XSTATE RESOURCES LIMITED — Capital/Financing Update 2010

Sep 28, 2010

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ABN 96 009 217 154

28 September 2010

ASX Limited

Electronic lodgement

ENTITLEMENTS ISSUE TO RAISE $3M

XState Resources Limited is pleased to announce that it is undertaking a non‐renounceable pro‐rata Entitlements Issue (“Entitlements Issue”) on the basis of 4 shares for every 5 shares held, with 1 listed option (for no additional consideration) for every 2 shares subscribed for. The issue price is 10 cents per share. The options will be exercisable at $0.24 each, on or before 30 June 2013 and the Company will make an application for these options to be listed with the Company’s options trading under the ASX code “XSTO”. The Board of XState Resources recommends to all shareholders the opportunity to participate in this offer.

The Company is raising money now to provide funding in advance of our impending drilling program at Sidi Daher, onshore Tunisia in December 2010, and while we consolidate the Company’s position in our exciting offshore projects following the drilling of the Lambouka‐1.

The Directors believe this Entitlements Issue represents a very attractive investment structure for shareholders at an important stage in the growth of the Company. The Directors intend taking up their allocation in the Entitlements Issue and will be contributing to sub underwriting of the Issue.

The following summary of the status of the Company’s oil and gas assets in Tunisia and Sicily illustrates the very large potential in these assets and why the Directors believe the Company is so well poised for growth.

Lambouka

• The Lambouka ‐1 drilled a large structure well defined by 3D seismic acquired by the joint venture in April 2010. The well has discovered encountered hydrocarbons (likely gas and condensate (light oil)) in the primary target reservoir, but could not be pressure or flow tested as planned due to deteriorating hole conditions after many days of operations. The wellbore is protected by casing down to a depth of 2210 meters (130 meters above the reservoir) and has been suspended (not abandoned) in a way that will allow the joint venture to re‐enter, sidetrack and flow test the well at a later date. The well needs to be flow tested to prove the composition of the gas and fluids contained and the productive potential of the reservoirs.

• Analysis of a suite of wireline log data shows two zones of hydrocarbons accumulated in the main Abiod Formation limestone reservoir which is also the hydrocarbon reservoir in the nearby Dougga discovery. The Dougga discovery also contains CO2 mixed in with the

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accumulated gas and condensate but no CO2 was observed in the data recovered from the Lambouka‐1.

• Another limestone reservoir in Lambouka‐1, the Allam Formation also appears to contain hydrocarbons. Based on log data, matched to the 3D seismic, there may be as much as 480 meters of vertical closure (and gross hydrocarbon column) in a structure covering many square kilometres of area. Operator ADX Energy’s preliminary resource assessments indicate an accumulation of similar size to Dougga which has mean estimated recoverable resources of 96 million barrels of oil equivalent (MMBOE).

Surrounding Offshore Projects

The Lambouka‐1 results provide added confidence to the Joint Venture on two fronts:

• With further successful appraisal, a combined gas and condensate resource between Dougga and Lambouka could total over 150 MMBOE and more readily lead to a large scale commercial development.

• Including Lambouka and Dougga, all 5 structures drilled within or in the immediate vicinity of XStates’ offshore projects have encountered accumulations of hydrocarbons. This means that other prospects already mapped by the Company on the 2D and 3D seismic coverage have excellent follow up prospectivity.

Sidi Daher

• This large onshore prospect has potential for recoverable resources of over 300MMBOE and planning is advanced to drill in December this year. At completion of the Entitlements Issue XState will be fully funded through the drilling of Sidi Daher ‐1.

Entitlements Issue Offer

The Entitlements Issue will be offered to existing Xstate shareholders on the Entitlements Issue Record Date (being 8 October 2010). The Entitlements Issue will result in the issue of up to 30,016,261 new shares and up to 15,008,130 new options and will raise up to $3,001,626 in working capital. The Entitlements Issue is conditionally underwritten by Argonaut Capital Limited. Cygnet Capital Pty Ltd is the manager of the Entitlements Issue.

The Company will lodge a Prospectus (“Prospectus”) in relation to the Entitlements Issue with the ASX. The Prospectus will be dispatched to eligible shareholders of the Company for the purposes of the Entitlements Issue on 12 October 2010. The Prospectus outlines the terms of the Entitlements Issue in detail and is available for viewing on the announcements page of the ASX website (asx.com.au) and the Company’s website (xstate.com.au).

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The Entitlements Issue will proceed in accordance with the following timetable:

Announcement of Entitlements Issue, lodgement of Prospectus with ASIC & ASX, and lodgement of Appendix 3B with ASX	29 September2010
Dispatch of Entitlements Issue to shareholders	30 September 2010
Ex date (date from which Shares commence trading without the entitlement to participate in the Entitlements Issue)	1 October 2010
Record Date for determining entitlements to participate in the Entitlements Issue	8 October 2010
Dispatch of Prospectus and Entitlement and Acceptance Forms	12 October 2010
Closing Date of the Entitlements Issue *	26 October 2010
Allotment of new Shares and Options, dispatch of holding statements **	3 November 2010
Trading of new Shares and Options expected to commence on ASX **	4 November 2010

• Subject to the ASX Listing Rules, the Directors reserve the right to extend the closing date for the Entitlements Issue at their discretion. Should this occur, the extension will have a consequential effect on the anticipated date of issue of the new Shares and Options.

** These dates are indicative only.

In calculating entitlements under the Entitlements Issue, fractional entitlements will be rounded up to the nearest whole number. The offer under the Entitlements Issue is made to Shareholders with registered addresses in Australia and New Zealand. Overseas Shareholders should contact the Company Secretary with any queries.

Full details of the Entitlements Issue will be contained in the Prospectus that will be mailed to all Shareholders who are registered on the Entitlements Issue Record Date. Shareholders eligible to participate should read the Prospectus carefully.

Loan Agreement

The Company has entered into loan agreements with leading Resource Investor Argonaut Equity Partners Pty Ltd and three other lenders to secure advances to the Company of an aggregate amount of $800,000 to fund its ongoing operations during the period of the Entitlements Issue.

The Loans will be used to primarily fund final cash calls in relation to the Lambouka‐1 well.

The Loans are unsecured; however the Company’s wholly owned subsidiary Bombora Energy Limited has agreed to guarantee repayment of the Loans. Interest is payable quarterly on the Loans at a rate of 10%.

It is anticipated that the Loans will be repaid with the funds received from subscriptions under the Entitlements Issue and drawdown of the Loans is conditional on the Company undertaking the

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Entitlements Issue. The Loans must be repaid by no later than 31 December 2010 unless the Company’s option to extend to 31st March 2011 is exercised

Each Lender will be paid a fee of 3% of all amounts advanced pursuant to the Loan. The Lenders, except for Mr David McArthur, a related party of the Company, will each receive 1,833,333 listed options exercisable for $0.24 each on or before 30 June 2013. The Loans are provided subject to other provisions typical for facilities of this nature.

Should you have any queries in relation to the above, please do not hesitate to contact the Company on (+61 8) 9423 3200.

For and on behalf of the Board

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