Prospectus re Admission to the Official List - Heritage Oil

(c) Reconciliation of loss for the year ended 31 December 2005:Effect ofPrevious transition toNotes Canadian GAAP IFRS IFRS$ $ $RevenuePetroleum and natural gas ................ 841,766 — 841,766Drilling services ........................ 342,359 — 342,3591,184,125 — 1,184,125ExpensesPetroleum and natural gas ................ 465,110 — 465,110Drilling rig operating .................... 196,804 — 196,804General and administrative ............... (e) 5,249,649 456,747 5,706,396Foreign exchange losses .................. 1,170,906 — 1,170,906Depletion, depreciation and amortisation ..... (c),(d),(g) 536,093 202,537 738,630Exploration expenditure .................. (a) — 4,517,411 4,517,411Impairment of unproved oil & gas interest .... (a) 724,915 (724,915) —8,343,477 4,451,780 12,795,257Interest income (costs)Interest income ........................ 330,290 — 330,290Finance costs .......................... (491,824) — (491,824)(161,534) — (161,534)Loss from continuing operations ........... (7,320,886) (4,451,780) (11,772,666)Earnings from discontinued operations ....... (g) 3,521,073 (10,632) 3,510,441Net loss ............................. (3,799,813) (4,462,412) (8,262,225)(a) Pre-licence costsUnder Canadian GAAP, certain costs incurred prior to having obtained licence rights were included withinproperty, plant and equipment. Under IFRS, such expenditures are expensed as incurred. The impact onadoption of IFRS at 1 January 2005 is a reduction in property, plant and equipment and retained earningsof $2,162,301.As at 31 December 2005, this has resulted in a reduction in property, plant and equipment and retainedearnings of $5,954,798, an increase in exploration expenditure for the year of $4,517,411, and a decrease inthe impairment of unproved petroleum and natural gas interests recognised in the year of $724,915. Theincome tax impact was in a further reduction of property, plant and equipment of $2,346,605 and acorresponding decrease in the deferred tax liability.(b) Reclassification of exploration and evaluation costsUnder Canadian GAAP property, plant and equipment included certain exploration and evaluationexpenditure incurred within established geographic cost pools. Under IFRS, such exploration andevaluation costs are recognised as tangible or intangible based on their nature.At 31 December 2005, this has resulted in the reclassification from property, plant and equipment tointangible exploration of $45,111,919 (1 January 2005: $32,589,744).(c) Capitalisation of tangible asset depreciation to intangible assetsUnder IFRS, intangible exploration and evaluation costs include the depreciation of any tangible assetsutilised in incurring the costs. As these assets were classified as property, plant and equipment underCanadian GAAP, depreciation of fixed assets was not included in the balance.The impact on adoption of IFRS at 1 January 2005 is an increase in intangible exploration and retainedearnings of $135,898. At 31 December 2005, an increase in intangible exploration and retained earnings of$171,728, and a decrease in depreciation expense for the year of $35,830.165