GROWTH Overview of Heritage, Its Processes F RAM E WORK Provides Detailed Information on ANNUAL REVIEW COR PORATE GO VERNANC E 20I 2 2012 and a Business Review

G R OWT H

ANNUAL REVIEW 2012 HERITAGE OIL PLC Annual Review 2012

Heritage Oil Plc is an independent oil and gas exploration and production company with a Premium Listing on the London Stock Exchange (“LSE”) (symbol HOIL). The Company is a member of the FTSE 250 Index and has Exchangeable Shares listed on the Toronto Stock Exchange (“TSX”) (symbol HOC) and the LSE (symbol HOX).

Heritage is a versatile organisation, dedicated to creating and increasing shareholder value with a portfolio of quality assets managed by a highly experienced team with excellent technical, commercial and ﬁnancial skills. The Company has producing assets in Nigeria and Russia and exploration assets in Tanzania, Papua New Guinea, Malta, Libya and Pakistan.

C O NTENTS THE HERITAGE OIL PLC A NNUAL R E POR T A N D ACCOUNTS 2012 CON S I S T S OF FOUR DOCU M ENTS A S DETAILED B ELOW.

O VERVIEW Annual Review Corporate Governance Highlights 2012 01 The Annual Review provides an The Corporate Governance Report Outlook 2013 01 GROWTH overview of Heritage, its processes F RAM E WORK provides detailed information on ANNUAL REVIEW COR PORATE GO VERNANC E 20I 2 2012 and a Business Review. all aspects of Heritage’s corporate A SSETS governance. Asset overview 02 The Heritage business model 04

S TRATEGY Vision and strategic overview 06

F RAM E WORK Corporate Social Financial Statements Corporate governance 08 Responsibility The Financial Statements Report RESPECT DIVERSIFIED provides detailed information on CORPORATE SOCIAL RESPONSIBILITY The CSR Report provides detailed FINANCIAL STATEMENTS 20I 2 20I 2 RESPE C T information concerning Heritage’s Heritage’s ﬁnancial position. Corporate Social Responsibility 10 CSR strategy, policies, systems and performance. CHIEF E X E C UTIVE’S REVIEW 12

OPERATIO NAL REVIEW

Nigeria 16 Russia 18 Tanzania 19 Papua New Guinea 20 Malta 21 Libya 22 Pakistan 23 Other developments 24

DIVERS I F IED Financial review 26 Risks 32 Annual review glossary 35 Advisers and ﬁnancial calendar IBC Annual Review 2012 HERITAGE OIL PLC 01

HIGHLIGH TS OPERATIONAL – Acquired an interest in OML 30, Nigeria, through Shoreline Natural 2012 Resources Limited (“Shoreline”), 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 Company (“Shoreline Power”) – Acquisition provided a material change in proved and probable reserves for Heritage, which RPS Energy Consultants Ltd (“RPS”) independently estimate at 412 MMbbls, for interests in Nigeria and Russia, as at 31 March 2012 – Disposed of interests in the Miran asset, in the Kurdistan Region of Iraq (“Kurdistan”), for $450 million – Extended acreage in Tanzania, adding to acreage Heritage believes could be geologically analogous to the Lake Albert Basin, providing the Company with a key advantage in assessing the blocks – Commenced the work programme in Tanzania through the acquisition of 2D seismic on Rukwa and the acquisition of a very high resolution gravity survey on Kyela – Farmed in to two licences in Papua New Guinea (“PNG”); Petroleum Prospecting Licence 319 (“PPL 319”) and Petroleum Retention Licence 13 (“PRL 13”), which are believed to be in an attractive geological fairway

FINANCIAL – Since the acquisition of an interest in OML 30, revenues net to Heritage of $234.5 million have been generated – Shoreline made a cash payment of $52.5 million, in April 2013, to reduce the bridge loan to $497.5 million – Heritage had cash at 31 December 2012 of c.$90 million, excluding amounts relating to the tax dispute of c.$405 million and amounts used as part security in respect of OML 30 of $101 million – Average gross production from OML 30 has been 20,350 bopd since the acquisition – Production from the interest in OML 30, Nigeria, net to Heritage of 12,350 bopd for November and December 2012 and net production from Russia of 607 bopd for the year

O UTLOOK – Further increases in production from OML 30, with key items of equipment having been identiﬁed and ordered 2013 – Exploration activity to continue in Tanzania, following initial promising results and ﬁrst drilling slated for 2014 – Extension of 2D seismic programme in PNG with the intention of progressing the Tuyuwopi structure to a drillable prospect in 2014 – Continue to look for further opportunities to create value

All dollars are US dollars unless otherwise stated. HERITAGE OIL PLC Annual Review 2012 02

EXPLORATION PRODUCTION ASSET OVERVIEW

M ALTA

Area 2; 100% working interest & operator Heritage typically focuses on regions Area 7; 100% working interest & operator which may have been overlooked Areas 2 and 7 lie in the south-eastern offshore and where it can participate as an region of Malta and show geologic similarities to areas offshore Libya and Tunisia which contain a early entrant. number of producing fields. Well planning continues which will enable the drilling of an identified prospect in Area 7 once Maltese government approval is granted.

The Heritage asset portfolio provides a geographical and operational diversification. Material corporate transactions undertaken in 2012 have provided a balance to the portfolio with assets that include significant production and reserves. The joint venture company Shoreline Natural Resources Limited (“Shoreline”), created in partnership with Nigerian company Shoreline Power, has established an indigenous company which will provide a platform for further growth within the country. Through Shoreline, Heritage has acquired an interest in OML 30, a world class asset, which secures Heritage a step change in production and reserves. Entry into Nigeria was partially funded through the disposal of interests in Kurdistan, for which an attractive valuation was achieved. OML 30 lies onshore the Niger Delta in one of the most prolific oil provinces in the world and includes eight producing fields with oil and gas contained in numerous stacked reservoirs. Improving the gas lift is a key target in 2013 and could increase production by up to 20%. Average production from OML 30, net to Heritage for November and December 2012, was 12,350 bopd.

Heritage has held an interest in Russia since 2005 and has acquired 2D seismic, constructed pilot production facilities, commenced ﬁeld production, drilled four wells and re-entered an existing well. A revised ﬁeld development plan was submitted and this has been approved by the regulatory authorities at the end of December 2012.

In August 2011, Heritage acquired a controlling 51% interest in Sahara Oil Services Holdings Limited (“Sahara Oil”) which owns the entire share capital of Sahara Oil Services Limited (“Sahara”) in Libya. Through this acquisition Heritage believes it is well placed to play a signiﬁcant role in the future development of the oil and gas industry in Libya. NIGERIA Activity on the exploration portfolio will increase as work programmes continue in Tanzania, Malta and Papua New OML 30; 45% equity interest through Shoreline Guinea, which was added to the portfolio in April 2013. In Rukwa, In November 2012, Heritage acquired a seismic processing is continuing and inﬁll 2D seismic may be significant interest in OML 30 through Shoreline. acquired in conjunction with Kyela seismic acquisition scheduled OML 30 covers 1,097 square kilometres and for later this year. includes eight producing fields.

2D seismic acquisition within licences PPL 319 and PRL 13 will be RPS, in an independent evaluation, estimated expanded and is targeting advancement of the Tuyuwopi structure that OML 30 contains proved and probable and the Mudoli/Middletown lead. Further assessment will continue reserves of 347 MMbbls of oil net to the Group as at 31 March 2012. of the upside potential identiﬁed at the Iehi and Orie anticlines, in addition to the untested hanging wall of the Kuru ﬁeld in PRL13. These prospects and leads are located in a known hydrocarbon province which includes the multi-TCF Triceratops and Elk/Antelope discoveries with infrastructure close by. Annual Review 2012 HERITAGE OIL PLC 03

LIBYA RUSSIA

51% equity interest in Sahara Oil Zapadno Chumpasskoye; 95% equity interest

Heritage is exploring ways to assist the newly The licence covers an area of about 200 appointed interim government, under the square kilometres and contains the Zapando General National Congress elected in July Chumpasskoye Field, discovered in 1997. 2012, the national oil company and the state oil companies rehabilitate and re-shape Libya’s RPS, in an independent evaluation, estimated hydrocarbons sector. that Zapadno Chumpasskoye contains proved and probable reserves of 65 MMbbls of oil net to the Group as at 31 March 2012.

TANZ ANIA PAPUA NEW GUINEA PAKISTAN

Rukwa North; 100% working interest & operator PPL 319; 80% working interest and operator Sanjawi; 54% working interest & operator Rukwa South; 100% working interest & operator PRL 13; 80% working interest and operator Zamzama North; 48% working interest & operator Kyela; 100% working interest & operator Latham; 29.9% working interest & operator Heritage entered this new region in April 2013 The Sanjawi onshore exploration licence covers through the farm-in to, what management a gross area of 2,258 square kilometres. The In 2011/2012 Heritage was awarded the Rukwa estimate to be, highly prospective acreage. Zamzama North licence covers an area of and Kyela licences and the work programmes 2D seismic has recently been acquired and this 1,229 square kilometres. The current seismic have begun. In Rukwa, seismic processing is programme will be extended later this year. database used to map the Zamzama North continuing and infill 2D seismic may be acquired licence comprises some 1,000 kilometres of in conjunction with Kyela seismic acquisition good quality 2D seismic. scheduled for later this year. HERITAGE OIL PLC Annual Review 2012 04

T HE HERITAGE BUSINESS M ODEL The Company possesses certain key attributes, discussed overleaf, that provide it with a competitive advantage. Key Performance Indicators (“KPIs”) are used by the Company as one measure of performance and relate to both the underlying business model and the delivery of strategy. In addition, the Heritage’s vision is to be a leading Company actively monitors certain risks attached to the exploration and production company. business model and strategy which are detailed on pages The business model creates the 32 to 34. foundation upon which the Company Heritage’s business model balances the exploration and can achieve this through its strategy. appraisal process with cash generating production assets which is supported through high standards of governance, regional knowledge and contacts and an e"ective Corporate Social Responsibility (“CSR”) policy framework.

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O E C P G I T A R O N D L E E D L R U P M E C T O W S I O E L O P N + E V O D N K N L S I A B I N L I T I O Y R E G Annual Review 2012 HERITAGE OIL PLC 05

CORE BUSINESS MODEL

Exploration and appraisal Production and development Capital discipline Our technical team is responsible for Once the area has been proven, An appropriate capital structure assessing new areas for exploration appraised and confirmed balancing the exploration and campaigns and ensuring that we have commercially viable, the operational demands of the portfolio the ability to continually replenish development team is responsible for with financing requirements is our exploration portfolio. The team providing information to enable the required to ensure appropriate will identify core plays and prioritise Company to best achieve revenue funding for long-term sustainable exploration options across the generation and cash flow by moving growth. This can include the portfolio. After reviewing the initial the hydrocarbons into production. monetisation of assets or accessing exploration programme, the team A strong regard for the environment capital markets and is an ongoing will propose an appraisal campaign and respect for local communities process to ensure e#cient allocation to prove up the size of the discovery is important. of capital. and whether it is deemed commercial. Further information can be found in Further information on the current the Financial Statements Report. asset portfolio can be found in this report on pages 16 to 23.

SUPPORTED T HROUGH

Governance Regional knowledge and contacts Corporate Social Responsibility Heritage seeks to achieve and Relationships with national and An e"ective CSR policy framework is maintain the highest standards and regional governments are a key a key element of long-term success. best practice reporting in all areas focus within the business. These Managing relationships with of governance. relationships provide the Company stakeholders is viewed as important with the ability to assess risk and in developing and maintaining a Further information can be found in provide a competitive edge versus reputation as a preferred partner. the Corporate Governance Report. its peers. Further information can be found in the CSR Report.

KEY PERF ORM ANCE INDICATORS

Heritage uses a number of ﬁnancial Lost Time Injury Frequency Rate Reserves and contingent resources and operating KPIs that are closely (“LTIFR”) – Operationally a top additions – The core business model aligned with the underlying business priority is to keep people safe. This involves replenishing the exploration model and its strategy for delivering includes employees, contractors and portfolio, ensuring the continued long-term sustainable growth. These local communities where we operate. growth of the Company and the are some of the indicators by which potential production proﬁle. the Company monitors performance. Sta" turnover – Retaining quality Several of these are linked to the sta" is important to ensure the Average realised price – In Russia, primary business risks of the delivery of the strategy. the realised price improves, in part, Company which are detailed on as production increases due to better pages 32 to 34. Production from continuing price negotiation and there being a operations – Production is key to wider base of customers. Prices have revenue and cash generation and not been hedged during the year. Heritage aims to achieve levels in line with annual budgeting and market guidance.

2012 2011 2010 2009 LTIFR1 0 0 0 0 Sta" turnover2 3% 2% 3% 3% Production3 +1,825% +24% +65% –13% Reserves and contingent resources additions4 +564% +0% +42% +103% Average realised price5 +8% +45% +26% –35%

1 Lost Time Injury Frequency Rate per 10,000 hours worked. 2 Excludes sta" members in Uganda who transferred with the sale of the Ugandan Assets in 2010. 3 For 2012, pro forma production includes Heritage’s net share of average daily production from the Zapadno Chumpasskoye Field in Russia for the full year, together with its net share of average daily production for OML 30 included for November and December 2012 only, following completion of the acquisition of an interest in OML 30 through Shoreline e"ective 1 November 2012. Heritage’s total net share of production in 2012 was 975,511 barrels. 4 Management estimates. 5 Realised price is a measure of the price achieved for output sold. HERITAGE OIL PLC Annual Review 2012 06

VISION & STRATEGIC OVERVIEW

STRATEGY

Heritage’s vision is to be a leading exploration and production company and the Company aims to generate long-term shareholder value.

Heritage sets out to achieve its aim of sustainable long-term KEY ATTRIBUTES OF HERITAGE shareholder value through a strategy that focuses on: Heritage has a unique background with which it can deliver – high-impact international plays with the potential to on its strategy because of the following key attributes: discover significant hydrocarbon reserves; – demonstrated success of first mover advantage in – generating cash flow through production; and territories such as Uganda and Kurdistan; – managing the portfolio e"ectively, which can include the – proven track record of monetising assets with the current acquisition of value creating opportunities. management team having raised c.$2 billion; – an appreciation of risk, both political and security; This is done against the background of: – management expertise with a team containing – ensuring operations are safe and minimising Lost Time experience of corporate finance, legal and industry Injuries (“LTIs”) for sta" and contractors; specific skills; – engagement with local communities who may be a"ected – technical expertise with senior members of the team by our work; each with in excess of 30 years’ industry experience; – building successful long-term relationships with local – a highly e"ective network of industry, political and governments, communities and stakeholders in the areas institutional relationships; of operation; and – balanced portfolio of assets; and – high standards of corporate governance. – strategic positioning of assets.

Heritage ensures this is done through: – a diversiﬁed Board, which avoids “group think”; and – employing and retaining a strong team across all departments of the Group. Annual Review 2012 HERITAGE OIL PLC 07

K EY ATTRIBUTES OF HERITAGE

ACQUIRE AND INVEST S TRATEGIC POSITIONING

S TRONG RELATIONSH IPS BALANCED PORTF OLIO

VALUE CREATION

MANAGEM ENT EXPERTISE FIRST M OVER ADVANTAGE

T ECH NICAL EXPERTISE A PPRECIATION OF RISK HERITAGE OIL PLC Annual Review 2012 08

CORPORATE GOVERNANCE

F RAM EWORK

The Company aims to achieve best practice reporting on corporate governance.

With a Premium Listing on the LSE, the Company is L OOK I N G A H EAD subject to the Financial Conduct Authority’s Listing Rules Recent proposals in respect of reporting on executive and the requirement to explain how it has applied the main remuneration will become e"ective for ﬁnancial principles of the UK Corporate Governance Code (the reporting which comes into force on 1 October 2013. “Code”). The Remuneration Committee will be considering these requirements with the aim of providing greater H O W T H E BOARD O P ERATES transparency to shareholders. The Board will also be The Board delegates certain responsibilities to committees considering government proposals to amend narrative in line with recommendations of the Code and to facilitate reporting requirements for company annual reports which the achievement of business objectives of the Company. will entail replacing the Business Review with a Strategic The Board as a whole is collectively responsible for the Report. We consider our reporting to be well developed success of the Company and each Director must take already, however, we will continue to review our reporting decisions objectively in the interests of the Company. The to ensure it meets the new developments and best practice. Board’s principal role is to set strategy and the parameters within which the Group operates to further its objectives. Furthermore there are amendments to the Code which come into e"ect for ﬁnancial years beginning on or after D E V E L O PME N TS I N 2012 October 2012 and we will seek to introduce these Executive remuneration and the development of our requirements in advance where possible. approach to managing risk were key priorities for our governance focus in 2012 and we made great progress. In We continue to support open and constructive dialogue terms of our remuneration policy the Board has approved with all of our shareholders on governance, strategy and amendments to the bonus plan which we believe will executive remuneration and welcome any feedback. further align our remuneration with the delivery of our business strategy. Following feedback from shareholders For further information on corporate governance please see and further internal review the Board has also approved the Corporate Governance Report. changes to the contracts of the Executive Directors, reducing the notice periods and adopting more modest termination provisions in the event of a change of control of the Company in line with UK best practice. Annual Review 2012 HERITAGE OIL PLC 09

C ORP ORATE STRUC TURE

BOARD The Board is supported by the work of its committees and delegates day-to-day management of the Group to senior management

SUP ERV ISION STEW ARD S H I P Review of performance against strategy Approval of strategy Review of ﬁnancial information Values and standards Review of e"ectiveness of internal controls and risk management Approval of Group policies

BOARD CO MMITTEES

AUD IT REM U N ERATION N O M I N ATION RESERV ES A N TI- C SR CO MMITTEE C O MMITTEE C O MMITTEE C O MMITTEE C O MMITTEE BRIBERY A N D C ORRUP TION C O MMITTEE

Monitors integrity of Sets remuneration policy Makes recommendations Oversight responsibilities Oversees anti-bribery Sets CSR Policy ﬁnancial statements on Board composition with respect to the programme and ethical Framework Reviews and approves Company’s oil and gas policies and practices Reviews accounting remuneration of Reviews succession reserves evaluation Reviews internal CSR policies Executive Directors planning process programme

Manages relationship Reviews Board Considers independence with external auditor performance of the technical evaluator Oversees external audit process

Considers auditor independence

SEN IOR MA N AGEM E N T/LEAD ERSH I P TEAM HERITAGE OIL PLC Annual Review 2012 10

CORPORATE SOCIAL RESPONSIBILITY

RESPECT

The business approach of Heritage is underpinned by CSR from the ﬁrst stages of planning and being awarded a licence, through to exploration and production.

OUR CSR VISION C SR I N A C TION – to be a responsible and transparent business in all the Our approach to CSR supports our business model and sets areas in which the Company operates, believing this is out essential core values that we believe make Heritage a important to the operational aim of generating long-term good corporate citizen. The Company sets itself a high growth for the Company; standard against which to measure itself and recognises – to create lasting legacies for local communities; the importance of being a partner of choice. – to operate to the highest international social, environmental and safety standards; and Heritage aims to make a positive contribution in all areas – to maintain high standards of corporate governance. where it operates.

CSR encompasses the Company’s management of D E V E L O PME N TS I N 2012 relationships with stakeholders; shareholders, employees, – approximately $971,000 spent on CSR-related initiatives, contractors, partners and the local communities in which c.39% higher than 2011; we work. In addition, it includes the impact the Company – zero environmental incidents, ﬁnes or sanctions across has on society and the environment. all operations; – zero fatalities and LTIs across all operations; OUR CSR STRATEGY – zero breaches in business conduct policies; – employment of local people remains high across all SET POLICIES operations; and – commenced adoption of Heritage’s CSR policies and systems in the Shoreline joint venture. DEVISE AND MAINTAIN SYSTEMS For further information on CSR please see the CSR Report. MEASURE AND M O N I TO R PERFORM ANCE

COMMUNIC AT E A N D R E P O R T TO STAKEHOLDERS

APPLY STA KEHOLDER FEEDBACK Annual Review 2012 HERITAGE OIL PLC 11

OUR AREAS OF I MPA C T A ND O PPORTUN ITY

Heritage recognises speciﬁc Environment and Aim to make a positive contribution to global responsibilities in each of six core sustainability sustainability and to protect the environment areas of potential impact and opportunity, speciﬁc to the CSR aspects of our activities. Adherence to these CSR values are viewed as a key Health and safety A core element of all activities and a natural factor in securing the long-term priority operational success of the Company.

We aim to apply targets, across our Employees Our ability to create shareholder value is identiﬁed areas of impact and linked with our ability to recruit and retain opportunity, to focus employees and high calibre sta" enable the Company and stakeholders to monitor performance. Community and Active and enduring relationships are an essential and fundamental element of our human rights business

Business conduct We maintain robust policies with respect to all matters concerning our business conduct

Corporate governance As a Company with a Premium Listing, Heritage maintains high corporate governance standards HERITAGE OIL PLC Annual Review 2012 12

CHIEF EXECUTIVE’S REVIEW

A TRANSFO R MATIONAL YE A R

ANTHONY BUCKIN GHAM CHIEF EXECUTIVE O FFICER

Our transformation during 2012 and into 2013 resulted from 2012 has been a momentous year in decisions to exit Kurdistan and Mali, and enter new regions of the evolution of Heritage. We have Nigeria and Papua New Guinea whilst extending our acreage in Tanzania. Our portfolio now includes significant producing assets enhanced our portfolio through and an enlarged exploration portfolio. This combination provides corporate activity, securing a step more balance with both geographic and operational diversification. change in production, reserves and Since the acquisition of an interest in OML 30, total revenues, net to Heritage of $234.5 million have been generated and cash received in cash flow. 2013 from Nigeria at an average realised price of $116.87/bbl. The crude is marketed by a subsidiary of Royal Dutch Shell plc and given the quality of the crude attracts a premium to Brent. This revenue generated excess cash flow which resulted in Shoreline making a payment of $52.5 million in April 2013 to reduce the bridge loan from $550 million to $497.5 million. We are currently in the process of refinancing this to a long-term five year loan.

Heritage has an exceptional multi-year record of creating value and monetising assets and has generated c.$2 billion in asset sales with the current executive management team. We have consistently identiﬁed assets which are underdeveloped or overlooked and we have utilised the expertise of the Board and our technical team to create a strategic asset position.

Against the ongoing backdrop of economic uncertainty, oil prices have remained high and the Company has secured assets with signiﬁcant production potential which will generate high netback returns. Annual Review 2012 HERITAGE OIL PLC 13

TSR versus peers since TSX listing, % Heritage Oil Plc Tullow Oil plc

10000 Premier Oil plc 9000 SOCO International plc 8000 Afren Plc 7000 6000 Salamander Energy plc 5000 4000 3000 2000 1000 0 Jan 99 Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13

Source: Factset and Datastream as of 25 January 2013.

NEW AREAS OML 30 is located onshore and comprises eight producing fields NIGERIA with associated infrastructure which includes a 45% interest in the In November 2012, Heritage, through Shoreline, completed the 850,000 bpd capacity Trans Forcados pipeline running from the acquisition of an interest in OML 30. Shoreline is a special purpose Eriemu Field, within the licence, to the Forcados River manifold. Nigerian company formed between a subsidiary of Heritage and a OML 30 is one of the largest onshore licences, by reserves, in Nigerian partner, Shoreline Power, which acquired 45% of OML 30. Nigeria with gross proved and probable reserves of 1.1 billion barrels This transaction established Heritage’s first significant participation of oil, as estimated independently by RPS as at 31 March 2012. in the Nigerian oil industry and creates a platform for future growth Consequently, this one licence alone contains more oil reserves than in the region. are held within many entire African countries.

Average production, net to Heritage, from OML 30 for November and The licence benefits from having all infrastructure already in place. December was 12,350 bopd. Since the acquisition on 1 November There are nine flow stations with the capacity to handle 395,000 bpd, 2012, gross production for the licence has averaged c.20,350 bopd thereby handling several years of projected production growth. The but has been as high as 42,825 bopd. This is in part due to a manifold facilities have been robustly designed and constructed, benefiting in a gas lift compressions system failing and also to a strike by local from following a standard design enabling equipment to be easily workers. These two issues are being addressed and the manifold is replaced if necessary. The licence includes an ownership interest in expected to be repaired by the end of May. The majority of the fields the Trans Forcados Pipeline which transports production from OML are operating again after a series of successful meetings the operator 30 and several other licences to an export terminal on the coast. The held with local workers. The remaining fields are expected to be back pipeline generates revenues which provides the licence owners with a in production shortly. Good progress has been made to increase profit from the tari" charged. Gross revenue from the Trans Forcados production in the second half of the year, primarily through Pipeline is expected to total approximately $50 million in 2013. improved gas lift with new compressors being ordered. There has been no evidence of bunkering on the pipeline since the acquisition. With OML 30, and through Shoreline, we saw the opportunity to acquire a world class asset at low valuation multiples. The acquisition We identified the potential to both stabilise and increase production cost of $1.70 per barrel of proved and probable reserves (“2P”) versus in the near term through the refurbishment of infrastructure and the the average for precedent transactions in the Niger Delta of $5.90 per re-starting of non-producing existing wells. In addition, existing barrel of 2P reserves represents a significant discount. It is the largest wells will be worked over to improve completions and gas lift can be upstream onshore asset transaction in sub-Saharan Africa on a 2P installed in a number of existing wells which do not have artificial basis and positions Shoreline as one of the largest indigenous oil lift. Longer term, there is the potential to increase gross production companies in Nigeria. for the field to c.300,000 bopd through the drilling of new wells which is expected to begin in the second half of 2014. Since 1961, over 200 wells have been drilled on the licence and the strong aquifer support has enabled the majority to become producers. To date, work on the licence has commenced with ordering four Eight fields have been developed and there is a railway line to an new gas lift compressors, the first of which will be delivered in export terminal on the coast. However, the licence has previously June, installing diesel generators and installing new instrument air been ill maintained and underdeveloped with a sporadic drilling compressors. Over the course of this year further work will continue history, especially since 1980. aimed at optimising existing facilities. Gas lift is the single method of artificial lift within OML 30 and six of the eight fields have gas lift installed, with installation at the two remaining fields planned in HERITAGE OIL PLC Annual Review 2012 14

CHIEF EXECUTIVE’S REVIEW CONTIN UED

2014–2015. Improving the gas lift system is the key target in 2013 c.600 kilometres of 2D seismic across the north eastern margin of the and we believe could increase production by up to 20%. basin which is currently being processed. We continue to be excited with the potential in the Rukwa Rift Basin and Kyela which we Shoreline has opened its technical and administrative head o#ce in believe to share certain geological similarities with the Albert Basin Lagos, employing a team of 17 members of sta". A very good working of Uganda, where we were the pioneering oil company to undertake relationship has been established with the Nigerian Petroleum active exploration for the first time in nearly 60 years. Following a Development Company (“NPDC”), the operators of OML 30, on joint technical review in 2012, all expenditures relating to Latham were technical and operational reviews of all the fields and facilities and the written-o". budget for 2013 has been approved. NPDC took over operatorship of OML 30 at the beginning of February 2013 after a three month OTHER ASSETS transition period. R USSIA Production averaged 607 bopd over the year, a decrease of 10% over Shoreline has also commenced a series of programmes in OML 30 the year due to natural well decline and a temporary mechanical issue after meeting with local communities to ensure that the Company on well 363 which has been resolved. Based on positive results from can implement the most e"ective social programmes for these the horizontal well drilled in August 2011, a revised field development communities, with a focus on education, training and healthcare. plan was submitted for Zapadno Chumpasskoye, replacing vertical producers with horizontal wells. The change in well type should result Heritage’s partner, Shoreline Power, is a pan-African energy and in a significant reduction in the number of production wells required infrastructure business with an existing network of strong and to develop the field and a corresponding reduction in drilling respected relationships within Nigeria. Coupled with the experience expenditure. Our revised development proposal was accepted by of Heritage’s technical team the two companies create, in Shoreline, regulatory authorities at the end of December 2012. a company that is well positioned as a platform for further growth within the country. Nigeria, with estimated proved reserves of 37.2 LIBYA AND M ALTA billion barrels, is the largest African producer with 2.5 MMbbls A new Libyan government was established in the second half of 2012 per day, according to the BP Statistical Review 2012, and has and as this and other government institutions become established, well-established infrastructure from over 50 years of oil production. we are confident that a constructive dialogue with Malta will develop The country is predicted to be one of the largest growing emerging regarding the associated maritime boundary issues and hydrocarbon economies with growth expected in the energy sector. rights. Heritage is actively assisting o#cials in both countries to move forward with these discussions, ultimately to enable the PAPUA NEW GUIN E A exploration and development of Area 7 where a prospect has been In April 2013 we announced the expansion of our exploration identified and preparations continue to drill a well, subject to Maltese portfolio with entry into. Heritage has agreed to acquire an 80% government approval. working interest in PPL 319 and PRL 13 from LNG Energy. In return for earning the working interests and operatorship, Heritage will C O R P O R AT E fund the costs of the seismic acquisition and the cost of drilling an BOAR D CHANGES exploration well. We look forward to developing and accelerating the I am pleased to announce that we have strengthened our Board this work programme as this acreage provides the opportunity to discover year with two appointments; Carmen Rodriguez and Mark Erwin. large gas reserves at a time when regional gas demand is growing Carmen, the first woman Director appointed to our Board, joined in rapidly. The licences are onshore and close to multiple producing March 2012, replacing Salim Macki who retired. Mark joined the fields and discoveries, including the multi-TCF Triceratops and Elk/ Board in May 2012. We view both appointments as outstanding Antelope discoveries. There is also a close proximity to current and additions to our Board with considerable experience. under-construction infrastructure with the Kutubu oil export pipeline and the PNG Liquefied Natural Gas pipeline crossing CASH the acreage. As at 31 December 2012, Heritage had a cash position of approximately $90 million, excluding amounts related to the tax TANZANI A dispute of approximately $405 million, which is more than su#cient In January 2012 Heritage was awarded the Kyela PSA which had to cover planned work programmes into 2014. never previously been targeted for hydrocarbon exploration. Our work programme commenced with the acquisition of a c.1,500 P ETROFR ONTIER CORP. square kilometre very high resolution gravity survey indicating the Heritage continued to acquire common shares (“Shares”) of presence of structural highs adjacent to a main depocentre. In PetroFrontier Corp. (“PetroFrontier”) for investment purposes and January 2013 we completed a 100 kilometre reconnaissance seismic currently holds 19.98% of the outstanding Shares of PetroFrontier. survey across the Kyela Block which has confirmed the structures PetroFrontier is listed on the TSX Venture Exchange and is focused previously indicated by the gravity data. The processing of this on a high-impact drilling programme in Australia targeting billions data will enable the positioning of targeted infill 2D seismic of barrels of resources. which is scheduled to be acquired later this year. During 2012 we reprocessed the legacy 2D seismic in Rukwa and acquired a further Annual Review 2012 HERITAGE OIL PLC 15

B U Y B A CK PRO GRAMME CORPORATE SOCIAL RESPONSIBILITY Heritage commenced a share buy back programme in April 2011. To We continue to mature our approach to CSR and engagement date 34,602,442 Ordinary Shares have been bought back and are held with stakeholders towards achieving a shared future, which is a key in treasury. Shares were bought back in the year under the authority element supporting our core business model. We have developed, and given at the 2011 Annual General Meeting (“AGM”). No such continue to review, a policy framework disclosing our essential core authority was sought at the 2012 AGM. Consequently, Heritage has values. I am delighted to report that we continue to maintain a strong 255,595,978 Ordinary Shares in issue (excluding treasury shares) as track record for health and safety which is fundamental in being well as 2,361,018 exchangeable shares of no par value of Heritage Oil viewed as a preferred partner. Corporation, each carrying one voting right in Heritage. Community relations are a key factor for success in our new Nigerian DISPO S AL operations where there are over 90 communities living on the licence. The disposal of our interests in the Miran asset in Kurdistan was We are applying our core values, through Shoreline, in working with announced in August 2012. Shareholder approval was received in the communities within the OML 30 licence and are striving to December 2012 and the transaction completed shortly thereafter. improve their lives in the areas of health, education and environment. The sale for $450 million secured an attractive valuation for this asset A comprehensive series of CSR programmes have already commenced which has a signiﬁcant further capital expenditure requirement and in Nigeria. these proceeds were used to partially fund our entry into Nigeria. During 2012, we spent a total of approximately $971,000 on U G ANDA CSR-related activities with community programmes focused on areas In January 2010, Heritage announced the sale of Blocks 1 and 3A in where we were operationally more active. We are looking forward to Uganda by its wholly owned subsidiary, Heritage Oil & Gas Limited having a positive contribution to our new areas of activity. (“HOGL”), to Tullow Uganda Limited (“Tullow”) for $1.45 billion. OUTLOOK Subsequently, the Uganda Revenue Authority (“URA”) assessed Nigeria is the core focus for us in 2013 as we strive to increase that income tax was due on the capital gain arising on this disposal. production and work with the operator on forward programmes. We Heritage’s position, based on comprehensive legal and tax advice, expect to continue to be very active across the exploration portfolio is that no tax is payable. In order to appeal the URA assessment, with activity increasing in Tanzania and seismic programmes being Heritage was required to deposit 30% of the disputed tax assessment undertaken in PNG. This activity will continue into 2014 and is with the URA. The remainder is retained in escrow in London. expected to set the basis for future growth for our Company.

HOGL continues to challenge both the URA in the Ugandan courts As always, I am very grateful to our management team, employees and, in accordance with the PSAs, the Ugandan government through and supportive Board for their dedication and contribution to the international arbitration proceedings in London, which commenced progress made by Heritage this past year. Finally, to our shareholders, in May 2011. The arbitration tribunal ruled in April 2013 that the thank you for your continued support and interest in Heritage. determination of tax was outside its jurisdiction, but that there were two areas of HOGL’s claims which it will consider, in respect of ANTHONY BUCKIN GHAM contractual income tax stabilisation clause protection and breach CHIEF EXECUTIVE O FFICER of other contractual obligations. 29 APRIL 2013 The determination by the arbitral tribunal marks the end to 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.

In April 2011, Tullow made a payment to the URA and subsequently ﬁled a claim in the High Court in England seeking compensation for alleged breach of contract as a result of HOGL’s and Heritage’s refusal to reimburse Tullow. In March 2013, an 11 day hearing took place in the Commercial Court in London. A ﬁrst instance judgment is expected during the course of 2013. HERITAGE OIL PLC Annual Review 2012 16

O PERATIONAL REVIEW NIGERIA

OML 30 Oil pipeline Forcados pipeline Oil field

NIGERIA

OML 30

Kokori Escraros Aﬁesre Eriemu Warri Oweh Osioka Olmoro-Oleh Forcados Evwreni Oroni Uzere West

In November 2012, Heritage successfully completed the acquisition of a major interest in OML 30, Nigeria, through Shoreline.

On 9 November 2012, Heritage announced that OML 30 lies onshore within the Niger Delta in one of Shoreline, a special purpose private Nigerian company the most prolific oil and gas provinces in the world. The formed between a subsidiary of Heritage and a local licence covers 1,097 square kilometres and includes eight Nigerian partner, Shoreline Power, successfully producing fields with oil and gas contained in numerous completed the acquisition of a 45% interest in OML 30, stacked reservoirs. The fields are deltaic shallow marine together with a 45% interest in other assets under the shelf sands at intermediate depth level in growth fault joint operating agreement for OML 30, for a total cash structural setting. The fields each contain up to 40 consideration of $850 million, net of costs. OML 30 is a stacked reservoirs and the reservoirs are underlain by world class asset with gross oil reserves of over 1.1 billion substantial aquifers that provide nearly infinite pressure barrels and has all the infrastructure in place to produce support. The oil is good quality 30° API and typically up to 395,000 bpd. sells at a 3% premium to Brent.

Shoreline Power had an option to acquire 30% of Since 1961 over 200 wells have been drilled on the licence Heritage’s interest in Shoreline which was exercised, in line and the strong aquifer support has enabled the majority with expectations, at the end of December 2012. Heritage of these to become producers. There is the potential to will shortly receive the exercise price from Shoreline Power both stabilise and increase production in the near term of over $100 million which, in accordance with the bridge through refurbishing infrastructure and restarting facility from Standard Bank, will be used in part as non-producing existing wells. Additionally, existing wells security against the existing facility to Shoreline and also will be worked over to further increase production. In the for general corporate purposes. Following completion of longer term, drilling which is slated to commence in the the option exercise and continuation of the existing proﬁt second half of 2014 will target additional reservoir share agreement, Heritage’s equity and economic interests intervals that will provide a further increase in in Shoreline will be 31.5% and 68.25%, respectively. production levels.

To date, work on the licence has commenced with the ordering of four new gas lift compressors, the first of which will be delivered in June, installation of diesel generators and new instrument air compressors. Over the course of this year further work will continue aimed at optimisation of existing facilities. Gas lift is the single method of artificial lift within OML 30 and six of the eight fields have gas lift installed, with the two remaining fields planned to have gas lift installed in 2014–2015. Annual Review 2012 HERITAGE OIL PLC 17

Improving the gas lift system is the key target in 2013 and In November and December 2012, average production could increase production by 20%. net to Heritage was 12,350 bopd. Since the acquisition of an interest in OML 30, total revenues net to Heritage The licence benefits from infrastructure being in place of $234.5 million have been received from Nigeria at an with nine flow stations that have the capacity to handle average realised price of $116.87/bbl. Gross production 395,000 bpd thereby handling several years of projected for the licence has been as high as 42,825 bopd during production growth. The facilities have been robustly this period. designed and constructed, and benefit from a standard design so equipment can easily be replaced if required. The acquisition and partnership with Shoreline Power enhances Heritage’s profile in Nigeria and creates a The acquisition included a 45% interest in the segment platform for further growth in this prolific hydrocarbon of the Trans Forcados pipeline between the Eriemu region. Shoreline has become one of the leading Manifold and the Forcados River Manifold, which is indigenous companies producing in Nigeria, combining largely buried. The pipeline is used by several other Shoreline Power’s energy and infrastructure operating operators and provides additional revenue for the expertise and respected network of relationships within pipeline owners through the tari" charged. Nigeria with Heritage’s strong technical team.

OML 30 – SUMMARY O F RESERV ES1,2 Heritage Group Net Gross Remaining Reserves Entitlement Reserves Gross of Net of Gross of Net of Royalty Royalty Royalty Royalty (mmstb) (mmstb) (mmstb) (mmstb) Proved Reserves (1P) 538 430 168 134 Proved & Probable Reserves (2P) 1,114 891 347 277 Proved & Probable & Possible Reserves (3P) 1,733 1,387 539 431

1 Post exercise of Shoreline Power option. 2 As per RPS, as at 31 March 2012.

OML 30 – POST TAX E VALUATION NET TO HERITAG E Alternative Base Income Income Tax Tax Scenario1 Scenario2 ($ million) ($ million) Post-tax NPV Post-tax NPV (10%) (10%) Proved Reserves (1P) 1,189 1,410 Proved & Probable Reserves (2P) 2,162 2,652 Proved & Probable & Possible Reserves (3P) 3,129 3,820

1 Assumes the income tax applicable under current Nigerian law. 2 Assumes the income tax under changes to Nigerian law which Heritage believes might occur. HERITAGE OIL PLC Annual Review 2012 18

O PERATIONAL REVIEW CONTIN UED RUSSIA

Heritage licence Z A PA D N O Oil pipeline C H U M PA S S KOY E Gas pipeline L I C E N C E W E S T E R N Oil producer Oil well S I B E R I A

Since 2005, the Group has held a 95% equity interest in ChumpassNefteDobycha Limited, a Russian company whose sole asset is a 100% interest in the Zapadno Chumpasskoye licence.

The Zapadno Chumpasskoye licence is in the installed on well 226 to arrest the natural well production hydrocarbon-rich West Siberian province of Khanty- decline and a water shut-o" operation was completed on Mansiysk, approximately 100 kilometres from the city well P4. Based on positive results from the horizontal well of Nizhnevartovsk and in the area of the region’s prolific drilled in August 2011, a revised field development plan Samotlor oilfield, which makes it accessible to existing was submited for Zapadno Chumpasskoye replacing infrastructure. The licence contains the Zapadno vertical producers with horizontal wells. The change in Chumpasskoye Field, discovered in 1997. A total of 13 well type should result in a 50% reduction in the number wells have been drilled on the licence including four by of production wells required to develop the field and a the Group. The Chumpasskoye crude is light, sweet corresponding reduction in drilling expenditure of (42º API) oil, with moderate gas-to-oil ratios. approximately $200 million. The development proposal was approved by regulatory authorities at the end of Since 2006, the Group has acquired 2D seismic data December 2012. covering an area of 200 kilometres, constructed pilot production facilities, commenced field production, drilled Production averaged 607 bopd for the year, a decrease four wells and re-entered existing well 226. Production of 10% year-on-year due to natural well decline and facilities were commissioned and production commenced a temporary mechanical issue which has since in May 2007. In 2009, an electric submersible pump was been resolved.

INDEPENDENTLY ESTIMATED RESERV ES AT THE ZAPADNO CHUMPASSKOYE F IELD1

Net present Net working and value entitlement ($ million reserves in money MMbbls of the day) 1 A summary of RPS’s Proved 23 52 net working interest reserves and their Probable Additional 42 284 Net Present Value, based on forecast Total Proved + Probable 65 336 prices and costs, Total Proved + Probable + Possible 163 976 discounted at 10%, as of 31 March 2012. Annual Review 2012 HERITAGE OIL PLC 19

TANZANI A

Heritage licence Exploration well K E N Y A Mombasa Oil and gas shows U N I T E D Gas field Railway R E P U B L I C O F T A N Z A N I A

Dodoma

R U K W A NOR T H Dar es Salaam Tancan-1

L A T H A M

Ivuna-1 R U K W A S O U T H Galula-1

K Y E L A

Z A M B I A

Heritage has four Blocks in Tanzania, three of which are considered to be geologically analogous to the Lake Albert Basin in Uganda.

RUKWA indicated the presence of probable structural highs In November 2011, Heritage announced the award of a adjacent to a main depocentre, modeled as a potential PSA that covers virtually the entire Rukwa Rift Basin, hydrocarbon kitchen. A 100 kilometre reconnaissance split into two separate areas, Rukwa North and Rukwa seismic survey completed in January 2013 confirms the South. Heritage is the operator with a 100% interest. A structures indicated by the gravity data. Seismic limited amount of exploration activity was undertaken processing has been completed and interpretation is in the region in the mid-1980s which resulted in the ongoing to enable the positioning of targeted infill 2D acquisition of c.2,300 kilometres of 2D seismic data and seismic, scheduled to be acquired later this year. the drilling of two wells. Reprocessing of legacy 2D seismic data in Rukwa was completed in 2012 and the Satellite radar surveys indicate areas of wave-calming in acquisition of c.600 kilometres of 2D seismic data Lake Rukwa and in Lake Nyasa that may be associated completed in March 2013. Seismic processing is ongoing with oil seeps. In the event of an oil discovery, at either and it is planned to acquire infill 2D seismic, if needed, in Rukwa or Kyela, economic scoping shows the commercial conjunction with Kyela seismic acquisition. viability of either rail export to Dar es Salaam or export by pipeline depending on exploration success. Heritage KYELA recognises that the Rukwa and Kyela licences share In January 2012, Heritage was awarded the Kyela PSA certain geological similarities with the prolific Albert covering the entire northern onshore area of the Lake Basin of Uganda where Heritage had previous experience Nyasa (Livingstone) Basin that lies within Tanzanian and significant success. territory. The Block has never previously been targeted for hydrocarbon exploration. Gravity data over the area L AT H A M suggests the presence of a sedimentary section of su#cient After a technical review during 2012, all expenditures thickness to allow for the generation of oil. The work with respect to Latham have been written-o". programme commenced with the acquisition of a c.1,500 square kilometre very high resolution gravity survey. This

Area Date Heritage Blocks (sq km) awarded equity Partners Operator Rukwa North 10,175 November 2011 100% – Heritage Rukwa South 8,745 November 2011 100% – Heritage Kyela 1,934 January 2012 100% – Heritage Latham 5,056 September 2006 29.9% Petrodel Heritage HERITAGE OIL PLC Annual Review 2012 20

O PERATIONAL REVIEW CONTIN UED PA PUA NEW GUINE A

Heritage licence Oil field Gas field Oil pipeline proposed Gas pipeline proposed PAPUA Oil pipeline NEW GUINEA Gas pipeline Lae

PRL 13 PPL 319

Kerema Kumul Marine Terminal

Popondetta

In 2013 Heritage expanded its portfolio into onshore PNG through the farm-in to two licences as operator with an 80% working interest.

PPL 319/PRL 13 The licences benefit from being close to current and In April 2013, Heritage announced the farm-in to under-construction infrastructure with the Kutubu oil exploration licence PPL 319 and retention licence PRL 13 export pipeline and the PNG Liquefied Natural Gas to be appointed as operator with the right to obtain an pipeline crossing the acreage. The licences also benefit 80% working interest. The contiguous licences are from the Kikori River which provides a link to the open located onshore and have respective gross areas of sea, thereby increasing transport options. approximately 2,025 and 160 square kilometres. The transaction completed in April 2013 following receipt Assessment of the legacy dataset, which includes c.250 of consent from the Papua New Guinea government and kilometres of 2D seismic data and high resolution Heritage has been appointed operator. In return for magnetic and gravity surveys, has identified a potential earning the working interests and operatorship, Heritage local source kitchen with more than seven kilometres of will fund the costs of seismic acquisition and the cost of section. This potential is being further evaluated through drilling an exploration well. In addition, Heritage has the recent acquisition of seismic data across the Tuyuwopi made a $4 million contribution to LNG Energy Ltd’s structure in PPL 319 which completed 31 March 2013. back costs on the licences. Heritage intends to enlarge this seismic programme by funding a minimum of 100 kilometres of 2D seismic data The licences are located at the junction of the Papuan fold with the intention of progressing the Tuyuwopi structure belt and the Miocene carbonate platform where there are to a drillable prospect in 2014 and to assess additional multiple producing fields and discoveries including the upside of the licences. multi-TCF Triceratops and Elk/Antelope discoveries.

Approximate Date Heritage Block area (sq km) farm-in equity Partners Operator PPL 319 2,025 March 2013 80% LNG Energy Heritage PRL 13 160 March 2013 80% LNG Energy Heritage Annual Review 2012 HERITAGE OIL PLC 21

MALTA

Heritage licence Siracusa Exploration well Tunis Oil and gas shows Oil field Gas field

MALTA A R E A 2

Medina Bank-1

T U N I S I A Sfax A R E A 7

L I B Y A Tripoli

In December 2007, the Group entered into a PSC with the Maltese government for a 100% interest in Areas 2 and 7 in the south-eastern o"shore region of Malta.

The Maltese licences cover almost 18,000 square In addition, the Company has recognised the presence of kilometres and are situated approximately 80 kilometres a north-south trending shelf margin on the eastern part (Area 2) and 140 kilometres (Area 7) o"shore, in water of the blocks where a number of attractive reef prospects depths of up to approximately 300 metres. The two Areas have been mapped. are close to, and geologically similar to, a number of producing ﬁelds o"shore Libya and Tunisia. A drillable prospect has been identiﬁed and preparations are underway to drill a well in Area 7 subject to Maltese With only one well previously drilled in Area 2, the government approval. Medina Bank-1 well in 1980 which did not reach its target, both licences are considered to be underexplored. Although drilled to a depth of 1,225 metres, the well failed to reach the objective horizons, estimated to be between 1,500 and 4,500 metres.

The interpretation of seismic data in Heritage’s extensive dataset of approximately 5,000 kilometres of 2D seismic, has conﬁrmed the mapping of a highly attractive Lower Eocene carbonate reef play within a prospect in Area 7 and also allowed for the mapping, with greater certainty, of a deeper carbonate reef play within the Cretaceous section of the prospect. These primary targets are recognised as major hydrocarbon producing zones in the central part of the Mediterranean.

Area Date Heritage Blocks (sq km) awarded equity Area 2 9,190 December 2007 100% Area 7 8,778 December 2007 100% HERITAGE OIL PLC Annual Review 2012 22

O PERATIONAL REVIEW CONTIN UED L IBYA

Oil field Gas field Oil pipeline Tripoli Gas pipeline Benghazi

Sirte

L IBYA A L G E R I A E G Y P T

N I G E R C H A D

In August 2011, Heritage acquired a controlling 51% interest in Sahara Oil which holds the necessary long-term permits and licences to provide oil ﬁeld services in Libya.

Heritage has pursued its strategy of “ﬁrst mover Heritage established a base in Benghazi in the ﬁrst half advantage” through pursuing participation in the of 2011, having been in discussions with senior members restoration of the Libyan oil production sector which of the National Transitional Council, the legitimate and presents a dynamic and evolving environment. recognised government of Libya at the time, as well as with its Executive Committee, the NOC and certain Libya is considered to be a highly attractive oil province subsidiaries. The dialogue with these parties continues, due to the low cost of oil recovery, high quality oil which with Heritage now also active in Tripoli and exploring is generally sweet with API gravity ranging between ways to assist the newly appointed interim government, 32–44º, proximity to European markets and well under the General National Congress elected in July 2012, developed infrastructure. the NOC and the state oil companies, rehabilitate and re-shape Libya’s hydrocarbons sector, placing it on a A wholly owned subsidiary of Heritage acquired a 51% sustainable path that will meet the future needs of equity interest and control of Sahara Oil which owns the country. the entire share capital of Sahara, a Libyan registered company providing services to the oil industry, for cash consideration of $19.5 million.

Sahara Oil was established in April 2009 and has been granted long-term licences to provide full oil ﬁeld services in Libya, including the ability to drill onshore and o"shore and hold both oil and gas licences. Our e"orts have the aim of playing a key role in the substantial rehabilitation work needed to resume, maintain and increase Libya’s hydrocarbon production in line with National Oil Company (“NOC”) and Oil Ministry targets. Annual Review 2012 HERITAGE OIL PLC 23

PA KISTAN

Heritage licence Islamabad Oil field Peshawar Gas field Oil pipeline Gas pipeline

Lahore

A F G H A N I S T A N S A N J A W I Quetta

PAKISTAN IR A N I N D I A

Z A M Z A M A N O R T H

Heritage is operator of two Blocks in Pakistan.

SANJAWI There is considerable infrastructure in the area as one Heritage has a 54% interest and is operator of the Sanjawi of the main pipelines runs through the licence and any licence (number 3068-2) in Zone II (Baluchistan), which discovered hydrocarbons could be readily connected. was awarded in November 2007, and which covers a The Zamzama Gas Field, a major gas ﬁeld in production, gross area of 2,258 square kilometres. The Block is lies immediately to the south of, and adjacent to, considered prospective due to an oil discovery to the Zamzama North. west, a number of gas ﬁelds to the south-east and the presence of oil seeps in the licence. The licence area is Using the current seismic database Heritage has mapped dominated by a series of broad east-west trending surface a number of structural prospects and leads and a drilling features including the large Dabbar and Warkan Shah programme is under consideration. The database anticlines, the former being some 300 square kilometres comprises some 1,000 kilometres of good quality 2D in area. seismic data.

ZAMZAMA NORTH In December 2008, Heritage obtained a 48% interest in the Zamzama North licence (number 2667-8) and was appointed operator. The Zamzama North licence covers an area of 1,229 square kilometres and is located in the south of Pakistan, in the western part of the Sindh Province, approximately 200 kilometres north west of Hyderabad.

Area Date Heritage Blocks (sq km) awarded equity Partners Operator Sanjawi 2,258 November 54% Hycarbex Heritage 2007 American Energy Sprint Energy Trakker Energy Zamzama North 1,229 December 48% Hycarbex Heritage 2008 American Energy Sprint Energy Trakker Energy HERITAGE OIL PLC Annual Review 2012 24

O PERATIONAL REVIEW CONTIN UED OTHER D EVELOPM EN TS

K U R D I S TA N The Ugandan Revenue Authority (“URA”) contends Heritage was one of the initial companies to be awarded a that income tax is due on the capital gain arising on the Production Sharing Contract in Kurdistan in October 2007. disposal and it raised assessments of $404,925,000 prior Heritage has again demonstrated the ability to successfully to completion of the disposal. Heritage’s position, based explore, discover and monetise its acreage with the full on comprehensive advice from leading legal and tax divestment of the Miran asset for $450 million. Heritage experts in Uganda, the United Kingdom and North decided to sell its Kurdistan interests as the valuation was America, is that no tax should be payable in Uganda on considered attractive and the multi-billion dollar capital the disposal of the Ugandan Assets and that even if tax expenditure requirements associated with developing the were payable, under the terms of the production sharing Block given the lack of local infrastructure or local gas agreements with the Ugandan government relating to market would no longer be required and would not be the Ugandan Assets (the “PSAs”) HOGL should be a drain on the Group. The sale also meant that the indemnified by the Ugandan government (under the planned rights issue to partially fund the acquisition contract stabilisation clause). of OML 30 was no longer required. On closing, Heritage deposited $121,477,500 with the Furthermore, the elimination of funding obligations URA, representing 30% of the disputed tax assessment and significant appraisal and development capital of $404,925,000. $121,477,500 has been classified as a requirements in respect of the Miran Block, together with deposit in the balance sheet at 31 December 2012. A the proceeds of the divestment, allow the Company to further $283,447,000 has been retained in escrow with continue to acquire and invest in, and subsequently Standard Chartered Bank in London, pursuant to an explore and develop, oil and gas opportunities agreement between HOGL, Tullow and Standard throughout the world. Chartered Bank pending resolution between the Ugandan government and HOGL of the tax dispute. MALI Heritage announced in March 2008 that the Government In August 2010, the URA issued a further income tax of Mali had approved Heritage’s farm-in on two assessment of $30 million representing 30% of the exploration licences in the Gao Graben. additional contractual settlement amount of $100 million. HOGL has challenged the Ugandan tax Heritage was the operator of Blocks 7 and 11 and acquired assessments on the disposal of HOGL’s entire interest 1,077 kilometres of 2D seismic in 2011. The interpretation in the Ugandan Assets. of all data within the acreage was completed. In November 2011 and December 2011, the Tax Due to the security situation in the region, and following Appeals Tribunal in Uganda dismissed HOGL’s discussions with the government, Heritage has applications in relation to the two assessments relinquished the assets in 2012 and has no further amounting to $434,925,000. The rulings from the obligations in this respect. Tax Appeals Tribunal in Uganda are part of a domestic process and are not final and determinative. HOGL has U G ANDA appealed the rulings, which it believes are fatally flawed On 18 December 2009, Heritage announced that it and in many respects, through the Ugandan court system its wholly owned subsidiary Heritage Oil & Gas Limited commencing with the High Court and subsequently the (“HOGL”) had entered into a SPA with Eni for the sale of Court of Appeal and Supreme Court if necessary. its interests in Uganda (the “Ugandan Assets”). On 17 January 2010, Tullow exercised its rights of pre-emption. The transaction was overwhelmingly approved by Heritage shareholders at the General Meeting on 25 January 2010.

On 27 July 2010, Heritage announced that HOGL had completed the disposal of the Ugandan Assets. Tullow paid cash of $1.45 billion, including $100 million from a contractual settlement, of which Heritage received and retained $1.045 billion. Annual Review 2012 HERITAGE OIL PLC 25

In May 2011, HOGL commenced international arbitration On 15 April 2011, Heritage and its wholly owned proceedings in London against the Ugandan government subsidiary HOGL received Particulars of Claim filed in in accordance with the provisions of the PSAs. HOGL is the High Court of Justice in England by Tullow seeking seeking a decision requiring, among other things, the $313,447,500 for alleged breach of contract as a result of return or release of approximately $405 million, plus HOGL’s and Heritage’s refusal to reimburse Tullow in interest, in aggregate currently on deposit with the URA relation to a payment made by Tullow of $313,447,500 on or in escrow with Standard Chartered Bank in London. 7 April 2011 to the URA. Heritage and HOGL have filed HOGL made a number of claims in the arbitration their Defence and Counterclaim against Tullow seeking proceedings that tax had been improperly imposed on it instead the release to HOGL of the $283,447,000 plus which the arbitration tribunal ruled on 3 April 2013 to be interest currently being held in escrow with Standard outside its jurisdiction. The tribunal ruled at the same time Chartered Bank in London. The case commenced to be that there were two areas of HOGL’s claims which it will heard in the High Court in March 2013 and a first consider, in respect of contractual stabilisation clause instance decision is expected to be received later this protection and breach of other contractual obligations. year. Heritage and HOGL believe that the claim has no Accordingly, the arbitration proceedings now concern merit and are in the process of vigorously and robustly HOGL’s claims that the Ugandan government wrongfully defending it. or unreasonably delayed consent to the sale by HOGL of the rights under the PSAs and that the Ugandan Although disputes of this nature are inherently government should indemnify HOGL with respect to uncertain, the Directors believe that the monies on any tax liability which arose due to changes in law that deposit and held in escrow will ultimately be recovered materially reduced the economic benefits to be derived by by Heritage. HOGL from the PSAs.

The determination by the arbitral tribunal marks the end to 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. HERITAGE OIL PLC Annual Review 2012 26

FINANCIAL REVIEW

D IVERS IFIED

PAUL ATHERTON CHIEF FINANCIAL OFFICER

S ELECTED OPERATIONAL AND FINANCIAL DATA

2012 2011 Change P RO FORM A PROD UCTION1 bopd 12,957 673 1,825% SALES VOLUM E 2 bopd 607 671 (10%) AVERAG E REALIS E D PRICE $/bbl 39.7 36.9 8%

P ETROLEUM REVENUE $ million 8.8 9.0 (2%) LO SS FROM CONTINUING OPERATIONS AFTER TAX $ million (182.3) (63.0) (189%) GAIN/(LOSS) FROM DI S CONTINUED OPERATIONS $ million 210.9 (3.9) n/a N ET PROFIT/(LOSS) $ million 28.6 (66.9) n/a

TOTAL CAS H INVES TING AND CAPITAL E X PEND ITURES $ million 910.0 134.9 Y EAR END CAS H BALANCE $ million 89.6 310.9

1 Pro forma production includes Heritage’s net share of average daily production from the Zapadno Chumpasskoye Field in Russia for the full year, together with its net share of average daily production for OML 30 included for November and December 2012 only, following completion of the acquisition of an interest in OML 30 through Shoreline e"ective 1 November 2012. Heritage’s total net share of production in 2012 was 975,511 barrels. OML 30 production was sold in January 2013 and included in inventory at 31 December 2012. 2 Sales volumes from the sale of crude from the Zapadno Chumpasskoye Field, Russia. Annual Review 2012 HERITAGE OIL PLC 27

CORPORATE PERFORMANCE are included in capital expenditure and other income statement PROD UCTION AND S ALES VOLUM E S accounts. General and administrative expenses are comprised of Petroleum revenue was generated in 2012 from the Zapadno salaries of management, finance and administrative sta", consulting, Chumpasskoye Field in Russia. Production from the Zapadno legal and professional fees, transportation costs and other costs. Chumpasskoye Field decreased from an average daily production of 673 bopd in 2011 to 607 bopd in 2012, primarily due to natural If share-based compensation expenses are excluded, net general and decline and a mechanical problem occurring on well 363 which has administrative expenses increased from $17.4 million in 2011 to been repaired. $18.5 million in 2012. In 2012, the Group capitalised $5.5 million (2011 – $5.5 million) of general and administrative costs relating to In November 2012, Heritage, through Shoreline Natural Resources exploration and development activities, including share-based Limited (“Shoreline”), completed the acquisition of a 45% interest in compensation of $1.1 million (2011 – $1.1 million). a producing oil mining licence in Nigeria (“OML 30”) together with a 45% interest in other assets owned under a joint operating agreement Depletion, depreciation and amortisation expenses increased by for OML 30 (the “Acquisition Assets”). Shoreline is a special purpose 144% to $6.4 million in 2012, primarily as a result of the inclusion Nigerian company formed between a subsidiary of Heritage and a of depletion for Heritage’s net interest in OML 30. Depletion for the Nigerian partner, Shoreline Power Company Limited (“Shoreline Zapadno Chumpasskoye Field decreased in line with the lower Power”), which acquired the 45% of OML 30. Production from OML production volumes. 30 is incorporated within the Group results with e"ect from 1 November 2012. Average daily production, net to Heritage’s Exploration expenditures expensed in the year, and not capitalised, economic interest, of 12,350 bopd was generated from OML 30 decreased from $12.3 million in 2011 to $4.7 million in 2012. in Nigeria for November and December 2012. Exploration expenditures in 2012 related principally to activities in Africa as the Company looked to expand its portfolio in one of its The di"erence between the production volumes and sales volumes is core areas. due to the change in the oil inventory balance during the year. Expenses of acquisition in 2012 of $72.4 million (2011 – nil) related REVENUE principally to costs incurred and accrued for legal and professional Petroleum revenue from the Zapadno Chumpasskoye Field in fees and include stamp duty of $10.5 million and transfer tax of Russia decreased by $0.2 million (2%) to $8.8 million in 2012. $10.4 million arising from the purchase of the Acquisition Assets. This decrease comprised: In 2012, the Group recognised an impairment of intangible – $(0.8) million from a decrease in sales volumes from 671 bopd exploration and evaluation assets of $34.3 million (2011 – $10.8 in 2011 to 607 bopd in 2012; and million). The impairment recognised in 2012 comprised two elements. – $0.6 million from an 8% increase in average commodity prices Firstly, after a technical review and consideration of the security from $36.86/bbl in 2011 to $39.74/bbl in 2012. situation, management decided to relinquish the licences in Mali and fully write-o" all expenditure of $18.4 million. Secondly, after a There was no petroleum revenue recognised from OML 30 in Nigeria technical review, management decided to write-o" expenditure of for 2012, as the first lifting was in January 2013. All 2012 production $15.9 million incurred with respect to the Latham licence area in from OML 30 is therefore reflected as inventory at year end. The Tanzania. The impairment recognised in 2011 of $10.8 million related average commodity price achieved from sales of OML 30 crude in the to the Kimbiji licence in Tanzania. first quarter of 2013 was $116.87/bbl. In 2012, the Group recognised an impairment write-down of OPERATING RES ULTS property, plant and equipment of $2.1 million (2011 – nil) relating to Expenses a reduction in the fair value of an aircraft due to unfavourable Petroleum operating costs for the Zapadno Chumpasskoye Field in economic conditions. Russia increased by 3% to $3.0 million in 2012. Average operating cost per produced barrel of oil increased from $11.82/bbl in 2011 to Finance income/costs $13.37/bbl in 2012, due primarily to higher well workover costs In 2012, interest income was $3.2 million (2011 – $5.7 million). Cash to repair a mechanical problem on well 363, together with higher and cash equivalents are typically held in interest bearing treasury fuel costs. accounts. This decrease in interest income is primarily due to a decrease in average cash and cash equivalents balances. Net operating costs for OML 30 were $1.0 million. Petroleum operating costs for OML 30 in Nigeria for November and December Other finance costs increased from $3.7 million in 2011 to $39.8 2012 were $10.0 million, but as 2012 production was held in inventory million in 2012, due primarily to financing fees and interest charges as at 31 December 2012, there is a transfer of operating expenses of incurred for the bridge facilities and guarantee relating to the $9.0 million to inventory. At 31 December 2012, Heritage’s net Acquisition Assets, interest charges incurred on the $294 million economic share of barrels held in inventory from OML 30 exchangeable loan provided by Genel (see the Kurdistan disposal production was 753,380 barrels. section of the Financial Review and interest charges incurred on the loan provided in August 2012 of $30 million to refinance the Production tax in Russia decreased from $4.9 million in 2011 to acquisition of an aircraft. The impact of the new financing $4.7 million in 2012 as a result of lower production volumes, the arrangements was partially o"set by lower convertible bond accretion impact of which was partially o"set by increased average commodity expense following repayment of the convertible bond at term in prices in 2012, as both production volumes and price are used in the February 2012. calculation of the tax. In 2012, the Group had foreign exchange losses of $0.1 million General and administrative expenses decreased from $19.9 million in compared to $0.2 million in 2011. The loss arose from net foreign 2011 to $18.7 million in 2012. This was due, principally, to a higher exchange gains and losses on revaluation of balances denominated in percentage of sta" being seconded directly to projects and those costs currencies di"erent from the functional currency. HERITAGE OIL PLC Annual Review 2012 28

FINANCIAL REVIEW CONTINUED

Heritage recognised an unrealised loss on investments of $7.7 million in Under the terms of the call option agreement between Heritage and 2012 (2011 – $20.3 million), which comprised of a decrease in market Shoreline, as amended by an addendum 25 June 2012, (“Shoreline value of investments in shares of PetroFrontier Corp. (“PetroFrontier”). Option Agreement”), Shoreline Power had an option to increase its As at 31 December 2012, the Company had acquired 15,860,467 shares economic interest in Shoreline by purchasing 30% of the shares from of PetroFrontier representing 19.98% of listed shares of the company. Heritage. Shoreline Power exercised the option in December 2012 The investment in share capital of PetroFrontier is classified as and payment is anticipated to be received in the second quarter of available-for-sale and valued at fair value which is determined using 2013. On completion Heritage’s economic share in Shoreline will market price at the end of the period. At 31 December 2012, the market reduce from 97.5% to 68.25%. price of PetroFrontier shares was Cdn$0.35 per share. The Acquisition Assets meet the criteria of a business as set out Heritage held 1,500,000 warrants in Afren plc (“Afren”) with an in IFRS 3 Business Combinations (“IFRS 3”), as they represent an exercise price of £0.60 per warrant, which were received as partial integrated set of activities and assets capable of being conducted and consideration from the sale of Heritage Congo Limited in 2006. managed for purpose of providing a return, therefore the Acquisition On 4 November 2011, the Afren warrants were exercised and the has been accounted for in accordance with IFRS 3. Company acquired 1,500,000 of the listed shares in Afren. The investment in Afren shares is classified as available-for-sale and valued The fair value allocation of the Acquisition Assets is based upon at fair value which is determined using market price at the end of the an independent review. The Company used the data from the period. The valuation at market price as at 31 December 2012 resulted independent review to calculate the fair value of the assets taking in a gain of $1.1 million (2011 – $0.1 million) which was recognised proved and probable reserves. In accordance with IAS 12, a deferred in equity. tax liability has been recognised for the di"erence between the fair value allocated to property, plant and equipment and the value of the ACQUISITION OF AN INTEREST IN OML 30 consideration that can be claimed as a capital allowance to o"set the On 29 June 2012, Shoreline entered into an agreement (the future tax liability, calculated on a tax rate of 65.75% for the first five “Acquisition Agreement”) with The Shell Petroleum Development years and rising to 85% after five years. As only a portion of the Company of Nigeria Limited (“Shell”), Total E&P Nigeria Limited purchase consideration is available to be claimed as a capital (“Total”) and Nigerian Agip Oil Company Limited (“Agip”) (the allowance and the tax rates are high, this has resulted in the “Vendors”) to acquire the Acquisition Assets for cash consideration recognition of a significant deferred tax liability. As a result of the of $850 million, net of costs (the “Acquisition”). impact of the deferred tax liability recognised, the purchase consideration is higher than the aggregate of the fair value of the Shoreline is a private limited Nigerian company whose ownership identifiable assets and liabilities and therefore goodwill has been interests are held by Heritage Oil SNR (Nigeria) B.V., a wholly owned recognised. The fair value of the identifiable assets and liabilities is subsidiary of Heritage, and a local Nigerian partner, Shoreline Power. provisional and if new information is obtained within one year of the acquisition date the acquisition accounting may be revised. At an extraordinary general meeting (“EGM”) on 30 August 2012, the shareholders of the Company approved the Acquisition, and on The following table provides additional information with respect to 9 November 2012 Heritage announced the completion of the the identifiable assets acquired and liabilities assumed at Heritage’s Acquisition, e"ective 1 November 2012. current e"ective 97.5% share of net assets of Shoreline:

1 November The Acquisition Assets were acquired for cash consideration of 2012 $850,000,000, net of costs, of which: (i) a deposit of $85,000,000 $’000 was paid by Shoreline upon the signing of the Acquisition Agreement Property, plant and equipment 2,483,317 (with $5,000,000, being the portion of such deposit not exceeding Intangible assets – goodwill 351,370 1% of the market capitalisation of the Company as at 29 June 2012, Deferred tax liabilities (1,983,189) paid to the Vendors, and the remaining $80,000,000, paid into a Site restoration provision (22,748) dedicated escrow account); and (ii) the balance of the consideration, Net assets 828,750 being $765,000,000 which was paid on completion.

The Acquisition was partially ﬁnanced by a $550,000,000 secured The loss on acquisition at Heritage’s current e"ective 97.5% share of results of Shoreline has been derived as follows: bridge facility provided by The Standard Bank of South Africa Year ended (“Standard Bank Plc”) to Shoreline. The Company has placed 31 December 2012 $50,000,000 in an escrow account with Standard Bank Plc as $’000 security for the bridge facility. Standard Bank Plc also provided a Consideration paid (828,750) $50,000,000 letter of credit (the “Letter of Credit”) to the Nigerian Petroleum Development Company (“NPDC”), to cover Shoreline’s Fair value of net assets acquired 828,750 working capital requirements under the joint operating agreement Less: for OML 30. Heritage provided cash collateral of $51,000,000 to Other expenses (72,351) Standard Bank Plc to guarantee this Letter of Credit which also Expenses of acquisition (72,351) covers any interest which may be due under the Letter of Credit. Both the amount held in escrow and the guarantee for the Letter of Credit Other expenses incurred on the Acquisition include costs of are classiﬁed as restricted cash in the balance sheet at 31 December professional fees ($24.1 million), taxes arising on the Acquisition 2012 (see note 2a). ($20.8 million), success fee ($10.6 million – see note 23) and other costs ($16.9 million). Annual Review 2012 HERITAGE OIL PLC 29

RES ULTS FROM CONTINUING OPERATIONS The profit on disposal of discontinued operations has been derived Heritage’s loss after tax from continuing operations in 2012 was as follows: Year ended $182.3 million, compared to $63.0 million in 2011. The adjusted loss 31 December from continuing operations in 2012 was $65.5 million compared to 2012 $’000 $29.4 million in 2011 if certain non-cash items (share-based compensation expense, impairment of intangible exploration and Consideration received evaluation assets, property, plant and equipment impairment Sales proceeds 462,366 588 write-down, foreign exchange gains, unrealised gains/losses on Working capital adjustments revaluation of Afren warrants, unrealised loss on investment in Total disposal consideration 462,954 PetroFrontier shares and one-o" acquisition costs) are excluded. Less: Carrying amount of net assets sold (224,006) D I S POS ALS Other expenses (22,620) Kurdistan Gain on disposal of discontinued operations 216,328 During 2012 the Group disposed of its entire business in the Kurdistan Region of Iraq (“Kurdistan”) which has therefore been classified as a discontinued operation. The disposal was completed The expenses incurred on disposition include costs of bank fees ($4.0 in two distinct transactions. On 21 August 2012, the Group disposed million), professional fees ($5.0 million) and sta" costs recharged and of a 26% interest in the production sharing contract relating to the other costs ($13.6 million). Miran Block (the “Miran PSC”) in Kurdistan and corresponding interest in the related joint operating agreement (the “Miran JOA”) to Uganda Genel Energy plc (“Genel”) in exchange for cash of $156 million (the On 18 December 2009, Heritage announced that it and its wholly “Sale”). On the same date, Genel provided a loan of $294 million to owned subsidiary Heritage Oil & Gas Limited (“HOGL”), had the Group (the “Loan”). entered into a Sale and Purchase Agreement (“SPA”), with ENI International B.V. (“Eni”) for the sale of HOGL’s 50% interests in The Loan bore interest of 8% and had a fixed term ending on the date Blocks 1 and 3A in Uganda (the “Ugandan Assets”). On 17 January which is the earlier of: (i) 15 months after the date of the completion 2010, Tullow Uganda Limited (“Tullow”) exercised its rights of of the Acquisition; and (ii) 6 February 2014. The Loan had an option, pre-emption. The transaction was overwhelmingly approved by following the election of either the Company or Genel and subsequent Heritage shareholders at the General Meeting on 25 January 2010. approval from the shareholders of the Company, to be repaid through the transfer to Genel of Heritage’s remaining 49% interest in the Miran On 27 July 2010, Heritage announced that HOGL had completed the PSC in Kurdistan and the corresponding interest in the Miran JOA. disposal of the Ugandan Assets. Tullow paid cash of $1.45 billion, The Loan terms also provided for the interim funding by Genel of including $100 million from a contractual settlement, of which Heritage’s expenditure on its 49% interest in the Miran PSC by way Heritage received and retained $1.045 billion. of increases in the Loan with e"ect from 1 July 2012. The Ugandan Revenue Authority (“URA”) contends that income In December 2012, following Heritage’s election to repay the Loan tax is due on the capital gain arising on the disposal and it raised in exchange for the transfer of a 49% interest in the Miran PSC to assessments of $404,925,000 prior to completion of the disposal. Genel, Heritage’s shareholders approved the repayment and the Heritage’s position, based on comprehensive advice from leading exchange became unconditional. Shareholder approval was received legal and tax experts in Uganda, the United Kingdom and North in December and the transaction completed shortly thereafter. 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 Year ended 31 December terms of the production sharing agreements with the Ugandan 2012 2011 $’000 $’000 government relating to the Ugandan Assets (the “PSAs”), HOGL should be indemnified by the Ugandan government (under the Gain on disposal of discontinued contract stabilisation clause). operations 216,328 – 216,328 – On closing, Heritage deposited $121,477,500 with the URA, representing 30% of the disputed tax assessment of $404,925,000. The following table provides additional information with respect to $121,477,500 has been classified as a deposit in the balance sheet at the Sale amounts included in the balance sheet at 12 December 2012. 31 December 2012. A further $283,447,000 has been retained in escrow with Standard Chartered Bank in London, pursuant to an 12 December 2012 agreement between HOGL, Tullow and Standard Chartered Bank $’000 pending resolution between the Ugandan government and HOGL Assets of the tax dispute. Including accrued interest, an amount of Non-current assets $286,915,000 (2011 – $284,479,000) is classified as restricted cash Intangible exploration and evaluation assets 225,101 in the balance sheet at 31 December 2012. Total assets 225,101 In August 2010, the URA issued a further income tax assessment Liabilities of $30 million representing 30% of the additional contractual Non-current liabilities settlement amount of $100 million. HOGL has challenged the Provisions 1,095 Ugandan tax assessments on the disposal of HOGL’s entire interest in the Ugandan Assets. Total liabilities 1,095 Net assets 224,006 HERITAGE OIL PLC Annual Review 2012 30

FINANCIAL REVIEW CONTINUED

In November 2011 and December 2011, the Tax Appeals Tribunal PROFIT PER S HARE in Uganda dismissed HOGL’s applications in relation to the two Heritage’s net profit in 2012 was $28.6 million, compared to a net assessments amounting to $434,925,000. The rulings from the Tax loss of $66.9 million in 2011. Appeals Tribunal in Uganda are part of a domestic process and are not final and determinative. HOGL has appealed the rulings, which In 2012, the basic earnings and diluted earnings per share was $0.11, it believes are fatally flawed in many respects, through the Ugandan compared to the basic and diluted loss per share of $0.25 in 2011. court system commencing with the High Court and subsequently the Court of Appeal and Supreme Court if necessary. In 2012, the basic and diluted loss per share from continuing operations was $0.71 compared to $0.23 in 2011. In May 2011, HOGL commenced international arbitration proceedings in London against the Ugandan government in accordance with CASH FLOW AND CAPITAL EXPENDITURES provisions of the PSAs. HOGL is seeking a decision requiring, among Cash used in continuing operating activities was $181.1 million other things, the return or release of approximately $405 million, plus in 2012 compared to $34.6 million in 2011. Total cash capital interest, in aggregate currently on deposit with the URA or in escrow expenditures in 2012 were $910.0 million, $775.1 million higher than with Standard Chartered Bank in London. HOGL made a number of in 2011. The following major work programmes and an acquisition claims in the arbitration proceedings that tax had been improperly were undertaken in 2012: 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 – acquired Acquisition Assets in Nigeria for $828.8 million; there were two areas of HOGL’s claims which it will consider, in – drilling and testing of the Miran West-3 well completed in respect of contractual stabilisation clause protection and breach of May 2012; other contractual obligations. Accordingly, the arbitration proceedings – initial work-over operations to prepare the Miran West-1 well, now concern HOGL’s claims that the Ugandan government wrongfully Kurdistan, for completion took place during September 2012; or unreasonably delayed consent to the sale by HOGL of the rights – planning and development studies on the Miran Field and Front under the PSAs and that the Ugandan government should indemnify End Engineering Design studies on a gas export pipeline took HOGL with respect to any tax liability which arose due to changes in place in 2012; and law that materially reduced the economic benefits to be derived by – in Tanzania the work programme commenced in the recently HOGL from the PSAs. awarded Kyela and Rukwa licences with reprocessing of legacy 2D seismic data and acquisition of a high resolution gravity survey. The determination by the arbitral tribunal marks the end of the preliminary phase. The proceedings will now continue to deal BUY BACK PROG RAMME with the merits phase of Heritage’s contractual claims against the At the Annual General Meeting (“AGM”) held on 20 June 2011, Ugandan government and the underlying substantive Ugandan tax a special resolution was passed by shareholders authorising the matters remain under appeal in the Ugandan courts. 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 On 15 April 2011, Heritage and its wholly owned subsidiary HOGL, held as treasury shares or cancelled immediately upon completion of received Particulars of Claim filed in the High Court of Justice in the purchase. No such resolution was proposed at the AGM held on England by Tullow seeking $313,447,500 for alleged breach of contract 21 June 2012. Purchased Ordinary Shares are held in treasury. 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 In July 2011, the Company announced that the share purchases to the URA. Heritage and HOGL have filed their Defence and would be made via a trading plan to allow the buy back programme Counterclaim against Tullow seeking instead the release to HOGL to continue independently through close periods. The trading plan of the $283,447,000 plus interest currently being held in escrow with agreement was terminated by the Company in May 2012. Standard Chartered Bank in London. The case commenced to be heard in the High Court in March 2013 and a first instance decision is As at 31 December 2012, the Company held a total of 34,602,442 expected to be received later this year. Heritage and HOGL believe that Ordinary Shares in treasury equal to 12% of the issued share capital the claim has no merit and are in the process of vigorously and robustly as at 1 January 2013. The total acquisition cost of these shares was defending it. $126.9 million.

Although disputes of this nature are inherently uncertain, the As at 31 December 2012, Heritage had 255,585,078 Ordinary Shares Directors believe that the monies on deposit and held in escrow will in issue (excluding treasury shares) as well as 2,371,918 exchangeable ultimately be recovered by Heritage. shares of no par value of Heritage Oil Corporation (“HOC”, the “Corporation”), each carrying one voting right in Heritage. The total The results of the Ugandan operations have been classiﬁed as number of voting rights in Heritage, excluding treasury shares as discontinued operations. The loss on disposal of discontinued operations at 29 April 2013 was 257,956,996. (comprising legal fees and costs relating to the litigation described above) for the years ended 31 December 2012 and 2011 is as follows: R EPAYM ENT OF CONVERTIB LE BONDS In February 2012, Heritage repaid $127.1 million to holders of the Year ended 31 December $165,000,000 8% convertible bonds (the “Bonds”), on maturity of 2012 2011 $’000 $’000 the Bonds. Loss on disposal of discontinued P ETROF RONTIER SHARES operations (5,407) (3,933) As at 31 December 2012, the Company had acquired 15,860,467 (5,407) (3,933) of the listed shares of PetroFrontier, representing 19.98% of the company. Total share acquisition costs amounted to $32.2 million. Annual Review 2012 HERITAGE OIL PLC 31

FINANCIAL POSITION – Oil and gas sales volumes and prices – whilst not under the direct LIQUID ITY control of the Company, a material movement in commodity There was a net decrease in cash and cash equivalents in 2012 of prices could impact on the Group. The Group did not hedge oil $221.2 million. At 31 December 2012, Heritage had a working prices in 2012. capital deficit of $17.7 million, including cash and cash equivalents – Loss of key employees – remuneration packages are regularly of $89.6 million. The deficit is a result of the current short term reviewed to ensure key executives and senior management are borrowing facility used in the acquisition of the Acquisition properly remunerated. Long term incentive programmes have Assets, which will be replaced in 2013 by a long term facility (see been established. Employees are encouraged to develop their note 2a). Like most oil and gas exploration companies, Heritage potential and, where appropriate, to further their careers within raises financing for its activities from time to time using a variety of the Group. This is one of the Group’s Key Performance Indicators sources. Sources of funding for future exploration and development and sta" turnover continues to remain at low levels. programmes will be derived from inter alia disposal proceeds from – Foreign exchange exposure – generally, it is the Group’s policy to the sale of assets, such as the sale of the Company’s interest in the conduct and manage its business in US dollars, which is its Miran PSC in 2012 and Company’s Ugandan Assets in 2010 (see reporting currency. Cash balances in Group subsidiaries are disposals section of the Financial Review), using its existing treasury primarily held in US dollars but small amounts may be held in resources, new credit facilities, reinvesting its funds from operations, other currencies in order to meet immediate operating or farm-outs and, when considered appropriate, issuing debt and administrative expenses or to comply with local currency additional equity. Accordingly, the Group has a number of di"erent regulations. sources of finance available to it potentially. – Future funding – Shoreline’s purchase of the Acquisition Assets was in part funded by a $550 million bridge facility arranged by CAPITAL S TRUCTURE Standard Bank Plc which expires no later than 29 December 2013. Heritage’s financial strategy has been to fund its capital expenditure At the time of the acquisition Standard Bank Plc agreed, subject to programmes and any potential acquisitions by selling non-core a number of substantive conditions, to refinance this into a long assets, reinvesting funds from operations, using existing treasury term loan. Discussions have progressed well with Standard Bank resources, finding new credit facilities and, when considered Plc and the other banks in the lending syndicate and terms for a appropriate, either issuing unsecured convertible bonds or equity. five-year borrowing base loan initially of $550 million have been agreed subject inter alia to finalisation of documentation and At 31 December 2012, Heritage had net debt of $472.1 million credit committee approval. Heritage is confident that this (31 December 2011 net cash – $171.4 million) (cash and cash refinancing will take place before the bridge facility expires on equivalents less borrowings) and 33% gearing (31 December 2011 – 29 December 2013 though there can be no certainty of this nil) (net debt as a percentage of total capital, total capital is calculated (see note 2a). as “equity” as shown in the consolidated balance sheet plus net debt). Further details on risks and how the Company mitigates them are CRED ITORS ’ PAYM ENT POLICY disclosed in this report on pages 32 to 34. It is the Company and Group’s general policy to settle all debts with creditors on a timely basis and in accordance with the terms of credit INTERNAL CONTROL agreed with each supplier. Average creditor payment days in 2012 A system of internal control was designed and tailored to ensure key were approximately 45 days (2011 – 45 days). risks are addressed appropriately and to provide assurance regarding the reliability of financial reporting and preparation of financial PRIM ARY RISKS AND UNCERTAINTIES FACING statements. Risk and internal control are assessed continually. See THE B U S INESS the Corporate Governance Report on pages 15 and 31 for further Heritage’s business, financial standing and reputation may be impacted details. One weakness identified in its financial procedures reporting by various risks, not all of which are within its control. The Group concerns accounting for complex transactions and the Company identifies and monitors the key risks and uncertainties a"ecting the ensures that it seeks third party advice to mitigate this weakness. Group and runs its business in a way that minimises the impact of such risks where possible. The primary business risks include: As part of the internal control systems, all transactions with related parties are identified, scrutinised and disclosed in the financial – Exploration and development expenditures and success rates – the statements appropriately. Group has experienced management and technical teams with a track record of finding major hydrocarbon discoveries and has a Heritage maintains insurance policies in accordance with industry diversified portfolio of exploration, appraisal, development and standards. Heritage believes that the level of insurance it maintains is production assets. Considerable technical work is undertaken to adequate, based on various factors such as the cost of the policies, reduce related areas of risk and maximise opportunities. industry standard practice and the risks associated with the – Factors associated with operating in developing countries, political, exploration and development of oil and gas properties in the fiscal and regulatory instability – the Group maintains close contact countries in which it operates. Heritage does not insure against with governments in the areas where it operates and, where political risk and, therefore, shareholders have full exposure to the appropriate, invests in community projects. Considerable work is risks and rewards of investing in its territories. undertaken before commencing operations in any new territory. – Title disputes – notwithstanding potential challenges in Malta, Heritage maintains detailed financial models which allow the the Group believes that it has good title to its oil and gas Company to plan future operating and capital activities in an properties. However, the Group cannot control or completely e#cient manner. protect itself against the risk of title disputes or challenges and there can be no assurance that claims or challenges by third PAUL ATHERTON parties against the Group’s properties will not be asserted at a CHIEF FINANCIAL OFFICER future date. Naturally, the Group strives to employ the best 29 APRIL 2013 internal and advisory knowledge available to help to minimise this risk associated with its activities. HERITAGE OIL PLC Annual Review 2012 32

RISKS

Heritage’s business, financial standing and As a global business with activities focused on the exploration, development and production of hydrocarbons, Heritage has to face a reputation may be impacted by various risks, variety of risks and the management of these risks is an essential not all of which are within its control. The element of how the business is run. Accordingly, it is a Board level responsibility. The e"ective management of risk is essential for the Group identifies and monitors the key risks Group to deliver its key strategic and operational objectives whilst also maintaining an excellent health and safety record. The Group’s overall and uncertainties a!ecting the Group and strategy of risk management is to employ suitably skilled personnel, runs the business in a way that minimises implement appropriate policies and procedures and maintain a their impacts where possible. diversified portfolio of assets. Heritage continuously identifies potential risks that could a"ect the Group and the achievement of its business plans and strategic objectives. The identification, together with the mitigation of risks to an acceptable level, is of critical importance to the Group as it continues to grow and generate long-term shareholder value. Key risks are monitored on an ongoing basis by the Executive Directors and senior management with regular reports received on all aspects of the Group’s performance. The Executive Directors, with whom the authority remains, report to the Audit Committee on matters concerning risk.

HEALTH, SAFETY AND ENVIRONMENT

EXPLORATION RISK

LOSS OF KEY FISCAL EMPLOYEES CHANGES PACT POLITICAL/ M

I COUNTRY

SPECIFIC RISKS NEW

OF ACQUISITIONS

E D FUTURE COMMODITY FUNDING PRICES NITU G

A TITLE DISPUTES M – MALTA UNFULFILLED PSA FOREX OBLIGATIONS EXPOSURE

PRIM ARY RISK OTHER POTENTIAL RISKS

LIK ELIHOOD OF OCCURRENCE Annual Review 2012 HERITAGE OIL PLC 33

A summary of the Group’s key ongoing risks, as currently identiﬁed, together with the measures taken to mitigate against these, is provided below. Primary risks faced by Heritage during 2012 and recently are highlighted.

DESCRIPTION OF RISK POTENTIAL IMPACT MITIGATION S TRATEG IC RISKS

Incorrect portfolio mix Company could become reliant on The Group maintains a diverse portfolio of assets across a range of certain local geographical, political geographies and life cycles in order to minimise exposure. In 2012 and cyclical market risks which may Heritage increased its exposure to producing assets. impact achievement of long-term objectives. Acquisitions and disposals E"ective portfolio management The Group and its advisers have considerable experience in is key to achieving long-term the business environment in which the Group operates. This sustainable growth. experience is applied regularly and carefully to assess potential merger, acquisition and disposal opportunities. In 2012 Heritage acquired a major interest in OML 30, Nigeria, through Shoreline and disposed of its interest in Kurdistan. The current management team has raised over $2 billion in cash through disposals.

OPERATIONAL RISKS Exploration and development The failure to sustain exploration The Group has experienced management and technical teams expenditure and success rates success can potentially impact with a track record of finding major hydrocarbon discoveries and investor confidence on generating has a diversified portfolio of exploration, appraisal, development long-term value. and production assets. Technical team has development and production experience. Considerable technical work is undertaken to reduce related areas of risk and maximise opportunities. Factors associated with operating Potential loss of licences or inability The Group maintains close contact with governments in the areas in developing countries, political to operate which may impact on where it operates and, where appropriate, invests in community and regulatory instability achieving long-term objectives. projects. Considerable work is undertaken before commencing operations in any new territory. Fiscal changes Adverse changes could impact The Group continually reviews fiscal regimes and enters into on future revenue streams for the robust, transparent PSAs or licences. Group impacting on medium and long-term value. Unfulfilled PSA obligations Failure to fulfil PSA obligations The Group continually monitors compliance with licence could lead to the loss of a licence. obligations and maintains good working relations with governments and joint venture partners. Title disputes Potential loss of licences or inability Notwithstanding potential challenges in Malta, the Group believes to operate which may impact on it has good title to its oil and gas properties. However, the Group achieving long-term objectives. cannot control or protect itself completely 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 The loss of key sta" can potentially Remuneration packages are reviewed regularly to ensure key cause short and medium-term executives and senior management are properly remunerated. disruption to the business. 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 KPIs and sta" turnover continues to remain at very low levels. Environmental issues An environmental incident could The Group undertakes operations to the highest international lead to a loss of reputation and/ environmental standards of the oil industry. EIAs are prepared or revenue. before any major capital expenditure is incurred. Heritage did not incur any significant environmental issues in 2012. HERITAGE OIL PLC Annual Review 2012 34

RISKS CONTINUED

DESCRIPTION OF RISK POTENTIAL IMPACT MITIGATION Health and safety A major event can impact The Group has devised a comprehensive policy framework as well employees, contractors and local as health and safety management and reporting systems. These communities leading to a potential are monitored and reviewed by our CSR Committee and senior loss of reputation and/or revenue. management. The Group also works closely with local authorities where it operates to manage this aspect of our activities. This is a KPI for the Company and Heritage continued to operate with no fatalities or LTIs in 2012.

FINANCIAL RISKS Oil and gas sales volumes and Commodity prices impact on the Whilst not under the direct control of the Company, a large prices Company’s revenue stream and can movement in commodity prices could have a material impact on a"ect investor sentiment. the Group. The Group did not hedge oil prices in 2012. Foreign exchange exposure Could adversely impact the Generally, it is the Group’s policy to conduct and manage its Company’s results. business in US dollars, 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. Liquidity risk In the extreme this could impact A formal budgeting and forecasting process is in place and cash the Group’s ability to continue as a forecasts identifying liquidity requirements of the Group are reviewed going concern. regularly to ensure compliance with approved funding plans. Future funding Refinancing of the $550 million Discussions with the existing syndicate of bankers are ongoing bridge facility, which expires no later and the Company is not aware of any reasons why the long- than 29 December 2013, into a long- term financing will not be received. Furthermore, Heritage has term loan doesn’t take place. a variety of di"erent sources of finance available to it, including approaching other financial institutions, obtaining new credit facilities, reinvesting its funds from operations, farm-outs and, when considered appropriate, issuing additional equity.

OTHER RISKS Legal, regulatory and litigation Changes could a"ect the short, The Group’s activities are subject to various laws and regulations medium and long-term value of the around the world. Risks are mitigated by employing skilled and Group. experienced sta" and advisers to conduct proactive assessment, contingency planning and, where necessary, the use of appropriate mitigation techniques. Investor expectations A failure to meet shareholder The Company maintains a regular dialogue with the Group’s expectations can lead to a loss shareholder base and the general public. A Senior Independent of shareholder conﬁdence and Director has been appointed and the Company employs an investor reduction in the share price. relations specialist. The Board is aware of reporting responsibilities and, where necessary, takes advice to ensure that material information is released on a timely basis. It is the Company’s policy not to comment on market rumours or press speculation. Corporate governance and Failure to comply with corporate The Group recognises the importance of maintaining strong business conduct governance codes and practices corporate governance procedures and processes and continues could result in negative sentiment to develop systems in this area. Generally this is managed by towards the Company. employing the skill, expertise and resources of the Group and its advisers. The Board reviews compliance with the Code and other regulatory guidelines regularly and enters into dialogue with major shareholders and institutions. The Board continually makes changes to its procedures in order to ensure adherence to codes and practices. More information is provided in the Corporate Governance Report. Annual Review 2012 HERITAGE OIL PLC 35

ANNUAL REVIEW GLOSSARY

$ US dollars unless otherwise stated AFREN Afren plc API a specific gravity scale developed by the American Petroleum Institute for measuring the relative density of various petroleum liquids, expressed in degrees BBL/BBL S barrel/barrels BBL S / D OR B OPD barrels per day or barrels of oil per day B CF billion cubic feet B OE barrels of oil equivalent1 B OE/D OR B OEPD barrels of oil equivalent per day B ONDS $165,000,000 8.00% convertible bonds repaid 2012 C D P Carbon Disclosure Project COD E UK Corporate Governance Code COMBINED COD E Combined Code of Corporate Governance published in 2008 COM PANY Heritage Oil Plc COND ENS ATE low density, high API hydrocarbon liquids that are present in natural gas fields where it condenses out of the raw gas if the temperature is reduced to below the hydrocarbon dew point temperature of the raw gas CONTING ENT RES OURCES those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects but which are not currently considered to be commercially recoverable due to one or more contingencies CONVERS ION RIG HTS conversion rights under the terms of the Bond C S R Corporate Social Responsibility EIA Environmental Impact Assessment ENI Eni International B.V. FCA Financial Conduct Authority FRC Financial Reporting Council G ENEL ENERG Y Genel Energy plc G ROUP, HERITAG E the Company and all of its subsidiaries HOG L Heritage Oil and Gas Limited HOC OR CORPORATION Heritage Oil Corporation, incorporated in Canada and a wholly owned subsidiary of the Company K PI Key Performance Indicator LEAD potential drilling target that is less well defined than a prospect and requires further data before being considered a prospect for drilling LNG ENERG Y LNG Energy Ltd. L S E London Stock Exchange LTI Lost Time Injury LTIFR Lost Time Injury Frequency Rate per 10,000 hours worked LTIP Long Term Incentive Plan M metres M 3 cubic metres MBBL S thousand barrels MMBBL S million barrels MBOE thousands of barrels of oil equivalent MMBOE millions of barrels of oil equivalent M CF thousand cubic feet M CF/D thousand cubic feet per day MMBTU million british thermal units MMSCF million standard cubic feet MMSCFD million standard cubic feet per day MMST B million stock tank barrels N/A not applicable N G O Non-Governmental Organisation NTC National Transitional Council

1 boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. HERITAGE OIL PLC Annual Review 2012 36

ANNUAL REVIEW GLOSSARY CONTINUED

O M L 30 Oil Mining Licence in Nigeria P10 10% certainty P50 50% certainty P90 90% certainty PASS-THROUG H D IVID END special dividend paid to Bondholders PETROD EL Petrodel Resources Limited PETROFRONTIER PetroFrontier Corp. PETROLEUM any mineral, oil or relative hydrocarbon (including condensate and natural gas liquids) and natural gas existing in its natural condition in strata (but not including coal or bituminous shale or other stratiﬁed deposits from which oil can be extracted by destructive distillation) PNG Papua New Guinea POSSI B LE RES ERVES those additional reserves which analysis and geoscience and engineering data suggest are less likely to be recovered than Probable Reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible Reserves PPL Petroleum Prospecting Licence PRL Petroleum Retention Licence PROB A B LE RES ERVES those additional reserves that are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves PROS PECT potential drilling target that is well deﬁned, usually by seismic data PROS PECTIVE RES OURCES those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations PROVED RES ERVES those quantities of petroleum, which by analysis and geoscience, can be estimated with reasonable certainty to be commercially recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved Reserves P S A OR PS C production sharing agreement or production sharing contract RPS RPS Energy Consultants Limited S AHARA Sahara Oil Services Limited S AHARA OIL Sahara Oil Services Holdings Limited S HORELINE Shoreline Natural Resources Limited S HORELINE POWER Shoreline Power Company Limited S PA Sale and Purchase Agreement TCF trillion cubic feet T S R Total Shareholder Return T SX Toronto Stock Exchange TULLOW Tullow Uganda Limited URA Uganda Revenue Authority U G AND AN ASSETS HOGL’s 50% interests in Blocks 1 and 3A in Uganda WTI West Texas Intermediate

CONVERSION TABLE The following table sets forth standard conversions from Standard Imperial Units to the International System of Units (or metric units).

To convert from To Multiply by boe mcf 6 mcf cubic metres 28.316 cubic metres cubic feet 35.315 bbls cubic metres 0.159 cubic metres bbls oil 6.290 feet metres 0.305 metres feet 3.281 miles kilometres 1.609 kilometres miles 0.621 acres hectares 0.405 Annual Review 2012 HERITAGE OIL PLC

ADVISERS AND FINANCIAL CALENDAR

COMPANY SECRETARY AUDITORS OF THE COMPANY Woodbourne Secretaries (Jersey) Limited KPMG Audit Plc Ordnance House 15 Canada Square 31 Pier Road Canary Wharf St Helier JE4 8PW Jersey London E14 5GL Channel Islands United Kingdom

REGISTERED OFFICE OF THE COMPANY REGISTRARS OF THE COMPANY Ordnance House Computershare Investor Services (Jersey) Ltd 31 Pier Road Queensway House St Helier JE4 8PW Jersey Hilgrove Street Channel Islands St Helier JE1 1ES Jersey Channel Islands HEAD OFFICE AND DIRECTORS’ BUSINESS ADDRESS PRINCIPAL BANKERS OF THE COMPANY Fourth Floor Standard Bank (Europe) Windward House Barclays Bank La Route de la Liberation Investec St Helier JE2 3BQ Jersey Bank of Scotland (Europe) Channel Islands INDEPENDENT PETROLEUM UK OFFICE OF THE COMPANY ENGINEERING CONSULTANTS 34 Park Street TO THE COMPANY London W1K 2JD RPS Energy Consultants Limited United Kingdom 309 Reading Road Henley-on-Thames BROKER AND FINANCIAL ADVISERS Oxfordshire RG9 1EL J.P. Morgan Securities Limited United Kingdom 25 Bank Street Canary Wharf PRESS AGENTS London E14 5JP FTI Consulting United Kingdom Holborn Gate 26 Southampton Buildings ENGLISH LEGAL ADVISERS London WC2A 1PB TO THE COMPANY United Kingdom McCarthy Tétrault Registered Foreign Lawyers & Solicitors FINANCIAL CALENDAR 125 Old Broad Street, 26th Floor Group results for the year to 31 December are announced in March/ London EC2N 1AR April. The Annual General Meeting is held during the second United Kingdom quarter. Half year results to 30 June are announced in August. Additionally, the Group will issue an Interim Management Statement JERSEY LEGAL ADVISERS between 10 weeks after the beginning and six weeks before the end of TO THE COMPANY each half year period. Mourant Ozannes 22 Grenville Street W E B S I T E St Helier JE4 8PX Jersey www.heritageoilplc.com Channel Islands FORWARD-LOOKING STATEMENTS CANADIAN LEGAL ADVISERS The Business Review (contained on pages 12 to 31) contains TO THE COMPANY forward-looking statements with respect to the ﬁnancial condition, McCarthy Tétrault LLP results and operations of the Group. By their nature, forward-looking Suite 3300 statements involve a number of risks, uncertainties or assumptions 421–7th Avenue SW that could cause actual results or events to di!er materially from Calgary Alberta those expressed or implied by the forward-looking statements. T2P 4K9 Canada These risks, uncertainties or assumptions could adversely a!ect the outcome and ﬁnancial e!ects of the plans and events described herein. Forward-looking statements contained in the Business Review regarding past trends or activities should not be taken as a representation that these will continue in the future. Heritage undertakes no obligation to update the forward-looking statements contained in this review or any other forward-looking statements made. H ERITAGEO ILP L C.COM

HERITAGE OIL PL C

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