SALV.L Regulatory News (SALV)

3LEGS RESOURCES PLC

Preliminary Results

for the Year ended 31 December 2011

Highlights

3Legs Resources plc (the 'Company and, together with its subsidiaries, the 'Group'), an independent oil and gas group focusing on the exploration and development of unconventional oil and gas, is pleased to announce its Results for the year ended 31 December 2011.

Financial highlights

·; Successful listing on AIM completed in June 2011

·; Raised £58.1 million after expenses, to fund the Group's ongoing activities

·; Cash balances of £50.9 million at year end

Operational highlights

·; Independent report by Netherland, Sewell & Associates Inc. assessing Original-Gas-in-Place ('OGIP') volumes on the Group's Baltic Basin licences ascribes a best estimate OGIP figure of 170 tcf gross, 50 tcf net to the Group

·; Acquisition and interpretation of 3D seismic on the Group's Damnica licence

·; Drilling, fraccing and production testing of Lebien LE-2H horizontal well, the first horizontal shale gas well in Poland

·; Drilling, fraccing and production testing of Warblino LE-1H horizontal well

Post year end highlights

Forward strategy

·; Continuing to consider other unconventional resource opportunities; preferred area of activity remains Europe but other regions of the world will also be considered

For further information contact:

CHAIRMAN'S STATEMENT

Introduction

In 2011 3Legs Resources continued to progress its core strategy of continuing to evaluate its Baltic Basin licences. Since we successfully flowed gas from a single-stage fracture stimulation on the Lebien LE-1 vertical well in December 2010, when we confirmed the presence of moveable volumes of natural gas, we have continued to advance our understanding of the prospectivity of the target shales on our concessions.

Year under review

Our understanding of the lower Palaeozoic shales in Poland's Baltic Basin took a significant step forward with the drilling, hydraulic fracturing, completion and testing of the first horizontal shale gas well in the basin, and indeed in Poland. The Lebien LE-2H well was spudded in May 2011 and tested in September 2011. This well was followed up by a second horizontal well, the Warblino LE-1H, which we spudded in July 2011 and tested in October 2011. To date there have still been only two horizontal shale gas wells drilled in Poland, both of which were drilled in the Baltic Basin by 3Legs Resources.

We were very pleased to have safely and successfully executed both hydraulic fracture stimulations in challenging conditions, thus fulfilling one of the essential steps in any successful shale exploration programme. The testing yielded a significant amount of data which will assist in optimising future well programmes. The well results also support our long-standing geological interpretation, which places our licences in one of the more prospective parts of the basin.

We continue to believe in the very significant potential upside that can be achieved through 'cracking the code' of the Baltic Basin shales. We are cooperating with other licence-holders in the basin and in adjoining basins with a view to ensuring that relevant data is shared and that the collective learning process is accelerated as much as possible, to the benefit of industry participants and the wider Polish economy.

Financial

During the year we significantly enhanced our financial position through an initial public offering ('IPO') on AIM, raising £58.1 million net of expenses for the Company, to fund ongoing exploration activity in the Baltic Basin and elsewhere. The total value of the IPO, including an offering of secondary shares by existing shareholders and after exercise of a greenshoe option (also in respect of secondary shares), amounted to £85.6 million. All of the shares offered, representing some 53% of the enlarged share capital, were placed with a wide range of institutional investors based primarily in the UK and the US. We welcome our new institutional shareholders onto our share register and we value highly the support they have shown us.

Additions to Board and management

We have made a number of important additions to the Board and management throughout the year. Peter Clutterbuck joined the Group as CEO in January 2011, and David Bremner and Rod Perry joined the Board in January and February 2011 respectively as non-executive directors. David chairs our Board Technical Committee and Rod chairs our Remuneration Committee. In November 2011 Frances Morris-Jones joined the Group as Business Development Director, having previously fulfilled similar roles at ConocoPhillips and BP.

Relationships

We continue to work hard to develop and maintain our relationships with our key partners, in particular with a number of ministries and agencies within the central government, as well as with local authorities and communities in the areas where we have carried out seismic and drilling activities. Before embarking on any new drilling activities in Poland, we have engaged in an active dialogue with the local authorities in the area concerned and we have also held town hall meetings in order to keep local communities informed and to hear any concerns they may have. We have engaged in further dialogue with local communities following completion of well-site activities in order to ensure that as much feedback as possible is gathered.

Post year-end events and outlook

We were very pleased when, following the year end, ConocoPhillips announced on 19 March 2012 its decision to exercise its option to acquire a 70% interest in each of our three western Baltic Basin licences, pursuant to the Joint Evaluation Agreement and ancillary documents entered into between the Group and ConocoPhillips in August 2009. Upon completion of the option exercise, which must take place by no later than September 2012, operatorship of the three western concessions will pass to ConocoPhillips and we will retain a net 30% interest in these concessions. ConocoPhillips has been actively involved with operations to date in the Baltic Basin and accordingly we anticipate a smooth transfer of operatorship. We are continuing to consider, together with ConocoPhillips, options for the three eastern Baltic Basin concessions.

We believe ConocoPhillips' decision to exercise its option in relation to our three western Baltic Basin licences demonstrates its firm commitment to the Baltic Basin shale play and its long term potential. We look forward to working together with ConocoPhillips on deepening our understanding of the play geology and its commercial potential.

Rt. Hon. Tim Eggar

Chairman

20 March 2012

CHIEF EXECUTIVE OFFICER'S REVIEW

Introduction

The 2011 financial year was a period of significant change for 3Legs Resources. A number of additions were made to the Board and senior management at the beginning of the year, in advance of the Group's planned listing on the public markets. This fund-raising was executed through an initial IPO on AIM in June 2011, raising £58.1 million net for the Company, and representing the first IPO of a shale oil and gas exploration company brought to the London market. In the second half of the year, the Group continued to advance its understanding of its core Baltic Basin asset through the successful drilling, completion, fraccing and testing of the first two horizontal shale gas wells to be drilled in Poland.

Review of activity

Baltic Basin licences

Throughout the year we have continued to focus our main efforts on our Baltic Basin licences, building on our drilling activity in 2010. Following on from the successful production of gas from the Lebien LE-1 well on our Lebork licence in December 2010, we conducted a second diagnostic fracture injection test ('DFIT') on this well in March 2011. At the Legowo LE-1 well on our Cedry Wielkie licence, we performed two DFITs on the target lower Palaeozoic shales in January and February 2011. Following conclusion of these tests and an appraisal of the results of both wells, the western Baltic Basin licences, specifically the Lebork and Damnica licences, were identified as a priority area for the next phase of our exploration activity.

In late 2010 we retained Netherland, Sewell & Associates, Inc. ('NSAI') to conduct an independent assessment of Original-Gas-In-Place ('OGIP') volumes across our six Baltic Basin licences for the purposes of our planned capital-raising. NSAI issued its final report as of January 2011. In its report, NSAI arrived at an independent best estimate assessment of OGIP volumes of 170 tcf gross, 50 tcf net to the Group across the six licences.

We completed the acquisition, processing and interpretation of our third 3D seismic survey on our Baltic Basin licences in March 2011. Measuring 50 sq km, this survey is situated on the Damnica licence and was used to select the location for our fourth well (and second horizontal well), Warblino LE-1H.

In May 2011 we spudded the Lebien LE-2H well - our third well in the Baltic Basin and the first horizontal shale gas well in Poland - on the same well location as our earlier Lebien LE-1 well. This well included a 1,000 metre horizontal section in the target lower Palaeozoic shales, encountering high gas saturations throughout the horizontal section. The well was successfully completed with a 13-stage hydraulic fracture stimulation, following which it was put on test for a total of 17 days, flowing at a rate of between 450 and 520 mscf/d for an eight-day period before the well was shut in.

In July 2011 we spudded our second horizontal well in the Baltic Basin, Warblino LE-1H. This well is on our Damnica licence and is at a location some 25 km to the west of the Lebien LE-2H well. The well included as a first stage a vertical pilot hole drilled to the base of the target lower Palaeozoic shales, which was then extensively cored and logged for the purposes of data analysis.

Analysis of data from the well indicated that a prospective deeper interval had been identified and, following drilling of the vertical wellbore, the well was plugged back and a horizontal section in this deeper interval was drilled. This deeper zone was not included in the report issued by NSAI in connection with our IPO in June 2011, as it had not been drilled in either of our two (vertical) wells referred to in the NSAI report. The first attempt to drill this deeper section encountered hole stability issues and the horizontal section was subsequently re-drilled with a lateral length of approximately 500 metres. The well was then completed with a 7-stage hydraulic fracture stimulation and put on test, flowing at a rate of approximately 18 mscf/d by the time the well was shut in after five days of testing.

We are particularly pleased to have safely and successfully executed two multi-stage hydraulic fracture stimulations in a new basin and applying latest industry techniques. On both programmes we were able to deliver the required amount of proppant effectively into the target formation, and to monitor frac effectiveness. Conclusion of the testing of the Lebien LE-2H and Warblino LE-1H wells has materially advanced our understanding of the regional geology in the area of our Baltic Basin licences and of the potential for production of gas and liquids from the organic-rich lower Palaeozoic shales in the Silurian, Ordovician and Cambrian intervals.

We have concluded a number of data exchanges with other operators in the basin, with a view to improving our understanding of the basin geology in the most efficient manner possible. Further exchanges are planned. Data being exchanged includes well logs and core data and in the future is likely to include well completion and frac design, together with test results. We firmly believe that data sharing and other similar forms of cooperation amongst operators will be of great benefit in enabling all parties to advance their understanding of the Baltic Basin shales.

3Legs Resources has agreed to participate in the PolandSPAN study currently being undertaken by ION Geophysical with the approval of the Polish Government. This study is a large regional geological and geophysical research project covering all of Poland and involving the integration of newly-acquired 2D seismic and magnetotelluric data with existing seismic, gravity, magnetic and well data with a view to creating the most comprehensive picture of Poland's subsurface to date. Phase I involves the acquisition of 2,200 km of new data extending from the Baltic Basin through the Podlasie Depression and into the Lublin Basin of eastern Poland. The primary focus of Phase I is the lower Palaeozoic shales of the East European Platform. Acquisition of 2D data on our Baltic Basin licences under the PolandSPAN study commenced in March 2012.

Southern Poland licences

In December 2011 we commenced a programme of seismic data acquisition on our three southern Poland licences, comprising approximately 50 sq km of 3D seismic across our Bytom-Gliwice and Glinica-Psary licences and approximately 70 km of 2D seismic on our Dabie-Laski licence. Acquisition of the data was completed in January 2012 and interpretation is expected to be ready in the second quarter of 2012.

We also agreed with the Polish Ministry of Environment to extend the timetable for drilling a first vertical test well on our Dabie-Laski licence until August 2012, thus enabling us to complete our analysis of the new seismic data before finalising a drilling programme.

Other exploration activities: Germany and France

In southern Germany we have continued to consider possible options for progressing our exploration objectives. Our southern German licences fall due for renewal in the second quarter of 2012 and it is our intention to submit applications for extensions.

We have two licence applications in process in France, for areas which present both conventional and unconventional potential. The oil and gas licensing process in France has been temporarily suspended following the passing of a law banning hydraulic fracturing in France in July 2011. The likely outcome of these licence applications is currently unclear but we continue to monitor the situation.

Industry collaboration

3Legs Resources plays an active role in addressing issues of common concern to the Polish oil and gas sector through its membership of the Polish Exploration and Production Industry Organization ('OPPPW'), an association of exploration and production companies operating in Poland which is engaged in dialogue with the Polish Government, Government agencies and other interested parties. The principal areas of interest addressed by OPPPW include oil and gas legislation, health and safety, environmental regulation and labour law. Our Poland Country Manager, Kamlesh Parmar, was elected as one of four members of the Board of OPPPW in September 2011.

Health, safety and environmental

All field activities were carried out in accordance with all applicable health, safety and environmental requirements. We are pleased to report that no significant HSE incidents occurred.

The Polish Geological Institute ('PGI') coordinated a series of studies to assess the environmental impact of the multi-stage hydraulic fracturing treatment carried out on our Lebien LE-2H horizontal well, by agreement with ourselves. The PGI published a report of its conclusions on 2 March 2011, which held that the studies 'did not show any changes to the natural environment which could be linked to hydraulic fracturing.'

The studies were conducted from 13 June to 13 October 2011 by a multi-disciplinary team and comprised seismic monitoring, measurements of gaseous emissions and noise and analyses of soil gas, hydraulic fracturing fluid and surface and ground water before, during and after the hydraulic fracturing. A full copy of the report is available at www.pgi.gov.pl, where English-language versions of the press release and of a summary of the report can also be found.

Community and public relations

We maintain an active dialogue with the local communities and authorities in the area in which we operate in Poland, in order to address any issues of importance. Prior to initiating well operations, meetings are held with the local gmina (or municipal authority) and a town hall meeting is held in the vicinity of the well location, to which members of the local community are invited.

In the industry arena, we were pleased to be awarded the first annual "International Pioneer" award at the inaugural 2011 World Shale Gas Awards in Houston, in recognition of 3Legs Resources as the company making the most significant progress in shale gas development outside North America. The World Shale Gas Awards are part of the annual World Shale Gas Conference co-hosted by the CWC Group, the International Gas Union and the American Gas Association, and are awarded by a committee of international industry experts to acknowledge innovation and achievements in the industry in the last 12 months. 3Legs Resources received the award as acknowledgement for its progress in Poland's Baltic Basin, successfully producing gas to surface from shale and completing the first multi-stage hydraulic fracture stimulation of a horizontal shale gas well in Poland.

We were very pleased also that Kamlesh Parmar, our Commercial Director and Poland Country Manager, was awarded "Professional of the Year" title in recognition for his contribution to the shale gas industry in Poland in 2011. The award was made at the first annual Poland "Shale Gas Awards" event which took place in Warsaw in January 2012, organised by Petroleum Club Magazine.

Post year end activity

Baltic Basin

The key factor influencing our immediate plans in the Baltic Basin has been the decision by ConocoPhillips regarding its option to take up a 70% interest in our Baltic Basin concessions. We were very pleased to announce that ConocoPhillips has exercised its option to acquire a 70% interest in each of our three western Baltic Basin concessions. Completion of the option exercise must take place by no later than September 2012, whereupon operatorship of the three western concessions will pass to ConocoPhillips.

We will retain a net 30% interest in the three western concessions, as a non-operator. These concessions cover an area of approximately 2,049 sq km (506,000 acres) gross, or approximately 615 sq km (152,000 acres) net to the Group.

Together with ConocoPhillips we are continuing to consider options for our three eastern Baltic Basin concessions. Results to date both from our own wells and from those of other operators confirm that the eastern concessions are situated in a more liquids-prone part of the basin, whereas we have always prioritised the exploration of the more dry gas-prone parts of our concessions. As the potential for production of liquids in the Baltic Basin becomes better understood, we may increase our focus on the eastern concessions, depending on the well results that are obtained.

In order to facilitate the development of a separate strategy for the three eastern concessions, these will be divested into a separate Polish legal entity, which will be a wholly-owned subsidiary of the Group and be subject to equivalent contractual terms as are set out in the Joint Evaluation Agreement. ConocoPhillips will retain an option to acquire a 70% interest in the three eastern concessions, exercisable by giving six months' notice at any time up until 30 September 2012. The three eastern concessions cover an area of approximately 2,338 sq km (578,000 acres) gross.

Following the conclusion of our 2011 exploration programme, we have been able to refine further our regional geological model incorporating the results of our two horizontal wells Lebien LE-2H and Warblino LE-1H, as well as data from wells drilled by other operators in the basin which has been acquired through data trades. While our target lower Palaeozoic shales show considerable lateral continuity across the entire basin, the additional data nevertheless reveals degrees of variability in quality and thickness of the shales which enables a more detailed understanding of the basin. This updated interpretation broadly validates our existing acreage selection and also enables us to project with greater certainty the likely presence of play 'sweet spots' within our concessions.

Based on our updated geological interpretation, we have agreed with ConocoPhillips a plan for one vertical well to be drilled on our Lebork concession, in the second half of 2012. This well will be extensively evaluated and the parties will retain the flexibility, if considered appropriate, to drill, fracture stimulate and test a horizontal section at a later date. Together with ConocoPhillips, we are giving further consideration to options for additional testing of one or both of our two existing horizontal wells Lebien LE-2H and Warblino LE-1H, following the end of winter conditions.

Forward strategy

We continue to consider adding other unconventional resource opportunities to our portfolio, building on our proven unconventional capabilities and leveraging our existing knowledge of unconventional oil and gas exploration. Looking ahead, our focus will include tight oil and gas exploration opportunities as well as shale oil and shale gas, and while our preferred area of activity remains Europe we consider it also appropriate to include other regions of the world where a company of our size and profile is, in our view, able to operate safely and effectively. Our objective will be to build a portfolio optimised for entry cost, risk, timing and upside.

Summary

The period since 31 December 2010 has seen our Group undergo a process of significant change. We have now acquired a public listing and raised sufficient funding to enable the Group to pursue an active exploration programme over the next 18-24 months, building on our existing achievements. We have also considerably strengthened our Board and management team. We believe we have successfully positioned the Group for future growth and we will continue to expand our team and activities in the years ahead. In the Baltic Basin, we are very pleased to have secured our long-term cooperation with ConocoPhillips, following the exercise of its option to take up a 70% interest in our three western Baltic Basin concessions. We have established an excellent working relationship with ConocoPhillips in the three years in which we have been working together on the Baltic Basin and we believe that this relationship will stand us in good stead both in Poland and beyond, as we pursue other unconventional oil and gas opportunities elsewhere.

I would like to thank our shareholders for their continuing support for the Company, and our staff for their dedication in pursuing our objectives and their contribution to delivering a very demanding programme during 2011.

Peter Clutterbuck

Chief Executive Officer

20 March 2012

FINANCIAL REVIEW

2011 summary financial results

·; Successfully raised £58.1 million net of expenses through an IPO on AIM

·; Cash balances at year end of £50.9 million (2010: £1.6 million)

·; Capitalised exploration and evaluation assets of £14.9 million (2010: £4.8 million), reflecting the continued work programme on the Group's Baltic Basin licences

·; Net loss for the year of £2.3 million (2010: profit of £2.5 million) reflecting higher administrative costs incurred in connection with the IPO, additions to senior management and adverse foreign exchange movements

·; Unaudited cash balances of £48.1 million as at 29 February 2012

Income statement

The Group recorded a net loss after tax of £2.3 million (2010: profit of £2.5 million). The loss is mainly attributable to higher administrative expenses associated with the Company's IPO, higher staffing costs incurred as a result of building up the senior management team and exchange losses on the translation of foreign currency cash balances.

Other income of £2.7 million (2010: £3.2 million) arises mainly from the Group's contractual arrangement with ConocoPhillips whereby the Group's share of costs incurred in its Baltic Basin licences is reimbursed in accordance with the Joint Evaluation Agreement. The Group also receives milestone payments under the Joint Evaluation Agreement, of which £0.6 million was received in 2011 and included in other income (2010: £nil).

Administrative expenses of £5.3 million (2010: £1 million) were higher partly due to costs incurred by the Company in connection with its IPO on AIM in June 2011, of which £1.1 million was charged to the income statement. Foreign exchange losses in 2011 were £1.3 million against a gain of £0.6 million in 2010, reflecting the impact of foreign exchange movements on certain of the Group's foreign currency cash balances and intra-Group balances over the year. During 2011 the Group has been strengthening its senior management team, and this is reflected in higher staff and recruitment costs of £1.2 million, against £0.5 million in 2010. A proportion of the operations personnel costs and administrative overhead is recoverable under the Joint Evaluation Agreement. In 2011 £0.3 million of operations personnel costs and administrative overhead was recovered, as compared with £0.2 million in 2010.

Interest received on the Group's cash balances was £0.2 million against £nil in 2010, reflecting the higher cash balances held following the IPO in June 2011.

Balance sheet

Investment in intangible exploration and evaluation assets at the year-end was £14.9 million (2010: £4.8 million). The additional investment in 2011 represents the Group's share of costs incurred in the continued evaluation of the Baltic Basin licences. This included two horizontal wells, Lebien LE-2H, and Warblino LE-1H and the completion of the 50 sq km 3D seismic on the Group's Damnica licence. Details of the evaluation work undertaken are set out in the Chief Executive Officer's Review. An additional provision of £0.5 million for site restoration relating to these two wells has been made during 2011.

Cash and cash equivalents at the year-end were £50.9 million (2010: £1.6 million). This increase was due primarily to the IPO by the Company in June 2011 which raised £62.5 million gross proceeds for the Company, or £58.1 million net of costs. This is also reflected in the increase in share capital and share premium, which increased from £8.7 million in 2010 to £68.3 million in 2011. Current liabilities at the end of 2011 are higher, £7.0 million against £5.4 million at the end of 2010, mainly due to the work programme that was still continuing at 2011 year end.

Cash position

As at 29 February 2012, the Group had unaudited cash balances amounting to £48.1 million.

Outlook

The IPO on AIM during the year has been transformational for the Group, and attracted a number of supportive institutional investors to the Company. Together with the continued cooperation with ConocoPhillips, and the enhanced management team, this ensures that the Group is well supported going into the next phase of the development of the business.

The Group's strong balance sheet ensures that it can continue to finance its immediate ongoing activities in Poland and at the same time consider options for developing and diversifying its portfolio of unconventional oil and gas assets.

Going Concern

The Company completed a successful equity listing in June 2011, raising proceeds of £62.5 million to fund its immediate exploration programme. Following the exercise of its option by ConocoPhillips, the Company is now responsible for 30% of future costs in relation to its three western Baltic Basin licences. Furthermore, the Directors have reviewed the Group's budgets and forecast cashflows through to June 2013. Taking into consideration the risks outlined in this financial review, the Directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future. It is therefore appropriate to adopt the going concern basis in the preparation of its financial statements.

Alexander Fraser

Chief Financial Officer

20 March 2012

Consolidated Income Statement

For the year ended 31 December 2011

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011

 Consolidated Balance Sheet

As at 31 December 2011

Consolidated Cash Flow Statement

For the year ended 31 December 2011

Consolidated Statement of Changes in Equity

For the year ended 31 December 2011

Notes

1 General information

3Legs Resources plc (the 'Company'), is incorporated in the Isle of Man, British Isles under the Isle of Man Companies Act 2006. The address of the registered office is Commerce House, 1 Bowring Road, Ramsey, Isle of Man, British Isles, IM8 2LQ. The Company together with its subsidiaries are referred to in these Notes as the 'Group'.

The nature of the Group's operations and its principal activities are the exploration, evaluation and development of oil and gas targets, primarily from unconventional resource plays.

These financial statements are presented in pounds sterling.

The financial information included in this preliminary results announcement does not constitute statutory accounts of the Group for the years ended 31 December 2011 and 31 December 2010 but is derived from the non statutory consolidated accounts prepared by the Company. As an Isle of Man Company, there is no requirement to prepare audited consolidated statutory accounts but audited consolidated non statutory accounts for the year ended 31 December 2010 are available from the Company's website and those for 2011 will be available in due course. The auditor has reported on the 2011 accounts; their report was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report.

The preliminary results announcement has been prepared in accordance with the accounting policies adopted in the financial statements which were approved by the Board of Directors on 20 March 2012.

2 Going concern

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Directors therefore consider it appropriate to prepare the preliminary results on a going concern basis.

3 Critical accounting judgements and key sources of estimation and uncertainty

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both the current and future periods.

The following are the critical judgements and estimations that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements:

Determining whether an exploration and evaluation asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to specific impairment indicators prescribed in IFRS 6 Exploration for and Evaluation of Mineral Resources.  If there is any indication of potential impairment, an impairment test is required based on value in use of the asset. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of exploration and evaluation assets at the balance sheet date was £14.9 million (2010: £4.8 million) and no impairment was identified or recognised in any of the years reported.

Provisions for liabilities

As a result of exploration activities the Group is required to make provision for decommissioning. Significant uncertainty exists as to the amount of decommissioning obligations which may be incurred due to the impact of possible changes in environmental legislation. A provision of £0.5 million has been recognised at 31 December 2011 (2010: £0.04 million).

Share-based payments

The Group has an equity-settled share option scheme available to certain Directors, employees and consultants. The Group also issued warrants to certain shareholders during the year. In accordance with IFRS 2 Share -based payment, in determining the fair value of options and warrants granted, the Group has applied the Black-Scholes model. As a result, the Group makes assumptions for expected volatility and expected life.

Joint Evaluation Agreement ('JEA')

Under the terms of the JEA and ancillary documents signed in August 2009, ConocoPhillips committed to fund an exploration programme in exchange for an option to acquire a 70% interest in Lane Energy Poland Sp. z o.o. The Group has deemed the option to result in a change of control and an in-substance present ownership interest. The Group has therefore accounted for the transaction as a disposal of 70% of the assets and liabilities of the subsidiary at that date. In accordance with IAS27 Consolidated and Separate Financial Statements, the Group recognises Lane Energy Poland Sp. z o.o. as a 30% interest in a joint venture for purposes of consolidation.

Under IAS 39 Financial Instruments: Recognition and Measurement, the call option has been classified as a designated financial instrument held at fair value through profit and loss. The call option is measured at proceeds received which the Board believes approximates to its fair value.

4 Other income

The terms of the JEA committed ConocoPhillips to fund an exploration programme in relation to the development of the Group's concessions in the Baltic Basin, in exchange for an option to acquire a 70% interest in Lane Energy Poland Sp. z o.o. Other income includes ConocoPhillips' funding of the Group's 30% interest in that exploration programme.

In addition, the terms of the JEA provided for the release of a retention of $1 million to the Group upon satisfactory completion of all drilling activities relating to the first well on the Lebork concession and receipt of final well results.

5 (Loss)/profit for the year

The (loss)/profit for the year has been arrived at after charging/(crediting):

6 Intangible exploration and evaluation assets

7 Share capital

The Company has one class of Ordinary Shares which carry no right to fixed income.

On 30 May 2011, each Ordinary Share of £0.001 each in the capital of the Company was subdivided into four Ordinary Shares of £0.00025 each.

8 Notes to the cash flow statement

Cash and cash equivalents (which are presented as a single class of assets on the balance sheet) comprise cash at bank and short term bank deposits with an original maturity of three months or less. The carrying value of these assets is approximately equal to their fair value.

9 Events after the balance sheet date

On 19 March 2012 ConocoPhillips, with whom the Company conducted joint evaluation activities on its Baltic Basin concessions, gave formal notice of exercise of its option to acquire a 70% interest in the Company's three western Baltic Basin concessions, pursuant to the JEA entered into between the Company and ConocoPhillips in August 2009 and ancillary documents thereto. Completion of the option exercise must take place by no later than September 2012, whereupon operatorship of the three western Baltic Basin concessions will pass to ConocoPhillips. Upon exercise of the option no further payment is due to the Group but one half of the financial liability recorded in the Group balance sheet in respect of the option premium will be released through the Group income statement.

In order to facilitate the development of a separate strategy for the three eastern concessions, the eastern concessions will be divested into a separate Polish legal entity, which will be a wholly-owned subsidiary of the Company and be subject to equivalent contractual terms as are set out in the JEA. ConocoPhillips will retain an option to acquire a 70% interest in the three eastern concessions, exercisable by giving six months' notice at any time up until 30 September 2012.