Prospectus re Admission to the Official List - Heritage Oil

20 Reserves and retained earnings (deficit)(a) Reserves31 December 30 September2005 2006 2006 2007$ $ $ $(Unaudited)Available-for-sale investments revaluationreserve .......................... — — — 168,000Foreign currency translation reserve ....... — (4,003) — 133,768— (4,003) — 301,768Share-based payments reserve ........... 973,956 2,641,061 1,363,795 34,781,494973,956 2,637,058 1,363,795 35,083,262MovementsAvailable-for-sale investments revaluationreserveBalance—Beginning of period ........... — — — —Revaluation ......................... — — — 168,000Balance—End of period ................ — — — 168,000Foreign currency translation reserveBalance—Beginning of period ........... — — — (4,003)Currency translation differences arisingduring period ...................... — (4,003) — 137,771Balance—End of period ................ — (4,003) — 133,768Share-based payments reserveBalance—Beginning of period ........... 24,421 973,956 973,956 2,641,061Compensation costs—options issued ....... 1,082,112 2,074,727 441,253 32,365,616Transfer to share capital on exercise ofoptions .......................... (132,577) (407,622) (51,414) (81,376)Options forfeited ..................... — — — (143,807)Balance—End of period ................ 973,956 2,641,061 1,363,795 34,781,494(b) Retained earnings (deficit)31 December 30 September2005 2006 2006 2007$ $ $ $(Unaudited)Balance—Beginning of period ....... 52,879,284 43,876,180 43,876,180 15,508,425Premium on repurchase andcancellation of Common Shares .... (740,879) — — —Net loss for the period ............. (8,262,225) (28,367,755) (12,517,910) (67,482,482)Balance—End of period ............ 43,876,180 15,508,425 31,358,270 (51,974,057)(c)Nature and purpose of reservesi) Available-for-sale investments revaluation reserveChanges in the fair value and exchange differences arising on translation of available for saleinvestments such as equities, classified as available-for-sale financial assets, are taken to theavailable-for-sale investments revaluation reserve, as described in note 1(k). Amounts arerecognised in profit and loss when the associated assets are sold or impaired.ii) Foreign currency translation reserveExchange differences arising on retranslation of the foreign controlled entity are taken to theforeign currency translation reserve, as described in note 1(t). The reserve will be recognisedin the income statement when the net investment is disposed.iii) Share-based payments reserveThe share-based payments reserve is used to recognise the fair value of options issued, butnot exercised, to employees.206