FOR IMMEDIATE RELEASE                                                         7.00am on 8 February 2012

TXO PLC

("TXO" or the "Company")

ANNUAL REPORT AND ACCOUNTS TO 30 SEPTMBER 2011

NOTICE OF AGM

EXERCISE OF WARRANTS

Annual Report and Accounts and Notice of AGM

The Board of TXO is pleased to announce that it has posted its audited Annual Report and Accounts for the year ended 30 September 2011 to Shareholders today along with a Notice of AGM. Contained in the Notice of AGM is a covering letter to Shareholders setting out the Company's proposed new Investing Policy (Set out in Appendix 2 to this Announcement). Copies of these documents are available from the Company's website, www.txoplc.co.uk. The Company's AGM will be held at 2nd Floor Suite, 30 Clarendon Road, Watford, Hertfordshire, WD17 1JJ on Monday 5 March 2012 at 11.00am. 

The Chairman's Statement is set out below whilst the further extracts from the Accounts are contained in Appendix 1 to this Announcement.

CHAIRMAN'S STATEMENT

This set of Annual Accounts is the first presented since I took over as Chairman of TXO PLC.  In the last financial year the board has been restructured and strengthened; the Company has established an investment policy following the disposal of its main operating subsidiary in the United States; the Company has completed two fund raisings (one during the financial year and one after), and three investments have been made (one in the year under review and two after) under the new investment policy. We are enclosing a Circular with these Accounts to seek Shareholder's approval to widen our investing policy to include all fossil fuels, such as oil and gas, coal and coal bed methane.

These Annual Accounts represent half a year of operations under the stewardship of the previous management and half a year under the new board. The company started the year in a loss-making position with significant debts and with significant overdue creditors and was suspended until March due to the lack of publication of results. Conversely, by the year end the Company had discharged its creditors, made investments and had cash in the bank to the tune of $409,000. 

Under the current investment policy the Company is deliberately putting together a portfolio of assets at varying stages of the development cycle.  The style of investment is to consider relatively distressed situations which are underpinned by solid opportunities that can be enhanced by better management practices and/or more capital.  In this respect the Company deliberately intends to play an active part where necessary or requested in assisting its investee companies operationally with a view to maximising returns for shareholders.

To date, the Company has taken minority stakes in its investee companies but does not rule out taking majority control through any further investment if necessary or where we believe such a deal represents value. However, we are mindful of working within the constraints of AIM rules.

Outlook

Grand Bahamas Group

During the year TXO made an investment of $781,400 for a 10% share in the Grand Bahamas Group (GBG).  Since year end this has been increased to 14.4% on the same terms. Since our initial investment GBG has steadily increased production in its US oil and gas fields to around 40bopd. The company has identified further upside to production via further development using modern technology such as tracking and horizontal drilling. The company has completed an upgrade to its independent Competent Persons Report and upgraded the Net Present Value (NPV) "10" on the field to circa $28m ($4m net to TXO). The majority of the investment in GBG has been used on business planning and applications for licenses.  These licences cover the distribution of new lubricants in the Bahamas and recycling of waste marine oil through a port side facility in Freeport. The Directors expect that the final application will be approved by Grand Bahama Port Authority subject to Government's notation. The company intends to start developing this activity and generating revenue over the coming year. We remain excited at the opportunity presented by GBG.

Empire Energy

We concluded post year end an investment into a convertible loan to Empire Energy giving us conversion rights into 19.9% of the fully diluted equity.  Empire has advised they have secured drilling and seismic contractors and permits to carry out the drilling in Tasmania and that they are in the process securing funds to do so. In addition, Empire has other related and unrelated opportunities with investment potential that they are looking to exploit.

East African Oil Company

Post year end, we concluded a modest seed investment of £50,000 in the form of a convertible loan (giving us conversion rights into 67% of ordinary share capital) to bid on certain oil and gas interests within the East African Rift System. It brings together funding partners with a track record of investment in East Africa, geo-technical data and analysis historically conducted by the company, operational expertise to execute the business plan and multiple relationships at a high political level in respective countries.

New Opportunities

The Company is looking at new opportunities to invest as well as further investment into its current portfolio. Further disclosures will be made in due course. Subject to Shareholder's agreeing the widen investing policy, given the opportunities the Board sees in the coal sector, the Company is to seek shareholder approval for an amendment to the investing policy to include fossil fuels and clean technology as well as to widen the geographical area of focus.

Exercise of Warrants

In addition, the Board of TXO has also issued and allotted 10,000,000 new Ordinary Shares of 0.1p each at a price of 0.5p per Ordinary Share following receipt of a form of notice of exercise of warrants. The funds received by the Company on exercise of the warrants totalled £50,000.

The new Ordinary Shares will rank, pari passu, with the existing ordinary shares. Application has been made for these new Ordinary Shares to be admitted to trading on AIM and admission is expected to take place on or around 13 February 2012.

This brings the total number of Ordinary Shares in the Company with voting rights to 442,169,247.

For further information, please contact:

TXO PLC

Tim Baldwin, Chairman +44 (0) 771 287 2820

Beaumont Cornish Limited

Roland Cornish and James Biddle +44 (0) 20 7628 3396

Appendix 1

The directors submit their report together with the audited accounts of the Company and of the Group for the year ended 30 September 2011.   

Financial results

The loss on ordinary activities after taxation amounted to $709,301 (2010: $12,290,705).

The production for the 6 months to 31 March 2011, the latest practical date before disposal of the subsidiary, was 7,255 barrels, compared with 33,601 barrels produced for the previous 18 months to 30 September 2010.

The loss per share relating to continuing and total operations amounted to (0.34c) (2010 : 12.86c).

The directors do not recommend the payment of a dividend.

Principal activities

The principal activity of the Group until 14 April 2011 was oil and gas production and development.  From 15 April 2011 until the 30 September 2011 the principal activity of the Group was investment holding.  A review of the Group's operations for the period ended 30 September 2011 and an indication of likely future developments are set out on pages 4 - 5.

Directors

The directors of the Company during the year were:

Executive:

Daniel French was appointed as a director on 18 October 2011.

All the directors retire by rotation and offered themselves for re-election at the forthcoming AGM.

DIRECTORS' REPORT (continued)

The interests of the directors (including persons connected with them within the meaning of sections 253 to 255 of the Companies Act 2006) holding office at 30 September 2011 in the share capital of the Company were as follows:

In addition to the above, M-C held 21,693,000 ordinary shares of 0.1 pence each in the Company at 30 September 2011 (2010: 21,693,000). David Michael Chandler is the sole shareholder and president of M-C. 

Hill Street Investments Plc ("HSI") held 10,000,000 ordinary shares of 0.1 pence each in the company at 30 September 2011 (2010 : Nil).  Timothy Baldwin is the director and a shareholder of HSI.

DIRECTORS' REPORT (continued)

The interests of the directors (including persons connected with them within the meaning of section 253 to 255 of the Companies Act 2006) holding office at 30 September 2011 in the options and warrants over the share capital of the Company were as follows:

As at 30 January 2012, the latest practicable date prior to publication of the Annual Report, the directors holding office at that date had interests in the share capital of the Company, all of which are beneficial, as follows:

M-C also held 21,693,000 ordinary shares of 0.1 pence each in the Company at 30 January 2012. 

Save as disclosed above, none of the directors (or any person connected with them within the meaning of Section 253 to 255 of the Companies Act 2006) had any interest in the share capital of the Company at the dates specified.

Research and development activities

The Company's subsidiary held until 15 April 2011, TOGS Energy Inc., is an independent energy company engaged in the acquisition, exploration, development, and operation of oil and gas properties with a geographical focus in the East Texas region of the United States of America.

Substantial interests

As far as is known to the directors, the following persons have interests (within the meaning of Part 15 of the Companies Act 2006) representing 3% or more of the issued ordinary shares of 5 pence each in the share capital of the Company at 30 January 2012.

Share capital

Details of ordinary shares and warrants issued during the year are shown in notes 23-25 to the accounts.

Staff policy

The company is committed to a policy of recruitment and promotion on the basis of aptitude and ability. Applications for employment by disabled persons are given full and fair consideration having regard to their particular aptitudes and abilities. Where existing employees become disabled, it is the Company's policy, wherever possible, to provide continuing employment under normal terms and conditions and to provide training, career development and promotion wherever appropriate.

Payment policy and practice

It is the Company's policy to settle the terms of payment for the provision of services when agreeing terms of the transaction, to ensure that the suppliers are aware of those terms and to abide by them. The average credit taken for trade purchases is 72 days (2010: 67 days). 

Auditors

Kingston Smith LLP were appointed as auditors on 24 January 2011, and have been re-appointed under Section 489 of the Companies Act 2006.

Auditors right to information

Each person who is a director at the date of approval of this report confirms that:

·     So far as the Directors are aware, there is no relevant audit information of which the auditors are unaware; and

·     That director has individually taken all the steps that he or she ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company auditors are aware of that information.

Statement of directors' responsibilities

Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and the Company financial statements in accordance with IFRS as adopted by the EU.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the Group and the financial performance and cash flows of the Group for that year. In preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether in preparation of the Group financial statements the Group has complied with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the group financial statements;

·     state whether in preparation of the parent company financial statements applicable International accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·     prepare the accounts on the going concern basis unless it is inappropriate to presume that the company will continue in business.

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

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions

Remuneration policy

The Company aims to ensure that pay is set at an appropriate level and is comparable with peer group companies in the independent oil and gas sector.  Remuneration currently consists of salary without pension benefits.

Options and Warrants

The board believes that the attraction, motivation and retention of senior management is central to the Company's success.  The ability to grant options and warrants to key personnel as an incentive is an important and effective means of achieving this objective.  Options and warrants are also issued to directors. 

The remuneration (including options granted) earned by each director was as follows:

During the year warrants were issued to directors in lieu of all accrued liabilities in respect of previous years unpaid remuneration.  No benefits were made available to any of the directors in either year.

REPORT ON DIRECTORS' REMUNERATION (continued)

Options and warrants held by directors serving during the year were as follows:

No options or warrants were exercised by directors during the period ended 30 September 2011.

For the year ended 30 September 2011

As at 30 September 2011

The accounts on pages 22 to 56 were approved by the board and authorised for signature on 2 February 2012.

For the year ended 30 September 2011

COMPANY STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2011

For the year ended 30 September 2011

For the year ended 30 September 2011

1.  General information

TXO Plc is a public company incorporated in England and Wales and its shares are quoted on the Alternative Investment Market ("AIM") of the London Stock Exchange Plc.  The principal activities of the Company and its subsidiary (the "Group") are described on page 9 of the Directors' Report.

2.  Significant accounting policies

The accounts have been prepared in accordance with International Financial Reporting Standards (IFRSs). The accounts fall within the scope of the Statement of Recommended Practice, "Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities", issued by the Oil Industry Accounting Committee ("SORP"). The accounts, including disclosures, have been prepared in accordance with the provisions of the SORP currently in effect.

The following accounting policies have been consistently applied:

Basis of preparation and going concern

The measurement basis used in the preparation of the accounts is historical cost.  

The group incurred a loss of $791,263 during the year ended 30 September 2011. However, at that date, the company's had net assets of $993,550 including cash reserves of $408,862.

On 11 November 2011, the Company completed the issue of Convertible Loan Notes totalling £961,200, due for repayment on 30 April 2013 or, on the election of the note holders, may be converted in whole or in part into ordinary shares at a conversion price of 0.75p per share. 

The Directors have received requests from existing warrant holders to exercise their right to subscribe for shares in the company. In addition, some convertible loan note holders have already converted £100,000 of their loans into ordinary shares and others have indicated that they may do likewise.

The Directors also have interested parties who were unable to participate in the convertible loan note completed 11 November 2011 because of the need to seek shareholder's approval to grant the Directors' authority to issue new equity or equity type equivalents, such as Convertible Loan Notes. The company received shareholder approval to issue 200 million additional shares (£200,000 nominal value) at the General Meeting held on 16 December 2011.

The Directors have prepared a forecast which include such monies already received together with those expected to be received shortly will provide the company with sufficient funds to settle its current obligations and provide funds required to continue to operate the company for the next 12 months from the date of signature of these financial statements. 

In keeping with other investment companies, the growth of the company is dependent on its ability to invest in current projects and new opportunities. The ability to raise this additional finance is critical to the group's growth objective. The directors are confident in their ability to finance future projects and opportunities by raising funds in the market.

Accordingly the directors consider that it is appropriate to use the going concern basis when preparing the financial statements.

2.  Significant accounting policies (continued)

Basis of consolidation

The consolidated financial statements include the results of the parent company, TXO plc, drawn up to 30 September 2011, and the entities it controlled during the year (its subsidiaries) until the date of disposal, 14 April 2011. All intra group transactions, balances, income and expenses are eliminated on consolidation.  Control comprises the power to govern the financial and operating policies of the subsidiaries so as to obtain benefit and is achieved through director and indirect ownership of voting rights.

In the Company's financial statements, investments in subsidiaries are carried at cost less any impairment that has been recognised in the profit and loss.

The acquisition of subsidiaries is accounted for on the purchase basis. On acquisition all the subsidiary's assets and liabilities which existed at the date of acquisition are recorded at their fair values reflecting their condition at the time. 

A list of significant investments in subsidiaries, including name, country of incorporation and proportion of ownership interest is included in note 14 to the Company's accounts. The parent company statement of comprehensive income is detailed on page 26.  A separate profit and loss account setting out the results of the parent company is not presented as permitted by Section 408 of the Companies Act 2006. 

An associate is an entity over which the Group is in a position to exercise significant influence through participation in the financial and operating policy decisions of the investee, but which is not a subsidiary.  The results, assets liabilities of associates are incorporated in using the equity method of accounting.  No investments in associates were held during this financial year.

An investment is an entity in which the Group has a non-controlling interest and are included in the financial statements at cost.

Goodwill

Goodwill on acquisition of subsidiaries represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets and contingent liabilities acquired. Identifiable assets are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but tested annually for impairment or when trigger events occur, and is carried at cost less accumulated impairment losses.

Significant accounting judgements and sources of estimation uncertainty

The preparation of financial statements under IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and assumptions are reviewed on an ongoing basis and any revision to estimates or assumptions are recognised in the period in which they are revised and in future periods affected. Significant estimates are made in determining the value of investments and, when possible,  any embedded elements. 

2.  Significant accounting policies (continued)

Valuation of intangible assets

The Group's intangible assets comprised oil and gas leases and development costs, and the value was dependent upon the success of the Group in exploiting and developing its current oil and gas properties.

Revenue

The Group's development and production activities were conducted by M-C. Due to the disposal of this operation during the year, all revenue is included within discontinued items and detailed within note 8. Revenue represents the Group's share of sales of oil during the year, excluding sales tax and royalties. All income arises from the United States of America. Revenues associated with sales of oil and gas are recorded when title passes to the customer. Revenues from the production in which the Company has an interest with the other producers are recognised on the basis of the Company's net working interest.

Oil & gas leases and development costs

The Group follows the full-cost method of accounting for oil and gas properties.  Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalised into a "full-cost pool".

All capitalised costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves.  Costs directly associated with the acquisition and evaluation of unproved properties are excluded from the amortisation base until the related properties are evaluated.  Such unproved properties are assessed periodically and a provision for impairment is made to the full-cost amortization base when appropriate.  Amortisation of oil and gas leases and development costs are included within Costs of Sales.

Sales of oil and gas properties are credited to the full-cost pool unless the sale would have a significant effect on the amortisation rate.  Abandonments of properties are accounted for as adjustments to capitalised costs with no loss recognised.  Oil and gas drilling and workover equipment used primarily on the Group's properties are included in the full-cost pool.

2.  Significant accounting policies (continued)

The net capitalised costs are subject to a "ceiling test" which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions.

The recoverability of amounts capitalised for oil and gas properties is dependent upon the identification of economically recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations.

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation.  Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight line method.  Major repairs or replacements of property, plant and equipment are capitalised.  Maintenance, repairs and minor replacements are charged to operations as incurred.  When units of property are retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. 

Depreciation of office equipment, fixtures and fittings is provided at 33.3% per annum on cost.

Impairment of intangible assets and property, plant and equipment

Assets or groups of assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, for example low revenues, margins or downward trends in production volumes.  If any such indication of impairment exists, an assessment is made of the asset's recoverable amount.  Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable independent cash flows.  The recoverable amount of an asset or asset group is the higher of fair value less costs to sell or value in use.  Where the carrying amount exceeds the recoverable amount, the asset group is considered impaired and is written down to its recoverable amount, with the loss recognised in the profit and loss.  At each reporting date if there is any indication that previously recognised impairment losses may no longer exist or have decreased, the recoverable amount is estimated and the impairment loss reversed where there has been a change in the estimates used.

Certficates of deposit

At 30 September 2010 the Group had one $250,000 certificate of deposit, bearing interest at 4.25%, which was stated at cost, with fair value estimated to approximate book value.  The certificate was disposed of as part of the sale of the company's subsidiaries.

Investment in subsidiaries

Investments in subsidiaries represent share capital purchased plus loans to subsidiaries which are unlikely to be repaid in the foreseeable future and are considered as permanent funding.  Investments in subsidiaries are included as fixed asset investments at cost less any provision for impairment. The carrying value of investments in subsidiaries is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The carrying amount of the investment is reduced, with the amount of the loss recognised in the profit and loss.  The directors believe that this method is appropriate in the circumstances of the Company.

2.  Significant accounting policies (continued)

Fixed asset investments

Fixed asset investments represent non-controlling interests in the share capital of unquoted companies. Where it is possible to determine a reliable fair value for such investments they are stated at fair value with changes in value being shown in equity; where it is not possible to determine a reliable fair value due to the wide range of possible estimates, and the probabilities of the various estimates cannot be reasonably assessed, such investments are stated at cost less impairment as required by IAS 39.

The carrying value of investments is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The carrying amount of the investment is reduced, with the amount of the loss recognised in the profit and loss. 

Current asset investments

Current asset investments represent loans and receivables with fixed or determinable repayments due within one year.  The assets are carried at amortised cost using the effective interest rate if the time value of money is significant.  The carrying value of investments is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The carrying amount of the investment is reduced, with the amount of the loss recognised in the profit and loss. 

Deferred tax

Deferred tax is recognised, using the liability method, in respect of temporary differences between the carrying amount of the Group's assets and liabilities and their tax base. Deferred tax liabilities are offset against deferred tax assets within the same taxable entity or qualifying local tax group. Any remaining deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits, within the same jurisdiction, in the foreseeable future against which the deductible temporary difference can be utilised. Deferred tax is determined using tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in the profit and loss, except when the tax relates to items charged or credited directly to equity, in which case the tax is also recognised in equity.

Operating leases

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits as incurred.

Foreign currencies

The functional currency of the Oil & Gas industry is considered to be US dollars and therefore the financial statements have been prepared in US dollars in order that the results are comparable for the Company's shareholders, with other companies in the Oil & Gas sector.  The functional currency of TXO plc is £ sterling.  Monetary assets and liabilities held in the parent company in sterling are translated into US dollars at the rate of exchange ruling at the balance sheet date. Non-monetary items that are denominated in the presentational currency are not retranslated.  Equity balances are translated at the historical rate.

2.  Significant accounting policies (continued)

Profit and loss items are translated at the average rate for the year.  Exchange differences arising from the settlement of monetary items are included in the profit and loss for that period.  The rate of exchange that has been applied at 30 September 2011 is £1 : $1.563 and an average rate of £ : $1.571 has been applied.  Dollars is the functional currency used because it is the currency used by the overseas trading subsidiaries, and the oil and gas industry.

Decommissioning cost provision

Liabilities for decommissioning costs are recognised when the group has an obligation to plug and abandon an oil well and to restore the site on which it is located, and when a reliable estimate of that liability can be made.  The amount recognised is the full value of the estimated future expenditure determined in accordance with local requirements.  A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognised and subsequently depreciated as part of the asset.  Any change in the value of the estimated expenditure is reflected as an adjustment to the provision and the corresponding item of property plant & equipment.  All assets in the East Texas Oil field were disposed of on 14 April 2011 and the decommissioning liability was assumed by the new owners.

Inventories

Inventories are shown at the lower of cost and net realisable value.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables are measured at initial recognition at fair value at trade date.  Appropriate allowances for estimated irrecoverable amounts are recognised in the profit and loss when there is objective evidence the asset is impaired. 

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, cash at bank and short term deposits with banks and similar financial institutions.

Financial assets

The group classifies its financial assets as loans and receivables.  The group does not hold any fair value through profit or loss, available for sale financial assets or held to maturity financial assets.

The classification is dependent on the purpose for which the financial assets are acquired and is determined by the directors on initial recognition. 

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.  An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  The accounting policies adopted for specific financial liabilities and equity are set out below:

2.  Significant accounting policies (continued)

Promissory notes

Interest bearing promissory notes with no conversion rights are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.  Any difference between the proceeds and the settlement or redemption of borrowing is recognised over the term of the borrowings.

Interest bearing loans and borrowings

The Group's financial liabilities at amortised cost include trade payables and other financial liabilities. These are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

Compound financial instruments

The simultaneous issue of a debt instrument and warrants to purchase ordinary shares are regarded as compound instruments, consisting of a liability component and an equity component.  At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt.  The difference between the proceeds of issue of the warrants and the fair value assigned to the liability component, representing the embedded option for the holder to convert the warrants into equity of the Group, is included in equity (capital reserves).

Compound financial instruments (continued)

Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue.  The portion relating to the equity component is charged directly to equity.

The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument.  The difference between this amount and the interest paid is added to the carrying amount of the loan.

Trade payables

Trade payables are initially measured at fair value at trade date.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Joint interests in leases

The Group owns joint shares in certain leases. Revenues and costs relating to those leases are included in the profit and loss within discontinued operations at the Group's net share of those revenues or costs.  The oil and gas lease assets were also included in the consolidated balance sheet at the Group's net share of the asset until their disposal.

Share based payments

The Group makes equity-settled share-based payments to its employees and directors. The fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options and warrants granted is measured based on the Black- Scholes model, taking into account the terms and conditions

2.  Significant accounting policies (continued)

upon which the instruments were granted. At each balance sheet date, the Company revises its estimate of the number of options and warrants that are expected to become exercisable.

The Consolidated financial statements account for share-based payments for compensation of goods or services received based on their fair value.  The cost of granting share-based payments is recognised through the profit and loss. The fair value is determined based upon invoices received in respect of such services and on current expectations of the shares to be issued.

New and Revised Standards

Standards in effect in 2011 adopted by the group

The following standards, interpretations, and amendments to standards have been adopted in the financial statements.  There were no material effects arising from the adoption of the standards.

Standards in effect in 2011

The following new and amended standards, and interpretations are mandatory for the first time for the financial year beginning 1 January 2011 but not currently relevant to the group (although they may affect the accounting for future transactions and events):

IFRS in issue but not applied in the current financial statements

The following IFRS and IFRIC Interpretations have been issued but have not been applied by the Group in preparing these financial statements as they are not as yet effective. The Group intends to adopt these Standards and Interpretations when they become effective, rather than adopt them early.

NOTES TO THE ACCOUNTS (continued)

2.  Significant accounting policies (continued)

The Directors anticipate that the adoption of these Standards and Interpretations in future periods

will have no material impact on the Group's financial statements

3.    Revenue

All revenue arises in the United States of America and is included within discontinued operations as detailed in note 8.

4.   Finance income

5.   Finance costs