Delivering
growth
Annual Report 2016
1
Lundin Petroleum Annual Report 2016 Contents
Overview
Our business model
Looking back 2016
Looking forward 2017
CEO review
Chairman’s statement
Sustainable growth
Oil market
Share and shareholders
Operations
COO overview
Production, reserves and resources
Norway
Malaysia
Continental Europe
IPC Spin-off
Risk
Risk management
Responsibility
VP Corporate Responsibility overview
People
Health and safety
Environment
Ethical business conduct
Governance
Corporate governance report 2016
Financial Report
Contents of financial report
CFO overview
Additional Information
Key financial data
Key ratio definitions
Five year financial data
Reserve quantity information
Definitions and abbreviations
HSE indicator data
Share data
Shareholder information
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4
5
6
8
10
12
14
16
18
22
30
32
34
36
42
44
46
47
48
50
71
72
129
130
131
132
133
134
135
136
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.
References to “International Petroleum
Corporation” or “the IPC assets” pertain to the spin-
off of the Company’s assets in Malaysia, France and
the Netherlands through a dividend distribution,
which was approved by the Extraordinary General
Meeting held on 22 March 2017.
2
2016 Overview
Record high production,
record low costs
Lundin Petroleum achieved record high
production in 2016, largely due to the robust
performance of the operated Edvard Grieg
field, while at the same time significantly
reducing the cash operating costs.
» Production
» Edvard Grieg
page 18
page 24
Operating with low
carbon intensity
Lundin Petroleum contributes to finding
solutions for a more energy efficient
and low carbon society. In 2016 we
managed to reduce our carbon emission
intensity level below the industry
average in Norway.
» Sustainable growth
» Environment
page 10
page 47
Lundin Petroleum Annual Report 2016
Johan Sverdrup
development
progressing
In 2016, significant cost reductions were
achieved on the Johan Sverdrup project
in addition to increased Phase 1 and 2
production capacities and an increase
in resources. The project remains on
schedule to start production in late 2019.
» Johan Sverdrup
page 25
Searching for the next
elephant
We continue to believe that our organic
growth strategy is the best way to
create long-term sustainable value.
Our exploration programme for 2017 is
primarily focused on the southern Barents
Sea and includes some high impact
exploration targets, in our search for the
“next elephant”.
» Southern Barents Sea page 28
» Searching for the next elepant page 29
2016 Performance
· Record high production and record low cash operating costs
· Reserves replacement ratio of 208%
· Successful appraisal well on Alta discovery
· Significant success in 23rd licensing round in Norway
page 18
page 19
page 28
page 23
· Value accretive acquisition of an extra 15% interest in Edvard Grieg
page 24
· New USD 5.0 billion reserve-based lending facility signed
· Improved KPIs for health and safety
page 72
page 46
1
Lundin Petroleum Annual Report 2016
OVERVIEW | Our Business Model
Delivering Growth
Lundin Petroleum is the leading independent
oil and gas company in Europe with a strategic
focus on Norway.
Lundin Petroleum seeks to generate
sustainable long-term value in all stages of
the upstream oil and gas value chain. Lundin
Petroleum has developed the capacity and
competence to take exploration success
through to the production phase and we
retain our standing in the industry as one of
the strongest players to capitalise on further
growth.
Lundin Petroleum’s business
model is to generate
sustainable value throughout
the value chain
Exploration and appraisal
Lundin Petroleum focuses on building core exploration
areas and on assembling integrated teams of
geoscientists and technical experts that have a creative
and visionary approach to finding oil and gas resources.
Lundin Petroleum will focus its near-term exploration
and appraisal activity in the southern Barents Sea,
appraising the Alta and Gohta discoveries and exploring
some high impact exploration targets.
Development
Following exploration and appraisal, the strategy is to convert
discoveries into reserves and production. After a development
plan has been approved, construction of facilities can start,
to which wells and infrastructure are connected so that
production can begin. As a partner, Lundin Petroleum is
involved in the ongoing construction of oil and gas production
facilities on the giant Johan Sverdrup project in Norway.
Production
The production phase is defined as everything from extraction and
processing to delivering the oil or gas for sale. Lundin Petroleum
significantly increased its production in 2016, due to the ramp-up
of production from its Edvard Grieg facility and strong ongoing
performance at the Alvheim area in Norway and the Bertam field
in Malaysia.
Stakeholders
Discovering, developing and producing oil and gas resources
creates long-term sustainable value for Lundin Petroleum’s
shareholders and society as a whole.
2
Lundin Petroleum Annual Report 2016 V I SION
Our vision is to grow a profitable upstream exploration and
production company, focused on core areas in a safe and
environmentally responsible manner for the long-term benefit of
our shareholders and society.
R
E
S
P
O
N
S
IBILI T Y
Y
G
E
A T
S T R
Lundin Petroleum is pursuing the following strategy:
· proactively investing in exploration to organically grow its reserve base.
Lundin Petroleum has an inventory of drillable prospects with large upside
potential and continues to actively pursue new exploration acreage in core
areas.
· growing its existing asset base with a proactive subsurface strategy to
enhance ultimate hydrocarbon recovery.
· acquiring new hydrocarbon reserves, resources and exploration acreage
where opportunities exist to enhance value.
Lundin Petroleum is responsible towards:
· shareholders, to realise and sustain a good return on investment and a
continuing growth of its asset base.
· employees, to provide a safe and rewarding working environment.
· host countries, owners of the resources, to find and produce oil and gas
professionally, efficiently and responsibly.
· local communities, to contribute to local development
and higher living standards.
· society, to contribute to wealth generation while minimising the impact of
our activities on the environment.
3
Lundin Petroleum Annual Report 2016 OVERVIEW | Looking Back 2016 | Looking Forward 2017
Looking back
2016
Q1
Q2
Q3
Q4
· Additional 15 percent
· Cost reductions and an
· Neiden oil discovery
· New reserve-based lending
facility of USD 5.0 billion
signed
interest acquired in Edvard
Grieg from Statoil
· Four licences awarded in the
APA 2015 licensing round in
Norway
· Five licences awarded in
the 23rd licensing round in
Norway
increase in facilities capacity
and resources announced
for Johan Sverdrup project
· Successful appraisal of Alta
discovery
· Record high share price of
over SEK 200 achieved in
December
· Production over 100,000
boepd reached in December
IPC assets
IPC assets
IPC assets
Norway
Norway
Norway
Production
72,600
boepd
Reserves
743.5
MMboe
Contingent Resources
267
MMboe
Financial performance
2016
2015
Average Brent oil price
USD 43.7/boe
USD 52.4/boe
Cash operating costs
USD 7.8/boe
USD 11.6/boe
EBITDA
MUSD 902.6
MUSD 384.7
Operating cash flow
MUSD 1,010.8
MUSD 699.6
Sustainability performance
2016
Fatalities
Oil spills
LTI rate
1
0
0.67
2015
0
0
1.76
4
Lundin Petroleum Annual Report 2016
Looking forward
2017
· Uphold health and safety and minimise environmental impact
· Continue to add resources through our organic growth strategy in Norway
· Continue to deliver strong production and operational performance at low cost
· Contribute to a sustainable energy future
Total 2017 Capital Budget1 USD 1.3 billion
Exploration and Appraisal
· High impact exploration in southern
Barents Sea
· Further Alta/Gohta appraisal
· Test Edvard Grieg reserves upside
MUSD 210
Development
· Johan Sverdrup Phase 1 development
· Johan Sverdrup Phase 2 concept selection
· Edvard Grieg development drilling
· Alvheim area infill drilling
MUSD 1,085
Production Forecast
· Record high production forecast
· Continue record low cash operating cost
70,000–80,000
boepd
1 excluding IPC assets
5
Lundin Petroleum Annual Report 2016 A record
breaking year
With 2016 now behind us we can confidently say that it is
mission accomplished. 2016 has been an outstanding year
for Lundin Petroleum. We have seen record production
levels achieved with over 72,000 boepd produced for
the year at a record low cash operating cost of USD 7.80
per barrel. This is primarily on the back of the excellent
performance of the Edvard Grieg field that came onstream
in November 2015, in addition to the continued robust
performance from our core producing assets that have
delivered ahead of expectation. However, our net result for
the year was impacted by a non-cash after tax impairment
charge of MUSD 548.6 following the decision taken to
remove the booked contingent resources associated with
discoveries in Russia and in Malaysia. This impairment
charge does not impact the cash flow generation of the
Company.
Highlights 2016
We have seen the reserves in Edvard Grieg increasing from
the original PDO estimate of 186 MMboe to 223 MMboe and
we all know that big fields tend to get bigger. In February
2017, we commenced drilling of a further appraisal well
which has the potential to increase reserves.
The year was further marked by the acquisition of an
additional 15 percent equity in Edvard Grieg from Statoil.
This transaction not only increased our production and
reserves but also strengthened our financial position further
by improving an already very solid liquidity position
following the signing of the USD 5.0 billion reserve-based
lending facility earlier in 2016.
At the same time, our largest development project Johan
Sverdrup continues to deliver good news with lower project
costs, higher increased production capacity and a reserves
increase when compared to the original PDO estimates.
OVERVIEW | CEO Review
“
We have seen record
production levels achieved
with over 72,000 boepd
produced for the year at a
record low cash operating
cost of USD 7.80 per barrel
Alex Schneiter
President and CEO
6
Lundin Petroleum Annual Report 2016 We have also seen our southern Barents Sea exploration
strategy unfolding with the highly anticipated 23rd licensing
round awards. We were very pleased to be one of the most
successful companies in this 23rd round and our ongoing
2017 exploration activity has the potential to add significant
resources.
Over the years, Norway has become the principal focus area for
the Company with the majority of its reserves, resources and
production. The logical next step to provide more visibility and
renewed attention to our non-Norwegian assets is to spin-off
these assets into the new independent company International
Petroleum Corporation (IPC). Strategically, Lundin Petroleum
becomes a fully Norway focused company with continued
great opportunities in terms of organic growth and new
development projects. At the same time, IPC will have a well-
established production and cash flow base to grow from with
an acquisition and organic growth led strategy. The timing for
the spin-off could not be better considering the cyclic nature
of our business. I am also pleased to see Mike Nicholson take
the position as CEO for IPC and I am convinced that he and his
team will do a great job by growing this exciting new company
into a significant E&P player.
Outlook for 2017 and beyond
I am convinced that what lies ahead of us will be as equally
exciting as 2016. In 2017 we will continue to see our production
increasing while on the project development side, we will
have the most active year ever with Johan Sverdrup Phase 1
project execution. It will also be the year when the concept will
be selected for Phase 2 of the Johan Sverdrup project and we
progress towards the execution phase.
Work towards development concept selection studies for Alta,
Gohta and Luno II discoveries will be a priority.
With delivery of our committed projects we will see our
production level reach in excess of 120,000 boepd by the time
Johan Sverdrup Phase 1 comes onstream. By the time Johan
Sverdrup Phase 2 reaches plateau our production will reach in
excess of 150,000 boepd. We also expect that we will do better
with new developments in the pipeline and the new resources
we will discover in the years to come.
Strong focus on HSE excellence
Our health, safety and environmental track record for 2016 has
also been solid and we will continue to keep a strong focus on
HSE excellence as the Company grows.
Such great results would not be possible without the
enthusiasm, professionalism and entrepreneurship from my
colleagues and the management team. My first year as the new
CEO of Lundin Petroleum has been a very rewarding one and
it is all down to the great team work and team spirit that exists
within the Company.
To you, fellow shareholders, the Board, and the Lundin
Petroleum team, I thank you for your continued support.
Yours Sincerely,
In parallel, we will be drilling some world class exploration
targets in the southern Barents Sea while continuing to work
on an appraisal programme in our Alta and Gohta discoveries.
Alex Schneiter
President and CEO
7
Lundin Petroleum Annual Report 2016 OVERVIEW | Chairman’s Statement
“
Lundin Petroleum is now in a
stronger position than ever to
pursue further organic growth
in Norway
Ian H. Lundin
Chairman of the Board
8
Continuing our
organic growth
success in Norway
2016 was truly a record breaking year for Lundin
Petroleum. The excellent operational performance
across all assets generated a record high production
at record low cash operating costs and on top of that
Lundin Petroleum’s share price hit a record high
in December 2016. Development of our key Johan
Sverdrup project has also progressed well during the
year and this cornerstone asset will assure strong
production growth for Lundin Petroleum in years to
come.
An exciting comeback
If 2016 was an extremely eventful year, rest assured
that 2017 will be even more exciting. Early in the year,
we announced the spin-off of Lundin Petroleum’s non-
Norwegian assets into a new company, with a name
that reflects our entrepreneurial legacy that has led to
our success today.
More than 30 years ago a small Canadian listed
company called International Petroleum Corporation
came into existence as a result of a consolidation of
three even smaller publicly listed companies. Its only
producing asset at the time was a gas condensate field
in the United Arab Emirates. International Petroleum
Corporation had big ambitions and soon began to
acquire a substantial acreage position in Europe,
Africa, the Middle East and South East Asia and at one
point had operations in 12 countries with production
in Oman and UK. In 1998, International Petroleum
Corporation merged with the Swedish listed company
Sands Petroleum and the new company was renamed
Lundin Oil. In 2001, a decision was taken by the Board
of Directors to sell Lundin Oil and the shareholders
were offered one share of Lundin Petroleum for each
share in Lundin Oil in addition to SEK 36.50 per share
in cash. Lundin Petroleum had no production in 2001
but like its predecessors, it had big ambitions.
Lundin Petroleum Annual Report 2016 i
More information on Corporate
Governance can be found on
pages 50–70
Today Lundin Petroleum is one of the main operators
and largest licence holders on the Norwegian Continental
Shelf with a year end market capitalisation of more than
SEK 67 billion and a share price that reached SEK 200
in December 2016, which is a 65 fold increase relative
to the share price in 2001. Norway has over the years
clearly become the Company’s focus, with 96 percent of
the reserves in Norway, and to give renewed attention
to the non-Norwegian assets, the Board of Directors
proposed earlier this year to spin-off these assets into a
new company. Honouring our heritage, it was named
International Petroleum Corporation (IPC). Following the
spin-off, the IPC shares will be distributed, on a pro-rata
basis, to Lundin Petroleum shareholders.
Continued success in Norway
While the new IPC will seek growth opportunities across
the world, Lundin Petroleum is very well positioned
to continue its organic growth success in Norway. The
Company stands to increase its reserve base as a result of
the high exploration success rate in the southern Barents
Sea and is also in a very good financial position thanks to
strong production, the refinancing of the USD 5.0 billion
reserve-based lending facility and the recent recovery of the
oil price. OPEC discipline will be a key factor in keeping the
oil price in the USD 55 to 60 range. So far it seems that the
production cuts are achieving the desired effect of reducing
the stock surplus and Lundin Petroleum is now in a stronger
position than ever to capture the benefits of an upturn in
oil markets as we pursue further organic growth in Norway.
This kind of success would not have been possible without
the skilled, dedicated and enthusiastic people that make
up the Company. I would like to take this opportunity to
thank my fellow Board members, Group management and
all employees for your tremendous contribution and you,
fellow shareholders, for your continued support. I look
forward to continuing the journey with you all for the
exciting times that lie ahead.
Ian H. Lundin
Chairman of the Board
Comment from the Chairman on the preliminary investigation in Sweden
In November 2016, Alex Schneiter and I were interviewed by the Swedish International Prosecution Office and were
notified of the suspicions that form the basis of the preliminary investigation regarding alleged complicity in violations of
international humanitarian law in Sudan during the period 1997 to 2003, when we were active in an area called Block 5A.
We are cooperating with the investigation, which has been ongoing for nearly seven years, and that we hope is now in its
final stage.
I remain convinced, even more so after the recent interviews, that there are no legal grounds for any allegations of
wrongdoing against any representative of Lundin and that the investigation will show this. I genuinely believe that we
were a force for good in Sudan and encourage you to visit our dedicated website www.lundinhistoryinsudan.com which
provides a detailed account of both our operations and contributions in the region.
Lundin Petroleum is built on tremendous success in Norway and we will continue to operate with the highest standards of
professional and responsible conduct in order to create long-term sustainable value for our shareholders and society as a
whole. I would like to express my sincere thanks to all our stakeholders for your continued support in Lundin Petroleum
and the exciting future of our Company.
Ian H. Lundin
Chairman of the Board
9
Lundin Petroleum Annual Report 2016 OVERVIEW | Sustainable Growth
A sustainable
approach
Meeting future energy demand
Oil and gas products are fundamental to modern societies and
are present in many aspects of our daily life. Oil continues to be
the fuel of choice for power and transportation as well as a
component for asphalt, pharmaceuticals, plastics and many
synthetic products and consumer goods. Oil and gas provide
nearly 60 percent of the world’s energy supply and will continue
to make up a large part of the demand for decades to come. The
International Energy Agency projects the global energy demand
will grow by 30 percent by 2040 and all types of energy will
therefore have an important role to play.
Developing oil and gas responsibly
Climate change is one of the greatest challenges of our time.
Equally important is the need to ensure access to energy
for continued economic development across the world that
maintains and improves quality of life for all. Since oil and gas
will continue to be a part of the future energy mix and underpin
social and economic development, the oil and gas industry must
also be part of the solution for making global energy systems
sustainable for society and future generations.
Action against climate change and efforts to reduce greenhouse
gas emissions do not rule out the use of oil and gas but it does
require a change in the way we explore and develop it. Through
the development of carbon mitigating technology and improved
emission management throughout the energy value chain, oil
and gas can remain part of the energy system while contributing
to meet the ambitious carbon emission reduction targets the
world has agreed in the Paris Agreement.
Operating with the lowest carbon intensity
The challenge that lies ahead is to continue to develop and
produce oil and gas in the most carbon efficient way possible.
With a strategic focus on Norway, Lundin Petroleum operates
in a country with world-leading environmental legislation and
standards and with the highest carbon tax and one of the lowest
carbon intensity levels in the global oil and gas industry. Since
2011, the emissions per barrel produced in Norway have been
almost half as carbon intensive as the global average.
This means that we operate in a context that challenges us to
continuously reduce our carbon emissions, both as a way of
minimising our carbon footprint and ensuring that our asset
base is robust and sustainable to meet a low carbon future. In
2016, Lundin Petroleum significantly reduced its own carbon
emissions and we are now operating with a lower carbon
intensity level than the industry average in Norway.
10
Our aim is to contribute
to a low carbon energy
future by developing oil and
gas resources in the most
efficient and responsible way
possible
Low carbon solutions for Edvard Grieg
and Johan Sverdrup
The high environmental and climate standards
in Norway have encouraged the development
of low-emission technologies for the oil and gas
industry. Our key projects Edvard Grieg and
Johan Sverdrup demonstrate how innovative
technical solutions can lead to increased energy
efficiency and a significant reduction in carbon
emissions.
The Edvard Grieg platform was constructed using
the Best Available Technique principle (BAT)
which was applied in the three most carbon
emitting processes: flaring, power generation and
energy management. The nearby Johan Sverdrup
field, which is expected to start production in
late 2019, will receive power from shore from
its inception and as a result, offshore emissions
are estimated to be reduced by 80 to 90 percent
compared with a standard development.
Lundin Petroleum Annual Report 2016 Norway is a world leader in developing
and producing low carbon energy
Cooperating with the industry on reducing emissions
In addition to seeking carbon efficiency in our operations,
we also take an active part in industry initiatives that seek to
contribute to future low-carbon energy systems.
the Norwegian oil and gas industry’s ambitions to implement
reduction measures from 2020 which correspond cumulatively
to 2.5 million tonnes of carbon emissions by 2030, representing
a significant step towards a more carbon efficient future.
The oil and gas industry in Norway continuously strives to
find solutions to address climate change and in August 2016
announced a co-ordinated and comprehensive roadmap to
reduce greenhouse gas emissions. The road map establishes
This climate initiative marks a change of pace in terms of
climate work. Lundin Norway has participated in the initiative
from the start and will continue to contribute to its progress to
ensure that the Norwegian continental shelf remains a world
leader in developing and producing low carbon energy.
11
Lundin Petroleum Annual Report 2016 OVERVIEW | Oil Market
Oil market
The oil market in 2016
With the benefit of hindsight it seems obvious now that the
drop in oil prices below USD 30 per barrel in January 2016 was
unsustainable. The failure of OPEC to agree on output levels
in November 2015 was casting a dark shadow over oil markets
during 2016. Saudi Arabia in particular showed that it was not
prepared to blink in its battle to retain market share relative to
other higher cost producers. Saudi Arabia would no longer act
in isolation as the swing producer to bring oil markets back into
balance without the support of other large producers.
That firm Saudi policy started to bear fruit during 2016 with
dramatic falls witnessed in the onshore US rig counts reaching
record lows whilst shale production volumes fell by more than
1 million barrels per day from their peak levels. Many players
announced in parallel they had shelved or deferred plans for
taking higher cost projects forward.
Uncertainties did however continue through 2016 on the supply
side with concerns focusing on returning Iranian and Libyan
crude volumes following the easing of sanctions which appeared
to grow faster than many market commentators expected.
In addition, a slowing of growth in China was impacting the
demand side. That coupled with Saudi Arabia producing at
record high levels and continued strong Russian production
meant that the rebalancing process that was expected to
commence in the second half of 2016 was deferred into 2017.
Green shoots of recovery
With average oil prices in 2016 down a further USD 9 per barrel
from a low base in 2015, all eyes were on the OPEC meeting
in late 2016. Would key producers, including Russia, adopt a
new role and jointly share the burden to agree to production
restraint and thereby set in motion a clearer path to rebalancing
the stock overhang that had been accumulated in recent years?
The agreement to freeze OPEC production levels at 32.5 million
bopd with the added restraint from other key producers gave
a welcomed boost of confidence to the market and caused oil
prices to rise by close to 20 percent. Attention now turns to
output compliance levels and US shale production growth to
ultimately determine the path forward for a medium-term to
longer-term recovery in oil prices.
The other big uncertainty is the impact of the massive
contraction in upstream investment seen in recent years. We
12
Lundin Petroleum Annual Report 2016 when Johan Sverdrup reaches production plateau. In addition
our cash operating costs will fall to below USD 5 per barrel over
the same period, allowing us to generate significant free cash
flow. When we combine this with our close to USD 1 billion of
spare liquidity headroom, the Company is in a stronger position
than ever to capture the benefits of an upturn in oil markets as
we pursue further organic growth from appraising our existing
discoveries and in our search for new exploration discoveries.
believe this may be greater than currently anticipated when one
factors in underlying field declines.
Looking positively at this challenging time, the oil price shock
has caused a dramatic rethink in how we can deliver value for
all of our stakeholders and reset cost levels to a more sustainable
basis. Significant cost inflation had beset the industry when
prices stood above USD 100 per barrel. New technology
and standardisation will be the key to driving productivity
improvements. Some players who lost their way and added
unnecessary standards and complexity during the good times
are changing their ways in a move to lower the breakeven for
projects going forward and that should benefit the industry as a
whole.
Strongly positioned to capture growth
For Lundin Petroleum, 2016 was an outstanding year with an
excellent operational performance across all assets driving the
Company to outperform and achieving record high production.
The market environment has allowed Lundin Petroleum to
capture large cost savings of around 30 percent on our key
Johan Sverdrup project. In the medium-term our production
will grow from 72,600 boepd in 2016 to over 150,000 boepd
13
Lundin Petroleum Annual Report 2016 OVERVIEW | Share and Shareholders
Share and
Shareholders
Lundin Petroleum share
The Lundin Petroleum share is listed on the Large Cap list
of NASDAQ Stockholm and is part of the OMX 30 index.
Lundin Petroleum’s share price increased by 61.6 percent during
2016, significantly outperforming both the OMX 30 index,
which increased by 3.7 percent, and the USD denominated
S&P Global Oil Index which increased by 24.8 percent. Since
inception of the listing of Lundin Petroleum’s shares in
September 2001, the share price has achieved a compounded
annual return up to 31 December 2016 of 31.4 percent
excluding dividends.
Market capitalisation
Lundin Petroleum’s market capitalisation as at 31 December
2016 was SEK 67,431 million which made Lundin Petroleum
the largest independent E&P company in Europe by market
capitalisation.
to purchase and sell Lundin Petroleum shares up to 5 percent
of the total amount of shares in issue until the next AGM. 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 its
long-term incentive programmes. As per the resolutions of an
Extraordinary General Meeting of Lundin Petroleum held on
30 May 2016, Lundin Petroleum issued 29,316,115 shares to
Statoil and transferred 2,000,000 treasury shares to Statoil as a
consideration for acquiring Statoil’s 15 percent working interest
in the Edvard Grieg field, in addition to receiving approximately
SEK 544 million in cash. Lundin Petroleum held no treasury
shares as at 31 December 2016.
AGM resolution
At the 2016 AGM, it was resolved that the Board of Directors
is authorised to issue no more than 34 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 approximately 9.1 percent after the new
issue.
Trading of the Lundin Petroleum share
During 2016, a total of 301 million shares were traded on
NASDAQ Stockholm to a value of approximately SEK 41.91
billion, representing an average daily trading volume of
approximately 1.2 million shares per trading day. The share
trading turnover during 2016 equated to approximately
92 percent of the average number of shares in issue during 2016
and approximately 1.7 times the number of shares in free float.
Dividend policy
Lundin Petroleum’s primary objective is to add value to
the shareholders, employees and society through profitable
operations and growth. This will be achieved by increased
reserves, developing discoveries and thereby increasing
production and ultimately cash flow and operating
income. This added value will be expressed partly by a long-term
increase in the share price and dividends.
Share capital
The registered share capital as at 31 December 2016 amounted
to SEK 3,478,713 represented by 340,386,445 shares with a
quota value of SEK 0.01 each (rounded off), 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 12 May 2016 resolved to authorise the Board of Directors
The size of any dividend would have to be determined by
Lundin Petroleum’s financial position and the possibilities
for growth through profitable investments. Dividends will be
paid when Lundin Petroleum generates sufficient cash flow
from operations to maintain long-term financial strength and
flexibility. With the substantial increase in Lundin Petroleum’s
production profile over the next years, driven by the Edvard
Grieg and the Johan Sverdrup fields in Norway, over time the
total return to shareholders is expected to partially transfer from
an increase in share price to dividends received.
Share Price 2001–2016
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1.5
1.0
0.5
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)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Lundin Petroleum AB (LUPE) share price (monthly daily average)
Traded daily volume Nasdaq Stockholm (monthly average)
Source: Bloomberg
200
180
160
140
120
100
80
60
40
20
0
)
K
E
S
(
e
c
i
r
P
e
r
a
h
S
14
Lundin Petroleum Annual Report 2016
Share ownership structure
Lundin Petroleum had 32,726 shareholders as at 31 December
2016. The proportion of shares held by Swedish retail investors
amounted to 9 percent. The top 10 shareholder list excludes
shareholdings through nominee accounts.
The 10 largest shareholders
as at 31 December 2016
Nemesia S.à.r.l.1
Statoil ASA
Landor Participations Inc.2
Swedbank Robur fonder
Nordea fonder
Fjärde AP-fonden
Handelsbanken fonder
SPP Fonder
SEB
C. Ashley Heppenstall
Other shareholders
Total
Number
of shares
87,187,538
68,417,676
10,638,956
7,235,542
3,082,145
2,231,731
2,064,689
1,966,292
1,828,638
1,391,283
%
25.61
20.07
3.13
2.13
0.91
0.66
0.61
0.58
0.54
0.41
154,341,955
340,386,445
45.35
100%
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 above list only includes institutional shareholders who
hold the shares directly as reported by Euroclear Sweden.
Statoil announced on 14 January 2016 the acquisition of
37,101,561 shares in Lundin Petroleum, corresponding
to 11.93 percent. On 30 June 2016, on completion of the
acquisition of a 15 percent additional working interest in
the Edvard Grieg field, Statoil received 31,316,115 additional
shares thus taking Statoil’s total shareholding up to
68,417,676, representing 20.07 percent of the shares in issue.
Size categories
1–500
501–1,000
1,001–10,000
10,001–50,000
50,001–100,000
100,001–500,000
500,001–
Total
Share data
Number of
shareholders
Percentage of
shares, %
24,111
3,718
4,016
541
103
160
77
32,726
1.04
0.90
3.58
3.49
2.18
10.38
78.43
100
31 Dec 2016
31 Dec 2015
Number of shares issued
340,386,445
311,070,330
Number of shares owned by
Lundin Petroleum
–
2,000,000
Number of shares in circulation
340,386,445
309,070,330
Source: Euroclear Sweden, December 2016
Shareholder base
Lundin Petroleum has now reached a level of market
capitalisation which makes the Lundin Petroleum share
investable for even the larger US investment funds. Over recent
years, Lundin Petroleum has stepped up its investor marketing
in the US, both on the east coast and on the west coast. With a
growing market capitalisation, and with total US shareholding
being at only 6 percent, the US marketing efforts will be
intensified during 2017 as Lundin Petroleum is gaining access to
a larger sphere of US investment funds.
Shareholder Structure – Sector
Others
9%
Retail
9%
Lundin Family
29%
Institutional
Investors
33%
Statoil ASA
20%
Shareholder Structure – Geographical
Other
11%
Sweden
17%
North
America
6%
Europe
66%
Source: IPREO, November 2016
ADR Programme
In September 2016, Lundin Petroleum established
a Sponsored Level 1 American Depositary Receipt
(ADR) programme in the United States.
ADRs are depositary receipts traded in the United
States over-the-counter market (OTC). Each ADR
represents an ownership interest in one ordinary
share in Lundin Petroleum.
Deutsche Bank is acting as the depositary bank for
this ADR programme.
More information on Lundin Petroleum’s
ADR Programme can be found on
www. lundin-petroleum.com
15
Lundin Petroleum Annual Report 2016 OPERATIONS | COO Overview
Exceptional
operational
performance
“
We met or exceeded all our
key operational targets,
driven by exceptional facilities
and reservoir performance
Nick Walker
Chief Operating Officer
16
Lundin Petroleum Annual Report 2016 Exceptional operational performance
2016 was an outstanding year for Lundin Petroleum with
delivery on all our operational objectives. We met or exceeded
all our key targets, driven by exceptional facilities and reservoir
performance. We continued our strong production growth
trajectory underpinned by a series of major development
projects, more than doubling production over 2015 while at the
same time significantly reducing our cash operating costs. We
also continued to grow our reserves, replacing more than two
times what we produced.
Edvard Grieg strong performance
Our flagship operated Edvard Grieg field started production at
the end of 2015 and very quickly achieved world class facilities
uptime. With new wells progressively being brought on through
the year production ramped up to exit 2016 at maximum
facilities capacity levels of 100,000 boepd. Well results on the
western flank of the field yielded increased reserves and this will
be followed up with appraisal in 2017 with the potential to add
significant volumes, supporting the trend of big fields getting
bigger. The first year of Edvard Grieg performance has exceeded
expectations and puts us in great shape for 2017.
Johan Sverdrup development progressing
The giant Johan Sverdrup project is progressing really well and
keeps getting better and better. Phase 1 of the development is
progressing on schedule with all elements of the project under
construction, costs have come down by 30 percent in US dollar
terms since PDO approval, and facilities capacity and reserves
have both increased. The concept selection for Phase 2 of the
development was made in early 2017. When Phase 1 starts up in
late 2019 we will see our net production exceed 120,000 boepd
and then grow to over 150,000 boepd at full field plateau levels.
We have continued to adapt our business to the current oil
price environment, focusing spend on strategic activities and
relentlessly challenging our cost base, achieving significant
savings. Our quality assets have allowed us to drive down cash
operating costs year-over-year. 2016 cash operating costs were
one third less than 2015, at just under USD 8 per barrel. We will
see a further reduction in 2017 and when Johan Sverdrup comes
onstream we will be below USD 5 per barrel. These stellar cost
metrics put us in great shape to generate significant cash flow as
our production ramps up.
High impact exploration in Norway
Our strategy of value creation through organic growth has
been highly successful and we continue to believe this is the
best way to create long-term sustainable shareholder value. We
have built a really exciting exploration position in the southern
Barents Sea focussed on three high impact trends with multi-
billion barrel potential. We will again be amongst the most
active explorers in the area with a rig drilling through the year.
At the Loppa High area we continue to have success with the
appraisal of the significant Alta and Gohta oil discoveries and
the Neiden oil discovery made at the end of 2016 proves the
northern extension of the trend which has lots of additional
prospectivity. Our recent Filicudi oil discovery proves a new play
with significant follow-on prospectivity, with further exploration
drilling being planned for 2017. We continue to build our
position in the area with awards in the 23rd licensing round,
picking up interests in two giant multi-billion barrel licences in
the southeastern Barents Sea, the first of which will be drilled in
2017.
Delivery of our committed projects gives us a growth profile that
will see us double production from current levels when Johan
Sverdrup reaches plateau. We are hopeful that the southern
Barents Sea will emerge as the next producing hub for Lundin
Petroleum and continue our strong growth trajectory.
These outstanding results are a reflection of the skill and
motivation of the world class team we have at Lundin
Petroleum. Looking forward the focus is to keep on delivering
what we say we will do and we have already made a great start
to 2017.
17
Lundin Petroleum Annual Report 2016 OPERATIONS | Production, Reserves and Resources
Production
A strong production performance
in 2016 saw production levels
exceed guidance and achieve
record levels for the Company
2016 Production performance exceeded guidance
During 2016, Lundin Petroleum produced 26.6 million barrels of
oil equivalent (MMboe) at an average rate of 72,600 barrels of oil
equivalent per day (boepd) which is 4 percent above the mid-point
of the original guidance of 65,000 to 75,000 boepd and in line
with the increased guidance issued in October 2016 of 70,000
to 75,000 boepd. These results are due to strong facilities and
reservoir performance. Edvard Grieg came onstream at the end of
2015, quickly achieving stable operations, and during 2016 new
wells were progressively brought online with production levels
reaching gross maximum facilities capacity of 100,000 boepd
towards the year end. Exiting the year, Edvard Grieg represents
approximately two thirds of the Company’s total production.
Production rates to grow further in 2017
Lundin Petroleum’s production forecast for 2017 is in the range
of 70,000 to 80,000 boepd (excluding the IPC assets). The increase
compared to 2016 represents a full year at maximum facilities
design capacity level for the Edvard Grieg field partially offset
by natural declines in the other areas. Continued development
drilling at Edvard Grieg will allow the field to stay at field capacity
rates into 2020 and with upside in the southwest area of the field
offering the opportunity to extend this further. The Ivar Aasen
field, which is produced through the Edvard Grieg facilities, was
brought online at the end of 2016.
Looking ahead
The giant Johan Sverdrup field is planned to start production
in late 2019 and is expected to increase Lundin Petroleum’s net
production levels to above 120,000 boepd and then grow to over
150,000 boepd at full field plateau levels. This excludes any
contribution from the significant contingent resource base, or
any contribution from exploration wells that Lundin Petroleum is
planning to drill.
18
Performance 2016
72,600 boepd
Forecast 20171
70,000–80,000
boepd
Production History
t
e
n
d
p
e
o
b
M
80
60
40
20
0
t
e
n
d
p
e
o
b
M
100
80
60
40
20
0
2014
2015
2016
2016 Production
Q1
Q2
Q3
Q4
Full year guidance (70 Mboepd)
Edvard Grieg
1 excluding IPC assets
Lundin Petroleum Annual Report 2016
Reserves
Upward revisions of Lundin
Petroleum’s reserves have
replaced more than two times
production
Reserves Summary
MMboe
Reserves end 2015
2016 Production
Sales/Acquisitions
Revisions
Reserves end 2016
Reserves replacement ratio
685.3
-26.6
+29.5
+55.3
743.5
208%
Reserves increases 2016
Lundin Petroleum had 743.5 MMboe of certified reserves
at the end of 2016 of which 96 percent relate to Norway.
Approximately 55 MMboe of additional reserves were added
in 2016, resulting in a reserves replacement ratio of over
200 percent. In addition, approximately 29 MMboe of reserves
were added during the year through the acquisition of an
additional 15 percent working interest in Edvard Grieg. The
reserves to production ratio at the end of 2016 stands at
28 years, which is well above industry norms.
The main reason for the reserves increase relates to Lundin
Petroleum’s two biggest assets, Edvard Grieg and Johan
Sverdrup. The reserves increase on Edvard Grieg is driven
by drilling results which indicate more oil-in-place in the
western flank of the field than originally foreseen. The
upgrade of reserves in the Johan Sverdrup field reflects better
understanding of the reservoir, in particular the waterflood
performance characteristics following the acquisition and
evaluation of additional core data. Further reserves increases
have been attributed to the Alvheim field, as a result of the
identification of further infill drilling targets, and also at the
Bertam field, due to reservoir outperformance.
Predominently oil reserves
96 percent of the 743.5 MMboe of reserves is related to oil
and natural gas liquids (NGL). Lundin Petroleum quotes all
of its reserves in working interest barrels of oil equivalent.
All reserves are independently audited by ERC Equipoise Ltd.
(ERCE).
i
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”.
Reserves quantity information and definitions can be found on
pages 132–133.
Reserves end 2016
743.5 MMboe
Reserves
(MMboe net)
IPC assets
29.4
Norway other
162.7
Norway,
Johan Sverdrup
551.4
Reserves History
1,000
t
e
n
e
o
b
M
M
800
600
400
200
0
2008
2010
2012
Year End
2014
2016
Cumulative Production
Norway – Johan Sverdrup
Norway other
Other
Reserves Additions1
(MMboe net)
Johan Sverdrup
+ 38.3
Acquired 15% Edvard Grieg
+ 29.5
Edvard Grieg
+ 10.1
Alvheim Area / Others
+ 4.4
Total additions 82.3 MMboe
1 excluding IPC assets
19
Lundin Petroleum Annual Report 2016
OPERATIONS | Production, Reserves and Resources
Contingent
Resources
Lundin Petroleum has a number of discovered oil and gas resources
which are classified as contingent resources. Contingent resources
are known oil and gas resources not yet classified as reserves due
to one or more contingencies. Work is ongoing to remove these
contingencies and to mature contingent resources into reserves and
ultimately production.
Contingent resource additions in Norway
Lundin Petroleum had 267 MMboe of contingent resources at year
end 2016 of which Norway represents 93 percent and with the
contingent resource position in Norway growing by 47 MMboe
during the year.
The majority of the contingent resource additions are associated
with the Johan Sverdrup field. Contingent resources have been
added from the Neiden discovery in the southern Barents Sea as
well as from re-assessing the resource potential within the fields in
the Paris Basin. Further contingent resources have been added from
newly identified infill drilling targets on the Alvheim and Volund
fields.
There has been a further rationalisation of the contingent resource
portfolio during 2016. Lundin Petroleum decided to remove from
its contingent resources the Sabah and Tembakau gas discoveries
in Malaysia and the Morskaya oil discovery in the Russian Caspian
Sea. The net effect of these changes is a 31 percent reduction of the
contingent resources from end of 2015.
i
Contingent Resources
Unless otherwise stated, all contingent resource estimates
in this Annual Report are unrisked best estimate.
Resource definitions can be found on page 133.
Contingent Resources
end 2016
267 MMboe
Contingent Resources
(MMboe net)
IPC Assets
17
Utsira High
85
Alvheim Area
8
Norway
Southern Barents Sea
157
20
Lundin Petroleum Annual Report 2016 Prospective
Resources
Having first class people to access
world class exploration acreage is
essential to our success
Lundin Petroleum’s business model is to grow organically
through exploration. This means to identify and mature
exploration targets, drill exploration wells, appraise discoveries,
develop and finally produce, thereby creating long-term
sustainable value for our shareholders. To be successful with
this strategy, having first class people to access world class
exploration acreage is essential. In 2016, Lundin Petroleum
focussed its exploration activities on Norway.
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 identified
from the large exploration licence portfolio and are being
matured to be drilled in future years.
Norway exploration and appraisal programme
In Norway, Lundin Petroleum has grown to become one of
the largest operated acreage holders and has been the most
successful explorer in the past 10 years. By the end of 2016,
Lundin Petroleum had drilled a total of 84 exploration and
appraisal wells, resulting in a cumulative finding cost after tax
of USD 0.7 per barrel.
In 2017 Lundin Petroleum will again be one of the most active
exploration and appraisal drillers in Norway with a rig drilling
through the year. The 2017 exploration programme includes
five exploration wells, three on the Loppa High in the southern
Barents Sea, one on new highly prospective acreage awarded in
the 23rd licensing round in the southeastern Barents Sea and one
well in the North Sea. Appraisal wells will also be drilled on the
Alta and Gohta oil discoveries in the southern Barents Sea with
two further appraisal wells on the Utsira High.
Cutting edge technology
Over the course of the last two years, Lundin Norway’s geophysicists have worked with the geoscience company CGG to develop
a completely new method of acquiring seismic data. The method is called TopSeis and it will provide a significantly better image
of the subsurface. TopSeis will be particularly beneficial for relatively shallow reservoirs, such as in the southern Barents Sea.
The method basically involves two seismic vessels operating in tandem. The signal sources of one boat are placed directly above
the streamers, rather than the normal position in the front. To achieve this, the streamers must be pulled at a sufficiently deep
position in the water so that the vessel with the streamer can sail over them without conflict with the cables. Previously, such an
operation was considered impossible. TopSeis provides much greater signal reflection than is the case in conventional acquisition,
and the subsurface is illuminated with 10 to 15 times more signal energy. The result is a detailed and quantitative depiction
of the reservoirs. The results from testing TopSeis are now so convincing that a large fullscale survey will be acquired in the
southern Barents Sea over the Alta, Gohta and Filicudi areas in 2017.
21
Lundin Petroleum Annual Report 2016 OPERATIONS | Norway
Norway
“
2016 was an outstanding year
for the Company with Lundin
Norway establishing itself
as a leading operator on the
Norwegian Continental Shelf
Kristin Færøvik
Managing Director, Lundin Norway
Southern Barents Sea
Loppa High
3
NORWAY
North Sea
Alvheim Area
Utsira High
2
1
22
Lundin Petroleum Annual Report 2016 2016 was an outstanding year of performance from the
Norwegian assets with net production at an all-time high of
59,300 boepd, which is an increase of 180 percent on 2015. The
cash operating costs of USD 7 per barrel were also at an all-time
low. At year end 2016 the reserves had increased to 714 MMboe
with a reserves replacement ratio of 242 percent.
Notwithstanding the significant production levels that the
Company is now achieving, the organic growth strategy
remains core to Lundin Petroleum with continuous access to
new exploration acreage being key to the Company’s long-term
success. 2016 was a pivotal year in terms of new exploration
acreage and the Company was awarded four licences in the 2015
APA round and five highly prospective licences in the southern
Barents Sea in the 23rd licensing round. Two of the blocks
awarded in the 23rd licensing round are in the southeastern
Barents Sea with both licences containing multi-billion barrels of
unrisked prospective resource potential.
Norway Key Data
Reserves (MMboe)
Contingent resources (MMboe)
Average net production per day (Mboepd)
Net turnover (MUSD)
Sales price achieved (USD/boe)
Cash operating costs (USD/boe)
Operational cash flow contribution (USD/boe)
2016 2015
714
249
59
946
40
7
40
654
202
21
376
52
11
77
1. Utsira High – North Sea
Edvard Grieg Field - PL338 (WI 65%)
Johan Sverdrup Field (WI 22.6% )
Utsira High Exploration
· Production start 2015
· Net remaining reserves 127 MMboe
· 2016 net production 42,000 boepd
· Additional 15% interest acquired in 2016
· Development drilling ongoing
· Appraisal of Edvard Grieg SW in 2017
· Ivar Aasen unit (WI 1.385%) development
completed – first production December 2016
· Discovered in 2010 (PL501) and in 2011
(PL265)
· 23 wells and 7 sidetracks drilled during
appraisal
· PDO approved in August 2015
· Net reserves 551 MMboe
· Major contracts for Phase 1 awarded
· Facilities construction and development
drilling ongoing and according to schedule
· Phase 2 concept selection in early 2017
· Phase 1 production expected late 2019
· Luno II discovery in PL359 in 2013
gross contingent resources 27–71 MMboe
· Luno II North discovery in PL359 in 2015
gross contingent resources 12–26 MMboe
· Rolvsnes discovery in PL338C in 2015
gross contingent resources 3–16 MMboe
2. Alvheim Area – North Sea
Alvheim Field (WI 15%)
Volund Field (WI 35%)
Bøyla Field (WI 15%)
· Production start 2008
· Net remaining reserves 19 MMboe
· 2016 net production 10,000 boepd
· Infill drilling in 2017
· Viper/Kobra development completed – first
production November 2016
· 15% ownership of the Alvheim FPSO
3. Loppa High – Southern Barents Sea
Gohta and Alta Discoveries
PL492 and PL609 (WI 40%)
· Gohta and Alta discoveries in 2013 and 2014
· Three appraisal wells drilled
· Gross contingent resources 216–584 MMboe
· Two appraisal wells and 3D seismic in 2017
· Planning for extended well tests in 2018
· Production start 2010
· Net remaining reserves 8 MMboe
· 2016 net production 2,700 boepd
· Exploration well on Volund West in 2017
· Production start 2015
· Net reserves 2 MMboe
· 2015 net production 1,700 boepd
Loppa High Exploration
Southeastern Barents Sea Exploration
· Neiden discovery in PL609 in 2016
gross resources 25–60 MMboe
· Filicudi discovery in PL533 in February 2017
gross resources 35–100 MMboe
· Remaining exploration wells for 2017:
– Børselv prospect in PL609 (WI 40%)
– Hufsa prospect in PL533 (WI 35%)
· One exploration well during 2017
– Korpfjell prospect in PL859 (WI 15%)
23
Lundin Petroleum Annual Report 2016
OPERATIONS | Norway
Utsira High
Since 2007 Lundin Petroleum
has discovered close to
3 billion barrels of gross
recoverable reserves and
resources in the area and
further prospects are being
matured for drilling in the
years to come
The Utsira High holds the Edvard Grieg and Johan Sverdrup fields
and represents the majority of Lundin Petroleum’s asset base.
The area covering the Johan Sverdrup, Edvard Grieg, Ivar Aasen
and Luno II fields spans 1,600 km2 and lies approximately 150 km
offshore from Stavanger on the west coast of Norway. Exploration
in the area began in the 1960’s but not until 2007 was the
breakthrough made by Lundin Petroleum with its Edvard Grieg
discovery which unlocked the geological setting at the Utsira High
and ultimately led to the discovery of Johan Sverdrup.
Edvard Grieg
Production from the Edvard Grieg field commenced in November
2015 and the field achieved facility design capacity production
levels of 100,000 boepd towards the end of 2016. The field achieved
excellent results during its first year of full production with both
production and the platform uptime being ahead of forecast. The
PDO included a total of 14 development wells to be drilled and as of
April 2017 a total of seven wells have been drilled and completed
with development drilling continuing into 2018. The western
flank of the field has proven to contain thicker reservoir sands
than originally estimated which has resulted in the gross ultimate
recoverable reserves having increased to 223 MMboe which is a
20 percent increase on the PDO reserves estimate. In 2017 a further
five development wells are planned to be drilled to facilitate
continuous high production rates for at least the next couple of
years. In addition to the development drilling an appraisal well was
drilled in the first quarter of 2017 targeting further resources in
the southwestern part of the field. Strong operating performance
resulted in cash operating costs for 2016 below USD 7.2 per barrel.
The Ivar Aasen field (1.385%) commenced production in December
2016 and will be ramping up production during 2017. The
Ivar Aasen field produces to the Edvard Grieg platform and is
contributing to lowering the cash operating costs per barrel on the
Edvard Grieg platform.
Lundin Petroleum is continuing to assess the Luno II and Rolvsnes
discoveries just south of the Edvard Greig field for potential tie-backs
to the Edvard Grieg platform. Concept development engineering
studies are ongoing on Luno II. The Rolvsnes discovery requires
an appraisal well and testing, which is being considered for 2018,
before the potential of the discovery can be determined. Success on
appraisal of Rolvsnes would provide encouragement for the potential
of the Goddo prospect just to the southeast of Rolvsnes.
24
Utsira High, North Sea
167 &
167B
Ivar Aasen
Edvard Grieg
338
Rolvsnes
778
Luno II North
338C
359
265
815
Luno II
410
Johan Sverdrup
0
KM
20
Lundin Petroleum Licences
Fields/discoveries
Operated
Non-operated
Oil
Gas
Increased interest in Edvard Grieg
During challenging periods successful companies are
those which can embrace the situation and see it as
a time of opportunity. This is exactly what Lundin
Petroleum managed to achieve when acquiring
Statoil’s 15 percent interest in the Edvard Grieg field
in exchange for newly issued shares.
This increases Lundin Petroleum’s exposure to
a world class asset and further consolidates the
Company’s position on the Utsira High, adding
significant reserves, production and cash flow in the
heart of the Company’s core area in Norway.
Lundin Petroleum Annual Report 2016
Johan Sverdrup – Phase 1
· Gross capex: NOK 97 billion (123.2 1) nominal
· Gross production capacity: 440,000 bopd (315,000–380,0001)
· Field centre (4 platforms) and oil/gas export pipelines
· First oil late 2019
Johan Sverdrup full field – Phase 2
· Gross capex: NOK 40–55 billion (85 1) real 2016
· Gross reserves range: 2.0–3.0 billion boe (1.65–3.0 1)
· Gross production capacity: 660,000 bopd (550,000–650,000 1)
· 1 additional processing platform
· Production start in 2022
1 PDO values
Resources upgrade and cost
reductions on the Johan
Sverdrup development
Johan Sverdrup
The Johan Sverdrup field is located on the Utsira High in the
central part of the Norwegian North Sea, approximately 20 km
east of the Edvard Grieg field and approximately 150 km
from the west coast of Norway. Lundin Petroleum discovered
the Johan Sverdrup field in 2010 and following an extensive
appraisal campaign, totalling 23 wells and seven side-tracks,
the field has been successfully delineated with an exceptional
reservoir quality in relatively homogeneous sandstone spanning
an area of approximately 200 km2. The PDO was approved
in mid-2015. Statoil is the operator of Johan Sverdrup and
estimates the field to contain gross reserves in the range of
2.0 to 3.0 billion boe. Lundin Petroleum has booked 551 MMboe
of net reserves and an additional 47 MMboe of net contingent
resources.
The construction of the facilities is progressing on schedule
and 2017 will be a peak year of activity with work ongoing at
22 construction sites around the world. The contract awards
have occurred at an opportune time given the deflationary cost
environment within the oil and gas service sector. This has
resulted in a gross Phase 1 reduction of capital expenditures of
NOK 26 billion to NOK 97 billion (nominal) at a project exchange
rate of 6 NOK per USD, which represents a 21 percent saving.
In addition to this material saving there remain significant
contingencies included in the cost estimates. Lundin Petroleum
has also locked-in significant currency savings from the
weakening NOK with approximately 75 percent of the NOK
denominated capital expenditure hedged at an average rate of
approximately 8.3 NOK to the USD.
The Phase 1 development consists of four fixed platform
installations at the field centre with dedicated export oil and
gas pipelines to the Mongstad and Kårstø oil and gas terminals
located on the west coast of Norway. The Phase 1 production
capacity is 440,000 bopd with gas in addition. Pre-drilling of the
wells for Phase 1 commenced in 2016 with eight drilled. Drilling
of water injection wells commenced in early 2017. The first of
four jackets will be installed during the summer of 2017 with
the installation of the riser and drilling platforms scheduled for
2018 and the processing and living quarter platforms in 2019.
Production for Phase 1 is scheduled to commence late in 2019.
The concept selection for Phase 2 of the development was made
in early 2017 and involves an additional processing platform at
the field centre to provide additional capacity taking the total
to 660,000 bopd with gas in addition. Phase 2 will also involve
additional drilling and subsea facilities. Production from Phase
2 is scheduled to commence in 2022. Due to favourable market
conditions and optimisation of the project scope, gross Phase 2
development costs have been reduced from NOK 85 billion to
between NOK 40 and 55 billion.
25
Lundin Petroleum Annual Report 2016 OPERATIONS | Norway
Alvheim Area
Alvheim Area, North Sea
Continuous reserves growth
The Alvheim, Volund and Bøyla fields are located in the
Alvheim area in the central part of the North Sea with
production starting from these fields in 2008, 2010 and 2015
respectively. Collectively these fields are Lundin Petroleum’s
second largest production hub.
The Alvheim area is estimated to hold gross ultimate recoverable
reserves of 472 MMboe which is 215 MMboe more than was
estimated in the PDO for these three fields. During 2016 three
additional infill wells were put into production with excellent
production rates resulting in a combined gross production of
85,700 boepd for 2016.
There is a long track record of identifying infill drilling
opportunities in the Alvheim area through the use of 4D
seismic and pilot holes from planned development wells. New
infill drilling opportunities continue to be matured. During
2017 four infill wells are planned to be drilled in addition to
one exploration well on the Volund West prospect. Through a
combination of keeping the facilities full with ongoing infill
drilling and strong operating performance has resulted in cash
operating costs for 2016 below USD 5 per barrel.
203B
036C
East
Kameleon
Kneler
Peik
Boa
Alvheim
088BS
Viper
Gekko
Volund
150B
150
Kobra
203
736S
340
0
KM
10
Lundin Petroleum Licences
Non-operated
Bøyla
Fields/discoveries
Oil
Gas
Caterpillar
869
340BS
26
Lundin Petroleum Annual Report 2016
Big fields get bigger
e
o
b
M
M
s
s
o
r
G
2,800
2,600
2,400
2,200
600
500
400
300
200
100
0
Lundin Petroleum’s three key assets, the Johan
Sverdrup field, the Edvard Grieg field and the fields
in the Alvheim area have all grown in reserves over
time. It is a well-known industry trend that the
big fields tend to get bigger, a trend observed on
almost all big fields on the Norwegian Continental
Shelf. Reserves in the Alvheim area have grown
by 83 percent compared with the estimates in
the PDO. The Edvard Grieg and Johan Sverdrup
fields, which are both much younger fields relative
to the Alvheim area, have added reserves and
resources by 36 percent and 16 percent respectively
compared to the PDO estimates.
The ability to grow reserves through time
comes from an improved understanding of the
subsurface, utilising new technology such as
seismic and a continuous value driven investment
approach which improves the recovery factors. The
fact that both Edvard Grieg and Johan Sverdrup are
at the early stage in their life cycle provides future
opportunities to add even more reserves as the
subsurface understanding of these fields improves.
16%
83%
Edvard Grieg SW (1)
36%
PDO End
2016
PDO End
2016
PDO End
2016
Alvheim Area
Edvard Grieg
Johan Sverdrup
2C Contingent Resources
Cumulative Production
2P Reserves
(1) Currently shown
in 3P reserve base
The ability to grow reserves
through time comes from an
improved understanding of
the subsurface, utilising new
technology and a continuous
value driven investment
approach
27
Lundin Petroleum Annual Report 2016
OPERATIONS | Norway
Southern
Barents Sea
The southern Barents Sea is one of Lundin Petroleum’s
core areas on the Norwegian Continental Shelf.
Having started to build an acreage position in this
region in 2007, Lundin Petroleum now has 18 licences
and three significant discoveries, Alta, Gohta and
Filicudi, which makes Lundin Petroleum along with
Statoil the biggest player in the southern Barents Sea.
The Company’s exploration position in the southern
Barents Sea is focused on three high impact trends
with multi-billion barrel potential.
Loppa High trend
A majority of Lundin Petroleum’s acreage in the
southern Barents Sea covers the highly prospective
Loppa High, with contingent and prospective resource
potential of over 1 billion boe. The Alta discovery was
successfully appraised in 2016 and late in the year
the Neiden oil discovery was announced, proving the
extension of the carbonate reservoir play to the north.
Both the Alta and the Gohta discoveries will be further
appraised in 2017 to better define the resources
within the current resource range estimate of 216 to
584 MMboe for the two discoveries. Contingent on
the results of the wells, extended well tests are being
planned on each accumulation for 2018, which will
provide the reservoir understanding to commence
development studies.
Drilling of the large Børselv prospect, just to the north
of Neiden, is being planned for 2017 and there is
significant additional prospectivity along trend which
will be matured during the year. Lundin Petroleum
continues to build its acreage position in the play with
the awards of blocks PL609C and PL851 in the 23rd
licensing round and PL902 in the 2016 APA round as
well as concluding deals for interests in PL715.
Filicudi trend
In 2016, Lundin Petroleum proved yet another oil
trend in the southern Barents Sea with the Filicudi
discovery in PL533, with a gross resource estimate of
between 35 and 100 MMboe. The Filicudi discovery
is on trend with the Johan Castberg discovery with
similar sandstone reservoir intervals. Multiple
additional prospects have been identified on the
Filicudi trend with a prospective resource potential
on Lundin Petroleum acreage in PL533 of up to
700 million boe. Additional exploration drilling is
being planned in 2017 on the Filicudi trend.
Loppa High Trend
Filicudi Trend
Southeastern
Trend
NORWAY
Loppa High Trend
>1 Bn bo (1)
715
Børselv prospect
244 MMboe gross
609
Neiden discovery
25–60 MMboe gross
Johan Castberg
851
Filicudi discovery
35–100 MMboe gross
Hufsa prospect
285 MMboe gross
533
609C
805
609B
Filicudi Trend
300–700 MMbo (1)
492
902
Alta + Gohta
216–584 MMboe (2)
767
Lundin Petroleum Licences
Fields/discoveries
Operated licence
Non-operated licence
Oil
Gas
Prospect
Lead
(1) Gross contingent plus resource potential
(2) Gross contingent resources
28
Lundin Petroleum Annual Report 2016
Korpfjell
Filicudi
Alta/Gohta
Hufsa
Borselv
Searching for the next elephant
We continue to believe that our strategy of value creation through organic growth is the best way to create long-term
sustainable value. We have a strong track record of adding value through the drill bit having made a series of significant
discoveries over the years and we aim to continue that trend, searching for the “next elephant”.
The southern Barents Sea is one of the most attractive exploration plays in the world today with over 1 billion boe
discovered recently and with estimates of yet to find resources close to 9 billion boe. The area is an emerging producing
region, with current production from the Snøhvit and Goliat fields and with some large oil discoveries, including the
Lundin Petroleum operated Alta and Gohta accumulations, likely to progress towards development.
Lundin Petroleum’s prospect portfolio in the southern Barents Sea has multi-billion barrel potential. We will again be
one of the most active explorers in Norway during 2017, with a rig working all year in the southern Barents Sea drilling
a series of high impact exploration trends that includes some very large and exciting prospects. The potential of the area
is enormous and we are hopeful it will extend Lundin Petroleum’s strong production growth profile beyond the levels
reached at Johan Sverdrup plateau.
Southern Barents Sea - Three high impact exploration trends
Southeastern trend
The third trend is in the southeastern Barents Sea where
Lundin Petroleum was awarded two highly prospective
licences in 2016, PL857 and PL859, located close to the
Russian maritime border.
The two licences contain prospects which have multi-billion
barrel unrisked prospective resource potential. The first of
these, the Korpfjell prospect in PL859, will be drilled by the
operator Statoil in the summer of 2017.
Further exploration drilling is expected to take place during
2018 with a likely multi-well campaign.
Korpfjell prospect
>1 Bn boe gross
Southeastern Trend
Multi-billion bo (1)
Signalhorn
prospect
29
Lundin Petroleum Annual Report 2016 OPERATIONS | Malaysia
Malaysia
Outstanding performance from
the Bertam field facilities
with an uptime of 99 percent
and production ahead of
forecast
MALAYSIA
Sabah
Peninsular
Malaysia
30
Lundin Petroleum Annual Report 2016 Malaysia Key Data
Reserves (MMboe)
Average net production per day (Mboepd)
Net turnover (MUSD)
Sales price achieved (USD/boe)
Cash operating costs (USD/boe)
Operational cash flow contribution (USD/boe)
2016
2015
Peninsular Malaysia
Sabah
10
9
126
45
23
16
11
5
71
49
24
16
· Bertam field on Block PM307 (WI 75%)
– Net reserves 10 MMboe
– First oil in April 2015
– A15 development well completed
in 2016
· PM328 (WI 35%)
– 3D seismic in 2016
· SB303 Gas Holding Area
(WI 55%)
Peninsular Malaysia
The Bertam oil field is located on Block PM307, offshore
Peninsular Malaysia, and has since the start-up in 2015 delivered
outstanding operational performance. Production for 2016 was
ahead of forecast and an excellent facilities uptime of 99 percent
was achieved.
The Bertam field has been producing from 11 wells since 2015
and an additional development well in the eastern extension of
the reservoir was successfully put into production in June 2016.
Overall field performance has been better than forecast and due
to the excellent reservoir performance on the Bertam field since
production start-up, the gross ultimate recoverable reserves have
been increased from 16.9 MMboe to 19.6 MMboe.
Block PM308A and PM319 were relinquished during 2016.
Lundin Petroleum further decided to remove the Tembakau gas
discovery on PM307 from its contingent resources, and the net
contingent resources removed amounted to 28.9 MMboe.
Sabah
Lundin Petroleum completed the drilling of three independent
exploration prospects on Block SB307/308 in 2016 but none of
these contained oil or gas in any commercial volumes.
In 2016, Lundin Petroleum removed the Tarap, Cempulut
and Berangan gas discoveries on SB303 from its contingent
resources and the net contingent resources removed amounted
to 31.8 MMboe.
Spin-off of the assets in Malaysia
Early in 2017, Lundin Petroleum announced the
spin-off of its non-Norwegian assets into the newly
formed company called International Petroleum
Corporation (IPC). For more information on the spin-
off, see the IPC Spin-off section on pages 34–35.
31
Lundin Petroleum Annual Report 2016 OPERATIONS | Continental Europe
Continental Europe
The mature assets in France and
the Netherlands continue to
provide steady production and
cash flow
Offshore
Offshore
Onshore
Onshore
NETHERLANDS
FRANCE
Aquitaine Basin
Aquitaine Basin
32
Lundin Petroleum Annual Report 2016Paris Basin
France Key Data
Reserves (MMboe)
Average production per day (Mboepd), net
Net turnover (MUSD)
Sales price achieved (USD/boe)
Cash operating costs (USD/boe)
Operational cash flow contribution (USD/boe)
2016
2015
Netherlands Key Data
2016
2015
18
3
42
44
24
22
19
3
52
52
25
27
Reserves (MMboe)
Average production per day (Mboepd), net
Net turnover (MUSD)
Sales price achieved (USD/boe)
Cash operating costs (USD/boe)
Operational cash flow contribution (USD/boe)
2
2
17
27
17
17
2
2
26
39
19
20
France and the Netherlands
The mature assets in France and the Netherlands continue to
provide steady production and cash flow. The nature of
these assets provides for low decline, stable and predictable
production with strong leverage to oil and gas prices through
low taxes.
The French assets consist of mature onshore oil producing
fields in the Paris Basin, operated by Lundin Petroleum, and
mature onshore oil producing fields in the Aquitaine Basin,
operated by Vermilion. The assets in the Netherlands consist of
mature onshore and offshore gas producing fields, operated by
Vermilion, Engie, Oranje-Nassau Energie and Total.
In 2014, Lundin Petroleum successfully completed the
Grandville re-development in the Paris Basin and commenced
infill drilling on the Vert La Gravelle re-development with two
wells completed in 2015. The remaining five infill wells have
been postponed until the oil price recovers.
The gas production in the Netherlands during 2016 was better
than expected due to good production performance from
certain new wells coming onstream. During 2017, one offshore
development well and one onshore exploration well are planned.
Spin-off of the assets in France and the
Netherlands
Early in 2017, Lundin Petroleum announced the spin-
off of its non-Norwegian assets into the newly formed
company called International Petroleum Corporation
(IPC). For more information on the spin-off, see the
IPC Spin-off section on pages 34–35.
33
Lundin Petroleum Annual Report 2016
OPERATIONS | IPC Spin-off
Spin-off of the Company’s
non-Norwegian assets
In early 2017, Lundin Petroleum announced that its
Board of Directors proposed to spin-off the assets in
Malaysia, France and the Netherlands into the newly
formed company International Petroleum Corporation
(IPC) and to distribute the IPC shares, on a pro-rata
basis, to Lundin Petroleum shareholders.
The distribution is made in a tax efficient manner in
accordance with the “Lex-ASEA rules”, implying that
no immediate taxation will arise to shareholders in
Sweden. IPC has applied to the Toronto Stock Exchange
to list its shares following the distribution on such
exchange under the ticker IPCO, and also intends to list
its shares on a recognised Swedish stock exchange.
Background and reasons for the distribution and
listing
The Board of Directors and management of the
Company routinely review and assess strategic
alternatives available to the Company to enhance
shareholder value. As part of that review, the Board
of Directors and management concluded that given
ongoing developments and successes with the
Company’s assets in Norway, the other international
producing assets, held within a separate and
independent entity, would benefit from enhanced
strategic flexibility and management focus, as well as
be ascribed increased focus, visibility, and value from
investors.
With a renewed strategy and focus, the Company
believes that IPC can be built into a leading
international independent oil and gas company,
focused on the production and development of high
quality assets around the world. The Company believes
an independent IPC will be well positioned to pursue
both organic and inorganic growth opportunities over
time. The significant cash flows generated from IPC’s
long-lived assets will provide financial capacity to
pursue this strategy.
34
Lundin Petroleum Annual Report 2016 “With the spin-off, Lundin Petroleum will become fully
focused on Norway, which I am convinced will serve to
further crystallise the value of our high-growth asset
portfolio in the North Sea and the southern Barents Sea
Ian H. Lundin
Chairman of the Board
The spin-off will allow Lundin Petroleum’s management
to solely focus on maximising shareholder value from its
Norwegian portfolio which has continuously grown in
size and value since Lundin Petroleum entered Norway
in 2004. Lundin Petroleum’s strong liquidity position of
USD 1 billion of headroom coupled with its operating
cashflow generation allows the Company to retain all
external bank debt and still be able to fully fund its
committed capital expenditure up to Johan Sverdrup
first oil in late 2019.
The Lundin Family remains committed to the success
of IPC, and entities related to the Lundin Family will
continue to be the largest shareholders of IPC following
the completion of the spin-off.
Listing of IPC shares
Listing of IPC’s shares on the TSX and a recognised
Swedish stock exchange will be subject to IPC fulfilling
the requirements of the respective exchange. There can
be no assurance that the shares will be accepted for
listing on either of the TSX or a Swedish exchange.
Extraordinary General Meeting 2017
An Extraordinary General Meeting was convened
on 22 March 2017 and resolved to approve the
Board of Director’s proposal on distribution of
shares in International Petroleum Corporation to
the shareholders of Lundin Petroleum.
The EGM documents as well as more information
on the spin-off can be found on
www.lundin-petroleum.com
35
Lundin Petroleum Annual Report 2016 RISK | Risk Management
Managing risk
Risk management creates value by enabling management
to effectively identify, mitigate and monitor potential
events affecting our business and the environment in
which we operate
ID E N TIFY
C ONTR
O
L
I TOR
O N
M
Today’s business landscape is dynamic, fluid and often characterised
by rapid change, regional differences and cultural contrasts that lead
to significant business risks. The oil and gas industry has numerous
operational, financial, external and strategic risks, which even the
combination of robust processes, experience, knowledge and careful
evaluation may not be fully able to eliminate or which are beyond the
Company’s control.
Risk management creates value by enabling management to deal
effectively with potential events in the Company’s operations and its
business environment. Risk management is a process driven by the
Company’s Board of Directors to encourage foresight, pro-activeness
and informed decision making. Risk management brings together the
assessment and review of possible events and scenarios resulting in an
increased awareness throughout the Company and gives management
the ability to take informed and robust decisions internally to face the
challenges of the business environment and encourage and maintain a
proactive risk management. Lundin Petroleum bases its risk approach
on COSO 2013 in order to have a robust risk assessment methodology
which cover all aspects of the Company’s operations, not only
financial reporting.
Risk identification
Risk identification and assessment is based on the achievement
of business objectives. A proper risk assessment forms a basis for
highlighting which risks should be prioritised by local and Group
management.
As part of the risk identification and assessment process in each
area of operations, Lundin Petroleum reviews and analyses the
risks that affect the business. The Company identifies strategic,
operational, financial and external risks affecting its activities and
this identification involves an analysis of interrelated internal and
external factors. The risks are assessed on a quarterly basis, through
a standardised methodology based on likelihood and impact. Regular
reviews are conducted to focus on which risks may be reduced or
eliminated.
After identifying and assessing the significance of risks and
opportunities, management also considers control measures. The
prioritisation of control measures is based on high risks that could
affect the business.
36
Lundin Petroleum Annual Report 2016
Control
Controlling risk through effective management is achieved by
creating a mandate and commitment to risk at all levels of the
business. Risk mitigation is an integral and continual part of the
control activities and decision making within Lundin Petroleum.
Monitoring
Monitoring risk is an important part of the continuous
risk management process. It involves local operational
accountability and clear responsibility for continuous
identification of risks by risk owners.
The Company’s policies and procedures are robust allowing
for the establishment of clear responsibilities and business
principals to reduce risk exposure. Controlling risk may also
involve risk acceptance, avoidance, or transferring the impact
and management of the risk to a third-party by, for example,
purchasing insurance or having risk transferred by contract.
Lundin Petroleum has identified the following high inherent
risks relative to the Company’s performance and reputation
highlighted in four risk categories: strategic, operational,
financial and external risks. These risks are presented in the
following section, but other risks could also exist or arise.
The Company provides oversight through regular risk reporting
which enables the continual review of factors such as:
· Identifying new risks and opportunities
· Maintaining ongoing awareness of the Company’s risk
environment, risk management programme, and associated
activities to support risk decisions
· Reviewing reported risks and incidents to ensure that adequate
insurance coverage is in place
· Reviewing the internal audit plan based on reported risks
Lundin Petroleum follows a “Three lines of defence” approach,
which gives the Company a systematic and disciplined
methodology to improve the effectiveness of risk management
and the internal control processes. This is further described in
the Internal Control and Audit section on pages 68–69.
37
Lundin Petroleum Annual Report 2016 RISK | Risk Management
Operational Risk
Risk Area
Description
Response
Major Operational Incidents
Asset Integrity
Asset Management and
Cost Control
Current and future
production concentrated
to a few fields
The Ability to Increase
Reserves
Delay in delivery of the
Johan Sverdrup field
Decommissioning
The possibility that a major
operational incident could occur
affects all oil and gas operations. The
drilling and production operations
will never be completely risk free and
the potential for incidents, although
reduced, will remain.
Lundin Petroleum has competent and focused Health, Safety
and Environmental (HSE) teams and HSE is prioritised by
management. HSE management systems are in place to avoid
major operational incidents and the Company promotes active
management and reporting on HSE, which is a priority area
both for Lundin Petroleum and its contractors, suppliers and
partners. For more information, see Responsibility on pages
42–49.
The risk that physical assets and
pipelines are affected by corrosion or
are unreliable, leading to liability or
loss exposure.
Diligent operations management and effective maintenance,
inspection and corrosion management planning is in place
to ensure that the assets remain reliable. This coupled with
having new assets, good technical integrity and a focus on
safety and regulatory compliance mitigates this risk.
Drilling and development projects can
experience cost overruns and delays,
leading to declines in revenue. Idle
rigs, failure of critical equipment or
insufficient planning may adversely
affect cash flow levels to varying
degrees.
Internal processes are in place to ensure that reasonable cost
levels are achieved relative to business plans. All development
projects must pass through the Lundin Petroleum value
creation process that requires approval from the Investment
Committee, and approval from the Board for significant
investment decisions. Effective procurement and contractual
terms enable good cost and schedule control management in
the operations.
A significant proportion of the
Company’s current production comes
from the Edvard Grieg field. This
concentration increases the sensitivity
to serious technical issues or any long-
term production shutdowns.
An inability to secure permit licences
and partnerships in strategic areas
of exploration, and consequently
failure to bring this into resources and
reserves.
Lundin Petroleum has highly competent and motivated
operational teams. In addition, the Company has entered into
a “loss of production” insurance, reducing the impact of any
unexpected long-term shutdowns on the Edvard Grieg field.
The ability to increase reserves is controlled by the Company’s
ability to analyse subsurface data, select and acquire suitable
licences, generate prospects and by having a proactive risk
approach with its partners.
A delay in delivery of the Johan
Sverdrup project is a risk that would
impact the Company’s costs and
production forecasts.
The use of effective peer review with partners and the efficient
execution of the project work to date decrease the risk of delay
in the Johan Sverdrup field. Due to current market conditions
the current cost estimates have been significantly reduced
from the plan for development and operations.
The Company needs to comply
with the terms and conditions of its
own and partner operated projects.
Decommissioning at the end of a
field’s economic life may result in
liability, substantial abandonment and
reclamation costs. This remains an
industry risk with environmental and
regulatory challenges to manage.
Lundin Petroleum considers the risk of decommissioning
within the asset life-cycle process. Major business and
technical assumptions underlying decommissioning estimates
are reviewed annually for each development project and
operated and non-operated assets. Decommissioning liabilities
and specific requirements are addressed by the operations and
coordinated by Group management.
38
Lundin Petroleum Annual Report 2016
Financial Risk
Risk Area
Description
Response
Financial Reporting
Material misstatements in financial
reporting could lead to regulatory action,
legal liability, and loss of shareholder
confidence damaging the Company’s
reputation.
Lundin Petroleum has a formal monthly management reporting
process to review and control the financial reporting. The
internal control system for financial reporting operates to
provide reasonable assurance against material misstatement
or loss. Internal and external audits provide verification in the
financial reporting and risk monitoring process.
Reserves and Resource
Calculations
Estimates of economically recoverable
oil and gas reserves and the future net
cash flows of the reservoir performance
are based upon a number of factors and
assumptions. Since the calculations are
based on variable factors this leads to a
risk of uncertainty. This is also viewed by
the Company as an operational risk.
Reserves and resource calculations undergo a comprehensive
internal peer review process and adhere to industry standards.
All reserves are independently audited as part of the annual
reserves audit process. For more information, see Production,
Reserves and Resources on pages 18–21.
Investment Oversight
Capital Requirements
The risk that investments or
expenditures are not in line with
approvals from the Lundin Petroleum
Investment Committee, could have
an impact on budget and lead to
overspending.
To mitigate the risk of investment oversight, Lundin Petroleum,
through the annual budget and supplementary budget approval
process and its Authorisation Policy, has implemented a
rigorous continual process of oversight of all expenditures. This
process ensures that expenditures are in line with approvals
from the Investment Committee.
The Company’s future capital
requirements depend on many factors,
including whether the Company’s cash
flow from operations is sufficient to
fund the Company’s business plans. The
Company may need additional funds
in the longer term in order to further
develop exploration and development
programmes or to acquire assets or
shares of other companies.
There is an active and continuous process of monitoring of
liquidity and financing arrangements in place. The Johan
Sverdrup development project requires significant capital
expenditures, which Lundin Petroleum has secured through
its financing and the additional 15 percent interest acquired in
the Edvard Grieg field. This provides the necessary flexibility
to fund the ongoing development, exploration and appraisal
programmes, including the Johan Sverdrup development. The
net debt position of Lundin Petroleum is reported on a regular
basis.
Fraud, Bribery and
Corruption
The risk of fraud, bribery and corruption,
if ignored, can slowly drain assets or
severely impact short- and long-term
growth plans.
Interest and Currency
The Company is exposed to market
fluctuations in foreign exchange
rates due to the fact that the financial
statements of the Group are reported in
USD. The uncertainty in future interest
rates and currency risk could have an
impact on the Company’s earnings.
The control environment of the Company encompasses
the “tone at the top” provided by the Board and Group
management. A consistent application of Lundin Petroleum’s
Code of Conduct, together with its Anti-Corruption policy, Anti-
Fraud policy, Authorisation Policy and procedures clearly define
responsibility within the internal control environment and
minimises the risk. To further mitigate this risk the Company
has entered into a fraud insurance.
The Company’s exposure to interest rate and currency risk is
continuously assessed and monitored. Lundin Petroleum uses
hedging instruments to manage this risk.
39
Lundin Petroleum Annual Report 2016
RISK | Risk Management
External Risk
Risk Area
Description
Response
Market Oil Price
The price of oil and gas is affected by global
growth and the economic drivers of supply
and demand. Market conditions may also
impair the liquidity situation of contractors
and consequently their ability to meet its
obligations towards Lundin Petroleum. This
may in turn impact both project timelines
and cost.
Lundin Petroleum’s policy is to have financial flexibility
in place to deal with sustained periods of low oil prices. In
addition, Lundin Petroleum actively reviews the contractor
base and their position of liquidity.
Availability of Drilling
Equipment and Access
The market uncertainty in the oil and gas
price may affect contractors or sub-contractors
stability and consequently the availability of
services and equipment.
The Company manages this risk by having a long-term
outlook on drilling and services needs and by reviewing
contractual commitments on a regular basis.
Changes to Laws and
Regulations
There can be no assurance that legislation
that directly or indirectly regulates or affects
the oil and gas industry will not be changed
in a manner that will adversely affect the
Company. Changes to laws and regulations
may lead to negative consequences such
as, but not limited to, the expropriation of
property, cancellation of or modification of
contract rights, and uncertainty in taxation.
The Company strives to ensure comprehensive
interpretation and compliance with regulations that
may impact the business. Lundin Petroleum designs its
controls in a way that compliments its business. Ongoing
monitoring is necessary to ensure the controls can be
sustained and properly mitigate the risk to an acceptable
tolerance.
Regulatory Investigations
and Litigation
Regulatory investigations or third party
claims cannot be predicted with certainty and
may adversely affect the reputation of the
Company.
Security
Security is an important risk area for the
oil and gas industry and includes potential
threats such as terrorist or other attacks on
people or physical assets.
Lundin Petroleum complies with all applicable laws and
regulations and acts in an ethical manner, consistent
with its Code of Conduct, and in a preventive manner
to manage any allegations or uncertainties that could
lead to claims. When necessary, the Company retains
external counsel and advisors to assist with regulatory
investigations or claims.
The Company regularly monitors and assesses security
risks in order to ensure that high awareness and an
effective security risk management is in place. With a
majority of its operations on the Norwegian Continental
Shelf, exposure to such security issues are assigned a lower
risk ranking by the Company but we are nonetheless
attentive to potential risks that can arise within the
industry.
Information Security
The increased vulnerability of information to
cyber threats or malware attacks enhances the
risk to system security potentially affecting
people’s data privacy as well as the critical
systems related to the assets.
The Company’s networks are constantly monitored to
avoid and swiftly remedy any external attacks. Through
information system control mechanisms such as firewalls
and procedures, Lundin Petroleum manages this risk to
maintain a unified and resilient internal network.
40
Lundin Petroleum Annual Report 2016 External Risk
(continued)
Risk Area
Stakeholder Engagement
Description
Response
Inadequate stakeholder engagement can
affect Lundin Petroleum’s reputation
and impact the ability to identify
business opportunities. In addition,
despite the Company’s commitment
to all stakeholders, some individuals
or groups may directly or indirectly
impact the business through lobbying or
demonstration activities.
As highlighted in Lundin Petroleum’s Sustainability Report, the
Company engages at various levels with stakeholders to ensure
their understanding of the Company’s presence and operations.
Lundin Petroleum’s aim is to explore for and produce oil
and gas in an economically, socially and environmentally
responsible way for the benefit of all its stakeholders and society
as a whole. Lundin Petroleum is a participant of the UN Global
Compact to further confirm the Company’s commitment to
ethical business conduct. Lundin Petroleum also supports social
investment through the Lundin Foundation by contributing to
sustainable development projects. For more information see
Lundin Petroleum’s Sustainability Report 2016.
Climate Change
There is a potential exposure from
climate change, including stricter
regulation on emissions or imposition
of mandatory technology in Lundin
Petroleum’s operations.
In the face of technological and regulatory requirements
stemming from climate change, Lundin Petroleum reviews
its environmental requirements and emission reduction
measures in development projects and discloses its operational
greenhouse gas emissions.
Strategic Risk
Risk Area
Creating Shareholder Value
Description
Response
The risk that Lundin Petroleum’s
strategy will fall short of creating
shareholder value which could affect
the market position 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. Lundin Petroleum’s business model clearly defines
the vision and strategy of the Company.
Economic Value of the Asset
Portfolio
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 asset portfolio in order to ensure that the value of
each asset within the existing portfolio is well understood,
communicated and fully reflected within the share price.
Ineffective Communication
A strategy that is ineffective and
inefficiently communicated or
executed may lead to not only a loss
of investor confidence and a reduction
in the share price, but also affect
employee and partner confidence in
the Company.
Lundin Petroleum has strong communication channels
coupled with effective leadership, in order to maintain
creativity and an entrepreneurial spirit which helps to ensure
that the entire organisation works towards the same goal.
i
More information on Internal Control and
Audit can be found on pages 68–69
41
Lundin Petroleum Annual Report 2016 RESPONSIBILITY | Overview
Safe and responsible
operations
“
The health and safety of
our people is our highest
priority
Christine Batruch
Vice President
Corporate Responsibility
2016 was an exceptional year for Lundin Petroleum in many
respects, including from a Corporate Responsibility perspective.
For the first time we published a standalone Sustainability Report.
Our Corporate Responsibility work has been reflected in our
Annual Reports from the start, but publishing a Sustainability
Report based on the Global Reporting Initiative G4 Guidelines
brought the active participation of everyone in the Company,
from our Board of Directors, our corporate and country based
management to our operational staff.
Investing in social innovation
In addition to the projects on environmental preservation that
we initiated a few years ago in partnership with the Lundin
Foundation, we decided in 2016 to address one of the most
important social issues currently facing Europe. Pilot projects
aimed at assisting the integration of refugees and migrants
into the workforce were launched in Norway and Sweden and
early indications show that these projects are reaching their
targets. We look forward to expanding this work in 2017.
Thanks to our Sustainability Report, Lundin Petroleum’s
Corporate Responsibility work can now be measured against
our peers, leading to a more constructive dialogue with our
stakeholders. I recall in particular the very stimulating discussions
I had with students at the Stockholm School of Economics CSR
week when I presented our Sustainability Report and the process
we had followed to produce it. We also had in-depth discussions
about our sustainability work with banks at the start of the year
when Lundin Petroleum secured the USD 5.0 billion reserve-based
lending facility.
Lowering our carbon intensity
2016 was also an exceptional year from a global sustainability
perspective. The year culminated with the Paris Agreement
entering into force, marking a turning point in the global
understanding of the climate change issue and the challenge it
represents. Working closely with the oil and gas industry, we
are ready to contribute to finding solutions for a more energy
efficient and low carbon society. This commitment is also part of
our ongoing efforts to lower our carbon intensity levels, a target
that we achieved in 2016.
Continuing our focus on HSE
The health and safety of our people is our highest priority.
Our focus on health, safety and the environment (HSE)
resulted in better Key Performance Indicators for 2016
compared to previous years. In February 2016, a fatal accident
occurred on the Bertam field in Malaysia and we regret the
tragic loss of one of our sub-contractors, an event which has
left a mark on us all.
In 2017, we will continue to place emphasis on a strong HSE
culture, thoroughly preparing our activities so as to prevent
incidents and have the ability to respond to any potential
unexpected situations.
You will find further information on Lundin Petroleum’s
performance and management approach on environmental,
governance and social issues in the following section and in
our 2016 Sustainability Report.
42
Lundin Petroleum Annual Report 2016 Performance 2016
Safe operations
0.67 lost time
incident rate
Environment
0 recordable
oil spills
Goals 2017
Diversity
38% of women on
Board of Directors
Workforce
542 employees
worldwide
Uphold health
and safety
Focus on carbon
efficiency
CO2
Minimise environmental
impact
Promote ethical
conduct
Read more about Lundin Petroleum’s
performance and management
approach on environmental,
governance and social issues in the
Sustainability Report available on
www.lundin-petroleum.com
Sustainability
Report 2016
43
Lundin Petroleum Annual Report 2016 RESPONSIBILITY | People
Our People
The challenging oil market environment that has dominated
over the past two years has had a major impact on the oil
and gas industry. A continuation of low oil prices have led to
a significant underinvestment in the offshore industry and
reduced activity levels which have meant some difficult years
for the many oil and gas companies, suppliers and contractors
operating across the world.
Lundin Petroleum has adapted to the higher pressure on the
industry through a continued focus on cost efficiency and
operational excellence and as a result was one of the few oil
and gas companies to increase its employee base in Norway in
2016.
World class employees
Maintaining an inclusive working environment and a focus on
high performance has been the key to our success in attracting
and retaining the best possible talent in the industry over the
years. We will continue to build on this base of world class
employees through our commitment to develop and invest in
them as we believe that our people are our greatest single asset
and the foundation for our future success.
44
Lundin Petroleum Annual Report 2016
“
Our outstanding performance
would not be possible without the
great team work and team spirit
that exists within Lundin Petroleum
Alex Schneiter
President and CEO
542
employees
At year end 2016, Lundin Petroleum had a total of 542 employees
directly employed by the Group in seven different countries. During
2016, the work force increased in Norway, the organisation in
Malaysia was restructured to adapt to the reduced level of activities
and the divestment of the Indonesian assets was finalised.
Lundin Petroleum also employs a large number of consultants
and contractors who provide services for and on behalf of Lundin
Petroleum. In 2016, a total of 74 consultants were engaged for
services related to exploration, project development and other
operational activities.
A diverse workforce
We value an open and inclusive working environment and strive to
maintain a competent, engaged and experienced workforce. Acting
locally and thinking globally is a guiding principle in our approach
to the selection, recruitment and management of our employee
base, by ensuring that all employment opportunities are offered on
the basis of skills and experience.
We recruit based on qualifications and irrespective of gender,
ethnicity, religion, disability etc. We are committed to promote
equal opportunity and do not accept any kind of discrimination.
Wherever we operate, we actively strive to employ locally so that
we can benefit from the local knowledge and experience, while
contributing to enhanced expertise within the host country. Our
employees are provided with the necessary skills, knowledge and
motivation to be successful in their work and for the ongoing
success of the Company, which is proven by its strong results and
low levels of employee turnover compared to industry norms.
At year end 2016, a total of 29 different nationalities were employed
throughout Lundin Petroleum’s global operations. Women
represented 34 percent of the total workforce and 20 percent of
the managerial positions. The proportion of women in Lundin
Petroleum’s Board of Directors was 38 percent.
Women
34%
Women
20%
Women
38%
Men
66%
Employees
Management
Men
80%
Board of
Directors
Men
62%
45
Lundin Petroleum Annual Report 2016 RESPONSIBILITY | Health and Safety
Health and Safety
A strong health and safety
culture is essential to our
success
Safe work environment
The health and safety of the people working for us is our
highest priority. Our commitment is to provide a safe working
environment not only for our employees, but also for
contractors and others who could potentially be exposed to
risks due to our activities.
We operate in an industry exposed to safety risks and
accidents can potentially occur anywhere and at any time. We
rely on competent and dedicated employees and contractors
as well as rigorous planning to prevent accidents and ill
health. In each new phase of operations we identify, analyse
and aim to mitigate all potential risks.
We also test and review our emergency preparedness in
operations on an ongoing basis and hold regular emergency
response exercises locally, together with external emergency
preparedness organisations. Internal HSE audits are also
conducted in order to identify and mitigate potential safety
issues and ensure that sound HSE practices are in place. Safety
is a joint responsibility and we expect the same commitment
from our contractors, suppliers and partners as we do from
our employees.
Lost Time Incident Rate
I
R
T
L
)
d
e
k
r
o
w
s
r
u
o
h
n
o
i
l
l
i
m
r
e
p
(
3.0
2.5
2.0
1.5
1.0
0.5
0.0
46
2012
2013
2014
2015
2016
In 2016, we achieved a Lost Time Incident Rate (LTIR) for
Lundin Petroleum’s employees and contractors of 0.67
per million hours worked and a Total Recordable Incident
Rate (TRIR) of 2.34 per million hours worked. This is an
improvement compared to 2015 and attest to our focus on
safety at a time of high operational activity.
Despite our strong performance, a fatal accident occurred in
Malaysia in 2016. We tragically lost one of our sub-contractors
working for the FOS Leo supply vessel on the Bertam field,
offshore Malaysia. In-depth investigations into the accident
were conducted both by local management and third parties
with a view to fully understand the circumstances of the
accident and ensure preventive measures are in place to avoid
such accidents in the future. A comprehensive HSE programme
was developed to improve control of work and safety
leadership and will continue to be implemented throughout
2017.
i
HSE indicator data can
be found on page 134
Lundin Petroleum Annual Report 2016
RESPONSIBILITY | Environment
Environment
Activities are planned and
carried out with utmost respect
for environment
Environmental responsibility starts with understanding the
environmental context in which we operate. Before any
exploration, development or production activities begin
Lundin Petroleum uses existing environmental baseline
studies or perform its own baseline or impact assessments. As
a result, operational plans may be modified in order to avoid
an environmental impact, for example by drilling a deviated
well, changing the anchor pattern of the rig or bringing drill
cuttings to shore. Drilling activities only commence after
an environmental permit has been obtained from national
authorities.
Oil spill prevention
Respecting our environment is an essential part of the
planning phase and we have robust systems in place to ensure
that risks are properly assessed and that competence and
capacity exist to prevent and, if need be, manage oil spills.
In addition to national arrangements, Lundin Petroleum has
a contract with Oil Spill Response (OSRL), the world’s largest
oil spill preparedness and response organisation, to cover its
worldwide activities and ensure an effective response anywhere
in the world.
Operating with a low carbon intensity
Lundin Petroleum’s operations are located on the Norwegian
Continental Shelf, the area in the world with the lowest carbon
intensity levels in the industry over the past ten years and with
the highest carbon taxes. Our work to include climate change
considerations in operational activities and in the selection
of installation designs, products and equipment has therefore
been a way of minimising both our carbon footprint and our
costs.
In 2016, Lundin Petroleum significantly reduced its greenhouse
gas emissions compared to 2015 (emissions data is published
in the Sustainability Report 2016) which means we are now
operating with a lower intensity level than the industry
average.
In addition to seeking carbon efficiency in our operations, we
take an active part in discussions on climate change. Through
engagement with environmental organisations and other
stakeholders, we stay informed of the latest developments on
international climate policy. As part of our risk management,
we analyse upcoming climate policy measures and how they
will affect the energy market and take this into account in
our strategic planning to make sure that our asset base is
robust and sustainable, taking into account both climate risks
and opportunities. In addition, Lundin Norway is part of the
Norwegian Oil & Gas Association’s (NOROG) working group
on climate change and its roadmap to 2030 and 2050, which
outlines the Norwegian oil and gas industry’s commitment to
contribute to a future low carbon society.
47
Lundin Petroleum Annual Report 2016 Ethical business conduct in the
oil and gas industry
Promoting good governance and requiring high
standards of ethical business conduct throughout
our value chain is of the highest importance
to Lundin Petroleum since we believe that
joint industry efforts are most effective in
addressing anti-corruption. Lundin Petroleum
has implemented expectations of ethical
business conduct in contractual clauses and in its
Contractor Declaration.
Lundin Petroleum also supports and participates
in a number of international initiatives to
actively promote ethical standards:
· UN Global Compact
· UN Global Compact Nordic
Network
· UN Global Compact’s Call to
Action on Anti-corruption
· Extractive Industries
Transparency Initiative (EITI)
RESPONSIBILITY | Ethical Business Conduct
Ethical Business
Conduct
Anti-corruption
We are committed to operate according to the highest level
of ethical standards and we believe that the rule of law
and transparency are essential in order to ensure that our
activities benefit society as a whole.
As part of our commitment to good governance, we track
internal corruption potential through our financial and
Corporate Responsibility reviews and audits. While our
internal processes ensure that we have a low exposure to
corruption, the issue is highlighted in our risk reviews.
We monitor corruption trends through Transparency
International’s Corruption Index, media and NGO reports, as
well as progress made through legislative developments and
law enforcement. Our business partners and contractors are
expected to abide by our anti-corruption principles.
As in previous years, there were no cases of suspected or
actual corruption throughout the Group in 2016.
Whistleblowing
One of the means of receiving information regarding
potential or actual cases of corruption is through our
Whistleblowing policy and procedure. In the course of 2016,
the whistleblowing procedure was invoked once, by a former
employee, regarding an internal process. A thorough review
was undertaken which confirmed that Lundin Petroleum
followed industry and regulatory standards.
Payments to governments
The disclosure of payments made to governments is a way to
honour Lundin Petroleum’s commitment to contribute to the
economic and social development of our host countries.
The Extractive Industries Transparency Initiative (EITI), which
reconciles government disclosure of cash flows from the
extractive industry with the disclosure of payments made by
the industry to the government, is a meaningful initiative
for the industry and natural resource rich countries. Since
2009, Lundin Petroleum has consistently reported payments
made to governments in EITI compliant countries within the
Group. See also the Lundin Petroleum report of payments to
governments on www.lundin-petroleum.com
48
Lundin Petroleum Annual Report 2016
Human rights
Lundin Petroleum is committed to ensure that respect for
human rights is upheld throughout its business activities.
Lundin Petroleum’s assets are focused in Norway which means
that we operate in a low risk environment with respect to
human rights. We are nonetheless attentive to potential risks
that can arise within the industry.
Lundin Petroleum adheres to all applicable national and local
legislation and follows the principles for business and human
rights embodied in international initiatives such as the UN
Global Compact and the UN Guiding Principles on Business
and Human Rights. We have a human rights due diligence
process in place for our operations in order to identify, assess
and determine measures to prevent or mitigate potential
human rights risks. Our human rights screenings, which
review potential human rights issues in relation to planned or
existing activities, have found no salient human rights issues
in 2016 in relation to our operations.
Lundin Petroleum seeks to contribute to promoting human
rights in the industry by engaging on the issue with partners
and by requiring contractors and suppliers to sign Lundin
Petroleum’s Contractor Declaration, which outlines the
commitment to respect human rights and to observe the
highest standards of ethical business conduct.
Investing in social innovation through Lundin Foundation projects
The Lundin Foundation, founded in 2005, is a globally recognised leader in impact investments. Through our
partnership with the Lundin Foundation, we support innovative solutions to key economic, social and environmental
challenges which are relevant to the energy sector and to our operations. In the first years of the partnership, which was
initiated in 2013, we focused on projects in Malaysia and Indonesia that aimed to increase access to renewable energy,
improve biodiversity conservation and promote sustainable fisheries.
With Lundin Petroleum’s operational focus shifting to Norway, the strategy has been revised to better reflect our
geographical footprint. In 2016, we identified projects in Norway and Sweden which aim at supporting the increasing
refugee and migrant population in these countries to improve their professional skills, start or expand businesses and
enhance their employability. Lundin Petroleum also supports a project in the north of Norway that aims to encourage
entrepreneurship and innovation in the area.
More information on Lundin Foundation projects can be found in the 2016 Sustainability Report.
49
Lundin Petroleum Annual Report 2016 GOVERNANCE | Corporate Governance Report 2016
Corporate
Governance
The year 2016 was extremely successful for Lundin Petroleum. Our
development projects progressed according to plan and we achieved
our highest ever production rate as a result of the outstanding
performance of our assets, in particular the Edvard Grieg field
offshore Norway, as well as record low cash operating costs. This
kind of success would not be possible without the skilled, dedicated
and enthusiastic people that make up the Company and I would
like to thank my fellow Board members, Group management and
all staff for their tremendous contribution. To me, it is clear that
the Company’s robust corporate governance framework has also
played an important role in supporting us achieve these operational
successes. We apply our governance policies and procedures across
all levels of the organisation to ensure that we duly monitor
our projects, assess risks and opportunities and make necessary
improvements as and when needed. Clearly this approach is bearing
fruit.
During the year, the Board maintained its focus on closely
monitoring the major Johan Sverdrup development project and
projected expenditure. 2017 will be the most active year in the
development of this enormous project and will require continued
supervision and controls to make sure we have sufficient funding
capacity to meet our commitments.
The Board further considered several opportunities to maximise
shareholder value, including the Edvard Grieg transaction with
Statoil, which enabled us to acquire an additional 15 percent interest
in this world class asset and to thereby bring additional liquidity
to the operations. The recently announced spin-off of Lundin
Petroleum’s Malaysian, French and Dutch assets into International
Petroleum Corporation is another major example, which we believe
will unlock previously unrecognised shareholder value and will
create another exciting oil and gas company. The spin-off is a major
undertaking and thanks to our people and high quality assets,
combined with well-established governance policies, procedures and
practices, I am convinced that the transition will be smooth.
I very much look forward to seeing the new Norway focused Lundin
Petroleum continue its success story and it goes without saying that,
as part of our core values, we will remain committed to operating
in a responsible, transparent and sustainable manner for the benefit
of all our shareholders and other stakeholders, whilst applying the
highest standards of corporate governance.
Ian H. Lundin
Chairman of the Board
Lundin Petroleum AB (publ), company registration
number 556610-8055, has its corporate head office at
Hovslagargatan 5, 111 48 Stockholm, Sweden and the
registered seat of the Board of Directors is Stockholm,
Sweden.
The Company’s website is www.lundin-petroleum.com.
50
Corporate Governance Report
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. Lundin Petroleum reports two
deviations from the Code of Governance in 2016
in respect of the composition of the Nomination
Committee, as further described in the schedule
on page 54, and in respect of Board member
attendance at the Extraordinary General Meeting
(EGM) held on 30 May 2016, as described under
EGM 2016 on page 55.
Lundin Petroleum Annual Report 2016 Highlights 2016
The President and
CEO Alex Schneiter
appointed as a new
Board member at the
AGM on 12 May 2016.
Issuing new shares and
selling the Company’s
treasury shares as part
of the transaction to
acquire from Statoil ASA
an additional interest of
15 percent in the Edvard
Grieg field offshore Norway.
Revising the Company’s
corporate governance
practices following
significant regulatory
changes as a result of
the EU Market Abuse
Regulation and Audit
Reform.
Maintaining a focus on
effective governance
practices and internal
controls in a volatile
oil price environment
with significant
committed development
expenditure.
Guiding principles of corporate governance
Lundin Petroleum is an independent Swedish oil and gas
exploration and production company. After completion of
the spin-off of its Malaysian, French and Dutch assets into
International Petroleum Corporation through a dividend
distribution, which was approved by an EGM held on 22 March
2017, its core area of business will be Norway. The ultimate
parent company of the Group is the Swedish public limited
liability company Lundin Petroleum AB (publ) and the
Norwegian operations are conducted through its subsidiary
Lundin Norway AS. In 2016, Lundin Petroleum employed
worldwide approximately 542 highly experienced oil and gas
professionals.
Lundin Petroleum maintains an exploration focus seeking to
generate long-term value for all shareholders, as well as other
stakeholders, and has, since its creation in 2001, been guided by
general principles of corporate governance to:
· Protect shareholder rights
· Provide a safe and rewarding working environment to all
employees
· Abide by applicable laws and best industry practice
· Carry out activities competently and sustainably
· Sustain the well-being of local communities in areas of
operation
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 NASDAQ Stockholm,
Lundin Petroleum is subject to the Swedish Companies
Act and the Annual Accounts Act, as well as the Rule Book
for Issuers of NASDAQ Stockholm, which can be found on
www.nasdaqomxnordic.com. In addition, the Company abides
by principles of corporate governance found in a number of
internal and external documents.
Swedish Code of Corporate Governance
The Code of Governance is based on the tradition of self-
regulation and acts as a complement to the corporate
governance rules contained in the Swedish Companies Act,
the Annual Accounts Act, EU rules and other regulations
such as the Rule Book for Issuers and good practice on the
securities market. A revised Code of Governance applies as of
1 December 2016 and this Corporate Governance report has
been prepared in accordance with the principles included
therein (as applicable). 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 finds 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 reports two deviations from the Code of
Governance in 2016. Firstly in respect of the composition of the
Nomination Committee, as further detailed in the schedule on
page 54, and secondly, in respect of Board member attendance
at the EGM held on 30 May 2016, as described under EGM
2016 on page 55. Furthermore, there were no infringements
of applicable stock exchange rules during the year, nor any
breaches of good practice on the securities market.
Sudan
In June 2010, the Swedish International Public Prosecution Office commenced an investigation into alleged complicity in
violations of international humanitarian law in Sudan during 1997–2003. The Company has cooperated extensively and
proactively with the Prosecution Office by providing information regarding its operations in Block 5A in Sudan during the
relevant time period. Ian H. Lundin and Alex Schneiter have been interviewed by the Prosecution Office and were notified of
the suspicions that are the basis for the investigation. This is a normal part of Swedish legal procedure for any investigation
and no charges have been brought, nor does this mean that charges will be brought. As repeatedly stated, Lundin Petroleum
categorically refutes all allegations of wrongdoing and is cooperating with the Prosecution Office’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.
51
Lundin Petroleum Annual Report 2016 GOVERNANCE | Corporate Governance Report 2016
Lundin Petroleum’s Articles of Association
Lundin Petroleum’s Articles of Association form the basis of
the governance of the Company’s operations. They 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 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 are available on the Company’s
website.
Lundin Petroleum’s Code of Conduct
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 benefit of all 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 oilfield 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 is available on the Company’s website.
Lundin Petroleum’s policies, procedures, guidelines
and management system
While the Code of Conduct provides Lundin Petroleum’s
ethical framework, dedicated Group policies, procedures
and guidelines have been developed to outline specific rules
and controls. The policies, guidelines and procedures cover
areas such as Operations, Accounting and Finance, Health
and Safety, Environment, Anti-Corruption, Human Rights,
Stakeholder Relations, Legal, Information Systems, Insurance &
Risk Management, Human Resources, Inside Information and
Corporate Communications and are continuously reviewed and
updated as and when required.
In addition, Lundin Petroleum has a dedicated Health, Safety
and Environment (HSE) 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 field.
Corporate Responsibility (CR) and HSE policies are available on
the Company’s website.
Lundin Petroleum’s Rules of Procedure of the Board
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
Officer (CEO). The Rules of Procedure also include instructions
to the CEO, instructions for the financial 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.
Lundin Petroleum – governance structure
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 benefit 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 financially.
1
Share capital and shareholders
The shares of Lundin Petroleum are listed on the Large Cap
list of NASDAQ Stockholm. The total number of shares is
340,386,445 shares with a quota value of SEK 0.01 each
(rounded-off), representing a registered share capital of
SEK 3,478,713. All shares of the Company carry the same
voting rights and the same rights to a share of the Company’s
assets and earnings. The Board has been authorised by previous
Annual General Meetings (AGMs) to decide upon repurchases
and sales of the Company’s own shares as an instrument
to optimise the Company’s capital structure and to secure
the Company’s obligations under its incentive plans. This
authorisation was not used in 2016.
An EGM of Lundin Petroleum was held on 30 May 2016 to
approve the acquisition of an additional 15 percent working
interest in the Edvard Grieg field, offshore Norway, and
associated interests, from Statoil ASA (Statoil). As a part of the
transaction, the Company issued in total 29,316,115 shares and
transferred 2 million treasury shares to Statoil, and also received
a cash consideration of approximately MSEK 544. Lundin
Petroleum held no treasury shares as per 31 December 2016.
Lundin Petroleum had at the end of 2016 a total of 32,726
shareholders listed with Euroclear Sweden, which represents a
decrease of 4,528 shareholders compared to 2015, i.e. a decrease
of approximately 12 percent. As at 31 December 2016, the
major shareholders of the Company, which held more than
ten percent of the shares and votes, were Nemesia S.à.r.l., an
investment company wholly owned by a Lundin family trust,
which held 25.6 percent of the shares. In addition, Landor
Participations Inc., an investment company wholly owned by
a trust whose settler is Ian H. Lundin, held 3.1 percent of the
shares. Furthermore, Statoil announced on 14 January 2016 that
it had acquired 37,101,561 shares, representing 11.9 percent
of the shares of the Company and, on 30 June 2016, upon the
completion of the Edvard Grieg transaction, received 31,316,115
additional shares, thus taking Statoil’s total shareholding up to
68,417,676, representing 20.1 percent of the shares in issue.
Further information regarding the shares and shareholders of
Lundin Petroleum in 2016, as well as the Company’s dividend
policy, can be found on pages 14–15.
52
Lundin Petroleum Annual Report 2016 Lundin Petroleum – Governance Structure
Main external rules and regulations for
corporate governance at Lundin Petroleum
· Swedish Companies Act
· Swedish Annual Accounts Act
· NASDAQ Stockholm Rule Book for Issuers
· Swedish Code of Corporate Governance
Articles of Association
7
8
12
9
Compensation Committee
Terms of Reference
Audit Committee
Internal Control and Audit
Code of Internal Audit Activity
CR/HSE Board representative
1
3
6
10
Shareholders
Main internal rules and regulations for
corporate governance at Lundin Petroleum
· The Articles of Association
· The Code of Conduct
· Policies, Procedures and Guidelines
· The HSE Management System (Green Book)
· The Rules of Procedure of the Board,
instructions to the CEO and for the financial
reporting to the Board and the terms of
reference of the Board Committees and the
Investment Committee
Shareholders’
Meeting
Nomination Committee Process
Board of
Directors
Nomination Committee
Statutory Auditor
Independent Qualified
Reserves Auditor
2
4
5
Investment Committee
11
Rules of Procedure
Investment Committee Charter
President
and CEO
Group
management
Code of Conduct
Policies, Procedures, Guidelines
and Management System
2
Nomination Committee
The Nomination Committee is formed in accordance with
the Company’s Nomination Committee Process, which the
shareholders approved at the 2014 AGM as applicable for all
future AGMs, until a change is proposed by a Nomination
Committee. According to the Process, the Company shall
invite four of the larger shareholders of the Company based on
shareholdings as per 1 August each year to form the Nomination
Committee, however, the members are, regardless of how
they are appointed, required to promote the interests of all
shareholders of the Company.
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 and
remuneration of the statutory auditor. Shareholders may
submit proposals to the Nomination Committee by e-mail to
nomcom@lundin.ch.
Nomination Committee for the 2017 AGM
The Nomination Committee for the 2017 AGM consists of
members appointed by three of the larger shareholders of
the Company based on shareholdings as per 1 August 2016.
The names of the members were announced and posted on
the Company’s website on 26 October 2016, i.e. within the
timeframe of six months before the AGM as prescribed by the
Code of Governance. Statoil, as one of the larger shareholders of
the Company, was invited to join but declined the invitation.
The Nomination Committee has held three meetings during its
mandate and informal contacts have taken place between such
meetings. To prepare the Nomination Committee for its tasks
and duties and to familiarise the members with the Company,
the Chairman of the Board, Ian H. Lundin, who is also a member
of the Nomination Committee, commented at the meetings on
the Company’s business operations and future outlook, as well
as on the oil and gas industry in general.
The full Nomination Committee report, including the final
proposals to the 2017 AGM, are published on the Company’s
website together with the notice of the 2017 AGM.
53
Lundin Petroleum Annual Report 2016
GOVERNANCE | Corporate Governance Report 2016
Nomination Committee for the 2017 AGM
Member
Appointed by
Meeting
attendance
Shares
represented as
at 1 Aug 2016
Shares
represented as
at 31 Dec 2016
Independent of the
Company and Group
management
Independent of
the Company’s
major shareholders
Åsa Nisell
Swedbank Robur fonder
3/3
2.2 percent
2.1 percent
Hans Ek
Ian H. Lundin
SEB Investment
Management
Nemesia S.à.r.l and
Landor Participations
Inc., also non-executive
Chairman of the Board
of Lundin Petroleum
3/3
3/3
0.6 percent
0.5 percent
28.7 percent
28.7 percent
Yes
Yes
Yes
Yes
Yes
No1
Magnus Unger Non-executive Board
3/3
–
–
Yes
Yes
member of Lundin
Petroleum who acts as
the Chairman of the
Nomination Committee
Total 31.5 percent Total 31.3 percent
Summary of the Nomination Committee’s work during their mandate
Other requirements
– Considering a report regarding the Board’s work, as well as the results of the
– The Nomination Committee fulfills the independence
requirements of the Code of Governance and no
member of Group management is a member of the
Committee.
– Magnus Unger was again unanimously elected as
Chairman, a function that he has held since the
Nomination Committee formed for the 2006 AGM.
The fact that he is the Chairman of the Nomination
Committee and a Board member of Lundin Petroleum
constitutes a deviation from rule 2.4 in the Code
of Governance, however, as in previous years, this
deviation was considered justified both by the
Company and the Nomination Committee given
Magnus Unger’s experience and expertise within the
field.
evaluation of the Board’s work.
– Assessing the independence of the Board members under the rules of the Code
of Governance.
– Considering and discussing the size and composition of the Board in light
of the diversity requirements in the Code of Governance, including gender
distribution, age, origin, educational and professional backgrounds and the
proposed Board members’ individual and collective qualifications, experiences
and capabilities in view of the Company’s current position and expected
development.
– Considering succession planning matters and proposal for election of Jakob
Thomasen as a new Board member at the 2017 AGM, combined with a
reappointment of the current Board members and the Chairman of the Board.
Magnus Unger declined to stand for re-election.
– Considering the recommendation received through the Company’s Audit
Committee regarding the election of statutory auditor at the 2017 AGM.
– Considering Board and statutory auditor remuneration issues and proposals to
the 2017 AGM.
– Considering a proposal to appoint an external independent Chairman for the
2017 AGM.
– Considering the Nomination Committee Process and that no changes should
be proposed.
– Members of the Nomination Committee, who are not members of the
Company’s Board, met and had discussions with one current Board member,
Peggy Bruzelius, to discuss the work and functioning of the Board, and also
met with the new proposed Board member Jakob Thomasen.
1 For details, see schedule on pages 66–67.
2017 Annual General Meeting
The 2017 AGM will be held on 4 May 2017 at 1 p.m. in Vinterträdgården at the Grand Hôtel, Södra Blasieholmshamnen 8,
in Stockholm. Shareholders who wish to attend the meeting must be recorded in the share register maintained by Euroclear
Sweden on 27 April 2017 and must notify the Company of their intention to attend the AGM no later than 27 April 2017.
Further information about registration to the AGM, as well as voting by proxy, can be found in the notice of the AGM,
available on the Company’s website.
54
Lundin Petroleum Annual Report 2016
3
Shareholders’ meetings
The Shareholders’ Meeting is the highest decision-making
body of Lundin Petroleum where the shareholders exercise
their voting rights and influence the business of the Company.
Shareholders may request that a specific issue be included in the
agenda provided such request reaches the Board in due time.
The AGM is held each year before the end of June at the seat of
the Board in Stockholm. The notice of the AGM is announced
in the Swedish Gazette (Post- och Inrikes Tidningar) and on
the Company’s website no more than six and no less than four
weeks prior to the meeting. 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. 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 press
released promptly after the Shareholders’ Meeting and the
approved minutes are published on the Company’s website at
the latest two weeks after the Shareholders’ Meeting.
2016 AGM
The 2016 AGM was held on 12 May 2016 at Grand Hôtel in
Stockholm. The AGM was attended by 589 shareholders,
personally or by proxy, representing 60.4 percent of the share
capital. The Chairman of the Board, all 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 2016
AGM. The members of the Nomination Committee for the 2016
AGM were Åsa Nisell (Swedbank Robur fonder), Ulrika Danielson
(Andra AP-fonden) and Knut Gezelius (SKAGEN Funds), Ian H.
Lundin (Lorito Holdings (Guernsey) Ltd., Zebra Holdings and
Investment (Guernsey) Ltd., which have since transferred their
shareholdings to Nemesia S.à.r.l., 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). 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 2016 AGM include:
· Election of advokat Klaes Edhall as Chairman of the AGM.
· Re-election of Peggy Bruzelius, C. Ashley Heppenstall, Ian H.
Lundin, Lukas H. Lundin, Grace Reksten Skaugen, Magnus
Unger and Cecilia Vieweg as Board members and election of
the Company’s CEO Alex Schneiter as a new Board member.
William A. Rand had declined re-election.
· Re-election of Ian H. Lundin as Chairman of the Board.
· Discharge of the Board and the CEO from liability for the
administration of the Company’s business for 2015.
· Adoption of the Company’s income statement and balance
sheet and the consolidated income statement and balance
sheet and deciding that no dividend was to be declared for
2015.
· Re-election of the registered accounting firm
PricewaterhouseCoopers AB as the Company’s statutory
auditor until the 2017 AGM, authorised public accountant
Johan Rippe being the designated auditor in charge.
· Approval of the remuneration of the Board members and the
statutory auditor.
· Approval of the Company’s Policy on Remuneration for Group
management.
· Approval of LTIP 2016 for members of Group management and
a number of key employees.
· Authorisation for the Board to issue new shares and/or
convertible debentures corresponding to in total not more
than 34 million new shares, with or without the application of
the shareholders pre-emption rights.
· Authorisation for the Board to decide on repurchases and sales
of the Company’s own shares on NASDAQ Stockholm, where
the number of shares held in treasury from time to time
shall not exceed five percent of all outstanding shares of the
Company.
An electronic system with voting devices was used for the two
last items requiring a qualified majority. The minutes of the
2016 AGM and all AGM materials, in Swedish and English, are
available on the Company’s website, together with the CEO’s
address to the AGM.
2016 EGM
An EGM was held on 30 May 2016 in Stockholm in respect
of the acquisition of an additional 15 percent interest in the
Edvard Grieg field offshore Norway, and associated interests,
from Statoil. The EGM resolved, in accordance with the Board of
Directors’ proposals:
· to approve the acquisition of Statoil’s ownership interests in
the Edvard Grieg field and associated interests in exchange for
the issuance of 27,580,806 new shares to Statoil representing
a purchase price of USD 470 million (approximately SEK 3.8
billion based on an agreed share price of SEK 138 per share);
· to authorise the Board to issue no more than 27,580,806 new
shares to Statoil against payment in kind;
· to authorise the Board to resolve to issue no more than
1,735,309 new shares to Statoil for cash consideration of
SEK 145.66 per share, with deviation from the shareholders’
preemption rights; and
· to authorise the Board to resolve on the sale of up to 2,000,000
shares in Lundin Petroleum to Statoil for cash consideration of
SEK 145.66 per share, with deviation from the shareholders’
preemption rights.
The Chairman of the Board and the CEO, who is also a Board
member, attended the EGM, which was held approximately two
weeks after the AGM. However, a quorum of Board members
was not present as required by Code of Governance rule 1.2.
The notice of the EGM had been issued before the AGM and the
proposed transaction had also been presented at the AGM, and
it was therefore considered sufficient that the Chairman of the
Board and the CEO represent the Board at the EGM.
The transaction was completed on 30 June 2016 and as a result,
Statoil now owns 68,417,676 shares of Lundin Petroleum,
representing 20.1 percent of the Company shares. The total
dilution effect of the share issue to Statoil was approximately
8.6 percent of the number of shares in the Company.
55
Lundin Petroleum Annual Report 2016 GOVERNANCE | Corporate Governance Report 2016
4
External auditors of the Company
Statutory auditor
Lundin Petroleum’s statutory auditor audits annually the
Company’s financial statements, the consolidated financial
statements, the Board’s and the CEO’s administration of the
Company’s affairs and reports on the Corporate Governance
Report. The auditor also performs a review of the Company’s
half year report and issues a statement regarding the Company’s
compliance with the Policy on Remuneration approved by the
AGM. 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. Group entities
outside of Sweden are audited in accordance with local rules and
regulations.
At the 2016 AGM, the audit firm PricewaterhouseCoopers AB
was re-elected as the auditor of the Company for a period of one
year until the 2017 AGM. The auditor in charge is the authorised
public accountant Johan Rippe.
The auditor’s fees are described in the notes to the financial
statements, see Note 26 on page 117 and Note 7 on page 122.
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 and require prior approval of the Company’s Audit
Committee.
5
Independent qualified reserves auditor
Lundin Petroleum’s independent qualified reserves auditor
certifies 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 current auditor is ERC Equipoise Ltd. For further
information regarding the Company’s reserves and resources,
see the Production, Reserves and Resources section on pages
18–21.
6
Board of Directors
The Board of Directors of Lundin Petroleum is responsible
for the organisation of the Company and management of the
Company’s operations. The Board 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. To achieve this,
the Board should at all times have an appropriate and diverse
composition considering the current and expected development
of the operations, with Board members from a wide range of
backgrounds that possess both individually and collectively the
necessary experience and expertise. The Code of Governance
recommends that an even gender distribution should be
pursued.
Composition of the Board
The Board of Lundin Petroleum 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 final number each year. The Board members are
elected for a period of one year.
Principal tasks of the Board of Directors
· Establishing the overall goals and strategy of the
Company.
· Making decisions regarding the supply of capital.
· Appointing, evaluating and, if necessary, dismissing the
CEO.
· Ensuring that there is an effective system for follow-up
and control of the Company’s operations and the risks
to the Company that are associated with its operations.
· Ensuring that there is a satisfactory process for
monitoring the Company’s compliance with laws and
other regulations relevant to the Company’s operations,
as well as the application of internal guidelines.
· Defining necessary guidelines to govern the Company’s
conduct in society, with the aim of ensuring its long-
term value creation capability.
· Ensuring that the Company’s external communications
are characterised by openness, and that they are
accurate, reliable and relevant.
· Ensuring that the Company’s organisation in respect of
accounting, management of funds and the Company’s
financial position in general include satisfactory systems
of internal control.
· Continuously evaluating the Company’s and the Group’s
economic situation, including its fiscal position.
The Nomination Committee for the 2016 AGM considered that
a Board size of eight members would be appropriate taking into
account the nature, size, complexity and geographical scope of
the Company’s business. The 2016 AGM approved the proposal
and re-elected Peggy Bruzelius, C. Ashley Heppenstall, Ian H.
Lundin, also Chairman of the Board, Lukas H. Lundin, Grace
Reksten Skaugen, Magnus Unger and Cecilia Vieweg as Board
members, and elected the Company’s CEO Alex Schneiter as a
new Board member, for a period until the 2017 AGM. William
A. Rand had declined re-election. There are no deputy members
and no members appointed by employee organisations. In
addition, the Board is supported by a corporate secretary who
is not a Board member. The appointed corporate secretary is
Henrika Frykman, the Company’s Vice President Legal.
The Nomination Committee considered that the Board as
proposed and elected by the 2016 AGM is a broad and versatile
group of knowledgeable and skilled individuals who are
motivated and prepared to undertake the tasks required
of the Board in today’s challenging international business
environment. The Board members possess substantial expertise
and experience relating to the oil and gas industry in Norway
and internationally and in particular in relation to Lundin
Petroleum’s core areas of operations, public company financial
matters, Swedish practice and compliance matters and CR/HSE
56
Lundin Petroleum Annual Report 2016 Board’s Yearly Work Cycle
Q4
Q1
Q3
Q2
· Adoption of the budget and work programme
· Consideration of the Board self-evaluation to
be submitted to the Nomination Committee
· Audit Committee report regarding the third
quarter report
· Performance assessment of the CEO
· Consideration of the performance review of
Group management and Compensation
Committee remuneration proposals
· Executive session with Group management
· Detailed discussion of strategy issues
· In-depth analysis of one or more of the
Company’s business areas
· Review of the Rules of Procedure
· Adoption of the half year report, reviewed
by the statutory auditor
· Approval of the year end report
· Consideration of recommendation to the
AGM to declare a dividend
· Approval of the year end reserves report
· Approval of the remuneration report
· Approval of remuneration proposals
regarding variable remuneration
· Approval of the Annual Report
· Review of the auditor’s report
· Approval of the Policy on Remuneration
for submission to the AGM
· Determination of the AGM details and
approval of the AGM materials
· Audit Committee report regarding the first
quarter report
· Annual CR/HSE management report
· Annual assessment of the Code of Conduct and
compliance therewith
· Meeting with the auditor without
management present to discuss the audit
process, risk management and internal controls
· Statutory meeting following the AGM to confirm
Board fees, committee compensation, signatory
powers, appointment of CR/HSE Board representative
and Corporate Secretary and adoption ot the Rules
of Procedure
matters. Gender balance was also specifically discussed and the
Nomination Committee noted that 37.5 percent of the Board
members are women and that the Company has thus met since
2015 the recommendation of the Swedish Corporate Governance
Board, that larger listed Swedish companies should strive to
achieve 35 percent female Board representation by 2017.
The Nomination Committee also 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 Group management
and towards the Company’s major shareholders. The
independence of each Board member is presented in the
schedule on pages 66–67.
Board meetings and work
In addition to applicable rules and regulations such as the
Swedish Companies Act and the Code of Governance, the Board
is guided by the Rules of Procedure, which set out how the
Board is to conduct its work. The Chairman of the Board, Ian H.
Lundin, is responsible for ensuring that the Board’s work is well
organised and conducted in an efficient 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 sufficiently informed of
the Company’s operations and financial 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.
In addition to the statutory meeting following the AGM, the
Board normally holds at least six ordinary meetings per calendar
year to ensure all areas of responsibility are duly addressed
and that adequate focus is placed on strategic and important
issues. At the meetings, the CEO reports on the status of the
business, prospects and the financial situation of the Company.
The Board also receives management updates and presentations
on the business and operations of the Company, financial
status, CR/HSE matters, insurance and risk management, legal
questions and investor relations matters, to enable the Board
to duly monitor the Company’s operations and financial
position. Furthermore, the Board receives regular reports from
the Company’s Audit Committee, Compensation Committee
and the CR/HSE Board representative on issues delegated
to, or considered by, the Committees and the CR/HSE Board
representative. A monthly operational report is also circulated
to the Board members.
Board meetings and work in 2016
During 2016, 15 Board meetings were held, including the
statutory meeting. To continue developing the Board’s
knowledge of the Company and its operations, at least one
Board meeting per year is held in an operational location and
is combined with visits to the operations, industry partners and
other business interests. In September 2016, the Board visited
the Norwegian operations and an executive session with Group
management was held in connection with the Board meeting.
57
Lundin Petroleum Annual Report 2016
GOVERNANCE | Corporate Governance Report 2016
Board of Directors
Ian H. Lundin
Chairman since 2002
Director since 2001
Member of the Nomination
Committee
Member of the
Compensation Committee
Peggy Bruzelius
Director since 2013
Chair of the Audit
Committee
C. Ashley Heppenstall
Director since 2001
Member of the Audit
Committee
Lukas H. Lundin
Director since 2001
At the executive session, an overview of the Company’s general
strategy and operations was given, as well as a financial update
discussing the Company’s current and future financing needs
and hedging strategy, and an investor relations and valuation
update. In-depth operations reviews were given regarding
the Group’s exploration and development activities, with a
continued focus on the Norwegian operations. The executive
session was followed by a site visit to the Leiv Eriksson rig and a
tour of the Snøhvit field LNG facilities. Group management also
attended a number of Board meetings during the year to present
and report on specific questions.
Evaluation of the Board’s work
A formal review of the work of the Board was conducted in
November 2016 through a questionnaire submitted to all
Board members, with the objective of ensuring that the Board
functions in an efficient manner and 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 that
the Board members have diverse qualifications with relevant
operational and corporate experience, which enables the Board
to function as an effective governing body. Board members
considered that they continuously increase their knowledge
of the Company and that individual contributions and overall
effectiveness do not correlate with length of service or age,
and hence, that no term limits should be implemented. The
Board Committees’ duties and decision-making powers within
the Board are clear and the Committees report to the Board in
an appropriate manner. There are sufficient Board meetings,
which are well planned and prepared and enable the Board to
effectively monitor the Company’s activities and performance.
Site visits to the operational areas were considered necessary
and valuable, and the monthly operational reports summarising
the activities and main events of each month were good and
succinct. The staff and related support to the Board, including
Board and Committee materials, were also considered very
good. Individual suggestions received included that more time
should be given to discussions regarding the Company’s overall
strategy rather than very detailed operational matters. The
results and conclusions of the review were presented to the
Nomination Committee.
Remuneration of Board Members
The remuneration of the Chairman and other Board members
follows the resolution adopted by the AGM. 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.
At the 2016 AGM, the Chairman was awarded an amount
of SEK 1,050,000 and each other Board member, with the
exception of the CEO, an amount of SEK 500,000. 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.
i
More information on the Board members can be found on
pages 66–67 and on www. lundin-petroleum.com
58
Lundin Petroleum Annual Report 2016 Length of Board Service
>5 years
0–2 years
2–4 years
Alex Schneiter
Director since 2016
President and CEO
Grace Reksten Skaugen
Director since 2015
CR/HSE Board representative
Member of the Compensation
Committee
Magnus Unger
Director since 2001
Chairman of the Nomination
Committee
Member of the Audit Committee
Cecilia Vieweg
Director since 2013
Chair of the Compensation
Committee
Board of Directors work during the year
In addition to the topics covered by the Board as per its yearly work cycle, the following significant matters were addressed by the Board
during the year.
– Discussing in detail the Company’s future strategy, including the spin-off of the non-Norwegian assets, and considering and approving
the transaction and all related materials, subject to EGM approval.
– Considering the Company’s production performance, forecasts and future outlook, including the Company’s historic record production
achieved in the fourth quarter and the excellent performance of the Edvard Grieg field.
– Considering and discussing in detail the major Johan Sverdrup development project and the associated project risks, cost environment,
time schedule and operator performance.
– Discussing in detail the proposed transaction to acquire an additional 15 percent interest in the Edvard Grieg field offshore Norway, and
related assets, from Statoil and approving the transaction and all related materials, subject to EGM approval.
– Discussing the Company’s strategy regarding its interests in the southern Barents Sea, including the operating environment, political,
environmental and regulatory considerations, and approving the 2017 drilling programme.
– Assessing the Company’s oil and gas reserves and resources positions.
– Approving a new long-term USD 5.0 billion reserve-based lending facility and a new short-term USD 300 million revolving credit facility.
– Approving the implementation of a Sponsored Level 1 American Depository Receipt programme.
– Considering the Company’s current and future financing needs and strategy, in particular in light of the Johan Sverdrup development in
the current oil price environment, including the Company’s financial risk management, cash flows, different sources of funding, foreign
exchange movements, hedging strategy and liquidity position.
– Discussing the Swedish Prosecution Office’s on-going preliminary investigation into alleged complicity in violations of international
humanitarian law in Sudan during 1997–2003, including the interviews with Ian H. Lundin and Alex Schneiter and the notification of
suspicions that are the basis for the investigation.
– Discussing at length the current and expected economic environment, including in relation to continuing volatile oil prices and industry
costs, and its impact on the Company’s operations, as well as continued cost control measures within the Company and focus on
operational delivery.
– Assessing and discussing the Company’s HSE performance, including the tragic fatality incident involving one of the Company’s
contractors at the Bertam FPSO, and HSE risk identification and management.
– Considering and discussing CR matters, including the Company’s partnership with the Lundin Foundation and its projects in the
Company’s areas of operation, the Sustainability Report and CR trends and initiatives, and reappointing Grace Reksten Skaugen as the
Board CR/HSE representative.
– Considering the proposal for a performance based LTIP 2016, following the same principles as the 2014 and 2015 LTIPs approved by the
2014 and 2015 AGMs, including continued stakeholder engagement discussions, revising the applicable peer group and performance
conditions, approving participants, allocating individual awards and approving the detailed plan rules, subject to 2016 AGM approval.
59
Lundin Petroleum Annual Report 2016 GOVERNANCE | Corporate Governance Report 2015
The Board has implemented a policy for share ownership by
Board members and each Board member is expected to own,
directly or indirectly, at least 5,000 shares of the Company. The
level shall be met within three years of appointment and during
such period, Board members are expected to allocate at least
50 percent of their annual Board fees towards purchases of the
Company’s shares.
The remuneration of the Board of Directors is detailed further in
the schedule on pages 66–67 and in the notes to the financial
statements, see Note 24 on pages 114–115.
Board Committees and the CR/HSE Representative
To maximise the efficiency of the Board’s work and to ensure
a thorough review of specific issues, the Board has established
a Compensation Committee and an Audit 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.
7
Compensation Committee
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
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. In addition,
the Compensation Committee may request advice and assistance
of external reward consultants. For further information
regarding Group remuneration matters, see the remuneration
section of this report on pages 63–65.
8
Audit Committee
The Audit Committee assists the Board in ensuring that the
Company’s financial 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 NASDAQ
Stockholm. The Audit Committee itself does not perform audit
work, however, it supervises the Company’s financial reporting
and gives recommendations and proposals to ensure the
reliability of the reporting. The Committee also supervises the
efficiency of the Company’s financial internal controls, internal
audit and risk management in relation to the financial reporting
and provides support to the Board in the decision making
processes regarding such matters. The Committee monitors
the audit of the Company’s financial reports and also reports
thereon to the Board. 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 first and third quarter interim financial 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.
9
CR/HSE Board representative
The Board has a leadership and supervisory role in all CR/ 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/HSE related matters and to regularly
report on such matters to the Board of Directors. The current
CR/HSE Board representative is Grace Reksten Skaugen. More
information about the Company’s CR/HSE activities can be
found in the Responsibility section on pages 42–49.
10
Management
Management structure
The Company’s CEO, Alex Schneiter, is responsible for the
management of the day-to-day operations of Lundin Petroleum.
He is appointed by, and reports to, the Board. 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 and local management consists
of highly experienced individuals with worldwide oil and
gas experience. As a result of the announced spin-off of the
Company’s non-Norwegian business, several management
changes occurred. Following the spin-off, Group and local
management comprises, in addition to the CEO:
· The Investment Committee, which in addition to the CEO
includes:
–the Chief Operating Office (COO), Nick Walker, who is
responsible for Lundin Petroleum’s exploration, development
and production operations; and
–the Chief Financial Officer (CFO), Teitur Poulsen, who is
responsible for the financial reporting, internal audit, risk
management, tax, treasury function and economics.
· The Vice President Corporate Responsibility, Christine Batruch,
who is responsible for the Group’s CR and HSE strategy, the
Vice President Communications and Investor Relations, Alex
Budden, who is responsible for all communications and
investor relations matters within the Group and the Vice
President Legal, Henrika Frykman, who is responsible for all
legal matters within the Group.
· Local management, who are responsible for the day-to-day
operational activities.
Prior to the spin-off, Mike Nicholson was the Company’s CFO
and Teitur Poulsen was the Vice President Corporate Planning
and Investor Relations. Jeffrey Fountain was Vice President Legal
and Christophe Nerguararian was Vice President Corporate
Finance.
60
Lundin Petroleum Annual Report 2016 Other requirements
– The composition and the
members of the Audit Committee
fulfil the requirements of the
Swedish Companies Act.
– The Audit Committee members
have extensive experience in
financial, accounting and audit
matters. Peggy Bruzelius’ current
and previous assignments include
high level management positions
in financial institutions and
companies and she has chaired
Audit Committees of other
companies. Magnus Unger has
previously been a member of
the Company’s Audit Committee
and C. Ashley Heppenstall is the
Company’s previous CFO and
CEO, and both have extensive
knowledge of financial matters.
Other requirements
– The composition of the
Compensation Committee fulfils
the independence requirements
of the Code of Governance.
Audit Committee 2016
Members
Meeting
attendance Audit Committee work during the year
Peggy Bruzelius,
Chair
William A. Rand1
C. Ashley
Heppenstall1
Magnus Unger
6/6
3/3
3/3
6/6
–Assessment of the 2015 year end report and the 2016 half year
report for completeness and accuracy and recommendation for
approval to the Board.
– Assessment and approval of the first and third quarter reports
2016 on behalf of the Board.
– Evaluation of accounting issues in relation to the assessment of
the financial 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
financial 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.
– Assisting the Nomination Committee in its work to propose a
statutory auditor for election at the 2017 AGM.
Compensation Committee 2016
Members
Meeting
attendance Compensation Committee work during the year
Cecilia Vieweg,
Chair
William A. Rand2
Grace Reksten
Skaugen2
Ian H. Lundin
2/2
0/0
2/2
2/2
– Review of and strengthening the Performance Management
Process through several work sessions and ongoing reviews
across the year.
– Review of the performance of the CEO and Group management
as per the Performance Management Process.
– Preparing a report regarding the Board’s evaluation of
remuneration in 2015.
– Continuous monitoring and evaluation of remuneration
structures, levels, programmes and the Policy on Remuneration.
– Preparing a proposal for the 2016 Policy on Remuneration for
Board and AGM approval.
– Consultation and meetings with Company stakeholders,
including institutional investors, regarding the proposed LTIP
2016.
– Preparing a proposal for LTIP 2016 for Board and AGM approval
through several work sessions and preparation discussions.
– 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 Group management for
Board approval.
– Review and approval of the CEO’s proposals for the principles of
compensation of other employees.
– Review and approval of the CEO’s proposals for 2016 LTIP
awards.
– Undertaking a remuneration benchmark study and various
contacts and ongoing reviews in relation thereto across the year.
– Frequent contacts, ongoing dialogue and decisions by email
outside of formal meetings to provide oversight and approvals
for remuneration and severance terms as presented by Group
management.
1 William A. Rand was a member of the Audit Committee until 12 May 2016 and C. Ashley Heppenstall is a member of the Audit Committee as of
12 May 2016.
2 William A. Rand was a member of the Compensation Committee until 12 May 2016 and Grace Reksten Skaugen is a member of the Compensation
Committee as of 12 May 2016.
61
Lundin Petroleum Annual Report 2016 GOVERNANCE | Corporate Governance Report 2016
Group management
Alex Schneiter
President and
Chief Executive Officer
Nick Walker
Chief Operating Officer
Teitur Poulsen
Chief Financial Officer
Group management tasks and duties
The tasks of the CEO and the division of duties between the
Board and the CEO are defined 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 profit trends, financial position
and liquidity, as well as information regarding important events
such as significant 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
financial markets, business partners and public authorities. To
fulfil his duties, the CEO works closely with the Chairman of
the Board to discuss the Company’s operations, financial status,
up-coming Board meetings, implementation of decisions and
other matters.
Under the leadership of the CEO, Group management is
responsible for ensuring that the operations are conducted in
compliance with all Group policies, procedures and guidelines
in a professional, efficient and responsible manner. Regular
management meetings are held to discuss all commercial,
technical, CR/HSE, financial, legal and other 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
financial 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.
11
Investment Committee
The Company’s Investment Committee, which consists of
the CEO, CFO and COO, assists 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.
i
More information on Group management
can be found on www. lundin-petroleum.com
62
Lundin Petroleum Annual Report 2016 Length of Management Service
>5 years
0–2 years
2–4 years
Christine Batruch
Vice President Corporate
Responsibility
Alex Budden
Vice President Communications
and Investor Relations
Henrika Frykman
Vice President Legal
Major topics addressed by Group management in 2016
–The spin-off of Lundin Petroleum’s Malaysian, French and Dutch
assets into International Petroleum Corporation and Lundin
Petroleum’s continued organic growth strategy in respect of the
Norwegian operations.
– The volatile oil price environment and its effect on the current
operations and future projects.
– Strategic asset acquisitions and disposals, including acquiring
an additional 15 percent share in the Edvard Grieg field offshore
Norway from Statoil.
– Management of the on-going exploration activities,
development projects and production operations.
– Continued focus on cost control measures and maximising
operational efficiency and performance.
– Focused investor relations activities towards the US institutional
investor market.
– Stakeholder engagement initiatives.
– Review and update of the Group’s key governance policies and
procedures, including establishing new reporting requirements
and routines as a result of the EU’s Market Abuse Regulation
and Audit Reform.
Remuneration
Group principles of remuneration
Lundin Petroleum aims to offer all 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.
The Group’s compensation packages consist of four elements,
being (i) base salary; (ii) yearly variable salary; (iii) long-term
incentive plan (LTIP); and (iv) other benefits. 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 such 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 international 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, it is
considered important that the Group’s compensation packages
are determined primarily by reference to the remuneration
practices within this peer group.
Policy on Remuneration for Group management
The remuneration of Group 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 final approval to
the AGM, a Policy on Remuneration for Group 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 Group
management.
63
Lundin Petroleum Annual Report 2016 GOVERNANCE | Corporate Governance Report 2015
LTIP 2016
The 2016 AGM resolved to approve a performance based LTIP
2016, that follows the same principles as the previously approved
LTIPs 2014 and 2015, for Group management and a number of
key employees of Lundin Petroleum, which gives the participants
the possibility to receive shares in Lundin Petroleum subject to
the fulfilment of a performance condition under a three year
performance period commencing on 1 July 2016 and expiring
on 1 July 2019. 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
were granted awards which, provided that among others
the performance condition is met, entitle the participant
to be allotted 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 2016 and the total LTIP award
made in respect of 2016 was 530,503.
The Board of Directors may reduce (including reduce to zero)
the allotment of performance shares at its discretion, should it
consider the underlying performance not to be reflected in the
outcome of the performance condition, for example, in light
of operating cash flow, reserves and HSE performance. The
participants will not be entitled to transfer, pledge or dispose
of the LTIP awards or any rights or obligations under LTIP 2016,
or perform any shareholders’ rights regarding the LTIP awards
during the performance period.
The LTIP awards entitle participants to acquire already existing
shares. Shares allotted under LTIP 2016 are further subject to
certain disposition restrictions to ensure participants build
towards a meaningful shareholding in Lundin Petroleum. The
level of shareholding expected of each participant is either
50 percent or 100 percent (200 percent for the CEO) of the
participant’s annual gross base salary based on the participant’s
position within the Group.
Performance monitoring and review
The Board is responsible for monitoring and reviewing on a
continuous basis the work and performance of the CEO and
shall carry out at least once a year a formal performance review.
In 2016, the Compensation Committee undertook on behalf
of the Board a review of the work and performance of Group
management, including the CEO. The results were presented to
the Board, together with 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.
The tasks of the Compensation Committee also include
monitoring and evaluating the general application of the
Policy on Remuneration, as approved by the AGM, and the
Compensation Committee prepares in connection therewith a
yearly report, for approval by the Board, on the application of the
Policy on Remuneration and the evaluation of remuneration of
Group management. As part of its review process, the statutory
auditor of the Company also verifies on a yearly basis whether the
Company has complied with the Policy on Remuneration. Both
reports are available on the Company’s website.
64
POLICY ON REMUNERATION FOR GROUP
MANAGEMENT AS APPROVED BY THE 2016 AGM
Application of the Policy
In this Policy on Remuneration, the term “Group
Management” refers to the President and Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer
and Vice President level employees. Group Management will
be comprised of seven executives in 2016.
This Policy on Remuneration also comprises remuneration
paid to members of the Board of Directors for work performed
outside the directorship.
Objectives of the Policy
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 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 Group Management
is rewarded fairly for its contribution to the Group’s
performance.
Compensation Committee
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 Group
Management. The Compensation Committee meets regularly
and its tasks include monitoring and evaluating programmes
for variable remuneration for Group Management and the
application of this Policy on Remuneration, as well as the
current remuneration structures and levels in the Company.
The Compensation Committee may request the advice and
assistance of external reward consultants, however, it shall
ensure that there is no conflict of interest regarding other
assignments that such consultants may have for the Company
and Group Management.
Elements of remuneration
There are four key elements to the remuneration of the Group
management:
a) base salary;
b) yearly variable salary;
c) long-term incentive plan; and
d) other benefits.
Base salary
The executive’s base salary shall be based on market
conditions, shall be competitive and shall take into account
the scope and responsibilities associated with the position,
Board’s Proposal for Remuneration to Group
Management to the 2017 AGM
For information regarding the Board’s proposal for
remuneration to Group management to the 2017 AGM,
including a similar LTIP as approved by the 2014, 2015
and 2016 AGMs, see the Directors’ report, pages 82–83.
Lundin Petroleum Annual Report 2016
as well as the skills, experience and performance of the executive.
The executive’s base 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
Compensation Committee undertakes yearly benchmarking studies
in respect of the Company’s remuneration policy and practices.
Yearly variable salary
The Company considers that yearly variable salary is an important
part of the executive’s remuneration package where associated
performance targets reflect 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
one to twelve monthly salaries (if any). 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 cost of yearly variable salary for 2016 is estimated to range
between no payout at minimum level and MSEK 23.0 (excluding
social costs) at maximum level, based on the current composition of
Group Management.
Severance arrangements
A mutual notice period of between one and twelve 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, up to two years’ base salary, in the
event of termination of employment due to a change of control
of the Company. The Board of Directors is further authorised, in
individual cases, to approve severance arrangements, in addition
to the notice periods and the severance arrangements in respect
of a change of control of the Company, where employment is
terminated by the Company without cause, or otherwise in
circumstances at the discretion of the Board. Such severance
arrangements may provide for the payment of up to one year’s base
salary; no other benefits shall be included. Severance payments in
aggregate (i.e. for notice periods and severance arrangements) shall
be limited to a maximum of two years’ base salary.
Remuneration to members of the Board of Directors
In addition to Board of Directors’ fees resolved by the Annual
General Meeting, remuneration as per prevailing market conditions
may be paid to members of the Board of Directors for work
performed outside the directorship.
Authorisation for the Board
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
specific case.
Long-term Incentive Plan
The Company believes that it is appropriate to structure its long-
term incentive plans (LTIP) to align Group 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 Group Management should be related to the Company’s share
price.
Outstanding Remunerations
Remunerations outstanding to Group Management comprise
awards granted under the Company’s previous LTIP programs and
include 13,464 unit bonus awards under the 2013 Unit Bonus Plan,
212,308 LTIP Awards under the 2014 Performance Based Incentive
Plan and 303,883 LTIP Awards under the 2015 Performance Based
Incentive Plan. Further information about these plans is available
in note 24 on pages 114–115.
Information on the principal conditions of the proposed 2016 LTIP
for Group Management, which follows the same principles as the
LTIP approved by the 2014 and 2015 Annual General Meetings,
is available as part of the documentation for the Annual General
Meeting on www.lundin-petroleum.com.
The cost at grant of the proposed 2016 LTIP is estimated to range
between no cost at minimum level and MSEK 52.7 (excluding social
costs) at maximum level, based on the current composition of
Group Management.
Other benefits
Other benefits shall be based on market terms and shall facilitate
the discharge of each executive’s duties. Such benefits include
statutory pension benefits comprising a defined contribution
scheme with premiums calculated on the full base salary. The
pension contributions in relation to the base salary are dependent
upon the age of the executive.
Permitted deviations from the 2015 Policy on Remuneration
The 2015 Policy on for Remuneration authorises the Board of
Directors to deviate from the Policy in case of special circumstances
in a specific case. The 2015 Policy on Remuneration did not
comprise remuneration to members of the Board of Directors
for work performed outside the directorship and to enable such
payments, two deviations were approved for consultancy fees paid
to two members of the Board of Directors, one being the Company’s
former Chief Executive Officer. The Board considered that special
circumstances warranted the deviations as the Company may
thereby draw on these Directors’ experience and skills for specific
projects and assignments. Further information regarding these
deviations can be found in note 24 on pages 114–115.
65
Lundin Petroleum Annual Report 2016
GOVERNANCE | Corporate Governance Report 2016
Board of Directors
Name
Function
Elected
Born
Education
Experience
Ian H. Lundin
Alex Schneiter
Peggy Bruzelius
C. Ashley Heppenstall
Chairman (since 2002)
President & Chief
Executive Officer, Director
Director
Director
2001
1960
2016
1962
2013
1949
2001
1962
Bachelor of Science
degree in Petroleum
Engineering from the
University of Tulsa.
Graduate from the
University of Geneva
with a degree in Geology
and a Masters degree in
Geophysics.
Master of Science (Econom-
ics and Business) from
the Stockholm School of
Economics.
Bachelor of Science degree
in Mathematics from the
University of Durham.
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.
Alex Schneiter has worked
with public companies
where the Lundin family
has a major shareholding
since 1993 and was COO
of Lundin Petroleum
during 2001–2015 and is
the Company’s CEO since
2015.
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 and was CEO
of Lundin Petroleum during
2002–2015.
Chairman of the board of
Etrion Corporation and Africa
Energy Corp. and member
of the board of ShaMaran
Petroleum Corp., Lundin Gold
Inc., Filo Mining Corp. and
Gateway Storage Company
Limited.
Chair of the board of
Lancelot Asset Management
AB, member of the board of
Diageo PLC, Akzo Nobel NV
and Skandia Liv.
Other board duties
Chairman of the board of
Etrion Corporation and
member of the board of
Bukowski Auktioner AB.
Shares in Lundin
Petroleum (as at
31 December 2016)
Board Attendance
Audit Committee
Attendance
Compensation Committee
Attendance
Remuneration for Board
and Committee work
Remuneration for special
assignments outside the
directorship
Independent of the
Company and the Group
management
Independent of the
Company’s major
shareholders
Nil1
15/15
–
2/2
SEK 1,150,000
SEK 1,500,000
Yes
No1
–
223,133
7/72
–
–
Nil
Nil
No3
Yes
8,000
14/15
6/6
–
1,391,283
15/15
3/34
–
SEK 650,000
SEK 550,000
Nil
Yes
Yes
SEK 5,208,300
No5
No5
1 Ian H. Lundin is the settler of a trust that owns Landor Participations Inc., an investment company that holds 10,638,956 shares in the Company, and is a member
of the Lundin family that holds, through a family trust, Nemesia S.à.r.l. which holds 87,187,538 shares in the Company.
2 Alex Schneiter is a member of the Board of Directors since 12 May 2016.
3 Alex Schneiter is in the Nomination Committee’s and the Company’s opinion not deemed independent of the Company and Group management since he is the
President and CEO of Lundin Petroleum.
66
Lundin Petroleum Annual Report 2016 Board of Directors
Name
Function
Elected
Born
Education
Experience
Chairman (since 2002)
President & Chief
Executive Officer, Director
2001
1960
2016
1962
2013
1949
2001
1962
Bachelor of Science
degree in Petroleum
Graduate from the
University of Geneva
Master of Science (Econom-
Bachelor of Science degree
ics and Business) from
in Mathematics from the
Engineering from the
with a degree in Geology
the Stockholm School of
University of Durham.
University of Tulsa.
and a Masters degree in
Economics.
Geophysics.
Ian H. Lundin was
previously CEO of
Alex Schneiter has worked
Peggy Bruzelius has worked
C. Ashley Heppenstall
with public companies
as Managing Director of
has worked with public
International Petroleum
where the Lundin family
ABB Financial Services AB
companies where the
Corp. during 1989–1998,
has a major shareholding
and has headed the asset
Lundin family has a major
of Lundin Oil AB during
since 1993 and was COO
management division of
shareholding since 1993. He
1998–2001 and of
of Lundin Petroleum
Skandinaviska Enskilda
was CFO of Lundin Oil AB
Lundin Petroleum during
during 2001–2015 and is
Banken AB.
2001–2002.
the Company’s CEO since
2015.
during 1998–2001 and of
Lundin Petroleum during
2001–2002 and was CEO
of Lundin Petroleum during
2002–2015.
Other board duties
Chairman of the board of
Etrion Corporation and
member of the board of
Bukowski Auktioner AB.
Chair of the board of
Chairman of the board of
Lancelot Asset Management
Etrion Corporation and Africa
AB, member of the board of
Energy Corp. and member
–
Diageo PLC, Akzo Nobel NV
of the board of ShaMaran
and Skandia Liv.
Petroleum Corp., Lundin Gold
Inc., Filo Mining Corp. and
Gateway Storage Company
Limited.
223,133
1,391,283
Shares in Lundin
Petroleum (as at
31 December 2016)
Board Attendance
Audit Committee
Attendance
Compensation Committee
Attendance
Remuneration for Board
and Committee work
Remuneration for special
assignments outside the
directorship
Independent of the
Company and the Group
management
Independent of the
Company’s major
shareholders
Nil1
15/15
–
2/2
Yes
No1
SEK 1,150,000
SEK 1,500,000
7/72
–
–
Nil
Nil
No3
Yes
8,000
14/15
6/6
–
Nil
Yes
Yes
15/15
3/34
–
No5
No5
SEK 5,208,300
Ian H. Lundin
Alex Schneiter
Peggy Bruzelius
C. Ashley Heppenstall
Lukas H. Lundin
Grace Reksten Skaugen
Magnus Unger
Cecilia Vieweg
Director
Director
Director
Director, CR/HSE representative
Director
Director
2001
1958
2015
1953
2001
1942
2013
1955
Graduate from the New Mexico
Institute of Mining, Technology
and Engineering.
Lukas H. Lundin has held several
key positions within companies
where the Lundin family has a
major shareholding.
MBA from the BI Norwegian School
of Management, Bachelor of Science
(Honours Physics) and Doctorate in laser
physics from Imperial College of Science
and Technology at the University of
London.
Grace Reksten Skaugen has been a
director of Corporate Finance with SEB
Enskilda Securities in Oslo and has
worked in several roles within private
equity and venture capital in Oslo and
London. She is currently a member of
HSBC European Senior Advisory Council
and Norway country advisor to Proventus
AB.
Chairman of the board of Lundin
Mining Corp., Denison Mines
Corp., Lucara Diamond Corp.,
NGEx Resources Inc., Lundin Gold
Inc., Filo Mining Corp. and Lundin
Foundation, member of the board
of Bukowski Auktioner AB.
Chair of the board of NAXS Nordic Access
Buyout A/S, Deputy Chair of the board
of Orkla ASA and member of the board
of Investor AB and Euronav NV, founder
and Chair of the Norwegian Institute
of Directors and council member of
the International Institute for Strategic
Studies in London.
MBA from the Stockholm
School of Economics.
Master of Law from the University
of Lund.
Magnus Unger was an Executive
Vice President within the Atlas
Copco group during 1988–1992.
Cecilia Vieweg was General
Counsel and member of the
Executive Management of AB
Electrolux from 1999–2016.
She previously worked as legal
advisor in senior positions within
the AB Volvo Group and as a
lawyer in private practice.
–
–
788,3316
15/15
–
–
–
14/15
–
2/2
250,000
15/15
6/6
–
3,500
14/15
–
2/2
SEK 650,000
SEK 550,000
SEK 500,000
SEK 550,000
SEK 600,000
SEK 650,000
Nil
Yes
No6
Nil
Yes
Yes
SEK 150,000
Yes
Yes
Nil
Yes
Yes
4 C. Ashley Heppenstall is a member of the Audit Committee as of 12 May 2016.
5 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 was the President and CEO of Lundin Petroleum until 2015, and not of the Company’s major shareholders since he is a director of companies in which entities
associated with the Lundin family hold ten percent or more of the share capital and voting rights.
6 Lukas H. Lundin is a member of the Lundin family that holds, through a family trust, Nemesia S.à.r.l., which holds 87,187,538 shares in the Company.
William A. Rand declined re-election at the AGM on 12 May 2016. During the period 1 January to 12 May 2016, he attended six out of eight Board meetings held
and all three Audit Committee meetings held. For additional information regarding William A. Rand, please see the Company’s Annual Report 2015, and for
remuneration paid to him, please refer to Note 24 on pages 114–115.
67
Lundin Petroleum Annual Report 2016
GOVERNANCE | Corporate Governance Report 2016
Internal Control
and Audit
The objective for internal
control over financial reporting
is to provide reliable and
relevant information in
compliance with applicable
laws and regulations
Introduction
The responsibility of the Board of Directors for
internal control over financial 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
regarding financial reporting and describes how internal
control over the financial reporting is organised, but
does not comment on its effectiveness.
Internal control system for financial reporting
An internal control system for financial reporting 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 financial reporting objectives.
Lundin Petroleum’s internal control system for financial
reporting consists of five key objectives, as described
below and in the section on risk management on pages
36–41. The key objectives are based on the principles of
the Committee of Sponsoring Organisation (COSO) that
set out the guiding principles of internal control. The
internal control of financial reporting is a continuous
evaluation of the risks and control activities within the
Company. The evaluation work is an ongoing process
that involves internal and external benchmarking.
Joint operations audits
The oil and gas industry is based upon
companies sharing costs and risks through
joint operating arrangements. One joint
operating partner is appointed to be the
operator and is responsible for managing
the operations, including the joint operating
accounting, on behalf of the joint operating
partners. Joint operating partners have audit
rights over the joint operations to ensure that
accounting procedures are followed and costs
are incurred in accordance with the joint
operating agreement.
68
1
Control
Environment
2
Risk
Assessment
Specify financial
reporting objectives
3
Control
Activities
5
Monitoring
4
Information and
Communication
1
Control environment
The control environment of Lundin Petroleum encompasses the “tone
at the top” provided by the Board and it influences the Company’s
governance processes and the risk and control consciousness of its
employees. The Board is responsible for ensuring that the Company
has an adequate internal control system. The Audit Committee assists
the Board to ensure that the Company has formalised routines that
support the principles for financial reporting and internal controls, and
that the Company’s financial reports are produced in accordance with
legislation, applicable accounting standards and other requirements for
listed companies.
By setting the objectives for the Company, the Board provides the
management with the ability to set up the strategy and the performance
goals for the Company. The internal control processes are structured
accordingly to identify risk events that could arise in the context
of financial reporting, compliance and the Company’s operational
objectives.
2
Risk assessment
When risks are identified and evaluated, control activities are
implemented to minimise the risks in the financial reporting process.
Conclusions of the risk assessment are reported to the Group Risk
Manager, Group management and the Board through the Audit
Committee. Identified risk areas are mitigated through business
processes with incorporated risk management, policies and procedures,
segregation of duties and delegation of authority.
3
Control activities
The Group management presents recommendations to the Board, which
then provides direction to ensure there is a programme to select and
develop control activities that contribute to mitigate risks to acceptable
levels. The Investment Committee oversees the Company’s investment
decisions through the annual budget process, supplementary budget
requests submitted during the year and makes recommendations to the
Board as required. The finance department of each company within the
Lundin Petroleum Annual Report 2016INTERNAL CONTROLa continuous process Group is responsible for the regular analysis of the financial
results and for reporting thereon to the finance department
at Group level. The Company also selects and develops
general control activities with the support of information
systems improvement and development of control activities
following a “Three lines of defence” approach.
4
Information and communication
The Company communicates financial information
internally, including objectives and responsibilities for
internal control, which are necessary to support the
functioning of internal controls. Communicating relevant
information throughout all levels of the Company in a
complete, correct and timely manner is an important part of
the financial internal control framework. Internal policies
and procedures relating to the financial reporting, such as
the Authorisation Policy, the Company Accounting Principles
Manual and the Finance and Accounting Manual, are
updated and communicated on a regular basis to all involved
employees and are accessible through the information system
network.
5
Monitoring
The Board’s measures for monitoring that the internal
control related to financial reporting and reporting to the
Board function adequately include among others; ensuring
that relevant internal policies and procedures are in place
and are respected, that regular meetings are held with
Group management to follow-up on the financial status and
activities of the Company, that internal and external audits
are performed, that audit reports are reviewed and followed-
up on, that continuous reporting is made to the Board and
that the financial reporting is prepared in accordance with
applicable rules and regulations and show a true and fair
view of the financial status of the Company. These measures
are implemented and continuously monitored under the
direction of the Audit Committee, with the assistance of
Group management at all levels of the Company, including
the Company’s CFO. In this respect, the Internal Audit
and the Company’s finance department monitor financial
compliance with internal policies, procedures and other
corporate policy documents. The Audit Committee monitors
the efficiency of the internal auditing, internal control and
financial reporting, reviews all interim and annual financial
reports and reports regularly thereon to the Board.
Three lines of defence
1. First line of defence – Local Operations
This is provided by local staff and management who own
and manage risk and control through adequate design
of internal control processes managerial and supervisory
controls to ensure compliance with processes and to manage
unexpected events. All employees in the Company are
accountable for compliance with the policies and procedures
within their areas of control and risk management.
2. Second line of defence – Group Management
This is provided by the oversight functions within the
Company, including amongst other financial control, risk
management and information security. The Company’s
policies, procedures, guidelines and management system
constitute the framework to add value to the business with
regard to risk and compliance.
3. Third line of defence – Internal Audit
This is provided by internal audit, providing the Board and
Group management independent assurance regarding the
Groups internal control, risk management and governance.
12
Internal audit
Internal Audit provides independent and objective appraisal of
the control environment thereby adding value to the organisation
through a continuous improvement process. The Internal Audit
is concerned with the adequacy and effectiveness of systems of
control and whether they are managed, maintained, complied with
and function effectively. The Group Internal Audit Manager has a
primary reporting line to Lundin Petroleum’s Audit Committee.
Internal Audit performs regular audits according to a risk based
internal audit plan which is approved by the Audit Committee twice
per year. In addition, the Internal Audit coordinates and monitors
joint operating audits that are undertaken by Lundin Petroleum.
Further, an important activity carried out by Internal Audit 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.
69
Lundin Petroleum Annual Report 2016
GOVERNANCE | Corporate Governance Report 2016
Stockholm, 30 March 2017
The Board of Directors of Lundin Petroleum AB (publ)
Auditor’s report on the Corporate Governance Statement
To the general meeting of the shareholders in Lundin Petroleum AB (publ), corporate identity number 556610-8055.
Engagement and responsibility
It is the board of directors who is responsible for the corporate governance statement for the year 2016 on pages 50–69 and that it
has been prepared in accordance with the Annual Accounts Act.
The scope of the audit
Our examination has been conducted in accordance with FAR’s auditing standard RevU 16 The auditor’s examination of the corporate
governance statement. This means that our 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. We believe that the examination has provided us with sufficient basis for our opinions.
Opinions
A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points
2-6 the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the annual accounts
and the consolidated accounts and are in accordance with the Annual Accounts Act.
Stockholm, 31 March 2017
PricewaterhouseCoopers AB
Johan Rippe
Authorised Public Accountant
Lead Partner
Johan Malmqvist
Authorised Public Accountant
70
Lundin Petroleum Annual Report 2016
Financial Report
CFO overview
Directors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flow
Consolidated statement of changes in equity
Accounting policies
Notes to the financial statements of the Group
- Note 1 – Revenue
- Note 2 – Production costs
- Note 3 – Segment information
- Note 4 – Finance income
- Note 5 – Finance costs
- Note 6 – Income tax
- Note 7 – Oil and gas properties
- Note 8 – Other tangible assets
- Note 9 – Goodwill
- Note 10 – Financial assets
- Note 10.1 – Other shares and participations
- Note 10.2 – Other financial assets
- Note 11 – Inventories
- Note 12 – Trade and other receivables
- Note 13 – Cash and cash equivalents
- Note 14 – Equity
- Note 14.1 – Share capital and share premium
- Note 14.2 – Other reserves
- Note 14.3 –Earnings per share
- Note 15 – Financial liabilities
- Note 16 – Provisions
72
73
84
85
86
87
88
89
95
95
95
95
97
98
98
100
102
102
102
103
103
103
104
104
104
104
105
105
105
105
- Note 17 – Trade and other payables
- Note 18 – Financial assets and liabilities
- Note 19 – Financial risks, sensitivity analysis and
derivative instruments
- Note 20 – Pledged assets
- Note 21 – Contingent liabilities and assets
- Note 22 – Related party transactions
- Note 23 – Average number of employees
- Note 24 – Remuneration to the Board of Directors,
Group management and other employees
- Note 25 – Long-term incentive plans
- Note 26 – Remuneration to the Group’s auditors
- Note 27 – Subsequent events
Annual accounts of the Parent Company
Parent Company income statement
Parent Company comprehensive income statement
Parent Company balance sheet
Parent Company statement of cash flow
Parent Company statement of changes in equity
106
107
109
112
112
113
113
114
116
117
117
118
119
119
120
121
121
Notes to the financial statements of the Parent Company 122
122
- Note 1 – Finance income
122
- Note 2 – Finance costs
122
- Note 3 – Income taxes
122
- Note 4 – Other receivables
- Note 5 – Accrued expenses and prepaid income
122
- Note 6 – Pledged assets, contingent liabilities and assets 122
- Note 7 – Remuneration to the auditor
122
- Note 8 – Proposed Disposition of Unappropriated
Earnings
- Note 9 – Shares in subsidiaries
122
123
Board assurance
Auditor’s report
124
125
71
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | CFO Overview
Delivering financial
strength
“ As we look back on a
tough year for the industry,
we have a great sense
of satisfaction having
achieved record high
production, record low
cash operating costs and
adding significant liquidity
headroom. We can now
look forward with a great
sense of hope as we
expect to deliver even
more in 2017
Mike Nicholson
Chief Financial Officer 2014–2017
Oil prices fell by a further 17 percent during 2016. This
continued weakness increased the challenge faced by all
industry participants as they wrestled to cope with a third year
of decline. Every management team and board was focused on
delivering operational performance, reducing costs and ensuring
that sufficient financial headroom was in place to sustain this
prolonged downturn.
Lundin Petroleum rose to this challenge on all fronts, delivering
world class performance from each of our core producing
assets. This allowed us to generate in excess of USD 1 billion of
operating cash flow, our first pillar of financial strength.
Cost levels continued to fall significantly on our dominant
Johan Sverdrup growth project, with total reductions achieved
amounting to 30 percent from the time when the PDO was
submitted in February 2015 including currency savings. This is
material for Lundin Petroleum, as every dollar saved not only
adds value but improves our liquidity position, given that we
are not in a cash tax paying position in Norway as a result of the
significant capital we have invested in our growth projects.
Our cash operating costs fell to record low levels below USD 8
per barrel driven by a record high production for the year of
72,600 boepd.
The world class nature of our projects shone through when we
concluded the refinancing of our reserve-based lending facility,
the second pillar of our financial strength, with the support
from our broad international banking group. The refinancing
was signed in late January 2016 when oil prices were below
USD 30 per barrel. Total commitments under the facility stand
at USD 5.0 billion and we exited 2016 with spare liquidity
headroom of USD 1 billion to fund our growth projects.
The acquisition of an additional 15 percent interest in the
Edvard Grieg field from Statoil during the year further solidified
the cash flow generation of the Company and was highly value
accretive.
Having delivered improved financial strength, Lundin Petroleum
finds itself in the enviable position of being able to fully fund
our growth projects down to oil prices of around USD 40 per
barrel and to consider returning money to our shareholders
should oil prices recover on a sustained basis above USD 60 per
barrel, prior to the start-up of Johan Sverdrup.
This is a remarkable transformation and facilitated our plan to
crystallise value for all our shareholders with the spin-off of our
non-Norwegian assets.
As we look back on a tough year for the industry we have a great
sense of satisfaction having achieved record high production,
record low cash operating costs and adding significant liquidity
headroom. We can now look forward with a great sense of hope
as we expect to deliver even more in 2017. Lundin Petroleum
retains its standing in the industry as one of the strongest
players to capitalise on further growth.
72
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Directors’ Report
Lundin Petroleum AB (publ) Reg No. 556610-8055
The address of Lundin Petroleum AB’s registered office is
Hovslagargatan 5, Stockholm, Sweden.
and development projects in various countries with exposure to
exploration opportunities.
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
The Group does not carry out any significant research and
development. The Group maintains branches in some areas of
operation. The Parent Company has no foreign branches.
Corporate Structure as at 31 December 2016
Lundin Petroleum AB (S)
Lundin Petroleum BV (N)
Lundin Services Ltd. (M)
Lundin Petroleum SA (Sw)
Lundin Norway AS (No)
Lundin Malaysia BV (N)
Lundin Russia BV (N)
Lundin Petroleum
Marketing SA (Sw)
Lundin Netherlands BV (N)
Lundin International SA (F)
Lundin Gascogne SNC (F)
Lundin Lagansky BV (N)
PetroResurs (R)
70%
Jurisdiction
(F)
France
(M)
Malaysia
(R)
(S)
Russia
Sweden
(N)
Netherlands
(Sw)
Switzerland
(No)
Norway
Note: The Group structure shows significant subsidiaries only.
See the Parent Company Financial Statements Note 9 for full legal
names and all subsidiaries.
Changes in the Group
On 28 April 2016, Lundin Petroleum completed the sale of its
Indonesia business, including the non-operated Singa gas field.
Edvard Grieg transaction
The transaction to acquire an additional 15 percent working
interest in the Edvard Grieg field and interests in the associated
pipeline assets from Statoil ASA with an effective date of
1 January 2016, completed on 30 June 2016. In consideration
for the acquisition of the assets, Lundin Petroleum issued
27,580,806 new shares in Lundin Petroleum AB based upon an
agreed share price of SEK 138 per share and a SEK/USD exchange
rate of 8.098, which equated to a consideration of MUSD 470.0
as at 1 January 2016. The transaction was accounted for at
closing in accordance with IFRS3 Business Combinations as
required by the amended IFRS11 Joint Arrangements which
provides guidance on the accounting for acquisitions of interests
in joint operations in which the activity constitutes a business.
The production and financial results from the additional
working interest are being reflected from 1 July 2016.
A summary of the net assets acquired at closing is shown in the
table below:
Expressed in MUSD
Assets
Oil and gas properties
Goodwill
Cash
Total Assets Acquired
Liabilities
Deferred tax
Site restoration provision
Working capital
Total Liabilities Acquired
Net Assets Acquired 1
¹ In addition, MUSD 5.5 of interest was expensed.
30 June 2016
456.1
128.1
25.9
610.1
111.0
24.2
10.4
145.6
464.5
73
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT | Directors’ Report
In accordance with the Norwegian Petroleum Tax Act, the
consideration paid is on an after tax basis and the remaining tax
balances were transferred from Statoil ASA to Lundin Petroleum.
Lundin Petroleum is therefore not entitled to a tax deduction
for the consideration paid over and above the tax values
transferred. In accordance with IAS12 Income Taxes, a deferred
tax liability for an amount of MUSD 128.1 was recognised on the
difference between the assigned fair values and the related tax
base as at 30 June 2016, and the offsetting accounting entry is to
goodwill. The goodwill forms part of the impairment testing of
the Edvard Grieg field going forward.
In addition, Lundin Petroleum transferred 2 million treasury
shares and issued 1,735,309 new shares to Statoil ASA in
exchange for a cash consideration of MSEK 544.1 (MUSD 64.1).
Operational review
Lundin Petroleum is an independent oil and gas exploration and
production company with a principal focus on operations in
Norway. In 2016, Lundin Petroleum had a portfolio of assets in
Norway, Malaysia, France, the Netherlands and Russia.
Norway represents the majority of Lundin Petroleum’s
operational activities with production for the financial year
2016 accounting for 82 percent of total production and
with 96 percent of Lundin Petroleum’s total reserves as at
31 December 2016.
Reserves and resources
Lundin Petroleum has 743.5 million barrels of oil equivalent
(MMboe) of proved plus probable reserves as at 31 December
2016 as certified by an independent third party. Lundin
Petroleum also has a number of discovered oil and gas resources
which classify as contingent resources and are not yet classified
as reserves. The best estimate contingent resources net to Lundin
Petroleum amount to 267 MMboe as at 31 December 2016.
Production
Production for the year amounted to 72,600 barrels of oil
equivalent per day (boepd) (compared to 32,300 boepd for
2015) and was thus in the upper end of the original production
guidance of 65,000 to 75,000 boepd for the year and at the mid-
point of the revised 2016 guidance of 70,000 to 75,000 boepd.
The actual production was comprised as follows:
Production in Mboepd
2016
2015
Crude oil
Norway
France
Malaysia
Total crude oil production
Gas
Norway
Netherlands
Indonesia
Total gas production
Total production
Quantity in Mboe
Quantity in Mboepd
53.2
2.6
8.6
64.4
6.1
1.6
0.5
8.2
18.6
2.7
5.5
26.8
2.1
1.8
1.6
5.5
26,559.6
11,790.3
72.6
32.3
74
Norway
Production
Production in
Mboepd
Edvard Grieg
Alvheim
Volund
Bøyla
Brynhild
Gaupe
WI1
65%2
15%
35%
15%
90%
40%
Quantity in Mboepd
1 Lundin Petroleum’s working interest (WI)
2 WI 50% up to 30 June 2016
2016
2015
42.0
10.0
2.7
1.7
2.6
0.3
59.3
1.4
7.8
4.9
2.1
4.2
0.3
20.7
Production from the Edvard Grieg field during the year was
higher than forecast at 42,000 boepd due to better reservoir
performance and uptime than forecast. During the fourth
quarter of 2016 a fourth production well was successfully drilled
and came onstream at planned production rates in December
2016, thus allowing the field to reach its facilities design
capacity levels of 100,000 boepd gross. The production capacity
from the first three wells has exceeded expectations and the
reservoir pressure depletion rate has been more favourable than
anticipated.
The first two water injection wells have also been successfully
drilled during the year, with both wells encountering better
than expected reservoir sands and pressure communication with
the production wells. Both water injection wells are injecting at
planned rates. The facilities uptime has also been exceptional
with an average facilities uptime of 97 percent for the year.
During the fourth quarter of 2016 the Edvard Grieg field was
shut-in for a limited period for the tie-in of the Ivar Aasen field.
The tie-in operation was successfully carried out in November
2016 and the Edvard Grieg platform commenced processing Ivar
Aasen hydrocarbons on 24th December 2016.
The two water injection wells which have been drilled during
the year have proven additional oil reserves in the western flank
of the Edvard Grieg field. The first water injection well, which
was drilled in the northwestern part of the field, encountered
the top reservoir 23 metres shallow to prognosis with a
26 metres gross oil column. The second water injection well,
drilled 1.4 km southwest of the first water injection well, also
found the top reservoir shallow to prognosis by 13 metres with
a 5 metres gross oil column. The results from these two water
injection wells indicate more oil-in-place in the western flank
of the field than originally foreseen and has resulted in the
field’s estimated gross ultimate recoverable reserves increasing
by 17 MMboe with the field’s total ultimate recoverable reserves
increasing to 223 MMboe as at year end 2016, which is a
20 percent increase on the original PDO reserves estimate. In
addition to the reserves upgrade from the two water injection
wells a new appraisal well will be drilled during the first half of
2017 in the southwestern part of the field to target additional
gross unrisked resources of up to 30 MMboe.
Lundin Petroleum Annual Report 2016 The fifth production well was brought on line in early 2017
and a sixth well is currently being drilled with a total of 14
development wells scheduled to be drilled as part of the Edvard
Grieg development plan with drilling operations expected to
continue into 2018. The total operating cost for the Edvard Grieg
field was USD 7.20 per barrel during the year.
In May 2016, Lundin Petroleum announced that it had entered
into an agreement to acquire an additional 15 percent working
interest in the Edvard Grieg field from Statoil ASA. The effective
date of the transaction is 1 January 2016 and the transaction
completed on 30 June 2016. As a result of this transaction,
Lundin Petroleum increased its reserves by 29.5 MMboe. The
additional production from this transaction has been accounted
for from 1 July 2016. For more information, see the Changes in
the Group section above.
Production from the Alvheim area during the year was better
than forecast due to better than expected reservoir performance
as well as a higher than expected Alvheim FPSO production
efficiency of 97 percent, excluding planned shutdown of the
Sage gas terminal in the United Kingdom. During August
2016, the terminal was shutdown for planned maintenance for
14 days and consequently the Alvheim FPSO was shut-in during
this period. The total operating cost for the Alvheim area was
USD 5.10 per barrel during the year. The Alvheim area partners
signed a new contract for the Transocean Arctic rig which
commenced an infill drilling campaign in the Alvheim area in
December 2016.
Net production from the Alvheim field during the year was
better than forecast at 10,000 boepd. The reservoir performance
continues to be excellent with the most recent infill well, the
B5 three-branched production well, as well as the Viper and
Kobra wells, which came onstream in November 2016, all
producing significantly ahead of expectation. The gas processing
capacity on the Alvheim FPSO has resulted in certain wells
having been production constrained during the year, however
this constraint has been alleviated through an upgrade of the
Alvheim FPSO gas export compressor, resulting in increased gas
handling capacity. Two infill wells are planned to be drilled at
Alvheim during 2017 with production startup of these wells
expected in 2018.
The Volund field net production during the year was below
forecast at 2,700 boepd. Further infill opportunities have been
identified on the Volund field and during the year the top holes
of two infill wells were successfully drilled by the Transocean
Winner rig before it went off hire at the end of July. These two
wells will be completed by the Transocean Arctic rig which
Development
commenced the drilling of the first infill well in December 2016
with an expected production start-up in the second half of 2017.
One exploration well is planned in 2017 targeting the Volund
West prospect.
The Bøyla field net production during the year was slightly
ahead of forecast at 1,700 boepd due to good reservoir
performance with lower water cut in the wells than expected.
Net production from the Brynhild field during the year was
lower than forecast at 2,600 boepd due to a temporary lower
well capacity than forecast due to the water injection system
being unavailable since August 2016. The water injection system
recommenced in early 2017 following repair of the pump. The
Brynhild field achieved an uptime of 65 percent for the year,
excluding the planned outage earlier this year. The Haewene
Brim FPSO was shut-in for 20 days during the fourth quarter
2016 to undergo planned integrity and inspection work.
Despite no remaining reserves being attributed to the Gaupe
field, the field is producing intermittently subject to favourable
economic conditions and achieved net production of 300 boepd
during the year.
Development
Ivar Aasen
The Ivar Aasen field commenced production on 24 December
2016 and is currently producing from five wells. The field
is expected to ramp-up production in accordance with the
commercial arrangement with its host platform, Edvard Grieg,
during 2017.
Johan Sverdrup
The Johan Sverdrup project is progressing on schedule with
a majority of Phase 1 contracts now awarded, resulting in
estimated total project costs being reduced compared to the
original estimates. Phase 1 construction work commenced in
2015 with total project completion remaining on schedule.
Construction of three steel jackets has commenced at the
Kværner yard on the west coast of Norway and of one jacket
at the Dragados yard in Spain. Construction of the drilling
platform and living quarters, through EPC contracts, is
underway in Norway by Aibel and Kværner/KBR respectively
and construction of the riser platform and processing platform
commenced at Samsung Heavy Industries in Korea during
the third quarter 2016 with Aker Solutions being contracted
for the procurement and engineering of the riser platform
and processing platform. In addition civil engineering works
are underway on the onshore power system at Haugsneset in
Licence
Field
WI
Operator
PDO Approval
Estimated gross
reserves
Production start
achieved/expected
Ivar Aasen
1.385% Aker BP
May 2013
175 MMboe
Production start
December 2016
Gross plateau
production rate
expected
67 Mboepd
Ivar Aasen
Unit
Johan Sverdrup
Unit
Johan Sverdrup
22.6% Statoil
August 2015
2.0–3.0 billion boe
Late 2019
660 Mbopd
75
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Directors’ Report
Norway. The pre-drilling of development wells commenced in
March 2016 with eight development wells being completed to
date ahead of schedule.
The contract for the heavy lift installations for three of the
topsides has been awarded to Allseas. Odfjell Drilling has
been awarded contracts for drilling of the wells. Rosenberg
WorleyParsons has been awarded the contracts for the
construction of the three bridges linking the platforms and for
the construction of two flare booms. In October 2016 the
contract for modification work at the Mongstad oil terminal was
awarded to Aker Solutions.
At the time of submitting the Phase 1 PDO in February 2015,
the capital expenditure for Phase 1 was estimated at gross
NOK 123 billion (nominal). With most of the major contracts
now awarded, the latest cost estimate, as released by Statoil in
early 2017, has been reduced to NOK 97 billion (nominal), a
reduction of approximately 21 percent. This is based on a fixed
project exchange rate of NOK 6 per USD and excludes additional
foreign exchange rate savings in US dollar terms. The Phase 1
development is scheduled to start production in late 2019. The
original gross production capacity for Phase 1 was estimated at
315,000 to 380,000 bopd. However, debottlenecking measures
have concluded that the design processing capacity for Phase 1
will increase to 440,000 bopd with gas processing capacity in
addition .
The PDO for Phase 1 also outlines certain concepts for the full
field development involving an expected full field gross plateau
production level of 660,000 bopd. Statoil provided an update
on resources in early 2017 with gross resources increasing to
between 2.0 and 3.0 billion boe with 95 percent of the resources
being oil.
Statoil revised down the full field development costs (Phase 1
and Phase 2) from the previous total of NOK 207 billion to
between NOK 137 and 152 billion (real 2016), due to market
savings relating to Phase 1 and optimisation of the Phase 2
facilities concept. In the first quarter 2017, the Johan Sverdrup
partnership decided to proceed with concept selection (DG2) for
Phase 2 which is expected to start production in 2022.
Appraisal
During the year Lundin Petroleum successfully completed the
drilling and testing of the Alta-3 appraisal well 7220/11-3A,
which was a re-entry well from the suspended 7220/11-3 well
drilled in 2015. The objective of the Alta-3 re-entry was to
deepen the well to further assess the quality of the Permian
carbonate reservoirs through water injection tests as well as
to conduct a production test in the shallower gas zone. Two
injection tests in the carbonate reservoir below the oil-water
contact proved good to very good reservoir quality in the Falk
and Ørn formations, respectively. A production test in the
gas zone in the Lower Triassic reservoir section produced a
maximum of 21 million cubic feet of gas per day through a
64/64 inch choke.
The original Alta-3 well encountered a gross hydrocarbon
column of 120 metres and all three Alta wells drilled to date
have proven pressure communication.
During the year Lundin Petroleum entered into a rig contract
with Ocean Rig for the charter of the Leiv Eiriksson semi-
submersible rig for an extended appraisal and exploration
campaign in the southern Barents Sea. The contract for the rig
is flexible and encompasses multiple well-slot options which
can be called at Lundin Petroleum’s election and the rig will
carry out all of Lundin Petroleum operated wells in the southern
Barents Sea for the 2017 drilling campaign.
The 2017 appraisal programme will consist of four appraisal
wells with one well being drilled on the western flank of the
Edvard Grieg field in PL338 (WI 65%) targeting gross resources
of 30 MMboe and one well appraising a northern extension of
the Johan Sverdrup field. The remaining two wells will appraise
the Alta/Gohta discoveries on the Loppa High in the southern
Barents Sea.
Exploration
In January 2016, the Lorry well in PL700 in the Norwegian Sea
which was spudded in November 2015 was announced as dry.
The well failed to encounter the prognosed reservoir.
In March 2016, the Fosen well in PL544 in the North Sea was
announced as dry. The well, which was drilled just south of
Luno II, encountered a 160 metres reservoir section but was
water-wet with oil shows.
In November 2016 Lundin Petroleum announced a discovery
on the Neiden prospect in PL609 in the southern Barents Sea.
The well, which was drilled approximately 60 km northeast of
the Alta discovery, encountered a Permian carbonate reservoir
with a 31 metres hydrocarbon column of which 21 metres were
oil and 10 metres gas. The discovery is estimated to contain
between 25 and 60 MMboe of gross resources.
Lundin Petroleum will drill five exploration wells offshore
Norway in 2017. Four of the 2017 exploration wells will be
drilled in the Barents Sea with the first well on the Filicudi
prospect in PL533 (WI 35%) already announced as a discovery
with a gross resource estimate of between 35 and 100 MMboe.
Three further wells are planned to be drilled in the southern
Barents Sea with one well targeting the Børselv prospect in
PL609 (WI 40%) located on-trend north of the Alta and Neiden
discoveries, which is subject to partner approval. The second
2016 appraisal well programme
Licence
Operator
PL609
Lundin Petroleum
WI
40%
Well
Re-enter 7220/11-3
(Alta-3)
Spud Date
July 2016
Status
Completed September 2016
76
Lundin Petroleum Annual Report 2016 2016 exploration well programme
Licence
Well
Spud Date
Target
WI
Operator
Result
Utsira High
PL544
16/4-10
January
Fosen
40% Lundin Petroleum
Dry
Southern Barents Sea
PL609
PL533
Re-enter 7220/6-2-R
October
7219/12-1
November
Neiden
Filicudi
40% Lundin Petroleum
Oil and gas discovery
35% Lundin Petroleum
Oil and gas discovery
well will be targeting one segment of the shallower horizons
within the multi-billion barrel gross prospective resource
Korpfjell prospect in PL859 (WI 15%) in the eastern Barents Sea.
The third well will be targeting the Hufsa prospect in PL533
along trend with the Filicudi discovery, which is subject to
partner approval.
Additionally, one well will be drilled west of the Volund field in
PL150 (WI 35%).
Licence awards, transactions and relinquishments
In January 2016, the Ministry of Petroleum and Energy
announced the licence awards in the 2015 APA licensing round.
Lundin Petroleum was awarded four licences of which two as
operator in PL815 and PL830 (both with WI 40%) in addition
to two non-operated working interests in PL678SB and PL831
(both with WI 20%).
In May 2016 the licence awards in the 23rd licensing round
in the southern Barents Sea were announced and Lundin
Petroleum was awarded five licences of which three as
operator. Lundin Petroleum was awarded two operated licences,
PL851 and PL609C (both with WI 40%) in the Loppa High area,
one operated licence, PL853 (WI 60%) in the Hoop area and
two non-operated licences, PL857 and PL859 (WI 20% and 15%
respectively) in the southeastern Barents Sea.
During the year, Lundin Petroleum relinquished PL438, PL519,
PL544, PL555, PL631, PL673, PL674, PL708, PL741 and PL779.
In January 2017, the Ministry of Petroleum and Energy
announced the licence awards in the 2016 APA licensing round.
Lundin Petroleum was awarded four licences, of which two as
operator in PL902 (WI 50%) and PL886 (WI 40%) in addition to
two non-operated working interests in PL896 and PL869 (both
with WI 20%).
South East Asia
Malaysia
Production in Mboepd
Bertam
WI
75%
2016
8.6
2015
5.5
Peninsular Malaysia
Net production from the Bertam field on Block PM307 (WI 75%)
during the year was ahead of forecast at 8,600 boepd with an
uptime of 99 percent. The Bertam field has been producing from
11 wells as of mid-October 2015 with one additional well, the
A15 well, commencing production in June 2016. The A15 well
results were in line with expectations with production being
constrained by facilities limitations. Overall field performance
is better than forecast due to better than expected reservoir
performance and this outperformance has been partially
offset by the shut-in of two production wells during the year
in relation to replacement of downhole electrical submersible
pumps and for production shut-ins due to rig moves. The West
Prospero drilling rig came off contract towards the end of May
2016. Due to the excellent reservoir performance on Bertam
since production startup, the gross ultimate recoverable reserves
have been increased from 16.9 MMboe to 19.6 MMboe.
At year end 2016 Lundin Petroleum decided to remove the
booked contingent resources associated with the Tembakau
gas discovery on PM307 from its books. The net contingent
resources removed amounted to 28.9 MMboe. For more
information, see the Financial Review section.
During 2016, Lundin Petroleum relinquished PM308A and
PM319.
Sabah, East Malaysia
Lundin Petroleum completed the drilling of the Imbok well
on Block SB307/308 (WI 65%) in early January 2016. The well
encountered only oil shows in Miocene sands and was plugged
and abandoned as dry. Following the Imbok well, the rig was
moved to drill the Bambazon prospect, also on Block SB307/308,
which encountered 15 metres of net reservoir pay with oil
shows. However, no moveable oil was recovered from sampling
and the well was plugged and abandoned as dry. The West
Prospero rig subsequently moved to the Maligan prospect on
Block SB307/308 and whilst gas shows were encountered, the
well was plugged and abandoned as dry.
At year end 2016 Lundin Petroleum decided to remove the
booked contingent resources associated with the gas discoveries
on SB303 (WI 55%) from its books. The net contingent resources
removed amounted to 31.8 MMboe.
Farm-out agreements
Lundin Petroleum signed a farm-out agreement with Dyas in
December 2015 whereby Lundin Petroleum has transferred a
20 percent working interest in Block SB307/308 (WI 65% after
farm-out) and a 20 percent working interest in Block SB303
(WI 55% after farm-out), located offshore Sabah, East Malaysia.
77
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Directors’ Report
In addition, Dyas acquired from Lundin Petroleum a 15 percent
working interest in Block PM328 (WI 35% after farm-out),
located offshore Peninsular Malaysia.
Termination of the FPSO sale
Lundin Petroleum announced on 22 January 2016 that it
had entered into an agreement to sell the FPSO Bertam to
M3nergy Investment Ltd (M3nergy), a wholly owned subsidiary
of M3nergy Berhad of Malaysia. The transaction was subject
to M3nergy securing financing within a certain timeframe.
However, M3nergy was unable to secure the required
financing and the agreement to sell the FPSO was subsequently
terminated.
2016. The F3-B106 side-track well was completed in early 2017
and will be put on production in the first half of 2017. During
the fourth quarter 2016 the installation of compression on the
E17a platform was completed and successfully started up.
In 2017, the planned activity involves the drilling of the
A6 development well on the offshore E17a-A field (WI 1.2%) and
the Nieuwehorne-1 exploration well in the onshore Gorredijk
licence (WI 7.75%).
Russia
During 2016, the exploration area of the Lagansky block
surrounding the Morskaya field (WI 70%) was relinquished.
Indonesia
Production in Mboepd
Singa
WI
25.9%
2016
2015
0.5
1.6
In April 2016, Lundin Petroleum completed the sale of the
business in Indonesia to PT Medco Energi Internasional TBK
for a cash consideration of MUSD 22, with an effective date of
1 October 2015. The Indonesian assets sold to Medco include the
non-operated interest in the producing Singa gas field. Lundin
Petroleum may become entitled to certain contingent payments
in respect of the future production from the Singa gas field.
Lundin Petroleum ceased reporting the production contribution
from Singa as of 28 April 2016.
Continental Europe
Production
Production in Mboepd
WI
2016
2015
France
– Paris Basin
– Aquitaine
Netherlands
100%1
50%
Various
2.2
0.4
1.6
4.2
2.3
0.4
1.8
4.5
1 Working interest in the Dommartin Lettree field 42.5 percent
France
Net production during the year from France was slightly above
forecast at 2,600 boepd. Good production performance has been
achieved from the Vert La Gravelle field (WI 100%) in the Paris
Basin and the fields in the Aquitaine Basin have also performed
well during the year.
The Netherlands
Net production for the year from the Netherlands was ahead of
forecast at 1,600 boepd.
The Langezwaag-3 (WI 7.75%) well, on the Gorredijk licence, was
drilled during the third quarter 2016 and put on production in
November 2016.
The drilling of the K5-F3 development well has been completed
and the well was put on production in the third quarter of
At year end 2016, Lundin Petroleum decided to remove the
booked contingent resources associated with the Morskaya oil
discovery from its books. The net contingent resources removed
amounted to 110.1 MMboe. For more information, see the
Financial Review section.
Corporate responsibility
During the year, Lundin Petroleum recorded five incidents
among contractors, resulting in a year to date Lost Time Incident
Rate (LTIR) of 0.67 per million hours worked and a Total
Recordable Incident Rate (TRIR) of 2.34, a clear improvement
over 2015 with an LTIR of 1.76 and a TRIR of 3.71. In February
2016, a tragic fatal accident took place offshore Malaysia when
a contractor undertook repair work on the FPSO export hose. A
thorough investigation was undertaken and follow-up measures
were implemented. Two minor lost time incidents were recorded
in France in February and April 2016 and two restricted work
incidents in France and Norway in November.
In May 2016, Lundin Petroleum issued its first sustainability
report based on the Global Reporting Initiative, GRI G4
guidance, providing more qualitative and quantitative
sustainability data. This report is available on
www.lundin-petroleum.com.
In June 2016, Lundin Petroleum reported to the Carbon
Disclosure Project (CDP) on its climate change strategy and 2015
emissions performance.
Financial review
Result
The net result for the financial year ended 31 December 2016
amounted to MUSD -499.3 (MUSD -866.3). The loss for the
year was mainly driven by an after tax impairment charge of
MUSD 548.6. The net result attributable to shareholders of
the Parent Company for the year amounted to MUSD -356.7
(MUSD -861.7) representing earnings per share of USD -1.09
(USD -2.79).
Earnings before interest, tax, depletion and amortisation
(EBITDA) for the year amounted to MUSD 902.6 (MUSD 384.7)
representing EBITDA per share of USD 2.77 (USD 1.24).
Operating cash flow for the year amounted to MUSD 1,010.8
(MUSD 699.6) representing operating cash flow per share of
USD 3.10 (USD 2.26).
78
Lundin Petroleum Annual Report 2016 Revenue
Revenue for the year amounted to MUSD 1,159.9 (MUSD 569.3)
and was comprised of net sales of oil and gas, change in under/
over lift position and other revenue as detailed in Note 1.
Net sales of oil and gas for the year amounted to MUSD 1,166.5
(MUSD 521.0). The average price achieved by Lundin Petroleum
for a barrel of oil equivalent amounted to USD 42.40 (USD 50.71)
and is detailed in the following table. The average Dated Brent
price for the year amounted to USD 43.73 (USD 52.39) per barrel.
Net sales of oil and gas for the year are detailed in Note 3 and
were comprised as follows:
Sales
Average price per boe expressed in USD
2016
2015
Crude oil sales
Norway
– Quantity in Mboe
– Average price per boe
France
– Quantity in Mboe
– Average price per boe
Netherlands
– Quantity in Mboe
– Average price per boe
Malaysia
– Quantity in Mboe
– Average price per boe
Total crude oil sales
– Quantity in Mboe
– Average price per boe
20,654.5
43.61
5,939.4
52.97
907.0
43.98
1.2
33.54
971.4
52.07
1.2
50.20
2,787.8
45.13
1,455.6
48.92
24,350.5
43.80
8,367.6
52.16
Sales
Average price per boe expressed in USD
2016
2015
Gas and NGL sales
Norway
– Quantity in Mboe
– Average price per boe
Netherlands
– Quantity in Mboe
– Average price per boe
Indonesia
– Quantity in Mboe
– Average price per boe
Total gas and NGL sales
– Quantity in Mboe
– Average price per boe
Total sales
– Quantity in Mboe
– Average price per boe
2,352.1
30.94
580.4
27.04
178.2
52.02
745.7
44.21
633.3
38.88
527.7
50.99
3,110.7
1,906.7
31.42
44.31
27,461.2
10,274.3
42.40
50.71
The table above excludes 47,449 barrels of crude oil purchased from
outside of the Group by Lundin Petroleum Marketing SA and sold to the
market.
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 28.9 (credit of MUSD 25.6) in the year due to the timing of
the cargo liftings compared to production.
Other revenue amounted to MUSD 22.3 (MUSD 22.7) for the year
and included Bertam FPSO lease income, a quality differential
compensation on Alvheim blended crude, tariff income from
France and the Netherlands and income for maintaining
strategic inventory levels in France.
Production costs
Production costs including inventory movements for the year
amounted to MUSD 227.5 (MUSD 150.3) and are detailed in the
table below.
Production costs
2016
2015
Cost of operations
– In MUSD
– In USD per boe
Tariff and transportation expenses
– In MUSD
– In USD per boe
Royalty and direct production taxes
– In MUSD
– In USD per boe
Cash operating costs
– In MUSD
– In USD per boe
Change in inventory position
– In MUSD
– In USD per boe
Other
– In MUSD
– In USD per boe
Total production costs
– In MUSD
– In USD per boe
166.0
6.25
121.1
10.27
37.9
1.43
3.3
0.12
11.8
1.00
3.5
0.29
207.2
7.80
136.4
11.56
-1.8
-0.07
22.1
0.83
227.5
8.56
-12.6
-1.07
26.5
2.25
150.3
12.74
Note: USD per boe is calculated by dividing the cost by total production
volume for the year.
79
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Directors’ Report
The total cost of operations for the year was MUSD 166.0
(MUSD 121.1). The increase compared to the same period last
year is mainly due to the contribution of the Edvard Grieg field
which commenced production in November 2015. The total
cost of operations excluding operational projects amounted to
MUSD 151.7 (MUSD 102.7).
The cost of operations per barrel for the year amounted to
USD 6.25 (USD 10.27) including operational projects and
USD 5.71 (USD 8.71) excluding operational projects. This was
below guidance given at the third quarter of USD 6.50 including
operational projects and USD 5.85 excluding operational.
Tariff and transportation expenses for the year amounted to
MUSD 37.9 (MUSD 11.8). The increase compared to the same
period last year is mainly due the impact of the Edvard Grieg
field.
Other costs amounted to MUSD 22.1 (MUSD 26.5) and mainly
related to the operating cost share arrangement on the Brynhild
field whereby the amount of operating cost varies with the
oil price until mid-2017. This arrangement is being marked-
to-market against the oil price curve and due to the low oil
price curve at the end of 2015 an asset was recognised as at
31 December 2015. This asset is being charged to the income
statement over the remaining term of the arrangement.
Depletion and decommissioning costs
Depletion and decommissioning costs amounted to MUSD 471.4
(MUSD 260.6) and are detailed in Note 3. The depletion costs
associated with oil and gas properties amounted to MUSD 473.9
(MUSD 258.0) at an average rate of USD 17.84 (USD 21.88) per
barrel. The higher depletion costs for the year compared to last
year are due to the depletion charge associated with the Edvard
Grieg field, partly offset by a lower Brynhild field depletion rate
following the impairment of the carrying value at the end of
2015. Decommissioning costs released to the income statement
in the year amounted to MUSD 2.5 (MUSD 2.6 charge) and
related to the reduction in the site restoration estimate for the
Gaupe field, Norway.
Depreciation of other assets amounted to MUSD 31.1
(MUSD 23.7) for the year and related to the Bertam FPSO which
was depreciated from April 2015.
Exploration costs
Exploration costs expensed in the income statement for the
year amounted to MUSD 116.1 (MUSD 184.1) and are detailed in
Note 3. Exploration and appraisal costs are capitalised as they
are incurred. When exploration drilling is unsuccessful, the
capitalised costs are expensed. All capitalised exploration costs
are reviewed on a regular basis and are expensed where their
recoverability is considered highly uncertain.
During the year, exploration costs relating to Norway of
MUSD 101.9 were expensed and mainly related to the
uncommercial exploration wells that were drilled in PL700
(Lorry), PL544 (Fosen) and PL609 (Neiden). In addition,
exploration costs were expensed relating to Malaysia of
MUSD 13.1 following the drilling of the unsuccessful Bambazon
and Maligan wells in SB307/308.
Impairment costs
Non-cash impairment costs charged to the income statement
for the year amounted to MUSD 632.1 (MUSD 737.0) following
a decision to remove the contingent resources associated with
the gas discoveries in the Sabah region offshore East Malaysia
and the Tembakau gas discovery in PM307 offshore Peninsular
Malaysia, as well as the Morskaya oil discovery in the Russian
Caspian Sea. Management deems that it is unlikely that any of
these discoveries will be developed in the foreseeable future.
A pre-tax impairment cost of MUSD 506.1 was charged to the
income statement in respect of Russia with a deferred tax credit
of MUSD 83.5, giving a net after tax charge of MUSD 422.6. The
impairment cost for Malaysia charged to the income statement
was MUSD 126.0 with no associated tax credit.
Other cost of sales
Other cost of sales for the year amounted to MUSD 2.1
(MUSD –) and related to the purchase of crude oil from a third
party and marketed by the Group along with its own crude.
Sale of assets
Sale of assets amounted to a charge of MUSD 3.5 (MUSD –)
for the year. The reported charge related to the disposal of
the Indonesian business which completed on 28 April 2016.
The effective date of the deal was 1 October 2015 for a cash
consideration of MUSD 22.
General, administrative and depreciation expenses
The general administrative and depreciation expenses for the
year amounted to MUSD 31.9 (MUSD 39.5) which included a
charge of MUSD 4.6 (MUSD 7.1) in relation to the Group’s long-
term incentive plans (LTIP), see Note 25. Fixed asset depreciation
expenses for the year amounted to MUSD 4.3 (MUSD 5.2).
Finance income
Finance income for the year amounted to MUSD 22.6 (MUSD 7.4)
and is detailed in Note 4.
The net foreign currency exchange gain for the year
amounted to MUSD 15.0 (loss of MUSD 507.3). 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’s reporting entities. Lundin Petroleum
has hedged certain foreign currency operational expenditure
amounts against the US Dollar and for the year, the net realised
exchange loss on settled foreign exchange hedges amounted to
MUSD 29.1 (MUSD 132.7).
80
Lundin Petroleum Annual Report 2016 Finance costs
Finance costs for the year amounted to MUSD 225.4
(MUSD 617.9) and are detailed in Note 5.
Interest expenses for the year amounted to MUSD 137.3
(MUSD 71.4) and represented the portion of interest charged
to the income statement. An additional amount of interest
of MUSD 23.4 (MUSD 40.2) associated with the funding of the
Norwegian development projects was capitalised in the year.
The total interest expense has increased compared to last year
mainly due to the increased borrowings to fund the capital
expenditure. The result on interest rate hedge settlements
amounted to a loss of MUSD 19.5 (MUSD 6.9) and increased
compared to last year due to the higher fixed interest rate that
was hedged in 2016 compared to 2015.
The amortisation of the deferred financing fees amounted
to MUSD 43.2 (MUSD 12.4) for the year and related to the
expensing of the fees incurred in establishing the new group
financing facility and the Norwegian exploration refund facility
over the period of usage of the facilities. In addition, the
unamortised portion of the capitalised financing fees incurred
in establishing the previous financing facilities and the short
term revolving credit facility were expensed during the second
quarter of 2016 and amounted to MUSD 22.3.
Tax
The overall tax credit for the year amounted to MUSD 59.3
(MUSD 570.1).
The current tax credit for the year amounted to MUSD 80.6
(MUSD 280.6) which included MUSD 78.9 (MUSD 283.3) relating
to the tax refund on Norwegian exploration and appraisal
expenditure.
The deferred tax charge for the year amounted to MUSD 21.3
(credit of MUSD 289.5) and included a deferred tax charge of
MUSD 98.5 relating to Norway, primarily on the difference in
depletion for tax and accounting purposes. A deferred tax credit
of MUSD 83.5 in relation to the Russian impairment charge was
also recognised in the fourth quarter of 2016.
The Group operates in various countries and fiscal regimes
where corporate income tax rates are different from the
regulations in Sweden. Corporate income tax rates for the
Group vary between 20 and 78 percent. The effective tax rate
for the year is affected by items which do not receive a full tax
credit such as the reported impairment charges and Malaysian
exploration costs, and by the uplift allowance applicable in
Norway for development expenditures against the offshore tax
regime.
Non-controlling interest
The net result attributable to non-controlling interest for the
year amounted to MUSD -142.6 loss (loss of MUSD -4.6) and
related mainly to the non-controlling interest’s share in a
Russian subsidiary which is fully consolidated. The net result for
the year included the impairment of the Morskaya oil discovery
in the Russian Caspian Sea.
Balance sheet
Non-current assets
Oil and gas properties amounted to MUSD 4,376.4
(MUSD 4,015.4) and are detailed in Note 7.
Development and exploration and appraisal expenditure
incurred for the year was as follows:
Development expenditure
in MUSD
Norway
Malaysia
France
Netherlands
Indonesia
2016
877.1
15.2
2.8
2.5
0.1
897.7
2015
880.7
130.1
16.9
2.7
-1.1
1,029.3
An amount of MUSD 877.1 (MUSD 880.7) of development
expenditure was incurred in Norway during the year, primarily
on the Johan Sverdrup and Edvard Grieg field developments. In
Malaysia, MUSD 15.2 (MUSD 130.1) was incurred during the year
primarily on the Bertam field A15 development well.
Exploration and appraisal expenditure
in MUSD
Norway
Malaysia
France
Russia
Indonesia
Netherlands
2016
142.1
14.2
0.3
1.4
0.3
0.1
158.4
2015
370.2
33.3
0.4
5.3
3.1
1.5
413.8
Exploration and appraisal expenditure of MUSD 142.1
(MUSD 370.2) was incurred in Norway during the year, primarily
on the Neiden in PL609 and the Filicudi in PL533 exploration
wells in the fourth quarter of 2016, the Alta-3 appraisal well in
PL609, the Fosen well in PL544 and the Lorry well in PL700. In
Malaysia, MUSD 14.2 (MUSD 33.3) was incurred during the year
mainly on the Bambazon and Maligan wells in SB307/308.
In addition, MUSD 456.1 was added to the oil and gas properties
at 30 June 2016 and related to the additional 15 percent of the
Edvard Grieg field acquired from Statoil.
Other tangible fixed assets amounted to MUSD 166.1
(MUSD 204.3) and included the accounting book value of the
Bertam FPSO.
Goodwill associated with the accounting for the Edvard
Grieg transaction amounted to MUSD 128.1 (MUSD –) and is
described in the section Edvard Grieg transaction, see pages
73–74.
Financial assets amounted to MUSD 9.4 (MUSD 10.7) and are
detailed in Note 10. Other shares and participations amounted
to MUSD 8.9 (MUSD 4.1) and related to the shares held in
ShaMaran Petroleum which are reported at market value with
81
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Directors’ Report
any change in value being recorded in other comprehensive
income.
Deferred tax assets amounted to MUSD 13.5 (MUSD 13.4) and
are mainly related to Malaysia following the impairment of the
Bertam field at year end 2015 resulting in the depreciable tax
pool value being higher than the accounting book value.
Derivative instruments amounted to MUSD 17.0 (MUSD –) and
related to the marked-to-market gain on the outstanding interest
rate hedge contracts due to be settled after twelve months.
Current assets
Inventories amounted to MUSD 54.9 (MUSD 45.6) and included
both hydrocarbon inventories and well and operational supplies
mainly held in Norway and Malaysia.
Trade and other receivables amounted to MUSD 288.9
(MUSD 159.3) and are detailed in Note 12. Trade receivables,
which are all current, amounted to MUSD 193.4 (MUSD 35.2).
Underlift amounted to MUSD 28.9 (MUSD 26.5) and was mainly
attributable to a net underlift position on the Norwegian
producing fields, Edvard Grieg and Brynhild. Joint operations
debtors relating to various joint venture receivables amounted
to MUSD 31.2 (MUSD 48.4). Prepaid expenses and accrued
income amounted to MUSD 29.4 (MUSD 29.5) and represented
prepaid operational and insurance expenditure. Brynhild
operating cost share amounted to MUSD 3.0 (MUSD 14.7) and
related to marked-to-market valuation of the arrangement
where the share of the Brynhild field operating cost varies
with the oil price. Other current assets amounted to MUSD 3.0
(MUSD 5.0) and included VAT and other miscellaneous
receivable balances.
Derivative instruments amounted to MUSD 0.8 (MUSD –) and
related to the marked-to-market gain on outstanding interest
rate hedge contracts due to be settled within twelve months.
Current tax assets amounted to MUSD 77.5 (MUSD 264.7) of
which MUSD 76.9 related to the Norwegian corporate tax refund
in respect of 2016 which will be received in the fourth quarter
of 2017.
Cash and cash equivalents amounted to MUSD 69.5 (MUSD 71.9).
Cash balances are held to meet ongoing operational funding
requirements.
Non-current liabilities
Financial liabilities amounted to MUSD 4,048.3 (MUSD 3,834.8)
and are detailed in Note 15. Bank loans amounted to
MUSD 4,145.0 (MUSD 3,858.0) and related to the outstanding
loan under the Group’s reserve-based lending facility.
Capitalised financing fees relating to the establishment costs of
the financing facilities amounted to MUSD 96.7 (MUSD 23.2) and
are being amortised over the period of usage of the financing
facilities.
Provisions amounted to MUSD 420.0 (MUSD 379.9) and
are detailed in Note 16. The provision for site restoration
amounted to MUSD 407.1 (MUSD 368.2) and related to future
decommissioning obligations. The provision has increased
during the year due to additions relating to the Norwegian
development projects and by MUSD 24.2 relating to the
additional 15 percent of the Edvard Grieg field acquired
at 30 June 2016. Farm-in payment amounted to MUSD 5.5
(MUSD 4.6) and related to a provision for payments towards
historic costs based on production milestones on the Bertam
field, Malaysia.
Deferred tax liabilities amounted to MUSD 669.3 (MUSD 542.6)
of which MUSD 621.3 (MUSD 407.9) related to Norway and
included a net deferred tax liability of MUSD 111.0 related to
the additional 15 percent of Edvard Grieg. 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.
Derivative instruments amounted to MUSD 29.8 (MUSD 48.4)
and related to the marked-to-market loss on outstanding interest
rate and currency hedge contracts due to be settled after twelve
months.
Other non-current liabilities amounted to MUSD 33.8
(MUSD 32.2) and related to the full consolidation of a subsidiary
in which the non-controlling interest entity has made funding
advances in relation to LLC PetroResurs, Russia.
Current liabilities
Trade and other payables amounted to MUSD 308.4
(MUSD 349.9) and are detailed in Note 17. Overlift amounted
to MUSD 29.9 (MUSD –) and was mainly attributable to a net
overlift position on the Greater Alvheim area producing fields.
Joint operations creditors and accrued expenses amounted
to MUSD 238.8 (MUSD 271.5) and related mainly to the
development and drilling activity in Norway. Other accrued
expenses amounted to MUSD 16.9 (MUSD 23.7) and other
current liabilities amounted to MUSD 9.5 (MUSD 11.4).
Derivative instruments amounted to MUSD 37.6 (MUSD 66.1)
and related to the marked-to-market loss on outstanding interest
rate and currency hedge contracts due to be settled within
twelve months.
Current provisions amounted to MUSD 6.9 (MUSD 4.8) and
related to the current portion of the provision for Lundin
Petroleum’s Unit Bonus Plan.
Annual General Meeting
The Annual General Meeting will be held in Stockholm on
4 May 2017.
82
Lundin Petroleum Annual Report 2016 Board’s Proposal for Remuneration to Group
management
The intention of the Board of Directors is to propose to the
2017 AGM the adoption of a Policy on Remuneration for 2017
that follows in essence the same principles as applied in 2016
and that contains similar elements of remuneration for Group
management as the 2016 Policy on Remuneration being base
salary, yearly variable salary, Long-term Incentive Plan (LTIP)
and other benefits.
The Board will propose that the AGM also resolve on a long-
term, performance-based incentive plan in respect of Group
management and a number of key employees of Lundin
Petroleum, which follows the same principles as LTIP 2014, LTIP
2015 and LTIP 2016 approved by the 2014 AGM, the 2015 AGM
and the AGM 2016 respectively. LTIP 2017 gives the participants
the possibility to receive shares in Lundin Petroleum subject to
the fulfilment of a performance condition under a three year
performance period commencing on 1 July 2017 and expiring
on 1 July 2020. 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 be granted awards free
of charge which, provided that 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 2017. The total number of
performance shares that may be allotted under LTIP 2017 is
465,000, corresponding to approximately 0.1 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 reflected in the outcome of
the performance condition, for example, in light of operating
cash flow, 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 2017, or perform any shareholders’ rights regarding the
LTIP awards during the performance period. The LTIP awards
entitle participants to acquire already existing shares. The
Board of Directors will consider means to secure the Company’s
expected financial exposure related to LTIP 2017. 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
Remuneration as per prevailing market conditions may
further be paid to members of the Board of Directors for work
performed outside the directorship.
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 specific case.
For a detailed description of the Policy on Remuneration applied
in 2016, see the Corporate Governance report on pages 64–65.
The remuneration to Board and Group management is detailed in
Notes 24 and 25.
Share information
For the AGM resolution on the authorisation to issue new shares,
see pages 14–15, Share and Shareholders.
Dividend
The Board of Directors propose that no dividend be paid for the
year. For details of the dividend policy, see pages 14–15, Share
and Shareholders.
Proposed disposition of unappropriated earnings
The Board of Directors propose that the unrestricted equity of the
Parent Company of MSEK 11,348.1, including the net result for
the year of MSEK -103.3 be brought forward.
Changes in Board of Directors
At the 2017 AGM, all the current members of the Board of
Directors will be proposed for re-election, except Magnus Unger
who has declined to stand for re-election. Jakob Thomasen will be
proposed for election as a new member of the Board of Directors.
Financial statements
The result of the Group’s operations and financial position at
the end of the financial year are shown in the following income
statement, statement of comprehensive income, balance sheet,
statement of cash flow, 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 flow, statement of changes in equity and
related notes presented in Swedish Krona can be found on pages
118–123.
Subsequent events
Subsequent events are detailed in Note 27.
Corporate Governance report
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 pages
50–70.
Sustainability report
Lundin Petroleum has issued a Sustainability Report which is
separate from the Financial Statements. The Sustainability Report
is available on www.lundin-petroleum.com
Report on payments to government
Lundin Petroleum has issued a Report on payments to
government which is separate from the Financial Statements.
The Report on payments to government is available on
www.lundin-petroleum.com.
83
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Consolidated Income Statement
for the Financial Year Ended 31 December
Expressed in MUSD
Revenue
Cost of sales
Production costs
Depletion and decommissioning costs
Depreciation of other assets
Exploration costs
Impairment costs of oil and gas properties
Other cost of sales
Gross profit/loss
Sale of assets
General, administration and depreciation expenses
Operating profit/loss
Result from financial investments
Finance income
Finance costs
Profit/loss before tax
Income tax
Net result
Attributable to:
Shareholders of the Parent Company
Non-controlling interest
Note
1
2
7
8
7
7
3
4
5
6
Earnings per share – USD1
Earnings per share fully diluted – USD1
14.3
14.3
1 Based on net result attributable to shareholders of the Parent Company.
2016
1,159.9
-227.5
-471.4
-31.1
-116.1
-632.1
-2.1
-320.4
-3.5
-31.9
-355.8
22.6
-225.4
-202.8
-558.6
59.3
-499.3
-356.7
-142.6
-499.3
-1.09
-1.09
2015
569.3
-150.3
-260.6
-23.7
-184.1
-737.0
–
-786.4
–
-39.5
-825.9
7.4
-617.9
-610.5
-1,436.4
570.1
-866.3
-861.7
-4.6
-866.3
-2.79
-2.79
84
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Consolidated Statement of Comprehensive Income
for the Financial Year Ended 31 December
Expressed in MUSD
Net result
Items that may be subsequently reclassified to profit or loss
Exchange differences foreign operations
Cash flow hedges
Available-for-sale financial assets
Other comprehensive income
Total comprehensive income
Attributable to:
Shareholders of the Parent Company
Non-controlling interest
2016
-499.3
13.8
64.3
5.3
83.4
-415.9
-278.2
-137.7
-415.9
2015
-866.3
-81.7
6.9
-3.7
-78.5
-944.8
-934.8
-10.0
-944.8
85
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Consolidated Balance Sheet
for the Financial Year Ended 31 December
Expressed in MUSD
ASSETS
Non-current assets
Oil and gas properties
Other tangible fixed assets
Goodwill
Financial assets
Deferred tax assets
Derivative instruments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative instruments
Current tax assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Additional paid in capital
Other reserves
Retained earnings
Net result
Shareholders’ equity
Non-controlling interest
Total equity
Liabilities
Non-current liabilities
Financial liabilities
Provisions
Deferred tax liabilities
Derivative instruments
Other non-current liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Derivative instruments
Current tax liabilities
Provisions
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
86
Note
2016
2015
7
8
9
10
6
18
11
12
18
6
13
14.1
14.1
14.2
15
16
6
18
17
18
6
16
4,376.4
166.1
128.1
9.4
13.5
17.0
4,710.5
54.9
288.9
0.8
77.5
69.5
491.6
4,015.4
204.3
–
10.7
13.4
–
4,243.8
45.6
159.3
–
264.7
71.9
541.5
5,202.1
4,785.3
0.5
979.1
-430.8
-430.7
-356.7
-238.6
-113.6
-352.2
4,048.3
420.0
669.3
29.8
33.8
5,201.2
308.4
37.6
0.2
6.9
353.1
5,554.3
5,202.1
0.5
445.0
-509.3
427.3
-861.7
-498.2
24.1
-474.1
3,834.8
379.9
542.6
48.4
32.2
4,837.9
349.9
66.1
0.7
4.8
421.5
5,259.4
4,785.3
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Consolidated Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MUSD
Cash flow from operations
Net result
Adjustments for:
Exploration costs
Depletion, depreciation and amortisation
Impairment of oil and gas properties
Current tax
Deferred tax
Long-term incentive plans
Foreign currency exchange gain/loss
Interest expense
Capitalised financing fees
Other
Interest received
Interest paid
Income taxes paid/received
Changes in working capital:
Changes in inventories
Changes in underlift position
Changes in receivables
Changes in overlift position
Changes in liabilities
Total cash flows from operating activities
Cash flows from investing activities
Investment in oil and gas properties
Investment in other fixed assets
Investment in subsidiaries
Investment in other shares and participations1
Decommissioning costs paid
Disposal of subsidiary2
Other
2016
-499.3
116.1
509.2
632.1
-80.6
21.3
15.6
-44.1
137.3
43.2
21.3
2.3
-153.7
278.4
-13.0
-2.4
156.5
29.9
-391.9
778.2
2015
-866.3
184.1
286.9
737.0
-280.6
-289.5
15.2
374.6
71.3
12.4
28.5
6.1
-110.1
335.6
-4.0
-22.9
-21.4
–
-145.4
311.5
-1,055.7
-1,443.3
0.6
–
25.8
-10.7
23.7
–
-36.0
-0.1
-3.7
-10.6
–
-0.5
Total cash flows from investing activities
-1,016.3
-1,494.2
Cash flows from financing activities
Changes in long-term liabilities
Financing fees paid
Issuance of shares/Sale of treasury shares3
Total cash flows from financing activities
Changes in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Currency exchange difference in cash and cash equivalents
Cash and cash equivalents at the end of the year
288.7
-114.3
64.1
238.5
0.4
71.9
-2.8
69.5
1,171.0
-3.3
–
1,167.7
-15.0
80.5
6.4
71.9
1 Cash received on closing of the Edvard Grieg transaction with Statoil ASA.
² Cash received on the sale of the Indonesian business on closing including settlement of net working capital.
3 Cash received on the additional sale of newly issued and treasury shares to Statoil ASA.
The effects of currency exchange differences due to the translation of foreign group companies have been excluded as these effects do
not affect the cash flow. Cash and cash equivalents comprise cash and short-term deposits maturing within less than three months.
87
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Consolidated Statement of Changes in Equity
for the Financial Year Ended 31 December
Balance at 31 December 2015
0.5
445.0
-509.3
-434.4
-498.2
Attributable to owners of the Parent Company
Share
capital1
Additional
paid-in-
capital
Other
reserves2
Retained
earnings
0.5
445.0
-436.2
422.2
Non-
controlling
interest
34.2
-4.6
-5.4
–
–
Total
431.5
-861.7
-76.3
6.9
-3.7
Total
equity
465.7
-866.3
-81.7
6.9
-3.7
-861.7
–
–
–
-861.7
-934.8
-10.0
-944.8
–
5.1
5.1
–
5.1
5.1
-0.1
–
-0.1
24.1
-0.1
5.1
5.0
-474.1
-356.7
-356.7
-142.6
-499.3
–
–
–
8.9
64.3
5.3
4.9
–
–
13.8
64.3
5.3
-356.7
-278.2
-137.7
-415.9
–
3.7
3.7
534.1
3.7
537.8
-238.6
–
–
–
-113.6
534.1
3.7
537.8
-352.2
-430.8
-787.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-76.3
6.9
-3.7
-73.1
–
–
–
–
8.9
64.3
5.3
78.5
–
–
–
Expressed in MUSD
Balance at 1 January 2015
Comprehensive income
Net result
Currency translation difference
Cash flow hedges
Available-for-sale financial assets
Total comprehensive income
Transactions with owners
Investment in subsidiaries
Value of employee services
Total transactions with owners
Comprehensive income
Net result
Currency translation difference
Cash flow hedges
Available-for-sale financial assets
Total comprehensive income
Transactions with owners
Share issuance
Value of employee services
Total transactions with owners
Balance at 31 December 2016
–
–
–
–
–
0.0
–
0.0
0.5
–
–
–
–
–
534.1
–
534.1
979.1
1 Lundin Petroleum AB’s issued share capital described in detail in Note 14.1.
2 Other reserves are described in detail in Note 14.2.
88
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Accounting Policies
Basis of preparation
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 specified in the
Parent Company accounting policies on page 118.
The preparation of financial 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 significant to the consolidated
financial statements are disclosed under the headline “Critical
accounting estimates and judgements”. The consolidated
financial statements have been prepared under the historical
cost convention, as modified by the revaluation of available
for sale financial assets and financial assets and liabilities
(including derivative instruments) at fair value through other
comprehensive income.
Accounting standards, amendments and
interpretations
As from 1 January 2016, Lundin Petroleum has applied the
following new accounting standards: Annual Improvements to
IFRSs - 2012–2014 Improvements Cycle.
The adoption of these amendments did not have any impact on
the consolidated financial statements of the Group.
The Group has not adopted the following standards and
interpretations that are not mandatory for the financial year
2016.
IFRS 9 Financial instruments, the standard addresses the
classification, measurement and recognition of financial assets
and financial liabilities. Effective from 1 January 2018.
IFRS 15 Revenue from contract with customers, the standard
addresses revenue recognition and establishes principles for
reporting useful information to users of financial statements.
Effective from 1 January 2018.
The Group is currently assessing the potential effect on the
Group’s consolidated financial statements of the standards not
yet applicable. At this stage of analysis, the Group does not
expect the impact on its consolidated financial statements to be
material.
IFRS 16 Leases, this standard will replace IAS 17 “Leases” and
requires assets and liabilities arising from all leases, with some
exceptions, to be recognised on the balance sheet. Effective from
1 January 2019.
The Group is yet to assess the full impact of this standard.
Principles of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the
entity. 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.
Identifiable 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-
by-acquisition basis, either at fair value or at the non-controlling
interest’s proportionate share of the recognised amounts of the
acquiree’s identifiable net assets.
Inter-company transactions, balances, income and expenses
on transactions between group companies are eliminated.
Profits and losses resulting from intercompany transactions are
also eliminated. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies
adopted by the group.
Joint arrangements
Oil and gas operations are conducted by the Group as co-licences
in unincorporated joint operations with other companies, These
joint operations are a type of joint arrangement whereby the
parties have joint control. The Group’s financial statements
account for the production, capital costs, operating costs and
current assets and liabilities relating to its working interests in
joint arrangements.
Information about incorporated joint arrangements is available
on www.lundin-petroleum.com.
Other shares and participations
Investments where the shareholding is less than 20 percent of
the voting rights are treated as available for sale financial assets.
If the value of these assets has declined significantly 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 are
recognised in the income statement as part of net financial
items.
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Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Accounting Policies
Foreign currencies
Items included in the financial 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 financial statements are presented
in US Dollars, which is the currency the Group has elected to
use as the presentation currency.
Transactions and balances
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
finance income/costs in the income statement except deferred
exchange differences on qualifying cash flow hedges which are
recorded in other comprehensive income.
Presentation currency
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
financing exploration activities, are recorded directly in other
comprehensive income.
For the preparation of the annual financial statements, the
following currency exchange rates have been used.
31 December 2016
31 December 2015
Average Period end
Average Period end
1 USD equals NOK
8.4014
8.6200
8.0637
1 USD equals EUR
0.9037
0.9487
0.9012
1 USD equals SEK
8.5610
9.0622
8.4303
8.8090
0.9185
8.4408
Classification of assets and liabilities
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 properties
Oil and gas properties 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
field 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 field 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 field 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
confidence 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 indicate are less likely to be
recovered than Proved reserves but more certain to be recovered
than Possible reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of
the estimated Proved plus Probable reserves (2P). In this context,
when probabilistic methods are used, there should be at least a
50 percent probability that the actual quantities recovered will
equal or exceed the 2P estimate.
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
the costs capitalised included in the income statement. In the
event of a sale in the exploration stage, any deficit 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 field area less any
provision for site restoration costs, royalties and deferred
90
Lundin Petroleum Annual Report 2016 production or revenue related taxes is higher than the
anticipated future net cash flow from oil and gas reserves
attributable to the Group’s interest in the related field areas.
Capitalised costs cannot be carried unless those costs can be
supported by future cash flows 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 flows
using prices and cost levels used by Group management in their
internal forecasting. If there is no decision to continue with a
field specific exploration programme, the costs will be expensed
at the time the decision is made.
Other tangible assets
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 three to five years for office equipment and
other assets. The FPSO located on the Bertam field, Malaysia, is
being depreciated over the committed contract term.
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 benefits associated
with the item will flow 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.
Goodwill
Goodwill is initially measured as the excess of the aggregate
of the consideration transferred and the fair value of non-
controlling interest over the net identifiable assets acquired and
liabilities assumed. If this consideration is lower than the fair
value of the net assets acquired, the difference is recognised in
profit or loss.
Goodwill is also recognised as the offsetting accounting entry to
the deferred tax liability booked on the difference between the
assigned fair value of an asset and the related tax base acquired
in a business combination.
Impairment of assets including goodwill
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 flows to their present value using a
discount rate that reflects current market assessments of the
time value of money and the risks specific 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.
Financial assets and liabilities
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 flows 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 financial assets and
liabilities:
· Loans and receivables and other financial assets are carried
at amortised cost using the effective interest method less
provision for impairment. Translation differences are
reported in the income statement except for the translation
differences arising from long-term loans to subsidiaries used
for financing exploration activities and for which no fixed
terms of repayment exist, which are recorded directly in other
comprehensive income.
· Other shares and participations (available for sale financial
assets) are valued at fair value and any change in fair value
is recorded directly in the fair value reserve within other
comprehensive income until realised. Where other shares and
participations do not have a quoted market price in an active
market and whose fair value cannot be measured reliably,
they are accounted for at cost less impairment if applicable.
A gain or a loss on available for sale financial assets shall
be recognised in other comprehensive income, except for
impairment losses and foreign exchange gains and losses until
the financial asset is derecognised.
· Derivative instruments are initially recognised at fair value
on the date a derivative contract is entered into and are
subsequently remeasured at their fair value. The method of
recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument. The Group
also documents its assessment, both at hedge inception and on
an ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. When derivatives
do not qualify for hedge accounting, changes in fair value are
recognised immediately in the income statement.
91
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Accounting Policies
The Group has only cash flow hedges which qualify for hedge
accounting. The effective portion of changes in the fair value
of derivatives that qualify as cash flow 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
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 field 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 field is included in the
current liabilities and valued at the reporting date spot price or
prevailing contract price.
Cash and cash equivalents
Cash and cash equivalents include cash at bank, cash in hand
and interest bearing securities with original maturities of three
months or less.
Equity
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 available for sale 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 hedged item will be
transferred to 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.
Provisions
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 outflow 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 reflects current market assessments of the time value
of money and the risks specific to the obligation. The increase
in the provision due to passage of time is recognised as finance
costs.
On fields 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 field
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 field and is charged to financial expenses. Changes in
site restoration costs and reserves are treated prospectively and
consistent with the treatment applied upon initial recognition.
Borrowings
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 financial 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 financial liability, or a shorter
period where appropriate.
Revenue
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 proved and
probable reserves are determined and commercial production
has commenced.
92
Lundin Petroleum Annual Report 2016 Lifting or offtake arrangements for oil and gas produced in
certain of the Group’s jointly owned operations are such that
each participant may not receive and sell its precise share of
the overall production in each period. The resulting imbalance
between cumulative entitlement and cumulative production
after permanent differences less stock is underlift or overlift.
Underlift and overlift are valued at market value and included
within receivables and payables respectively. Movements during
an accounting period are reflected through the change in under/
overlift position as part of revenue.
Service income, generated by providing technical and
management services to joint operations, is recognised as other
income. The fiscal regime in the area of operations defines
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
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 specific
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 finance fields
under development which is capitalised within oil and gas
properties until production commences. All other borrowing
costs are recognised in the income statement in the period
in which they occur. Interest on borrowings to finance the
acquisition of producing oil and gas properties is charged to the
income statement as incurred.
Employee benefits
Short-term employee benefits
Short-term employee benefits such as salaries, social premiums
and holiday pay, are expensed when incurred.
Pension obligations
Pensions are the most common long-term employee benefits.
The pension schemes are funded through payments to
insurance companies. The Group’s pension obligations consist
mainly of defined contribution plans. A defined contribution
plan is a pension plan under which the Group pays fixed
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 defined benefit plan.
The relating liability recognised in the balance sheet is valued
at the discounted estimated future cash outflows 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.
Share-based payments
Cash-settled share-based payments are recognised 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. Equity-settled share-
based payments are recognised in the income statement as
expenses during the vesting period and as equity in the Balance
Sheet. The option is measured at fair value at the date of grant
using an options pricing model and is charged to the income
statement over the vesting period without revaluation of the
value of the option.
Income taxes
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 financial 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 profit 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
93
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Accounting Policies
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 profit 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.
Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision
maker being Group management, which, due to the unique
nature of each country’s operations, commercial terms or fiscal
environment, is at a country level. Information for segments
is only disclosed when applicable. Segmental information is
presented in Note 3, Note 6 and Note 7.
Critical accounting estimates and judgements
The management of Lundin Petroleum has to make estimates
and judgements when preparing the financial 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 in oil and gas reserves
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 132 Reserve Quantity Information.
Changes in estimates of oil and gas reserves, resulting in
different future production profiles, will affect the discounted
cash flows 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 inflation 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.
Impairment of oil and gas properties
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 flows 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 flow estimates and the discount rate applied is
reviewed throughout the year. Goodwill relating to acquisitions
of oil and gas properties forms part of the impairment testing of
oil and gas properties.
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.
Provision for site restoration
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 outflows in
relation to the site decommissioning and restoration can be
different. To reflect 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 field. 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 16.
Income tax
A tax liability is recognised when a future payment, in
application of a tax regulation, is considered probable and can
be reasonably estimated. The exercise of judgment is required to
assess the impact of new events on the amount of the liability.
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that future taxable profits will be
available against which the losses can be utilised. Estimation
and judgement is required to determine the value of the
deferred tax asset, based upon the timing and level of future
taxable profits.
Events after the balance sheet date
All events up to the date when the financial statements were
authorised for issue and which have a material effect in the
financial statements have been disclosed. Subsequent events are
presented in Note 27.
94
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Notes to the Financial Statements
of the Group
Note 1 – Revenue
MUSD
Crude oil
Condensate
Gas
Net sales of oil and gas
Change in under/over lift position
Other revenue
2016
1,068.8
14.7
83.0
1,166.5
-28.9
22.3
1,159.9
For further information on revenue, see the Directors Report on page 79.
Note 2 – Production Costs
MUSD
Cost of operations
Tariff and transportation expenses
Direct production taxes
Change in inventory position
Other production costs
2016
166.0
37.9
3.3
-1.8
22.1
227.5
For further information on production costs, see the Directors Report on pages 79–80.
Note 3 – Segment Information
2015
436.5
0.6
83.9
521.0
25.6
22.7
569.3
2015
121.1
11.8
3.5
-12.6
26.5
150.3
The Group operates within several geographical areas. Operating segments are reported at country level which is consistent with the internal
reporting provided to Group management.
The following tables present segment information regarding; revenue, production costs, exploration costs, impairment costs of oil and
gas properties, gross profit/loss and certain asset and liability information regarding the Group’s business segments. In addition segment
information is reported in Note 6 and 7.
Revenues are derived from various external customers. There were no intercompany sales or purchases in the year or in the previous year other
than to Lundin Petroleum Marketing SA which performs trading activities for Norway, 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. Approximately 50 percent of the total revenue is contracted with one customer. The Parent
Company is included in Other in the table below.
MUSD
Norway
Crude oil
Condensate
Gas
Net sales of oil and gas
Change in under/over lift position
Other revenue
Revenue
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Gross profit/loss
2016
901.0
14.3
58.5
973.8
-29.1
1.5
946.2
-168.4
-386.2
-101.9
–
289.7
2015
314.6
–
33.0
347.6
25.9
2.0
375.5
-104.5
-158.9
-146.5
-526.0
-560.4
95
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
continued – Note 3
MUSD
France
Crude oil
Net sales of oil and gas
Change in under/over lift position
Other revenue
Revenue
Production costs
Depletion and decommissioning costs
Exploration costs
Gross profit/loss
Netherlands
Crude oil
Condensate
Gas
Net sales of oil and gas
Change in under/over lift position
Other revenue
Revenue
Production costs
Depletion and decommissioning costs
Exploration costs
Gross profit/loss
Malaysia
Crude oil
Net sales of oil and gas
Other revenue
Revenue
Production costs
Depletion and decommissioning costs
Depreciation of other assets
Exploration costs
Impairment costs of oil and gas properties
Gross profit/loss
Indonesia
Gas
Net sales of oil and gas
Other revenue
Revenue
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Gross profit/loss
Other
Crude oil
Net sales of oil and gas
Other revenue
Revenue
Production costs
Impairment costs of oil and gas properties1
Other cost of sales
Gross profit/loss
2016
2015
39.9
39.9
0.4
1.2
41.5
-20.5
-14.4
-0.1
6.5
–
0.4
15.2
15.6
-0.2
1.7
17.1
-9.9
-9.7
-1.3
-3.8
125.8
125.8
15.1
140.9
-27.3
-61.1
-31.1
-13.1
-126.0
-117.7
9.3
9.3
–
9.3
-1.4
–
-0.3
–
7.6
2.1
2.1
2.8
4.9
0.6
-506.1
-2.1
-502.7
50.6
50.6
-0.2
1.5
51.9
-25.1
-15.5
-0.6
10.7
0.1
0.6
24.0
24.7
-0.1
1.8
26.4
-12.0
-10.7
-0.7
3.0
71.2
71.2
10.8
82.0
-4.4
-66.4
-23.7
-36.3
-191.8
-240.6
26.9
26.9
–
26.9
-4.3
-9.1
–
-19.2
-5.7
–
–
6.6
6.6
–
–
–
6.6
1 The impairment costs of oil and gas properties relates to Russia.
96
Lundin Petroleum Annual Report 2016 continued – Note 3
MUSD
Total
Crude oil
Condensate
Gas
Net sales of oil and gas
Change in under/over lift position
Other revenue
Revenue
Production costs
Depletion and decommissioning costs
Depreciation of other assets
Exploration costs
Impairment costs of oil and gas properties
Other cost of sales
Gross profit/loss
MUSD
Norway
France
Netherlands
Malaysia
Indonesia
Russia
Sweden
Corporate
Other
Intercompany balance elimination
Assets/liabilities per country
Shareholders’ equity
Non-controlling interest
Total equity for the Group
Total consolidated
2016
1,068.8
14.7
83.0
1,166.5
-28.9
22.3
1,159.9
-227.5
-471.4
-31.1
-116.1
-632.1
-2.1
-320.4
2015
436.5
0.6
83.9
521.0
25.6
22.7
569.3
-150.3
-260.6
-23.7
-184.1
-737.0
–
-786.4
Assets
Equity and Liabilities
2016
4,608.4
220.8
75.0
343.6
6.8
0.7
2.6
4,225.0
162.1
-4,442.9
5,202.1
N/A
N/A
N/A
5,202.1
2015
3,429.0
217.4
83.2
572.0
38.9
491.0
2.1
3,370.3
67.4
-3,486.0
4,785.3
N/A
N/A
N/A
4,785.3
2016
4,291.8
121.7
45.1
466.0
195.2
372.2
7.5
4,335.3
162.4
-4,442.9
5,554.3
-238.6
-113.6
-352.2
5,202.1
2015
3,212.8
120.3
50.7
536.0
220.9
441.5
12.7
4,073.1
77.4
-3,486.0
5,259.4
-498.2
24.1
-474.1
4,785.3
For detailed information of the oil and gas properties per country, see also Note 7.
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.
Note 4 – Finance Income
MUSD
Foreign currency exchange gain, net
Interest income
Guarantee fees
Other
2016
15.0
2.3
0.4
4.9
22.6
2015
–
6.1
0.7
0.6
7.4
97
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 5 – Finance Costs
MUSD
Interest expense
Foreign currency exchange loss, net
Result on interest rate hedge settlement
Unwinding of site restoration discount
Amortisation of deferred financing fees
Loan facility commitment fees
Other
2016
137.3
–
19.5
15.2
43.2
9.3
0.9
225.4
2015
71.4
507.3
6.9
10.0
12.4
7.7
2.2
617.9
During 2016, MUSD 23.4 (MUSD 40.2) of interest was capitalised relating to development projects.
Exchange rate variations result primarily from fluctuations 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. For further information on the foreign exchange movement, see the Directors Report on page 80.
Note 6 – Income Tax
Tax charge
MUSD
Current tax
Norway
Netherlands
Russia
Other
Deferred tax
Norway
France
Netherlands
Indonesia
Russia
Malaysia
Total tax
2016
-78.9
-2.2
0.1
0.4
-80.6
98.5
2.9
-0.9
3.8
-83.5
0.5
21.3
-59.3
2015
-283.3
1.7
0.2
0.8
-280.6
-295.7
7.2
4.8
6.6
-0.2
-12.2
-289.5
-570.1
For further information on income taxes, see the Directors Report on page 81.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of Sweden as follows:
MUSD
Loss before tax
Tax calculated at the corporate tax rate in Sweden 22% (22%)
Effect of foreign tax rates
Tax effect of expenses non-deductible for tax purposes
Tax effect of uplift on expenses
Tax effect of income not subject to tax
Tax effect of utilisation of unrecorded tax losses
Tax effect of creation of unrecorded tax losses
Adjustments to prior year tax assessments
Tax credit
2016
-558.6
122.9
-61.0
-136.1
152.0
-0.6
8.3
-24.4
-1.8
59.3
2015
-1,436.4
316.0
417.1
-235.3
99.9
–
9.8
-32.9
-4.5
570.1
The tax rate in Norway is 78 percent and is the primary reason for the effect of foreign tax rates in 2016 in the table above. The effect of
non deductible expenses mainly relates to non deductible financial expenses in Norway and to non deductible exploration expenditures in
Malaysia. The uplift on expenses relates to uplift on development expenses for oil and gas assets in Norway.
98
Lundin Petroleum Annual Report 2016
continued – Note 6
There is no tax charge/credit relating to components of other comprehensive income.
Corporation tax liability - current and deferred
MUSD
Norway
France
Netherlands
Indonesia
Russia
Total tax liability
Current
Deferred
2016
2015
–
–
–
–
0.2
0.2
–
–
0.4
–
0.3
0.7
2016
621.3
50.0
-2.0
–
–
669.3
2015
407.9
47.6
-1.6
3.5
85.2
542.6
There is also a tax receivable of MUSD 77.5 (MUSD 264.7) mainly related to Norway reported in current tax assets as at 31 December 2016.
For further information on tax liabilities, see the Directors Report on page 82.
Specification of deferred tax assets and tax liabilities 1
MUSD
Deferred tax assets
Unused tax loss carry forwards
Other deductible temporary differences
Deferred tax liabilities
Accelerated allowances
Brynhild operating cost share
Deferred tax on excess values
Other taxable temporary differences
2016
708.6
9.6
718.2
1,371.1
1.6
1.1
0.2
1,374.0
2015
508.0
8.2
516.2
955.4
14.6
75.3
0.1
1,045.4
1 The specification 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 Norway for an amount of MUSD 320.7 (MUSD 283.9) and unused
uplift carry forward in Norway of MUSD 374.3 (MUSD 215.3). 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. The deferred tax liability will be released over the life of the assets as the book value is depleted for accounting
purposes.
Unrecognised tax losses
The Group has Dutch tax loss carry forwards of approximately MUSD 211 (MUSD 196). The tax losses can be carried forward and utilised for
up to 9 years. A deferred tax asset of MUSD 53 (MUSD 48) relating to the tax loss carry forwards has not been recognised as at 31 December
2016 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.
The Group also has Swedish tax loss carry forwards of approximately MUSD 47 (MUSD 39). The related deferred tax asset has not been
recognised due to the uncertainty of the timing and extent of the utilisation of the tax losses.
99
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 7 – Oil and Gas Properties
MUSD
Production cost pools
Non-production cost pools
31 December
2016
31 December
2015
2,641.8
1,734.6
4,376.4
2,369.3
1,646.1
4,015.4
2016 production cost pools
MUSD
Cost
1 January
Additions
Change in estimates
Disposal
Reclassifications
Currency translation difference
31 December
Depletion
1 January
Depletion charge for the year
Impairment
Disinvestments
Currency translation difference
31 December
Norway
France
Netherlands
Indonesia
Malaysia
Total
3,567.1
664.4
10.9
–
43.8
65.4
4,351.6
-1,600.1
-388.7
–
–
-27.4
-2,016.2
312.7
2.8
0.8
–
–
-10.0
306.3
-132.6
-14.4
–
–
4.8
-142.2
126.0
2.5
-4.0
–
-1.3
-4.0
119.2
-101.2
-9.7
–
–
3.6
-107.3
64.4
0.1
–
-64.5
–
–
–
-46.8
–
–
46.8
–
–
412.1
15.2
-4.1
–
0.5
0.1
423.8
-232.3
-61.1
–
–
–
-293.4
4,482.3
685.0
3.6
-64.5
43.0
51.5
5,200.9
-2,113.0
-473.9
–
46.8
-19.0
-2,559.1
Net book value
2,335.4
164.1
11.9
–
130.4
2,641.8
2015 production cost pools
MUSD
Cost
1 January
Additions
Change in estimates
Reclassifications
Currency translation difference
31 December
Depletion
1 January
Depletion charge for the year
Impairment
Currency translation difference
31 December
Norway
France
Netherlands
Indonesia
Malaysia
Total
1,896.6
181.1
57.6
1,743.9
-312.1
3,567.1
-1,104.1
-156.3
-526.0
186.3
-1,600.1
332.9
16.9
-2.6
–
-34.5
312.7
-130.7
-15.5
–
13.6
-132.6
133.0
2.3
4.0
–
-13.3
126.0
-100.6
-10.7
–
10.1
-101.2
65.5
-1.1
–
–
–
64.4
-37.7
-9.1
–
–
-46.8
17.6
–
132.0
11.9
268.2
–
412.1
–
-66.4
-165.9
–
-232.3
2,428.0
331.2
70.9
2,012.1
-359.9
4,482.3
-1,373.1
-258.0
-691.9
210.0
-2,113.0
179.8
2,369.3
Net book value
1,967.0
180.1
24.8
100
Lundin Petroleum Annual Report 2016 continued – Note 7
2016 non-production cost pools
MUSD
1 January
Additions
Expensed Exploration costs
Impairment
Change in estimates
Reclassifications
Currency translation difference
31 December
2015 non-production cost pools
MUSD
1 January
Additions
Expensed Exploration costs
Impairment
Change in estimates
Reclassifications
Currency translation difference
31 December
Norway
France Netherlands
Indonesia
Russia Malaysia
Other
Total
1,020.6
834.3
-101.9
–
6.3
-43.8
5.1
1,720.6
6.9
0.3
-0.1
–
–
–
-0.2
6.9
6.6
0.7
-1.3
–
–
1.3
-0.2
7.1
–
0.3
-0.3
–
–
–
–
–
490.2
1.5
–
-506.1
–
–
14.4
–
121.8
14.1
-13.1
-122.3
–
-0.5
–
–
–
-0.6
0.6
–
–
–
–
–
1,646.1
850.6
-116.1
-628.4
6.3
-43.0
19.1
1,734.6
Norway
France
Netherlands
Indonesia
Russia Malaysia
Total
2,168.0
1,109.0
-146.5
–
56.7
-1,743.9
-422.7
1,020.6
8.0
0.4
-0.6
–
–
–
-0.9
6.9
6.2
1.9
-0.7
–
–
–
-0.8
6.6
16.1
3.1
–
-19.2
–
–
–
–
500.9
5.3
–
–
–
–
-16.0
490.2
428.5
23.5
-36.3
-25.9
–
-268.2
0.2
121.8
3,127.7
1,143.2
-184.1
-45.1
56.7
-2,012.1
-440.2
1,646.1
In 2015, the reclassification from Non-production cost pools to Production cost pools mainly related to the Edvard Grieg field, Norway, which
commenced production in November 2015 and to the Bertam field, Malaysia, which commenced production in April 2015.
Impairment
Lundin Petroleum carried out its impairment testing at 31 December 2016 on an asset basis in conjunction with the annual reserves audit
process. Lundin Petroleum used the oil price forward curve at the year end as a basis for its price forecast, a future cost inflation factor of 2%
(2%) per annum and a discount rate of 8% (8%) to calculate the future post-tax cash flows.
Non-cash impairment costs charged to the income statement for the year amounted to MUSD 632.1 (MUSD 737.0) following a decision to
remove the contingent resources associated with the gas discoveries in the Sabah area offshore East Malaysia and the Tembakau gas discovery
in PM307 offshore Peninsular Malaysia, as well as the Morskaya oil discovery in the Russian Caspian Sea. Management deems that it is unlikely
that any of these discoveries will be developed in the foreseeable future. A pre-tax impairment cost of MUSD 506.1 was charged to the income
statement in respect of Russia with a deferred tax credit of MUSD 83.5, giving a net after tax charge of MUSD 422.6. The impairment cost for
Malaysia charged to the income statement was MUSD 122.3 with no associated tax credit. In addition, inventory well supplies in Malaysia were
impaired for an amount of MUSD 3.7 in 2016. For further information on impairment, see the Directors Report on page 80.
Capitalised borrowing costs
During 2016, MUSD 23.4 (MUSD 40.2) of capitalised interest costs were added to oil and gas properties and relate to Norwegian and Malaysian
development projects. The interest rate for capitalised borrowing costs is calculated at the external facility borrowing rate of LIBOR plus a
margin of 3.00% per annum, increased to 3.15 % from February 2016 (margin of 2.75% per annum up to June 2015 and 3.00% per annum
from June 2015).
Exploration expenditure commitments
The Group participates in joint operations 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 2016 are estimated to be
MUSD 51.1 (MUSD 211.1) of which third parties who are joint operations partners will contribute approximately MUSD 32.8 (MUSD 128.5).
101
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 8 – Other Tangible Assets
MUSD
Cost
1 January
Additions
Disposals
Reclassification
Currency translation difference
31 December
Depreciation
1 January
Disposals
Depreciation charge for the year
Reclassification
Currency translation difference
31 December
Net book value
2016
Real
estate
Other
Total
FPSO
2015
Real
estate
Other
Total
11.2
–
–
–
–
11.2
-1.7
–
-0.1
–
–
-1.8
9.4
46.5
1.3
-11.5
–
0.2
36.5
-35.2
9.4
-4.2
0.2
–
-29.8
264.9
-0.4
-11.5
–
-0.5
252.5
-60.6
9.4
-35.4
0.2
–
-86.4
178.9
30.8
–
–
-2.5
207.2
–
–
-23.7
–
–
-23.7
6.7
166.1
183.5
11.2
–
–
–
–
11.2
-1.6
–
-0.1
–
–
-1.7
9.5
40.8
5.3
-0.5
4.5
-3.6
46.5
-29.0
0.5
-5.1
-4.1
2.5
-35.2
230.9
36.1
-0.5
4.5
-6.1
264.9
-30.6
0.5
-28.9
-4.1
2.5
-60.6
11.3
204.3
FPSO
207.2
-1.7
–
–
-0.7
204.8
-23.7
–
-31.1
–
–
-54.8
150.0
The depreciation charge for the year is based on cost and an estimated useful life of 3 to 5 years for office 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 located on the Bertam field, Malaysia, is being depreciated
over the committed contract term and included in the depreciation of other assets line in the income statement.
Note 9 – Goodwill
MUSD
1 January
Additions
31 December
31 December
2016
31 December
2015
–
128.1
128.1
–
–
–
The Group’s goodwill arose from the acquisition of a further 15 percent interest in the Edvard Grieg field in 2016. Goodwill was included in
the Group’s impairment testing as per 31 December 2016 and will be tested for impairment annually as part of the annual impairment testing
of oil and gas properties.
For further information on goodwill, see Changes in the Group presented in the Directors Report on pages 73–74.
Note 10 – Financial Assets
MUSD
Other shares and participations
Brynhild operating cost share
Other
31 December
2016
31 December
2015
8.9
–
0.5
9.4
4.1
5.5
1.1
10.7
102
Lundin Petroleum Annual Report 2016
Note 10.1 – Other Shares and Participations
ShaMaran Petroleum Corp.
31 December 2016
Number of shares
103,784,842
Share %
5.8 %
Book amount
MUSD
31 December 2015
Book amount
MUSD
8.9
8.9
4.1
4.1
The investment in ShaMaran Petroleum Corp. (ShaMaran) was booked at the fair value of the shares at the date of acquisition and under
accounting rules, subsequent movements 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.
ShaMaran Petroleum Corp.
MUSD
1 January
Additions
Fair value movement
Currency translation difference
31 December
See Subsequent events detailed in Note 27.
Note 10.2 – Other Financial Assets
MUSD
Brynhild operating cost share
Other
2016
4.1
–
5.2
-0.4
8.9
2015
4.7
4.2
-3.7
-1.1
4.1
31 December
2016
31 December
2015
–
0.5
0.5
5.5
1.1
6.6
The Brynhild operating cost share related to the long-term portion of the mark-to-market valuation of the Brynhild operating cost share
arrangement where the share of the operating cost varies with the oil price. The arrangement ends in mid-2017 and the short-term portion is
reflected in Note 12.
Note 11 – Inventories
MUSD
Hydrocarbon stocks
Drilling equipment and consumable materials
31 December
2016
31 December
2015
17.1
37.8
54.9
15.5
30.1
45.6
103
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 12 – Trade and Other Receivables
MUSD
Trade receivables
Underlift
Joint operations debtors
Prepaid expenses and accrued income
Brynhild operating cost share
Other
31 December
2016
31 December
2015
193.4
28.9
31.2
29.4
3.0
3.0
288.9
35.2
26.5
48.4
29.5
14.7
5.0
159.3
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.
The Brynhild operating cost share relates to the short-term portion of the mark-to-market valuation of the Brynhild operating cost share
arrangement where the share of the operating cost varies with the oil price.
Note 13 – Cash and Cash Equivalents
Cash and cash equivalents include only cash at hand or on bank. No short term deposits are held as at 31 December 2016.
Note 14 – Equity
Note 14.1 – Share Capital and Share Premium
MUSD
31 December 2015
Share issuance
Treasury shares transferred
Total share issuance increase
31 December 2016
Share capital
Additional paid in capital
Number of
shares
311,070,330
29,316,115
–
29,316,115
340,386,445
Par value
MSEK
Par value
MUSD
3.2
0.3
–
0.3
3.5
0.5
0.0
–
0.0
0.5
MSEK
4,810.5
4,242.2
291.3
4,533.5
9,344.0
MUSD
445.0
499.8
34.3
534.1
979.1
In 2016, Lundin Petroleum AB issued 27,580,806 new shares to Statoil ASA as part of the Edvard Grieg transaction. In addition, the Company
also issued 1,735,309 new shares and transferred 2 million treasury shares held to Statoil ASA in exchange for a cash consideration of
MSEK 544.1 based upon a share price of SEK 145.66 per share. These three share transactions increased the share capital/premium of the
Company by an amount of MSEK 4,533.8.
104
Lundin Petroleum Annual Report 2016 Note 14.2 – Other Reserves
MUSD
1 January 2015
Total comprehensive income
31 December 2015
Total comprehensive income
31 December 2016
Note 14.3 – Earnings Per Share
Available-for-
sale reserve
Hedge reserve
Currency translation
reserve
-6.5
-3.7
-10.2
5.3
-4.9
-147.9
6.9
-141.0
64.3
-76.7
-281.8
-76.3
-358.1
8.9
-349.2
Total
-436.2
-73.1
-509.3
78.5
-430.8
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.
Net result attributable to shareholders of the Parent Company, USD
Weighted average number of shares for the year
Earnings per share, USD
Weighted average diluted number of shares for the year
Earnings per share fully diluted, USD
2016
-356,739,927
325,808,486
-1.09
326,738,233
-1.09
2015
-861,764,755
309,070,330
-2.79
310,019,890
-2.79
Note 15 – Financial Liabilities
MUSD
Bank loans
Capitalised financing fees
31 December
2016
31 December
2015
4,145.0
-96.7
4,048.3
3,858.0
-23.2
3,834.8
Capitalised financing fees amounted to MUSD 96.7 (MUSD 23.2) and related to the establishment costs of the external credit facility. The
capitalised financing fees are being amortised over the duration of the credit facility.
For further information, see Note 18.
Note 16 – Provisions
MUSD
1 January 2016
Additions
Changes in estimates
Payments
Unwinding of discount
Reclassification
Currency translation difference
31 December 2016
Non-current
Current
Total
Site
Restoration
368.2
24.2
7.4
-10.7
15.2
–
2.8
407.1
407.1
–
407.1
LTIP
7.0
10.4
–
-7.3
–
–
–
10.1
3.2
6.9
10.1
Farm in
payment
Pension
provision
Other
4.6
–
0.5
–
–
–
-0.1
5.0
5.0
–
5.0
1.2
0.1
–
-0.1
–
–
–
1.2
1.2
–
1.2
3.7
0.7
–
-0.2
–
-0.6
-0.1
3.5
3.5
–
3.5
Total
384.7
35.4
7.9
-18.3
15.2
-0.6
2.6
426.9
420.0
6.9
426.9
105
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT | Notes to the Financial Statements of the Group
continued – Note 16
MUSD
1 January 2015
Additions
Changes in estimates
Payments
Unwinding of discount
Currency translation difference
31 December 2015
Non-current
Current
Total
Site
Restoration
274.1
–
127.6
-10.6
12.7
-35.6
368.2
368.2
–
368.2
LTIP
6.7
7.3
–
-5.9
–
-1.1
7.0
2.2
4.8
7.0
Farm in
payment
Pension
provision
Other
56.0
–
-9.0
-34.8
–
-7.6
4.6
4.6
–
4.6
1.2
–
-0.1
-0.1
–
0.2
1.2
1.2
–
1.2
3.4
1.2
–
-0.5
–
-0.4
3.7
3.7
–
3.7
Total
341.4
8.5
118.5
-51.9
12.7
-44.5
384.7
379.9
4.8
384.7
Site Restoration provision
In calculating the present value of the site restoration provision, a pre-tax discount rate of 3.5 percent (3.5 percent) was used which is based
on long-term risk-free interest rate projections. The changes in estimates in 2016 mainly relates to the liability associated with Norwegian
development projects and the additions to the additional 15 percent of the Edvard Grieg field acquired in 2016. Based on the estimates used in
calculating the site restoration provision as at 31 December 2016, approximately 70 percent of the total amount is expected to be settled after
more than 15 years.
LTIP provision
For more information on the Group’s LTIP, see Note 25.
Farm in payment
The farm in payment provision mainly relates to a payment for historic costs on Block PM307 in Malaysia payable on reaching certain
production milestones.
Pension provision
In May 2002, the Compensation Committee recommended to the Board of Directors, and the Board of Directors approved, 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 135) 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 1,767).
Note 17 – Trade and Other Payables
MUSD
Trade payables
Overlift
Deferred revenue
Joint operations creditors and accrued expenses
Other accrued expenses
Other
31 December
2016
31 December
2015
13.3
29.9
–
238.8
16.9
9.5
308.4
23.1
–
20.2
271.5
23.7
11.4
349.9
106
Lundin Petroleum Annual Report 2016
Note 18 – Financial Assets and Liabilities
Financial assets and liabilities by category
The accounting policies for financial assets and liabilities have been applied to the line items below:
31 December 2016
MUSD
Other shares and participations
Other non-current financial assets
Derivative instruments
Joint operations debtors
Other current receivables1
Cash and cash equivalents
Loan receivables and
other receivables at
amortised cost
–
–
–
31.2
276.9
69.5
377.6
Financial assets at
amortised cost
–
0.5
–
–
–
–
0.5
Total
8.9
0.5
17.8
31.2
305.8
69.5
433.7
Assets at
fair value
in OCI 2
8.9
–
–
–
–
–
8.9
Fair value
recognised in
profit/loss
–
–
–
–
28.9
–
28.9
Derivatives
used for
hedging
–
–
17.8
–
–
–
17.8
31 December 2016
MUSD
Financial liabilities
Other non-current liabilities
Derivative instruments
Joint operations creditors
Other current liabilities
Total
4,048.3
33.8
67.4
238.8
52.9
4,441.2
Other liabilities at
amortised cost
–
33.8
–
238.8
23.0
295.6
Financial liabilities at
amortised cost
4,048.3
–
–
–
–
4,048.3
Fair value
recognised in
profit/loss
–
–
–
–
29.9
29.9
Derivatives used for
hedging
–
–
67.4
–
–
67.4
31 December 2015
MUSD
Other shares and participations
Other non-current financial assets
Joint operations debtors
Other current receivables1
Cash and cash equivalents
Loan receivables and
other receivables at
amortised cost
–
–
48.4
319.6
71.9
439.9
Total
4.1
6.6
48.4
346.1
71.9
477.1
Financial assets
at amortised cost
–
1.1
–
–
Assets at
fair value
in OCI2
4.1
–
–
–
Fair value
recognised in
profit/loss
–
5.5
–
26.5
Derivatives
used for
hedging
–
–
–
–
1.1
4.1
32.0
–
31 December 2015
MUSD
Financial liabilities
Other non-current liabilities
Derivative instruments
Joint operations creditors
Other current liabilities
Total
3,834.8
32.2
114.5
271.5
55.4
4,308.4
Other liabilities at
amortised cost
–
32.2
–
271.5
55.4
359.1
Financial liabilities at
amortised cost
3,834.8
–
–
–
–
3,834.8
Fair value
recognised in
profit/loss
–
–
–
–
–
–
Derivatives used for
hedging
–
–
114.5
–
–
114.5
1 Prepayments are not included in other current assets, as prepayments are not deemed to be financial instruments.
2 Other comprehensive income.
The fair value of loan receivables and other receivables is a fair approximation of the book value.
For financial assets and liabilities 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.
107
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT | Notes to the Financial Statements of the Group
continued – Note 18
Based on this hierarchy, financial assets and liabilities measured at fair value can be detailed as follows:
31 December 2016
MUSD
Assets
Other shares and participations
Derivative instruments – non-current
Derivative instruments – current
Underlift
Liabilities
Derivative instruments - non current
Derivative instruments - current
Overlift
31 December 2015
MUSD
Assets
Other shares and participations
Underlift
Liabilities
Derivative instruments – non-current
Derivative instruments – current
Level 1
Level 2
Level 3
8.9
–
–
28.9
37.8
–
–
29.9
29.9
–
17.0
0.8
–
17.8
29.8
37.6
–
67.4
–
–
–
–
–
–
–
–
–
Level 1
Level 2
Level 3
4.1
26.5
30.6
–
–
–
–
–
–
48.4
66.1
114.5
–
–
–
–
–
–
The outstanding derivative instruments can be specified as follows:
Fair value of outstanding derivative
instruments in the balance sheet
MUSD
31 December 2016
31 December 2015
Assets
Liabilities
Assets
Liabilities
Interest rate swap
Currency hedge
Total
Non-current
Current
Total
17.8
–
17.8
17.0
0.8
17.8
31.6
35.8
67.4
29.8
37.6
67.4
–
–
–
–
–
–
43.9
70.6
114.5
48.4
66.1
114.5
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 2016 amounted to a net liability of MUSD 13.8 (MUSD 43.9).
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 2016 amounted to a net liability of MUSD 35.8
(MUSD 70.6).
For risks in the financial reporting, see the section Internal Control and Audit in the Corporate Governance report on pages 68–69 and Risk
Management on pages 36–41 for more information.
108
Lundin Petroleum Annual Report 2016 Note 19 – Financial Risks, Sensitivity Analysis and Derivative Instruments
As an international oil and gas exploration and production company operating globally, Lundin Petroleum is exposed to financial risks such
as currency risk, interest rate risk, credit risks, liquidity risks as well as the risk related to the fluctuation in the oil price. The Group seeks
to control these risks through sound management practice and the use of internationally accepted financial instruments, such as oil price,
interest rate and foreign exchange hedges. Lundin Petroleum uses financial instruments solely for the purpose of minimising risks in the
Group’s business.
For further information on risks in the financial reporting, see the section Internal Control and Audit in the Corporate Governance report on
pages 68–69 and Risk Management on pages 36–41.
Capital management
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 flexibility. Lundin Petroleum is not subject
to any externally imposed capital requirements.
No significant changes were made in the objectives, policies or processes during 2016.
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 2016
31 December 2015
Bank loans
Cash and cash equivalents
Net debt
4,145.0
-69.5
4,075.5
3,858.0
-71.9
3,786.1
The increase in net debt compared to 2015 is mainly due to the funding of the Group’s development activities.
Interest rate risk
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. The interest rate for capitalised
borrowing costs is calculated at the external facility borrowing rate of LIBOR plus a margin of 3.00% per annum, increased to 3.15 % from
February 2016 (margin of 2.75% per annum up to June 2015 and 3.00% per annum from June 2015). Lundin Petroleum will assess the benefits
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 rate hedge.
The total interest expense for 2016 amounted to MUSD 160.7 which included MUSD 23.4 of capitalised interest related to borrowings for the
Group’s development activities. A 100 basis point shift in the interest rate would have resulted in a change in the total interest expense for the
year of MUSD 21.8, taking into account the Group’s interest rate hedges for 2016.
The Group has entered into interest rate hedging as follows:
Borrowings
MUSD
2,000
2,000
2,000
Fixing of floating LIBOR
Rate per annum
1.94%
2.02%
1.18%
Settlement period
Jan 2017 – Dec 2017
Jan 2018 – Dec 2018
Jan 2019 – Dec 2019
See Subsequent events detailed in Note 27.
Currency risk
Lundin Petroleum is a Swedish company which is operating globally and therefore attracts substantial foreign exchange exposure, both on
transactions as well as on the translation from functional currency for entities to the Group’s presentational currency of the US Dollar. The
main functional currencies of Lundin Petroleum’s subsidiaries are Norwegian Krone (NOK) and Euro (EUR), as well as US Dollar, making
Lundin Petroleum sensitive to fluctuations of these currencies against the US Dollar.
109
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT | Notes to the Financial Statements of the Group
continued – Note 19
Transaction exposure
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 has entered into currency hedging contracts fixing the rate of exchange from US Dollar into Norwegian Krone to meet Norwegian
Krone operational requirements as summarised in the table below.
Buy
MNOK 3,492.6
MNOK 3,493.0
MNOK 1,672.4
Sell
MUSD 423.6
MUSD 424.2
MUSD 200.4
Average contractual
exchange rate
Settlement
period
NOK 8.25:USD 1
NOK 8.23:USD 1
NOK 8.35:USD 1
Jan 2017 – Dec 2017
Jan 2018 – Dec 2018
Jan 2019 – Dec 2019
Under IAS 39, subject to hedge effectiveness testing, all of the hedges are treated as effective and changes to the fair value are reflected in other
comprehensive income. At 31 December 2016, a net current liability of MUSD 36.8 (MUSD 66.1) and a net non-current liability of MUSD 12.8
(MUSD 48.4) have been recognised representing the fair value of the outstanding currency and interest rate hedges.
Foreign exchange exposure
The following table summarises the effect that a change in these currencies against the US Dollar would have on operating profit 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 2016.
Operating result in the financial statements, MUSD
-355.8
-355.8
Shift of currency exchange rates
EUR/USD
SEK/USD
NOK/USD
RUR/USD
CHF/USD
Total effect on operating result, MUSD
Average rate 2016
0.9037
8.5610
8.4014
67.0692
0.9855
10% USD weakening
0.8215
7.7827
7.6376
60.9720
0.8959
-64.2
10% USD strengthening
0.9940
9.4171
9.2415
73.7761
1.0841
64.2
The foreign currency risk to the Group’s income and equity from conversion exposure is not hedged.
As described in the Directors’ report on page 80, the foreign exchange result in the income statement is mainly impacted by foreign exchange
movements on the revaluation of the loan and working capital balances. A 10 percent strengthening in the US Dollar currency rate against the
other Group currency rates would result in an additional MUSD 10.9 (MUSD 50.7 loss) reported foreign exchange gain in the income statement.
Price of oil and gas
Price of oil and gas are affected by the normal economic drivers of supply and demand as well as the financial investors and market
uncertainty. Factors that influence these include operational decisions, natural disasters, economic conditions, political instability or conflicts
or actions by major oil exporting countries. Price fluctuations can affect Lundin Petroleum’s financial 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 2016:
Net result in the financial statements, MUSD
Possible shift
Total effect on net result, MUSD
-499.3
-10%
-20.9
-499.3
10%
20.9
The impact on the net result from a change in oil price is reduced due to the 78 percent tax rate in Norway.
110
Lundin Petroleum Annual Report 2016
continued – Note 19
Lundin Petroleum’s policy is to adopt a flexible approach towards oil price hedging, based on an assessment of the benefits of the hedge
contract in specific circumstances. Based on analysis of the circumstances, Lundin Petroleum will assess the benefits of forward hedging
monthly sales contracts for the purpose of establishing cash flow. If it believes that the hedging contract will provide an enhanced cash flow
then it may choose to enter into an oil price hedge.
For the year ended 31 December 2016, the Group did not enter into oil price hedging contracts and there are no oil price hedging contracts
outstanding as at 31 December 2016.
Credit risk
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 operations parties is to rely on the provisions of the underlying joint operating agreements to take possession of the licence or the joint
operations partner’s share of production for non-payment of cash calls or other amounts due.
As at 31 December 2016, the Group’s trade receivables amounted to MUSD 193.4 (MUSD 35.2). There is no recent history of default. Other long-
term and short-term receivables are considered recoverable and no provision for bad debt was accounted for as at 31 December 2016. Cash and
cash equivalents are maintained with banks having strong long-term credit ratings.
Liquidity risk
Liquidity risk is defined 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 Group management.
In February 2016, Lundin Petroleum replaced its existing USD 4.0 billion lending facility, which was due to reduce in availability from June
2016 and mature in 2019, with a committed seven year senior secured reserve-based lending facility of up to USD 5.0 billion, with an initial
committed amount of USD 4.3 billion. The committed amount has subsequently been increased to USD 5.0 billion. The facility is secured
against certain cash flows generated by the Group. The amount available under the facility is recalculated every six months based upon the
calculated cash flow generated by certain producing fields and fields under development at an oil price and economic assumptions agreed with
the banking syndicate providing the facility.
The 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 specified in the agreement, as are customary in financing 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 specified actions to enforce their security, including
accelerating the repayment of outstanding amounts under the credit facility.
In April 2015, Lundin Petroleum entered into a NOK 4.5 billion Norwegian exploration refund facility with ten international banks. The facility
was secured against the tax refunds generated from Lundin Norway’s exploration and appraisal activities on the Norwegian Continental Shelf
and extended until the end of 2016. Following the receipt of the 2014 Norwegian exploration tax refund in December 2015, the facility size
was reduced to NOK 2.15 billion. As at 31 December 2016, the facility was cancelled after the outstanding balance was repaid in November
2016 from the 2015 exploration tax refund receipt.
In addition, in March 2016, Lundin Petroleum entered into a six month revolving credit facility of MUSD 300 with the option to extend by
a further three months. Following the increased commitments under the Group’s USD 5.0 billion reserve-based lending facility and the
completion of the Edvard Grieg transaction, the facility was cancelled effective 30 June 2016.
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 and other related costs in relation to certain of these PSCs and the outstanding amount of the bank guarantees at 31 December
2016 was MUSD 10.3.
111
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
continued – Note 19
The table below analyses the Group’s financial 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 flows.
No loan repayments are currently forecast under this calculation.
MUSD
31 December 2016
31 December 2015
Non-current
Repayment within 1–2 years:
– Derivative instruments
Repayment within 2–5 years:
– Bank loans
– Derivative instruments
Repayment after 5 years:
– Bank loans
– Derivative instruments
– Other non-current liabilities
Current
Repayment within 6 months:
– Trade payables
– Overlift
– Tax liabilities
– Joint operations creditors
– Other current liabilities
– Derivative instruments
Repayment after 6 months:
– Derivative instruments
Note 20 – Pledged Assets
29.8
1,132.9
–
3,012.1
–
33.8
4,208.6
13.3
29.9
0.2
238.8
9.5
19.5
18.1
329.3
42.5
3,858.0
5.9
–
–
32.2
3,938.6
23.1
–
0.7
271.5
11.4
18.1
48.0
372.8
In February 2016, Lundin Petroleum replaced its existing USD 4.0 billion lending facility with a committed seven year senior secured reserve-
based lending facility of USD 5.0 billion. 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 assets at 31 December 2016 amounted to MUSD 743.8 (MUSD 422.9) and
represented the accounting value of net assets of the Group companies whose shares are pledged as described in the Parent Company section
below.
Note 21 – Contingent Liabilities and Assets
Contingent Assets
In April 2016, Lundin Petroleum completed the sale of its oil and gas assets in Indonesia, including Lundin Petroleum’s 25.88 percent interest
in the Lematang PSC in respect of the Singa field, to PT Medco Energi Internasional TBK (“Medco”). Medco has agreed to pay a deferred
consideration to Lundin Petroleum related to the Singa field of 35 percent of certain cash flows generated during the extension period
commencing April 2017.
112
Lundin Petroleum Annual Report 2016
Note 22 – Related Party Transactions
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 significant influence over the entity.
During the year, the Group has entered into transactions with related parties on a commercial basis as shown below:
MUSD
Sale of oil and related products
Sale of services
Purchase of services
2016
155.0
0.3
-0.4
2015
–
0.5
-0.2
Since 30 June 2016, being the date Statoil ASA’s holding in Lundin Petroleum increased to 20.1 percent, the Group has sold oil and related
products to the Statoil group on an arm’s-length basis amounting to MUSD 155.0.
The related party transactions concern other parties that are controlled by key management personnel. Key management personnel include
members of the Board of directors and Group management. The remuneration to the Board of directors and Group management is disclosed in
Note 24.
Note 23 – Average Number of Employees
Average number of employees per country
Parent Company in Sweden
Subsidiaries abroad
Norway
Malaysia
France
Netherlands
Russia
Switzerland
Indonesia
Total subsidiaries abroad
Total Group
Board members and Group management
Parent Company in Sweden
Board members1
Subsidiaries abroad
Group management
Total Group
2016
2015
Total
employees
of which men
Total
employees
of which men
2
344
105
48
6
16
45
–
564
566
1
258
66
40
4
10
26
–
404
405
2
338
123
48
7
17
44
10
587
589
1
254
81
39
4
9
27
5
419
420
2016
Total at
year end
of which men
2015
Total at
year end
of which men
7
7
14
4
6
10
8
6
14
5
5
10
1 Alex Schneiter, Chief Executive Officer (CEO) and Board Member is only included in Group management.
113
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 24 – Remuneration to the Board of Directors, Group Management and Other Employees
Salaries, other remuneration and social security costs
TUSD
Salaries and other
remuneration
Social security
costs
Salaries and other
remuneration
Social security
costs
2016
2015
Parent Company in Sweden
Board members
Employees
Subsidiaries abroad
Group management
Other employees
Total Group
of which pension costs
582
308
4,857
85,240
90,987
116
157
340
22,567
23,180
8,664
573
258
7,015
97,834
105,680
87
139
492
23,647
24,365
9,539
Salaries and other remuneration
for the Board members and
Group management
TUSD
Fixed Board
remuneration/
fixed salary and
other benefits1
Short-term
variable
salary2
Unit bonus
plan
Remuneration
for committee
work
Remuneration for
work outside of
directorship
Pension
Total
2016
Parent Company in Sweden
Board members
Ian H. Lundin
Peggy Bruzelius
C. Ashley Heppenstall
Lukas H. Lundin
William A. Rand
Grace Reksten Skaugen
Magnus Unger
Cecilia Vieweg
Total Board members
Subsidiaries abroad
Group management
A. Schneiter
Other3
Total Group management
123
58
58
58
29
58
58
58
500
–
–
–
–
–
–
–
–
–
810
2,742
3,552
386
880
1,266
–
–
–
–
–
–
–
–
–
–
246
246
12
17
6
–
12
6
12
17
82
–
–
–
175
–
608
–
–
–
18
–
801
–
–
–
–
–
–
–
–
–
–
–
–
310
75
672
58
41
64
88
75
1,383
162
438
600
1,358
4,306
5,664
1 Other benefits include school fees and health insurance for Group management.
2 The bonus awarded and paid in 2016 relates to the assessment made by the Compensation Committee in January 2016, considering the employees’
contributions to the results of the Group in 2015.
3 Comprises six persons (Chief Financial Officer, Chief Operating Officer, Vice President Corporate Responsibility, Vice President Legal, Vice President
Corporate Planning and Investor Relations, Vice President Corporate Finance).
Note: In 2015, the remaining entitlement under the phantom option plan was paid to the Group management. No performance based incentive plan
vested in 2016.
114
Lundin Petroleum Annual Report 2016 continued – Note 24
Salaries and other remuneration
for the Board members and
Group management
TUSD
Fixed Board
remuneration/
fixed salary and
other benefits1
Short-term
variable
salary2
Unit
bonus
plan
Phantom
option
plan
Remuneration
for committee
work
Remuneration
for work outside
of directorship3 Pension
Total
2015
Parent Company in Sweden
Board members
Ian H. Lundin
Peggy Bruzelius
C. Ashley Heppenstall
Asbjørn Larsen
Lukas H. Lundin
William A. Rand
Grace Skaugen
Magnus Unger
Cecilia Vieweg
Total Board members
Subsidiaries abroad
Group management
C. Ashley Heppenstall4
A. Schneiter4
Other5
Total Group management
124
59
10
30
59
59
30
59
59
489
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,879
718
2,103
4,700
698
499
1,152
2,349
–
–
371
371
12,200
8,946
5,693
26,839
6
15
–
6
–
27
–
12
18
84
–
–
–
–
178
–
–
–
–
–
–
18
–
196
–
–
–
–
–
–
–
–
–
–
–
–
–
–
308
74
10
36
59
86
30
89
77
769
137
166
345
648
14,914
10,329
9,664
34,907
1 Other benefits include school fees and health insurance for Group management.
2 The bonus awarded and paid in 2015 relates to the assessment made by the Compensation Committee in January 2015, considering the employees’
contributions to the results of the Group in 2014.
3 The remuneration relates to work performed outside the scope of normal Board duties undertaken by Board members on behalf of the Group. The
2015 Policy on Remuneration referred only to Group management remuneration and did not refer to consultancy fees to members of the Board
of Directors. The remuneration paid to the Chairman Ian H. Lundin was approved by the 2014 and 2015 AGMs. The Board authorised a permitted
deviation from the 2015 Policy on Remuneration for the payment of such remuneration to Magnus Unger. In addition, the Board approved, as a
permitted deviation from the 2015 Policy on Remuneration, a consultancy agreement with C. Ashley Heppenstall, effective as of 1 January 2016.
4 C. Ashley Heppenstall left the role of CEO at the end of September 2015 and was replaced by Alex Schneiter in October 2015.
5 Comprises six persons (Chief Operating Officer, Chief Financial Officer, Vice President Corporate Responsibility, Vice President Legal, Vice President
Corporate Planning and Investor Relations and former Senior Vice President Development).
Board members
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.
Group management
The pension contribution for Group management is between 15 percent and 18 percent of the qualifying income for pension purposes. The
Company provides for 60 percent of the pension contribution and the employee for the remaining 40 percent. Qualifying income is defined as
annual base salary and short-term variable salary and is capped at approximately TCHF 846 (TUSD 858). The normal retirement age for the CEO
is 65 years.
A mutual termination period of between one month and twelve months applies between the Company and Group management, 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, up to two years’ base salary, in the event of termination of employment due to a change of control
of the Company. The Board of Directors is further authorised, in individual cases, to approve severance arrangements, in addition to the notice
periods and the severance arrangements in respect of a change of control of the Company, where employment is terminated by the Company
without cause, or otherwise in circumstances at the discretion of the Board. Such severance arrangements may provide for the payment
of up to one year’s base salary; no other benefits shall be included. Severance payments in aggregate (i.e. for notice periods and severance
arrangements) shall be limited to a maximum of two years’ base salary.
See pages 63–65 of the Corporate Governance report for further information on the Group’s principles of remuneration and the Policy on
Remuneration for the Group management for 2016.
115
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 25 – Long-Term Incentive Plans
The Company maintains the long-term incentive plans (LTIP) described below.
Unit Bonus Plan
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 final 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 average of the Lundin Petroleum closing share price for the period five trading days prior to and following the actual
vesting date. The exercise price at vesting date 31 May 2016 was SEK 151.35.
LTIPs that follow the same principles as the 2008 LTIP have subsequently been implemented each year.
The following table shows the number of units issued under the LTIPs, the amount outstanding as at 31 December 2016 and the year in which
the units will vest.
Unit Bonus Plan
Outstanding at the beginning of the period
Awarded during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Vesting date
31 May 2017
31 May 2018
31 May 2019
Outstanding at the end of the period
2013
132,836
–
–
-132,836
–
–
–
–
–
2014
247,306
–
-7,128
-122,745
117,433
117,433
–
–
117,433
Plan
2015
438,732
–
-14,928
-145,876
277,928
138,964
138,964
–
277,928
2016
–
360,099
–
–
360,099
120,033
120,033
120,033
360,099
Total
818,874
360,099
-22,056
-401,457
755,460
376,430
258,997
120,033
755,460
The costs associated with the unit bonus plans are as given in the following table.
Unit Bonus Plan
MUSD
2012
2013
2014
2015
2016
2016
–
2.0
2.0
3.6
2.5
10.1
2015
1.5
1.5
2.0
2.0
–
7.0
LTIP awards are recognised in the financial 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 2016 amounted to MUSD 10.1 (MUSD 7.0). The provision is calculated based on Lundin
Petroleum’s share price at the balance sheet date. The closing share price at 31 December 2016 was SEK 198.10.
Performance Based Incentive Plan
The 2014, 2015 and 2016 AGMs resolved a long-term performance based incentive plan in respect of Group management and a number of key
employees.
The 2016 plan is effective from 1 July 2016 and the 2016 award has been accounted for from the second half of 2016. The total outstanding
awards made in respect of 2016 are 512,595 which vest over three years from 1 July 2016 subject to certain performance conditions being met.
Each award was fair valued at the date of grant at SEK 89.30 using an option pricing model.
The 2015 plan is effective from 1 July 2015 and the total outstanding number of awards made in respect of 2015 are 684,372 which vest over
three years from 1 July 2015 subject to certain performance conditions being met. Each award was fair valued at the date of grant at SEK 91.40
using an option pricing model.
The 2014 plan is effective from 1 July 2014 and the total outstanding number of awards made in respect of 2014 are 602,554 which vest over
three years from 1 July 2014 subject to certain performance conditions being met. Each award was fair valued at the date of grant at SEK 81.40
using an option pricing model.
116
Lundin Petroleum Annual Report 2016 continued – Note 25
The costs associated with the long-term performance based incentive plans are as given in the following table.
Performance Based Incentive Plan
MUSD
2014
2015
2016
Note 26 – Remuneration to the Group’s Auditors
TUSD
PwC
Audit fees
Audit related
Tax advisory services
Other fees
Total PwC
Remuneration to other auditors than PwC
Total
2016
1.5
1.9
0.9
4.3
2016
830
84
24
36
974
41
1,015
2015
4.1
3.0
–
7.1
2015
887
88
29
30
1,034
34
1,068
Audit fees include the review of the 2016 half year report. Audit related costs include special assignments such as licence audits and PSC
audits.
Note 27 – Subsequent Events
In January 2017, Lundin Petroleum acquired a further 17.8 million shares in ShaMaran Petroleum as part of the private placement of
360 million shares by the company at CAD 0.10 per share.
In February 2017, Lundin Petroleum announced that its Board of Directors has proposed to spin-off its assets in Malaysia, France and the
Netherlands (the IPC Assets) into a newly formed company called International Petroleum Corporation (IPC) and to distribute the IPC shares, on
a pro-rata basis, to Lundin Petroleum shareholders. The spin-off of the IPC Assets will have an effective date of 1 January 2017, however Lundin
Petroleum will account for the production from the IPC Assets up to the date of completion of the spin-off with a net financial settlement at
completion to account for the cash generation from the effective date to the completion date. On 22 March 2017, the shareholders of Lundin
Petroleum AB approved the transaction at an Extraordinary General Meeting.
In March 2017, Lundin Petroleum announced that IPC has filed a preliminary prospectus with the Alberta Securities Commission (ASC) in
Canada.
During the first quarter of 2017, Lundin Petroleum entered into further interest rate swaps as follows:
Borrowings
MUSD
Fixing of floating LIBOR
Rate per annum
750
1,000
1,000
1,000
1.05%
1.11%
1.58%
1.89%
Settlement period
Mar 2017
Apr 2017–Dec 2017
Jan 2018–Dec 2018
Jan 2019–Dec 2019
117
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Annual Accounts of the Parent Company
Parent Company
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 -103.3 (MSEK -78.1) for the year.
The result included general and administrative expenses of MSEK 106.6 (MSEK 89.6) and net finance costs of MSEK 0.5 (net finance
income of MSEK 2.8).
On 30 June 2016, following 2016 EGM resolutions, Lundin Petroleum AB issued 27,580,806 new shares to Statoil ASA as part of the
Edvard Grieg transaction. In addition, the Company also issued 1,735,309 new shares and transferred 2 million treasury shares held
to Statoil ASA in exchange for a cash consideration of MSEK 544.1 based upon a share price of SEK 145.66 per share. These three share
transactions increased the share capital/premium of the Company by an amount of MSEK 4,533.8.
Following the sale of the 2 million treasury shares to Statoil ASA, the Company does not hold any own shares at 31 December 2016.
Pledged assets of MSEK 6,740.3 (MSEK 3,569.7) relate to the accounting value of the pledge of the shares in respect of the financing
facility entered into by its fully-owned subsidiary Lundin Petroleum BV, see also Note 20 in the notes to the financial statements of the
Group.
In June 2010, the Swedish International Public Prosecution Office commenced an investigation into alleged violations of international
humanitarian law in Sudan during 1997–2003. The Company has cooperated extensively and proactively with the Prosecution Office
by providing information regarding its operations in Block 5A in Sudan during the relevant time period. Ian H. Lundin and Alex
Schneiter have been interviewed by the Prosecution Office and were notified of the suspicions that are the basis for the investigation.
This is a normal part of Swedish legal procedure for any investigation and no charges have been brought, nor does this mean that
charges will be brought. As repeatedly stated, Lundin Petroleum categorically refutes all allegations of wrongdoing and is cooperating
with the Prosecution Office’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.
Accounting Policies
The financial 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 89–94.
118
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Parent Company Income Statement
for the Financial Year Ended 31 December
Expressed in MSEK
Revenue
General and administration expenses
Operating loss
Result from financial investments
Finance income
Finance costs
Loss before tax
Income tax
Net result
Note
1
2
3
2016
3.8
-106.6
-102.8
3.5
-4.0
-0.5
-103.3
–
-103.3
Parent Company Comprehensive Income Statement
for the Financial Year Ended 31 December
Expressed in MSEK
Net result
Other comprehensive income
Total comprehensive income
Attributable to:
Shareholders of the Parent Company
2016
-103.3
–
-103.3
-103.3
-103.3
2015
8.7
-89.6
-80.9
4.6
-1.8
2.8
-78.1
–
-78.1
2015
-78.1
–
-78.1
-78.1
-78.1
119
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT
Parent Company Balance Sheet
for the Financial Year Ended 31 December
Expressed in MSEK
ASSETS
Non-current assets
Shares in subsidiaries
Other tangible fixed assets
Total non-current assets
Current assets
Prepaid expenses and accrued income
Other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Restricted equity
Share capital
Statutory reserve
Total restricted equity
Unrestricted equity
Other reserves
Retained earnings
Net result
Total unrestricted equity
Total equity
Non-current liabilities
Provisions
Payables to Group companies
Total non-current liabilities
Current liabilities
Trade payables
Note
2016
2015
8
4
12,256.6
–
12,256.6
5.4
15.3
3.2
23.9
7,871.8
0.2
7,872.0
3.8
13.7
0.4
17.9
12,280.5
7,889.9
3.5
861.3
864.8
6,828.8
4,622.6
-103.3
11,348.1
12,212.9
0.6
49.4
50.0
1.9
14.4
1.3
17.6
3.2
861.3
864.5
2,295.3
4,700.7
-78.1
6,917.9
7,782.4
0.4
100.7
101.1
–
5.2
1.2
6.4
Accrued expenses and prepaid income
5
Other liabilities
Total current liabilities
TOTAL EQUITY AND LIABILITIES
12,280.5
7,889.9
120
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Parent Company Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MSEK
Cash flow from operations
Net result
Adjustment for
Foreign currency exchange loss
Other
Changes in working capital:
Changes in current assets
Changes in current liabilities
Total cash flow from operations activities
Cash flow from financing activities
Changes in long-term liabilities
Proceeds from share issues /treasury shares
Total cash flow from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Currency exchange difference in cash and cash equivalents
Cash and cash equivalents at the end of the year
2016
-103.3
-2.2
26.8
-3.2
10.6
-71.3
-467.5
544.1
76.6
5.3
0.4
-2.5
3.2
2015
-78.1
0.3
–
-0.8
-23.0
-101.6
100.4
–
100.4
-1.2
1.8
-0.2
0.4
Parent Company Statement of Changes in Equity
for the Financial Year Ended 31 December
Expressed in MSEK
Balance at 1 January 2015
Total comprehensive income
Balance at 31 December 2015
Total comprehensive income
Transactions with owners
Issuance of shares/sale of treasury shares
Total transactions with owners
Balance at 31 December 2016
Restricted Equity
Unrestricted Equity
Share
capital1
Statutory
reserve
Other
reserves
Retained
earnings
3.2
–
3.2
–
–
0.31
0.3
3.5
861.3
–
861.3
–
–
–
–
861.3
2,295.3
–
2,295.3
–
–
4,533.51
4,533.5
6,828.8
4,700.7
-78.1
4,622.6
-103.3
–
–
–
Total
6,996.0
-78.1
6,917.9
-103.3
–
4,533.5
4,533.5
Total
equity
7,860.5
-78.1
7,782.4
-103.3
–
4,533.8
4,533.8
4,519.3
11,348.1
12,212.9
1 In 2016, Lundin Petroleum AB issued 27,580,806 new shares to Statoil ASA as part of the Edvard Grieg transaction. In addition, the Company also
issued 1,735,309 new shares and transferred 2 million treasury shares held to Statoil ASA in exchange for a cash consideration of MSEK 544.1 based
upon a share price of SEK 145.66 per share. These three share transactions increased the share capital/premium of the Company by an amount of
MSEK 4,533.8.
121
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Notes to the Financial Statements
of the Parent Company
Note 1 – Finance Income
Note 5 – Accrued Expenses and Prepaid Income
MSEK
Guarantee fees
Foreign exchange gain
2016
2015
MSEK
3.5
–
3.5
4.4
0.2
4.6
Social security costs
Directors fees
Audit
Outside services
31 December
2016
31 December
2015
1.6
0.5
0.8
11.6
14.4
1.0
0.6
1.0
2.6
5.2
Note 2 – Finance Costs
MSEK
2016
2015
Interest expenses Group
Foreign exchange losses, net
Note 3 – Income Tax
MSEK
Net result before tax
Tax calculated at the corporate tax rate
in Sweden 22% (22%)
Tax effect of expenses non-deductible for
tax purposes
Increase unrecorded tax losses
1.8
2.2
4.0
2016
-103.3
22.7
-1.9
-20.8
–
1.8
–
1.8
2015
-78.1
17.2
-2.3
-14.9
–
Note 6 – Pledged Assets, Contingent Liabilities and
Assets
Pledged assets relate to the accounting value of the pledge of the
shares in respect of the new financing facility entered into by
the fully-owned subsidiary Lundin Petroleum BV, see Note 20 in
the notes to the financial statements of the Group.
Note 7 – Remuneration to the Auditor
MSEK
PwC
Audit fees
Audit related
2016
2015
1.6
–
1.6
1.7
–
1.7
There has been no remuneration to any auditors other than
PwC.
Note 4 – Other Receivables
MSEK
Due from Group companies
VAT receivable
Other
31 December
2016
31 December
2015
Note 8 – Proposed Disposition of Unappropriated
Earnings
11.7
0.7
2.9
15.3
10.9
0.9
1.9
13.7
The Board of Directors propose that the unrestricted equity of
the Parent Company of MSEK 11,348.1, including the net result
for the year of MSEK -103.3 be brought forward.
122
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Notes to the Financial Statements of the Parent Company
Note 9 – Shares in Subsidiaries
MSEK
Directly owned
Lundin Petroleum BV
Lundin Services Ltd
Registration
number
Registered office
Total
number
of shares
issued
Percentage
owned
Nominal
value
per share
Book
amount
31 Dec
2016
Book
amount
31 Dec
2015
27254196
LL09860
The Hague, Netherlands
Labuan, Malaysia
181
100
100 EUR 100.00
USD 0.01
100
12,256.6
–
12,256.6
7,871.8
–
7,871.8
Indirectly owned
986 209 409
Lundin Norway AS
Lundin Netherlands BV
24106565
Lundin Netherlands Facilities BV 27324007
442423448
Lundin Holdings SA
572199164
- Lundin International SA
419619077
- Lundin Gascogne SNC
433912920
Ikdam Production SA
27290568
Lundin SEA Holding BV
- Lundin Malaysia BV
27306815
- Lundin Indonesia Holding BV 27290577
27314235
- Lundin Baronang BV
27314288
- Lundin Cakalang BV
- Lundin Gurita BV
27296469
- Lundin Rangkas BV
(under liquidation)
Lundin Cambodia BV
(under liquidation)
Lundin Russia BV
- Lundin Russia Ltd.
- Culmore Holding Ltd
- Lundin Lagansky BV
- Mintley Caspian Ltd
- LLC PetroResurs
Lundin Tunisia BV
Lundin Marine BV
(under liquidation)
- Lundin Marine SARL
(under liquidation)
27314247
27275508
27292990
06B090
Lundin Petroleum SA
660.0.330.999-0
Jet Arrow SA
(under liquidation)
660.2.774.006-9
Lundin Petroleum Marketing SA 660.6.133.015-6
Lundin Services BV
Lundin Ventures XVII BV
Lundin Ventures XVIII BV
Lundin Ventures XIX BV
27260264
53732855
55709532
55709362
Lysaker, Norway
The Hague, Netherlands
The Hague, Netherlands
Montmirail, France
Montmirail, France
Montmirail, France
Montmirail, France
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
4,930,000
6,000
18,000
1,853,700
1,721,855
100
4,000
18,000
150,000
18,000
18,000
18,000
18,000
100 NOK 100.00
100 EUR 450.00
EUR 1.00
100
EUR 10.00
100
EUR 15.00
99.87
100 EUR 152.45
EUR 10.00
100
EUR 1.00
100
EUR 1.00
100
EUR 1.00
100
EUR 1.00
100
EUR 1.00
100
EUR 1.00
100
The Hague, Netherlands
18,000
100
EUR 1.00
The Hague, Netherlands
18,000
100
EUR 1.00
18,000
55,855,414
1,002
18,000
5,000
1
180
180
200
100
100
100
100
70
EUR 1.00
CAD 1.00
CYP 1.00
EUR 1.00
CYP 1.00
100 RUR 10,000
100 EUR 100.00
100 EUR 100.00
100
FCFA 5,000
1,000
100 CHF 100.00
11,000
1,000
180
18,000
18,000
18,000
100 CHF 100.00
100 CHF 100.00
100 EUR 100.00
EUR 1.00
100
EUR 1.00
100
EUR 1.00
100
The Hague, Netherlands
Pointe Noire, Congo
Collonge-Bellerive,
Switzerland
Collonge-Bellerive,
Switzerland
Collonge-Bellerive,
Switzerland
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
27290574
Vancouver, Canada
656565-4
Nicosia, Cyprus
162316
The Hague, Netherlands
27292984
160901
Nicosia, Cyprus
1047796031733 Moscow, Russia
27284355
The Hague, Netherlands
Jet Arrow SA, Lundin Marine BV, Lundin Marine SARL, Lundin Rangkas BV and Lundin Cambodia BV were under liquidation as at
31 December 2016.
Lundin South East Asia BV was liquidated during 2016. Lundin Indonesia Holding BV, Lundin Lematang BV, Lundin Oil & Gas BV, Lundin
Cendrawasih VII BV and Lundin South Sokang BV were sold to PT Medco Energi Internasional TBK in April 2016.
123
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Board Assurance
As at 30 March 2017, the Board of Directors and the President of Lundin Petroleum AB have adopted this annual report for the
financial year ended 31 December 2016.
Board Assurance
The Board of Directors and the President & CEO certify that the annual financial 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 financial position and profit 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, 30 March 2017
Lundin Petroleum AB (publ) Reg. Nr. 556610-8055
Ian H. Lundin
Chairman
Alex Schneiter
President & CEO
Peggy Bruzelius
Board Member
C. Ashley Heppenstall
Board Member
Lukas H. Lundin
Board Member
Grace Reksten Skaugen
Board Member
Magnus Unger
Board Member
Cecilia Vieweg
Board Member
Our audit report was issued on 31 March 2017
PricewaterhouseCoopers AB
Johan Rippe
Authorised Public Accountant
Lead Partner
Johan Malmqvist
Authorised Public Accountant
124
Lundin Petroleum Annual Report 2016
FINANCIAL REPORT
Auditor’s Report
To the general meeting of the shareholders of Lundin
Petroleum AB (publ), corporate identity number 556610-8055
Report on the annual accounts and consolidated
accounts
Opinions
We have audited the annual accounts and consolidated accounts
of Lundin Petroleum AB (publ) for the year 2016. The annual
accounts and consolidated accounts of the company are included
on pages 71–124 in this document.
In our opinion, the annual accounts and consolidated accounts
have been prepared in accordance with the Annual Accounts
Act and present fairly, in all material respects, the financial
position of parent company as of 31 December 2016 and its
financial performance and cash flow 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
financial position of the group as of 31 December 2016 and their
financial performance and cash flow for the year then ended in
accordance with International Financial Reporting Standards
(IFRS), as adopted by the EU, and the Annual Accounts Act. The
statutory administration report is consistent with the other parts
of the annual accounts and consolidated accounts.
We therefore recommend that the general meeting of
shareholders adopts the income statement and balance sheet for
the parent company and the group.
Basis for Opinions
We conducted our audit in accordance with International
Standards on Auditing (ISA) and generally accepted auditing
standards in Sweden. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities section.
We are independent of the parent company and the group in
accordance with professional ethics for accountants in Sweden
and have otherwise fulfilled our ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinions.
Our audit approach
Audit scope
Lundin Petroleum is an oil and gas company with exploration,
development and production activities that, for the financial
year 2016, have been located in Norway, Malaysia, France, the
Netherlands and Russia. The operations in Norway represented
82% of the group’s revenue for the financial year 2016 and 89%
of the group’s assets as per 31 December 2016. We designed
our audit by determining materiality and assessing the risks of
material misstatement in the consolidated financial statements.
In particular, we considered where the Board of Directors and the
President & CEO made subjective judgements; for example, in
respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. As in all of our audits, we also addressed the risk of
management override of internal controls, including among
other matters consideration of whether there was evidence of
bias that represented a risk of material misstatement due to
fraud.
We tailored the scope of our audit in order to perform sufficient
work to enable us to provide an opinion on the consolidated
financial statements as a whole, taking into account the
structure of the Group, the accounting processes and controls,
and the industry in which the group operates.
Our planning of the audit included an assessment of the level of
audit work to be performed at the group’s headquarters and at
local offices. Following the group’s organisation certain processes
for accounting and financial reporting is performed outside the
group’s headquarter which means that we performed our audit
work both at the group’s headquarters and in those locations.
In determining the level of audit work required for the purposes
of the group audit in each entity of the group we considered
the geographical location, the size of each entity and the risk
associated with the accounts in each entity in relation to the
group’s consolidated accounts as a whole. This analysis also
included the nature and extent of audit procedures in each entity
where a combination of full audits and specified audit procedures
were performed based on size and risk in the individual entity.
Following this analysis and in dialogue with the group’s audit
committee, we performed, through our component audit teams,
a full audit in Norway, as well as for the parent company and
specified audit procedures in Malaysia, France, the Netherlands
and Russia. For entities considered to be of insignificant size to
the group we performed analytical procedures. At the group’s
headquarters we performed the audit of the parent company,
the consolidation, the annual report and key judgments
and estimates in the group. Given the size of the Norwegian
operations, our procedures as group auditors have also included
several meetings with the finance department from Norway
including physical visits to the Norwegian office location.
We have obtained reporting from our component auditors at
two occasions in the 2016 financial year and we have reported
the results from our procedures to management and the Audit
Committee after the review of the Report for the six months
period ended 30 June, 2016 and after the year-end audit of the
financial year 2016.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error.
They are considered material if individually or in aggregate, they
could reasonably be expected to influence the economic decisions
of users taken on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
group materiality for the financial statements as a whole. These,
together with qualitative considerations, helped us to determine
the scope of our audit and the nature, timing and extent of our
audit procedures and to evaluate the effect of misstatements,
both individually and in aggregate on the financial statements as
a whole.
We chose total assets as the quantitative benchmark because, in
our view, it is the most relevant benchmark given the current
developments in the group with continued exploration and
development of oil fields, in combination with the oil price in
the year. An additional factor was the impact from variations
in foreign exchange rates that does not have an insignificant
impact on the group’s income. By taking these matters into
consideration a revenue or income oriented benchmark is
not considered appropriate. Auditing standards specifically
acknowledge that an alternative approach to determining
materiality may be more appropriate where revenue and income
are volatile and not representative of underlying or sustained
business performance. By also taking into consideration the
external stakeholders’ perspective, where the development of the
company’s assets is a key measure, we have chosen total assets as
the most appropriate benchmark.
125
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Auditor’s Report
Key audit matters
Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the
annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in
forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on
these matters.
Key audit matter
How our audit addressed the Key audit matter
Recoverability of the carrying value of oil and gas properties
The carrying value of oil and gas properties represents the
majority of the assets in the balance sheet in the group and
amounted to USD 4,376 million (USD 4,015 million) as per
31 December 2016.
The carrying value of oil and gas properties is supported by the
higher of either value in use calculations, which are based on
discounted future cash flow forecasts, or fair value less cost of
disposal (recoverable amount).
Management concluded that the oil and gas price outlook
together with the updated production profiles as part of the year-
end reserves process, was considered a trigger for an impairment
test for certain of its oil and gas properties. The test, with the
aim to assess the recoverability of the carrying value, requires
management to exercise significant judgement as described
in the Accounting Policies “Critical accounting estimates and
judgements” as well as in note 7 to the Annual Report where
there is a risk that the valuation of oil and gas properties and any
potential impairment charge or reversal of impairment may be
incorrect.
Management’s assessment requires consideration of a number
of factors, including but not limited to, the Group’s intention to
proceed with a future work programme, the success of future
drilling, the size of proved and probable reserves, short and long
term oil prices, future costs as well as discount and inflation rates.
The estimation of oil and natural gas reserves is a significant
area of judgement due to the technical uncertainty in assessing
the estimated quantities. The estimates of proved and probable
reserves has a direct impact on depletion charges and forms the
basis of the estimation of future planned production applied in
the impairment tests of oil and gas properties.
The estimation of reserves are also a fundamental indicator of
the future potential of the group’s performance and therefore
becomes critical information provided in the annual report. The
estimates of proved and probable reserves are certified by the
group’s external reserves auditor, ERC Equipoise Ltd., which is
considered to be an expert firm in this area.
Management has incorporated all these judgmental factors in
determining the recoverable amount of the assets and compared it
with the carrying value. This test has concluded that the carrying
value of oil and gas properties associated the Sabah region
offshore East Malaysia and the Tembakau gas discovery in PM307
offshore Peninsular Malaysia as well as the Morskaya oil discovery
in the Russian Caspian Sea have all been fully impaired with an
amount totalling USD 632 million less a corresponding tax credit
of USD 83 million.
Refer to pages 80 and 81 in the Directors’ report, page 94 in the
Accounting Policies and note 7 in the financial statements for
more information.
We have examined management’s assessment for determining the
impairment indicators and concluded that the oil and gas price
outlook together with the production profiles for certain of its oil
and gas assets represents an impairment indicator triggering the
need for an impairment test.
The assumptions that underpin management’s calculation of
the recoverable amount of oil and gas assets are inherently
judgmental. Our audit work therefore assessed the reasonableness
of management’s key judgements of the recoverable amount.
Specifically our work included, but was not limited to, the
following procedures:
· comparison of management´s short-term oil and gas price
assumptions against external oil price forward curves;
· comparison of long-term oil and gas price assumptions against
views published by brokers, economists, consultancies and
respected industry bodies, which provided a range of relevant
third-party data points;
· agreement of hydrocarbon production profiles and proved and
probable reserves to reserve reports prepared by ERC Equipoise
Ltd;
· verification of estimated future operating costs and capital
expenditures by agreement to budgets, Plan for development
and operation (PDO) and where applicable, third party data;
· recalculation and benchmarking of inflation and discount rates
applied;
· testing of the mathematical accuracy of the model to calculate
the recoverable amount.
We obtained the estimation of proved and probable reserves
certified by the group’s external reserves auditor, ERC Equipoise
Ltd. Our audit work included but was not limited to:
· determining that the group’s process for collecting reserve
reports was timely and robust;
· assessing competence and objectivity of ERC Equipoise Ltd as
expert, to satisfy ourselves they were appropriately qualified to
carry out the volumes estimation;
· validation that the updated reserves estimates were included
appropriately in the group’s consideration of impairment and in
accounting for depletion charges.
For non-producing oil and gas properties we obtained a listing
of capitalised exploration expenditures by field area cost centre
basis (field) as of December 31, 2016. We tested the mathematical
accuracy of this listing and reconciled the listing to the general
ledger. We then assessed and challenged the continued
capitalisation of exploration expenditures by reviewing the
underlying documentation prepared by management for each
of the fields and discussed with management. On a sample
basis, we also reconciled and corroborated information provided
on expenditures incurred and wells drilled to licence budgets,
resource and value estimates, progress reporting in the joint
venture, future plans and/or well commitments.
126
Lundin Petroleum Annual Report 2016
Key audit matter
How our audit addressed the Key audit matter
Recognition and valuation of current taxes and deferred taxes
We obtained the annual tax calculation for the Norwegian entity
as prepared by management.
The group has recognised a tax receivable of USD 77 million
at December 31, 2016 (USD 261 million) related to the Lundin
Norway entity. Under Norwegian Petroleum tax regulations, the
Norwegian entity is eligible for cash tax refunds calculated on
exploration costs incurred. In addition, the Norwegian entity has
material unused tax loss carry forwards as part of the deferred tax
position as discussed in note 6 to the financial statements.
The calculation of taxes under the Norwegian Petroleum Tax Act
involves complexity and requires management judgement in the
application of the tax regulations to the calculation of current and
deferred taxes.
Refer to pages 81 and 82 in the Directors’ report, page 94 in the
Accounting Policies and note 6 in the financial statements for
more information.
Estimation of decommissioning and site restoration provisions
The group has recognised site restoration provisions in the
amount of USD 407 million as of December 31, 2016 (USD 368
million).
The calculation of decommissioning and site restoration
provisions requires significant management judgement because
of the inherent complexity in estimating future costs. The
decommissioning of offshore infrastructure is a relatively
immature activity and consequently there is limited historical
precedent against which to benchmark estimates of future costs.
These factors increase the complexity involved in determining
accurate accounting provisions that are material to the group’s
balance sheet.
Management reviews decommissioning and site restoration
provisions on an annual basis but recognises provisions for new
fields on an ongoing basis. This review incorporates the effects
of any changes in local regulations, management’s expected
approach to decommissioning, cost estimates, discount rates, and
the effects of changes in exchange rates.
Refer to page 82 in the Directors’ report, page 94 in the
Accounting Policies and note 16 in the financial statements.
The tax calculation is subject to internal controls. We tested
management’s review control over the detailed tax calculation,
the reconciliation of the tax assessment received against the prior
year tax return and review of uncertain tax positions.
As part of our substantive procedures, we tested the mathematical
accuracy of the tax calculations and formulas applied. We
reconciled book and tax positions as of December 31, 2016
and December 31, 2015 used in the calculation to underlying
documentation. We examined the application of the tax
regulations and considered the classification of costs to assess
the entity’s calculation of cash tax refund for net loss positions
related to exploration costs incurred. Furthermore, we tested the
reconciliation of the effective rate to underlying documentation.
Uncertain tax positions were examined based on the application
of tax regulations and by reviewing any correspondence with tax
authorities.
We critically assessed management’s annual review of site
restoration provisions recorded. The provisions contains estimates
from both operated assets and non-operated assets.
For operated assets we have gained an understanding of the
mandatory or constructive obligations with respect to the
decommissioning of each asset based on the contractual
arrangements and relevant local regulation to validate the
appropriateness of the cost estimate. We obtained management’s
calculation of site restoration provisions for each field. We tested
mathematical accuracy of the calculations and reconciled the
calculated site provision liability to the general ledger. As part of
our testing we considered the competence and objectivity of the
internal experts who produced the cost estimates and challenged
key assumptions such as rig rates, discount rate, and year of
decommissioning.
For non-operated assets we have assessed the competence of the
operator performing the estimate, challenged the discount rate,
year of decommissioning and other assumptions applied in the
calculation and verified that the accounting records appropriately
reflect the external estimates performed.
Other Information than the annual accounts and consolidated
accounts
This document also contains other information than the annual
accounts and consolidated accounts and is found on pages 1–70
and 129–137. The Board of Directors and the President & CEO
are responsible for this other information.
Our opinion on the annual accounts and consolidated accounts
does not cover this other information and we do not express any
form of assurance conclusion regarding this other information.
information is materially inconsistent with the annual accounts
and consolidated accounts. In this procedure we also take
into account our knowledge otherwise obtained in the audit
and assess whether the information otherwise appears to be
materially misstated.
If we, based on the work performed concerning this
information, conclude that there is a material misstatement of
this other information, we are required to report that fact. We
have nothing to report in this regard.
In connection with our audit of the annual accounts and
consolidated accounts, our responsibility is to read the
information identified above and consider whether the
Responsibilities of the Board of Directors and the President
The Board of Directors and the President are responsible for
the preparation of the annual accounts and consolidated
127
Lundin Petroleum Annual Report 2016 FINANCIAL REPORT | Auditor’s Report
accounts and that they give a fair presentation in accordance
with the Annual Accounts Act and, concerning the consolidated
accounts, in accordance with IFRS as adopted by the EU. The
Board of Directors and the President are also responsible for
such internal control as they 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.
In preparing the annual accounts and consolidated accounts,
The Board of Directors and the President are responsible for the
assessment of the company’s and the group’s ability to continue
as a going concern. They disclose, as applicable, matters
related to going concern and using the going concern basis of
accounting. The going concern basis of accounting is however
not applied if the Board of Directors and the President intends
to liquidate the company, to cease operations, or has no realistic
alternative but to do so.
The Audit Committee shall, without prejudice to the Board of
Director’s responsibilities and tasks in general, among other
things oversee the company’s financial reporting process.
Auditor’s responsibility
Our objectives are to obtain reasonable assurance about whether
the annual accounts and consolidated accounts as a whole are
free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinions.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs and
generally accepted auditing standards in Sweden will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on
the basis of these annual accounts and consolidated accounts.
A further description of our responsibility for the audit of the
annual accounts and consolidated accounts is available on
Revisorsnämnden’s website: www.revisorsinspektionen.se/rn/
showdocument/documents/rev_dok/revisors_ansvar.pdf. This
description is part of the auditor´s report.
Report on other legal and regulatory requirements
Opinions
In addition to our audit of the annual accounts and consolidated
accounts, we have also audited the administration of the Board
of Directors and the President of Lundin Petroleum AB (publ) for
the year 2016 and the proposed appropriations of the company’s
profit or loss.
We recommend to the general meeting of shareholders that the
profit 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 financial year.
Basis for Opinions
We conducted the audit in accordance with generally accepted
auditing standards in Sweden. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities
section. We are independent of the parent company and the
group in accordance with professional ethics for accountants in
Sweden and have otherwise fulfilled our ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinions.
Responsibilities of the Board of Directors and the President
The Board of Directors is responsible for the proposal for
appropriations of the company’s profit or loss. At the proposal
of a dividend, this includes an assessment of whether the
dividend is justifiable considering the requirements which the
company’s and the group’s type of operations, size and risks
place on the size of the parent company’s and the group’s
equity, consolidation requirements, liquidity and position in
general.
The Board of Directors is responsible for the company’s
organization and the administration of the company’s affairs.
This includes among other things continuous assessment of the
company’s and the group’s financial situation and ensuring that
the company’s organization is designed so that the accounting,
management of assets and the company’s financial affairs
otherwise are controlled in a reassuring manner. The President
shall manage the ongoing administration according to the
Board of Directors’ guidelines and instructions and among
other matters take measures that are necessary to fulfill the
company’s accounting in accordance with law and handle the
management of assets in a reassuring manner.
Auditor’s responsibility
Our objective concerning the audit of the administration, and
thereby our opinion about discharge from liability, is to obtain
audit evidence to assess with a reasonable degree of assurance
whether any member of the Board of Directors or the President
in any material respect:
· has undertaken any action or been guilty of any omission
which can give rise to liability to the company, or
· in any other way has acted in contravention of the Companies
Act, the Annual Accounts Act or the Articles of Association.
Our objective concerning the audit of the proposed
appropriations of the company’s profit or loss, and thereby
our opinion about this, is to assess with reasonable degree
of assurance whether the proposal is in accordance with the
Companies Act.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with generally
accepted auditing standards in Sweden will always detect actions
or omissions that can give rise to liability to the company, or
that the proposed appropriations of the company’s profit or loss
are not in accordance with the Companies Act.
A further description of our responsibility for the audit of the
administration is available on Revisorsnämnden’s website:
www.revisorsinspektionen.se/rn/showdocument/documents/rev_
dok/revisors_ansvar.pdf. This description is part of the auditor´s
report.
Stockholm, 31 March 2017
PricewaterhouseCoopers AB
Johan Rippe
Authorised Public Accountant
Lead Partner
Johan Malmqvist
Authorised Public Accountant
128
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
Key Financial Data
Lundin Petroleum discloses alternative performance measures as part of its financial statements prepared in accordance with
ESMA’s (European Securities and Markets Authority) guidelines. Definitions of the performance measures are provided under
the key ratio definitions below.
Financial data
MUSD
Revenue1
EBITDA
Net result
Operating cash flow
Data per share
USD
Shareholders’ equity per share
Operating cash flow per share
Cash flow from operations per share
Earnings per share
Earnings per share fully diluted
EBITDA per share
Dividend per share
2016
1,159.9
902.6
-499.3
1,010.8
-0.70
3.10
2.39
-1.09
-1.09
2.77
–
2015
569.3
384.7
-866.3
699.6
-1.61
2.26
1.01
-2.79
-2.79
1.24
–
2014
785.2
671.3
-431.9
1,138.5
1.40
3.68
1.96
-1.38
-1.38
2.17
–
2013 3
1,132.0
955.7
72.9
967.9
2012
1,375.8
1,144.1
103.9
831.4
3.90
3.12
2.92
0.25
0.25
3.08
–
3.81
2.68
2.64
0.35
0.35
3.68
–
Number of shares issued at year end
340,386,445
311,070,330
311,070,330
317,910,580
317,910,580
Number of shares in circulation at year end
340,386,445
309,070,330
309,070,330
309,570,330
310,542,295
Weighted average number of shares for the year
325,808,486
309,070,330
309,170,986
310,017,074
310,735,227
Weighted average number of shares
for the year fully diluted
326,738,233
310,019,890
309,475,038
–
–
Share price
SEK
Share price
Key ratios (%)
Return on equity 2
Return on capital employed
Net debt/equity ratio 2
Equity ratio
Share of risk capital
Interest coverage ratio
Operating cash flow/interest ratio
Yield
198.10
122.60
112.40
125.40
149.5
–
-12
–
-7
6
-3
6
n/a
–
-26
–
-10
1
-11
9
n/a
-50
-11
605
9
28
-13
49
n/a
6
16
99
29
53
52
149
n/a
9
35
28
38
66
75
119
n/a
1 Following the reclassification of the change in under/over lift from production cost to revenue from 1 January 2013, the comparatives have been
restated.
2 As the equity in 2015 and 2016 are negative, these ratios have not been calculated.
3 The comparatives for 2013 have been restated following the adoption of IFRS 11 Joint Arrangements, effective 1 January 2014. No restatement has been
made for the year 2012.
129
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
Key Ratio Definitions
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation):
Operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation): Operating profit before depletion of oil and gas properties,
exploration costs, impairment costs, depreciation of other tangible assets and gain on sale of assets.
Operating cash flow:
Revenue less production costs and less current taxes.
Cash operating costs:
Cost of operations, tariff and transportation expenses and royalty and direct production taxes.
Shareholders’ equity per share:
Shareholders’ equity divided by the number of shares in circulation at year end.
Operating cash flow per share:
Operating cash flow divided by the weighted average number of shares for the year.
Cash flow from operations per share:
Cash flow from operations in accordance with the consolidated statement of cash flow divided by the weighted average number of shares for
the year.
Earnings per share:
NNet result attributable to shareholders of the Parent Company divided by the weighted average number of shares for the year.
Earnings per share fully diluted:
Net result attributable to shareholders of the Parent Company divided by the weighted average number of shares for the year after considering
any dilution effect.
EBITDA per share:
EBITDA divided by the weighted average number of shares for the year.
Weighted average number of shares for the year:
The number of shares at the beginning of the year with changes in the number of shares weighted for the proportion of the year they are in
issue.
Weighted average number of shares for the year fully diluted:
The number of shares at the beginning of the year with changes in the number of shares weighted for the proportion of the year they
are in issue after considering any dilution effect.
Return on equity:
Net result divided by average total equity.
Return on capital employed:
Income before tax plus interest expenses plus/less currency exchange differences on financial 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 financial items plus interest expenses plus/less currency exchange differences on financial loans divided by interest
expenses.
Operating cash flow/interest ratio:
Revenue less production costs and less current taxes divided by the interest expense for the year.
Yield:
Dividend per share in relation to quoted share price at the end of the financial year.
130
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
Five Year Financial Data
Income statement summary
MUSD
Revenue
Production costs
Depletion and decommissioning costs
Depletion of other assets
Exploration costs
Impairment costs of oil and gas properties
Other cost of sales
Gross profit/loss
Sale of assets
General, administration and depreciation expenses
Operating profit/loss
Net financial items
Share of result of joint ventures accounted for
using the equity method
Profit/loss before tax
Income tax
Net result
Net result attributable to the shareholders
of the Parent Company:
Net result attributable to non-controlling interest:
Net result
Balance sheet summary
MUSD
Tangible fixed assets
Other non-current assets
Current assets
Total assets
Shareholders’ equity
Non-controlling interest
Total equity
Non-current provisions
Non-current liabilities
Current liabilities
Total shareholders’equity and liabilities
2016
1,159.9
-227.5
-471.4
-31.1
-116.1
-632.1
-2.1
-320.4
-3.5
-31.9
-355.8
-202.8
–
-558.6
59.3
-499.3
-356.7
-142.6
-499.3
2016
4,542.5
168.0
491.6
5,202.1
-238.6
-113.6
-352.2
1,119.1
4,082.1
353.1
5,202.1
2015
569.3
-150.3
-260.6
-23.7
-184.1
-737.0
–
-786.4
–
-39.5
-825.9
-610.5
–
-1,436.4
570.1
-866.3
-861.7
-4.6
-866.3
2015
4,219.7
24.1
541.5
4,785.3
-498.2
24.1
-474.1
970.5
3,867.0
421.5
4,785.3
2014
785.2
-66.5
-131.6
–
-386.4
-400.7
–
-200.0
–
-52.2
-252.2
-420.0
-12.9
-685.1
253.2
-431.9
-427.2
-4.7
-431.9
2014
4,382.9
49.9
659.2
5,092.0
431.5
34.2
465.7
1,295.2
2,683.1
648.0
5,092.0
20131
1,132.0
2012
1,375.8
-139.6
-169.3
–
-287.8
-123.4
–
411.9
–
-41.2
370.7
-82.5
-0.2
288.0
-215.1
72.9
77.6
-4.7
72.9
2013
3,905.8
93.6
362.0
4,361.4
1,207.0
59.8
1,266.8
1,345.1
1,264.1
485.4
4,361.4
-203.2
-191.4
–
-168.4
-237.5
–
575.3
–
-31.8
543.5
-21.2
–
522.3
-418.4
103.9
108.2
-4.3
103.9
2012
2,913.8
44.1
335.8
3,293.7
1,182.4
67.7
1,250.1
1,204.6
406.8
432.2
3,293.7
1 The comparatives for 2013 have been restated following the adoption of IFRS 11 Joint Arrangements, effective 1 January 2014. No restatement has been
made for the year 2012.
131
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
Reserve Quantity Information
Proved and probable oil reserves
1 January 2015
Changes during the year
Acquisitions
Sales
Revisions
Extensions and discoveries
Production
31 December 2015
2016
Changes during the year
Acquisitions
Sales
Revisions
Extensions and discoveries
Production
31 December 2016 1
Proved and probable gas reserves
1 January 2015
Changes during the year
Acquisitions
Sales
Revisions
Extensions and discoveries
Production
31 December 2015
2016
Changes during the year
Acquisitions
Sales
Revisions
Extensions and discoveries
Production
31 December 2016
Total
MMbbl
172.7
–
–
-4.5
498.8
-9.8
657.2
27.6
–
49.7
1.4
-23.9
712.0
Total
Bn scf 2
88.5
–
-4.8
11.1
86.2
-12.0
169.0
11.1
–
24.1
2.8
- 17.9
189.1
Norway
MMbbl
137.7
–
–
-2.3
498.8
-6.8
627.4
27.6
–
47.9
1.4
-19.9
684.4
France
MMbbl
Netherlands
MMbbl
Malaysia
MMbbl
Russia
MMbbl
21.2
–
–
-1.1
–
-1.0
19.1
–
–
-0.1
–
-0.9
18.1
–
–
–
–
–
–
–
–
–
–
–
–
–
13.8
–
–
-1.1
–
-2.0
10.7
–
–
1.9
–
-3.1
9.5
–
–
–
–
–
–
–
–
–
–
–
–
–
Norway
Bn scf
Netherlands
Bn scf
Indonesia
Bn scf
65.4
–
–
10.3
86.2
-4.6
157.3
11.1
–
20.2
2.8
-13.3
178.1
14.8
–
–
0.8
–
-3.9
11.7
–
–
2.7
–
- 3.4
11.0
8.3
–
-4.8
–
–
-3.5
–
–
–
1.2
–
- 1.2
–
1 The year end 2016 Oil reserves reported include 17.0 MMbbl of NGL’s relating to Norway.
2 The factor of 6,000 is used by the company to convert one scf to one boe.
132
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
Definitions and Abbreviations
Reserves defined
Reserves
Proved reserves
Probable reserves
2P Reserves
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). Lundin Petroleum’s
reserves are audited by ERC Equipoise Ltd. (ERCE), an
independent reserves auditor. Reserves are defined as
those quantities of petroleum which are anticipated to be
commercially recovered by application of development
projects to known accumulations from a given date
forward under defined conditions. Estimation of reserves is
inherently uncertain and to express an uncertainty range,
reserves are subdivided into Proved, Probable and Possible
categories. Unless stated otherwise, Lundin Petroleum
reports its 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
confidence 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 indicate are less likely to be
recovered than Proved reserves but
more certain to be recovered than
Possible reserves. It is equally likely
that actual remaining quantities
recovered will be greater than or
less than the sum of the estimated
Proved plus Probable reserves (2P).
In this context, when probabilistic
methods are used, there should be
at least a 50 percent probability
that the actual quantities recovered
will equal or exceed the Proved plus
Probable reserves (2P) estimate.
Resources defined
Contingent resources
Prospective resources
Contingent resources are those quantities of petroleum estimated, as of
a given date, to be potentially recoverable from known accumulations,
but the applied project(s) are not yet considered mature enough for
commercial development due to one or more contingencies.
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.
Oil Related Measurements
Currency Abbreviations
Barrel (1 barrel = 159 litres)
Billion cubic feet (1 cubic foot = 0.028 m3)
Billion
Barrels of oil equivalent
Barrels of oil equivalent per day
Barrels of oil per day
Billion barrels of oil equivalent
Thousand barrels
Thousand barrels of oil
Thousand barrels of oil equivalent
Thousand barrels of oil equivalent per day
Million barrels of oil
Million barrels of oil equivalent
Million barrels
Million barrels per day
bbl
bcf
Bn
boe
boepd
bopd
Bn boe
Mbbl
Mbo
Mboe
Mboepd
MMbo
MMboe
MMbbl
MMbpd
MMbopd Million barrels of oil per day
Mcf
Mcfpd
MMscf
MMscfd
MMstb
MMbtu
Thousand cubic feet
Thousand cubic feet per day
Million standard cubic feet
Million standard cubic feet per day
Million stock tank barrels
Million British thermal units
CHF
CAD
EUR
GBP
NOK
RUR
SEK
USD
TCHF
TSEK
TUSD
MSEK
MUSD
Swiss Franc
Canadian Dollar
Euro
British Pound
Norwegian Krone
Russian Rouble
Swedish Krona
US Dollar
Thousand CHF
Thousand SEK
Thousand USD
Million SEK
Million USD
i
For further definitions of oil and gas terms and
measurements, visit www.lundin-petroleum.com
133
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
HSE Indicator Data
HSE indicator data
Exposure Hours
Fatalities
Lost Time Incidents1
Restricted Work Incidents2
Medical Treatment Incidents3
Lost Time Incident Rate4
Total Recordable Incident Rate4
Oil Spills
Chemical Spills
Hydrocarbon Leaks
Near Misses with High Potential
Non-compliance with
Permits/Consents
2016
2015
2014
2013
2012
Employees
1,115,738
1,286,396
1,219,744
960,508
909,196
Contractors
1,881,461
3,841,243
4,466,854
2,074,824
1,561,482
Total
Employees
Contractors
Employees
Contractors
Employees
Contractors
Employees
Contractors
Employees
Contractors
All
Employees
Contractors
All
No.
Vol. (m3)
No.
Vol. (m3)
No.
Mass (kg)
No.
No.
2,997,199
5,127,639
5,686,598
3,035,332
2,470,678
0
1
0
2
0
2
2
0
0.00
1.06
0.67
1.79
2.66
2.34
0
0
2
65.20
1
650
3
0
0
0
1
8
0
0
1
9
0.80
2.10
1.76
1.55
4.45
3.71
0
0
6
59.88
0
0
6
0
0
0
0
7
0
1
0
4
0.00
1.55
1.23
0.00
2.70
2.11
2
5.2
6
45.9
0
0
7
0
0
0
2
4
0
0
0
2
2.10
1.95
1.98
2.10
2.90
2.64
0
0
7
0
0
2
5
0
0
1
0
2.20
3.20
2.83
3.30
3.20
3.24
2
4
1
59.37
1.75
0
0
2
0
0
0
5
0
1 Lost Time Incident (LTI) is an incident which results in a person having at least one day away from work.
2 Restricted Work Incident (RWI) is an incident which results in keeping a person from performing one or more routine functions.
3 Medical Treatment Incident (MTI) is a work related injury or illness that does not result in a job restriction or days away from work.
4 Lost Time Incident Rate (LTIR) and Total Recordable Incident Rate (TRIR) are calculated per million hours worked.
134
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
Share Data
Share data
Since Lundin Petroleum was incorporated in May 2001 and up to 31 December 2016 the Parent Company share capital has developed
as shown below.
Share data
Formation of the Company
Share split 10,000:1
New share issue
Warrants
Year
2001
2001
2001
2002
Incentive warrants
2002–2008
Valkyries Petroleum Corp. acquisition
Cancellation of shares/Bonus issue
New share issue
Total
2006
2014
2016
Quota value
SEK
Change in number of
shares
Total number
of shares
Total share capital
SEK
100.00
1,000
1,000
0.01
0.01
0.01
0.01
0.01
0.01
0.01
9,999,000
10,000,000
202,407,568
212,407,568
35,609,748
14,037,850
55,855,414
248,017,316
262,055,166
317,910,580
-6,840,250
311,070,330
29,316,115
340,386,445
340,386,445
340,386,445
100,000
100,000
2,124,076
2,480,173
2,620,552
3,179,106
3,179,106
3,478,713
3,478,713
135
Lundin Petroleum Annual Report 2016
ADDITIONAL INFORMATION
Shareholder Information
Lundin Petroleum will publish the following interim reports:
· 3 May 2017
· 2 August 2017
· 1 November 2017
· 7 February 2018
Three month report (January – March 2017)
Six month report (January – June 2017)
Nine month report (January – September 2017)
Year End report 2017
The reports are available on www.lundin-petroleum.com in Swedish and English directly after public announcement.
Annual General Meeting
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 4 May 2017 at 13.00 (Swedish time). Location: Vinterträdgården, Grand Hôtel,
Södra Blasieholmshamnen 8 in Stockholm.
Attendance at the meeting
Shareholders wishing to attend the meeting shall:
· be recorded in the share register maintained by Euroclear Sweden AB on Thursday 27 April 2017; and
· notify Lundin Petroleum of their intention to attend the meeting no later than Thursday 27 April 2017.
Confirmation of attendance
· in writing to Lundin Petroleum AB, c/o Computershare AB, P.O. Box 610, SE 182 16 Danderyd, Sweden
· by telephone: +46-8-51 80 15 54
· by e-mail: info@computershare.se
· via the website www.lundin-petroleum.com
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 Thursday
27 April 2017.
136
Lundin Petroleum Annual Report 2016 ADDITIONAL INFORMATION
This information is information that Lundin Petroleum AB is required to make public pursuant to the Securities Markets Act. The
information was submitted for publication at 08.00 CEST on 4 April 2017.
Forward-looking statements
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 proved and
probable reserves and resource estimates may also be deemed to constitute forward-looking statements and reflect 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
financial 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 qualified by this cautionary statement.
i
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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
E info@lundin.ch
W lundin-petroleum.com