31/07/2009	QuarterlyActivities and Cashflow Reports
23/07/2009	Results of Meeting
20/07/2009	ODN: Expiry ofoff market takeoverbid byBlazeAsset
20/07/2009	Appendix3B
20/07/2009	ShareIssue
01/07/2009	TEX:Update- BlazeAssetFederalCourtApplication
26/06/2009	BlazeAssetNotice of Variation
23/06/2009	BlazeAssetFederalCourtApplication
23/06/2009	Notice of Meeting andAppendix3B
19/06/2009	TEX: TargetEnergyBlazeAssetRevised Offer
17/06/2009	CompanyPresentation
11/06/2009	ExtensionofOffer Period
11/06/2009	ConvertibleNote andEquityFundingAgreement
10/06/2009	TargetEnergyLimited-SupplementaryTarget’s Statement
05/06/2009	SupplementaryBidder’s Statementfor TEX
05/06/2009	InitialSubstantial Holder Noticefor TEX
01/06/2009	Results of Meeting
01/06/2009	Appendix3B
29/05/2009	Changeinsubstantial holding
25/05/2009	ConvertibleNotere-issue
14/05/2009	TEX: TargetEnergylodgesTarget’s Statement
11/05/2009	Bank RedeterminationConfirms Quality of AssetBase
05/05/2009	Confirmationof Despatchof Bidder’s Statement
01/05/2009	QuarterlyActivities and Cashflow Report

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Date	Announcement
30/04/2009	TEX: Letter to TEX Shareholders
29/04/2009	Notice of Annual General Meeting/Proxy Form
29/04/2009	Annual Report to Shareholders
17/04/2009	Bidder’s Statement for TEX
15/04/2009	Initial Director’s Interest Notice
09/04/2009	Appointment of Director
08/04/2009	Off Market takeover of Target Energy Ltd
01/04/2009	Full year statutory accounts

The following documents are available for inspection throughout the Offer Period during normal business hours at the registered office of the Company at Suite 2, 16 Ord Street, West Perth, Western Australia:

• (d) this Prospectus;

• (e) the Trust Deed;

• (f) the Constitution; and

• (g) the consents referred to in Section 4.14 and the consents provided by the Directors to the issue of this Prospectus.

4.8 Information excluded from continuous disclosure notices

There is no information which has been excluded from a continuous disclosure notice in accordance with the Listing Rules, and which is required to be set out in this Prospectus.

4.9

Determination by ASIC

ASIC has not made a determination which would prevent the Company from relying on section 713 of the Corporations Act in issuing the Convertible Notes under this Prospectus.

4.10 Directors' interests

Except as disclosed in this Prospectus, no Director, and no firm in which a Director or proposed director is a partner:

• (a) has any interest nor has had any interest in the last two years prior to the date of this Prospectus in the formation or promotion of the Company, the Convertible Notes offered under this Prospectus or property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Convertible Notes offered under this Prospectus; or

• (b) has been paid or given or will be paid or given any amount or benefit to induce him or her to become, or to qualify as, a Director, or otherwise for services rendered by him or her in connection with the formation or promotion of the Company or the Convertible offered under this Prospectus.

4.11 Directors remuneration

Directors have received the following remuneration for since 31 December 2006 (all values are in Australian dollars unless otherwise indicated):

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Director	Base Remuneration	Bonus	Superannuation	Total
Alex Bajada 2007 2008 2009	54,500 54,500 20.437	4,542		59,042 54,500 20,437
Anthony Short 2007 2008 2009	220,000 220,000 73,333	18,333		238,333 220,000 73,333
Gordon Sklenka 2007 2008 2009	100,000 100,729 33,332	8,333		108,333 100,729 33,332
Kip Plankinton 2009	US$5,000			US$5,000
Paul Berresford 2009	NIL			NIL

4.12 Interests of other persons

Except as disclosed in this Prospectus, no expert, promoter or other person named in this Prospectus as performing a function in a professional, advisory or other capacity:

• (a) has any interest nor has had any interest in the last two years prior to the date of this Prospectus in the formation or promotion of the Company, the Convertible Notes offered under this Prospectus or property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Convertible Notes offered under this Prospectus; or

• (b) has been paid or given or will be paid or given any amount or benefit in connection with the formation or promotion of the Company or the Convertible Notes offered under this Prospectus.

Hardy Bowen has acted as lawyers to the Company in relation to the Offer and will receive approximately $25,000 (not including GST) for legal services rendered to the Company in connection with Offer. In the past two years Hardy Bowen has received approximately $59,000 for the provision of legal services to the Company.

Optimus is acting as Lead Manager to the Offer. Details of the fees in relation to this are set out in Section 1.6. In the past two years, Optimus has received approximately $400,000 for services provided to the Company.

4.13 Expenses of Offer

The estimated expenses of the fully-subscribed Offer are as follows:

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Expense	Costs
ASIC Lodgement fee	$2,010
ASX quotation fee	$51,675
Placement fees	$1,000,000
Legal and preparation expenses	$25,000
Initial Trustee Fees	$22,000
Printing, mailing and other expenses	$1,500
Total	$1,102,185

4.14 Consents

The following consents have been given in accordance with the Corporations Act and have not been withdrawn as at the date of lodgement of this Prospectus with the ASIC:

• (a) Hardy Bowen has given, and has not withdrawn, their written consent to being named in this Prospectus as solicitors to the Company. Hardy Bowen have not authorised or caused the issue of this Prospectus or the making of the Offer. Hardy Bowen make no representation regarding, and to the extent permitted by law exclude any responsibility for, any statements in or omissions from any part of this Prospectus;

• (b) Optimus has given, and has not withdrawn, their written consent to being named in this Prospectus as Lead Manager of the Offer. Optimus have not authorised or caused the issue of this Prospectus or the making of the Offer. Optimus make no representation regarding, and to the extent permitted by law exclude any responsibility for, any statements in or omissions from any part of this Prospectus; and

• (c) Trust Company Fiduciary Services Ltd has given and not withdrawn its written consent to be named as Trustee in this Prospectus. The Trustee has not authorised or caused the issue of this Prospectus. Neither the Trustee nor any member of the Trust company group makes any representations as to the truth or accuracy of the contents of this Prospectus other than the parts which refer directly to the Trustee. The Trustee does not make any representation regarding or accepting any responsibility for any statements or omissions in or from any other parts of this Prospectus. Other than the parts of this Prospectus which refer directly to the Trustee or which refer to the provisions of the Trust Deed, the Trustee has relied upon the Company for the accuracy of the content of this Prospectus. Neither the Trustee nor any member of the Trustee company group makes any representations as to the performance of the issue, the maintenance of capital or any particular rate of return.

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5. Authorisation

This Prospectus is authorised by each of the Directors of the Company.

This Prospectus is signed for and on behalf of the Company by:

Alex Bajada Chairman

Dated: 29 October 2009

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6. Glossary of Terms

These definitions are provided to assist persons in understanding some of the expressions used in this Prospectus.

$ means Australian dollars.

Applicant means a person who submits an Application Form.

Application means a valid application for Convertible Notes under this Prospectus.

Application Form or Form means an application form for Convertible Notes under this Prospectus.

Application Monies means application monies for Convertible Notes under this Prospectus.

ASIC means Australian Securities and Investments Commission.

ASTC means ASX Settlement and Transfer Corporation Pty Ltd (ACN 008 504 532).

ASX means ASX Limited ACN 008 129 164 and where the context permits the Australian Securities Exchange operated by ASX Limited.

Bbl means one stock tank barrel.

BOE means barrels of oil equivalent with six thousand cubic feet of gas being the equivalent to one barrel of oil.

BOPD or BOD means barrels of oil per day.

Business Day means Monday to Friday inclusive, other than a day that ASX declares is not a business day.

CHESS means ASX Clearing House Electronic Subregistry System.

Company or Advance means Advance Energy Limited ACN 111 823 762.

Convertible Note means the convertible notes with the terms and conditions in Section 4.1.

Constitution means the constitution of the Company as at the date of this Prospectus.

Corporations Act means Corporations Act (Cth) 2001.

Dealers Licence or Financial Services Licence has the same meaning as an Australia Financial Services Licence as defined in the Corporations Act.

Directors mean the directors of the Company as at the date of this Prospectus.

Exposure Period means the period of 7 days (which may be extended by ASIC to up to 14 days) after the lodgement of this Prospectus with ASIC during which the Company must not process Applications under the Offer.

First Interest Payment Date has the meaning in Section 1.5(a).

First Tranche has the meaning in Section 1.2(a).

Full Year Statutory Accounts means the financial report lodged by the Company with ASIC in respect to the year ended 31 December 2008 and includes the corporate directory, chairman’s report, review of activities, Shareholder information, financial report of the Company and its controlled entities for the year ended 31 December 2008, together with a Directors’ report in relation to that financial year and the auditor’s report for the year to 31 December 2008.

Half Year Report means the half year financial report lodged by the Company with ASIC in respect to the half year ended 30 June 2009 and includes the financial report of the Company and its controlled entities for the half year ended 30 June 2009, together with a Directors’ report

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in relation to that half year and the auditors report on the condensed half year financial report for the half year to 30 June 2009.

Issuer Sponsored means securities issued by an issuer that are held in uncertificated form without the holder entering into a sponsorship agreement with a broker or without the holder being admitted as an institutional participant in CHESS.

Listing Rules means the Listing Rules of ASX.

Lead Manager means Optimus Financial Group Limited ABN 69 008 896 311.

Noteholder means any person holding Convertible Notes.

Offer means the offer of Convertible Notes in Section 1.1.

Offer Period has the meaning in Section 1.3.

Official List means the official list of ASX.

Optimus has the meaning in Section 1.6.

Official Quotation means quotation of the Convertible Notes on the Official List.

Prospectus means this prospectus with the date in Section 5.

Proved Behind Pipe or PBP means proved reserves that are expected to be recovered from zones behind casing in existing wells, which require additional completion work or a future completion prior to the start of production

Proved Developed Producing or PDP means reserves that can be expected to be recovered through existing wells with existing equipment and operating methods

Proved Undeveloped or PUD means proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion

Section means a section of this Prospectus.

Securities mean a Share, option or a Convertible Note issued or granted (as the case may be) by the Company.

Securityholder means any person holding Securities.

Share means an ordinary fully paid share in the capital of the Company.

Shareholder means a holder of Shares.

Share Registry means Advanced Share Registry Pty Ltd ACN 008 894 488.

Subsequent Tranche has the meaning in Section 1.2(b).

Trust Deed means the trust deed between the Company and the Trustee dated 12 October 2009 (as varied by a deed of variation dated 29 October 2009) the material terms of which are summarised in Section 4.2.

Trustee means Trust Company Fiduciary Services Limited ACN 000 000 993.

WST means Western Standard Time, being the time in Perth, Western Australia.

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ADVANCE ENERGY LIMITED CONVERTIBLE NOTE APPLICATION FORM

Please read all instructions on reverse of this form

==> picture [508 x 345] intentionally omitted <==

----- Start of picture text -----

A Number of Convertible Notes applied B Total amount payable
for (you may be issued with a lesser cheque(s) to equal this amount
number)
Convertible Notes at $1.00 each = A$
Securities will be allocated at the discretion of directors.
C [Full name details ][title, given name(s) (no initials) and surname or company ] D Tax file number(s) Or exemption
name category
Name of applicant 1 Applicant 1/company
Name of joint applicant 2 or Joint applicant 2/ trust
Name of joint applicant 3 or Joint applicant 3/exemption
E Full postal address F Contact details
Number/street Contact name
Contact daytime telephone number
( )
Suburb/town State/postcode Contact email address
G CHESS HIN (if applicable)
----- End of picture text -----

• H Cheque payment details Please fill out your cheque details and make your cheque payable to: "Advance Energy Limited – Subscription Account "

Subscription Account"	Subscription Account"	Subscription Account"	Subscription Account"	Subscription Account"
Drawer Cheque number BSB number Accountnumber Totalamount ofcheque

• I Return of the Application Form with your Application Monies will constitute your offer to subscribe for Convertible Notes in the Company under this Prospectus. You declare that:

• (a) this Application is completed according to the declaration/appropriate statements on the reverse of this form and agree to be bound by the Constitution of the Company; and

• (b) I/we have received personally a copy of the Prospectus accompanying the Application Form, before applying for Convertible Notes.

No signature is required.

You should read the Prospectus dated 29 October 2009 carefully before completing this Application Form. The Corporations Act 2001 (Cth) prohibits any person from passing on this Application Form (whether in paper or electronic form) unless it is attached to or accompanies a complete and unaltered copy of the Prospectus and any relevant supplementary prospectus (whether in paper or electronic form).

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Guide to Advance Energy Limited Application Form

This Application Form relates to the Offer of up to 20,000,000 Convertible Notes, each at an issue price of $1.00 in Advance Energy Limited pursuant to the Prospectus dated 29 October 2009. The expiry date of the Prospectus is the date which is 13 months after the date of the Prospectus. The Prospectus contains information about investing in the Convertible Notes and it is advisable to read this document before applying for Convertible Notes. A person who gives another person access to this Application Form must at the same time and by the same means give the other person access to the Prospectus, and any supplementary prospectus (if applicable). While the Prospectus is current, the Company will send paper copies of the Prospectus, and any supplementary prospectus (if applicable), and an Application Form, on request and without charge.

Please complete all relevant sections of the Application Form using BLOCK LETTERS. These instructions are cross referenced to each section of the Application Form. Further particulars and the correct forms of registrable titles to use on the Application Form are contained below.

A Insert the number of Convertible Notes you wish to apply for.

• B Insert the relevant amount of Application monies. To calculate your Application monies, multiply the number of Convertible Notes applied for by the sum of $1.00.

• C Write the full name you wish to appear on the statement of holdings. This must be either your own name or the name of the company. Up to three joint Applicants may register. You should refer to the table below for the correct forms of registrable title. Applicants using the wrong form of title may be rejected. Clearing House Electronic Sub-Register System (CHESS) participants should complete their name and address in the same format as that are presently registered in the CHESS system.

• D Enter your Tax File Number (TFN) or exemption category. Where applicable, please enter the TFN for each joint Applicant. Collection of TFN(s) is authorised by taxation laws. Official Quotation of your TFN is not compulsory and will not affect your Application.

• E Please enter your postal address for all correspondence. All communications to you from the share registry will be mailed to the person(s) and address as shown. For Joint Applicants, only one address can be entered.

• F Please enter your telephone number(s), area code, email address and contact name in case we need to contact you in relation to your Application.

• G The Company will apply to ASX to participate in CHESS, operated by ASX Settlement and Transfer Corporation Pty Ltd, a wholly owned subsidiary of Australian Securities Exchange Limited.

• If you are a CHESS participant (or are sponsored by a CHESS participant) and you wish to hold securities allotted to you under this Application in uncertificated form on the CHESS subregister, complete Section G or forward your Application Form to your sponsoring participant for completion of this section prior to lodgement. Otherwise, leave Section G blank and on allotment, you will be sponsored by the Company and an SRN will be allocated to you. For further information refer to section 1.12 of the Prospectus.

H Settlement:

• If settling Application Monies by cheque make your cheque payable to "Advance Energy Limited – Subscription Account " in Australian currency and cross it "Not Negotiable". Your cheque must be drawn on an Australian Bank. The amount should agree with the amount shown in Section B. Sufficient cleared funds should be held in your account, as cheques returned unpaid are likely to result in your Application being rejected.

• I Before completing the Application Form the Applicant(s) should read the Prospectus to which the Application relates. By lodging the Application Form, the Applicant(s) agrees that this Application is for Convertible Notes in the Company upon and subject to the terms of this Prospectus, agrees to take any number of Convertible Notes equal to or less than the number of Convertible Notes indicated in Section A that may be allotted to the Applicant(s) pursuant to the Prospectus and declares that all details and statements made are complete and accurate. It is not necessary to sign the Application Form.

Correct form of Registrable Title

Note that only legal entities are allowed to hold Convertible Notes. Applications must be in the name(s) of a natural person(s), companies or other legal entities acceptable to the Company. At least one full given name and the surname is required for each natural person. The name of the beneficiary or any other non-registrable title may be included by way of an account designation if completed exactly as described in the example of correct forms of registrable title below:

Type of investor Correct form of Incorrect form of Registrable Title Registrable Title Individual Mr John Alfred Smith JA Smith Use names in full, no initials Minor (a person under the age of 18) John Alfred Smith Peter Smith Use the name of a responsible adult; do not use the name of a minor. Company ABC Pty Ltd ABC P/L Use company title, not abbreviations ABC Co Trusts Mrs Sue Smith Sue Smith Family Use trustee(s) personal name(s), do not use the name of the trust Trust Deceased Estates Ms Jane Smith Estate of late John Use executor(s) personal name(s), do not use the name of the deceased Smith Partnerships Mr John Smith and Mr Michael John Smith and Son Use partners personal names, do not use the name of the partnership Smith

Return your completed Application Form to: By mail By delivery In the reply paid envelope or Advance Energy Limited Advance Energy Limited Suite 2 PO Box 1779 16 Ord Street, West Perth WA 6872 West Perth WA 6005

Application Forms must be received no later than 5.00 pm WST time on the 13 January 2010.

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