XSTATE RESOURCES LIMITED — Board/Management Information 2011

Jan 11, 2011

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XSTATE RESOURCES LIMITED

ABN- 96 009 217 154

NOTICE OF GENERAL MEETING

For a meeting of shareholders requisitioned pursuant to Section 249D of the Corporations Act

PROXY FORM

AND

EXPLANATORY STATEMENT

Date of Meeting

Monday 14 February 2011

Time of Meeting

10.00 AM (WST)

Place of Meeting

The Vic Hotel 226 Hay Street, Subiaco, Western Australia

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XSTATE RESOURCES LIMITED ABN - 96 009 217 154

NOTICE OF GENERAL MEETING

This notice has been prepared by the Company to comply with the Corporations Act following receipt by the Company of a requisition for the removal of a Director of the Company.

Notice is hereby given that a general meeting of Shareholders will be held at 10.00am (WST) on Monday 14 February 2011 at The Vic Hotel, 226 Hay Street, Subiaco, Western Australia.

The Explanatory Statement provides additional information on the matter to be considered at the General Meeting. The Explanatory Statement and the Proxy Form are part of this Notice of Meeting. A reply paid envelope is enclosed for the return of your proxy form.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders of the Company at 5.00pm (WST) on Saturday 12 February 2011.

Terms and abbreviations used in this Notice of Meeting are defined in the Glossary.

AGENDA

RESOLUTION 1: Removal of John Begg as a Director of the Company

To consider and, if thought fit, to pass, the following resolution as an ordinary resolution:

“That, pursuant to the power under the Company’s Constitution, John Begg be and is hereby removed as a Director of the Company.”

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D M McARTHUR Company Secretary 10 January 2011

XSTATE RESOURCES LIMITED ABN - 96 009 217 154

EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the information of Shareholders in connection with the business to be conducted at a General Meeting to be held at 10.00am (WST) on Monday 14 February 2011 at The Vic Hotel, 226 Hay Street, Subiaco, Wester Australia.

The purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolution in the Notice of Meeting.

RESOLUTIONS 1: Removal of Mr John Begg as a Director of the Company

On 22 December 2010, the Company received a requisition from Shareholders holding approximately 8.2% of the Shares in the Company requesting the Company convene a meeting of Shareholders under Section 249D of the Corporations Act to consider a resolution to remove John Begg as a Director of the Company.

The purpose of Resolution 1 is to comply with the requirements of the Corporations Act in relation to that request.

The Corporations Act enables any shareholder or shareholders with more than 5% of the issued capital in a company to requisition a meeting of shareholders. Shareholders with approximately 8.2% of the issued capital of Xstate Resources Limited have requisitioned a meeting seeking to remove Mr John Begg (the Company’s Chairman) as a Director of the Company.

The requisition does not provide any details as to the reason why the shareholders have sought to remove Mr Begg as a Director of the Company.

Directors’ Recommendations

Each of your Directors has determined to make the following recommendation to Shareholders regarding Resolution 1:

Mr John Begg (Chairman)

Mr Begg does not support the Resolution, as he does not believe his removal as a Director is warranted, nor will be in the best interests of the Company. Mr Begg will be voting against the Resolution.

Mr Gary Jeffery (Managing Director)

Mr Jeffery does not support the resolution, and will be voting against the Resolution. Mr Jeffery does not believe the removal of Mr Begg would be in the best interests of the Company.

Mr Jeffery’s opinion is that the removal of Mr Begg, one of the Company’s two experienced Directors with technical backgrounds, having extensive investment market links and relationships in the oil and gas industry within Australia and internationally, could disadvantage the Company, and as such its Shareholders.

In Mr Jeffery’s view, the Board of Directors of Xstate has been functioning well and has consistently made decisions in the best interests of Xstate and its shareholders. Therefore, the requisition to remove one of the Directors, and particularly the Chairman, has been surprising to Mr Jeffery.

Mr Jeffery believes that Mr Begg was instrumental, through his experience and particularly his contacts, in acquiring the diversified oil and gas assets that form a solid foundation for Xstate’s potential growth, and attracting the investment market support to establish Xstate as an oil and gas company.

Furthermore Mr Jeffery’s opinion is that as a consequence of Mr Begg’s pivotal role, foresight and persistence, XState has been advantageously positioned for an exciting drilling program in 2011.This will include an appraisal well on the existing Dougga gas and condensate discovery having Contingent Recoverable Resources of 96 million barrels of oil equivalent, and the very large Sidi Dhaher exploration prospect that has potential for recoverable resources of over 300 million barrels of oil.

In addition Mr Jeffery believes that Mr Begg’s experience, historical knowledge and advice relating to the oil industry and investment markets will be an important factor in exploiting any success from the upcoming field appraisal and exploration drilling program and in identifying future business opportunities for the Company.

Mr Jeffery also observes that since relisting only six months ago in July 2010, under the Chairmanship of Mr Begg the Company conducted a successful rights issue that currently reflects an 80% ‘on-paper’ gain for participating shareholders.

Furthermore, Mr Jeffery’s assessment is that it is rare in a small company to have two directors with technical backgrounds with such complementary skills bases, being, Mr Begg’s geological and corporate skills, and Mr Jeffery’s geophysical and production operations and product marketing skills. In Mr Jeffery’s view breaking up this team would be to the detriment of the Company.

- Mr Ross Kestel (Non Executive Director)

Mr Kestel does not support the Resolution, as he does not believe the removal of Mr Begg is in the best interests of the Company. Although Mr Kestel holds no Shares in the Company, he urges Shareholders to

vote against the Resolution.

Mr Kestel supports the views expressed by Mr Jeffery above on the operation of the Board, and also strongly supports the continuation of input from Mr Begg as a Director.

- Mr Brett Mitchell (Non Executive Director)

Mr Mitchell declined to comment on the proposed Resolution.

Majority Board Recommendation:

Messrs Begg, Jeffery and Kestel believe that, in their opinion, it is not appropriate to be changing the board composition at this critical time in the future of XState.

ENQUIRIES

Shareholders are encouraged to complete and return their proxy from in the reply paid envelope, and to contact the Company Secretary, David McArthur, on (+61 8) 94233200 if they have any queries in respect of the matters set out in these documents.

XSTATE RESOURCES LIMITED

ABN - 96 009 217 154

GLOSSARY

Board means the Board of Directors of the Company.

Company or Xstate means Xstate Resources Limited ABN 96 009 217 154.

Constitution means the Company’s constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

Explanatory Statement means this Explanatory Statement.

General Meeting or Meeting means the meeting of Shareholders convened by the Notice.

Notice or Notice of Meeting means the notice of meeting accompanying this Explanatory Memorandum.

Resolution means the resolution contained in the Notice which Shareholders will vote upon.

Shareholder means a holder of a Share.

Share means a fully paid ordinary Share in the capital of the Company.

WST means Western Standard Time.

APPOINTMENT OF PROXY XSTATE RESOURCES LIMITED ABN 96 009 217 154

GENERAL MEETING

I/We of being a member of Xstate Resources Limited entitled to attend and vote at the General Meeting, hereby Appoint Name of proxy

or failing the person so named or, if no person is named, the Chair of the Meeting ( who for the purposes of this meeting will not be Mr Begg), or the Chair’s nominee, to vote in accordance with the following directions, or, if no directions have been given, as the proxy sees fit, at a General Meeting to be held at The Vic Hotel, 226 Hay Street, Subiaco, Western Australia on Monday 14 February 2011 at 10.00 am (WST), and at any adjournment thereof.

If no directions are given, the Chair will vote against the Resolution. The proxy form has the box to vote against the resolution as the first box as that is the action that the majority of the board support and

recommend - voting against the resolution to remove Mr Begg as a Director.

Voting on Business of the General Meeting

AGAINST FOR ABSTAIN Resolution 1 – Removal of John Begg as a director

Please note : If you mark the abstain box for a particular Resolution, you are directing your proxy not to vote on that Resolution on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll.

If two proxies are being appointed, the proportion of voting rights this proxy represents is _______%.

Signed this day of 2011

By:

Individuals and joint holders

Companies (affix common seal if appropriate)

Signature Director Signature Director/Company Secretary Signature Sole Director and Sole Company Secretary

XSTATE RESOURCES LIMITED

ABN 96 009 217 154

Instructions for Completing ‘Appointment of Proxy’ Form

1. ( Appointing a Proxy ): A member entitled to attend and vote at a General Meeting is entitled to appoint not more than two proxies to attend and vote on a poll on their behalf. The appointment of a second proxy must be done on a separate copy of the Proxy Form. Where more than one proxy is appointed, such proxy must be allocated a proportion of the member’s voting rights. If a member appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half the votes. A duly appointed proxy need not be a member of the Company.

2. ( Direction to Vote ): A member may direct a proxy how to vote by marking one of the boxes opposite each item of business. Where a box is not marked the proxy may vote as they choose. Where more than one box is marked on an item the vote will be invalid on that item.

( Signing Instructions ):

• ( Individual ): Where the holding is in one name, the member must sign.

• ( Joint Holding ): Where the holding is in more than one name, all of the members must sign.

• ( Power of Attorney ): If you have not already provided the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

• ( Companies ): Where the company has a sole director who is also the sole company secretary, that person must sign. Where the company (pursuant to Section 204A of the Corporations Act) does not have a company secretary, a sole director can also sign alone. Otherwise, a director jointly with either another director or a company secretary must sign. Please sign in the appropriate place to indicate the office held.

• ( Attending the Meeting ): Completion of a Proxy Form will not prevent individual members from attending the General Meeting in person if they wish. Where a member completes and lodges a valid Proxy Form and attends the General Meeting in person, then the proxy’s authority to speak and vote for that member is suspended while the member is present at the General Meeting.

• ( Return of Proxy Form ): To vote by proxy, please complete and sign the enclosed Proxy Form and return by:

• (a) Returning in the reply paid envelope.

• (b) post to Xstate Resources Limited, PO Box 985, Nedlands, Western Australia, 6909; or

• (c) facsimile to the Company on facsimile number +61 8 9389 8327,

so that it is received not later than 10.00 am (WST) on Saturday 12 February 2011.

Proxy forms received later than this time will be invalid.