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 the production of commercialreserves. The cash generating unit applied for impairment test purposes is generally the field,except that a number of field interests may be grouped as a single cash generating unit where thecash flows generated by the fields are interdependent.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 the 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% residual value.The corporate jet is depreciated over its expected useful life of 69 months. Depreciation ischarged so as to write off the cost, less estimated residual value of corporate jet on a straight-linebasis.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.g) Cash and cash equivalentsCash and cash equivalents includes cash on hand, deposits held at call with banks, othershort-term highly liquid investments with original maturities of three months or less. Cash andcash equivalents are stated at amortised cost using the effective interest rate method.h) Trade and other receivablesTrade and other receivables are recognised initially at fair value and subsequently measured atamortised cost using the effective interest method, less provision for impairment. A provision forimpairment of trade receivables is established when there is objective evidence that the Groupwill not be able to collect all amounts due according to the original terms of the receivables.i) InventoriesInventories consist of petroleum, condensate, liquid petroleum gas and materials that arerecorded at the lower of weighted average cost and net realisable value. Cost comprises directmaterials, direct labour and those overheads that have been incurred in bringing the inventoriesto their present location and condition. Net realisable value is the estimated selling price in theordinary course of business, less applicable variable selling expenses. Provision is made forobsolete, slow-moving or defective items where appropriate.j) Intangible development costsDevelopment costs are recognised as intangible assets when it is probable that the project will,after considering its commercial and technical feasibility, be completed and generate futureeconomic benefits and its costs can be measured reliably. All other research and developmentcosts are charged to earnings in the period incurred.184