Financial Results

As at 30 June 2010, Heritage had a cash position of approximately $141 million, which is sufficient to cover the planned 2010 work programme. Additionally, the disposal of the Assets in Uganda completed in July 2010 and Tullow paid cash of $1.45 billion, of which Heritage received and retained $1.045 billion. Tullow paid the agreed  cash consideration of $1.35 billion for the Assets.  A further $100 million was paid by Tullow in full and final settlement of a potential contractual dispute between the parties on the interpretation of the SPA provisions relating to the contingent deferred amount, which could have been payable up to the amount of $150 million dependent on certain conditions being achieved.

Heritage deposited $121,477,500 with the URA, representing 30% of the disputed tax assessment of $404,925,000 which the URA claims arises from the sale of the Assets. $283,447,500 has been retained in escrow, pursuant to an agreement between Heritage, Tullow and Standard Chartered Bank pending resolution between Government and Heritage of a mechanism to resolve the tax dispute. This could include the provision of a guarantee or letter of credit from an international bank to Government to provide security for the remainder of the disputed amount. Government has recently issued a further tax assessment of $30 million in connection with the sale. Heritage continues to work with Government to agree a way forward for the tax dispute to be resolved.

There are no further monies due to Heritage under the SPA apart from a working capital adjustment, with respect to the Assets at the effective date of the transaction of 17 January 2010, which will be agreed in the next few months with Tullow.

On 27 August, 2010, Heritage returned approximately $490 million to shareholders through a 100 pence per share special dividend. The remainder of Heritage’s funds, of approximately $700 million, excluding amounts related to the tax dispute, will be allocated between accelerating the work programmes on our existing asset portfolio and potential acquisitions.

Corporate Social Responsibility (“CSR”)

CSR policies developed since the Company’s formation are, in our view, a fundamental element of our successful business record.  Our CSR systems are reviewed regularly and are an important responsibility of our CSR Board Committee which was established in April 2010. The framework of our CSR policy has been refined through our experiences in Uganda where we have worked diligently with stakeholders. We believe that our active, ongoing involvement in community projects in areas where we operate is fundamental in developing and maintaining strong relationships within these regions. During the first half of 2010 we continued with our programmes in Uganda with the completion of the water gravity system in Hoima, providing over 6,000 villagers across five villages with clean water. Heritage was commended for the support given to the communities in our areas of operation. Our community programmes in Kurdistan, Tanzania and Pakistan are developing and we are pleased to report some case studies of our activities in each area below.

Kurdistan

Our current activities in this region are focused on supporting the local education system and assisting the development of the local infrastructure.  At the end of 2009, we ran a competition, engaging with schools near our drilling site, to draw a picture for the cover of our 2009 Annual Report and Accounts. During this process we discovered that one of the pupils had a hearing disability, affecting his ability to learn. Our CSR Committee took the decision to provide him with hearing aids for both ears and as a consequence his hearing capacity has increased from 20% to 60%.

In addition, further work has been undertaken in the region to help repair some of the main access roads to villages near our operations.

Tanzania

Our activities in this region have focused on supporting the local health services. In June 2010, we made a donation to the Baobab Maternity Hospital in Dar es Salaam where a new maternity hospital is urgently needed. The government has donated land for the hospital and will provide support in terms of salaries, supplies and equipment. The donation has been provided to contribute towards the construction, management and service delivery of the Baobab Maternity Hospital.

The expectation is that every year this hospital will save thousands of lives, reduce the spread of HIV/AIDS and prevent the occurrence of disabilities. Currently, reproductive health services in Dar es Salaam are insufficient and do not meet the needs of the hundreds of daily births. Consequently, maternal and newborn death rates are very high and much of this suffering can be prevented.

Pakistan

In light of the recent unprecedented floods in Pakistan, Heritage is contributing $72,000 which will be allocated between a disaster relief fund and immediate relief to those most affected in our Zamzama North Licence area.

Health, Safety and the Environment

Health and Safety has risen to prominence again in the energy sector after the unfortunate situation in the Gulf of Mexico earlier this year. Our track record for Health and Safety is strong and we continually review our systems to ensure we operate to the highest standards. The health and safety of our employees, and those living around the areas where we operate is of paramount importance to us.

We have had no environmental spills or incidents or incurred any fines relating to our environmental management in the first half of 2010.

Corporate Strategy

With the benefit of our strong cash position we aim to continue to generate growth in shareholder value by focusing on high impact international plays with the potential to discover significant hydrocarbon reserves. We look to acquire and invest in exploration and early development opportunities throughout the world, with a particular emphasis on our core areas of Africa and the Middle East where we have a strong technical understanding. By entering into regions early, we seek to obtain a large equity interest and operatorship.

Outlook

Our immediate focus is on Kurdistan where we continue to drill the Miran West-2 well and expect to announce full results from this shortly, including testing of a number of potential reservoir intervals. We have a very attractive prospective portfolio that has the potential to create significant shareholder value in the next year through several high impact exploration wells. In addition, the proceeds received from the disposal of the Ugandan assets leave the Company with a strong balance sheet capable of supporting our current plans and also we are actively looking for new acquisitions and opportunities.

Michael J. Hibberd

Chairman and Non-Executive Director

Anthony Buckingham

Chief Executive Officer