SALV.L Regulatory News (SALV)

3LEGS RESOURCES PLC

Preliminary Results for the Year ended 31 December 2012

Highlights

3Legs Resources plc (the "Company" and, together with its subsidiaries, the "Group"), an independent oil and gas group focused on the exploration and development of unconventional oil and gas, is pleased to announce its financial results for the year ended 31 December 2012.

Operational highlights

·; Exercise by ConocoPhillips of its option over the Group's three western Baltic Basin concessions completed in September 2012, when ConocoPhillips acquired a 70% interest in and became operator of the western concessions

·; Further testing of Lebien LE-2H horizontal well yielded significantly improved flow rate: 21 day natural flow test on Lebien LE-2H horizontal well resulted in unassisted average rate of 550 mscf/d over the 21 day period, before planned shut-in

·; Drilling, coring and logging of Strzeszewo LE-1 vertical well on Lebork concession

·; PolandSPAN regional 2D seismic survey over the Group's western Baltic Basin concessions now completed, with processing to commence shortly

·; 2D and 3D seismic survey on southern Poland concessions completed in January 2012; following interpretation of newly-acquired seismic and other data, decision taken to relinquish the Dabie-Laskie concession, one of the Group's three southern Poland concessions

Financial highlights

·; Cash balances of £39.5 million at year end 2012, against £50.9 million at year end 2011, and no debt; fully funded for current exploration and appraisal programme on its Baltic Basin concessions

·; Net loss for the year of £6.0 million (2011: £2.3 million), reflecting lower other income following the end of the ConocoPhillips carry under the Joint Evaluation Agreement, the impairment of the Group's southern Poland concessions and the net effects of exchange rate movements

Outlook

·; Following discussions with shareholders, the geographical focus of the Group's activities to be limited to Poland, already the Group's core area of activity

·; 2013 exploration and appraisal programme agreed with ConocoPhillips and now under way, comprising a programme of testing of the Strzeszewo LE-1 vertical well, plus the drilling and testing of a further two or more vertical wells on the Group's western Baltic Basin concessions

·; Planning under way for stimulation and test of the Strzeszewo LE-1 vertical well and further testing of the Lebien LE-2H horizontal well in the near future

·; Total value of Group's commitments under its 2013 exploration and appraisal programme is approximately £9 million net to the Group

·; Working towards a decision, in 2014, on the drilling of one or more horizontal wells as the first stage of a potential pilot development programme on the Group's western Baltic Basin concessions

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CHAIRMAN'S STATEMENT

Introduction

In 2012 3Legs continued to build on its pioneering achievements in Poland, where it remains one of the leaders in the exploration and appraisal of the country's shale gas potential. We successfully implemented our work programme for the year, and continued to play an active role in the debate on the future development of the shale gas sector in Poland. We closed the year with a strong cash position, ready to implement our exciting 2013 work programme which we have agreed with ConocoPhillips, as previously announced.

Strategic review

Our Group strategy continues to focus primarily on the further de-risking and appraisal of our core Baltic Basin asset. In this, we were extremely encouraged by the decision by ConocoPhillips to exercise its option to acquire a 70% interest in our three western Baltic Basin licences, first announced in March 2012 and completed in September 2012. We believe the decision represents an excellent vote of confidence by ConocoPhillips in the future potential of these concessions; and we continue to work actively in progressing our understanding of the basin geology, both with ConocoPhillips and through cooperation with other operators in the basin.

We have continued to high-grade our assets as part of a continual process of portfolio appraisal. In the Polish Baltic Basin this has resulted in our identifying a high-graded area, which we consider not only presents the lowest-risk part of our acreage for future exploration and appraisal activities, but also offers a higher probability of success than was attributed to our Baltic Basin acreage at the time of our initial public offering in June 2011. It is this area which represents the focus of our 2013 exploration programme.

The last quarter of the year was marked by the issue, in October 2012, of a requisition notice by a minority shareholder, calling for the convening of an Extraordinary General Meeting to discuss possible changes to the Board composition and Group strategy. The requisitioning shareholder was supported by a small number of other shareholders, including Damille Investments II Limited ("Damille"). However, we announced shortly afterwards, following discussions with the requisitioning shareholder, that the notice calling for the convening of an EGM had been withdrawn. The Company was able to demonstrate the considerable progress that had already been made on its Baltic Basin concessions, and also reaffirmed its existing strategy in northern Poland and elsewhere. At the same time, the Chief Executive of the Group stepped down and Kamlesh Parmar was appointed as the new Chief Executive. The Company subsequently convened an EGM in December, where it sought and obtained the discretionary power to buy back its shares.

Since the year-end, there have been some large movements in the Company's shares, including a disposal of a significant shareholding by Robert Jeffcock (at that time one of our Directors) and the acquisition of further shares by Damille. On 27 February 2013, the Group received a second requisition notice, this time from Damille, now holding 14.2% of the Company's issued share capital, calling for the convening of an EGM. The requisition notice proposes a number of ordinary resolutions which include: the removal of the majority of the Directors (being all of the Directors except for Kamlesh Parmar and Richard Hills); the appointment of certain new Directors being Brett Lance Miller and Rhys Cathan Davies (who the Board understands are both representatives of Damille); and the proposal that the Company adopt a new investment strategy as follows "The investment objective of the Company is to manage the realisation of the Company's existing asset portfolio and to maximise the return of invested capital to shareholders during the period ending on 30 June 2015. During this period the Company shall not make any new investments other than to support its existing assets."

The Company intends to post with its annual report and accounts a notice to all shareholders convening a general meeting, together with a shareholder circular in which the Board will unanimously advise shareholders to reject the proposed resolutions.

In recent weeks, we have been in discussions with a number of our major shareholders with a view to determining an appropriate strategy for the Group which reflects our current licence portfolio and available cash resources. Following those discussions, the Board has determined that we should limit the geographical focus of our activities to Poland, which is already the Group's core area of activity in any case.

Board Changes

A number of Board changes were implemented before the end of the year and subsequently.

Peter Clutterbuck decided to step down as Chief Executive in October 2012, in order to pursue other business interests. Peter joined the Company before its initial public offering on AIM in June 2011. He helped steer the Company through its very successful IPO and through the period following the IPO, as 3Legs settled into its new life as a public company. We are grateful to Peter for the skill and experience which he brought to bear during a time of significant change for the Group.

In Peter's place, the Board appointed Kamlesh Parmar as Chief Executive. Kamlesh has been with the 3Legs Group since its establishment in 2007 and has played an instrumental role in the Group's development since inception. In his previous position with the Group, as Poland Country Manager and Group Commercial Director, he was responsible for overseeing the Group's pioneering activities in Poland, as well as managing the very successful relationship with ConocoPhillips. Kamlesh brings huge energy and excellent judgment to his new position and I am sure that he will continue to have a very positive impact on the business in his new leadership role.

We also announced the appointment of Richard Hills to the Board as a Non-Executive Director, in December 2012. Richard brings over 30 years of experience in investment management and financial services. He is also a Non-Executive Director of JP Morgan Income & Capital Investment Trust plc, Phaunos Timber Ltd., Cinven Ltd. and the Aztec Group Ltd. In addition to joining the Board, Richard joined the Group's Audit Committee and Remuneration Committee.

Robert Jeffcock and Clive Needham announced their resignations from the Board on 22 February 2013, although Clive Needham continues to sit on the board of a number of the Group's subsidiary companies. Barry Rourke will be retiring by rotation at our forthcoming Annual General Meeting and has decided not to present himself for re-election. Barry has been a Director of the Company since 2007, and Senior Independent Director and Chairman of the Audit Committee since the Company's initial public offering in 2011. The Board would like to record their appreciation of the valuable contribution he has made to the Company's governance over that period. 

Conclusion

We thank our shareholders for their continued support throughout the year and we look forward to sharing with them the results of our forthcoming exploration and appraisal programme.

Tim EggarChairman22 March 2013

CHIEF EXECUTIVE OFFICER'S REVIEW

As in preceding years, our main focus in 2012 has continued to be on the further de-risking of our Baltic Basin concessions in northern Poland, building on our ground-breaking activity of the previous year when we successfully drilled, stimulated and tested the first two horizontal shale gas wells in the country. During 2012, we further improved our understanding of our Lebien LE-2H and Warblino LE-1H horizontal wells, through the successful further testing of both wells. At the same time, we initiated a vertical well programme scheduled to run through 2013 and beyond, designed to enhance further our understanding of the basin and its productive potential and with a view to a decision, in 2014, on the drilling of one or more horizontal wells as the first stage of a potential pilot development programme.

Baltic Basin concessions, northern Poland

On 14 September 2012, following exercise of its option to farm in to our western Baltic Basin concessions, ConocoPhillips acquired a 70% equity interest in these concessions, becoming operator at the same time. ConocoPhillips had already been actively involved in operations for some time, and the transfer of operatorship was completed smoothly.

Since the transfer of operatorship, we continue to participate actively in all material technical and commercial decisions relating to the ongoing work programme on the concessions, through our participation in the Lane Energy Poland operating and technical committees and in relevant working groups. We see the option exercise by ConocoPhillips as a significant affirmation of the potential of our western concessions and we look forward to continuing our highly successful collaboration as we continue to focus on de-risking our concessions.

In the case of our three eastern Baltic Basin concessions, which we consider to be more liquids-prone, ConocoPhillips did not exercise its farm-in option prior to its expiry on 30 September 2012, with the result that 3Legs remains 100% owner and operator of those concessions. Group activity during 2012 has focused on our western concessions and will continue to do so throughout 2013, while we consider our options in relation to our eastern concessions.

Exploration and appraisal activity during 2012 has continued to focus on further refining our basin model and high-grading our significant acreage position, so as to identify that part of our acreage which offers the highest probability of success, based on the depth and thickness of the target horizons and their reservoir properties. We have had access to well data from a significant number of other operators in the basin through data trades, as is common practice in our industry.

We continue to be encouraged that our original acreage selection is validated by our updated basin model, reinforcing our long-held view that our acreage is in the most prospective part of the Baltic Basin. Moreover, by de-risking our acreage through the data we have acquired we are, in our view, able to attribute a higher probability of success to this high graded area than was possible at the time of our initial public offering in June 2011.

Further testing of existing horizontal wells

After concluding initial testing of the Lebien LE-2H and Warblino LE-1H wells in late 2011, these two wells were shut in for an extended period in order to monitor pressure build-up and to be able to evaluate how the wells would perform following the shut-in.

We conducted further testing of the Warblino LE-1H well in August and September 2012, using a jet pump to provide artificial lift to remove more of the frac fluid that had been left on the formation from the original stimulation and test programme. To the best of our knowledge, this was the first time that a jet pump assembly has been used in Poland for an operation of this kind. The principal objectives of the further testing were to gather additional data on reservoir performance and gas composition in the Cambrian section.

After 20 days of testing, the Warblino LE-1H well achieved a flow rate of some five times the rate achieved when the well was first tested in 2011, flowing natural gas at a rate of 90 mscf/d, with the assistance of the jet pump, as against 18 mscf/d in 2011 using a nitrogen lift. At the conclusion of the further testing, some 36% of the frac fluid originally injected had been recovered from the formation. The well was then suspended and gauges inserted to monitor pressure build-up, while the results were evaluated.

We have continued to analyse possible explanations for the poor performance of the Warblino LE-1H well when it was first drilled and tested in 2011 since, on the basis of the porosity and gas shows recorded while drilling, the well was expected to flow at a significantly higher rate. It seems likely that well performance was affected by a mechanical issue arising from the cementing of the horizontal section, rather than by formation reservoir issues, and also that further drilling and testing of the Cambrian section will be needed in order fully to investigate this issue. However, the Cambrian section remains our secondary target, the primary target being the Ordovician.

Following conclusion of the further testing on the Warblino LE-1H well, further testing was then conducted on the Ordovician interval in the Lebien LE-2H well, and was completed in December 2012. At the conclusion of the testing, we were very pleased to announce that the well had flowed unassisted for a 21-day natural flow test, flowing natural gas at an average rate of 550 mscf/d through 3½ inch tubing. The well was continuing to flow naturally at a rate of 470 mscf/d when it was agreed to suspend the test, in order to commence a planned shut-in period and conduct a pressure build-up test. The well was also continuing to clean up throughout the test, and by the end of the test period approximately 29% of the fluid used during the original well stimulation had been recovered, up from 15% at the beginning of the test period.

The results from the Lebien LE-2H well represent a significant improvement on the results achieved when the well was first tested in 2011. On that occasion, the well flowed with the assistance of a nitrogen lift at a rate of 450-520 mscf/d, over an 8-day period before being shut in. Most importantly, the well has now demonstrated its ability to flow for a 3-week period, without artificial assistance. We view this as a very positive step-up in well productivity, and an encouraging starting point when considering possible means for achieving further improvements in well performance, for example through a different design of the lateral section or the well stimulation programme. The lateral section on the Lebien LE-2H well is no more than 1,000 metres in length and involved a 13 stage hydraulic fracturing stimulation, whereas it is quite possible to envisage future horizontal wells with significantly longer lateral sections and more stages, as is common in the US.

In December 2012, the Lebien LE-2H well was shut in at the end of the 21-day test for a planned shut-in period to record pressure build-up using surface and down hole pressure gauges. The pressure gauges have now been removed from the wellbore for analysis and a third phase of flow-testing on the well is planned to commence shortly, as described below.

2012 drilling programme

The drilling of our fifth well in the Baltic Basin, Strzeszewo LE-1, was completed in December 2012. This vertical test well was drilled to 3,060 metres true vertical depth into the Middle Cambrian interval. Some 220 metres of whole core were recovered from the Lower Silurian, Ordovician and Cambrian intervals, and a full suite of logs was run. Preliminary log analysis indicates that the well encountered a thicker Ordovician section as compared with the Lebien LE-1 and Warblino LE-1 vertical wells, and that the thickness of the Upper Cambrian interval is similar to that encountered at the Warblino LE-1 vertical well. A first DFIT test was performed on the Cambrian section in the well in January 2013 and preparations are now being made for a well stimulation to be carried out on this Cambrian interval.

Seismic acquisition

Phase I of the PolandSPAN geological and geophysical research project, involving the acquisition of 1,090 km of new 2D seismic data extending across the Baltic Basin region, has now been completed. Processing of the new data is due to take place in the second quarter of 2013 and will further inform our understanding of the basin geology in our acreage.

2013 exploration programme

Drilling and testing of vertical wells

The programme we have announced for the remainder of 2013, which we have agreed with ConocoPhillips, involves the continuation of the testing programme on the Strzeszewo LE-1 well, comprising DFIT and/or well stimulation and flow testing. We have also announced plans to drill two or more additional vertical wells on our western Baltic Basin concessions, within the high-graded area which we have already identified. As with previous vertical wells, these two wells will be extensively cored and logged, to be followed by a programme of DFIT and/or well stimulation and flow testing, which will run on into 2014. The programme is designed to enable us to evaluate further the flow-rate potential of our high-graded area, with a view to a decision, in 2014, on the drilling of one or more horizontal wells as the first stage of a potential pilot development programme. Being vertical wells, each will offer the option to test multiple pay zones. The wells will also be designed to allow for lateral sections to be drilled and tested at a later date.

The first DFIT test on the Strzeszewo LE-1 well was completed in the first quarter of 2013, and preparations are under way for a well stimulation and test to be conducted on the Cambrian section in this well, to begin in the near future. After completion of a testing phase, including a shut-in period, a further DFIT and/or well stimulation and test will be considered for our primary target, the Ordovician section.

Third phase of testing of Lebien LE-2H horizontal well

Following a technical review of the 2012 testing of the Lebien LE-2H well, we expect to conduct a further phase of testing of this well, using a narrower velocity string assembly. Pressure data retrieved following the last test also indicated that the down-hole pressure gauges may have become dislodged, creating an additional choking effect. As a result, we are confident that the next phase of testing, due to commence in the second quarter, will yield further improved flow data.

Seismic acquisition

In addition to our drilling programme, a 3D seismic survey is planned on our Karwia concession, in fulfilment of our licence obligations. This survey is expected to measure approximately 32 sq km and is due to commence in the second quarter. We are also discussing with ConocoPhillips the acquisition of 70 km of 2D seismic data on our Lebork concession. This will assist in the placement of future horizontal wells in the area, following conclusion of our vertical well programme. 

Southern Poland; other regions

In southern Poland we acquired and processed approximately 50 sq km of 3D data on the Bytom-Gliwice and Glinica-Psary concessions and approximately 70 km of 2D data on the Dabie-Laski concession, concluding this process in the first quarter of 2012. Following interpretation of the new data, which showed the eastern part of the concession area to be more structurally complex than previously understood, we concluded that there was insufficient justification for drilling a vertical test well on the Dabie-Laski concession. We have now surrendered this concession.

We continue to consider our options for our remaining Bytom-Gliwice and Glinica-Psary concessions, including monetising these concessions if possible. We have the option to drill one vertical well on each of these two concessions by August 2013, or to relinquish the concessions. However, we do not currently plan to incur any further expenditure on these concessions, and we have therefore decided to record an impairment against them on our balance sheet.

Our southern German concessions fell due for renewal in the second quarter of 2012 and we have submitted applications for extensions. Given that our geographical focus is now confined to Poland, we will investigate options for monetising these concessions if possible.

We have had licence applications in process in France since 2010 and in late 2010 we had received indications that these applications would be granted in whole or in part. In December 2012 and January 2013, we received notices of rejection of these two applications, citing the legal moratorium on hydraulic fracturing which was recently introduced in France. We have filed notices of appeal against both decisions, although we are currently considering whether it is appropriate to continue this process.

Throughout the year we also reviewed a number of potential new opportunities for possible inclusion in our portfolio. However, none of these were pursued as they were not seen to meet our criteria.

Evolution of the Polish oil & gas sector

We continue to participate actively in discussions regarding the future development of the oil & gas sector in Poland, particularly through our membership of OPPPW, the Polish Exploration and Production Industry Organisation. I sit as one of the four members of the Board of OPPPW.

The Polish government has for some time been considering possible modifications to the fiscal and licensing regime relating to the oil & gas sector in Poland, resulting in the publication of two draft laws in February 2013. The draft legislation contemplates a number of changes to the existing regime, including: the creation of a new state-owned entity which would have the right to participate in exploration and production activities by private sector companies; increases in the tax rates applicable to oil & gas production; and modifications to the procedures for granting and transferring licences. 3Legs, together with other members of OPPPW, is actively engaged in dialogue with the government in order to ensure that the industry's voice is heard, and that any new fiscal and regulatory regime that emerges does not act as an unnecessary deterrent to the development of a successful shale hydrocarbons sector in Poland.

Personnel; planned organisational changes

During the year we announced the hiring of two new technical personnel, John Blair as Exploration Manager and Christie Schultz as Engineering Manager. John Blair was most recently employed by Knowledge Reservoir LLC, a technical consultancy based in Denver, where he was responsible for both the firm's unconventional resource practice and its acquisition and divestiture practice worldwide. While at Knowledge Reservoir LLC, John led multi-disciplinary teams that assessed more than 100 unconventional resource plays around the world.

Christie Schultz is an unconventional reservoir and completions specialist, and was most recently employed by Anadarko as a lead reservoir engineer and a production engineer, where she worked on shale plays including the Marcellus and Haynesville. John and Christie will provide technical leadership as we continue to improve our understanding of the Baltic Basin geology.

Following the adoption of a more narrowly-defined geographic focus for the Group's activities, as described in the Chairman's Statement, we have reviewed our existing overhead expenditure to see what reductions may be made. During the next quarter we expect to implement a number of changes in the way the Group is organised and staffed which, with effect from 1 July 2013, will result in a reduction in our cash administrative expenses, before foreign exchange movements, of approximately 50% as compared with 2012.

Conclusion

In 2012 we were able to build on our already significant progress in Poland's Baltic Basin, carrying out further testing on the first two horizontal shale gas wells to be drilled anywhere in Poland, and achieving a materially improved performance from our primary target, namely the Ordovician section, in our Lebien LE-2H well. While there remains more to be done in the appraisal of the Baltic Basin shale play, we believe we have taken a significant step forward in the direction of commerciality. We have also shown a continued readiness to trial innovative techniques in Poland, and to introduce best-in-class practices to a new market.

Our primary focus will continue to be on our western Baltic Basin concessions, where 3Legs Resources together with ConocoPhillips will continue to work throughout 2013 on further delineating and understanding the geology of the target Ordovician section and demonstrating its improved flow rate potential. Following our planned programme of DFIT and/or single-stage well stimulation and testing, we expect to have sufficient data on the likely potential of our high-graded area to enable us to reach a decision, in 2014, on the drilling of one or more horizontal wells as the first stage of a potential pilot development programme.

Across the rest of our portfolio, we will continue to high-grade our assets with a view to deciding which licence interests to maintain and pursue and/or monetise and which to relinquish. With £39.5 million of cash resources at year end, we will continue to manage our cash reserves prudently so as to ensure that sufficient funding is available for the further de-risking of our core Baltic Basin asset.

We look forward to an exciting year ahead.

Kamlesh ParmarChief Executive Officer22 March 2013

FINANCIAL REVIEW

Financial highlights

·; Cash balances of £39.5 million at year end 2012, against £50.9 million at year end 2011, and no debt; fully funded for current exploration and appraisal programme on the Group's Baltic Basin concessions

·; Investment in non-current assets of £17.7 million (2011: £14.9 million), reflecting the continuing work programme on the Group's Baltic Basin concessions

·; Net loss for the year of £6.0 million (2011: £2.3 million), reflecting lower other income following the end of the ConocoPhillips carry under the Joint Evaluation Agreement, the impairment of the Group's southern Poland concessions and the net effects of exchange rate movements

Balance sheet

3Legs continues to enjoy a strong balance sheet, ensuring that it is excellently positioned to meet its ongoing commitments in Poland's Baltic Basin. Investment in the Group's oil and gas assets at year end stood at £17.7 million (2011: £14.9 million). Following the exercise by ConocoPhillips of its option to acquire a 70% interest in the three western Baltic Basin concessions and the resulting transfer of operatorship, completed in September 2012, the Group has elected to account for its interest in these concessions using the equity accounting method, in accordance with IAS 31 Interest in Joint Ventures, as opposed to applying proportionate consolidation which it had done up until completion of the option exercise.

The additional investment in 2012 represents primarily the Group's share of costs incurred in connection with exploration and appraisal activities on the Group's western Baltic Basin concessions, as described in the Chief Executive Officer's Review. This additional investment has been partially offset by the impairment of the Group's southern Poland licences, to the value of £2.1 million (2011: £nil), discussed below.

Cash and cash equivalents at year end were £39.5 million (2011: £50.9 million). Foreign exchange rate movements during the year reduced the sterling equivalent of cash and cash equivalents at year end by £1.1 million (2011: £0.5 million).

Current liabilities at year end stood at £1.6 million against £7.0 million at year end 2011, reflecting the lower level of activity around the year end in 2012 as compared with 2011. The Group has no debt, having redeemed a £1.2 million convertible loan facility in June 2012.

Income statement

The Group recorded a net loss after tax of £6.0 million (2011: £2.3 million). This loss is attributable principally to: a reduction in other income in 2012, following the conclusion of the carry arrangements agreed with ConocoPhillips under the Joint Evaluation Agreement; the impairment of the Group's southern Poland concessions as a result of its reduced activity on those licences; and net exchange losses on the translation of foreign currency cash balances.

Other income of £1.1 million (2011: £2.7 million) arises from the Group's contractual arrangements with ConocoPhillips under the Joint Evaluation Agreement and reflects principally the release of the call option premium of £0.3 million and the receipt of a final milestone payment of £0.3 million (2011: £0.6 million). Both of these receipts became due as a result of the exercise by ConocoPhillips, completed in September 2012, of its option to acquire a 70% interest in the Group's three western Baltic Basin concessions pursuant to the Joint Evaluation Agreement.

ConocoPhillips largely completed its carry commitments under the Joint Evaluation Agreement in 2011, with the result that in 2012 it made substantially no further payments in respect of seismic and drilling costs incurred by the Group (2011: £2.1 million).

The Group has no plans to carry out any further activity on its two southern Poland concessions and accordingly has made an impairment for the full carrying cost of these concessions, to the value of £2.1 million (2011: £nil).

Aggregate administrative expenses of £5.2 million (2011: £5.3 million) were slightly lower than in 2011. In 2012, administrative expenses were affected by higher foreign exchange losses of £1.6 million (2011: £1.3 million), reflecting the impact of foreign exchange movements on certain of the Group's foreign currency cash balances and intra-Group balances over the year, as well as by share-based payments of £0.3 million (2011: £0.2 million), reflecting options outstanding at year end. Administrative costs in 2011 were increased by costs incurred in connection with the Company's initial public offering on AIM, as a result of which £1.1 million was charged to the income statement in 2011.

Before foreign exchange losses and share-based payments, administrative expenses in 2012 were £3.4 million (2011: £3.8 million). Aggregate staff costs including termination payments and share based payments represented £2.0 million (2011: £1.1 million), as the Group continued to strengthen its management and technical teams. Staff costs included £0.3 million (2011: £0.2 million) which were capitalised to intangible exploration and evaluation assets. A proportion of the personnel overhead was recoverable under the Joint Evaluation Agreement in 2012, equal to £0.3 million (2011: £0.3 million), which were chargeable 70% to ConocoPhillips and 30% to the Group.

Outlook

The Group looks forward to a continuing and successful cooperation with ConocoPhillips in northern Poland. The Group's strong balance sheet means that it is well positioned to fund its current Baltic Basin exploration programme throughout 2013 and into 2014 when it expects to reach a decision on the drilling of one or more horizontal wells as the first stage of a potential pilot development programme. The Group intends to manage its cash resources in a conservative manner so as to ensure that it has sufficient funding to meet its near-term objectives in the Baltic Basin.

Going concern

The Directors have reviewed the Group's budgets and forecast cash flows through to June 2014. Taking into consideration the risks outlined in this financial review, the Directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future. It is therefore appropriate to adopt the going concern basis in the preparation of its financial statements.

Alexander FraserChief Financial Officer22 March 2013

1 General information

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

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

These financial statements are presented in pounds sterling.

The financial information included in this preliminary results announcement does not constitute statutory accounts of the Group for the years ended 31 December 2012 and 31 December 2011 but is derived from the non statutory consolidated accounts prepared by the Company. As an Isle of Man Company, there is no requirement to prepare audited consolidated statutory accounts but audited consolidated non statutory accounts for the year ended 31 December 2011 are available from the Company's website and those for 2012 will be available in due course. The auditor has reported on the 2012 accounts; their report was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report.

The preliminary results announcement has been prepared in accordance with the accounting policies adopted in the financial statements which were approved by the Board of Directors on 20 March 2013.

2 Going concern

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

3 Critical accounting judgements and key sources of estimation and uncertainty

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

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

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

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 £2.8 million (2011: £14.9 million) and impairments of £2.1 million (2011: £nil) were identified and recognised in the period.

Provisions for liabilities

As a result of exploration activities the Group is required to make provision for decommissioning. Significant uncertainty exists as to the amount of decommissioning obligations which may be incurred due to the impact of possible changes in environmental legislation. A provision of £0.57 million has been recognised at 31 December 2012 (2011: £0.5 million).

Share-based payments

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

Joint Venture

In March 2012, ConocoPhillips gave notice of exercise of its option, under the Joint Evaluation Agreement, to acquire 70% of the issued share capital of Lane Energy Poland Sp. z o.o. Completion of the option exercise occurred in September 2012.

Following exercise of the option, the Group retains joint control of the venture under the terms of a Shareholders Agreement entered into with ConocoPhillips. In accordance with IAS27 Consolidated and Separate Financial Statements, the Group has continued to recognise its interest in Lane Energy Poland Sp. z o.o. as a 30% interest in a joint venture for purposes of consolidation.

Prior to the exercise of the option, the Group recognised its interest in joint venture activities using proportionate consolidation. With effect from this date and the resulting transfer of operatorship to ConocoPhillips, the Group has elected to recognise its interest using the equity method, in accordance with IAS31 Interest in Joint Ventures. The Group recognises its investment in joint ventures at cost, with subsequent adjustments for its share of any profits or losses incurred by the joint venture since acquisition.

4 Other income

Under the terms of the Joint Evaluation Agreement, ConocoPhillips committed to fund an exploration programme on the Group's concessions in the Baltic Basin in northern Poland, in exchange for an option to acquire a 70% interest in Lane Energy Poland Sp. z o.o. Other income includes ConocoPhillips' funding of the Group's 30% interest in that exploration programme up to the date of option exercise.

The completion payment includes the final retention of $0.5 million due under the terms of the Joint Evaluation Agreement upon exercise of the call option. In addition, the call option premium of $0.5 million, previously classified as a designated financial instrument held at FVTPL, was released through the profit and loss during the year.

Following exercise of the option, a foreign exchange gain has arisen as a result of the transfer of operatorship to ConocoPhillips and the subsequent use of the equity accounting method to recognise the Group's interest in Lane Energy Poland Sp. z o.o.

5 Impairment of intangible exploration and evaluation assets

During the year, the Group relinquished one of its three concessions in southern Poland, held by Lane Resources Poland Sp. z o.o. The Group currently has no plans to incur any further expenditure on the remaining two concessions and consequently the related exploration and evaluation cost has been impaired in full.

6 Intangible exploration and evaluation assets

7 Loss per Ordinary Share

Basic loss per Ordinary Share is calculated by dividing the net loss for the year attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year. The calculation of the basic and diluted loss per Ordinary Share is based on the following data:

Dilutive loss per Ordinary Share equals basic loss per Ordinary Share as, due to the losses incurred in 2011 and 2012, there is no dilutive effect from the subsisting share options.

8 Notes to the cash flow statement

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

9 Events after the balance sheet date

On 22 February 2013, Robert Jeffcock notified the Company that he had disposed of 5,000,000 Ordinary Shares in the Company. On the same date, Robert Jeffcock and Clive Needham resigned as Directors of the Company. Clive Needham remains a Director of a number of the Group's subsidiaries.

On 27 February 2013, the Company received a notice on behalf of Damille Investments II Limited ("Damille"), a shareholder in the Company holding 14.2% of the Company's issued share capital, requisitioning a meeting of the Company's shareholders pursuant to section 67(2) of the Isle of Man Companies Act 2006. The Requisition proposes a number of ordinary resolutions which include: the removal of the majority of the Board of Directors (being all of the Directors except for Kamlesh Parmar and Richard Hills); the appointment of certain new Directors to the Board being Brett Lance Miller and Rhys Cathan Davies (who the Board understands are both representatives of Damille); and the proposal that the Company adopt a new investment strategy as follows "The investment objective of the Company is to manage the realisation of the Company's existing asset portfolio and to maximise the return of invested capital to shareholders during the period ending on 30 June 2015. During this period the Company shall not make any new investments other than to support its existing assets." On the basis that the Requisition is not withdrawn, the Company intends to post, in due course, a notice to all shareholders convening a general meeting.