XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2011

Oct 30, 2011

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ABN 96 009 217 154

31 October 2011

ASX Limited

Electronic lodgement

SEPTEMBER 2011 Quarterly Activity Report

HIGHLIGHTS

• Onshore Sidi Dhaher Well‐1 discovered oil

• Sidi Dhaher Well cased, pending near term production testing

• New seismic over offshore Kerkouane Discovery

EXPLORATION ACTIVITY

CHORBANE PERMIT – SIDI DHAHER OIL DISCOVERY WELL (XST ‐ 10%)

The drilling phase of the onshore Sidi Dhaher 1 oil and gas exploration well, located near the oil support city of Sfax on the Mediterranean coast in Tunisia, has been successfully completed and the drilling rig has been released after the end of the reporting quarter (on 5 October 2011).

This will allow access, as soon as practicable, to the cased well for oil flow rate testing.

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Figure 1: Sidi Dhaher Rig Installation

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Figure 2: Sidi Dhaher Rig Drilling

208 Bagot Road, Subiaco WA 6008 Tel + 61 8 9381 4215 Fax +61 8 9381 9386 www.xstate.com.au

ABN 96 009 217 154

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The drilling activities were completed with:

• No accidents;

• No environmental incidents; and

• Community relations were maintained in a constructive way to allow ongoing operations.

Sidi Dhaher oil discovery –potential 30 metre oil column

Samples of oil were collected from limestone reservoir rocks at a shallow depth (around 1,150 metres below the surface).

These oil samples and other technical measurements, including pressure and rock properties are interpreted to indicate good quality reservoir rocks with a potential oil column approximately 30 metres in thickness.

The oil samples appear to be light oil, consistent with pressure gradient information and with the oil produced from nearby oil fields.

Other zones of interest in the Sidi Dhaher well require further detailed investigation, and analysis of the extensive physical property measurements taken during drilling.

Some of these zones may also be tested if the above analysis confirms them to be of economic interest.

The Sidi Dhaher well has been cased to provide stability and reservoir separation in the drilled well bore, and to allow near term access to the well for flow testing of the potential 30 metre oil zone.

Next steps to be undertaken in the December quarter

The next steps are to:

1. Continue evaluations of the data from the Sidi Dhaher Exploration well;

2. Use the results from these investigations and interpretations:

3. a. to map the potential oil reservoir;

4. b. to estimate the range of potentially recoverable oil and any associated gas; and

5. c. to determine the appropriate flow test program for the well;

6. Immediately investigate availability and timing of appropriate well test equipment;

7. Contract appropriate equipment for the well tests in accordance with the governing Chorbane Production Sharing Contract cost recovery provisions;

8. Advise shareholders of expected well test timing, and subsequently

9. Conduct the flow tests in the well as soon as practicable.

The discovery of oil at Sidi Dhaher has confirmed the prospectivity of the 2,428 square kilometre Chorbane Permit. The Sidi Dhaher discovery well is in close proximity to the oil support centre at Sfax and extensive oil pipelines with spare capacity and good roads connecting directly to the oil export terminal at La Skhira, some 60 kilometres away. These factors, will all facilitate earlier development of Sidi Dhaher following the confirmation of commercial flow rates from the flow tests which will be conducted as soon as practicable.

208 Bagot Road, Subiaco WA 6008 Tel + 61 8 9381 4215 Fax +61 8 9381 9386 www.xstate.com.au

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ABN 96 009 217 154
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Figure 3: Sidi Dhaher and nearby Oil Infrastructure

XState has now earned a 10% working interest in the Chorbane Permit and Sidi Dhaher oil discovery and will henceforth pay 10% of the costs of exploration and development, and receive the benefit of 10% of revenues distributed according to the Chorbane Production Sharing Contract.

KERKOUANE PERMIT – OFFSHORE KERKOUANE SEISMIC (XST ‐ 10% with Option to Increase to 20%)

The Kerkouane and Pantelleria Permits offshore Tunisia and Italy cover 3,725 square kilometres and contain 3 discovery wells (Dougga, Kerkouane and Lambouka) and no dry holes.

New 2D seismic data was obtained during the quarter over the Kerkouane‐1 gas discovery and surrounding prospective areas in the Kerkouane permit offshore Tunisia. The survey was acquired under a data exchange and acquisition agreement with Shell Tunisia Offshore GmbH as part of larger program being undertaken by Shell. The data was also processed by Shell.

208 Bagot Road, Subiaco WA 6008 Tel + 61 8 9381 4215 Fax +61 8 9381 9386 www.xstate.com.au

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ABN 96 009 217 154

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Figure 4: Kerkouane and Pantelleria Permits

The data acquired is part of a long offset survey operated by Shell in their neighbouring exploration permits blocks, offshore Tunisia. Under the agreement XState and its joint venturers obtained 104 km of newly acquired 2D seismic in the area around the Kerkouane‐1 gas discovery well. This well is interpreted to have found an interpreted 600 metre column of gas with a potential oil rim at a relatively shallow drill depth in only 110 metres of water.

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Figure 5: Kerkouane Cross Section

208 Bagot Road, Subiaco WA 6008 Tel + 61 8 9381 4215 Fax +61 8 9381 9386

www.xstate.com.au

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ABN 96 009 217 154

Whilst the old seismic data clearly shows the presence of very large structures in the area, new technology is required in some areas of the permit to assist in unravelling the tectonic complexity and locate new exploration wells with higher confidence. Therefore the objective of this seismic data acquisition is to transform the Kerkouane‐1 discovery and adjacent leads such as a large Pliocene lead into drillable appraisal and exploration projects.

Ongoing geological and geophysical interpretation continue to add to the interpreted prospectivity of the offshore permits.

CORPORATE

The Company continues to seek and review new exploration projects.

For and on behalf of the Board of XState Resources Limited

Gary Jeffery Managing Director

Competent Person

The technical information provided has been compiled by Mr Gary Jeffery, Managing Director of XState Resources Limited. He is a qualified geophysicist with over 39 years technical, commercial and management experience in exploration for, appraisal and development, and transportation of oil and gas and mineral and energy resources. Mr Jeffery has reviewed the results, procedures and data contained in this release . Mr Jeffery consents to the inclusion of the above information in the form and context in which it appears.

208 Bagot Road, Subiaco WA 6008 Tel + 61 8 9381 4215 Fax +61 8 9381 9386

www.xstate.com.au

Appendix 5B Mining exploration entity quarterly report

Rule 5.3

Appendix 5B

Mining exploration entity quarterly report

Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/01, 01/06/10, 17/12/10

Name of entity

	XSTATE RESOURCES LIMITED	XSTATE RESOURCES LIMITED
	ABN 96 009 217 154 Consolidated statement of cash flows
			30 September 2011
Cash flows related to operating activities 1.1 Receipts from product sales and related debtors 1.2 Payments for (a) exploration and evaluation (b) development (c) production (d) administration 1.3 Dividends received 1.4 Interest and other items of a similar nature received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other (provide details if material) Net Operating Cash Flows		Current quarter $A’000		Year to date (9 months) $A’000
		5 (554) - - (318) - 9 - - -		11 (1,105) - - (1,051) - 36 - - -
		(858)		(2,109)
Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets 1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other – acquisition of subsidiary Net investing cash flows 1.13 Total operating and investing cash flows (carried forward)		- - - - - - - - -		- - (3) - - 2 - - -
		-		(1)
		(858)		(2,110)

• See chapter 19 for defined terms.

17/12/2010 - Appendix 5B

Page 1

Appendix 5B Mining exploration entity quarterly report

1.13 Total operating and investing cash flows (brought forward)	(858)	(2,110)
Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other – capital raising costs Net financing cash flows	- - - - - -	1,250 - - - - (72)
	-	1,178
Net increase (decrease) in cash held 1.20 Cash at beginning of quarter/year to date 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end ofquarter	(858) 1,322 (5)	(932) 1,417 (26)
	459	459

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

1.23 1.24	Aggregate amount of payments to the parties included in item 1.2 Aggregate amount of loans to the parties included in item 1.10	Current quarter $A'000
		120
		-
1.25	Explanation necessaryforanunderstanding ofthe transactions
	1.23 – Includes salaries and fees paid to directors, as well as superannuation paid on behalf of directors.

Non-cash financing and investing activities

2.1 2.2	Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows
	N/A
	Details of outlays made by other entities to establish or increase their share in projects in which the reporting entityhas an interest
	N/A

• See chapter 19 for defined terms.

17/12/2010 - Appendix 5B

Page 2

Appendix 5B Mining exploration entity quarterly report

Financing facilities available

Add notes as necessary for an understanding of the position.

3.1 Loan facilities 3.2 Credit standby arrangements	Amount available $A’000 - -	Amount used $A’000
		-
		-

Estimated cash outflows for next quarter

4.1 Exploration and evaluation 4.2 Development 4.3 Production 4.4 Administration	$A’000
	190
	-
	-
	180
Total	370

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.	Current quarter $A’000	Previous quarter $A’000
5.1 Cash on hand and at bank 5.2 Deposits at call 5.3 Bank overdraft 5.4 Other (provide details)	459	1,322
	-	-
	-	-
	-	-
Total: cash at end of quarter(item 1.22)	459	1,322

Changes in interests in mining tenements

ts in mining	tenements
Tenement reference	Nature of interest (note (2))	Interest at beginning of quarter	Interest at end of quarter

• See chapter 19 for defined terms.

17/12/2010 - Appendix 5B

Page 3

Appendix 5B Mining exploration entity quarterly report

Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates.

	Total number	Number quoted	Issue price per security (see note 3) (cents)	Amount paid up per security (see note 3) (cents)
7.1 Preference +securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs, redemptions
7.3 +Ordinary securities ** 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs	77,536,587	77,536,587	N/A	N/A
7.5 +Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted
7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter	48,438,061 400,001	48,438,061 -	Exercise price 24 cents Various	Expiry date 30 June 2013 30 June 2012
7.11 Debentures (totals only)
7.12 Unsecured notes (totals only)

• See chapter 19 for defined terms.

17/12/2010 - Appendix 5B

Page 4

Appendix 5B Mining exploration entity quarterly report

Compliance statement

• 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 5).

• 2 This statement does give a true and fair view of the matters disclosed.

Sign here:

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Date: 31 October 2011

Company Secretary

Print name:

David McArthur

Notes

• 1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

• 2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

• 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities .

• 4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report.

• 5 Accounting Standards ASX will accept, for example, the use of International Financial Reporting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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• See chapter 19 for defined terms.