Prospectus re Admission to the Official List - Heritage Oil

Notes to reconciliationsa) Pre-licence costsUnder Canadian GAAP all costs incurred prior to having obtained licence rights were includedwithin property, plant and equipment. Under IFRS, such expenditures are expensed as incurred.The impact on adoption to IFRS at 1 January 2005 is a reduction in property, plant andequipment and retained earnings of $2,162,301.At 31 December 2005, this adjustment has resulted in a reduction in property, plant andequipment and retained earnings of $5,954,797, an increase in exploration expenditure for theyear of $4,517,411, and a decrease in the impairment of unproved petroleum and natural gasinterests recognised in the year of $724,915. The income tax impact was in a further reduction ofproperty, plant, and equipment of $2,346,605 and a corresponding decrease in deferred taxliability.At 31 December 2006, this adjustment has resulted in a reduction in property, plant andequipment and retained earnings at $11,034,810, an increase in exploration expenditure for theyear of $6,066,977, and a decrease in the impairment of unproved petroleum and natural gasinterests recognised in the year of $986,964.b) Reclassification of exploration and evaluation costsUnder Canadian GAAP property, plant and equipment included certain exploration andevaluation expenditure incurred within established geographic cost pools. Under IFRS, suchexploration and evaluation costs are recognised as tangible or intangible based on their nature.At 31 December 2006, this has resulted in the reclassification from property, plant and equipmentto intangible exploration assets of $56,311,426 (1 January 2005—$32,589,744; 31 December2005—$45,111,919).c) Capitalisation of property, plant and equipment depreciation of intangible assetsUnder IFRS, depreciation of property, plant and equipment utilised in exploration activities iscapitalised as intangible exploration assets. As these assets were classified as property, plant andequipment under Canadian GAAP, depreciation of fixed assets was not included in the balance.The impact on adoption to IFRS at 1 January 2005 is an increase in intangible exploration assetsand retained earnings of $135,898. At 31 December 2005, an increase in intangible explorationassets and retained earnings of $171,728 and a decrease in depreciation expense for the year of$35,830. At 31 December 2006, an increase in intangible exploration assets and retained earningsof $171,728.d) Reversal of impairmentUnder IFRS, impairment losses previously recorded are reversed if the conditions giving rise tothe impairment have reversed. The reversal of impairment losses was not permitted underCanadian GAAP. The impact on adoption to IFRS at 1 January 2005 is an increase in inventoryof $24,976, an increase in property, plant and equipment of $1,656,846, and an increase inretained earnings of $1,681,822.At 31 December 2005, this has resulted in increases in inventory of $35,441, property, plant andequipment of $1,442,748, retained earnings of $1,478,189, and depletion expense for the yearof $203,633.At 31 December 2006, this has resulted in increases in inventory of $26,638, property, plant andequipment of $1,071,212, retained earnings of $1,097,850 and depletion expense for the yearof $380,339.e) Share-based paymentsUnder Canadian GAAP, the Group recognised an expense related to their share-based paymentson a straight-line basis through the date of full vesting. Under IFRS, the Group is required torecognise the expense over the individual vesting periods for the graded vesting awards.At 31 December 2005, this has resulted in increases in general and administrative expenses andshare-based payments reserves of $456,747, with a corresponding decrease in retained earnings.218