Prospectus re Admission to the Official List - Heritage Oil

The increase in operating expenses of $1,297,467 is mostly due to the operating expenses relating toproduction in Russia which commenced in May 2007.Operating expenses from drilling operations of $1,912,123 in the nine-month period ended 30 September2006, were substantially higher than for the nine-month period ended 30 September 2007 due to the largeincrease in third party drilling operations in that year. Drilling rig operating expenses in the nine-monthperiod ended 30 September 2007 were $38,360.The average operating cost per barrel sold during the period under review from the Bukha field in Omanmay be summarised as follows:Nine-month periodsended 30 September2006 2007$/bbl (1) $/bbl (1)(Unaudited)Average operating cost per barrel .................................... 9.02 12.11(1) As a result of the periodic nature of condensate sales from the Bukha field, Oman, $/bbl is based on net sales volumes ratherthan net production volumes.5.5 General and AdministrativeGeneral and administrative expenses increased from $5,446,010 in the nine-month period ended30 September 2006 to $31,331,031 in the same period of 2007. This increase arose principally from higherstock-based compensation expenses relating to the conditional stock options granted in December 2006under the new stock option plan approved by shareholders at the Annual Meeting of HOC in June 2007.If stock-based compensation expenses are excluded, net general and administrative expenses for thenine-month period ended 30 September 2007 were $8,271,491 as compared to $5,004,756 in the sameperiod of 2006. This increase resulted from the following factors:Growth of the Group. The Group has employed additional staff and has appraised and undertakenoperations in new territories during the period under review;Increased travel expenses in part due to the higher level of activity in the Group’s core areas; andIn 2006 the Group trained 40 officials from the Ministry of Oil of Iraq and the Ministry of NaturalResources in Portugal at a cost of $720,000. A previous training course was undertaken in 2004, whilstno training courses were held in 2007.In the nine-month period ended 30 September 2007, the Group capitalised $10,410,894 (2006—$1,091,640)of general and administrative costs relating to exploration and development activities, includingstock-based compensation of $8,957,752 (2006—nil).5.6 Depletion, Depreciation and AmortisationNine-month periods ended30 September2006 2007$ $(Unaudited)Depletion, depreciation and amortisationPetroleum and natural gas assets ................................ 541,171 593,869Drilling rig ................................................ 134,612 —Other corporate assets ........................................ 272,694 712,262Total ...................................................... 948,477 1,306,131Depletion, depreciation and amortisation expenses increased by $357,654 from $948,477 in the nine-monthperiod ended 30 September 2006 to $1,306,131 in the same period of 2007. This increase is principally dueto the higher carrying value of the Oman property, plant and equipment subject to depletion andadditional depreciation on corporate assets acquired in 2006 and the first half of 2007, offset by a reductionin depreciation of the drilling rig following a decrease in drilling activity.143