IGAS.L Regulatory News (IGAS)

10 July 2013

IGas Energy plc ("IGas" or "the Company")

Preliminary results for the year ended 31 March 2013 

IGas, one of the leading producers of onshore hydrocarbons in the UK, is pleased to announce its preliminary results for the year ended 31 March 2013.

Operational Highlights

·; Acquisition of P. R. Singleton from Providence Resources for US$66m

·; Progress on "Chase the Barrels" initiative

·; Proven reserves growth of 30% from 6.1 to 7.9 MMboe over the period 1 Jan 2012 to 30 June 20121

·; Gas Initially In-Place "GIIP" for NW shale acreage up to 170Tcf2

·; Drilling programme to commence in Q4 2013 to refine estimates

·; Government package of community incentives, guidelines on permitting and planning and launches consultation on tax incentives in support of the industry

Financial Highlights3,4

·; Revenue of £68.3m (2012: £22.1m)

·; Total Production c902mboe (2012: c280mboe)

·; EBITDA5 of £31.9m (2012: £13.0m)

·; Underlying operating profit6 of £22.1m (2012: £5.4m)

·; Net cash from operating activities £28.9m (2012: used in operating activity £2.6m)

·; Net debt7 of £77.4m (2012: £67.1m)

·; Refinancing of Macquarie debt through $165m 5yr bond issue

·; Successful placing of £23.1m gross in January 2013

Commenting on the announcement Andrew Austin, CEO, said:

"Our conventional production has remained strong and IGas has firmly positioned itself at the heart of Britain's shale revolution, which has now been recognised by both government and industry as having a potentially major impact on the country.

Since the year end we have announced the results of our studies of the shale under our licences in the North West, and have shown a potential for gas in place volumes of up to ca. 170 Tcf2.

At the same time we have an active programme of investment to identify incremental opportunities to enhance production and grow our conventional reserve base.

We are very excited about the future of the onshore oil and gas industry in this country and look forward to developing this potentially strategically important resource, in conjunction with the communities in which it is found, in the coming months and years."

Footnotes:

1: Adjusted for production (production in the six month period to 30 June 2012 of 0.46mmstb

2: Represents high estimate in range. Low is 15.1 Tcf and mid 102.0 Tcf

3: On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence Resources plc and therefore the 2013 results reflect one month's contribution from PR Singleton

4: The figures for 2012 reflect the 15 month period to 31 March 2012. The Star Energy acquisition completed on 14 December 2011 and therefore the March 2012 results reflect only 3.5 months of results from Star Energy

5: EBITDA relates to earnings before interest, tax, depletion, depreciation and amortisation

6: Underlying operating profit excludes the profits/(losses) on oil price swaps, acquisition costs and impairment of exploration and evaluation assets

7: Net debt is borrowings less cash and restricted cash

ENQUIRIES

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Chairman's Statement

Since I reported to you this time last year, IGas' conventional production has remained strong and the Company is at the heart of the UK's shale revolution, which has now been recognised by both government and industry as having a potentially major impact on the country.

During the year, the strong performance of our conventional assets continued, augmented by the acquisition of PR Singleton in February. This acquisition further consolidated our position as a leading onshore oil and gas company across Britain and has given us a material increase in both reserves and production.

IGas has enjoyed solid growth as demonstrated by its financial results with revenues of £68.3 million in the year compared with £22.1 million in the previous period.

Our unconventional resources have also had an important fillip from the active support the Government is now giving to shale gas in particular. Since the lifting of the restrictions on hydraulic fracturing in December, we have seen a step change in the political backdrop and geological understanding of shale gas in this country. The Department of Energy and Climate Change (DECC) has established the Office of Unconventional Gas and Oil, which aims to promote the safe, responsible, and environmentally sound recovery of the UK's unconventional oil and gas. DECC published its own report in April, which acknowledged the substantial benefits that shale gas can offer to the UK. Natural gas from shale has the potential to transform the UK's energy market, boost the economy, create thousands of jobs, generate significant tax revenues, reduce our reliance on imported gas and reduce CO2 emissions by allowing a move from coal to gas fired electricity generation.

The recent news that Centrica, Britain's biggest energy provider with the largest retail supply business in this country, has acquired a 25% interest in the Bowland exploration licence (PEDL165), in Lancashire from Cuadrilla Resources Ltd and AJ Lucas for £100m in cash and future commitments, is a significant step forward for onshore oil and gas development in Great Britain. .

With the political environment surrounding shale gas in the UK developing positively, the results of our recent studies of potential shale gas in place at our licences in the North West, referred to further below, was very timely, and highlights the significant potential opportunity for IGas in this area. In addition to the main Bowland basin, we have also identified prospective shale horizons across our licence areas in both the East Midlands and the Weald Basin.

Financing

In January this year, we completed a successful placing, with new and existing institutional investors, raising a total of £23.1 million (gross). Given the significant developments around shale, we believed the time was appropriate to ensure that we were in a position to be able to further demonstrate the potential of our resource base ahead of any farm-out. The proceeds of the placing, along with cash flow from the Company's conventional asset portfolio and the Company's existing cash, will enable us to conduct a work programme towards achieving this objective.

We also completed the arrangement of a five year, US$165 million senior secured bond which enabled us to refinance the Company's existing debt.

Board Changes

During the year, we strengthened the independence of the Board with the appointments of Robin Pinchbeck and Cuth McDowell as non-executive directors. Robin has 39 years of international experience in the industry, having held a range of leadership positions in both the oil and oil-services sectors. Cuth McDowell is a highly experienced international Exploration and Production executive.

Richard Armstrong and John Hamilton, both non-executive directors, stepped down during the period and on behalf of the Board I would like to thank them both for their valued contributions over the last few years.

People

A company is dependent upon its management and employees for the execution of its strategy, and on its culture for the way in which its results are achieved. We now employ over 160 people across the business working in different environments all of whom work to exacting standards. I would like to take this opportunity to thank them all for the sterling work they do, and the care with which they do it.

Outlook

Since the year end, we have announced the results of our studies of the shale under our licences in the North West, and have shown a potential for gas in place volumes of up to ca. 170 Tcf (for further detail on the range of estimates see table in 'Appraisal of wider resources' in the CEO Review). We must now undertake further drilling to refine these estimates and advance our understanding of this significant potential shale basin. We will commence drilling in the fourth quarter of this year.

It is important to understand that we have been safely exploring, developing and producing energy onshore at our conventional sites for four decades, working sensitively and in collaboration with local communities throughout that time. We continue to inform and engage with these communities and are now working within the new UKOOG Charter to establish how those communities can receive and share in the benefits that shale gas may bring.

We believe we have both the experience and the expertise to unlock the potential of Britain's untapped natural resources and help to secure Britain's energy future while creating value for our shareholders and positively contributing to the economy.

Chief Executive Officer's Review

Over the past twelve months, we have had a busy and productive year as evidenced by our solid financial results. We have also made considerable progress in delivering our strategic objectives. As a result, we believe we are extremely well positioned for the future as we move closer to unlocking Britain's untapped unconventional resources, whilst continuing to deliver on our conventional assets, which is the foundation of our business.

There have been significant recent developments in the UK with the lifting of restrictions on exploration for shale gas announced by the UK government on 13th December 2012 and the establishment of the government's Office of Unconventional Gas and Oil. In the Chancellor's Budget statement, he outlined how the government was looking to assist the industry to take the next steps in assessing this resource by bringing forward proposals in respect to community benefits, planning guidelines and appropriate taxation. At the time of writing the government has already announced its intention to introduce a more streamlined planning process and tax allowances and we continue to work closely with all the relevant government departments. IGas has confirmed its commitment to the recently launched industry Charter which sets out the minimum standards communities can expect from operators. We understand further detail will be given by the government later this month as part of its consultation process.

The government's Energy and Climate Change Select Committee published a Report: 'The Impact of Shale Gas on Energy Markets' in April which acknowledged the substantial benefits to the UK that shale gas could offer. It concluded that natural gas from shale has the potential to transform the UK's energy market, boost the economy, create thousands of jobs, generate significant tax revenues and reduce our reliance on imported gas. The Committee itself is keen to see exploration proceed quickly in order to validate current estimates and establish the potential of shale gas in the UK.

In February, the United Kingdom Onshore Operators Group ("UKOOG"), the representative body for UK onshore oil and gas companies, was re-launched to expand its scope to reflect the increased importance of onshore oil and gas exploration to the UK economy. For the first time, UKOOG published industry guidelines covering best practice for shale well operations in the UK. The guidelines, which include hydraulic fracturing and the public disclosure of fracture fluid composition, were formed by a collaboration of operating and service companies with input from The Department for Energy and Climate Change (DECC), The Health and Safety Executive (HSE), The Environment Agency (EA) and the Scottish Environment Protection Agency (SEPA).

I am particularly pleased with the progress we have made in developing our position in the exploration and evaluation of unconventional resources in the UK. After the year end we announced the results of our studies of the Lower Carboniferous shale, including the Bowland Shale, under our 100% owned licences in the North West of England. We have estimated the volume of Gas Initially In-Place (GIIP) associated with the shales in the North West, including the Bowland Shale, could be up to as much as ca. 170 Tcf (for further detail on the range of estimates see table in 'Appraisal of wider resources' in this CEO Review). 

As we expand further onshore all our operations will continue to be run to the highest standards of safety, reliability and environmental management working in partnership with the communities in which we operate. We will continue to build our capability by recruiting and retaining the best people in the industry; and we will continue to focus on performance and delivering on our strategy.

Growing IGas Energy

Since the acquisition of Star Energy in 2011, the integration of which is now fully complete, we have continued to grow the business, acquiring PR Singleton Limited from Providence Resources for US$66m earlier in the year. The assets included the ownership of 100% of PL240, including the Singleton field which is close to existing IGas sites in the South of England, and 50% of PEDL 233 including the Baxter's Copse and Burton Down fields. We were already selling all the oil produced at the Singleton field on behalf of Providence and therefore had a very good understanding of the field and its potential. We see considerable upside from Singleton alongside the additional resources in Baxter's Copse and Burton Down fields. Current production from the Singleton field is 520 bopd. The acquisition of Singleton plays an important part in our ability to exploit our significant potential resources by giving IGas a material increase in reserves and production with the associated cash flow to be used to develop all of our assets across Britain.

Importantly, in parallel with our reserves and resources growth, we have also grown our professional team in both oil and gas operations and in our corporate group. It is particularly rewarding to see the number of talented people IGas is attracting. This adds significant capability to our business and provides us with the professional skills and experience to execute our operations and initiatives efficiently and to the best industry standards. To this end, we have now centralised all our subsurface, drilling, land and planning staff in London which will enable yet greater collaboration between technical and operational teams.

In order to secure our ability to fund our future, and ensure that we are able to further demonstrate the significant potential of our resource base, we undertook refinancing projects in both equity and debt in the course of the year. In January, we raised £23.1million by way of a placing of a total of 24,330,730 new ordinary shares at a price of 95 pence. The proceeds of the placing, along with cash flow from the Company's conventional asset portfolio, including Singleton, will enable IGas to conduct a work programme to further appraise our shale assets and further demonstrate the significant potential of our wider asset base across the country.

In March, we announced the arrangement of a five year, US$165 million senior secured bond to refinance our existing debt and give us additional flexibility. Subscribers included institutions and banks in London, Scandinavia and in the US. 

Production

Production through the period (which includes only one month's contribution from Singleton) has continued to be robust, with an average for the period of 2,396 bopd and 2,470 boepd total production including electricity generation. This has been achieved with limited capital expenditure, with rates having been sustained through active well services management utilising IGas' own personnel and equipment.

Our "Chase the Barrels" initiative has identified numerous opportunities to enhance production and recovery, for example, field optimisation models have been developed which help highlight production efficiencies and identify lost production opportunities. A number of specific well opportunities have been highlighted and these are being verified and prioritised to form a series of workover/remediation programmes to unlock this additional potential (to date ca. 400 bopd has been identified).

Technical studies have also identified additional opportunities to add new production and reserves, for example, at Bletchingley-2 a recent extended well test which flowed for 15 days at up to 4.4MMscf/d (750boepd) has identified this accumulation as a future gas monetisation project which will be progressed in 2013/14.

A review of the portfolio illustrates the potential in the asset base. Twenty five of our conventional fields are estimated to have an in place volume (STOIIP) of approximately 475MMstb and the average recovery factor for the portfolio is approximately 18% (individual fields vary between ca. 5-55%). This suggests that there still remains a significant volume of oil to be recovered through detailed analysis and the application of current technology. For example, we have recently initiated a comprehensive field study of our Stockbridge assets which is aimed to identify further upside in this significant asset.

Reserves growth

Following in-house technical studies and continuing field performance in 2012, a subsequent independent Competent Persons Report issued in December 2012, resulted in proven reserves growth of 30% from 6.1 to 7.9 MMboe over the period 1 Jan 2012 to 30 Jun 2012, adjusted for production (production in the 6 month period to 30 Jun 2012 of 0.46MMstb). In addition, the acquisition of P.R. Singleton Limited further added 4.3mmboe of 1P reserves.

Appraisal of wider resources

Significant progress continues to be made on the unconventional resources of the group both in terms of the subsurface understanding and the clarification by government in respect to the regulatory and planning process related to shale development.

Following completion of the Ince Marshes-1 well, we conducted an extensive evaluation programme of the shale potential in our North West licences. This work has involved detailed seismic analysis, including reprocessing many kilometres of existing 2-D seismic, biostrat and chemostrat studies, basin modelling as well as extensive petrophysical and geomechanical studies using data from existing wells across the North West. Using the geological model constructed by our technical team, this data has been analysed to give estimates of the reservoir characteristics of the shale formations, including the thickness of the shale.

Based on this model, we have estimated the volume of Gas Initially In-Place (GIIP) associated with the shales in the North West, including the Bowland Shale.

These estimates cover an area of 300 square miles giving an average mid case in place volume of ca. 340 Bcf/square mile with a range of 93 Bcf/square mile to 677 Bcf/square mile across the IGas North West acreage.

We will commence a drilling programme later in the year, in the North West, which will help to further refine these estimates and advance our understanding of this shale basin. Long lead items such as wellheads and casings have now been ordered and negotiations with drilling and related service companies are nearing completion. Background monitoring and base line surveys in advance of drilling have already commenced.

We will also, in due course, carry out further analysis and reinterpretation of existing seismic and subsurface data to evaluate the potentially prospective shale resources in the East Midlands and Weald Basin licence areas.

The Doe Green pilot Coal Bed Methane ("CBM") site continues to produce gas and generate electricity. All three production wells, each of which is testing a separate seam, demonstrate that gas is flowing from the seams. The development of our CBM resources will be linked to and dependent on the progress made in demonstrating our shale resources.

Working with local communities

IGas has a long track record of engaging with neighbouring communities. Our workforce lives and works in the areas in which we operate, so the strength of our relationships with local residents is vital to us. In all areas, we work with local people through our Community Liaison Groups to ensure that that our activities are understood and lead to real benefits for all. We operate these groups before and during the planning process and throughout our operations we are committed to in-depth and meaningful consultation and engagement.

We have committed to distribute several hundred thousand pounds a year in community projects in parishes adjacent to our sites, through an independently managed community fund. Details of our fund and some examples of the projects we have funded can be found in the Corporate Responsibility section of this Annual Report.

Since the year end, we were pleased to formalise our existing work in communities by signing up to the UKOOG Community Engagement Charter. This binding industry charter is a commitment to the communities that we work with ensuring that they understand what we are doing, how we are doing it and the steps we will take to mitigate concerns they may have around safety and the environmental impact of our operations.

Health and Safety

We continue to work extremely hard to ensure that our presence makes a meaningful and positive contribution to the areas in which we operate and is sustainable over the long term, core to which is our commitment to operate safely and reliably. There has been a low number of Lost Time

Injuries ("LTIs") in the year and we are committed to minimising these incidents.

Outlook

The conventional fields remain a vital part of our business strategy and we have an active programme of investment to identify incremental opportunities to enhance production and grow our reserve base. The "Chase the Barrels" initiative has started to bear fruit and we will continue this initiative in the forthcoming year.

The recent publication of new figures from the British Geological Survey (BGS) have indicated that the amount of shale resources in an area stretching from Lancashire to Yorkshire and down to Lincolnshire could hold at least 1,300 trillion cubic feet of gas. The results of our own technical study, in the North West, supports our view that these licences have a very significant shale gas resource with the potential to transform the Company and materially benefit the communities in which we operate.

We are very excited about the future of the onshore oil and gas industry in this country and look forward to developing this potentially strategically important resource in conjunction with the communities in which it is found, in the coming months and years.

Chief Financial Officer's Review

Notes

1: On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence Resources plc and therefore the 2013 results reflect one month's contribution from PR Singleton

2: The figures for 2012 reflect the 15 month period to 31 March 2012. The Star Energy acquisition completed on 14 December 2011 and therefore the March 2012 results reflect only 3.5 months of results from Star Energy

3: EBITDA relates to earnings before net finance costs, tax, depletion, depreciation and amortisation

4: Underlying operating profit excludes the profits/(losses) on oil price swaps, acquisition costs and impairment of exploration and evaluation assets

5: Net debt is borrowings less cash and restricted cash

The year ended 31 March 2013 has been another extremely active year for the IGas Group, through the equity financing in January 2013, the completion of the acquisition of P.R. Singleton Limited ("PR Singleton") in February 2013, and the arrangement of a 5 year senior secured US$165m Bond alongside a significant amount of progress across our asset base.

In January 2013, the Company raised gross proceeds of £23.1m by issuing 24.3m shares at 95p, representing approximately 15 per cent. of the enlarged issued ordinary share capital of the Company. The placing followed the developments in the UK with the lifting of restrictions on exploitation of shale gas announced by the UK government on 13th December 2012 and the establishment of the government's Office of Unconventional Gas and Oil. The Board believed it appropriate to ensure that the Company was able to further demonstrate the significant potential of its unconventional resource base prior to any farm out. The equity fundraising also brought in a number of new institutional investors to the Company's shareholder register.

On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence Resources plc following fulfilment of the conditions precedent and approval from the Department of Energy and Climate Change (DECC). The acquisition of PR Singleton further consolidated the Company's position as a leading onshore oil and gas company across Britain.

The acquisition of PR Singleton gave the Company a material increase in reserves and production and was an important element in the overall refinancing of the Company and the issue of a five year, US$165 million senior secured bond, which was announced on 14 March 2013. The bonds have afixed interest rate of 10 per cent. per annum and semi-annual amortisation of 2.5 per cent. of the initial loan amount. During April 2013, following satisfaction of all conditions precedent, IGas drew down US$165m from Escrow and repaid the outstanding loan balances and closed out all remaining hedges with Macquarie (Completion of the Refinancing). IGas will apply for the bonds to be listed on the main Board of the Oslo Stock Exchange and this is expected to take place during September.

Income statement1

The Group recorded revenues of £68.3m in the year (2012: £22.1m). The Group completed the acquisition of PR Singleton on 28 February 2013 and therefore the income statement includes only one month's contribution from Singleton in these results.

Group production in the year was 901,540boe, representing an average of 2,470boepd (2012: 2,615boepd). If the Group had owned PR Singleton since 1 April 2012, Group production would have averaged 2,910boepd for the year ended 31 March 2013.

The average realised price per barrel pre-hedge was £69.4 (US$109.6) (2012: £73.4 (US$117.0)) with narrow discounts to Brent continuing to be achieved. After taking into account the cash effect of hedging, which amounted to an average of £6.9 (US$10.9) per barrel, the average realised oil price was £62.5 (US$98.7) (2012: £65.1 (US$103.2)) per barrel.

Cost of sales of £38.0m (2012: £12.0m), includes depreciation, depletion and amortisation (D,D&A) of £10.0m (2012: £3.2m) and operating costs of £28.1m (2012: £8.8m) including £7.0m in relation to third party oil (2012: £1.8m). Operating costs per barrel of oil equivalent (boe) were £21.6 (2012: £19.9), excluding the third party costs. These costs include transportation costs of £3.15/boe (2012: £3.30/boe) and the costs of our well service team of £2.89/boe (2012: £2.64/boe).

Administrative expenses were £8.4m (2012: £5.0m). A charge for the impairment of exploration and evaluation assets of £1.1m (2012: £0.0m) was incurred during the year following the relinquishment of PEDL115, an exploration licence in Staffordshire. Profit on oil price swaps was £0.9m (2012: loss £18.5m).

Other income amounted to £0.2m (2012: £0.2m). Net finance costs amounted to £27.9m (2012: £1.7m) including £9.2m of interest (2012: £3.2m), net foreign exchange losses of £3.3m (2012: gain £0.3m), loss on revaluation of warrants £5.4m (2012: gain £1.7m), early settlement fees in relation to the loan assumed in the Singleton acquisition of £1.4m (2012: £nil) and unamortised Macquarie debt costs written off of £7.6m (2012: £nil). Net finance costs excluding 'one-off' costs2 amounted to £12.9m (2012: £2.7m).

Gross profit of £30.3m was recognised in the year (2012: £10.1m) with underlying profit3 of £22.1m (2012: £5.4m).

1: On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence Resources plc and therefore the 2013 results reflect one month's contribution from PR Singleton. The figures for 2012 reflect the 15 month period to 31 March 2012. The Star Energy acquisition completed on 14 December 2011 and therefore the March 2012 results reflect only 3.5 months of results from Star Energy

2: Net finance costs excluding one-off costs excludes loss on interest rate swaps, loss/(gain) on warrants, early settlement fees in relation to the loan assumed in the Singleton acquisition and unamortised Macquarie debt costs written off.

3: Underlying operating profit excludes the profits/(losses) on oil price swaps, acquisition costs and charges for exploration and evaluation assets

Cash Flow

Cash generated from operating activities in the period amounted to £28.9m (2012: cash used £2.6m).

On 15 January 2013, the Company raised gross proceeds of £23.1m by issuing 24.3m new ordinary shares, as detailed above.

On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence Resources plc for £42.2m (including assumed borrowings) which was financed through additional borrowing of £21.4m from Macquarie with the balance from the Group's existing cash balances.

During the year, the Group repaid £16.7m (US$26.3m) of debt principal in addition to interest of £6.7m (US$10.6m).

The Group incurred capital expenditure of £3.6m in the year ended 31 March 2013 (2012: £18.5m).

Balance Sheet

The Group's non-current assets increased by £50.1m during the period to £231.4m, principally due to the acquisition of PR Singleton. The PR Singleton acquisition has been accounted for as a business combination by the acquisition method of accounting with an effective date of 28 February 2013, being the date the Group gained control of PR Singleton. Goodwill of £10.8m was added to the balance sheet due to the acquisition of PR Singleton.

The timing of the Completion of the Refinancing, being completed post year-end, resulted in significant temporary effects on the balance sheet as at 31 March 2013 which unwound in April 2013 following the completion of the bond. A pro forma consolidated balance sheet is set out in Note 28 - 'Subsequent Events' of the Consolidated financial statements to show the balance sheet as if the bond issue had completed as at 31 March 2013.

In accordance with IFRS, the monies received from the bond on 22 March 2013, and which were held in escrow at the balance sheet date principally to repay the outstanding loan balance with Macquarie, have been recognised within current assets as 'Other Financial Assets - Restricted Cash'. The outstanding loan balance with Macquarie as at 31 March 2013, has been recognised within current liabilities as 'Borrowings-Macquarie', and the bond was recognised principally within long term liabilities - 'Borrowings-Bond'. On 10 April 2013, the Bond monies were released from escrow and the outstanding loan balance with Macquarie was repaid in full. At the same time all outstanding oil and interest rate swap hedges with Macquarie were cancelled at a cost of £10.7m (US$16.2m). Shortly thereafter, IGas entered into new hedging arrangements by acquiring puts for c.450,000 barrels at US$90.0/barrel and c.450,000 barrels at £58.8/barrel with maturities over the period to 31 March 2014. Going forward, the Board will seek to underpin the Group's future cash flows by buying puts for baseline production for at least the following 12 months.

As reflected in Note 28 - Subsequent Events of the consolidated financial statements, had the full Bond issue been completed as at 31 March 2013, the current assets would have reduced by £96.6m and the current liabilities by £102.0m, a net current asset impact of £5.4m.

Net debt, being borrowings less cash and restricted cash, at the year-end amounted to £77.4m. Transaction costs of £2.8m associated with the debt are offset against the drawn debt within the balance sheet and will be recognised over the life of the loan in accordance with the Group's accounting policies.

A deferred tax charge of £12.5m has been incurred for the year which has been created by the recognition of certain tax losses and other temporary timing differences within the Group. This has increased the deferred tax liability to £40.2m as at the balance sheet date. As at 31 March 2013, the Group has corporation tax losses of £49m and supplementary charge losses of £25m carried forward.

Corporate Social Responsibility Report

At IGas, we are committed to the environment, our employees and the communities in which we operate.

During the year we have worked in collaboration with Community Liaison Groups, Planning officials, the Health and Safety Executive, the Environment Agency, the government Department of Energy & Climate Change (DECC) and the United Kingdom Onshore Operators Group (UKOOG), to ensure all our stakeholders have a thorough understanding of our activities. We are committed to being aligned in our work with these organisations to ensure the development of, and further investment in, the onshore oil and gas industry.

Working collaboratively with the wider industry and associated partners means that together we can continue to support the regional and local economies and ensure Britain's future energy security.

Since the lifting of the restrictions on exploration for shale gas in December 2012 and the establishment of the Office for Unconventional Gas and Oil, UKOOG has established a Community Engagement Charter, setting out guiding principles to ensure open and transparent communications between industry, stakeholder groups and the communities in which we operate.

Openness and transparency is at the heart of everything we do as a company and as a wider industry. The UKOOG Charter will ensure we, as an operator, continue to be aligned to the needs of the community.

Our People

Our workforce is an integral and critical part of every aspect of our business and a key focus is developing the skills of our team. We are conscious of the role we can play in helping to support local employment and the local economy. We currently have 5 employees at different stages of their apprenticeships with IGas. Including managers and supervisors, we have over 90 employees engaged in production, maintenance and well servicing operations across our sites. Of these, more than 30 have in excess of 15 years' service with the company and collectively, including trainees and apprentices, average service is over 10 years. Our drivers and vehicle maintenance team average over 12 years' service. This provides us with a solid base of knowledge to progress our operations into the future with a significant understanding of the geology and with a deep understanding of the communities and the environment in which we operate.

We are committed not only to developing our people and continuing to improve our internal skills but also to provide a positive and safe working environment for all staff and contractors.

Our Community

IGas has a long track record of engaging with the communities in which it operates. We are a British business and our workforce largely lives and works in the areas in which we operate which helps build the strength and the quality of our relationship with local residents.

Local engagement

We are committed to ensuring we work with the neighbouring communities at each of our operating locations through our local liaison groups, ensuring transparency and an opportunity for open and effective dialogue. We recognise that we are a part of the community and we are committed to in-depth and meaningful consultations, working together with the aim to bring real benefits to the area and address any concerns. This local engagement occurs both before and during the planning process and continues throughout the life of the development.

UKOOG Charter

In June the industry body, UKOOG (, announced a charter for community engagement. The Charter exists to ensure open and transparent communications between industry, stakeholder groups and the communities in which they operate.

Its objectives, to which we fully subscribe, are threefold:

·; to Identify and proactively address local issues and concerns;

·; to facilitate the sustainable development of extractive resources and;

·; to achieve an appropriate balance between the safe production of energy and the community's needs.

All operators displaying the UKOOG logo will have to adopt these as minimum standards and will be measured against them on a regular basis. Each operator will report annually to UKOOG on their performance and UKOOG will produce and publish an annual industry report on its website.

Full details of the UKOOG Charter can be found at www.ukoog.org.uk.

IGas is a signatory to this charter.

IGas Energy Community Fund

The IGas Energy Community Fund is a further commitment we make towards the vitality of the communities in which we operate. Our Community Fund has committed to distribute several hundred thousand pounds a year to projects that are charitable, educational or benevolent in purpose. It is an independently managed fund with projects being chosen by members from community groups and parish councils from areas in, and adjacent to, our operations.

These projects aim to benefit groups of people within the local communities as well as wildlife and the surrounding environment. Projects have supported children and young people, vulnerable members of our communities, regeneration projects, self-help groups delivering basic services, wildlife projects and projects providing education and skills development opportunities.

Over recent years, the fund has helped projects ranging from nature reserves to playgrounds. We provided funds to lay on water to a church in Hampshire to enable it to be used for wider community gatherings.

At Albury in Surrey, grants have helped the parish council to bring about a series of improvements to enhance the overall village environment.

Currently, we are supporting three separate projects where people in rural communities want to buy potentially life-saving emergency equipment in places where 999 crews will take time to respond.

At Penketh in Cheshire, we are funding a school which is buying a greenhouse as a boost to an allotment which grows vegetables and produces eggs for the school kitchen.

Employee volunteering and engagement

The social investment we make through our Community Fund is complemented by employee engagement. Many of our team at IGas have independently raised their own funds for charities. We admire their commitment and initiative towards looking after each other and our communities and encourage their efforts with matched funding. Charities which the team at IGas have supported include a number of cancer foundations including the Everyman Foundation.

Our Health, Safety and Security

The security, health and safety of our workforce is of paramount importance and an integral part of everything we do. A positive, safe and productive work environment for all of our team comes from ensuring the contribution of each team member towards building and sustaining a strong safety culture. We conduct routine assessments of our operating standards and review on an on-going basis our facility HSE and ER Plans. These include risk assessments and mitigation that extend from site facilities to considering issues within the local geographical area.

In terms of site safety, we have Emergency Preparedness and Response arrangements and Incident Response and Reporting processes in place. We place great importance in ensuring the effectiveness of our response, and the ultimate safety and security of our site personnel and others who may be affected by our activities.

Our Management System is aligned to the requirements of the occupational health and safety standard OHSAS 18001, and we remain committed to pursuing certification to this standard.

Our Lost Time Injuries (LTIs) for 2012 continue to decline, which is a result of our continued commitment to safe operations.

Our Environment

We have successfully extended our certification to the Quality Management standard ISO 9001, and the Environmental Management standard, ISO 14001 through our on-going commitment to maintaining the requirements of these standards.

Our mandatory environmental operating standards are applied to all operating facilities. Initial risk assessments are conducted, along with baseline surveys, applying impact mitigation throughout all phases up to site restoration.

Our desire to sustain and enhance the environments in which we operate means that we work in collaboration with organisations involved in protecting local flora and fauna including for example, The Royal Society for Protection of Birds.

IGas At A Glance

IGas Energy is a leading British oil and gas explorer and developer, producing c.3000 boepd from over 100 sites across the country, with significant potential still to be delivered from our assets.

IGas is extremely well positioned for the future as we move closer to unlocking Britain's untapped unconventional oil and gas resources.

Our own technical studies support the view, recently substantiated by the British Geological Survey estimates, that our North West licences have a very significant shale gas in-place volume. This in turn, has the potential to transform the company, create value for our shareholders and materially benefit the communities in which we operate.

Our areas of operation

East Midlands

In the East Midlands we have two primary production areas: Welton and Gainsborough.

Oil and gas has been produced in the East Midlands since 1959 and current production from this area accounts for approximately 50% of the Group's total current production.

The Welton area is made up of six fields and a gathering centre where produced oil, gas and water are separated. The produced oil is transported to Conoco Immingham via road tanker. Gas is used for power generation and produced water is pumped for reinjection.

The Gainsborough/Beckingham area is made up of eleven fields and a processing facility. Oil is transported to Conoco Immingham via road tanker, gas is piped to Gainsborough-1 for power generation and produced water is pumped for reinjection.

Weald Basin

Based in southern England, the Weald Basin is the source of approximately 50% of our current production.

There are eleven fields ranging from Stockbridge, near Winchester, in the west to Palmers Wood near Gatwick in the East and now includes the Singleton field. The area has produced more than 29 million barrels of oil to date. Oil is collected by tanker from our sites and transported to our processing facilities at Holybourne. Here we have storage for more than 20,000 barrels and a rail terminal allowing us to transport our products to local refineries by train. We also handle oil on behalf of other operators in the area, providing IGas with an additional revenue stream.

North West/Staffs

In the North West we have nine onshore licences and one offshore, located in the counties of Cheshire, Flintshire and Staffordshire, that contain the Carboniferous Coal Measures and Bowland-Hodder shales. The total area under licence in this region is 1,259km2 (approximately 311,000 acres), with the Company owning 100% working interest in all licences. Our recent review of 300 square miles of this acreage gives an estimate of Gas Initially In-Place of up to ca.170 Tcf (for further detail on the range of estimates see table in 'Appraisal of wider resources' in the CEO Review), with an average mid case in place volume of ca. 340 Bcf/square mile ranging from 93 Bcf/square mile to 677 Bcf/square mile.

A Year In Review

Key milestones

April 2012

Encouraging results from interpretation of logs from Ince Marshes-1

July 2012

Robin Pinchbeck appointed to the Board as a non-executive director

September 2012

Signed Heads of Terms Agreement with Providence Resources to acquire P.R. Singleton Limited for US$66 million.

December 2012

Establishment of the government's new Office of Unconventional Gas and Oil

Department of Energy & Climate Change (DECC) lifts the restrictions on hydraulic fracturing

Cuth McDowell appointed to the Board as Non-Executive Director and Chairman of the Audit Committee

January 2013

Successful fundraising of ca. £23 million at 95p per share

February 2013

Completion of the acquisition of P.R. Singleton Limited from Providence Resources

March 2013 Arrangement of a five year US$165 million senior secured bond

April 2013

Confirmed plans to spud two exploration wells in the North West subject to results and permitting

May 2013

Institute of Directors (IoD) issues 'Getting Shale Gas Working' report

June 2013

Announced our shale Gas Initially InPlace (GIIP) estimates for North West acreage

British Geological Survey 'The Carboniferous Bowland Shale gas study: geology and resource estimation' released

UKOOG Community Engagement Charter signed

Government announces package of community incentives, guidelines on permitting and planning and launches consultation on tax incentives in support of the industry

Gas From Shale

IGas - helping to unlock Britain's shale gas potential

Britain has a heritage of onshore and offshore oil and gas production that dates back to 1851, and one that has had a profound effect on the economy of the country. From the wartime exploration of onshore oil, through to the development of the largest onshore oil and gas field in Europe at Wytch Farm in Dorset, the UK has had a gold standard of safe operation of oil and gas fields across the country.

IGas is currently the operator of the largest number of onshore oil and gas wells in Britain. Oil and gas has been safely explored, developed and produced at our sites for over forty years.

Now IGas is set to be a key player in the development of previously untapped British resources in the form of natural gas contained within shale formations underneath Britain. Our management and technical teams are well placed to take this next step in onshore energy production, which has the potential to deliver economic and social benefits across the country.

Delivering for the British economy

Natural gas from shale is potentially a major asset for Britain. The most recent study by the British Geological Survey (BGS) confirmed that there are estimated to be 1,300 trillion cubic feet (Tcf) (for further detail on the range of estimates see table in 'Appraisal of wider resources' in the CEO Review) of shale gas resources lying under the North of England, a significant upwards revision of previous estimates. Our own studies show that within 300 square miles of our licence areas, between Manchester and Liverpool, there is gas in place of up to ca. 170 Tcf (for further detail on the range of estimates see table in 'Appraisal of wider resources' in the CEO Review). With Britain's total gas use of ca. 3 Tcf a year and imports running at 1.5 Tcf per year and rising, it is clear this is a material national resource and has the potential to make a significant impact for the nation. The size of the recoverable resources is limited by factors such as technology and economics. Using the Institute of Directors (IOD) report estimates, of a recovery rate of 10%, this resource could have the potential to make a meaningful contribution to the UK economy, improving our balance of payments, delivering tax revenues, economic growth, and a significant number of jobs.

Shale Gas - An important part of our energy mix

Gas from shale deposits could significantly de-carbonise the economy by moving the energy generation mix away from coal towards gas. This has the potential to aid our ability to meet our greenhouse gas emission commitments. The impact of shale gas in decarbonising an economy has already been experienced in the United States.

At IGas we want to play our part in diversifying the UK's energy mix and reducing our reliance on imported resources. An energy diverse Britain is a secure Britain and gas from shale can play its part in helping to bring stability to the UK energy market and pricing environment. Transporting gas results in a higher carbon footprint.than domestically produced gas.

Developing Britain's shale gas resources will complement, not replace, investment in renewable energy.

Clean and Safe Production

Whilst shale gas has the potential to offer enormous benefits, it is understandable that many people have questions over both its extraction and its production.

Britain has one of the world's most stringent regulatory regimes for onshore and offshore oil and gas extraction. IGas always works within this framework and will continue to adhere to the strict environmental and safety codes in the next phase of the Company's development.

The advent of the combination of horizontal drilling and hydraulic fracturing has enabled the successful development of shale gas resources elsewhere in the World. Both these technologies have been used in Britain for many years without incident and are well understood by operators and regulators.

Seismic Activity

There are naturally occurring seismic movements documented on a daily basis across Britain. In March 2013 alone, there were 16 tremors across the British Isles of greater intensity than that picked up near Blackpool and Fylde in 2011, attributed to shale gas-drilling.

Some one million wells have used hydraulic fracturing worldwide since 1949 (American Petroleum Institute), when the technique was introduced. There have been only a few cases of minor seismic activity linked to this process and in no cases has it resulted in any surface impact.

Water Quality

IGas considers the security of our water supply to be paramount. In Britain, we operate under some of the World's strictest regulations, as well as our own very high safety and environmental standards. Unlike some parts of the US, in the UK there is typically more than a mile of rock between the shale beds and the overlying fresh water aquifer. Hydraulic fracturing has been carried out on over a million wells and studies by the U.S. Environment protection Agency (EPA) and the Ground Water Protection Council have confirmed no direct link between hydraulic fracturing operations and groundwater impacts (American Petroleum Institute). In February, we signed up to the UKOOG industry guidelines covering best practice for shale well operations in the UK.

The guidelines, which include hydraulic fracturing and the public disclosure of fracture fluid chemical composition, were written by a high level work-group which included operating and service companies with input from The Department for Energy and Climate Change (DECC), The Health and Safety Executive (HSE), The Environment Agency (EA) and the Scottish Environment Protection Agency (SEPA).

Environmental impact

As discussed, the introduction of shale gas into the UK's energy mix could have a positive effect on the UK's current emissions levels, as has been the case in the United States. Not only will domestically produced gas have lower emissions than imported gas but electricity generated from gas results in half the level of CO2 emissions than that generated by burning coal, which currently accounts for 31% of Britain's generating capacity. Developing our shale gas resources will help us move away from coal fired generation, complement, not replace investment in renewable energy and help to make a meaningful impact in decarbonising our economy.

Between 2005 and 2010, US CO2 emissions fell by 403 million tonnes, greater than the 318 million tonne fall in the EU over the same period. Between 2005 and 2012, US electricity generation from coal fell by 25%, while electricity generation from natural gas rose by 62% and from renewables by 38%. [source IOD Report: "Getting Shale Gas Working"]

One of Britain's advantages is the density of our shale resources. In certain areas, the shale section in the UK is up to 10 times the average thickness of that in America meaning that from a single site above ground it should be possible to extract far more gas. The IoD has quoted that '100 pads would need 200 hectares' across Britain. This would equate to an area of only ca. 500 acres, the equivalent to the size of the Trafford Centre in Greater Manchester.

Industry Working With Local Communities

A binding industry charter for UKOOG members has been developed, covering the minimum standards of engagement required with local communities alongside a community benefits scheme. The Charter sets out the minimum standards that communities can expect from shale gas operators that display the UKOOG logo. The Charter covers how operators will communicate and engage and also makes commitments with respect to local logistics, adherence to health and safety regulations, compliance with environmental regulations, local needs and jobs. The benefits mechanism is based on a 1% share of revenue from producing wells, before all costs of production are taken into account.

IGas is committed to its social licence to operate, which means honest engagement with, and commitment to, our neighbouring communities.

Directors

Francis Gugen

Non-Executive Chairman

Francis is a founder and non-executive chairman and has over thirty years' oil and gas industry experience. Between 1982 and 2000 he helped grow Amerada Hess in North West Europe, ultimately becoming CEO. Currently he is also non-executive chairman of Petroleum Geophysical Services ASA and of Chrysaor Limited and a board member of SBM Offshore NV, all involved in conventional oil & gas. Until 2006 he served as non-executive chairman of the start-up North Sea gas fields and pipelines operator CH4 Energy Limited, which was then disposed of for Euro 224m. He is past president of the UK Offshore Operators Association, past chair of the industries representation on the UK Government Oil & Gas Task Force (Pilot) and past chair of the CBI's Environmental Affairs Committee. Francis is a chartered accountant having worked for Arthur Andersen for eight years until 1982, principally as an oil and gas specialist.

Andrew Austin

Chief Executive Officer

Andrew is a founder of IGas, has been an executive director since 2004 and the Chief Executive Officer for the last 5 years with full time responsibility for the day to day operations and business development. Prior to joining IGas, Andrew has been involved in a number of ventures as principal, specialising in energy projects in the gas, electricity and renewable sectors with a track record of raising substantial funding from both private and public equity. Andrew is responsible for the transformation of IGas from a non-operating partner to delivering material hydrocarbon production to Britain's energy market.

John Blaymires

Chief Operating Officer

John has 29 years of international experience in the oil and gas industry gained with Hess Corporation and Shell International. Before joining IGas he was Director of Technology Development for Hess based in Houston, where he helped develop a global engineering and geoscience technology group responsible for providing support across the E&P business, from deepwater to unconventional resources. Prior to that John was Technical Director for Hess' operations in West Africa, and subsequently South East Asia with responsibility for several major oil and gas developments.

John has a BSc and PhD in Mining Engineering from Leeds University.

Stephen Bowler

Chief Financial Officer

Steve, started his career at Touche Ross, now Deloitte, where he qualified as a chartered accountant having spent time in both their audit and corporate finance divisions. In 1999, Steve joined ABN Amro Hoare Govett, now Jefferies Hoare Govett, where he acted as adviser and broker to a wide range of companies with a particular focus on E&P. Steve joined IGas on 1st November 2011.

John Bryant

Senior Independent

Non-Executive Director

John is the Chairman of AIM listed Weatherley International plc, and a board member of AIM listed China Africa Resources Plc. He was until recently a board member of the Attiki Gas Company, which supplies natural gas to Athens and the surrounding districts. John previously served as president of Cinergy Global Resources Corp, responsible for all international business and global renewable power operations of this US based electricity and gas utility provider. Before joining Cinergy, John was executive director with Midlands Electricity plc. He has been involved in developing a number of arge gas fired power stations both in the UK and overseas, together with both electricity and gas distribution in Europe and Africa, renewable power in Europe and North America and gas and electricity trading. His prior experience was at British Sugar plc, Drexel Limited, the British Oxygen

Company and Unilever plc. Drexel, where he was president, was a global oil and gas equipment manufacturing and servicing company. John is a Fellow of the Institute of Directors and a Fellow of the Royal Society of Arts.

Robin Pinchbeck

Non-Executive Director

Rob has 39 years of international experience in the oil and gas sector, having held leadership positions in both oil and oil-services sectors with BP, Atlantic Power, PGS and most recently, with Petrofac Limited where he founded and led the Operations Services division and subsequently served as Group Director of Strategy. Past non-executive roles include Sondex plc, SLR Consulting Ltd, Enquest plc and international oil services company Sparrows Offshore Ltd, where he served as Chairman from 2008 until 2012. He is currently a Non-Executive Director at AIM-listed Enteq Upstream plc and unlisted Seven Energy International Limited.

Cuth McDowell

Non-Executive Director

Cuth has 33 years of international experience in the oil and gas sector, having held a range of leadership positions in Exploration and Production. He began his career with BP where he held various commercial and management roles over 8 years. Cuth then joined Clyde Petroleum plc, initially as Senior Economist, subsequently becoming Group Commercial Manager before Clyde was bought by Gulf Canada. In 1997, Cuth joined Paladin Resources plc, where he served primarily as Finance Director. The company raised £120million in 4 separate primary offerings before it was sold to Talisman Energy Inc. for approximately £1.2billion in 2006. Cuth is currently a non-executive director at Pitkin Petroleum, a privately owned international upstream oil and gas company.

Corporate governance

The Board of Directors support high standards of corporate governance and the guidance set out in the UK Corporate Governance Code. As a Company that is quoted on AIM, it is not required to comply with the UK Corporate Governance Code but all the Directors intend to comply with its main provisions as far as is practicable having regard to the size and composition of the Group.

The Board and its committees

The Board of the Company consists of three Executive Directors and four non-executive directors; with Mr Bryant, Mr Pinchbeck and Mr McDowell being considered to be independent. The Senior Independent non-executive director is John Bryant and biographies of all the directors are included within this statement.

The Board retains full and effective control over the Group. The Board meets regularly, at least eight times a year, to consider reports on the operational and financial performance of the Group and to decide on matters reserved unto itself, which include reviewing and approving the Group's strategy, budgets, major items of capital expenditure and senior personnel appointments.

The Directors have established separate committees each chaired by a non-executive director as follows:

Audit committee

The committee comprises only non-executive directors; being chaired by Cuth McDowell and having as other members John Bryant and Robin Pinchbeck. The Chairman and the Executive Directors may attend only at the invitation of the committee.

The committee receives and reviews reports from management and the Group's auditors relating to the Group's annual report and accounts and to interim results announcements. The committee focuses particularly on compliance with legal requirements, accounting standards and the AIM Rules and on ensuring that effective systems of internal financial and non-financial controls (including for the management of risk and whistle-blowing) are maintained. However, the ultimate responsibility for reviewing and approving the annual report and accounts remains with the Board of Directors. The committee is also responsible for making recommendations to the Board of Directors on the appointment of the external auditors and their remuneration. The committee keeps under review the external auditors' independence and considers the nature, scope, and results of the auditor's work and develops policy on and reviews (reserving the right to approve) any non-audit services that are provided by the external auditors.

The committee normally meets at least three times a year and meets the external auditors at least annually without the presence of the Executive Directors.

Remuneration committee

The committee comprises only non-executive directors, being chaired by John Bryant and having as other members Robin Pinchbeck and Cuth McDowell. The committee, which normally meets at least twice a year, has responsibility for making recommendations to the Board of Directors on the Company's policy on the remuneration of the Chairman, Executive Directors and other senior executives (as are delegated to the committee to consider) and for determining, within agreed terms of reference, specific remuneration packages for each of them, including pension rights, any compensation payments and the implementation of executive incentive schemes. In accordance with the committee's terms of reference, no Director may participate in discussions relating to their own terms and conditions of service or remuneration.

Nomination committee

The Nomination committee is chaired by the Chairman, Francis Gugen, and its other member is the Senior Independent non-executive director, John Bryant. The committee, which meets as required throughout the year, has responsibility for considering the size, structure and composition of the Board of Directors, retirements and appointments of additional and replacement Directors and making appropriate recommendations to the Board of Directors. The committee is also tasked with ensuring that plans are in place for orderly succession to the Board of Directors and senior management positions, so as to maintain an appropriate balance of skills and experience within the Group and the Board of Directors. The Chief Executive Officer of the Company is invited to attend meetings of the committee when the committee is discussing matters related to executive management and such other matters as the committee chairman deems appropriate.

At each Annual General Meeting at least one-third of the Directors shall retire from office by rotation. The Directors to retire by rotation shall include, firstly, any Director who wishes to retire at the meeting and not offer himself for re-election and, secondly, those Directors who have been longest in office since their last appointment or reappointment, provided always that each Director shall be required to retire and offer himself for re-election at least every three years. Directors appointed by the Board hold office only until the dissolution of the Annual General Meeting of the Company next following such appointment.

Internal control

The Board acknowledges that it is responsible for establishing and maintaining the Group's system of internal controls and reviewing its effectiveness. The procedures that include, inter alia, financial, operational, health & safety, compliance matters and risk management are reviewed on an on-going basis. The internal control system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has considered the need for a separate internal audit function but, bearing in mind the present size and composition of the Group, does not consider it necessary at the current time.

UK Bribery Act

IGas has reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act. The Company continues actively to promote good practice throughout the Group and has initiated a rolling programme of anti-bribery and corruption training for all relevant employees.

Relations with shareholders

Communications with shareholders are considered important by the Directors. The primary contact with shareholders, investors and analysts is the Chief Executive Officer. The other Executive Directors, however, regularly speak to investors and analysts during the year. Company circulars and press releases have also been issued throughout the year for the purpose of keeping investors informed about the Group's progress.

The Company also maintains a website on the internet (www.igasplc.com) that is regularly updated and contains a wide range of information about the Group.

Directors' Remuneration Report

This report explains our remuneration policy for Directors and sets out how decisions regarding Directors' pay for the period under review have been taken.

Remit of the Remuneration committee

The remit of the Remuneration Committee (the "Committee") is provided in the Corporate Governance section.

The Committee has engaged the services of PricewaterhouseCoopers LLP ("PwC") to provide wholly independent advice on executive compensation and to assist the committee in the implementation and evaluation of its long term incentive arrangements. There were no other services provided by PwC to the Group during the period.

Remuneration policy

The Company's policy is to maintain levels of remuneration sufficient to attract, motivate and retain senior executives of the highest calibre who can deliver growth in shareholder value. Executive remuneration currently consists of basic salary, pensions, benefits, annual bonus (based on annually set targets), and long term incentives (to reward long term performance). The Company seeks to strike an appropriate balance between fixed and performance-related reward, therefore, the total remuneration package is structured so that a significant proportion is subject to the achievement of performance targets, forming a clear link between pay and performance. The performance targets are aligned to the key drivers of the business strategy, thereby creating a strong alignment of interest between executives and shareholders.

The Committee will continue to review the Company's remuneration policy and make amendments, if necessary, to ensure it remains fit for purpose for the Company, driving high levels of executive performance and remains competitive in the market.

Base salary

The purpose of the base salary is to:-

·; help recruit and retain key individuals;

·; reflect the individual's experience, role and contribution within the Company; and

·; ensure fair reward for "doing the job"

The Committee reviews base salaries annually to ensure that Executive Directors pay remains competitively aligned with external market practices.

The Committee will retain the discretion to increase an individual's salary where there is a significant difference between current levels and a market competitive rate for similar positions in similar organisations (based on size, complexity and sector). However in determining whether to increase levels the Committee will take the following into consideration:-

·; the performance of the individual Director;

·; the individual Director's experience and responsibilities;

·; impact on fixed costs of any increase; and

·; pay and conditions throughout the Company.

Bonus

Executives and employees are eligible to participate in a discretionary bonus plan. The percentage of maximum bonus entitlement received is based on the achievement of challenging corporate and personal targets. The maximum potential bonus entitlement for Directors under the plan is to up to 100% of base salary. The Committee can exceed this limit in exceptional circumstances. The Committee will determine on an annual basis the level of deferral, if any, of the bonus payment into Company shares. Maximum bonus levels and the proportion payable for on-target performance are considered in the light of market bonus levels for similar roles among the industry sector.

For the period ended 31 March 2013, the Committee set clear objectives for each individual Director relating to Group KPIs plus individual and strategic targets taking into account where an individual has particular influence and responsibility. The Committee also takes into account overall corporate performance in determining the actual annual bonus payment.

The following criteria sets out the performance metrics which the Remuneration Committee determined the bonus against the relevant KPIs and individual and strategic targets and the relative weighting for each Executive Director (the Committee have determined that it is inappropriate to disclose the actual targets due to commercial sensitivity):-

A list of the Performance metrics are as follows:-

·; HSE targets;

·; production targets;

·; reserves and resources targets (conventional and unconventional);

·; Opex and G&A costs;

·; cashflow;

·; annual share price performance relative to an appropriate comparator group; and

·; personal and strategic development goals.

The table below sets out the percentage achieved for each Executive Director:-

It should be noted that the actual bonus payment relates to performance over a 15 month period and as such the bonus payments have been pro-rated to reflect this longer performance period.

Given the transformational acquisition of the Star business, the Remuneration Committee determined to make an exceptional bonus payment to the CEO of £175,000 to reflect the importance of this transaction to long-term shareholder value creation.

Bonuses were paid in cash and are not pensionable. The Committee intend to operate the bonus for 2014 on similar principles.

Benefits

The Company provides Executive Directors with benefits in kind, with a pension contribution up to 15% of base salary (as well as other less significant benefits in kind).

Long Term Incentives

LTIP

In November 2011, the Company adopted a Long Term Incentive Plan (LTIP) scheme for certain key employees of the Group. Under the LTIP, participants can each be granted two types of award: an Initial Award and an Annual Award. Both types of award are in the form of a nil-cost option. If the relevant conditions attaching to the awards are met then the Director has seven years in which to exercise the award.

 The maximum individual limit for an Initial Award is 300% of salary and 150% of salary for an Annual Award. The primary purpose of the Initial Award is to aid recruitment and retention of key executives with the Annual Award focused on the achievement of challenging growth targets.

Initial Awards were granted in 2011. These awards vest at the end of a three year performance period provided the Company's share price performance exceeds the Company's weighted average cost of capital of 10%. No further Initial Awards will be granted to the current Executive Directors.

Annual Awards will vest at the end of a three year period provided certain challenging corporate performance conditions have been met. In addition, awards will only vest provided that up to 50% of an Executive Director's post tax bonus paid in the year of grant has been invested into Company shares and retained over that period. No Annual Awards have been granted this year.

Share Investment Plan ("SIP")

In January 2013, the Company adopted the Share Investment Plan for all employees of the Group. The scheme was approved by HM Revenue & Customs on 5 February 2013 and is a tax efficient incentive plan pursuant to which all employees are eligible to acquire up to £125 (or 10% of salary, if less) worth of IGas ordinary shares per month or £1,500 per annum.

An initial lump sum purchase was offered in March 2013 to allow participants to acquire up to £1,500 of IGas ordinary shares in respect of the 2012/13 tax year, which the Company matched on a 2-to-1 basis

On an ongoing basis shares will be acquired on a quarterly basis. The Company will match the shares purchased on a 1-to-1 basis and subject to the Company having met pre-defined quarterly production targets, will increase the matching element of that quarter to 2-to-1. To receive their allocation of matching shares, employees must ordinarily remain employed by the Company for a period of 3 years from the date of grant of the matching award.

Share price movements during the year

The Group's share price as at 31 March 2013 was 83p per share. The highest price during the period was 151p per share and the lowest share price during the period was 47.25p per share.

Current arrangements

Executive Directors

The Executive Directors are employed under rolling contracts with notice periods of twelve months or less from the Company or executive.

Directors' emoluments for the period were as follows:

* £175 thousand of this bonus amount was in relation to the Star acquisition.

** Part of these emoluments are paid to companies that provide the services

Each of the Executive Directors devotes such time as is required to discharge his duties, which in the case of A Austin, J Blaymires and S Bowler is full time.

As at 31 March 2013, the outstanding long term incentives held by the Directors who served during the year are as set out in the table below:

Long term incentive arrangements:

Non-Executive Directors

The Non-Executive Directors are employed under rolling contracts with notice periods of three months, under which they are not entitled to any pension, benefits or bonuses.

John Bryant

Chairman Remuneration Committee

10 July 2013

Directors' report

The Directors present their report together with the Group and Parent Company financial statements for the year ended 31 March 2013.

Business review and future developments

A review of the business and the future developments of the Group are presented in the Chairman's statement, the Chief Executive's statement and the Chief Financial Officer's review.

Results and dividends

The Group's profit for the period before taxation before costs of marking to market oil price, interest rate derivatives and warrants and before costs of acquisitions, exploration impairment and written off debt costs was £9.2 million (2012 : Profit 2.6 million). After adjusting for these items amounting to £15.2 million the total loss for the period before taxation was £6.0 million (2012: loss £17.9 million). The Directors do not recommend the payment of any dividend (2012: £nil)

Going Concern

The Directors consider that, having taken into consideration the factors set out in Note 1(b) in the financial statements, the expected operating cash flows of the Group combined with the Bond monies give them confidence that the Group has adequate resources to continue as a going concern. The financial statements have, therefore, been prepared on the going concern basis.

Principal activity

The Group's principal area of activity is exploring for, appraising, developing and producing oil and gas resources in Great Britain.

Share Capital

Details of changes to share capital in the period are set out in Note 24 to the consolidated financial statements.

Directors and their interests

The Directors who served during the year were as follows:

F Gugen Non-Executive Chairman

A Austin Chief Executive Officer

J Blaymires Chief Operating Officer

S Bowler Chief Financial Officer

J Bryant Non-Executive

R Pinchbeck Non-Executive - Appointed 11 July 2012

C McDowell Non-Executive - Appointed 20 December 2012

R Armstrong Non-Executive - Resigned 20 December 2012

The interests of the Directors in the shares of the Company at 31 March 2013 were as follows:

31 March 2013 31 March 2012 Ordinary 10p Shares Ordinary 50p Shares

F Gugen 27,615,764 14.80 27,615,764 17.03

A Austin 10,659,253 5.71 10,659,253 6.57

J Blaymires 20,000 0.01 20,000 0.01

S Bowler 70,000 0.04 40,000 0.02

J Bryant 59,045 0.03 57,870 0.04

R Pinchbeck 141,000 0.08 - -

C McDowell - - - -

R J Armstrong * - 65,960 0.04

J A Hamilton * - 85,000 0.05

*J Hamilton and R Armstrong still held the same shares as at 31 March 2013 but these are not reported as they are no longer directors at this date.

On 22 April 2013, A Austin, J Blaymires and S Bowler subscribed to their full entitlement under the initial subscription of the Group's share scheme and accordingly were each allotted 5,805 shares under the Share Investment Plan ("SIP").

The interests of the Directors in the 10% Bonds issued by the Company at 31 March 2013 were as follows:

On 13 April 2013, C Mcdowell subscribed to US$300,000 10 % IGAS Bonds.

Rotation and re-election of Directors

In accordance with the Articles of Association A Austin and J Bryant retire by rotation and being eligible offer themselves for re-election. C McDowell was appointed by the Board during the period and, in accordance with the Articles of Association, offers himself for re-election.

Directors' insurance and indemnity provisions

Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate directors and officers insurance to indemnify the directors and officers against liability in respect of proceedings brought by third parties. Such provision remains in force at the date of this report.

The Company indemnifies the Directors against actions they undertake or fail to undertake as Directors or officers of any Group company, to the extent permissible for such indemnities to meet the test of a qualifying third party indemnity provision as provided for by the Companies Act 2006. The nature and extent of the indemnities is as described in Section 60 of the Company's Articles of Association as adopted on 20 June 2010. These provisions remained in force throughout the year and remain in place at the date of this report.

Substantial shareholders

At 31 March 2013, in addition to the director' interests as set out above, the Company had received notification from the following institutions of interests in excess of 3 per cent of the Company's issued Ordinary Shares with voting rights:

Principal risks and uncertainties

·; The Group is exposed to market price risk through variations in the wholesale price of oil in the context of the production from oil fields it owns and operates. The Group has entered into a series of oil price puts until 31 March 2014 for c.450,000 barrels at US$90.0/barrel and c.450,000 barrels at £58.8/barrel. Going forward, the Board will seek to underpin the Group's future cash flows by buying puts for baseline production for at least the following 12 months. The Board will continue to monitor the benefit of such contracts. 

·; The Group is also exposed to market price risk through variations in the wholesale price of gas and electricity in the context of its future unconventional production volumes. Currently the Group has not entered into any forward contracts to fix the prices of these commodities. The Board will continue to monitor the benefit of entering into such contracts at the appropriate time.

·; The Group is exposed to exchange rate risk through both its major source of revenue and its major borrowings being priced in US$. The sterling denominated oil price puts have been taken out in order to mitigate this risk as it affects the need to fund operating and administration costs which are normally paid in pounds sterling. 

·; The Group is exposed, through its operations, to liquidity risk, which is managed by the Board who regularly review the Group's cash forecasts and the adequacy of available facilities to meet the Group's cash requirements.

·; The Group is exposed to risks associated with geological uncertainty. No guarantee can be given that oil or gas can be produced in the anticipated quantities from any or all of the Group's assets or that oil or gas can be delivered economically. The Group considers that such risks are mitigated given its assets are located in established oil and gas producing areas coupled with the extensive expertise and experience of its operating staff.

·; The Group is exposed to planning, environmental, licensing and other permitting risks associated with its operations and, in particular, with drilling and production operations. The Group considers that such risks are partially mitigated through compliance with regulations and the expertise and experience of its team operating on the Group's conventional assets.

·; The Group is exposed to capital risk resulting from its capital structure. However, the capital structure is continually monitored to ensure it is in line with the business needs and ongoing asset development. Further details of the Group's capital management policy are disclosed in note 23 to the consolidated financial statements.

·; The Group is also exposed to a variety of other risks including those related to:

- operational matters (including cost increases, availability of equipment and successful project execution);

- competition;

- key personnel; and

- litigation.

Financial instruments

The Group's principal financial instruments comprise cash balances, borrowings, derivative instruments and other debtors and creditors that arise through the normal course of business as set out in Note 23 to the consolidated financial statements. The Group's financial risk management objectives are set out in Note 23 to the consolidated financial statements and the Operational review.

Employment policy

It is the policy of the Group to operate a fair employment policy. No employee or job applicant is less favourably treated than another on the grounds of their sex, sexual orientation, age, marital status, religion, race, nationality, ethnic or national origin, colour or disability and all appointments and promotions are determined solely on merit. The Directors encourage employees to be aware of all issues affecting the Group and place considerable emphasis on employees sharing in its success.

Creditor payment policy and practice

It is the Group's normal practice to agree payment terms with its suppliers and abide by such terms. Payment becomes due when it can be confirmed that goods and/or services have been provided in accordance with the relevant contractual conditions. The amount owed by the Company to trade creditors at the end of the financial year represented 17 days of daily purchases for the Company (2012: 44 days).

Charitable and political contributions

During the period, the Group made charitable donations of £7,752 to local causes (2012: £600). There were no political donations during the period (2012: nil).

Status

The Company is a closed Company as defined in the Income and Corporation Taxes Act 1988.

The Company is domiciled in the UK and incorporated and registered in England.

Board committees

Information on the Audit, Remuneration and Nomination committees is included in the Corporate Governance section of the annual report.

Auditor

A resolution to reappoint Ernst & Young LLP as auditor will be proposed at the Annual General Meeting at a fee to be agreed in due course by the Audit Committee and the Board.

Directors' statement as to disclosure of information to the auditor

So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow Directors, each Director has taken all the steps that a Director might reasonably be expected to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

By order of the Board

Mofo Secretaries Limited

Secretary

IGas Energy plc

Registered Office:

7 Down Street

London

W1J 7AJ

Registered in the United Kingdom number: 04981279

Statement of directors' responsibilities in relation to the

Group financial statements and Annual Report

The directors are responsible for preparing the Annual Report and the group financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the directors to prepare Group financial statements for each financial year. Under that law, the directors are required to prepare Group financial statements under International Financial Reporting Standards as adopted by the European Union. Under Company Law the directors must not approve the Group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing the Group financial statements the directors are required to:

·; present fairly the financial position, financial performance and cash flows of the Group;

·; select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

·; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·; make judgements that are reasonable;

·; provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance; and

·; state whether the Group financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for preparing the Directors' Report in accordance with the Companies Act 2006 and applicable regulations.

Independent auditor's report to the members ofIGas Energy plc

We have audited the Group financial statements of IGas Energy plc for the year ended 31 March 2013 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes 1 to 28. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Statement of Responsibilities, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the Group financial statements:

·; give a true and fair view of the state of the Group's affairs as at 31 March 2013 and of its loss for the year then ended;

·; have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·; have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the Group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

·; certain disclosures of directors' remuneration specified by law are not made; or

·; we have not received all the information and explanations we require for our audit.

Other matter

We have reported separately on the parent company financial statements of IGas Energy plc for the year ended 31 March 2013.

Daniel Trotman

(Senior Statutory Auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

London

10 July 2013

Consolidated income statement

For the Year ended 31 March 2013

Consolidated statement of comprehensive income

For the year ended 31 March 2013

Consolidated balance sheet

As at 31 March 2013

These financial statements were approved and authorised for issue by the Board on 10 July 2013 and are signed on its behalf by

Andrew Austin Stephen Bowler

Chief Executive Officer Chief Financial Officer

Consolidated statement of changes in equity

 For the year ended 31 March 2013

Consolidated cash flow statement

For the year ended 31 March 2013

Consolidated financial statements - notes

As at 31 March 2013

1 Accounting policies

(a) Basis of preparation of financial statements

The consolidated financial statements of IGas Energy plc (the "Company") and subsidiaries (the "Group") have been prepared under the historical cost convention in accordance with International Financial Reporting Standards, adopted for use by the European Union ("IFRSs") as they apply to the Group for the year ended 31 March 2013 and with the Companies Act 2006. The accounting period is not comparable with the 15 month prior period as this period was extended to align to the year end of the then newly acquired entity Star Energy Group Limited. The accounts were approved by the board and authorised for issue on 10 July 2013. IGas Energy plc is a public limited Company incorporated, registered in England and Wales and is listed on the Alternative Investment Market ("AIM").

The Group financial statements are presented in UK pounds sterling and all values are rounded to the nearest thousand (£000) except when otherwise indicated.

During the period, the Group adopted the following new and amended IFRS which were applicable to the Group's activities as of 1 April 2012.

International Accounting Standards (IFRS/IAS):

IAS 12 Income Taxes (Amendment) - Deferred Taxes - Recovery of Underlying Assets - 1 January 2012

The amendment clarified the determination deferred tax on investment property measured

at fair value and introduces a rebuttable presumption that deferred tax on investment property

measured using the fair value model in IAS 40 should be determined on the basis that its carrying

amount will be recovered through sale. It includes the requirement that deferred tax

on non-depreciable assets that are measured using the revaluation model in IAS 16 should always

be measured on a sale basis. The Group has considered the effect of this amendment and has

concluded that there is no impact on the financial statements.

New and amended standards and interpretations

Certain new standards, interpretations and amendments to existing standards have been published and are mandatory only for the Group's accounting periods beginning on or after 1 April 2012 or later periods and which the Group has not adopted early. Those that may be applicable to the Group in future are as follows:

International Accounting Standards (IFRS/IAS)

\* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards.

The Directors do not anticipate that the adoption of these standards and interpretations will either individually or collectively have a material impact on the Group's financial statements in the period of initial application. The Group does not anticipate adopting these standards and interpretations ahead of their effective date.

(b) Going concern

The Group's principal activity and principal risks and uncertainties are set out in the Directors' report. The ability of the Group to operate as a going concern is dependent upon the continued availability of future cash flows and the availability of the monies drawn under its Bond, which in turn is dependent on the Group not breaching covenants. Under the Bond, the Group drew down from escrow US$165m of funds in April 2013. The Group regularly monitors forecasts to determine that breaches are not anticipated to occur in the future. On the basis of the Group's current forecasts, no breaches in covenants are anticipated. However these forecasts are based on certain assumptions particularly in relation to oil prices, production rates, operating costs, capital and general expenditure. The Group is protected to a material degree against volatility in the oil price, by having a significant proportion of its production hedged at US$90 and £58 per barrel until 31 March 2014. Despite this, there can be no certainty that these forecasts will be achieved, in which case the financial covenants could be breached. Should any breach be anticipated to arise, the Group would manage its working capital profile, reduce discretionary expenditure where necessary and, if applicable, take additional mitigating actions that have already been identified as a precautionary measure. The Directors consider that the expected operating cash flows of the Group combined with the current Bonds give them confidence that the Group has adequate resources to continue as a going concern. The financial statements have, therefore, been prepared on the going concern basis.

.

(c) Basis of consolidation

The consolidated financial statements present the results of IGas Energy plc and its subsidiaries as if they formed a single entity. The financial statements of subsidiaries used in the preparation of consolidated financial statements are based on consistent accounting policies to the parent. All intercompany transactions and balances between Group companies, including unrealised profits arising from them, are eliminated in full. Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, it is treated as an extension of the entity.

At 31 March 2013, the Group comprised the Company and entities controlled by IGas Energy plc (its subsidiaries) made up to the reporting period at this date. The results of subsidiaries acquired during the period are included in the consolidated income statement from the date that control passed to the Company.

(d) Business combinations

Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Acquisition costs are expensed and shown as a separate line in the Income Statement.

(e) Interest in associates

An associate is an entity in which the Group has a long-term equity interest and over which it has significant influence, but not control, through participation in the financial and operating policy decision of the investee. Significant influence can change if, for example, the entity goes into administration or liquidation.

This results in assets and liabilities of associates being incorporated in these financial statements using the equity method of accounting. Interests in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Where the Group's share of any retained loss in an associate exceeds its investment, the Group's investment is capped at zero. Should the associate subsequently report profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. The Group's Income Statement reflects the share of the associate's results after tax. Where a Group entity transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associate.

 (f) Joint ventures

A small proportion of the Group's licence interests are held jointly with others under arrangements whereby unincorporated and jointly controlled ventures are used to explore, evaluate and ultimately develop and produce from its oil and gas interests. Accordingly, the Group accounts for its share of assets, liabilities, income and expenditure of these jointly controlled assets, classified in the appropriate balance sheet and income statement headings, except where its share of such amounts remain the responsibility of another party in accordance with the terms of carried interests as described at (j) below. Where the Group enters into a farm-up agreement involving a licence in the exploration and evaluation phase, the Group records all costs that it incurs under the terms of the joint operating agreement as amended by the farm-up agreement as they are incurred.

(g) Significant accounting judgements and estimates

The preparation of the Group's consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

In particular, the Group has identified the following areas where significant judgements, estimates and assumptions are required, and where if actual results were to differ, this could materially affect the financial position or financial results reported in future periods. Further information on each of these and how they impact the various accounting policies are described in the relevant notes to the financial statements.

.

·; Carrying value of intangible exploration and evaluation assets:

The Group has capitalised intangible exploration and evaluation assets in accordance with IFRS 6, which are evaluated for impairment as described at (j) below. Any impairment review, where required, involves estimates and assumptions related to matters (when appropriate), such as recoverable reserves, production profiles, review of forward oil, gas and electricity prices, development, operating and off-take costs, nature of land access agreements and planning permissions, application of taxes and other matters. Where the final outcome or revised estimates related to such matters differ from the estimates used in any earlier impairment reviews, the results of such differences, to the extent that they actually affect any impairment provisions, are accounted for when such revisions are made. Details of the Group's intangible exploration and evaluation assets are disclosed in note 11.

·; Carrying value of property, plant and equipment

Management reviews the Group's property, plant and equipment periodically for impairment indicators. The determination of recoverable amounts in any impairment test requires judgement around key assumptions. Key assumptions in the impairment models include those related to prices, that are based on forward curves and long-term corporate assumptions thereafter, discount rates, that are risked to reflect conditions specific to individual assets, future costs, both capital and operating, that are based on management's estimates having regard to past experience and the known characteristics of the individual assets and production and reserves, discussed further below.

·; Proved and probable reserves

The volume of proven and probable oil and gas reserves is an estimate that affects the unit of production depreciation of producing gas and oil property, plant and equipment as well as being a significant estimate affecting decommissioning provisions and impairment calculations. Proved and probable reserves are estimated using standard recognised evaluation techniques. Estimates are reviewed at least annually and are regularly estimated by independent consultants. Future development costs are estimated taking into account the level of development required to produce the reserves by reference to operators, where applicable, and internal engineers.

·; Decommissioning costs

The estimated cost of decommissioning at the end of the producing lives of fields is reviewed periodically and is based on proven and probable reserves, forecast price levels and technology at the balance sheet date. Provision is made for the estimated cost at the balance sheet date, using discounted cash flow methodology and a risk free rate of return. Details of the Group's decommissioning costs are disclosed in note 20.

·; Business combinations

When the Group acquires a business, it assesses the fair value of the assets and liabilities assumed by reference to the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Those petroleum reserves and resources that can be reliably measured are recognised in the assessment of fair values on acquisition by reference to independent assessments of reserves and discounted cash flow models to reflect the revenues and expenditures related to the extraction of those reserves. Other assets and liabilities are valued by reference to market-based observations or independent valuations where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Details of business combinations occurring in the current year and prior period are disclosed in note 9.

·; Functional currency

The determination of functional currency often requires significant judgement where the primary economic environment in which a Company operates may not be clear. This can have a significant impact on the consolidated results of the Group based on the foreign currency translation methods used.

(h) Exceptional items

Exceptional items are material items of income or expenditure which, in the opinion of the Directors, due to their nature and infrequency require separate identification on the face of the income statement to allow a better understanding of the financial performance in the year. A full explanation of such items is given, where applicable, in the notes to the financial statements.

(i) Revenue

Revenue comprises the invoiced value of goods and services supplied by the Group, net of value added tax and trade discounts. Revenue is recognised in the case of oil, gas and electricity sales when goods are delivered and title has passed to the customer. This generally occurs when the product is physically delivered to the customer's premises or transferred into a vessel, pipe or other delivery mechanism.

Revenue from the production of oil, in which the Group has an interest with other producers, is recognised based on the Group's working interest and the terms of the relevant production sharing contracts. Where oil produced by third parties is processed and delivered to a refinery by the Group, the measurement of the revenue depends upon whether physical title to the oil passes to the Group or whether the Group simply acts an agent for the producer.

Revenue from services rendered is recognised only once a legally binding contract is in place. Amounts billed for services where the contract provides for their delivery over a period of time are recognised evenly over the relevant period; amounts due for all other services are recognised as the services are provided.

(j) Non-current assets

Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised over the fair value of the identifiable net assets acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is tested for impairment annually (as at 31 March) and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or Group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible exploration and evaluation assets

The Group accounts for exploration and evaluation costs in accordance with the requirements of IFRS 6 "Exploration for and Evaluation of Mineral Resources" as follows:

·; Exploration and evaluation assets are carried at cost less any impairment and are not depreciated or amortised.

·; Expenditures recognised as exploration and evaluation assets comprise those related to acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling (including coring and sampling), activities in relation to evaluating the technical feasibility and commercial viability of extracting hydrocarbons (including appraisal drilling and production tests) and any land rights acquired for the sole purpose of effecting these activities. These costs include employee remuneration, materials and consumables, equipment costs and payments made to contractors.

·; Any costs incurred prior to obtaining the legal rights to explore an area are expensed immediately to the Income Statement. Expenditures related to development and production activities are not recognised as exploration and evaluation assets.

·; Tangible assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment. However, to the extent that such tangible assets are consumed in developing an intangible exploration and evaluation asset, the amount reflecting that consumption is recorded as part of the exploration and evaluation asset.

·; Expenditures recognised as exploration and evaluation assets are initially accumulated and capitalised by reference to appropriate geographic areas.

·; Expenditure recognised as exploration and evaluation assets are transferred to property plant and equipment, interests in oil and gas properties when technical feasibility and commercial viability of extracting hydrocarbons is demonstrable. Exploration and evaluation assets are assessed for impairment (on the basis described below), and any impairment loss recognised, before reclassification.

Impairment testing of exploration and evaluation assets

Expenditures recognised as exploration and evaluation assets are tested for impairment whenever facts and circumstances suggest that they may be

impaired, which includes when a licence is approaching the end of its term and is not expected to be renewed, there are no substantive plans for continued

exploration or evaluation of an area, the Group decides to abandon an area, or whilst development is likely to proceed in an area there are indications that the

exploration and evaluation asset costs are unlikely to be recovered in full either by development or through sale.

Property plant and equipment - interests in oil and gas properties

Property plant and equipment, interests in oil and gas properties are accounted for as follows:

·; Expenditure relating to interests in oil and gas properties includes both expenditure which is depleted on a unit-of-production basis, commencing at the start of commercial production and expenditure which is depreciated on a straight line basis over the relevant asset's estimated useful life. Where expenditure is depreciated on a unit of production basis, the depletion charge is calculated according to the proportion that production bears to the recoverable reserves for each property.

·; The Group's interests in oil and gas properties are assessed for indications of impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, when impairment is computed on the basis as set out below. Any impairment in value is charged to the Income Statement as additional depreciation.

·; Net proceeds from any disposal of development/producing assets are compared to the previously capitalised costs for the relevant asset or Group of assets. A gain or loss on disposal of a development/producing asset is recognised in the Income Statement to the extent that the net proceeds exceed or are less than the appropriate portion of the net capitalised costs of the asset or Group of assets.

Impairment

Impairment reviews, when required as described above, are carried out on the following basis:

·; By comparing the sum of any amounts carried in the books as compared to the recoverable amount.

·; The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. The Group generally relies on fair value less cost to sell assessed either by reference to comparable market transactions between a willing buyer and a willing seller or on the same basis as used by willing buyers and sellers in the oil and gas industry. When assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

·; Where there has been a charge for impairment in an earlier period that charge will be reversed in a later period where there has been a change in circumstances to the extent that the recoverable amount is higher than the net book value at the time. In reversing impairment losses, the carrying amount of the asset will be increased to the lower of its original carrying value and the carrying value that would have been determined (net of depletion) had no impairment loss been recognised in prior periods.

Decommissioning

Where a liability for the removal of production facilities or site restoration exists, a provision for decommissioning is recognised. The amount recognised is discounted to its present value and is reflected in the Group's non-current liabilities. A corresponding asset is included in the appropriate category of the Group's non-current assets (intangible exploration and evaluation assets and property plant and equipment), depending on the accounting treatment adopted for the underlying operations/asset leading to the decommissioning provision. The asset is assessed for impairment and or depleted in accordance with the Group's policies as set out above.

Carried interests

Where the Group has entered into carried interest agreements in exploration and evaluation projects and the Group's interest is being carried by a third party, no amounts are recorded in the financial statements where expenditure incurred under such agreements is not refundable. Where expenditure is refundable, out of what would but for the carry agreements have been the Group's share of production, the Group records amounts as non-current assets, with a corresponding offset in current liabilities or non-current liabilities, as appropriate, but only once it is apparent that it is more likely than not that future production will be adequate to result in a refund under the terms of any carry agreement; the Group records refunds only to the extent that they are expected to be repayable.

Other property plant and equipment

Other property plant and equipment is stated at cost to the Group less accumulated depreciation. Depreciation is provided on such assets, with exception of freehold land at rates calculated to write off the cost of fixed assets, less their estimated residual values, over their estimated useful lives at the following rates, with any impairment being accounted for as additional depreciation:

Equipment used for exploration and evaluation - between six and twelve years on a straight line basis

Freehold Land - indefinite useful life

Buildings/leasehold property improvements - over five to ten years on a straight line basis/over the period of the lease

Fixtures, fittings and equipment - between three and twenty years on a straight line basis

Motor Vehicles - over four years on a straight line basis

The Group does not capitalise amounts considered to be immaterial.

(k) Financial instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash held on current account or on short-term deposits at variable interest rates with original maturity periods of up to three months. Any interest earned is accrued monthly and classified as interest income within finance income.

Other financial assets - Restricted cash

Where cash is held in Escrow, funds are only classified as cash and cash equivalents when monies are transferred to and under the control of the Group.

Trade and other receivables

Trade receivables are initially recognised at fair value when related amounts are invoiced, then carried at this amount less any allowances for doubtful debts or provision made for impairment of these receivables.

Trade and other payables

These financial liabilities are all non-interest bearing and are initially recognised at the fair value of the consideration payable.

Derivative financial instruments and hedge accounting

The Group enters into derivatives to manage its exposure to variability in the price and foreign exchange rate of a proportion of its crude oil production. All derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value at each period end. Apart from those derivatives designated as qualifying cash flow hedging instruments, all changes in fair value are recorded as financial income or expense in the year in which they arise, otherwise they are recognised in other comprehensive income.

Fair value is the amount for which a financial asset, liability or instrument could be exchanged between knowledgeable and willing parties in an arm's length transaction. It is determined by reference to quoted market prices adjusted for estimated transaction costs that would be incurred in an actual transaction, or by the use of established estimation techniques such as option pricing models and estimated discounted values of cash flows. The fair value of derivative financial instruments has been calculated on a discounted cash flow basis by reference to forward market prices and risk free returns adjusted in the case of derivative financial liabilities by an appropriate credit spread.

Impairment of financial assets

In relation to financial assets, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of receivables is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

(l) Borrowings

Borrowings are measured initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the Effective Interest Rate ("EIR") method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the EIR amortisation process. When management estimates of the amounts or timings of cashflows are revised, borrowings are remeasured using the revised cash flow estimates under the original effective interest rate.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement.

Derivatives embedded in host contracts, such as warrants attached to loans, are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the Income Statement.

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of these assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.

(m) Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date including whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Operating leases

Rentals are charged to the Income Statement on a straight line basis over the period of the lease.

Finance leases

Assets under finance leases are included under tangible fixed assets at their capital value and depreciated over their useful lives. Capital value is defined as the amount equal to the fair value of the leased property or, if lower the present value of the minimum lease payments, each determined at the inception of the lease. Lease payments consist of capital and finance charge elements; the finance charge element is charged to the income statement.

(n) Inventories

Inventories, consisting of crude oil, drilling materials and maintenance materials, are stated at the lower of cost and net realisable value. Costs comprise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Weighted average cost is used to determine the cost of ordinarily inter-changeable items.

 (o) Taxation

The tax expense represents the sum of current tax and deferred tax.

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the tax authorities. Taxable (loss)/profit differs from the (loss)/profit before taxation as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date. Temporary differences arise from differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are not discounted. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.

The carrying amount of deferred tax is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the assets is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

(p) Share based payments

Where share options or warrants are awarded to employees (including Directors), the fair value of the options or warrants at the date of the grant is recorded in equity over the vesting period. Non-market vesting conditions, but only those related to service and performance, are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. All other vesting conditions, including market vesting conditions, are factored in to the fair value of the options or warrants granted. As long as all other vesting conditions are satisfied, the amount recorded is computed irrespective of whether the Market vesting conditions are satisfied. The cumulative amount recognised is not adjusted for the failure to achieve a market vesting condition; although equity no longer required for options or warrants may be transferred to another equity reserve.

Where the terms and conditions of options or warrants are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also recorded in equity over the remaining vesting period.

When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised or the award is recognised immediately.

Where equity instruments are granted to persons other than employees, the amount recognised in equity is the fair value of goods and services received.

Charges corresponding to the amounts recognised in equity are accounted for as a cost against profit and loss unless the services rendered qualify for capitalisation as a non-current asset. Costs may be capitalised within non-current assets in the event of services being rendered in connection with an acquisition of intangible exploration and evaluation assets or property plant and equipment.

Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, the value of such shares at issue will be recorded in share capital and share premium account in the ordinary way, but will not affect shareholders' funds since this same value will be shown as a deduction from shareholders' funds by way of a separate component of equity.

(q) Post-retirement benefits

A subsidiary within the Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged to the income statement represents the contributions payable to the scheme in respect of the accounting period.

(r) Equity

Equity instruments issued by the Company are usually recorded at the proceeds received, net of direct issue costs, and allocated between called up share capital and share premium accounts as appropriate.

(s) Foreign currency

The consolidated financial statements are presented in UK pound sterling, which is the parent Company's and its subsidiaries' functional currency. The Group does not have any foreign operations. Transactions denominated in currencies other than the functional currency are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All differences that arise are recorded in the income statement.

2 Revenue and segment information

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance, and for which financial information is available. In the case of the Group the CODM are the Chief Executive Officer and the Board of Directors and all information reported to the CODM is based on the consolidated results of the Group as one operating segment as the Group's activities relate to UK oil and gas. Therefore the Group has one operating and reportable segment as reflected in the Group's consolidated financial statements.

All revenue which represents turnover arises within the United Kingdom and relates to external parties. £61.7 million of the Group's revenue was derived from two customers (2012: £21.9 million).

All the Group's non-current assets are in the United Kingdom.

3 Operating profit/loss

4 Employee information

At 31 March 2013 the Group had 162 employees (2012:152 employees). In the year ended 31 March 2013 £635 thousand (2012 - £703 thousand) of the Group's remuneration costs has been capitalised in accordance with the Group's accounting policy.

5 Directors' emoluments

The remuneration of the Directors for the year/period was as follows:

* £175 thousand of this bonus amount was in relation to the Star acquisition.

** Part of these emoluments are paid to companies that provide the services.

Directors' share schemes/warrants

At 31 March 2013 the Executive Directors held the following awards under the Long Term Incentive Plans and the Share Option scheme as follows;

6 Finance income and costs

*Costs are in relation to the Group refinancing, further details can be found in note 18.

7 Tax charge/(credit) on loss on ordinary activities