Prospectus re Admission to the Official List - Heritage Oil

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PART V—OPERATING AND FINANCIAL REVIEWThe following discussion and analysis is intended to assist in the understanding and assessment of the trendsand significant changes in the Group’s results of operations and financial condition. Historical results may notbe indicative of future financial performance. Forward-looking statements contained in this review that reflectthe current view of management involves risks and uncertainties and are subject to a variety of factors that couldcause actual results to differ materially from those contemplated by such statements. Factors that may causesuch a difference include, but are not limited to, those discussed in ‘‘Forward-Looking Statements’’ and ‘‘RiskFactors’’. In this document the consolidated financial statements presented are those of the Group. Thisdiscussion is based on the consolidated financial statements of the Group and should be read in conjunctionwith its consolidated financial statements and the accompanying notes contained in Part VI ‘‘FinancialInformation’’ and with the information relating to the business of the Group included elsewhere in thisdocument. Unless otherwise indicated, all of the financial data and discussions thereof are based upon financialstatements prepared in accordance with IFRS. Investors should read the whole of this document and not relyjust on summarised information.1. OVERVIEWThe Company was incorporated on 6 February 2008. The Group was established in 1992 (with HOC beingincorporated on 30 October 1996) and commenced trading in the mid-1990s as an independent upstreamexploration and production group engaged in the exploration for, and the development, production andacquisition of, oil and gas interests in Africa, the Middle East, Russia and the Mediterranean. The Grouphas producing properties in Oman and Russia and exploration projects in Uganda, the KRI, the DRC,Malta, Pakistan and Mali.RussiaThe Group has a 95 per cent. interest in a development project the Zapadno Chumpasskoye licence inRussia, which has proved and probable reserves of 60.5 million bbls net to the Group. Productioncommenced in May 2007, through well 226, which flowed clean oil typically between 300 and 400 bopd.Three wells have since been drilled of which one has been brought into production. Production averaged342 bopd in February 2008. Planning of the design and specification of the field development facilitiesis ongoing.OmanThe Group has a 10 per cent. working interest in Block 8 in Oman. Block 8 includes Bukha, a producinggas-condensate field and West Bukha, an approved oil and gas development. In the last quarter of 2006,the West Bukha-2 development well test produced a combined flow-rate from the zones tested (Ilam/Mishrif/Mauddud and Thamama) of approximately 12,750 bopd and 26 MMscf/d and it is proposed tore-enter and complete it as a producing well. The oil was light (approximately 42 o API). Development ofthe West Bukha field has commenced and comprises design, fabrication and installation of the wellheadplatform and pipeline. Production is targeted for the third quarter of 2008. The West Bukha-3 productionwell is planned to be drilled in mid-2008.UgandaThe Group is the operator and has a 50 per cent. interest in two exploration licences in Uganda (Blocks 3Aand 1). The Kingfisher deviated well in Block 3A was drilled to a total depth of 3,195 metres. Drilling wascompleted in March 2007. Four intervals were tested successfully in the Kingfisher well, resulting in anoverall cumulative maximum flow rate of 13,893 bopd. The test produced quality light (between 30 and32 API) and sweet oils with a low gas-oil ratio and some associated wax. The sandstone reservoirs exhibithigh permeability up to 3,000 milliDarcies. The Kingfisher-2 well is scheduled to spud in the first halfof 2008. Blocks 3A and 1 include minimum drilling and seismic commitments which the Group expects toachieve in 2008.DRCThe Group signed a PSC in the DRC in the summer of 2006 for a 39.5 per cent., non-operated interest inBlocks 1 and 2 covering over 6,000 square km of onshore and offshore acreage in the DRC part of theAlbert Basin. An exploration programme, the timing of which is uncertain, will only commence following apresidential decree ratifying the DRC PSC. The minimum work programme in the DRC PSC for the two136
locks during the first three and a half year term includes the acquisition of 2D seismic and the drilling oftwo exploration wells, at a minimum gross cost of more than $10.275 million. The exploration termcommences on receipt of the presidential decree.KRGThe Group has executed a PSC with the KRG over the Miran Block in the south-west of the KRI. TheGroup also agreed to be a 50/50 partner with the KRG to design and build a 20,000 bopd oil refinery in thevicinity of the licence area. Under the terms of the agreement, Heritage Middle East, a wholly-ownedsubsidiary of the Company, will serve as operator. The Miran licence area is 1,015 square km andencompasses a structure as expressed at surface which constitutes an area of approximately 500 square kmand appears to have three separate culminations. Reservoir potential exists at numerous zones thatmanagement estimate could contain significant quantities of oil. The minimum work programme in thePSC during the first three year term comprises the acquisition of 2D seismic and the drilling of oneexploration well, at a minimum cost of more than $8.5 million.MaliThe Group farmed-in to two onshore exploration licences in Mali, in North-West Africa, with a gross areaof over 72,000 square km in November 2007. The Group has been appointed as operator. The Group hasthe right to acquire a 75 per cent. working interest in each of Block 7 and Block 11 from Centric EnergyCorporation in return for funding the working interest. The Group will fund all costs of the obligatorywork programmes for the next two years in both blocks, comprising the acquisition of 2D seismic and thedrilling of one exploration well, at a total estimated cost for the two licences of between $15 million and$20 million.MaltaThe Group was awarded 100 per cent. of Areas 2 and 7 offshore to Malta in December 2007. The licenceareas encompass almost 18,000 square km and are situated approximately 80 km (Area 2) and 140 km(Area 7) from the Maltese coast in water depths ranging from between 80 metres and 300 metres. Theminimum work programme in the PSC during the first three year term comprises the acquisition of 2Dseismic and the drilling of one exploration well, at a minimum cost in excess of $22 million.PakistanA wholly-owned subsidiary of the Group was awarded a 60 per cent. participating interest in the SanjawiBlock (No. 3068-2) in Zone II (Baluchistan), in Pakistan. The onshore exploration licence has a gross areaof 2,258 square km. The exploration licence and PSC were executed on 16 November 2007. The Group hasbeen appointed operator. The joint venture partners are two companies incorporated in Pakistan, SprintEnergy (Pvt) Limited, a subsidiary of the JS Group, and Trakker Energy (Pvt) Limited.2. ACQUISITIONS, DISPOSALS AND FINANCINGThe Group’s portfolio and financial position has changed in several material aspects over the last threeyears, including the following principal changes.Year Ended 31 December 2004In 2004, the Group was awarded a 50 per cent. working interest in Blocks 3A and 1 in the Albert Basin inUganda, and was appointed operator in both blocks. Block 3A, which ordinarily encompassed most of theexploration acreage which previously constituted Block 3, which had been awarded in 1997 and afterdrilling three test wells at the same Turaco drill site, which were not considered commercial discoveries, itwas subsequently relinquished, was re-licensed in 2004 for a term of six years and now covers an area of2,033 square km. Block 1 licence covers an area of 3,659 km.On 9 June 2004, the Group sold a call option for proceeds of $1.2 million entitling the purchaser to acquirethe overriding royalty in the Congo for proceeds of $30.4 million by 30 July 2004. An additional contingentconsideration of up to A8.3 million (approximately $10 million) was payable on the sale of all or a portionof the interest by the purchaser by 31 December 2005, although this did not take place. Concurrent withthe exercise of the option, the purchaser would be required to sell a seven per cent. working interest in137
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This document comprises a prospectu
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SUMMARY INFORMATIONThis summary mus
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Summary Consolidated Income Stateme
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Summary Consolidated Cash Flow Stat
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Production from the Zapadno Chumpas
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Given the geographic spread of the
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RISK FACTORSAny investment in the O
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wells may change as a result of low
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which could have a materially adver
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Failure to obtain additional financ
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contractual or pricing terms, both
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years. In addition, since December
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UgandaUganda is among the poorest c
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Market Price of the Ordinary Shares
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DIRECTORS, CORPORATE SECRETARY, SEN
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EXPECTED TIMETABLE OF PRINCIPAL EVE
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CurrenciesAll references in this do
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PART I—INFORMATION ON THE GROUPOV
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Strong management and technical tea
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the availability of existing infras
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In 2005, the Group acquired a 95 pe
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The Group acquired a 10 per cent. i
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The Group is the operator and has a
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exploration wells. The total estima
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The Group has also entered into a s
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Pakistan has current proved hydroca
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operational by drawing up an Enviro
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Mr. Buckingham has never had any as
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Date2007 ........ On 18 January 200
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(3) One common share of Heritage Ho
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(f) General Sir Michael WilkesGener
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Remuneration CommitteeThe Remunerat
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Goldsworth House, Denton Way, Golds
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ResourcesA summary of the gross Con
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The post tax Net Present Value (NPV
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RPS EnergyHeritage Oil - Competent
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Page 87 and 88: RPS EnergyHeritage Oil - Competent
Page 135 and 136: Summary Consolidated Balance Sheets
Page 137: Summary Consolidated Balance Sheets
Page 141 and 142: On 2 October 2007, the Group execut
Page 143 and 144: of amplitude anomalies, further sup
Page 145 and 146: The increase in operating expenses
Page 147 and 148: 5.11 Discontinued OperationsThe res
Page 149 and 150: 6. RESULTS OF CONTINUING OPERATIONS
Page 151 and 152: 6.7 Foreign Exchange LossesThere wa
Page 153 and 154: 6.14 Capital ExpendituresThe follow
Page 155 and 156: 7.3 Petroleum and Natural Gas Reven
Page 157 and 158: 7.14 Capital ExpendituresAdditions
Page 159 and 160: 10. LIQUIDITY AND CAPITAL RESOURCES
Page 161 and 162: Year Ended 31 December 2005 Prepare
Page 163 and 164: Intangible E&E assets related to ea
Page 165 and 166: 11.2 The year ended 31 December 200
Page 167 and 168: (c) Reconciliation of loss for the
Page 169 and 170: Year Ended 31 December 2004 Prepare
Page 171 and 172: PART VII—FINANCIAL INFORMATIONA.
Page 173 and 174: DeclarationFor the purposes of Pros
Page 175 and 176: HERITAGE OIL LIMITEDNOTES TO BALANC
Page 177 and 178: AUDITED AND UNAUDITED FINANCIAL INF
Page 179 and 180: HERITAGE OIL CORPORATIONCONSOLIDATE
Page 181 and 182: HERITAGE OIL CORPORATIONCONSOLIDATE
Page 183 and 184: HERITAGE OIL CORPORATIONNOTES TO CO
Page 185 and 186: Intangible E&E assets related to ea
Page 187 and 188: k) InvestmentsThe Group classifies
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usually when legal title passes to
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iii) IFRIC 12, ‘‘Service conces
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v) Liquidity riskLiquidity risk is
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ii) DerivativesDerivatives are reco
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5 Other finance costsNine-month per
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Congo to the other partners in the
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No assets have been pledged as secu
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31 December 30 September2005 2006 2
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16 Trade and other payables31 Decem
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A reconciliation of the asset retir
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21 Loss per shareThe following tabl
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25 Commitments and contingenciesHer
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In November 2007, the Group farmed-
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Reconciliation of loss for the year
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At the end of the last reporting pe
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Reconciliation of cash flow stateme
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At 31 December 2006, this has resul
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AUDITED FINANCIAL STATEMENTS RELATI
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AUDITORS’ REPORT TO THE SHAREHOLD
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HERITAGE OIL CORPORATIONCONSOLIDATE
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HERITAGE OIL CORPORATIONNOTES TO CO
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effective as hedges, both at incept
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A ceiling test was undertaken at De
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6. Share capital:(a) Authorized:Unl
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fair value of stock options are amo
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C. PRO FORMA FINANCIAL INFORMATION
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PRO FORMA NET ASSET STATEMENTThe fo
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Production assumptionsProduction du
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Macroeconomic assumptionsThe Direct
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Accordingly, the Illustrative Proje
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Arrangement AgreementPursuant to th
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PART X—ADDITIONAL INFORMATION1. R
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(ii) no share or loan capital of th
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(j)In Alberta, the principal jurisd
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nominal amount has been paid up of
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instrument of transfer (in the case
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up on all the shares conferring tha
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(B) may be a director or other offi
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and is in default for a period of 1
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(c)have sufficient moneys, assets o
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(e)against surrender of the Exchang
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e, to the extent that the same is r
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(g)(ii) by arranging for the credit
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(b) rights, options or warrants oth
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any provision of provincial, territ
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7.5 None of the major shareholders
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Position stillDirector/Senior Manag
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employment or terminates his or her
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All rights of a holder of Exchangea
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agreement of this nature. These cir
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to change. Where the Company pays a
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As part of an agreement reached in
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(x) Foreign Property Information Re
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19. DOCUMENTS AVAILABLE FOR INSPECT
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declared and unpaid dividends on ea
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‘‘DTR’’‘‘DutchCo’’
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‘‘ISIN’’‘‘ITA’’‘
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anniversary of the Effective Date a
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‘‘Support Agreement’’‘‘
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emaining quantities recovered will
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Prospectus re Admission to the Official List - Heritage Oil

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