XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2011

Jan 30, 2012

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ABN 96 009 217 154
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31 January 2012

ASX Limited

Electronic lodgement

December 2011

Quarterly Activity Report

HIGHLIGHTS

• Onshore Sidi Dhaher Discovery Mean Oil in Place estimate- 51 million barrels

• Increased Contingent Resources and enhanced prospectivity in Offshore Kerkouane Permit

• Preparations for flow testing of Sidi Dhaher oil discovery in March Quarter 2012

EXPLORATION ACTIVITY

ONSHORE 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 was successfully completed and the drilling rig released during the quarter.

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Figure 2: Post-Drill Sidi Dhaher Structure Map

Figure 1: Sidi Dhaher Drilling Rig

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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Sidi Dhaher oil discovery –Mean oil in place estimated at 51 million barrels

The interpreted 30 metre oil column in the Sidi Dhaher 1 well occurs in good quality Cretaceous age, Bireno Carbonate reservoir rocks. Oil was recovered from the reservoir using wireline sampling tools.

The oil bearing reservoirs are quite shallow at around 1,100 metres which would result in relatively inexpensive appraisal and development wells. Otherwise the oil zone is interpreted to be similar to oil zones seen in nearby producing oil fields.

A review of the existing seismic and geologic data was undertaken in order to incorporate the well results, and provide the basis for a preliminary estimate of the oil in place at the Sidi Dhaher discovery.

The Operator of the Chorbane Permit provided the following management estimate of the gross original oil in place ("OOIP") in the Bireno reservoir, calculated using probabilistic methods.

The statistical Mean of the OOIP is 51 million barrels; and is derived from the following range of estimates:

-P90 OOIP 13 million barrels -P50 OOIP 37 million barrels -P10 OOIP 110 million barrels.

Assessment of recoverable volumes and resulting potential reserves are contingent upon completion of the currently ongoing fluid studies and a flow test from the well.

Testing of the hydrocarbon bearing zones will determine the commerciality of the discovery and confirm that oil can be produced at commercial rates.

Other zones of interest in the Sidi Dhaher well are also still being evaluated for potential testing.

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 oil zone.

Next steps to be undertaken in the March Quarter

The next steps are to:

1. Continue evaluations of the data from the Sidi Dhaher Exploration well to determine the appropriate flow test program for the well;

2. Finalise contracting of appropriate equipment and services, and negotiate commercial agreements for the well testing in accordance with the governing Chorbane Production Sharing Contract cost recovery provisions;

3. Mobilise the test equipment to the Sidi Dhaher location;

4. Advise shareholders of expected well test timing. Each test may take from 7 to 10 days, and subsequently

5. Conduct the flow tests in the well 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

Enhanced Chorbane Permit Prospectivity

The discovery of oil at Sidi Dhaher has enhanced the prospectivity of the 2,428 km[2] Chorbane Permit as shown on the Chorbane Permit map (Figure 3). Prior to the drilling of the Sidi Dhaher well, industry perception was that there were no oil fields west of the ‘Pre Sidi Dhaher Oilfield Limit’ line on the map below, but now the ‘Post Sidi Dhaher Oilfield Limit’ line brings the majority of Chorbane Prospects into an interpreted New Oil Fairway.

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.

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Figure 3: Sidi Dhaher and Chorbane Prospectivity 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. There are a number of attractive follow up prospects for drilling in the future, and it is particularly noteworthy that the terms of the Tunisian Production Sharing Contract are designed to fiscally encourage exploration in the Chorbane Permit following any oil field development.

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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Current Sidi Dhaher Activity

Contracting and operational activities for the workover rig and associated equipment to allow access, as soon as practicable, to the cased well for oil flow rate testing is continuing.

The permit Operator has advised that the Sidi Dhaher oil discovery is expected to be flow tested in the March quarter 2012.

OFFSHORE KERKOUANE PERMIT – UPGRADED PROSPECTIVITY (XST - 10% with Option to Increase to 20% over all but 150 km[2] around the Lambouka Discovery)

The Kerkouane and Pantelleria Permits offshore Tunisia and Italy cover 3,725 km[2] and contain 3 discovery wells (Dougga, Kerkouane and Lambouka) and no dry holes.

New 2D seismic data was acquired during the September 2011 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 a larger program being undertaken by Shell. The preliminary processed data was received from Shell during the December quarter. Final processing of the data is continuing.

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Figure 4: Prospectivity of Kerkouane and Pantelleria Permits

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

The data acquired is part of a long offset survey operated by Shell in their neighbouring exploration permits, 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 and Inset Map

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.

Increased Contingent Resources at Dougga Discovery

The Operator has continued evaluations of the Kerkouane discoveries and prospectivity. During the quarter the Operator released assessments indicating, based on a review of information from the 3D seismic dataset, that the Dougga Gas and Condensate Discovery structure is interpreted to contain a most likely Contingent Resource of 173 million barrels of oil equivalent in the Abiod Limestone Reservoir alone, with potential for additional resources in the underlying Allam Reservoirs.

This is more than double the previously announced TRACS Competent Persons Report best estimate of recoverable Contingent Resources.

Dougga West Prospect Resource Estimate

The Dougga West Prospect is estimated by the Operator to contain a Mean Prospective resource of 226 million barrels of oil in good quality Birsa Sands, with upside potential from additional reservoirs interpreted to be present within structural closure and drillable depths.

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 Dougga West Prospect is less than 10 kilometres from the Dougga discovery and is structurally analagous to the on trend Nilde Field in nearby Italian territorial waters that has reportedly produced over 45 Million Barrels of oil (Figure 6).

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Figure 6: Dougga West and analogous Nilde Oilfield Cross Sections

Prospective Resources

The ongoing exploration analysis by the Operator has indicated a total recoverable Prospective Resources of approximately 1 billion barrels of oil equivalent in around 10 prospects in the Kerkouane Permit.

March Quarter Activities

Offshore permit activities in the next quarter will be focused on ways to have the discovered oil and gas potential and this enhanced prospectivity appraised in the most efficient manner.

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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CORPORATE

During the reporting quarter the Company issued an additional 23,344,763 shares, via placement to sophisticated investors and a share purchase plan, at a price of 6.3 cents per share. There are subsequently 100.9 million shares (ASX: XST) issued together with 48.4 million listed options (ASX: XSTO) with an exercise price of 24 cents on or before June 30 2013.

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
			31 December 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 (12 months) $A’000
		3 (231) - - (231) - 9 - - -		14 (1,336) - - (1,282) - 36 - - -
		(455)		(2,564)
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)
		(455)		(2,565)

• 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)	(455)	(2,565)
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	1,471 - - - - (74)	2,721 - - - - (146)
	1,397	2,575
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	941 459 -	9 1,417 (26)
	1,400	1,400

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
		78
		-
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
	282
	-
	-
	257
Total	539

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)	1,400	459
	-	-
	-	-
	-	-
Total: cash at end of quarter(item 1.22)	1,400	459

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	100,881,350	100,881,350	N/A	N/A
	23,344,763	23,344,763	6.3	6.3
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

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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 January 2012

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.