Prospectus re Admission to the Official List - Heritage Oil

Intangible E&E assets related to each exploration licence/prospect are not depreciated and arecarried forward until the existence (or otherwise) of commercial reserves has been determined.The Group’s definition of commercial reserves for such purpose is proven and probable reserveson an entitlement basis.Proven and probable reserves are the estimated quantities of crude oil, natural gas and naturalgas liquids which geological, geophysical and engineering data demonstrate with a specifieddegree of certainty (see below) to be recoverable in future years from known reservoirs and whichare considered commercially producible. There should be a 50 per cent statistical probability thatthe actual quantity of recoverable reserves will be more than the amount estimated as proven andprobable and a 50 per cent statistical probability that it will be less. The equivalent statisticalprobabilities for the proven component of proven and probable reserves are 90 per cent and10 percent, respectively.Such reserves may be considered commercially producible if management has the intention ofdeveloping and producing them and such intention is based upon:– a reasonable assessment of the future economics of such production;– a reasonable expectation that there is a market for all or substantially all the expectedhydrocarbon production; and– evidence that the necessary production, transmission and transportation facilities areavailable or can be made available.Furthermore:(i) Reserves may only be considered proven and probable if producibility is supported by eitheractual production or conclusive formation test. The area of reservoir considered provenincludes (a) that portion delineated by drilling and defined by gas-oil and/or oil-watercontacts, if any, or both, and (b) the immediately adjoining portions not yet drilled, butwhich can be reasonably judged as economically productive on the basis of availablegeophysical, geological and engineering data. In the absence of information on fluidcontacts, the lowest known structural occurrence of hydrocarbons controls the lower provedlimit of the reservoir.(ii) Reserves which can be produced economically through application of improved recoverytechniques (such as fluid injection) are only included in the proven and probableclassification when successful testing by a pilot project, the operation of an installedprogramme in the reservoir, or other reasonable evidence (such as, experience of the sametechniques on similar reservoirs or reservoir simulation studies) provides support for theengineering analysis on which the project or programme was based.If commercial reserves have been discovered, the related E&E assets are assessed for impairmenton a cost pool basis as set out below and any impairment loss is recognised in the incomestatement. The carrying value, after any impairment loss, of the relevant E&E assets is thenreclassified as development and production assets within property, plant and equipment.E&E assets are assessed for impairment when facts and circumstances suggest that the carryingamount may exceed its recoverable amount. Such indicators include the point at which adetermination is made as to whether or not commercial reserves exist. Where the E&E assetsconcerned fall within the scope of an established full cost pool, the E&E assets are tested forimpairment together with all development and production assets associated with that cost pool,as a single cash generating unit. The aggregate carrying value is compared against the expectedrecoverable amount of the pool, generally by reference to the present value of the future net cashflows expected to be derived from production of commercial reserves. Where the E&E assets tobe tested fall outside the scope of any established cost pool, there will generally be no commercialreserves and the E&E assets concerned will be written off in full.f) Property, plant and equipmentDevelopment and production assetsThe Group had three cost pools at the development and production stage: Congo, Russia andOman during the period under review.183