Prospectus re Admission to the Official List - Heritage Oil

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5.7 Exploration ExpenditureExploration expenditure increased from $3,373,024 in the nine-month period ended 30 September 2006 to$4,937,595 in the same period in 2007. This increase in costs reflected the increased activity of the Groupand costs incurred in new territories prior to a licence being awarded. Exploration expenditure innine-month period ended 30 September 2006 principally related to costs in the KRI, whilst in the sameperiod in 2007 related mainly to the KRI and potential new ventures in Russia.5.8 Impairment of property, plant and equipmentThe carrying value of the drilling rig was written down to its estimated fair value. This resulted in animpairment write-down of $1,799,762 recognised in the income statement during the nine-month periodended 30 September 2007.5.9 Gain on Disposal of SubsidiariesThe Group recognised a gain on disposal of its subsidiaries of $1,077,132 in the first quarter of 2007. On9 March 2007, the Group disposed of its 65 per cent. equity interests in Pipelay and Naturalay Technologiesfor consideration of 605,000 common shares in SeaDragon. The fair value of the common sharesconsideration received of $2,420,000, which was based on the most recent private placement to arms-lengthparties, resulted in a gain on the disposal of $1,077,132.5.10 Finance Income (Costs)In the nine-month period ended 30 September 2007, interest income of $1,243,305 was $257,952 higherthan in the same period in the previous year as a result of both average higher cash balances and higheraverage interest rates. Cash and cash equivalents are typically held in interest-bearing treasury accounts.Invested cash generating this income was raised by the issue of the $60 million and $165 million unsecured,convertible bonds in March 2006 and February 2007, respectively.Other finance costs increased by $3,786,406 from $3,266,497 in the nine-month period ended30 September 2006, to $7,052,903 in the same period of 2007, as a result of the issuance of $60 millionunsecured convertible bonds in March 2006 and $165 million unsecured convertible bonds inFebruary 2007, which lead to higher interest and accretion expenses that are expensed to finance costs.On 17 January 2007, the Group gave notice that it had exercised its option to redeem the 550 outstandingunsecured convertible bonds at 150 per cent. of par value for total proceeds of $82.5 million plus accruedinterest which was paid on 28 March 2007. This resulted in the recognition of a loss of $7,155,622 on theredemption, net of transaction costs, on the recorded liability and derivative liability in the nine-monthperiod ended 30 September 2007.Convertible bonds were separated into liability and derivative liability components (being the bondholders’conversion option) and each component is recognised separately. The change in the fair value of theconvertible bonds conversion options which is primarily due to the increase in share price, resulted in a lossof $5,483,503 in the nine-month period ended 30 September 2006 and a loss of $17,350,077 in the ninemonthperiod ended 30 September 2007.In the nine-month period ended 30 September 2007, the Group recognised an unrealised gain in the fairvalue of investment in warrants of $63,351. This relates to the Group’s holding of 1,500,000 warrants inAfren received as partial consideration from the sale of Heritage Congo in 2006.144
5.11 Discontinued OperationsThe results of operations in Congo have been classified as earnings from discontinued operations. Thefollowing table provides additional information with respect to the amounts included in the earnings fromdiscontinued operations.Period ended30 September 2006$RevenuePetroleum and natural gas ............................................ 3,805,505Other .......................................................... 679,5434,485,048ExpensesPetroleum and natural gas operating .................................... 653,344Royalties ........................................................ 570,826Depletion, depreciation and amortisation ................................. 843,5622,067,7322,417,3165.12 Net Loss for the PeriodsThe net loss in the nine-month period ended 30 September 2007 was $67,482,482, compared to $12,517,910in the same period in 2006. In the nine-month period ended 30 September 2007, the basic and diluted lossper share from continuing operations and net basic and diluted loss per share were $3.02, compared tobasic and diluted loss per share from continuing operations of $0.68 and the net basic and diluted loss of$0.57 in the same period in 2006.5.13 Capital ExpendituresThe following table sets out capital expenditures for the nine-month periods ended 30 September 2006and 2007:Nine-month periods ended30 September2006 2007$ $(Unaudited)UgandaDrilling ................................................... 5,327,637 7,814,808Seismic ................................................... — 12,720,495Other ..................................................... 1,171,610 1,543,3426,499,247 22,078,645OmanDrilling ................................................... 2,621,614 749,862Seismic ................................................... 332,192 88,897Other ..................................................... 233,115 1,982,6493,186,921 2,821,408RussiaDrilling ................................................... — 5,590,214Seismic ................................................... 1,373,001 —Other (1) ................................................... 4,338,516 8,645,0835,711,517 14,235,297145
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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 95 and 96: RPS EnergyHeritage Oil - Competent
Page 135 and 136: Summary Consolidated Balance Sheets
Page 137 and 138: Summary Consolidated Balance Sheets
Page 139 and 140: locks during the first three and a
Page 141 and 142: On 2 October 2007, the Group execut
Page 143 and 144: of amplitude anomalies, further sup
Page 145: The increase in operating expenses
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
Page 189 and 190: usually when legal title passes to
Page 191 and 192: iii) IFRIC 12, ‘‘Service conces
Page 193 and 194: v) Liquidity riskLiquidity risk is
Page 195 and 196: 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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