Annual Report • Apr 16, 2014
Annual Report
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Annual Report 2013
| Our business model | 2 |
|---|---|
| Performance 2013 | 3 |
| Value creation through organic growth | 4 |
| Forecast 2014 | 5 |
| Chief Executive Offi cer's review – C. Ashley Heppenstall | 6 |
| Chairman's statement – Ian H. Lundin | 8 |
| Responsible growth | 10 |
| Lundin Petroleum's contribution | 11 |
| Reserves, resources and production | 12 |
| Oil market overview | 18 |
| Operations | 20 |
|---|---|
| Norway | 22 |
| South East Asia | 30 |
| Continental Europe | 33 |
| Russia | 35 |
| Responsible operations | 36 |
|---|---|
| Health, safety and environment | 38 |
| Stakeholder engagement | 40 |
| International commitments | 42 |
| Sustainable investments | 43 |
| The Lundin Foundation | 44 |
| Corporate governance report 2013 | 46 |
|---|---|
| The Lundin Petroleum share and shareholders | 68 |
| Risks and risk management | 70 |
| Contents of fi nancial report | 72 |
|---|---|
| Directors' report of the Group | 73 |
| Financial tables of the Group | 85 |
| Accounting policies | 90 |
| Notes to the fi nancial statements of the Group | 96 |
| Annual accounts of the Parent Company | 116 |
| Financial tables of the Parent Company | 116 |
| Notes to the fi nancial statements of the | |
| Parent Company | 119 |
| Board assurance | 121 |
| Auditor's report | 122 |
| Five year fi nancial data | 123 |
|---|---|
| Key fi nancial data | 124 |
| Reserve quantity information | 126 |
| Shareholder information | 127 |
| Defi nitions | 129 |
Lundin Petroleum is one of the largest independent oil companies in Europe. It has two strategic focus areas, Norway and South East Asia. Norway is of particular importance to Lundin Petroleum representing around 75 percent of its reserves and production. In addition to Norway, the Company has operations in France, the Netherlands, Russia, Malaysia and Indonesia.
Lundin Petroleum has operations throughout the entire upstream value chain; exploration, development and production. Finding oil through exploration is Lundin Petroleum's core competence and the Company has developed a strategy which has been very successful in Norway. This strategy has been adopted throughout the Company and is also producing results in South East Asia and elsewhere.
Lundin Petroleum's business model is to generate sustainable value through exploration and production of hydrocarbons in a responsible way.
Lundin Petroleum's strategy of organic growth involves identifying core areas of focus and then establishing a team of professionals with experience in those areas to use the latest technologies to explore for oil and gas. Discoveries will be appraised, and where they are deemed to be economic, progressed through the development phase and into the production stage. The cash fl ow generated from production will be reinvested in exploration and development. Lundin Petroleum believes that it is through the development of this business model that it has achieved success in the past and will continue to deliver positive results in the future.
Our vision is to grow a profi table upstream exploration and production company, focused on core areas in a safe and environmentally responsible manner for the long term benefi t of our shareholders and society.
Lundin Petroleum is pursuing the following strategy:
Lundin Petroleum is responsible towards:
· Appraisal drilling on the Johan
Sverdrup fi eld
| Fatalities | Oil Spills | Lost Time Incidents (LTI) | LTI Rate |
|---|---|---|---|
| 0 | 0 | 6 | 0.41 |
· New licence awarded, offshore eastern Indonesia – Cendrawasih VII
COMPANY OVERVIEW
Lundin Petroleum focuses on building core exploration areas in specifi c countries with a clear objective to grow organically. The strategy is to improve our technical understanding and thereby to develop new play concepts. This is achieved by using the best available technology including acquiring and processing 3D seismic and by building teams of talented and experienced people who are encouraged to think creatively and to challenge conventional theories in the search for new oil deposits.
Lundin Petroleum focuses on organically increasing its reserves base. Following exploration and appraisal, sustainable value is created through the conversion of discoveries into reserves and production. The strategy is to continuously optimise reserves and production throughout the life cycle of the asset by utilising the latest technologies and, above all, the expertise of skilled people.
Throughout all stages of the business cycle, Lundin Petroleum seeks to deliver outstanding value to our shareholders. All elements of the asset portfolio are constantly reviewed to determine that their value is fully refl ected in the Lundin Petroleum share price. If it is determined that the value of an asset is not being fully refl ected within the Lundin Petroleum share price, Lundin Petroleum will review all available options to determine how to realise the full value of that asset.
Kevin Donnan and Paul Atkinson, Lundin Malaysia
| Development | Appraisal | Exploration |
|---|---|---|
| MUSD 1,446 | MUSD 302 | MUSD 381 |
| Development Projects | Appraisal Projects | Exploration Projects |
| Norway · Brynhild · Edvard Grieg · Bøyla Malaysia · Bertam France · Vert la Gravelle |
Norway · Johan Sverdup · Luno II · Edvard Grieg SE · Gohta Malaysia · Tembakau |
18 exploration wells in 2014 · Norway – 6 wells · Malaysia – 3 wells · Indonesia – 3 wells · Netherlands – 5 wells · France – 1 well |
Production
We continue to be primarily focused upon the discovery of new hydrocarbon resources through our exploration drilling activities
C. Ashley Heppenstall President and CEO
I am very excited about the prospects for Lundin Petroleum as we embark on another year. Our primary objective remains that of building long term and sustainable value for our shareholders. In that respect we continue to be primarily focused upon the discovery of new hydrocarbon resources through our exploration drilling activities. This strategy has delivered extremely positive results over the past ten years and I remain confi dent that we have the licences, people and fi nancial resources to continue to fi nd new fi elds with the materiality to have a positive impact on our valuation. Our 2014 exploration work programme, with particular focus on the Barents Sea, on the Norwegian Continental Shelf and offshore Sabah, Malaysia, is most prospective in my opinion.
The primary source of funding for our development, appraisal and exploration programmes is operating cash fl ow from our existing production. Our current production activities are Brent oil dominated with low operating costs and cash taxes which therefore generate high operating cash fl ow. An operating cash fl ow net back1 of USD 81.70 per barrel was achieved in 2013 generating operating cash fl ow of close to USD 1 billion. I expect this to continue in 2014 with operating cash fl ow in excess of USD 1 billion.
Our other source of funding is bank borrowings. We have excellent support from our 25 international banks which have recently increased our revolving credit facility to USD 4.0 billion to fund our ongoing development and exploration activities. This larger facility will improve our fi nancial fl exibility as the Johan Sverdrup development expenditures start to be incurred and allow us to continue our aggressive exploration programmes. We are now fully funded for the foreseeable future with suffi cient contingency to deal with unforeseen circumstances.
Our production for 2013 averaged 32,700 boepd and in general our production assets performed in accordance with our expectations with the exception of the Brynhild development where fi rst oil has been delayed until the second quarter of 2014. Our production forecast for 2014 is between 30,000 and 35,000 boepd with the declines from our existing fi elds offset by the new production from Brynhild. Our 2015 production will increase to approximately 50,000 boepd with the start-up of production from the Bøyla, Bertam and Edvard Grieg fi elds in 2015 and will increase to over 75,000 boepd by the end of 2015.
1 Net back: Operating cash fl ow divided by total production volume
We have made good progress on all our development projects. I believe that the frustrating delays to our Brynhild project are behind us and that we can achieve our second quarter fi rst oil forecast. The subsea installation work was completed last year. The modifi cation work on the Haewene Brim FPSO has now been substantially completed and the vessel is now back on location at the Shell operated Pierce fi eld in the UK North Sea.
Following approval of the Bertam development project offshore Malaysia in 2013, we are encouraged by the progress on Bertam. The contract for the offshore platform has been awarded to Malaysian yard TH Heavy Engineering (THHE) and construction activities are now ongoing. The Bertam project will also utilise our 100 percent owned Ikdam FPSO which was redeployed to Malaysia following the cessation of production from our Oudna fi eld, offshore Tunisia. The modifi cation of the FPSO to enable the vessel to be fi t for purpose for Bertam is ongoing at the Keppel shipyard in Singapore. Development drilling on Bertam will commence later this year. First oil from Bertam is expected in the fi rst half of 2015.
We are also making good progress with the Edvard Grieg project. The jacket is substantially complete and will be installed on location this spring with the pre-drilling of development wells to commence in the third quarter of 2014. The procurement for all topside equipment is complete and construction activities are advancing satisfactorily. The project remains on budget and schedule for fi rst oil in late 2015.
The appraisal of the Johan Sverdrup fi eld is substantially complete. The working operator Statoil recently announced an updated full fi eld resource estimate of between 1.8 and 2.9 billion boe and that fi rst oil was forecast for late 2019. The fi nal concept development decision was taken by the partners in February 2014. This is a huge project and it is important that the right investments are made today to maximise long term value. This has been done and I believe all Johan Sverdrup partners are fully aligned in this respect. It is extremely exciting to be a material partner in this project as it takes shape. The quality, location and size of Johan Sverdrup are unique for any company, not just Lundin Petroleum, and will ultimately deliver material long term value.
It is sometimes easy with the size of Johan Sverdrup to forget the rest of our appraisal portfolio. Over the last couple of years we have had exploration discoveries at Luno II and Gohta in Norway and Tembakau offshore Malaysia. We will be drilling appraisal wells on all these discoveries in 2014 with potential to almost double our existing reserves. None of our production forecasts assume any contribution from these potential developments.
I have received comments recently that Lundin Petroleum is no longer an exploration focused company and that we no longer
have any material exposure through our drilling programme. Very simply this is inaccurate on both counts.
We announced late last year our 2014 exploration programme which will target over 600 MMboe (unrisked) during the year. I reiterate exploration remains a key focus for us not only this year but for the foreseeable future.
In Norway we believe that there are more hydrocarbons to be found in the Utsira High. We are at the forefront of exploration activity in the region and still have the largest acreage position as this area develops infrastructure with the Edvard Grieg and Johan Sverdrup developments proceeding. We are also very excited with progress in the Barents Sea which we see emerging as an oil producing province in the next few years. There have been a number of important discoveries in the Barents Sea in recent months including our Gohta success and we see a marked increase in activity in the region from the industry. Our acreage position is already signifi cant and I was pleased that we were recently awarded an additional four licences in the latest APA 2013 licensing round. Our objective is to be at the forefront of exploration activity in the Barents Sea in the next fi ve years where we think there is the potential to discover large new oil resources.
Similarly in South East Asia, 2014 will be a busy year. Our strategy to acquire new 3D seismic in areas overlooked by the majors in recent years has already yielded positive results with Bertam moving into development and Tembakau likely to be developed. We will be drilling in Sabah this year where we believe there is potential to make large oil discoveries close to existing infrastructure. We are also enhancing our portfolio in frontier areas such as the Cendrawasih VII licence in eastern Indonesia which contains some very exciting structures which we hope to drill in 2015.
In summary, Lundin Petroleum is in an excellent position. We are fully funded with exposure to major projects such as Johan Sverdrup in low political risk areas and which will produce Brent oil for many years to come. We commit to having in place the necessary measures to ensure that, wherever we operate, our activities have a benefi cial socio-economic effect and a limited impact on the environment. The long term investments we are making today will in my opinion deliver long term value growth to our shareholders. I thank you for your confi dence and continued support.
Yours Sincerely,
C. Ashley Heppenstall President and CEO
Lundin Petroleum's strategy of finding new resources is the best way to create sustainable value, not only for our shareholders but also for the benefit of society
Ian H. Lundin Chairman of the Board
A very important milestone for Lundin Petroleum was achieved on February 13, 2014 when the fi nal concept selection for Phase 1 of the giant Johan Sverdrup fi eld's development was announced by the licence holders. The announcement was the result of the close and successful cooperation between all stakeholders as well as more than three years of appraisal drilling, geological and geophysical evaluation, engineering and environmental impact studies in order to come up with the right development concept for the fi eld.
Johan Sverdrup will be the largest development project on the Norwegian Continental Shelf (NCS) since the 1980s. The fi rst phase of the development is scheduled to start production in late 2019 and is forecast to have gross production capacity of between 315,000 and 380,000 barrels of oil equivalents per day (boepd). When the fi eld reaches its plateau production of 550,000 to 650,000 boepd it will account for over 25 percent of Norway's total oil production. The gross capital investment for Phase 1 is between NOK 100 and 120 billion (USD 16 and 20 billion).
For Norway, Johan Sverdrup will generate over USD 150 billion in tax revenue during the life of the fi eld and thousands of jobs for decades to come. With the discovery of Johan Sverdrup in 2010, Lundin Norway established itself as one of the leading players on the NCS.
Today, Lundin Norway is the second most active operator in Norway with 62 licences stretching from the southern NCS to the Barents Sea. The Company is operating two development projects: Brynhild which will start production in the second quarter of 2014 and Edward Grieg which will come on stream in late 2015. In addition, the Company has secured rig capacity to fulfi l all of its drilling obligations and more. The ongoing exploration drilling programme continues to deliver results with two more oil discoveries in 2013, one on the Utsira High known as Luno II and one in the Barents Sea known as Gohta. The Gohta discovery proved the existence of additional source rock in the Barents Sea and we strongly believe in the potential of fi nding more oil in the area. As Lundin Norway is maturing into a fully integrated exploration and production company, we look toward the future with confi dence as we continue to grow.
Ian H. Lundin (centre) with Torstein Sanness (right) and Hans Christen Rønnevik (left)
Lundin Petroleum's operations in South East Asia and Europe are all progressing well. The Company's fi rst development project in Malaysia, the Bertam fi eld, is expected to come on stream in 2015. There are multiple potential prospects to be drilled in the South East Asia drilling programme in 2014.
Our exploration success in the past few years is the best proof of that Lundin Petroleum's strategy of fi nding new resources is the best way to create sustainable value, not only for our shareholders but also for the benefi t of society. I believe that it is important not to lose sight of our core values and humble beginnings as we move forward. I also hope that the entrepreneurial spirit of our founder which the Company's management has embraced so well will continue to drive our Company.
The oil and gas industry is facing a huge challenge in meeting global energy demand for hydrocarbons in an affordable, effi cient and environmentally friendly way.
Our ambitions as well as society's expectations with regards to health, safety and the environment are growing continuously which of course comes at a cost. Technological innovation
will play a big role in meeting these expectations but it will also mean that it will be more diffi cult to make investments in certain sensitive areas from an economic and regulatory standpoint. Oil and gas continue to be the fuel of choice for power, transportation as well as feedstock for chemicals and most synthetic products, but renewable energy is rapidly becoming more accessible and competitive. As environmental awareness is spreading alongside improved living standards, health and education, the world is indeed becoming a better place for future generations.
I would like to extend a special thank you to all the women and men at Lundin Petroleum who work diligently and with care for our environment, to ensure a healthy and auspicious future for the Company and for society at large. Finally, many thanks to you fellow shareholders for your continued support.
Ian H. Lundin Chairman of the Board
Lundin Petroleum commits to having in place the necessary measures to ensure that, wherever we operate, our activities have a beneficial socioeconomic effect and a limited impact on the environment
C. Ashley Heppenstall President and CEO
As a responsible company, Lundin Petroleum not only adheres to applicable legislation, but also strives to conduct its business in accordance with best industry practice and principles for corporate citizenship embodied in recognised international initiatives. The Company has integrated corporate responsibility commitments and strategies into its business through the adoption of relevant policies, guidelines and procedures and strives for continuous improvement.
Due to the nature of oil and gas operations, Lundin Petroleum has focused on putting in place and developing a robust health, safety and environmental (HSE) framework. Policies on health, safety and the environment set out the Company's commitment in this area, and the Green Book, the Company's HSE management system, ensures these policies translate into good practice. Lundin Petroleum's employees worldwide are trained in the application of the Company's Code of Conduct, corporate responsibility policies and the Green Book to ensure understanding and compliance.
As part of its proactive approach to provide a safe working environment, experiences and lessons learnt are reported and shared continuously throughout the Company. Lundin Petroleum has also strengthened and developed its risk management system, integrating this approach within the areas of operation. Since Lundin Petroleum was created in 2001, there have not been any work-related fatalities.
Frøydis Eldevik, Lundin Norway, during a visit to the Kvaerner yard, Verdal in Norway
In order to increase the scale and impact of Lundin Petroleum's sustainable investment projects, the Company entered into a partnership with the Lundin Foundation in 2013. The Lundin Foundation is a philanthropic organisation founded originally by the Lundin family. The Foundation is currently supported by a number of publicly traded natural resource companies committed to the highest standards of corporate social responsibility. The Foundation provides risk capital, technical assistance, and strategic grants to outstanding social enterprises and organisations across the globe, with a view to contributing to sustained improvements in social and economic development.
Oil remains the primary source of world energy consumption and is estimated to remain so for decades to come. The world's annual oil consumption currently amounts to roughly 33 billion barrels. This means that to ensure the current level of oil supply, the world needs to replace 33 billion barrels of oil every year. To put this in context, the giant Johan Sverdrup fi eld has an estimated resource range of between 1.8 and 2.9 billion boe. Only by increasing the production from existing discoveries, by using new methods and technology to develop oil deposits, or by making new oil discoveries, can the current level of oil supply be maintained.
Making new discoveries is Lundin Petroleum's core competence. The oil discoveries that the Company has made in Norway will prolong the country's oil production by many decades.
An oil discovery is a great economic resource, creating wealth and jobs, benefi ting not only Lundin Petroleum's employees, their families, and shareholders but also the local communities and society as a whole.
Lundin Petroleum's business generates income when oil is produced. The exploration and development phases on the other hand require large investments, in particular drilling and construction of facilities and infrastructure. The investment budget for Lundin Petroleum in 2014 has been set at USD 2.1 billion.
One of Lundin Petroleum's main fi nancial contributions to society comes through taxes, paid in the form of corporate and production tax on the sales proceeds from oil and gas production. For example, the giant Johan Sverdrup discovery made by Lundin Petroleum is expected to generate more than USD 150 billion in tax revenues during the life of the fi eld.
More information can be found on pages 36–45 regarding Lundin Pertoleum's Corporate Responsibilty.
Lundin Petroleum is active in all stages of the life cycle of an upstream oil company.
Subsurface evaluation of Lundin Petroleum's acreage position identifi es exploration prospects which are classifi ed as prospective resources. Hydrocarbons discovered through exploration drilling are classifi ed as contingent resources and are appraised to determine commerciality and future development potential. When a discovery is deemed commercial and there is a certainty as to development, the hydrocarbons are classifi ed as reserves.
Unless otherwise stated, all reserves estimates in this Annual Report are the aggregate of "Proved Reserves" and "Probable Reserves", together also known as "2P Reserves".
Unless otherwise stated, all contingent resource estimates in this Annual Report are unrisked best estimate.
| RESERVES SUMMARY | MMboe |
|---|---|
| End 2012 | 201.5 |
| – Produced (excluding sales/acquisitions) | -11.9 |
| + New Reserves (excluding sales/acquisitions) | 4.5 |
| End 2013 | 194.1 |
Oil price (Brent) USD 100/bbl + 2% escalation on oil price and costs
Lundin Petroleum had 194.1 million barrels oil equivalent (MMboe) of reserves at the end of 2013. From 2002 to 2011 Lundin Petroleum increased its reserves base four fold (see Reserves History graph). During 2012 and 2013 production exceeded reserves additions, resulting in a small reduction in reserves. However, in 2014 appraisal wells will be drilled on the Gohta, Luno II and Tembakau discoveries with the potential to add between 90 to 180 MMboe to the reserves base. In addition, Johan Sverdrup resources will be booked as reserves once a Plan of Development and Operations (PDO) and a Unit Operating Agreement are approved.
In 2013, 4.5 MMboe of new reserve additions were identifi ed, resulting in a two percent increase in reserves when compared to 2012, excluding 2013 production of 11.9 MMboe.
The Reserves Changes graph shows reserves additions related to the continued good performance of the Volund fi eld in Norway, as well as the inclusion of a further two infi ll wells in the Alvheim fi eld in Norway. The Bertam development in Malaysia received Field Development Plan (FDP) approval in September 2013. As a result of optimising fuel oil consumption, reserves in the Bertam fi eld increased. These increases in reserves resulted in a reserves replacement ratio of 38 percent at end of 2013 when compared to a total production of 11.9 MMboe in 2013.
92 percent of the 194.1 MMboe of reserves is related to oil and NGL (natural gas liquids) reserves. Lundin Petroleum quotes all of its reserves in working interest barrels of oil equivalent. All reserves are independently audited by ERC-Equipoise Ltd. (ERCE).
Lundin Petroleum also has a number of discovered oil and gas resources which are classifi ed as contingent resources. Contingent resources are known oil and gas resources not yet classifi ed as reserves due to one or more contingencies. Work is continuously ongoing to remove these contingencies and to mature contingent resources into reserves.
Excluding the Johan Sverdrup fi eld in Norway, Lundin Petroleum has contingent resources of 342 MMboe. In 2013, two new fi elds were discovered in Norway. The Gohta and Luno II discoveries resulted in additional contingent resources of 66 MMboe and 22 MMboe respectively. Both fi elds will be appraised in 2014. This increase was partly offset by the relinquishment of the Peik licence in Norway, resulting in a decrease of 8 MMboe of contingent resources.
All reported contingent resources have been audited internally by a qualifi ed reserves auditor in accordance with the Canadian NI 51–101 and the COGE Handbook with the exception of the Salina discovery (7 MMboe) where the Norwegian Petroleum Directorate (NPD) estimate has been used.
Johan Sverdrup contingent resources have been excluded from Lundin Petroleum's estimates at the end of 2013 pending the completion of the PDO and the Unit Operating Agreement. At the end of 2011 and 2012, contingent resource estimates for Johan Sverdrup were included. The fi eld, which was discovered in 2010, contains gross contingent resources of between 1.8 and 2.9 billion boe as disclosed at the end of 2013 by pre-unit working operator Statoil. The Johan Sverdrup fi eld is situated in licences PL501, PL502 and PL265. Lundin Petroleum has a 40 percent interest in PL501 and a 10 percent interest in PL265.
By the end of 2013, 20 wells and six sidetracks have been drilled on the Johan Sverdrup fi eld. The fi eld appraisal programme is now substantially complete. Two more appraisal wells will be drilled in 2014. A Phase 1 conceptual development decision was made in February 2014. Front End Engineering and Design (FEED) studies have been awarded and PDO approval is expected in 2015.
Lundin Petroleum has a substantial contingent resource portfolio which provides a strong resource base for future reserves and production growth.
CONTINGENT RESOURCES (MMboe)
The table shows all planned exploration drilling activities from 1 January to 31 December 2014 excluding exploration drilling in the Netherlands.
1 These wells have been drilled in the fi rst quarter of 2014 and did not encounter any hydrocarbons.
Lundin Petroleum's business model is to grow organically through exploration. This means identifying and maturing exploration targets, drill exploration wells, appraise discoveries, develop and fi nally produce. To be successful with this strategy, access to world class exploration acreage and fi rst class people is essential. Lundin Petroleum has focused upon two core exploration areas, Norway and South East Asia.
In Norway, Lundin Petroleum is the second largest operated acreage holder after Statoil and has been the most successful explorer in the last 10 years. By the end of 2013 Lundin Petroleum has drilled 35 exploration wells resulting in 14 commercial discoveries at a cumulative fi nding cost of USD 0.5 per boe. Lundin Petroleum was awarded another nine new licences in the APA 2013 licensing round, increasing its total licence acreage to approximately 23,000 km2 . In 2014, Lundin Petroleum is planning to drill six exploration wells in Norway, targeting over 370 MMboe of prospective resources. There will be continued exploration activity beyond 2014 in the Utsira High (Johan Sverdrup area) and the Barents Sea. Lundin Petroleum believes that the Barents Sea will become a major oil producing province.
Since South East Asia was established as a core area in 2008, Lundin Petroleum now has a total of 12 Production Sharing Contracts (PSC) in Malaysia and Indonesia. In Malaysia, Lundin Petroleum is the second largest acreage holder after Petronas with a total licence acreage of 34,000 km2 . Six exploration wells are planned to be drilled in 2014, three in Malaysia and three in Indonesia, targeting 216 MMboe of prospective resources.
In 2013, Lundin Petroleum was awarded the Cendrawasih VII Block in east Indonesia. This frontier exploration Block has a proven petroleum system and is situated in a shallow water environment. Based on existing 2D and 3D seismic, several structures have been identifi ed with multi-billion barrel oil and/ or multi-trillion cubic feet of gas potential.
Furthermore, one exploration well is planned to be drilled in France and fi ve exploration wells are planned in the Netherlands.
Lundin Petroleum only discloses prospective resource estimates for those prospects that will be drilled in the following year. However, many more prospects and leads have been identifi ed from the large exploration licence portfolio and are being matured to be drilled in future years. In Norway, rig capacity is already secured into 2017 to drill further exploration wells. In South East Asia, large areas of new 3D seismic have been acquired in the Company's core areas to help mature additional prospectivity and will result in further exploration drilling.
Once the Edvard Grieg field reaches plateau production, Lundin Petroleum's net production is forecast to exceed 75,000 boepd.
Lundin Petroleum produced 11.9 MMboe during 2013 at an average rate of 32,700 boepd. In early 2013, production for the full year was forecast to be between 33,000 and 38,000 boepd. Continued strong production in the Volund fi eld was partly offset by lower than expected production from the Alvheim fi eld in Norway as a result of integrity issues in three production wells. However, production was mainly impacted in the fourth quarter 2013 by delays in the startup of the Brynhild fi eld in Norway. Furthermore, onset of water production in the Volund fi eld resulted in lower than expected production for the fourth quarter.
Lundin Petroleum's production forecast for 2014 is in the range of 30,000 to 35,000 boepd, at similar levels to 2013. Good production is expected from the Alvheim fi eld with two wells expected to come back on stream in April 2014 following work-over. Further drilling on the Alvheim fi eld is expected in 2014 and 2015, which will only contribute to production in 2015 and beyond. The Brynhild fi eld is expected to come on stream in the second quarter 2014. In total four wells will be drilled on the Brynhild fi eld.
Development of the Bøyla and Edvard Grieg fi elds are progressing according to schedule. Production start for the Bøyla fi eld is expected in the fi rst quarter 2015 and for the Edvard Grieg fi eld, in the fourth quarter 2015. The Bertam fi eld development plan was approved by Petronas in September 2013. Wellhead platform construction and FPSO repair and life extension work are ongoing and production start is expected in the second quarter 2015. These development projects will increase production to a 2015 average of approximately 50,000 boepd. Once the Edvard Grieg fi eld reaches plateau production Lundin Petroleum's net production is forecast to exceed 75,000 boepd.
The giant oil fi eld Johan Sverdrup, with production start planned in late 2019, has the potential to quadruple the current net production when it reaches plateau production. This excludes any contribution from the rest of the contingent resource base, or any contribution from the exploration wells Lundin Petroleum is planning to drill.
2013 CMD 1 forecast high (38,000 boepd)
0 10 20 30 40 Q1 Q2 Q3 Q4 Mboepd net 1 Norway production Capital Market Day Other countries production 2013 CMD 1 forecast low (33,000 boepd) 50
It is my job to advise on the Company's subsurface projects including reserves and resources management
Ryan Adair Group Subsurface Manager
Lundin Petroleum calculates reserves and resources according to 2007 Petroleum Resources Management System (PRMS) Guidelines of the Society of Petroleum Engineers (SPE), World Petroleum Congress (WPC), American Association of Petroleum Geologists (AAPG) and Society of Petroleum Evaluation Engineers (SPEE) and in compliance with the Canadian Oil and Gas Evaluation Handbook (COGE Handbook) and the Canadian National Instrument 51–101 Standards of Disclosure for Oil and Gas Activities. Lundin Petroleum's reserves are audited by ERC-Equipoise Ltd. (ERCE), an independent reserves auditor. Reserves are defi ned as those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward. Estimation of reserves is inherently uncertain and to express an uncertainty range, reserves are subdivided in Proved, Probable and Possible categories. Lundin Petroleum reports its reserves as Proved plus Probable (2P) reserves.
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and governmental regulations. Proved reserves can be categorised as developed or undeveloped. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confi dence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimates.
2P Reserves
Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of estimated Proved plus Probable reserves.
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, technical, political and regulatory matters or a lack of markets. There is no certainty that it will be commercially viable for the Company to produce any portion of the contingent resources.
Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and chance of development. There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources.
As we have forecast, Brent oil prices have remained comfortably above USD 100 per barrel and I personally expect this to continue. The shale oil revolution in the United States continues to deliver increased oil supplies but geopolitical uncertainty in the Middle East and North Africa continues to have a negative impact on supply. The Chinese economy has slowed but growth levels still remain high with continued strong commodity demand including oil. This Chinese demand coupled with, in my view, better demand than forecast from the developed world will ensure that oil prices remain fi rm.
Prices will also be supported by the high levels of cost prevalent in our industry which over recent years have squeezed profi tability margins. The level of cost infl ation we have experienced over the last 10 years is not sustainable and will have an impact on future production as certain projects are deemed uneconomic.
C. Ashley Heppenstall President and CEO
Both population and economic growth play a critical role in infl uencing the demand for oil and oil products, particularly in developing countries where energy consumption levels are much lower relative to those observed in the developed world.
In 1960, the world's population stood at three billion people and by the turn of the century that had doubled to six billion. Likewise long term trend economic growth has continued unabated averaging around two percent per annum in developed countries and six percent per annum in developing countries over the past decade. Looking ahead, by 2035 the population of the world is expected to grow to more than eight billion people accompanied by long term trend GDP growth rates of between two and three percent per annum.
Given that future growth is being driven by developing countries undergoing the process of industrialisation, the energy intensity of those countries is likely to increase with an expected narrowing of the gap in oil consumption per capita compared with developed countries. Developed countries consume more than fi ve times the amount of those living in the developing world.
It presents a major challenge to the energy industry to deliver the supply required to meet this growing demand for oil, particularly when comparing the track record of the industry in replacing the oil it produces.
Over the last decade the world's new oil discoveries amount to approximately one third of the oil consumed. In the long run this will become challenging to sustain and can only be managed through a combination of developing new methods to use the energy consumed more effi ciently and by increasing efforts to explore for and fi nd new resource deposits or by reducing the demand for oil.
Lundin Petroleum remains confi dent that this combination of macro-economic and supply side challenges will continue to provide long term support for oil prices. In terms of rising to meet the supply side challenge the industry faces, Lundin Petroleum continues to demonstrate an ability to do so by growing its reserves and resource base, which is expected to lead to a more than doubling of current production levels by the end of 2015 and quadrupling by the time that Johan Sverdrup reaches plateau production. Doing so within a climate of strong commodity prices will naturally lead to long term value creation for shareholders.
Lundin Petroleum has exploration and production assets focused upon two core areas, Norway and South East Asia, as well as assets in France, the Netherlands and Russia. Lundin Petroleum maintains an exploration focus seeking to generate sustainable value through exploration success and also has the resources to take exploration successes through to the production phase.
Oil and gas exploration is Lundin Petroleum's core competence. By constantly questioning and reevaluating established ways of analysing geological data, Lundin Petroleum has proven its ability to fi nd new resources.
Lundin Petroleum places great trust in and responsibility upon its employees. The Company's success is attributable to its talented teams of professionals with experience and considerable technological and geological expertise. Lundin Petroleum uses conventional methods and available data, but its integrated teams of geologists, geophysicists and technical experts have produced a creative way of analysing this information and thereby adapting a visionary approach to oil and gas exploration. Lundin Petroleum's exploration strategy is to apply each individual's professional and personal strengths into the organisation, and to actively encourage innovative thinking. Each exploration team is assembled to ensure multi-discipline exploration expertise. The working environment is based on joint efforts and is not measured individually, but rather at the company level.
Lundin Petroleum drilled 16 exploration and appraisal wells in 2013 and has plans to drill over 20 in 2014.
Based on the results from its exploration and appraisal drilling, Lundin Petroleum creates a 3D simulation model of the reservoir as accurately as possible. Thereafter the Company establishes a conceptual development plan.
The plan sets out how to best manage the reservoir for production. It includes a programme for how to extract hydrocarbons as effi ciently as possible from the reservoir, a plan for the engineering and design of all surface and subsurface facilities as well as infrastructure to deliver the resources. The development plan also details all safety procedures and ensures that the environmental impact will be minimal.
Lundin Petroleum uses the best available technologies throughout this process in order to minimise all risks. Once a conceptual development plan has been approved by partners and it is demonstrated that resources can be recovered commercially, the resources in the fi eld may be reclassifi ed as reserves. Contracts can then be awarded for drilling, construction and installation of all facilities. During the construction phase Lundin Petroleum works closely with its partners and contractors with the common objective to deliver the components on schedule and within budget.
The installation phase involves transporting the facilities that have been constructed to a chosen location and assembling them on site. Thereafter, wells and infrastructure are connected to the facilities and production can begin.
Lundin Petroleum is currently constructing oil and gas production facilities in Norway, Malaysia and France.
After exploration, appraisal and development, Lundin Petroleum enters into the production phase. The production phase is defi ned as everything from extraction and processing to delivering the oil or gas for sale.
Lundin Petroleum uses the income from its production assets to fi nance its core activity, the exploration of new oil and gas resources. However, as the Edvard Grieg and Johan Sverdrup discoveries are developed and put into production, the focus on production operations will become more prominent. Production in Norway is increasing and has the potential to quadruple current net production when Johan Sverdrup reaches plateau production.
Whereas Lundin Petroleum's exploration model is based on creativity and innovative analysis of geological information, its production operations rely upon proven methods in the industry with the use of best available technology and best practice. Lundin Petroleum aims to effi ciently produce from each fi eld and maximise the total quantity of oil or gas produced from the fi eld. This requires thorough analysis during the development and production phase and can involve enhanced recovery methods, for example injecting water to sweep the oil towards selected production points.
The Company places great emphasis on safety. Operations are carried out with human, technical and organisational barriers in place, so that a breach of a single barrier cannot alone lead to any harm to people, the environment or the Company's assets.
Norway is Lundin Petroleum's principal area of operation. Lundin Petroleum's strategy of organic growth has led to a portfolio of Norwegian licences comprising the full spectrum of exploration, appraisal, development and production assets.
| Norway Key Data | 2013 | 2012 |
|---|---|---|
| Reserves (MMboe) | 147 | 152 |
| Contingent resources (MMboe)1 | 134 | 715 |
| Average net production per day (Mboepd) | 24 | 27 |
| Net turnover (MUSD) | 946 | 1,089 |
| Sales price achieved (USD/boe) | 106 | 107 |
| Cost of operations (USD/boe) | 7 | 5 |
| Operating cash fl ow contribution (USD/boe) | 99 | 71 |
1 Excludes contingent resources in respect of the Johan Sverdrup fi eld
Lundin Petroleum entered Norway in 2003 and since then has built a leading acreage position including 62 licences focused in a number of core areas with activities within licences comprising exploration, appraisal, development and production. The exploration success in Norway has led to the Brynhild and Edvard Grieg developments and the 2013 exploration programme resulted in additional discoveries in Luno II and Gohta. Both of these discoveries will be appraised during 2014. The Norwegian portfolio is dominated by the giant Johan Sverdrup fi eld, discovered by Lundin Petroleum in 2010. The Johan Sverdrup fi eld extends over three licences, PL501 (WI 40%), PL265 (WI 10%) and PL502 and the fi eld is therefore subject to a unitisation process which will determine the resource allocation to the licence partners. Following the drilling of 20 appraisal wells on the Johan Sverdrup fi eld, Statoil, the working operator, announced a full fi eld gross contingent resource range of 1.8 to 2.9 billion barrels of oil equivalent (boe) representing one of the top fi ve discoveries made on the Norwegian Continental Shelf.
Six exploration wells and fi ve appraisal wells are planned to be drilled in Norway in 2014.
Norway continues to represent the majority of Lundin Petroleum's operational activities with production from Norway during 2013 accounting for 73 percent of total 2013 production and reserves at the end of 2013 accounting for 76 percent of total reserves. Lundin Petroleum's contingent resources are also concentrated in Norway with 39 percent 1 of total contingent resources at the end of 2013 and thus underpinning Norway as the major production contributor for Lundin Petroleum in the years to come. Over the next three years, the majority of Lundin Petroleum's development expenditure is anticipated to be channelled into Norwegian development projects.
The production from the Norwegian assets delivered an annual average production rate of 23,900 boepd during 2013. Anticipated natural decline from the Alvheim and Volund reservoirs resulted in the reduction in production from 2012 to 2013. The production was also impacted by three Alvheim wells being shut-in for a signifi cant part of 2013 as well as the Alvheim FPSO being shut-in for maintenance for nine days in 2013.
The net production from the Alvheim fi eld (WI 15%) during 2013 was 10,500 boepd, a decrease of 11 percent relative to 2012. Overall the Alvheim fi eld has outperformed expectations. However, during 2013 the fi eld has produced below expectations due to three producing wells being shut-in for a large part of the year due to well integrity issues. One well was put back into production in late 2013 with the remaining two wells expected to be back on stream during April 2014. The 2013 production underperformance will have no impact on the ultimate recoverable reserves from the fi eld. By the end of 2013 the water-cut on the fi eld had reached around 50 percent. The fi eld's gross ultimate recoverable reserves have increased from 184 MMboe, at the time of the development
Edvard Grieg project operations control centre in Norway
plan approval, to 307 MMboe driven by better than expected reservoir performance coupled with two new infi ll wells drilled in 2011 and two further wells drilled in 2012. An additional three infi ll wells are scheduled to be drilled in 2014 and 2015 with the fi rst of these expected to come onstream in early 2015. The gross contingent resources associated with the Alvheim fi eld amounted to 41 MMboe at the end of 2013 and represent possible infi ll targets for future production wells. In January 2013, the Alvheim partnership was awarded additional acreage to the north of the Alvheim fi eld through the APA 2012 licensing round, adding growth potential to the asset through securing near-fi eld acreage to unlock additional drilling targets. The cost of operations for the Alvheim fi eld for 2013 was USD 5 per barrel excluding one-off project related costs.
The Volund fi eld (WI 35%) achieved average net production of 12,200 boepd during 2013. The production during 2013 exceeded expectations due to a combination of better than expected reservoir performance and Alvheim FPSO uptime. An additional Volund well commenced production in early 2013. Since commencing production in 2010 the reservoir performance from the Volund fi eld has exceeded expectations and as a result the gross reserves has increased from 50 MMboe at the time of submitting the plan of development for the fi eld to 66 MMboe at the end of 2013. During 2014 certain long-lead items will be ordered to progress plans for two new potential infi ll wells on the Volund fi eld which may be drilled during 2015. The cost of operations for the Volund fi eld during 2013 was below USD 2.5 per barrel.
First production from the Gaupe fi eld (WI 40%) was achieved in the fi rst quarter of 2012. Production from the Gaupe fi eld has been below forecast since the commencement of production. Technical analysis indicates that the two production wells are connected to lower hydrocarbon volumes than was forecast prior to production start-up due to compartmentalisation of the producing reservoir. Consequently the net reserves have been reduced to 0.2 MMboe and production is expected to cease in 2014.
| Working interest | 50% |
|---|---|
| Reserves MMboe, gross | 186 |
| Forecast gross peak production boepd | 100,000 |
The Edvard Grieg fi eld (WI 50%) was discovered by Lundin Petroleum in 2007 and the Norwegian Parliament approved the Edvard Grieg plan of development in June 2012.
The Edvard Grieg fi eld is estimated to contain 186 MMboe of gross reserves with fi rst production expected in late 2015 and forecast gross peak production of approximately 100,000 boepd. The gross capital cost of the Edvard Grieg fi eld development is estimated at NOK 25 billion (USD 4 billion) which includes the building of a production and processing platform, oil and gas pipelines and the drilling of 15 wells. Contracts have been awarded to Kværner covering engineering, procurement and construction of the jacket and the topsides for the platform. Rowan Companies has been awarded a contract for a jack up rig to drill the development wells and Saipem has been awarded the contract for marine installation. The development is progressing according to schedule and the construction work on the jacket which commenced in 2012 is ongoing and is scheduled to be completed and installed during the spring of 2014. During 2013 a plan for installation and operation (PIO) for the oil and gas export pipelines were submitted. The gas pipeline is scheduled to be installed during 2014 and the oil pipeline installation is scheduled in 2015. An appraisal well is currently being drilled in the southeastern part of the Edvard Grieg fi eld in early 2014 to target additional resources and ensure optimum development well placement.
The Edvard Grieg development plan incorporates the provision for the coordinated development with the nearby Ivar Aasen fi eld located in PL001B and operated by Det norske oljeselskap.
| Working interest | 90% |
|---|---|
| Reserves MMboe, gross | 23.1 |
| Forecast gross peak production boepd | 12,000 |
A plan of development for the Brynhild fi eld in PL148 (WI 90%) was approved by the Norwegian Ministry of Petroleum and Energy in November 2011. The Brynhild fi eld, developed as a subsea tie-back to the Pierce fi eld in the United Kingdom, contains estimated gross reserves of 23.1 MMboe and is expected to produce at an estimated gross plateau production rate of 12,000 boepd. All subsea installation work was completed during 2013 and the fi rst of four development wells reached fi nal target depth fi nding both the top of the reservoir and quality as expected. The Haewene Brim FPSO modifi cation and life extension work was substantially completed and the FPSO returned to its offshore location at the Shell operated Pierce fi eld in late 2013. The drilling of the remaining three development wells as well as the installation of a new production riser will be carried out during 2014. The fi eld is scheduled to come onstream in the second quarter of 2014. The gross capital cost for the Brynhild development is estimated at NOK 6.7 billion (USD 1.1 billion).
| Working interest | 15% |
|---|---|
| Reserves MMboe, gross | 22 |
| Forecast gross peak production boepd | 20,000 |
A plan of development for the Bøyla fi eld in PL340 (WI 15%) was approved by the Ministry of Petroleum and Energy in 2012. The Bøyla fi eld contains gross reserves of 22 MMboe and will be developed as a 28 km subsea tieback to the Alvheim FPSO. Development drilling is planned to commence in 2014 with production start for the Bøyla fi eld targeted in the fi rst quarter of 2015 at a gross plateau production rate of 20,000 boepd.
Lundin Petroleum discovered the Avaldsnes fi eld in PL501 (WI 40%) in 2010. In 2011, Statoil made the Aldous Major South discovery on the neighbouring PL265 (WI 10%) and following continuous appraisal drilling through 2011 it was determined that the discoveries were connected. In January 2012, the combined discovery was renamed Johan Sverdrup. Statoil, as the working operator for Johan Sverdrup, announced in late 2013 an updated gross contingent resource range for the entire fi eld of 1.8 to 2.9 billion boe with the resource predominately consisting of oil and thus ranking Johan Sverdrup in the top fi ve discovered oil fi elds in Norway in terms of size. In late 2013 a front end engineering and design (FEED) contract was awarded to Aker Solutions with a view to be in a position to submit a plan of development (PDO) by early 2015. A fi nal concept development decision was taken by the partners in February
I am responsible for our development and production operations in Norway
Erik Sverre Jenssen Chief Operating Officer, Norway
As employees are involved in all sectors of Lundin Norway's offshore activities, it is an important aspect of operations that the Company has measures in place to protect staff, contractors and the environment that they work in. More HSE information can be found in the Corporate Responsibilty section on pages 36–45
2014 having decided to develop the fi eld in multi phases, with the fi rst phase coming onstream in late 2019.
Due to Johan Sverdrup's size and lateral extension over a 200 km2 area, the fi eld will be developed in several phases and with multiple fi xed platform installations. Phase 1 of the development will contain the fi eld centre of four fi xed platform installations as well as additional subsea installations. The fi eld centre will consist of one processing platform, one riser platform, one wellhead platform with drilling facilities and one living quarter platform. The platforms will be installed on steel jackets in 120 metres of water and will be bridge-linked.
The fi rst phase of the development is scheduled to start production in late 2019 and is forecast to have a gross production capacity of between 315,000 and 380,000 boepd. It is anticipated that between 40 and 50 production and injection wells will be drilled to support Phase 1 production, of which 11 to 17 wells will be drilled prior to production start with a semisubmersible rig to facilitate Phase 1 plateau production.
The gross capital investment for Phase 1, which includes oil and gas export pipelines as well as a power supply from shore, is estimated at between NOK 100 to 120 billion, including contingencies and certain market allowances for potential future increases in market rates. The Phase 1 fi eld centre will also facilitate certain spare capacity for future phases and potential enhanced recovery. The licence partners are continuously evaluating options to optimise the level of investment for Phase 1.
The Johan Sverdrup oil and gas production will be transported to shore via dedicated oil and gas pipelines. A 274 km 36"oil pipeline will be installed and connected to the Mongstad oil terminal on the west coast of Norway. A 165 km 18" gas pipeline will be installed and connected to the Kårstø gas terminal for processing and onward transportation. The export pipelines are estimated to cost gross NOK 11 billion.
The discovery is of variable thickness of good quality sands. Appraisal wells have been drilled on both PL501 and PL265 that confi rm the oil water contact and the reservoir quality at each well location as well as the likely areal extent and distribution of the reservoir.
During 2013, a total of seven appraisal wells have been drilled on the fi eld giving a total of 20 wells drilled on the structure, six of which included sidetrack wells.
The Johan Sverdrup fi eld contains two major reservoir units of Jurassic age, the Draupne sandstone, also referred to as the Volgian sandstone, and the underlying Vestland group. The Draupne sandstone has excellent reservoir characteristics and contains the majority of the Johan Sverdrup resources. The Vestland group is still a very good quality reservoir with multi Darcy sands, characterised by more shaly intervals (lower net to gross) and is laterally more variable. The quality of the
seismic is suffi cient to allow accurate prediction of the reservoir top observed in most of the wells. The total Jurassic package thickness is variable throughout the fi eld.
In March 2014 one appraisal well was drilled on the Avaldsnes High in PL501 (WI 40%), encountering a 13 metres of oil fi lled excellent quality jurrasic reservoar and one well is currently drilling to the north of the Geitungen appraisal well 16/2-12 on PL265 (WI 10%).
The Johan Sverdrup resources not developed as part of Phase 1 will be developed through subsequent development phases. The scope and costs of further development phases has not yet been addressed by the Johan Sverdrup partners and will form the basis of later investment decisions.
Lundin Petroleum follows an exploration strategy of identifying core areas and taking a major position with material ownership and operatorship. Annual exploration programmes are then based around working these core areas as well as identifying new core areas.
The current core areas are:
New areas consist of:
In 2007, Lundin Petroleum found the key to the geological setting on the Utsira High area with the Luno discovery which has led to the Edvard Grieg development. Subsequent drilling on similar structures around the Utsira High area led to the Avaldsnes discovery (Johan Sverdrup) in 2010. The work carried out in the area aligned with a greater understanding of the geology has generated further prospects which will be drilled over the coming years.
During 2013, another discovery was made with the Luno II discovery in PL359 (WI 40%) on the southwestern corner of the Utsira High with an estimated 25 to 120 MMboe of gross contingent resources. Subsequently, the eastern segment of the Luno II discovery in PL410 was appraised in late 2013 but failed to prove hydrocarbons at that location. One additional appraisal well will be drilled in the centre of the Luno II discovery in 2014.
In addition to the Luno II well Lundin Petroleum drilled another three exploration wells on the Utsira High in 2013 with the Jorvik prospect on PL338 (WI 50%) discovering oil in tight reservoir rocks whilst the Biotitt well on PL544 (WI 40%) and the Torvastad well on PL501 (WI 40%) were dry.
Lundin Petroleum's exploration programme in 2014 on the Utsira High area consists of one exploration well targeting the Kopervik prospect.
Since 2007 Lundin Petroleum has accumulated one of the largest acreage positions in the Barents Sea, most of which is in the Loppa High region, close to Statoil's Johan Castberg discovery and Lundin Petroleum's own Gohta discovery. Lundin Petroleum has acquired 2,700 km2 of 3D seismic, drilled fi ve exploration wells resulting in two gas discoveries and one oil discovery in the area.
In 2013, Lundin Petroleum drilled one operated exploration well in the Barents Sea on PL492 (WI 40%) resulting in the Gohta discovery. The Gohta discovery is estimated to contain gross contingent resources of 111 to 232 MMboe and importantly proved an active Triassic source rock and a porous carbonate reservoir. Prior to the Gohta discovery, neither the Triassic/Upper permian oil source rock in the Loppa High region nor the carbonate reservoirs had been proven to work in the Barents Sea and therefore the Gohta discovery has far reaching consequences with respect to future exploration models in the area and could potentially upgrade the prospectivity for acreage which is on trend with the Gohta discovery such as PL609 (WI 40%) where Lundin Petroleum will drill the Alta prospect in 2014. One appraisal well is planned to be drilled on the Gohta discovery during 2014. The well on the Langlitinden prospect on PL659 (WI 20%) located on the southeastern fringe of the Loppa High in the Barents Sea has been completed encountering oil in tight reservoir and deemed non-commercial. Lundin Petroleum was awarded two additional operated licences in the Barents Sea during 2013, one through the 22nd Licensing round and one through the APA 2012 licensing round. In the APA 2013 licensing round, Lundin Petroleum was also awarded four new licences of which three are operated by the Company.
Lundin Petroleum drilled two wells in the southern North Sea in 2013. The Ogna well was drilled on PL453s (WI 35%) and the Carlsberg well was drilled on PL495 (WI 60%) and both wells were dry. No wells are planned to be drilled in this area during 2014. In the APA 2013 licensing round Lundin Petroleum was awarded two new licences in the southern North Sea.
The Albert well drilled on PL519 (WI 40%) in 2012 encountered oil in thin Cretaceous reservoir sequence but due to this and the uncertain distribution of the reservoir the discovery is currently deemed uncommercial. Further exploration activity is planned in this area in 2014 with the drilling of the Storm prospect in PL555 where Lundin Petroleum holds a 60 percent interest and is the operator.
Lundin Petroleum has built an acreage position around the Utgaard High area in the Norwegian Sea. The Utgaard High
Norway licence map showing core areas of operation
area is on trend with the prolifi c Halten and Donna terraces. In 2013, the Sverdrup prospect on PL330 (WI 30%) was drilled by the operator RWE Dea, however the well failed to encounter any reservoir and was plugged and abandoned as a dry hole. The area is currently being evaluated for further prospectivity.
In January 2013, Lundin Petroleum was awarded seven exploration licences in the APA 2012 licensing round with four licences awarded in the North Sea, two in the Norwegian Sea and one in the Barents Sea. A further licence was awarded in the Barents Sea in the 22nd licensing round in 2013. In January 2014, Lundin Petroleum was awarded nine exploration licences in the APA 2013 licensing round with fi ve licences in the North Sea and four in the Barents Sea.
Lundin Petroleum's exploration programme in Norway for 2014 will consist of six exploration wells for which drilling rigs have been secured.
| Utsira High Area | |||
|---|---|---|---|
| Edvard Grieg Field PL338 (WI 50%) |
Johan Sverdrup Field PL501(WI 40%) and PL265 (WI 10%) |
Utsira High Exploration | |
| · Edvard Grieg (Luno) discovery in 2007 · Tellus discovery in 2011 · Edvard Grieg/Tellus net reserves 93 MMboe · Edvard Grieg/Tellus PDO approved in 2012 and development commenced · Production start targeted in Q4 2015 · Edvard Grieg appraisal well currently drilling |
· Johan Sverdrup discovered in 2010 on PL501 and in 2011 on PL265 · 20 wells drilled on the discovery to date · Gross contingent resource estimate by Statoil (working operator) 1.8–2.9 billion boe · Resources on PL501, PL265 and PL502 to be unitised · FEED contract awarded · Phase 1 concept selected · Field unitisation to be completed by PDO submission date · PDO approval Q2 2015 · Production start end 2019 |
· 1 exploration well planned to be drilled in the Utsira High Area during 2014 – PL625 (WI 40%), Kopervik prospect |
|
| Greater Alvheim Area | |||
| Alvheim Field (WI 15%) |
Volund Field (WI 35%) |
Bøyla Field (WI 15%) |
|
| · Net reserves 21.7 MMboe · Gross ultimate recovery 307 MMboe · 2013 net production 10,500 boepd · 15 producing wells, 9 multilaterals · 3 new infi ll wells to be drilled in 2014–2015 · Ownership of the Alvheim FPSO |
· Net reserves 7.8 MMboe · Gross ultimate recovery 66 MMboe · 2013 net production 12,200 boepd |
· Bøyla discovery in 2009 · Caterpillar discovery in 2011 · PDO approved in 2012 · Net reserves 3.3 MMboe · Production start targeted in Q1 2015 |
|
| Barents Sea Area | |||
| Gohta Discovery PL492 (WI 40%) |
Barents Sea Discoveries | Barents Sea Exploration | |
| · Gohta discovery in 2013 · Discovery tested 4,300 boepd · Gross contingent resources 111–232 MMboe · Gohta appraisal planned in 2014 |
· PL438 (WI 25%) Skalle gas discovery in 2011 · PL533 (WI 20%) Salina gas discovery in 2012 |
· 1 exploration well planned to be drilled in the Barents Sea Area during 2014 – PL609 (WI 40%) Alta prospect |
|
| Other Areas | |||
| Brynhild Field PL148 (WI 90%) |
Gaupe Field (WI 40%) |
Other exploration | |
| · Net reserves 23 MMboe · PDO approved 2011 · Production start targeted in Q2 2014 |
· Net reserves 0.2 MMboe · 2013 net production 1,200 boepd · Field is expected to cease production in 2014 |
· 3 further exploration wells are planned to be drilled during 2014 – PL584 (WI 60%) Lindarormen prospect |
– PL631 (WI 60%) Vollgrav prospect – PL555 (WI 60%) Storm prospect
The Barents Sea lies off the northern coast of Norway. Contrary to common perception, the southern portion of the Barents Sea, where Lundin Petroleum's exploration licences are situated offers a relatively benign operating environment. Water depths are relatively shallow and the area is ice free due to the infl uence of the Gulf Stream. The Norwegian Petroleum Directorate (NPD) estimates that the undiscovered resource potential of the Norwegian Barents Sea is between 3.2 and 17.7 billion boe. The Barents Sea has been under explored relative to the Norwegian Sea and the North Sea with fewer than 100 exploration wells drilled.
The fi rst exploration wave in the Barents Sea came after the NPD conducted a strategic mapping exercise of the hydrocarbon potential on the Norwegian shelf. That exercise resulted in a gradual opening of the Norwegian Sea and the Barents Sea in the period between 1979 and 1982. Both areas were considered to contain a diversity of play types and petroleum systems. The NPD's assessment of the resource potential in the Norwegian Sea was predominantly oil prone with some gas. In contrast, the Barents Sea was considered predominantly gas prone by the NPD with some oil potential. The major oil companies held a different view. Their focus was on the Barents Sea, where they saw predominantly oil potential. Following an initial drilling campaign in both areas, a series of oil and gas discoveries were made in the Norwegian Sea and a major gas discovery, Snøhvit, was made in the Barents Sea.
A second wave of exploration came from the strategic concession licensing round in 1986/1987 where the focus was on a series of large structures identifi ed in the Barents Sea. A number of dry wells with some minor oil shows resulted from this second wave of exploration. Following this, a consensus formed within the major oil companies who believed: "Too late, the oil has leaked out during the uplift and the ice age."
A third exploration wave came from within large concessions that were awarded with substantial follow up acreage in case of breakthroughs. Limited commercial success followed, with only minor discoveries made. The exception was the very positive Goliath oil discovery.
The fourth exploration wave started in 2004 with the inclusion of the Barents Sea in the APA licensing rounds, combined with the introduction of new players into Norway. The result so far has been a number of very promising discoveries including Johan Castberg, Wisting and Gohta. These breakthroughs have arisen through the application of new 3D seismic data combined with the creative thinking of geoscience experts seeking to unlock new play concepts.
Lundin Petroleum's licences in the Barents Sea Area
From left to right: Trond Kristensen – Senior Geophysicist, Terje Kollien – Senior Petrophysicist, Jon Halvard Pedersen – Petroleum System Analyst, Harald Brunstad – Senior Geologist, Hans Christen Rønnevik – Exploration Manager
It is our job to gather and interpret new and old Barents Sea Area data, generate geological models and identify leads and prospects for drilling
Barents Sea Subsurface Team, Norway
Lundin Petroleum has been active in the Barents Sea for many years with applications and awards starting with the APA 2006 licensing round. Within Lundin Petroleum, the Barents Sea is considered a very promising exploration area comparable in size with the North Sea. Following the same successful strategy applied on the Utsira High with the discovery of the Edvard Grieg and Johan Sverdrup fi elds, Lundin Petroleum has established a core area around the southern part of the Loppa High. The reason for the focus on the Loppa High is a belief that this area has one of the highest chance for new oil and gas accumulations.
The recent oil discoveries Johan Castberg, Gohta and Wisting have confi rmed this belief and consequently new opportunities are opening up as a result. The Johan Castberg discovery was made in 2011 by Statoil in PL532. A distinct direct hydrocarbon indicator was targeted and the well proved oil and gas in early to middle Jurassic sandstones of the Stø and Nordmela formations, with a gas-oil contact at 1,312 metres. The Gohta discovery was drilled in 2013 by Lundin Petroleum in PL492. The discovery well confi rmed the presence of oil and gas in late Permian carbonate and siliciclastic rocks at around 2,300 metres. The Wisting discovery was drilled in 2013 by OMV in PL537. That well found non-biodegraded oil in Jurassic sandstones at only a few hundred metres below the sea fl oor. These recent oil discoveries have provoked a new wave of interest for exploration in the Barents Sea area. The Gohta discovery opens up a new oil play on the Loppa High – late Permian rocks exposed to weathering processes around 250 million years ago. This play is likely to be present along the Loppa High crest. It may also be present in other places in the Barents Sea where late Permian rocks have been exposed and porosity and permeability developed due to weathering.
The "fresh" oil found in reservoirs at shallow depths in the Johan Castberg and Wisting discoveries suggest that oil charge has occurred relatively recently, perhaps even during the most recent episodes of glaciation. If this is confi rmed, it will signifi cantly reduce the risk of hydrocarbon leakage through time. In addition, shallow reservoirs may exhibit good reservoir properties as a result of limited burial and sandstone diagenesis. This play may extend along the western margin of the Loppa High and northwards into the Hoop fault complex area.
PL492 was awarded to Lundin Petroleum in 2008. The main prospect in the licence, Gohta, was a large Permian four way structural closure. An exploration well was drilled down fl ank on the structure by Shell in 1986. The well had oil shows, however, the Permian carbonate reservoir was too tight to fl ow any fl uids. Later detailed evaluation of the structure by Lundin Petroleum with the use of modern 3D seismic revealed that updip from the well the Permian carbonates had been exposed to erosion and thereby rain water. Rain water was slightly acidic in the Permian era leading to partial dissolution of the carbonates, known as karstifi cation. The result is that a tight carbonate rock can be transformed into a porous reservoir rock. The Gohta exploration well was drilled by Lundin Petroleum in 2013 to test this concept and it proved to be correct. A successful drill stem test (DST) was conducted, fl owing more than 4,000 barrels of non-degraded oil per day through a 44/64 choke. An appraisal well is planned for 2014, to investigate the areal extent of the karstifi cation.
After a long-standing dispute, the Norwegian and Russian authorities agreed on the border line between Norway and Russia in 2010. The Norwegian government has announced that the acreage in the Barents Sea bordering to Russia will be made available for exploration in the upcoming 23rd licensing round with licence awards expected in 2015. A group of companies, including Lundin Petroleum, committed to shoot advanced 3D seismic over the acreage to be offered for licensing in the 23rd Licensing round.
Bertam field surface layout – FPSO and wellhead platform
Lundin Petroleum's Bertam field, the first development in its South East Asia core area will start production in 2015.
Since entering Malaysia in 2008, Lundin Petroleum has grown its position to the point where the Company is now the second largest acreage holder after Petronas. In total the Company holds six Production Sharing Contracts (PSCs) in Malaysia and six PSCs in Indonesia. As in Norway, Lundin Petroleum is pursuing an organic growth strategy in South East Asia. In recent years Lundin Petroleum has been successful in Malaysia in making several gas discoveries and one commercial oil discovery. During 2014, three exploration wells are planned to be drilled and one appraisal well will be drilled on the Tembakau gas discovery made in late 2012. The Bertam oil fi eld offshore Peninsular Malaysia is being developed and the fi eld is planned to commence production during 2015.
Lundin Petroleum's assets in South East Asia are located offshore Malaysia and offshore and onshore Indonesia. Lundin Petroleum's assets offshore Malaysia consist of approximately 34,000 km2 of exploration acreage, four gas discoveries and three oil discoveries. The Indonesian assets consist of
approximately 23,000 km2 of exploration acreage and one producing fi eld onshore Sumatra.
Since completing its ten well exploration drilling programme offshore Malaysia in 2011 and 2012, Lundin Petroleum has at the end of 2013 discovered 13.7 MMboe of net reserves and 82 MMboe of net contingent resources. Lundin Petroleum operates in two core areas in Malaysia.
Lundin Petroleum holds four PSCs offshore Peninsular Malaysia and has drilled six exploration wells in the area resulting in two oil discoveries, Janglau and Ara, confi rmed one existing oil discovery, Bertam, and made one gas discovery, Tembakau.
In 2013 Lundin Petroleum received development plan approval for the Bertam oil fi eld on Block PM307 (WI 75%). The Bertam oil fi eld is Lundin Petroleum's fi rst development project in Malaysia. The fi eld contains net reserves of 13.7 MMboe and it will be developed with an unmanned wellhead platform producing to the FPSO which is owned by Lundin Petroleum. The contract for the wellhead platform was awarded to TH Heavy Engineering (THHE) in 2013 and platform construction commenced at THHE's yard in Pulau Indah in late 2013. Keppel was awarded the contract to refurbish the FPSO and this work
My job is to supervise all subsurface issues related to petroleum engineering for the South East Asia assets, including resource, production and new business evaluation
Head of Petroleum Engineering, Malaysia
commenced at Keppel's shipyard in Singapore in 2013. The drilling of 13 development wells will commence in 2014 and will continue into 2015. Bertam is expected to come onstream in the second quarter of 2015 and gross plateau production of 15,000 bopd is also expected to be reached in 2015. The Tembakau gas discovery, which is also located in Block PM307, will be appraised during 2014.
The Tembakau discovery is currently estimated to contain 306 bcf (51 MMboe) of gross contingent gas resources and the appraisal well has the objective to prove additional gas within the structure. Tembakau is believed to be a commercial gas discovery given its proximity to the east coast of the Peninsular of Malaysia and given that Peninsular Malaysia gas demand growth is projected to outpace gas production from offshore Peninsular Malaysia.
Block PM308A (WI 35%) contains the Janglau, Ara and Rhu discoveries in Oligocene oil sands. Due to the reservoir characteristics and their limited size none of these discoveries are currently deemed to be commercial.
In December 2012, Lundin Petroleum announced the award of a new PSC offshore Peninsular Malaysia. Block PM319 is operated by Lundin Petroleum with an 85 percent working interest with Petronas Carigali holding a 15 percent working interest. The Block covers an area of approximately 8,400 km² and is located west of Block PM307.
Lundin Petroleum holds two PSCs offshore Sabah in east Malaysia. Lundin Petroleum has drilled four exploration wells offshore Sabah in east Malaysia since 2011 resulting in three gas discoveries, Tarap, Cempulut and Berangan.
Block SB303 (WI 75%) contains the Tarap, Cempulut, Berangan and Titik Terang gas discoveries with an estimated gross contingent resource of more than 340 bcf (57 MMboe). Lundin Petroleum continues to evaluate the potential for commercialisation of these gas discoveries, most likely through a cluster development. A number of possible development solutions are being evaluated as part of the gas commercialisation studies.
An acquisition of 500 km² of new 3D seismic in Block SB307/308 (WI 42.5%) was completed during 2012 and from this data Lundin Petroleum has high graded a number of prospects. Two of these prospects, located on trend with the currently producing Shell fi elds SF30 and South Furious, will be drilled in 2014. During 2013 a further 462 km2 of new 3D seismic was acquired in the southwest of Block SB307/308.
Lundin Petroleum has an active sustainable investment programme in South East Asia through direct Company investment and through its partnership with the Lundin Foundation. See Sustainable Investments on pages 43–45 for more information.
Lundin Petroleum has a 25.88 percent ownership in the onshore gas producing fi eld Singa, onshore Sumatra. The fi eld produced close to expectations during 2013. The current PSC expires in 2017 and the reserves associated with the fi eld do not extend beyond 2017. Lundin Petroleum has booked additional contingent resources on Singa which will be converted to reserves if and when the PSC expiry date is extended. In early 2014 a new gas sales agreement was put in place for the Singa fi eld resulting in an increased gas sales price of USD 7.97 per million British Thermal Units (MMbtu) compared to the previous price of USD 5.2 per MMbtu.
Lundin Petroleum has four PSCs in the Natuna Sea area with a 90 percent operated working interest: Cakalang, Baronang and the Gurita PSCs. Lundin Petroleum farmed-out a ten percent interest in Cakalang, Baronang and the Gurita PSC to Nido Petroleum in 2013. In addition, the Company operates the South Sokang PSC with a 60 percent working interest. Three exploration wells were planned to be drilled in Indonesia during 2014, two on the Baronang PSC and one on the Gurita PSC. The two wells on the Baronang PSC were completed in February and March 2014. Both wells encountered good quality reservoirs but neither well found any hydrocarbons.
During 2013 Lundin Petroleum agreed with SKKMigas to swap its Sareba Block with the 5,545 km2 Cendrawasih VII Block (WI 100%) offshore east Indonesia. The block contains an undeveloped Pliocene gas discovery and has 950 km2 of 3D seismic which was shot in 2009. Lundin Petroleum plans to reprocess the 3D seismic survey ahead of deciding upon a possible exploration drilling programme.
My job is to integrate all subsurface data for the Indonesian licences including seismic and well data
Geoscientist, Indonesia
| Offshore Peninsular Malaysia | Offshore Sabah – East Malaysia |
|||
|---|---|---|---|---|
| Malaysia Key Data Reserves (MMboe) Contingent resources (MMboe) |
2013 13.7 82 |
2012 12.7 82 |
· PM307 (WI 75%) Bertam fi eld – Net reserves 14 MMboe – Field development plan approved in 2013 – Facilities installation and pre-drilling in 2014 – First oil expected Q2 2015 · PM307 (WI 75%) Tembakau gas discovery in 2012 · Tembakau appraisal well in 2014 · PM307 (WI 75%) one exploration well on Rengas prospect in 2014 |
· SB303 (WI 75%) 4 existing gas discoveries on Block – possible cluster development · SB307/308 (WI 42.5%) 2 exploration wells planned for 2014 – Kitabu and Maligan prospects |
| Indonesia | ||||
| Indonesia Exploration and Production | ||||
| Indonesia Key Data Reserves (MMboe) Contingent Resources (MMboe) Average production per day (Mboepd) Net Turnover (MUSD) Sales price achieved (USD/boe) Cost of operations (USD/boe) Operational cash fl ow contribution (USD/boe) |
2013 2 3 2 17 33 9 24 |
2012 3 3 1 11 32 15 13 |
· Lematang (WI 25.9%) Singa gas fi eld – net reserves 1.9 MMboe · Baronang/Cakalang (WI 90%) 2 exploration wells drilled in 2014 on the Balqis/ Boni prospects. Option exercised by Nido Petroleum to increase its stake in the Baronang PSC from 10% to 15%, awaiting SKKMigas approval · Gurita (WI 90%) One exploration well planned in 2014 on the Gobi prospect · South Sokang (WI 100%) 1,000 km2 · Cendrawasih VII (WI 100%) acquired offshore east Indonesia in a swap with the Sareba Block |
3D seismic acquired |
Grandville field, Paris Basin France
Lundin Petroleum continues to search for opportunities to extend the life of its mature assets in France and the Netherlands that provides the Company with stable oil and gas production. Given the favourable fi scal regimes for upstream activity in France and the Netherlands, the Company has the incentive to continue to invest with the purpose of maintaining the strong operating cash fl ow generated by these assets.
The French assets consist of mature onshore oil producing fi elds in the Paris Basin operated by Lundin Petroleum and mature onshore oil producing fi elds in the Aquitaine Basin operated by Vermilion. The Dutch assets consist of mature onshore and offshore gas producing fi elds operated by Vermilion, GDF Suez, Oranje-Nassau Energie and Total.
The French and Dutch assets were acquired through a corporate acquisition of Coparex in 2002. The combined net reserves at the time of acquisition was around 32 MMboe and the net cumulative production from the date of acquisition up to the end of 2013 was 23.2 MMboe. The remaining net reserves at the end of 2013 was 25.9 MMboe demonstrating that a signifi cant portion of the produced volume has been replaced with additional reserves through a pro-active infi ll drilling and reservoir management strategy. The French assets also contain contingent resources of 12.8 MMboe net to Lundin Petroleum. During the course of 2013 the Grandville (WI 100%) redevelopment in the Paris Basin was going through a production ramp-up phase and towards the end of 2013 the production from the redevelopment had reached record production levels. Following the success at the Grandville fi eld the Company plans to commence redevelopment of the Vert la Gravelle fi eld during 2014.
The gas production in the Netherlands during 2013 was stable and the production performance was in line with forecast. During 2014 four development wells and fi ve exploration wells are planned to be drilled.
FRANCE ULTIMATE RECOVERABLE RESERVES
It is my job to measure the quality of produced oil and water from our facilities in the Paris Basin region
Guy Rossi Quality Control Engineer, France
| France Key Data | 2013 | 2012 |
|---|---|---|
| Reserves (MMboe) | 23 | 24 |
| Contingent Resources (MMboe) | 13 | 13 |
| Average production per day (Mboepd) | 3 | 3 |
| Net Turnover (MUSD) | 112 | 118 |
| Sales price achieved (USD/boe) | 107 | 110 |
| Cost of operations (USD/boe) | 28 | 23 |
| Operational cash fl ow contribution (USD/boe) | 55 | 61 |
· Redevelopment of the Grandville (WI 100%) completed in 2012 The redevelopment production ramp-up has progressed as expected during 2013
· Exploration well on the Amaltheus prospect (WI 100%) completed as a discovery and the well was put on long-term production test in late 2012
· One exploration well to be drilled in 2014 on the Est Champagne licences targeting the Hoplites–1 prospect (WI 100%)
· Commencement of Vert la Gravelle redevelopment in 2014
| Netherlands Key Data | 2013 | 2012 |
|---|---|---|
| Reserves (MMboe) | 3 | 4 |
| Average production per day (Mboepd) | 2 | 2 |
| Net Turnover (MUSD) | 50 | 55 |
| Sales price achieved (USD/boe) | 64 | 60 |
| Cost of operations (USD/boe) | 16 | 15 |
| Operational cash fl ow contribution (USD/boe) | 18 | 52 |
· Vinkega–2 exploration well completed as a gas discovery on the Gorredijk concession (WI 7.75%) in 2012 and put into production during 2013
In the Lagansky Block (WI 70%) in the northern Caspian a major oil discovery, Morskaya, was made in 2008. In October 2013, Lundin Petroleum announced a Heads of Agreement with Rosneft whereby Rosneft will acquire a 51 percent shareholding in LLC PetroResurs which owns a 100 percent interest in the Lagansky Block. Following the completion of this transaction, Lundin Petroleum will have a 34.3 percent effective interest in the Lagansky Block. It is expected that the Rosneft acquisition will be completed in the fi rst half of 2014.
In September 2013, the Russian president signed into law a change on taxes regarding offshore hydrocarbon extraction activities in order to incentivise offshore developments, including the Caspian Sea. The major change involved export duty which was reduced to zero for the period until 31 March 2032 (compared to a previous rate which ranged from 55 to 65 percent). The previous oil mineral extraction tax (MET) subsidy was eliminated as part of the changes, partially compensated by a reduced rate of 15 percent for seven years from the date of commercial production. The change provides an uplift in value for qualifying fi elds, particularly important for Lundin Petroleum's interest in the Morskaya fi eld.
| Russia Key Data | 2013 | 2012 |
|---|---|---|
| Reserves (MMboe) | 6 | 7 |
| Contingent Resources (MMboe) | 110 | 110 |
| Average production per day (Mboepd) | 5 | 5 |
| Net Turnover (MUSD) | 128 | 152 |
| Sales price achieved (USD/boe) | 78 | 77 |
| Cost of operations (USD/boe) | 14 | 13 |
| Operational cash fl ow contribution (USD/boe) | 9 | 10 |
· 3 non-operated producing assets in the Komi region in northern Russia (WI 50%)
Lundin Petroleum takes into consideration the potential impact on people and the environment in all its strategic decisions and field activities.
Lundin Petroleum is committed to carry out its worldwide operations in a responsible manner. This means that both strategic decisions and fi eld activities take into consideration potential impacts on people and the environment. Lundin Petroleum has developed a CR framework that establishes systems and procedures to protect the health, safety and security of its stakeholders as well as the environment. The commitments to responsible corporate citizenship by which the Company is guided are set out in Lundin Petroleum's Code of Conduct. The Company's Policies, Guidelines and Management System further detail how each operating unit must implement the CR principles in their activities. CR is an evolving fi eld which requires continuous improvement. This means seeking to achieve social, environmental and economic benefi ts simultaneously.
At the beginning of 2013 Lundin Petroleum underwent a third party assessment of its CR framework and practice to confi rm its alignment with industry best practice. Lundin Petroleum's CR Management System was audited by Ernst & Young Sweden. The main fi ndings were that "Lundin Petroleum has leading management systems relating to their material areas – Health, Safety and Environment (HSE)" and that the maturity levels of other CR areas were Established to Advanced. The third party audit fi ndings and recommendations guided Lundin Petroleum in the process of reinforcing its CR management throughout the year.
In 2013 Lundin Petroleum developed Human Rights Guidelines to operationalise the Policy it adopted further to the Board of Directors' endorsement of the United Nations Guiding Principle on Business and Human Rights. The Guidelines were developed in accordance with stakeholder recommendations, including the European Commission's Oil and Gas Sector Guide on Implementing the UN Guiding Principles. The Guidelines formalise the human rights due diligence process and requires that human rights risk assessments be conducted in countries of operations on a regular basis and, where relevant, to be followed up with further studies or measures.
In 2013, Lundin Petroleum formalised a long standing practice of open and constructive dialogue with stakeholders; the people and organisations which may be affected by or infl uence the Company's activities. Lundin Petroleum has a wide range of stakeholders such as shareholders, employees, governments, local communities, business partners, industry groups, NGOs, international organisations, academics and media. The Guidelines set up a process to ensure that the Company is aware of and manages effectively stakeholder issues.
In 2013, Lundin Petroleum rolled out a Corporate Responsibility Management System Audit, a process to ensure its Code of Conduct commitments, namely human rights, anti-corruption, labour standards, environment, sustainable investments and stakeholders are respected throughout the Group. The audit covers all elements of its CR Framework except Health and Safety which are subject to a separate audit, environmental
Objectives for 2014:
issues being included in both processes. A fi rst round of management system reviews was conducted in all operating areas in 2013.
While Lundin Petroleum's main focus remains on implementing Corporate Responsibility within the Group, it engages with international initiatives relevant to the Company's commitments. Thus, in 2013, Lundin Petroleum became a supporting member of the Extractive Industries Transparency Initiative (EITI).
In 2013 Lundin Petroleum entered into a partnership with the Lundin Foundation in order to increase the scale and impact of Lundin Petroleum's sustainable investments. For more information see pages 43–45.
My job is to ensure that wherever we operate we abide by the same high CR standards
Vice President Corporate Responsibility
The purpose of a Health, Safety and Environmental (HSE) management system (the Green Book) is to prevent accidents or incidents with an impact on people, environment and/or assets. The Company undertakes risk assessments and uses Key Performance Indicators (KPIs) as an HSE management tool, focusing not only on areas where incidents have already occurred, but where they could potentially occur in the future. Sharing experiences, lessons learned and best practice is also important and takes place informally within the Group on an ongoing basis and formally through bi-monthly HSE teleconferences and management visits to operations.
Since the Company was created, there have been no work-related fatalities in its operations. In 2013, Lundin Petroleum's overall KPIs improved over previous years. The Lost-Time incidents were of a minor nature without a permanent impact on the people concerned. There were no reportable oil spills throughout the Group and as for the chemicals spills, they involved small amounts of nonhazardous chemicals (a fraction of the volumes reported in the HSE Indicator Data table below).
| HSE Indicator Data | 2013 | 2012 | 2011 | 2010 | 2009 5 | |
|---|---|---|---|---|---|---|
| Employees | 960,508 | 909,196 | 1,036,831 | 731,793 | 905,166 | |
| Exposure Hours | Contractors | 2,074,824 | 1,561,482 | 2,354,452 | 2,336,409 | 3,454,980 |
| Employees | 0 | 0 | 0 | 0 | 0 | |
| Fatalities | Contractors | 0 | 0 | 0 | 0 | 0 |
| Employees | 2 | 2 | 3 | 2 | 2 | |
| Lost Time Incidents 1 | Contractors | 4 | 5 | 3 | 2 | 1 |
| Employees | 0 | 0 | 0 | 0 | 1 | |
| Restricted Work Incidents 2 | Contractors | 0 | 0 | 3 | 7 | 0 |
| Employees | 0 | 1 | 1 | 0 | 2 | |
| Medical Treatment Incidents 3 | Contractors | 2 | 0 | 4 | 17 | 7 |
| Employees | 0.42 | 0.44 | 0.58 | 0.55 | 0.44 | |
| Lost Time Incident Rate 4 | Contractors | 0.39 | 0.64 | 0.25 | 0.17 | 0.06 |
| Total Recordable Incident Rate 4 Employees | 0.42 | 0.66 | 0.77 | 0.55 | 1.10 | |
| Contractors | 0.58 | 0.64 | 0.85 | 2.23 | 0.46 | |
| No. | 0 | 2 | 7 | 1 | 1 | |
| Oil Spills | Vol. (m3 ) |
0 | 4 | 33 | 10 | 40 |
| No. | 7 | 1 | 2 | 1 | 2 | |
| Chemical Spills | Vol. (m3 ) |
59.37 | 1.75 | 3.50 | 7.70 | 129.78 |
| No. | 0 | 0 | 0 | 0 | 1 | |
| Hydrocarbon Leaks | Mass (kg) | 0 | 0 | 0 | 0 | 4 |
| Near Misses with High Potential No. | 2 | 5 | 3 | 3 | 24 | |
| Non-compliance with Permits/Consents |
No. | 0 | 0 | 0 | 6 | 19 |
5 Includes United Kingdom.
The safety of our employees and contractors is our highest priority and we focus on means to minimise our environmental footprint while exploring options to increase energy efficiency
C. Ashley Heppenstall President and CEO
Health, Safety and Environment is a priority in our business. In 2013 additional emphasis was placed on HSE management during development operations as well as contractor evaluations. HSE management system reviews were carried out on the Bertam Project in Malaysia and the Brynhild Project in Norway. In addition to assessing management of contractor performance, on-site visits were conducted at two shipyards in Singapore to evaluate the HSE practice of contractors.
While HSE is integrated in many different ways in daily operations, the following concrete examples illustrate how HSE managers and their teams promote HSE stewardship throughout the Group.
A three-day meeting took place in October in Kuala Lumpur and Singapore with Lundin Petroleum HSE managers. The purpose of the meeting was to discuss implementation of the Group HSE strategy, as well as challenges and opportunities related thereto. Given that HSE is a fundamental part of risk management, a special session was held on risk, where HSE managers shared methods of identifying, preventing and managing risks within their respective operations.
On its third day the team visited the Keppel and Jurong shipyards in Singapore where the FPSO is being modifi ed for the Bertam fi eld offshore Malaysia and the Flotel destined for the Edvard Grieg fi eld is being built. The purpose of these site visits was to ensure contractors and suppliers adherence to Lundin Petroleum's CR and HSE expectations.
The team also visited Oil Spill Response to familiarise themselves with the equipment that would be called upon in the event of an incident and to meet face to face the people who would assist the Company in such a case.
"The HSE meeting in South East Asia was the fi rst of its kind within the Group. It offered the opportunity to share best practice regarding HSE and Risk Management and provide feedback on everyone's activities and documentation. Further positive outcomes are strengthened relationships between HSE managers of different regions."
Bernt Rudjord, HSE Manager, Lundin Norway
Lundin Petroleum is committed to ensure safety not only of its employees but of any one working for the Company. Contractor performance from an HSE perspective is evaluated during the contractor selection process as well as through inspections once contractors have been awarded a task.
Employees and contractors who work in the Company's operational premises undergo an HSE induction course.
In the fall, Lundin France convened 55 key contractor companies for an HSE awareness day. A total of 64 persons participated in the event during which the Company restated its HSE expectations and participants shared best practice.
It is important for Lundin Petroleum to communicate with its stakeholders, people and organisations which are impacted by or impact the Company. In its Code of Conduct, Lundin Petroleum identifi es its main stakeholders to be its shareholders, employees, host countries, local communities and society at large and those continue to be the focus of the Company's attention. In 2013, Lundin Petroleum developed a formalised process of stakeholder engagement which will be rolled out throughout the Group in 2014. The type and frequency of engagement differs among stakeholders according to the need and opportunity for engagement.
Shareholders are informed of Lundin Petroleum's strategy and ongoing activities through public disclosure in the form of fi nancial reports, press releases and through the website. The Company also engages with shareholders in individual or joint meetings and at the Annual General Meeting. In November 2013, Lundin Petroleum organised a site visit to French operations for a number of institutional shareholders to offer them a better understanding of means put in place to run operations in a sustainable and safe manner.
Engagement with staff takes place on a daily basis throughout the Group. In addition, senior management visits country offi ces. Training sessions, audits and individual meetings to discuss corporate responsibility issues in practice are held in the countries of operations.
Contact with host governments take place prior to the acquisition of a licence and the engagement with host governments at national and local level continues throughout the lifetime of an oil and gas asset.
Engagement with local communities takes place on the occasion of socialisation programmes, town hall meetings or local events held in the countries of operations.
Lundin Petroleum also engages with a variety of organisations such as NGOs, International Initiatives and Industry Groups in different forums. In 2013 Lundin Petroleum participated in events dedicated at promoting responsible business practice such as the EITI Global Conference, the Global Compact Leaders' Summit, the UN Forum on Business & Human Rights, the French Industrial Petroleum Union and the Norwegian Oil and Gas Association.
Lundin Petroleum also seeks to contribute to the better understanding of the importance and impact of Corporate Responsibility in its operations and to the sector by participating as speaker or panelist in conferences or workshops which also offer the opportunity to meet experts in relevant corporate responsibility fi elds. One such conference was organised by the International Council on Swedish Industry and the Geneva Peacebuilding Platform on the subject of Leadership in Complex Markets.
"I appreciate Lundin Petroleum's invitation to visit the operations in France. The fi eld visit gave me a better understanding of how the operations are run and how sustainability issues are integrated into the daily work. During the visit I got the opportunity to discuss environment, health and safety with the local team. My impression is that the employees take sustainability issues seriously and that the operations in France are wellmanaged as concerns environmental issues as well as health and safety."
Helena Larson Swedbank Robur
"I was delighted to begin my professional life as an intern at Lundin France, a company that conducts its activities with a high level of professionalism and in a family atmosphere. I decided to join Lundin Norway to expand my professional horizons. Although the organisation is much larger than in France, I was happy to fi nd the same family spirit. I truly believe this is the case wherever Lundin Petroleum operates in the world."
Ophélie Durand Geologist at Lundin Norway
"I highly appreciate Lundin Norway's positive contribution to our local community. As the host municipality for Lundin Norway, we value its contribution and positive efforts towards our younger students, teachers and others who always like to learn more about the oil and gas industry. They share knowledge and competence in a way we all can learn from. As an employer, they are highly professional."
Mayor Lisbeth Hammer Krog Bærum Municipality, Norway
"A sustainability leader among mid-sized peers – Lundin Petroleum is a leader among its mid-sized peers in terms of reporting on and reducing its environmental impact, with its focus on synergies between economic and environmental sustainability. Lundin Petroleum is in the top tier of oil companies indexed by the Carbon Disclosure Project (CDP) for transparency and performance in reducing greenhouse gas emissions. Corporate sustainability is well integrated within the organisation."
Anne Gjøen Head of Equity Research and Energy, Handelsbanken
"CDP Nordic offi ce is pleased that Lundin Petroleum continues to commit to improving their disclosure on climate change in response to the growing call from investors for greater corporate climate accountability".
Amanda Haworth CDP Nordic
MSCI ranked Lundin Petroleum AA in its 2013 Intangible Value Assessment for its Environmental, Social & Governance (ESG) performance.
STOXX included Lundin Petroleum for the third consecutive year in its STOXX® Global ESG Leaders Indices.
ISS attributed to Lundin Petroleum a Governance Risk score of 2 on a scale of 1 to 10, 1 indicating a low governance risk.
The United Nations Global Compact
Human Rights
Lundin Petroleum continues to promote environmental protection and awareness throughout its operations. The local operations assess potential effects of projects through baseline and environmental impact studies and contingency plans, and also support or take part in initiatives promoting environmental stewardship. Climate Change is an important issue for Lundin Petroleum; for the fi fth consecutive year the Company has disclosed its climate change strategy and greenhouse gas emissions to the Carbon Disclosure Project (CDP). In 2013, it was ranked third among Nordic energy companies. The Company also adopted a new Climate Change Statement – emphasising its commitment to seek energy effi ciency measures to reduce its carbon footprint – and became a CDP supporting company.
Lundin Petroleum has committed in its Code of Conduct to respect and protect employees' rights, including freedom of association and the right to collective bargaining. It ensures equal opportunity without discrimination on the basis of age, culture, disability, gender, race, religion, etc. by selecting candidates based on their competence and qualifi cations to perform the job. Every country of operations has a formal induction process in order to familiarise new employees with their rights and responsibilities and with Lundin Petroleum's Code of Conduct and Corporate Responsibility Policies. In 2013 the Vice President Corporate Responsibility held individual discussions on International Labour Organisation Standards with Human Resource Managers throughout the Group in order to ensure that these procedures are fully integrated in practice. A CR handbook containing all the CR policies and guidelines was made available to staff worldwide. Robust processes for contractor selection and evaluation ensure that there is no child or other forms of forced labour in relation to Lundin Petroleum's worldwide operations.
through the adoption of Human Rights Guidelines. Employees in France, Indonesia, Malaysia, Norway and Switzerland were trained on the Company's Human Rights Policy & Guidelines. Lundin Petroleum participated in the second annual Forum on Business and Human Rights at the UN in Geneva in order to learn about the challenges of implementing the Guiding Principles, to exchange views and opinions on current best practices and to engage with human rights experts and stakeholders. Anti-Corruption
The UN Global Compact is an initiative of the United Nations (UN) to encourage businesses and other actors in society to adopt sustainable and socially responsible practices by endorsing and reporting on the implementation of Ten Principles covering Human Rights, Labour Standards, Environment and Anti-Corruption. Lundin Petroleum formally became a member of the Global Compact in 2010 and has worked progressively to implement the Principles in its daily operations. In 2013 Lundin Petroleum focused on further embedding the UN Global Compact Principles in its operational sites. The Company submitted its third Communication on Progress, made a fi nancial contribution to the UN Global Compact Foundation to support its work in promoting the Ten Principles and participated in the Global Leaders Forum in New York to engage and share ideas with business and civil society leaders committed to implementing the Principles.
Lundin Petroleum adopted its Anti-Corruption Policy and Guidelines in 2011. In 2013 it became a supporting company of the Extractive Industries Transparency Initiative (EITI), a voluntary initiative aimed at promoting anti-corruption and transparency through revenue disclosure. Lundin Petroleum actively promotes anti-corruption within the Group and in the public domain, at conferences, with business partners, as well as engages with peers on the issue of the global fi ght against corruption. Furthermore, the Company is involved in an ongoing dialogue with the EITI Secretariat in Oslo; participated in the EITI Global Forum held in Sydney and attended the EITI Board meeting as observer. No cases of corruption were reported in 2013 throughout the Group under the Anti-Corruption Guidelines or the Whistleblowing Procedure.
Lundin Petroleum's Board of Directors strengthened the Company's commitment towards human rights by formally endorsing the UN Guiding Principles on Business and Human Rights and by adopting a Human Rights Policy in 2012. In 2013 the Company focused on further embedding the Human Rights Policy
Lundin Petroleum funds a number of sustainable projects, primarily in its core areas of operations
In 2006, Lundin Petroleum established a Sustainable Investment Programme to promote social, economic, and environmental projects and organisations as well as citizenship among its employees. Since then, the Company has funded a signifi cant number of projects, primarily in its core areas of operations.
In 2013, Lundin Petroleum continued to fund some of its long standing projects, such as SOS Children's Villages. A selection of projects supported by Lundin Petroleum in 2013 can be seen on the maps on page 45.
Lundin Petroleum intends to pursue sustainable investments and community development projects associated with its operations. However, as the Company's operations grow, so does the need to engage on a larger scale and in more sustainable and long term projects whose impact can be measured over time. This will better fulfi l the Company's commitment under the United Nations Global Compact to further the Millennium Development Goals. At the beginning of 2013, Lundin Petroleum entered into a partnership with the Lundin Foundation, an organisation with a strong track record in philanthropy and social investments and an excellent reputation among its peers, having been selected as one of ten organisations to act as advisors on the OECD Guidelines on Social Impact Investments.
Rare Project, Indonesia
Lundin Petroleum has entered into an agreement with the Lundin Foundation through which 0.1 percent of the prior year's revenues are contributed to the Foundation. Over the course of 2013, Lundin Petroleum contributed USD 1.3 million.
A minimum of 70 percent of contributed funds are dedicated to supporting projects in designated areas where Lundin Petroleum has exploration, development, or production assets. During the initial year of partnership, there has been a geographic focus on South East Asia and a sector focus on biodiversity conservation, sustainable fi sheries and renewable energy.
Looking ahead to 2014, the Lundin Foundation is exploring additional partnerships in off-grid renewable energy and biodiversity conservation in Indonesia.
Biodiversity Conservation – TRACC-Borneo (Sabah, Malaysia) The Coral Triangle region, named for its staggering number of corals (nearly 600 different species of reef-building corals alone), nurtures six of the world's seven marine turtle species and more than 2,000 species of reef fi sh. Over 120 million people live in the Coral Triangle and rely on its coral reefs for food, income and protection from storms. Current levels and methods of harvesting fi sh are not sustainable and place this important marine area and its people in jeopardy. A changing climate threatens coastal communities and imperils fragile reefs. The challenge ahead is to develop sustainable solutions for the Coral Triangle's inhabitants and protect one of the most diverse marine habitats on Earth at the same time.
In 2013, the Lundin Foundation entered into a partnership with TRACC-Borneo to expand coral planting and regenerate damaged reefs on which both fi sheries and tourism depend in the Semporna District of Malaysia. Revenues from a seaweed and sea cucumber farm to be owned and operated by TRACC will ensure a revenue stream to support ongoing restoration activities.
The world's coastal fi sheries are under enormous pressure. One billion people around the world rely on fi sh for protein, yet more than 80 percent of fi sh stocks are overexploited and declining. Developing tropical nations, including those in the Coral Triangle, suffer the most severe human and environmental costs. Half of the world's catch is from coastal fi sheries, where poorly-managed fi shing and competition for scarce marine resources accelerate this deterioration. For island countries in the developing world, where fi sh is often the primary source of protein, poorly managed fi sheries translate into lost fi sh catch equivalent to that which would provide 130 to 300 million people with their minimum required daily protein.
Indonesia lies at the heart of the Coral Triangle, which is a center of tropical marine biodiversity, containing more than half of the world's coral reefs, 75 percent of known coral species, more than 3,000 species of fi sh and the largest area of mangrove forests. The estimated annual economic value of this rich ecological diversity is USD 2.3 billion. The persistent decline in fi sheries due to overfi shing and the related deteriorating health of natural infrastructures such as coral reefs and mangroves pose a material threat to Indonesia's economy, food security and livelihoods.
In 2013, the Lundin Foundation entered into a multi-year partnership with Rare, to support three innovative pilot projects in conservation and fi sheries-management reform in nearshore marine ecosystems. These pilots are designed to ensure profi table and sustainable fi sheries while boosting livelihoods, protecting habitats, and enhancing coastal resilience to climate change.
The ancestral forests of Malaysia's indigenous people (the Orang Asal), though heavily degraded, are still among the richest in biological and cultural diversity. Malaysia's indigenous people maintain custodianship over critical forested watersheds, banks of carbon, clean water, and biodiversity. Yet these forest ecosystems, and the subsistence communities who dwell there, are among Malaysia's most vulnerable. Over 20 percent of Sabah's population still lacks access to electricity.
Penampang Renewable Energy (PRE) leads a group of organisations and local businesses in Sabah, Borneo that have demonstrated decentralised, self-sustaining models for rural electrifi cation that empower communities rather than foster dependency.
In 2013, the Lundin Foundation entered into a partnership with PRE to design and install three micro-hydro systems in rural, off-grid communities and to recruit and train technicians from these communities in system maintenance.
In 2011, the Lundin Foundation adopted Impact Reporting Investment Standards (IRIS). IRIS is the catalog of generally accepted performance metrics used by leading foundations to measure and report the social, environmental, and fi nancial impacts of supported initiatives. Through ongoing fi eld monitoring and evaluation, the Foundation will report annually on key performance indicators across its full portfolio of initiatives in South East Asia.
9
Lundin Petroleum sponsors the Good to Great Tennis Academy in Sweden which coaches young tennis players to become world class players.
Lundin Petroleum today has a strong and diverse Board which provides valuable insight into all aspects of the business, from financial and operational issues to geopolitical considerations, and of course, HSE and CR matters
Ian H. Lundin Chairman of the Board
As Chairman of the Board of Directors of Lundin Petroleum, one of my primary duties is to ensure that the Board performs its functions and provides guidance to and oversees the work of Group management. For that to happen, it is obviously important that each Board member has suffi cient competency and a strong interest in the future development of the Company. I am pleased that at the 2013 AGM, two new Board members were elected, Peggy Bruzelius and Cecilia Vieweg, based on the recommendations of the Nomination Committee. Peggy and Cecilia are both excellent additions to the Board. They not only bring skills and experience which complement the existing Board extremely well, but they also have a deep knowledge and understanding of corporate governance matters. As a result, Lundin Petroleum today has a strong and diverse Board which provides valuable insight into all aspects of the business, from fi nancial and operational issues to geopolitical considerations, and of course, HSE and CR matters. I am also pleased to see that the interaction between the Board and Group management is very effective, including in connection with the ongoing work of the Reserves Committee, the Compensation Committee and the Audit Committee. In addition, the Board has an excellent HSE/CR Board Representative, Asbjørn Larsen, who has a very good understanding of the applicable rules and regulations and actively supports Group management.
It has been an interesting and exciting experience to serve as Chairman of Lundin Petroleum since 2002 and I would like to take this opportunity to thank the other Board members for their input and participation. I would also like to thank Group management for their excellent work during the year, as well as for the signifi cant work that has gone into the preparation of each Board meeting. Finally, I would like to thank our shareholders for your trust and continued support.
Ian H. Lundin Chairman of the Board
This Corporate Governance Report has been prepared in accordance with the Swedish Companies Act (SFS 2005:551), the Annual Accounts Act (SFS 1995:1554) and the Code of Corporate Governance (Code of Governance) and has been subject to a review by the Company's statutory auditor.
Since its creation in 2001, Lundin Petroleum has been guided by general principles of corporate governance to:
Lundin Petroleum adheres to principles of corporate governance found in both internal and external rules and regulations. As a Swedish public limited company listed on the NASDAQ OMX Stockholm, Lundin Petroleum is subject to the Swedish Companies Act and the Annual Accounts Act, as well as the Rule Book for Issuers of the NASDAQ OMX Stockholm, which can be found on www. nasdaqomx.com. Lundin Petroleum is also listed on the Toronto Stock Exchange and is as a result subject to Canadian securities regulations as well, including the Toronto Stock Exchange Rule Book available on www.tmx.com.
In addition, the Company abides by principles of corporate governance found in a number of internal and external documents.
The Code of Governance is based on the tradition of selfregulation and acts as a complement to the corporate governance rules contained in the Swedish Companies Act, the Annual Accounts Act and other regulations such as the Rule Book for Issuers and good practice on the securities market. The Code of Governance can be found on www.bolagsstyrning.se.
The Code of Governance is based on the "comply or explain principle", which entails that a company may choose to apply another solution than the one provided by the Code of Governance if it fi nds an alternative solution more appropriate in a particular case. The company must however explain why it did not comply with the rule in question and describe the company's preferred solution, as well as the reasons for it. Lundin Petroleum complied with all the rules of the Code of Governance in 2013, other than in one instance as mentioned in the schedule on page 50 regarding the composition of the Nomination Committee. Furthermore, there were no infringements of applicable stock exchange rules during the year, nor any breaches of good practice on the securities market.
Lundin Petroleum's Articles of Association, which form the basis of the governance of the Company's operations, set forth the Company's name, the seat of the Board, the object of the business activities, the shares and share capital of the Company and contain rules with respect to the Shareholders' Meetings. The Articles of Association do not contain any limitations as to how many votes each shareholder may cast at Shareholders' Meetings, nor any provisions regarding the appointment and dismissal of Board members or amendments to the Articles
of Association. The Articles of Association can be found on www. lundin-petroleum.com.
Lundin Petroleum's Code of Conduct is a set of principles formulated by the Board to give overall guidance to employees, contractors and partners on how the Company is to conduct its activities in an economically, socially and environmentally responsible way, for the benefi t of all its stakeholders, including shareholders, employees, business partners, host and home governments and local communities. The Company applies the same standards to its activities worldwide to satisfy both its commercial and ethical requirements and strives to continuously improve its performance and to act in accordance with good oilfi eld practice and high standards of corporate citizenship. The Code of Conduct is an integral part of the Company's contracting procedures and any violations of the Code of Conduct will be the subject of an inquiry and appropriate remedial measures. Performance under the Code of Conduct is assessed on an annual basis by the Board. The Code of Conduct can be found on www.lundin-petroleum.com.
While the Code of Conduct provides Lundin Petroleum's ethical framework, dedicated policies, guidelines and procedures have been developed to outline specifi c rules and controls applicable
in the different business areas. The Company has policies, guidelines and procedures covering for example Operations, Accounting and Finance, Health, Safety and Environment (HSE), Community Relations, Anti-Corruption, Human Rights, Stakeholder Engagement, Legal, Information Systems, Human Resources (HR) and Corporate Communications. The policies, guidelines and procedures are reviewed on a continuous basis and are modifi ed and updated as and when required. Some of these documents can be found on www.lundin-petroleum.com, whereas others are only available internally.
Management System (Green Book), modelled after the ISO 14001 standard, which gives guidance to management, employees and contractors regarding the Company's intentions and expectations in HSE matters. The Green Book serves to ensure that all operations meet Lundin Petroleum's legal and ethical obligations, responsibilities and commitments within the HSE fi eld. A more detailed description of the Green Book is available on www.lundin-petroleum.com.
The Rules of Procedure of the Board contain the fundamental rules regarding the division of duties between the Board, the Committees, the Chairman of the Board and the Chief Executive Offi cer (CEO). The Rules of Procedure also include instructions to the CEO, instructions for the fi nancial reporting to the Board and the terms of reference of the Board Committees and the Investment Committee. The Rules of Procedure are approved annually by the Board.
The object of Lundin Petroleum's business is to explore for, develop and produce oil and gas and to develop other energy resources, as laid down in the Articles of Association. The Company aims to create value for its shareholders through exploration and organic growth, while operating in an economically, socially and environmentally responsible way for the benefi t of all stakeholders. To achieve this value creation, Lundin Petroleum applies a governance structure that favours straightforward decision making processes, with easy access to relevant decision makers, while nonetheless providing the necessary checks and balances for the control of the activities, both operationally and fi nancially. Lundin Petroleum is committed to applying good corporate governance practices that are best suited for the Company and its activities, to ensure that the Company is managed in an effective and responsible manner, in the best interests of all shareholders, for continued delivery of value creation for shareholders. The governance structure of Lundin Petroleum is as follows.
The shares of Lundin Petroleum are listed on the Large Cap list of the NASDAQ OMX Stockholm and on the Toronto Stock Exchange. At the end of 2013, the issued share capital of Lundin Petroleum amounted to SEK 3,179,106 divided into 317,910,580 shares with a quota value of SEK 0.01 each. All shares carry the same voting rights and the same rights to a share of the Company's assets and net result.
Lundin Petroleum had at the end of 2013 a total of 45,148 shareholders listed with Euroclear Sweden, which represents an increase of 1,194 shareholders compared to 2012, i.e. an increase of approximately 3 percent. As at 31 December 2013, the major shareholders of the Company, which held more than ten percent of the shares and votes, were Lorito Holdings (Guernsey) Ltd. and Zebra Holdings and Investment (Guernsey) Ltd., two investment companies wholly owned by Lundin family trusts, which together held 27.4 percent of the shares. In addition, Landor Participations Inc., an investment company wholly owned by a trust whose settler is Ian H. Lundin, held 3.6 percent of the shares.
As in previous years, the Annual General Meeting (AGM) held on 8 May 2013 authorised the Board to repurchase and sell its own shares as an instrument to optimise the Company's capital structure and to secure the Company's obligations under its incentive plans. Based on the authorisation, Lundin Petroleum purchased 971,965 of its own shares during 2013 and as a result, held 8,340,250 of its own shares as at 31 December 2013, representing 2.6 percent of the issued share capital. The average purchase price for these shares is SEK 61.63. Further information regarding the shares and shareholders of Lundin Petroleum in 2013, as well as the Company's dividend policy, can be found on pages 68–69.
The shareholders of the Company decide at each AGM how the Nomination Committee is to be formed. The tasks of the Nomination Committee include making recommendations to the AGM regarding the election of the Chairman of the AGM, election of Board members and the Chairman of the Board, remuneration of the Chairman and other Board members, including remuneration for Board Committee work, election of the statutory auditor, remuneration of the statutory auditor and the Nomination Committee Process for the AGM of the following year. The Nomination Committee members are, regardless of how they are appointed, required to promote the interests of all shareholders of the Company.
| Nomination Committee for the 2014 AGM | ||||||
|---|---|---|---|---|---|---|
| Member | Appointed by | Meeting attendance |
Shares represented as at 1 August 2013 |
Shares represented as at 31 December 2013 |
Independent of the Company and the Group management |
Independent of the Company's major shareholders |
| Åsa Nisell | Swedbank Robur fonder | 3/3 | 2.5 percent | 2.5 percent | Yes | Yes |
| Arne Lööw | Fjärde AP-fonden | 3/3 | 1.1 percent | 1.0 percent | Yes | Yes |
| André Vatsgar | Danske Capital AB | 3/3 | 1.0 percent | 1.3 percent | Yes | Yes |
| Ian H. Lundin | Lorito Holdings (Guernsey) Ltd., Zebra Holdings and Investment (Guernsey) Ltd. and Landor Participations Inc., also non-executive Chairman of the Board of Lundin Petroleum |
3/3 | 31.0 percent | 31.0 percent | Yes | No1 |
| Magnus Unger | Non-executive Board member of Lundin Petroleum who acts as the Chairman of the Nomination Committee |
3/3 | – | – | Yes | Yes |
| Total 35.6 percent | Total 35.8 percent |
Åsa Nisell, Arne Lööw and André Vatsgar met with two Board members, Peggy Bruzelius and Cecilia Vieweg, to discuss the work and functioning of the Board.
The Nomination Committee fulfi ls the independence requirements of the Code of Governance and no member of Group management is a member of the Committee.
1 For details, see schedule on pages 64–65
In accordance with the Nomination Committee Process approved by the 2013 AGM, the Nomination Committee for the 2014 AGM consists of members appointed by four of the larger shareholders of the Company based on shareholdings as per 1 August 2013. The names of the members of the Nomination Committee were announced and posted on the Company's website on 6 November 2013, i.e. within the time frame of six months before the AGM as prescribed by the Code of Governance. The Company's Vice President Legal, Jeffrey Fountain, acts as the secretary of the Nomination Committee. The Nomination Committee has held three meetings during its mandate and informal contacts have taken place between such meetings. Further information regarding the Nomination Committee and its work is included in the schedule above and the full Nomination Committee report, including the fi nal proposals to the 2014 AGM, are published on the Company's website together with the notice of the AGM.
The Shareholders' Meeting is the highest decision-making body of Lundin Petroleum where the shareholders exercise their voting rights and infl uence the business of the Company. Shareholders may request that a specifi c issue be included in the agenda provided such request reaches the Board in due time. The AGM is to be held each year before the end of June at the seat of the Board in Stockholm. The notice of the AGM, which is to be given no more than six and no less than four weeks prior to the meeting, is to be announced in the Swedish Gazette (Post- och Inrikes Tidningar) and on the Company's website. The documentation for the AGM is provided on the Company's website in Swedish and in English at the latest three weeks, however usually four weeks, before the AGM.
3
At the AGM, the shareholders decide on a number of key issues regarding the governance of the Company, such as election of the members of the Board and the statutory auditor, the remuneration of the Board, management and the statutory auditor, including approval of the Policy on Remuneration, discharge of the Board members and the CEO from liability and the adoption of the annual accounts and appropriation of the Company's result. Extraordinary General Meetings are held as and when required for the operations of the Company.
Resolutions at Shareholders' Meetings generally require a simple majority to pass, unless the Swedish Companies Act requires a higher proportion of shares represented and votes cast at the Meeting. The results of each Shareholders' Meeting are published in a press release promptly after the Shareholders' Meeting and in addition, the approved minutes are published on the Company's website at the latest two weeks after the Shareholders' Meeting.
The 2013 AGM was held on 8 May 2013 at Grand Hôtel in Stockholm. The AGM was attended by 608 shareholders, personally or by proxy, representing 51.2 percent of the share capital. The Chairman of the Board, the majority of the Board members and the CEO were present, as well as the Company's auditor and all of the members of the Nomination Committee for the 2013 AGM. The members of the Nomination Committee for the 2013 AGM were Åsa Nisell (Swedbank Robur fonder), Ossian Ekdahl (Första AP-fonden), Arne Lööw (Fjärde AP-fonden), Ian H. Lundin (Lorito Holdings (Guernsey) Ltd., Zebra Holdings and Investment (Guernsey) Ltd. and Landor Participations Inc., as well as non-executive Chairman of the Board of Lundin Petroleum) and Magnus Unger (non-executive Board member of Lundin Petroleum and Chairman of the Nomination Committee). In order for all participants to be able to follow the AGM, all proceedings were simultaneously translated from Swedish to English and from English to Swedish and all AGM materials were provided both in Swedish and English.
The resolutions passed by the 2013 AGM include:
An electronic system with voting devices was used for voting and the minutes of the 2013 AGM and all AGM materials, in Swedish and English, are available on www. lundin-petroleum.com, together with the CEO's address to the AGM.
The 2014 AGM will be held on 15 May 2014 at 1 p.m. in Vinterträdgården at Grand Hôtel, Södra Blaiseholmshamnen 8, in Stockholm. Shareholders who wish to attend the meeting must be recorded in the share register maintained by Euroclear Sweden on 9 May 2014 and must notify the Company of their intention to attend the AGM no later than 9 May 2014. Further information about registration to the AGM, as well as voting by proxy, can be found in the notice of the AGM, available on www.lundin-petroleum.com.
Lundin Petroleum's statutory auditor audits annually the Company's fi nancial statements, the consolidated fi nancial statements, the Board's and the CEO's administration of the Company's affairs and reports on the Corporate Governance Report. In addition, the auditor performs a review of the Company's half year report. The Board of Directors meets at least once a year with the auditor without any member of Group management present at the meeting. In addition, the auditor participates regularly in Audit Committee meetings, in particular in connection with the Company's half year and year end reports. At the 2013 AGM, the audit fi rm PricewaterhouseCoopers AB was elected as the auditor of the Company for a period of one year until the 2014 AGM. The auditor in charge is the authorised public accountant Klas Brand.
The auditor's fees are described in the notes to the fi nancial statements – see Note 33 on page 115 and Note 10 on page 119. The auditor's fees also detail payments made for assignments outside the regular audit mandate. Such assignments are kept to a minimum to ensure the auditor's independence towards the Company.
Lundin Petroleum's independent qualifi ed reserves auditor audits annually the Company's oil and gas reserves and certain contingent resources, i.e. the Company's core assets, although such assets are not included in the Company's balance sheet. The auditor is appointed by the Board, based on the recommendation of the Reserves Committee. The auditor meets at least once a year with the Company's Reserves Committee and Group management to discuss the reserves reporting and the audit process, and provides a yearly report on reserves data as required by applicable Canadian securities regulation. The current auditor is ERC-Equipoise Ltd. For further information regarding the Company's reserves and resources, please see the Reserves, Resources and Production section on pages 12–17.
The Board of Directors of Lundin Petroleum is responsible for the organisation of the Company and management of the Company's operations. The Board of Directors is to manage the Company's affairs in the interests of the Company and all shareholders with the aim of creating long-term shareholder value.
The Board shall, according to the Articles of Association, consist of a minimum of three and a maximum of ten directors with a maximum of three deputies, and the AGM decides the fi nal number each year. The Board members are elected for a term of one year and at the 2013 AGM, C. Ashley Heppenstall, also CEO of the Company, Asbjørn Larsen, Ian H. Lundin, also Chairman of the Board, Lukas H. Lundin, William A. Rand and Magnus Unger were re-elected as Board members, and Peggy Bruzelius and Cecilia Vieweg were elected as new Board members. Kristin Færøvik declined re-election. There are no deputy members and no members appointed by employee organisations. The Board
members, with the exception of the CEO, are not employed by the Company, do not receive any salary from the Company and are not eligible for participation in the Company's incentive programmes. In addition, the Board is supported by a corporate secretary who is not a Board member. The appointed corporate secretary is Jeffrey Fountain, the Company's Vice President Legal.
The Chairman of the Board, Ian H. Lundin, is responsible for ensuring that the Board's work is well organised and conducted in an effi cient manner. He upholds the reporting instructions for management, as drawn up by the CEO and as approved by the Board, however, he does not take part in the day-to-day decision-making concerning the operations of the Company. The Chairman maintains close contacts with the CEO to ensure the Board is at all times suffi ciently informed of the Company's operations and fi nancial status, and to provide support to the CEO in his tasks and duties. The Chairman further meets, at various occasions during the year, shareholders of the Company to discuss shareholder questions and ownership issues in general, as well as other Company stakeholders. In addition, the Chairman actively promotes the Company and its interests in the various operational locations and in respect of potential new business opportunities.
The Board's work follows a yearly cycle to ensure the Board duly addresses all areas of responsibility and that adequate focus is placed on strategic and important issues for the benefi t of the Company's shareholders. Generally, issues are discussed and addressed at the ordinary meetings as follows.
All Board members elected at the 2013 AGM have extensive experience from the world of business and several members are also highly experienced within the oil and gas fi eld. The Nomination Committee for the 2013 AGM considered, taking into account the business operations of Lundin Petroleum and its current phase of development, that the Board is composed of multi-faceted individuals who are well-suited for the job and whose expertise, experience and background is extensive. Further, in preparation of the elections at the 2013 AGM, the Nomination Committee considered the independence of each proposed Board member and determined that the composition of the proposed Board met the independence requirements of the Code of Governance both in respect of independence towards the Company and the Group management and towards the Company's major shareholders. The independence of each Board member is presented in the schedule on pages 64–65.
The Board is guided by the Rules of Procedure, which set out how the Board is to conduct its work. In addition to the statutory meeting following the AGM, the Board normally holds at least six ordinary meetings per calendar year. At the meetings, the CEO reports on the status of the business, prospects and the fi nancial situation of the Company. In addition, decision items and issues of material importance to the Company are considered by the Board and the Board Committees report on matters as and when required. The Board's yearly work cycle is illustrated in the above illustration.
During 2013, eight board meetings took place, including the statutory meeting. Two of these meetings took place over a two day period to give the Board ample time to review and discuss the Company's business and activities. To develop the Board's knowledge of the Company and its operations, a yearly fi eld trip is carried out to one of the Company's operational locations. In September 2013, the Board visited the Norwegian operations and an executive session, together with Group management, was held in connection with the Board meeting. At the executive session, in-depth operations reviews regarding the Group's exploration and development activities were given, with a particular focus on the Norwegian and South East Asian operations. In addition, a reserves and production update, a fi nancial overview of the Group, the annual Corporate Responsibility (CR) and HSE report, an Investor Relations report and a Communications and Media presentation were given. Group management also attended a number of Board meetings during the year to present and report on specifi c questions, as and when required.
The Board is also responsible for evaluating the work of the CEO on a continuous basis and shall carry out, at least once a year, a formal performance review. In 2013, the Compensation Committee, on behalf of the Board, undertook a review of the work and performance of Group management, including the CEO, and presented the results of the review at a Board meeting, including proposals regarding the compensation of the CEO and other Group management. Neither the CEO nor other Group management were present at the Board meetings when such discussions took place.
Chairman since 2002 Director since 2001 Member of the Nomination Committee Chairman of the Reserves Committee
Peggy Bruzelius Director since 2013 Member of the Audit Committee
C. Ashley Heppenstall Director since 2001 President and Chief Executive Officer since 2002
Director since 2008 Member of the Audit and Reserves Committees CR/HSE Board Representative
Lukas H. Lundin Director since 2001
Director since 2001 Chairman of the Audit Committee Member of the Compensation Committee
Magnus Unger Director since 2001 Member of the Compensation Committee Chairman of the Nomination Committee
Cecilia Vieweg Director since 2013 Chairman of the Compensation Committee
More information on the board members can be found on pages 64–65 and on www. lundin-petroleum.com
A formal review of the work of the Board was conducted in November 2013 through a questionnaire submitted to all Board members, with the objective of ensuring that the Board functions in an effi cient manner and, as applicable, to enable the Board to strengthen its focus on matters which may be raised. The topics considered included several aspects of the Board's structure, work, meetings and general issues such as support and information given to the Board.
Individual feedback from all Board members was received and the overall conclusions were very positive and showed that the structure and composition of the Board is appropriate and the Board members have relevant experience, including industry specifi c and fi nancial experience, which enables the Board to function as an effective governing body. Board members also regularly attend Board meetings and participate actively. The Board Committees' duties and decision-making powers within the Board are clear, and the Committees report to the Board in an appropriate manner. The Board meetings are well planned and prepared, with high quality presentations, and enable the Board to effectively monitor the Company's activities and performance. Board meetings in connection with visits to the operational areas were considered very important to provide
deeper knowledge and insight into the Company's operations and local conditions. Individual suggestions received included that additional meetings in person could be considered as the Company and its business grows and that succession planning issues should be further discussed within the Board. Also, it was recognised that more time was now allocated to strategic discussions based on comments received through last year's Board evaluation, however, given the importance of the issues, even more time could be allocated to discussing the Company's overall strategy and its implementation.
The results and conclusions of the review were presented to the Nomination Committee.
The remuneration of the Chairman and other Board members follows the resolution adopted by the AGM. At the 2013 AGM, the Chairman was awarded an amount of SEK 1,000,000 and each other Board member, with the exception of the CEO, an amount of SEK 490,000. The AGM further decided to award SEK 100,000 for each ordinary Board Committee assignment and SEK 150,000 for each assignment as Committee Chairman, however, limited to a total of SEK 900,000 for Committee work. No remuneration is paid for any assignments in relation to the Reserves Committee. In addition, the 2013 AGM approved an amount of SEK 2,000,000 to be paid to Board members for special assignments outside the directorship.
The remuneration of the Board of Directors is detailed further in the schedule on pages 64–65 and in the notes to the fi nancial statements – see Note 31 on pages 112–113.
To maximise the effi ciency of the Board's work and to ensure a thorough review of certain issues, the Board has established a Compensation Committee, an Audit Committee and a Reserves Committee and has appointed a CR/HSE Board Representative. The tasks and responsibilities of the Committees are detailed in the terms of reference of each Committee, which are annually adopted as part of the Rules of Procedure of the Board. Minutes are kept at Committee meetings and matters discussed are reported to the Board. In addition, informal contacts take place between ordinary meetings as and when required by the operations.
The Compensation Committee assists the Board in Group management remuneration matters and receives information and prepares the Board's and the AGM's decisions on matters relating to the principles of remuneration, remunerations and other terms of employment of Group management. The objective of the Committee in determining compensation for Group management is to provide a compensation package that is based on market conditions, is competitive and takes into account the scope and responsibilities associated with the position, as well as the skills, experience and performance of the individual. The Committee's tasks also include monitoring
7
and evaluating programmes for variable remuneration, the application of the Policy on Remuneration as well as the current remuneration structures and levels in the Company. For further information regarding Group remuneration matters, see the remuneration sections of this report on pages 58–61.
The Audit Committee assists the Board in ensuring that the Company's fi nancial reports are prepared in accordance with International Financial Reporting Standards (IFRS), the Swedish Annual Accounts Act and accounting practices applicable to a company incorporated in Sweden and listed on the NASDAQ OMX Stockholm and the Toronto Stock Exchange. The Audit Committee itself does not perform audit work, however, it supervises the Company's fi nancial reporting and assesses the effi ciency of the Company's fi nancial internal controls, internal audit and risk management, with the primary objective of providing support to the Board in the decision making processes regarding such matters. In addition, the Committee is empowered by the Committee's terms of reference to make decisions on certain issues delegated to it, such as review and approval of the Company's fi rst and third quarter interim fi nancial statements on behalf of the Board. The Audit Committee also regularly liaises with the Group's statutory auditor as part of the annual audit process and reviews the audit fees and the auditor's independence and impartiality. The Audit Committee further assists the Company's Nomination Committee in the preparation of proposals for the election of the statutory auditor at the AGM.
The Reserves Committee reviews and reports to the Board on matters relating to the Company's policies and procedures for reporting oil and gas reserves and related information as per National Instrument 51–101 (NI 51–101) issued under applicable Canadian securities regulation. The Reserves Committee reports to the Board on the Company's procedures for disclosing oil and gas reserves and other related information, on the appointment of the independent qualifi ed reserves auditor and on the Company's procedures for providing information to the independent qualifi ed reserves auditor. The Reserves Committee also meets with Group management and the independent qualifi ed reserves auditor to review, and determine whether to recommend that the Board approve, the statement of reserves and other oil and gas information required to be submitted annually under NI 51–101.
The Board of Directors has a leadership and supervisory role in all CR and HSE matters within the Group and appoints yearly one non-executive Director to act as the CR/HSE Board Representative. The tasks of the CR/HSE Board Representative include to liaise with Group management regarding CR and HSE related matters and to regularly report on such matters to the Board of Directors. The current CR/HSE Board Representative is Asbjørn Larsen. More information about the Company's CR/HSE activities can be found in the Corporate Responsibility section on pages 36–45.
| Audit Committee 2013 | |||
|---|---|---|---|
| Members | Meeting attendance |
Audit Committee work during the year | Other requirements |
| William A. Rand, Chairman Magnus Unger Asbjørn Larsen Peggy Bruzelius |
6/6 3/31 6/6 2/31 |
– Assessment of the 2012 year end report and the 2013 half year report for completeness and accuracy and recommendation for approval to the Board. – Assessment and approval of the fi rst and third quarter reports 2013 on behalf of the Board. – Evaluation of accounting issues in relation to the assessment of the fi nancial reports. – Follow-up and evaluation of the results of the internal audit and risk management of the Group. – Three meetings with the statutory auditor to discuss the fi nancial reporting, internal controls, risk management etc. – Evaluation of the audit performance and the independence and impartiality of the statutory auditor. – Review and approval of statutory auditor's fees. |
– The composition of the Audit Committee fulfi ls the independence requirements of the Swedish Companies Act and the Code of Governance. – All Audit Committee members have extensive experience in fi nancial, accounting and audit matters. William A. Rand has chaired the Audit Committee since its inception in 2002, Asbjørn Larsen's previous assignments include the position of CFO and CEO of a Norwegian listed upstream petroleum company and Peggy Bruzelius' current and previous assignments include high |
| Compensation Committee 2013 | |||
|---|---|---|---|
| Members | Meeting attendance |
Compensation Committee work during the year | Other requirements |
| Cecilia Vieweg, Chairman Magnus Unger William A. Rand Kristin Færøvik |
2/32 3/3 3/32 0/03 |
– Review of the performance of the CEO, the other members of Executive Management and other Group management as per the Performance Management Process. – Preparing a report regarding the Board's evaluation of remuneration of the Executive Management in 2012. – Continuous monitoring and evaluation of remuneration structures, levels, programmes and the Policy on Remuneration. – Preparing a proposal for the 2013 Policy on Remuneration for Board and AGM approval. – Preparing a proposal for remuneration and other terms of employment for the CEO for Board approval. – Review of the CEO's proposals for remuneration and other terms of employment of the other members of Executive Management and VP level employees for Board approval. – Review and approval of the CEO's proposals for the principles of compensation of other Group management and employees. – Review and approval of the CEO's proposals for 2013 LTIP awards. – Consideration of severance arrangements for Board approval. – Undertaking a remuneration benchmark study and engaging the HayGroup to assist with the study. |
– The composition of the Compensation Committee fulfi ls the independence requirements of the Code of Governance. – Cecilia Vieweg has previously held positions in listed companies' Compensation Committees and, considering the varied backgrounds and experience of the Committee members in general, including the position of William A. Rand as Chairman of the Committee for more than 10 years, the Compensation Committee has ample knowledge and experience of management remuneration issues. |
– Undertaking through the HayGroup a complete review and study of LTIP practices in the market place to prepare a new LTIP proposal for approval by the Board and the 2014 AGM.
| Reserves Committee 2013 | |||
|---|---|---|---|
| Members | Meeting attendance |
Reserves Committee work during the year | Other requirements |
| Ian H. Lundin, Chairman Asbjørn Larsen |
1/1 1/1 |
–General review of the Company's oil and gas reserves procedures and practices. – Review of the Company's procedures for assembling and reporting other information associated with oil and gas activities. – Meeting with management and ERC-Equipoise Ltd., the independent qualifi ed reserves auditor, to discuss the 2012 reserves reporting. – Review of reserves data. |
– The composition of the Reserves Committee fulfi lled the independence requirements of Canadian securities regulation as per NI 51–101. |
1 Magnus Unger was a member of the Audit Committee until 8 May 2013 and Peggy Bruzelius has been a member of the Audit Committee as of 8 May 2013. 2 William A. Rand was the Chairman of the Compensation Committee until 8 May 2013 and Cecilia Vieweg is a member and the Chairman of the
Compensation Committee as of 8 May 2013. 3 Kristin Færøvik declined re-election at the AGM on 8 May 2013. During the period of 1 January 2013 to 8 May 2013, there were no Compensation Committee meetings.
The President and CEO of the Company, C. Ashley Heppenstall, is responsible for the management of the day-to-day operations of Lundin Petroleum. He is appointed by, and reports to, the Board and is also the only executive Board member. He in turn appoints the other members of Group management, who assist the CEO in his functions and duties, and in the implementation of decisions taken and instructions given by the Board, with the aim of ensuring that the Company meets its strategic objectives and continues to deliver responsible growth and long-term shareholder value.
Lundin Petroleum's Group management consists of highly experienced individuals with worldwide oil and gas experience and in addition to the CEO, comprises the following:
A management change occurred as per 31 December 2013 as the Company's former CFO, Geoffrey Turbott, decided to step down as CFO following ten years in this position. Mike Nicholson, who has worked for the Company since 2005 through various roles and most recently as Managing Director in South East Asia, was appointed as the new CFO as of 1 January 2014. Mike Nicholson was replaced by Paul Atkinson in South East Asia, who has held various senior managerial positions since 2001 in multinational oil and gas companies, including in Lundin Petroleum's predecessor companies.
The tasks of the CEO and the division of duties between the Board and the CEO are defi ned in the Rules of Procedure and the Board's instructions to the CEO. In addition to the overall management of the Company, the CEO's tasks include ensuring that the Board receives all relevant information regarding the Company's operations, including profi t trends, fi nancial position and liquidity, as well as information regarding important events such as signifi cant disputes, agreements and developments in important business relations. The CEO is also responsible for
preparing the required information for Board decisions and for ensuring that the Company complies with applicable legislation, securities regulations and other rules such as the Code of Governance. Furthermore, the CEO maintains regular contacts with the Company's stakeholders, including shareholders, the fi nancial markets, business partners and public authorities. To fulfi l his duties, the CEO works closely with the Chairman of the Board to discuss the Company's operations, fi nancial status, upcoming Board meetings, implementation of decisions and other relevant matters.
Under the leadership of the CEO, Group management is responsible for ensuring that the operations are conducted in compliance with all Group policies, guidelines and procedures in a professional, effi cient and responsible manner. Regular management meetings are held to discuss all commercial, technical, HSE, fi nancial, legal and other relevant issues within the Group to ensure the established short and long-term business objectives and goals will be met. A detailed weekly operations report is further circulated to Group management summarising the operational events, highlights and issues of the week in question. Group management also travels frequently to oversee the ongoing operations, seek new business opportunities and meet with various stakeholders, including business partners, suppliers and contractors, government representatives and fi nancial institutions. In addition, Group management liaises continuously with the Board, and in particular the Board Committees and the CR/HSE Board Representative, in respect of ongoing matters and issues that may arise, and meets with the Board at least once a year at the executive session held in connection with a Board meeting in one of the operational locations.
The Company's Investment Committee, which consists of CEO, CFO, COO and SVP Development, was established by the Board in 2009 to assist the Board in discharging its responsibilities in overseeing the Company's investment portfolio. The role of the Investment Committee is to determine that the Company has a clearly articulated investment policy, to develop, review and recommend to the Board investment strategies and guidelines in line with the Company's overall policy, to review and approve investment transactions and to monitor compliance with investment strategies and guidelines. The responsibilities and duties include considering annual budgets, supplementary budget approvals, investment proposals, commitments, relinquishment of licences, disposal of assets and performing other investment related functions as the Board may designate. The Investment Committee has regularly scheduled meetings and meets more frequently if required by the operations.
Lundin Petroleum aims to offer all its employees compensation packages that are competitive and in line with market conditions. These packages are designed to ensure that the Group can recruit, motivate and retain highly skilled individuals and reward performance that enhances shareholder value.
C. Ashley Heppenstall President and Chief Executive Officer, Director
Christine Batruch Vice President Corporate Responsibility
Alexandre Schneiter Executive Vice President and Chief Operating Officer
Jeffrey Fountain Vice President Legal
Mike Nicholson Chief Financial Officer
Teitur Poulsen Vice President Corporate Planning and Investor Relations
Chris Bruijnzeels Senior Vice President Development
More information on the management can be found on www. lundin-petroleum.com
The Group's compensation packages therefore consist of four elements, being (i) base salary; (ii) yearly variable salary; (iii) long-term incentive plan; and (iv) other benefi ts. As part of the yearly assessment process, a Performance Management Process has been established to align individual and team performance to the strategic and operational goals and objectives of the overall business. Individual performance measures are formally agreed and key elements of variable remuneration are clearly linked to the achievement of stated and agreed performance measures.
To ensure compensation packages within the Group remain competitive and in line with market conditions, the Compensation Committee undertakes yearly benchmarking studies. For each study, a peer group of European oil and gas companies of similar size and operational reach is selected, against which the Group's remuneration practices are measured. The levels of base salary, yearly variable salary and long term incentives are set at the median level, however, in the event of exceptional performance, deviations may be authorised.
As the Group continuously competes with the peer group to retain and attract the very best talent in the market, both at operational and executive level, the Group's compensation packages are determined primarily by reference to the remuneration practices within this peer group.
In addition, the Compensation Committee may request other advice and assistance of external reward consultants, which it did in 2013 through the HayGroup.
The remuneration of Executive Management follows the principles that are applicable to all employees, however, these principles must be approved by the shareholders at the AGM. The Compensation Committee therefore prepares yearly for approval by the Board and for submission for fi nal approval to the AGM, a Policy on Remuneration for the Executive Management. Based on the approved Policy on Remuneration, the Compensation Committee subsequently proposes to the Board for approval the remuneration and other terms of employment of the CEO. The CEO, in turn, proposes to the Compensation Committee, for approval by the Board, the remuneration and other terms of employment of the other members of the Executive Management.
The tasks of the Compensation Committee also include monitoring and evaluating the application of the Policy on Remuneration approved at the AGM and, to fulfi l this task, the Compensation Committee prepares a yearly report, for approval by the Board on the evaluation of remuneration of the Executive Management. The statutory auditor of the Company further verifi es on a yearly basis whether the Company has complied with the Policy on Remuneration. Both reports are available on the Company's website and the Policy on Remuneration approved by the 2013 AGM is included in this Corporate Governance Report.
In 2013, the Board agreed on a deviation from the Policy on Remuneration and approved a severance arrangement for the Company's former CFO, Geoffrey Turbott. The Board considered
In this Policy on Remuneration, the terms "Executive Management" or "Executives" refers to the President and Chief Executive Offi cer (CEO), the Executive Vice President and Chief Operating Offi cer, the Vice President Finance and Chief Financial Offi cer, and the Senior Vice President Operations (Senior Vice President Development as of 1 January 2014).
It is the aim of Lundin Petroleum to recruit, motivate and retain high calibre Executives capable of achieving the objectives of the Group, and to encourage and appropriately reward performance in a manner that enhances shareholder value. Accordingly, the Group operates this Policy on Remuneration to ensure that there is a clear link to business strategy and a close alignment with shareholder interests and current best practice, and aims to ensure that the Executive Management is rewarded fairly for its contribution to the Group's performance.
The Board of Directors of Lundin Petroleum has established the Compensation Committee to, among other things, administer this Policy on Remuneration. The Compensation Committee is to receive information and prepare the Board of Directors' and the Annual General Meeting's decisions on matters relating to the principles of remuneration, remunerations and other terms of employment of the Executive Management. The Compensation Committee meets regularly and its tasks include monitoring and evaluating programmes for variable remuneration for the Executive Management and the application of this Policy on Remuneration, as well as the current remuneration structures and levels in the Company.
There are four key elements to the remuneration of Executive Management: a) basic salary; b) yearly variable salary; c) long-term incentive plan; and d) other benefi ts.
that special circumstances in this specifi c case warranted such a deviation, as permitted by Chapter 8, section 53 of the Swedish Companies Act, in view of Geoffrey Turbott's substantial contribution to the Company and its predecessor companies over the past 18 years. Further details regarding the remuneration of Executive Management in 2013, including the agreed severance arrangement, can be found in the notes to the fi nancial statements – see Notes 31–32 on pages 112–115.
For information regarding the Board's proposal for remuneration to the Executive Management to the 2014 AGM, please see the Directors' report, page 83.
The Executive's basic salary shall be based on market conditions, shall be competitive and shall take into account the scope and responsibilities associated with the position, as well as the skills, experience and performance of the Executive. The Executive's basic salary, as well as the other elements of the Executive's remuneration, shall be reviewed annually to ensure that such remuneration remains competitive and in line with market conditions. As part of this assessment process, the Company, as well as the Compensation Committee, periodically undertakes benchmarking comparisons in respect of its remuneration policy and practices.
The advice and assistance of specialised consultants may be requested in connection with these comparisons and the Compensation Committee shall ensure that there is no confl ict of interest regarding other assignments such consultants may have for the Company and the Executive Management.
The Company considers that yearly variable salary is an important part of the Executive's remuneration package where associated performance targets refl ect the key drivers for value creation and growth in shareholder value. Through its Performance Management Process, the Company sets predetermined and measurable performance criteria for each Executive, aimed at promoting long-term value creation for the Company's shareholders.
The yearly variable salary shall, in the normal course of business, be based upon a predetermined limit, being within the range of 1–12 monthly salaries. However, the Compensation Committee may recommend to the Board of Directors for approval yearly variable salary outside of this range in circumstances or in respect of performance which the Compensation Committee considers to be exceptional.
The Company believes that it is appropriate to structure its long-term incentive plans (LTIP) to align Executive Management's incentives with shareholder interests. Remuneration which is linked to the share price results in a greater personal commitment to the Company. Therefore, the Board believes that the Company's LTIP for Executive Management should be related to the Company's share price.
As per the Swedish Code of Governance, the Company's Annual General Meeting shall decide on all share and shareprice related incentive schemes for Executive Management. Information on the principal conditions of proposed LTIPs for Executive Management (if any) is available, as part of the documentation for the Annual General Meeting, on www.lundin-petroleum.com.
Other benefi ts shall be based on market terms and shall facilitate the discharge of each Executive's duties. Such benefi ts include statutory pension benefi ts comprising a defi ned contribution scheme with premiums calculated on the full basic salary. The pension contributions in relation to the basic salary are dependent upon the age of the Executive.
A mutual termination period of between one month and six months applies between the Company and Executives, depending on the duration of the employment with the Company. In addition, severance terms are incorporated into the employment contracts for Executives that give rise to compensation, equal to two years' basic salary, in the event of termination of employment due to a change of control of the Company.
The Compensation Committee shall approve termination packages that exceed USD 150,000 in value per individual.
The Board of Directors is authorised to deviate from the Policy on Remuneration in accordance with Chapter 8, section 53 of the Swedish Companies Act in case of special circumstances in a specifi c case.
Information regarding previously approved remunerations to Executive Management, which remain outstanding (if any), is available in the Company's Annual Report and on www.lundin-petroleum.com.
In June 2010, the Swedish International Public Prosecution Offi ce commenced an investigation into alleged violations of international humanitarian law in Sudan during 1997–2003. The Company has cooperated with the Prosecution Offi ce by providing information regarding its operations in Block 5A in Sudan during the relevant time period. As repeatedly stated, Lundin Petroleum categorically refutes all allegations of wrongdoing and will cooperate with the Prosecution Offi ce's investigation. Lundin Petroleum strongly believes that it was a force for good in Sudan and that its activities contributed to the improvement of the lives of the people of Sudan.
The responsibility of the Board of Directors for internal control over fi nancial reporting is regulated by the Swedish Companies Act, the Swedish Annual Accounts Act and the Swedish Code of Governance. The information in this report is limited to internal control and risk management regarding fi nancial reporting and describes how internal control over the fi nancial reporting is organised, but does not comment on its effectiveness.
Lundin Petroleum's objective for fi nancial reporting is to provide reliable and relevant information for internal and external purposes, in compliance with existing laws and regulations, in a timely and accurate manner. An internal control system for fi nancial reporting has been created to ensure that this objective will be met. An internal control system can only provide reasonable and not absolute assurance against material misstatement or loss, and is designed to manage rather than eliminate the risk of failure to achieve the fi nancial reporting objectives.
Lundin Petroleum's Financial Reporting Internal Control System consists of fi ve key components, as described below and is based upon the Committee of Sponsoring Organisations of the Treadway Commission (COSO) model. The internal control of fi nancial reporting is a continuous evaluation of the risks and control activities within the Group. The evaluation work is an ongoing process that involves internal and external benchmarking, as well as improvement and development of control activities.
The internal auditor of Lundin Petroleum provides an independent and objective appraisal function established as a service adding value to the organisation. The internal auditor is concerned with the adequacy and effectiveness of systems of control and whether they are managed, maintained, complied with and function effectively. To this end, the internal auditor will evaluate controls that promote effi cient management reporting, compliance with procedures, protection of organisational assets and interests and effective control. The internal auditor reports to the Audit Committee.
Lundin Petroleum's Board of Directors has the overall responsibility for establishing an effective internal control system. The Audit Committee assists the Board in relation to the fi nancial reporting, internal control and the reporting of fi nancial risks. The Audit Committee also supervises the effi ciency of the internal auditing, internal control and fi nancial reporting and reviews all interim and annual fi nancial reports.
The CEO is responsible for maintaining in the daily operations an effective control environment and for operating the system of internal control and risk management in the Group and is assisted by Group management at varying levels. Lundin Petroleum's internal auditor is further responsibile for ensuring that the internal control framework is adhered to.
The development and implementation of a Groupwide framework of consistent policies and procedures, to strengthen the internal control of the Group, is a continuous process. Together with laws and external regulations, these internal policies and procedures form the control environment which is the foundation of the internal control and risk management process at Lundin Petroleum. All employees are accountable for compliance with these policies and procedures within their areas of control and risk management.
Risk assessment is an integrated part of the internal control framework and is performed on an ongoing basis at Lundin Petroleum. Risk assessment is a process that identifi es, sources and measures the risk of material error in the fi nancial reporting and accounting systems of the Group. This process is the basis for designing control activities to mitigate identifi ed risks.
Risks relating to fi nancial reporting are monitored and assessed by the Board through the Audit Committee. As part of the risk assessment, Lundin Petroleum reviews and analyses the risks that exist within the fi nancial reporting process and structures its internal control systems around the risks identifi ed. The risks are assessed, on a quarterly basis, through a standardised methodology based on likelihood and impact and are then documented in a
Group-wide risk map. When risks are identifi ed and evaluated, control activities are implemented to minimise the risks in the fi nancial reporting process. Conclusions of the risk assessment are reported to management and the Board through the Audit Committee. Identifi ed risk areas are mitigated through business processes with incorporated risk management, policies and procedures, segregation of duties and delegation of authority. For further details on the different risks, see the Risks and Risk Management section on pages 70–71.
The fi nance department of each Group company is responsible for the regular analysis of the fi nancial results and for reporting thereon to the fi nance department at Group level. Various other control activities are also incorporated into the fi nancial reporting process to ensure that the fi nancial reporting gives a true and fair view at any reporting date and that business is conducted effi ciently.
The Investment Committee oversees the Group's investment decisions through the annual budget process, supplementary budget requests submitted during the year etc., and makes recommendations to the Board as required. The Investment Committee meets regularly and its review and approval process constitutes an important control activity within the Group.
The internal auditor performs on a regular basis risk assessments and audits as per an internal audit plan which is approved by the Audit Committee twice per year. In addition, the internal auditor coordinates joint venture audits that are undertaken by Lundin Petroleum. In the oil and gas industry, operations are conducted through joint venture arrangements, where partners share the costs and risks of the activities. To ensure that accounting procedures are followed and costs are incurred in accordance with the joint operating agreement, for non-operated assets, joint venture partners have audit rights over the operating partner.
Communicating relevant information throughout all levels of the Group, as well as to external parties, in a complete, correct and timely manner is an important part of the internal control framework.
Internal policies and procedures relating to the fi nancial reporting, such as the Authorisation Policy, the Group Accounting Principles Manual and the Finance and Accounting Manual, are updated and communicated on a regular basis by Group management to all affected employees and are accessible through the information system network.
For communication to external parties, a communications policy has been formulated. The policy has been approved by the Board and defi nes how external information is to be issued, by whom and the way in which the information should be given.
In order to ensure the effectiveness of the internal control in respect of the fi nancial reporting, monitoring activities are conducted by the Board, the Audit Committee and Group management, including the Company's CFO. The internal auditor and the Group fi nance department monitor compliance with internal policies, procedures and other policy documents. Further, an important monitoring activity carried out by the internal auditor is to follow-up on the results of the previous years' internal audits and risk assessments to ensure that the appropriate corrective measures have been implemented. Monitoring takes place at a central level, but also locally in the Group companies.
| Board of Directors | ||||
|---|---|---|---|---|
| Name | Ian H. Lundin | Peggy Bruzelius | C. Ashley Heppenstall | Asbjørn Larsen |
| Function | Chairman (since 2002) | Director | President and Chief Executive Offi cer, Director |
Director, CR/HSE Representative |
| Elected | 2001 | 2013 | 2001 | 2008 |
| Born | 1960 | 1949 | 1962 | 1936 |
| Education | Bachelor of Science degree in Petroleum Engineering from the University of Tulsa. |
Master of Science (Econom ics and Business) from the Stockholm School of Economics. |
Bachelor of Science degree in Mathematics from the University of Durham. |
Norwegian School of Economics and Business Administration (NHH). |
| Experience | Ian H. Lundin was previously CEO of International Petroleum Corp. during 1989–1998, of Lundin Oil AB during 1998–2001 and of Lundin Petroleum during 2001–2002. |
Peggy Bruzelius has worked as Managing Director of ABB Financial Services AB and has headed the asset management division of Skandinaviska Enskilda Banken AB. |
C. Ashley Heppenstall has worked with public companies where the Lundin family has a major shareholding since 1993. He was CFO of Lundin Oil AB during 1998–2001 and of Lundin Petroleum during 2001–2002. |
Asbjørn Larsen was CFO of Saga Petroleum during 1978–1979 and President and CEO during 1979– 1998. |
| Other board duties | Chairman of the board of Etrion Corporation and member of the board of Bukowski Auktioner AB. |
Chairman of the board of Lancelot Asset Management AB, member of the board of Axfood AB, Diageo PLC, Akzo Nobel NV and Skandia Liv. |
Member of the board of Etrion Corporation and Gateway Storage Company Limited. |
Member of the board of Selvaag Gruppen AS, The Montebello Cancer Rehabilitation Foundation and The Tom Wilhelmsen Foundation. |
| Shares in Lundin Petroleum (as at 31 December 2013) |
Nil1 | 3,000 | 1,391,283 | 12,000 |
| Board Attendance | 8/8 | 4/53 | 8/8 | 8/8 |
| Audit Committee Attendance |
– | 2/33 | – | 6/6 |
| Compensation Committee Attendance |
– | – | – | – |
| Reserves Committee Attendance |
1/1 | – | – | 1/1 |
| Remuneration for Board and Committee work |
SEK 916,670 | SEK 295,000 | Nil | SEK 570,000 |
| Remuneration for special assignments outside the directorship 9 |
SEK 1,620,000 | Nil | Nil | Nil |
| Independent of the Company and the Group management |
Yes2 | Yes | No4 | Yes |
| Independent of the Company's major shareholders |
No1 | Yes | No4 | Yes |
1 Ian H. Lundin is the settler of a trust that owns Landor Participations Inc., an investment company that holds 11,538,956 shares in the Company, and is a member of the Lundin family that holds, through a family trust, Lorito Holdings (Guernsey) Ltd. which holds 76,342,895 shares in the Company and Zebra Holdings and Investment (Guernsey) Ltd. which holds 10,844,643 shares in the Company.
2 Ian H. Lundin has been regularly retained by management to perform remunerated work duties which fall outside the scope of the regular work of the Board. It is the Nomination Committee's and the Company's opinion that despite his work, he remains independent of the Company and the Group management.
3 Peggy Bruzelius has been a member of the Board and the Audit Committee since 8 May 2013.
4 C. Ashley Heppenstall is in the Nomination Committee's and the Company's opinion not deemed independent of the Company and the Group management since he is the President and CEO of Lundin Petroleum, and not of the Company's major shareholders since he is a director of a company in which entities associated with the Lundin family hold ten percent or more of the share capital and voting rights.
5 Lukas H. Lundin is a member of the Lundin family that holds, through a family trust, Lorito Holdings (Guernsey) Ltd. which holds 76,342,895 shares in the Company and Zebra Holdings and Investment (Guernsey) Ltd. which holds 10,844,643 shares in the Company.
| Board of Directors | |||
|---|---|---|---|
| Lukas H. Lundin | William A. Rand | Magnus Unger | Cecilia Vieweg |
| Director | Director | Director | Director |
| 2001 | 2001 | 2001 | 2013 |
| 1958 | 1942 | 1942 | 1955 |
| Graduate from the New Mexico Institute of Mining, Technology and Engineering. |
Commerce degree (Honours Economics) from McGill University, Law degree from Dalhousie University, Master of Laws degree in International Law from the London School of Economics and Doctorate of Laws from Dalhousie University (Hon.). |
MBA from the Stockholm School of Economics. |
Master of Law from the University of Lund. |
| Lukas H. Lundin has held several key positions within companies where the Lundin family has a major shareholding. |
William A. Rand practised law in Canada until 1992, after which he co founded an investment company and pursued private business interests. |
Magnus Unger was an Executive Vice President within the Atlas Copco group during 1988–1992. |
Cecilia Vieweg is General Counsel and member of the Executive Management of AB Electrolux since 1999. She previously worked as legal advisor in senior positions within the AB Volvo Group and as a lawyer in private practice. |
| Chairman of the board of Lundin Mining Corp., Denison Mines Corp., Lucara Diamond Corp., NGEx Resources Inc. and Lundin Foundation, member of the board of Fortress Minerals Corp. and Bukowski Auktioner AB. |
Member of the board of Lundin Mining Corp., Denison Mines Corp., New West Energy Services Inc. and NGEx Resources Inc. |
Chairman of the board of CAL Konsult AB and member of the board of Black Earth Farming Ltd. |
Member of the board of the Association of Swedish Engineering Industries and the Swedish Securities Council. |
| 788,3315 | 119,441 | 50,000 | 3,500 |
| 8/8 | 8/8 | 8/8 | 5/58 |
| – | 6/6 | 3/37 | – |
| – | 3/3 | 3/3 | 2/38 |
| – | – | – | – |
| SEK 470,000 | SEK 745,000 | SEK 620,000 | SEK 320,000 |
| Nil | Nil | SEK 300,000 | Nil |
| Yes | Yes | Yes | Yes |
| No5 | No6 | Yes | Yes |
6 William A. Rand is in the Nomination Committee's and the Company's opinion not deemed independent of the Company's major shareholders since he holds directorships in companies in which entities associated with the Lundin family hold ten percent or more of the share capital and voting rights.
7 Magnus Unger was a member of the Audit Committee until 8 May 2013.
8 Cecilia Vieweg has been a member of the Board and the Compensation Committee since 8 May 2013.
9 The remuneration paid during 2013 relates to fees paid for special assignments undertaken on behalf of the Group. The payment of such fees was in accordance with fees approved by the 2013 AGM.
Kristin Færøvik declined re-election at the AGM on 8 May 2013. During the period of 1 January to 8 May 2013, she attended 2 out of 3 Board meetings and there were no Compensation Committee meetings. For additional information regarding Kristin Færøvik, please see the Company's 2012 Annual Report, and for remuneration paid to her during 2013, please refer to Note 31 on pages 112–113.
Stockholm, 16 April 2014
The Board of Directors of Lundin Petroleum AB (publ)
To the annual meeting of the shareholders of Lundin Petroleum AB (publ), corporate identity number 556610–8055
It is the Board of Directors who is responsible for the Corporate Governance Statement for the year 2013 on pages 46–66 and that it has been prepared in accordance with the Annual Accounts Act.
We have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a suffi cient basis for our opinions. This means that our statutory examination of the Corporate Governance Statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.
In our opinion, the Corporate Governance Statement has been prepared and its statutory content is consistent with the annual accounts and the consolidated accounts.
Stockholm, 16 April 2014 PricewaterhouseCoopers AB
Klas Brand Johan Malmqvist Authorised Public Accountant Authorised Public Accountant Lead Partner Partner
The Lundin Petroleum share is listed on the Large Cap list of the Nasdaq OMX (OMX) Stockholm in Sweden and is part of the OMX 30 index. The share is also listed on the Toronto Stock Exchange (TSX) in Canada.
Lundin Petroleum's market capitalisation as at 31 December 2013 was MSEK 39,866.
During the year a total of 264 million shares were traded on the OMX to a value of approximately MSEK 37,772. A daily average of 1.06 million Lundin Petroleum shares were traded on the OMX in Stockholm. 0.2 million shares were traded on the TSX to a value of approximately CAD 5.27 million. A daily average of 1,429 Lundin Petroleum shares were traded on the TSX.
The registered share capital as at 31 December 2013 amounted to SEK 3,179,106 represented by 317,910,580 shares with a quota value of SEK 0.01 each and representing one vote each. All outstanding shares are common shares and carry equal rights to participation in Lundin Petroleum's assets and earnings.
The Annual General Meeting (AGM) of Lundin Petroleum held on 8 May 2013 resolved to authorise the Board of Directors to decide on the repurchase and sale of Lundin Petroleum shares on the OMX and TSX during the period until the next AGM. The maximum number of shares that can be repurchased and held in treasury from time to time cannot exceed fi ve percent of all shares of Lundin Petroleum. The purpose of the authorisation
is to provide the Board of Directors with a means to optimise Lundin Petroleum's capital structure and to secure Lundin Petroleum's exposure in relation to the LTIPs.
The total number of repurchased shares held by Lundin Petroleum on 31 December 2013 amounted to 8,340,250.
During the AGM in 2013 it was resolved that the Board of Directors is authorised to issue no more than 35 million new shares, without the application of the shareholders' pre-emption rights, in order to enable the Company to raise capital for the Company's business operations and business acquisitions. If the authorisation is fully utilised the dilution effect on the share capital will amount to ten percent.
Lundin Petroleum's primary objective is to add value to the shareholders, employees and society through profi table operations and growth. This will be achieved by increased hydrocarbon reserves, developing discoveries and thereby increasing production and ultimately cash fl ow and operating income. This added value will be expressed partly by a long-term increase in the share price and dividends.
The size of any dividend would have to be determined by Lundin Petroleum's fi nancial position and the possibilities for growth through profi table investments. Dividends will be paid when Lundin Petroleum generates suffi cient cash fl ow and operating income from operations to maintain long-term fi nancial strength and fl exibility. Over time the total return to shareholders is expected to transfer from an increase in share price to dividends received.
Lundin Petroleum is progressing on a number of transformational development projects which will require funding. This development funding will take priority over dividend payments.
Since Lundin Petroleum was incorporated in May 2001 and up to 31 December 2013 the Parent Company share capital has developed as shown below.
| Share data | Year | Quota value (SEK) |
Change in number of shares |
Total number of shares |
Total share capital (SEK) |
|---|---|---|---|---|---|
| Formation of the Company | 2001 | 100.00 | 1,000 | 1,000 | 100,000 |
| Share split 10,000:1 | 2001 | 0.01 | 9,999,000 | 10,000,000 | 100,000 |
| New share issue | 2001 | 0.01 | 202,407,568 | 212,407,568 | 2,124,076 |
| Warrants | 2002 | 0.01 | 35,609,748 | 248,017,316 | 2,480,173 |
| Incentive warrants | 2002–2008 | 0.01 | 14,037,850 | 262,055,166 | 2,620,552 |
| Valkyries Petroleum Corp. acquisition | 2006 | 0.01 | 55,855,414 | 317,910,580 | 3,179,106 |
| Total | 317,910,580 | 317,910,580 | 3,179,106 |
| 31 Dec 2013 | 31 Dec 2012 | |
|---|---|---|
| Number of shares issued | 317,910,580 | 317,910,580 |
| Number of shares owned by Lundin Petroleum | 8,340,250 | 7,368,285 |
| Number of shares in circulation | 309,570,330 | 310,542,295 |
Lundin Petroleum had 45,148 shareholders as at 31 December 2013. The proportion of shares held by Swedish retail investors amounted to 13 percent. Foreign investors held 70 percent of the shares.
| The 10 largest shareholders as at 31 Dec 2013 |
Number of shares |
Subscription capital/votes,% |
|---|---|---|
| Lorito Holdings (Guernsey) Ltd.1 | 76,342,895 | 24.0 |
| Landor Participations Inc.2 | 11,538,956 | 3.6 |
| Zebra Holdings and Investment (Guernsey) Ltd.1 |
10,844,643 | 3.4 |
| Lundin Petroleum AB | 8,340,250 | 2.6 |
| Swedbank Robur fonder | 8,248,334 | 2.6 |
| Danske Capital Sverige AB | 4,264,159 | 1.3 |
| Norges Bank Investment Management |
||
| (Pension Fund Global) | 4,164,629 | 1.3 |
| Fjärde AP-fonden | 3,194,836 | 1.0 |
| Blackrock Global | 3,003,092 | 0.9 |
| Handelsbanken fonder | 2,927,826 | 0.9 |
| Other shareholders | 185,040,960 | 58.4 |
| Total | 317,910,580 | 100.00 |
1 An investment company wholly owned by a Lundin family trust. 2 An investment company wholly owned by a trust whose settler is Ian H. Lundin.
The top 10 shareholder list excludes shareholdings through nominee accounts. The above list only includes institutional shareholders who hold the shares directly as reported by Euroclear Sweden with the exception of the shareholding of Norges Bank Investment Management (NBIM) whose holding has been obtained directly from NBIM.
| Size categories | Numbers of shareholders |
Percentage of shares,% |
|---|---|---|
| 1–500 | 31,417 | 1.56 |
| 501–1,000 | 5,963 | 1.58 |
| 1,001–10,000 | 6,697 | 6.30 |
| 10,001–50,000 | 707 | 4.87 |
| 50,001–100,000 | 115 | 2.62 |
| 100,001–500,000 | 154 | 12.00 |
| 500,001– | 95 | 71.07 |
| Total | 45,148 | 100.00 |
The objective of risk management is to identify, understand and manage threats and opportunities within the business on a continual basis. This objective is achieved by creating a mandate and commitment to risk management at all levels of the business. This approach actively addresses risk as an integral and continual part of decision making within the Company and is designed to ensure that all risks are identifi ed, fully acknowledged, understood and communicated well in advance. The ability to manage and or mitigate these risks represents a key component in ensuring that the business aim of the Company is achieved. Nevertheless oil and gas exploration,
development and production involve high operational and fi nancial risks, which even a combination of experience, knowledge and careful evaluation may not be able to fully eliminate or which are beyond the Company's control.
Lundin Petroleum has identifi ed the following principal risks relative to the Group's performance. The impact of risks within any one of these segments can infl uence the reputation of the Company (reputational risk). In addition to these identifi ed principal risks, Lundin Petroleum Group management reviews all its business risks, including project execution, operational, fi nancial and Health Safety and Environment risks on a quarterly basis. Risk mitigation is discussed and if required additional measures are implemented.
| Description of risk | Mitigation – Risk management |
|---|---|
| Strategic Risk | |
| Failure to create shareholder value and meet shareholder expectations A strategy that is ineffective and poorly communicated or ex ecuted may lead to a loss of investor confi dence and a reduction in the share price. |
Lundin Petroleum's business model clearly defi nes the vision and strategy of the Company. Throughout all stages of the business cycle, Lundin Petroleum seeks to generate shareholder value by proactively investing in exploration to organically grow the reserve base, exploiting the existing asset base and acquiring new or disposing of reserves, as well as through an opportunistic approach. |
| Strong communication channels are coupled with effective leadership in order to maintain creativity and an entrepreneurial spirit. This ensures that the entire organisation works towards the same goal. |
|
| Inadequate asset portfolio management Ineffective management may lead to a failure to understand and unlock the full value of an asset which could negatively impact shareholder value. |
Lundin Petroleum continually reviews the economic value of the existing asset portfolio in order to ensure that the value of each asset within the portfolio is well understood, communicated and fully refl ected within the share price. |
| Ineffective recruitment, retention and management of human capital An inability to attract and retain employees could cause short and medium term disruption to the business. |
The Lundin Petroleum recruitment and compensation strategy is aligned with corporate goals and objectives and takes into consideration industry trends. The Performance Management process is designed to drive engagement and create a philosophy of ownership at all levels of the Company. |
| Lack of corporate responsibility and environmental awareness A real or perceived lack of corporate responsibility and environmental awareness can have an adverse impact on the people the Company works with, on the environment in which the Company operates and as well as on its reputation. Any such impact on the Company's reputation could in turn impact its license to operate, fi nancing or access to new opportunities. |
Lundin Petroleum's Corporate Responsibility framework is applied to all its activities and includes monitoring of risk mitigation measures, reporting and investigation of all incidents. Communication plans and management of stakeholder relations are designed to maintain good and effective relationships. (See also pages 36–45 Corporate Responsibility for more information). The Company's aim is to explore for and produce oil and gas in an economically, socially and environmentally responsible way, for the benefi t of all its stakeholders, including shareholders, employees, business partners, host and home governments and local communities. |
| Financial Risk 1 | |
| Cost escalation and investment oversight Adequate policies must be in place to ensure that all necessary internal and external approvals are in place prior to the commitment to spend. Any change in expenditures must be captured in a timely manner through the reporting requirements. |
Through the Lundin Petroleum annual budget and supplementary budget approval process the Company has implemented a rigorous process of oversight of all expenditure on a continual basis. This process ensures that expenditure is in line with approvals from the Investment Committee and that change is communicated in a thorough and timely manner. |
| Liquidity risk The risk that the Group may not be able to settle or meet its obligations on time or at a reasonable price, could lead to inability to fund exploration and development work programmes. |
Lundin Petroleum monitors rolling forecasts of the Group's liquidity requirements to ensure that it has suffi cient cash to meet operational needs. The economics and planning department continuously monitors the macro and micro economic environment impacting the Group's business to ensure that management is informed of developments impacting capital decision making. |
| Credit risk The risk arises from cash and cash equivalents, deposits with banks and fi nancial institutions as well as credit exposure to customers. |
Lundin Petroleum's policy is to limit credit risk by limiting the customers and partners to major oil companies and only use major banks. If there is a credit risk for oil and gas sales, the policy is to require an irrevocable letter of credit for the full value of the sale. |
| Financial reporting risk The risk that material misstatements in fi nancial reporting and failure to accurately report fi nancial data could lead to regulatory action, legal liability and damage to the Company's reputation. |
The internal control system for fi nancial reporting is in place to ensure the Group's objective for fi nancial reporting is fulfi lled. |
1 For more detailed information regarding fi nancial risks see also Note 11 in notes to the fi nancial statements pages 104–108. More information on the internal control is found in the Corporate Governance report pages 46–65.
| Description of risk | Mitigation – Risk management |
|---|---|
| Operational Risk | |
| Development projects do not achieve stated objectives Ensuring that development projects remain on budget, on schedule and achieve operational objectives is essential in ensuring that shareholder value is maximised. |
All development projects must pass through the Lundin Petroleum value process that requires technical, fi nancial, Investment Committee and Board approval of all investment decisions. The development project management process assigns a steering committee that provides guidance, direction and control to the project. Government organisations, partners and third party groups also provide independent oversight. |
| In Norway the Company is governed by the detailed guidelines for plan for development and operation of a petroleum deposit (PDO) and plan for installation and operation of facilities for transport and utilisation of petroleum (PIO) as published by the Norwegian Petroleum Directorate. |
|
| Health, safety and environment (HSE) A major operational HSE event could have a negative impact on the people and environment in which the Company works. This in turn can have an adverse impact on valuation. |
Lundin Petroleum promotes active management of HSE issues throughout the Group. Proactive risk management, HSE policies, and an HSE management system in compliance with statutory requirements are an integral part of operations. (See also pages 36–45 Corporate Responsibility for more information.) |
| Major operational incident Apart from the HSE impact of a major operational incident, there can be signifi cant fi nancial consequences for oil spill response, replacement of equipment and liability |
Lundin Petroleum's management systems are in place to avoid Major Operational Incidents. However oil and gas operations will never be completely risk free and the potential for incidents (although reduced to a minimum) will remain. Therefore all Operations are reviewed on a regular basis to assess the risk of incident and to ensure that adequate Insurance coverage is in place. |
| Increase in production costs Production costs are affected by the normal economic drivers of supply and demand as well as by various fi eld operating conditions. |
Effective procurement and cost control management processes are essential in ensuring that reasonable cost levels are achieved relative to business plans. Diligent operations management and effective maintenance planning help to ensure effi ciency during operations. Production delays and declines from normal fi eld operating conditions cannot be eliminated and may adversely affect revenue and cash fl ow levels to varying degrees. |
| Availability of operational equipment Oil and gas exploration and development activities are dependent on the availability of drilling and related equipment. An inability to procure equipment on a timely basis may delay exploration and development activities. |
Advanced planning of the Company's operational programme includes ensuring that the contracting strategy and procurement process is in place. Regular engagement with contractors and suppliers as well as consideration for equipment as part of the licence application process mitigates the risk. |
| Reserve and resources estimates In general, estimates of economically recoverable oil and gas re serves and the future net cash fl ows therefrom are based upon a number of variable factors and assumptions. All such estimates are to some degree speculative, and classifi cations of reserves are only attempts to defi ne the degree of speculation involved. |
Reserves and resource calculations undergo a comprehensive internal peer review process and adhere to industry standards. All reserves are independently audited by ERC-Equipoise Ltd. as part of the annual reserves audit process. (See also pages 12–17 Reserves, Resources and Production for more information.) |
| Inability to replace and grow reserves The ability to increase reserves will depend not only on the ability to explore and develop the Company's present portfolio of opportunities, but also on the ability to select and acquire suitable producing assets or prospects. |
The use of effective peer review for subsurface analysis and well site selection together with a well defi ned strategy for recruitment and retention of talented personnel mitigates the risk. (See also pages 12–17 Reserves, Resources and Production for more information.) |
| Ineffective systems to prevent bribery and corruption Corruption can occur in any country of operation. Incidents of non-compliance with anti-bribery and anti-corruption laws could be damaging to Lundin Petroleum, its reputation and shareholder value. |
A consistent application of Lundin Petroleum's Code of Conduct, together with policies and procedures that clearly defi ne levels of authority and internal control requirements help to mitigate risk. In 2010 Lundin Petroleum joined the UN Global Compact to further confi rm the Company's commitment to ethical business practice and the Board of Directors adopted in 2011 an anti-corruption policy and guidelines. (See also pages 36–45 Corporate Responsibility for more information.) |
| External Risk | |
| Geopolitical Risk The Company is, and will be, actively engaged in oil and gas operations in various countries. Changes to laws within these countries may lead to negative consequences such as but not limited to the expropriation of property, cancellation of or modifi cation of contract rights, and or increased taxation. |
The Company reviews its portfolio of assets in relation to its fi nancial performance on a regular basis. The consideration of political risk elements is a key component driving investment decisions for the Company as a whole. Local laws are monitored and the Company strives to ensure comprehensive interpretation and compliance with any changes that may impact the business. |
| Fluctuation in the price of oil and gas The price of oil and gas are affected by the normal economic drivers of supply and demand as well as the fi nancial investors and market uncertainty. |
Lundin Petroleum's policy is to adopt a fl exible approach towards oil price hedging based on an assessment of the benefi ts of the hedge contract in specifi c circumstances. |
| Fluctuation in currency rates Crude oil prices are generally set in US dollars, whereas costs may be in a variety of currencies. Fluctuation in exchange rates can therefore give rise to foreign exchange exposures |
Lundin Petroleum's policy on currency rate hedging is, in case of currency exposure, is to consider setting the rate of exchange for known costs in non-US Dollar currencies to US Dollars in advance so that future US Dollar cost levels can be forecasted with a reasonable degree of certainty. The functional currencies of the companies in the Group are reviewed annually. |
| Interest rate risk The uncertainty in future interest rates could have an impact on the Company's earnings. The Group's interest rate risk arises from long-term borrowings. |
Lundin Petroleum regularly assesses the benefi ts of interest rate hedging on borrowings. |
| Directors' report | 73 |
|---|---|
| Consolidated income statement | 85 |
| Consolidated statement of comprehensive income | 86 |
| Consolidated balance sheet | 87 |
| Consolidated statement of cash fl ow | 88 |
| Consolidated statement of changes in equity | 89 |
| Accounting policies | 90 |
| Notes to the fi nancial statements of the Group | 96 |
| - Note 1 – Revenue | 96 |
| - Note 2 – Production costs | 96 |
| - Note 3 – Segment information | 96 |
| - Note 4 – Financial income | 99 |
| - Note 5 – Financial expenses | 99 |
| - Note 6 – Income taxes | 99 |
| - Note 7 – Oil and gas properties | 101 |
| - Note 8 – Other tangible assets | 103 |
| - Note 9 – Shares in jointly controlled entities | |
| and associated companies | 103 |
| - Note 10 – Other shares and participations | 104 |
| - Note 11 – Financial risks, sensitivity analysis | |
| and derivative instruments | 104 |
| - Note 12– Other fi nancial assets | 108 |
| - Note 13 – Inventories | 108 |
| - Note 14 – Trade receivables | 108 |
| - Note 15 – Prepaid expenses and accrued income | 108 |
| - Note 16 – Other receivables | 109 |
| - Note 17 – Cash and cash equivalents | 109 |
| - Note 18 – Other reserves | 109 |
| - Note 19 – Provision for site restoration | 109 |
| - Note 20 – Pension provision | 109 |
| - Note 21 – Other provisions | 109 |
| - Note 22 – Financial liabilities | 109 |
| - Note 23 – Accrued expenses and deferred income | 110 |
| - Note 24 – Other liabilities | 110 |
| - Note 25 – Pledged assets | 110 |
| - Note 27 – Earnings per share | 111 |
|---|---|
| - Note 28 – Adjustment for non-cash related items | 111 |
| - Note 29 – Related party transactions | 111 |
| - Note 30 – Average number of employees | 112 |
| - Note 31 – Remuneration to the Board of directors, | |
| Executive Management and other employees | 112 |
| - Note 32 – Long-term incentive plans | 113 |
| - Note 33 – Remuneration to the Group's auditors | 115 |
| - Note 34 – Subsequent events | 115 |
| Annual accounts of the Parent Company | 116 |
| Parent Company income statement | 116 |
| Parent Company statement of comprehensive income | 116 |
| Parent Company balance sheet | 117 |
| Parent Company statement of cash fl ow | 118 |
| Parent Company statement of changes in equity | 118 |
| Notes to the fi nancial statements of the | |
| Parent Company | 119 |
| - Note 1 – Revenue per country | 119 |
| - Note 2 – Financial income | 119 |
| - Note 3 – Financial expenses | 119 |
| - Note 4 – Income taxes | 119 |
| - Note 5 – Other receivables | 119 |
| - Note 6 – Provisions | 119 |
| - Note 7 – Accrued expenses and prepaid income | 119 |
| - Note 8 – Financial instruments by category | 119 |
| - Note 9 – Pledged assets, contingent liabilities and assets 119 | |
| - Note 10 – Remuneration to the auditor | 119 |
| - Note 11 – Shares in subsidiaries | 120 |
| Board assurance | 121 |
| Auditor's report | 122 |
| Five year fi nancial data | 123 |
| Key fi nancial data | 124 |
| Reserve quantity information | 126 |
| Shareholder information | 127 |
Lundin Petroleum AB (Publ) Reg No. 556610-8055
The address of Lundin Petroleum AB's registered offi ce is Hovslagargatan 5, Stockholm, Sweden.
The main business of Lundin Petroleum is the exploration for, the development of, and the production of oil and gas. Lundin Petroleum maintains a portfolio of oil and gas production assets and development projects in various countries with exposure to exploration opportunities.
The Group does not carry out any signifi cant research and development. The Group maintains branches in Malaysia and Indonesia. The Parent Company has no foreign branches.
There have been no signifi cant changes to the Group for the fi nancial year 2013.
Production for the year amounted to 32.7 thousand barrels of oil equivalent per day (Mboepd) (compared to 35.7 Mboepd over the same period in 2012) and was comprised as follows:
| Production in Mboepd | 2013 | 2012 |
|---|---|---|
| Crude oil | ||
| Norway | 20.6 | 23.3 |
| France | 2.9 | 2.8 |
| Russia | 2.3 | 2.7 |
| Tunisia | – | 0.1 |
| Total crude oil production | 25.8 | 28.9 |
| Gas | ||
| Norway | 3.3 | 3.9 |
| Netherlands | 2.0 | 1.9 |
| Indonesia | 1.6 | 1.0 |
| Total gas production | 6.9 | 6.8 |
| Total production | ||
| Quantity in Mboe | 11,939.6 | 13,050.4 |
| Quantity in Mboepd | 32.7 | 35.7 |
| Production in Mboepd | Working Interest (WI) |
2013 | 2012 |
|---|---|---|---|
| Volund | 35% | 12.2 | 13.1 |
| Alvheim | 15% | 10.5 | 11.8 |
| Gaupe | 40% | 1.2 | 2.3 |
| Quantity in Mboepd | 23.9 | 27.2 |
The Volund fi eld production during the year has exceeded forecast due to better than expected performance of the reservoir and the Alvheim FPSO uptime. An additional Volund development well was drilled in 2012 and put onstream early in 2013 resulting in Volund continuing to produce at close to full fl owline capacity. Water breakthrough has now occurred in all of the four producing wells on Volund with total fi eld water cut as at the end of 2013 being approximately 35 percent. The cost of operations, excluding project specifi c costs, for the Volund fi eld during the year was below USD 2.50 per barrel.
Production from the Alvheim fi eld during the year was below expectations. This was due to the shut-in of three production wells due to well integrity issues in two of the wells, both
of which were shut-in during January 2013, and a fl owline integrity issue in a well which was shut-in in June 2013. The fl owline integrity issue has been resolved with the well coming back onstream in September 2013. Work-over activity commenced on the remaining two shut-in wells during the fourth quarter 2013. The two worked-over wells are expected to be brought back onstream in April 2014. Maintenance work on the Alvheim FPSO was successfully completed during the planned shut-in in August 2013. There was no production shut-in on the Alvheim FPSO in the previous year. The Alvheim FPSO uptime levels for the year of close to 96 percent have had a positive impact on the Alvheim production against forecast. The cost of operations for the Alvheim fi eld, excluding well intervention and other one-off related project work, was around USD 5.00 per barrel during the year. The one-off well intervention work during 2013 is being recorded as additional cost of operations and is forecast to account for USD 1.25 per boe of Lundin Petroleum's total cost of operations for the full year. Three infi ll development wells are scheduled to be drilled on Alvheim in 2014 and 2015 resulting in an increase of net reserves in Alvheim for the ninth consecutive year. The previously announced drilling of the North Kameleon exploration prospect north of the Alvheim fi eld is now expected to take place in 2015 due to delays in the Transocean Winner rig schedule.
Production from the Gaupe fi eld during the year has been in line with expectations and the production shut-in during August 2013 for planned maintenance also progressed as expected with the fi eld re-commencing production in September 2013. The Gaupe fi eld is expected to cease production in 2014.
| Field Development |
Licence | WI | PDO Approval | Estimated gross reserves |
First production expected |
Gross plateau production rate expected |
|---|---|---|---|---|---|---|
| Brynhild | PL148 | 90% | November 2011 | 23 MMboe | Second quarter 2014 | 12.0 Mboepd |
| Bøyla | PL340 | 15% | October 2012 | 22 MMboe | First quarter 2015 | 19.0 Mboepd |
| Edvard Grieg | PL338 | 50% | June 2012 | 186 MMboe | Late 2015 | 100.0 Mboepd |
installation and commissioning work including the installation of a new production riser. First oil from the Brynhild fi eld is forecast in the second quarter of 2014.
The Bøyla fi eld will be developed as a 28 km subsea tie-back to the Alvheim FPSO with two production wells and one water injection well. Fabrication of the fi eld's subsea structures has commenced and drilling of the three development wells is scheduled to take place in 2014 with the Transocean Winner rig. The fi rst oil date has been revised to the fi rst quarter 2015 due to a delay in the Transocean Winner rig schedule. The Bøyla fi eld development costs remain on budget.
The Edvard Grieg fi eld development is progressing on schedule and on budget. Construction and engineering work on the jacket, topside and export pipelines is ongoing. First oil from the Edvard Grieg fi eld is still expected in late 2015.
All the major contracts for the Edvard Grieg development have been awarded. Kværner has been awarded a contract covering engineering, procurement and construction of the jacket and the topsides for the platform and a contract has been awarded to Rowan Companies for a jack-up rig to drill the development wells. Saipem has been awarded the contract for marine installation. During the year, a plan for installation and operation (PIO) has been submitted to the Ministry of Petroleum and Energy for the 43 km long Edvard Grieg oil pipeline and the 94 km long Edvard Grieg gas pipeline. The pipelines will be jointly owned by the licence partners in Edvard Grieg PL338 and Ivar Aasen (formerly Draupne) PL001B/PL028B/PL242 with Lundin Petroleum having an ownership of 30 percent in the oil pipeline and 20 percent in the gas pipeline. Statoil will be the operator of the pipelines. The oil pipeline will be tied-into the Grane oil pipeline and the gas pipeline will be tied-in to the Sage Beryl gas system in the United Kingdom. Installment of the gas pipeline will be carried out in the summer of 2014 and the oil pipeline will be installed in 2015. The jacket construction commenced in 2012 and is now substantially complete and is expected to be shipped offshore in the second quarter of 2014 for installation. The construction of the topside commenced in 2013 and installation is planned during the summer of 2015. An appraisal well has commenced drilling in the southeastern part of the Edvard Grieg reservoir in the fi rst quarter of 2014 with potential to increase reserves and optimise the location of the Edvard Grieg development wells.
The Edvard Grieg development plan incorporates the provision for the coordinated development solution with the nearby Ivar Aasen fi eld located in PL001B and operated by Det norske oljeselskap ASA (Det norske). The Ivar Aasen development plan was approved by the Norwegian authorities during the fi rst quarter of 2013.
Lundin Petroleum discovered the Avaldsnes fi eld in PL501 (WI 40%) in 2010. In 2011, Statoil made the Aldous Major South discovery on the neighbouring PL265 (WI 10%). Following appraisal drilling, it was determined that the discoveries were connected and in January 2012 the combined discovery was renamed Johan Sverdrup. During 2013 an appraisal well drilled in PL502 (WI 0%) confi rmed that a small portion of the fi eld also extends into PL502.
A total of 20 wells have now been drilled on the Johan Sverdrup fi eld and the appraisal campaign is now substantially complete. Statoil, the pre-unit operator of the fi eld has released an updated gross contingent resource estimate for the Johan Sverdrup fi eld of 1.8 to 2.9 billion boe and a fi rst oil date of late 2019. In order to retain the targeted plan of development (PDO) approval schedule of 2015, a FEED contract was awarded to Aker Solutions in late 2013. A development concept selection was made in early 2014.
During the year, seven appraisal wells have been completed. Five appraisal wells have been drilled on PL501 during the year with results in terms of reservoir thickness and quality as well as oil columns being substantially in line with expectations.
One appraisal well was drilled on PL265 which was production tested from two zones with 1,500 bopd fl ow test from a lower sandstone layers with interbedded shales and 5,900 bopd from an upper zone with excellent quality Jurassic sandstone. One exploration well and one side track from the successful appraisal well were drilled west of the boundary fault on PL265 but both encountered basement with non-commercial reservoir properties.
One successful appraisal well was also drilled on PL502 during the year.
The following table outlines the drilled wells on Johan Sverdrup in 2013.
2013 appraisal well programme on Johan Sverdrup
| Licence | Operator | WI | Well | Spud Date | Gross oil column |
Result |
|---|---|---|---|---|---|---|
| PL501 | Lundin Petroleum | 40% | 16/2–16AT2 | December 2012 | 30m | Successfully completed February 2013 (side track) |
| PL501 | Lundin Petroleum | 40% | 16/3–5 | January 2013 | 30m | Successfully completed March 2013, Drill Stem Test (DST) completed |
| PL502 | Statoil | 0% | 16/5–3 | February 2013 | 13.5m | Successfully completed March 2013 |
| PL265 | Statoil | 10% | 16/2–17S | March 2013 | 82m | Successfully completed June 2013, 2 DST completed |
| PL501 | Lundin Petroleum | 40% | 16/2–21 | May 2013 | 12m | Successfully completed June 2013 |
| PL501 | Lundin Petroleum | 40% | 16/3–6 | June 2013 | 11.5m | Successfully completed July 2013 |
| PL265 | Statoil | 10% | 16/2–18S Cliffhanger, North |
July 2013 | 0m | Completed in August 2013 (exploration) |
| PL501 | Lundin Petroleum | 40% | 16/5–4 | August 2013 | 6m | Successfully completed in September 2013 |
| PL501 | Lundin Petroleum | 40% | 16/3–7 | October 2013 | 0m | Completed in November 2013 |
In March 2014 one appraisal well was drilled on the Avaldsnes High in PL501 (WI 40%), encountering a 13 metres of oil fi lled excellent quality jurrasic reservoar and one well is currently drilling to the north of the Geitungen appraisal well 16/2-12 on PL265 (WI 10%).
| Licence | Well | Spud Date | Target | WI | Operator | Result |
|---|---|---|---|---|---|---|
| Southern NCS | ||||||
| PL453S | 8/5–1 | January 2013 | Ogna | 35% | Lundin Petroleum | Dry |
| PL495 | 7/4–3 | April 2013 | Carlsberg | 60% | Lundin Petroleum | Dry |
| Utsira High | ||||||
| PL338 | 16/1–17 | February 2013 | Jorvik | 50% | Lundin Petroleum | Oil discovery – non-commercial |
| PL359 | 16/4–6S | April 2013 | Luno II | 40% | Lundin Petroleum | Oil discovery – gross contingent resources 25–120 MMboe |
| PL544 | 16/4–7 | July 2013 | Biotitt | 40% | Lundin Petroleum | Dry |
| PL501 | 16/2-20 and 16/2-20A |
September 2013 | Torvastad | 40% | Lundin Petroleum | Dry |
| Utgard High | ||||||
| PL330 | 6608/2–1S | June 2013 | Sverdrup | 30% | RWE Dea | Dry |
| Barents Sea | ||||||
| PL492 | 7120/1–3 | July 2013 | Gohta | 40% | Lundin Petroleum | Oil and Gas discovery – gross contingent resources 105–235 MMboe |
| PL659 | 7222/11–2 | January 2014 | Langlitinden | 20% | Det norske | Dry |
The completion of the well 16/4–6S targeting the Luno II prospect in PL359 (WI 40%) was announced in May 2013 as an oil discovery. The well was drilled on the southwestern fl ank of the Utsira High approximately 15 km south of the Edvard Grieg fi eld. Lundin Petroleum estimated that the Luno II structure, which is believed to span across two separate reservoir segments, contains gross contingent resources of 25 to 120 MMboe as well as gross prospective resources of 10 to 40 MMboe for the Luno II North segment. The contingent resources relate to the southern segment of the Luno II structure and the prospective resources to the northern segment. Late in 2013, the potential Luno II discovery extension into PL410
(WI 70%) was appraised by well 16/5–5 but the well found the reservoir shallower than expected with worse reservoir quality and lower oil saturation than expected. The extension is therefore regarded as non-commercial. The 25 to 120 MMboe resource range is prior to the drilling of the 16/5–5 appraisal well in PL410. A second Luno II appraisal well is planned to be drilled on PL359 during the fi rst half of 2014.
In September 2013, Lundin Petroleum announced a signifi cant oil and gas discovery in the Barents Sea called Gohta. Well 7120/1–3, drilled on PL492 (WI 40%) approximately 35 km north of the Snøhvit fi eld, encountered a 100 metre gross
hydrocarbon column in Permo-Carboniferous carbonate reservoir of which the top 25 metres consisted of gas. The well was production tested and achieved a better than expected fl ow rate of 4,300 bopd through a 44/64" choke with a gas to oil ratio of 1,040 scf/bbl, confi rming good production properties from the reservoir. The Gohta discovery is estimated to contain gross contingent resources of 105 to 235 MMboe. The Gohta discovery is likely sourced from a local Triassic oil kitchen which upgrades other prospects on PL492 and adjoining acreage PL609 (WI 40%) to the north. One appraisal well is planned to be drilled on Gohta and one exploration well on the Alta prospect on PL609 in 2014.
To the east of the Gohta discovery, the Langlitinden prospect, operated by Det norske, on PL659 (WI 20%) located to the southeast of the Loppa High spudded in January 2014. The well encountered oil in tight reservoar and was deemed to be noncommercial.
In October 2013, well 6608/2-1S drilled on PL330 (WI 30%) and operated by RWE Dea Norge AS was announced as a dry hole. The well was targeting Jurassic sandstones in the Sverdrup prospect (not to be confused with the Johan Sverdrup discovery in the North Sea) in the northern Norwegian Sea. The well encountered an active petroleum system but failed to encounter any reservoir and was plugged and abandoned.
In December 2013, well 16/2–20S targeting the Torvastad prospect on PL501 (WI 40%) on the Utsira High was completed. The well found good quality Jurassic reservoir but the reservoir was deep to prognosis and therefore waterbearing. The well was announced as a dry hole. A side-track to the 16/2–20S well to the west was commenced in December to ascertain whether the good quality sand would extend up-dip to the west. The side track did encounter a reservoir section up-dip but with poor reservoir quality and was also declared dry.
Lundin Petroleum plans to drill six exploration wells in Norway during 2014. In addition to the Kopervik, Alta and Langlitinden exploration wells, further wells are planned to be drilled on the Storm, Lindarormen and Vollgrav prospects. The Storm prospect on PL555 (WI 60%), located in the northern North Sea, is planned to be drilled during the second quarter 2014. In the second half of 2014, the Lindarormen well on PL584 (WI 60%) is forecast to be drilled in the Norwegian Sea to the south of the Asgard fi eld and to the southwest of the Draugen fi eld. In the second half of 2014, the Vollgrav well on PL631 (WI 60%) is also planned to be drilled in the northern North Sea between the Statfjord and Gullfaks fi elds.
During the reporting period, Lundin Petroleum was awarded seven licences through the APA 2012 licensing round and one additional licence in the 22nd Norwegian licensing round. Four licences were relinquished during the reporting period. In January 2014, it was announced that Lundin Petroleum had been awarded nine licences through the APA 2013 licensing round, including four new licences in the Barents Sea. In January 2014, Lundin Petroleum farmed-out ten percent in PL546 (WI 50% after farm-out) to Petrolia Norway AS.
| Production in Mboepd | WI | 2013 | 2012 |
|---|---|---|---|
| France | |||
| – Paris Basin | 100%1 | 2.5 | 2.3 |
| – Aquitaine | 50% | 0.4 | 0.5 |
| Netherlands | Various | 2.0 | 1.9 |
| 4.9 | 4.7 |
1 Working interest in the Dommartin Lettree fi eld 42.5 percent
Overall production levels from France during the year have increased with good production from the Grandville fi eld in the Paris Basin which continues to ramp up production from increased water injection capacity and a higher well stock. This increase is partially offset by a production underperformance from certain Aquitaine Basin fi elds related to various, nonreservoir related, mechanical failures. The Hoplites exploration well on the Est Champagne concession (WI 100%) is planned to be drilled in 2014.
Production from the Netherlands has been in line with the forecast during the year.
Five exploration wells are planned to be drilled during 2014: one onshore on the Leeuwarden licence (WI 7.23 %), two onshore on the Gorredijk licence (WI 7.75%) and one onshore on the Slootdorp licence (WI 7.23%). One offshore exploration well is planned to be drilled on the E17 licence (WI 1.20%).
The Bertam oil fi eld, offshore Peninsular Malaysia received development approval from Petronas in October 2013 with fi rst oil expected in 2015. Lundin Petroleum is planning to drill three exploration wells and one appraisal well in Malaysia in 2014.
Lundin Petroleum holds four licences offshore Peninsular Malaysia with a 75 percent operated working interest in PM307, a 35 percent operated working interest in PM308A, a 75 percent operated working interest in PM308B and a 85 percent operated working interest in PM319. Block PM307 contains the Bertam fi eld and the Tembakau gas discovery.
A fi eld development plan for the Bertam fi eld was approved by Petronas and development commenced during the year. The Bertam fi eld will be developed using a 20 slot Wellhead Platform adjacent to the spread-moored Ikdam FPSO which is owned 100 percent by Lundin Petroleum. The subsurface development concept consists of 13 horizontal wells and one deviated well completed with electrical submersible pumps. The FPSO life extension work contract has been placed with Keppel Shipyard and work is ongoing in Singapore. The wellhead platform contract has been awarded to TH Heavy Engineering (THHE) and work is ongoing at the yard in Pulau Indah close to Kuala Lumpur. Development drilling is planned to commence
during the summer of 2014. The total gross capital investment associated with the Bertam fi eld development, excluding any FPSO related costs, is estimated at approximately MUSD 400.
The Bertam fi eld is estimated to contain gross reserves of 18.2 MMboe and is scheduled to commence fi rst oil in 2015 with a gross plateau rate of 15,000 bopd.
A 3D seismic acquisition programme over the northern part of Block PM307 and the southern part of Block PM319 (WI 85%) was completed during the year and processing of the seismic is ongoing. The Tembakau gas discovery made in 2012, with gross best estimate contingent resources of 306 billion cubic feet (bcf), will be appraised as part of the next offshore Peninsular Malaysia drilling campaign to commence in the second quarter of 2014. An exploration well is planned to be drilled on the Rengas oil prospect on PM307 in 2014.
Lundin Petroleum holds two licences offshore Sabah in east Malaysia with a 75 percent operated working interest in Block SB303 and a 42.5 percent operated working interest in Block SB307/308. Block SB303 contains four gas discoveries containing a gross best estimate contingent resource of 347 bcf.
Lundin Petroleum continues to evaluate the potential for commercialisation of the Berangan, Tarap, Cempulut and Titik Terang gas discoveries in Block SB303, most likely through a cluster development. Seismic processing of the 500 km2 Emerald 3D survey on SB307 was completed during the year and two prospects, Maligan and Kitabu, within the Emerald 3D are planned to be drilled in 2014. An additional 500 km2 3D seismic acquisition referenced as the Francis 3D, on SB307/308 was completed at the end of July 2013 and processing of the seismic is scheduled to be completed in the fi rst half of 2014.
Lundin Petroleum's assets in Indonesia are located in the Natuna Sea and offshore northeastern Indonesia and onshore south Sumatra. The Indonesian assets consist of approximately 24,750 km² of exploration acreage and one producing fi eld onshore Sumatra.
The production for the year increased compared to the same period last year following wellhead repairs on the Singa fi eld.
Exploration drilling on the Baronang Block (WI 90%) is commenced in the fi rst quarter of 2014 with a well and a sidetrack targeting the Balqis and Boni prospects. Both wells encountered good quality reservoars but neither well found any hydrocarbons.
Following the completion of the interpretation of the 3D seismic acquisition of 950 km² acquired in 2012, the Gobi prospect has been identifi ed as the targeted prospect for the 2014 exploration well on the Gurita Block (WI 90%). The Gobi prospect, which is estimated to contain gross 24 MMboe of prospective resources, is a fault-dip closure on the south fl ank of the Jemaja High, with stacked closures at multiple levels for Oligocene aged fl uvial and alluvial sands which have been proven in many wells in the Natuna Basin. The Gobi prospect is scheduled to be drilled in 2014. In the event that the Hakuryu 11 rig is delayed further there is a risk that the Gobi-1 well is delayed until 2015.
A 3D seismic acquisition programme of 1,000 km² has been completed on the South Sokang Block (WI 60%) during the year. The seismic processing and interpretation is schedule to be completed in the fi rst half of 2014.
In July 2013, Lundin Petroleum announced that it had signed a new PSC with SKKMigas whereby Lundin Petroleum will swap its Sareba Block with a new Block called the Cendrawasih VII Block (WI 100%) offshore eastern Indonesia.
| Production in Mboepd | WI | 2013 | 2012 |
|---|---|---|---|
| Onshore Komi Republic | 50% | 2.3 | 2.7 |
The production for the year decreased compared to the prior year as a result of the natural decline in the fi eld.
In the Lagansky Block (WI 70%) in the northern Caspian a major oil discovery, Morskaya, was made in 2008 and is estimated to contain gross best estimate contingent resources of 157 MMboe. In October 2013, Lundin Petroleum announced a Heads of Agreement with Rosneft whereby Rosneft will acquire a 51 percent shareholding in LLC PetroResurs which owns a 100 percent interest in the Lagansky Block. Rosneft's consideration in return for the 51 percent equity stake relates to historical spending on the Block and will be paid to Lundin Petroleum and Gunvor through a deferred payment mechanism. Following the completion of this transaction, Lundin Petroleum will have a 34.3 percent effective interest in the Lagansky Block. It is expected that the Rosneft acquisition will be completed in the fi rst half of 2014.
The net result for the fi nancial year 2013 amounted to MUSD 72.9 (MUSD 103.9). The net result attributable to shareholders of the Parent Company for the year amounted to MUSD 77.6 (MUSD 108.2) representing earnings per share of USD 0.25 (USD 0.35).
Earnings before interest, tax, depletion and amortisation (EBITDA) for the year amounted to MUSD 960.9 (MUSD 1,144.1) representing EBITDA per share of USD 3.10 (USD 3.68). Operating cash fl ow for the year amounted to MUSD 975.6 (MUSD 831.4) representing operating cash fl ow per share of USD 3.15 (USD 2.68).
Revenue for the year amounted to MUSD 1,195.8 (MUSD 1,375.8) and comprised of net sales of oil and gas, change in under/ over lift position and other revenue as detailed in Note 1. From 1 January 2013, the change in under/over lift position is reported in revenue as stated in the Accounting Policies section below. The comparatives have also been restated for this change. See Note 1 Revenue for impact of the change on the accounts.
Net sales of oil and gas for the year amounted to MUSD 1,224.2 (MUSD 1,319.5). The average price achieved by Lundin Petroleum for a barrel of oil equivalent amounted to USD 98.71 (USD 100.89) and is detailed in the following table. The average Dated Brent price for the year amounted to USD 108.66 (USD 111.67) per barrel. The Alvheim and Volund fi eld crude cargoes sold during the year represented 79 percent (76 percent) of the total crude volumes sold and averaged over USD 3.00 per barrel over Dated Brent for the pricing period for each lifting.
Net sales of oil and gas for the year are detailed in Note 1 and Note 3 and were comprised as follows:
| Average price per boe expressed in USD | 2013 | 2012 |
|---|---|---|
| Crude oil sales | ||
| Norway | ||
| – Quantity in Mboe | 7,925.4 | 8,270.1 |
| – Average price per boe | 111.87 | 115.29 |
| France | ||
| – Quantity in Mboe | 1,030.4 | 1,041.1 |
| – Average price per boe | 106.93 | 110.44 |
| Netherlands | ||
| – Quantity in Mboe | 1.8 | 1.7 |
| – Average price per boe | 96.24 | 100.09 |
| Russia | ||
| – Quantity in Mboe | 818.9 | 981.6 |
| – Average price per boe | 77.84 | 77.23 |
| Tunisia | ||
| – Quantity in Mboe | – | 227.5 |
| – Average price per boe | – | 108.14 |
| Total crude oil sales | ||
| – Quantity in Mboe | 9,776.5 | 10,522.0 |
| – Average price per boe | 108.50 | 110.90 |
| Sales | ||
|---|---|---|
| Average price per boe expressed in USD | 2013 | 2012 |
| Gas and NGL sales | ||
| Norway | ||
| – Quantity in Mboe | 1,389.4 | 1,513.9 |
| – Average price per boe | 72.33 | 64.18 |
| Netherlands | ||
| – Quantity in Mboe | 715.7 | 704.2 |
| – Average price per boe | 64.34 | 60.18 |
| Indonesia | ||
| – Quantity in Mboe | 520.1 | 338.1 |
| – Average price per boe | 32.54 | 32.43 |
| Total gas and NGL sales | ||
| – Quantity in Mboe | 2,625.2 | 2,556.2 |
| – Average price per boe | 62.27 | 59.69 |
| Total sales | ||
| – Quantity in Mboe | 12,401.7 | 13,078.2 |
| – Average price per boe | 98.71 | 100.89 |
The oil produced in Russia is sold on either the Russian domestic market or exported into the international market. 47 percent (45 percent) of Russian sales for the year were on the international market at an average price of USD 108.49 per barrel (USD 109.93 per barrel) with the remaining 53 percent (55 percent) of Russian sales being sold on the domestic market at an average price of USD 50.91 per barrel (USD 49.98 per barrel).
Sales of oil and gas are recognised when the risk of ownership is transferred to the purchaser. Sales quantities in a period can differ from production quantities as a result of permanent and timing differences. Permanent differences arise as a result of paying royalties in kind as well as the effects from production sharing agreements. Timing differences can arise due to under/ over lift of entitlement, inventory, storage and pipeline balances effects.
The change in under/over lift position amounted to a charge of MUSD 45.2 (credit of MUSD 30.7) to the income statement and primarily related to Norway where sales volumes were higher than production volumes for the year due to the timing of the cargo liftings in relation to the Alvheim Blend sales contract.
Other revenue amounted to MUSD 16.8 (MUSD 25.6) for the year and included the quality differential compensation received from the Vilje fi eld owners to the Alvheim and Volund fi eld owners, tariff income from France and the Netherlands and income for maintaining strategic inventory levels in France. The previous year includes MUSD 11.0 relating to an equity redetermination settlement in the Netherlands.
Production costs including inventory movements for the year amounted to MUSD 195.8 (MUSD 203.2) and are detailed in the table below. The comparatives have been restated for the reclassifi cation of the change in under/over lift from production costs to revenue.
| Production costs | 2013 | 2012 |
|---|---|---|
| Cost of operations | ||
| – In MUSD | 114.6 | 105.6 |
| – In USD per boe | 9.60 | 8.09 |
| Tariff and transportation expenses | ||
| – In MUSD | 25.7 | 29.7 |
| – In USD per boe | 2.15 | 2.27 |
| Royalty and direct production taxes | ||
| – In MUSD | 44.0 | 51.3 |
| – In USD per boe | 3.69 | 3.93 |
| Change in inventory position | ||
| – In MUSD | -2.0 | 14.8 |
| – In USD per boe | -0.16 | 1.13 |
| Other | ||
| – In MUSD | 13.5 | 1.8 |
| – In USD per boe | 1.12 | 0.14 |
| Total production costs | ||
| – In MUSD | 195.8 | 203.2 |
| – In USD per boe | 16.40 | 15.56 |
Note: USD per boe is calculated by dividing the cost by total production volume for the period.
The total cost of operations for the year was MUSD 114.6 (MUSD 105.6) and included costs associated with well intervention work on the Alvheim and Volund fi elds, Norway and well intervention work and maintenance projects in the Paris Basin fi elds, France. Excluding operational projects, the 2013 average cost of operations was USD 7.45 per barrel.
Royalty and direct production taxes amounted to MUSD 44.0 (MUSD 51.3) and included Russian Mineral Extraction Tax (MET) and Russian Export Duties. The rate of MET is levied on the volume of Russian production and varies in relation to the international market price of Urals blend and the Rouble exchange rate. MET averaged USD 23.13 (USD 22.92) per barrel of Russian production for the year. The rate of export duty on Russian oil is revised monthly by the Russian Federation and is dependent on the average price obtained for Urals Blend for the preceding one month period. The export duty is levied on the volume of oil exported from Russia and averaged USD 54.61 (USD 57.08) per exported barrel for the year.
Change in inventory position amounted to a net credit of MUSD 2.0 in the year compared to a net MUSD 14.8 charge in the previous year. During 2013, there was only one cargo lifting from the Aquitaine fi elds, France, and the lifting was during the third quarter. In 2012, there were liftings of inventory from the Ikdam FPSO on the Oudna fi eld, Tunisia, which was the main reason for the MUSD 14.8 charge for the previous year.
Other costs amounted to MUSD 13.5 (MUSD 1.8) and mainly related to a provision recognised for contractual obligations post the expected cessation of production date on the Gaupe fi eld and a mark-to-market valuation of an operating cost share arrangement on the Brynhild fi eld whereby the amount of operating costs varies with the oil price. Both of these items are non-cash and will unwind against actual expenses in the future.
Depletion and decommissioning costs amounted to MUSD 174.2 (MUSD 191.4) and are detailed in Note 3. Norway's contribution to the total depletion charge for the year was 73 percent at an average rate of USD 13.40 per barrel. The lower depletion charge for 2013 compared to 2012 is in line with the lower production volumes and as a result of the lower depletion charge on the Gaupe fi eld following the impairment of the carrying value at 31 December 2012.
Decommissioning costs charged to the income statement in the year amounted to MUSD 13.3 (MUSD 5.3) and primarily related to the increase in the Gaupe fi eld site restoration estimate following the operator's review of the decommissioning timing and cost. The costs reported in the previous year related to the decommissioning of the Oudna fi eld, Tunisia.
Exploration costs expensed in the income statement for the year amounted to MUSD 287.8 (MUSD 168.4) and are detailed in Note 3. Exploration costs expensed in the year mainly related to the cost of drilling the wells on the Sverdrup prospect, Luno II South, Biotitt, Cliffhanger, Carlsberg, Ogna and Jorvik in Norway as well as associated licence costs. In addition, costs associated with certain licences that were relinquished in Norway and unsuccessful licence applications in the Norwegian 22nd licensing round were expensed.
Impairment costs expensed in the income statement for the year amounted to MUSD 123.4 (MUSD 237.5) and are detailed in Note 3. The carrying values of the Janglau and Ara discoveries on PM308A, Malaysia, were fully expensed in 2013 for an amount of MUSD 41.7 (MUSD –). In addition, impairment costs of MUSD 81.7 which related to the gas discoveries on PL438 Skalle, PL533 Salina and PL088 Peik, Norway, were expensed as they are currently deemed uncommercial.
The general, administrative and depreciation expenses for the year amounted to MUSD 43.6 (MUSD 31.8) which included a non-cash charge of MUSD 3.3 (MUSD 9.1) in relation to the Group's Long-term Incentive Plan (LTIP) scheme.
The cash charge amounted to MUSD 35.9 (MUSD 19.6) for the year and includes the reallocation of costs previously charged through operations and certain advisory fees including business development activities.
The non-cash charge to the income statement resulting from the LTIP recognised over the year has partly been offset by the reduction in the Lundin Petroleum share price. The provision for the LTIP is calculated based on Lundin Petroleum's share price at the balance sheet date using the Black and Scholes method and is applied to the portion of the outstanding LTIP awards which are recognised at the balance sheet date. Any change in the value of the awards due to a change in the share price impacts all awards recognised at the balance sheet date including those of previous periods with the change in the provision being refl ected in the income statement. Lundin Petroleum has mitigated the cash exposure of the LTIP by purchasing its own shares. For more detail refer to Note 32.
Fixed asset depreciation charges for the year amounted to MUSD 4.4 (MUSD 3.1).
Financial income for the year amounted to MUSD 3.3 (MUSD 27.3) and is detailed in Note 4. The previous year includes a gain on consolidation of a subsidiary of MUSD 13.4 and a net foreign exchange gain of MUSD 6.2.
Financial expenses for the year amounted to MUSD 86.3 (MUSD 48.5) and are detailed in Note 5.
Interest expense for the year amounted to MUSD 5.3 (MUSD 6.8) and represented the proportion of interest charged to the income statement. An additional amount of interest of MUSD 18.2 (MUSD 3.4) associated with the funding of the Norwegian development projects was capitalised in the year.
Net foreign exchange losses for the year amounted to MUSD 46.5 (MUSD 6.2 gain). Foreign exchange movements occur on the settlement of transactions denominated in foreign currencies and the revaluation of working capital and loan balances to the prevailing exchange rate at the balance sheet date where those monetary assets and liabilities are held in currencies other than the functional currencies of the Group reporting entities. During the year the US Dollar strengthened against the Norwegian Krona and this has resulted in reported foreign exchange losses. Lundin Petroleum's underlying value is US Dollar based as this is the currency in which the majority of revenues are derived. A strengthening US Dollar currency has a positive overall value effect on the business as it increases the purchasing power of the US Dollar to purchase the currencies in which the Group incurs operational expenditure. Lundin Petroleum has hedged certain foreign currency operational expenditure amounts against the US Dollar as detailed in the Derivative fi nancial instruments section below. During the year, the realised exchange gain on settled foreign exchange hedges amounted to MUSD 5.5 (MUSD 11.7).
The amortisation of the deferred fi nancing fees amounted to MUSD 8.7 (MUSD 6.6) for the year and related to the expensing of the fees incurred in establishing the USD 2.5 billion fi nancing loan facility in June 2012 over the period of usage of the facility.
Loan facility commitment fees for the year amounted to MUSD 17.1 (MUSD 10.3). The increase over the previous year relates to the commitment fees on the undrawn portion of the USD 2.5 billion fi nancing facility entered into in June 2012 compared to the commitment fees on the undrawn portion of the MUSD 850 previous fi nancing facility.
The overall tax charge for the year amounted to MUSD 215.1 (MUSD 418.4) and is detailed in Note 6.
The current tax charge for the year amounted to MUSD 24.5 (MUSD 341.3) of which MUSD 2.9 (MUSD 311.8) related to Norway. The decrease in the Norwegian tax charge compared to the previous year is mainly due to the increased level of development and exploration expenditure in Norway as shown in the Non-current assets section below.
The deferred tax charge for the year amounted to MUSD 190.6 (MUSD 77.1) of which MUSD 196.2 (MUSD 80.4) related to Norway. The deferred tax charge arises primarily where there is a difference in depletion for tax and accounting purposes. In addition, previously unrecognised Dutch fi scal unity tax losses were recognised following the fi eld development approval of the Bertam fi eld, Malaysia, resulting in a MUSD 8.9 deferred tax credit in the fourth quarter of 2013.
The Group operates in various countries and fi scal regimes where corporate income tax rates are different from the regulations in Sweden. Corporate income tax rates for the Group vary between 20 percent and 78 percent. The effective tax rate for the Group for the year amounted to 75 percent. This effective rate is calculated from the face of the income statement and does not refl ect the effective rate of tax paid within each country of operation. The high overall effective rate of tax for the year is largely driven by Norway where the tax rate is 78 percent and that there was not a full tax credit on the impairment costs in Norway and Malaysia, reported in 2013.
The net result attributable to non-controlling interest for the year amounted to MUSD -4.7 (MUSD -4.3) and related mainly to the non-controlling interest's share in a Russian subsidiary which is fully consolidated.
Oil and gas properties amounted to MUSD 3,851.9 (MUSD 2,864.4) and are detailed in Note 7.
Development and exploration expenditure incurred for the year was as follows:
| Development expenditure in MUSD | 2013 | 2012 |
|---|---|---|
| Norway | 1,105.9 | 369.0 |
| France | 7.0 | 29.2 |
| Netherlands | 4.8 | 8.5 |
| Indonesia | -1.9 | -0.4 |
| Russia | 3.6 | 7.5 |
| Malaysia | 12.7 | – |
| 1,132.1 | 413.8 |
An amount of MUSD 1,105.9 (MUSD 369.0) of development expenditure was incurred in Norway during the year, of which MUSD 1,057.2 (MUSD 283.3) was invested in the Brynhild and Edvard Grieg fi eld developments. In Malaysia, MUSD 12.7 (MUSD –) was incurred during the year on the Bertam fi eld development.
| Exploration and appraisal expenditure in MUSD |
2013 | 2012 |
|---|---|---|
| Norway | 506.4 | 323.2 |
| France | 2.4 | 9.8 |
| Indonesia | 18.5 | 16.4 |
| Russia | 6.0 | 3.6 |
| Malaysia | 36.1 | 100.5 |
| Other | 0.5 | 3.8 |
| 569.9 | 457.3 |
During the year MUSD 36.1 (MUSD 100.5) was spent in Malaysia on the Ara well on Block PM308A which was drilling over the year end 2012 and the completion of a seismic acquisition programme over Blocks PM307, PM319 and Block SB307/308.
Other tangible fi xed assets amounted to MUSD 85.0 (MUSD 49.4) and included amounts relating to the Ikdam FPSO and to other fi xed assets. The Ikdam FPSO is currently being upgraded for use on the Bertam fi eld development project in Malaysia.
Other shares and participations amounted to MUSD 22.0 (MUSD 20.0) and mainly related to the shares held in ShaMaran Petroleum which are reported at market value with any change in value being recorded in other comprehensive income.
Deferred tax assets amounted to MUSD 22.4 (MUSD 13.3) and are mainly related to the part of the tax loss carry forwards in the Netherlands that are expected to be utilised against future tax liabilities. The increase compared to the previous year in deferred tax assets relates mainly to the recognition of previously unrecognised Dutch fi scal unit tax losses following the approval of the fi eld development for the Bertam fi eld, Malaysia, in the fourth quarter of 2013.
Inventories amounted to MUSD 22.8 (MUSD 18.7) and included both hydrocarbon inventories and well supplies.
Trade receivables amounted to MUSD 128.9 (MUSD 125.9) and included MUSD 102.5 (MUSD 100.6) relating to Norway. All trade receivables are current.
Derivative instruments amounted to MUSD 3.2 (MUSD 9.1) and related to the mark-to-market on part of the outstanding foreign currency hedge contracts.
Prepaid expenses and accrued income amounted to MUSD 62.1 (MUSD 32.9) and represented prepaid operational and insurance expenditure including mobilisation costs of a Norwegian rig to be charged out to future wells.
Joint venture debtors amounted to MUSD 25.2 (MUSD 11.5) and increased compared to the prior year due to the higher level of activity.
Other receivables amounted to MUSD 43.5 (MUSD 40.3) and are detailed in Note 16. Included in other receivables is the underlift position which amounted to MUSD 9.4 (MUSD 26.4) of which MUSD 6.3 (MUSD 24.6) related to the Gaupe fi eld, Norway. A receivable amounting to MUSD 6.5 (MUSD 4.0) for corporate tax is also included in other receivables, including a tax refund due in France of MUSD 5.8 (MUSD 3.5). Other current assets amounted to MUSD 23.5 (MUSD 6.9) and included amounts receivable relating to farm-outs in Norway and Indonesia.
Cash and cash equivalents amounted to MUSD 92.7 (MUSD 97.4). Cash balances are held to meet ongoing operational funding requirements.
The provision for site restoration amounted to MUSD 246.1 (MUSD 190.5) and related to future decommissioning obligations, as detailed in Note 19. The provision has increased during the year following the inclusion of the Brynhild fi eld totalling MUSD 24.4, updated cost estimates for the other fi elds and the unwinding of the discounting of the site restoration provision.
The provision for deferred taxes amounted to MUSD 1,067.6 (MUSD 942.2) of which MUSD 924.6 (MUSD 802.8) related to Norway, as detailed in Note 6. The provision mainly arises on the excess of book value over the tax value of oil and gas properties. Deferred tax assets are netted off against deferred tax liabilities where they relate to the same jurisdiction.
Other provisions amounted to MUSD 34.4 (MUSD 70.4) and are detailed in Note 21. Included in other provisions is the noncurrent portion of the provision for Lundin Petroleum's LTIP scheme which amounted to MUSD 30.8 (MUSD 67.1). Lundin Petroleum's LTIP scheme is outlined in this report under the Remuneration section. The phantom option plan vests in May 2014 at which time 50 percent of the vested amount will
become payable and this amount due is included in provisions in current liabilities. For more information refer to Note 31 Remuneration to the Board of Directors, Executive Management and other employees. The non-current portion of the provision includes the vested amount of the phantom option plan which is payable in May 2015. Derivative instruments amounted to MUSD 1.6 (MUSD –) and related to the mark-to-market on part of the outstanding foreign currency hedge and interest rate contracts to be settled after twelve months.
Financial liabilities amounted to MUSD 1,239.1 (MUSD 384.2) and are detailed in Note 22. Bank loans amounted to MUSD 1,275.0 (MUSD 432.0) and related to the outstanding loan under the Group's USD 2.5 billion revolving borrowing base facility. Capitalised fi nancing fees amounted to MUSD 35.9 (MUSD 47.8) relating to the establishment costs of the USD 2.5 billion fi nancing facility are being amortised over the expected life of the fi nancing facility.
Other non-current liabilities amounted to MUSD 24.9 (MUSD 22.6) and mainly arise from the full consolidation of a subsidiary in which the non-controlling interest entity has made funding advances in relation to LLC PetroResurs, Russia.
Tax liabilities amounted to MUSD 4.7 (MUSD 170.0) of which MUSD 3.6 (MUSD 163.6) related to Norway.
Derivative instruments amounted to MUSD 4.0 (MUSD –) and related to the mark-to-market on part of the outstanding foreign currency hedge and interest rate contracts to be settled within twelve months.
Joint venture creditors and accrued expenses amounted to MUSD 334.5 (MUSD 213.9) and MUSD 41.0 (MUSD 8.3) respectively and related mainly to the increased development and drilling activity in Norway.
Other liabilities amounted to MUSD 42.6 (MUSD 15.4) and are detailed in Note 24. The overlift position amounted to MUSD 29.2 (MUSD 0.5) and related to the overlift of the Alvheim and Volund fi elds production entitlement at 31 December 2013.
Short term provisions amounted to MUSD 46.2 (MUSD 8.8) and related to the current portion of the provision for Lundin Petroleum's LTIP scheme. The current portion of the provision includes the vested amount of the phantom option plan payable in May 2014. For more information refer to Note 29, Related party transactions.
The Annual General Meeting will be held in Stockholm on 15 May 2014.
The intention of the Board of Directors is to propose to the 2014 AGM the adoption of a Policy on Remuneration for 2014 that follows in essence the same principles as applied in 2013
and that contains similar elements of remuneration for Group Management as the 2013 Policy on Remuneration being base salary, yearly variable salary, Long-term Incentive Plan (LTIP) and other benefi ts.
The Board will propose that the AGM also resolve on a new long-term, performance-based incentive plan in respect of Group Management and a number of key employees of Lundin Petroleum. LTIP 2014 gives the participants the possibility to receive shares in Lundin Petroleum subject to i.a. the fulfi lment of a performance condition under a three year performance period commencing on 1 July 2014 and expiring on 1 July 2017. The performance condition is based on the share price growth and dividends (Total Shareholder Return) of the Lundin Petroleum share compared to the Total Shareholder Return of a peer group of companies. At the beginning of the performance period, the participants will free of charge be granted awards which, provided that i.a. the performance condition is met, entitle the participant to be allotted free of charge shares in Lundin Petroleum at the end of the performance period.
The number of performance shares that may be allotted to each participant is limited to a value of three times his/ her annual gross base salary for 2014. The total number of performance shares that may be allotted under LTIP 2014 is 700,000, corresponding to approximately 0,2 percent of the total number of outstanding shares in Lundin Petroleum. The Board of Directors may reduce (including reduce to zero) allotment of performance shares at its discretion, should it consider the underlying performance not to be refl ected in the outcome of the performance condition, for example, in light of operating cash fl ow, reserves, and health and safety performance.
The participants will not be entitled to transfer, pledge or dispose of the LTIP awards or any rights or obligations under LTIP 2014, or perform any shareholders' rights regarding the LTIP awards during the performance period.
The LTIP awards entitle participants to acquire already existing shares. To ensure delivery of the required number of shares under LTIP 2014, the Board of Directors will consider means to secure the Company's commitment. One method would be to enter into an equity swap agreement with a third party on terms in accordance with market practice, whereby the third party in its own name shall be entitled to acquire and transfer shares in Lundin Petroleum to the participants.
The details of the proposal are available on www.lundin-petroleum.com.
In addition, as in previous years, the Board of Directors will further seek authorisation to deviate from the Policy on Remuneration in case of special circumstances in a specifi c case.
For a detailed description of the Policy on Remuneration applied in 2013, refer to the Corporate Governance report on pages 46–66. The remuneration to Board and Executive Management is detailed in Notes 31 and 32.
During 2013 Lundin Petroleum purchased 971,965 of its own shares at an average price of SEK 135.40 and holds 8,340,250 of its own shares at 31 December 2013. For the AGM resolution on the authorisation to issue new shares, see page 68, The Lundin Petroleum Share and Shareholders.
The Directors propose that no dividend be paid for the year. For details of the dividend policy refer to the dividend policy, page 68, The Lundin Petroleum Share and Shareholders.
The Board of Directors propose that the unrestricted equity of the Parent Company of MSEK 6,949.5, including the net result for the year of MSEK 76.1 be brought forward.
At the AGM held on 8 May 2013, Peggy Bruzelius and Cecilia Vieweg were elected as new members of the Board of Directors of Lundin Petroleum. Kristin Færøvik had declined to stand for re-election. At the 2014 AGM, all the current members of the Board of Directors will be proposed for re-election.
The result of the Group's operations and fi nancial position at the end of the fi nancial year are shown in the following income statement, statement of comprehensive income, balance sheet, statement of cash fl ow, statement of changes in equity and related notes, which are presented in US Dollars.
The Parent Company's income statement, balance sheet, statement of cash fl ow, statement of changes in equity and related notes presented in Swedish Kroner can be found on pages 116–120.
Lundin Petroleum has issued a Corporate Governance report which is separate from the Financial Statements. The Corporate Governance report is included in this document, on the pages 46–66.
for the Financial Year Ended 31 December
| Expressed in MUSD | Note | 2013 | 2012 |
|---|---|---|---|
| Revenue | 1 | 1,195.8 | 1,375.8 |
| Cost of sales | |||
| Production costs | 2 | -195.8 | -203.2 |
| Depletion and decommissioning costs | 3 | -174.2 | -191.4 |
| Exploration costs | 3 | -287.8 | -168.4 |
| Impairment costs of oil and gas properties | 3 | -123.4 | -237.5 |
| Gross profi t | 414.6 | 575.3 | |
| General, administration and depreciation expenses | -43.6 | -31.8 | |
| Operating profi t | 371.0 | 543.5 | |
| Result from fi nancial investments | |||
| Financial income | 4 | 3.3 | 27.3 |
| Financial expenses | 5 | -86.3 | -48.5 |
| -83.0 | -21.2 | ||
| Profi t before tax | 288.0 | 522.3 | |
| Income tax expense | 6 | -215.1 | -418.4 |
| Net result | 72.9 | 103.9 | |
| Net result attributable to the shareholders of the Parent Company: | 77.6 | 108.2 | |
| Net result attributable to non-controlling interest: | -4.7 | -4.3 | |
| Net result | 72.9 | 103.9 | |
| Earnings per share – USD 1 | 27 | 0.25 | 0.35 |
1 Based on net result attributable to shareholders of the Parent Company.
for the Financial Year Ended 31 December
| Expressed in MUSD | Note | 2013 | 2012 |
|---|---|---|---|
| Net result | 72.9 | 103.9 | |
| Items that may be subsequently reclassifi ed to profi t or loss: | |||
| Exchange differences foreign operations | -31.7 | 61.6 | |
| Cash fl ow hedges | -8.1 | 9.2 | |
| Available-for-sale fi nancial assets | 1.9 | 16.1 | |
| Income tax relating to other comprehensive income | 6 | 1.9 | -2.3 |
| Other comprehensive income, net of tax | -36.0 | 84.6 | |
| Total comprehensive income | 36.9 | 188.5 | |
| Total comprehensive income attributable to: | |||
| Shareholders of the Parent Company | 44.7 | 190.2 | |
| Non-controlling interest | -7.8 | -1.7 | |
| 36.9 | 188.5 |
for the Financial Year Ended 31 December
| Expressed in MUSD | Note | 2013 | 2012 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Oil and gas properties | 7 | 3,851.9 | 2,864.4 |
| Other tangible assets | 8 | 85.0 | 49.4 |
| Other shares and participations | 10 | 22.0 | 20.0 |
| Deferred tax | 6 | 22.4 | 13.3 |
| Derivate instruments | 3.0 | – | |
| Other fi nancial assets | 12 | 11.8 | 10.8 |
| Total non-current assets | 3,996.1 | 2,957.9 | |
| Current assets | |||
| Inventories | 13 | 22.8 | 18.7 |
| Trade receivables | 14 | 128.9 | 125.9 |
| Prepaid expenses and accrued income | 15 | 62.1 | 32.9 |
| Derivative instruments | 11 | 3.2 | 9.1 |
| Joint venture debtors | 25.2 | 11.5 | |
| Other receivables | 16 | 43.5 | 40.3 |
| Cash and cash equivalents | 17 | 92.7 | 97.4 |
| Total current assets | 378.4 | 335.8 | |
| TOTAL ASSETS | 4,374.5 | 3,293.7 | |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 0.5 | 0.5 | |
| Additional paid in capital | 454.8 | 474.9 | |
| Other reserves | 18 | -96.7 | -63.8 |
| Retained earnings | 770.8 | 662.6 | |
| Net result | 77.6 | 108.2 | |
| Shareholders' equity | 1,207.0 | 1,182.4 | |
| Non-controlling interest | 59.8 | 67.7 | |
| Total equity | 1,266.8 | 1,250.1 | |
| Non-current liabilities | |||
| Provision for site restoration | 19 | 246.1 | 190.5 |
| Pension provision | 20 | 1.5 | 1.5 |
| Provision for deferred tax | 6 | 1,067.6 | 942.2 |
| Derivate instruments | 1.6 | – | |
| Other provisions | 21 | 34.4 | 70.4 |
| Financial liabilities | 22 | 1,239.1 | 384.2 |
| Other non-current liabilities | 24.9 | 22.6 | |
| Total non-current liabilities | 2,615.3 | 1,611.4 | |
| Current liabilities | |||
| Trade payables | 11 | 19.4 | 15.7 |
| Tax liabilities | 6 | 4.7 | 170.0 |
| Derivative instruments | 11 | 4.0 | – |
| Accrued expenses and deferred income | 23 | 41.0 | 12.7 |
| Joint venture creditors | 334.5 | 209.6 | |
| Other liabilities | 24 | 42.6 | 15.4 |
| Provisions | 21 | 46.2 | 8.8 |
| Total current liabilities | 492.4 | 432.2 | |
| TOTAL EQUITY AND LIABILITIES | 4,374.5 | 3,293.7 | |
| Pledged assets | 25 | 1,870.3 | 1,831.3 |
| Contingent liabilities and assets | 26 | – | – |
for the Financial Year Ended 31 December
| Expressed in MUSD | Note | 2013 | 2012 |
|---|---|---|---|
| Cash fl ow from operations | |||
| Net result | 72.9 | 103.9 | |
| Adjustments for non-cash related items | 28 | 885.3 | 1,056.9 |
| Gain on sale of assets | – | -1.1 | |
| Interest received | 0.9 | 3.5 | |
| Interest paid | -21.8 | -8.9 | |
| Income taxes paid | -187.7 | -428.8 | |
| Changes in working capital: | |||
| Change in inventories | -4.1 | 12.9 | |
| Change in underlift position | 17.1 | -24.6 | |
| Change in receivables | -40.6 | 8.0 | |
| Change in overlift position | 28.8 | -7.2 | |
| Change in liabilities | 163.4 | 104.4 | |
| Total cash fl ow from operations | 914.2 | 819.0 | |
| Cash fl ow from investments | |||
| Investment in oil and gas properties | -1,702.0 | -919.4 | |
| Investment in offi ce equipment and other assets | -36.2 | -9.7 | |
| Investment in subsidiaries | -3.5 | -10.2 | |
| Decommissioning costs paid | -1.5 | -18.6 | |
| Other payments | -0.4 | -3.2 | |
| Total cash fl ow from investments | -1,743.6 | -961.1 | |
| Cash fl ow from fi nancing | |||
| Proceeds from borrowings | 915.1 | 592.0 | |
| Repayments of borrowings | -70.0 | -366.3 | |
| Paid fi nancing fees | – | -49.2 | |
| Purchase of own shares | -20.1 | -8.7 | |
| Dividend paid to non-controlling interest | -0.1 | – | |
| Total cash fl ow from fi nancing | 824.9 | 167.8 | |
| Change in cash and cash equivalents | -4.5 | 25.7 | |
| Cash and cash equivalents at the beginning of the year | 97.4 | 73.6 | |
| Currency exchange difference in cash and cash equivalents | -0.2 | -1.9 | |
| Cash and cash equivalents at the end of the year | 92.7 | 97.4 |
The effects of acquisitions and divestments of subsidiary companies have been excluded from the changes in the balance sheet items. The effects of currency exchange differences due to the translation of foreign group companies have also been excluded as these effects do not affect the cash fl ow. Cash and cash equivalents comprise cash and short-term deposits maturing within less than three months.
for the Financial Year Ended 31 December
| Total Equity comprises: Expressed in MUSD |
Share capital 1 |
Additional paid-in capital |
Other reserves 2 |
Retained earnings |
Net result | Non controlling interest |
Total equity |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2012 | 0.5 | 483.6 | -145.8 | 502.5 | 160.1 | 69.4 | 1,070.3 |
| Transfer of prior year net result | – | – | – | 160.1 | -160.1 | – | – |
| Net result | – | – | – | – | 108.2 | -4.3 | 103.9 |
| Currency translation difference | – | – | 59.0 | – | – | 2.6 | 61.6 |
| Cash fl ow hedges | – | – | 9.2 | – | – | – | 9.2 |
| Available for sale fi nancial assets | – | – | 16.1 | – | – | – | 16.1 |
| Income tax relating to other comprehensive income |
– | – | -2.3 | – | – | – | -2.3 |
| Total comprehensive income | – | – | 82.0 | – | 108.2 | -1.7 | 188.5 |
| Transactions with owners | |||||||
| Purchase of own shares | – | -8.7 | – | – | – | – | -8.7 |
| Total transactions with owners | – | -8.7 | – | – | – | – | -8.7 |
| Balance at 31 December 2012 | 0.5 | 474.9 | -63.8 | 662.6 | 108.2 | 67.7 | 1,250.1 |
| Transfer of prior year net result | – | – | – | 108.2 | -108.2 | – | – |
| Net result | – | – | – | – | 77.6 | -4.7 | 72.9 |
| Currency translation difference | – | – | -28.6 | – | – | -3.1 | -31.7 |
| Cash fl ow hedges | – | – | -8.1 | – | – | – | -8.1 |
| Available for sale fi nancial assets | – | – | 1.9 | – | – | – | 1.9 |
| Income tax relating to other comprehensive income |
– | – | 1.9 | – | – | – | 1.9 |
| Total comprehensive income | – | – | -32.9 | – | 77.6 | -7.8 | 36.9 |
| Transactions with owners | |||||||
| Distributions | – | – | – | – | – | -0.1 | -0.1 |
| Purchase of own shares | – | -20.1 | – | – | – | – | -20.1 |
| Total transactions with owners | – | -20.1 | – | – | – | -0.1 | -20.2 |
| Balance at 31 December 2013 | 0.5 | 454.8 | -96.7 | 770.8 | 77.6 | 59.8 | 1,266.8 |
1 Lundin Petroleum AB's issued share capital at 31 December 2013 amounted to SEK 3,179,106 represented by 317,910,580 shares with a quota value of SEK 0.01 each, the USD equivalent of the issued share capital is MUSD 0.5. Included in the number of shares issued at 31 December 2013 are 8,340,250 shares which Lundin Petroleum holds in its own name.
2 Other reserves are described in detail in Note 18.
Lundin Petroleum's annual report has been prepared in accordance with prevailing International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations adopted by the EU Commission and the Swedish Annual Accounts Act (1995:1554). In addition RFR 1 "Supplementary Rules for Groups" has been applied as issued by the Swedish Financial Reporting Board. The Parent Company applies the same accounting policies as the Group, except as specifi ed in the Parent Company accounting policies on page 116.
The preparation of fi nancial statements in conformity with IFRS requires the use of certain critical accounting estimates and also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial statements are disclosed under the headline "Critical accounting estimates and judgements".
The consolidated fi nancial statements have been prepared under the historical cost convention, as modifi ed by the revaluation of available for sale fi nancial assets and fi nancial assets and liabilities (including derivative instruments) at fair value through other comprehensive income.
As from 1 January 2013, Lundin Petroleum has applied the following new accounting standards: IFRS 13 Fair value measurement, revised IAS 1 Presentation of fi nancial statements and amendment to IFRS 7 Financial instruments.
IFRS 13, "Fair value measurement" The standard aims to improve consistency and reduce complexity by providing a precise defi nition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The standard does not have any signifi cant effect on the consolidated fi nancial statements of the Group.
Amendment to IAS 1, "Financial statement presentation" The amendment includes a requirement to group items presented in other comprehensive income on the basis of whether they are potentially reclassifi able to profi t or loss subsequently.
Amendment to IFRS 7, "Financial instruments – disclosures" The amendment includes new disclosures and does not have any signifi cant effect on the consolidated fi nancial statements of the Group.
The following new issued standards are not mandatory for the 2013 fi nancial statements and have not been adopted early. These standards might lead to signifi cant changes in the accounting and standard practice for the industry. Careful consideration will be required to assess the practical implication for the Group.
IFRS 9, "Financial instruments" The standard addresses the classifi cation, measurement and recognition of fi nancial assets and fi nancial liabilities. IFRS 9 is effective from 1 January 2015, and not from 1 January 2013 as originally intended. The Group is yet to assess IFRS 9's full impact and intends to adopt IFRS 9 no later than the accounting period beginning on 1 January 2015.
IFRS 10, "Consolidated fi nancial statements" The objective of the standard is to build on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated fi nancial statements of the parent company. The Group intends to adopt IFRS 10 from 1 January 2014.
IFRS 11, "Joint arrangements" The standard is focusing on the rights and obligations of the joint arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. The Group intends to adopt IFRS 11 from 1 January 2014. See section jointly controlled entities below.
IFRS 12, "Disclosures of interests in other entities" The standard introduces a range of new and expanded disclosure requirements. These will require the disclosure of signifi cant judgements and assumptions made by management in determining whether there is joint control and if there is a joint venture, a joint operation or another form of interest. The Group intends to adopt IFRS 12 from 1 January 2014.
Subsidiaries are all entities over which the Group has the sole right to exercise control over the operations and govern the fi nancial policies generally accompanying a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing the Group's control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The non-controlling interest in a subsidiary represents the portion of the subsidiary not owned by the Group. The equity of the subsidiary relating to the non-controlling shareholders is shown as a separate item within equity for the Group. The Group recognises any non-controlling interest on an acquisition-byacquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifi able net assets.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such remeasurement are recognised in profi t or loss.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of noncontrolling interest over the net identifi able assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profi t or loss.
Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profi ts and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
As stated above, a subsidiary that is controlled by the Group will be fully consolidated within the results of Lundin Petroleum. Joint control exists when the Group does not have the control to determine the strategic operating, investing and fi nancing policies of a partially owned entity without the co-operation of others. When this is the case the entity is proportionally consolidated.
These jointly controlled entities will be accounted for in accordance with IFRS 11 joint arrangements, effective from 1 January 2014 and will be accounted for using the equity method. The effect of the change in the accounting policy on the 2013 income statement and the balance sheet at 31 December 2013 of the Group is shown below. The change in accounting policy will not have any impact on earnings per share.
| 2013 | Effect of | 2013 | |
|---|---|---|---|
| MUSD | Reported | IFRS 111 | Restated |
| Income statement | |||
| Revenue | 1,195.8 | -63.8 | 1,132.0 |
| Operating costs | -824.8 | 63.5 | -761.3 |
| Operating result | 371.0 | -0.3 | 370.7 |
| Financial items | -83.0 | 0.5 | -82.5 |
| Result from investment | |||
| in associated company | – | -0.2 | -0.2 |
| Profi t before tax | 288.0 | – | 288.0 |
| Tax | -215.1 | – | -215.1 |
| Net result | 72.9 | – | 72.9 |
| Balance sheet | |||
| Non-current assets | 3,996.1 | -31.1 | 3,965.0 |
| Investment in associated | |||
| company | – | 24.6 | 24.6 |
| Current assets | 378.4 | -16.4 | 362.0 |
| Total assets | 4,374.5 | -22.9 | 4,351.6 |
| Equity | 1,266.8 | – | 1,266.8 |
| Non-current liabilities | 2,615.3 | -15.8 | 2,599.5 |
| Current liabilities | 492.4 | -7.1 | 485.3 |
| Total liabilities and equity | 4,374.5 | -22.9 | 4,351.6 |
1 RF Energy group will be accounted for as a joint venture using the equity method.
Oil and gas operations are conducted by the Group as colicencees in unincorporated joint ventures with other companies. The Group's fi nancial statements refl ect the relevant proportions of production, capital costs, operating costs and current assets and liabilities of the joint venture applicable to the Group's interests.
An investment in an associated company is an investment in an undertaking where the Group exercises signifi cant infl uence but not control, generally accompanying a shareholding of at least 20 percent but not more than 50 percent of the voting rights. Such investments are accounted for in the consolidated fi nancial statements in accordance with the equity method and are initially recognised at cost.
Investments where the shareholding is less than 20 percent of the voting rights are treated as available for sale fi nancial assets. If the value of these assets has declined signifi cantly or has lasted for a longer period, the cumulative loss is removed from equity and an impairment charge is recognised in the income statement. Dividends received attributable to these assets is recognised in the income statement as part of net fi nancial items.
Items included in the fi nancial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('functional currency'). The consolidated fi nancial statements are presented in United States Dollars, which is the currency the Group has elected to use as the presentation currency.
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the balance sheet date and foreign exchange currency differences are recognised in the income statement. Transactions in foreign currencies are translated at exchange rates prevailing at the transaction date. Exchange differences are included in fi nancial income/expenses in the income statement except deferred exchange differences on qualifying cash fl ow hedges which are recorded in other comprehensive income.
The balance sheets and income statements of foreign Group companies are translated for consolidation purposes using the current rate method. All assets and liabilities are translated at the balance sheet date rates of exchange, whereas the income statements are translated at average rates of exchange for the year, except for transactions where it is more relevant to use the rate of the day of the transaction. The translation differences which arise are recorded directly in the foreign currency translation reserve within other comprehensive income. Upon disposal of a foreign operation the translation differences relating to that operation will be transferred from equity to the income statement and included in the result on sale. Translation differences arising from net investments in subsidiaries, used for fi nancing exploration activities, are recorded directly in other comprehensive income.
For the preparation of the annual fi nancial statements, the following currency exchange rates have been used.
| 2013 Average |
2013 Period end |
2012 Average |
2012 Period end |
|
|---|---|---|---|---|
| 1 USD equals NOK | 5.8753 | 6.0837 | 5.8148 | 5.5639 |
| 1 USD equals EUR | 0.7529 | 0.7251 | 0.7778 | 0.7579 |
| 1 USD equals RUR | 31.8675 | 32.8653 | 31.0546 | 30.5665 |
| 1 USD equals SEK | 6.5132 | 6.4238 | 6.7725 | 6.5045 |
Non-current assets, long-term liabilities and provisions consist of amounts that are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities consist solely of amounts that are expected to be recovered or paid within twelve months after the balance sheet date.
Oil and gas operations are recorded at historical cost less depletion. All costs for acquiring concessions, licences or interests in production sharing contracts and for the survey, drilling and development of such interests are capitalised on a fi eld area cost centre basis.
Costs directly associated with an exploration well are capitalised. If it is determined that a commercial discovery has not been achieved, these exploration costs are charged to the income statement. During the exploration and development phases, no depletion is charged. The fi eld will be transferred from the non-production cost pool to the production cost pool within oil and gas properties once production commences, and accounted for as a producing asset. Routine maintenance and repair costs for producing assets are expensed as production costs when they occur.
Net capitalised costs to reporting date, together with anticipated future capital costs for the development of the proved and probable reserves determined at the balance sheet date price levels, are depleted based on the year's production in relation to estimated total proved and probable reserves of oil and gas in accordance with the unit of production method. Depletion of a fi eld area is charged to the income statement through cost of sales once production commences.
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and governmental regulations. Proved reserves can be categorised as developed or undeveloped. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confi dence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent
probability that the quantities actually recovered will equal or exceed the estimates.
Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.
Proceeds from the sale or farm-out of oil and gas concessions in the exploration stage are offset against the related capitalised costs of each cost centre with any excess of net proceeds over all costs capitalised included in the income statement. In the event of a sale in the exploration stage, any defi cit is included in the income statement.
Impairment tests are performed annually or when there are facts and circumstances that suggest that the carrying value of an asset capitalised costs within each fi eld area cost centre less any provision for site restoration costs, royalties and deferred production or revenue related taxes is higher than the anticipated future net cash fl ow from oil and gas reserves attributable to the Group's interest in the related fi eld areas. Capitalised costs cannot be carried unless those costs can be supported by future cash fl ows from that asset. Provision is made for any impairment, where the net carrying value, according to the above, exceeds the recoverable amount, which is the higher of value in use and fair value less costs to sell, determined through estimated future discounted net cash fl ows using prices and cost levels used by Group management in their internal forecasting. If there is no decision to continue with a fi eld specifi c exploration programme, the costs will be expensed at the time the decision is made.
Other tangible assets are stated at cost less accumulated depreciation. Depreciation is based on cost and is calculated on a straight line basis over the estimated economic life of 20 years for real estate and 3 to 5 years for offi ce equipment and other assets. The FPSO vessel will be depreciated over its remaining useful life once the upgrade of the vessel has been completed.
Additional costs to existing assets are included in the assets' net book value or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. The net book value of any replaced parts is written off. Other additional expenses are deemed to be repair and maintenance costs and are charged to the income statement when they are incurred.
The net book value is written down immediately to its recoverable amount when the net book value is higher. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use.
At each balance sheet date the Group assesses whether there is an indication that an asset may be impaired. Where an indicator of impairment exists or when impairment testing for an asset is required, the Group makes a formal assessment of the recoverable amount. Where the carrying value of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.
The recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is calculated by discounting estimated future cash fl ows to their present value using a discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. When the recoverable amount is less than the carrying value an impairment loss is recognised with the expensed charge to the income statement. If indications exist that previously recognised impairment losses no longer exist or are decreased, the recoverable amount is estimated. When a previously recognised impairment loss is reversed the carrying amount of the asset is increased to the estimated recoverable amount but the increased carrying amount may not exceed the carrying amount after depreciation that would have been determined had no impairment loss been recognised for the asset in prior years.
Assets and liabilities are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost unless stated otherwise. Financial assets are derecognised when the rights to receive cash fl ows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Lundin Petroleum recognises the following fi nancial instruments:
The Group has only cash fl ow hedges which qualify for hedge accounting. The effective portion of changes in the fair value of derivatives that qualify as cash fl ow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in other comprehensive income are transferred to the income statement in the period when the hedged item will affect the income statement. When a hedging instrument no longer meets the requirements for hedge accounting, expires or is sold, any accumulated gain or loss recognised in other comprehensive income remains in shareholders' equity until the forecast transaction no longer is expected to occur, at which point it is transferred to the income statement.
Inventories of consumable well supplies are stated at the lower of cost and net realisable value, cost being determined on a weighted average cost basis. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Inventories of hydrocarbons are stated at the lower of cost and net realisable value. Under or overlifted positions of hydrocarbons are valued at market prices prevailing at the balance sheet date. An underlift of production from a fi eld is included in the current receivables and valued at the reporting date spot price or prevailing contract price and an overlift of production from a fi eld is included in the current liabilities and valued at the reporting date spot price or prevailing contract price. From 1 January 2013, the change in the over or underlift position is refl ected in the income statement as revenue.
Cash and cash equivalents include cash at bank, cash in hand and interest bearing securities with original maturities of three months or less.
Share capital consists of the registered share capital for the Parent Company. Share issue costs associated with the issuance of new equity are treated as a direct reduction of proceeds. Excess contribution in relation to the issuance of shares is accounted for in the item additional paid-in-capital.
Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company's equity holders until these shares are cancelled or sold. Where these shares are subsequently sold, any consideration received, net of any directly attributable incremental transaction costs and related income tax effects, is included in equity attributable to the Company's equity holders.
The change in fair value of other shares and participations is accounted for in the fair value reserve. Upon the realisation of a change in value, the change in fair value recorded will be transferred to the income statement. The change in fair value of hedging instruments which qualify for hedge accounting is accounted for in the hedge reserve. Upon settlement of the hedge instrument, the change in fair value remains in other comprehensive income until the hedged item effects the income statement. The currency translation reserve contains unrealised
translation differences due to the conversion of the functional currencies into the presentation currency.
Retained earnings contain the accumulated results attributable to the shareholders of the Parent Company.
A provision is reported when the Company has a legal or constructive obligation as a consequence of an event and when it is more likely than not that an outfl ow of resources is required to settle the obligation and a reliable estimate can be made of the amount.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the obligation. The increase in the provision due to passage of time is recognised as fi nancial expense.
On fi elds where the Group is required to contribute to site restoration costs, a provision is recorded to recognise the future commitment. An asset is created, as part of the oil and gas property, to represent the discounted value of the anticipated site restoration liability and depleted over the life of the fi eld on a unit of production basis. The corresponding accounting entry to the creation of the asset recognises the discounted value of the future liability. The discount applied to the anticipated site restoration liability is subsequently released over the life of the fi eld and is charged to fi nancial expenses. Changes in site restoration costs and reserves are treated prospectively and consistent with the treatment applied upon initial recognition.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised costs using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a fi nancial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the fi nancial liability, or a shorter period where appropriate.
Revenues from the sale of oil and gas are recognised in the income statement net of royalties taken in kind. Sales of oil and gas are recognised upon delivery of products and customer acceptance or on performance of services. Incidental revenues from the production of oil and gas are offset against capitalised costs of the related cost centre until quantities of proven and probable reserves are determined and commercial production has commenced. From 1 January 2013, the change in the over or underlift position is refl ected in the income statement as revenue.
Service income, generated by providing technical and management services to joint ventures, is recognised as other income.
The fi scal regime in the area of operations defi nes whether royalties are payable in cash or in kind. Royalties payable in cash are accrued in the accounting period in which the liability arises. Royalties taken in kind are subtracted from production for the period to which they relate.
Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets. Qualifying assets are assets that take a substantial period of time to complete for their intended use or sale. Investment income earned on the temporary investment of specifi c borrowings pending to be used for the qualifying asset is deducted from the borrowing costs eligible for capitalisation. This applies on the interest on borrowings to fi nance fi elds under development which is capitalised within oil and gas properties until production commences. All other borrowing costs are recognised in profi t or loss in the period in which they occur. Interest on borrowings to fi nance the acquisition of producing oil and gas properties is charged to income as incurred.
Short-term employee benefi ts such as salaries, social premiums and holiday pay, are expensed when incurred.
Pensions are the most common long-term employee benefi ts. The pension schemes are funded through payments to insurance companies. The Group's pension obligations consist mainly of defi ned contribution plans. A defi ned contribution plan is a pension plan under which the Group pays fi xed contributions. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an expense when they are due.
The Group has one obligation under a defi ned benefi t plan. The relating liability recognised in the balance sheet is valued at the discounted estimated future cash outfl ows as calculated by an external actuarial expert. Actuarial gains and losses are recognised in other comprehensive income. The Group does not have any designated plan assets.
Lundin Petroleum recognises cash-settled share-based payments in the income statement as expenses during the vesting period and as a liability in relation to the long-term incentive plan. The liability is measured at fair value and revalued using the Black & Scholes pricing model at each balance sheet date and at the date of settlement, with any change in fair value recognised in the income statement for the period.
The components of tax are current and deferred. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is matched.
Current tax is tax that is to be paid or received for the year in question and also includes adjustments of current tax attributable to previous periods.
Deferred income tax is a non-cash charge provided, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values. Temporary differences can occur for example where investment expenditure is capitalised for accounting purposes but the tax deduction is accelerated or where site restoration costs are provided for in the fi nancial statements but not deductible for tax purposes until they are actually incurred. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profi t nor loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilised.
Deferred tax assets are offset against deferred tax liabilities in the balance sheet where they relate to the same jurisdiction in accordance with IAS 12.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker being Executive Management, which, due to the unique nature of each country's operations, commercial terms or fi scal environment, is at a country level. Information for segments is only disclosed when applicable. Segmental information is presented in Notes; Note 3 Segment information, Note 6 Income taxes and Note 7 Oil and gas properties.
The management of Lundin Petroleum has to make estimates and judgements when preparing the fi nancial statements of the Group. Uncertainties in the estimates and judgements could have an impact on the carrying amount of assets and liabilities and the Group's result. The most important estimates and judgements in relation thereto are:
Estimates of oil and gas reserves are used in the calculations for impairment tests and accounting for depletion and site restoration. Standard recognised evaluation techniques are used to estimate the proved and probable reserves. These techniques take into account the future level of development required to produce the reserves. An independent reserves auditor reviews these estimates. See page 126 Reserve quantity Information. Changes in estimates in oil and gas reserves, resulting in different future production profi les, will affect the discounted cash fl ows used in impairment testing, the anticipated date of site decommissioning and restoration and the depletion charges in accordance with the unit of production method. Changes in estimates in oil and gas reserves could for example result
from additional drilling, observation of long-term reservoir performance or changes in economic factors such as oil price and infl ation rates.
Information about the carrying amounts of the oil and gas properties and the amounts charged to income, including depletion, exploration costs, and impairment costs is presented in Note 7.
Key assumptions in the impairment models relate to prices and costs that are based on forward curves and the long-term corporate assumptions. Lundin Petroleum carried out its annual impairment tests in conjunction with the annual reserves audit process. The calculation of the impairment requires the use of estimates. For the purpose of determining an eventual impairment the assumptions that management uses to estimate the future cash fl ows for value-in-use are future oil and gas prices and expected production volumes. These assumptions and judgements of management that are based on them are subject to change as new information becomes available. Changes in economic conditions can also affect the rate used to discount future cash fl ow estimates and the discount rate applied is reviewed throughout the year.
Information about the carrying amounts of the oil and gas properties and impairment of oil and gas properties is presented in Note 3 and Note 7.
Amounts used in recording a provision for site restoration are estimates based on current legal and constructive requirements and current technology and price levels for the removal of facilities and plugging and abandoning of wells. Due to changes in relation to these items, the future actual cash outfl ows in relation to the site decommissioning and restoration can be different. To refl ect the effects due to changes in legislation, requirements and technology and price levels, the carrying amounts of site restoration provisions are reviewed on a regular basis.
The effects of changes in estimates do not give rise to prior year adjustments and are treated prospectively over the estimated remaining commercial reserves of each fi eld. While the Group uses its best estimates and judgement, actual results could differ from these estimates.
Information about the carrying amounts of the Provision for site restoration is presented in Note 19.
All events up to the date when the fi nancial statements were authorised for issue and which have a material effect in the fi nancial statements have been disclosed.
Note 1 – Revenue
| MUSD | 2013 | 2012 |
|---|---|---|
| Crude Oil | 1,060.8 | 1,169.0 |
| Condensate | 3.4 | 3.3 |
| Gas | 160.0 | 147.2 |
| Net sales of oil and gas | 1,224.2 | 1,319.5 |
| Change in over/under lift position | -45.2 | 30.7 |
| Other operating income | 16.8 | 25.6 |
| 1,195.8 | 1,375.8 |
The reclassifi cation of the change in under/over lift from production costs to revenue is effective from 1 January 2013 and the comparative revenue has been restated from MUSD 1,345.1.
For further information on revenue, see the Directors Report on page 79.
| MUSD | 2013 | 2012 |
|---|---|---|
| Cost of operations | 114.6 | 105.6 |
| Tariff and transportation expenses | 25.7 | 29.7 |
| Direct production taxes | 44.0 | 51.3 |
| Change in inventory position | -2.0 | 14.8 |
| Other | 13.5 | 1.8 |
| 195.8 | 203.2 |
The reclassifi cation of the change in under/over lift from production costs to revenue is effective from 1 January 2013 and the comparative production costs have been restated from MUSD 172.5.
For further information on production costs, see the Directors Report on page 80.
The Group operates within several geographical areas. Operating segments are reported at country level which is consistent with the internal reporting provided to Executive Management.
The following tables present segment information regarding; revenue, production costs, exploration costs, impairment costs of oil and gas properties, gross profi t and certain asset and liability information regarding the Group's business segments. In addition segment information is reported in Note 6 Income taxes and Note 7 Oil and gas properties.
Revenues are derived from various external customers. There were no intercompany sales or purchases in the year or in the previous year, and therefore there are no reconciling items towards the amounts stated in the income statement. Within each segment, revenues from transactions with a single external customer amount to ten percent or more of revenue for that segment. 70 percent of the total revenue is contracted with one customer. The Parent Company is included in other.
| MUSD | 2013 | 2012 |
|---|---|---|
| Norway | ||
| Crude oil | 886.6 | 953.4 |
| Condensate | 2.0 | 2.3 |
| Gas | 98.5 | 94.9 |
| Net sales of oil and gas | 987.1 | 1,050.6 |
| Change in under/over lift position | -47.0 | 31.4 |
| Other revenue | 5.6 | 6.5 |
| Revenue | 945.7 | 1,088.5 |
| Production costs | -85.1 | -65.5 |
| Depletion and decommissioning costs1 | -130.2 | -154.1 |
| Exploration costs | -285.4 | -103.1 |
| Impairment costs of oil and gas properties | -81.7 | -205.8 |
| Gross profi t | 363.3 | 560.0 |
| MUSD | 2013 | 2012 |
|---|---|---|
| France | ||
| Crude oil | 110.2 | 115.0 |
| Net sales of oil and gas | 110.2 | 115.0 |
| Change in under/over lift position | -0.4 | – |
| Other revenue | 2.2 | 2.6 |
| Revenue | 112.0 | 117.6 |
| Production costs | -34.3 | -29.9 |
| Depletion and decommissioning costs | -12.5 | -11.7 |
| Exploration costs | -0.2 | -5.0 |
| Gross profi t | 65.0 | 71.0 |
| Netherlands | ||
| Crude oil | 0.2 | 0.2 |
| Condensate | 1.4 | 1.0 |
| Gas | 44.6 | 41.4 |
| Net sales of oil and gas | 46.2 | 42.6 |
| Change in under/over lift position | 2.2 | -0.7 |
| Other revenue | 1.7 | 12.2 |
| Revenue | 50.1 | 54.1 |
| Production costs | -14.7 | -12.4 |
| Depletion and decommissioning costs | -15.0 | -10.4 |
| Exploration costs | -1.3 | -0.6 |
| Gross profi t | 19.1 | 30.7 |
| Indonesia | ||
| Gas | 16.9 | 10.9 |
| Net sales of oil and gas | 16.9 | 10.9 |
| Change in under/over lift position | – | – |
| Revenue | 16.9 | 10.9 |
| Production costs | -5.0 | -5.5 |
| Depletion and decommissioning costs | -11.4 | -5.6 |
| Exploration costs | -0.4 | -7.4 |
| Gross profi t | 0.1 | -7.6 |
| Russia | ||
| Crude oil | 63.8 | 75.8 |
| Net sales of oil and gas | 63.8 | 75.8 |
| Revenue | 63.8 | 75.8 |
| Production costs | -56.3 | -65.2 |
| Depletion and decommissioning costs | -4.9 | -4.3 |
| Impairment costs of oil and gas properties | – | -31.7 |
| Gross profi t | 2.6 | -25.4 |
| Other | ||
| Crude oil2 | – | 24.6 |
| Net sales of oil and gas | – | 24.6 |
| Other revenue Revenue |
7.3 7.3 |
4.3 |
| 28.9 | ||
| Production costs | -0.4 | -24.7 |
| Depletion and decommissioning costs | -0.2 | -5.3 |
| Exploration costs3 | -0.5 | -52.3 |
| Impairment costs of oil and gas properties4 | -41.7 | – |
| Gross profi t | -35.5 | -53.4 |
| MUSD | 2013 | 2012 |
|---|---|---|
| Total | ||
| Crude oil | 1,060.8 | 1,169.0 |
| Condensate | 3.4 | 3.3 |
| Gas | 160.0 | 147.2 |
| Net sales of oil and gas | 1,224.2 | 1,319.5 |
| Change in under/over lift position | -45.2 | 30.7 |
| Other revenue | 16.8 | 25.6 |
| Revenue | 1,195.8 | 1,375.8 |
| Production costs | -195.8 | -203.2 |
| Depletion and decommissioning costs | -174.2 | -191.4 |
| Exploration costs | -287.8 | -168.4 |
| Impairment costs of oil and gas properties | -123.4 | -237.5 |
| Gross profi t | 414.6 | 575.3 |
1 Includes decommissioning costs for Norway of MUSD 13.3 relating to a change in estimates of the Gaupe fi eld site restoration.
2 Net sales of crude oil related to Tunisia in the comparative period.
3 Exploration costs in 2012 related mainly to Malaysia and amounted to MUSD 46.7.
4 Impairment costs of oil and gas properties have been booked during the year relating to Malaysia.
| Assets | Equity and Liabilities | |||
|---|---|---|---|---|
| MUSD | 2013 | 2012 | 2013 | 2012 |
| Norway | 2,975.9 | 1,942.8 | 2,542.7 | 1,221.1 |
| France | 258.3 | 279.6 | 92.2 | 87.2 |
| Netherlands | 105.8 | 112.8 | 1,397.1 | 555.4 |
| Indonesia | 123.4 | 108.2 | 21.4 | 16.3 |
| Russia | 607.9 | 619.0 | 116.0 | 112.5 |
| Malaysia | 265.1 | 197.8 | 26.8 | 33.1 |
| Sweden | 1.8 | 0.7 | 8.8 | 7.0 |
| Other | 1,147.8 | 603.8 | 14.2 | 582.0 |
| Intercompany balance elimination | -1,111.5 | -571.0 | -1,111.5 | -571.0 |
| Assets/Liabilities per country | 4,374.5 | 3,293.7 | 3,107.7 | 2,043.6 |
| Shareholders' equity | N/A | N/A | 1,207.2 | 1,182.4 |
| Non-controlling interest | N/A | N/A | 59.6 | 67.7 |
| Total equity for the Group | N/A | N/A | 1,266.8 | 1,250.1 |
| Total consolidated | 4,374.5 | 3,293.7 | 4,374.5 | 3,293.7 |
See also Note 7 for detailed information of the oil and gas properties per country.
For further information on revenue, production costs, depletion and decommissioning costs, exploration costs, impairment costs of oil and gas properties see the Directors Report on pages 79–80.
| MUSD | 2013 | 2012 |
|---|---|---|
| Interest income | 2.3 | 5.1 |
| Foreign currency exchange gain, net | – | 6.2 |
| Gain on consolidation of a subsidiary | – | 13.4 |
| Guarantee fees | 0.5 | 0.2 |
| Other | 0.5 | 2.4 |
| 3.3 | 27.3 |
| MUSD | 2013 | 2012 |
|---|---|---|
| Interest expense | 5.3 | 6.8 |
| Foreign currency exchange loss, net | 46.5 | – |
| Result on interest rate hedge settlement | 1.5 | 0.2 |
| Unwinding of site restoration discount | 6.1 | 5.1 |
| Amortisation of deferred fi nancing fees | 8.7 | 6.6 |
| Loan facility commitment fees | 17.1 | 10.3 |
| Impairment of other shares | – | 18.6 |
| Other | 1.1 | 0.9 |
| 86.3 | 48.5 |
During 2013, MUSD 18.2 (MUSD 3.4) of interest was capitalised relating to Norwegian development projects.
Exchange rate variations result primarily from fl uctuations in the value of the USD currency against a pool of currencies which includes, amongst others, EUR, NOK and the Russian Rouble (RUR). Lundin Petroleum has USD denominated debt recorded in subsidiaries using a functional currency other than USD. The foreign currency exchange loss, net includes a realised exchange gain of MUSD 5.5 (MUSD 11.7) on settled foreign exchange hedges.
| Tax charge MUSD |
2013 | 2012 |
|---|---|---|
| Current tax | ||
| Norway | 2.9 | 311.8 |
| France | 19.2 | 21.7 |
| Netherlands | 3.5 | 5.9 |
| Indonesia | -1.7 | 0.6 |
| Russia | -0.2 | 0.8 |
| Other | 0.8 | 0.5 |
| 24.5 | 341.3 | |
| Deferred tax | ||
| Norway | 196.2 | 80.4 |
| France | 4.7 | 2.3 |
| Netherlands | -9.8 | 2.2 |
| Indonesia | 1.6 | -1.9 |
| Russia | – | -2.9 |
| Malaysia | -2.2 | -3.0 |
| 190.6 | 77.1 | |
| Total tax | 215.1 | 418.4 |
For further information on income taxes, see the Directors Report on page 81.
The tax on the Group's profi t before tax differs from the theoretical amount that would arise using the tax rate of Sweden as follows:
| MUSD | 2013 | 2012 |
|---|---|---|
| Profi t before tax | 288.0 | 522.3 |
| Tax calculated at the corporate tax rate in Sweden 22% (26.3%) | -63.4 | -137.3 |
| Effect of foreign tax rates | -179.9 | -282.6 |
| Tax effect of expenses non-deductible for tax purposes | -33.9 | -25.9 |
| Tax effect of deduction for petroleum tax | 55.8 | 22.5 |
| Tax effect of income not subject to tax | – | 4.4 |
| Tax effect of utilisation of unrecorded tax losses | 13.2 | 8.3 |
| Tax effect of creation of unrecorded tax losses | -7.4 | -7.8 |
| Adjustments to prior year tax assessments | 0.5 | – |
| Tax charge | -215.1 | -418.4 |
The tax rate in Norway is 78 percent and is the primary reason for the signifi cant effect of foreign tax rates in the table above.
The tax charge relating to components of other comprehensive income is as follows:
| 2013 | ||||||
|---|---|---|---|---|---|---|
| MUSD | Before tax | Tax charge/ credit |
After tax | Before tax | Tax charge/ credit |
After tax |
| Exchange differences on foreign operations | -31.7 | – | -31.7 | 61.6 | – | 61.6 |
| Cash fl ow hedges | -8.1 | 1.9 | -6.2 | 9.2 | -2.3 | 6.9 |
| Available for sale fi nancial assets | 1.9 | – | 1.9 | 16.1 | – | 16.1 |
| Other comprehensive income | -37.9 | 1.9 | -36.0 | 86.9 | -2.3 | 84.6 |
| Current tax | – | – | ||||
| Deferred tax | 1.9 | -2.3 | ||||
| 1.9 | -2.3 |
The deferred tax income amounting to MUSD 1.9 (MUSD 2.3 charge) has been recorded directly in other comprehensive income.
| Current | Deferred | |||
|---|---|---|---|---|
| Corporation tax liability - current and deferred MUSD |
2013 | 2012 | 2013 | 2012 |
| Norway | 3.6 | 163.6 | 924.6 | 802.8 |
| France | – | – | 43.1 | 36.7 |
| Netherlands | 0.2 | 2.5 | 5.2 | 8.0 |
| Indonesia | – | 1.7 | 7.1 | 6.1 |
| Russia | 0.7 | 0.6 | 78.3 | 77.1 |
| Malaysia | – | – | 9.2 | 11.4 |
| Other | 0.2 | 1.5 | 0.1 | 0.1 |
| Total tax liability | 4.7 | 170.0 | 1,067.6 | 942.2 |
There is also a tax receivable of MUSD 6.5 (MUSD 4.0) relating to France reported in other receivables at the end of the year, see Note 16.
Specification of deferred tax assets and tax liabilities 1
| MUSD | 2013 | 2012 |
|---|---|---|
| Deferred tax assets | ||
| Unused tax loss carry forwards | 102.3 | 13.8 |
| Overlift position | 18.8 | – |
| Fair value of fi nancial instruments | – | – |
| Other deductible temporary differences | 19.9 | 8.7 |
| 141.0 | 22.5 | |
| Deferred tax liabilities | ||
| Accelerated allowances | 1,095.4 | 867.4 |
| Fair value on derivative instruments | – | 2.3 |
| Capitalised acquisition cost | 0.2 | 0.1 |
| Deferred tax on excess values | 90.6 | 81.6 |
| Other taxable temporary differences | – | – |
| 1,186.2 | 951.4 |
1 The specifi cation of deferred tax assets and tax liabilities does not agree to the face of the balance sheet due to the netting off of balances in the balance sheet when they relate to the same jurisdiction.
The deferred tax asset is primarily relating to tax loss carried forwards in the Netherlands for an amount of MUSD 30.9 (MUSD 12.6) and unused uplift carry forward in Norway of MUSD 59.4 (MUSD–). Deferred tax assets in relation to tax loss carried forwards are only recognised in so far that there is a reasonable certainty as to the timing and the extent of their realisation.
The deferred tax liability arises mainly on accelerated allowances, being the difference between the book and the tax value of oil and gas properties primarily in Norway, and tax on the excess value of the acquired assets in Russia. The deferred tax liability will be released over the life of the assets as the book value is depleted for accounting purposes.
The Group has Dutch tax loss carry forwards of approximately MUSD 181 (MUSD 161). The tax losses can be carried forward and utilised for up to 9 years. A deferred tax asset relating to MUSD 57 (MUSD 110) of the tax loss carry forwards has not been recognised as at 31 December 2013 due to the uncertainty as to the timing and the extent of the tax loss carry forward utilisation. This treatment is consistent with the comparative year's accounts.
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Production cost pools | 716.5 | 857.0 |
| Non-production cost pools | 3,135.4 | 2,007.4 |
| 3,851.9 | 2,864.4 |
| 2013 production cost pools MUSD |
Norway | France | Netherlands | Indonesia | Russia | Tunisia | Total |
|---|---|---|---|---|---|---|---|
| Cost | |||||||
| 1 January | 1,221.0 | 317.7 | 137.0 | 68.3 | 108.5 | – | 1,852.5 |
| Additions | 14.3 | 7.0 | 4.8 | -1.9 | 3.6 | – | 27.8 |
| Disposals | – | – | – | – | – | – | – |
| Change in estimates | 14.7 | 1.0 | 2.7 | – | – | – | 18.4 |
| Reclassifi cations | – | 6.8 | – | – | – | – | 6.8 |
| Currency translation difference | -103.8 | 14.9 | 6.2 | – | -3.8 | – | -86.5 |
| 31 December | 1,146.2 | 347.4 | 150.7 | 66.4 | 108.3 | – | 1,819.0 |
| Depletion | |||||||
| 1 January | -718.5 | -113.0 | -76.3 | -16.0 | -71.7 | – | -995.5 |
| Depletion charge for the year | -117.2 | -12.5 | -15.0 | -11.4 | -4.9 | – | -160.9 |
| Impairment | – | – | -1.3 | – | – | – | -1.3 |
| Currency translation difference | 64.5 | -5.3 | -4.0 | – | – | – | 55.2 |
| 31 December | -771.1 | -130.8 | -96.6 | -27.4 | -76.6 | – | -1,102.5 |
| Net book value | 375.1 | 216.6 | 54.1 | 39.0 | 31.7 | – | 716.5 |
| 2012 production cost pools, MUSD | Norway | France | Netherlands | Indonesia | Russia | Tunisia | Total | |
|---|---|---|---|---|---|---|---|---|
| Cost | ||||||||
| 1 January | 792.0 | 265.7 105.1 |
68.7 | 98.2 | 105.9 | 1,435.6 | ||
| Additions | 112.3 | 29.2 | 8.5 | -0.4 | 7.5 | – | 157.1 | |
| Disposals | – | -1.4 | – | – | – | -105.9 | -107.3 | |
| Change in estimates | 21.3 | 18.1 | 21.2 | – | 1.2 | – | 61.8 | |
| Reclassifi cations | 229.4 | – | – | – | – | – | 229.4 | |
| Currency translation difference | 66.0 | 6.1 | 2.2 | – | 1.6 | – | 75.9 | |
| 31 December | 1,221.0 | 317.7 137.0 |
68.3 | 108.5 | – | 1,852.5 | ||
| Depletion | ||||||||
| 1 January | -326.3 | -100.4 | -64.5 | -10.4 | -35.6 | -105.9 | -643.1 | |
| Depletion charge for the year | -154.1 | -11.7 | -10.4 | -5.6 | -4.3 | – | -186.1 | |
| Impairment | -205.8 | – | – | – | -31.7 | – | -237.5 | |
| Disposals | – | 1.3 | – | – | – | 105.9 | 107.2 | |
| Currency translation difference | -32.3 | -2.2 | -1.4 | – | -0.1 | – | -36.0 | |
| 31 December | -718.5 | -113.0 | -76.3 | -16.0 | -71.7 | – | -995.5 | |
| Net book value | 502.5 | 204.7 | 60.6 | 52.3 | 36.8 | – | 857.0 | |
| 2013 non production cost pools, MUSD | Norway | France | Netherlands | Indonesia | Russia | Malaysia | Other | Total |
| 1 January | 1,199.7 | 12.2 | 5.1 | 44.6 | 562.4 | 183.4 | – | 2,007.4 |
| Additions | 1,598.1 | 2.4 | 0.6 | 18.5 | 6.0 | 48.7 | – | 1,674.4 |
| Disposals | – | – | – | – | – | – | – | – |
| Expensed Exploration costs | -285.4 | -0.2 | – | -0.4 | – | -0.5 | – | -286.5 |
| Impairment | -81.7 | – | – | – | – | -41.7 | – | -123.4 |
| Change in estimates | 25.1 | – | – | – | – | – | – | 25.1 |
| Reclassifi cations | – | -6.8 | – | – | – | – | – | -6.8 |
| Currency translation difference | -145.3 | 0.3 | 0.3 | – | -10.0 | – | – | -154.7 |
| 31 December | 2,310.5 | 7.9 | 6.0 | 62.7 | 558.4 | 189.9 | – | 3,135.4 |
| 2012 non production cost pools, MUSD | Norway | France | Netherlands | Indonesia | Russia | Malaysia | Other | Total |
| 1 January | 804.1 | 7.1 | 3.1 | 35.8 | 552.5 | 129.8 | 4.4 | 1,536.8 |
| Additions | 630.5 | 9.8 | 2.5 | 16.4 | 3.6 | 100.5 | 1.3 | 764.6 |
| Disposals | – | – | – | – | -1.0 | – | – | -1.0 |
| Expensed Exploration costs | -103.1 | -5.0 | -0.6 | -7.4 | – | -46.7 | -5.6 | -168.4 |
| Change in estimates | 11.8 | – | – | – | – | – | – | 11.8 |
| Reclassifi cations | -229.4 | – | – | – | – | – | – | -229.4 |
| Currency translation difference | 85.8 | 0.3 | 0.1 | -0.2 | 7.3 | -0.2 | -0.1 | 93.0 |
| 31 December | 1,199.7 | 12.2 | 5.1 | 44.6 | 562.4 | 183.4 | – | 2,007.4 |
In 2012, the reclassifi cation from Non-Production cost pools to Production cost pools related to the production start-up on the Gaupe fi eld, Norway.
Lundin Petroleum carried out its impairment testing at 31 December 2013 in conjunction with the annual reserves audit process. Lundin Petroleum used an oil price deck of USD 100 (USD 100) per bbl infl ating at 2% (2%) per annum, a future cost infl ation factor of 2% (2%) per annum and a discount rate of 8% (10%) to calculate the future post-tax cash fl ows. As a result of the impairment testing performed, the carrying values of the Janglau and Ara discoveries on PM308A, Malaysia, were fully expensed in 2013 for an amount of MUSD 41.7 (MUSD –). In addition, impairment costs of MUSD 81.7 which related to the gas discoveries on PL438 Skalle, PL533 Salina and PL088 Peik, Norway, were expensed as they are currently deemed uncommercial. For further information on impairment, see the Directors Report on page 80.
During 2013, MUSD 18.2 (MUSD 3.4) of capitalised interest costs were added to oil and gas properties and relate to Norwegian development projects. The interest rate for capitalised borrowing costs is calculated at the external facility borrowing rate of LIBOR plus the margin of 2.75% per annum.
The Group participates in joint ventures with third parties in oil and gas exploration activities. The Group is contractually committed under various concession agreements to complete certain exploration programmes. The commitments as at 31 December 2013 are estimated to be MUSD 490.7 (MUSD 935.7) of which third parties who are joint venture partners will contribute approximately MUSD 224.4 (MUSD 491.5).
| 2013 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| MUSD | FPSO | Real estate |
Other | Total | FPSO | Real estate |
Other | Total |
| Cost | ||||||||
| 1 January | 32.5 | 11.3 | 22.2 | 66.0 | – | 11.1 | 17.9 | 29.0 |
| Acquired on consolidation | – | – | 12.7 | 12.7 | 25.2 | – | – | 25.2 |
| Additions | 29.8 | – | 6.4 | 36.2 | 6.0 | 0.1 | 3.6 | 9.7 |
| Disposals | -0.1 | -0.1 | – | – | -0.2 | -0.2 | ||
| Currency translation difference | 1.1 | – | -1.1 | – | 1.3 | 0.1 | 0.9 | 2.3 |
| 31 December | 63.4 | 11.3 | 40.1 | 114.8 | 32.5 | 11.3 | 22.2 | 66.0 |
| Depreciation | ||||||||
| 1 January | – | -1.6 | -15.0 | -16.6 | – | -1.4 | -11.6 | -13.0 |
| Disposals | – | – | – | – | – | – | 0.2 | 0.2 |
| Acquired on consolidation | – | – | -9.6 | -9.6 | – | – | – | – |
| Depreciation charge for the year | – | -0.1 | -4.3 | -4.4 | – | -0.1 | -3.0 | -3.1 |
| Currency translation difference | – | 0.1 | 0.7 | 0.8 | – | -0.1 | -0.6 | -0.5 |
| 31 December | – | -1.6 | -28.2 | -29.8 | – | -1.6 | -15.0 | -16.6 |
| Net book value | 63.4 | 9.7 | 11.9 | 85.0 | 32.5 | 9.7 | 7.2 | 49.4 |
The depreciation charge for the year is based on cost and an estimated useful life of 3 to 5 years for offi ce equipment and other assets. Real estate is depreciated using an estimated useful life of 20 years and taking into account its residual value. Depreciation is included within the general, administration and depreciation line in the income statement.
The FPSO will be depreciated over its remaining useful life once the upgrade of the vessel has been completed. For further information on FPSO, see the Directors Report on page 82.
| As at 31 December 2013 | Number of shares | Share % |
|---|---|---|
| RF Energy Investments Ltd. 1 | 11,540 | 50 |
| – CJSC Pechoraneftegas 1 | 20,000 | Direct 100, indirect 50 |
| – LLC Zapolyarneftegas 1 | 1 | Direct 100, indirect 50 |
| – LLC NK Recher-Komi 1 | 1 | Direct 100, indirect 50 |
| – Geotundra BV 1 | 20,000 | Direct 100, indirect 50 |
1 Through the proportional consolidation of RF Energy Investments Ltd. (RF Energy), the subsidiaries of RF Energy are also proportionally consolidated in the Lundin Petroleum accounts. From 1 January 2014, Lundin Petroleum will adopt IFRS 11 joint arrangements and RF Energy and its subsidiaries will be equity accounted for.
"Direct" refers to RF Energy's ownership percentage, "indirect" refers to the Group's ultimate ownership percentage.
The amounts included below for the jointly controlled entity RF Energy represent 100 percent of the reported accounts.
| RF Energy consolidated | ||
|---|---|---|
| MUSD | 2013 | 2012 |
| Income statement | ||
| Revenue | 127.7 | 151.6 |
| Operating cost | -128.0 | -197.9 |
| Net result | -0.3 | -46.3 |
| Balance Sheet | ||
| Non-current assets | 62.1 | 72.4 |
| Current assets | 32.8 | 35.2 |
| Total assets | 94.9 | 107.6 |
| Equity | 49.2 | 54.0 |
| Non-current liabilities | 31.6 | 37.8 |
| Current liabilities | 14.1 | 15.8 |
| Total liabilities | 94.9 | 107.6 |
| 31 Dec 2013 | 31 Dec 2012 | |||
|---|---|---|---|---|
| Other shares and participations comprise: | Number of shares | Share % | Book amount MUSD |
Book amount MUSD |
| ShaMaran Petroleum Corp. | 50,000,000 | 8.02 | 21.6 | 19.6 |
| Cofraland B.V. | 31 | 7.75 | 0.4 | 0.4 |
| 22.0 | 20.0 |
In October 2009, Lundin Petroleum received 50 million shares of ShaMaran Petroleum Corp. (ShaMaran) in consideration for the sale of Lundin International BV (LIBV), a 100% owned subsidiary, which had commenced negotiations for Production Sharing Contracts (PSCs) relating to exploration and development blocks in Kurdistan. The investment was booked at the fair value of the shares at the date of acquisition and under accounting rules, any subsequent movement in the fair value of the shares is being recorded in the consolidated statement of comprehensive income.
The fair value of ShaMaran is calculated using the quoted share price at the Toronto Stock Exchange at the balance sheet date and is detailed below.
| MUSD | 2013 | 2012 |
|---|---|---|
| 1 January | 19.6 | 17.4 |
| Fair value movement | 1.5 | 16.3 |
| Currency translation difference | 0.5 | 4.5 |
| Impairment | – | -18.6 |
| 31 December | 21.6 | 19.6 |
As at 31 December 2013, the other shares and participations include MUSD 0.4 (MUSD 0.4) recognised at cost because their fair value cannot be measured reliably since there is no quoted share price and due to the uncertainty of the timing of the future cash fl ows from these companies.
As an international oil and gas exploration and production company operating globally, Lundin Petroleum is exposed to fi nancial risks such as currency risk, interest rate risk, credit risks, liquidity risks as well as the risk related to the fl uctuation in the oil price. The Group seeks to control these risks through sound management practice and the use of internationally accepted fi nancial instruments, such as oil price, interest rate and foreign exchange hedges. Lundin Petroleum uses fi nancial instruments solely for the purpose of minimising risks in the Group's business.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to meet its committed work programme requirements in order to create shareholder value. The Group may put in place new credit facilities, repay debt, or other such restructuring activities as appropriate. Group management continuously monitors and manages the Group's net debt position in order to assess the requirement for changes to the capital structure to meet the objectives and to maintain fl exibility. Lundin Petroleum is not subject to any externally-imposed capital requirements.
No signifi cant changes were made in the objectives, policies or processes during the year ended 31 December 2013.
Lundin Petroleum monitors capital on the basis of net debt. Net debt is calculated as bank loans as shown in the balance sheet less cash and cash equivalents.
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Bank loans | 1,275.0 | 432.0 |
| Less cash and cash equivalents | -92.7 | -97.4 |
| Net debt | 1,182.3 | 334.6 |
The increase compared to 2012 is mainly due to the funding of the Norwegian development activities.
Interest rate risk is the risk to the earnings due to uncertain future interest rates.
Lundin Petroleum is exposed to interest rate risk through the credit facility (see also liquidity risk below). Lundin Petroleum will assess the benefi ts of interest rate hedging on borrowings on a continuous basis. If the hedging contract provides a reduction in the interest rate risk at a price that is deemed acceptable to the Group, then Lundin Petroleum may choose to enter into an interest hedge.
The table below summarises the effect that a change in the interest rate for the credit facility would have had on the net result and equity for the year ended 31 December 2013:
| Net result in the fi nancial statements (MUSD) | 72.9 | 72.9 |
|---|---|---|
| Possible shift (basis points) | -150 | 150 |
| Total effect on net result (MUSD) | 1.4 | -1.4 |
In the fi rst quarter of 2013, Lundin Petroleum entered into a three year fi xed interest rate swap, starting 31 March 2013, in respect of MUSD 500 of borrowings, fi xing the LIBOR rate at approximately 0.57 percent per annum. Further interest rate hedges were entered into in March 2014, see Note 34 Subsequent Events.
Lundin Petroleum is a Swedish company which is operating globally and therefore attracts substantial foreign exchange exposure, both transactional as well as conversion from functional currency to presentation currency. The functional currency of Lundin Petroleum's subsidiaries are Norwegian Kroner (NOK), Euro (EUR) and Russian Rouble (RUR), as well as US Dollar, making Lundin Petroleum sensitive to fl uctuations of these currencies against the US Dollar, the presentation currency.
Lundin Petroleum's policy on the currency rate hedging is, in case of currency exposure, to consider setting the rate of exchange for known costs in non-US Dollar currencies to US Dollars in advance so that future US Dollar cost levels can be forecasted with a reasonable degree of certainty. The Group will take into account the current rates of exchange and market expectations in comparison to historic trends and volatility in making the decision to hedge.
The Group entered into currency hedging contracts fi xing the rate of exchange from USD into NOK to meet NOK operational and tax requirements as summarised in the table below. Under IAS 39, subject to hedge effectiveness testing, all of the hedges are treated as effective and changes to the fair value are refl ected in other comprehensive income. At 31 December 2013, a current asset amounting to MUSD 3.2 (MUSD 9.1) and a non-current asset of MUSD 3.0 (MUSD –) has been recognised representing the fair value of part of the currency hedging contracts. The comparative period short term current asset related to currency hedge contracts. In addition, a current liability of MUSD 4.0 (MUSD –) and a non-current liability of MUSD 1.6 (MUSD –) has been recognised representing the fair value of the outstanding currency and interest rate hedges.
| Buy | Sell | Average contractual exchange rate |
Settlement period |
|---|---|---|---|
| MNOK 1,537.6 | MUSD 256.1 | NOK 6.00: USD 1 | 2 Jan – 20 Dec 2013 |
| MNOK 2,162.1 | MUSD 353.9 | NOK 6.11: USD 1 | 21 Jan – 28 Dec 2014 |
| MNOK 1,200.6 | MUSD 191.9 | NOK 6.26: USD 1 | 21 Jan – 21 Dec 2015 |
Further currency rate hedges were entered into in the fi rst quarter of 2014, see Note 34 Subsequent Events.
The following table summarises the effect that a change in these currencies against the US Dollar would have on operating profi t through the conversion of the income statements of the Group's subsidiaries from functional currency to the presentation currency US Dollar for the year ended 31 December 2013.
| Operating profi t in the fi nancial statements (MUSD) | 371.0 | 371.0 | |
|---|---|---|---|
| Shift of currency exchange rates |
Average rate 2013 | 10% USD weakening | 10% USD strengthening |
| EUR/USD | 0.7529 | 0.6845 | 0.8282 |
| NOK/USD | 5.8753 | 5.3412 | 6.4628 |
| RUR/USD | 31.8675 | 28.9705 | 35.0543 |
| CHF/USD | 0.9268 | 0.8425 | 1.0195 |
| Total effect on operating profi t (MUSD) | 38.5 | -38.5 |
The foreign currency risk to the Group's income and equity from conversion exposure is not hedged.
Price of oil and gas are affected by the normal economic drivers of supply and demand as well as the fi nancial investors and market uncertainty. Factors that infl uence these include operational decisions, natural disasters, economic conditions, political instability or confl icts or actions by major oil exporting countries. Price fl uctuations can affect Lundin Petroleum's fi nancial position.
The table below summarises the effect that a change in the oil price would have had on the net result and equity at 31 December 2013:
| Net result in the fi nancial statements (MUSD) | 72.9 | 72.9 |
|---|---|---|
| Possible shift | -10% | 10% |
| Total effect on net result (MUSD) | -33.8 | 33.8 |
The impact on the net result from a change in oil price is reduced due to the 78 percent tax rate in Norway.
Lundin Petroleum's policy is to adopt a fl exible approach towards oil price hedging, based on an assessment of the benefi ts of the hedge contract in specifi c circumstances. Based on analysis of the circumstances, Lundin Petroleum will assess the benefi ts of forward hedging monthly sales contracts for the purpose of establishing cash fl ow. If it believes that the hedging contract will provide an enhanced cash fl ow then it may choose to enter into an oil price hedge.
For the year ended 31 December 2013, the Group did not enter into oil price hedging contracts. There are no oil price hedging contracts outstanding as at 31 December 2013.
Lundin Petroleum's policy is to limit credit risk by limiting the counter-parties to major banks and oil companies. Where it is determined that there is a credit risk for oil and gas sales, the policy is to require an irrevocable letter of credit for the full value of the sale. The policy on joint venture parties is to rely on the provisions of the underlying joint operating agreements to take possession of the licence or the joint venture partner's share of production for non-payment of cash calls or other amounts due.
As at 31 December 2013, the Group's trade receivables amounted to 128.9 (MUSD 125.9). There is no recent history of default. Other long-term and short-term receivables are considered recoverable. The provision for bad debt as at 31 December 2013 amounted to MUSD – (MUSD –). Cash and cash equivalents are maintained with banks having strong long-term credit ratings.
Liquidity risk is defi ned as the risk that the Group could not be able to settle or meet its obligations on time or at a reasonable price. Group treasury is responsible for liquidity, funding as well as settlement management. In addition, liquidity and funding risks and related processes and policies are overseen by management.
On 25 June 2012, Lundin Petroleum entered into a seven year senior secured revolving borrowing base facility of USD 2.5 billion to provide funding for Lundin Petroleum's ongoing exploration expenditure and development costs, particularly in Norway. This facility was increased to USD 4.0 billion in February 2014. It is expected that the Group's ongoing development and exploration expenditure requirements will be funded by the Group's operating cash fl ow and the loan facility. No loan repayments are required for the credit facility in 2014. See Note 22 for more information regarding the Group's credit facility.
Lundin Petroleum has, through its subsidiary Lundin Malaysia BV, entered into Production Sharing Contracts (PSC) with Petroliam Nasional Berhad, the oil and gas company of the Government of Malaysia (Petronas). Bank guarantees have been issued in support of the work commitments in relation to these PSCs and the outstanding amount of the bank guarantees at 31 December was MUSD 11.9 (MUSD 75.4).
The accounting policies for fi nancial instruments have been applied to the line items below:
| Financial liabilities | ||||
|---|---|---|---|---|
| 31 December 2013 | Loan receivables and | Available | Derivatives used | valued at |
| MUSD | other receivables | for sale | for hedging | amortised cost |
| Assets | ||||
| Other shares and participations | – | 22.0 | – | – |
| Bonds | 10.4 | – | – | – |
| Derivative instruments | – | – | 6.2 | – |
| Trade receivables | 128.9 | – | – | – |
| Joint venture debtors | 25.2 | – | – | – |
| Cash and cash equivalents | 92.7 | – | – | – |
| 257.2 | 22.0 | 6.2 | – | |
| Liabilities | ||||
| Trade Payables | – | – | – | 19.4 |
| Joint venture creditors | – | – | – | 334.5 |
| Bank loans | – | – | – | 1,275.0 |
| Derivative instruments | – | – | 5.6 | – |
| Other non-current liabilities | – | – | – | 24.9 |
| – | – | 5.6 | 1,653.8 |
| 31 December 2012 MUSD |
Loan receivables and other receivables |
Available for sale |
Derivatives used for hedging |
Financial liabilities valued at amortised cost |
|---|---|---|---|---|
| Assets | ||||
| Other shares and participations | – | 20.0 | – | – |
| Bonds | 9.5 | – | – | – |
| Derivative instruments | – | – | 9.1 | – |
| Trade receivables | 125.9 | – | – | – |
| Joint venture debtors | 11.5 | – | – | – |
| Cash and cash equivalents | 97.4 | – | – | – |
| 244.3 | 20.0 | 9.1 | – | |
| Liabilities | ||||
| Trade Payables | – | – | – | 15.7 |
| Joint venture creditors | – | – | – | 209.6 |
| Bank loans | – | – | – | 432.0 |
| Other non-current liabilities | – | – | – | 22.6 |
| – | – | – | 679.9 |
The fair value of Loan receivables and other receivables equal the book value.
For fi nancial instruments measured at fair value in the balance sheet, the following fair value measurement hierarchy is used:
– Level 1: based on quoted prices in active markets;
– Level 2: based on inputs other than quoted prices as within level 1, that are either directly or indirectly observable;
– Level 3: based on inputs which are not based on observable market data.
31 December 2013
Based on this hierarchy, fi nancial instruments measured at fair value can be detailed as follows:
For risks in the fi nancial reporting see the section Internal control and risk management for the fi nancial reporting in the Corporate Governance report on pages 62–63 and risks and risk management on pages 70–71 for more information.
| 31 December 2013 |
31 December 2012 |
|---|---|
| 10.4 | 9.5 |
| 1.4 | 1.3 |
| 11.8 | 10.8 |
At 31 December 2013, the Group held 7.6 million EUR denominated bonds in Etrion Corporation with a coupon rate of 9 percent per year and a maturity date in April 2015. See Note 34 Subsequent Events.
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Hydrocarbon stocks Drilling equipment and |
3.5 | 1.6 |
| consumable materials | 19.3 | 17.1 |
| 22.8 | 18.7 |
The trade receivables relate mainly to hydrocarbon sales to a limited number of independent customers from whom there is no recent history of default. The trade receivables balance is current and the provision for bad debt is nil.
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Prepaid rent | 0.7 | 0.6 |
| Prepaid operational payments | 52.2 | 16.7 |
| Prepaid insurance | 3.7 | 12.2 |
| Accrued income | 0.5 | 1.1 |
| Other | 5.0 | 2.3 |
| 62.1 | 32.9 |
Prepaid operational payments included MUSD 35.7 (MUSD–) in relation to the mobilisation costs of a Norwegian rig that will be allocated to future wells. Prepaid insurance included MUSD 10.1 at 31 December 2012, relating to the insurance on the Edvard Grieg project.
| Assets | |||
|---|---|---|---|
| Available for sale fi nancial assets | |||
| - Other shares and participations | 21.6 | – | 0.4 |
| - Bonds | 10.4 | – | – |
| - Derivative instruments | – | 6.2 | – |
| 32.0 | 6.2 | 0.4 | |
| Liabilities | |||
| - Derivative instruments | – | 5.6 | – |
| – | 5.6 | – | |
MUSD Level 1 Level 2 Level 3
| MUSD | Level 1 | Level 2 | Level 3 |
|---|---|---|---|
| Assets | |||
| Available for sale fi nancial assets | |||
| - Other shares and participations | 19.6 | – | 0.4 |
| - Bonds | 9.5 | – | – |
| - Derivative instruments | – | 9.1 | – |
| 29.1 | 9.1 | 0.4 | |
| Liabilities | |||
| - Derivative instruments | – | – | – |
| – | – | – |
| Level 3 MUSD |
2013 | 2012 |
|---|---|---|
| 1 January | 0.4 | 0.4 |
| Disposal | – | – |
| Currency translation difference | – | – |
| 31 December | 0.4 | 0.4 |
The outstanding derivative instruments can be specifi ed as follows:
| Fair value of out standing derivative instruments in the |
31 December 2013 |
31 December 2012 |
||
|---|---|---|---|---|
| balance sheet (MUSD) | Assets | Liabilities | Assets Liabilities | |
| Interest rate swaps | – | 1.0 | – | – |
| Currency hedge | 6.2 | 4.6 | 9.1 | – |
| Total | 6.2 | 5.6 | 9.1 | – |
| Non-current | 3.0 | 1.6 | – | – |
| Current | 3.2 | 4.0 | 9.1 | – |
| Total | 6.2 | 5.6 | 9.1 | – |
The fair value of the currency hedge is calculated using the forward exchange rate curve applied to the outstanding portion of the outstanding currency hedging contracts. The effective portion of the currency hedge as at 31 December 2013 amounted to a net asset of MUSD 1.6 (MUSD 9.1).
The fair value of the interest rate swap is calculated using the forward interest rate curve applied to the outstanding portion of the swap transaction. The effective portion of the interest rate swap as at 31 December 2013 amounted to a net liability of MUSD 1.0 (MUSD –).
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Underlift | 9.4 | 26.4 |
| Corporation tax | 6.5 | 4.0 |
| Short-term VAT receivable | 4.1 | 3.0 |
| Receivable on farm-out | 10.9 | – |
| Other | 12.6 | 6.9 |
| 43.5 | 40.3 |
Cash and cash equivalents include only cash at hand or on bank. No short term deposits are held as at 31 December 2013.
| MUSD | Available for sale reserve |
Hedge reserve |
Currency translation reserve |
Total Other reserves |
|---|---|---|---|---|
| 1 January 2012 | -9.2 | 0.1 | -136.7 | -145.8 |
| Total comprehensive income |
16.1 | 6.9 | 59.0 | 82.0 |
| 31 December 2012 | 6.9 | 7.0 | -77.7 | -63.8 |
| Total comprehensive income |
1.9 | -6.2 | -28.6 | -32.9 |
| 31 December 2013 | 8.8 | 0.8 | -106.3 | -96.7 |
| MUSD | 2013 | 2012 |
|---|---|---|
| 1 January | 190.5 | 119.3 |
| Unwinding of site restoration discount | 6.1 | 5.1 |
| Payments | -1.5 | -18.6 |
| Changes in estimates | 56.8 | 78.9 |
| Currency translation difference | -5.8 | 5.8 |
| 31 December | 246.1 | 190.5 |
In calculating the present value of the site restoration provision, a pre-tax discount rate of 3.5% (3.5%) was used which is based on longterm risk-free interest rate projections. Based on the estimates used in calculating the site restoration provision as at 31 December 2013, approximately 66% of the total amount is expected to be settled after more than 15 years.
| 2012 |
|---|
| 1.5 |
| 0.1 |
| -0.1 |
| 1.5 |
In May 2002, the Compensation Committee recommended to the Board of Directors, and the Board of Directors approved that a pension to be paid to Adolf H. Lundin upon his resignation as Chairman of the Board of Directors and his appointment as Honorary Chairman. It was further agreed that upon the death of Adolf H. Lundin, the monthly payments would be paid to his wife, Eva Lundin for the duration of her life.
Pension payments totalling an annual amount of TCHF 138 (TUSD 155) are payable to Eva Lundin. The Company may, at its option, buy out the obligation to make the pension payments through a lump sum payment in the amount of TCHF 1,800 (TUSD 2,022).
| Termination indemnity |
||||
|---|---|---|---|---|
| MUSD | LTIP | provision | Other | Total |
| 1 January 2013 | 76.0 | 1.0 | 2.2 | 79.2 |
| Additions | 10.7 | – | 0.7 | 11.4 |
| Payment | -10.0 | -0.4 | – | -10.4 |
| Currency translation difference |
0.3 | – | 0.1 | 0.4 |
| 31 December 2013 | 77.0 | 0.6 | 3.0 | 80.6 |
| Non-current | 30.8 | 0.6 | 3.0 | 34.4 |
| Current | 46.2 | – | – | 46.2 |
| Total | 77.0 | 0.6 | 3.0 | 80.6 |
See Note 32 for more information on the Group's LTIP.
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Bank loans Capitalised fi nancing fees |
1,275.0 -35.9 |
432.0 -47.8 |
| 1,239.1 | 384.2 |
The USD 2.5 billion fi nancing facility, entered into on 25 June 2012 is a revolving borrowing base facility secured against certain cash fl ows generated by the Group. In February 2014 the facility was increased to USD 4.0 billion. The amount available under the facility is recalculated every six months based upon the calculated cash fl ow generated by certain producing fi elds at an oil price and economic assumptions agreed with the banking syndicate providing the facility. The maturity date of the bank facility is June 2019 and there is a loan reduction schedule which commences in 2016 and reduces to zero by the fi nal maturity date. In addition, the amount available to borrow under the facility is based upon a net present value calculation of the assets' future cash fl ows. Based on the reduction schedule and the current availability calculation, part of the current outstanding bank loan balance falls due within fi ve years.
The upfront fees associated with the USD 2.5 billion credit facility has been capitalised and are being amortised over the expected life of the fi nancing facility. The interest rate on Lundin Petroleum's credit facility is fl oating and is currently LIBOR + 2.75% (2.75%) per year.
In relation to fi nancial liabilities, the following amounts were outstanding:
| 31 December | 31 December | |
|---|---|---|
| MUSD | 2013 | 2012 |
| Non-current | ||
| Repayment within 2–5 years: | ||
| Bank loans | 704.0 | – |
| Repayment after 5 years: | ||
| Bank loans | 571.0 | 432.0 |
| Other non-current liabilities | 24.9 | 22.6 |
| Current | ||
| Repayment within 6 months: | ||
| Trade payables | 19.4 | 15.7 |
| Joint venture creditors | 334.5 | 209.6 |
| Repayment between 6–12 | ||
| months: | ||
| Other current liabilities | – | – |
| 1,653.8 | 679.9 |
The table above analyses the Group's fi nancial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Loan repayments are made based upon a net present value calculation of the assets' future cash fl ows. No loan repayments are currently forecast under this calculation.
The Group's credit facility agreement provides that an "event of default" occurs where the Group does not comply with certain material covenants or where certain events occur as specifi ed in the agreement, as are customary in fi nancing agreements of this size and nature. If such an event of default occurs and subject to any applicable cure periods, the external lenders may take certain specifi ed actions to enforce their security, including accelerating the repayment of outstanding amounts under the credit facility. The Group is not in breach of the debt covenants.
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Holiday pay | 11.0 | 4.6 |
| Operating costs | 21.9 | 3.1 |
| Social security charges | 3.4 | 2.6 |
| Salaries and wages | 0.1 | 0.1 |
| Other | 4.6 | 2.3 |
| 41.0 | 12.7 |
| MUSD | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Overlift | 29.2 | 0.5 |
| Withholding tax on salaries | 7.2 | 5.4 |
| VAT payable | 0.1 | 0.3 |
| Social charges payable | 0.7 | 0.7 |
| Mineral resource extraction tax | 2.5 | 2.1 |
| Other liabilities | 2.9 | 6.4 |
| 42.6 | 15.4 |
Other liabilities at 31 December 2012 represent an operational liability relating to the Gaupe fi eld, Norway, an audit claim and other supplier payables.
In June 2012, Lundin Petroleum entered into a seven year senior secured revolving borrowing base facility of USD 2.5 billion as described in Note 22 Financial Liabilities. The facility is secured by a pledge over the shares of certain Group companies and a charge over some of the bank accounts of the pledged companies. The pledged amount at 31 December 2013 is MUSD 1,870.3 (MUSD 1,831.3) equivalent and represents the accounting value of net assets of the Group companies whose shares are pledged as described in the parent company section below.
In connection with the acquisition by Lundin Petroleum of the additional 30 percent interest in the Lagansky Block in 2009, Lundin Petroleum has agreed to pay to the former owner of the Lagansky Block a fee to be based on USD 0.30 per barrel of oil in respect of 30% of the proven and probable reserves in the Lagansky Block as at the date a decision is made to proceed to a development.
In connection with the acquisition of a 30 percent interest in the Lagansky Block by a subsidiary of Gunvor International BV in 2009, Gunvor has agreed to pay to Lundin Petroleum a fee to be based on USD 0.15 per barrel of oil (up to gross 150 MMbbls) and USD 0.30 per barrel of oil (over gross 150 MMbbls) of the proven and probable reserves in the Lagansky Block as at the date a decision is made to proceed to a development.
The amounts of the contingent asset and liability related to the Lagansky Block are dependent on the outcome of future exploration and production activities. Due to the uncertainties related to these activities, estimates of the cash infl ow and outfl ow cannot be calculated with certainty.
In connection with the sale by Lundin Petroleum of its Salawati (Indonesia) interests to RH Petrogas in 2010, RH Petrogas has agreed to pay to Lundin Petroleum up to MUSD 3.9 as deferred consideration. The amount and timing of such payment will be determined based on certain future fi eld developments within the Salawati Island Block.
Earnings per share are calculated by dividing the net result attributable to shareholders of the Parent Company by the weighted average number of shares for the year.
| 2013 | 2012 | |
|---|---|---|
| Net result attributable to shareholders of the Parent Company (in USD) |
77,553,799 | 108,160,717 |
| Weighted average number of shares for the year |
310,017,074 | 310,735,227 |
| Earnings per share (in USD) | 0.25 | 0.35 |
There was no dilution for the years 2013 and 2012.
| MUSD | Note | 2013 | 2012 |
|---|---|---|---|
| Exploration costs | 3 | 287.8 | 168.4 |
| Impairment of oil and gas properties | 3 | 123.4 | 237.5 |
| Depletion, depreciation and amortisation |
7/8 | 165.1 | 189.2 |
| Impairment of other shares | – | 18.6 | |
| Amortisation of deferred fi nancing fees |
5 | 8.7 | 6.6 |
| Unwinding of site restoration discount |
5/19 | 6.1 | 5.1 |
| Decommissioning costs | 3/19 | 13.3 | 5.3 |
| Long-term incentive plan | 9.9 | 13.0 | |
| Interest income | 4 | -2.3 | -5.1 |
| Current tax | 6 | 24.5 | 341.3 |
| Deferred tax | 6 | 190.6 | 77.1 |
| Interest expense | 5 | 5.3 | 6.8 |
| Exchange gains/losses | 4/5 | 52.0 | 5.5 |
| Gain on consolidation of subsidiary | 4 | – | -13.4 |
| Other provisions | 0.6 | 0.8 | |
| Other non-cash items | 0.3 | 0.2 | |
| Adjustment to cash fl ow from operations |
885.3 | 1,056.9 |
Lundin Petroleum recognises the following related parties: associated companies, jointly controlled entities, key management personnel and members of their close family or other parties that are partly, directly or indirectly, controlled by key management personnel or of its family or of any individual that controls, or has joint control or signifi cant infl uence over the entity.
During the reporting period, the Group has entered into transactions with related parties on a commercial basis as shown below:
| MUSD | 2013 | 2012 |
|---|---|---|
| Purchase of services | -0.1 | -1.0 |
| Sale of services | 0.4 | 0.4 |
In addition, the Group purchased a corporate aircraft from a related party company for MUSD 2.8 during the year. The aircraft has been capitalised as part of other fi xed assets.
During the fourth quarter of 2013, Lundin Petroleum announced that Geoffrey Turbott, VP Finance and CFO, will leave the Company in mid-2014. Under agreed severance terms, he will receive a payment equal to one years' base salary on his departure, which the Board authorised as a permitted deviation from the Policy on Remuneration for the Executive Management, taking into account the special circumstances of his substantial contributions to the Company over his years of service. In accordance with the rules of the phantom option plan, Geoffrey Turbott will receive full settlement for his entitlement under the plan in 2014. The Group has also entered into a loan agreement with him for a maximum amount of MUSD 3.0. All amounts plus interest are repayable on or before 30 June 2014.
The related party transactions concern other parties that are controlled by key management personnel. Key management personnel include directors and Group management. The remuneration to the Board of directors and Executive Management is disclosed in Note 31. There are no year end balances related to key management personnel other than mentioned above.
| 2013 | 2012 | ||||
|---|---|---|---|---|---|
| Average number of employees per country | Total employees | of which men | Total employees |
of which men | |
| Parent Company in Sweden | 3 | 1 | – | – | |
| Subsidiaries abroad | |||||
| Norway | 218 | 163 | 144 | 104 | |
| France | 50 | 38 | 56 | 45 | |
| Netherlands | 8 | 4 | 7 | 3 | |
| Indonesia | 23 | 12 | 26 | 15 | |
| Russia | 44 | 26 | 43 | 27 | |
| Tunisia | 6 | 4 | 7 | 5 | |
| Malaysia | 60 | 35 | 50 | 32 | |
| Switzerland | 38 | 22 | 39 | 23 | |
| Other | 3 | 1 | – | – | |
| Total subsidiaries abroad | 450 | 305 | 372 | 254 | |
| Total Group | 453 | 306 | 372 | 254 |
| 2013 2012 |
||||
|---|---|---|---|---|
| Board members and Executive management | Total at year end |
of which men | Total at year end |
of which men |
| Parent Company in Sweden | ||||
| Board members 1 | 7 | 5 | 6 | 5 |
| Subsidiaries abroad | ||||
| Executive Management 1 | 4 | 4 | 4 | 4 |
| Total Group | 11 | 9 | 10 | 9 |
1 C. Ashley Heppenstall, CEO and Board member is only included in Executive Management.
| 2013 | 2012 | ||||||
|---|---|---|---|---|---|---|---|
| Salaries, other remuneration and social security costs TUSD |
Salaries and other remuneration |
Social security costs |
Salaries and other remuneration |
Social security costs |
|||
| Parent Company in Sweden | |||||||
| Board members | 646 | 131 | 580 | 117 | |||
| Employees | 214 | 114 | – | – | |||
| Subsidiaries abroad | |||||||
| Executive Management | 4,826 | 335 | 5,095 | 336 | |||
| Other employees | 96,021 | 21,913 | 70,499 | 16,095 | |||
| Total Group | 101,707 | 22,493 | 76,174 | 16,548 | |||
| of which pension costs | 8,670 | 5,740 |
| Salaries and other remuneration for the Board members and Executive Management1 TUSD |
Fixed Board remuneration/ base salary and other benefits 2 |
Short-term variable salary 3 |
Remuneration for Committee work |
Board remuneration for special assignments 4 |
Pension | Total 2013 |
Total 2012 |
|---|---|---|---|---|---|---|---|
| Parent Company in Sweden | |||||||
| Board members | |||||||
| Ian H. Lundin | 140 | – | – | 249 | – | 389 | 418 |
| Peggy Bruzelius | 38 | – | 8 | – | – | 46 | – |
| Kristin Færøvik | 35 | – | 8 | – | – | 43 | 78 |
| Asbjørn Larsen | 72 | – | 15 | – | – | 87 | 78 |
| Lukas H. Lundin | 72 | – | – | – | – | 72 | 63 |
| Dambisa F. Moyo | – | – | – | – | – | – | 35 |
| William A. Rand | 72 | – | 42 | – | – | 114 | 99 |
| Magnus Unger | 72 | – | 23 | 46 | – | 141 | 107 |
| Cecilia Vieweg | 38 | – | 11 | – | – | 49 | – |
| Total Board members | 539 | – | 107 | 295 | – | 941 | 878 |
| Subsidiaries abroad | |||||||
| Executive Management | |||||||
| C. Ashley Heppenstall | 1,032 | 765 | – | – | 132 | 1,929 | 2,234 |
| Other (comprises three persons) | 1,801 | 1,421 | – | – | 385 | 3,607 | 3,331 |
| Total Executive Management | 2,833 | 2,186 | – | – | 517 | 5,536 | 5,565 |
1 Salaries and other remuneration have been expensed during the year.
2 Other benefi ts include school fees and health insurance.
3 In December 2013, the Compensation Committee awarded a bonus for 2013 of one month's salary to Executive Management. In January 2014, the Compensation Committee reassessed the bonus payments made for 2013 considering the employees' contributions to the results of the Group and the achievement of personal targets and awarded additional bonuses payable in January 2014. The same reassessment was made in January 2013 for 2012 and the amounts are included in the cost of 2013.
4 Other remuneration paid during 2013 relates to fees paid for special assignments undertaken by Board members on behalf of the Group. The payment of such fees was in accordance with fees approved by the 2013 AGM.
There are no severance pay agreements in place for any non-executive directors and such directors are not eligible to participate in any of the Group's incentive programmes.
The pension contribution is between 15% and 18% of the qualifying income for pension purposes. Qualifying income is defi ned as annual base salary and short-term variable salary and is capped at approximately TCHF 842 (TUSD 946). The normal retirement age for the CEO is 65 years.
A mutual termination period of between one month and six months applies between the Company and Executive Management, depending on the duration of the employment with the Company, where the maximum applies as of the tenth year of employment. In addition, severance terms are incorporated into the employment contracts for Executives that give rise to compensation, equal to two years' base salary, in the event of termination of employment due to a change of control of the Company.
During the fourth quarter of 2013, Lundin Petroleum announced that Geoffrey Turbott, VP Finance and CFO, will leave the Company in mid-2014. Under agreed severance terms, Geoffrey Turbott will receive a payment equal to one years' base salary on his departure, which the Board authorised as a permitted deviation from the Policy on Remuneration for the Executive Management, taking into account the special circumstances of his substantial contributions to the Company over his years of service.
See page 58–61 of the Corporate Governance report for further information on the Company's principles of remuneration and the Policy on Remuneration for the Executive Management for 2013.
The Company maintains the long-term incentive plans (LTIP) described below.
In 2008, Lundin Petroleum implemented a LTIP scheme consisting of a Unit Bonus Plan which provides for an annual grant of units that will lead to a cash payment at vesting. The LTIP has a three year duration whereby the initial grant of units vested equally in three tranches: one third after one year; one third after two years; and the fi nal third after three years. The cash payment is conditional upon the holder of the units remaining an employee of the Group at the time of payment. The share price for determining the cash payment at the end of each vesting period will be the fi ve trading day average closing Lundin Petroleum share price prior to and following the actual vesting date. The exercise price at vesting date 31 May 2013 was SEK 139.89.
LTIPs that follow the same principles as the 2008 LTIP have subsequently been implemented each year for employees other than Executive Management.
The following table shows the number of units issued under the LTIPs, the amount outstanding as at 31 December 2013 and the year in which the units will vest.
| Plan | |||||
|---|---|---|---|---|---|
| Unit Bonus Plan | 2010 | 2011 | 2012 | 2013 | Total |
| Outstanding at the beginning of the period | 209,162 | 250,625 | 361,158 | – | 820,945 |
| Awarded during the period | – | – | – | 423,939 | 423,939 |
| Forfeited during the period | -1,321 | -2,167 | -2,897 | -1,209 | -7,594 |
| Exercised during the period | -207,841 | -124,466 | -119,765 | – | -452,072 |
| Outstanding at the end of the period | – | 123,992 | 238,496 | 422,730 | 785,218 |
| Vesting date | |||||
| 31 May 2014 | 123,992 | 119,248 | 140,910 | 384,150 | |
| 31 May 2015 | – | 119,248 | 140,910 | 260,158 | |
| 31 May 2016 | – | – | 140,910 | 140,910 | |
| Outstanding at the end of the period | 123,992 | 238,496 | 422,730 | 785,218 |
The total number of units vesting do not necessarily equal the total units awarded due to the recalculation following distributions by Lundin Petroleum offsetting units that have lapsed following employees leaving the Group.
The costs associated with the unit bonus plans are as given in the following table.
| Unit Bonus Plan MUSD | 2013 | 2012 |
|---|---|---|
| 2009 | – | -0.8 |
| 2010 | 0.5 | 0.8 |
| 2011 | 0.7 | 2.1 |
| 2012 | 2.2 | 3.1 |
| 2013 | 3.9 | – |
| 7.3 | 5.2 |
LTIP awards are recognised in the fi nancial statements pro rata over their vesting period. The total carrying amount for the provision for the Unit Bonus Plan including social costs at 31 December 2013 amounted to MUSD 8.8 (MUSD 12.0). The provision is calculated based on Lundin Petroleum's share price at the balance sheet date. The closing share price at 31 December 2013 was SEK 125.40.
At the AGM on 13 May 2009, the shareholders of Lundin Petroleum approved the implementation of an LTIP for Executive Management (being the President and Chief Executive Offi cer, the Chief Operating Offi cer, the Chief Financial Offi cer and the Senior Vice President Development) consisting of a grant of phantom options exercisable after fi ve years from the date of grant. The exercise of these options entitles the recipient to receive a cash payment based on the appreciation of the market value of the Lundin Petroleum share. Payment of the award under these phantom options will occur in two equal instalments: (i) fi rst on the date immediately following the fi fth anniversary of the date of grant and (ii) second on the date which is one year following the date of the fi rst payment.
The LTIP for Executive Management includes 5,500,928 phantom options with an exercise price of SEK 52.91. The phantom options will vest in May 2014 being the fi fth anniversary of the date of grant. The recipients will be entitled to receive a cash payment equal to the average closing price of the Company's shares during the fi fth year following grant, less the exercise price, multiplied by the number of phantom options. The participants of the phantom option plan are not entitled to receive new awards under the Unit Bonus Plan whilst the phantom options are still outstanding. The Phantom options outstanding as at 31 December 2013 are detailed in the following table:
| Executive Management | Phantom options |
|---|---|
| C. Ashley Heppenstall | 2,062,848 |
| Alexandre Schneiter | 1,512,756 |
| Chris Bruijnzeels | 962,662 |
| Geoffrey Turbott | 962,662 |
| 5,500,928 |
During the fourth quarter of 2013, Lundin Petroleum announced that Geoffrey Turbott, VP Finance and CFO, will leave the Company in mid-2014. In accordance with the rules of the phantom option plan, Geoffrey Turbott will receive full settlement for his entitlement under the plan in 2014.
Lundin Petroleum purchased 6,882,638 of its own shares up to 31 December 2010 at an average cost of SEK 46.51 per share to mitigate against the exposure of the LTIP. The Lundin Petroleum share price at 31 December 2013 was SEK 125.40. The provision for LTIP amounted to MUSD 68.2 including social charges as at 31 December 2013 and the market value of these shares held at 31 December 2013 was MUSD 134.4. The gain in the value of the own shares held cannot be offset against the cost for the LTIP in the fi nancial statements in accordance with accounting rules.
LTIP awards are recognised in the fi nancial statements pro rata over their vesting period. The total carrying amount for the provision for the Phantom Option Plan including social costs at 31 December 2013 amounted to MUSD 68.2 (MUSD 64.0). The provision is calculated based on Lundin Petroleum's share price at the balance sheet date using the Black and Scholes method applied to the portion of the awards recognised at the balance sheet date.
The non-cash charge in relation to the LTIP for Executive Management amounted to MUSD 3.3 (MUSD 9.1), including social costs for the fi nancial year ended 31 December 2013.
| Note 33 – Remuneration to the Group's Auditors | |
|---|---|
| ------------------------------------------------ | -- |
| TUSD | 2013 | 2012 |
|---|---|---|
| PwC | ||
| Audit fees | 1,104 | 952 |
| Audit related | 64 | – |
| Tax advisory services | 26 | 227 |
| Other fees | 344 | 10 |
| Total PwC | 1,538 | 1,189 |
| Remuneration to other auditors than PwC | 235 | 278 |
| Total | 1,773 | 1,467 |
Audit fees include the review of the 2013 half year report. Audit related costs include special assignments such as licence audits and PSC audits. Other fees related to advice on business development activities.
In February 2014, Lundin Petroleum signed an agreement with its banking syndicate to increase its existing USD 2.5 billion credit facility to USD 4.0 billion on similar terms.
In March 2014, Lundin Petroleum purchased a further 500,000 of its own shares at an average price of SEK 124.07 and sold all of its holding of 7.6 million EUR denominated bonds in Etrion Corporation at slightly above par value.
Lundin Petroleum announced in the fi rst quarter of 2014 that it had been awarded nine exploration licences in the Norwegian APA 2013 licensing round, four of which will be operated by Lundin Petroleum.
Lundin Petroleum has announced that the sidetrack exploration well 16/2-20A on the Torvastad prospect on PL501, Norway, had been completed and had encountered uncommercial reservoir. In addition, the well targeting the Langlitinden prospect in PL659, Norway, was unsuccessful.
The Balqis exploration and Boni sidetrack wells in the Baronang PSC, Natuna Sea, Indonesia were announced as unsuccessful and consequently plugged and abandoned. In addition, costs associated with the Cakalang PSC, Natuna Sea, Indonesia will also be expensed following the results from the Baronang wells.
Costs associated with these exploration wells will be expensed in the fi rst quarter of 2014.
In February 2014, Lundin Petroleum entered into further forward currency hedging contracts to buy MNOK 2,896.1 and sell MUSD 462.1 at an average exchange rate of NOK 6.27: USD 1.00 to meet 2014 and 2015 NOK operational requirements.
In March 2014, Lundin Petroleum entered into further interest rate hedge swaps starting 1 July 2014 and ending in December 2018 as follows:
| Borrowings expressed in MUSD |
Fixing of floating LIBOR rate per annum |
Settlement period |
|---|---|---|
| 1,000 | 0.21% | 1 Jul 2014 – 31 Dec 2014 |
| 1,500 | 0.52% | 1 Jan 2015 – 31 Dec 2015 |
| 1,500 | 1.50% | 1 Jan 2016 – 31 Mar 2016 |
| 2,000 | 1.50% | 1 Apr 2016 – 31 Dec 2016 |
| 1,500 | 2.32% | 1 Jan 2017 – 31 Dec 2017 |
| 1,000 | 3.06% | 1 Jan 2018 – 31 Dec 2018 |
The business of the Parent Company is investment in and management of oil and gas assets. The net result for the Parent Company amounted to MSEK 76.1 (MSEK 762.2) for the fi nancial year 2013.
The result included general and administrative expenses of MSEK 105.7 (MSEK 84.6) and fi nancial income relating to guarantee fees of MSEK 3.1 (MSEK 1.6) and a dividend received from a subsidiary of MSEK 178.2 (MSEK 804.7). Financial expenses related to interest expense from a group company of MSEK 2.3 (MSEK 31.3).
Pledged assets of MSEK 12,014.5 (MSEK 11,911.6) relate to the accounting value of the pledge of the shares in respect of the fi nancing facility entered into by its fully-owned subsidiary Lundin Petroleum BV.
The fi nancial statements of the Parent Company are prepared in accordance with accounting policies generally accepted in Sweden, applying RFR 2 issued by the Swedish Financial Reporting Board and the Annual Accounts Act (1995: 1554). RFR 2 requires the Parent Company to use similar accounting policies as for the Group, i.e. IFRS to the extent allowed by RFR 2. The Parent Company's accounting policies do not in any material respect deviate from the Group policies, see pages 90–95.
for the Financial Year Ended 31 December
| Expressed in MSEK | Note | 2013 | 2012 |
|---|---|---|---|
| Revenue | 1 | 3.1 | 71.0 |
| Gross profi t | 3.1 | 71.0 | |
| General, administration and depreciation expenses | -105.7 | -84.6 | |
| Operating loss | -102.6 | -13.6 | |
| Result from fi nancial investments | |||
| Financial income | 2 | 181.4 | 807.1 |
| Financial expenses | 3 | -2.7 | -31.3 |
| 178.7 | 775.8 | ||
| Profi t before tax | 76.1 | 762.2 | |
| Income tax expense | 4 | – | – |
| Net result | 76.1 | 762.2 |
for the Financial Year Ended 31 December
| Expressed in MSEK | 2013 | 2012 |
|---|---|---|
| Net result | 76.1 | 762.2 |
| Other comprehensive income | – | – |
| Total comprehensive income | 76.1 | 762.2 |
| Total comprehensive income attributable to: | ||
| Shareholders of the Parent Company | 76.1 | 762.2 |
| 76.1 | 762.2 |
for the Financial Year Ended 31 December
| Expressed in MSEK | Note | 2013 | 2012 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Shares in subsidiaries | 11 | 7,871.8 | 7,871.8 |
| Other fi nancial fi xed assets | 0.2 | – | |
| Receivables from group companies | – | 21.4 | |
| Total non-current assets | 7,872.0 | 7,893.2 | |
| Current assets | |||
| Prepaid expenses and accrued income | 5.7 | 2.7 | |
| Other receivables | 5 | 11.6 | 18.0 |
| Cash and cash equivalents | 2.6 | 1.1 | |
| Total current assets | 19.9 | 21.8 | |
| TOTAL ASSETS | 7,891.9 | 7,915.0 | |
| EQUITY AND LIABILITIES | |||
| Restricted equity | |||
| Share capital | 3.2 | 3.2 | |
| Statutory reserve | 861.3 | 861.3 | |
| Total restricted equity | 864.5 | 864.5 | |
| Unrestricted equity | |||
| Other reserves | 2,357.5 | 2,489.4 | |
| Retained earnings | 4,515.9 | 3,753.7 | |
| Net profi t | 76.1 | 762.2 | |
| Total unrestricted equity | 6,949.5 | 7,005.3 | |
| Total equity | 7,814.0 | 7,869.8 | |
| Non-current liabilities | |||
| Provisions | 6 | 36.6 | 36.4 |
| Payables to Group companies | 21.6 | – | |
| Total non-current liabilities | 58.2 | 36.4 | |
| Current liabilities | |||
| Trade payables | 0.5 | 1.0 | |
| Accrued expenses and prepaid income | 7 | 19.2 | 7.4 |
| Other liabilities | – | 0.4 | |
| Total current liabilities | 19.7 | 8.8 | |
| TOTAL EQUITY AND LIABILITIES | 7,891.9 | 7,915.0 | |
| Pledged assets | 9 | 12,014.5 | 11,911.6 |
| Contingent liabilities | 9 | – | – |
for the Financial Year Ended 31 December
| Expressed in MSEK | 2013 | 2012 |
|---|---|---|
| Cash fl ow from operations | ||
| Net result | 76.1 | 762.2 |
| Non-cash settled dividend | -178.2 | -804.7 |
| Other non-cash items | 159.6 | 78.8 |
| Unrealised exchange losses | -0.4 | 0.8 |
| Changes in working capital: | ||
| Change in current assets | 3.4 | -10.8 |
| Change in current liabilities | 10.7 | 4.3 |
| Total cash fl ow from operations | 71.4 | 30.6 |
| Cash fl ow from investments | ||
| Change in long-term fi nancial fi xed assets | – | 0.1 |
| Change in other fi xed assets | -0.2 | – |
| Total cash fl ow from investments | -0.2 | 0.1 |
| Cash fl ow from fi nancing | ||
| Change in long-term liabilities | 62.2 | 29.1 |
| Purchase of own shares | -131.9 | -62.4 |
| Total cash fl ow from fi nancing | -69.7 | -33.3 |
| Change in cash and cash equivalents | 1.5 | -2.6 |
| Cash and cash equivalents at the beginning of the year | 1.1 | 3.8 |
| Currency exchange difference in cash and cash equivalents | – | -0.1 |
| Cash and cash equivalents at the end of the year | 2.6 | 1.1 |
for the Financial Year Ended 31 December
| Restricted Equity | Unrestricted Equity | |||||
|---|---|---|---|---|---|---|
| Expressed in MSEK | Share capital 1 |
Statutory reserve |
Other reserves 2 |
Retained earnings |
Net result |
Total equity |
| Balance at 1 January 2012 | 3.2 | 861.3 | 2,551.8 | 3,936.1 | -182.4 | 7,170.0 |
| Transfer of prior year net result | – | – | – | -182.4 | 182.4 | – |
| Total comprehensive income | – | – | – | – | 762.2 | 762.2 |
| Transactions with owners | ||||||
| Purchase of own shares | – | – | -62.4 | – | – | -62.4 |
| Total transactions with owners | – | – | -62.4 | – | – | -62.4 |
| Balance at 31 December 2012 | 3.2 | 861.3 | 2,489.4 | 3,753.7 | 762.2 | 7,869.8 |
| Transfer of prior year net result | – | – | – | 762.2 | -762.2 | – |
| Total comprehensive income | – | – | – | – | 76.1 | 76.1 |
| Transactions with owners | ||||||
| Purchase of own shares | – | – | -131.9 | – | – | -131.9 |
| Total transactions with owners | – | – | -131.9 | – | – | -131.9 |
| Balance at 31 December 2013 | 3.2 | 861.3 | 2,357.5 | 4,515.9 | 76.1 | 7,814.0 |
1 Lundin Petroleum AB's issued share capital at 31 December 2013 amounted to SEK 3,179,106 represented by 317,910,580 shares with a quota value of SEK 0.01 each. Included in the number of shares issued at 31 December 2013 are 8,340,250 shares which Lundin Petroleum holds in its own name.
2 From 1 January 2006, the additional paid in capital has been included in other reserves as well as currency differences on loans to subsidiaries.
of the Parent Company
| MSEK | 2013 | 2012 |
|---|---|---|
| Norway | 0.3 | 42.2 |
| Indonesia | 0.3 | 0.3 |
| Tunisia | 0.1 | 8.2 |
| Malaysia | 0.3 | 18.5 |
| France | 0.3 | – |
| Netherlands | 0.5 | – |
| Other | 1.5 | 1.8 |
| 3.1 | 71.0 |
| MSEK | 2013 | 2012 |
|---|---|---|
| Dividend | 178.2 | 804.7 |
| Guarantee fees | 3.1 | 1.6 |
| Foreign exchange gain | – | 0.8 |
| Other | 0.1 | – |
| 181.4 | 807.1 |
| MSEK | 2013 | 2012 |
|---|---|---|
| Interest expenses Group | 2.3 | 31.3 |
| Foreign exchange losses, net | 0.4 | – |
| 2.7 | 31.3 |
| MSEK | 2013 | 2012 |
|---|---|---|
| Net result before tax | 76.1 | 762.2 |
| Tax calculated at the corporate tax rate in Sweden 22% (26.3%) |
-16.7 | -200.5 |
| Tax effect of dividend not taxable | 39.2 | 211.6 |
| Tax effect of expenses non-deductible for | ||
| tax purposes | -4.5 | -8.9 |
| Increase unrecorded tax losses | -18.0 | -2.3 |
| Tax credit/charge | – | – |
| MSEK | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Due from Group companies | 8.3 | 17.2 |
| VAT receivable | 2.9 | 0.8 |
| Other | 0.4 | – |
| 11.6 | 18.0 |
Provisions as at 31 December 2013 amounted to MSEK 36.6 (MSEK 36.4) and related mainly to corporate income tax.
| MSEK | 31 December 2013 |
31 December 2012 |
|---|---|---|
| Social security charges | 0.7 | 0.4 |
| Directors fees | 0.3 | 0.2 |
| Audit | 1.1 | 1.0 |
| Lundin Foundation | 2.2 | – |
| Outside services | 14.9 | 5.8 |
| 19.2 | 7.4 |
The accounting policies for fi nancial instruments have been applied to the line items below:
| MSEK | Loan receivables and other receivables |
Financial liabilities valued at amortised cost |
|---|---|---|
| Assets | ||
| Receivables due from Group companies - Current |
8.3 | – |
| Cash and cash equivalents | 2.6 | – |
| 10.9 | – | |
| Liabilities | ||
| Payables to Group companies | 21.6 | |
| Trade Payables | – | 0.5 |
| – | 22.1 |
Pledged assets relate to the accounting value of the pledge of the shares in respect of the new fi nancing facility entered into by its fully-owned subsidiary Lundin Petroleum BV. See Note 25 in the notes to the fi nancial statements of the Group.
| MSEK | 2013 | 2012 |
|---|---|---|
| PwC | ||
| Audit fees | 1.4 | 1.4 |
| Audit related | – | – |
| 1.4 | 1.4 |
There has been no remuneration to other auditors than PwC.
| Registration | Total number of shares |
Percentage | Nominal value |
Book amount 31 Dec |
Book amount 31 Dec |
||
|---|---|---|---|---|---|---|---|
| MSEK | number | Registered office | issued | owned | per share | 2013 | 2012 |
| Directly owned | |||||||
| Lundin Petroleum BV | 27254196 | The Hague, Netherlands | 181 | 100 | EUR 100.00 | 7,871.8 | 7,871.8 |
| Lundin Services Ltd | LL09860 | Labuan, Malaysia | 100 | 100 | USD 0.01 | – | – |
| 7,871.8 | 7,871.8 | ||||||
| Indirectly owned | |||||||
| Lundin Norway AS | 986 209 409 | Lysaker, Norway | 4,930,000 | 100 | NOK 100.00 | ||
| Lundin Netherlands BV | 24106565 | The Hague, Netherlands | 6,000 | 100 | EUR 450.00 | ||
| Lundin Netherlands Facilities BV |
27324007 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin Holdings SA | 442423448 | Montmirail, France | 1,853,700 | 100 | EUR 10.00 | ||
| - Lundin International SA | 572199164 | Montmirail, France | 1,721,855 | 99.86 | EUR 15.00 | ||
| - Lundin Gascogne SNC | 419619077 | Montmirail, France | 100 | 100 | EUR 152.45 | ||
| Ikdam Production SA | 433912920 | Montmirail, France | 4,000 | 100 | EUR 10.00 | ||
| Lundin Exploration BV | 27273727 | The Hague, Netherlands | 180 | 100 | EUR 100.00 | ||
| Lundin SEA Holding BV | 27290568 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Malaysia BV | 27306815 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Indonesia Holding BV | 27290577 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Baronang BV | 27314235 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Cakalang BV | 27314288 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Gurita BV | 27296469 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Lematang BV | 24262562 | The Hague, Netherlands | 40 | 100 | EUR 450.00 | ||
| - Lundin Oil & Gas BV | 24262561 | The Hague, Netherlands | 40 | 100 | EUR 450.00 | ||
| - Lundin Rangkas BV (under liquidation) |
27314247 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Sareba BV | 24278356 | The Hague, Netherlands | 40 | 100 | EUR 450.00 | ||
| - Lundin South Sokang BV | 27324012 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin South East Asia BV (under liquidation) |
27290262 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin Cambodia BV (under liquidation) |
27292990 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin Russia BV | 27290574 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Russia Services BV | 27292018 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Lundin Russia Ltd. | 656565-4 | Vancouver, Canada | 55,855,414 | 100 | CAD 1.00 | ||
| - Culmore Holding Ltd | 162316 | Nicosia, Cyprus | 1,002 | 100 | CYP 1.00 | ||
| - Lundin Lagansky BV | 27292984 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| - Mintley Caspian Ltd | 160901 | Nicosia, Cyprus | 5,000 | 70 | CYP 1.00 | ||
| - LLC PetroResurs | 1047796031733 | Moscow, Russia | 1 | 100 | RUR 10,000 | ||
| - Lundin Komi BV | 53732561 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin Tunisia BV | 27284355 | The Hague, Netherlands | 180 | 100 | EUR 100.00 | ||
| Lundin Marine BV (under liquidation) |
27275508 | The Hague, Netherlands | 180 | 100 | EUR 100.00 | ||
| - Lundin Marine SARL (under liquidation) |
06B090 | Pointe Noire, Congo | 200 | 100 | FCFA 5,000 | ||
| Lundin Petroleum SA | 660.0.330.999-0 | Collonge-Bellerive, Switzerland |
1,000 | 100 | CHF 100.00 | ||
| Lundin Services BV | 27260264 | The Hague, Netherlands | 180 | 100 | EUR 100.00 | ||
| Lundin Ventures XVII BV | 53732855 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin Ventures XVIII BV | 55709532 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 | ||
| Lundin Ventures XIX BV | 55709362 | The Hague, Netherlands | 18,000 | 100 | EUR 1.00 |
Lundin Marine BV, Lundin Marine SARL, Lundin South East Asia BV, Lundin Rangkas BV and Lundin Cambodia BV were under liquidation as at 31 December 2013.
At 16 April 2014, the Board of Directors and the President of Lundin Petroleum AB have adopted this annual report for the fi nancial year ended 31 December 2013.
The Board of Directors and the President & CEO certify that the annual fi nancial report for the Parent Company has been prepared in accordance with generally accepted accounting principles in Sweden and that the consolidated accounts have been prepared in accordance with IFRS as adopted by the EU and give a true and fair view of the fi nancial position and profi t of the Company and the Group and provides a fair review of the performance of the Group's and Parent Company's business, and describes the principal risks and uncertainties that the Company and the companies in the Group face.
Stockholm, 16 April 2014
Lundin Petroleum AB (publ) Org. Nr. 556610-8055
Ian H. Lundin Chairman
C. Ashley Heppenstall President & CEO
Lukas H. Lundin Board Member
William A. Rand Board Member
Magnus Unger Board Member
Asbjørn Larsen Board Member
Peggy Bruzelius Board Member
Cecilia Vieweg Board Member
To the annual meeting of the shareholders of Lundin Petroleum AB (publ), corporate identity number 556610-8055
We have audited the annual accounts and consolidated accounts of Lundin Petroleum AB (publ) for the year 2013. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 73–121.
Responsibilities of the Board of Directors and the President for the annual accounts and consolidated accounts
The Board of Directors and the President are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the President determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the President, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinions.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the fi nancial position of the parent company as of 31 December 2013 and of its fi nancial performance and its cash fl ows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the fi nancial position of the group as of 31 December 2013 and of their fi nancial performance and cash fl ows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 46–66. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profi t or loss and the administration of the Board of Directors and the President of Lundin Petroleum AB (publ) for the year 2013.
Responsibilities of the Board of Directors and the President The Board of Directors is responsible for the proposal for appropriations of the company's profi t or loss, and the Board of Directors and the President are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profi t or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profi t or loss whether the proposal is in accordance with the Companies Act.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined signifi cant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the President is liable to the company. We also examined whether any member of the Board of Directors or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinions.
We recommend to the annual meeting of shareholders that the profi t be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the President be discharged from liability for the fi nancial year.
Stockholm, 16 April 2014
PricewaterhouseCoopers AB
Klas Brand Johan Malmqvist Lead Partner Partner
Authorised Public Accountant Authorised Public Accountant
| Income Statement Summary (MUSD) | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Continuing operations | |||||
| Revenue1 | 1,195.8 | 1,375.8 | 1,251.1 | 805.3 | 566.7 |
| Production costs | -195.8 | -203.2 | -174.7 | -163.8 | -150.2 |
| Depletion | -174.2 | -191.4 | -165.1 | -145.3 | -118.1 |
| Exploration costs | -287.8 | -168.4 | -140.0 | -127.5 | -134.8 |
| Impairment costs of oil and gas properties | -123.4 | -237.5 | – | – | -644.8 |
| Gross profi t | 414.6 | 575.3 | 771.2 | 368.7 | -481.2 |
| Gain on sale of assets | – | – | – | 66.1 | 4.6 |
| General, administration and depreciation expenses | -43.6 | -31.8 | 67.0 | -41.0 | -27.6 |
| Operating profi t/(loss) | 371.0 | 543.5 | 704.2 | 393.9 | -504.2 |
| Result from fi nancial investments | -83.0 | -21.2 | 25.4 | -12.5 | 29.6 |
| Result from share in associated company | – | – | – | – | -25.5 |
| Profi t/(loss) before tax | 288.0 | 522.3 | 729.7 | 381.3 | -500.1 |
| Tax | -215.1 | -418.4 | -574.4 | -251.9 | -45.7 |
| Net result from continuing operations | 72.9 | 103.9 | 155.2 | 129.5 | -545.8 |
| Discontinued operations | |||||
| Net result from discontinued operations | – | – | – | 369.0 | 8.7 |
| Net result | 72.9 | 103.9 | 155.2 | 498.5 | -537.1 |
| Net result attributable to the shareholders of the Parent Company: |
77.6 | 108.2 | 160.1 | 511.9 | -411.3 |
| Net result attributable to non-controlling interest: | -4.7 | -4.3 | -4.9 | -13.4 | -125.8 |
| Net result | 72.9 | 103.9 | 155.2 | 498.5 | -537.1 |
| Balance Sheet Summary (MUSD) | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Tangible fi xed assets | 3,936.9 | 2,913.8 | 2,345.4 | 2,014.3 | 2,556.3 |
| Other non-current assets | 59.2 | 44.1 | 44.0 | 129.9 | 119.1 |
| Current assets | 378.4 | 335.8 | 298.0 | 284.9 | 275.3 |
| Total assets | 4,374.5 | 3,293.7 | 2,687.4 | 2,429.1 | 2,950.7 |
| Shareholders' equity | 1,207.0 | 1,182.4 | 1,000.9 | 920.4 | 1,141.7 |
| Non-controlling interest | 59.8 | 67.7 | 69.4 | 77.4 | 95.5 |
| Total equity | 1,266.8 | 1,250.1 | 1,070.3 | 997.8 | 1,237.2 |
| Provisions | 1,351.2 | 1,204.6 | 988.0 | 769.7 | 897.6 |
| Non-current liabilities | 1,264.1 | 406.8 | 226.3 | 476.6 | 558.4 |
| Current liabilities | 492.4 | 432.2 | 402.8 | 185.0 | 257.5 |
| Total shareholders' equity & liabilities | 4,374.5 | 3,293.7 | 2,687.4 | 2,429.1 | 2,950.7 |
1 The comparatives have been restated for the reclassifi cation of the change in under/over lift from production cost to revenue from 1 January 2013.
Share price
Key fi nancial data is based on continuing operations.
| Financial data (MUSD) | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|
| Revenue1 | 1,195.8 | 1,375.8 | 1,251.1 | 805.3 | 566.7 |
| EBITDA | 960.9 | 1,144.1 | 1,012.1 | 603.5 | 392.3 |
| Net result | 72.9 | 103.9 | 155.2 | 129.5 | -545.8 |
| Operating cash fl ow | 975.6 | 831.4 | 676.2 | 573.4 | 384.5 |
| Data per share (USD) | |||||
| Shareholders' equity per share | 3.90 | 3.81 | 3.22 | 2.96 | 3.64 |
| Operating cash fl ow per share | 3.15 | 2.68 | 2.17 | 1.84 | 1.23 |
| Cash fl ow from operations per share | 2.95 | 2.64 | 2.88 | 1.79 | 1.56 |
| Earnings per share | 0.25 | 0.35 | 0.51 | 0.46 | -1.34 |
| Earnings per share fully diluted | 0.25 | 0.35 | 0.51 | 0.46 | -1.34 |
| EBITDA per share | 3.10 | 3.68 | 3.25 | 1.93 | 1.25 |
| Dividend per share | – | – | – | 2.30 | – |
| Number of shares issued at period end | 317,910,580 | 317,910,580 | 317,910,580 | 317,910,580 | 317,910,580 |
| Number of shares in circulation at period end | 309,570,330 | 310,542,295 | 311,027,942 | 311,027,942 | 313,420,280 |
| Weighted average number of shares for the period | 310,017,074 | 310,735,227 | 311,027,942 | 312,096,990 | 313,420,280 |
| Share price (SEK) | 125.40 | 149.50 | 169.20 | 83.65 | 56.60 |
|---|---|---|---|---|---|
| Share price (CAD) | 19.73 | 22.87 | 24.54 | N/A2 | N/A2 |
| Key ratios (%) | |||||
| Return on equity | 6 | 9 | 15 | 12 | -38 |
| Return on capital employed | 16 | 35 | 53 | 24 | -28 |
| Net debt/equity ratio | 98 | 28 | 13 | 45 | 41 |
| Equity ratio | 29 | 38 | 40 | 41 | 42 |
| Share of risk capital | 53 | 66 | 69 | 67 | 66 |
| Interest coverage ratio | 51 | 75 | 59 | 19 | -37 |
| Operating cash fl ow/interest ratio | 144 | 119 | 55 | 27 | 26 |
| Yield | – | – | – | 18 | – |
1 The comparatives have been restated for the reclassifi cation of the change in under/over lift from production cost to revenue from 1 January 2013. 2 The share is listed on the Toronto Stock Exchange from 24 March 2011.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation): Operating profi t before depletion of oil and gas properties, exploration costs, impairment costs, depreciation of other tangible assets and gain on sale of assets.
Operating cash fl ow: Revenue less production costs and less current taxes.
Shareholders' equity per share: Shareholders' equity divided by the number of shares in circulation at period end.
Operating cash fl ow per share: Operating cash fl ow divided by the weighted average number of shares for the period.
Cash fl ow from operations per share: Cash fl ow from operations in accordance with the consolidated statement of cash fl ow divided by the weighted average number of shares for the period.
Earnings per share: Net result attributable to shareholders of the Parent Company divided by the weighted average number of shares for the period.
Earnings per share fully diluted: Net result attributable to shareholders of the Parent Company divided by the weighted average number of shares for the period after considering any dilution effect.
EBITDA per share: EBITDA divided by the weighted average number of shares for the period.
Quoted price at the end of the fi nancial period: The quoted price in USD is based on the quoted price in SEK converted in USD against the closing rate of the period.
Weighted average number of shares for the period: The number of shares at the beginning of the period with changes in the number of shares weighted for the proportion of the period they are in issue.
Return on equity: Net result divided by average total equity.
Return on capital employed: Income before tax plus interest expenses plus/less exchange differences on fi nancial loans divided by the average capital employed (the average balance sheet total less non-interest bearing liabilities).
Net debt/equity ratio: Bank loan less cash and cash equivalents divided by shareholders' equity.
Equity ratio: Total equity divided by the balance sheet total.
Share of risk capital: The sum of the total equity and the deferred tax provision divided by the balance sheet total.
Interest coverage ratio: Result after fi nancial items plus interest expenses plus/less exchange differences on fi nancial loans divided by interest expenses.
Operating cash fl ow/interest ratio: Revenue less production costs and less current taxes divided by the interest charge for the period.
Yield: dividend per share in relation to quoted share price at the end of the fi nancial period.
| Proved and probable oil reserves | Total Mbbl |
Norway Mbbl |
France Mbbl |
Netherlands Mbbl |
Malaysia Mbbl |
Tunisia Mbbl |
Russia Mbbl |
|---|---|---|---|---|---|---|---|
| 1 January 2012 | 183,008 | 141,880 | 24,758 | 77 | – | 250 | 16,043 |
| Changes during the year | |||||||
| – acquisitions | 4,073 | 4,073 | – | – | – | – | – |
| – sales | – | – | – | – | – | – | – |
| – revisions | -5,756 | 2,460 | 143 | 18 | – | -209 | -8,168 |
| – extensions and discoveries | 12,713 | – | – | – | 12,713 | – | – |
| – production | -10,568 | -8,501 | -1,040 | -2 | – | -41 | -984 |
| 31 December 2012 1 | 183,470 | 139,912 | 23,861 | 93 | 12,713 | – | 6,891 |
| 2013 | |||||||
| Changes during the year | |||||||
| – acquisitions | – | – | – | – | – | – | – |
| – sales | – | – | – | – | – | – | – |
| – revisions | 4,777 | 4,164 | -317 | -17 | 943 | – | 4 |
| – extensions and discoveries | – | – | – | – | – | – | – |
| – production | -9,420 | -7,530 | -1,055 | – | – | – | -835 |
| 31 December 2013 1 | 178,827 | 136,546 | 22,489 | 76 | 13,656 | – | 6,060 |
| Proved and probable gas reserves | Total MMscf 2 |
Norway MMscf |
Netherlands MMscf |
Indonesia MMscf |
|---|---|---|---|---|
| 1 January 2012 | 166,229 | 121,629 | 21,148 | 23,452 |
| Changes during the year | ||||
| – acquisitions | 893 | – | 893 | – |
| – sales | – | – | – | – |
| – revisions | -43,807 | -42,317 | 3,782 | -5,272 |
| – extensions and discoveries | – | – | – | – |
| – production | -14,893 | -8,522 | -4,156 | -2,215 |
| 31 December 2012 | 108,422 | 70,790 | 21,667 | 15,965 |
| 2013 | |
|---|---|
| Changes during the year | ||||
|---|---|---|---|---|
| – acquisitions | – | – | – | – |
| – sales | – | – | – | – |
| – revisions | -1,851 | -3,186 | 2,364 | -1,029 |
| – extensions and discoveries | – | – | – | – |
| – production | -15,130 | -7,353 | -4,369 | -3,408 |
| 31 December 2013 | 91,441 | 60,251 | 19,662 | 11,528 |
1 The oil reserves include 4,018 Mbbl of NGL's relating to Norway.
2 The Company has used a factor of 6,000 to convert one scf to one boe.
Of the total proved and probable oil and gas reserves at 31 December 2013, 34 Mbbl (36 Mbbl) are attributable to non-controlling shareholders of other subsidiaries of the Group.
The reserves as at 31 December 2013 have been certifi ed by the independent qualifi ed reserves auditor ERC-Equipoise Ltd. (ERCE).
Lundin Petroleum will publish the following interim reports:
The reports are available on www.lundin-petroleum.com in Swedish and English directly after public announcement.
The Annual General Meeting (AGM) is held within six months from the close of the financial year. All shareholders who are registered in the shareholders' register and who have duly notified their intention to attend the AGM may do so and vote in accordance with their level of shareholding. Shareholders may also attend the AGM through a proxy and a shareholder shall in such a case issue a written and dated proxy. A proxy form is available on www.lundin-petroleum.com.
Lundin Petroleum's AGM is to be held on Thursday 15 May 2014 at 13.00 (Swedish time). Location: Vinterträdgården, Grand Hôtel, Södra Blasieholmshamnen 8 in Stockholm.
Shareholders wishing to attend the meeting shall:
· in writing to Lundin Petroleum AB, c/o Computershare AB, P.O. Box 610, SE 182 16 Danderyd, Sweden
When registering please indicate your name, social security number/company registration number, registered shareholding, address and day time telephone number.
Shareholders whose shares are registered in the name of a nominee must temporarily register the shares in their own name in the shareholders' register to be able to attend the meeting and exercise their voting rights. Such registration must be effected by Friday 9 May 2014.
This information has been made public in accordance with the Securities Market Act (SFS 2007:528) and/or the Financial Instruments Trading Act (SFS 1991:980).
Certain statements made and information contained herein constitute "forward-looking information" (within the meaning of applicable securities legislation). Such statements and information (together, "forward-looking statements") relate to future events, including the Company's future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to estimates of reserves and/or resources, future production levels, future capital expenditures and their allocation to exploration and development activities, future drilling and other exploration and development activities. Ultimate recovery of reserves or resources are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable reserves and resource estimates may also be deemed to constitute forward-looking statements and refl ect conclusions that are based on certain assumptions that the reserves and resources can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions) are not statements of historical fact and may be "forward-looking statements". Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations and assumptions will prove to be correct and such forward-looking statements should not be relied upon. These statements speak only as on the date of the information and the Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable laws. These forward-looking statements involve risks and uncertainties relating to, among other things, operational risks (including exploration and development risks), productions costs, availability of drilling equipment, reliance on key personnel, reserve estimates, health, safety and environmental issues, legal risks and regulatory changes, competition, geopolitical risk, and fi nancial risks. These risks and uncertainties are described in more detail under the heading "Risks and Risk Management" and elsewhere in the Company's annual report. Readers are cautioned that the foregoing list of risk factors should not be construed as exhaustive. Actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements are expressly qualifi ed by this cautionary statement.
Unless otherwise stated, Lundin Petroleum's reserve and resource estimates are as at 31 December 2013, and have been prepared and audited in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook")."). Unless otherwise stated, all reserves estimates contained herein are the aggregate of "Proved Reserves" and "Probable Reserves", together also known as "2P Reserves". For further information on reserve and resource classifi cations, see "Reserves, Resources and Production" in the Company's annual report.
Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. There is no certainty that it will be commercially viable for the Company to produce any portion of the Contingent Resources.
Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both a chance of discovery and a chance of development. There is no certainty that any portion of the Prospective Resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the Prospective Resources. Unless otherwise stated, all Prospective Resource estimates contained herein are refl ecting a P50 Prospective Resource estimate. Risked Prospective Resources reported herein are partially risked. They have been risked for chance of discovery, but have not been risked for chance of development.
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.
The Company is a reporting issuer in certain Canadian jurisdictions. However, the Company is a "designated foreign issuer" as defi ned in National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers, and is subject to foreign regulatory requirements, including those of the NASDAQ OMX Stockholm. As such, the Company is exempt from certain requirements otherwise imposed on reporting issuers in Canada.
| bbl | Barrel (1 barrel = 159 litres) |
|---|---|
| bcf | Billion cubic feet (1 cubic foot = 0.028 m3 ) |
| Bn | Billion |
| boe | Barrels of oil equivalents |
| boepd | Barrels of oil equivalents per day |
| bopd | Barrels of oil per day |
| Bn boe | Billion barrels of oil equivalents |
| Mbbl | Thousand barrels |
| Mbo | Thousand barrels of oil |
| Mboe | Thousand barrels of oil equivalents |
| Mboepd | Thousand barrels of oil equivalents per day |
| MMbo | Million barrels of oil |
| MMboe | Million barrels of oil equivalents |
| MMbpd | Million barrels per day |
| MMbopd | Million barrels of oil per day |
| Mcf | Thousand cubic feet |
| Mcfpd | Thousand cubic feet per day |
| MMscf | Million standard cubic feet |
| MMscfd | Million standard cubic feet per day |
| MMstb | Million stock tank barrels |
| MMbtu | Million British thermal units |
| CHF | Swiss Franc |
|---|---|
| CAD | Canadian Dollar |
| EUR | Euro |
| GBP | British Pound |
| NOK | Norwegian Kroner |
| RUR | Russian Rouble |
| SEK | Swedish Kroner |
| USD | US Dollar |
| TCHF | Thousand CHF |
| TSEK | Thousand SEK |
| TUSD | Thousand USD |
| MSEK | Million SEK |
| MUSD | Million USD |
For further defi nitions of oil and gas terms and measurements vist www.lundin-petroleum.com
References to "Lundin Petroleum" or "the Company" pertain to the corporate group in which Lundin Petroleum AB (publ) (company registration number 556610–8055) is the Parent Company or to Lundin Petroleum AB (publ), depending on the context.
Corporate Head Office Lundin Petroleum AB (publ) Hovslagargatan 5 SE-111 48 Stockholm, Sweden T +46-8-440 54 50 F +46-8-440 54 59
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