Carbon Energy : Appendix 3B & Cleansing Notice for Issue of Interest Shares

Name of entity

Carbon Energy Limited

ABN

56 057 552 137

1

+Class of +securities issued or to be issued

Ordinary fully paid shares

2

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

Pacific Road Interest Payment: 6,924,582 ordinary fully paid shares

3

Principal terms of the

+securities (e.g. 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)

Shares are issued on the same terms as existing ordinary fully paid shares.

4

Do the +securities rank equally in all respects from the +issue date 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

The new shares will rank pari passu with existing shares on issue.

5

Issue price or consideration

$0.0182 per share

6

Purpose of the issue

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

Issue of 6,924,582 ordinary shares under the

$10 million Pacific Road Convertible Note Facility Agreement to cover the interest costs, payable 3 months in arrears, in relation to the Facility. These shares are issued in accordance with ASX Listing Rule 7.1.

6a

Is the entity an +eligible entity that has obtained security holder approval under rule 7.1A?

If Yes, complete sections 6b - 6h in relation to the +securities the subject of this Appendix 3B, and comply with section 6i

Yes

6b

The date the security holder resolution under rule 7.1A was passed

30 November 2015

6c

Number of +securities issued without security holder approval under rule 7.1

6,924,582

6d

Number of +securities issued with security holder approval under rule 7.1A

Nil

6e

Number of +securities issued with security holder approval under rule 7.3, or another specific security holder approval (specify date of meeting)

Nil

6f

Number of +securities issued under an exception in rule 7.2

Nil

6g

If +securities issued under rule 7.1A, was issue price at least 75% of 15 day VWAP as calculated under rule 7.1A.3? Include the

+issue date and both values. Include the source of the VWAP calculation.

Not applicable

6h

If +securities were issued under rule 7.1A for non-cash consideration, state date on which valuation of consideration was released to ASX Market Announcements

Not applicable

6i

Calculate the entity's remaining issue capacity under rule 7.1 and rule 7.1A - complete Annexure 1 and release to ASX Market Announcements

408,748,964

7

+Issue dates

Note: The issue date may be prescribed by ASX (refer to the definition of issue date in rule 19.12). For example, the issue date for a pro rata entitlement issue must comply with the applicable timetable in Appendix 7A.

Cross reference: item 33 of Appendix 3B.

30 August 2016

Number

+Class

1,813,428,879

Ordinary fully paid shares

Number

+Class

7,081,738 $0.026 Options expiring 15 October

2016.

7,000,000, $0.1672 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, $0.1672 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.

9,495,080 $0.0301 Options expiring on 25

August 2017.

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 offer 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 offer documents will be sent to persons entitled

Not applicable

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

+Issue date

Not applicable

34

Type of +securities (tick one)

(a)

+Securities 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

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 +issue date 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

Rule 7.1 - Issues exceeding 15% of capital

Step 1: Calculate "A", the base figure from which the placement capacity is calculated

Insert number of fully paid +ordinary securities on issue 12 months before the

+issue date or date of agreement to issue

1,355,218,573

Add the following:

• Number of fully paid +ordinary securities issued in that 12 month period under an exception in rule 7.2

• Number of fully paid +ordinary securities issued in that 12 month period with shareholder approval

• Number of partly paid +ordinary securities that became fully paid in that 12 month period

Note:

• Include only ordinary securities here - other classes of equity securities cannot be added

• Include here (if applicable) the securities the subject of the Appendix 3B to which this form is annexed

• It may be useful to set out issues of securities on different dates as separate line items

7/10/15 - 123,845,128 Ordinary Shares (Approved at 2015 AGM)

13/04/16 - 267,904,397 Ordinary Shares (Rights Issue and Shortfall)

04/07/16 - 30,769,232 Ordinary Shares (Shortfall)

18/07/16 - 928 Ordinary Shares (exercise of listed options)

28/07/16 - 4,017 Ordinary Shares (exercise of listed options)

Subtract the number of fully paid +ordinary securities cancelled during that 12 month period

Nil

"A"

1,777,742,275

Step 2: Calculate 15% of "A"

"B"

0.15

[Note: this value cannot be changed]

Multiply "A" by 0.15

266,661,341

Step 3: Calculate "C", the amount of placement capacity under rule

7.1 that has already been used

Insert number of +equity securities issued or agreed to be issued in that 12 month period not counting those issued:

• Under an exception in rule 7.2

• Under rule 7.1A

• With security holder approval under rule

7.1 or rule 7.4

Note:

• This applies to equity securities, unless specifically excluded - not just ordinary securities

• Include here (if applicable) the securities the subject of the Appendix 3B to which this form is annexed

• It may be useful to set out issues of securities on different dates as separate line items

03/12/15 - 8,875,169 Ordinary Shares 11/03/16 - 7,815,783 Ordinary Shares 01/06/16 - 12,071,070 Ordinary Shares 30/08/16 - 6,924,582 Ordinary Shares

"C"

35,686,604

Step 4: Subtract "C" from ["A" x "B"] to calculate remaining placement capacity under rule 7.1

"A" x 0.15

Note: number must be same as shown in Step 2

266,661,341

Subtract "C"

Note: number must be same as shown in Step 3

35,686,604

Total ["A" x 0.15] - "C"

230,974,737

[Note: this is the remaining placement capacity under rule 7.1]

Rule 7.1A - Additional placement capacity for eligible entities

Step 1: Calculate "A", the base figure from which the placement capacity is calculated

"A"

Note: number must be same as shown in Step 1 of Part 1

1,777,742,275

Step 2: Calculate 10% of "A"

"D"

0.10

Note: this value cannot be changed

Multiply "A" by 0.10

177,774,227

Step 3: Calculate "E", the amount of placement capacity under rule 7.1A that has already been used

Insert number of +equity securities issued or agreed to be issued in that 12 month period under rule 7.1A

Notes:

• This applies to equity securities - not just ordinary securities

• Include here - if applicable - the securities the subject of the Appendix 3B to which this form is annexed

• Do not include equity securities issued under rule 7.1 (they must be dealt with in Part 1), or for which specific security holder approval has been obtained

• It may be useful to set out issues of securities on different dates as separate line items

Nil

"E"

Nil

Step 4: Subtract "E" from ["A" x "D"] to calculate remaining placement capacity under rule 7.1A

"A" x 0.10

Note: number must be same as shown in Step 2

177,774,227

Subtract "E"

Note: number must be same as shown in Step 3

Nil

Total ["A" x 0.10] - "E"

177,774,227

Note: this is the remaining placement capacity under rule 7.1A