Prospectus re Admission to the Official List - Heritage Oil

(c)Foreign exchange risk:The Corporation is exposed to foreign exchange fluctuations as it holds working capital andlong-term debt in foreign currencies. In addition, a portion of the operating activities areconducted in sterling and Swiss francs. There are no exchange rate contracts in place at, orsubsequent to, December 31, 2005.(d) Interest rate risk:The Corporation is exposed to interest rate risks.10. Long-term debt:In January 2005, a wholly-owned subsidiary of the Corporation received a sterling denominated loanof $8.45 million (£4.5 million) to refinance the acquisition of a corporate office. Interest on the loan isfixed at 6.515% for the first five years and then is variable at a rate of London Interbank Offered Rate(‘‘LIBOR’’) plus 1.35%. The loan, which is secured on the property, is scheduled to be repaid by240 installments of capital and interest at monthly intervals, subject to a residual debt at the end of theterm of the loan of $3.5 million (£1,860,000).11. Related party transaction:In 2005, general and administrative expenses included an advisory fee of $877,686 (2004—$429,208)charged by a director of the Corporation. The Corporation established a management and financeoffice in Switzerland that required this director to relocate and he received a relocation allowanceof $275,918.12. Commitments:Heritage’s net share of outstanding commitments at year-end 2005 are estimated at:Less thanPayments Due by Period Total 1 year 1-3 years 4-5 years After 5 yearsU.S.$m U.S.$m U.S.$m U.S.$m U.S.$mLong Term Debt .................... 7,768 248 246 246 7,028Capital Lease Obligations ............. — — — — —Operating Leases .................... 2,659 217 434 434 1,574Purchase Obligations ................. — — — — —Other Long Term Obligations ........... 875 588 287 — —Work Programme Obligations ........... 19,350 16,950 2,400 — —Total Contractual Obligations ........... 30,652 18,003 3,367 680 8,602The Corporation may have a potential residual obligation to satisfy the shortfall in certain individuals’secured real estate borrowings in the event of default, a shortfall on the proceeds from the disposal ofthe properties and the individuals being unable to repay the balance. In the unlikely event this was tooccur the Corporation would look to recover any monies direct from the individual.13. Subsequent events:On March 27, 2006, the Corporation issued a $60,000,000 unsecured convertible bond, with a couponof 10% and a term of five years and one day. The bond is convertible into Common Shares at a priceof U.$.$18.00 per share at any time during the term of the bond. The Corporation may redeem thebond in whole or part at any time during the first 12 months at 150% of par value. The Corporationhas no redemption rights after the first twelve months. The proceeds of the bond can be employed fordevelopment of the West Chumpass field in Russia and for general corporate purposes.236