Prospectus re Admission to the Official List - Heritage Oil

(d) Reversal of impairmentUnder IFRS, impairment losses previously recorded are reversed if the conditions giving rise to theimpairment have reversed. The reversal of impairment losses was not permitted under Canadian GAAP.The impact on adoption of IFRS at 1 January 2005 is an increase in inventory of $24,976, an increase inproperty, plant and equipment of $1,656,846, and an increase in retained earnings of $1,681,822.At 31 December 2005, this has resulted in increases in inventory of $35,441, property, plant and equipmentof $1,442,748, retained earnings of $1,478,189, and depletion expense for the year of $203,633.(e) Share-based paymentsUnder Canadian GAAP, the Group recognised an expense related to their share-based payments on astraight-line basis through the date of full vesting. Under IFRS, the Group is required to recognise theexpense over the individual vesting periods for the graded vesting awards.At 31 December 2005, this has resulted in increases in general and administrative expenses and sharebasedpayments reserves of $456,747, with a corresponding decrease in retained earnings.(f) Deferred taxUnder Canadian GAAP, the Corporation recognised a deferred tax liability and corresponding increase inproperty, plant and equipment associated with its acquisition of Russian properties. However, under IFRSdeferred tax is only recognised on the initial recognition of an asset if it is acquired through a businesscombination.At 31 December 2005 and 31 December 2006, this has resulted in a reduction in property, plant andequipment and deferred tax liability of $2,346,605. There was no impact at 1 January 2005.(g) Depletion policyUpon transition to IFRS, the Corporation adopted a policy of depleting petroleum and natural gasinterests on a units of production basis over proved plus probable reserves. The depletion policy underCanadian GAAP was units of production over proved reserves.The impact on adoption to IFRS at 1 January 2005 is an increase in property, plant and equipment andretained earnings of $789,008. At 31 December 2005, this resulted in increases in property plant andequipment and retained earnings of $743,642, and depletion expense for the year of $34,734, and adecrease in earnings from discontinued operations of $10,632. At 31 December 2006, this resulted indecreases in property plant and equipment of $233,631, retained earnings of $211,900, and earnings fromdiscontinued operations of $674,905, and increases in inventory of $21,731, and depletion expense for theyear of $280,637.12. RELATED PARTY TRANSACTIONSNine-Month Period Ended 30 September 2007 Prepared in Accordance with IFRSDuring the nine-month period ended 30 September 2007, general and administrative expenses includedadvisory fees of $806,607 ($644,258 in the nine-month period ended 30 September 2006) charged byMr. Anthony Buckingham, a director of HOC and CEO.Mr. Paul Atherton, a director of HOC, is also a director and CFO of SeaDragon. The Group acquired605,000 common shares in SeaDragon on 9 March 2007 through the sale of its 65 per cent. interest inPipelay and Naturalay Technologies.Year Ended 31 December 2006 Prepared in Accordance with IFRSIn 2006, general and administrative expenses included an advisory fee of $1,494,317 charged byMr. Anthony Buckingham, a director of HOC, who was appointed CEO on 6 October 2006.Year Ended 31 December 2005 Prepared in Accordance with IFRSIn 2005, the Group established a management and finance office in Switzerland that required Mr. AnthonyBuckingham, a director of HOC, to relocate and he received a relocation allowance of $275,918. In 2005,general and administrative expenses included an advisory fee of $877,686 charged by this director.166