Prospectus re Admission to the Official List - Heritage Oil

(d) Warrants:The following outstanding Common Share warrants were issued pursuant to various privateplacements or borrowing arrangements.Number of Average Number of Averagewarrants exercise price warrants exercise price(Cdn $) (Cdn $)Balance, beginning of year ............. — — 20,000 2.80Granted .......................... — — — —Exercised ......................... — — (20,000) 2.80Balance, end of year ................. — — — —(e)Normal course issuer bids:On November 4, 2004, the Corporation renewed its normal course issuer bid to acquire up to1,069,506 Common Shares on the open market until November 3, 2005. This was replaced by anormal course issuer bid programme that commenced on November 4, 2005 and is scheduled toexpire on November 3, 2006. Pursuant to the Normal Course Issuer Bid, the Corporation maypurchase up to 1,090,785 Common Shares.Pursuant to the normal course issuer bid that expired on November 3, 2005, the Corporationacquired 135,100 Common Shares at an average price of Cdn$7.85 per share for cancellation. Nofurther acquisitions under the normal course issuer bid were made in 2005. No Common Shareswere acquired in 2004.(f)Per share amounts:The following table summarizes the weighted average common shares used in calculating netearnings per share:Weighted average common shares 2005 2004Basic .............................................. 21,650,215 21,247,565Diluted ............................................. 21,860,371 21,661,554The reconciling item between basic and diluted weighted average number of Common Shares isthe dilutive effect of stock options and warrants. A total of 150,000 options (2004—nil) and nilwarrants (2004—nil) were excluded from the above calculation, as they were anti-dilutive.(g)Stock based compensation:The effect of the change in accounting policy as outlined in note 2(c) has been recordedretroactively without restatement of prior periods. At January 1, 2004, the effect of the changeresulted in an increase to contributed surplus and an offsetting decrease to retained earnings of$13,881. A reconciliation of contributed surplus resulting from adoption is provided below:2005 2004$ $Balance, beginning of year ................................... 24,421 —Adoption of change in accounting policy (note 2(c)) ................. — 13,881Stock-based compensation expense ............................. 625,365 10,540Exercised ................................................ (132,577) —Balance, end of year ........................................ 517,209 24,421The fair value of each stock option grant on the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions and results. The234