Prospectus re Admission to the Official List - Heritage Oil

Factors associated with operating in developing countries, political and regulatory instabilityCertain of the Group’s interests are located in developing countries, some of which have historicallyexperienced periods of civil unrest, terrorism, violence and war, as well as political and economicinstability.Wherever it operates the Group assesses all the significant operational challenges involved and plansaccordingly. These challenges include technical, operational, logistical, social, environmental and political,and the Group draws upon the experience of its management and staff to address these issues.Additionally, risks are mitigated by forming strategic alliances in certain territories as well as employinglocal labour.Oil and gas sales volumes and pricesBoth oil and gas prices are unstable and are subject to fluctuation and subject to various factors beyond theGroup’s control.The Group can use derivative instruments to mitigate against its exposure to volatility in oil prices.However, during the years ended 31 December 2005, 31 December 2006 and the nine-month period ended30 September 2007 the Group did not enter into any hedging arrangements.Reliance on key employeesThe recruitment and retention of skilled personnel has become a key issue for the oil and gas industry, withsignificant competition existing for skilled personnel. Skilled personnel are required in the areas ofexploration and development, operations, engineering, business development, oil and gas marketing,finance and accounting.The Company attracts staff by a combination of providing an excellent working environment andchallenging and satisfying work, with a competitive remuneration package. The Company is therefore ableto attract and retain high quality staff. The Group has a number of strategies in place for reinforcing itscapabilities, including training and developing local skills and for example has entered into a number ofscholarship schemes in Uganda.4. OPERATIONAL PERFORMANCEProducing assetsOil and gas revenue was generated from the Group’s 10 per cent. working interest in the Bukha field, inBlock 8, Oman, during the years ended 31 December 2005 and 2006 and the nine-month period ended30 September 2007. The Bukha field produces gas, for which the Group derives no revenue, condensateand LPG. The Group’s average net share of liquids (condensate and LPG) has varied from between 140and 172 bopd during the period under review. The development of the West Bukha field in Block 8, Omancontinues to advance. Field development is ongoing and production from the West Bukha field is expectedby management to commence in the third quarter of 2008.Crude oil production from the Zapadno Chumpasskoye field in Russia commenced on 14 May 2007 andaveraged 362 bopd in the four months ended 30 September 2007. Production averaged 342 bopd inFebruary 2008.Exploration and appraisal assetsThe Group has experienced considerable exploration success in Uganda and work programmes have beenaccelerated following the discovery of a new hydrocarbon system in the Albert Basin. This discoveryincludes the Kingfisher-1 discovery well that was completed in March 2007, which production tested atrates of approximately 13,900 bopd. 3D and 2D seismic programmes have identified a number of targets inBlocks 3A and 1, for which multi-well drilling programmes are planned to commence in the first half of2008. The Kingfisher appraisal drilling programme is scheduled to commence in the first half of 2008.Management expects this land rig to have the capability to reach the depth of the primary target horizonnot reached by previous Kingfisher drilling.A 2D seismic survey is also being carried out on in Block 1, Uganda, where relatively shallow structureshave been identified with associated amplitude anomalies. Oil is known to have migrated into Block 1, asevidenced by the active oil seep located within the block at Paraa. This oil seep together with the presence140