Prospectus re Admission to the Official List - Heritage Oil

A ceiling test was undertaken at December 31, 2005 to determine whether there was an impairment tocost centres with proved reserves. In undertaking the ceiling test the following forecast priceswere used:WestBukha Bukha Bukha Bukha Russia RussiaYear Brent Congo condensate Propane Butane Gas Export Domestic$/bbl $/bbl $/bbl $/tonne $/tonne $/MMBTU $/bbl $/bbl2006 ............. 55.50 54.00 56.16 360.19 370.24 1.00 50.60 29.912007 ............. 53.50 52.05 54.12 349.59 358.44 1.00 48.78 28.812008 ............. 49.50 48.16 50.05 328.39 334.84 1.00 45.13 26.632009 ............. 46.50 45.24 46.99 312.49 317.14 1.00 42.39 24.992010 ............. 45.00 43.78 45.47 304.54 308.29 1.00 41.03 24.172011 ............. 43.50 42.32 43.94 296.59 299.44 1.00 39.66 23.352012 ............. 43.50 42.32 43.94 296.59 299.44 1.00 39.66 23.352013 ............. 44.51 43.30 44.96 301.89 305.34 1.00 40.58 23.842014+ ........... +2%pa +2%pa +2%pa +2%pa +2%pa 1.00 +2%pa +2%paAt December 31, 2005, the below new cost centres were considered to be in the preproduction stageand all costs, net of revenues, were capitalized in property and equipment and excluded from costssubject to depletion and depreciation.2005 2004$ $Uganda ................................................ 26,991,887 21,342,651Russia ................................................. — 871,950Iraq .................................................. 2,785,419 836,452Democratic Republic of Congo ............................... 464,285 428,540Kazakhstan ............................................. 938,370 —Pakistan ............................................... 416,504 25,35931,596,465 23,504,952Major uncertainties affect the recoverability of these costs as the recovery of the costs outlined aboveis dependent on the Corporation obtaining licenses, achieving commercial production or sale.At December 31, 2005, the cost of unproved petroleum and natural gas interests of $11,727,768(2004—$11,247,096) for cost centres that are no longer in the preproduction stage have also beenexcluded from costs subject to depletion and depreciation.In 2005, the Corporation capitalized $1,332,363 (2004—$441,075) of general and administrative costsrelating to exploration and development activities.Following the acquisition of a 95% interest in the West Chumpass development license in 2005, costsin the Russian preproduction cost centre have been transferred into costs subject to depletion anddepreciation.Undeveloped lands are assessed quarterly to determine whether impairment has occurred. In thefourth quarter of 2005, the Corporation wrote-off all of the costs held in the Nigeria andTurkmenistan preproduction cost centres.4. Natural Pipelay Worldwide Limited (‘‘NPWL’’) and Naturalay Technologies Limited (‘‘NTL’’):On July 23, 2003, the Corporation acquired a one-third interest in NPWL and NTL for a nominal cashconsideration of $300 and a commitment to loan up to $500,000 for NPWL’s development of theBuoyant Drum Lay System (‘‘Pipelay System’’). At December 31, 2005, NPWL and NTL, corporatejoint ventures, were proportionately consolidated in the Corporation’s financial statements assubstantially all activities are conducted jointly with others.On September 24, 2004, the Corporation acquired an additional 31.7% interest in both entities for anominal cash consideration of $285 and a commitment to loan up to an additional $170,000 for thePipelay System. Accordingly, the Corporation commenced proportionately consolidating the entitieseffective September 24, 2004. As the Pipelay System development is not complete to date, NPWL has231