Heritage Oil Plc
TSX : HOC
LSE : HOIL

Heritage Oil Plc

August 06, 2012 02:00 ET

Heritage Announces 2012 Interim Results

LONDON, UNITED KINGDOM--(Marketwire - Aug. 6, 2012) -

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, SOUTH AFRICA AND JAPAN

Heritage Oil Plc ("Heritage" or the "Company") (TSX:HOC)(LSE:HOIL), an independent upstream exploration and production company, announces the publication of its interim results for the six months ended 30 June 2012.

Operational Highlights

  • Execution of an agreement to acquire a transformational major interest in OML 30 in Nigeria ("Proposed Acquisition"), which is subject to shareholder approval, and is expected to complete in the second half of this year
  • Active work programme in the Kurdistan Region of Iraq ("Kurdistan") with two rigs operating:
    • The Miran West-3 well reached the primary target of the Jurassic gas reservoir and was successfully tested in May 2012
    • The Miran West-4 well commenced drilling on 22 June 2012 to further appraise the Upper Cretaceous oil reservoir
    • The Miran East-1 well is drilling ahead on prognosis and is currently evaluating the Lower Cretaceous reservoir before drilling ahead to the main Jurassic targets
  • Planning and development studies on the Miran Field and conceptual design studies on a gas export pipeline are ongoing
  • Tanzania work programme continues on the Kyela and Rukwa licences with the reprocessing of legacy 2D seismic data and completion of a high resolution gravity survey
  • Net average daily production of 567 bopd in the first half 2012, an increase of 35% on the same period in the prior year. Production for the month of July 2012 averaged 711 bopd

Corporate Highlights

  • Cash position of approximately $35 million, excluding $407 million related to the Ugandan tax dispute and after paying a deposit of $85 million in connection with the Proposed Acquisition
  • Publication of independent reserves and resources report that provides significant upside potential for certain existing assets and the future diversified portfolio
  • Legal proceedings arising from the sale of the Group's interests in Blocks 1 and 3A in Uganda are ongoing
  • Appointment of two new independent Non-Executive Directors

Outlook

  • An Extraordinary General Meeting ("EGM") for shareholders to vote on the Proposed Acquisition is scheduled for 30 August 2012, with completion expected later this year
  • Heritage plans to undertake an extended well test of the Miran oil bearing reservoirs with the objective of selling between 3,000 to 5,000 barrels of oil per day (gross) into the local market in Kurdistan
  • Work programme in Tanzania will continue with the acquisition of 2D seismic scheduled to commence this month
  • Further horizontal wells are planned to be drilled in Russia, commencing in the second half of this year

Tony Buckingham, Chief Executive Officer, commented:

"We are delighted to have entered into an agreement to acquire a significant interest in the transformational OML 30 in Nigeria. OML 30 is expected to provide significant production and be cash flow generative immediately, thereby de-risking Heritage's financial profile. The recently published independent reserves report gave an economic valuation of between US$3.4 billion and US$4.1 billion, using a discount rate of 10%, for the current 2P reserves at OML 30 and our assets in Russia, highlighting the underlying value within the enlarged portfolio."

Notes to Editors

  • Heritage is listed on the Main Market of the London Stock Exchange and is a constituent of the FTSE 250 Index. The trading symbol is HOIL. Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC).

  • Heritage is an independent upstream exploration and production company engaged in the exploration for, and the development, production and acquisition of, oil and gas in its core areas of Africa, the Middle East and Russia.

  • Heritage has an exploration, appraisal and development asset in the Kurdistan Region of Iraq, exploration assets in Malta, Tanzania, Mali, Pakistan, Libya and the Democratic Republic of Congo and a producing property in Russia.

  • Heritage Energy Middle East, a wholly-owned subsidiary of Heritage, is operator and holds a 75% interest in the Miran Block. There are third party back-in rights which could reduce the holding to 56.25%.

  • All dollars are US$ unless otherwise stated.

  • For further information please refer to our website, www.heritageoilplc.com.

This press release is not for distribution to United States Newswire Services or for dissemination in the United States.

If you would prefer to receive press releases via email please contact Jeanny So (jeanny@chfir.com) and specify "Heritage press releases" in the subject line.

CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW

On 29 June 2012, Heritage announced that Shoreline Natural Resources Limited ("Shoreline"), a special purpose private Nigerian company formed between a subsidiary of Heritage and a local Nigerian partner, Shoreline Power Company Limited ("Shoreline Power"), had agreed to acquire a 45% interest in a producing oil mining lease in Nigeria ("OML 30"), together with a 45% interest in other assets under a joint operating agreement for OML 30 (the "Acquisition Assets"), for a total cash consideration of US$850 million, net of costs ("Proposed Acquisition"). OML 30 is expected to be cash generative immediately following completion of the Proposed Acquisition ("Completion").

OML 30, located onshore in the delta in Nigeria, includes eight producing fields and associated infrastructure, including a segment of the 850,000 bpd capacity Trans Forcados pipeline. The Proposed Acquisition will further diversify Heritage's portfolio, balancing exploration with production, while extending Heritage's geographic footprint within its core areas of Africa and the Middle East. The Proposed Acquisition represents a significant opportunity for Heritage to achieve a material change in production and reserves. OML 30 is currently averaging gross production of c.35,000 bopd, increasing Heritage's net production from a current level of 567 bopd to c.11,320 bopd. There is the potential to increase production from OML 30 in the short term by refurbishing and improved maintenance of existing infrastructure. RPS Energy Consultants Limited ("RPS") estimate that OML 30 has gross proved and probable reserves of 1,114 mmbbls of oil, with an economic valuation between US$3,089 million and US$3,789 million, depending on the income tax scenario (post-tax, net Heritage share, assuming a 10% discount rate). In addition, Heritage management estimates 2.5 TCF gross reserves of gas which has not been included in the RPS review or valuation. Upon completion, RPS estimates that Heritage's proved and probable reserves increase 568% from 61 mmbbls to 408 mmbbls. The Proposed Acquisition provides Heritage with exposure to Nigeria, which is reported to contain the second largest proved reserves in Africa, and provides further growth opportunities in a prolific hydrocarbon region.

Shoreline will be one of the leading indigenous companies producing in Nigeria. It combines Shoreline Power's energy and infrastructure operating expertise and respected network of relationships within Nigeria with Heritage's strong technical team with relevant geographic expertise. Shoreline and Heritage will work to develop close relationships with local communities and other stakeholders.

OPERATIONAL OVERVIEW

Kurdistan

Current Work Programme

In May 2012, the Miran West-3 well reached a total depth of 3,528 metres after encountering the primary gas bearing reservoir interval in the Jurassic. Subsequent well testing operations within the main Jurassic reservoir were completed and resulted in a constrained flow of up to 22 MMscf/d of wet gas with a yield of 20 bbl/MMscf of 55º API condensate. This tested interval was shown to be in pressure communication with the main reservoir interval discovered and tested in the Miran West-2 well c.4.3 kilometres to the North West. Examination of wireline log data, in conjunction with well test data, indicated that a pervasive and productive fracture network had been intercepted as planned. It is estimated that once the well is completed and placed on production it will be capable of delivering 50 MMscf/d of wet gas and 1,000 bbl/d of condensate. The well has been suspended pending re-entry and completion as a production well.

An active Miran work programme continues with two rigs operating in country. The Miran West-4 appraisal well commenced drilling in June. The well is currently at its target depth of 1,905 metres and the main reservoir target is being evaluated. This is the fifth well drilled on the licence and the fourth on the Western structure. This highly deviated step out well is targeting the oil within the Upper Cretaceous on the flank of the structure and has 877 metres of high angle reservoir penetration. Successful drilling of Miran West-4 has enabled the extension of its target depth beyond that planned and is ahead of schedule. The first of a planned series of tests has been carried out and a maximum flow rate of oil of 1,350 bopd was achieved. The well tested oil similar to that found at Miran West-1 and Miran West-3 of 16-18 º API with low gas oil ratio and in the same pressure regime. It is expected that the well evaluation will be completed by the end of August 2012.

Drilling of the Miran East-1 exploration well commenced in March 2012, with an estimated target depth of c.4,000 metres. The well is targeting exploration potential within the Cretaceous and Jurassic reservoir intervals of the Eastern structure. The well is currently at a depth of 3,207 metres in the regional seal above the main Jurassic reservoirs. The Upper Cretaceous reservoir interval is shown to be in pressure communication with the Miran West structure. Oil shows observed whilst drilling the Upper Cretaceous and gas shows observed whilst drilling the Lower Cretaceous are consistent with wireline log interpretation indicating the presence of hydrocarbons at these levels. Operations on Miran East-1 well are on schedule and drilling is expected to take a further three months.

Heritage plans to undertake an extended well test of these oil bearing reservoirs for a minimum period of six months which is expected to commence before year end. It is planned that 3,000 to 5,000 barrels of oil gross per day will be sold into the local market in Kurdistan.

Current Resources

In Kurdistan, RPS estimated that the Miran Field contained Contingent Resources (mean estimate of Heritage working interest of 56.25% thereby assuming that the Kurdistan Regional Government ("KRG") exercises its back in right, gross of royalty) of 366 million barrels of oil equivalent, comprising 53 million barrels of oil and condensate and 1,815 billion cubic feet of gas, resulting in a mean net entitlement volume to Heritage of 136 million barrels of oil equivalent. Prospective Resources (mean un-risked estimate of working interest of 56.25% to Heritage, gross of royalty) were estimated at 142 million barrels of oil equivalent, comprising 96 million barrels of oil, 256 billion cubic feet of gas and condensate of 3.1 million barrels(1).

(1) In the event of discovery and development Heritage net entitlement resources will be a function of the contract terms and will be less than the net working interest resources.

Gas Monetisation and Development of the Miran Field

Heritage is considering a phased development of the Miran Field which involves early development by the end of 2013, targeting between 80 and 180 MMscfd of gas for local supplies and the production of between 10,000 and 15,000 bpd of oil and condensate. Full field development should comprise an integrated development of the oil, gas and condensate, with export of the gas produced to Turkey estimated to commence at the end of 2015. A conceptual design study has been commissioned to consider building a gas pipeline to the border with Turkey, which is c.320 kilometres away.

Work on conceptual development studies, gas marketing plans and strategies has continued. Heritage is in discussions with the KRG, gas buyers and contractors regarding both early and full field development, including the export of the gas to Turkey where gas demand is increasing significantly and where average gas commodity prices are attractive.

Tanzania

Heritage was appointed operator and awarded new Production Sharing Agreements ("PSAs") in Tanzania over the Rukwa Block in November 2011 and the Kyela Block in January 2012. In both of these areas the Company recognises certain geological similarities with the Albert Basin of Uganda, where Heritage has had previous experience and significant commercial success. The work programme on Rukwa has commenced with reprocessing of legacy 2D seismic data and the acquisition of further 2D seismic is scheduled to commence this month. On the unexplored Kyela Block the acquisition of a high-resolution gravity survey has been completed and a seismic programme will be conducted.

Russia

Production for the first half of 2012 averaged 567 bopd, an increase of 35% compared to the same period in the prior year. However, this was 39% lower than average production in the second half of 2011 due to natural well decline and a temporary mechanical issue on well 363, which has now been resolved. Production for the month of July 2012 averaged 711 bopd. Well 363 was the first horizontal well to be drilled in the field and further horizontal wells are planned to be drilled, commencing in the second half of this year.

RPS estimates that Proved plus Probable net entitlement reserves to Heritage are 65 million barrels of oil, with an economic valuation of $336 million (post-tax, net Heritage share, assuming a 10% discount rate).

CORPORATE

Cash

As at 30 June 2012, Heritage had a cash position of approximately $35 million, excluding amounts related to the Uganda tax dispute of approximately $407 million and the deposit made in connection with the proposed acquisition of OML 30.

Board Appointments

Heritage appointed two new independent Non-Executive Directors during the period. Carmen Rodriguez joined on 23 March 2012, replacing Salim Macki who retired, and Colonel Mark Erwin was appointed with effect from 1 May 2012.

Share Buy Back

Heritage's share buy back programme, which commenced in April 2011, was terminated in May 2012. A total of 34,602,442 Ordinary Shares were acquired and are held in treasury. Consequently, Heritage has 255,485,078 Ordinary Shares in issue (excluding treasury shares) as well as 2,471,918 Exchangeable Shares of no par value of Heritage Oil Corporation, each carrying one voting right in Heritage.

The total number of voting rights in Heritage, excluding treasury shares as at 30 June 2012, was 257,956,996.

Uganda

As reported on 18 May 2012 in the Interim Management Statement, legal proceedings arising from the sale of the Group's interests in Blocks 1 and 3A in Uganda are ongoing:

  1. Heritage Oil & Gas Limited ("HOGL"), the Company's wholly owned subsidiary, is engaged in appeals to the Ugandan High Court;
  2. HOGL is also engaged in international arbitration proceedings in London against the Ugandan Government which commenced last year; and
  3. Heritage and HOGL are together engaged in defending Commercial Court proceedings in the High Court of Justice in London against Tullow Uganda Limited.

Heritage's position remains, based on comprehensive advice from leading counsel, legal and tax experts, that no tax is payable.

OUTLOOK

Heritage is working towards the completion of the proposed acquisition of OML 30 and looking forward to the significant benefits that it should provide, given that the licence is expected to be cash generative immediately following Completion. The licence is currently producing 35,000 bopd and following completion, Heritage plans to increase this to 55,000 bopd in the short term.

Heritage intends to use the cash flow generated from OML 30 to develop and explore the licence, its existing portfolio as well as pursuing additional value generating opportunities.

FINANCIAL REVIEW

Heritage is very well positioned to continue to generate shareholder value through the proposed acquisition of an interest in OML 30.

Selected Operational and Financial Data

Six months Six months
ended ended Change
30 June 2012 30 June 2011
Production bopd 567 420 35 %
Sales volume bopd 567 411 38 %
Average realised price $/bbl 39.9 38.3 4 %
Petroleum revenue $ million 4.12 2.85 45 %
Loss from continuing operations $ million (50.0 ) (9.7 ) (415 %)
Loss from discontinued operations $ million (2.2 ) (1.7 ) (29 %)
Net loss $ million (52.2 ) (11.4 ) (358 %)
Total cash capital expenditures $ million 36.1 52.7
As at 30 June 2012 As at 31 December 2011
Period end cash balance* $ million 34.6 310.9

*Excluding amounts related to the tax dispute in Uganda of $407 million, and Heritage's proportionate economic share of the cash deposited in an escrow account in June 2012 in connection with the Proposed Acquisition of $78 million.

Operating performance

Production and sales volumes

Average daily production from the Zapadno Chumpasskoye Field in Russia increased from 420 bopd in the six month period ended 30 June 2011 to 567 bopd in the six month period ended 30 June 2012. This increase resulted from increased production from the drilling of well 363, the first horizontal well drilled in the field, which was completed in August 2011.

Revenue

Petroleum revenue increased by 45% to $4.12 million, which comprised:

  • $1.1 million from an increase in sales volumes from 411 bopd in the six month period ended 30 June 2011 to 567 bopd in the six month period ended 30 June 2012; and
  • $0.17 million from an increase in average commodity prices from $38.28/bbl in the six month period ended 2011 to $39.92/bbl in the six month period ended 30 June 2012.

Operating results

Expenses

Petroleum operating costs increased by 21% to $1.6 million in the six month period ended 30 June 2012, primarily due to increased production from well 363, which completed drilling in August 2011. Average operating cost per produced barrel of oil decreased from $17.8/bbl in the six month period ended 30 June 2011 to $15.9/bbl in the six month period ended 30 June 2012, due primarily to the lower level of production in 2011 and the fixed nature of certain costs including certain personnel.

Production tax increased from $1.5 million in the six month period ended 30 June 2011 to $2.2 million in the six month period ended 30 June 2012 as a result of the 45% increase in revenues in the six month period ended 30 June 2012.

General and administrative expenses decreased from $8.8 million in the six month period ended 30 June 2011 to $6.3 million in the six month period ended 30 June 2012. This was due, principally, to decreased legal and professional fees. General and administrative expenses are comprised of salaries of management, finance and administrative staff, consulting, legal and professional fees, transportation costs and other costs.

Depletion, depreciation and amortisation Six months ended 30 June
2012 2011
$ million $ million
Petroleum and natural gas assets 0.7 0.5
Other corporate assets 0.5 0.5
Total 1.2 1.0

Depletion, depreciation and amortisation expenses increased from $1.0 million in the six month period ended 30 June 2011 to $1.2 million in the six month period ended 30 June 2012, due to the higher production.

Exploration expenditures expensed in the period and not capitalised, decreased from $2.8 million in the six month period ended 30 June 2011 to $1.7 million in the six month period ended 30 June 2012. Exploration expenditures in the six month period ended 30 June 2012 related principally to activities in Africa as the Company looked to expand its portfolio in its core areas.

Acquisition costs in the six month period ended 30 June 2012 of $18.1 million (six month period ended June 2011 - nil) related principally to costs incurred and accrued for legal, professional fees and including stamp duty of $10.5 million arising from the Proposed Acquisition, which have been classified as acquisition costs.

The Group recognised an impairment of intangible exploration and evaluation assets in the six month period ended 30 June 2012 of $18.4 million (compared to nil in the six month period ended 30 June 2011). After a technical review and consideration of the security situation, management decided to relinquish the licences and fully write-off expenditure of $18.4 million in Mali.

Finance income/costs

Interest income of $2.1 million in the six month period ended 30 June 2012 was $1.1 million lower than in the six month period ended 30 June 2011 primarily as a result of lower average cash balances in the six month period ended 30 June 2012. Cash and cash equivalents are typically held in interest bearing treasury accounts.

Other finance costs increased from $1.7 million in the six month period ended 30 June 2011 to $2.5 million in the six month period ended 30 June 2012, this is due to financing fees for the two bridge facilities and guarantee relating to the Proposed Acquisition which was partially offset by lower convertible bond accretion expense following repayment of the convertible bond at their term in February 2012.

In the six month period ended 30 June 2012, the Group had a foreign exchange loss of $0.01 million compared to a $1.2 million gain in the six month period ended 30 June 2011. The small loss arose from net foreign exchange gains and losses on revaluation of balances denominated in currencies different from the functional currency.

Heritage recognised an unrealised loss on other financial assets of $4.1 million in the six month period ended 30 June 2012 compared to a $0.3 million gain in the six month period ended 30 June 2011. The loss in the six month period ended 30 June of 2012 is comprised of a decrease of $4.1 million in market value of investments in shares of PetroFrontier Corp. ("PetroFrontier"). As at 30 June 2012, the Company held 9,748,200 shares of PetroFrontier representing 15.23% of outstanding shares of the company. The investment in share capital of PetroFrontier is valued at fair value determined using market price at the end of the period. The unrealised gain in the six month period ended June 2011 of $0.3 million was recognised on the fair value of Heritage's investment in Afren plc ("Afren") Heritage was awarded 1,500,000 warrants in Afren with an exercise price of £0.60 per warrant, as partial consideration from the sale of Heritage Congo Limited in 2006. On 4 November 2011, the Afren warrants were exercised and the Company acquired 1,500,000 shares in Afren. The investment in Afren shares is valued at fair value which is determined using market price at the end of the period. The valuation at market price at 30 June 2012 resulted in a gain of $0.4 million which was recognised in equity.

Proposed Acquisition of an Interest in OML 30

On 29 June 2012, the Company announced that Shoreline had entered into agreement (the "Acquisition Agreement") with The Shell Petroleum Development Company of Nigeria Limited ("Shell"), Total E&P Nigeria Limited ("Total") and Nigerian Agip Oil Company Limited ("Agip") (the "Vendors") to acquire the Acquisition Assets for cash consideration of $850 million, net of costs.

Shoreline is a private limited Nigerian company whose ownership interests are held by Heritage Oil SNR (Nigeria) B.V., a wholly-owned subsidiary of Heritage, and a local Nigerian partner, Shoreline Power. The Acquisition Assets are being acquired for cash consideration of $850,000,000, net of costs, of which: (i) a deposit of $85,000,000 was paid by Shoreline upon the signing of the Acquisition Agreement (with $5,000,000, being the portion of such deposit not exceeding 1% of the market capitalisation of the Company as at 29 June 2012, paid to the Vendors, and the remaining $80,000,000, paid into a dedicated escrow account); and (ii) the balance of the consideration, being $765,000,000 (which is guaranteed by Standard Bank SA) payable on Completion Heritage's economic share of the $80,000,000 deposit has been classified as restricted cash in its balance sheet at 30 June 2012.

The Proposed Acquisition is classified as a reverse takeover transaction for the purposes of the Listing Rules. However, no change of voting control or the management of Heritage will occur as a result of the Proposed Acquisition. The Proposed Acquisition will be primarily financed through: (i) a $550,000,000 Standard Bank SA Bridge Facility, a term facility provided to Shoreline; and (ii) the proposed issue by way of rights of new Ordinary Shares to holders of Ordinary Shares on the register of members of the Company at the record date, and holders of Exchangeable Shares on the register maintained by and on behalf of HOC in respect of the Exchangeable Shares, at the record date (the "Rights Issue"), the proposed Rights Issue which will raise proceeds of up to $370,000,000, which Rights Issue is supported by the $215,000,000 JPM Bridge Facility, a term facility provided to Heritage and on-lent by Heritage to Shoreline. Following Completion, the Group as enlarged by the Proposed Acquisition (the "Enlarged Group") plans to refinance the Standard Bank Bridge Facility by implementing a resource-based lending facility in respect of OML 30. In the event that the proceeds of the Rights Issue are not received by Heritage prior to Completion and amounts are drawn down by Heritage under the JPM Bridge Facility to enable Shoreline to make payment of the Consideration Balance in accordance with the terms of the Acquisition Agreement, the JPM Bridge Facility will be repaid from the proceeds of the Rights Issue as and when received.

Completion is subject to the satisfaction of a number of conditions, including: (i) confirmation from the United Kingdom Listing Authority (the "UKLA") that the Ordinary Shares will be readmitted to the Official List at Completion or as soon as practicable thereafter; (ii) the written consent of the Nigerian Minister of Petroleum Resources to the Proposed Acquisition; and (iii) the approval by Heritage shareholders of the Resolutions. For the purposes of the Condition set out at (i) above, it is expected that such confirmation shall be treated as having been given where the Company and the UKLA have taken all steps necessary for Readmission and where the Company has not received any indication that Readmission will not take place. Further, the New Ordinary Shares will be included in the share capital that shall be readmitted to the Official List at Completion. Since the Proposed Acquisition is classified as a reverse takeover transaction for the purposes of the Listing Rules, the Company has to publish the Prospectus and the Information Circular (the "Circular") in which it will seek the approvals of the Proposed Acquisition and certain other matters in connection therewith at the EGM.

Heritage's current effective 97.5% share of the results of Shoreline have been included in the Group's income statement as at 30 June 2012 as follows:

Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (16,693)
Operating loss (16,693)
Finance costs
Other finance costs (1,864)
(1,864)
Loss from continuing operations before tax (18,557)

Heritage's own costs incurred for the transaction have been included within acquisition costs in the Group income statement as at 30 June 2012 as follows:

Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (1,395)
(1,395)

Heritage's net loss from continuing operations after tax in the six month period ended June 2012 was $50.0 million, 415% higher than the loss of $9.7 million in the six month period ended June 2011.

Results from continuing operations

Heritage's loss from continuing operations after tax in the six month period ended June 2012 was $50.0 million, compared to $9.7 million for the six month period ended June 2011. The adjusted loss from continuing operations in the six month period ended June 2012 was $6.7 million compared to $6.9 million in the six month period ended June 2011 if certain non-cash and one-off items (share-based compensation expense, impairment of intangible exploration and evaluation assets, foreign exchange gains/ losses, unrealised gains on revaluation of Afren warrants, unrealised loss on investments in PetroFrontier, exploration expenditures and acquisition costs) are excluded.

Disposal of Ugandan Assets

On 18 December 2009, Heritage announced that it and its wholly owned subsidiary HOGL, had entered into a Sale and Purchase Agreement ("SPA"), with ENI International B.V. ("Eni") for the sale of HOGL's 50% interests in Blocks 1 and 3A in Uganda (the "Ugandan Assets"). On 17 January 2010, Tullow Uganda Limited ("Tullow") exercised its rights of pre-emption. The transaction was overwhelmingly approved by Heritage shareholders at the General Meeting on 25 January 2010.

On 27 July 2010, Heritage announced that HOGL had completed the disposal of the Ugandan Assets. Tullow paid cash of $1.45 billion, including $100 million from a contractual settlement, of which Heritage received and retained $1.045 billion.

The Ugandan Revenue Authority ("URA") contends that income tax is due on the capital gain arising on the disposal and it raised assessments of $404,925,000 prior to completion of the disposal. Heritage's position, based on comprehensive advice from leading legal and tax experts in Uganda, the United Kingdom and North America, is that no tax should be payable in Uganda on the disposal of the Ugandan Assets.

On closing, Heritage deposited $121,477,500 with the URA, representing 30% of the disputed tax assessment of $404,925,000. $121,477,500 has been classified as a deposit in the balance sheet at 30 June 2012. A further $283,447,000 has been retained in escrow with Standard Chartered Bank in London, pursuant to an agreement between HOGL, Tullow and Standard Chartered Bank pending resolution between the Ugandan Government and HOGL of the tax dispute. Including accrued interest, an amount of $285,941,000 is classified as restricted cash in the balance sheet at 30 June 2012.

In August 2010, the URA issued a further income tax assessment of $30 million representing 30% of the additional contractual settlement amount of $100 million. HOGL has challenged the Ugandan tax assessments on the disposal of HOGL's entire interest in the Ugandan Assets.

In November 2011 and December 2011, the Tax Appeals Tribunal in Uganda dismissed HOGL's applications in relation to the two assessments amounting to $434,925,000. In December 2011 and January 2012, HOGL commenced appeals to the Ugandan High Court in relation to the rulings from the Tax Appeals Tribunal. The rulings from the Tax Appeals Tribunal in Uganda are part of a domestic process and are not final and determinative. HOGL has appealed the rulings, which it believes are fatally flawed in many respects, through the Ugandan court system commencing with the High Court and subsequently the Court of Appeal and Supreme Court if necessary.

As a result of the actions of the tax authorities in Uganda, HOGL and its advisers consider that it was compelled to take part in a Ugandan domestic process before a Tax Appeals Tribunal, notwithstanding HOGL's belief that arbitration, which is ongoing in London and detailed below, is the correct forum to settle such disputes, in view of the existence of valid and binding arbitration provisions in its PSAs with the Ugandan Government.

In May 2011, HOGL commenced international arbitration proceedings in London against the Ugandan Government. HOGL is seeking a decision requiring, among other things, the return or release of approximately $405 million, plus interest, in aggregate currently on deposit with the URA or in escrow with Standard Chartered Bank in London. Accordingly, the arbitration proceedings concern HOGL's claims that the Ugandan Government wrongfully or unreasonably withheld consent to the sale by HOGL of the rights under the PSAs for the Ugandan Assets, including by making this consent conditional upon the payment of a sum alleged to be a tax liability of HOGL. The arbitration proceedings are being held in London in accordance with the provisions of the PSAs in relation to the Ugandan Assets.

On 15 April 2011, Heritage and its wholly owned subsidiary HOGL received Particulars of Claim filed in the High Court of Justice in England by Tullow seeking $313,447,500 for alleged breach of contract as a result of HOGL's and Heritage's refusal to reimburse Tullow in relation to a payment made by Tullow of $313,447,500 on 7 April 2011 to the URA. Heritage and HOGL believe that the claim has no basis and are in the process of vigorously and robustly defending it. Heritage and HOGL have filed their Defence and Counterclaim against Tullow seeking instead the release to HOGL of the $283,447,000 plus interest currently being held in escrow with Standard Chartered Bank in London.

Although disputes of this nature are inherently uncertain, the Directors believe that the monies on deposit and held in escrow will ultimately be recovered by Heritage.

The results of the Ugandan operations have been classified as discontinued operations. Loss on disposal of discontinued operations as at the six month periods ended 30 June 2012 and 2011 is as follows:

Six months ended
30 June 2012
Six months ended
30 June 2011
$'000 $'000
Loss on disposal of discontinued operations (2,234 ) (1,654 )
(2,234 ) (1,654 )

The 2012 and the 2011 losses relate to legal fees incurred in connection with the tax dispute which are considered to be an adjustment to the profit on disposal of the Ugandan Assets.

Loss per share

In the six month period ended June 2012 the basic and diluted loss per share from continuing operations was $0.19, compared to the basic and diluted loss per share of $0.03 in in the six month period ended June 2011.

Heritage's net loss in the six month period ended June 2012 was $52.4 million, compared to $11.3 million in the six month period ended June 2011.

In the six month period ended June 2012 basic and diluted loss per share was $0.20, compared to basic and diluted loss per share of $0.04 in in the six month period ended June 2011.

Cash flow and capital expenditures

Cash used in operating activities from continuing operations was $17.6 million in the six month period ended June 2012 compared to $9.5 million in the six month period ended June 2011. Total cash capital expenditures for continued operations in the six month period ended June 2012 was $36.1 million compared to $52.7 million in the six month period ended June 2011. The following major work programmes were undertaken in the six month period ended June 2012:

  • Drilling and testing of the Miran West-3 well completed in May 2012. The well was drilled to a total depth of 3,528 metres and the primary target of the Jurassic gas reservoir was successfully tested. The well is suspended pending completion as a production well;
  • The Miran East Well-1 is currently drilling and is scheduled to reach target depth in the second half of this year;
  • Planning and development studies on the Miran field and Front End Engineering Design studies on a gas export pipeline are ongoing; and
  • The Tanzanian the work programme commenced in the recently awarded Kyela and Rukwa licences with the reprocessing of legacy 2D seismic data and acquisition of a high resolution gravity survey.

Buy back programme

At the Annual General Meetings ("AGMs") held on 17 June 2010 and 20 June 2011, a special resolution was passed by shareholders authorising the Company to make market purchases of its own shares. In April 2011, the Company announced its intention to commence a buy back programme to acquire its Ordinary Shares using the authority granted at the 17 June 2010 AGM. Shareholders approved the resolution at the AGM on 20 June 2011 to acquire up to 28,900,000 Ordinary Shares from that date. Purchased Ordinary Shares are held in treasury.

In July 2011, the Company announced that share purchases would be made via a trading plan to allow the buy back programme to continue independently through close periods. The trading plan agreement was terminated by the Company in May 2012. As at 30 June 2012 the Company held a total of 34,602,442 Ordinary Shares in treasury at a total acquisition cost of these shares was $126.9 million. Heritage has 255,485,078 Ordinary Shares in issue (excluding treasury shares) as well as 2,471,918 exchangeable shares of no par value of Heritage Oil Corporation ("HOC", the "Corporation"), each carrying one voting right in Heritage. The total number of voting rights in Heritage, excluding treasury shares as at 6 August 2012 was 257,956,996.

Repayment of Convertible bonds

In February 2012 Heritage repaid $127.1 million to holders of the $165,000,000 8.00% convertible bonds (the "Bonds"), on maturity of the Bonds.

Financial position

Liquidity

There was a net decrease in cash and cash equivalents during the six month period ended June 2012 of $276.4 million, in part following the $127.1 million repayment of the Bonds. At 30 June 2012, Heritage had a working capital surplus of $479.9 million, including cash and cash equivalents of $34.6 million.

Like most oil and gas exploration companies, Heritage raises finance for its activities from time to time using a variety of sources. Sources of funding for future exploration and development programmes will be derived from, inter alia, disposal proceeds from the sale of assets, such as the sale of the Ugandan Assets in 2010 (see Disposal section of the Financial Review on pages 12 to 14), using its existing treasury resources, new credit facilities, reinvesting its funds from operations, farm-outs and, when considered appropriate, issuing debt and additional equity. Accordingly, the Group has a number of different sources of finance.

Capital structure

Heritage's financial strategy has been to fund its capital expenditure programmes and any potential acquisitions by selling non-core assets, reinvesting funds from operations, using existing treasury resources, finding new credit facilities and, when considered appropriate, either issuing unsecured convertible bonds or equity.

On 26 July 2010, the Company completed the disposal of the Ugandan Assets for cash consideration of $1.35 billion and an additional contractual settlement amount of $100 million.

At 30 June 2012, Heritage had net debt of $22.6 million (31 December 2011 net cash - $135.1 million) (cash and cash equivalents less total liabilities) and 3% gearing (31 December 2011 - nil) (net debt as a percentage of total shareholders' equity). As referred to above, as at 30 June 2012, Heritage had acquired 34,602,442 Ordinary Shares, which are held in treasury, at a total cost of $126.9 million.

Important Events Subsequent to 30 June 2012

In July 2012 a wholly owned subsidiary of Heritage received a loan of $30,000,000 to refinance the acquisition of an aircraft. Interest on the loan is at a rate of 5.5%. The loan, which is secured on the aircraft, is scheduled to be repaid by 19 consecutive quarterly instalments of principal. Each instalment equals $789,000 with the final instalment being $15,000,000. The Company provided a corporate guarantee to the lender.

Primary Risks and Uncertainties Facing the Business

Heritage's business, financial standing and reputation may be impacted by various risks, not all of which are within its control. The Group identifies and monitors the key risks and uncertainties affecting it and runs its business in a way that minimises the impact of such risks where possible. The primary risks to the business include:

  • Exploration and development expenditures and success rates - the Group has experienced management and technical teams with a track record of finding attractive hydrocarbon discoveries and has a diversified portfolio of exploration, development and production assets. Considerable technical work is undertaken to reduce related areas of risk and maximise opportunities.

  • Factors associated with operating in developing countries including political, fiscal and regulatory instability - the Group maintains close contact with governments in the areas where it operates and, where appropriate, invests in community projects. Considerable work is undertaken before commencing operations in any new territory.

  • Title disputes - notwithstanding potential challenges in Kurdistan and Malta, the Group believes that it has good title to its oil and gas properties. However, the Group cannot control or completely protect itself against the risk of title disputes or challenges and there can be no assurance that claims or challenges by third parties against the Group's properties will not be asserted at a future date. Naturally, the Group strives to employ the best internal and advisory knowledge available to help to minimise this risk associated with its activities.

  • Oil and gas sales volumes and prices - whilst not under the direct control of the Company, a material movement in commodity prices could impact on the Group. The Group did not hedge oil prices in the six month period ended June 2012.

  • Loss of key employees - remuneration packages are regularly reviewed to ensure key executives and senior management are properly remunerated. Long-term incentive programmes have been established. Employees are encouraged to develop their potential and, where appropriate, to further their careers within the Group. This is one on the Group's Key Performance Indicators and continues to remain at low levels.

  • Foreign exchange exposure - generally, it is the Group's policy to conduct and manage its business in US dollars, which is its reporting currency. Cash balances in Group subsidiaries are primarily held in US dollars but small amounts may be held in other currencies in order to meet immediate operating or administrative expenses or to comply with local currency regulations.

Further details on risks and how the Company mitigates them are disclosed on pages 34 to 37 of the Annual Review within the 2011 Annual Report and Accounts which were issued on 18 April 2012.

Paul Atherton, Chief Financial Officer

6 August 2012

Responsibility statement of the Directors in respect of the Interim Report and Accounts

We confirm on behalf of the Board that to the best of our knowledge:

  • the condensed set of financial statements has been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting as adopted by the European Union ("EU");

  • the Interim Report and Accounts includes a fair review of the information required by:
    • DTR 4.2.7R of the Disclosure and Transparency Rules ("DTR"), being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

    • DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last Annual Report and Accounts that could do so.

For and on behalf of the Board

Anthony Buckingham, Chief Executive Officer

6 August 2012

Paul Atherton, Chief Financial Officer

6 August 2012

INDEPENDENT REVIEW REPORT TO HERITAGE OIL PLC

Introduction

We have been engaged by Heritage Oil Plc ("the Company") to review the condensed set of financial statements in the Interim Report and Accounts for the six months ended 30 June 2012 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related explanatory notes.

We have read the other information contained in the Interim Report and Accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules (the "DTR") of the UK's Financial Services Authority (the "UK FSA") as if those requirements applied to it. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The Interim Report and Accounts is the responsibility of, and has been approved by, the Directors. The Directors have accepted responsibility for preparing the Interim Report and Accounts in accordance with the DTR of the UK FSA.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report and Accounts based on our review.

Scope of review

We conducted our review in accordance with The International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report and Accounts for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the DTR of the UK FSA.

Emphasis of matter - uncertain outcome of tax dispute

In forming our conclusion on the condensed set of financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 4 to the condensed set of financial statements concerning the dispute as to whether or not tax is payable on the disposal of the Group's interest in Uganda. In this respect, based on advice received, the Directors believe that the amounts on deposit ($121,477,500) and held in escrow ($285,941,000) shown in the condensed consolidated balance sheet will be recovered. However, the ultimate outcome of the matter is uncertain and it may be some considerable time before the issue is resolved.

Jimmy Daboo
for and on behalf of KPMG Audit Plc
Chartered Accountants
15 Canada Square
London
E14 5GL
6 August 2012
HERITAGE OIL PLC
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended
30 June 2012
Six months ended
30 June 2011
$'000 $'000
Revenue
Petroleum 4,122 2,850
Expenses
Petroleum operating (1,628 ) (1,349 )
Production tax (2,239 ) (1,491 )
General and administrative (6,257 ) (8,761 )
Depletion, depreciation and amortisation (1,180 ) (993 )
Exploration expenditures (1,712 ) (2,765 )
Acquisition costs (note 5) (18,088 ) -
Impairment of intangible exploration and evaluation assets (18,370 ) -
Operating loss (45,352 ) (12,509 )
Finance income/(costs)
Interest income 2,123 3,202
Other finance costs (2,523 ) (1,749 )
Foreign exchange (losses)/gains (5 ) 1,202
Unrealised (losses)/gains on other financial assets (4,098 ) 303
(4,503 ) 2,958
Loss from continuing operations before tax (49,855 ) (9,551 )
Income tax expense (119 ) (174 )
Loss from continuing operations after tax (49,974 ) (9,725 )
Loss on disposal of discontinued operations (note 4) (2,234 ) (1,654 )
Loss for the period attributable to owners of the Company (52,208 ) (11,379 )
The notes are an integral part of these condensed consolidated financial statements.
HERITAGE OIL PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended
30 June 2012
Six months ended
30 June 2011
$'000 $'000
Loss for the period (52,208 ) (11,379 )
Other comprehensive gain/(loss)
Exchange differences on translation of foreign operations (603 ) 998
Net change in fair value of available-for-sale financial assets 433 (885 )
Other comprehensive (loss)/gain, net of income tax (170 ) 113
Total comprehensive loss for the period (52,378 ) (11,266 )
Attributable to
Owners of the Company (52,378 ) (11,266 )
Net loss per share from continuing operations (dollars)
Basic and diluted (0.19 ) (0.03 )
Net loss per share from discontinued operations (dollars)
Basic and diluted (0.01 ) (0.01 )
Net loss per share (dollars)
Basic and diluted (0.20 ) (0.04 )
The notes are an integral part of these condensed consolidated financial statements.
HERITAGE OIL PLC
CONDENSED CONSOLIDATED BALANCE SHEET
30 June 2012 31 December 2011
$'000 $'000
ASSETS
Non-current assets
Intangible exploration and evaluation assets (note 6) 287,316 271,859
Property, plant and equipment (note 6) 106,736 106,852
Prepaid expenses (note 5) 4,875 -
Other financial assets (note 7) 9,530 13,268
408,457 391,979
Current assets
Inventories 65 78
Prepaid expenses 834 1,344
Trade and other receivables 5,188 1,788
Deposit with URA (note 4) 121,477 121,477
Other financial assets (note 5) 4,724 -
Restricted cash (notes 4, 5) 363,941 284,479
Cash and cash equivalents 34,609 310,882
530,838 720,048
939,295 1,112,027
LIABILITIES
Current liabilities
Trade and other payables 42,950 35,391
Current tax liabilities 216 104
Borrowings (note 8) 7,797 134,397
50,963 169,892
Non-current liabilities
Borrowings (note 8) 4,920 5,110
Provisions 1,301 783
Deferred tax 46 38
6,267 5,931
57,230 175,823
Net assets 882,065 936,204
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Share capital (note 9) 342,359 345,682
Reserves 84,718 83,326
Retained earnings 454,988 507,196
882,065 936,204
The notes are an integral part of these condensed consolidated financial statements.
HERITAGE OIL PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2012
Share capital Foreign currency translation reserve Available-for-sale investments revaluation reserve Share-based payments reserve

Retained earnings
Equity portion of convertible debt Total equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January 2012 345,682 (1,823 ) 120 60,380 507,196 24,649 936,204
Total comprehensive loss for the period
Loss for the period - - - - (52,208 ) - (52,208 )
Other comprehensive income/(loss)
Exchange differences on translation of foreign operations - (603 ) - - - - (603 )
Net change in fair value of available- for-sale financial assets - - 433 - - - 433
Total other comprehensive income/(loss) - (603 ) 433 -

-
- (170 )
Total comprehensive income/(loss) for the period - (603 ) 433 -

(52,208
) - (52,378 )
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share buy back (3,323 ) - - - - - (3,323 )
Share-based payment transactions and exercise of share options - - - 1,562


-
- 1,562
Total transactions with owners (3,323 ) - - 1,562
-
- (1,761 )
Balance at 30 June 2012 342,359 (2,426 ) 553 61,942 454,988 24,649 882,065
The notes are an integral part of these condensed consolidated financial statements
HERITAGE OIL PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2011
Share capital Foreign currency translation reserve Available-for-sale investments revaluation reserve Share-based payments reserve

Retained earnings
Equity portion of convertible debt Total equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January 2011 460,280 (940 ) - 62,969 575,867 24,649 1,122,825
Total comprehensive income for the period
Loss for the period - - - - (11,379 ) - (11,379 )
Other comprehensive gain/(loss)
Exchange differences on translation of foreign operations - 998 - - - - 998
Net change in fair value of available- for-sale financial assets - - (885 ) - - - (885 )
Total other comprehensive gain /(loss) - 998 (885 ) -

-
- 113
Total comprehensive gain/(loss) for the period - 998 (885 ) -

(11,379
) - (11,266 )
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share buy back (66,630 ) - - - - - (66,630 )
Exercise of share options net of attributable dividends

1,225
- - (1,225 ) (1,781 ) - (1,781 )
Share-based payment transactions and exercise of share options 7,752 - - (3,008 )


-
- 4,744
Total transactions with owners (57,653 ) - - (4,233 )
(1,781
) - (63,667 )
Balance at 30 June 2011 402,627 58 (885 ) 58,736 562,707 24,649 1,047,892
The notes are an integral part of these condensed consolidated financial statements
HERITAGE OIL PLC
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months ended
30 June 2012
Six months ended
30 June 2011
$'000 $'000
Cash provided by (used in) operating activities
Net loss from continuing operations for the period (49,974 ) (9,725 )
Items not affecting cash
Depletion, depreciation and amortisation 1,180 993
Finance costs-accretion expenses 178 641
Foreign exchange gains (543 ) (473 )
Share based compensation 934 1,536
Loss/(gain) on other financial assets 4,098 (303 )
Impairment of intangible exploration and evaluation assets 18,370 -
(Increase)/decrease in trade and other receivables (31 ) 734
Decrease/(increase) in prepaid expenses 511 (757 )
Decrease/(increase) in inventory 14 (44 )
Increase/(decrease) in trade and other payables 9,013 (1,859 )
Accrued interest on restricted cash (1,462 ) (238 )
Increase in tax payable 120 -
Continuing operations (17,592 ) (9,495 )
Discontinued operations (1,918 ) (1,858 )
(19,510 ) (11,353 )
Investing activities
Acquisition of assets (note 5) (4,875 ) -
Increase in restricted cash for acquisition of assets (note 5) (78,000 ) -
Loan to joint venture (2,125 ) -
Property, plant and equipment expenditures (1,064 ) (9,125 )
Intangible exploration expenditures (35,011 ) (43,526 )
Other financial assets - (19,870 )
(121,075 ) (72,521 )
Discontinued operations
Transaction related expenses and other - 9,901
(121,075 ) (62,620 )
Financing activities
Share buy back (note 9) (3,323 ) (58,138 )
Shares issued for cash, proceeds from exercise of share options - 2,659
Payment on exercise of share options (note 9) - (1,781 )
Payment of guarantee fees for bridge facility (4,858 ) -
Repayment of long-term debt (127,581 ) (346 )
(135,762 ) (57,606 )
Decrease in cash and cash equivalents (276,347 ) (131,579 )
Cash and cash equivalents-beginning of period 310,882 598,275
Foreign exchange gain on cash held in foreign currency 74 1,575
Cash and cash equivalents-end of period 34,609 468,271
Non-cash investing and financing activities
Supplementary information
The following have been included within cash flows for the period under operating and investing activities
Interest received 2,213 3,781
Interest paid 5,216 5,216
The notes are an integral part of these consolidated financial statements.

HERITAGE OIL PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting entity

Heritage Oil Plc (the "Company") was incorporated under the Companies (Jersey) Law 1991 (as amended) (the "Jersey Companies Law") on 6 February 2008 as Heritage Oil Limited. The Company changed its name to Heritage Oil Plc on 18 June 2009. Its primary business activity is the exploration, development and production of petroleum and natural gas in Africa, the Middle East and Russia. The Company was established in order to implement a corporate reorganisation of HOC

2. Basis of accounting and presentation and significant accounting policies

These interim condensed set of financial statements of the Company as at and for the six months ended 30 June 2012 include the results of the Company and all subsidiaries over which the Company exercises control (together referred to as the "Group").

The Group had available cash of $34.6 million at 30 June 2012, excluding amounts related to the tax dispute with the Ugandan Government and amounts held in escrow for the acquisition of the Acquisition Assets.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Report and Accounts.

The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Company and all its subsidiaries as at the year ended 31 December 2011.

The Company's condensed set of financial statements are presented in thousand US dollars unless otherwise stated. US dollars are the Company's functional and presentation currency.

The accounting policies applied in the preparation of these condensed set of financial statements are consistent with those applied by the Company and all its subsidiaries in its consolidated financial statements as at, and for the year ended, 31 December 2011.

The condensed set of financial statements were approved by the Board and authorised for issuance on 6 August 2012. The comparative information at 31 December 2011 is abridged and therefore is not the Company's statutory accounts for that financial period.

3. Segment information

The Group has a single class of business which is international exploration, development and production of petroleum oil and natural gas. The geographical areas are defined by the Company as operating segments in accordance with IFRS 8 Operating Segments. The Group operates in a number of geographical areas based on location of operations and assets, being Russia, Kurdistan, Pakistan, Tanzania, Malta, Mali, Uganda (discontinued), Libya (entered in 2011) and Nigeria (entered in 2012). The Group's reporting segments comprise each separate geographical area in which it operates.

Six months ended 30 June 2012
External revenue Segment result Total assets Total liabilities Capital additions Depreciation, depletion and amortisation
$'000 $'000 $'000 $'000 $'000 $'000
Russia 4,122 (1,144 ) 57,897 1,255 1,637 (682 )
Kurdistan - - 213,488 15,658 27,218 -
Libya - - 20,956 - 780 -
Pakistan - - 4,715 36 20 -
Tanzania - (70 ) 19,972 2,283 4,743 -
Nigeria - (18,557 ) 100,517 13,177 - -
Mali - (18,370 ) - - 499 -
Malta - - 20,668 29 611 -
Uganda -discontinued operations - (2,234 ) - - - -
Total for reportable segments 4,122 (40,375 ) 438,213 32,438 35,508 (682 )
Corporate - (11,833 ) 501,082 24,792 96 (498 )
Elimination of discontinued operations - 2,234 - - - -
Total from operations 4,122 (49,974 ) 939,295 57,230 35,604 (1,180 )
Six months ended 30 June 2011
External revenue Segment result Total assets Total liabilities Capital additions Depreciation, depletion and amortisation
$'000 $'000 $'000 $'000 $'000 $'000
Russia 2,850 169 60,749 2,914 6,398 (501 )
Kurdistan - - 163,786 13,741 28,361 -
Pakistan - - 5,306 - 564 -
Tanzania - - 24,398 213 4,294 -
Mali - - 16,515 6,236 13,167 -
Malta - - 15,534 63 1,741 -
Uganda -discontinued operations - (1,654 ) - - - -
Total for reportable segments 2,850 (1,485 ) 286,288 23,167 54,525 (501 )
Corporate - (9,894 ) 952,388 167,717 268 (492 )
Elimination of discontinued operations - 1,654 - - - -
Total from operations 2,850 (9,725 ) 1,238,676 190,784 54,793 (993 )

Corporate activities include the financing activities of the Group and is not an operating segment. There have been no changes to the basis of segmentation or the measurement basis for the segment results since 31 December 2011.

4. Discontinued Operations

On 18 December 2009, Heritage announced that it and its wholly owned subsidiary HOGL, had entered into a SPA, with Eni for the sale of the Ugandan Assets. On 17 January 2010, Tullow exercised its rights of pre-emption. The transaction was overwhelmingly approved by Heritage shareholders at the General Meeting on 25 January 2010.

On 27 July 2010, Heritage announced that HOGL had completed the disposal of the Ugandan Assets. Tullow paid cash of $1.45 billion, including $100 million from a contractual settlement, of which Heritage received and retained $1.045 billion.

The URA contends that income tax is due on the capital gain arising on the disposal and it raised assessments of $404,925,000 prior to completion of the disposal. Heritage's position, based on comprehensive advice from leading legal and tax experts in Uganda, the United Kingdom and North America, is that no tax should be payable in Uganda on the disposal of the Ugandan Assets.

On closing, Heritage deposited $121,477,500 with the URA, representing 30% of the disputed tax assessment of $404,925,000. $121,477,500 has been classified as a deposit in the balance sheet at 30 June 2012. A further $283,447,000 has been retained in escrow with Standard Chartered Bank in London, pursuant to an agreement between HOGL, Tullow and Standard Chartered Bank pending resolution between the Ugandan Government and HOGL of the tax dispute. Including accrued interest, an amount of $285,941,000 is classified as restricted cash in the balance sheet at 30 June 2012.

In August 2010, the URA issued a further income tax assessment of $30 million representing 30% of the additional contractual settlement amount of $100 million. HOGL has challenged the Ugandan tax assessments on the disposal of HOGL's entire interest in the Ugandan Assets.

In November 2011 and December 2011, the Tax Appeals Tribunal in Uganda dismissed HOGL's applications in relation to the two assessments amounting to $434,925,000. In December 2011 and January 2012, HOGL commenced appeals to the Ugandan High Court in relation to the rulings from the Tax Appeals Tribunal. The rulings from the Tax Appeals Tribunal in Uganda are part of a domestic process and are not final and determinative. HOGL has appealed the rulings, which it believes are fatally flawed in many respects, through the Ugandan court system commencing with the High Court and subsequently the Court of Appeal and Supreme Court if necessary.

As a result of the actions of the tax authorities in Uganda, HOGL and its advisers consider that it was compelled to take part in a Ugandan domestic process before a Tax Appeals Tribunal, notwithstanding HOGL's belief that arbitration, which is ongoing in London and detailed below, is the correct forum to settle such disputes, in view of the existence of valid and binding arbitration provisions in its PSAs with the Ugandan Government.

In May 2011, HOGL commenced international arbitration proceedings in London against the Ugandan Government. HOGL is seeking a decision requiring, among other things, the return or release of approximately $405 million, plus interest, in aggregate currently on deposit with the URA or in escrow with Standard Chartered Bank in London. Accordingly, the arbitration proceedings concern HOGL's claims that the Ugandan Government wrongfully or unreasonably withheld consent to the sale by HOGL of the rights under the PSAs for the Ugandan Assets, including by making this consent conditional upon the payment of a sum alleged to be a tax liability of HOGL. The arbitration proceedings are being held in London in accordance with the provisions of the PSAs in relation to the Ugandan Assets.

On 15 April 2011, Heritage and its wholly owned subsidiary HOGL received Particulars of Claim filed in the High Court of Justice in England by Tullow seeking $313,447,500 for alleged breach of contract as a result of HOGL's and Heritage's refusal to reimburse Tullow in relation to a payment made by Tullow of $313,447,500 on 7 April 2011 to the URA. Heritage and HOGL believe that the claim has no basis and are in the process of vigorously and robustly defending it. Heritage and HOGL have filed their Defence and Counterclaim against Tullow seeking instead the release to HOGL of the $283,447,000 plus interest currently being held in escrow with Standard Chartered Bank in London.

Although disputes of this nature are inherently uncertain, the Directors believe that the monies on deposit and held in escrow will ultimately be recovered by Heritage.

The results of the Ugandan operations have been classified as discontinued operations. Loss on disposal of discontinued operations as at 30 June 2012 and 2011 is as follows:

Six months ended
30 June 2012
Six months ended
30 June 2011
$'000 $'000
Loss on disposal of discontinued operations (2,234 ) (1,654 )
(2,234 ) (1,654 )

The 2012 and the 2011 losses relate to legal fees incurred in connection with the tax dispute which are considered to be an adjustment to the profit on disposal of the Ugandan Assets.

5. Proposed Acquisition of an interest in OML 30

On 29 June 2012, the Company announced that Shoreline had entered into the Acquisition Agreement with Shell, Total and Agip to acquire the Acquisition Assets, for cash consideration of $850 million, net of costs.

Shoreline is a private limited Nigerian company whose ownership interests are held by Heritage Oil SNR (Nigeria) B.V., a wholly-owned subsidiary of Heritage, and a local Nigerian partner, Shoreline Power. The Acquisition Assets are being acquired for cash consideration of $850,000,000, net of costs, of which: (i) a deposit of $85,000,000 was paid by Shoreline upon the signing of the Acquisition Agreement (with $5,000,000, being the portion of such deposit not exceeding 1% of the market capitalisation of the Company as at 29 June 2012, paid to the Vendors, and the remaining $80,000,000, paid into a dedicated escrow account); and (ii) the balance of the consideration, being $765,000,000 (which is guaranteed by Standard Bank SA) payable on Completion. Heritage's economic share of the $80,000,000 deposit has been classified as restricted cash in its balance sheet at 30 June 2012.

The Proposed Acquisition is classified as a reverse takeover transaction, for the purposes of the Listing Rules. However, no change of voting control or the management of Heritage will occur as a result of the Proposed Acquisition. The Proposed Acquisition will be primarily financed through: (i) a $550,000,000 Standard Bank SA Bridge Facility, a term facility provided to Shoreline; and (ii) the proposed Rights Issue which will raise proceeds of up to $370,000,000, which Rights Issue is supported by the $215,000,000 JPM Bridge Facility, a term facility provided to Heritage and on-lent by Heritage to Shoreline. Following Completion, the Enlarged Group plans to refinance the Standard Bank Bridge Facility by implementing a resource-based lending facility in respect of OML 30. In the event that the proceeds of the Rights Issue are not received by Heritage prior to Completion and amounts are drawn down by Heritage under the JPM Bridge Facility to enable Shoreline to make payment of the Consideration Balance in accordance with the terms of the Acquisition Agreement, the JPM Bridge Facility will be repaid from the proceeds of the Rights Issue as and when received.

The Completion is subject to the satisfaction of a number of conditions, including: (i) confirmation from the UKLA that the Ordinary Shares will be readmitted to the Official List at Completion or as soon as practicable thereafter; (ii) the written consent of the Nigerian Minister of Petroleum Resources to the Proposed Acquisition; and (iii) the approval by Heritage shareholders of the Resolutions. For the purposes of the Condition set out at (i) above, it is expected that such confirmation shall be treated as having been given where the Company and the UKLA have taken all steps necessary for Readmission and where the Company has not received any indication that Readmission will not take place. Further, the New Ordinary Shares will be included in the share capital that shall be readmitted to the Official List at Completion. Since the Proposed Acquisition is classified as a reverse takeover transaction for the purposes of the Listing Rules, the Company has to publish the Prospectus and the Circular in which it will seek the approvals of the Proposed Acquisition and certain other matters in connection therewith at the EGM.

As Shoreline is a joint venture, Heritage is proportionately consolidating Shoreline's assets and liabilities in accordance with its 97.5% economic interest at 30 June 2012. OML 30 is an unincorporated joint venture between Shoreline and the Nigerian National Petroleum Company and Shoreline will proportionally consolidate its 45% in OML 30. As Shoreline is jointly controlled, Heritage reflects 97.5% of the Shoreline assets and liabilities in its consolidated financial statements. Heritage's 97.5% interest in Shoreline included as at 30 June 2012:

30 June 2012
$'000
ASSETS
Non-current assets
Prepaid expenses 4,875
4,875
Current assets
Trade and other receivables 2,647
Other financial assets 4,724
Restricted cash 78,000
Cash and cash equivalents 10,270
95,641
100,516
LIABILITIES
Current liabilities
Trade and other payables 13,177
13,177
Net assets 87,339

Heritage's current effective 97.5% share of the results of Shoreline have been included in the Group income statement as at 30 June 2012 as follows:

Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (16,693 )
Operating loss (16,693 )
Finance costs
Other finance costs (1,864 )
(1,864 )
Loss from continuing operations before tax (18,557 )

Acquisition costs comprise Heritage's share of costs, professional fees and stamp duty of $10.5 million incurred and accrued in connection with the proposed acquisition of OML 30. As at 30 June 2012 Heritage had provided Shoreline with a loan of $105,896,000 to meet its commitments on signing the Acquisition Agreement and related acquisition expenses.

Heritage's own costs incurred for the transaction have been included within acquisition costs in the Group income statement as at 30 June 2012 as follows:

Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (1,395)
(1,395)

6. Property, plant and equipment and intangible exploration and evaluation assets

Capital additions

During the six months ended 30 June 2012, the Group acquired property, plant and equipment and intangible exploration and evaluation assets with a cost of $35,604,000 (six months ended 30 June 2011 - $54,793,000).

Impairment

In the period to 30 June 2012, the Group recognised an impairment of intangible exploration and evaluation assets of $18,370,000 (period to 30th June 2011 - nil). After a technical review and consideration of the security situation in country, management decided to relinquish the licences and fully write-off expenditure of $18,370,000 in Mali.

7. Other financial assets

30 June 2012 31 December 2011
$'000 $'000
Current assets
Deposit for the Acquisition Assets (note 5) 4,724 -
Non-current assets
Investment in listed securities 9,530 13,268
14,254 13,268

The investment in 1,500,000 Afren shares is classified as available-for-sale and valued at fair value which is determined using market price at the end of the period. The valuation at market price at 30 June 2012 resulted in a gain of $433,000 which was recognised in equity.

As at 30 June 2012, the Company held 9,748,200 of the listed shares of PetroFrontier representing 15.23% of the outstanding shares of PetroFrontier. The investment in share capital of PetroFrontier is classified as available-for-sale, and valued at fair value determined using market price at the end of the period.

The Group recorded an impairment of its investment in PetroFrontier to reflect the market value as at 30 June 2012. The loss of $4,098,000 was recognised as an unrealised loss on other financial assets in the income statement.

8. Borrowings

30 June 2012 31 December 2011
$'000 $'000
Current borrowings -secured
Convertible bonds-unsecured - 126,406
Current portion of long-term debt-secured 7,797 7,991
7,797 134,397
Non-current borrowings
Non-current portion of long-term debt-secured 4,920 5,110
4,920 5,110

The convertible bonds were paid in full in February 2012.

9. Share capital

The Company was incorporated under the Jersey Companies Law on 6 February 2008. The Company's authorised share capital is an unlimited number of Ordinary Shares without par value. At incorporation, there was one Ordinary Share issued at $42. On 22 February 2008, a second Ordinary Share was issued at $41.

As part of the Reorganisation described in the 2008 Annual Report and Accounts, the rights of different classes of shares are the same and therefore economically equivalent. As such, Ordinary and Exchangeable Shares are treated as one class of shares for the net earnings/ (loss) per share calculation.

Ordinary Shares

Six months ended
30 June 2012
Six months ended
30 June 2011
Number Amount Number Amount
$'000 $'000
At 1 January 256,519,296 343,280 284,899,830 457,746
Exchange of Exchangeable Shares of HOC for Ordinary Shares 339,490 290 155,700 132
Issued on exercise of stock options - - 4,692,500 8,977
Shares bought back and held in treasury (1,373,708 ) (3,323 ) (18,347,696 ) (66,630 )
At 30 June 255,485,078 340,247 271,400,334 400,225

Special Voting Share

Six months ended
30 June 2012
Six months ended
30 June 2011
Number Amount Number Amount
$'000 $'000
At 1 January 1 - 1 -
Issued during the period - - - -
At 30 June 1 - 1 -

Exchangeable Shares of Heritage Oil Corporation Each Carrying One Voting Right in the Company

Six months ended
30 June 2012
Six months ended
30 June 2011
Number Amount Number Amount
$'000 $'000
At 1 January 2,811,408 2,402 2,967,108 2,534
Exchange of Exchangeable Shares for Ordinary Shares (339,490 ) (290 ) (155,700 ) (132 )
At 30 June 2,471,918 2,112 2,811,408 2,402
Balance of Ordinary Shares of the Company, excluding treasury shares, and Exchangeable Shares of HOC - at 30 June 257,956,996 342,359 274,211,742 402,627

On 26 April 2011, the Company announced a buy back programme to acquire Ordinary Shares. Shareholders approved the resolution at the AGMs on 17 June 2010 and 20 June 2011 to acquire up to 28,786,693 and 28,900,000 Ordinary Shares respectively from the date of the AGM until the next AGM. The purchased Ordinary Shares are held in treasury. At 30 June 2012, the Company held 34,602,442 Ordinary Shares in treasury.

On 28 June 2011, the Company and Standard Bank Jersey Limited entered into a non-discretionary trading plan for the purchase of Ordinary Shares ("Trading Plan Agreement"), to allow for the continuation of the Buyback Programme during a regulatory black-out. Pursuant to this Trading Plan Agreement, Ordinary Shares purchased under this plan are held in treasury.

Pursuant to the terms of the Trading Plan, repurchases made under the Buyback Programme during the regulatory black-out were: (i) managed by an independent third party that makes trading decisions in relation to the Company's securities independently of, and uninfluenced by, the Company; and (ii) effected within certain pre-set parameters and in accordance with the Listing Rules, other applicable laws and the limitations of the authority approved by the Shareholders in respect of the Buyback Programme.

The Trading Plan Agreement was terminated by the Company in May 2012.

Following the payment of a special dividend of 100 pence per share in August 2010, holders of share options are entitled to receive 100 pence per share when the option is exercised. The net exercise price for the 2,150,000 options exercised was less than 100 pence per share, which resulted in net payment of $1,781,000 to the option holders on exercise of these share options during the period ended 30 June 2011.

10. (Loss)/Earnings per share

The following table summarizes the weighted average Ordinary Shares and Exchangeable Shares used in calculating net (loss)/earnings per share:

Six months ended 30 June
2012 2011
Weighted average Ordinary and Exchangeable Shares
Basic 258,682,315 287,573.271
Diluted 269,157,668 302,355,193

The reconciling item between basic and diluted weighted average number of Ordinary Shares is the dilutive effect of share options, LTIP awards and in the period to 30 June 2011 convertible bonds. A total of 3,450,000 options (30 June 2011 - nil), 3,898,754 shares relating to the LTIP (30 June 2011- nil) and nil shares relating to the convertible bonds (30 June 2011 - 27,042,553 shares) were excluded from the above calculation, as they were anti-dilutive. However, since the Company has made a loss for the period to 30 June 2012 for the purposes of calculating diluted loss per share, all potential Ordinary Shares have been treated as anti-dilutive in that year.

13. Related party transactions

During the six months ended 30 June 2012, the Company incurred transportation costs of $76,000 (six months ended 30 June 2011 -$75,000) with respect to the services provided by a company indirectly owned by Mr. Buckingham, CEO and a Director of the Company.

Anthony Buckingham used the corporate jet a few times during the period to June 2012 for personal trips. The cost of these trips was reimbursed at independently assessed commercial rates of $363,000 (30 June 2011 - $131,000).

Related party transactions described above have been made on an arm's length basis.

14. Non-cash investing and financing activities supplementary information

30 June 2012 30 June 2011
$'000 $'000
Capitalised portion of sharebased compensation (629 ) (459 )
Capitalised portion of interest (3,214 ) (6,422 )
Non-cash property, plant and Additions relating to the capitalised portion of sharebased compensation 4,144 6,881

15. Subsequent events

In July 2012 a wholly owned subsidiary of Heritage received a loan of $30,000,000 to refinance the acquisition of an aircraft. Interest on the loan is at a rate of 5.5%. The loan, which is secured on the aircraft, is scheduled to be repaid by 19 consecutive quarterly instalments of principal. Each instalment equals $789,000 with the final instalment being $15,000,000. The Company provided a corporate guarantee to the lender.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

This news release contains forward-looking information that is subject to various risks, uncertainties and other factors. Such statements include, but are not limited to, statements with regard to intentions, beliefs or current expectations concerning, amongst other things, the outcome of the proposed acquisition of OML 30, future production and grades, the economic limit or viability of assets, estimated revenues, reserves and resources, the timing and outcome of exploration projects and drilling programmes, projected capital expenditures, transportation costs, the timing of new projects, future cash flow and debt levels, fiscal regimes, the outcome of legislative changes, the outlook for the prices of hydrocarbons, the outlook for trends in the trading environment, statements about strategies, cost synergies, revenue benefits, integration and future production levels and timing of the Company, including OML 30, and the industry and countries in which it operates. All statements other than statements and information of historical fact are forward-looking statements. The use of any words "estimate", "forecast", "expect", "project", "plan", "target", "vision", "goal", "outlook", "may", "will", "should", "believe", "intend", "anticipate", "potential", and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on the Company's experience, current beliefs, assumptions, information and perception of historical trends available to the Company, and are subject to a variety of risks and uncertainties including, but not limited to those associated with resource definition and expected reserves and contingent and prospective resources estimates, unanticipated costs and expenses, the consummation of the proposed acquisition of OML 30, regulatory approval, fluctuating oil and gas prices, expected future production levels and timing, the ability to access sufficient capital to finance future development and credit risks, changes in regulatory framework in applicable jurisdictions where the Company has oil and gas assets, including changes to regulatory approval process and land-use designations, royalty, tax, environmental, greenhouse gas, carbon and other laws or regulations and the impact thereof and the costs associated with compliance.
Although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. In particular, there is no assurance that the conditions precedent to completion of the proposed acquisition of OML 30 will be satisfied or waived. Readers are cautioned that the assumptions and factors discussed in this information release are not exhaustive and readers are not to place undue reliance on forward-looking statements as our actual results may differ materially from those expressed or implied. The Company disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, subsequent to the date of this news release, except as required under applicable legislation. The forward-looking statements speak only as of the date of this news release and are expressly qualified by these cautionary statements. Readers are cautioned that the foregoing lists are not exhaustive and are made as at the date hereof. For a full discussion of material risk factors, see the section entitled "Risks" in the Annual Review included in our most recently filed Annual Report for the year ending 31 December 2011, which is available on the SEDAR website at http://www.sedar.com/ or the Company's website under the tab "Reports" at http://www.heritageoilplc.com/annualReports.cfm.
Statements in this news release relating to reserves and resources are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the described reserves and resources, as the case may be, exist in the quantities predicted or estimated, and can be profitably produced in the future. This news release contains estimates of the Company's contingent resources. There is no certainty that it will be commercially viable to produce any portion of the Company's contingent resources. The assumptions relating to the Company's reserves and resources are contained in the CPR.
Forward-looking statements appear in a number of places in the CPR. The CPR reproduces data derived from studies conducted on behalf of the Company relating to its interest in reserves and resources of crude oil and gas in certain of the Company's properties and the reserves and resources of crude oil and gas of OML 30, and contains projections and estimates relating to the Company's current plans regarding volume of crude oil and gas, well development, amount and type of equipment and transportation infrastructure necessary to implement the Company's exploration and production plans and associated timeline and capital and operating expenditures required to purchase or build such equipment and infrastructure. In estimating facilities and costs estimates for OML 30, including capital expenditure, drilling costs, operating costs and abandonment costs, RPS relied on recent Company studies together with in-house RPS data. The estimates and projections contained in the CPR are based certain assumptions, such as geological and engineering estimates (which have inherent uncertainties), the assumed effects of regulation by governmental agencies, the assumed fiscal regime and tax on the extraction of commercial minerals and estimates of future commodity prices, operating costs and development costs, which may prove to be incorrect.
The projections and estimates contained in the CPR may differ materially from actual results. The Company may not pursue its exploration and development plans in their current form or on the timelines proposed in the CPR, or development or operating costs may differ materially from those assumed by RPS in the preparation of the CPR. There can be no assurances that the results and events contemplated by the forward-looking statements contained in the CPR will, in fact, occur.

CAUTIONARY NOTE REGARDING REPORTING STANDARDS

Unless otherwise indicated, RPS has, in compiling the CPR, used the definitions and guidelines set out by the 2007 SPE/WPC/AAPG/SPEE Petroleum Resource Management System ("PRMS") and has not used the standards of reserves measurement applied by the US Securities and Exchange Commission ("SEC"). The SEC standards differ from PRMS. The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves, probable reserves and possible reserves, each term as defined by the SEC. This announcement contains data, such as prospective and contingent resources, presented in accordance with PRMS standards, which the SEC's guidelines would prohibit the Company from including in filings with the SEC. Accordingly, information concerning descriptions of oil and gas reserves and resources contained in this document may not be comparable to information required or permitted to be made public by US or other international companies engaged in oil and gas producing activities and subject to the reporting and disclosure requirements of the SEC.
National Instrument 51-101 ("NI 51-101") of the Canadian Securities Administrators imposes oil and gas disclosure standards for public companies in Canada engaged in oil and gas activities. The Company and Heritage Oil Corporation have obtained an exemption from Canadian securities regulatory authorities to permit them to provide disclosure in accordance with the relevant legal requirements for public companies in the United Kingdom. This facilitates comparability of oil and gas disclosure with that provided by the United Kingdom and other international issuers, given that the Company is listed on the United Kingdom capital markets.
Accordingly, the reserves and resources data and other oil and gas information included in this press release is disclosed in accordance with United Kingdom disclosure requirements and practices. Such information, as well as the information that the Company and Heritage Oil Corporation disclose in the future in reliance on the exemption, may differ from the corresponding information prepared in accordance with NI 51-101 standards.

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