heritage oil announces 2013 interim · pdf fileheritage oil announces 2013 interim results ......

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29 August 2013

Heritage Oil Plc

(“Heritage” or the “Company”)

HERITAGE OIL ANNOUNCES 2013 INTERIM RESULTS

Heritage Oil Plc (LSE: HOIL), an independent upstream exploration and production company,

announces the publication of its interim results for the six months ended 30 June 2013. All dollars are

US dollars unless otherwise stated.

Operational Highlights

Heritage’s operations have been transformed by the acquisition of an interest in OML 30, Nigeria

OML 30 achieved record gross production, since acquisition, of c.44,000 bopd in August 2013,

with a first half average gross production for the licence of 15,327 bopd

Net average daily production of 7,197 bopd in the first half 2013. Production, net to Heritage, for

the month of July 2013 averaged c.11,000 bopd, over 50% higher than the first half of the year

Continued the work programmes in Tanzania through the processing of 2D seismic on Rukwa

and the processing and interpretation of seismic across the Kyela licence

Expanded the exploration portfolio with the farm-in to two licences in Papua New Guinea

(“PNG”); Petroleum Prospecting Licence No:319 (“PPL 319”) and Petroleum Retention Licence

No:13 (“PRL 13”), which are in a proven hydrocarbon bearing region

Acquired first 62 kilometres of seismic across the Tuyuwopi structure in PPL 319, PNG,

confirming a drilling location

Corporate Highlights

Very strong growth in revenues in the first half of the year with $238 million generated from

operations in Nigeria and Russia

Cash generated from operations of $135 million in the six months ended 30 June 2013

Cash position as at 30 June 2013 of approximately $113 million, excluding $51 million used as

part security in respect of OML 30 which was released back to the Company on 22 August 2013

and replaced with alternative security granted by Heritage

Successfully completed the refinancing of the bridge loan facility with a five year $500 million

Senior Secured Revolving Reserves Based Lending Facility

Heritage has sought leave to appeal to the High Court the judgment in the English Commercial

Court case brought against the Company and Heritage Oil & Gas Limited, received in June 2013

Outlook

Gross production from OML 30, Nigeria, for the second half of 2013 is expected to average

45,000 bopd, nearly triple that of the first half of the year. This results in a full year expected

average for 2013 of c.30,000 bopd

Average gross production for 2014 is estimated in the range of 60,000 to 65,000 bopd

The increase in production from OML 30 for the remainder of this year will be achieved by the

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installation of new equipment, working over existing wells and commencing production from the

Uzere West field which has been shut-in for nearly two years

First exploration drilling in Tanzania and PNG slated for 2014

Development drilling of OML 30, Nigeria, scheduled to commence in the summer of 2014

Tony Buckingham, Chief Executive Officer, commented:

“We have started the second half of the year remaining resolutely focused on our existing operations in

Nigeria to ensure we extract maximum value from our asset. Our ongoing operations have been

transformed with record revenues, profits and cash flows achieved. We expect to see further significant

production gains during the remainder of the year from the operational, engineering and comprehensive

community programmes undertaken so far. Considerable cash flow can be generated from our OML 30

interests to fund our exploration portfolio in the short term and longer term provide surplus funds for a

sustainable dividend stream to our investors. Activity will be focused on delivering production growth

over the next twelve months whilst also providing a step up in exploration drilling. The Company is

positioned to offer a balanced portfolio with upside from both production and exploration.”

- ends –

Heritage’s 2013 Interim Report and Accounts is available on its website at www.heritageoilplc.com.

For further information please contact:

Heritage Oil Plc

Tony Buckingham, CEO / Paul Atherton, CFO

+44 (0) 1534 835 400

[email protected]

Heritage Oil Plc – Investor Relations Tanya Clarke

+44 (0) 20 7518 0838

[email protected]

Media Enquiries Ben Brewerton/ Natalia Erikssen

+44 (0) 20 7831 3113

[email protected]

Canada

Cathy Hume / Jeanny So

+1 416 868 1079 x231 / x225

[email protected] / [email protected]

Notes to Editors

Heritage is listed on the Main Market of the London Stock Exchange. 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 internationally.

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Shoreline Natural Resources Limited is a private limited Nigerian company established by

Heritage (through a wholly owned subsidiary) and Shoreline Power Company Limited and has a

45% interest in OML 30 with National Petroleum Development Company holding the remaining

55% interest.

Heritage has producing assets in Nigeria and Russia and exploration assets in Tanzania, Papua

New Guinea, Malta, Libya and Pakistan.

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

([email protected]) and specify “Heritage press releases” in the subject line.

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CHAIRMAN’S AND CHIEF EXECUTIVE’S REVIEW

Heritage continues to focus on expanding a balanced portfolio of assets with producing fields capable of

generating significant cash flow and a growing exploration asset base. The first half of this year has been

busy for both sides of our portfolio. Heritage, through Shoreline Natural Resources Limited

(“Shoreline”), established a base in Lagos with a team, including technical staff, to oversee our interest

in OML 30, Nigeria. This asset, which has recently achieved record gross production, since acquisition,

of c.44,000 bopd, remains the main development priority for the Company. All existing facilities have

been reviewed to identify opportunities for improvement and maintenance. A number of comprehensive

operational, engineering and community projects that commenced in the first half of the year are already

generating and contributing to significant production increases. Average daily gross production for July

was c.23,100 bopd which has increased to c.40,800 bopd to date in August.

Shoreline has continued to develop a close working relationship with the operator, Nigerian Petroleum

Development Company (“NPDC”), and is assisting in various studies and with the procurement of new

equipment.

A not for profit Non-Government Organisation (“NGO”), registered and working in Nigeria and West

Africa for over 20 years, has been engaged to work with NPDC and Shoreline to ensure a cohesive

approach to community issues. These initiatives have already had a marked impact on activities since

June with production significantly higher than in the first six months of the year. Further increases

arising from these initiatives are expected during the remainder of the year.

Work programmes across our exploration portfolio continue with wells planned to commence drilling in

both Papua New Guinea and Tanzania in 2014.

Total production, net to Heritage, for the first half of 2013 was 7,197 bopd generating revenues of $238

million. Production from Nigeria for the period, net to Heritage was 6,725 bopd and for Russia was 472

bopd. Nigeria contributed $234.4 million of revenue at an average realised price of $116.87/bbl and

revenues from Russia of $3.4 million were at an average realised price of $41.05/bbl.

OPERATIONAL OVERVIEW

Nigeria

Gross production from OML 30 averaged 15,327 bopd over the first half of the year. Gross production

peaked at c.35,890 bopd during the period but several issues were encountered which resulted in

increased downtime and a delay to installation of equipment. Intermittent strikes, by various groups of

workers, and community related issues over the Olomoro, Oroni and Kokori Fields were the largest

contributors to the downtime. Some maintenance continued and spares for refurbishment were received

despite the strikes.

The need for an increased focus on community engagement became apparent during the period and

further resource is now being dedicated to this. A community relations group has been formed jointly

between Shoreline and NPDC in order to provide an aligned response to any community issues that may

emerge. The appointed NGO has undertaken needs assessments across local community clusters to

ensure that concerns are addressed and that local communities feel included as stakeholders in the

licence. Key projects in the Corporate Social Responsibility programme to date have included drilling

water wells, installation of a water distribution system and commencement of a series of training

programmes. These initiatives have been pursued over the last three months and resulted in a marked

improvement in relationships and a reduction in downtime. Consequently, production has recently

reached new post-acquisition highs of c.44,000 bopd.

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The procurement and installation of new equipment will contribute to achieving average production of

45,000 bopd gross in the second half of 2013. Three new compressors were ordered in the first half of

the year and have arrived in country. They are scheduled to come on-stream through a phased

installation by November 2013. These new compressors will be installed in the Kokori, Afiesere and

Olomoro Fields to enhance existing facilities and are expected to help minimise downtime and increase

average production. In addition, a gas distribution manifold is currently being installed at Afiesere to

increase production from this field which has, until now, been producing without the assistance of

artificial lift. The long-term potential gross production capability of the OML 30 licence is estimated at

approximately 300,000 bopd, with the existing infrastructure having capacity of 395,000 bpd.

In addition to the three new compressors and the gas distribution manifold two new engines have been

ordered to act as “swing engines” for the refurbishment campaign. The new engines will be installed at

Olomoro. The two existing engines at Olomoro will be refurbished for installation on another field as

the campaign progresses. Compressors will be overhauled while the engines are replaced. This cycle

will minimise downtime while the systematic refurbishment campaign is underway. Replacement of all

ten instrument air compressors is underway along with generator replacement. In order to reduce

processing, treatment and storage expenses, a project to expand the Ughelli Pumping Station to remove

water and inject it into nearby deep wells has progressed to the FEED stage.

Production from the Uzere West Field halted in November 2011 due to issues concerning historic

community leadership. Shoreline has been responsible for leading the recent engagement with the local

communities to resolve the issues. The plant and facilities have been inspected and found to be in good

working order and production is scheduled to restart on this field imminently. It is expected that this

field will take four weeks to achieve full production of between 3,000 to 5,000 bopd.

Erratic production in the first half of the year led to an overlift occurring by the first quarter which was

then nearly rebalanced during the second quarter. With production now more stable as a result of the

initiatives undertaken, it is expected that regular liftings will occur over the remainder of the year with

the next one due at the end of August.

Russia

Production for the first half of 2013 averaged 472 bopd, a decline of 17% compared to the same period

in the prior year due to the replacement of the electric submersible pump in horizontal well 363 in the

first quarter 2013. Production averaged 675 bopd in July 2013, over 40% higher than the first six months

of the year.

Tanzania

The acquisition of approximately 600 kilometres of 2D seismic over the Rukwa licence was completed

in the first quarter of 2013. The data has been processed and interpretation is expected to be completed

in the third quarter 2013. Preliminary results from this extensive dataset are very encouraging with the

high quality data enabling enhanced mapping of targeted leads. A comprehensive drilling logistics study

continues as planned on the Rukwa licence, with drilling slated for 2014.

The acquisition of approximately 100 kilometres of reconnaissance seismic across the Kyela licence

completed in January 2013. The interpretation of the data has provided further encouragement with

respect to the prospectivity of the area. A geochemical survey of the licence will be completed later this

year.

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Papua New Guinea

In April 2013, Heritage agreed to acquire up to an 80% working interest in PPL 319 and PRL 13 from

LNG Energy Ltd (“LNG Energy”). In return for earning an 80% working interest and operatorship,

Heritage will fund the costs of seismic acquisition and drilling of an exploration well. The work

programme began with acquisition of the first 62 kilometres of 2D seismic data over the Tuyuwopi

structure in PPL 319. This confirmed a drilling location and plans are underway to drill the prospect in

2014.

The processing of the new seismic data continues, along with reprocessing of c.300 kilometres of

legacy seismic data over the licences, scheduled to be completed later this year. Further seismic data

will also be acquired elsewhere over other leads within the licences.

The PPL 319 and PRL 13 licences are located in a known prolific hydrocarbon region close to multiple

producing fields and discoveries, including the multi-TCF Triceratops and Elk/Antelope discoveries.

They are also in close proximity to current infrastructure with the Kutubu oil export pipeline and the

PNG Liquefied Natural Gas pipeline crossing the acreage. These licences also benefit from the Kikori

River providing a link to the open sea thereby increasing transport options.

CORPORATE

Cash

As at 30 June 2013, Heritage had a cash position of approximately $113 million, excluding $51 million

held as part security for the OML 30 transaction which was released back to the Company on 22 August

2013 and replaced with alternative security granted by Heritage. This facility matures on 31 December

2013, although Heritage has the option to extend this to 28 November 2014.

Refinancing

In June 2013, Shoreline successfully completed the refinancing of its bridge loan facility. The new

facility is a five year $500 million Senior Secured Revolving Reserves Based Lending Facility (the

“RBL Facility”) which can be increased up to $600 million.

The RBL Facility, which is secured at the Nigeria level, replaces the bridge loan executed as part of the

acquisition of a 45% interest in the OML 30 licence and provides long-term financing to Shoreline to

further develop the licence. The RBL Facility has been arranged on better terms and provides greater

flexibility than the bridge loan.

On completing the RBL Facility in June 2013, $50 million of cash collateral, which was put in place

under the bridge loan as part of the security following the sale of the Miran asset, was released to

Heritage.

Shoreline Option

Shoreline was structured with 55% of its equity interest held by Shoreline Power Company Limited

(“Shoreline Power”) and the remaining 45% held by Heritage, through a wholly owned subsidiary.

Under the arrangements Heritage’s economic interest was 97.5%.

In December 2012, Heritage announced that Shoreline Power had exercised its call option to acquire a

30% economic interest in Shoreline. This would have the effect of reducing Heritage’s economic

interest in Shoreline from 97.5% to 68.25%, with 68.25% being an effective 30.71% working interest in

OML 30. In order to fund a portion of the consideration of c.$120 million, Shoreline Power has entered

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into an agreement with Cedar Oil and Gas Exploration and Production Limited (“Cedar”), a local

Nigerian company, to sell half of its option rights. This has been facilitated by Shoreline entering into a

farm-out agreement with Cedar on 22 August 2013 to sell a 6.75% working interest in OML 30 thereby

reducing Shoreline’s working interest in OML 30 to 38.25%. Following completion of this transaction,

Heritage’s effective working interest in OML 30 of 30.71% remains unchanged, as its economic interest

in Shoreline post option exercise has increased from 68.25% to 80.29%.

Completion of the farm-out and release of the initial consideration is subject to Nigerian government

approval which is expected shortly. On completion, Heritage will receive $31.5 million in cash and

provide an interest bearing loan to Shoreline Power of c.$88.5 million secured on the preferential

recovery of 80% of Shoreline Power’s cash distributions from Shoreline. In addition, the consideration

will be used by Shoreline to reduce the RBL Facility by 15% in line with the proportional reduction of

its working interest in OML 30.

PetroFrontier Corp.

Heritage continues to hold common shares (“Shares”) of PetroFrontier Corp. (“PetroFrontier”) for

investment purposes and currently holds 19.98% of the outstanding Shares of PetroFrontier.

PetroFrontier is listed on the TSX Venture Exchange and is focused on a high-impact drilling

programme in Australia. PetroFrontier underwent a strategic review in 2012 and subsequently

announced a farm-in agreement with Statoil Australia Oil & Gas AS (“Statoil”). This agreement was

amended in June 2013, whereby Statoil has committed to spend the next $50 million throughout the

remainder of 2013 and 2014 to fund fully the acquisition of up to 385 kilometres of 2D seismic and the

drilling and stimulation of four to six vertical exploration wells.

Uganda

Legal proceedings arising from the sale of the Group’s interests in Blocks 1 and 3A, Uganda, are

ongoing. Heritage Oil & Gas Limited (“HOGL”), the Company’s wholly owned subsidiary, is engaged

in appeals to the Ugandan High Court, an application to the Court of Appeal and also in international

arbitration proceedings in London against the Ugandan government.

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 Uganda Limited (“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 it of $313,447,500 on 7 April 2011 to the Ugandan Revenue Authority (“URA”).

Heritage and HOGL filed their Defence and Counterclaim against Tullow.

On 14 June 2013, judgment against Heritage and HOGL was received from the English Commercial

Court. A consequential hearing was held on 29 July 2013 at which Heritage was ordered to pay to

Tullow $313,447,500 plus interest accrued on this amount and legal costs.

At that consequential hearing Heritage and HOGL sought permission to appeal the judgment which was

rejected by the first instance judge. Consequently, on 2 August 2013, Heritage and HOGL made an

application to the Court of Appeal for permission to appeal the judgment.

Heritage had until 27 August 2013 to satisfy the order notwithstanding seeking permission to appeal

from the Court of Appeal. In this regard, on 1 August 2013, the escrow funds of approximately $288

million held with Standard Chartered Bank were released to Tullow to satisfy the majority of the debt.

The remaining balance has been met from Heritage’s current assets.

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Pursuant to the terms of the order arising from the decision of the Commercial Court, Tullow has

undertaken to Heritage and the High Court that if Tullow receives any reimbursement from the URA or

the Ugandan government of any of the $313,447,500 which Tullow paid to them in respect of Heritage’s

disputed tax liability then Tullow will pay such amount to Heritage.

Tullow has also provided a further undertaking to Heritage and the High Court that in the event Heritage

is given permission to appeal and succeeds in its appeal in whole or in part such that a sum is repayable

from Tullow and that Tullow Oil plc will act as guarantor.

OUTLOOK

The second half of the year will see a continued focus on our existing operations in Nigeria to deliver on

production growth. Work programmes in Nigeria will continue with refurbishment and installation of

new equipment and further engagement with the local communities. Drilling of new wells across OML

30, funded from cash flow generated through field operations, remains on track for the second half of

2014. Work programmes across the remainder of the portfolio continue with exploration and

development drilling planned for 2014.

Michael J. Hibberd

Chairman and Non-Executive Director

Anthony Buckingham

Chief Executive Officer

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FINANCIAL REVIEW

Heritage is undergoing a substantial change through the operations in Nigeria which are generating

significant cash flow.

SELECTED OPERATIONAL AND FINANCIAL DATA

Six months Six months

ended ended

30 June 30 June

2013 2012 Change

Production bopd 7,197 567 1,169%

Sales volume bopd 11,537 567 1,935%

Average realised price $/bbl 113.9 39.9 185%

Petroleum revenue $ million 237.8 4.1 5,700%

Profit/(loss) from continuing operations after tax $ million 57.2 (50.0) 214%

Loss from discontinued operations $ million (475.6) (2.2) n/a

Cash generated by (used in) continuing operations $ million 135.1 (17.6) n/a

Total cash capital expenditures $ million 30.1 36.1 n/a

As at As at

30 June 31 December

2013 2012

Period end cash balance1

$ million 112.9 89.6 n/a

1 Excluding amounts related to the tax dispute in Uganda and cash deposited as part security in respect of OML 30 of $51 million which was released back

to the Company on 22 August 2013 and replaced with alternative security granted by Heritage.

CORPORATE PERFORMANCE

Production and sales volumes

In November 2012, Heritage, through Shoreline, completed the acquisition of a 45% interest in OML 30

together with a 45% interest in other assets owned under a joint operating agreement for OML 30 (the

“Acquisition Assets”). Shoreline is a special purpose Nigerian company formed between a subsidiary of

Heritage and a Nigerian partner, Shoreline Power, which acquired 45% of OML 30. Heritage’s current

economic share in Shoreline is 97.5%. Production from OML 30 is incorporated within the

Group’s results with effect from 1 November 2012. Average daily production, net to Heritage’s

economic interest, of 6,725 bopd was generated from OML 30 in the six month period ended 30 June

2013.

The difference between the production and sales volumes is due to the change in the oil inventory

balance during the period.

Average daily production from the Zapadno Chumpasskoye Field in Russia decreased from 567 bopd in

the six month period ended 30 June 2012 to 472 bopd in the six month period ended 30 June 2013,

primarily due to the replacement of the electric submersible pump on horizontal well 363 in the first

quarter of 2013. Production has since increased, averaging 675 bopd in July 2013.

Revenue

Heritage’s net share of petroleum revenue from its interest in OML 30 was $234.4 million. Sales

volumes in the six month period ended 30 June 2013 were 11,084 bopd and the average realised

commodity price was $116.87/bbl. Sales volumes were higher than production volumes in the period

because of the build-up of inventories at the beginning of the period as the first sale was in January

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2013, following the acquisition with effect from 1 November 2012. OML 30 crude is priced using the

Forcados benchmark, which trades at a premium to Brent.

Petroleum revenue from the Zapadno Chumpasskoye Field in Russia decreased by 18% to $3.4 million,

which comprised:

$(0.8) million from a decrease in sales volumes from 567 bopd in the first half of 2012 to 453

bopd in the same period in 2013; and

$0.1 million from an increase in average realised commodity prices from $39.92/bbl in the six

month period ended 30 June 2012 to $41.05/bbl in the six month period ended 30 June 2013.

Operating results

Expenses Net operating costs for OML 30 were $37.3 million. Average operating cost per produced barrel of oil

was $30.64/bbl in the six month period ended 30 June 2013. The average operating costs per barrel were

higher than expected as a result of the lower level of production in the period and a certain portion of the

operating costs, such as manpower, are fixed. As at 30 June 2013, Shoreline’s cumulative oil liftings

were higher than its cumulative production and therefore it has recognised the cost for this overlift

position within operating expenses and a creditor for the overlift position.

In the six month period ended 30 June 2013 there was a change in inventory of $9.0 million, which was

held in inventory as at 31 December 2012 and transferred to the income statement in the six month

period ended 30 June 2013 when the production was lifted.

Petroleum operating costs for the Zapadno Chumpasskoye Field increased by 5% to $1.7 million in the

six month period ended 30 June 2013. Average operating cost per produced barrel of oil increased from

$15.95/bbl in the six month period ended 30 June 2012 to $20.17/bbl in the six month period ended 30

June 2013. This was due primarily to production being 17% lower in the first half of 2013 compared to

the same period last year and the fixed nature of certain costs, including certain personnel.

Production tax in Nigeria recognised in the six month period ended 30 June 2013 was $44.4 million.

This royalty is calculated on production levels.

Production tax in Russia decreased from $2.2 million in the six month period ended 30 June 2012 to

$1.9 million in the six month period ended 30 June 2013 as a result of the 18% decrease in revenues in

the first half of 2013.

General and administrative expenses increased from $6.3 million in the six month period ended 30 June

2012 to $11.0 million in the six month period ended 30 June 2013. This was due primarily to additional

costs arising from the office established by Shoreline to support operations in Lagos. General and

administrative expenses consist of salaries of management, finance and administrative staff, consulting,

legal and professional fees, transportation costs and other costs.

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Depletion, depreciation and amortisation

Six months

ended

30 June

2013

$ million

Six months

ended

30 June

2012

$ million

Petroleum and natural gas assets 7.0 0.7

Other corporate assets 0.8 0.5

Total 7.8 1.2

Depletion, depreciation and amortisation expenses increased from $1.2 million in the six month period

ended 30 June 2012 to $7.8 million in the same period in 2013, primarily as a result of the inclusion of

depletion for Heritage’s net interest in OML 30. Depletion for the Zapadno Chumpasskoye Field

decreased in line with lower production volumes.

Exploration expenditures expensed in the period and not capitalised, increased from $1.7 million in the

six month period ended 30 June 2012 to $3.2 million in the six month period ended 30 June 2013. This

increase was related principally to activities in Africa as the Company looked to expand its portfolio in

its core areas.

Expenses of acquisition of OML 30 in the six month period ended 30 June 2013 were nil. In the six

month period ended 30 June 2012, $18.1 million of costs were incurred by Shoreline through acquiring

its interest in OML 30, which related predominantly to costs incurred or accrued for legal and

professional fees that included stamp duty of $10.5 million.

The Group did not recognise an impairment of intangible exploration and evaluation assets in the six

month period ended 30 June 2013, compared to the impairment of intangible exploration and evaluation

assets of $18.4 million recognised in the six month period ended 30 June 2012, which related to the

write-off of all expenditures in connection with Mali.

Finance income/costs

Interest income of $0.8 million in the six month period ended 30 June 2013 was $1.3 million lower than

in the six month period ended 30 June 2012 primarily as a result of lower average cash balances in 2013.

Cash and cash equivalents are typically held in interest bearing treasury accounts.

Other finance costs increased from $2.5 million in the six month period ended 30 June 2012 to $34.7

million in the six month period ended 30 June 2013, due primarily to financing fees and interest charges

incurred for the bridge facilities and guarantee relating to the Acquisition Assets, and interest charges

incurred on the loan of $30 million received in August 2012 to refinance the acquisition of an aircraft.

The impact of the new financing arrangements was partially offset by lower convertible bond accretion

expense following repayment of the convertible bond at term in February 2012.

In the six month period ended 30 June 2013, the Group had a foreign exchange loss of $0.4 million

compared to a $0.01 million loss in the six month period ended 30 June 2012. 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 $2.3 million in the six month period

ended 30 June 2013 (six month period ended 30 June 2012 - $4.1 million). The loss in the first half of

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2013 arose from the decrease in market value of investments in shares of PetroFrontier. As at 30 June

2013, the Company held 15,860,467 shares of PetroFrontier representing 19.98% of listed shares of the

company. The investment in share capital of PetroFrontier is classified as available-for-sale and valued

at fair value determined using the market price at the end of the period. At 30 June 2013, the market

price of PetroFrontier shares was Cdn$0.20 per share compared to the market price of Cdn$0.35 per

share at the beginning of 2013.

Results from continuing operations

Heritage’s continuing operations have been transformed by the acquisition of the interest in OML 30.

Heritage’s profit from continuing operations after tax in the six month period ended 30 June 2013 was

$57.2 million, compared to a loss of $50.0 million for the six month period ended 30 June 2012.

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 exercised its rights of pre-emption.

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 and that –

even if tax were payable – under the terms of the production sharing agreements with the Ugandan

government relating to the Ugandan Assets (the “Ugandan PSAs”), HOGL should be indemnified by the

Ugandan government (under the contract stabilisation clause).

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 with an offsetting bad debt

provision for the full amount in the balance sheet at 30 June 2013 for the sake of accounting prudence. A

further $283,447,000 was retained in escrow with Standard Chartered Bank in London. Including

accrued interest, an amount of $287,698,000 (31 December 2012 – $286,915,000) is classified as

restricted cash in the balance sheet at 30 June 2013.

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. 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.

In May 2011, HOGL commenced international arbitration proceedings in London against the Ugandan

government in accordance with provisions of the Ugandan PSAs. HOGL is seeking a decision requiring

the return of approximately $405 million, plus interest and costs, in aggregate from the URA. HOGL made

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a number of claims in the arbitration proceedings that tax had been improperly imposed on it which the

arbitration tribunal ruled on 3 April 2013 to be outside its jurisdiction. The tribunal ruled at the same time

that there were two areas of HOGL’s claims which it will consider, in respect of contractual stabilisation

clause protection and breach of other contractual obligations. Accordingly, the arbitration proceedings now

concern HOGL’s claims that the Ugandan government wrongfully or unreasonably delayed consent to the

sale by HOGL of the rights under the Ugandan PSAs and that the Ugandan government should indemnify

HOGL with respect to any tax liability which arose due to changes in law that materially reduced the

economic benefits to be derived by HOGL from the Ugandan PSAs.

The determination by the arbitral tribunal marks the end of the preliminary phase. The proceedings will

now continue to deal with the merits phase of Heritage’s contractual claims against the Ugandan

government and the underlying substantive Ugandan tax matters remain under appeal in the Ugandan

courts.

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 filed their Defence and Counterclaim

against Tullow.

The case was heard in the High Court in March 2013 and judgment received on 14 June 2013. The High

Court judgment found in favour of Tullow and Heritage’s counterclaim was dismissed. A hearing was

held on 29 July 2013 to determine consequential matters arising from the judgment and at that hearing

Heritage was ordered to pay to Tullow $313,447,500 plus interest accrued on this amount and legal

costs. Provision for this amount is included in the balance sheet as at 30 June 2013 for the sake of

accounting prudence.








Pursuant to the terms of the order agreed between the parties, Tullow has undertaken to Heritage and the

High Court that if Tullow receives any reimbursement from the URA or the Ugandan government of any

of the $313,447,500 which Tullow paid to them in respect of Heritage’s disputed tax liability then

Tullow will pay such amount to Heritage.

Tullow have also provided a further undertaking to Heritage and the High Court that in the event

Heritage is given permission to appeal and succeed in its appeal in whole or in part such that a sum is

repayable from Tullow and that Tullow Oil plc will act as guarantor.

The results of the Ugandan operations have been classified as discontinued operations. The loss on

disposal of discontinued operations (which for the sake of accounting prudence comprises a provision

for the Award to Tullow, a provision against the receivable due from the URA, legal fees and costs

relating to the litigation described above) as at 30 June 2013 and 2012 is as follows:

14

Six months

ended

30 June

2013

Six months

ended

30 June

2012

$’000 $’000

Loss on disposal of discontinued operations (475,331) (2,234)

(475,331) (2,234)

Although disputes of this nature are inherently uncertain, the Directors believe that the actions Heritage

and HOGL are undertaking will be successful and that ultimately any funds transferred to Tullow or

deposited with the Ugandan government will be recovered by Heritage.

Earnings per share

In the six month period ended June 2013, the basic and diluted earnings per share from continuing

operations was $0.22 and $0.21 respectively, compared to the basic and diluted loss per share of $0.19

in the six month period ended June 2012.

Heritage’s net loss in the six month period ended June 2013 was $418.4 million, compared to $52.2

million in the six month period ended June 2012 as a result of the provision made in the first half of

2013 against funds held in respect of the Uganda tax dispute.

In the six month period ended June 2013 basic and diluted loss per share was $1.62, compared to basic

and diluted loss per share of $0.20 in the six month period ended June 2012.

Cash flow and capital expenditures

Cash generated by operating activities from continuing operations was $135.1 million in the six month

period ended 30 June 2013 compared to cash used in operating activities of $17.6 million in the six

month period ended 30 June 2012. Total cash capital expenditures for continued operations in the six

month period ended June 2013 was $30.1 million compared to $36.1 million in the six month period

ended June 2012. The following major work programmes were undertaken in the six month period

ended 30 June 2013:

in April, Heritage entered into an agreement with LNG Energy to farm-in to two licences

onshore PNG; Petroleum Prospecting Licence No:319 (“PPL 319”) and Petroleum Retention

Licence No:13 (“PRL 13”) from subsidiary companies of LNG Energy. In return for obtaining

up to 80% working interests and operatorship, Heritage has paid LNG Energy $4.0 million in

contribution to its back costs on the licences and repaid the costs LNG Energy incurred for the

acquisition of 22 kilometres of 2D seismic data in 2013 as well as agreed to fund a future seismic

programme and drill one well;

Heritage’s PNG work programme commenced in the second quarter of 2013 with the acquisition

of 40 kilometres of 2D seismic data over the Tuyuwopi structure in PPL 319;

acquisition and processing of approximately 600 kilometres of 2D seismic data in the Rukwa

licence was completed and interpretation has commenced; and

acquisition of approximately 100 kilometres reconnaissance seismic across the Kyela licence was

completed in January. The data has been processed and interpreted.

15

FINANCIAL POSITION

Liquidity

There was a net increase in cash and cash equivalents during the six month period ended 30 June 2013

of $23.3 million, following revenues received from Heritage’s net share in OML 30 and the release of

$50 million from restricted cash which had been used to provide security on the bridge facility. During

the period ended 30 June 2013, Shoreline made a cash payment of $52.5 million (Heritage’s net share

$51.2 million) to reduce its bridge facility loan to $497.5 million which was refinanced at the end of

June by a new five year $500 million Senior Secured Revolving Reserves Based Lending Facility

(“RBL Facility”), which can be increased up to $600 million. At 30 June 2013, Heritage had a working

capital deficit of $34.0 million, including cash and cash equivalents of $112.9 million.



develop the licence further. The RBL Facility has been arranged on better terms and provides greater


$51 million deposited as part security in respect of OML 30 was released back to the Company on 22

August 2013 and replaced with alternative security granted by Heritage.

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 of the Ugandan Assets in

2010 (see Disposal section of the Financial Review), 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.

At 30 June 2013, Heritage had net debt of $394.4 million (31 December 2012 net debt – $472.1 million)

(cash and cash equivalents less borrowings) and 42% gearing (31 December 2012 – 33%) (net debt as a

percentage of total capital, total capital is calculated as “equity” as shown in the condensed consolidated

balance sheet plus net debt).

IMPORTANT EVENTS SUBSEQUENT TO 30 JUNE 2013

Under the terms of the Shoreline Option Agreement, Shoreline Power had an option to increase its

economic interest in Shoreline by purchasing 30% of the shares from Heritage. Shoreline Power

exercised the option in December 2012 and payment is anticipated to be received in the third quarter of

2013. On completion, Heritage’s effective working interest in OML 30 will reduce from 43.875% to

30.71%.

On 22 August 2013, Heritage entered into a Standby Letter of Credit Facility (the “Facility”) with

Standard Bank Plc (“Standard Bank”) in relation to an already existing $51 million letter of credit

transaction (the “Existing Letter of Credit”) issued by Standard Bank to Nigerian Petroleum

Development Company (“NPDC”) to cover Shoreline’s working capital requirements under the joint

16

operating agreement for OML 30. Pursuant to the terms of the Facility, Standard Bank released the cash

collateral (of $51 million, before fees), counter-indemnity agreement and security agreements already

provided by Heritage as security for Heritage’s obligations in connection with (amongst other things) the

Existing Letter of Credit in exchange for alternative security granted by Heritage. The Facility matures

(i.e. envisages cancellation or full cash collateralisation by Heritage of the Existing Letter of Credit) on

31 December 2013, although Heritage has the option to extend this to 28 November 2014.

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:

Production delivery risk – failure to control risks could result in delays to projects, cost overruns

and not achieving set targets. Production operations are closely monitored to ensure that

unplanned downtime is kept to a minimum and that operating costs are tightly controlled. Actual

production is regularly checked against the annual production forecast.

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 during the period under review.

Factors associated with operating in developing countries including political, fiscal, local

community 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.

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.

Title disputes – notwithstanding potential challenges in 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.

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 of 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

17

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 32 to 34 of the

Annual Review within the 2012 Annual Report and Accounts which were issued on 30 April 2013.

Paul Atherton

Chief Financial Officer

18

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:

o 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

o 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

28 August 2013

Paul Atherton Chief Financial Officer

28 August 2013

19

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 2013 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 Conduct Authority (the “UK FCA”) 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 FCA.

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 2013 is not

prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by

20

the EU and the DTR of the UK FCA.

Lynton Richmond

for and on behalf of KPMG Audit Plc Chartered Accountants

15 Canada Square

London

E14 5GL

28 August 2013

21

Condensed consolidated income statement

Six months

ended

30 June

2013

Six months

ended

30 June

2012

$’000 $’000

Revenue

Petroleum 237,838 4,122

Expenses

Petroleum operating (39,030) (1,628)

Change in inventory (8,991) — Production tax (46,299) (2,239)

General and administrative (11,034) (6,257)

Depletion, depreciation and amortisation (7,835) (1,180)

Exploration expenditures (3,183) (1,712)

Expenses of acquisition costs — (18,088)

Impairment of intangible exploration and evaluation assets — (18,370)

Operating profit/(loss) 121,466 (45,352)

Finance income/(costs)

Interest income 845 2,123

Other finance costs (34,692) (2,523)

Foreign exchange losses (421) (5)

Unrealised losses on other financial assets (2,250) (4,098)

(36,518) (4,503)

Profit/(loss) from continuing operations before tax 84,948 (49,855)

Income tax expense (27,703) (119)

Profit from continuing operations after tax 57,245 (49,974)

Loss on disposal of discontinued operations (note 4) (475,618) (2,234)

Loss for the period attributable to owners of the Company (418,373) (52,208)

Net earnings/(loss) per share from continuing operations (dollars)

Basic 0.22 (0.19)

Diluted 0.21 (0.19)

Net loss per share from discontinued operations (dollars)

Basic and diluted (1.84) (0.01)

Net loss per share (dollars)

Basic and diluted (1.62) (0.20)

The notes are an integral part of these condensed consolidated financial statements.

22

Condensed consolidated statement of comprehensive income

Six months

ended

30 June

2013

Six months

ended

30 June

2012

$’000 $’000

Loss for the period (418,373) (52,208)

Other comprehensive gain/(loss)

Exchange differences on translation of foreign operations (2,603) (603)

Net change in fair value of available-for-sale financial assets (2,287) (3,665)

Net change in fair value of available-for-sale financial assets reclassified to the

income statement 2,250 4,098

Other comprehensive loss, net of income tax (2,640) (170)

Total comprehensive loss for the period (421,013) (52,378)

Attributable to

Owners of the Company (421,013) (52,378)


23

Condensed consolidated balance sheet

30 June

2013

31 December

2012

$’000 $’000

ASSETS

Non-current assets

Intangible exploration and evaluation assets (note 6) 97,014 71,420

Intangible goodwill assets (note 6) 351,370 351,370

Property, plant and equipment (note 6) 2,584,582 2,589,751

Other financial assets (note 7) 5,972 13,268

3,038,938 3,021,290

Current assets

Inventories 150 9,083

Prepaid expenses 1,266 1,960

Trade and other receivables 16,847 11,798

Deposit with URA (note 4) — 121,477

Restricted cash (notes 4, 5) 338,701 387,917

Cash and cash equivalents 112,897 89,634

469,861 621,869

3,508,799 3,643,159

LIABILITIES

Current liabilities

Trade and other payables 419,507 108,453

Current tax liabilities 26,630 194

Borrowings (note 8) 57,744 530,967

503,881 639,614

Non-current liabilities

Borrowings (note 8) 449,583 30,757

Provisions 24,160 23,010

Deferred tax 1,984,477 1,983,224

2,458,220 2,036,991

2,962,101 2,676,605

Net assets 546,698 966,554

SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO OWNERS OF THE

COMPANY

Share capital (note 9) 342,359 342,359

Reserves 86,899 88,382

Retained earnings 117,440 535,813

546,698 966,554


24

Condensed consolidated statement of changes in equity

Six months ended 30 June 2013

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

2013 342,359 230 1,215 62,288

535,813 24,649 966,554

Total comprehensive

loss for the period

Loss for the period — — — — (418,373) — (418,373)

Other comprehensive

income/(loss)

Exchange differences on

translation of foreign

operations — (2,603) — — — — (2,603)

Net change in fair value

of available- for-sale

financial assets — — (2,287) — — — (2,287)



financial assets

reclassified to the

income statement — — 2,250 — — — 2,250

Total other

comprehensive loss — (2,603) (37) —

— — (2,640)

Total comprehensive

loss for the period — (2,603) (37) — (418,373) — (421,013)

Transactions with

owners, recorded

directly in equity

Contributions by and

distributions to

owners

Share-based payment

transactions — — — 1,157

— — 1,157

Total transactions with

owners — — — 1,157

— — 1,157

Balance at 30 June 2013 342,359 (2,373) 1,178 63,445 117,440 24,649 546,698


25

Condensed consolidated statement of changes in equity


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)



financial assets — — (3,665) — — — (3,665)



financial assets

reclassified to the

income statement — — 4,098 — — — 4,098

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 — — — 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


26

Condensed consolidated cash flow statement

Six months

ended

30 June 2013

$’000

Six months

ended

30 June 2012

$’000

Cash provided by (used in) operating activities

Net profit/(loss) from continuing operations for the period 57,245 (49,974)

Items not affecting cash

Depletion, depreciation and amortisation 7,835 1,180

Finance costs - accretion expenses 10,048 178

Foreign exchange losses/(gains) 1,169 (543)

Share-based compensation 963 934

Loss on other financial assets 2,250 4,098

Impairment of intangible exploration and evaluation assets — 18,370

Increase in trade and other receivables (6,372) (31)

Decrease in prepaid expenses 694 511

Decrease in inventory 8,932 14

(Decrease)/increase in trade and other payables (24,619) 9,013

Change in restricted cash 49,216 (1,462)

Increase in tax payable 27,690 120

Continuing operations 135,051 (17,592)

Discontinued operations (7,408) (1,918)

127,643 (19,510)

Investing activities

Transaction related expenses for acquisition of business joint venture — (4,875)

Increase in restricted cash for acquisition of assets — (78,000)

Loan to joint venture — (2,125)

Property, plant and equipment expenditures (5,340) (1,064)

Intangible exploration expenditures (24,711) (35,011)

(30,051) (121,075)

Discontinued operations

Transaction related expenses and other – disposal of Miran PSC (10,425) —

(40,476) (121,075)

Financing activities

Share buy back (note 9) — (3,323)

Payment of guarantee fees for bridge facility — (4,858)

Proceeds from loan raised 487,500 — Payment of transaction costs for loan (12,463) —

Repayment of short-term and long-term debt (538,022) (127,581)

(62,985) (135,762)

Increase/(decrease) in cash and cash equivalents 24,182 (276,347)

Cash and cash equivalents - beginning of period 89,634 310,882

Foreign exchange (gain)/loss on cash held in foreign currency (919) 74

Cash and cash equivalents - end of period 112,897 34,609

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 926 2,213

Interest paid 29,580 5,216

The notes are an integral part of these consolidated financial statements.

27

Heritage Oil Plc

Notes to condensed consolidated set of 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 Heritage Oil Corporation

(“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 2013 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 $112.9 million at 30 June 2013, excluding amounts related to the tax

dispute with the Ugandan government and amounts held in restricted cash for 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 2012.

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 2012.

The condensed set of financial statements were approved by the Board and authorised for issuance on 28

August 2013. The comparative information at 31 December 2012 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, Pakistan, Tanzania, Malta,

Libya, Nigeria (entered in 2012), Papua New Guinea (entered in 2013), Kurdistan (discontinued in

2012), Mali (discontinued in 2012) and Uganda (discontinued in 2010). The Group’s reporting segments

comprise each separate geographical area in which it operates.

28


External

revenue

Segment

result

Total

assets

Total

liabilities

Capital

additions

Depreciation,

depletion and

amortisation

$’000 $’000 $’000 $’000 $’000 $’000

Russia 3,369 (1,155) 58,941 1,501 979 (487)

Libya — — 21,465 — 116 —

Pakistan — — 4,748 13 50 —

Tanzania — (36) 20,698 476 9,351 —

Nigeria 234,469 72,153 2,900,371 2,555,007 3,885 (6,568)

Papua New Guinea — 16,232 1,859 16,175 —

Malta — — 23,712 18 314 —

Kurdistan – discontinued

operations — (288) — — — —

Uganda – discontinued

operations — (475,331) — — — —

Total for reportable segments 237,838 (404,657) 3,046,167 2,558,874 30,870 (7,055)

Corporate — (13,716) 462,632 403,227 47 (780)

Elimination of discontinued

operations — 475,618 — — — —

Total from operations 237,838 57,245 3,508,799 2,962,101 30,917 (7,835)


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)

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 2012.

29

4. Discontinued operations

Kurdistan

During 2012 the Group disposed of its entire business in Kurdistan Region of Iraq (“Kurdistan”) which

has therefore been classified as a discontinued operation. The disposal was completed in two distinct

transactions. On 21 August 2012, the Group disposed of a 26% interest in the production sharing

contract relating to the Miran Block (the “Miran PSC”) in Kurdistan and corresponding interest in the

related joint operating agreement (the “Miran JOA”) to Genel Energy plc (“Genel”) in exchange for

cash of $156 million. On the same date, Genel provided a loan of $294 million to the Group (the

“Loan”).

The Loan bore interest of 8% and had a fixed term ending on the date which is the earlier of: (i) 15

months after the date of the completion of the Acquisition; and (ii) 6 February 2014. The Loan had an

option that, following the election of either the Company or Genel and subsequent approval from the

shareholders of the Company, to be repaid through the transfer to Genel of Heritage’s remaining 49%

interest in the Miran PSC in Kurdistan and the corresponding interest in the Miran JOA. The Loan terms

also provided for the interim funding by Genel of Heritage’s expenditure on its 49% interest in the

Miran PSC by way of increases in the Loan with effect from 1 July 2012.

In December 2012, following Heritage’s election to repay the Loan in exchange for the transfer of a

49% interest in the Miran PSC to Genel, Heritage’s shareholders approved the repayment and the

exchange became unconditional. Shareholder approval was received in December and the transaction

completed shortly thereafter.

Six months ended

30 June 2013

Six months ended

30 June 2012

$’000 $’000

Loss on disposal of discontinued operations (287) —

(287) —

Uganda 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.

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 and that –

even if tax were payable, under the Ugandan PSAs, HOGL should be indemnified by the Ugandan

government (under the contract stabilisation clause).

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 with an offsetting bad debt

provision for the full amount in the balance sheet at 30 June 2013 for the sake of accounting prudence. A

further $283,447,000 was retained in escrow with Standard Chartered Bank in London. Including

accrued interest, an amount of $287,698,000 (31 December 2012 – $286,915,000) is classified as

30

restricted cash in the balance sheet at 30 June 2013.

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. 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.

In May 2011, HOGL commenced international arbitration proceedings in London against the Ugandan

government in accordance with provisions of the Ugandan PSAs. HOGL is seeking a decision requiring

the return of approximately $405 million, plus interest and costs, in aggregate from the URA. HOGL

made a number of claims in the arbitration proceedings that tax had been improperly imposed on it

which the arbitration tribunal ruled on 3 April 2013 to be outside its jurisdiction. The tribunal ruled at

the same time that there were two areas of HOGL’s claims which it will consider, in respect of

contractual stabilisation clause protection and breach of other contractual obligations. Accordingly, the

arbitration proceedings now concern HOGL’s claims that the Ugandan government wrongfully or

unreasonably delayed consent to the sale by HOGL of the rights under the Ugandan PSAs and that the

Ugandan government should indemnify HOGL with respect to any tax liability which arose due to

changes in law that materially reduced the economic benefits to be derived by HOGL from the Ugandan

PSAs.

The determination by the arbitral tribunal marks the end of the preliminary phase. The proceedings will

now continue on to deal with the merits phase of Heritage’s contractual claims against the Ugandan

government and the underlying substantive Ugandan tax matters remain under appeal in the Ugandan

courts.

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 filed their Defence and

Counterclaim against Tullow.

The case was heard in the High Court in March 2013 and judgment was received on 14 June 2013. The

High Court judgment found in favour of Tullow and Heritage’s counterclaim was dismissed. A hearing

was held on 29 July 2013 to determine consequential matters arising from the judgment and at that

hearing Heritage was ordered to pay to Tullow $313,447,500 plus interest accrued on this amount and

legal costs. Provision for this amount is included in the balance sheet as at 30 June 2013 for the sake of

accounting prudence.




31





Pursuant to the terms of the order agreed between the parties, Tullow has undertaken to Heritage and the

High Court that if Tullow receives any reimbursement from the URA or the Ugandan government of any

of the $313,447,500 which Tullow paid to them in respect of Heritage’s disputed tax liability then

Tullow will pay such amount to Heritage.

Tullow have also provided a further undertaking to Heritage and the High Court that in the event

Heritage is given permission to appeal and succeed in its appeal in whole or in part such that a sum is

repayable from Tullow and that Tullow Oil plc will act as guarantor.

The results of the Ugandan operations have been classified as discontinued operations. The loss on

disposal of discontinued operations (which for the sake of accounting prudence comprises a provision

for the Award to Tullow, a provision against the receivable due from the URA, legal fees and costs

relating to the litigation described above) as at 30 June 2013 and 2012 is as follows:

Six months ended

30 June 2013

Six months ended

30 June 2012

$’000 $’000

Loss on disposal of discontinued operations (475,331) (2,234)

(475,331) (2,234)

Although disputes of this nature are inherently uncertain, the Directors believe that the actions Heritage

and HOGL are undertaking will be successful and that ultimately any funds transferred to Tullow or

deposited with the Ugandan government will be recovered by Heritage.

5. Acquisition of an interest in OML 30

On 29 June 2012, Shoreline 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.

At an EGM on 30 August 2012, the shareholders of the Company approved the Acquisition and on 9

November 2012 Heritage announced the completion of the Acquisition, effective 1 November 2012.

The Acquisition Assets were 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 was paid on

completion.

The Acquisition was partially financed by a $550,000,000 secured bridge facility provided by Standard

Bank to Shoreline. During the period ended 30 June 2013 Shoreline made a cash payment of $52.5

32

million (Heritage’s net share $51.2 million) to reduce its bridge facility loan to $497.5 million which

was refinanced at the end of June by a new five year $500 million RBL Facility, which can be increased

up to $600 million.



further develop the licence. The RBL Facility has been arranged on better terms and provides greater


The Company had placed $50,000,000 in an escrow account with Standard Bank as security for the

bridge facility, which was released to the Company in June 2013 following the refinancing and the

receipt of the RBL Facility. Standard Bank also provided a Letter of Credit to NPDC, to cover

Shoreline’s working capital requirements under the joint operating agreement for OML 30. Heritage

provided cash collateral of $51,000,000 to Standard Bank to guarantee this Letter of Credit which also

covers any interest which may be due under the Letter of Credit, which is classified as restricted cash in

the balance sheet at 30 June 2013. This cash was released back to the Company on 22 August 2013 and

replaced with alternative security granted by Heritage.

Under the terms of the Shoreline Option Agreement, Shoreline Power had an option to increase its

economic interest in Shoreline by purchasing 30% of the shares from Heritage. Shoreline Power

exercised the option in December 2012 and payment is anticipated to be received in the third quarter of

2013. On completion Heritage’s effective working interest in OML 30 will reduce from 43.875% to

30.71%.

The Acquisition Assets meet the criteria of a business as set out in IFRS 3, as they represent an integrated

set of activities and assets capable of being conducted and managed for purpose of providing a return,

therefore the Acquisition has been accounted for in accordance with IFRS 3.

The fair value allocation of the Acquisition Assets is based upon an independent review. The Company

used the data from the independent review to calculate the fair value of the assets taking proved and

probable reserves. In accordance with IAS 12, a deferred tax liability has been recognised for the

difference between the fair value allocated to property, plant and equipment and the value of the

consideration that can be claimed as a capital allowance to offset the future tax liability, calculated on a

tax rate of 65.75% for the first five years and rising to 85% after five years. As only a portion of the

purchase consideration is available to be claimed as a capital allowance and the tax rates are high, this

has resulted in the recognition of a significant deferred tax liability. As a result of the impact of the

deferred tax liability recognised, the purchase consideration is higher than the aggregate of the fair value

of the identifiable assets and liabilities and therefore goodwill has been recognised. The fair value of the

identifiable assets and liabilities is provisional and if new information is obtained within one year of the

acquisition date the acquisition accounting may be revised.

33

The following table provides additional information with respect to the identifiable assets acquired and

liabilities assumed at Heritage’s current effective 97.5% share of net assets of Shoreline:

1 November

2012

$’000

Property, plant and equipment 2,483,317

Intangible assets- goodwill 351,370

Deferred tax liabilities (1,983,189)

Site restoration provision (22,748)

828,750

The expenses incurred in acquiring the Acquisition Assets as at 30 June 2013 and 2012 are as follows:

Six months

ended

30 June

2013

Six months

ended

30 June

2012

$’000 $’000

Expenses of acquisition — (18,088)

— (18,088)

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

Capital additions

During the six months ended 30 June 2013, the Group acquired property, plant and equipment and

intangible exploration and evaluation assets with a cost of $30,917,000 (six months ended 30 June 2012

- $35,604,000).

Farm-in

On 2 April 2013, Heritage announced that it had agreed with LNG Energy to farm-in to two licences

onshore PNG. The transaction completed in April 2013 and Heritage has been appointed operator.

Heritage has acquired up to an 80% working interest in two licences, PPL 319 and PRL 13 from

subsidiary companies of LNG Energy. In return for obtaining the 80% working interests and

operatorship Heritage has paid LNG Energy $4.0 million in contribution to its back costs on the licence

and repaid the costs LNG Energy incurred for the seismic acquisition it carried out in 2013. Heritage has

carried out its first phase of seismic acquisition and will fund the costs of further seismic acquisition

within the next 12 months and the cost of drilling an exploration well.

7. Other financial assets

30 June

2013

31 December

2012

$’000 $’000

Non-current assets

Investment in listed securities 5,972 8,749

5,972 8,749

34

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

2013 resulted in a loss of $37,000 which was recognised in equity.

As at 30 June 2013, the Company had acquired 15,860,467 of the listed shares of PetroFrontier

representing 19.98% of the outstanding shares of PetroFrontier. The investment in share capital of

PetroFrontier is classified as available-for-sale, and valued at fair value which is 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 2013. The loss of $2,250,000 recognised in the available-for-sale reserve for this investment has

been reclassified to the income statement.

8. Borrowings

30 June

2013

31 December

2012

$’000 $’000

Current borrowings — secured

Short-term debt - secured — 527,365

Current portion of long-term debt - secured 57,744 3,602

57,744 530,967

Non-current borrowings

Non-current portion of long-term debt - secured 449,583 30,757

507,327 30,757

As set out in note 5 above, in the six month period ended 30 June 2013 Shoreline repaid $52.5 million

(Heritage net share $51.2 million) to reduce the bridge facility. In June 2013 the short-term secured

bridge facility was replaced by a five-year RBL facility secured at the Shoreline level.

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.

35

Ordinary Shares

Six months ended

30 June 2013

Six months ended

30 June 2012

Amount Amount

Number $’000 Number $’000

At 1 January 255,585,078 340,333 256,519,296 343,280

Exchange of Exchangeable Shares of HOC for

Ordinary Shares 10,900 9 339,490 290

Shares bought back and held in treasury — — (1,373,708) (3,323)

At 30 June 255,595,978 340,342 255,485,078 340,247

Special Voting Share

Six months ended

30 June 2013

Six months ended

30 June 2012

Amount Amount


At 1 January 1 — 1 —

Issued during the period — — — —

At 30 June 1 — 1 —

Exchangeable shares of HOC each carrying one voting right in the Company

Six months ended

30 June 2013

Six months ended

30 June 2012

Amount Amount


At 1 January 2,371,918 2,026 2,811,408 2,402

Exchange of Exchangeable Shares for Ordinary

Shares (10,900) (9) (339,490) (290)

At 30 June 2,361,018 2,017 2,471,918 2,112

Balance of Ordinary Shares of the Company,

excluding treasury shares, and Exchangeable Shares

of HOC - at 30 June 257,956,996 342,359 257,956,996

342,359

At the AGMs held on 20 June 2011 and 20 June 2013, special resolutions were passed by shareholders

authorising the Company to make market purchases of its own shares up to the date of the next AGM.

Any shares which have been so purchased may be held as treasury shares or cancelled immediately upon

completion of the purchase. No such resolution was proposed at the AGM held on 21 June 2012.

Purchased Ordinary Shares are held in treasury. At 30 June 2013, the Company held 34,602,442

Ordinary Shares in treasury.

36

10. Earnings/(loss) per share

The following table summarises the weighted average Ordinary Shares and Exchangeable Shares used in

calculating net earnings/(loss) per share:

Six months ended 30 June

2013 2012

Weighted average Ordinary and Exchangeable Shares

Basic 257,956,996 258,682,315

Diluted 269,828,927 269,157,668

The reconciling item between basic and diluted weighted average number of Ordinary Shares is the

dilutive effect of share options and LTIP awards. A total of nil options (30 June 2012 – 3,450,000) and

3,898,754 shares relating to the LTIP (30 June 2012 – 3,898,754) were excluded from the above

calculation, as they were anti-dilutive. For the calculation of net loss per share from discontinued

operations and net loss per share, since the Company has made a loss for the period to 30 June 2013 for

the purposes of calculating diluted loss per share, all potential Ordinary Shares have been treated as anti-

dilutive in that year.

11. Related party transactions

During the six months ended 30 June 2013, the Company incurred transportation costs of $39,000 (six

months ended 30 June 2012 - $76,000) 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 during the period to June 2013 for a few personal trips.

The cost of these trips was reimbursed at independently assessed commercial rates of $301,000 (30

June 2012 - $363,000).

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

12. Non-cash investing and financing activities supplementary information 30 June 2013 30 June 2012

$’000 $’000

Capitalised portion of share-based compensation (194) (629)

Capitalised portion of interest (8,899) (3,214)

Non-cash property, plant and additions relating to the capitalised portion of

share-based compensation 9,093 3,843

13. SUBSEQUENT EVENTS

Exercise of the Shoreline Power Option

In December 2012, Heritage announced that Shoreline Power had exercised its call option to acquire a

30% economic interest in Shoreline. This would have the effect of reducing Heritage’s economic

interest in Shoreline from 97.5% to 68.25%, with 68.25% representing an effective 30.71% working

interest in OML 30. In order to fund a portion of the consideration of c.$120 million, Shoreline Power

has entered into an agreement with Cedar Oil and Gas Exploration and Production Limited (“Cedar”), a

local Nigerian company, to sell half of its option rights. This will be facilitated through a farm-out by

Shoreline of a 6.75% working interest in OML 30 to Cedar, reducing Shoreline’s working interest in

OML 30 to 38.25%. Following completion of this transaction, Heritage’s effective working interest in

OML 30 of 30.71% remains unchanged as its economic interest in Shoreline post option exercise has

increased from 68.25% to 80.29%.

37

Cedar entered into a farm-out agreement with Shoreline on 22 August 2013 and has placed the initial

consideration in an escrow account. Completion of the transaction and release of the initial consideration

is subject to Nigerian government approval which is expected shortly. On completion, the initial

consideration will be applied as follows:

$31.5 million will be transferred to Heritage as partial payment of the call option consideration

and the balance of c.$88.5 million will be provided by way of an interest bearing loan from

Heritage to Shoreline Power secured on the preferential recovery of 80% of Shoreline Power’s

cash distributions from Shoreline; and

To reduce the RBL Facility by 15% with a mandatory prepayment in line with the proportional

reduction of Shoreline’s working interest in OML 30.

Standby Letter of Credit Facility

On 22 August 2013, Heritage entered into a Standby Letter of Credit Facility (the “Facility”) with

Standard Bank in relation to an already existing $51 million letter of credit transaction (the “Existing

Letter of Credit”) issued by Standard Bank to NPDC to cover Shoreline’s working capital requirements

under the joint operating agreement for OML 30. Pursuant to the terms of the Facility, Standard Bank

released the cash collateral (of $51 million, before fees), counter-indemnity agreement and security

agreements already provided by Heritage as security for Heritage’s obligations in connection with

(amongst other things) the Existing Letter of Credit in exchange for the following security granted by

Heritage (i.e. for its obligations relating to the Facility): (a) security interest over approximately 34.6

million shares held by Heritage in treasury; (b) a floating charge over Heritage’s assets; (c) security over

shares held by Heritage in a Dutch subsidiary; and (d) security over the monies in a cash collateral

account held by Heritage with Standard Bank – though it should be noted that as at the date of the

Facility no amounts stand to the credit of such account. The Facility matures (i.e. envisages cancellation

or full cash collateralisation by Heritage of the Existing Letter of Credit) on 31 December 2013 although

Heritage has the option to extend this to 28 November 2014. Any such cash collateralisation and/or

cancellation would trigger a release and termination of relevant security documents (and the Facility

itself on a cancellation). The interest rate relating to the Facility is LIBOR plus 7% per annum (together

with an interest increase ratchet mechanism linked to the duration of the Facility). However, interest is

not charged in connection with the Facility to the extent cash collateral is provided.

38

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 dated 6 August 2012, as supplemented by a supplementary prospectus dated 23 August 2012, 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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