Prospectus re Admission to the Official List - Heritage Oil

6.7 Foreign Exchange LossesThere was a foreign exchange loss in 2006 of $627,005, primarily as a result of the strengthening of thepound sterling against the U.S. dollar, as the Group’s loan secured on the technical services office inLondon is a sterling-denominated loan. The technical services office in London is not revalued forexchange rate purposes, but acts as a natural hedge against adverse movements in exchange rates with thisloan. The majority of the Group’s business is transacted in U.S. dollars and, accordingly, the Group’sfunctional and reporting currency is U.S. dollars.6.8 Depletion, Depreciation and AmortisationYear ended31 December2005 2006$ $Depletion, depreciation and amortisationPetroleum and natural gas assets .................................. 441,355 807,424Drilling rig .................................................. — 176,013Other corporate assets .......................................... 297,275 368,550Total ........................................................ 738,630 1,351,987Depletion, depreciation and amortisation expenses increased by $613,357 to $1,351,987 in 2006. Depletion,depreciation and amortisation expenses included depreciation of $176,013 from the Eagle Drill rig.6.9 Exploration ExpenditureExploration expenditure increased from $4,517,411 in 2005 to $6,066,977 in 2006. This increase in costsreflected the increased activity of the Group and costs incurred in new territories prior to a licencebeing awarded.6.10 Gain on Disposal of Discontinued OperationsThe Group completed the sale of its interests in the Congo generating a one-off gain on sale of $9,200,700in 2006. All of the disposition agreements were completed in the financial year ended 2006. The gain wascalculated after taking into account all relevant costs, including disposal costs and costs in the capitalisedcost pool, which totalled $19,962,386.6.11 Finance Income (Costs)Interest income of $1,336,351 in 2006 was $1,006,061 higher than the previous year, as a result of bothaverage higher cash balances and higher average interest rates in 2006. Cash and cash equivalents aretypically held in interest-bearing treasury accounts. Invested cash generating this income was raised by theissue of the $60 million unsecured convertible bonds on 27 March 2006.Other finance costs in 2006 totalled $4,642,126 compared to $491,824 in the previous year. This substantialincrease arose from the issue of $60 million unsecured convertible bonds in March 2006.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 $24,851,295 in 2006.In 2006 the Group recognised an unrealised gain in the fair value of investment in warrants of $195,178.This relates to the Group’s holding of 1,500,000 warrants in the Afren received as partial considerationfrom sale of Heritage Congo in 2006.149