TIDM3LEG
RNS Number : 7185A
3Legs Resources plc
25 March 2013
3LEGS RESOURCES PLC
Preliminary Results for the Year ended 31 December 2012
Highlights
3Legs Resources plc (the "Company" and, together with its
subsidiaries, the "Group"), an independent oil and gas group
focused on the exploration and development of unconventional oil
and gas, is pleased to announce its financial results for the year
ended 31 December 2012.
Operational highlights
-- Exercise by ConocoPhillips of its option over the Group's
three western Baltic Basin concessions completed in September 2012,
when ConocoPhillips acquired a 70% interest in and became operator
of the western concessions
-- Further testing of Lebien LE-2H horizontal well yielded
significantly improved flow rate: 21 day natural flow test on
Lebien LE-2H horizontal well resulted in unassisted average rate of
550 mscf/d over the 21 day period, before planned shut-in
-- Drilling, coring and logging of Strzeszewo LE-1 vertical well on Lebork concession
-- PolandSPAN regional 2D seismic survey over the Group's
western Baltic Basin concessions now completed, with processing to
commence shortly
-- 2D and 3D seismic survey on southern Poland concessions
completed in January 2012; following interpretation of
newly-acquired seismic and other data, decision taken to relinquish
the Dabie-Laskie concession, one of the Group's three southern
Poland concessions
Financial highlights
-- Cash balances of GBP39.5 million at year end 2012, against
GBP50.9 million at year end 2011, and no debt; fully funded for
current exploration and appraisal programme on its Baltic Basin
concessions
-- Net loss for the year of GBP6.0 million (2011: GBP2.3
million), reflecting lower other income following the end of the
ConocoPhillips carry under the Joint Evaluation Agreement, the
impairment of the Group's southern Poland concessions and the net
effects of exchange rate movements
Outlook
-- Following discussions with shareholders, the geographical
focus of the Group's activities to be limited to Poland, already
the Group's core area of activity
-- 2013 exploration and appraisal programme agreed with
ConocoPhillips and now under way, comprising a programme of testing
of the Strzeszewo LE-1 vertical well, plus the drilling and testing
of a further two or more vertical wells on the Group's western
Baltic Basin concessions
-- Planning under way for stimulation and test of the Strzeszewo
LE-1 vertical well and further testing of the Lebien LE-2H
horizontal well in the near future
-- Total value of Group's commitments under its 2013 exploration
and appraisal programme is approximately GBP9 million net to the
Group
-- Working towards a decision, in 2014, on the drilling of one
or more horizontal wells as the first stage of a potential pilot
development programme on the Group's western Baltic Basin
concessions
For further information contact:
+44 1624 811
3Legs Resources plc Tel: 611
Kamlesh Parmar, Chief Executive Officer
Alexander Fraser, Chief Financial Officer
Jefferies Hoare Govett Tel: +44 207 029 8000
Simon Hardy
Jamie Buckland
Northland Capital Partners Tel: +44 207 796 8800
Louis Castro
Matthew Johnson
College Hill Tel: +44 207 457 2020
Matthew Tyler
Catherine Wickman
CHAIRMAN'S STATEMENT
Introduction
In 2012 3Legs continued to build on its pioneering achievements
in Poland, where it remains one of the leaders in the exploration
and appraisal of the country's shale gas potential. We successfully
implemented our work programme for the year, and continued to play
an active role in the debate on the future development of the shale
gas sector in Poland. We closed the year with a strong cash
position, ready to implement our exciting 2013 work programme which
we have agreed with ConocoPhillips, as previously announced.
Strategic review
Our Group strategy continues to focus primarily on the further
de-risking and appraisal of our core Baltic Basin asset. In this,
we were extremely encouraged by the decision by ConocoPhillips to
exercise its option to acquire a 70% interest in our three western
Baltic Basin licences, first announced in March 2012 and completed
in September 2012. We believe the decision represents an excellent
vote of confidence by ConocoPhillips in the future potential of
these concessions; and we continue to work actively in progressing
our understanding of the basin geology, both with ConocoPhillips
and through cooperation with other operators in the basin.
We have continued to high-grade our assets as part of a
continual process of portfolio appraisal. In the Polish Baltic
Basin this has resulted in our identifying a high-graded area,
which we consider not only presents the lowest-risk part of our
acreage for future exploration and appraisal activities, but also
offers a higher probability of success than was attributed to our
Baltic Basin acreage at the time of our initial public offering in
June 2011. It is this area which represents the focus of our 2013
exploration programme.
The last quarter of the year was marked by the issue, in October
2012, of a requisition notice by a minority shareholder, calling
for the convening of an Extraordinary General Meeting to discuss
possible changes to the Board composition and Group strategy. The
requisitioning shareholder was supported by a small number of other
shareholders, including Damille Investments II Limited ("Damille").
However, we announced shortly afterwards, following discussions
with the requisitioning shareholder, that the notice calling for
the convening of an EGM had been withdrawn. The Company was able to
demonstrate the considerable progress that had already been made on
its Baltic Basin concessions, and also reaffirmed its existing
strategy in northern Poland and elsewhere. At the same time, the
Chief Executive of the Group stepped down and Kamlesh Parmar was
appointed as the new Chief Executive. The Company subsequently
convened an EGM in December, where it sought and obtained the
discretionary power to buy back its shares.
Since the year-end, there have been some large movements in the
Company's shares, including a disposal of a significant
shareholding by Robert Jeffcock (at that time one of our Directors)
and the acquisition of further shares by Damille. On 27 February
2013, the Group received a second requisition notice, this time
from Damille, now holding 14.2% of the Company's issued share
capital, calling for the convening of an EGM. The requisition
notice proposes a number of ordinary resolutions which include: the
removal of the majority of the Directors (being all of the
Directors except for Kamlesh Parmar and Richard Hills); the
appointment of certain new Directors being Brett Lance Miller and
Rhys Cathan Davies (who the Board understands are both
representatives of Damille); and the proposal that the Company
adopt a new investment strategy as follows "The investment
objective of the Company is to manage the realisation of the
Company's existing asset portfolio and to maximise the return of
invested capital to shareholders during the period ending on 30
June 2015. During this period the Company shall not make any new
investments other than to support its existing assets."
The Company intends to post with its annual report and accounts
a notice to all shareholders convening a general meeting, together
with a shareholder circular in which the Board will unanimously
advise shareholders to reject the proposed resolutions.
In recent weeks, we have been in discussions with a number of
our major shareholders with a view to determining an appropriate
strategy for the Group which reflects our current licence portfolio
and available cash resources. Following those discussions, the
Board has determined that we should limit the geographical focus of
our activities to Poland, which is already the Group's core area of
activity in any case.
Board Changes
A number of Board changes were implemented before the end of the
year and subsequently.
Peter Clutterbuck decided to step down as Chief Executive in
October 2012, in order to pursue other business interests. Peter
joined the Company before its initial public offering on AIM in
June 2011. He helped steer the Company through its very successful
IPO and through the period following the IPO, as 3Legs settled into
its new life as a public company. We are grateful to Peter for the
skill and experience which he brought to bear during a time of
significant change for the Group.
In Peter's place, the Board appointed Kamlesh Parmar as Chief
Executive. Kamlesh has been with the 3Legs Group since its
establishment in 2007 and has played an instrumental role in the
Group's development since inception. In his previous position with
the Group, as Poland Country Manager and Group Commercial Director,
he was responsible for overseeing the Group's pioneering activities
in Poland, as well as managing the very successful relationship
with ConocoPhillips. Kamlesh brings huge energy and excellent
judgment to his new position and I am sure that he will continue to
have a very positive impact on the business in his new leadership
role.
We also announced the appointment of Richard Hills to the Board
as a Non-Executive Director, in December 2012. Richard brings over
30 years of experience in investment management and financial
services. He is also a Non-Executive Director of JP Morgan Income
& Capital Investment Trust plc, Phaunos Timber Ltd., Cinven
Ltd. and the Aztec Group Ltd. In addition to joining the Board,
Richard joined the Group's Audit Committee and Remuneration
Committee.
Robert Jeffcock and Clive Needham announced their resignations
from the Board on 22 February 2013, although Clive Needham
continues to sit on the board of a number of the Group's subsidiary
companies. Barry Rourke will be retiring by rotation at our
forthcoming Annual General Meeting and has decided not to present
himself for re-election. Barry has been a Director of the Company
since 2007, and Senior Independent Director and Chairman of the
Audit Committee since the Company's initial public offering in
2011. The Board would like to record their appreciation of the
valuable contribution he has made to the Company's governance over
that period.
Conclusion
We thank our shareholders for their continued support throughout
the year and we look forward to sharing with them the results of
our forthcoming exploration and appraisal programme.
Tim Eggar
Chairman
22 March 2013
CHIEF EXECUTIVE OFFICER'S REVIEW
As in preceding years, our main focus in 2012 has continued to
be on the further de-risking of our Baltic Basin concessions in
northern Poland, building on our ground-breaking activity of the
previous year when we successfully drilled, stimulated and tested
the first two horizontal shale gas wells in the country. During
2012, we further improved our understanding of our Lebien LE-2H and
Warblino LE-1H horizontal wells, through the successful further
testing of both wells. At the same time, we initiated a vertical
well programme scheduled to run through 2013 and beyond, designed
to enhance further our understanding of the basin and its
productive potential and with a view to a decision, in 2014, on the
drilling of one or more horizontal wells as the first stage of a
potential pilot development programme.
Baltic Basin concessions, northern Poland
On 14 September 2012, following exercise of its option to farm
in to our western Baltic Basin concessions, ConocoPhillips acquired
a 70% equity interest in these concessions, becoming operator at
the same time. ConocoPhillips had already been actively involved in
operations for some time, and the transfer of operatorship was
completed smoothly.
Since the transfer of operatorship, we continue to participate
actively in all material technical and commercial decisions
relating to the ongoing work programme on the concessions, through
our participation in the Lane Energy Poland operating and technical
committees and in relevant working groups. We see the option
exercise by ConocoPhillips as a significant affirmation of the
potential of our western concessions and we look forward to
continuing our highly successful collaboration as we continue to
focus on de-risking our concessions.
In the case of our three eastern Baltic Basin concessions, which
we consider to be more liquids-prone, ConocoPhillips did not
exercise its farm-in option prior to its expiry on 30 September
2012, with the result that 3Legs remains 100% owner and operator of
those concessions. Group activity during 2012 has focused on our
western concessions and will continue to do so throughout 2013,
while we consider our options in relation to our eastern
concessions.
Exploration and appraisal activity during 2012 has continued to
focus on further refining our basin model and high-grading our
significant acreage position, so as to identify that part of our
acreage which offers the highest probability of success, based on
the depth and thickness of the target horizons and their reservoir
properties. We have had access to well data from a significant
number of other operators in the basin through data trades, as is
common practice in our industry.
We continue to be encouraged that our original acreage selection
is validated by our updated basin model, reinforcing our long-held
view that our acreage is in the most prospective part of the Baltic
Basin. Moreover, by de-risking our acreage through the data we have
acquired we are, in our view, able to attribute a higher
probability of success to this high graded area than was possible
at the time of our initial public offering in June 2011.
Further testing of existing horizontal wells
After concluding initial testing of the Lebien LE-2H and
Warblino LE-1H wells in late 2011, these two wells were shut in for
an extended period in order to monitor pressure build-up and to be
able to evaluate how the wells would perform following the
shut-in.
We conducted further testing of the Warblino LE-1H well in
August and September 2012, using a jet pump to provide artificial
lift to remove more of the frac fluid that had been left on the
formation from the original stimulation and test programme. To the
best of our knowledge, this was the first time that a jet pump
assembly has been used in Poland for an operation of this kind. The
principal objectives of the further testing were to gather
additional data on reservoir performance and gas composition in the
Cambrian section.
After 20 days of testing, the Warblino LE-1H well achieved a
flow rate of some five times the rate achieved when the well was
first tested in 2011, flowing natural gas at a rate of 90 mscf/d,
with the assistance of the jet pump, as against 18 mscf/d in 2011
using a nitrogen lift. At the conclusion of the further testing,
some 36% of the frac fluid originally injected had been recovered
from the formation. The well was then suspended and gauges inserted
to monitor pressure build-up, while the results were evaluated.
We have continued to analyse possible explanations for the poor
performance of the Warblino LE-1H well when it was first drilled
and tested in 2011 since, on the basis of the porosity and gas
shows recorded while drilling, the well was expected to flow at a
significantly higher rate. It seems likely that well performance
was affected by a mechanical issue arising from the cementing of
the horizontal section, rather than by formation reservoir issues,
and also that further drilling and testing of the Cambrian section
will be needed in order fully to investigate this issue. However,
the Cambrian section remains our secondary target, the primary
target being the Ordovician.
Following conclusion of the further testing on the Warblino
LE-1H well, further testing was then conducted on the Ordovician
interval in the Lebien LE-2H well, and was completed in December
2012. At the conclusion of the testing, we were very pleased to
announce that the well had flowed unassisted for a 21-day natural
flow test, flowing natural gas at an average rate of 550 mscf/d
through 31/2 inch tubing. The well was continuing to flow naturally
at a rate of 470 mscf/d when it was agreed to suspend the test, in
order to commence a planned shut-in period and conduct a pressure
build-up test. The well was also continuing to clean up throughout
the test, and by the end of the test period approximately 29% of
the fluid used during the original well stimulation had been
recovered, up from 15% at the beginning of the test period.
The results from the Lebien LE-2H well represent a significant
improvement on the results achieved when the well was first tested
in 2011. On that occasion, the well flowed with the assistance of a
nitrogen lift at a rate of 450-520 mscf/d, over an 8-day period
before being shut in. Most importantly, the well has now
demonstrated its ability to flow for a 3-week period, without
artificial assistance. We view this as a very positive step-up in
well productivity, and an encouraging starting point when
considering possible means for achieving further improvements in
well performance, for example through a different design of the
lateral section or the well stimulation programme. The lateral
section on the Lebien LE-2H well is no more than 1,000 metres in
length and involved a 13 stage hydraulic fracturing stimulation,
whereas it is quite possible to envisage future horizontal wells
with significantly longer lateral sections and more stages, as is
common in the US.
In December 2012, the Lebien LE-2H well was shut in at the end
of the 21-day test for a planned shut-in period to record pressure
build-up using surface and down hole pressure gauges. The pressure
gauges have now been removed from the wellbore for analysis and a
third phase of flow-testing on the well is planned to commence
shortly, as described below.
2012 drilling programme
The drilling of our fifth well in the Baltic Basin, Strzeszewo
LE-1, was completed in December 2012. This vertical test well was
drilled to 3,060 metres true vertical depth into the Middle
Cambrian interval. Some 220 metres of whole core were recovered
from the Lower Silurian, Ordovician and Cambrian intervals, and a
full suite of logs was run. Preliminary log analysis indicates that
the well encountered a thicker Ordovician section as compared with
the Lebien LE-1 and Warblino LE-1 vertical wells, and that the
thickness of the Upper Cambrian interval is similar to that
encountered at the Warblino LE-1 vertical well. A first DFIT test
was performed on the Cambrian section in the well in January 2013
and preparations are now being made for a well stimulation to be
carried out on this Cambrian interval.
Seismic acquisition
Phase I of the PolandSPAN geological and geophysical research
project, involving the acquisition of 1,090 km of new 2D seismic
data extending across the Baltic Basin region, has now been
completed. Processing of the new data is due to take place in the
second quarter of 2013 and will further inform our understanding of
the basin geology in our acreage.
2013 exploration programme
Drilling and testing of vertical wells
The programme we have announced for the remainder of 2013, which
we have agreed with ConocoPhillips, involves the continuation of
the testing programme on the Strzeszewo LE-1 well, comprising DFIT
and/or well stimulation and flow testing. We have also announced
plans to drill two or more additional vertical wells on our western
Baltic Basin concessions, within the high-graded area which we have
already identified. As with previous vertical wells, these two
wells will be extensively cored and logged, to be followed by a
programme of DFIT and/or well stimulation and flow testing, which
will run on into 2014. The programme is designed to enable us to
evaluate further the flow-rate potential of our high-graded area,
with a view to a decision, in 2014, on the drilling of one or more
horizontal wells as the first stage of a potential pilot
development programme. Being vertical wells, each will offer the
option to test multiple pay zones. The wells will also be designed
to allow for lateral sections to be drilled and tested at a later
date.
The first DFIT test on the Strzeszewo LE-1 well was completed in
the first quarter of 2013, and preparations are under way for a
well stimulation and test to be conducted on the Cambrian section
in this well, to begin in the near future. After completion of a
testing phase, including a shut-in period, a further DFIT and/or
well stimulation and test will be considered for our primary
target, the Ordovician section.
Third phase of testing of Lebien LE-2H horizontal well
Following a technical review of the 2012 testing of the Lebien
LE-2H well, we expect to conduct a further phase of testing of this
well, using a narrower velocity string assembly. Pressure data
retrieved following the last test also indicated that the down-hole
pressure gauges may have become dislodged, creating an additional
choking effect. As a result, we are confident that the next phase
of testing, due to commence in the second quarter, will yield
further improved flow data.
Seismic acquisition
In addition to our drilling programme, a 3D seismic survey is
planned on our Karwia concession, in fulfilment of our licence
obligations. This survey is expected to measure approximately 32 sq
km and is due to commence in the second quarter. We are also
discussing with ConocoPhillips the acquisition of 70 km of 2D
seismic data on our Lebork concession. This will assist in the
placement of future horizontal wells in the area, following
conclusion of our vertical well programme.
Southern Poland; other regions
In southern Poland we acquired and processed approximately 50 sq
km of 3D data on the Bytom-Gliwice and Glinica-Psary concessions
and approximately 70 km of 2D data on the Dabie-Laski concession,
concluding this process in the first quarter of 2012. Following
interpretation of the new data, which showed the eastern part of
the concession area to be more structurally complex than previously
understood, we concluded that there was insufficient justification
for drilling a vertical test well on the Dabie-Laski concession. We
have now surrendered this concession.
We continue to consider our options for our remaining
Bytom-Gliwice and Glinica-Psary concessions, including monetising
these concessions if possible. We have the option to drill one
vertical well on each of these two concessions by August 2013, or
to relinquish the concessions. However, we do not currently plan to
incur any further expenditure on these concessions, and we have
therefore decided to record an impairment against them on our
balance sheet.
Our southern German concessions fell due for renewal in the
second quarter of 2012 and we have submitted applications for
extensions. Given that our geographical focus is now confined to
Poland, we will investigate options for monetising these
concessions if possible.
We have had licence applications in process in France since 2010
and in late 2010 we had received indications that these
applications would be granted in whole or in part. In December 2012
and January 2013, we received notices of rejection of these two
applications, citing the legal moratorium on hydraulic fracturing
which was recently introduced in France. We have filed notices of
appeal against both decisions, although we are currently
considering whether it is appropriate to continue this process.
Throughout the year we also reviewed a number of potential new
opportunities for possible inclusion in our portfolio. However,
none of these were pursued as they were not seen to meet our
criteria.
Evolution of the Polish oil & gas sector
We continue to participate actively in discussions regarding the
future development of the oil & gas sector in Poland,
particularly through our membership of OPPPW, the Polish
Exploration and Production Industry Organisation. I sit as one of
the four members of the Board of OPPPW.
The Polish government has for some time been considering
possible modifications to the fiscal and licensing regime relating
to the oil & gas sector in Poland, resulting in the publication
of two draft laws in February 2013. The draft legislation
contemplates a number of changes to the existing regime, including:
the creation of a new state-owned entity which would have the right
to participate in exploration and production activities by private
sector companies; increases in the tax rates applicable to oil
& gas production; and modifications to the procedures for
granting and transferring licences. 3Legs, together with other
members of OPPPW, is actively engaged in dialogue with the
government in order to ensure that the industry's voice is heard,
and that any new fiscal and regulatory regime that emerges does not
act as an unnecessary deterrent to the development of a successful
shale hydrocarbons sector in Poland.
Personnel; planned organisational changes
During the year we announced the hiring of two new technical
personnel, John Blair as Exploration Manager and Christie Schultz
as Engineering Manager. John Blair was most recently employed by
Knowledge Reservoir LLC, a technical consultancy based in Denver,
where he was responsible for both the firm's unconventional
resource practice and its acquisition and divestiture practice
worldwide. While at Knowledge Reservoir LLC, John led
multi-disciplinary teams that assessed more than 100 unconventional
resource plays around the world.
Christie Schultz is an unconventional reservoir and completions
specialist, and was most recently employed by Anadarko as a lead
reservoir engineer and a production engineer, where she worked on
shale plays including the Marcellus and Haynesville. John and
Christie will provide technical leadership as we continue to
improve our understanding of the Baltic Basin geology.
Following the adoption of a more narrowly-defined geographic
focus for the Group's activities, as described in the Chairman's
Statement, we have reviewed our existing overhead expenditure to
see what reductions may be made. During the next quarter we expect
to implement a number of changes in the way the Group is organised
and staffed which, with effect from 1 July 2013, will result in a
reduction in our cash administrative expenses, before foreign
exchange movements, of approximately 50% as compared with 2012.
Conclusion
In 2012 we were able to build on our already significant
progress in Poland's Baltic Basin, carrying out further testing on
the first two horizontal shale gas wells to be drilled anywhere in
Poland, and achieving a materially improved performance from our
primary target, namely the Ordovician section, in our Lebien LE-2H
well. While there remains more to be done in the appraisal of the
Baltic Basin shale play, we believe we have taken a significant
step forward in the direction of commerciality. We have also shown
a continued readiness to trial innovative techniques in Poland, and
to introduce best-in-class practices to a new market.
Our primary focus will continue to be on our western Baltic
Basin concessions, where 3Legs Resources together with
ConocoPhillips will continue to work throughout 2013 on further
delineating and understanding the geology of the target Ordovician
section and demonstrating its improved flow rate potential.
Following our planned programme of DFIT and/or single-stage well
stimulation and testing, we expect to have sufficient data on the
likely potential of our high-graded area to enable us to reach a
decision, in 2014, on the drilling of one or more horizontal wells
as the first stage of a potential pilot development programme.
Across the rest of our portfolio, we will continue to high-grade
our assets with a view to deciding which licence interests to
maintain and pursue and/or monetise and which to relinquish. With
GBP39.5 million of cash resources at year end, we will continue to
manage our cash reserves prudently so as to ensure that sufficient
funding is available for the further de-risking of our core Baltic
Basin asset.
We look forward to an exciting year ahead.
Kamlesh Parmar
Chief Executive Officer
22 March 2013
FINANCIAL REVIEW
Financial highlights
-- Cash balances of GBP39.5 million at year end 2012, against
GBP50.9 million at year end 2011, and no debt; fully funded for
current exploration and appraisal programme on the Group's Baltic
Basin concessions
-- Investment in non-current assets of GBP17.7 million (2011:
GBP14.9 million), reflecting the continuing work programme on the
Group's Baltic Basin concessions
-- Net loss for the year of GBP6.0 million (2011: GBP2.3
million), reflecting lower other income following the end of the
ConocoPhillips carry under the Joint Evaluation Agreement, the
impairment of the Group's southern Poland concessions and the net
effects of exchange rate movements
Balance sheet
3Legs continues to enjoy a strong balance sheet, ensuring that
it is excellently positioned to meet its ongoing commitments in
Poland's Baltic Basin. Investment in the Group's oil and gas assets
at year end stood at GBP17.7 million (2011: GBP14.9 million).
Following the exercise by ConocoPhillips of its option to acquire a
70% interest in the three western Baltic Basin concessions and the
resulting transfer of operatorship, completed in September 2012,
the Group has elected to account for its interest in these
concessions using the equity accounting method, in accordance with
IAS 31 Interest in Joint Ventures, as opposed to applying
proportionate consolidation which it had done up until completion
of the option exercise.
The additional investment in 2012 represents primarily the
Group's share of costs incurred in connection with exploration and
appraisal activities on the Group's western Baltic Basin
concessions, as described in the Chief Executive Officer's Review.
This additional investment has been partially offset by the
impairment of the Group's southern Poland licences, to the value of
GBP2.1 million (2011: GBPnil), discussed below.
Cash and cash equivalents at year end were GBP39.5 million
(2011: GBP50.9 million). Foreign exchange rate movements during the
year reduced the sterling equivalent of cash and cash equivalents
at year end by GBP1.1 million (2011: GBP0.5 million).
Current liabilities at year end stood at GBP1.6 million against
GBP7.0 million at year end 2011, reflecting the lower level of
activity around the year end in 2012 as compared with 2011. The
Group has no debt, having redeemed a GBP1.2 million convertible
loan facility in June 2012.
Income statement
The Group recorded a net loss after tax of GBP6.0 million (2011:
GBP2.3 million). This loss is attributable principally to: a
reduction in other income in 2012, following the conclusion of the
carry arrangements agreed with ConocoPhillips under the Joint
Evaluation Agreement; the impairment of the Group's southern Poland
concessions as a result of its reduced activity on those licences;
and net exchange losses on the translation of foreign currency cash
balances.
Other income of GBP1.1 million (2011: GBP2.7 million) arises
from the Group's contractual arrangements with ConocoPhillips under
the Joint Evaluation Agreement and reflects principally the release
of the call option premium of GBP0.3 million and the receipt of a
final milestone payment of GBP0.3 million (2011: GBP0.6 million).
Both of these receipts became due as a result of the exercise by
ConocoPhillips, completed in September 2012, of its option to
acquire a 70% interest in the Group's three western Baltic Basin
concessions pursuant to the Joint Evaluation Agreement.
ConocoPhillips largely completed its carry commitments under the
Joint Evaluation Agreement in 2011, with the result that in 2012 it
made substantially no further payments in respect of seismic and
drilling costs incurred by the Group (2011: GBP2.1 million).
The Group has no plans to carry out any further activity on its
two southern Poland concessions and accordingly has made an
impairment for the full carrying cost of these concessions, to the
value of GBP2.1 million (2011: GBPnil).
Aggregate administrative expenses of GBP5.2 million (2011:
GBP5.3 million) were slightly lower than in 2011. In 2012,
administrative expenses were affected by higher foreign exchange
losses of GBP1.6 million (2011: GBP1.3 million), reflecting the
impact of foreign exchange movements on certain of the Group's
foreign currency cash balances and intra-Group balances over the
year, as well as by share-based payments of GBP0.3 million (2011:
GBP0.2 million), reflecting options outstanding at year end.
Administrative costs in 2011 were increased by costs incurred in
connection with the Company's initial public offering on AIM, as a
result of which GBP1.1 million was charged to the income statement
in 2011.
Before foreign exchange losses and share-based payments,
administrative expenses in 2012 were GBP3.4 million (2011: GBP3.8
million). Aggregate staff costs including termination payments and
share based payments represented GBP2.0 million (2011: GBP1.1
million), as the Group continued to strengthen its management and
technical teams. Staff costs included GBP0.3 million (2011: GBP0.2
million) which were capitalised to intangible exploration and
evaluation assets. A proportion of the personnel overhead was
recoverable under the Joint Evaluation Agreement in 2012, equal to
GBP0.3 million (2011: GBP0.3 million), which were chargeable 70% to
ConocoPhillips and 30% to the Group.
Outlook
The Group looks forward to a continuing and successful
cooperation with ConocoPhillips in northern Poland. The Group's
strong balance sheet means that it is well positioned to fund its
current Baltic Basin exploration programme throughout 2013 and into
2014 when it expects to reach a decision on the drilling of one or
more horizontal wells as the first stage of a potential pilot
development programme. The Group intends to manage its cash
resources in a conservative manner so as to ensure that it has
sufficient funding to meet its near-term objectives in the Baltic
Basin.
Going concern
The Directors have reviewed the Group's budgets and forecast
cash flows through to June 2014. 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
22 March 2013
Consolidated Income Statement
For the year ended 31 December 2012
Notes 2012 2011
GBP'000 GBP'000
Continuing operations
Revenue - -
--------- ---------
Other income 4 1,067 2,747
Administrative expenses (5,192) (5,285)
Impairment of intangible exploration
and evaluation assets 5 (2,077) -
--------- ---------
Operating loss (6,202) (2,538)
Share of results of joint venture (123) -
Investment income 296 210
--------- ---------
Loss before tax (6,029) (2,328)
Tax (1) -
--------- ---------
Loss for the year (6,030) (2,328)
========= =========
Attributable to:
Equity holders of the parent (6,030) (2,328)
--------- ---------
(6,030) (2,328)
========= =========
Loss per Ordinary Share
Basic and diluted, pence per share 7 (0.07p) (0.03p)
========= =========
Consolidated Statement of Comprehensive
Income
For the year ended 31 December 2012
2012 2011
GBP'000 GBP'000
Loss for the year (6,030) (2,328)
Other comprehensive income
Exchange differences arising on translation
of foreign operations 805 (657)
--------- ---------
Total comprehensive income for the
year attributable to owners of the
parent company (5,225) (2,985)
========= =========
Consolidated Balance Sheet
As at 31 December 2012
Notes
2012 2011
GBP'000 GBP'000
Assets
Non-current assets
Intangible exploration and evaluation
assets 6 2,839 14,850
Investment accounted for using the equity
method 14,905 -
--------- ---------
17,744 14,850
--------- ---------
Current assets
Trade and other receivables 977 3,400
Cash and cash equivalents 39,531 50,930
--------- ---------
40,508 54,330
--------- ---------
Total assets 58,252 69,180
========= =========
Liabilities
Current liabilities
Trade and other payables (986) (5,499)
Shareholder borrowings - (1,165)
Financial instruments - (324)
Provisions (573) -
--------- ---------
(1,559) (6,988)
--------- ---------
Non-current liabilities
Provisions - (528)
--------- ---------
Total liabilities (1,559) (7,516)
Net assets 56,693 61,664
========= =========
Equity
Share capital 21 21
Share premium account 68,330 68,330
Share-based payment reserves 790 652
Accumulated deficit (12,055) (6,141)
Cumulative translation reserves (393) (1,198)
--------- ---------
Total equity 56,693 61,664
========= =========
Consolidated Cash Flow Statement
For the year ended 31 December 2012
Notes
2012 2011
GBP'000 GBP'000
Net cash outflow from operating activities 8 (4,863) (1,185)
--------- ---------
Investing activities
Interest received 296 210
Purchases of intangible exploration
and evaluation assets (1,807) (8,477)
Investment in joint venture (2,742) -
--------- ---------
Net cash used in investing activities (4,253) (8,267)
--------- ---------
Financing activities
Issue of share capital - 59,296
Repayment of shareholder borrowings (1,171) -
--------- ---------
Net cash (outflow)/inflow from financing
activities (1,171) 59,296
--------- ---------
Net (decrease)/increase in cash and
cash equivalents (10,287) 49,844
Effect of foreign exchange rate changes
on cash and cash equivalents (1,060) (511)
Effect of equity accounting (52) -
Cash and cash equivalents at beginning
of year 50,930 1,597
--------- ---------
Cash and cash equivalents at end of
year 39,531 50,930
========= =========
Consolidated Statement of Changes in Equity
For the year ended 31 December 2012
Share Share-based Cumulative
Share premium payment Accumulated translation
capital account reserves deficit reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
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
--------- --------- ------------ ------------- ------------- ---------
Loss for the year (2,328) (2,328)
Other comprehensive
income:
Currency translation
differences (657) (657)
--------- --------- ------------ ------------- ------------- ---------
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 1 January
2012 21 68,330 652 (6,141) (1,198) 61,664
Loss for the year (6,030) (6,030)
Other comprehensive
income:
Currency translation
differences 805 805
--------- --------- ------------ ------------- ------------- ---------
Total comprehensive
income for the year - - - (6,030) 805 (5,225)
--------- --------- ------------ ------------- ------------- ---------
Share-based payments - - 254 - - 254
Transfer to retained
earnings in respect
of lapsed warrants - - (116) 116 - -
As at 31 December
2012 21 68,330 790 (12,055) (393) 56,693
========= ========= ============ ============= ============= =========
1 General information
3Legs Resources plc (the 'Company' and, together with its
subsidiaries, the "Group") 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 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 2012 and 31 December 2011 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
2011 are available from the Company's website and those for 2012
will be available in due course. The auditor has reported on the
2012 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 2013.
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 GBP2.8 million
(2011: GBP14.9 million) and impairments of GBP2.1 million (2011:
GBPnil) were identified and recognised in the period.
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 GBP0.57 million has been recognised at
31 December 2012 (2011: GBP0.5 million).
Share-based payments
The Group has an equity-settled share option scheme available to
certain Directors, employees and consultants. In accordance with
IFRS 2 Share-based payment, in determining the fair value of
options granted, the Group has applied the Black-Scholes and the
Monte Carlo model. As a result, the Group makes assumptions for
expected volatility and expected life.
Joint Venture
In March 2012, ConocoPhillips gave notice of exercise of its
option, under the Joint Evaluation Agreement, to acquire 70% of the
issued share capital of Lane Energy Poland Sp. z o.o. Completion of
the option exercise occurred in September 2012.
Following exercise of the option, the Group retains joint
control of the venture under the terms of a Shareholders Agreement
entered into with ConocoPhillips. In accordance with IAS27
Consolidated and Separate Financial Statements, the Group has
continued to recognise its interest in Lane Energy Poland Sp. z
o.o. as a 30% interest in a joint venture for purposes of
consolidation.
Prior to the exercise of the option, the Group recognised its
interest in joint venture activities using proportionate
consolidation. With effect from this date and the resulting
transfer of operatorship to ConocoPhillips, the Group has elected
to recognise its interest using the equity method, in accordance
with IAS31 Interest in Joint Ventures. The Group recognises its
investment in joint ventures at cost, with subsequent adjustments
for its share of any profits or losses incurred by the joint
venture since acquisition.
4 Other income
2012 2011
GBP'000 GBP'000
30% funding of exploration programme 27 2,123
Completion payment 798 624
Net foreign exchange gain on equity accounting
for joint venture 235 -
External rent recharged 7 -
-------- --------
1,067 2,747
======== ========
Under the terms of the Joint Evaluation Agreement,
ConocoPhillips committed to fund an exploration programme on the
Group's concessions in the Baltic Basin in northern Poland, 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 up to the
date of option exercise.
The completion payment includes the final retention of $0.5
million due under the terms of the Joint Evaluation Agreement upon
exercise of the call option. In addition, the call option premium
of $0.5 million, previously classified as a designated financial
instrument held at FVTPL, was released through the profit and loss
during the year.
Following exercise of the option, a foreign exchange gain has
arisen as a result of the transfer of operatorship to
ConocoPhillips and the subsequent use of the equity accounting
method to recognise the Group's interest in Lane Energy Poland Sp.
z o.o.
5 Impairment of intangible exploration and evaluation assets
2012 2011
GBP'000 GBP'000
Southern Poland (Krakow) 2,077 -
======== ========
During the year, the Group relinquished one of its three
concessions in southern Poland, held by Lane Resources Poland Sp. z
o.o. The Group currently has no plans to incur any further
expenditure on the remaining two concessions and consequently the
related exploration and evaluation cost has been impaired in
full.
6 Intangible exploration and evaluation assets
GBP'000
Cost
At 1 January 2011 4,830
Additions 10,076
Provision for decommissioning 488
Exchange differences (544)
--------
At 1 January 2012 14,850
Additions 1,807
Impairment (Note 5) (2,077)
Equity accounting adjustment (12,337)
Exchange differences 596
--------
At 31 December 2012 2,839
========
7 Loss per Ordinary Share
Basic loss per Ordinary Share is calculated by dividing the net
loss for the year attributable to Ordinary equity holders of the
parent by the weighted average number of Ordinary Shares
outstanding during the year. The calculation of the basic and
diluted loss per Ordinary Share is based on the following data:
2012 2011
GBP'000 GBP'000
Losses
Loss for the purposes of basic loss per share
being net loss attributable to equity holders
of the parent (6,030) (2,328)
============ ============
2012 2011
Number of shares Number Number
Weighted average number of Ordinary Shares
for the purposes of basic loss per share 84,782,544 69,657,716
============ ============
2012 2011
GBP GBP
Loss per Ordinary Share
Basic and diluted, pence per share (0.07)p (0.03)p
Dilutive loss per Ordinary Share equals basic loss per Ordinary
Share as, due to the losses incurred in 2011 and 2012, there is no
dilutive effect from the subsisting share options.
8 Notes to the cash flow statement
2012 2011
GBP'000 GBP'000
Loss before tax (6,029) (2,328)
Adjustments for:
Effect of foreign exchange rate changes 901 380
Impairment of E&E assets 2,077 -
Investment income (296) (210)
Share-based payments 254 207
Share of results of joint venture 123
Fair value gains on financial instrument (316) -
--------- ---------
Operating cash flows before movements in
working capital (3,286) (1,951)
Decrease in receivables 2,837 368
(Decrease)increase in payables (4,413) 397
Increase in financial instruments - 1
--------- ---------
Cash used in operations (4,862) (1,185)
Taxation paid (1) -
--------- ---------
Net cash outflow from operating activities (4,863) (1,185)
========= =========
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 22 February 2013, Robert Jeffcock notified the Company that
he had disposed of 5,000,000 Ordinary Shares in the Company. On the
same date, Robert Jeffcock and Clive Needham resigned as Directors
of the Company. Clive Needham remains a Director of a number of the
Group's subsidiaries.
On 27 February 2013, the Company received a notice on behalf of
Damille Investments II Limited ("Damille"), a shareholder in the
Company holding 14.2% of the Company's issued share capital,
requisitioning a meeting of the Company's shareholders pursuant to
section 67(2) of the Isle of Man Companies Act 2006. The
Requisition proposes a number of ordinary resolutions which
include: the removal of the majority of the Board of Directors
(being all of the Directors except for Kamlesh Parmar and Richard
Hills); the appointment of certain new Directors to the Board being
Brett Lance Miller and Rhys Cathan Davies (who the Board
understands are both representatives of Damille); and the proposal
that the Company adopt a new investment strategy as follows "The
investment objective of the Company is to manage the realisation of
the Company's existing asset portfolio and to maximise the return
of invested capital to shareholders during the period ending on 30
June 2015. During this period the Company shall not make any new
investments other than to support its existing assets." On the
basis that the Requisition is not withdrawn, the Company intends to
post, in due course, a notice to all shareholders convening a
general meeting.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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