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CALGARY,
ALBERTA--(Marketwire - April 30, 2009) -
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.
Heritage Oil Limited (LSE:HOIL) ("Heritage" or the
"Company"), an independent upstream exploration and
production company, announces the publication of its annual financial
report for the twelve months ended 31 December 2008. All figures are in
US dollars unless otherwise stated.
Operational Highlights
- Sufficient oil volumes have been discovered in the Albert Basin,
Uganda, to exceed the commercial threshold for development
- Discovered the world-class Buffalo-Giraffe field in Block 1, Uganda
- Kingfisher-3 well, Block 3A, Uganda discovered oil in the three main
reservoirs structurally higher than anticipated, increasing the areal
extent of the field
- Miran West-1 in
the Kurdistan Region of Iraq encountered oil over an interval of 1,100 metres
in 2009 and is currently being tested
- Collected 2D seismic over the Kimbiji and Kisangire Blocks in
Tanzania, where Heritage farmed-in earlier in the year
- Expanded the portfolio of properties: Farmed-in to two licences in
Mali; four blocks in Tanzania and one licence in Pakistan
Financial Highlights
- Primary listing on the Main Market of the London Stock Exchange
completed on 31 March 2008
- Joined the FTSE 250 Index on 23 June 2008
- Net production increased by 26% year-on-year
- Strong balance sheet with cash position of $91 million as at 31
December 2008
- Sale of holdings in Oman, subsequent to the year end, realised cash
of $28 million to fund acceleration of work programmes in core activity
areas
- In April 2009, third party back-in rights for 25% were exercised on
the Miran Licence in the Kurdistan Region of Iraq. Heritage received
$6.7 million (25% of back costs)
- Termination of a refinery commitment for over $140 million in return
for making payments out of future oil and gas sales from the Miran
Licence in the Kurdistan Region of Iraq
Outlook
- Testing of the Miran West-1 well in the Kurdistan Region of Iraq is
being undertaken
- Further drilling on the Miran Licence in 2009 will be considered
following test results from the Miran West-1 well
- A further exploration and appraisal drilling programme is planned to
commence in Block 1, Uganda, in the second half of 2009
Tony Buckingham, Chief Executive Officer, commented:
"Heritage has achieved tremendous operating success during 2008
and early 2009, leading to a world-class oil discovery in Uganda and
very encouraging results from the Miran West-1 well in the Kurdistan
Region of Iraq, which is currently being tested. We also achieved
increases in production and expanded our portfolio of properties. Looking
ahead, we believe we have the financial and technical capability,
combined with the management flexibility, to pursue opportunities to
enhance the interests of our shareholders."
Heritage's 2008 Annual Report is available on its website at www.heritageoilltd.com.
Analyst Conference Call
Mr. Paul Atherton, Chief Financial Officer, will be hosting an analyst
conference call at 15:00 (British Summer Time) on 30 April 2009. The
presentation that accompanies the call will be available on the website
(www.heritageoilltd.com) at 14.00 (British Summer Time). To access the call please dial
the appropriate number below shortly before the call and ask for the
Heritage Oil Ltd conference call. A replay facility will be available
for up to seven days. The telephone numbers and access codes are:
Live Event Dial-in number: +44 (0)20 7136 2053 (UK) +1 514 807 0007 (Canada) +1 212 444 0481 (US) Passcode: 2055340 Replay facility available for seven days: Dial-in number: +44 (0)20 7806 1970 (UK) +1 718 354 1112 (Canada/US) Passcode: 2055340
If
you would prefer to receive press releases via email please contact
Lindsay Carpenter (lindsay@chfir.com) and specify "Heritage press releases" in the subject
line.
CHAIRMAN'S STATEMENT
I am pleased to report that 2008 was another year of very strong
progress for Heritage both operationally and in terms of positioning
the Company for steady near- and long-term growth in shareholder value.
Our strategy of seeking out and investing in exploration and early
development opportunities with high-impact potential, while also
expanding our exposure to European capital markets and the
international oil and gas sector, is proving to be effective.
Operations
Operating highlights include world-class discoveries in the Albert
Basin, Uganda, and commencement of drilling of the Miran West-1 well in
the Kurdistan Region of Iraq, which is now in the process of being
tested.
Our considerable achievements in Uganda include continued drilling
success in Block 3A, highlighted by Kingfisher-2 testing at a combined
rate of 14,364 bopd, and successful drilling in Block 1. Our discovery
of the Buffalo-Giraffe field in Block 1, Uganda, is believed, by
management, to be the largest onshore oil field discovered in
Sub-Saharan Africa in the last 20 years. Exceptional results from
Uganda drilling have established a gross resource of approximately 600
million barrels. This is above the volume considered necessary for
major infrastructure development for the Albert Basin. Our Albert Basin
results indicate the outstanding potential of this region. This could
transform the Company, especially as we continue with further
exploration and development. Having operated in Uganda since 1997,
Heritage, as operator with a 50% equity interest in Blocks 1 and 3A, is
strongly positioned to be a major participant in the future development
of this world-class resource.
Another notable highlight of 2008 was the excellent progress made in
the Kurdistan Region of Iraq, a highly prospective, and as yet
under-developed, oil-prone region. The undiscovered potential of the
region has been estimated at 40 billion barrels of oil and 60 trillion
cubic feet of natural gas, ranking it as one of the most highly
prospective untapped energy resource regions in the world. It is
reported that the exploration success rate in Iraq has historically
averaged over 80%. Heritage has been active in Kurdistan since 2004 and
we are strongly committed to the region. We were the second of 21
companies that have been awarded Production Sharing Contracts
("PSCs") by the Kurdistan Regional Government
("KRG") since their petroleum law was passed in August 2007.
On 25 March 2009 we announced drilling of the Miran West-1 well had
completed and had reached a total depth of 2,935 metres. The
well encountered oil shows over an interval of 1,100 metres
with excellent oil shows in the three principal known productive
reservoir formations in the region. We are in the process of
undertaking a series of drill stem tests over a gross interval of
approximately 500
metres. We believe our operations in this region
also have the potential to transform the Company. Our commitment and
enthusiasm for the Kurdistan Region of Iraq is reflected in the
acceleration of our programmes.
London Listing
Our most significant corporate achievement of 2008 was the primary
listing of our shares on the Main Market of the London Stock Exchange,
which was completed at the end of March, a move that was overwhelmingly
supported by our shareholders. This listing initiative was undertaken
to increase liquidity, unlock additional value creation for
shareholders and also to enhance the Company's status and profile among
European investors and within the international oil and gas sector as a
whole.
The London listing, which was followed by the Company's inclusion as a
member of the prestigious FTSE 250 Index, was accompanied by a
reorganisation that saw the establishment of a new parent company,
Heritage Oil Limited, in Jersey. Given the geographic spread of
Heritage's operational activities and licences, we believed that it was
appropriate for the Company to be domiciled in the British Isles, where
a substantial number of investors and the Company's management reside. Also,
as part of the corporate reorganisation, the Company's shares were
effectively split on a ten-for-one basis. This was designed to further
enhance trading volumes and liquidity of our shares for the benefit of
all shareholders.
Financial
After the Company's success in raising significant amounts of capital
in 2007, no additional financing was required in 2008. Heritage
finished the year with a strong balance sheet and cash to finance
planned operations in 2009. Nevertheless, our recent exceptional
success means that we now intend to accelerate work programmes in
Uganda and Kurdistan. With this in mind, we made a decision to dispose
of our non-core interests in Oman. Oman disposal proceeds of $28
million, plus $400,000 in working capital adjustments, are to be used
to fund accelerated programmes in our core areas. In regard to
financing large-scale infrastructure programmes in Uganda, I am pleased
to report that we have been approached by a number of parties. Initial
proposals involve terms that would significantly reduce our financing
requirements.
Social Responsibility
As a company that operates in remote and comparatively undeveloped
regions of the world, we recognise that our responsibilities to local
communities go beyond simply providing funds and local employment. We
are committed to implementing community programmes in health,
education, public facility and environmental awareness, and we work
actively with local communities to secure trust and mutual
co-operation. Over the course of the last 18 months we have undertaken
a significant investment in the Carl Nefdt Memorial Primary School, in
Block 3A, Uganda. We intend to undertake similar projects in our other
core interest areas as our operational activities expand.
Board of Directors
During 2008 we were delighted to welcome Salim Hassan Macki and General
Sir Michael Wilkes KCB, CBE to the Group as Non-Executive Directors. Both
appointments are outstanding additions to the Board and both are
already making valuable contributions to the Company.
Outlook
As always, I am very grateful to our talented management team and
employees for their dedication and contribution to the remarkable
growth Heritage has enjoyed this past year. 2008 was a year of
exceptional progress for Heritage and the outlook for 2009 and beyond
is highly encouraging. Operations in Uganda and the Kurdistan Region of
Iraq are particularly promising and we continue to look for further
strong results from investments and activities in other operating
areas. I would add that in the future, as in the past, our overriding
objective is to create real and lasting value for our shareholders.
Michael J. Hibberd
Chairman
CHIEF EXECUTIVE'S REVIEW
Operational success has dramatically transformed Heritage. Our
outstanding drilling successes in Blocks 1 and 3A in the Albert Basin,
Uganda, mean we are now confident that sufficient volumes have been
discovered to justify a major development. The work programme on the
Miran Block in the Kurdistan Region of Iraq was accelerated following
the completion of a seismic survey in the second quarter of 2008. The
Miran West-1 well, which commenced drilling on 21 December 2008,
reached a total depth of 2,935 metres on 25 March 2009. This
well encountered oil shows over an interval of 1,100 metres
with excellent oil shows over the three targeted reservoir intervals. A
series of tests is being performed over a gross interval of
approximately 500
metres. These achievements, coupled with listing
on the Main Market of the London Stock Exchange and the corporate
reorganisation that raised the Company's profile as a significant
player in the international oil and gas industry, puts us in excellent
shape for the achievement of near- and long-term growth in production
and reserves and also in shareholder value.
2008 was a year of extreme volatility in international crude oil
markets, with price fluctuations of a magnitude never seen before. Fortunately,
as primarily an exploration company with international projects in
proven light oil basins, Heritage was not dramatically affected by
short-term price volatility and we remain confident that the
longer-term outlook for oil and gas is positive. The world will
continue to need hydrocarbons which will require new production from
remote and challenging regions. At Heritage we remain committed to
seeking out such opportunities and managing political and operational
risk with a diverse portfolio and a prudent mix of exploration,
development and production.
Our long-standing strategy of being an early entrant in prospective
regions, demonstrating our management and technical expertise, and our
commitment to building working relationships with local and
international companies and governments, gives us the flexibility to
react quickly to changing circumstances.
The combination of aggressive investment, prudent risk management and
operating excellence has yielded exceptional results throughout 2008
and into 2009. This includes our discovery of the world-class
Buffalo-Giraffe field in Block 1, Uganda where we are the operator with
a 50% interest.
Africa
Uganda
The world-class Kingfisher field in Block 3A was discovered in 2007. This
significant discovery was surpassed with the discovery of the large
Buffalo-Giraffe field, in Block 1, in January 2009. On current
estimates, the Buffalo-Giraffe field has an area of approximately 48
square kilometres and an oil column of 140 metres. The
structure may extend even further to include the Buffalo East prospect,
creating a very large structure of up to 90 square kilometres. Initial
estimates for the Buffalo-Giraffe field are recoverable resources of
approximately 350 million barrels (gross), which is not only a major
field in itself, but also significantly de-risks the many other
potential targets in the block.
Operations in this basin have continued to achieve a 100% success rate
as, to date, 21 successful exploration and appraisal wells have been
drilled with all encountering hydrocarbons. Further appraisal work on
the Kingfisher discovery produced some exciting results in 2008 with a
record production test, for any well drilled in Uganda, of 14,364 bopd.
Additionally, the same three reservoir intervals were encountered in
all of the wells and, significantly, the areal extent of the field was
increased as oil was found structurally higher than anticipated in the
Kingfisher-3 appraisal well.
The Albert Basin will remain a high corporate priority in coming years
as the recent drilling successes have raised the estimated resources of
the basin above the threshold required for commercial development. This
is transformational for Heritage. With a gross licence area in Uganda
and the DRC in excess of 12,000 square kilometres - equivalent to approximately
55 North Sea blocks - the Albert Basin is now estimated to have
multi-billion barrel reserve potential. We are considering a number of
fast-track development scenarios for the Albert Basin, including the
possibility of a phased development with first production in 2011 by
utilising the existing railway network in East Africa. We are also
considering an export pipeline to the coast as well as a scheme to
service local markets.
In addition to the Kingfisher drilling activity, mapping of recent seismic
data has identified a number of prospects offshore in Lake Albert
within the Heritage operated Block 3A, including the structurally
attractive Pelican prospect and the large Crane prospect. An offshore
drilling programme that will include the Crane and Pelican prospects is
currently expected to begin in the first half of 2010.
Tanzania
Heritage farmed-in to four licence areas in Tanzania in mid-2008, with
a total area of approximately 25,000 square kilometres. In early 2009,
Heritage completed the acquisition of 2D seismic in-fill data on two
blocks in Tanzania. Future drilling locations will be identified once
the data has been processed and interpreted.
The Middle East
Kurdistan Region of Iraq
The Kurdistan Region of Iraq is another primary focus area for
Heritage, with the potential to find multi-billion barrels of oil. Based
on excellent quality seismic data acquired by Heritage during 2008,
management has confirmed that the Miran Block contains two anticlines
that have the potential to contain billions of barrels of oil in place
from multiple potential reservoir targets. Drilling of the Miran West-1
well began in December 2008,
a significant accomplishment given that Heritage
was awarded the licence less than 15 months prior, in October 2007.
In March 2009, we announced drilling of the Miran West-1 well had
completed and reached a total depth of 2,935 metres. The
well encountered oil shows over an interval of 1,100 metres,
with excellent oil shows in the three principal proven reservoir
formations in the region (the Shiranish, Kometan and Qamchuqua). Good
quality light sweet oil was recovered to surface as part of the
drilling operations. A series of drill stem tests over a gross interval
of approximately 500
metres are being conducted during April 2009. A further
announcement will be made when all tests have been completed.
The operating environment for oil and gas companies in the Kurdistan
Region of Iraq remains relatively stable and secure, and Heritage
management believes that any outstanding issues between the government
of Iraq and the Kurdistan Regional Government will be resolved
satisfactorily. To that end, the two parties formed a series of
committees to resolve issues. There has been considerable progress
recently with the likelihood that first oil from Kurdistan will be
exported this year.
Oman
Following our exceptional success in Uganda and very encouraging
drilling results in the Kurdistan Region of Iraq, we decided to sell
our non-core 10% interest in Block 8 in Oman for $28 million, plus
$400,000 in working capital adjustments. We believe that greater value
can be generated by using this cash to finance accelerated work
programmes in Uganda and the Kurdistan Region of Iraq.
Pakistan
In December 2008, Heritage received government approval for a farm-in
to the Zamzama North Block in the Sindh Zone (Zone lll) in southern
Pakistan. Heritage is the operator and was awarded a 48% participating
interest in the block. This has extended Heritage's operations in
Pakistan, which also include a 54% interest in, and operatorship of,
the Sanjawi Block in the Baluchistan Zone (Zone II) in Pakistan. This
block contains a number of large anticlinal structures which could be
potentially significant drilling targets.
Russia
Development of the Zapadno Chumpasskoye Licence in western Siberia, in
which Heritage holds a 95% equity interest, continued during 2008. A third
exploration and appraisal well was completed in the first half of 2008,
and average daily oil production increased to 379 bopd in 2008. Peak
production of 900 bopd was achieved but the field was shut-in between
December 2008 and February 2009 following a temporary reduction in the
domestic oil price in Russia. Production has since recommenced at a
level of approximately 150 bopd but we expect this to increase over the
year.
In summary, Heritage has achieved tremendous operating success during
2008 and early 2009, leading to a world-class oil discovery in Uganda
and very encouraging results from the Miran West-1 well in the
Kurdistan Region of Iraq, which is currently being tested. We also
achieved increases in production and expanded our portfolio of
properties. Looking ahead, we believe we have the financial and
technical capability, combined with the management flexibility, to
pursue opportunities to enhance the interests of our shareholders. We
look forward to making substantial further progress and increasing
shareholder value in both the near- and the long-term.
I would like to thank our staff, my fellow Directors and our
shareholders for their continuing support.
Tony Buckingham
Chief Executive Officer
FINANCIAL REVIEW Selected Operational and Financial Data 2008 2007 Change Production bopd 450 356 26% Sales volume bopd 435 333 31% Average realised price $/bbl 32.1 30.5 5% Petroleum and natural gas revenue $ million 5.1 3.7 38% Net loss $ million (41.3) (83.2) 50% Net loss per share - basic and diluted $ (0.16) (0.37) 57% Total cash capital expenditures $ million (103.2) (75.3) n/a Year end cash balance $ million 90.6 230.1 n/a
Corporate
Performance
Production
Average daily production increased by 26% from 356 bopd in 2007 to 450
bopd in 2008. The increase in production was attributable to higher levels
of production from Zapadno Chumpasskoye in Russia despite being shut-in
during December 2008. This was offset by a 51% decline in production of
condensate and LPG in Oman due to the temporary cessation of production
in the second half of 2008. This was in part due to upgrading the Bukha
platform to handle new production from the West Bukha field. The West
Bukha field commenced production in February 2009.
Revenue
Petroleum and natural gas revenue increased by 38% to $5.1 million, due
to higher sales volumes in Russia offset by lower condensate and LPG
sales from the Bukha field in Oman. Condensate sales from the Bukha
field in Oman decreased by 38% to $1 million due to the shut-in of
Bukha production in the second half of 2008. Revenue from oil production
in Russia increased by 124% to $3.8 million. The average realised price
of $32.1 per barrel in 2008 was 5% higher than in 2007, attributable to
higher average commodity prices in Russia, offset by lower average
condensate and LPG sales prices in Oman.
Operating Results
Petroleum and natural gas operating costs increased by 22% to $2.3
million in 2008, due to almost a full year of production in Russia
compared to only seven and a half months of production in 2007. The
increase is in line with the higher sales volumes but additionally some
volume efficiencies were achieved. Average operating costs per barrel
sold declined by $0.69 to $14.18 in 2008, compared to $14.87 in 2007.
Production tax in Russia increased from $1.1 million in 2007 to $2.3
million in 2008. This increase was due to an increase in volumes of oil
production in Russia and higher average commodity prices in 2008 used
in the calculation of production tax.
General and administrative expenses decreased from $41.3 million in
2007 to $30.7 million in 2008, due principally to lower non-cash
share-based compensation expenses arising from stock options granted or
approved in 2007. General and administrative expenses in 2008 were also
inflated by one-off expenses of $9.7 million relating to the corporate
reorganisation and subsequent listing on the London Stock Exchange.
If share-based compensation and the one-off corporate reorganisation
and subsequent listing expenses are excluded, net general and
administrative expenses increased from $12.2 million in 2007 to $13.6
million in 2008. This 11% increase resulted from the Group employing
additional staff and incurring increased expenses to support higher
levels of exploration and development activities in the Group's
activity areas.
In 2008, the Group capitalised $6.3 million (2007 - $10.3 million) of
directly attributable general and administrative costs relating to
exploration and development activities, including stock-based
compensation of $4.6 million (2007 - $9.0 million).
Depletion, depreciation and amortisation expenses increased by 24% to
$2.3 million in 2008, primarily due to higher oil and liquids sales
volumes.
Exploration expenditures expensed and not capitalised in the year
decreased by 85% from $5.4 million in 2007 to $0.8 million in 2008. Exploration
expenditures in 2008 related principally to potential new ventures in
Russia ($0.3 million) and activities in Tanzania ($0.2 million). Exploration
expenditures in 2007 related mainly to activities in the Kurdistan
Region of Iraq ($2.3 million) and potential new ventures in Russia
($1.5 million).
In 2008, the Group recognised an impairment write-down of property,
plant and equipment of $4 million (2007 - $1.8 million) comprised of
two elements; the disposal of the Oman holdings and the write-down of a
drilling rig. Subsequent to year end, the entire share capital of the
Oman holdings was sold for $28 million in cash and a working capital
adjustment of approximately $0.4 million. The Group wrote down the
carrying value of interest in Oman to its year end fair value resulting
in a charge of $3.2 million. The carrying value of the Group's 50%
interest in a drilling rig was written down to nil, resulting in a
charge of $0.7 million (2007 - $1.8 million).
In 2008, interest income was $4.0 million (2007 - $4.0 million). Cash
and cash equivalents are typically held in interest bearing treasury
accounts. Cash generating this income was raised by a private placement
of shares for gross proceeds of $186.4 million (Cdn$181.5 million) in
November 2007 and the issue of $165 million of 8% unsecured convertible
bonds in February 2007.
Convertible bonds are separated into liability and derivative liability
components (being the bondholders' conversion option) and each
component is recognised separately. The change in the fair value of the
convertible bonds' conversion options, which is primarily due to the
performance of Heritage's share price, resulted in a gain of $11
million in 2008 compared to a loss of $21.3 million in 2007.
Other finance costs decreased from $12.0 million in 2007 to $11.3
million in 2008. These costs are mainly comprised of interest and
accretion expenses relating to the issue of $165 million of 8%
unsecured convertible bonds in February 2007.
The Group had foreign exchange losses of $5.6 million in 2008,
primarily related to an intercompany US dollar denominated loan
provided by the Group to the Russian subsidiary for the development of
Zapadno Chumpasskoye. The revaluation of this loan in Russian roubles
(the functional currency of the Russian subsidiary) created the foreign
exchange loss due to the weakening of the Russian rouble against the US
dollar during 2008.
In accordance with the Group's accounting
policy, the revaluation loss was recognised in the financial statements
of the Russian subsidiary in Russian roubles and translated into US
dollars at consolidation and recognised in the income statement.
Heritage recognised an unrealised loss of $1.7 million in 2008 (2007 -
$0.9 million gain), in the fair value of its investment in Afren Plc
("Afren") warrants. The gain or loss is determined by the
performance of the share price of Afren. Heritage holds 1,500,000
warrants in Afren with an exercise price of GBP 0.60 per warrant,
received as partial consideration from the sale of Heritage Congo in
2006. The warrants have a term until 22 December 2011. At 31 December
2008, Afren's share price was GBP 0.26 per share.
Heritage's net loss in 2008 was $41.3 million, compared to $83.2
million in 2007. The adjusted net loss in 2008 was $23.7 million
compared to $29.7 million in the previous year if certain non-cash
items (share-based compensation expense, gain/loss on derivative
financial liability, property, plant and equipment impairment
write-down, foreign exchange loss/gain and unrealised loss/gain on
revaluation of Afren warrants) and the one-off reorganisation costs are
excluded. In 2008 the basic and diluted loss per share was $0.16,
compared to basic and diluted loss per share of $0.37 in 2007.
Cash Flow and Capital Expenditures
Cash used in operating activities was $32.8 million in 2008 compared to
$2.5 million in 2007. Total cash capital expenditures in 2008 were
$103.2 million compared to $75.3 million in 2007. The following work
was undertaken in 2008:
- Work programmes continued to be accelerated in Uganda with five
exploration wells drilled at a total net cost of approximately $45.3
million ($8.8 million in 2007);
- The successful Kingfisher-2 and -3 appraisal wells were drilled in
Block 3A, Uganda, with the successful Kingfisher-3A sidetracked over
the year end and completed in February 2009;
- A three well exploration programme was undertaken in Block 1, Uganda.
The Warthog-1 well spud on 30 September 2008, followed by the Buffalo-1
well in December 2008 and the Giraffe-1 well at the end of December. The
programme was completed in January 2009 and all three wells discovered
oil;
- A 2D seismic programme of approximately 330 kilometres
was acquired over the Miran Block, in the Kurdistan Region of Iraq,
between April and June 2008 and the Miran West-1 exploration well spud
on 22 December 2008;
- Development of the West Bukha field in Oman continued. Production
commenced in February 2009 at a rate of 15,000 boepd. The West Bukha-3
development well was drilled in 2008, the existing West Bukha-2 well
was deepened, the platform was installed and the sub-sea pipeline
completed;
- The drilling of Heritage's third exploration and appraisal well in
the Zapadno Chumpasskoye field in Russia was completed in the first
half of 2008. This well was brought into production later in the year. Production
in Russia increased to a peak of 900 bopd and averaged 379 bopd for the
year; and Heritage farmed-in to two licences, covering four exploration
blocks, in Tanzania in 2008. Heritage commenced acquiring 2D seismic in
the Kimbiji and Kisangire blocks in September 2008 and the programmes
were completed in February 2009. The data is currently being processed.
The net decrease in cash and cash equivalents during 2008 was $139.5
million for a year end cash balance of $90.6 million.
Financial Position
Liquidity
At 31 December 2008, Heritage had a working capital surplus of $43.2
million, including cash and cash equivalents of $90.6 million. As for
most oil and gas exploration companies, Heritage raises financing for
its activities from time to time using a variety of sources. Based on
its current plans and knowledge and its projected capital expenditure
and operating cash requirements, the Group has sufficient cash to
finance its current plans for at least 12 months from the date of
approval of the financial statements, but further financings are likely
to be required to meet expenditures planned for the second half of
2010. Sources of funding for future exploration and development
programmes will be derived from, inter alia, new credit facilities,
reinvesting funds from operations, using existing treasury resources,
disposal proceeds from the sale of non-core assets, such as the sale of
the Company's holdings in Oman in 2009, farm-outs and, when considered
appropriate issuing debt and additional equity. Accordingly the Group
has a number of different sources of finance available and the
Directors are confident that additional finance will be raised as and
when needed. In addition, development of the Group's successful
exploration projects may be financed separately.
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. Heritage raised cash of
over $350 million in 2007. $165 million was raised in February 2007 by
the issue of 8% unsecured convertible bonds, of which $82.5 million
plus interest was used to redeem existing 10% convertible bonds and the
remainder was available for general corporate funding purposes. Gross
proceeds of $186.4 million (Cdn$181.5 million) were received in
November 2007 from an issue of 3,000,000 Common Shares by Heritage Oil
Corporation ("HOC") at a price of Cdn$60.50 per share.
In October 2007, Heritage received a loan of $9.5 million to refinance
the acquisition of a corporate jet. Interest on the loan is at a rate
of London Interbank Offered Rate ("LIBOR") plus 1.6%. In
January 2005, the Company received a sterling denominated loan of GBP
4.5 million to refinance the acquisition of a corporate office. Interest
on the loan is fixed at 6.515% for the first five years and is then
variable at a rate of LIBOR plus 1.35%. Heritage had net debt of $146.8
million and gearing of 47% at 31 December 2008 compared with net cash
of $13.7 million and nil gearing at 31 December 2007.
Important Events Since the Year End
Following a strategic review the entire share capital of Eagle Energy
(Oman) Limited, a wholly-owned subsidiary that owned a 10% working
interest in Block 8, Oman, was sold to RAK Petroleum for $28 million,
plus $0.4 million in working capital adjustments, on 7 April 2009.
In April 2009, in
accordance with the option outlined in the Production Sharing Contract
in the Kurdistan Region of Iraq the KRG nominated a third party
participant in the Miran Licence. Additionally, the KRG has released
the Company from the obligation to build a refinery in exchange for
making payments totalling $35 million from future oil and gas sales
from the licence. The minimum financial commitment for the Company for
building the refinery was $140 million. The Company remains the
operator with a 75% working interest in the Miran Licence and will
receive the pro-rata share of 25% of all past work programme
expenditures. The transaction was completed upon the receipt of
approximately $6.7 million in costs incurred by the Company to 31
January 2009. The third party participant is responsible for funding
its share of all work programme expenditures.
The Group is not required to obtain a reserve report annually or to
publish reserves data under the listing rules. No reserves report at 31
December 2008 was obtained as the Group's previous independent reserves
report effective at 31 December 2007 is not considered to have changed
significantly due to the relatively small production during 2008. Additionally,
the Group was undertaking significant work programmes in Uganda and
Kurdistan at the year end, which would not have been incorporated in a
report at that date. Management is planning to update the reserve
report in the second half of 2009 when the results from the recent
drilling programmes in Uganda and the Kurdistan Region of Iraq have
been completed and results analysed and interpreted.
Risk and Internal Controls
Primary Risks and Uncertainties Facing the Business
The primary risks and uncertainties facing the business which could
have a material adverse impact on the Group include:
- Exploration and development expenditure and success rates - the
Company has experienced management and technical teams with a
track-record of finding attractive oil discoveries and has a
diversified portfolio of exploration, development and production
assets;
- Factors associated with operating in developing countries, political
and regulatory instability - the Company maintains close contact with
governments in the areas within which it operates and where appropriate
gets involved in community projects.
- Heritage cannot completely protect itself against title disputes - in
many of the countries in which the Group operates, land title systems
are not developed to the extent found in many industrialised countries.
Notwithstanding potential challenges in the DRC, the Kurdistan Region
of Iraq and Malta, the Group believes that it has good title to its oil
and gas properties. However, it 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;
- Oil and gas sales volumes and prices - whilst not under the direct
control of the Company a material movement could impact on the Group;
- Loss of key employees - remuneration packages are regularly reviewed
to ensure key executives and senior management are properly
remunerated; and
- Generally, it is the Company'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.
The Board will continue to review its approach to commodity prices,
interest rates and currency fluctuations in light of the Company's
future capital commitments and ongoing obligations. Heritage may use
derivative instruments to mitigate against its exposure to volatility
in oil prices and foreign currency movements. In 2007 and 2008 the
Group did not enter into any hedging arrangements.
Internal Controls
A system of internal controls was designed and tailored to ensure key
risks are appropriately addressed and to provide assurance regarding
the reliability of financial reporting and preparation of financial
statements. Risk and internal controls are continually assessed. One
possible weakness has been identified, concerning accounting for
complex transactions, although the Company seeks third party advice to
mitigate against this weakness.
As part of the Company's internal controls, any transactions with
related parties are identified, scrutinised and appropriately disclosed
in the financial statements.
Heritage maintains insurance policies in accordance with industry
standards. Heritage believes that the level of insurance cover it
maintains is adequate based on various factors such as the cost of the
policies, industry standard practice and the risks associated with the
exploration and development of oil and gas properties in the countries
in which it operates. Heritage does not insure against political risk
and, therefore, provides shareholders with full exposure to the risks
and rewards of investing in its territories.
Heritage maintains a detailed financial model which allows the Company
to plan future operating and capital activities in the most efficient
manner.
Paul Atherton
Chief Financial Officer
Financial Information Included in This Announcement
The following information included in this Announcement does not
constitute audited financial statements of the Group. The Accounts for
the year ended 31 December 2008 have been audited and will be posted on
the Group's website. The auditors have issued an unqualified opinion on
those Accounts. The following financial information has been extracted
from those Accounts.
These consolidated financial statements of the Group include the results
of the Company and all subsidiaries over which the Company exercises
control. The comparative figures represent the results of HOC and all
its subsidiaries.
The Company's consolidated financial statements are presented in U.S.
dollars, which is the Company's functional and presentation currency.
The accounting policies applied in the preparation of these
consolidated financial statements are consistent with those applied by
HOC and all its subsidiaries in its consolidated financial statements
as at and for the year ended 31 December 2007.
HERITAGE OIL LIMITED CONSOLIDATED INCOME STATEMENT Years ended 31 December 2008 and 2007 --------------------------- 2008 2007 -------------- ------------ $ $ Revenue Petroleum and natural gas 5,095,808 3,709,503 Expenses Petroleum and natural gas operating (2,250,771) (1,843,540) Production tax (2,618,806) (1,092,423) General and administrative (30,686,764) (41,271,960) Depletion, depreciation and amortisation (2,349,484) (1,892,290) Exploration expenditures (786,398) (5,415,696) Impairment of property, plant and equipment (note 6) (3,997,033) (1,799,762) -------------- ------------ Operating loss (37,593,448) (49,606,168) -------------- ------------ Gain on disposal of subsidiaries (note 4) - 1,077,132 -------------- ------------ Finance income (costs) Interest income 3,954,749 3,958,219 Loss on redemption of liability component of convertible bonds - (7,155,622) Gain /(loss) on derivative financial liability relating to convertible bonds 10,954,514 (21,279,964) Other finance costs (11,257,187) (11,997,748) Foreign exchange (losses)/gains (5,648,179) 931,913 Unrealised (loss)/gain on other financial assets (1,713,700) 906,643 -------------- ------------ (3,709,803) (34,636,559) -------------- ------------ Net loss for the year attributable to equity holders of the Company (41,303,251) (83,165,595) -------------- ------------ Net loss per share Basic and diluted (note 9) (0.16) (0.37) -------------- ------------ -------------- ------------ The notes are an integral part of these consolidated financial statements. HERITAGE OIL LIMITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Years ended 31 December 2008 and 2007 --------------------------- 2008 2007 -------------- ------------ $ $ Changes in the fair value of available-for-sale financial assets (note 8) - 168,000 Exchange differences on translation of foreign operations (note 8) (651,364) 434,583 -------------- ------------ Net (expense)/income recognised directly in equity (651,364) 602,583 Net loss for the year (41,303,251) (83,165,595) -------------- ------------ Total recognised loss for the year (41,954,615) (82,563,012) -------------- ------------ -------------- ------------ The notes are an integral part of these consolidated financial statements. HERITAGE OIL LIMITED CONSOLIDATED BALANCE SHEET As at 31 December 2008 and 2007 --------------------------- 2008 2007 -------------- ------------ $ $ ASSETS Non-current assets Intangible exploration assets (note 5) 211,346,037 102,862,754 Property, plant and equipment (note 6) 88,039,218 64,225,918 Other financial assets 3,330,501 5,044,201 -------------- ------------ 302,715,756 172,132,873 -------------- ------------ Current assets Inventories 395,110 199,465 Prepaid expenses 664,759 447,271 Trade and other receivables 6,901,511 6,759,261 Cash and cash equivalents 90,620,385 230,089,323 -------------- ------------ 98,581,765 237,495,320 -------------- ------------ 401,297,521 409,628,193 -------------- ------------ LIABILITIES Current liabilities Trade and other payables 54,751,768 24,646,531 Borrowings 595,418 623,640 -------------- ------------ 55,347,186 25,270,171 -------------- ------------ Non-current liabilities Borrowings 155,609,982 154,253,701 Derivative financial liability 25,785,476 36,739,990 Provisions 719,808 170,899 -------------- ------------ 182,115,266 191,164,590 -------------- ------------ 237,462,452 216,434,761 -------------- ------------ Net Assets 163,835,069 193,193,432 -------------- ------------ -------------- ------------ SHAREHOLDERS' EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital (note 7) 218,283,881 217,672,243 Reserves (note 8) 54,511,609 43,178,359 Retained deficit (note 8) (108,960,421) (67,657,170) -------------- ------------ 163,835,069 193,193,432 -------------- ------------ -------------- ------------ The notes are an integral part of these consolidated financial statements. HERITAGE OIL LIMITED CONSOLIDATED CASH FLOW STATEMENT Years ended 31 December 2008 and 2007 --------------------------- 2008 2007 -------------- ------------ $ $ Cash Provided by (used in) Operating Activities Net loss from operations for the year (41,303,251) (83,165,595) Items not affecting cash Depletion, depreciation and amortisation 2,349,484 1,892,290 Finance costs - accretion expenses 4,183,874 3,619,198 Foreign exchange losses/(gains) 320,580 (153,174) Share-based compensation 7,595,542 31,300,295 Loss on redemption of convertible bonds - 7,155,622 (Gain)/loss on derivative financial liability (10,954,514) 21,279,964 Gain on disposal of subsidiaries - (1,077,132) Loss/(gain) on other financial assets 1,713,700 (906,643) Impairment of property, plant and equipment 3,997,033 1,799,762 Decrease in trade and other receivables 1,136,624 5,195,888 (Increase)/decrease in prepaid expenses (217,488) 84,002 Increase in inventory (195,645) (100,544) (Decrease)/increase in trade and other payables (1,432,138) 10,585,162 -------------- ------------ (32,806,199) (2,490,905) -------------- ------------ Investing Activities Property, plant and equipment expenditures (29,610,908) (27,236,018) Intangible exploration expenditures (73,608,271) (48,095,422) Intangible development expenditures - (64,931) Investment in shares - (200,000) -------------- ------------ (103,219,179) (75,596,371) -------------- ------------ Financing Activities Shares issued for cash 361,537 187,106,476 Share issue costs - (10,473,386) Convertible bonds - 165,000,000 Convertible bonds issue costs - (6,979,268) Redemption of convertible bonds - (83,022,752) Long-term debt - 9,450,000 Long-term debt issue costs - (314,897) Repayment of long-term debt (616,118) (155,537) -------------- ------------ (254,581) 260,610,636 -------------- ------------ (Decrease)/increase in cash and cash equivalents (136,279,959) 182,523,360 Cash and cash equivalents - beginning of year 230,089,323 46,861,146 Foreign exchange (loss)/gain on cash held in foreign currency (3,188,979) 704,817 -------------- ------------ Cash and cash equivalents - end of year 90,620,385 230,089,323 -------------- ------------ -------------- ------------ Non-Cash Investing and Financing Activities (note 13) Supplementary information The following have been included within cash flows for the year under operating activities Interest received 4,477,227 3,504,866 Interest paid 13,636,178 8,546,840 The notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Reporting Entity
Heritage Oil Limited (the "Company") was incorporated under
the Companies (Jersey) Law 1991 (as amended) on 6 February 2008. Its
primary business activity is the exploration, development and
production of petroleum and natural gas in Africa, the Middle East,
Russia and South Asia. The Company was established in order to
implement a corporate reorganisation of Heritage Oil Corporation
("HOC", the "Corporation").
On 24 March 2008, HOC entered into a corporate reorganisation (the
"Reorganisation") which resulted in the Company becoming the
parent company of HOC and its subsidiaries. The Company's corporate
head office is now located in the Channel Islands. In connection with
the Reorganisation, the Company listed its ordinary shares
("Ordinary Shares") on the Official List of the United
Kingdom Listing Authority (the "UKLA") and trades on the Main
Market of the London Stock Exchange plc (the "LSE")
(collectively, "Admission"). HOC delisted its existing Common
Shares ("Heritage Shares") from the Toronto Stock Exchange
(the "TSX") and obtained a listing for a new class of
exchangeable shares (the "Exchangeable Shares") on the TSX.
As part of the Reorganisation, implemented by way of a court-approved
plan of arrangement (the "Arrangement") under the Business
Corporations Act (Alberta), HOC split its stock such that each existing
Heritage Share was exchanged for either ten Ordinary Shares or ten
Exchangeable Shares in accordance with the terms of the Arrangement.
On 2 April 2008, HOC and the Company collectively, together with their
subsidiaries and affiliates, announced Articles of Arrangement
implementing the previously announced Arrangement involving HOC and the
Company had been filed with the Registrar of Corporations for the
Province of Alberta with an effective date of 31 March 2008. As a
result, former holders of Common Shares of HOC were entitled to either
ten Ordinary Shares of the Company or ten Exchangeable Shares of HOC
for each Common Share held depending on the elections previously made
by such shareholders. Effective at the opening of business on 3 April
2008, the Exchangeable Shares were listed and posted for trading in
substitution for the previously listed Common Shares of HOC which were
delisted at that time. The Exchangeable Shares were also admitted to
trading on the Main Market of the LSE on 2 April 2008. Trading of
Ordinary Shares commenced on the LSE on 31 March 2008.
The Exchangeable Shares are designed to have rights as near as possible
equivalent to the Ordinary Shares of the Company. Each Exchangeable
Share is exchangeable on a one-for-one basis for an Ordinary Share. The
holders of Exchangeable Shares are entitled to Voting Rights equivalent
to Ordinary Shares through the Special Voting Share (see below).
Dividends to Ordinary Shareholders can only be declared or paid
simultaneously with the declaration or payment of an identical dividend
to Exchangeable Shareholders. On liquidation, dissolution or winding-up
of HOC, the Exchangeable Shareholders will be given one Ordinary Share
per Exchangeable Share held.
The Company has issued one Special Voting Share. The Special Voting
Share has the number of votes, which may be cast at any meeting at
which holders of Ordinary Shares are entitled to vote, equal to the
number of Exchangeable Shares of HOC outstanding at the relevant time.
The holders of Exchangeable shares are entitled to Voting Rights
through the Special Voting Share held by the trustee of the Voting and
Exchange Trust by the Company, and have the right to receive notice of,
speak and vote at the general meetings of the Company (on the basis of
one vote for every Exchangeable Share) on the same basis as if they had
exchanged their Exchangeable Shares for Ordinary Shares.
In connection with this Reorganisation the Company has agreed that the
2007 convertible bonds outstanding were convertible into Ordinary
Shares of the Company rather than Common Shares of HOC.
These consolidated financial statements include the results of the
Company and all subsidiaries over which the Company exercises control.
The Company together with its subsidiaries are referred to as the
Group. The subsidiaries consolidated within these financial statements
include, inter-alia, Heritage Oil Corporation, Heritage Oil & Gas
Limited, Eagle Energy (Oman) Limited, Heritage Oil and Gas (U) Limited,
Heritage Energy Middle East Limited, Heritage DRC Limited, Coatbridge
Estates Limited, ChumpassNefteDobycha, Neftyanaya Geologicheskaya
Kompaniya, Heritage Oil & Gas (Austria) GesmbH, Heritage Mali Block
7 Limited, Heritage Mali Block 11 Limited, Heritage Energy Holding
GesmbH, Heritage Oil & Gas (Gibraltar) Limited, TISE-Heritage
Neftegaz, Begal Air Limited, Heritage International Holding GesmbH,
Heritage Oil & Gas Holdings Limited, Eagle Drill Limited, Heritage
Oil (Barbados) Limited, Heritage Oil & Gas (Switzerland) SA,
Heritage Oil International Malta Limited, 1381890 Alberta ULC, Heritage
Oil Cooperatief U.A, Heritage Oil Holdings Limited, Heritage
International VOF, Heritage (International) Holding (Gibraltar)
Limited, Heritage Tanzania Kimbiji-Latham Limited and Heritage Tanzania
Kisangire Limited.
2. Basis of Preparation
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the European Union.
The Reorganisation, which is not a business combination, was accounted
for with reference to the principles of reverse acquisition accounting
as in accounting terms, the substance of the Reorganisation is that the
underlying economics of the business have remained unchanged.
Accordingly, the Reorganisation has been accounted for on a carry over
basis of the historical cost of assets and liabilities of HOC and the
consolidated financial history of HOC becomes that of the Company.
Certain prior year balances have been reclassified to conform to the
current year's presentation.
The consolidated financial statements have been prepared under the
historical cost convention, as modified by the revaluation of certain
financial assets and liabilities at fair value.
As for most oil and gas exploration companies, the Company raises
financing for its activities from time to time using a variety of
sources. Based on its current plans and knowledge, its projected
capital expenditure and operating cash requirements, the Group has
sufficient cash to finance its current plans for at least 12 months
from the date of approval of the financial statements, but further
finance is likely to be required to meet expenditure planned for the
second half of 2010. Sources of funding for future exploration and
development programmes will be derived from, inter alia, new credit
facilities, reinvesting funds from operations, using existing treasury
resources, disposal proceeds from the sale of non-core assets,
farm-outs and, when considered appropriate, issuing debt and additional
equity. Accordingly, the Group has a number of different sources of
finance available and the Directors are confident that additional
finance will be raised as and when needed.
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 annual report and
accounts.
3. Segment Information
The Group has a single class of business which is international
exploration, development and production of petroleum oil and natural
gas.
In 2007 and 2008, the Group operated in a number of geographical areas
based on the location of operations and assets; Russia, Oman, Uganda,
DRC, Kurdistan Region of Iraq, Pakistan, Tanzania, Malta and Mali.
Year ended 31 December 2008 -------------------------------------------------------------------- Depreci- ation, depletion and External Segment Total Total Capital amorti- revenue result assets liabilities additions sation --------- ----------- ----------- ----------- ----------- --------- $ $ $ $ $ $ Russia 3,836,991 (7,643,812) 48,123,180 446,935 4,674,969 1,070,410 Oman 1,258,817 (2,850,270) 28,065,282 3,279,402 17,983,358 264,003 Uganda - - 154,684,138 30,485,069 55,791,804 - DRC - - 1,606,765 - 760,545 - Kurdi- stan Region of Iraq - - 43,774,646 6,467,567 41,781,416 - Pakistan - - 1,560,330 - 607,924 - Tanzania - (204,515) 13,785,019 659,604 13,129,738 Mali - - 1,682,381 - 1,012,320 - Malta - (14,831) 8,685,637 3,469 2,052,831 - Unallo- cated - Corpor- ate - (30,589,823) 99,330,142 196,120,406 870,924 1,015,071 --------- ----------- ----------- ----------- ----------- --------- 5,095,808 (41,303,251) 401,297,521 237,462,452 138,665,829 2,349,484 --------- ----------- ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- ----------- --------- Year ended 31 December 2007 -------------------------------------------------------------------- Depreci- ation, depletion and External Segment Total Total Capital amorti- revenue result assets liabilities additions sation --------- ----------- ----------- ----------- ----------- --------- $ $ $ $ $ $ Russia 1,717,717 (2,653,941) 46,384,681 2,874,575 24,306,477 558,604 Oman 1,991,786 1,027,069 13,817,039 331,379 4,408,453 370,868 Uganda(1) - (38,359) 92,398,347 6,036,508 32,993,911 - DRC - - 1,296,220 - 710,751 - Kurdi- stan Region of Iraq(2) - (2,273,220) 1,622,934 - 1,622,934 - Pakistan - (311,778) 952,406 - 952,406 - Mali - (159,947) 213,145 - 213,146 - Malta - (32,846) 6,517,779 - 6,517,779 - Unallo- cated - Corpor- ate - (78,722,573) 246,425,642 207,192,299 11,765,343 962,818 --------- ----------- ----------- ----------- ----------- --------- 3,709,503 (83,165,595) 409,628,193 216,434,761 83,491,200 1,892,290 --------- ----------- ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- ----------- --------- ----------------- (1) Uganda includes exploration activity as well as operating expenses relating to drilling services. (2) Kurdistan Region of Iraq information was not a separate geographic segment until October 2007. However, information is presented to conform with the current year presentation.
Exploration expenditures in respect of
Exploration and Evaluation ("E&E") assets relate to
pre-licence costs which are expensed in accordance with IFRS 6.
4. Disposals
On 9 March 2007, the Group disposed of its previously consolidated 65
per cent interests in Natural Pipelay Worldwide Limited
("NPWL") and Naturalay Technologies Limited
("Naturalay") in consideration for 605,000 common shares in a
private company named SeaDragon. The fair value of the common shares
consideration received of $2,420,000, which was based on the most
recent private placement by SeaDragon in October 2006, resulted in a
gain of $1,077,132 on the disposal. The Group's CFO is a director and
CFO of SeaDragon.
Below is an analysis of the assets and liabilities of NPWL and
Naturalay as at 9 March 2007, the date of sale completion:
9 March 2007 $ ------------- Assets Intangible development costs 1,642,868 ------------- ------------- Liabilities Trade and other payables 300,000 ------------- ------------- Net assets 1,342,868 ------------- -------------
The gain on disposal of the previously
consolidated subsidiary has been
derived as follows:
$ ------------- Consideration received or receivable Fair value of shares 2,420,000 Total disposal consideration 2,420,000 ------------- Less: carrying amount of net assets sold 1,342,868 ------------- Gain on disposal of subsidiaries 1,077,132 ------------- -------------
5. Intangible Exploration Assets
31 December --------------------------- 2008 2007 -------------- ------------ $ $ Balance - beginning of year 102,862,754 54,767,332 Exchange differences (1,448,654) 251,338 Additions 115,136,798 57,337,190 Assets transferred to property, plant and equipment (note 6) (5,204,861) (9,493,106) -------------- ------------ Balance - end of year 211,346,037 102,862,754 -------------- ------------ -------------- ------------
No assets have been pledged as security.
The balances at the end of the years are as follows:
31 December --------------------------- 2008 2007 -------------- ------------ $ $ Russia 11,365,662 18,019,174 Oman 551,083 550,867 Uganda 130,032,034 74,240,229 DRC 1,506,765 746,219 Kurdistan Region of Iraq 43,404,350 1,622,934 Pakistan 1,560,330 952,406 Malta 8,570,610 6,517,779 Mali 1,225,465 213,146 Tanzania 13,129,738 - -------------- ------------ Balance - end of year 211,346,037 102,862,754 -------------- ------------ -------------- ------------
In many of the countries in which the Group
operates, land title systems are not developed to the extent found in
many industrial countries and there may be no concept of registered
title. The risk of title disputes associated with the Kurdistan Region
of Iraq, the DRC and Malta is described in note 12.
6. Property, Plant and Equipment
31 December --------------------------- 2008 2007 -------------- ------------ $ $ Petroleum and natural gas interests 68,121,295 42,056,745 Drilling and barge equipment 3,544,969 3,544,969 Land and building 11,984,701 11,984,701 Other 15,323,857 14,452,933 -------------- ------------ Property, plant and equipment, at cost 98,974,822 72,039,348 Accumulated depletion, depreciation and amortisation (10,935,604) (7,813,430) -------------- ------------ Net book amount 88,039,218 64,225,918 -------------- ------------ -------------- ------------ Reconciliation of movements during the year Petroleum and natural gas interests Cost - beginning of year 42,056,745 18,091,216 Accumulated depletion and depreciation - beginning of year (3,981,438) (3,051,966) -------------- ------------ Net book amount - beginning of year 38,075,307 15,039,250 -------------- ------------ -------------- ------------ Net book value - beginning of year 38,075,307 15,039,250 Exchange differences (3,426,524) 335,094 Additions 27,533,291 14,137,329 Assets transferred from intangible exploration (note 5) 5,204,861 9,493,106 Depletion and depreciation (1,290,992) (929,472) Write-down of proved petroleum and natural gas interests (3,247,078) - -------------- ------------ Net book amount - end of year 62,848,865 38,075,307 -------------- ------------ -------------- ------------ Cost - end of year 68,121,295 42,056,745 Accumulated depletion and depreciation - end of year (5,272,430) (3,981,438) -------------- ------------ Net book amount - end of year 62,848,865 38,075,307 -------------- ------------ -------------- ------------ Drilling and barge equipment Cost - beginning of year 3,544,969 3,544,969 Accumulated depletion and depreciation - beginning of year (2,147,503) (347,741) -------------- ------------ Net book amount - beginning of year 1,397,466 3,197,228 -------------- ------------ -------------- ------------ Net book amount - beginning of year 1,397,466 3,197,228 Additions - - Depletion and depreciation - - Impairment (749,955) (1,799,762) -------------- ------------ Net book amount - end of year 647,511 1,397,466 -------------- ------------ -------------- ------------ Cost - end of year 3,544,969 3,544,969 Accumulated depletion and depreciation - end of year (2,897,458) (2,147,503) -------------- ------------ Net book amount - end of year 647,511 1,397,466 -------------- ------------ -------------- ------------ Land and building Cost - beginning of year 11,984,701 11,984,701 Accumulated depletion and depreciation - beginning of year (452,329) (313,151) -------------- ------------ Net book amount - beginning of year 11,532,372 11,671,550 -------------- ------------ -------------- ------------ Net book amount - beginning of year 11,532,372 11,671,550 Depletion and depreciation (139,178) (139,178) -------------- ------------ Net book amount - end of year 11,393,194 11,532,372 -------------- ------------ -------------- ------------ Cost - end of year 11,984,701 11,984,701 Accumulated depletion and depreciation - end of year (591,507) (452,329) -------------- ------------ Net book amount - end of year 11,393,194 11,532,372 -------------- ------------ -------------- ------------ Other Cost - beginning of year 14,452,933 2,687,590 Accumulated depletion and depreciation-beginning of year (1,232,160) (408,520) -------------- ------------ Net book amount - beginning of year 13,220,773 2,279,070 -------------- ------------ -------------- ------------ Net book amount - beginning of year 13,220,773 2,279,070 Additions 870,924 11,765,343 Depletion and depreciation (942,049) (823,640) -------------- ------------ Net book amount - end of year 13,149,648 13,220,773 -------------- ------------ -------------- ------------ Cost - end of year 15,323,857 14,452,933 Accumulated depletion and depreciation - end of year (2,174,209) (1,232,160) -------------- ------------ Net book amount - end of year 13,149,648 13,220,773 -------------- ------------ -------------- ------------
The corporate office which represents the
land and building category and the corporate jet serve as security for
long-term loans.
The carrying value of the drilling rig was written down to nil because
the management does not expect that there will be significant drilling
services revenues generated from the use of the drilling rig. This
resulted in an impairment write-down of $749,955 (2007 - $1,799,762)
recognised in the income statement during the year ended 31 December
2008. Impairment tests were performed for development and producing
assets for a variety of scenarios using after tax discount rates in the
range from 10% to 15%. The trigger for the impairment tests was a
decline in oil and gas prices during 2008. As a result of the
impairment test, the carrying value of the petroleum and natural gas
interest in Oman was written down to its fair value of $28 million.
This resulted in an impairment write-down of $3,247,078 (2007 - nil)
recognised in the income statement during the year ended 31 December
2008. The impairment tests indicated that the fair value of the
Company's development and producing asset in Russia significantly
exceeds its book value.
7. Share Capital
The Company was incorporated under the Companies (Jersey) Law 1991 (as
amended) 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 (note 1), the Corporation split its stock
such that each existing Common Share of the Corporation was exchanged
for either ten Ordinary Shares or ten Exchangeable Shares. The
Corporation was a US dollar functional currency entity as is the
Company and therefore the balance of Share Capital was carried forward
at its historical amount into the financial statements of the Company.
The rights of different classes of shares are the same and therefore
economically equivalent. As such, Ordinary and Exchangeable Shares were
treated as one class of shares for loss per share calculation.
Information about movements in share capital issued before the
Reorganisation is presented in the table below on the after split
basis, i.e. taking into account, the one for ten split.
Ordinary Shares Year ended Year ended 31 December 2008 31 December 2007 ------------------------ ------------------------- Number Amount Number Amount ----------- ----------- ----------- ------------ $ $ Balance - beginning of year 254,877,480 217,672,243 220,090,330 24,580,984 Issue of shares 2 83 30,000,000 175,963,414 Exchange of the Common Shares for Exchangeable Shares (4,431,120) (3,784,296) - - Exchange of the Exchangeable Shares for Ordinary Shares 1,182,012 1,009,470 - - Issued on exercise of stock options (note 10) 230,000 611,555 520,000 1,079,031 Issued on conversion of bonds - - 4,267,150 16,048,814 ----------- ----------- ----------- ------------ Balance - end of year 251,858,374 215,509,055 254,877,480 217,672,243 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ Special Voting Share Year ended Year ended 31 December 2008 31 December 2007 ------------------------ ------------------------- Number Amount Number Amount ----------- ----------- ----------- ------------ $ $ Balance - beginning of year - - - - Issued during the year 1 - - - Balance - end of year 1 - - - ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ Exchangeable Shares of Heritage Oil Corporation Each Carrying One Voting Right in the Company Year ended Year ended 31 December 2008 31 December 2007 ------------------------ ------------------------- Number Amount Number Amount ----------- ----------- ----------- ------------ $ $ Balance - beginning of year - - - - Exchange of the Common Shares for Exchangeable Shares 4,431,120 3,784,296 - - Exchange of the Exchangeable Shares for Ordinary Shares (1,182,012) (1,009,470) - - --------------------------------------------------- Balance - end of year 3,249,108 2,774,826 - - ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ Balance of Ordinary Shares of the Company and Exchangeable Shares of HOC - end of year 255,107,482 218,283,881 254,877,480 217,672,243 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
8. Reserves and Retained Earnings/(Deficit)
(a) Reserves
31 December --------------------------- 2008 2007 -------------- ------------ $ $ Available-for-sale investments revaluation reserve 168,000 168,000 Foreign currency translation reserve (220,784) 430,580 -------------- ------------ (52,784) 598,580 Share-based payments reserve 54,564,393 42,579,779 -------------- ------------ 54,511,609 43,178,359 -------------- ------------ -------------- ------------ Movements Available-for-sale investments revaluation reserve Balance - Beginning of year 168,000 - Revaluation - 168,000 -------------- ------------ Balance - End of year 168,000 168,000 -------------- ------------ -------------- ------------ Foreign currency translation reserve Balance - Beginning of year 430,580 (4,003) Currency translation differences arising during year (651,364) 434,583 -------------- ------------ Balance - End of year (220,784) 430,580 -------------- ------------ Share-based payments reserve Balance - Beginning of year 42,579,779 2,641,061 Compensation costs - options issued 12,234,715 40,491,888 Transfer to share capital on exercise of options (250,101) (409,363) Options forfeited - (143,807) -------------- ------------ Balance - End of year 54,564,393 42,579,779 -------------- ------------ -------------- ------------
(b) Retained Earnings/(Deficit)
31 December --------------------------- 2008 2007 -------------- ------------ $ $ Balance - Beginning of year (67,657,170) 15,508,425 Net loss for the year (41,303,251) (83,165,595) -------------- ------------ Balance - End of year (108,960,421) (67,657,170) -------------- ------------ -------------- ------------
(c) Nature and Purpose of Reserves
i) Available-for-Sale Investments Revaluation Reserve
Changes in the fair value and exchange differences arising on
translation of available-for-sale investments such as equities,
classified as available-for-sale financial assets, are taken to the
available-for-sale investments revaluation reserve. Amounts are
recognised in the income statement when the associated assets are sold
or impaired.
ii) Foreign Currency Translation Reserve
Exchange differences arising on translation of the foreign controlled
entity are taken to the foreign currency translation reserve. The
reserve will be recognised in the income statement when the net
investment is disposed.
iii) Share-Based Payments Reserve
The share-based payments reserve is used to recognise the fair value of
options and Long Term Incentive Plan ("LTIP") awards issued,
but not exercised, to employees.
9. Loss Per Share
The following table summarises the weighted average Ordinary and
Exchangeable Shares used in calculating net earnings per share:
Year ended 31 December --------------------------- 2008 2007 -------------- ------------ Weighted average Ordinary and Exchangeable Shares Basic 254,969,021 227,504,282 Diluted 256,257,622 237,562,982
The weighted average number of shares has
been adjusted to reflect the effective one for ten share split that
took place as part of the corporate reorganisation described in note
17. The reconciling item between basic and diluted weighted average
number of Ordinary Shares is the dilutive effect of stock options. A
total of 22,232,010 options (31 December 2007 - nil), 4,926,429 of
shares relating to the LTIP (31 December 2007 - nil) and 33,617,020 of
shares relating to the convertible bonds (31 December 2007 -
33,617,020) were excluded from the above calculation, as they were
anti-dilutive.
10. Share-Based Payments
Stock Options
The Company had a stock option plan whereby certain directors,
officers, employees and consultants of the Group have been granted
options to purchase Ordinary Shares. Under the terms of the plan,
options granted normally vest one third immediately and one third in
each of the years following the date granted and have a life of five
years.
As part of the Reorganisation (note 1) the 2008 Replacement Share
Option Scheme (the "2008 Scheme") was adopted. The 2008
Scheme served as a replacement of the Stock Option Plan of HOC which
was cancelled just after the Reorganisation of HOC and its subsidiaries
companies which occurred on 31 March 2008. Pursuant to the
Reorganisation, the HOC optionholders exchanged each outstanding option
to acquire a Common Share in the capital of HOC for ten options to
acquire ten Ordinary Shares in the capital of the Company. The HOC
optionholders were put in substantially the same economic position in
the Company that they were in prior to the Reorganisation. The exercise
prices of the options to acquire Ordinary Shares in the capital of the
Company are expressed in Pounds Sterling and represent the exercise prices
of the HOC's options, expressed in Canadian dollars, translated at the
exchange rate at 31 March 2008.
Information about stock options granted before the Reorganisation is
presented in the tables below on the same basis as it is stipulated by
the 2008 Scheme, i.e. after taking into account the one for ten
exchange and translation of exercise prices to Pounds Sterling.
Ordinary Share options outstanding and exercisable:
Year ended 31 Year ended 31 December 2008 December 2007 ---------------------------------------------- Number Average Number Average of exercise of exercise options price options price ---------------------------------------------- (GBP) (GBP) Balance - beginning of year 24,612,010 1.51 8,316,670 1.06 Granted - - 17,232,010 1.43 Exercised (note 7) (230,000) 0.89 (520,000) 0.65 Forfeited - - (416,670) 0.48 ---------------------------------------------- Balance - end of period 24,382,010 1.51 24,612,010 1.51 ---------------------------------------------- Exercisable - end of period 23,040,343 1.45 15,693,010 1.38 ---------------------------------------------- ---------------------------------------------- Number of options ----------------- Remaining Exercise price (GBP) Outstanding Exercisable life (years) ------------------------------ ----------- ----------- ------------ GBP 0.48 2,000,000 2,000,000 1.39 GBP 0.81 150,000 150,000 2.48 GBP 1.08 - GBP 1.43 18,207,010 18,207,010 2.95 GBP 2.45 - GBP 2.51 4,025,000 2,683,333 3.93 ----------- ----------- ------------ 24,382,010 23,040,343 2.98 ----------- ----------- ------------ ----------- ----------- ------------
The share-based payment recognised with
respect to the stock options in the period ended 31 December 2008 was
$9,805,167 (2007 - $40,344,181) out of which $3,671,537 (2007 -
$9,043,886) was capitalised.
Long Term Incentive Plan ("LTIP")
On 19 June 2008, the AGM of the Company approved the 2008 Long Term
Incentive Plan (the "LTIP'). Under the terms of the plan, the LTIP
awards will be in the form of full-value shares (Performance Shares),
subject to performance and time-vesting conditions. Eligible employees
will normally be considered by the Remuneration Committee for an award
once each year. Awards made to the executive directors of the Company
under the LTIP are called First Awards. Participants in the First
Award, however, will not be entitled to any further awards until the
2011 financial year. Awards will normally be made during the period of
42 days following the announcement of year-end or half-year financial
results. Exceptionally, the First Awards under the plan on 19 June
2008, were permitted to be made within 42 days following approval of
the LTIP at the June 2008 AGM.
The plan is intended to apply to executive directors and other
employees in senior management or leadership roles. By exception, other
higher performing and high potential employees may be considered for
awards. Participants in the LTIP will not be entitled to any further
awards under the 2008 Scheme.
The vesting of shares under award are subject to performance conditions
agreed by the Remuneration Committee when the award is made. For the
First Awards made in 2008 the performance conditions are relative TSR
(capital gain plus dividends) performance of the Company versus that of
a comparator group of international oil companies and a requirement for
the share price of the Company to have increased by 20% over the
vesting period of three years. Furthermore is an additional holding
period of one year following the awards vesting.
The Remuneration Committee in consultation with executive reward
consultants, approved grants of shares to executive directors, senior
management and other employees in leadership roles under the LTIP. The
maximum annual, individual award for participants who are not executive
directors is 250% of base package (expressed as the 'face value' of the
shares). The First Award to executive directors is 1,200% of base
package for the CEO and 800% of base package for the CFO.
The First Awards vest after three years provided that the performance
conditions are met. The awards granted to senior management and other
employees in leadership roles are in three tranches that vest after
three, four and five years respectively, provided that the performance
condition is met at that time.
The award would vest in line with the following schedule:
------------------------------------------------- Senior management TSR Performance and other employees vs Comparator Group First Awards in leadership role awards of 18 Companies proportion vesting proportion vesting ------------------ ------------------------- 3rd place and above 100% of the award 100% of the award 4th place 80% 100% 5th place 50% 100% 6th place 30% 100% 7th place and below 0% 100% 9th place (median) 0% 100% 10th place and below 0% 0%
TSR is measured in comparison to a peer
group of 18 oil companies selected based on one of or a combination of
size (market capitalisation, revenue, turnover, cash expenditure or a
combination thereof), area of operations and country of domicile. The
TSR measurement is conducted by independent consultants in discussion
with the Remuneration Committee.
Since there are market-related conditions the awards of the shares
under LTIP were fair valued using the Monte Carlo model which takes
into account the market-based performance conditions which effectively
estimate the number of shares expected to vest. No subsequent
adjustment is made to the fair value charge for shares that do not vest
in the event that these performance conditions are not met. Adjustments
are, however, made for leavers. The fair value of the awards is
recognised as an employee expense with the corresponding increase in
equity. The total amount to be expensed is spread over the vesting
period during which the employees become unconditionally entitled to
the shares and options.
The table below summarises the main assumptions used to fair value the
awards made under the above LTIP and the fair values of the shares
granted.
---------------------------------------------- First Awards 19 June 19 June 19 June Award date 19 June 2008 2008 2008 2008 ------------ --------- --------- ---------- Vesting period 3 3 4 5 Exercise price nil nil nil nil Share price at date of grant GBP 3.45 GBP 3.45 GBP 3.45 GBP 3.45 Expected volatility 40% 40% 40% 40% Expected dividend yield 0% 0% 0% 0% Fair value as at grant date GBP 1.55 GBP 2.49 GBP 2.61 GBP 2.70 Number of shares granted 3,507,246 473,061 473,061 473,061
The share-based payment recognised with
respect to the awards granted in the period ended 31 December 2008 was
$2,429,547 out of which $967,632 was capitalised.
11. Related Party Transactions
During the year ended 31 December 2008, the Company incurred
transportation costs of $134,978 (31 December 2007-nil) with respect to
the services provided by a company indirectly owned by Mr. Anthony
Buckingham, CEO and a director of the Company.
Mr. Atherton, a director and CFO of the Company, is also a director and
CFO of SeaDragon. The Group acquired 605,000 common shares of SeaDragon
on 9 March 2007 through the sale of its 65% interest in Pipelay and
Naturalay Technologies.
12. Commitments and Contingencies
Heritage's net share of outstanding contractual commitments at 31
December 2008 was estimated at:
Less than 1-3 4-5 After Total 1 year years years 5 years ------- ------ ------- ------- -------- $'000 $'000 $'000 $'000 $'000 Long-term debt 15,136 595 1,190 7,820 5,531 Convertible bonds(3) 158,000 - - 158,000 - ------- ------ ------- ------- -------- Total repayments of borrowings 173,136 595 1,190 165,820 5,531 ------- ------ ------- ------- -------- ------- ------ ------- ------- -------- Operating leases 8,782 406 649 649 7,078 Other long-term obligations(1) 140,000 - 140,000 - - Work programme obligations(2) 166,053 17,446 116,863 31,744 - ------- ------ ------- ------- -------- Total contractual obligations 314,835 17,852 257,512 32,393 7,078 ------- ------ ------- ------- -------- ------- ------ ------- ------- -------- (1) Other long-term obligations represent minimum financial commitment for the Group to build a refinery in the Kurdistan Region of Iraq in accordance with the Production Sharing Contract in the Kurdistan Region of Iraq. In April 2009, the Group was released from the obligation to build a refinery (note 14). (2) Work programme obligation includes minimum required financial commitment for the Group to fulfill the requirements of licences and production sharing contracts. A two year extension to the licences on two blocks in Mali was awarded in January 2009. The Company has applied for an extension to the initial exploration period for two blocks in Tanzania, which the Tanzanian Government has advised it is favourably considering. The Company included $58.8 million relating to Tanzania work programme obligations in column "1-3 years". (3) In April 2009, bondholders with $5.9 million of bonds gave notice of the exercise of 59 bonds. These bondholders received 1,255,317 Ordinary Shares (note 14).
The Company may have a potential residual
obligation to satisfy any shortfall in officers' and former officers'
secured real estate borrowings in the event of default, a shortfall on
the proceeds from the disposal of the properties and the individuals being
unable to repay the balance. The value of the residual obligation was
estimated as insignificant.
In many of the countries in which the Group operates, land title
systems are not developed to the extent found in many industrial
countries and there may be no concept of registered title. Although the
Group believes that it has title to its oil and gas properties, it
cannot control or completely protect itself against the risk of title
disputes or challenges. 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. The Group received a letter from the Iraq Ministry of
Oil dated 17 December 2007 stating that the PSC signed with the KRG
without the prior approval of the Iraqi government is considered to be
void by the Iraqi government as they have stated it violates the
"prevailing Iraqi law". The Directors believe that the PSC is
valid and effective pursuant to the applicable laws.
In addition, the DRC work programme pursuant to the PSC cannot be
commenced prior to the grant of a Presidential Decree from the DRC
government. There can be no assurance that final approval or
ratification will ever be received in respect of the PSC or that the
pre-agreed fiscal terms will not be re-negotiated at a later date by
the DRC government. The Directors are confident that the title will be
confirmed.
Furthermore, the Group received a letter from the chairman of the
Management Committee of the National Oil Company of Libya dated 28
February 2008 stating that the Block 7 licence area lies within the
Libyan continental shelf and a portion of this area has already been
licensed to Sirte Oil Company. This letter also demands that the Group
refrain from any activities over, or concerning, the Block 7 licence
area and asserts the Libyan government's right to invoke Libyan and
international law to protect its rights in the Block 7 licence area.
The Directors believe that the Libyan government's claims are
unfounded.
13. Non-cash Investing and Financing Activities Supplementary
Information
Year ended 31 December --------------------------- 2008 2007 -------------- ------------ $ $ Capitalised portion of share-based compensation (4,639,169) (9,043,886) Non-cash property, plant and equipment additions relating to the capitalised portion of share-based compensation 4,639,169 9,043,886 Disposal of subsidiaries (note 4) - (1,342,868) Gain on disposal of subsidiaries (note 4) - (1,077,132) Receipt of SeaDragon shares as a proceeds for disposal of subsidiaries (note 4) - 2,420,000 Receipt of SeaDragon shares as a result of the issuance of the Company's guarantee for a third party's debt - 435,000 Accrual of payable representing the fair value of the Company's guarantee issued for a third party's debt - (435,000)
14.
Subsequent Events
On 7 April 2009, the Company entered into an agreement to sell Eagle
Energy (Oman) Limited which held a 10% interest in Block 8 in Oman for
approximately $28 million. Cash was received on 7 April 2009 and the
transaction was completed on that date.
In April 2009, in
accordance with the option outlined in the PSC in the Kurdistan Region
of Iraq the KRG nominated a third party participant in the Miran
Licence. The Company remains the operator with a 75% working interest
in the Miran Licence and will receive the pro-rata share of 25% of all
past work programme expenditures and the third party will be
responsible for paying its share of future costs. The transaction was
completed upon the receipt of approximately $6.7 million in costs
incurred by the Company to 31 January 2009. Additionally, the KRG has
released the Company from the obligation to build a refinery in
exchange for making a payment of $35 million from future oil and gas
sales from the licence. The minimum financial commitment for the
Company was $140 million.
In April 2009, bondholders with $5.9 million of bonds gave notice of
the exercise of 59 bonds. These bondholders received 1,255,317 Ordinary
Shares.
PRINCIPAL RISKS AND UNCERTAINTIES
A variety of material risk factors have been identified that could have
an impact on the Company, including risks relating to operations,
countries in which the Group operates, the Group structure and risks
relating to the Ordinary Shares and the Exchangeable Shares. The most
significant risk factors impacting on the Group are considered to be:
- exploration and development expenditure and success rates;
- factors associated with operating in developing countries, political
and regulatory instability;
- title disputes;
- oil and gas sales volumes and prices; and
- reliance on key employees.
The above risk factors could adversely affect the cash flows to a
material extent that the Group may, in certain circumstances, need to
obtain further debt or equity financing in the future.
Further information on risks and internal controls can be found in the
Financial Review on page 13.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements for the Group in accordance with the International
Financial Reporting Standards ("IFRS") as adopted by the
European Union and applicable law and regulations.
Company law requires the Directors to prepare Group financial
statements for each financial year. Under that law they are required to
prepare the Group financial statements in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the EU
and applicable law.
The Group financial statements are required by law and IFRS as adopted
by the EU to present fairly the financial position of the Group and the
performance for that period.
In preparing the financial statements the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
- provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity's financial position and financial performance;
- state whether they have been prepared in accordance with IFRS as
adopted by the EU; and
- prepare the financial statements on a going concern basis unless,
having assessed the ability of the Company to continue as a going
concern, it is inappropriate to presume the Company will continue in
business.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Group and enable them to ensure that its financial
statements comply with the Companies (Jersey) Law 1991.
They have general responsibility for taking such steps as are
reasonably open to them for safeguarding the assets of the Group and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for the preparation of a Directors' Report, Remuneration
Report and Corporate Governance Statement. The Directors are
responsible for the maintenance and integrity of the statutory and
audited information on the Company's website. Jersey legislation and
United Kingdom regulation, governing the preparation and dissemination
of financial statements, may differ from requirements in other
jurisdictions.
GOING CONCERN
After making due enquiries, the Directors have made an informed
judgement at the time of approving the financial statements, that there
is a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. For this
reason, the Directors continue to adopt the going concern basis in
preparing the financial statements.
FORWARD-LOOKING INFORMATION:
Except for statements of historical fact, all statements in this news
release - including, without limitation, statements regarding
production estimates and future plans and objectives of Heritage -
constitute forward-looking information that involve various risks and
uncertainties. There can be no assurance that such statements will
prove to be accurate; actual results and future events could differ
materially from those anticipated in such statements. Factors that
could cause actual results to differ materially from anticipated
results include risks and uncertainties such as: risks relating to
estimates of reserves and recoveries; production and operating cost
assumptions; development risks and costs; the risk of commodity price
fluctuations; political and regulatory risks; and other risks and
uncertainties as disclosed under the heading "Risk Factors"
in its Prospectus and elsewhere in Heritage documents filed from
time-to-time with the London Stock Exchange and other regulatory
authorities. Further, any forward-looking information is made only as
of a certain date and the Company undertakes no obligation to update
any forward-looking information or statements to reflect events or
circumstances after the date on which such statement is made or reflect
the occurrence of unanticipated events, except as may be required by
applicable securities laws. New factors emerge from time to time, and
it is not possible for management of the Company to predict all of
these factors and to assess in advance the impact of each such factor
on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially
from those contained in any forward-looking information.
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