Prospectus re Admission to the Official List - Heritage Oil

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HERITAGE OIL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2005 and 2004(U.S. dollars)2005 2004CASH PROVIDED BY (USED IN):OPERATING:Net earnings (loss) ........................................ $ (3,799,813) $ 28,364,368Items not involving cash:Gain on sale of property and equipment (note 7) .................. — (26,269,113)Depletion, depreciation and accretion .......................... 1,636,008 633,643Foreign exchange (gains) losses ............................... 480,253 (1,910,662)Stock-based compensation ................................... 625,365 10,540Write-down of unproved petroleum and natural gas interests (note 3) . . 724,915 934,771Changes in non-cash operating working capital .................... 1,030,395 102,462697,123 1,866,009FINANCING:Shares issued for cash ...................................... 1,423,011 604,953Long-term debt .......................................... 8,577,350 —Purchase of Common Shares for cancellation ..................... (876,217) —Repayment of long-term debt ................................ (103,997) —9,020,147 604,953INVESTING:Property and equipment expenditures .......................... (20,554,465) (37,318,136)Proceeds on sale of property and equipment ..................... — 16,400,000Repayment of note receivable ................................ 4,210,538 10,724,500Development expenditure ................................... (174,359) (210,957)Acquisition (note 4) ....................................... — (285)Changes in non-cash investing working capital .................... 333,937 (905,434)(16,184,349) (11,310,312)Foreign exchange gains (losses) on cash held in foreign currency ....... (1,185,123) 906,001Decrease in cash and cash equivalents .......................... (7,652,202) (7,933,349)Cash and cash equivalents, beginning of year ..................... 16,235,523 24,168,872Cash and cash equivalents, end of year ......................... $ 8,583,321 $ 16,235,523Supplementary information:Interest received .......................................... $ 397,640 $ 556,897Interest paid ............................................. $ 491,824 —See accompanying notes to consolidated financial statements.226
HERITAGE OIL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2005 and 2004(U.S. dollars)Heritage Oil Corporation (the ‘‘Corporation’’) is incorporated under the Business Corporations Act(Alberta) and its primary business activity is the exploration, development and production of petroleumand natural gas in the Middle East, Africa and Russia.The preparation of the consolidated financial statements in conformity with Canadian generally acceptedaccounting principles requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of theconsolidated financial statements and the reported amounts of revenue and expenses during the reportingperiods. Actual results could differ from those estimates.1. Significant accounting policies:(a) Basis of presentation:The consolidated financial statements include the accounts of the Corporation, its subsidiariesand its proportionate interests in corporate joint ventures.The majority of the Corporation’s business is transacted in U.S. dollars and, accordingly, thefunctional and reporting currency is U.S. dollars.(b) Joint operations:Substantially all exploration, development and production activities are conducted jointly withothers and accordingly, the Corporation only reflects its proportionate interest in such activities.(c)Cash and cash equivalents:The Corporation considers deposits in banks, certificates of deposit and short-term investmentswith original maturities of three months or less as cash and cash equivalents.(d) Inventories:Inventories consist of petroleum, condensate and liquid petroleum gas that are recorded at thelower of cost, at average cost basis, and net realizable value.(e)Property and equipment:The Corporation follows the full cost method of accounting for petroleum and natural gasoperations, whereby all costs related to the acquisition, exploration and development ofpetroleum and natural gas interests are accumulated within cost centres on a country-by-countrybasis. Such costs include land acquisition costs, geological and geophysical expenses, carryingcharges on non-producing interests, costs of drilling both productive and non-productive wells,major development projects and overhead charges directly relating to acquisition, explorationand development activities.Proceeds from the sale of petroleum and natural gas interests are applied against capitalized costsexcept for sales that would change the rate of depletion and depreciation by 20% or more, inwhich case a gain or loss is recorded.Capitalized costs, together with estimated future capital costs associated with proved reserves, aredepleted and depreciated using the unit of production method based on estimated gross provedreserves of petroleum and natural gas as determined by independent engineers. For purposes ofthis calculation, reserves and production are converted to equivalent units of petroleum based onrelative energy content of six thousand cubic feet of natural gas to one barrel of petroleum.Costs of acquiring and evaluating significant unproved petroleum and natural gas interests areexcluded from costs subject to depletion and depreciation until it is determined that provedreserves are attributable to such interest or until impairment occurs.227
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This document comprises a prospectu
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SUMMARY INFORMATIONThis summary mus
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Summary Consolidated Income Stateme
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Summary Consolidated Cash Flow Stat
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Production from the Zapadno Chumpas
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Given the geographic spread of the
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RISK FACTORSAny investment in the O
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wells may change as a result of low
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which could have a materially adver
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Failure to obtain additional financ
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contractual or pricing terms, both
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years. In addition, since December
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UgandaUganda is among the poorest c
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Market Price of the Ordinary Shares
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DIRECTORS, CORPORATE SECRETARY, SEN
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EXPECTED TIMETABLE OF PRINCIPAL EVE
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CurrenciesAll references in this do
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PART I—INFORMATION ON THE GROUPOV
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Strong management and technical tea
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the availability of existing infras
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In 2005, the Group acquired a 95 pe
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The Group acquired a 10 per cent. i
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The Group is the operator and has a
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exploration wells. The total estima
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The Group has also entered into a s
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Pakistan has current proved hydroca
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operational by drawing up an Enviro
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Mr. Buckingham has never had any as
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Date2007 ........ On 18 January 200
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(3) One common share of Heritage Ho
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(f) General Sir Michael WilkesGener
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Remuneration CommitteeThe Remunerat
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Goldsworth House, Denton Way, Golds
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ResourcesA summary of the gross Con
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The post tax Net Present Value (NPV
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RPS EnergyHeritage Oil - Competent
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Summary Consolidated Balance Sheets
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Summary Consolidated Balance Sheets
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locks during the first three and a
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On 2 October 2007, the Group execut
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of amplitude anomalies, further sup
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The increase in operating expenses
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5.11 Discontinued OperationsThe res
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6. RESULTS OF CONTINUING OPERATIONS
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6.7 Foreign Exchange LossesThere wa
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6.14 Capital ExpendituresThe follow
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7.3 Petroleum and Natural Gas Reven
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7.14 Capital ExpendituresAdditions
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10. LIQUIDITY AND CAPITAL RESOURCES
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Year Ended 31 December 2005 Prepare
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Intangible E&E assets related to ea
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11.2 The year ended 31 December 200
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(c) Reconciliation of loss for the
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Year Ended 31 December 2004 Prepare
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PART VII—FINANCIAL INFORMATIONA.
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DeclarationFor the purposes of Pros
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HERITAGE OIL LIMITEDNOTES TO BALANC
Page 177 and 178: AUDITED AND UNAUDITED FINANCIAL INF
Page 179 and 180: HERITAGE OIL CORPORATIONCONSOLIDATE
Page 181 and 182: HERITAGE OIL CORPORATIONCONSOLIDATE
Page 183 and 184: HERITAGE OIL CORPORATIONNOTES TO CO
Page 185 and 186: Intangible E&E assets related to ea
Page 187 and 188: k) InvestmentsThe Group classifies
Page 189 and 190: usually when legal title passes to
Page 191 and 192: iii) IFRIC 12, ‘‘Service conces
Page 193 and 194: v) Liquidity riskLiquidity risk is
Page 195 and 196: ii) DerivativesDerivatives are reco
Page 197 and 198: 5 Other finance costsNine-month per
Page 199 and 200: Congo to the other partners in the
Page 201 and 202: No assets have been pledged as secu
Page 203 and 204: 31 December 30 September2005 2006 2
Page 205 and 206: 16 Trade and other payables31 Decem
Page 207 and 208: A reconciliation of the asset retir
Page 209 and 210: 21 Loss per shareThe following tabl
Page 211 and 212: 25 Commitments and contingenciesHer
Page 213 and 214: In November 2007, the Group farmed-
Page 215 and 216: Reconciliation of loss for the year
Page 217 and 218: At the end of the last reporting pe
Page 219 and 220: Reconciliation of cash flow stateme
Page 221 and 222: At 31 December 2006, this has resul
Page 223 and 224: AUDITED FINANCIAL STATEMENTS RELATI
Page 225 and 226: AUDITORS’ REPORT TO THE SHAREHOLD
Page 227: HERITAGE OIL CORPORATIONCONSOLIDATE
Page 231 and 232: effective as hedges, both at incept
Page 233 and 234: A ceiling test was undertaken at De
Page 235 and 236: 6. Share capital:(a) Authorized:Unl
Page 237 and 238: fair value of stock options are amo
Page 239 and 240: C. PRO FORMA FINANCIAL INFORMATION
Page 241 and 242: PRO FORMA NET ASSET STATEMENTThe fo
Page 243 and 244: Production assumptionsProduction du
Page 245 and 246: Macroeconomic assumptionsThe Direct
Page 247 and 248: Accordingly, the Illustrative Proje
Page 249 and 250: Arrangement AgreementPursuant to th
Page 251 and 252: PART X—ADDITIONAL INFORMATION1. R
Page 253 and 254: (ii) no share or loan capital of th
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Page 259 and 260: instrument of transfer (in the case
Page 261 and 262: up on all the shares conferring tha
Page 263 and 264: (B) may be a director or other offi
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Page 267 and 268: (c)have sufficient moneys, assets o
Page 269 and 270: (e)against surrender of the Exchang
Page 271 and 272: e, to the extent that the same is r
Page 273 and 274: (g)(ii) by arranging for the credit
Page 275 and 276: (b) rights, options or warrants oth
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7.5 None of the major shareholders
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Position stillDirector/Senior Manag
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employment or terminates his or her
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All rights of a holder of Exchangea
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agreement of this nature. These cir
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to change. Where the Company pays a
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As part of an agreement reached in
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(x) Foreign Property Information Re
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19. DOCUMENTS AVAILABLE FOR INSPECT
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declared and unpaid dividends on ea
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‘‘DTR’’‘‘DutchCo’’
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‘‘ISIN’’‘‘ITA’’‘
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anniversary of the Effective Date a
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‘‘Support Agreement’’‘‘
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emaining quantities recovered will
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Prospectus re Admission to the Official List - Heritage Oil

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