SALV.L Regulatory News (SALV)

27 September 2012

3Legs Resources plc

Interim Results

for the six months ended 30 June 2012

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 Interim Results for the six months ended 30 June 2012.

Corporate and operational highlights

Baltic Basin concessions

·; Notice of call option exercise was given by ConocoPhillips in March 2012 over the Group's three western Baltic Basin concessions, formalising their 70% equity interest in and operatorship of these concessions; the option exercise was completed on 14 September 2012.

·; Further testing of the Warblino LE-1H horizontal well was conducted following the period end and suspended on 6 September 2012; after 20 days of lifting hydraulic fracturing fluid, the well produced natural gas at an improved rate of 90 mscf/d, some five times the rate achieved when the well was first tested in November 2011.

·; This improved flow rate from the Warblino LE-1H horizontal well suggests the target formations may respond positively to an extended shut in and/or dewatering. The Group is carefully reviewing this new data and the likely effectiveness of the original hydraulic fracturing operation.

·; The testing equipment is now being mobilised to the Lebien location, where further testing is due to commence shortly on the Lebien LE-2H horizontal well; this well was first tested in September 2011, recording a flow rate of 450-520 mscf/d at the end of a 17 day period before the well was suspended.

·; As is common with early stage shale plays, the Group continues to high-grade its acreage and has identified the areas within its Western concessions which it considers to be most prospective for further exploration, by reason of the thickness of the target formations and reservoir rock properties; the Group considers that its drilling and seismic operations have increased the probability of success in its most prospective acreage, as compared to assessments made at the time of its initial public offering in June 2011.

·; Operations are now focused on these more prospective areas. Equipment mobilisation has begun for the drilling of the Group's fifth well, Strzeszewo LE-1; drilling is expected to commence by early October 2012 and coring, logging and casing operations to be concluded around the end of November, with a DFIT and/ or hydraulic frac testing strategy to follow.

·; Discussion of the 2013 drilling programme with ConocoPhillips is under way and is focused on the drilling, coring and testing of two or more vertical wells in the Group's high-graded acreage, with the option then to drill and test horizontal sections.

·; Plans for the Group's three eastern Baltic Basin concessions, which the Group's interpretation indicates are situated in a more liquids-prone part of the basin, are still being considered. The Group currently retains a 100% interest in these concessions and will be considering its alternatives in the case where ConocoPhillips does not exercise its option to take a 70% interest in them prior to the option lapsing on 30 September.

Southern Poland concessions

·; Following interpretation of newly-acquired seismic data and of additional legacy seismic and well data in the area of the three concessions, the decision was taken to relinquish the Dabie-Laski concession following the period end; the Group continues to explore options for its two remaining southern Poland concessions.

Personnel changes

·; The Group continues to strengthen its technical team with the addition of a reservoir and completions engineer during the period under review; she is US-based and has extensive experience of working on North American shales. The Group expects to announce imminently the recruitment of a new Exploration Manager, also US-based and with extensive experience of shales and tight rocks in North America.

·; Mike Lewis continues to be retained with the Group as a geologist on a part-time consulting basis.

Financial highlights

·; The Group continues to enjoy a strong funding position, with cash of £45.4 million at period end.

·; Repayment of the outstanding balance of US$1.8 million of convertible loan notes was made at maturity in June 2012.

Outlook

·; The further testing of the Lebien LE-2H well is expected to provide valuable additional data on reservoir properties during Q4 2012 and Q1 2013.

·; First data from the drilling and logging of the Strzeszewo LE-1 vertical well are expected by early 2013.

·; The 2013 drilling programme is due to be finalised over the coming months.

·; The Group continues to assess potential new ventures and is currently evaluating a number of opportunities.

Commenting on the Interim Results, Tim Eggar, Chairman of 3Legs Resources plc, said:

"The period under review saw the Group make continued progress across its acreage. We were delighted that ConocoPhillips decided to exercise its option over the western Baltic Basin concessions, which we regard as a considerable vote of confidence in the future potential of these concessions.

3Legs Resources remains fully committed to its strategy in the Baltic Basin and is more than sufficiently funded to execute the work programme in this region whilst also continuing to assess possible new ventures for inclusion in the Group's portfolio. We have an excellent, experienced and growing technical team, operational capability and a strong funding position to meet our objectives."

Peter Clutterbuck, Chief Executive Officer, added:

"The last six months have seen us significantly advance our understanding of the Baltic Basin, not only in conjunction with ConocoPhillips but also through data trades with other industry partners, confirming the thinking behind our original acreage selection in the basin.

We have continued to work on high-grading our Baltic Basin acreage. We believe we have identified, and are focusing our efforts on, the areas that offer the most prospectivity in our acreage.

We believe that the Baltic Basin represents an excellent opportunity both for ourselves and for Poland. We are currently in discussions with ConocoPhillips with a view to finalising a work programme for 2013, which we hope will result in further significant progress in de-risking this play."

For further information contact:

Chief Executive Officer's review

Operational review

Baltic Basin concessions

The most significant event for the Group during the first half of 2012 was receipt of a notice of exercise of option from ConocoPhillips, on 19 March 2012, to acquire a 70% interest in the Group's three western Baltic Basin concessions, pursuant to the Joint Evaluation Agreement and ancillary documents entered into between the Group and ConocoPhillips in August 2009. We were extremely pleased with this outcome, which represents both a highly satisfactory culmination of almost three years of cooperation in the exploration and appraisal of the Baltic Basin shales, under the operatorship of 3Legs Resources, and a transition to a new and exciting phase in the development of the basin.

Completion of the option exercise occurred on 14 September 2012, at which time operator control of the three western concessions moved to ConocoPhillips. ConocoPhillips had already been actively involved in operations and consequently the transfer of operatorship was completed smoothly. 3Legs Resources retains a net 30% non-operating interest in the three western concessions, where it will be responsible for 30% of future expenses. The 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.

During the six months ended 30 June 2012 and following the period end, we have continued to focus intensively on the further evaluation of the three western Baltic Basin concessions. By performing detailed technical analysis of our own data and of data acquired from other operators in the basin through data trades, working together with ConocoPhillips, we have been able to refine further our geological model for the Baltic Basin, enabling us to high-grade our very large acreage position and to identify those areas of our concessions which offer the highest probability of success, by reason of the thickness of the target formations and reservoir rock properties.

We have been pleased to note that our acreage evaluation has validated our original first mover acreage selection in 2007, which resulted in 3Legs Resources securing what we still believe to be the most prospective acreage in the Baltic Basin. It is our intention to focus our exploration activity on the high-graded areas, so as to offer the best potential return on investment for our Group and our shareholders. 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 the high graded areas than was possible at the time of our initial public offering in June 2011.

Details of our well testing activities and drilling preparations since 31 December 2011 are set out in the section headed "Activities following the half-year end" below.

Phase I of the PolandSPAN geological and geophysical research project is progressing well, involving the acquisition of 1,090 km of new 2D seismic data extending across the Baltic Basin region. This acquisition of new 2D data is expected to be completed by the end of 2012, with processing taking place in the second quarter of 2013. This will further help the Group's understanding of the basin geology.

A third party study has been commissioned by the Group and ConocoPhillips to look at the range of options available for longer term off-take.

Discussion of the 2013 drilling programme with ConocoPhillips is under way and is focused on the drilling of two or more vertical wells on the three western Baltic Basin concessions, with a view to delineating target formations and further testing reservoir rock properties. Constraints analysis and scouting for potential site locations has been carried out already and a selection of potential well pad locations is under review.

It is expected that each well will be drilled to the middle Cambrian horizon and will include an extensive programme of coring and logging to be followed, after detailed technical analysis, by one or more DFIT tests and/or hydraulic fracturing stimulations in the vertical wellbores. It is also expected that each of the wells will be designed with the option to drill and test a horizontal section at a later date, following conclusion of the earlier analysis.

The Group and ConocoPhillips continue to consider options for the three eastern Baltic Basin concessions. Results from the Group's wells and those of other operators in the basin have supported our interpretation that our eastern concessions are situated in a more liquids-prone part of the basin, whereas we have prioritised the exploration of the more dry gas-prone parts of our concessions, situated further to the west. If ConocoPhillips does not exercise its option to acquire a 70% equity interest in the eastern concessions prior to the option lapsing on 30 September, the Group will consider the best course of action to take with these concessions before any further operations are commissioned.

Southern Poland concessions

We completed the acquisition and processing of seismic data across our three southern Poland concessions, comprising 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. The interpretation of the newly-acquired data showed the eastern part of the concession area to be more structurally complex than previously understood. As a result, we concluded that there was insufficient justification for drilling a vertical test well on the Dabie-Laski concession and notified the Ministry of Environment of our wish to relinquish the concession in August 2012. We will continue to consider our options for our remaining Bytom-Gliwice and Glinica-Psary concessions. The Group has the option to drill one vertical well on each of these two concessions by August 2013, or to relinquish the concessions.

Germany and France

Our southern German concessions fell due for renewal in the second quarter of the year and we have submitted applications for extensions. These applications are still in process.

Following the temporary suspension of the oil and gas licensing process in France, the outcome of our two licence applications in France remains unclear. We continue to monitor the situation.

Activities following the half-year end

Baltic Basin concessions

Further testing of the Warblino LE-1H horizontal well commenced on 17 August 2012 and was suspended on 6 September 2012. The testing involved placing artificial lift ("Jet Pump") equipment in the wellbore to pump out more of the remaining hydraulic fracturing fluid, and enabled us to gather valuable additional data on gas properties and reservoir performance, particularly in the Cambrian. The use of a jet pump for this operation is another example of how 3Legs Resources has introduced innovative best-practice techniques to the Polish market.

After 20 days of lifting hydraulic fracturing fluid, the Warblino LE-1H well produced natural gas at a rate of 90 mscf/d. This improvement is five times the rate achieved when the well was first tested in November 2011, when it flowed at a rate of 18 mscf/d after five days of testing. The test has thus fulfilled two key objectives, being the gathering of the new flow data and gas samples. The well has now been suspended and pressure gauges inserted to monitor pressure build-up, while we continue to evaluate the results and consider next steps.

The improved flow rate from the Warblino LE-1H horizontal well suggests the target formations may respond positively to an extended shut in and/or dewatering. While the results of the well test are still undergoing further analysis, the additional data will help to further assess the likely effectiveness of the original hydraulic fracturing operation, and how these might be addressed in future operations.

The testing equipment has been moved to the Lebien LE-2H horizontal well, where further testing is due to commence shortly. This well was first tested in September 2011 for 17 days and achieved a flow rate of 450-520 mscf/d over an 8-day period, before the well was suspended.

The Group is also continuing with preparations for the drilling of its fifth well, Strzeszewo LE-1, which is expected to spud in early October 2012. MND Drilling & Services, which had already provided drilling services for the Lebien LE-2H and Warblino LE-1H horizontal wells, has been engaged as drilling contractor. The Strzeszewo LE-1 well pad is located to the north of the Lebien LE-2H well, within the area of our 3D seismic coverage on the Lebork concession. The location has been selected so as to target an area expected to offer thicker net pay in both the Ordovician and Cambrian sections, in addition to extensive natural fracturing.

The Strzeszewo LE-1 well will be drilled initially as a near-vertical well and is expected to be extensively cored and logged for the purposes of analysis. The drilling, coring, logging and casing operations are expected to be concluded around the end of November. One or more diagnostic fracture injection tests (DFITs) and/or hydraulic fracture stimulations may then be performed on the well, following analysis of the well results.

Financial review

The Group recorded a loss of £2.0 million for the six months ended 30 June 2012, as compared to a loss of £0.1 million for the same period in 2011. Other income was £0.1 million in the six months to 30 June 2012 compared to £2.6 million in the six months to 30 June 2011, since no further financing or retention payments fell due from ConocoPhillips pursuant to the farm-in agreement agreed between ConocoPhillips and the Group in 2009.

Administrative expenses declined to £2.3 million for the six months ended 30 June 2012 from £2.7 million in the same period in 2011. Administrative expenses for the six months ended 30 June 2011 had been increased by the cost of the Company's initial public offering on AIM in June 2011, as a result of which £1.1 million of related costs were charged to the income statement during the period. Administrative expenses for the six months ended 30 June 2012 also included foreign exchange losses of £0.7 million, unchanged from the same period in 2011, reflecting the impact of foreign exchange movements on certain of the Group's foreign currency cash balances and intra-group balances. Other administrative expenses rose to £1.6 million for the six months ended 30 June 2012 from £0.9 million for the same period in 2011, reflecting increased personnel and consultancy costs associated with additions to the management and technical team during the period.

Intangible exploration and evaluation assets over the six months ended 30 June 2012 increased by £0.6 million, compared to an increase of £3.2 million over the same period in 2011. Actual investments in intangible exploration and evaluation assets for the six months ended 30 June 2012, representing principally the Group's share of seismic acquisition and processing costs on its Baltic Basin and southern Poland concessions, together with advance costs related to the further testing of the Warblino LE-1H well, amounted to £1.3 million, which was partially offset by a translation adjustment of £0.7 million.

Shareholder borrowings declined to £nil at 30 June 2012 from £1.1 million at 30 June 2011, reflecting the repayment of the outstanding balance of US$1.8 million of convertible loan notes on 29 June 2012. Cash and cash equivalents at 30 June 2012 amounted to £45.4 million, as compared to £61.0 million at 30 June 2011. Cash and cash equivalents declined by £5.5 million over the six months ended 30 June 2012, reflecting losses of £2.0 million, investments in intangible exploration and evaluation assets of £1.3 million, repayment of shareholder loans of £1.1 million and movements in working capital over the period. The Group's treasury policy provides for cash reserves to be held on deposit with a small number of financial institutions rated at least A- or higher, in a combination of US dollars, sterling and euro.

Personnel changes

The Group continues to hire additional technical personnel and has recently recruited as Engineering Manager Christie Schultz, an unconventional reservoir and completions specialist, who is based in Houston. Christie was most recently employed by Anadarko as a lead reservoir engineer and a production engineer, where she worked on shale fields including the Marcellus and Haynesville. The Group expects to announce imminently the recruitment of a new Exploration Manager, also US-based and with extensive experience of shales and tight rocks in North America.

The Group agreed with Mike Lewis, its consultant geologist, that with effect from 17 June 2012 he would continue to provide services on a part time basis. This reflected both the fact that ConocoPhillips would soon be assuming operatorship of the Group's three western Baltic Basin concessions, and Mr. Lewis' desire to spend time pursuing other interests. He continues to provide technical support to the Group as required.

Outlook

In the near term we look forward to further results from our testing of the Warblino LE-1H and the Lebien LE-2H wells during the fourth quarter of 2012 and the first quarter of 2013, following on from the successful initial result achieved with the further test of the Warblino LE-1 well. First data from the drilling, coring and logging of the Strzeszewo LE-1 well are expected by the beginning of 2013, when a final decision is also expected on the 2013 exploration programme, to be agreed with ConocoPhillips.

Conclusion

We are very pleased to be proceeding with ConocoPhillips in the further evaluation of our three western concessions in the Baltic Basin. We are particularly pleased also that our exploration work in the Baltic Basin has helped increase the probability of success in what we believe is the most prospective acreage in the basin, as we continue to build our understanding of this very large gas resource.

Our primary focus continues to be on further testing the technology required to enable the shales to produce at commercial rates. As we indicated last year, we always considered that it may take a number of additional wells, over and above our first two horizontal wells, to form a clear understanding of the prospectivity of the Baltic Basin. It is worth noting also that any available initial results from ongoing peer activity in the basin should help enhance our understanding of the basin potential.

In our planning discussions with ConocoPhillips we have begun consideration of a drilling programme for 2013, comprising two or more wells. We continue to believe that we hold some of the most attractive acreage in the entire trend comprising the Baltic Basin, the Podlasie Depression and the Lublin Basin, and that the prospectivity of the Baltic Basin is quite distinct from that of the Podlasie Depression and the Lublin Basin, which have a very different structural setting. Poland also remains an excellent country in which to be operating, with healthy gas prices, growing gas markets, world-class service industry support, well-developed infrastructure and a government which is highly supportive of unconventional oil and gas development.

We remain committed to achieving our primary objective, while at the same time continuing to assess possible new opportunities for inclusion in our portfolio. The Group's excellent technical capabilities and continued strong funding position ensure that we are well placed to meet these goals. We have a full set of skills for unconventional oil and gas exploration, and our capabilities have been well demonstrated in our successful operatorship of our Baltic Basin assets, where we have drilled what we believe to be the first two horizontal shale gas wells in Europe. Both of these wells were treated with multistage hydraulic fracturing stimulations and subsequently flow-tested.

The Group is sufficiently well funded from its existing cash resources to pursue new ventures in unconventional oil and gas, with a focus on shale and tight rock, and a preference for Europe. These new ventures will not impact on our planned investments in the Baltic Basin. Our strong cash position, coupled with our demonstrated technical skills, underpin our credentials with host governments and partners, allowing us to be very discerning when assessing new opportunities. We believe such opportunities are becoming more attractive in the terms offered, as the current global financial environment limits the availability of new capital.

We look forward to an exciting year ahead as we further progress the exploration and appraisal of our assets.

Peter Clutterbuck

Chief Executive Officer

26 September 2012

Consolidated Income Statement

For the six months ended 30 June 2012

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

Consolidated Balance Sheet

As at 30 June 2012

Consolidated Cash Flow Statement

For the six months ended 30 June 2012

Consolidated Statement of Changes in Equity

As at 30 June 2012

Notes to the Interim Financial Statements

For the six months ended 30 June 2012

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 is 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.

2 Basis of preparation

The consolidated interim financial information has been prepared using policies based on International Financial Reporting Standards ('IFRSs') as issued by the International Accounting Standards Board ('IASB') and as adopted by the European Union ('EU'). These policies and practices are consistent with those adopted in the Group's financial statements for the year ended 31 December 2011 and are also consistent with those which will be adopted in the Group's financial statements for the year ended 31 December 2012.

The consolidated interim financial information is unaudited and does not constitute statutory accounts as defined by section 434 of the Companies Act 2006, and should be read in conjunction with the Group's financial statements for the year ended 31 December 2011. In the opinion of the Directors the consolidated interim financial information for the period represents fairly the financial position, results from operation and cash flows for the period in conformity with generally accepted accounting principles consistently applied. The consolidated interim financial information incorporates unaudited comparative information for the period 1 January 2011 to 30 June 2011 and the audited financial year to 31 December 2011.

The consolidated interim financial information has been prepared in accordance with IAS34 Interim Financial Reporting.

During the first six months of the current financial year there have been no related party transactions that materially affect the financial position or performance of the Group and there have been no changes in the related party transactions described in the last annual financial statements.

The principal risks and uncertainties of the Group have not changed since the last annual financial statements where a detailed explanation of such risks and uncertainties can be found.

3 Dividends

The Directors do not recommend the payment of a dividend for the period.

4 Loss per Ordinary Share

Basic loss per Ordinary Share is calculated by dividing the net loss for the period/year attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period/year. The weighted average number of Ordinary Shares outstanding during the period and for the prior periods presented has been adjusted in accordance with IAS 33 Earnings per share.

The calculation of the basic and diluted loss per share is based on the following data:

As a result of the losses incurred in the current and previous periods reported there is no dilutive effect from the subsisting share options or convertible loan notes.

5 Share capital

Authorised and issued equity share capital

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

Issued equity share capital

6 Note to the consolidated cash flow statement

7 Events after the balance sheet date

Following the acquisition and interpretation of seismic data over its Dabie-Laski concession and of additional legacy seismic and well data in the area of its southern Poland concessions, the Group decided to relinquish the Dabie-Laski concession on 6 August 2012, since it considered there was insufficient data to justify drilling a vertical test well on the concession as was contemplated under the terms of the licence.

Following exercise of its option on 19 March 2012, ConocoPhillips acquired a 70% interest in the Company's subsidiary Lane Energy Poland Sp. z o.o., pursuant to the Joint Evaluation Agreement and ancillary documents entered into between the Company and ConocoPhillips in August 2009. Completion of the option exercise occurred on 14 September 2012, as a result of which operatorship of the three western Baltic Basin concessions held by Lane Energy Poland Sp. z o.o. passed to ConocoPhillips.