XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2011

Apr 20, 2011

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ABN 96 009 217 154

21 April 2011

ASX Limited

Electronic lodgement

March 2011

Quarterly Activity Report

Highlights

• 300+ MILLION BARREL POTENTIAL ONSHORE SIDI DHAHER PROSPECT READY TO BE DRILLED

• SUCCESSFUL COMPLETION OF $1.25M CAPITAL RAISING

EXPLORATION ACTIVITY

Preparations Continue for drilling the large Sidi Dhaher Prospect

XState advised during the quarter that the mobilisation of the Challenger rig to the Sidi Dhaher well site has been delayed due to concerns for the safety of local rural residents. The Operator continues to actively prepare, in conjunction with Tunisian and local authorities and the local community, for mobilisation of equipment for the drilling of Sidi Dhaher 1 well.

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Location of Flat Event ‐
interpreted Direct Hydrocarbon
Indicator (DHI)
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Figure 1: Schematic Sidi Dhaher Cross Section showing 6 potential reservoir zones

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Figure 3: Sidi Dhaher Site preparation (late Jan 2011)

Figure 2: Challenger #37 Rig

The key attributes of the Sidi Dhaher prospect (illustrated above) are:

• Potential for over 300 million barrels of recoverable prospective oil resource in just two primary reservoir zones, with a chance of geologic success independently estimated at 30%.

• The well is anticipated to intersect 4 additional prospective, secondary reservoir zones which provide upside potential.

• All of the primary and secondary reservoir zones produce oil and gas from fields within 50 kilometres of Sidi Dhaher.

• The prospectivity of Sidi Dhaher is supported by the presence of coincident hydrocarbon indicator anomalies, namely:

• Seismic Flat Spots, on all 2D seismic lines crossing the crest of the prospect at the shallowest reservoir level. These flat spots are interpreted to be potential Direct Hydrocarbon Indicators (“DHI”) and are often the seismic expression of the interface between hydrocarbons and underlying water zones in good reservoir rocks; and

• Surface Petroleum Geochemical “Microseepage” Anomalies across the prospect area. Such anomalies are often present above oil and gas accumulations.

• Resource estimates are based on mapping by Isis Petroleum Consultants, the independent expert who completed the geological report for the XState Prospectus dated 26 May 2010.

• The estimated cost to drill the well is approximately $6 million and the well is planned to take around 30 days to drill to a planned total depth of 2,150 metres

• If the well proves successful it will immediately put on test with a view to early development and production of the field.

XState will earn a 10% working interest in Sidi Dhaher by funding 20% of the Sidi Dhaher 1 well costs up to US$5m and 10% of the costs thereafter.

Kerkouane Acreage: 3 More Years Granted

During the quarter the government of Tunisia approved a three year extension of the offshore Kerkouane Production Sharing Contract (PSC).

XState earned a 10% interest in the Kerkouane acreage by part funding of the 2010 Kerkouane 3D Seismic Survey. The Company has the option to increase its position to 20% by paying a higher proportion of the costs of the next well to be drilled in the acreage. Based on the interpretation of these data the Lambouka 1 gas and condensate discovery well was drilled in late 2010.

The 3 year forward work program commitment is:

• Flow test the Lambouka discovery; and

• Drill a well to a minimum of 2500 meters;

It is noteworthy that in the Kerkouane and Pantelleria acreage only 3 exploration wells have been drilled, and all 3 wells (Dougga 1, Lambouka 1 and Kerkouane 1) have found gas and condensate. Numerous other yet to be drilled prospects and leads have been mapped on the extensive 3D and 2D seismic covering the area.

It is XState’s intention to undertake studies to better document the extensive prospect and lead inventory including Kerkouane gas discovery.

The renewed Kerkouane acreage comprises an area of 3,080 km[2] .

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Figure 4: Kerkouane and Pantelleria Acreage showing discoveries and key prospects

Dougga

A detailed independent review and resource assessment study by TRACS‐AGR initiated by the joint venture in 2010 was nearing completion at the end of the quarter. The objective of the study was to establish the technical and commercial feasibility of the Dougga discovery made by Shell in 1981. The Dougga 1 well tested gas and condensate from an Abiod Limestone reservoir which is the producing reservoir in many fields in the Pelagian Basin. A column of over 200 metres of gas saturated limestone reservoirs was seen in Dougga 1. Mapping of the 3D data acquired in March 2010, shows potential for an appraisal well to intersect the Dougga reservoir rocks some 300 metres higher than in Dougga 1, which implies a potential gross gas and condensate column of over 500 metres.

41 Stirling Highway, Nedlands WA 6009 Tel + 61 8 9423 3200 Fax +61 8 9389 8327 www.xstate.com.au

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Figure 5: Schematic Dougga Cross Section with Top Abiod Structure Map

The Dougga discovery was not evaluated further by Shell at the time due to low gas prices and lack of pipeline connections to gas markets.

Since then gas and condensate prices are significantly higher, and there are now multiple gas pipelines capable of delivering gas from Tunisia to the high priced and gas hungry European markets.

The TRACS‐AGR study is based on the revised interpretation of the Dougga discovery using the results of the 3D seismic acquired over Dougga in early 2010.

A summary of the outcomes from this review is as follows:

• Mean recoverable Contingent Resources of 41 million barrels of liquids (condensate and LPG) and 239 bcf of sales gas;

• Development of Dougga can be undertaken with proven, off the shelf technology; and

• There is upside potential in recovering gas from gas saturated, underlying Allam Carbonates.

XState is currently reviewing the results of this study in detail. A further well is anticipated to be necessary to enable the joint venture to book reserves at Dougga. This well is being planned for drilling in early 2012.

Key objectives of the next well on the Dougga discovery are:

• Confirm the Dougga structural interpretation;

• Confirm a potential hydrocarbon column in excess of 500 metres;

• Demonstrate commercial gas and condensate flow rates via well test;

• Confirm gas composition, LPG and condensate yields; and

• Confirm the presence of production and reserve enhancing reservoir fracturing on the crest of the structure.

41 Stirling Highway, Nedlands WA 6009 Tel + 61 8 9423 3200 Fax +61 8 9389 8327 www.xstate.com.au

XState has an option to increase its equity to 20% in the Dougga discovery and all areas of the Kerkouane and Pantelleria acreage outside the Lambouka discovery structure area (only 150 km[2] ) where XState‘s equity will remain at 10%.

Tunisia Political Update

The Operator of XState’s acreage has advised that the political situation in Tunisia continues to improve with the replacement of all ministers and local governors that had association with the previous presidential regime. The importance of maintaining and restoring the country’s economic base after the change in political leadership is being absorbed by the interim government and bureaucracy. There is now a greater understanding by the designated energy authority and local government of the importance of providing more assistance to oil and gas operators to ensure security during drilling operations. The local authorities are now showing a greater willingness to provide the required assistance.

CORPORATE

During the quarter the company completed a placement of 10,000,000 shares to sophisticated investors to raise $1.25 million (before costs) in working capital at a price of 12.5 cents per share.

The Company continues to actively seek and evaluate opportunities that fit its strategy of exploring for oil and gas and evaluating known oil and gas discoveries for the benefit of its shareholders.

On 11 February 2011 the Company appointed David Whitby as Chairman of the Company, with Mr John Begg remaining on the Board as a Non‐Executive Director. Mr Whitby has the overwhelming support of the Board and major shareholders and we welcome him to the Company.

Subsequent to the end of the quarter James Brown accepted an invitation from the Board of XState Resources to join the company as an independent non‐executive director. In addition, Brett Mitchell tendered his resignation following Mr Brown’s appointment. The Board would like to thank Mr Mitchell for his contribution to the Company as a Board member.”

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 38 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

41 Stirling Highway, Nedlands WA 6009 Tel + 61 8 9423 3200 Fax +61 8 9389 8327 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
			31 March 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 (3 months) $A’000
		3 - - - (419) - 10 - - -		3 - - - (419) - 10 - - -
		(406)		(406)
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 - - -		- - (3) - - 2 - - -
		(1)		(1)
		(407)		(407)

• 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)	(407)	(407)
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)	1,250 - - - - (72)
	1,178	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	771 1,417 (7)	771 1,417 (7)
	2,181	2,181

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
		177
		-
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
	800
	600
	-
	240
Total	1,672

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)	2,181	1,417
	-	-
	-	-
	-	-
Total: cash at end of quarter(item 1.22)	2,181	1,417

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
	10,000,000	10,000,000	12.5 cents	12.5 cents
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: Company Secretary

Date: 21 April 2011

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.