Prospectus re Admission to the Official List - Heritage Oil

Development and production assets are accumulated on a field-by-field basis and represent thecost of developing the commercial reserves discovered and bringing them into production,together with the E&E expenditures incurred in finding commercial reserves transferred fromintangible E&E assets as outlined above and the projected cost of retiring the assets.The net book values of producing assets are depleted on a field-by-field basis using the unit ofproduction method by reference to the ratio of production in the period to the related provedplus probable reserves of the field, taking into account estimated future developmentexpenditures necessary to bring those reserves into production.An impairment test is performed whenever events and circumstances arising during thedevelopment or production phase indicate that the carrying value of a development or productionasset may exceed its recoverable amount. The aggregate carrying value is compared against theexpected recoverable amount of the cash generating unit, generally by reference to the presentvalue of the future net cash flows expected to be derived from production of commercial reserves.The cash generating unit applied for impairment test purposes is generally the field, except that anumber of field interests may be grouped as a single cash generating unit where the cash flowsgenerated by the fields are interdependent.(ii) Other assetsOther property, plant and equipment are stated at cost less accumulated depreciation and anyimpairment in value. The assets’ useful lives and residual values are assessed on an annual basis.Furniture and fittings are depreciated using reducing balance method at 20% per year.Land is not subject to depreciation.Drilling rig equipment is depreciated using the unit-of-production method based on 2,740 drillingdays with a 20 per cent. residual value.The corporate jet is depreciated over its expected useful life of 69 months. Depreciation ischarged so as to write off the costs, less estimated residual value of the corporate jet on astraight-line basis.Corporate capital assets are depreciated on a straight-line basis over their estimated useful lives.The building is depreciated on a straight-line basis over 40 years.(c) ProvisionsAsset retirement obligationsProvision is made for the estimated cost of any asset retirement obligations when the Group has a presentlegal or constructive obligation as a result of past events, it is probable that an outflow of resources will berequired to settle the obligation and the amount has been reliably estimated. Provisions are not recognisedfor future operating losses. Asset retirement obligation expense is capitalised in the relevant asset categoryunless it arises from the normal course of production activities.Provisions are measured at the present value of management’s best estimate of the expenditure required tosettle the present obligation at the balance sheet date. The discount rate used to determine the presentvalue reflects current market assessments of the time value of money and the risks specific to the liability.Subsequent to the initial measurement of the asset retirement obligations, the obligations are adjusted atthe end of each period to reflect the passage of time and changes in the estimated future cash flowsunderlying the obligation. The increase in the provision due to the passage of time is recognised as financecosts whereas increases due to changes in estimated future cash flows are capitalised.162