Carbon Energy Limited : Appendix 3B and Cleansing Statement

6 March 2012

Level 12, 301 Coronation Drive, Milton QLD 4064 Australia

PO Box 2118, Toowong DC QLD 4066 Australia

phone + 61 (0) 7 3337 9944

fax + 61 (0) 7 3337 9945 www.carbonenergy.com.auCarbon Energy Limited

ABN 56 057 552 137

Carbon Energy (Operations) Pty Ltd

ABN 61 105 176 967

The Company hereby provides notice to the ASX for the purpose of section

708A(5)(e) of the Corporations Act that it has issued 3,333,333 ordinary fully paid shares in the Company to Pacific Road Capital Management Pty Ltd. which represent the transaction fee in respect of the Tranche B advance payable under the Convertible Note Facility Agreement between the Company, PRCM Nominees Pty Ltd and Pacific Road Holdings (announced to the market on 5 January 2012) without disclosure to investors under Part 6D.2 of the Corporations Act.

This is in accordance with shareholder approval obtained at the AGM on 24 Nov

2011.

The Company states that as at the date of this notice:

• It has complied with the relevant provisions of Chapter 2M of the Corporations Act as they apply to the Company and section 674 of the Corporations Act; and

• It is not aware of any excluded information within the meaning of Sections

708A(7) and 708A(8) of the Corporations Act.

An Appendix 3B with respect to the issue of the ordinary fully paid shares and Tranche B options is also lodged by the Company with the ASX today and attached to this notice.

For and on behalf of the Board

Morné Engelbrecht

CFO & Company Secretary

Appendix 3B & Section 708 Notice Page 1 of 2

Carbon Energy is a world leader in advanced coal technology. The Company's business is transforming stranded coal resources into high-value fuels with lower carbon emissions to meet the increasing global demand for new, low cost, alternative energy sources.

Carbon Energy is headquartered in Brisbane, Australia and listed on the Australian Securities Exchange (ASX). The Company also has an office in New York and is quoted on OTCQX International (CNXAY).

The Company's proprietary technology, keyseam® is an innovation in underground coal gasification (UCG), incorporating a unique site selection methodology and advanced geological and hydrological modelling. Keyseam® maximizes resource efficiency, extracting up to 20 times more energy from the same resource than coal seam gas, while minimizing surface disturbance and preserving groundwater quality.

Carbon Energy's technological advantage comes from its association with Australia's premier research agency, CSIRO, which includes world-class geotechnical, hydrological and gasification modelling capabilities.

Carbon Energy is building an international portfolio of coal assets suitable for keyseam® and accessible to high-value markets. The Company has resources and rights to coal assets in projects across Australia, Chile, United States and Turkey.

www.carbonenergy.com.au

2

Rule 2.7, 3.10.3, 3.10.4, 3.10.5

Information or documents not available now must be given to ASX as soon as available. Information and documents given to ASX become ASX's property and may be made public.

Introduced 1/7/96. Origin: Appendix 5. Amended 1/7/98, 1/9/99, 1/7/2000, 30/9/2001, 11/3/2002, 1/1/2003, 24/10/2005.

Name of entity

Carbon Energy Limited (CNX)

ABN

56 057 552 137

We (the entity) give ASX the following information.

You must complete the relevant sections (attach sheets if there is not enough space).

1 +Class of +securities issued or to be issued

1. Ordinary Fully Paid Shares.

2. Unlisted Options to subscribe for ordinary shares.

2 Number of +securities issued or to be issued (if known) or maximum number which may be issued

1. 3,333,333 Ordinary Fully Paid Shares.

2. 28,000,000 Options.

+ See chapter 19 for defined terms.

24/10/2005Appendix 3B Page 1

3 Principal terms of the +securities (eg, if options, exercise price and expiry date; if partly paid

+securities, the amount outstanding and due dates for payment; if +convertible securities, the conversion price and dates for conversion)

1. 3,333,333 Ordinary Fully Paid Shares:

The Shares will the same terms as existing

Carbon Energy ordinary fully paid shares.

2. 28,000,000 Options:

28,000,000 Options exercisable at $0.1875 per option (subject to adjustments as provided for under the Option Subscription Deed relating to Pro-rata issues, Bonus issues and reorganisations), expiring 25

February 2017.

4 Do the +securities rank equally in all respects from the date of allotment with an existing +class of quoted +securities?
If the additional securities do not rank equally, please state:
• the date from which they do
• the extent to which they participate for the next dividend, (in the case of a trust, distribution) or interest payment
• the extent to which they do not rank equally, other than in relation to the next dividend, distribution or interest payment

1. 3,333,333 Ordinary Fully Paid Shares: Yes.

2. 28,000,000 Options:

Not applicable. CNX options are currently unlisted. In the event the options are exercised the resulting ordinary shares issued will rank equally in all respects from the date of allotment with the existing class of quoted securities.

5 Issue price or consideration 1. 3,333,333 Ordinary Fully Paid Shares:

In part consideration of the Facility Fee for Tranche B under the $10 million Pacific Road Convertible Note Facility Agreement at a deemed value of 12 cents.

2. 28,000,000 Options:

In part consideration of the $10 million Pacific Road Convertible Note Facility in accordance with shareholder approval obtained at the AGM on 24 November 2011.

6 Purpose of the issue
(If issued as consideration for the
acquisition of assets, clearly
identify those assets)

1. 3,333,333 Ordinary Fully Paid Shares:

Issue of 3,333,333 Ordinary Shares under the

$10 million Pacific Road Convertible Note Facility Agreement to cover the costs of the Placement Fee relating to the drawdown of Tranche B of the Facility. This is in accordance with shareholder approval obtained at the AGM on 24 November 2011.

2. 28,000,000 Options:

Issue of 28,000,000 options under the $10 million Pacific Road Convertible Note Facility Agreement on the drawdown of Tranche B of the Facility. This is in accordance with shareholder approval obtained at the AGM on 24 November 2011.

7 Dates of entering +securities into uncertificated holdings or despatch of certificates

1. 3,333,333 Ordinary Fully Paid Shares:

29 February 2012.

2. 28,000,000 Options:

29 February 2012.

8 Number and +class of all

+securities quoted on ASX

(including the securities in
clause 2 if applicable)

+ See chapter 19 for defined terms.

24/10/2005Appendix 3B Page 3

9 Number and +class of all

+securities not quoted on ASX

(including the securities in
clause 2 if applicable)

Number +Class

100,000, 25c Options expiring 1 April 2012
196,000, 40c Options expiring 1 April 2012
5,000,000, 25c Options expiring 10 Dec 2013
1,400,000, 35c Options expiring 10 Dec 2013
5,600,000, 70c Options expiring 10 Dec 2013
5,250,000, 80c Options expiring 10 Dec 2013
875,000, $1.20 Options expiring 10 Dec 2013
1,750,000, $1.60 Options expiring 10 Dec 2013
2,000,000, 80c Options expiring 10 Dec 2013
10,000,000, $1.00 Options with vesting date of 30
June 2012 (must achieve certain Performance
Benchmarks to vest) expiring 10 Dec 2014.
7,000,000, 18.75c Options (subject to adjustments as provided for under the Option Subscription Deed relating to Pro-rata issues, Bonus issues and reorganisations), expiring 18

January 2017.

28,000,000, 18.75c Options (subject to adjustments as provided for under the Option Subscription Deed relating to Pro-rata issues, Bonus issues and reorganisations), expiring 25

February 2017.

10 Dividend policy (in the case of a trust, distribution policy) on the increased capital (interests)

Not applicable

11 Is security holder approval required?

Not applicable

12 Is the issue renounceable or non- renounceable?

Not applicable

13 Ratio in which the +securities will be offered

Not applicable

14 +Class of +securities to which the offer relates

Not applicable

15 +Record date to determine entitlements

Not applicable

16 Will holdings on different registers (or subregisters) be aggregated for calculating entitlements?

Not applicable

17 Policy for deciding entitlements in relation to fractions

Not applicable

18 Names of countries in which the entity has +security holders who will not be sent new issue documents

Note: Security holders must be told how their entitlements are to be dealt with.

Cross reference: rule 7.7.

Not applicable

19 Closing date for receipt of acceptances or renunciations

Not applicable

20 Names of any underwriters Not applicable
21 Amount of any underwriting fee or commission

Not applicable

22 Names of any brokers to the issue

Not applicable

23 Fee or commission payable to the broker to the issue

Not applicable

24 Amount of any handling fee payable to brokers who lodge acceptances or renunciations on behalf of +security holders

Not applicable

25 If the issue is contingent on

+security holders' approval, the

date of the meeting

Not applicable

26 Date entitlement and acceptance form and prospectus or Product Disclosure Statement will be sent to persons entitled

Not applicable

+ See chapter 19 for defined terms.

24/10/2005Appendix 3B Page 5

27 If the entity has issued options, and the terms entitle option holders to participate on exercise, the date on which notices will be sent to option holders

Not applicable

28 Date rights trading will begin (if applicable)

Not applicable

29 Date rights trading will end (if applicable)

Not applicable

30 How do +security holders sell their entitlements in full through a broker?

Not applicable

31 How do +security holders sell part of their entitlements through a broker and accept for the balance?

Not applicable

32 How do +security holders dispose of their entitlements (except by sale through a broker)?

Not applicable

33 +Despatch date Not applicable

You need only complete this section if you are applying for quotation of securities

34 Type of securities
(tick one)
(a) Ordinary Fully Paid Shares described in Part 1
(b) All other securities

Example: restricted securities at the end of the escrowed period, partly paid securities that become fully paid, employee incentive share securities when restriction ends, securities issued on expiry or conversion of convertible securities

Additional securities forming a new class of securities

Tick to indicate you are providing the information or documents

35 If the +securities are +equity securities, the names of the 20 largest holders of the additional +securities, and the number and percentage of additional +securities held by those holders
36 If the +securities are +equity securities, a distribution schedule of the additional

+securities setting out the number of holders in the categories

1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
37 A copy of any trust deed for the additional +securities

38 Number of securities for which

+quotation is sought

Not applicable

39 Class of +securities for which quotation is sought

Not applicable

40 Do the +securities rank equally in all respects from the date of allotment with an existing +class of quoted +securities?
If the additional securities do not rank equally, please state:
• the date from which they do
• the extent to which they participate for the next dividend, (in the case of a trust, distribution) or interest payment
• the extent to which they do not rank equally, other than in relation to the next dividend, distribution or interest payment

Not applicable

+ See chapter 19 for defined terms.

24/10/2005Appendix 3B Page 7

41 Reason for request for quotation now

Example: In the case of restricted securities, end of restriction period

(if issued upon conversion of another security, clearly identify that other security)

Not applicable

42 Number and +class of all

+securities quoted on ASX

(including the securities in clause
38)

Quotation agreement

1 +Quotation of our additional +securities is in ASX's absolute discretion. ASX

may quote the +securities on any conditions it decides.

2 We warrant the following to ASX.

• The issue of the +securities to be quoted complies with the law and is not for an illegal purpose.

• There is no reason why those +securities should not be granted

+quotation.

• An offer of the +securities for sale within 12 months after their issue will not require disclosure under section 707(3) or section 1012C(6) of the Corporations Act.

Note: An entity may need to obtain appropriate warranties from subscribers for the securities in order to be able to give this warranty

• Section 724 or section 1016E of the Corporations Act does not apply to any applications received by us in relation to any +securities to be quoted and that no-one has any right to return any +securities to be quoted under sections 737, 738 or 1016F of the Corporations Act at the time that we request that the +securities be quoted.

• If we are a trust, we warrant that no person has the right to return the

+securities to be quoted under section 1019B of the Corporations Act at the time that we request that the +securities be quoted.

3 We will indemnify ASX to the fullest extent permitted by law in respect of any claim, action or expense arising from or connected with any breach of the warranties in this agreement.

4 We give ASX the information and documents required by this form. If any information or document not available now, will give it to ASX before

+quotation of the +securities begins. We acknowledge that ASX is relying on the information and documents. We warrant that they are (will be) true and complete.

Sign here: Date: 6 March 2012

(CFO & Company secretary)

Print name: Morné Engelbrecht

== == == == ==

+ See chapter 19 for defined terms.

24/10/2005Appendix 3B Page 9