TIDM3LEG
RNS Number : 7609Z
3Legs Resources plc
21 March 2012
3LEGS RESOURCES PLC
Preliminary Results
for the Year ended 31 December 2011
Highlights
3Legs Resources plc (the 'Company and, together with its
subsidiaries, the 'Group'), an independent oil and gas group
focusing on the exploration and development of unconventional oil
and gas, is pleased to announce its Results for the year ended 31
December 2011.
Financial highlights
-- Successful listing on AIM completed in June 2011
-- Raised GBP58.1 million after expenses, to fund the Group's ongoing activities
-- Cash balances of GBP50.9 million at year end
Operational highlights
-- Independent report by Netherland, Sewell & Associates
Inc. assessing Original-Gas-in-Place ('OGIP') volumes on the
Group's Baltic Basin licences ascribes a best estimate OGIP figure
of 170 tcf gross, 50 tcf net to the Group
-- Acquisition and interpretation of 3D seismic on the Group's Damnica licence
-- Drilling, fraccing and production testing of Lebien LE-2H
horizontal well, the first horizontal shale gas well in Poland
-- Drilling, fraccing and production testing of Warblino LE-1H horizontal well
Post year end highlights
-- Decision by ConocoPhillips to exercise its option over the
Group's three western concessions in the Baltic Basin, thereby
acquiring a 70% interest in and operatorship of the three
concessions
-- Work programme for 2012 to include a vertical well on the
Lebork concession, with the flexibility to drill a horizontal
section at a later date
-- PolandSPAN regional 2D seismic survey commenced on Baltic Basin licences
-- 2D and 3D seismic survey on southern Poland licences completed in January 2012
-- Unaudited cash balances of GBP48.1million as at 29 February 2012
Forward strategy
-- Continuing to consider other unconventional resource
opportunities; preferred area of activity remains Europe but other
regions of the world will also be considered
For further information contact:
+44 1624 811
3Legs Resources plc Tel: 611
Peter Clutterbuck, Chief Executive
Officer
Alexander Fraser, Chief Financial Officer
Jefferies Hoare Govett Tel: +44 207 029 8000
Alex Grant
Simon Hardy
Jamie Buckland
College Hill Tel: +44 207 457 2020
Catherine Maitland
Nick Elwes
CHAIRMAN'S STATEMENT
Introduction
In 2011 3Legs Resources continued to progress its core strategy
of continuing to evaluate its Baltic Basin licences. Since we
successfully flowed gas from a single-stage fracture stimulation on
the Lebien LE-1 vertical well in December 2010, when we confirmed
the presence of moveable volumes of natural gas, we have continued
to advance our understanding of the prospectivity of the target
shales on our concessions.
Year under review
Our understanding of the lower Palaeozoic shales in Poland's
Baltic Basin took a significant step forward with the drilling,
hydraulic fracturing, completion and testing of the first
horizontal shale gas well in the basin, and indeed in Poland. The
Lebien LE-2H well was spudded in May 2011 and tested in September
2011. This well was followed up by a second horizontal well, the
Warblino LE-1H, which we spudded in July 2011 and tested in October
2011. To date there have still been only two horizontal shale gas
wells drilled in Poland, both of which were drilled in the Baltic
Basin by 3Legs Resources.
We were very pleased to have safely and successfully executed
both hydraulic fracture stimulations in challenging conditions,
thus fulfilling one of the essential steps in any successful shale
exploration programme. The testing yielded a significant amount of
data which will assist in optimising future well programmes. The
well results also support our long-standing geological
interpretation, which places our licences in one of the more
prospective parts of the basin.
We continue to believe in the very significant potential upside
that can be achieved through 'cracking the code' of the Baltic
Basin shales. We are cooperating with other licence-holders in the
basin and in adjoining basins with a view to ensuring that relevant
data is shared and that the collective learning process is
accelerated as much as possible, to the benefit of industry
participants and the wider Polish economy.
Financial
During the year we significantly enhanced our financial position
through an initial public offering ('IPO') on AIM, raising GBP58.1
million net of expenses for the Company, to fund ongoing
exploration activity in the Baltic Basin and elsewhere. The total
value of the IPO, including an offering of secondary shares by
existing shareholders and after exercise of a greenshoe option
(also in respect of secondary shares), amounted to GBP85.6 million.
All of the shares offered, representing some 53% of the enlarged
share capital, were placed with a wide range of institutional
investors based primarily in the UK and the US. We welcome our new
institutional shareholders onto our share register and we value
highly the support they have shown us.
Additions to Board and management
We have made a number of important additions to the Board and
management throughout the year. Peter Clutterbuck joined the Group
as CEO in January 2011, and David Bremner and Rod Perry joined the
Board in January and February 2011 respectively as non-executive
directors. David chairs our Board Technical Committee and Rod
chairs our Remuneration Committee. In November 2011 Frances
Morris-Jones joined the Group as Business Development Director,
having previously fulfilled similar roles at ConocoPhillips and
BP.
Relationships
We continue to work hard to develop and maintain our
relationships with our key partners, in particular with a number of
ministries and agencies within the central government, as well as
with local authorities and communities in the areas where we have
carried out seismic and drilling activities. Before embarking on
any new drilling activities in Poland, we have engaged in an active
dialogue with the local authorities in the area concerned and we
have also held town hall meetings in order to keep local
communities informed and to hear any concerns they may have. We
have engaged in further dialogue with local communities following
completion of well-site activities in order to ensure that as much
feedback as possible is gathered.
Post year-end events and outlook
We were very pleased when, following the year end,
ConocoPhillips announced on 19 March 2012 its decision to exercise
its option to acquire a 70% interest in each of our three western
Baltic Basin licences, pursuant to the Joint Evaluation Agreement
and ancillary documents entered into between the Group and
ConocoPhillips in August 2009. Upon completion of the option
exercise, which must take place by no later than September 2012,
operatorship of the three western concessions will pass to
ConocoPhillips and we will retain a net 30% interest in these
concessions. ConocoPhillips has been actively involved with
operations to date in the Baltic Basin and accordingly we
anticipate a smooth transfer of operatorship. We are continuing to
consider, together with ConocoPhillips, options for the three
eastern Baltic Basin concessions.
We believe ConocoPhillips' decision to exercise its option in
relation to our three western Baltic Basin licences demonstrates
its firm commitment to the Baltic Basin shale play and its long
term potential. We look forward to working together with
ConocoPhillips on deepening our understanding of the play geology
and its commercial potential.
Rt. Hon. Tim Eggar
Chairman
20 March 2012
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
The 2011 financial year was a period of significant change for
3Legs Resources. A number of additions were made to the Board and
senior management at the beginning of the year, in advance of the
Group's planned listing on the public markets. This fund-raising
was executed through an initial IPO on AIM in June 2011, raising
GBP58.1 million net for the Company, and representing the first IPO
of a shale oil and gas exploration company brought to the London
market. In the second half of the year, the Group continued to
advance its understanding of its core Baltic Basin asset through
the successful drilling, completion, fraccing and testing of the
first two horizontal shale gas wells to be drilled in Poland.
Review of activity
Baltic Basin licences
Throughout the year we have continued to focus our main efforts
on our Baltic Basin licences, building on our drilling activity in
2010. Following on from the successful production of gas from the
Lebien LE-1 well on our Lebork licence in December 2010, we
conducted a second diagnostic fracture injection test ('DFIT') on
this well in March 2011. At the Legowo LE-1 well on our Cedry
Wielkie licence, we performed two DFITs on the target lower
Palaeozoic shales in January and February 2011. Following
conclusion of these tests and an appraisal of the results of both
wells, the western Baltic Basin licences, specifically the Lebork
and Damnica licences, were identified as a priority area for the
next phase of our exploration activity.
In late 2010 we retained Netherland, Sewell & Associates,
Inc. ('NSAI') to conduct an independent assessment of
Original-Gas-In-Place ('OGIP') volumes across our six Baltic Basin
licences for the purposes of our planned capital-raising. NSAI
issued its final report as of January 2011. In its report, NSAI
arrived at an independent best estimate assessment of OGIP volumes
of 170 tcf gross, 50 tcf net to the Group across the six
licences.
We completed the acquisition, processing and interpretation of
our third 3D seismic survey on our Baltic Basin licences in March
2011. Measuring 50 sq km, this survey is situated on the Damnica
licence and was used to select the location for our fourth well
(and second horizontal well), Warblino LE-1H.
In May 2011 we spudded the Lebien LE-2H well - our third well in
the Baltic Basin and the first horizontal shale gas well in Poland
- on the same well location as our earlier Lebien LE-1 well. This
well included a 1,000 metre horizontal section in the target lower
Palaeozoic shales, encountering high gas saturations throughout the
horizontal section. The well was successfully completed with a
13-stage hydraulic fracture stimulation, following which it was put
on test for a total of 17 days, flowing at a rate of between 450
and 520 mscf/d for an eight-day period before the well was shut
in.
In July 2011 we spudded our second horizontal well in the Baltic
Basin, Warblino LE-1H. This well is on our Damnica licence and is
at a location some 25 km to the west of the Lebien LE-2H well. The
well included as a first stage a vertical pilot hole drilled to the
base of the target lower Palaeozoic shales, which was then
extensively cored and logged for the purposes of data analysis.
Analysis of data from the well indicated that a prospective
deeper interval had been identified and, following drilling of the
vertical wellbore, the well was plugged back and a horizontal
section in this deeper interval was drilled. This deeper zone was
not included in the report issued by NSAI in connection with our
IPO in June 2011, as it had not been drilled in either of our two
(vertical) wells referred to in the NSAI report. The first attempt
to drill this deeper section encountered hole stability issues and
the horizontal section was subsequently re-drilled with a lateral
length of approximately 500 metres. The well was then completed
with a 7-stage hydraulic fracture stimulation and put on test,
flowing at a rate of approximately 18 mscf/d by the time the well
was shut in after five days of testing.
We are particularly pleased to have safely and successfully
executed two multi-stage hydraulic fracture stimulations in a new
basin and applying latest industry techniques. On both programmes
we were able to deliver the required amount of proppant effectively
into the target formation, and to monitor frac effectiveness.
Conclusion of the testing of the Lebien LE-2H and Warblino LE-1H
wells has materially advanced our understanding of the regional
geology in the area of our Baltic Basin licences and of the
potential for production of gas and liquids from the organic-rich
lower Palaeozoic shales in the Silurian, Ordovician and Cambrian
intervals.
We have concluded a number of data exchanges with other
operators in the basin, with a view to improving our understanding
of the basin geology in the most efficient manner possible. Further
exchanges are planned. Data being exchanged includes well logs and
core data and in the future is likely to include well completion
and frac design, together with test results. We firmly believe that
data sharing and other similar forms of cooperation amongst
operators will be of great benefit in enabling all parties to
advance their understanding of the Baltic Basin shales.
3Legs Resources has agreed to participate in the PolandSPAN
study currently being undertaken by ION Geophysical with the
approval of the Polish Government. This study is a large regional
geological and geophysical research project covering all of Poland
and involving the integration of newly-acquired 2D seismic and
magnetotelluric data with existing seismic, gravity, magnetic and
well data with a view to creating the most comprehensive picture of
Poland's subsurface to date. Phase I involves the acquisition of
2,200 km of new data extending from the Baltic Basin through the
Podlasie Depression and into the Lublin Basin of eastern Poland.
The primary focus of Phase I is the lower Palaeozoic shales of the
East European Platform. Acquisition of 2D data on our Baltic Basin
licences under the PolandSPAN study commenced in March 2012.
Southern Poland licences
In December 2011 we commenced a programme of seismic data
acquisition on our three southern Poland licences, comprising
approximately 50 sq km of 3D seismic across our Bytom-Gliwice and
Glinica-Psary licences and approximately 70 km of 2D seismic on our
Dabie-Laski licence. Acquisition of the data was completed in
January 2012 and interpretation is expected to be ready in the
second quarter of 2012.
We also agreed with the Polish Ministry of Environment to extend
the timetable for drilling a first vertical test well on our
Dabie-Laski licence until August 2012, thus enabling us to complete
our analysis of the new seismic data before finalising a drilling
programme.
Other exploration activities: Germany and France
In southern Germany we have continued to consider possible
options for progressing our exploration objectives. Our southern
German licences fall due for renewal in the second quarter of 2012
and it is our intention to submit applications for extensions.
We have two licence applications in process in France, for areas
which present both conventional and unconventional potential. The
oil and gas licensing process in France has been temporarily
suspended following the passing of a law banning hydraulic
fracturing in France in July 2011. The likely outcome of these
licence applications is currently unclear but we continue to
monitor the situation.
Industry collaboration
3Legs Resources plays an active role in addressing issues of
common concern to the Polish oil and gas sector through its
membership of the Polish Exploration and Production Industry
Organization ('OPPPW'), an association of exploration and
production companies operating in Poland which is engaged in
dialogue with the Polish Government, Government agencies and other
interested parties. The principal areas of interest addressed by
OPPPW include oil and gas legislation, health and safety,
environmental regulation and labour law. Our Poland Country
Manager, Kamlesh Parmar, was elected as one of four members of the
Board of OPPPW in September 2011.
Health, safety and environmental
All field activities were carried out in accordance with all
applicable health, safety and environmental requirements. We are
pleased to report that no significant HSE incidents occurred.
The Polish Geological Institute ('PGI') coordinated a series of
studies to assess the environmental impact of the multi-stage
hydraulic fracturing treatment carried out on our Lebien LE-2H
horizontal well, by agreement with ourselves. The PGI published a
report of its conclusions on 2 March 2011, which held that the
studies 'did not show any changes to the natural environment which
could be linked to hydraulic fracturing.'
The studies were conducted from 13 June to 13 October 2011 by a
multi-disciplinary team and comprised seismic monitoring,
measurements of gaseous emissions and noise and analyses of soil
gas, hydraulic fracturing fluid and surface and ground water
before, during and after the hydraulic fracturing. A full copy of
the report is available at www.pgi.gov.pl, where English-language
versions of the press release and of a summary of the report can
also be found.
Community and public relations
We maintain an active dialogue with the local communities and
authorities in the area in which we operate in Poland, in order to
address any issues of importance. Prior to initiating well
operations, meetings are held with the local gmina (or municipal
authority) and a town hall meeting is held in the vicinity of the
well location, to which members of the local community are
invited.
In the industry arena, we were pleased to be awarded the first
annual "International Pioneer" award at the inaugural 2011 World
Shale Gas Awards in Houston, in recognition of 3Legs Resources as
the company making the most significant progress in shale gas
development outside North America. The World Shale Gas Awards are
part of the annual World Shale Gas Conference co-hosted by the CWC
Group, the International Gas Union and the American Gas
Association, and are awarded by a committee of international
industry experts to acknowledge innovation and achievements in the
industry in the last 12 months. 3Legs Resources received the award
as acknowledgement for its progress in Poland's Baltic Basin,
successfully producing gas to surface from shale and completing the
first multi-stage hydraulic fracture stimulation of a horizontal
shale gas well in Poland.
We were very pleased also that Kamlesh Parmar, our Commercial
Director and Poland Country Manager, was awarded "Professional of
the Year" title in recognition for his contribution to the shale
gas industry in Poland in 2011. The award was made at the first
annual Poland "Shale Gas Awards" event which took place in Warsaw
in January 2012, organised by Petroleum Club Magazine.
Post year end activity
Baltic Basin
The key factor influencing our immediate plans in the Baltic
Basin has been the decision by ConocoPhillips regarding its option
to take up a 70% interest in our Baltic Basin concessions. We were
very pleased to announce that ConocoPhillips has exercised its
option to acquire a 70% interest in each of our three western
Baltic Basin concessions. Completion of the option exercise must
take place by no later than September 2012, whereupon operatorship
of the three western concessions will pass to ConocoPhillips.
We will retain a net 30% interest in the three western
concessions, as a non-operator. These concessions cover an area of
approximately 2,049 sq km (506,000 acres) gross, or approximately
615 sq km (152,000 acres) net to the Group.
Together with ConocoPhillips we are continuing to consider
options for our three eastern Baltic Basin concessions. Results to
date both from our own wells and from those of other operators
confirm that the eastern concessions are situated in a more
liquids-prone part of the basin, whereas we have always prioritised
the exploration of the more dry gas-prone parts of our concessions.
As the potential for production of liquids in the Baltic Basin
becomes better understood, we may increase our focus on the eastern
concessions, depending on the well results that are obtained.
In order to facilitate the development of a separate strategy
for the three eastern concessions, these will be divested into a
separate Polish legal entity, which will be a wholly-owned
subsidiary of the Group and be subject to equivalent contractual
terms as are set out in the Joint Evaluation Agreement.
ConocoPhillips will retain an option to acquire a 70% interest in
the three eastern concessions, exercisable by giving six months'
notice at any time up until 30 September 2012. The three eastern
concessions cover an area of approximately 2,338 sq km (578,000
acres) gross.
Following the conclusion of our 2011 exploration programme, we
have been able to refine further our regional geological model
incorporating the results of our two horizontal wells Lebien LE-2H
and Warblino LE-1H, as well as data from wells drilled by other
operators in the basin which has been acquired through data trades.
While our target lower Palaeozoic shales show considerable lateral
continuity across the entire basin, the additional data
nevertheless reveals degrees of variability in quality and
thickness of the shales which enables a more detailed understanding
of the basin. This updated interpretation broadly validates our
existing acreage selection and also enables us to project with
greater certainty the likely presence of play 'sweet spots' within
our concessions.
Based on our updated geological interpretation, we have agreed
with ConocoPhillips a plan for one vertical well to be drilled on
our Lebork concession, in the second half of 2012. This well will
be extensively evaluated and the parties will retain the
flexibility, if considered appropriate, to drill, fracture
stimulate and test a horizontal section at a later date. Together
with ConocoPhillips, we are giving further consideration to options
for additional testing of one or both of our two existing
horizontal wells Lebien LE-2H and Warblino LE-1H, following the end
of winter conditions.
Forward strategy
We continue to consider adding other unconventional resource
opportunities to our portfolio, building on our proven
unconventional capabilities and leveraging our existing knowledge
of unconventional oil and gas exploration. Looking ahead, our focus
will include tight oil and gas exploration opportunities as well as
shale oil and shale gas, and while our preferred area of activity
remains Europe we consider it also appropriate to include other
regions of the world where a company of our size and profile is, in
our view, able to operate safely and effectively. Our objective
will be to build a portfolio optimised for entry cost, risk, timing
and upside.
Summary
The period since 31 December 2010 has seen our Group undergo a
process of significant change. We have now acquired a public
listing and raised sufficient funding to enable the Group to pursue
an active exploration programme over the next 18-24 months,
building on our existing achievements. We have also considerably
strengthened our Board and management team. We believe we have
successfully positioned the Group for future growth and we will
continue to expand our team and activities in the years ahead. In
the Baltic Basin, we are very pleased to have secured our long-term
cooperation with ConocoPhillips, following the exercise of its
option to take up a 70% interest in our three western Baltic Basin
concessions. We have established an excellent working relationship
with ConocoPhillips in the three years in which we have been
working together on the Baltic Basin and we believe that this
relationship will stand us in good stead both in Poland and beyond,
as we pursue other unconventional oil and gas opportunities
elsewhere.
I would like to thank our shareholders for their continuing
support for the Company, and our staff for their dedication in
pursuing our objectives and their contribution to delivering a very
demanding programme during 2011.
Peter Clutterbuck
Chief Executive Officer
20 March 2012
FINANCIAL REVIEW
2011 summary financial results
-- Successfully raised GBP58.1 million net of expenses through an IPO on AIM
-- Cash balances at year end of GBP50.9 million (2010: GBP1.6 million)
-- Capitalised exploration and evaluation assets of GBP14.9
million (2010: GBP4.8 million), reflecting the continued work
programme on the Group's Baltic Basin licences
-- Net loss for the year of GBP2.3 million (2010: profit of GBP2.5 million) reflecting higher administrative costs incurred in connection with the IPO, additions to senior management and adverse foreign exchange movements
-- Unaudited cash balances of GBP48.1 million as at 29 February 2012
Income statement
The Group recorded a net loss after tax of GBP2.3 million (2010:
profit of GBP2.5 million). The loss is mainly attributable to
higher administrative expenses associated with the Company's IPO,
higher staffing costs incurred as a result of building up the
senior management team and exchange losses on the translation of
foreign currency cash balances.
Other income of GBP2.7 million (2010: GBP3.2 million) arises
mainly from the Group's contractual arrangement with ConocoPhillips
whereby the Group's share of costs incurred in its Baltic Basin
licences is reimbursed in accordance with the Joint Evaluation
Agreement. The Group also receives milestone payments under the
Joint Evaluation Agreement, of which GBP0.6 million was received in
2011 and included in other income (2010: GBPnil).
Administrative expenses of GBP5.3 million (2010: GBP1 million)
were higher partly due to costs incurred by the Company in
connection with its IPO on AIM in June 2011, of which GBP1.1
million was charged to the income statement. Foreign exchange
losses in 2011 were GBP1.3 million against a gain of GBP0.6 million
in 2010, reflecting the impact of foreign exchange movements on
certain of the Group's foreign currency cash balances and
intra-Group balances over the year. During 2011 the Group has been
strengthening its senior management team, and this is reflected in
higher staff and recruitment costs of GBP1.2 million, against
GBP0.5 million in 2010. A proportion of the operations personnel
costs and administrative overhead is recoverable under the Joint
Evaluation Agreement. In 2011 GBP0.3 million of operations
personnel costs and administrative overhead was recovered, as
compared with GBP0.2 million in 2010.
Interest received on the Group's cash balances was GBP0.2
million against GBPnil in 2010, reflecting the higher cash balances
held following the IPO in June 2011.
Balance sheet
Investment in intangible exploration and evaluation assets at
the year-end was GBP14.9 million (2010: GBP4.8 million). The
additional investment in 2011 represents the Group's share of costs
incurred in the continued evaluation of the Baltic Basin licences.
This included two horizontal wells, Lebien LE-2H, and Warblino
LE-1H and the completion of the 50 sq km 3D seismic on the Group's
Damnica licence. Details of the evaluation work undertaken are set
out in the Chief Executive Officer's Review. An additional
provision of GBP0.5 million for site restoration relating to these
two wells has been made during 2011.
Cash and cash equivalents at the year-end were GBP50.9 million
(2010: GBP1.6 million). This increase was due primarily to the IPO
by the Company in June 2011 which raised GBP62.5 million gross
proceeds for the Company, or GBP58.1 million net of costs. This is
also reflected in the increase in share capital and share premium,
which increased from GBP8.7 million in 2010 to GBP68.3 million in
2011. Current liabilities at the end of 2011 are higher, GBP7.0
million against GBP5.4 million at the end of 2010, mainly due to
the work programme that was still continuing at 2011 year end.
Cash position
As at 29 February 2012, the Group had unaudited cash balances
amounting to GBP48.1 million.
Outlook
The IPO on AIM during the year has been transformational for the
Group, and attracted a number of supportive institutional investors
to the Company. Together with the continued cooperation with
ConocoPhillips, and the enhanced management team, this ensures that
the Group is well supported going into the next phase of the
development of the business.
The Group's strong balance sheet ensures that it can continue to
finance its immediate ongoing activities in Poland and at the same
time consider options for developing and diversifying its portfolio
of unconventional oil and gas assets.
Going Concern
The Company completed a successful equity listing in June 2011,
raising proceeds of GBP62.5 million to fund its immediate
exploration programme. Following the exercise of its option by
ConocoPhillips, the Company is now responsible for 30% of future
costs in relation to its three western Baltic Basin licences.
Furthermore, the Directors have reviewed the Group's budgets and
forecast cashflows through to June 2013. Taking into consideration
the risks outlined in this financial review, the Directors are
satisfied that the Group has adequate resources to continue in
business for the foreseeable future. It is therefore appropriate to
adopt the going concern basis in the preparation of its financial
statements.
Alexander Fraser
Chief Financial Officer
20 March 2012
Consolidated Income Statement
For the year ended 31 December 2011
2011 2010
Notes GBP'000 GBP'000
Continuing operations
Revenue - -
--------- ---------
Other income 4 2,747 3,187
Administrative expenses (5,285) (989)
--------- ---------
Operating (loss)/profit (2,538) 2,198
Loss on disposal of investment - (21)
Investment income 210 2
Other gains and losses - 284
--------- ---------
(Loss)/profit before tax (2,328) 2,463
Tax - -
--------- ---------
(Loss)/profit for the year 5 (2,328) 2,463
========= =========
Attributable to:
Equity holders of the parent (2,328) 2,463
--------- ---------
(2,328) 2,463
========= =========
(Loss)/profit per Ordinary Share
Basic (0.03) 0.05
========= =========
Diluted (0.03) 0.05
========= =========
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011
2011 2010
GBP'000 GBP'000
(Loss)/profit for the year (2,328) 2,463
Other comprehensive income
Exchange differences arising on translation
of foreign operations (657) (497)
--------- ---------
Total comprehensive income for the
year attributable to owners of the
parent company (2,985) 1,966
========= =========
Consolidated Balance Sheet
As at 31 December 2011
Notes 2011 2010
GBP'000 GBP'000
Assets
Non-current assets
Intangible exploration and evaluation
assets 6 14,850 4,830
-------- --------
Current assets
Trade and other receivables 3,400 3,768
Cash and cash equivalents 50,930 1,597
-------- --------
54,330 5,365
-------- --------
Total assets 69,180 10,195
======== ========
Liabilities
Current liabilities
Trade and other payables (5,499) (3,504)
Shareholder borrowings (1,165) (1,563)
Financial instruments (324) (323)
-------- --------
(6,988) (5,390)
-------- --------
Non-current liabilities
Provisions (528) (40)
-------- --------
Total liabilities (7,516) (5,430)
======== ========
Net assets 61,664 4,765
======== ========
Equity
Share capital 7 21 12
Share premium account 68,330 8,662
Share-based payment reserves 652 461
Accumulated deficit (6,141) (3,829)
Cumulative translation reserves (1,198) (541)
-------- --------
Total equity 61,664 4,765
======== ========
Consolidated Cash Flow Statement
For the year ended 31 December 2011
2011 2010
Notes GBP'000 GBP'000
Net cash (outflow)/inflow from operating
activities 8 (1,185) 1,631
-------- --------
Investing activities
Interest received 210 2
Purchases of intangible exploration
and evaluation assets (8,477) (3,368)
Proceeds from sale of investments - 334
-------- --------
Net cash used in investing activities (8,267) (3,032)
-------- --------
Financing activities
Proceeds from shareholder borrowings - 1,609
Issue of share capital 59,296 20
-------- --------
Net cash from financing activities 59,296 1,629
-------- --------
Net increase in cash and cash equivalents 49,844 228
Effect of foreign exchange rate changes
on cash and cash equivalents (511) 43
Cash and cash equivalents at beginning
of year 1,597 1,326
-------- --------
Cash and cash equivalents at end of
year 50,930 1,597
======== ========
Consolidated Statement of Changes in Equity
For the year ended 31 December 2011
Share Share-based Cumulative
Share premium payment Accumulated translation Non-controlling
capital account reserves deficit reserves interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 January 2010 12 8,642 276 (6,368) (44) 122 2,640
Transactions with
owners in their capacity
as owners:
Issue of equity shares - 20 - - - - 20
Dividends to equity
holders on disposal
of subsidiary - - - (21) - - (21)
Disposal of subsidiary - - - - - (122) (122)
-------- -------- ------------ ------------ ------------ ---------------- --------
Total transactions
with owners in their
capacity as owners - 20 - (21) - (122) (123)
-------- -------- ------------ ------------ ------------ ---------------- --------
Total comprehensive
income for the year - - - 2,463 (497) - 1,966
-------- -------- ------------ ------------ ------------ ---------------- --------
Share-based payments - - 282 - - - 282
Transfer to retained
earnings in respect
of exercised share
options - - (97) 97 - - -
-------- -------- ------------ ------------ ------------ ---------------- --------
As at 1 January 2011 12 8,662 461 (3,829) (541) - 4,765
Transactions with
owners in their capacity
as owners:
Issue of equity shares 9 62,934 - - - - 62,943
Expenses of issue
of equity shares - (3,266) - - - - (3,266)
-------- -------- ------------ ------------ ------------ ---------------- --------
Total transactions
with owners in their
capacity as owners 9 59,668 - - - - 59,677
-------- -------- ------------ ------------ ------------ ---------------- --------
Total comprehensive
income for the year - - - (2,328) (657) - (2,985)
-------- -------- ------------ ------------ ------------ ---------------- --------
Share-based payments - - 207 - - - 207
Transfer to retained
earnings in respect
of exercised share
options - - (16) 16 - - -
-------- -------- ------------ ------------ ------------ ---------------- --------
As at 31 December
2011 21 68,330 652 (6,141) (1,198) - 61,664
======== ======== ============ ============ ============ ================ ========
Notes
1 General information
3Legs Resources plc (the 'Company'), is incorporated in the Isle
of Man, British Isles under the Isle of Man Companies Act 2006. The
address of the registered office is Commerce House, 1 Bowring Road,
Ramsey, Isle of Man, British Isles, IM8 2LQ. The Company together
with its subsidiaries are referred to in these Notes as the
'Group'.
The nature of the Group's operations and its principal
activities are the exploration, evaluation and development of oil
and gas targets, primarily from unconventional resource plays.
These financial statements are presented in pounds sterling.
The financial information included in this preliminary results
announcement does not constitute statutory accounts of the Group
for the years ended 31 December 2011 and 31 December 2010 but is
derived from the non statutory consolidated accounts prepared by
the Company. As an Isle of Man Company, there is no requirement to
prepare audited consolidated statutory accounts but audited
consolidated non statutory accounts for the year ended 31 December
2010 are available from the Company's website and those for 2011
will be available in due course. The auditor has reported on the
2011 accounts; their report was unqualified and did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report.
The preliminary results announcement has been prepared in
accordance with the accounting policies adopted in the financial
statements which were approved by the Board of Directors on 20
March 2012.
2 Going concern
The Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future. The Directors therefore consider it appropriate
to prepare the preliminary results on a going concern basis.
3 Critical accounting judgements and key sources of estimation and uncertainty
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of the assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both the current and future
periods.
The following are the critical judgements and estimations that
the Directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements:
Recoverability of exploration and evaluation assets
Determining whether an exploration and evaluation asset is
impaired requires an assessment of whether there are any indicators
of impairment, including by reference to specific impairment
indicators prescribed in IFRS 6 Exploration for and Evaluation of
Mineral Resources. If there is any indication of potential
impairment, an impairment test is required based on value in use of
the asset. The value in use calculation requires the entity to
estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to
calculate present value. The carrying amount of exploration and
evaluation assets at the balance sheet date was GBP14.9 million
(2010: GBP4.8 million) and no impairment was identified or
recognised in any of the years reported.
Provisions for liabilities
As a result of exploration activities the Group is required to
make provision for decommissioning. Significant uncertainty exists
as to the amount of decommissioning obligations which may be
incurred due to the impact of possible changes in environmental
legislation. A provision of GBP0.5 million has been recognised at
31 December 2011 (2010: GBP0.04 million).
Share-based payments
The Group has an equity-settled share option scheme available to
certain Directors, employees and consultants. The Group also issued
warrants to certain shareholders during the year. In accordance
with IFRS 2 Share -based payment, in determining the fair value of
options and warrants granted, the Group has applied the
Black-Scholes model. As a result, the Group makes assumptions for
expected volatility and expected life.
Joint Evaluation Agreement ('JEA')
Under the terms of the JEA and ancillary documents signed in
August 2009, ConocoPhillips committed to fund an exploration
programme in exchange for an option to acquire a 70% interest in
Lane Energy Poland Sp. z o.o. The Group has deemed the option to
result in a change of control and an in-substance present ownership
interest. The Group has therefore accounted for the transaction as
a disposal of 70% of the assets and liabilities of the subsidiary
at that date. In accordance with IAS27 Consolidated and Separate
Financial Statements, the Group recognises Lane Energy Poland Sp. z
o.o. as a 30% interest in a joint venture for purposes of
consolidation.
Under IAS 39 Financial Instruments: Recognition and Measurement,
the call option has been classified as a designated financial
instrument held at fair value through profit and loss. The call
option is measured at proceeds received which the Board believes
approximates to its fair value.
4 Other income
The terms of the JEA committed ConocoPhillips to fund an
exploration programme in relation to the development of the Group's
concessions in the Baltic Basin, in exchange for an option to
acquire a 70% interest in Lane Energy Poland Sp. z o.o. Other
income includes ConocoPhillips' funding of the Group's 30% interest
in that exploration programme.
In addition, the terms of the JEA provided for the release of a
retention of $1 million to the Group upon satisfactory completion
of all drilling activities relating to the first well on the Lebork
concession and receipt of final well results.
2011 2010
GBP'000 GBP'000
30% funding of exploration programme 2,123 3,187
Completion payment 624 -
-------- --------
2,747 3,187
======== ========
5 (Loss)/profit for the year
The (loss)/profit for the year has been arrived at after
charging/(crediting):
2011 2010
GBP'000 GBP'000
Property lease payments 104 191
Staff costs 838 317
IPO costs 1,149 -
Share-based payments 207 282
Net foreign exchange losses/(gains) 1,257 (610)
======== ========
6 Intangible exploration and evaluation assets
GBP'000
Cost
At 1 January 2010 1,456
Additions 3,369
Provision for decommissioning 40
Exchange differences (35)
-------
At 1 January 2011 4,830
Additions 10,076
Provision for decommissioning 488
Exchange differences (544)
-------
At 31 December 2011 14,850
=======
7 Share capital
Authorised and issued equity share capital
2011 2010
Number Number
'000 GBP'000 '000 GBP'000
Authorised
Ordinary Shares of GBP0.00025
each 440,000 110 - -
Ordinary Shares of GBP0.001
each - - 110,000 110
======= ======== ======= ========
Issued and fully paid
Ordinary Shares of GBP0.00025
each 84,783 21 - -
Ordinary Shares of GBP0.001
each - - 12,640 12
======= ======== ======= ========
The Company has one class of Ordinary Shares which carry no
right to fixed income.
Issued equity share capital
Ordinary Shares
of GBP0.00025
Number
At 1 January 2010 12,400,119
Exercise of share options 239,872
---------------
At 1 January 2011 12,639,991
Exercise of convertible loan notes 103,000
Restricted share award plan 155,000
Exercise of share options 73,961
---------------
Balance before share sub-division 12,971,952
Share sub-division - see below 38,915,856
---------------
Balance after share sub-division 51,887,808
Initial public offering 32,894,736
---------------
At 31 December 2011 84,782,544
===============
On 30 May 2011, each Ordinary Share of GBP0.001 each in the
capital of the Company was subdivided into four Ordinary Shares of
GBP0.00025 each.
8 Notes to the cash flow statement
2011 2010
GBP'000 GBP'000
(Loss)/profit before tax (2,328) 2,463
Adjustments for:
Loss on disposal of investment - 21
Investment income (210) (2)
Other gains and losses - (284)
Share-based payments 207 282
Effect of foreign exchange rate changes 380 (551)
-------- --------
Operating cash flows before movements in
working capital (1,951) 1,929
Decrease/(increase) in receivables 368 (3,185)
Increase in payables 397 2,878
Increase in financial instruments 1 9
-------- --------
Net cash (outflow)/inflow from operating
activities (1,185) 1,631
======== ========
Cash and cash equivalents (which are presented as a single class
of assets on the balance sheet) comprise cash at bank and short
term bank deposits with an original maturity of three months or
less. The carrying value of these assets is approximately equal to
their fair value.
9 Events after the balance sheet date
On 19 March 2012 ConocoPhillips, with whom the Company conducted
joint evaluation activities on its Baltic Basin concessions, gave
formal notice of exercise of its option to acquire a 70% interest
in the Company's three western Baltic Basin concessions, pursuant
to the JEA entered into between the Company and ConocoPhillips in
August 2009 and ancillary documents thereto. Completion of the
option exercise must take place by no later than September 2012,
whereupon operatorship of the three western Baltic Basin
concessions will pass to ConocoPhillips. Upon exercise of the
option no further payment is due to the Group but one half of the
financial liability recorded in the Group balance sheet in respect
of the option premium will be released through the Group income
statement.
In order to facilitate the development of a separate strategy
for the three eastern concessions, the eastern concessions will be
divested into a separate Polish legal entity, which will be a
wholly-owned subsidiary of the Company and be subject to equivalent
contractual terms as are set out in the JEA. ConocoPhillips will
retain an option to acquire a 70% interest in the three eastern
concessions, exercisable by giving six months' notice at any time
up until 30 September 2012.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BKDDNABKKFNB
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