Prospectus re Admission to the Official List - Heritage Oil

wells may change as a result of lower prices, which could result in a reduction in the volumes produced bythe Group. The Group might also elect not to produce from certain wells at lower prices. All of thesefactors could result in a material decrease in the Group’s net production revenue and the financialresources available to it to make planned capital expenditure. This would have a material adverse effect onthe Group’s financial condition, business, prospects and results of operations.From time to time, the Group may enter into agreements to receive fixed prices on its oil and gasproduction to offset the risk of revenue losses if commodity prices decline, which is known as hedging;however, if commodity prices increase beyond the levels set in such agreements, the Group will not benefitfrom such increases and the Group may nevertheless be obligated to pay royalties on such higher prices,even though they were not received by it, after giving effect to such agreements. Whilst the Group has notcurrently entered into any hedging instruments at the present time, if it were to do so in the future it couldalso be subject to margin requirements associated with these instruments. Because the Group is notcurrently hedging it is currently exposed to fluctuations in oil and gas prices which could materially affectthe Group’s financial condition, business, prospects and results of operations.Without the Addition of Reserves through Exploration, Acquisition or Development Activities, the Group’sReserves and Production will Decline Over Time as Reserves are ExploitedThe Group’s future oil and gas reserves, production and cash flows to be derived therefrom are highlydependent on the Group’s success in exploiting its current reserve base and acquiring or discoveringadditional reserves. Without the addition of reserves through exploration, acquisition or developmentactivities, the Group’s reserves and production will decline over time as reserves are exploited. A futureincrease in the Group’s reserves will depend not only on the Group’s ability to develop its presentproperties, but also on its ability to select and acquire suitable producing properties or prospects. There isno assurance that the Group’s future exploration and development efforts will result in the discovery anddevelopment of additional commercial accumulations of oil and gas. If such efforts are unsuccessful, theGroup’s total reserves may not increase or may decline, which could have a material adverse effect on theGroup’s business, financial condition, prospects and results of operations.Production Operations Involve Many Inherent RisksProduction operations of the Group or by operators of assets in which the Group has an interest involverisks normally inherent in such activities such as premature declines of reservoirs, blow-outs, oil spills,explosions, fires, equipment damage or failure, natural disasters, geological uncertainties, unusual orunexpected rock formations, abnormal pressures, cratering and sulphur gas releases. Offshore operationsof the Group may also be subject to natural disasters as well as to hazards inherent in marine operationsand damage to pipelines and subsea facilities from trawlers, anchors and vessels. The occurrence of any ofthese events could result in environmental damage, injury to persons and loss of life, a failure to produceoil or gas in commercial quantities or an inability to fully produce discovered reserves. Consequentproduction delays and declines from normal field operating conditions can be expected to adversely affectrevenue and cash flow levels to varying degrees. Oil and gas production operations are also subject to allthe risks typically associated with such operations, including premature decline of reservoirs and theinvasion of water into producing formations.The Group’s production is currently sourced from its interests in a limited number of PSCs or concessionsagreements. Should the Group encounter any problems in any one PSC or concession, it could have amaterial adverse impact upon the Group’s planned levels of production.Interruptions in Availability of Exploration, Production or Supply InfrastructureOil and gas exploration and development activities are dependent on the availability of drilling and relatedequipment in the particular areas where such activities will be conducted. Current high demand for suchlimited equipment or access restrictions is affecting the availability and cost of such equipment to theGroup and operators or production facilities in which the Group has an interest and from time to timedelays exploration and development activities. Such interruptions or delays in the availability ofinfrastructure, including drilling rigs in particular and pipelines and storage tanks, on which explorationand production activities are dependent could result in disruptions to the Group’s projects, increased costs,and may have an adverse effect on the Group’s profitability.13