Sustainable value creation
Annual Report 2017
Lundin Petroleum Annual Report 2017
1
Sustainable value creation
Lundin Petroleum is one of the leading
independent oil and gas companies
in Europe. With a strategic focus on
Norway, our aim is to develop oil
and gas resources efficiently and
responsibly for a sustainable and low
carbon energy future.
2
Lundin Petroleum Annual Report 2017
Lundin Petroleum
Annual Report 2017
Strategic Report
Our business model
2017 at a glance
2018 guidance
CEO review
Chairman’s statement
Share and shareholders
Operations review
Responsibility
Risk management
Corporate Governance Report
Guiding principles
Board of Directors
Group management
Internal control over fi nancial reporting
Auditor’s report
Financial Report
Financial summary
Directors’ report
Financial statements of the Group
Accounting policies
Financial statements of the Parent Company
Board assurance
Auditor’s report
Additional Information
Key fi nancial data
Key ratio defi nitions
Five year fi nancial data
Reserve quantity information
Defi nitions and abbreviations
Share data
Shareholder information
46
48
59
64
94
100
101
106
107
108
109
110
111
112
2
4
5
6
8
10
12
20
24
28
33
38
44
45
Report Highlights
First cash dividend payment
in 2018
page 5
Johan Sverdrup
a world class project
page 16
Operational delivery and a
strong safety culture
page 12
Strong financial performance
page 46
This report constitutes the Annual Report for Lundin Petroleum AB
(publ), company registration number 556610-8055.
Lundin Petroleum AB (“Lundin Petroleum” or “the Company”) is a
Swedish public limited liability company listed on NASDAQ Stockholm
with ticker “LUPE”.
Lundin Petroleum Annual Report 2017
1
STRATEGIC REPORT | Our Business Model
Creating sustainable value
Lundin Petroleum generates sustainable long-term value in all stages of
the upstream oil and gas value chain. We have 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.
Assets
+
Operations
· Quality assets
· Creative mind sets
· Innovative methods
· Cutting edge technology
· Experienced team of professionals
· Safe and sustainable practices
· Organic growth strategy
· Development of discoveries
· Production of oil and gas
sustainably and in a carbon
efficient manner
Sustainable Value Creation
For all our stakeholders
· Shareholders
· Employees
· Host countries
· Local communities
· Society
2
Lundin Petroleum Annual Report 2017
Focus on organic growth in Norway
Lundin Petroleum was founded in 2001 and acquired the first assets
on the Norwegian Continental Shelf in 2003. Since then it has become
one of the largest operated acreage holders in Norway with a strong
production growth trajectory.
Why Norway?
· Significant yet to find resources >16 billion barrels
· Ranks in the top 10 worldwide exploration areas
· Attractive fiscal and licensing regime
· World leading governance environment
Southern Barents Sea
7.3 billion barrels (1)
Loppa High
Southeastern
Trend
Hammerfest
Hammerfest
Quality assets
Harstad
Harstad
· 6 core areas
· Material long-standing acreage position in
the North Sea
· High impact trends in the southern Barents Sea
· New core areas in the Norwegian Sea and the
North Sea
Norwegian Sea
4.7 billion barrels (1)
Norway
Frøya High/
Froan Basin
North Sea
4.6 billion barrels (1)
Alvheim Area
Utsira High Area
Mandal High
1 Estimates from the Norwegian Petroleum Directorate
OsloOslo
Stavanger
Stavanger
Organic growth strategy
· Invest in exploration to organically grow
our resource base
· Grow our existing asset base with a proactive
subsurface strategy
· Actively pursue new exploration acreage in
core areas
Lundin Petroleum Annual Report 2017
3
STRATEGIC REPORT | 2017 and 2018
2017 at a glance
Production
Mboepd
86
59
Reserves
Net MMboe
714
726
Contingent Resources
Net MMboe
249
203
2016
2017
End
2016
End
2017
End
2016
End
2017
Capital Spend
Net MUSD
Cash Operating Costs
USD/boe
Operating Cash Flow
MUSD
1,300
1,180
6.80
4.25
1,530
860
2016
2017
2016
2017
2016 2017
Spin-off of non-Norwegian assets into
International Petroleum Corporation
At the end of April 2017, Lundin Petroleum completed the spin-
off of the assets in Malaysia, France and the Netherlands into the
new independent company International Petroleum Corporation
(IPC). The transaction resulted in a dividend distribution,
through IPC shares, of USD 410 million to Lundin Petroleum’s
shareholders.
Following the spin-off, Lundin Petroleum has become fully
focused on operations on the Norwegian continental shelf,
where we see continued great opportunities for further organic
growth and development projects.
4
Lundin Petroleum Annual Report 2017
2018 guidance
Production
Mboepd
86
74–82
Capital Spend
Net MUSD
Cash Operating Costs
USD/boe
1,180
1,050
4.25
4.15
2017
2018
2017
2018
2017
2018
Edvard Grieg
75%
Exploration & Appraisal
250
Development
800
Lundin Petroleum proposes to pay
first cash dividend in 2018
After a record setting performance for Lundin Petroleum in 2017,
the Board of Directors proposes that a fi rst cash dividend be paid
after the 2018 AGM. The inaugural cash dividend distribution of
SEK 4.00 per share represents an amount equal to approximately
USD 165 million and is based on the current number of shares,
excluding own shares held by the Company. The dividend
is proposed to be paid after the AGM which will be held on
3 May 2018 in Stockholm.
Lundin Petroleum anticipates to be able to increase this amount
and distribute an annual dividend of at least USD 350 million
from next year and is optimistic about the capacity to grow
annual dividends further when Johan Sverdrup comes onstream
in late 2019.
Lundin Petroleum Annual Report 2017
5
STRATEGIC REPORT | CEO Review
Our responsible approach, in
combination with maintaining a
strong production growth at low
cash operating costs that will deliver
increased free cash flow, means that
we will be able to fund sustainable
dividends and at the same time be
very active on the organic growth
front, thereby continuing to create
long-term sustainable value for our
shareholders
Looking back on the results for 2017 it is pleasing to report a
record setting performance for Lundin Petroleum. We delivered
above expectations both in terms of high production and low
cash operating costs which resulted in the highest operating
cash fl ow and EBITDA for the Company to date, close to double
the levels in 2016. Based on this successful year, it is very good
news that the Board decided to propose our fi rst ever cash
dividend to be paid out after the 2018 AGM.
Strong production growth
These great results were driven by continued strong facilities
and reservoir performance from our core producing assets, the
Edvard Grieg fi eld and the Alvheim area, which generated a
production for 2017 that exceeded guidance. The increase in
reserves is another positive update, driven in particular by the
success from the Edvard Grieg fi eld where the best estimate
ultimate gross recovery of 274 MMboe at year end represents a
remarkable increase of 47 percent compared to the PDO. Our
belief that big fi elds tend to get bigger has certainly proven to
be true for this key asset and we are hopeful that the reserves
upgrade, in combination with further upside, will extend the
fi eld’s plateau production well beyond start-up of the Johan
Sverdrup fi eld.
6
Lundin Petroleum Annual Report 2017
“
We are committed to developing oil and gas in a
responsible and carbon efficient manner
Alex Schneiter
President and CEO
The Johan Sverdrup development project is progressing well
with close to 70 percent of Phase 1 complete at the beginning
of the year. We remain fi rmly on track to start production in
late 2019 which will increase Lundin Petroleum’s production to
above 130 Mboepd and with Phase 2 coming onstream in 2022
our production will double current levels.
Further positive updates were recently made for the project,
both in terms of an increased resource estimate to between 2.1
and 3.1 billion boe and a reduction in costs, which now means
that Phase 1 costs have been reduced by 30 percent since the
PDO. We look forward to the exciting installation milestones
in 2018 with the installation of three additional jackets, two
platform topsides and the export pipelines. We will also work
with the operator to submit the PDO for Phase 2 of the project
in the second half of the year.
Organic growth remains our main strategy
While I would have liked to have seen more success with our
exploration activities in 2017, it is important to remember that
this is a long-term game and I remain confi dent in our strategy
to grow organically.
Our exploration acreage in Norway increased by 50 percent
during 2017 and we renewed our portfolio by adding two new
exploration areas with the Mandal High in the North Sea and
the Frøya High/Froan Basin in the Norwegian Sea. We now
have an even more diversifi ed exploration position and I expect
our active 2018 drilling programme, targeting net unrisked
resources of more than 500 MMboe, to allow us to continue to
fi nd new resources and create value within these core areas. In
addition we have an active appraisal programme for 2018 with
four wells targeting net resources of more than 200 MMboe.
Creating sustainable value
With a focus on operational and execution excellence alongside
safe and sustainable practices, we are committed to developing
oil and gas in a responsible and carbon effi cient manner.
Through our continued efforts to reduce emissions throughout
our operations, we achieved a carbon intensity level for the
Edvard Grieg platform in 2017 that is among the lowest in our
industry. This performance is set to improve further in the
coming years with the investment in power from shore for both
the Edvard Grieg and Johan Sverdrup fi elds.
Our responsible approach, in combination with maintaining a
strong production growth at low cash operating costs that will
deliver increased free cash fl ow, means that we will be able to
fund sustainable dividends and at the same time be very active
on the organic growth front, thereby continuing to create long-
term sustainable value for our shareholders.
To you, fellow shareholders and the Board, I thank you for your
continued support. To my colleagues and management team, a
big thank you for an outstanding performance.
Exciting times ahead!
Alex Schneiter
President and CEO
Lundin Petroleum Annual Report 2017
7
STRATEGIC REPORT | Chairman’s Statement
2017 was all about delivering
above expectations
It was another year of record performance with a
production that increased by 45 percent, generating the
strongest operating cash fl ow in Lundin Petroleum’s
history. I am pleased to say that it was these exceptional
results, in combination with indications of an improving
oil market, that gave the Board the confi dence to
recommend that this success would be returned to the
shareholders in the form of our fi rst ever cash dividend.
The time is right
Our long held view was that a dividend would be possible
after Johan Sverdrup comes onstream in late 2019 or
potentially earlier if the oil price stayed at a sustainable
level. This position was continuously reviewed by
the Board with the aim of bringing back value to the
shareholders sooner rather than later. With a production
that is set to double current levels by 2022, industry
leading low cash operating costs and a strong liquidity of
USD 1.1 billion, means that all the fundamentals are in
place and that the time is right to start paying dividends.
The Board will therefore recommend to the 2018 AGM
that an inaugural cash dividend of SEK 4.00 per share,
totalling approximately USD 165 million, be paid out after
the AGM. We are also optimistic that with the current
market conditions we will be able to distribute an annual
cash dividend of at least USD 350 million as of next year.
A success story that continues
The core driver behind Lundin Petroleum’s record
production is our Edvard Grieg asset, which represented a
majority of total production in 2017 with an exceptionally
strong operating performance, excellent safety record and
one of the lowest carbon intensity levels in our industry.
The signifi cant reserves upgrade for the fi eld also means
that plateau production has been extended by many more
years and I am very proud of our Norwegian team for
this great achievement and their outstanding ability to
continue to unlock value.
The Johan Sverdrup project also continues to exceed all
expectations. It is breath taking to realise that all four
jackets will be in place in the North Sea after this summer
and that production will start towards the end of next
year. Equally impressive is that development costs for the
8
Lundin Petroleum Annual Report 2017
“
With the healthy outlook for the Company,
the time is right to start paying dividends
Ian H. Lundin
Chairman of the Board
full fi eld have been reduced by more than a third since the
PDO – a saving that represents nearly one Edvard Grieg
development alone. This progress, combined with the
increased resource estimate, affi rms the world class quality
of this fi eld and I am truly convinced we are still only
witnessing the beginning of the Johan Sverdrup success
story.
I am very conscious that exploration has been the key
to our success and continues to be part of our core
philosophy. Therefore, I am very pleased to see that our
licence position on the Norwegian Continental Shelf
increased by some 50 percent during the year and that we
continue to bid actively for new acreage in all the licensing
rounds. 2018 will be a very active year in terms of appraisal
and exploration drilling, which I am confi dent will allow
the Company to continue to grow organically for years to
come.
Promising outlook
While the outlook for Lundin Petroleum certainly looks
promising we are also seeing a recovery in the oil market.
World oil demand has now reached approximately
100 MMbopd and continues to grow. Meanwhile the effects
of capital discipline in the industry over the past few years
are starting to have an effect on the supply side. I expect
that we are getting very close to tightened supply and even
if there are signs that the industry is starting to react to the
imbalance it will probably be too little too late to avoid a
constraint in supply.
Lundin Petroleums’s production growth profi le for the
coming years will generate strong free cash fl ow and means
that we can pay out dividends and still be able to repay
our debt and fund our organic growth activities. Quality
assets, creative mind sets, innovative methods, cutting edge
technology and most importantly a great team of people
explains why Lundin Petroleum is one of the leading
independent oil and gas companies in the world and why
we will retain our standing in the industry as one of the
strongest players to capitalise on further growth, continuing
to create long-term sustainable shareholder value.
Lundin Petroleum’s future success lies in the hands of
the people that make up the Company and I want to
thank you all for your great work in 2017 and you, fellow
shareholders, for your continued support. I look forward to
continue to share the Lundin Petroleum journey with you
all.
Ian H. Lundin
Chairman of the Board
Lundin Petroleum Annual Report 2017
9
STRATEGIC REPORT | Share and Shareholders
Share and shareholders
Lundin Petroleum share
2017 has been a consolidation year for the Lundin Petroleum
share price, which saw an intraday peak of SEK 215 per share
whilst overall growth was relatively fl at. Since the inception of
the listing of Lundin Petroleum’s shares in September 2001, the
share price has achieved a compounded annual return, up until
31 December 2017, of 32 percent including dividends.
Market capitalisation
At the end of 2017 Lundin Petroleum’s market capitalisation
was SEK 63.9 billion which made Lundin Petroleum one of the
largest independent oil and gas companies in Europe by market
capitalisation.
Trading of Lundin Petroleum shares
During 2017, a total of 213 million shares were traded on
NASDAQ Stockholm to a value of approximately SEK 39 billion,
representing an average daily trading volume of approximately
0.85 million shares per trading day. The share trading turnover
during 2017 equated to approximately 63 percent of the average
number of shares in issue during 2017 and approximately
1.2 times the number of shares in free fl oat.
Dividend policy
Lundin Petroleum’s objective is to create attractive shareholder
returns by investing through the business cycle with capital
investments allocated to exploration, development and
production assets. The Company’s ambition is to create
shareholder returns both through share price appreciation as
well as by paying a predictable and sustainable cash dividend
with the aim of progressively increasing the cash dividend
in line with the growth of the Company’s earnings and free
cash fl ow generation. The progressiveness of the dividend
will depend, among other things, on the performance of
the Company’s main producing assets as well as the capital
investment needs, the oil price level, the debt gearing level and
the debt amortisation profi le.
The Board has proposed to pay an inaugural cash dividend of
SEK 4 per share, amounting to approximately MUSD 165 to
be paid after the 2018 AGM. The ambition remains to further
increase the cash dividend to at least MUSD 350 from 2019 and
to grow the capacity of annual dividends upon production of
fi rst oil from Johan Sverdrup.
Share Price 2001–2017
)
K
E
S
(
e
c
i
r
P
e
r
a
h
S
250
200
150
100
50
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
T
r
a
d
e
d
V
o
u
m
e
(
l
m
i
l
l
i
o
n
)
2002 2003 2004 2005
2006 2007 2008 2009 2010
2011
2012 2013 2014 2015 2016 2017
Lundin Petroleum AB (LUPE) share price (monthly daily average)
Traded daily volume NASDAQ Stockholm (monthly average)
Source: Bloomberg
10
Lundin Petroleum Annual Report 2017
Share capital
The registered share capital amounted to SEK 3,478,713 at year end 2017, 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.
During 2017, Lundin Petroleum purchased 1,233,310 own shares at an average purchase price of SEK 186.14 and
the Company’s total shareholding at year end 2017 amounted to 1,233,310 shares.
Share ownership structure
Lundin Petroleum had 29,491 shareholders at the end of 2017. Shares in free fl oat amounted to 51.2 percent and
exclude the shareholding held by the Lundin family and Statoil.
The top 10 shareholder list excludes shareholdings through nominee accounts and only includes institutional
shareholders who hold the shares directly as reported by Euroclear Sweden.
The 10 largest shareholders
as at 31 December 2017
Nemesia S.à.r.l.1
Statoil ASA
Landor Participations Inc.2
Swedbank Robur fonder
Nordea Fonder
Abu Dhabi Investment Authority
SPP Fonder
Vanguard Energy Fund
Fjärde AP-fonden
SEB
Other shareholders
Total
Number
of shares
87,187,538
68,417,676
10,488,956
6,682,051
3,804,261
2,325,288
2,152,739
2,116,332
1,976,411
1,672,972
153,562,221
340,386,445
%
25.6
20.1
3.1
2.0
1.1
0.7
0.6
0.6
0.6
0.5
45.1
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.
Source: Euroclear Sweden
The main changes to the shareholder base in 2017 were driven by investment style with a shift towards investors
focused on dividend yields and cash fl ow multiples valuation as opposed to previous years where focus was on
traditional net asset valuation methodologies.
Shareholder Structure - Sector
Institutional Shareholders - Geographical
Lundin Family
29%
Rest of the
World 11%
Sweden
21%
Institutional
Investors
34%
USA 23%
Scandinavia
excluding Sweden
10%
Statoil 20%
Source: IPREO
Retail 8%
Other 9%
Rest of Europe
11%
UK, Ireland
24%
Lundin Petroleum Annual Report 2017
11
STRATEGIC REPORT | Operations Review
OPERATIONS | Operations Review
Outstanding operations performance
Production
86 Mboepd
2P reserves replacement ratio
144%
Reserves and resource base
~1 billion barrels
Cash operating costs
4.25 USD/boe
Safe operations
0.47 LTIR
Oil spills
Zero
recordable oil spills
Carbon intensity
5.1 CO2e kg/boe
for Edvard Grieg
12
Lundin Petroleum Annual Report 2017
“
Operational delivery and a strong safety
culture are essential to our success
Nick Walker
Chief Operating Officer
Health, safety and
environment
Our objective is to provide a safe
working environment by having a robust
HSE culture and management system
Strong safety performance
The health and safety of the people working for us is our highest
priority and we focus on reducing risks throughout all our
operations. We rely on our skilled and dedicated workforce to assess
potential risks and implement measures to mitigate them. We foster
an open culture to learn from incidents and we continually assess
our operations to identify areas for improvement. We also test
and review our emergency preparedness on a regular basis. These
measures help ensure a safe working environment for everyone
working for or on behalf of Lundin Petroleum.
In 2017, there were no serious personal injuries or process safety
incidents. The Lost Time Incident Rate (LTIR) was 0.47 per million
hours worked and the Total Recordable Incident Rate (TRIR) was
3.30 per million hours worked.
Reduced environmental impact
Lundin Petroleum supports the principles of the Paris Agreement
to strengthen the global response to climate change and we are
committed to play our part in supporting industry initiatives
to reduce carbon emissions. Through our investment in carbon
mitigating technology and improved emissions management, Lundin
Petroleum operates with one of the lowest carbon intensity levels
in the industry, which we also consider a competitive advantage.
The emission level from the Edvard Grieg platform was 5.1 kg CO2
equivalent per barrel in 2017, which is a reduction compared to 2016
and a level about 75 percent lower than the world average. Our low
carbon performance is set to improve further in the coming years
with the investment in power from shore for both the Edvard Grieg
and Johan Sverdrup fi elds.
Beyond emissions we also focus on measures to minimise the impact
of our operations on the surrounding environment by reducing
discharges to sea. In 2017, there were no material environmental
incidents throughout our operations. We also focus on managing
waste from our operations and initiated a waste reduction initiative
in 2017 that requires suppliers to reduce the use of non-recyclable
packaging material.
Lost Time Incident Rate
1
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
2013
2014
2015
2016
2017
1 Adjusted for IPC spin-off
Greenhouse Gas Emissions Intensity
e
o
b
/
e
2
O
C
g
k
20
10
0
Energy management
Power from shore
World
Norway
Edvard
Grieg
Johan
Sverdrup
Source: NOROG and IOGP for world and Norway data (2016 averages).
Edvard Grieg is 2017 data, Johan Sverdrup full field estimate
i
Read more about Lundin Petroleum’s HSE
performance in the Sustainability Report 2017
available on www.lundin-petroleum.com
Lundin Petroleum Annual Report 2017
13
STRATEGIC REPORT | Operations Review
Edvard Grieg - outstanding performance at low cost
The majority of Lundin Petroleum’s production in 2017 came from its key operated Edvard Grieg asset in the Utsira High in the
Norwegian North Sea. The fi eld contributed close to 80 percent of total production at a cash operating cost of less than USD 4 per
barrel. Increased facilities capacity, high production effi ciency and strong reservoir performance were the key drivers behind this
excellent performance.
Appraisal drilling results have confi rmed additional reserves in the southwest area of the fi eld which, combined with the results from
the development wells drilled in 2017 and the strong reservoir performance, has seen no water production to date and has resulted
in a signifi cant reserves increase for the fi eld. The best estimate gross ultimate recovery increased by 51 MMboe to 274 MMboe at
year end 2017 which is a 47 percent increase on the original PDO estimate. This positive upgrade will extend Edvard Grieg plateau
production to end 2019, and possibly even longer, with further upside and infi ll drilling opportunities. The ambition is to keep the
Edvard Grieg facilities full for many years to come and appraisal drilling on the nearby Luno II and Rolvsnes oil discoveries, both
possible sub-sea tie-back opportunities to the Edvard Grieg facilities, are planned for 2018.
14
Lundin Petroleum Annual Report 2017
Strong production
growth
Record high production in 2017 that
exceeded guidance
2017 production exceeded guidance
During 2017, Lundin Petroleum produced 31.4 MMboe at an average
rate of 86.1 Mboepd, excluding production from the IPC assets. This
performance was 15 percent above the mid-point of the original
guidance and above the revised guidance for 2017.
Capacity testing of Edvard Grieg, that has confi rmed that the facilities
are able to produce at rates 15 percent above design levels, combined
with strong facilities and reservoir performance at both the Edvard
Grieg fi eld and the Alvheim area, are the main reasons for the strong
production performance in 2017.
2018 production forecast
Lundin Petroleum’s production guidance for 2018 is in the range
of 74 to 82 Mboepd with Edvard Grieg representing approximately
75 percent of total production in 2018.
The Ivar Aasen fi eld produces through the Edvard Grieg facilities
and the contractual allocation of facilities capacity between the
fi elds changes through time. The Edvard Grieg production well
capacity signifi cantly exceeds the available contractual capacity and
the reduced production compared to 2017 is due to the capacity
constraint. Increased reserves were booked for the Edvard Grieg fi eld
at the end of 2017 and will see plateau production levels sustained
beyond the start-up of Johan Sverdrup.
Doubling production with Johan Sverdrup
The giant Johan Sverdrup fi eld is on track to start production in late
2019 and is expected to increase Lundin Petroleum’s net production
to above 130 Mboepd and then grow to over 160 Mboepd at full
fi eld plateau levels. This is set to double today’s production levels,
excluding any contribution from the signifi cant contingent resource
base or any contribution from the exploration wells that Lundin
Petroleum is planning to drill.
Performance 2017
86 Mboepd
2017 Production
t
e
n
d
p
e
o
b
M
100
80
60
40
20
0
Q1
Q2
Q3
Q4
2017 average (86.1 Mboepd)
Mid-point original guidance (75 Mboepd)
Long-term Production Trajectory
>160
>130
86
74–82
59
21
2 0 1 5
2 0 1 6
2 0 1 7
2 0 1 8 G uidance
Jo han Sverdru p
Jo han Sverdru p
Plateau
P hase 1
Lundin Petroleum Annual Report 2017
15
STRATEGIC REPORT | Operations Review
Development
Johan Sverdrup - a world class project
Phase 1 of the Johan Sverdrup project is ahead of schedule with close to 70 percent complete at the beginning of 2018 and remains
fi rmly on track for fi rst oil in late 2019. Key project milestones in 2017 were the offshore installation of the riser platform jacket
and the assembly of the drilling platform topsides. During 2018, the remaining three platform jackets will be installed along with
the topsides for the drilling and the riser platforms as well as the oil and gas export pipelines. The remaining two topsides, for
the processing and living quarter platforms, will be installed in 2019. The gross production capacity for Phase 1 is estimated at
440 Mbopd.
The development concept for Phase 2 of the project has been fi nalised and the PDO is scheduled for the second half of 2018. Phase 2
involves the installation of an additional processing platform at the fi eld centre and will see gross production capacity increase to
660 Mbopd. Phase 2 is scheduled to come on-stream in 2022.
The project keeps getting better and better with further cost reductions and an increased resource estimate. The latest cost estimate
for Phase 1 represents a saving of nearly 30 percent compared to the PDO, excluding additional foreign exchange rate savings. The
breakeven price for the full fi eld has been reduced to less than 20 USD per barrel. These improvements, in combination with the
resource upgrade for the fi eld to between 2.1 and 3.1 billion boe, truly shows the world class quality of the Johan Sverdrup project.
16
Lundin Petroleum Annual Report 2017
2017
Phase 2
PDO
2018
Riser
Drilling
Riser
Drilling
Process
LQ
Oil pipeline
Gas pipeline
Topsides
Installation
Schedule
Jacket
Installation
Schedule
Pipeline
Installation
Schedule
Target Phase 1
First Oil
Late 2019
2019
Process
LQ
Lundin Petroleum Annual Report 2017
17
STRATEGIC REPORT | Operations Review
Organic growth activity
Lundin Petroleum’s main strategy is
to pursue organic growth success in
Norway, an attractive region with multiple
prospective hydrocarbon areas assessed
to have yet to find resources of over
16 billion boe and with a regulatory and
fiscal regime that promotes exploration
activity.
Active appraisal programme
During 2017, the Company drilled four appraisal wells including
wells on the Alta and Gohta oil discoveries in the southern Barents
Sea and on the southwest area of the Edvard Grieg fi eld, resulting in a
signifi cant reserves increase for the fi eld.
An active appraisal programme is planned for 2018 targeting more
than 200 MMboe of net resources with the aim of progressing
resources towards reserves. Appraisal activities include wells at Luno
II and Rolvsnes in the Utsira High, both potential subsea tie-back
developments to the Edvard Grieg platform. In the southern Barents
Sea an appraisal well and extended well test will be conducted on the
Alta oil discovery.
Expanding exploration position
Lundin Petroleum has been active in expanding and diversifying its
exploration position in Norway through a combination of licensing
round awards and acquisitions. Since the beginning of 2017 its acreage
has been increased by approximately 50 percent and two new core
exploration areas have been added at the Mandal High in the North Sea
and the Frøya High/Froan Basin in the Norwegian Sea.
Six exploration wells were drilled in 2017, one in the Alvheim area and
fi ve in the southern Barents Sea, resulting in the Filicudi oil discovery
in PL533. Additionally, a large high-specifi cation 3D seismic survey
called TopSeis was acquired over the Alta and Gohta discoveries and
area prospectivity.
The exploration programme for 2018 is targeting over 500 MMboe
of net unrisked prospective resources. Nine wells are planned to be
drilled, four in the southern Barents Sea, four in the North Sea and one
in the Norwegian Sea. Two of these wells will target prospects in the
new Mandal High and Frøya High/Froan Basin core exploration areas.
18
Lundin Petroleum Annual Report 2017
Reserves and resources
Lundin Petroleum has approximately one
billion barrels of reserves and resources
Proved plus
Probable
(2P reserves)
Proved plus
Probable
plus Possible
(3P reserves)
714.1
-31.9
-1.7
+45.8
726.3
144%
898.1
-31.9
-2.2
+31.5
895.5
99%
Reserves Summary
End 2016
2017 production
Sales/acquisitions
Revisions
Reserves end 2017
Reserves replacement ratio
Excluding IPC assets
Reserves replacement exceeds production
Lundin Petroleum increased its reserves in 2017 with a 2P reserves
replacement ratio of 144 percent. The main reason for the increase
in reserves relates to Lundin Petroleum’s two main assets, the
Edvard Grieg and Johan Sverdrup fi elds both located on the Utsira
High in the Norwegian North Sea.
The best estimate gross ultimate recovery from Edvard Grieg at end
2017 is 274 MMboe, which is cumulative production to end 2017
plus 2P reserves, and represents an increase of 51 MMboe from
end 2016 and a 47 percent increase from the original PDO. The
signifi cant reserves upgrade at Edvard Grieg is driven by drilling
results and production performance to date which indicate more
oil-in-place and with a greater proportion in the high quality high
recovery factor sands as compared to the lower quality reservoirs.
The upgrade of reserves in the Johan Sverdrup fi eld refl ects
the positive drilling results and optimisation of the reservoir
development plan. Further reserves increases have been attributed
to the Alvheim and Volund fi elds.
96 percent of the 2P reserves is related to oil and natural gas
liquids (NGL). All reserves are independently audited by ERC
Equipoise Ltd. (ERCE).
Contingent resources
Lundin Petroleum had 203 MMboe of net contingent resources at
year end 2017. A signifi cant work programme is planned for 2018,
including four appraisal projects, aimed at maturing contingent
resources into reserves.
2P reserves end 2017
726 MMboe
Johan Sverdrup
562
Other
29
Edvard Grieg
135
Contingent resources
end 2017
203 MMboe
Luno II
26
Alvheim Area 6
Rolvsnes 4
Alta/Gohta
86
Johan Sverdrup
47
Edvard Grieg
10
Other
24
i
Lundin Petroleum reports all of its reserves in working
interest barrels of oil equivalent.
Definitions of reserves and resources can be found on
page 110.
Lundin Petroleum Annual Report 2017
19
STRATEGIC REPORT | Responsibility
Responsible operations
Lundin Petroleum’s sustainability approach is to provide society with low
carbon intensity energy sourced in a responsible way
2017 was marked by Lundin Petroleum transitioning from global
operations to a strategic focus on Norway, which means we operate in
a world class governance environment and are well placed to pursue
our ambition to become a sustainability leader in our sector.
As part of this transition, our Corporate Responsibility strategy has
been reassessed to make sure it is relevant and addresses material
sustainability challenges related to the operating context. This work
included a third party materiality assessment that reviewed laws
and regulations, voluntary initiatives as well as issues important to
civil society and our peers in Norway. The assessment shows that our
Corporate Responsibility framework is robust and remains relevant as
the material issues identifi ed are essentially the same as in previous
years, namely health and safety, environment, labour standards,
human rights and anti-corruption. It also showed that a key issue for
Lundin Petroleum in 2017 and going forward is our action to address
climate change.
Concerted efforts by governments, business and civil society were
taken in 2017 to translate the Paris Agreement into concrete actions.
Lundin Petroleum was part of this process with intensifi ed efforts to
ensure that we produce oil and gas in the most carbon effi cient way
possible. Our environmental policy was revised to include climate
related objectives, we developed an environmental strategy for our
Norwegian operations setting out specifi c goals and targets to reduce
our environmental footprint and we continued to actively support the
industry roadmap to achieve emission reductions on the NCS.
Highlights 2017
Paris Agreement on climate change
· Revised our environmental
policy to address climate
change
· Lowered our carbon intensity
· Collaborated with industry to
reduce carbon emissions
· Promoted innovation through
R&D
· Increased Lundin Foundation
presence in Scandinavia
Sustainability Report 2017
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
The Sustainability Report provides comprehensive information on how sustainability
issues are part of Lundin Petroleum’s business model to create long term sustainable
value and constitutes the disclosure on non-fi nancial reporting required under Swedish
law implementing the EU Directive 2014/95/EU. The report has been developed as a tool
for stakeholders to assess our sustainability approach and performance and to engage
with us on issues that are important to them. We welcome this engagement as part of
our work to address key sustainability challenges.
20
Lundin Petroleum Annual Report 2017
“
We are proud to work in Norway where we
explore for and produce oil and gas with high
environmental, social and governance standards
Christine Batruch
VP Corporate Responsibility
Operating with low carbon intensity
Through our management efforts and investments in new
technologies, Lundin Petroleum succeeded yet again to
lower the carbon intensity of its oil and gas production
in 2017 to a level that is 75 percent lower than the world
industry average. This means that Lundin Petroleum
operates with one of the lowest carbon emission intensity
levels in the industry. We are therefore well positioned to
continue to supply reliable and carbon effi cient energy for
many years to come.
In a lower oil price environment it will be innovative
companies with a focus on sustainability that will have the
ability to transform into the energy companies needed in
the future. At Lundin Petroleum, we see it as a competitive
advantage that we can deliver energy that is produced in a
responsible, carbon effi cient and cost effective manner.
Innovative solutions to social and
sustainability issues
The Lundin Foundation was established in 2005 and is a globally
recognised leader in impact investments. Through Lundin
Petroleum’s partnership with the Lundin Foundation, we support
innovative solutions to address key social and sustainability issues
in Europe. Projects that assist the integration of refugees and
migrants into the workforce are carried out in Norway and Sweden
and mentoring and training is provided to young entrepreneurs
with sustainable business ideas in northern Norway.
More information on projects run by the Lundin Foundation can
be found in Lundin Petroleum’s Sustainability Report.
Lundin Petroleum Annual Report 2017
21
STRATEGIC REPORT | Responsibility
Committed to ethical business conduct
Promoting good governance and requiring the highest standards of
ethical business conduct – internally and throughout our value chain
Anti-corruption
Our exposure to corruption is continuously assessed through reviews and audits and is determined a limited risk
area given the focus on operations in Norway. Internal anti-corruption processes are nonetheless maintained to
ensure high awareness of the risk that exists within the industry. Anti-corruption commitments are included in
Lundin Petroleum’s Contractor Declaration and were added in 2017 to our evaluation of contractors in the tender
process.
There were no reported cases of suspected or actual corruption in 2017.
Human rights
An integral part of our business model to create long term sustainable value is to ensure that human rights are
respected throughout all our operations. While we operate in a low risk environment in Norway, we are attentive to
potential risks within our operations as well as in the value chain.
Lundin Petroleum’s human rights due diligence process is guided by the principles for business and human rights
embodied in the UN Global Compact and the UN Guiding Principles on Business and Human Rights as well as
Lundin Petroleum’s Human Rights Policy and Guidelines. The process entails identifying, assessing and determining
any potential human rights risks and sets out further preventative or mitigating measures. Human rights were
added in 2017 as a criterion for contractor evaluation at the tender process to further emphasise the importance of
respect for human rights in the value chain.
Screenings conducted in 2017 did not identify any human rights issues.
22
Lundin Petroleum Annual Report 2017
Our people
Sustainable value creation starts with our key
resource – our people
Our key resource
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 our key resource.
The organisation changed in 2017 as the non-Norwegian assets were spun-off to
IPC with Lundin Petroleum becoming fully focused on Norway. At the end of 2017,
Lundin Petroleum had a total of 411 employees with a majority based in Norway.
Consultants and contractors are also engaged by the Company for services related
to exploration, project development and other operational activities with a total of
42 engaged during 2017.
Diversity
Lundin Petroleum values diversity and strives to maintain an open and inclusive
work environment. A total of 28 different nationalities were represented in the
employee base in 2017. Women represented 27 percent of the total workforce
and 27 percent of the managerial positions. The proportion of women in Lundin
Petroleum’s Board of Directors was 38 percent.
Men
73%
Employees
Managers
Men
73%
Women
27%
Women
27%
Women
38%
Labour standards
We are committed to providing our staff and contractors with a safe and enabling
working environment. We support the principle of freedom of association in trade
unions and promote diversity in our employee base, ensuring that all employment
opportunities are offered on the basis of skills and experience.
Board of
Directors
Men
62%
Lundin Petroleum Annual Report 2017
23
STRATEGIC REPORT | Risk Management
Managing risk
Lundin Petroleum places risk responsibility at all levels to continually manage
threats and opportunities affecting our business
The oil and gas industry is exposed to numerous risks due
to the nature of the operational context and the often rapid
change and dynamic character of the business environment.
This is a risk universe that can present both challenges and
opportunities.
Lundin Petroleum’s risk management approach has been
designed to identify and manage the most material risks for the
business, from health, safety and environmental protection to
the capacity to achieve short and long-term business objectives
to fi nancial risks relating to a volatile oil price environment
and accurate fi nancial reporting.
A standardised risk management methodology is used to
perform quantitative and qualitative risk assessments and to
prioritise activities and resources which enables the Company
to deal effectively with any potential threats and opportunities.
The risk assessment starts with an understanding of events in
terms of severity and probability of an incident occurring that
takes context and uncertainty into consideration. Risks are
then rated based on a fi ve level scale within a risk management
matrix to indicate the appropriate level of attention from
management, including identifi cation of corresponding
opportunities.
Lundin Petroleum’s risk management process is driven by the
Board to encourage foresight, pro-activeness and informed
decision-making. Management is responsible for establishing
risk management processes and for reviewing and measuring
the effectiveness of mitigation efforts and local management has
the day-to-day responsibility for implementing the systems and
monitoring their impact.
A majority of Lundin Petroleum’s activities are located in
Norway, a country with a robust regulatory framework covering
key issues for oil and gas operations, such as health, safety,
security, environment, human rights and anti-corruption. Risks
and opportunities are nevertheless continuously considered in
a broader context with emerging trends and associated risks
being identifi ed by internal and external sources. Key trends are
then reviewed by management on a quarterly basis in order to
raise the internal awareness. Monitoring risk is an important
part of the continuous risk management process. It involves
local operational accountability and clear responsibility for
continuous identifi cation of risks by risk owners.
Strategic Risk
Financial Risk
Risks associated with business
strategy and business environment
1. Shareholder value creation
2. Laws and regulations
3. Ethical business conduct
4. Stakeholder engagement
5. Climate change
Risks related to liquidity, financial
market exposure and earning capacity
11. Market conditions
12. Liquidity and funding
13. Interest and currency
14. Financial reporting
15. Asset management and cost control
16. Asset retirement
Operational Risk
Risks arising from operational context
6. Health, safety and environment
7. Security / IT security
8. Concentration of operations
9. Reserves and resources
10. Delay of development projects
24
Lundin Petroleum Annual Report 2017
Lundin Petroleum’s risk universe falls into three areas: strategic, operational and fi nancial risks which include risks to the Company’s
reputation or the effect that external risks could have on the business. A description of the specifi c risks, not listed in any order of
priority in the table below, show how Lundin Petroleum works to address and mitigate these risks within each area. This summary
gives an overview of Lundin Petroleum’s risk universe however other risks may also exist or arise.
Strategic Risk
Description
1. Shareholder value creation
Inability of business strategy to
create shareholder value. Failure
to understand and unlock the full
value of the asset portfolio.
2. Laws and regulations
Impact
Mitigation
Loss of investor confi dence.
Negative impact on share price
and market position.
Lundin Petroleum seeks to generate sustainable shareholder
value by proactively investing in exploration to organically
grow the reserve base, exploiting the existing asset base
and acquiring new reserves, resources or acreages where
opportunities exist to enhance value.
Breach of applicable laws and
regulations. Complexity and
changes to applicable laws and
regulations that may negatively
affect the Company.
Investigations and litigation.
Financial impact, reputational
damage, cancellation or
modifi cation of contractual
rights, uncertainty in taxation.
Lundin Petroleum strives to ensure comprehensive
interpretation of and adherence to applicable laws and
regulations through a robust corporate governance framework
with appropriate measures to detect potential, and react to
identifi ed, legal risks.
For more information on the preliminary investigation in
Sweden in relation to past operations in Sudan, see page 32.
3. Ethical business conduct
Breach of norms and standards
regarding compliance and ethical
business conduct.
4. Stakeholder engagement
Failure to manage stakeholder
relations and meet expectations.
Ineffective communication with
stakeholders.
5. Climate change
Climate change initiatives
could lead to stricter regulation
on emissions or imposition of
mandatory technology in the areas
where Lundin Petroleum operates.
Investigations and litigation.
Risk of non-compliance with
ethical business practices, fraud,
bribery and corruption. Loss of
legal or social licence to operate
with severe impact on short- and
long-term growth plans.
A consistent application of the Code of Conduct, together with
Corporate policies and procedures in the management system
clearly defi ne responsibilities and obligations to ensure that
Lundin Petroleum operates according to the highest level of
ethical standards. Expectations of ethical business conduct
are implemented in contractual clauses and in a Contractor
Declaration.
Damaging effect on social
licence to operate and reputation
Ineffective communication may
lead to a loss of investor, partner
or employee confi dence.
Lundin Petroleum has strong internal and external
communication channels and seeks an active engagement
with its various stakeholders to maintain an open and
informed dialogue.
For more information on stakeholder engagement, see the
2017 Sustainability Report.
Increase in capital and operating
costs due to new climate change
related requirements.
Lundin Petroleum conducts activities in Norway that has
a pro-active role in addressing climate change. The carbon
footprint and energy effi ciency of its operations are reviewed
on an ongoing basis and greenhouse gas emissions are
disclosed regularly.
Lundin Petroleum Annual Report 2017
25
STRATEGIC REPORT | Risk Management
Operational Risk
Description
Impact
Mitigation
6. Health, Safety and Environment (HSE)
Operational incidents such as fi re,
process safety, major accidents,
collision, or well control incidents are
a signifi cant risk within the oil and
gas industry.
Loss of health, safety, security and
environmental protection. Financial
and reputational impact.
Lundin Petroleum has a robust HSE culture in place to
reduce the risks of incidents and maintains a strong HSE
management to ensure the safety and security for people
and the environment.
For more information on HSE management, see the 2017
Sustainability Report.
7. Security / IT Security
Safety and security is important for
the oil and gas industry and the
risk ranges from personnel security
or other attacks on physical assets,
including information systems.
8. Concentration of operations
Current production concentrated to a
few fi elds.
9. Reserves and resources
Uncertainty in estimates of
economically recoverable reserves
and inability to bring estimates into
resources and reserves.
10. Delay of development projects
Delay in delivery of development
projects, most notably the signifi cant
Johan Sverdrup project.
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.
Security risks are regularly monitored, assessed and
subject to audit. With operations in Norway, exposure
to this risk is assigned a lower risk ranking but high
awareness is nonetheless maintained. Networks are
monitored to prevent and remedy any external attacks.
A unifi ed and resilient internal network is maintained
through fi rewalls and procedures.
A signifi cant proportion of
production comes from the Edvard
Grieg and the Alvheim area.
Increased vulnerability for serious
technical issues and long-term
production shutdowns.
The Company has highly competent and robust
operational teams and holds critical spares in inventory.
An insurance covering the fi nancial liquidity impact
from a loss of production is subscribed for the Edvard
Grieg fi eld, which reduces the impact of any unexpected
long-term shutdowns.
Uncertainty of future business and
subsurface data. Decline in revenue.
Reserves and resource calculations are performed
according to industry standards and undergo a
comprehensive internal peer review in addition to an
annual audit process by an independent auditor.
Combined effect of delay and cost
overruns effect liquidity.
Quality project management and execution of work to
date. The Johan Sverdrup project progress has been ahead
of schedule with lower cost estimates.
26
Lundin Petroleum Annual Report 2017
Financial Risk
Description
11. Market conditions
Exposure to variations in oil price.
Impact
Mitigation
The Company’s fi nancial
earnings, cash fl ow
generation and liquidity
position are affected by the
commodity price of oil.
Lundin Petroleum’s policy is to adopt a fl exible and proactive
approach towards oil price hedging based on an assessment
of the benefi ts of hedge contracts in specifi c circumstances.
The Company actively reviews the contractor base and their
position of liquidity in low oil price market conditions.
12. Liquidity and funding
Failure to keep investments and costs in
line with budgets. Delays in the Johan
Sverdrup development projects leading
to delayed cash fl ow.
Uncertainty of future capital
requirements and their availability.
Reduction in the borrowing
capacity of the Company.
Reduction in the liquidity
headroom within the
Company’s loan agreements.
An annual budget and supplementary budget approval
process and a Corporate Authorisation Policy have been
implemented to ensure a rigorous and continual oversight
of all expenditures. The signifi cant funding requirements for
the Johan Sverdrup project has been secured through external
fi nancing. The Company has signifi cant liquidity headroom
due to its borrowing facilities for the foreseeable future and
has capacity to issue unsecured subordinated debt to increase
liquidity headroom.
13. Interest and currency
The underlying value of the Company’s
assets is predominantly USD
denominated whilst certain costs are
denominated in other currencies and
therefore represent a foreign exchange
risk in relation to market fl uctuations
of foreign currencies.
14. Financial reporting
Inaccurate fi nancial reporting.
Exposure to market
fl uctuations that could
affect earnings and liquidity.
The exposure to interest rate and currency risk is continuously
assessed and monitored and hedging instruments are used to
manage this risk.
Regulatory action, liability,
loss of shareholder
confi dence.
A monthly management reporting process is in place to review
and control the fi nancial reporting. The internal control system
provides reasonable assurance against inaccurate reporting and
internal and external audits provide verifi cation.
15. Asset management and cost control
Risk of destroying value by ineffective
cost control and assets operating
beyond their lifetime.
Cost overruns and effect
on uptime. Failure of
management system
processes and to follow the
Value Process.
Lundin Petroleum has new assets that are constantly monitored
with a focus on operator effi ciency, respect of policies and
procedures, including the Value Process as well as control of
partner production. Cost saving benefi ts have been realised
throughout 2017 through contractor management and internal
cost control processes.
16. Asset retirement
Decommissioning fi nancial estimates
of fi elds at the end of the economic life
cycle.
Financial and tax impact,
liability, implications
of abandonment and
reclamation.
Decommissioning is considered throughout the asset’s life cycle
according to the policy for asset retirement liability. Financial
estimates are reviewed annually for development projects and
for operated assets.
Lundin Petroleum Annual Report 2017
27
GOVERNANCE | Corporate Governance Report 2017
Corporate Governance
Lundin Petroleum’s corporate
governance framework seeks to
ensure that its business is conducted
efficiently and responsibly, that
responsibilities are allocated in a
clear manner and that the interests of
shareholders, management and the
Board of Directors remain fully aligned
Through its corporate governance framework, Lundin Petroleum
aims to ensure that its business is conducted in an effi cient and
responsible manner in the best interests of all shareholders and
other stakeholders.
The corporate governance framework is further tied to Lundin
Petroleum’s sustainability profi le in order to ensure that we
continue to deliver sustainable value creation whilst operating
in accordance with the highest ethical and operational industry
standards.
Corporate Governance Report 2017
Guiding principles
Nomination Committee
Shareholders meetings
External auditors
Board of Directors
Board committees
Group management
Policy on remuneration
Internal control over fi nancial reporting
Auditor’s report
28
31
32
33
33
38
40
42
44
45
Guiding principles of corporate governance
Since its creation in 2001, Lundin Petroleum has been guided
by general principles of corporate governance, which form an
integral part of Lundin Petroleum’s business model and seek to:
· Protect shareholder rights
· Provide a safe and rewarding working environment to
all employees
· Ensure compliance with applicable laws and best industry
practice
· Ensure activities are carried out competently and sustainably
· Sustain the well-being of local communities in areas
of operation
As a Swedish public limited company listed on NASDAQ
Stockholm, Lundin Petroleum is subject to 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. The Code of Governance can be found on
www.bolagsstyrning.se
The Code of Governance is based on the “comply or explain
principle”, which entails that a company may choose to
apply another solution than the one provided by the Code of
Governance if it fi nds an alternative solution more appropriate
in a particular case. The Company must however explain why
it did not comply with the rule in question and describe the
Company’s preferred solution, as well as the reasons for it.
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 2017, one in respect of the composition of the
Nomination Committee as further described in the schedule on page 31, and one in respect of Board member attendance at
the Extraordinary General Meeting (EGM) held on 22 March 2017 as described under EGM 2017 on page 33. There were no
infringements of applicable stock exchange rules during the year, nor any breaches of good practice on the securities market.
Lundin Petroleum AB (publ), company registration number 556610-8055, has its corporate head offi ce 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
28
Lundin Petroleum Annual Report 2017
Jakob Thomasen
appointed as a new
Board member at
the AGM held on
4 May 2017.
Spin-off and Lex
Asea distribution of
IPC completed on
24 April 2017.
Highlights 2017
AGM approved share
repurchase programme
initiated in August 2017
and 1,233,310 own
shares repurchased in
2017 at an average price
of SEK 186.14.
Review of corporate
governance structure
post-IPC spin-off to
ensure principles
of good governance
maintained throughout
the new organisation.
Lundin Petroleum’s Articles of Association
The Articles of Association contain customary provisions
regarding the Company’s governance and do not contain
any limitations as to how many votes each shareholder may
cast at Shareholders’ Meetings, nor any special 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 benefi t of all
stakeholders, including shareholders, employees, business
partners, host and home governments and local communities.
The Company applies the same standards to all of its activities
to satisfy both its commercial and ethical requirements and
strives to continuously improve its performance and to act in
accordance with good oilfi eld practice and high standards of
corporate citizenship. The Code of Conduct is an integral part
of the Company’s contracting procedures and any violations
of the Code of Conduct will be the subject of an inquiry and
appropriate remedial measures. In addition, performance
under the Code of Conduct and Corporate Responsibility (CR) is
regularly reported to the Board.
The Code of Conduct is available on the Company’s website.
Lundin Petroleum’s policies, procedures, guidelines
and management system
Dedicated Group policies, procedures and guidelines have been
developed to outline specifi c 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 2017 Lundin Petroleum developed a corporate HSEQ (Health,
Safety, Environmental and Quality) Leadership Charter, which
sets out the governance framework as well as operational
governance for managing the business in accordance with
high HSEQ standards. The Charter, adopted early 2018, sets out
four core foundation themes: leadership, risk and opportunity
management, continuous improvement and implementation.
It further details how these themes are to be operationalised.
CR and HSE policies are available on the Company’s website.
2018 Annual General Meeting
The 2018 Annual General Meeting (AGM) will be held on 3 May 2018 at 1 p.m. in Vinterträdgården at 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 26 April 2018 and must notify the Company of their intention to attend the AGM no
later than 26 April 2018.
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.
Lundin Petroleum Annual Report 2017
29
GOVERNANCE | Corporate Governance Report 2017
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
Compensation Committee
Terms of Reference
Audit Committee
Internal Audit
Code of Internal Audit Activity
7
8
12
9
Main internal rules and regulations for corporate
governance at Lundin Petroleum
· The Articles of Association
· The Code of Conduct
· Policies, Procedures and Guidelines
· The HSEQ Leadership Charter
· 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
Nomination Committee Process
Nomination Committee
Statutory Auditor
Independent Qualified
Reserves Auditor
2
4
5
11
Rules of Procedure
Investment Committee
Shareholders
Shareholders’
Meeting
Board of
Directors
1
3
6
10
CR/HSE Board representative
Investment Committee Charter
President
and CEO
Group
management
Code of Conduct
Policies, Procedures, Guidelines
and Management System
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
Offi cer (CEO). The Rules of Procedure also include instructions
to the CEO, instructions for the fi nancial reporting to the Board
and the terms of reference of the Board Committees and the
Investment Committee. The Rules of Procedure are approved
annually by the Board.
Lundin Petroleum’s 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 benefi t of all stakeholders. By tying the corporate
governance framework to its sustainability profi le, Lundin
Petroleum has managed to achieve the high goals set out in
the sustainability strategy. To achieve such sustainable value
creation, Lundin Petroleum applies a governance structure that
favours straightforward decision making processes, with easy
access to relevant decision makers, while nonetheless providing
the necessary checks and balances for the control of the
activities, both operationally and fi nancially.
1
Share capital and shareholders
The shares of Lundin Petroleum are listed on 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 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. During 2017, the Company
purchased 1,233,310 own shares at an average purchase price of
SEK 186.14.
Lundin Petroleum had at the end of 2017 a total of
29,491 shareholders listed with Euroclear Sweden, which
represents a decrease of 3,235 shareholders compared to the
end of 2016, i.e. a decrease of approximately ten percent. As
at 31 December 2017, 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 ASA held
20.1 percent of the shares as per 31 December 2017.
Further information regarding the shares and shareholders of
Lundin Petroleum in 2017 can be found on pages 10–11.
30
Lundin Petroleum Annual Report 2017
2
Nomination Committee
The Nomination Committee is formed in accordance with
the Company’s Nomination Committee Process approved at
the 2014 AGM. 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-petroleum.com
Nomination Committee for the 2018 AGM
The members of the Nomination Committee for the 2018 AGM
were announced and posted on the Company’s website on
10 October 2017, i.e. within the time frame of six months before
the AGM as prescribed by the Code of Governance. Statoil ASA
and other larger shareholders of the Company were invited to
join but declined the invitation.
The Nomination Committee has held four meetings during
its mandate so far. 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 the chairman 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 fi nal
proposals to the 2018 AGM, are published on the Company’s
website together with the notice of the 2018 AGM.
Nomination Committee for the 2018 AGM
Member
Appointed by
Hans Ek
SEB Investment
Management AB
Filippa Gerstädt Nordea Fonder
Ian H. Lundin
Åsa Nisell
Nemesia S.à.r.l and
Landor Participations
Inc., also non-executive
Chairman of the Board
of Lundin Petroleum
Swedbank Robur
Fonder
Meeting
attendance
Shares represented
as at 1 Aug 2017
Shares represented
as at 31 Dec 2017
Independent of the
Company and Group
management
Independent of the
Company’s major
shareholders
4/4
4/4
4/4
0.6 percent
0.6 percent
1.1 percent
1.4 percent
28.7 percent
28.7 percent
Yes
Yes
Yes
Yes
Yes
No1
4/4
2.2 percent
2.0 percent
Yes
Yes
Total 32.7 percent
(rounded)
Total 32.7 percent
Summary of the Nomination Committee’s work during their mandate
– Considering the recommendation received through the Company’s Audit Committee regarding the election of statutory auditor at the
2018 AGM.
– Considering Board and statutory auditor remuneration issues and proposals to the 2018 AGM.
– Considering proposing Committee type remuneration to the CR/HSE Board representative in view of the work requirements of the role.
– Considering a proposal to appoint an external independent Chairman for the 2018 AGM.
– Considering amendments to the Nomination Committee Process and that no changes should be proposed.
– Considering the size and composition of the Board in light of the diversity recommendations in the Code of Governance, including gender
balance, age, educational and professional backgrounds and the proposed Board members’ individual and collective qualifi cations,
experiences and capabilities in respect of the Company’s current position and expected development.
– Considering adding a new member to the board with relevant experience based on the Company’s pure Norwegian focus and proposal to
appoint the Company’s former Managing Director in Norway, Torstein Sanness, as a new Board member.
– Considering the results of the annual assessment of the Board and the functioning of its work.
– Members of the Nomination Committee, who are independent of the Company’s major shareholders, met and had discussions with
current Board members Peggy Bruzelius, Grace Reksten Skaugen, Cecilia Vieweg and Jakob Thomasen to discuss the work and functioning
of the Board, and also met with the new proposed Board member Torstein Sanness.
Other requirements
–The Nomination Committee fulfi ls the independence requirements of the Code of Governance and no member of Group management is a
member of the Committee.
–Ian H. Lundin was unanimously elected as Chairman of the Nomination Committee. The fact that he is the Chairman of the Nomination
Committee and Chairman of Lundin Petroleum constitutes a deviation from rule 2.4 in the Code of Governance, however this deviation
was considered justifi ed as Ian H. Lundin represents the major shareholders of the Company.
1 For details, see schedule on pages 34–35.
Lundin Petroleum Annual Report 2017
31
GOVERNANCE | Corporate Governance Report 2017
3
Shareholders’ meetings
The Shareholders’ Meeting is the highest decision-making
body of Lundin Petroleum where the shareholders exercise
their voting rights and infl uence the business of the Company.
Shareholders may request that a specifi c issue be included in the
agenda provided such request reaches the Board in due time.
The AGM is 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 before the AGM.
2017 AGM
The 2017 AGM was held on 4 May 2017 at Grand Hôtel in
Stockholm. The AGM was attended by 669 shareholders,
personally or by proxy, representing 64.74 percent of the share
capital. The Chairman of the Board, all of the Board members
including the CEO were present, as well as the Company’s
auditor and all of the members of the Nomination Committee
for the 2017 AGM. The members of the Nomination Committee
for the 2017 AGM were Åsa Nisell (Swedbank Robur Fonder),
Hans Ek (SEB Investment Management AB), Ian H. Lundin
(Nemesia S.à.r.l., and Landor Participations Inc., as well as
non-executive Chairman of the Board of Lundin Petroleum) and
Magnus Unger (then non-executive Board member of Lundin
Petroleum). 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 2017 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, Cecilia
Vieweg and Alex Schneiter as Board members and election of
Jakob Thomasen as a new Board member. Magnus Unger 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 2016.
· 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
2016.
· Re-election of the registered accounting fi rm
PricewaterhouseCoopers AB as the Company’s statutory
auditor until the 2018 AGM, authorised public accountant
Johan Rippe being the designated auditor in charge.
· Approval of the remuneration of SEK 1,100,000 to the
Chairman of the Board and SEK 525,000 to other Board
members, except for the Chief Executive Offi cer, and
SEK 165,000 to each Committee Chair and SEK 110,000
to other Committee members (in total not more than
SEK 1,000,000 for Committee work).
· Approval of the remuneration of the statutory auditor.
· Approval of the Company’s 2017 Policy on Remuneration for
Group management.
· Approval of LTIP 2017 for members of Group management and
a number of key employees.
· Rejection of a shareholder proposal in relation to the
Company’s past operations.
· 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 ten percent of all outstanding shares of the
Company.
An electronic system with voting devices was used for the two
last items requiring a qualifi ed majority. The minutes of the
2017 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.
2017 EGM
An EGM was held on 22 March 2017 in Stockholm in respect of
the Board’s proposal for a spin-off of the Company’s Malaysian,
French and Dutch assets into International Petroleum
Corporation (IPC) through a Lex Asea dividend distribution.
The EGM resolved, in accordance with the Board proposal,
to distribute all shares in IPC to the shareholders, which
distribution was completed on 24 April 2017. In accordance
with the Lex Asea provision, the Swedish tax authorities
determined in June 2017 that 92.5 percent of the acquisition
cost should be allocated to Lundin Petroleum shares and
7.5 percent to IPC shares.
Sudan
In June 2010, the Swedish International Public Prosecution Offi ce 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 Offi ce 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 Offi ce and have been
notifi ed 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 Offi ce’s
investigation. Lundin Petroleum strongly believes that it was a force for good in Sudan and that its activities contributed to
the improvement of the lives of the people of Sudan.
More information regarding the past operations in Sudan during 1997–2003 can be found on www.lundinhistoryinsudan.com
32
Lundin Petroleum Annual Report 2017
“
Through its corporate governance framework,
Lundin Petroleum aims to ensure that its business
is conducted in an efficient and responsible manner
in the best interests of all shareholders and other
stakeholders
Ian H. Lundin
Chairman of the Board
The Chairman of the Board and the CEO, who is also a Board
member, attended the EGM, however, a quorum of Board
members was not present as required by Code of Governance
rule 1.2. Given the detailed information presented in the
notice of the EGM, and the information memorandum, it was
considered suffi cient that the Chairman of the Board and the
CEO represent the Board at the EGM.
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
stipulates that gender balance shall be strived for.
External auditors of the Company
4
Statutory auditor
Lundin Petroleum’s statutory auditor audits annually the
Company’s fi nancial statements, the consolidated fi nancial
statements, the Board’s and the CEO’s administration of the
Company’s affairs and reports on the Corporate Governance
Report. The auditor also reviews the Sustainability Report to
confi rm that it contains the required information. In addition,
the auditor 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 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.
The auditor’s fees are described in the notes to the fi nancial
statements, see Note 30 on page 93 and Note 7 on page 98.
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 qualifi ed reserves auditor
Lundin Petroleum’s independent qualifi ed reserves auditor
certifi es 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 Operations Review on pages 12–19.
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
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 fi nal number each year. The Board members
are elected for a period of one year.
The Nomination Committee for the 2017 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. 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 2017 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
internationally, and in particular in relation to Lundin
Petroleum’s core area of operation, Norway, public company
fi nancial matters, Swedish practice and compliance matters and
CR/HSE matters. The Nomination Committee considered that the
proposed Board fulfi ls the requirements regarding independence
in relation to the Company, Group management and the
Company’s major shareholders.
Gender balance was specifi cally discussed and the Nomination
Committee noted that 38 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 nonetheless believes that it is important
to continue to strive for gender balance when future changes in
the composition of the Board are considered.
Lundin Petroleum Annual Report 2017
33
GOVERNANCE | Corporate Governance Report 2017
Board of Directors:
Ian H. Lundin
Alex Schneiter
Peggy Bruzelius
C. Ashley Heppenstall
Chairman (since 2002)
President & Chief
Executive Offi cer, 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
(Economics and Business)
from the Stockholm School
of Economics.
Bachelor of Science degree
in Mathematics from the
University of Durham.
Function
Elected
Born
Education
Experience
Ian H. Lundin was
previously CEO of
International Petroleum
Corp. during 1989–1998,
of Lundin Oil AB during
1998–2001 and of
Lundin Petroleum during
2001–2002.
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.
Other board duties
Member of the board of
Bukowski Auktioner AB.
–
Chair of the board of
Lancelot Asset Management
AB, member of the board of
Diageo PLC, Akzo Nobel NV
and Skandia Liv.
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
International Petroleum Corp.
Shares in Lundin
Petroleum (as at 31
December 2017)
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
12/12
–
4/4
SEK 1,180,000
SEK 1,500,000
Yes
No1
317,910
12/12
–
–
Nil
Nil
No2
Yes
8,000
12/12
6/6
–
1,520,126
12/12
6/6
–
SEK 670,000
SEK 617,500
Nil
Yes
Yes
SEK 5,203,800
No3
No3
1 Ian H. Lundin is the settler of a trust that owns Landor Participations Inc., an investment company that holds 10,488,956 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 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.
3 C. Ashley Heppenstall is in the Nomination Committee’s and the Company’s opinion not deemed independent of the Company and 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 several companies in which
entities associated with the Lundin family are major shareholders.
34
Lundin Petroleum Annual Report 2017
Lukas H. Lundin
Grace Reksten Skaugen
Jakob Thomasen
Cecilia Vieweg
Director
Director, CR/HSE representative
Director
Director
2001
1958
2015
1953
2017
1962
2013
1955
Graduate from the New Mexico
Institute of Mining, Technology
and Engineering.
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.
Graduate of the University
of Copenhagen, Denmark,
masters degree in Geoscience
and completed the Advanced
Strategic Management
programme at IMD, Switzerland.
Master of Law from the University
of Lund.
Lukas H. Lundin has held several
key positions within companies
where the Lundin family has a
major shareholding.
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 was a member of the Board
of Directors of Statoil ASA from 2002
until 2015. She is currently a member of
HSBC European Senior Advisory Council
and Norway country advisor to Proventus
AB.
Jakob Thomasen was formerly
the CEO of Maersk Oil and a
member of the Executive Board
of the Maersk Group from 2009
until 2016.
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.
Chairman of the board of Lundin
Mining Corp., Denison Mines Corp.,
Lucara Diamond Corp., NGEx
Resources Inc., Lundin Gold Inc.,
Filo Mining Corp., International
Petroleum 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 board member of the Norwegian
Institute of Directors and council
member of the International Institute for
Strategic Studies in London.
Chairman of the DHI Group
and member of the board of the
University of Copenhagen.
788,3314
12/12
–
–
5,000
11/12
–
4/4
5,900
5/55
3/35
–
–
3,500
12/12
–
4/4
SEK 512,000
SEK 617,500
SEK 317,500
SEK 670,000
Nil
Yes
No4
Nil
Yes
Yes
Nil
Yes
Yes
Nil
Yes
Yes
4 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.
5 Jakob Thomasen is a member of the Board of Directors and is a member of the Audit Committee as of 4 May 2017.
Magnus Unger declined re-election at the AGM on 4 May 2017. During the period 1 January to 4 May 2017, he attended seven out of seven Board meetings held
and two out of three Audit Committee meetings held. For additional information regarding Magnus Unger, please see the Company’s Annual Report 2016, and for
remuneration paid to him, please refer to Note 28 on pages 90–91.
Lundin Petroleum Annual Report 2017
35
GOVERNANCE | Corporate Governance Report 2017
Board meetings and work in 2017
The Chairman of the Board, Ian H. Lundin, is responsible for
ensuring that the Board’s work is well organised and conducted
in an effi cient manner. He upholds the reporting instructions
for management, as drawn up by the CEO and as approved by
the Board, however, he does not take part in the day-to-day
decision-making concerning the operations of the Company.
The Chairman maintains close contacts with the CEO to ensure
the Board is at all times suffi ciently informed of the Company’s
operations and fi nancial status.
During 2017, twelve 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 2017, the Board
visited the Samsung shipyard in Geoje in South Korea where
two platforms for the Johan Sverdrup fi eld were being built,
and an executive session with Group management was held in
connection with the Board meeting. At the executive session, an
overview of the Company’s general strategy and operations was
given, as well as a fi nancial update discussing the Company’s
current and future fi nancing needs and hedging strategy, and
an investor relations and valuation update. In-depth operations
reviews were given regarding the Group’s exploration,
development and production activities, with a continued focus
on the Norwegian operations and the major Johan Sverdrup
development project. Group management also attended a
number of Board meetings during the year to present and report
on specifi c questions, and a monthly operational report was
circulated to the Board, as well as a quarterly CR/HSE report.
Evaluation of the Board’s work
A formal review of the work of the Board was conducted in
November 2017 through a questionnaire submitted to all
Board members, with the objective of ensuring that the Board
functions in an effi cient manner and to enable the Board to
strengthen its focus on matters which may be raised.
The overall feedback from the members of the Board was
positive and showed that the Board functions well. The different
backgrounds, knowledge and qualifi cations of the individual
members of the Board complement each other and the meetings
are constructive with good discussions and feedback from Board
members and management. The diversity and wide spectrum
of qualifi cations of experience of the Board members are
considered as benefi cial and the Board is viewed as competent
for addressing actual and potential issues facing the Company.
The size of the Board was considered appropriate, however,
individual feedback received noted that additional directors
could be considered. The Board members were of the view that
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.
· Defi ning 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
fi nancial position in general include satisfactory
systems of internal control.
· Continuously evaluating the Company’s and the
Group’s economic situation, including its fi scal
position.
their knowledge of the Company and the oil and gas industry
in general increased during the year. The need for a retirement
policy was considered, however, the Board acknowledged that
there was already a natural process of renewing the Board and
that such a policy was therefore not needed. Visits at operational
locations were appreciated and considered very useful for
the understanding of the business. Committee work further
functions very well and the composition of the Committees
is appropriate. Individual feedback received noted that Board
meetings are well prepared and managed, and questions and
comments are addressed in an open and constructive manner,
however there is room to improve time management. The results
of the Board evaluation were presented to the Nomination
Committee.
i
More information on the Board members can be
found on www. lundin-petroleum.com
36
Lundin Petroleum Annual Report 2017
Board’s yearly work cycle
· 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 the Company’s business
· Adoption of the half year report, reviewed
by the statutory auditor
Q4
Q1
Q3
Q2
· 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 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
· Approval of the remuneration report
· Determination of the AGM details and approval of
the AGM materials
· Audit Committee report regarding the first
quarter report
· Annual CR/HSE management report and performance
assessment
· Meeting with the auditor without management
present to discuss the audit process, risk
management and internal controls
· Review of the Rules of Procedure
· 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
Board of Directors work 2017
In addition to the topics covered by the Board as per its yearly work cycle, the following signifi cant matters were addressed by the Board
during the year.
– Discussing in detail the Company’s spin-off of the non-Norwegian assets, and considering and approving the transaction and all related
materials, subject to EGM approval.
– Approval of the necessary corporate reorganisations and other actions in order to effect the EGM decision to spin-off the non-Norwegian
assets and consideration of resulting management and organisational changes to ensure continued good Company management and
corporate governance.
– Considering the Company’s production performance, forecasts and future outlook, including the Company’s strong production following
the exceptional performance of the Edvard Grieg fi eld and capacity increase at the Edvard Grieg fi eld facilities.
– Considering and discussing in detail the major Johan Sverdrup development project and the associated project risks, cost environment,
time schedule and operator performance.
– Discussing the Company’s strategy regarding its interests in the southern Barents Sea, including the operating environment, political,
environmental and regulatory considerations.
– Discussing the Company’s licence position in Norway and approving several licence acquisitions and divestments to optimise the
Company’s acreage position and ensure future organic growth opportunities.
– Considering several business acquisition opportunities in Norway, as well as divestment options for the Company’s Lagansky Block
licence in Russia.
– Preliminary discussions on future dividend distributions.
– Approval of a share repurchase programme, as per the 2017 AGM authorisation, to optimise the Company’s capital structure and secure
the Company’s obligations under its incentive programs.
– Assessing the Company’s oil and gas reserves and resources positions.
– Considering the Company’s current and future fi nancing needs and strategy, in particular in light of the Johan Sverdrup development,
including the Company’s fi nancial risk management, cash fl ows, sources of funding, foreign exchange movements, hedging strategy and
liquidity position.
– Discussing the Swedish Prosecution Offi ce’s on-going preliminary investigation into alleged complicity in violations of international
humanitarian law in Sudan during 1997–2003.
– Discussing the current and expected economic environment, including in relation to 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.
– Considering and discussing CR matters, including climate change and the Company’s efforts to reduce its environmental impact, the
Company’s partnership with the Lundin Foundation, CR trends and initiatives, including activism in the Barents Sea, and reappointing
Grace Reksten Skaugen as the Board CR/HSE representative.
– Considering the proposal for a performance based LTIP 2017, following the same principles as the previous LTIPs approved by the
2014–2016 AGMs, including continued stakeholder engagement discussions, revising the applicable peer group, approving participants,
allocating individual awards and approving the detailed plan rules, subject to 2017 AGM approval.
Lundin Petroleum Annual Report 2017
37
GOVERNANCE | Corporate Governance Report 2017
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. The Policy on Remuneration approved by the AGM
also comprises remuneration paid to Board members for work
performed outside the directorship.
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, including for work performed
outside the directorship, is detailed further in the schedule on
pages 34–35 and in the notes to the fi nancial statements, see
Note 28 on pages 90–91.
Board committees and the CR/HSE representative
To maximise the effi ciency of the Board’s work and to ensure
a thorough review of specifi c 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 42–43.
8
Audit Committee
The Audit Committee assists the Board in ensuring that the
Company’s fi nancial reports are prepared in accordance
with International Financial Reporting Standards (IFRS),
the Swedish Annual Accounts Act and accounting practices
applicable to a company incorporated in Sweden and listed
on NASDAQ Stockholm. The Audit Committee itself does not
perform audit work, however, it supervises the Company’s
fi nancial reporting and gives recommendations and proposals
to ensure the reliability of the reporting. The Committee also
supervises the effi ciency of the Company’s fi nancial internal
controls, internal audit and risk management in relation to
the fi nancial reporting and provides support to the Board in
the decision making processes regarding such matters. The
Committee monitors the audit of the Company’s fi nancial
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 fi rst and third
quarter reports 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. More
information about the Company’s CR/HSE activities can be
found in the Responsibility section on pages 20–23 and in the
Sustainabilty Report available on the Company’s website.
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 and comprises, in addition to the CEO:
· The Investment Committee, which in addition to the CEO
includes:
–the Chief Operating Offi ce (COO), Nick Walker, who is
responsible for Lundin Petroleum’s exploration, development
and production operations and HSE; and
–the Chief Financial Offi cer (CFO), Teitur Poulsen, who is
responsible for the fi nancial reporting, internal control, risk
management, treasury function and economics.
· The Vice President Corporate Responsibility, Christine
Batruch, who is responsible for the Group’s CR strategy,
the Vice President Communications and Investor Relations,
Alex Budden, who is responsible for all communications
and investor relations matters within the Group, the Vice
President Legal, Henrika Frykman, who is responsible for
all legal and tax matters within the Group and the Vice
President Human Resources and Shared Services, Sean Reddy,
who is responsible for human resources and shared services.
· Local management, who are responsible for the day-to-day
operational activities.
38
Lundin Petroleum Annual Report 2017
Audit Committee 2017
Members
Meeting
attendance Audit Committee work during the year
Peggy Bruzelius, Chair
C. Ashley Heppenstall
Magnus Unger1
Jakob Thomasen1
6/6
6/6
2/3
3/3
–Assessment of the 2016 year end report and the 2017 half year report for completeness and
accuracy and recommendation for approval to the Board.
– Assessment and approval of the fi rst and third quarter reports 2017 on behalf of the Board.
– Evaluation of accounting issues in relation to the assessment of the fi nancial reports.
– Follow-up and evaluation of the results of the internal audit and risk management of the Group.
– Three meetings with the statutory auditor to discuss the fi nancial reporting, internal controls,
risk management, etc.
– Evaluation of the audit performance and the independence and impartiality of the statutory
auditor.
– Review and approval of statutory auditor’s fees.
– Assisting the Nomination Committee in its work to propose a statutory auditor for election at the
2018 AGM.
Other Requirements
– The composition and the members of the Audit Committee fulfi l the requirements of the
Swedish Companies Act.
– The Audit Committee members have extensive experience in fi nancial, accounting and audit
matters. Peggy Bruzelius’ current and previous assignments include high level management
positions in fi nancial institutions and companies and she has chaired Audit Committees of other
companies. C. Ashley Heppenstall is the Company’s previous CFO and CEO and Jakob Thomasen
was previously CEO of Maersk Oil, and both have extensive experience in fi nancial matters.
Compensation Committee 2017
Members
Meeting
attendance Compensation Committee work during the year
Cecilia Vieweg, Chair
Grace Reksten Skaugen
Ian H. Lundin
4/4
4/4
4/4
– Ongoing review of the Executive Performance Management Process through various work sessions
across the year.
– Review, restructure and update of contracts of employment, including review of remuneration, for
Group management following the IPC spin-off.
– Discussions and recommendations to the Board in remuneration matters in connection with the
IPC spin-off.
– 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 2016.
– Continuous monitoring and evaluation of remuneration structures, levels, programmes and the
Policy on Remuneration.
– Preparing a proposal for the 2017 Policy on Remuneration for Board and AGM approval.
– Consultation and meetings with Company stakeholders, including institutional investors,
regarding the proposed LTIP 2017.
– Preparing a proposal for LTIP 2017 for Board and AGM approval through various work sessions and
preparation discussions.
– Review of the 2014 LTIP pay out and vesting and approval recommendation to the Board.
– 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 2017 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.
Other Requirements
– The composition of the Compensation Committee fulfi ls the independence requirements of the
Code of Governance.
1 Magnus Unger was a member of the Audit Committee until 4 May 2017 and Jakob Thomasen is a member of the Audit Committee as of 4 May 2017.
Lundin Petroleum Annual Report 2017
39
GOVERNANCE | Corporate Governance Report 2017
Group management tasks and duties
The tasks of the CEO and the division of duties between the
Board and the CEO are defi ned in the Rules of Procedure and
the Board’s instructions to the CEO. In addition to the overall
management of the Company, the CEO’s tasks include ensuring
that the Board receives all relevant information regarding the
Company’s operations, including profi t trends, fi nancial position
and liquidity, as well as information regarding important events
such as signifi cant disputes, agreements and developments in
important business relations. The CEO is also responsible for
preparing the required information for Board decisions and for
ensuring that the Company complies with applicable legislation,
securities regulations and other rules such as the Code of
Governance. Furthermore, the CEO maintains regular contacts
with the Company’s stakeholders, including shareholders, the
fi nancial markets, business partners and public authorities. To
fulfi l his duties, the CEO works closely with the Chairman of
the Board to discuss the Company’s operations, fi nancial status,
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 the Code of Conduct, all Group policies,
procedures and guidelines in a professional, effi cient and
responsible manner. Regular management meetings are held
to discuss all commercial, technical, CR/HSE, fi nancial, 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
fi nancial institutions. In addition, Group management liaises
continuously with the Board, and in particular the Board
Committees and the CR/HSE Board representative, in respect
of ongoing matters and issues that may arise, and meets with
the Board at least once a year at the executive session held in
connection with a Board meeting in one of the operational
locations.
Major topics addressed by Group management in 2017
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.
12
Internal Audit
The Internal Audit function is responsible for providing
independent and objective assurance on internal control,
governance and risk management. This work includes regular
audits performed in accordance with an annual risk based
internal audit plan, which is approved by the Audit Committee.
The audit plan is derived from an independent risk assessment
conducted by the Internal Audit function and is designed to
address the most signifi cant risks identifi ed associated with the
Company’s operations and processes. The audits are executed
using a methodology for evaluating the design and effectiveness
of internal controls to ensure that risks are adequately addressed
and processes are operated effectively. Opportunities for
improving the effi ciency of the internal control, governance,
and risk management processes which have been identifi ed
through the audits are reported to management for action.
The Internal Audit Manager has a direct reporting line to the
Audit Committee and submits regularly reports on fi ndings
identifi ed in the audits together with updates on the status of
management’s implementation of agreed actions.
–The spin-off of Lundin Petroleum’s Malaysian, French and Dutch assets into IPC and Lundin Petroleum’s continued organic growth
strategy in respect of the Norwegian operations.
– Review of the corporate governance framework post-IPC spin-off to ensure an effective transition and that best corporate governance
practices are maintained.
– The oil price environment and its effect on the fi nancing of the Company, including consideration of various sources of funding, and
ability to carry out current operations and future projects.
– Management of the on-going exploration activities, development projects and production operations.
– Management of the Norwegian acreage position, including pursuing new core areas of operation and solidifying existing core areas,
through active licence acquisition and divestment management to optimise the Norwegian licence portfolio.
– Continued focus on cost control measures and maximising operational effi ciency and performance.
– Review of the Company’s transfer pricing policies considering the new Group structure following the IPC spin-off.
–Developing the new HSEQ Leadership Charter that sets out clear expectations around leadership, defi nes clear commitments from the
Company and ensures that the Company adhere to the broader industry best practice.
–Ongoing analysis of climate change implications to the business and adaptation of the Company’s business model to address this issue
from a risk and opportunity perspective.
–Ongoing monitoring and participation in relevant stakeholder discussions regarding Arctic activities and possible implications to the
Company’s southern Barents sea exploration activities.
–Development of new Group Environmental Policy and joint elaboration of an environmental strategy for Norway.
40
Lundin Petroleum Annual Report 2017
Group management
i
More information on Group
management can be found on
www. lundin-petroleum.com
Alex Schneiter
President and Chief
Executive Offi cer
Nick Walker
Chief Operating Offi cer
Teitur Poulsen
Chief Financial Offi cer
Christine Batruch
Vice President
Corporate Responsibility
Alex Budden
Vice President
Communications and
Investor Relations
Henrika Frykman
Vice President Legal
Sean Reddy
Vice President Human
Resources and Shared
Services
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 benefi ts. As part of the yearly
assessment process, a Performance Management Process has
been established to align individual and team performance to
the strategic and operational goals and objectives of the overall
business. Individual performance measures are formally agreed
and key elements of variable remuneration are clearly linked
to the achievement of 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 fi nal 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.
The yearly variable salary for Group management is assessed
against annual performance targets that refl ect the key drivers
for value creation and growth in shareholder value. These
annual performance targets include delivery against specifi c
production, reserves and resource replacement, fi nancial, health
and safety, environment, corporate responsibility and strategic
targets. Each member of Group management is set different
performance weightings against each of the specifi c targets
refl ecting their infl uence on the performance outcome. The
performance target structure and specifi c targets are reviewed
annually by the Compensation Committee to ensure that it
aligns with the strategic direction and risk appetite of the
Company and the performance target structure and specifi c
targets are approved by the Board.
Within the Policy on Remuneration, the Board of Directors may
approve yearly variable salary in excess of twelve months base
salary in circumstances or in respect of performance which it
considers to be exceptional. To have this discretion is important
to accommodate the uncertainties and cyclical nature of the oil
and gas industry. The Board has made two such decisions that
are reported in this Annual Report. The Board determined that
it was reasonable to recognise for the fi nancial year 2016 the
exceptional performance in relation to production and fi nancial
management, and for the fi nancial year 2017, the exceptional
performance that led to the successful spin-off of IPC and
signifi cant value creation for shareholders.
Lundin Petroleum Annual Report 2017
41
GOVERNANCE | Corporate Governance Report 2017
LTIP 2017
The 2017 AGM resolved to approve a performance based
LTIP 2017, that follows the same principles as the previously
approved LTIPs 2014–2016, 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 fulfi lment of a performance condition
under a three year performance period commencing on
1 July 2017 and expiring on 30 June 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
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 2017 and the total
LTIP award made in respect of 2017 was 355,954.
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 refl ected in the
outcome of the performance condition, for example, in light
of operating cash fl ow, 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 2017,
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 2017 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 2017, 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 verifi es on a yearly
basis whether the Company has complied with the Policy on
Remuneration. Both reports are available on the Company’s
website.
POLICY ON REMUNERATION FOR GROUP
MANAGEMENT AS APPROVED BY THE 2017 AGM
Application of the Policy
At an extraordinary general meeting held on 22 March 2017,
the Company’s shareholders resolved upon a dividend in
kind of all shares in IPC. In this Policy on Remuneration,
the term “Group management” refers to the President and
Chief Executive Offi cer, the Chief Operating Offi cer, the Chief
Financial Offi cer and Vice President level employees. Following
the dividend in kind, Group management will be comprised of
six executives in 2017.
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’s and the AGMs’ 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 confl ict 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 benefi ts.
Board’s Proposal for Remuneration to Group management
to the 2018 AGM
For information regarding the Board’s proposal for
remuneration to Group management to the 2018 AGM,
including a similar LTIP as approved by the 2014–2017
AGMs, see the Directors’ report, pages 57–58.
42
Lundin Petroleum Annual Report 2017
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, 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 refl ect the key drivers for value creation and
growth in shareholder value. Through its Performance Management
Process, the Company sets predetermined and measurable
performance criteria for each executive, aimed at promoting long-
term value creation for the Company’s shareholders.
The yearly variable salary shall, in the normal course of business,
be based upon a predetermined limit, being within the range of
one to twelve monthly salaries (if any). However, the Compensation
Committee may recommend to the Board 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 2017 is estimated to range
between no payout at minimum level and MSEK 20.0 (excluding
social costs) at maximum level, based on the current composition of
Group management.
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.
Information on the principal conditions of the proposed 2017 LTIP
for Group management, which follows the same principles as the
LTIP approved by the 2014–2016 AGMs, is available as part of the
documentation for the AGM on www.lundin-petroleum.com
The cost at grant of the proposed 2017 LTIP is estimated to range
between no cost at minimum level and MSEK 43.8 (excluding social
costs) at maximum level, based on the current composition of
Group management.
Other benefi ts
Other benefi ts shall be based on market terms and shall facilitate
the discharge of each executive’s duties. Such benefi ts include
statutory pension benefi ts comprising a defi ned contribution
scheme with premiums calculated on the full base salary. The
pension contributions in relation to the base salary are dependent
upon the age of the executive.
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 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 benefi ts 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
In addition to Board’s fees resolved by the AGM, remuneration as
per prevailing market conditions may be paid to members of the
Board for work performed outside the directorship.
Authorisation for the Board
The Board is authorised to deviate from the Policy on Remuneration
in accordance with Chapter 8, Section 53 of the Swedish Companies
Act in case of special circumstances in a specifi c case.
Outstanding Remunerations
Remunerations outstanding to Group management comprise
awards granted under the Company’s previous LTIP programs and
include 122,263 LTIP Awards under the 2014 Performance Based
Incentive Plan, 191,454 LTIP Awards under the 2015 Performance
Based Incentive Plan, 227,670 LTIP Awards under the 2016
Performance Based Incentive Plan, 761 unit bonus awards under
the 2014 Unit Bonus Plan, 1,864 unit bonus awards under the
2015 Unit Bonus Plan and 2,421 unit bonus awards under the 2016
Unit Bonus Plan. The awards will be recalculated as a result of the
dividend in kind of IPC in accordance with the applicable plan
rules. Further information about these plans is available in Note 29
of the Company’s Annual Report 2016.
Lundin Petroleum Annual Report 2017
43
GOVERNANCE | Corporate Governance Report 2017
Internal control over
financial reporting
The control environment is the foundation
of Lundin Petroleum’s system for internal
control over financial reporting
Control
Environment
financial
reporting
objectives
1
5
Monitoring
INTERNAL
CONTROL
PROCESS
2
4
Risk
Assessment
3
Control
Activities
Information and
Communication
Introduction
According to the Swedish Companies Act and the Code of
Governance, the Board has overall responsibility for establishing
and monitoring an effective system for internal control. The
purpose of this report is to provide shareholders and other parties
with an understanding of how internal control is organised at
Lundin Petroleum.
Lundin Petroleum’s system for internal control over fi nancial
reporting is based on the Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The fi ve components of this framework
are control environment, risk assessment, control activities,
information and communication and monitoring activities.
1
Control environment
The control environment is the foundation of Lundin Petroleum’s
system for internal control over fi nancial reporting and is
characterised by the fact that the main part of the Group’s
operations are located to Norway where the Company has carried
out operations for many years using well established processes.
The control environment is defi ned by the Company’s policies
and procedures, guidelines and codes as well as its responsibility
and authority structure. The business culture established within
the Group is also fundamental to ensure highest level of ethics,
morals and integrity.
2
Risk assessment
Risks relating to fi nancial reporting are evaluated and monitored
by the Board through the Audit Committee. The Group’s risk
assessment process is used as a means to monitor that risks are
managed and consists in identifying and evaluating risks and
also determine the potential impact on the fi nancial reporting.
Regular reviews on local level as well as on Group level are made
to assess any changes made in the Group that may affect internal
control.
3
Control activities
Control activities range from high level reviews of fi nancial
results in management meetings to detailed reconciliation of
accounts and day to day review and authorisation of payments.
The monthly review and analysis of the fi nancial reporting
made on Company level and Group level are important control
activities performed to ensure that the fi nancial reporting does
not contain any signifi cant errors and also to prevent fraud. In
addition, it is common in the oil and gas industry that projects
are organised through joint ventures, where the partners have
audit rights over the joint venture. Regular audits control that
costs are allocated and accounted for in accordance with the joint
operating agreement.
4
Information and communication
Lundin Petroleum has processes in place aiming to ensure
effective and correct information in regards to fi nancial
reporting, both internally within the organisation as well
as externally to the public. All information regarding the
Company’s policies, procedures and guidelines is available
on the Group’s intranet and any updates and changes to
reporting and accounting policies are issued via email and at
regular fi nance meetings. In addition, the Communication and
Investor Relations Policy ensures that the public is provided
with accurate, timely and relevant information.
5
Monitoring
Monitoring of control activities is made at different levels
of the organisation and involves both formal and informal
procedures performed by management, process owners
or control owners. In addition, the Group’s Internal Audit
function maintains test plans and performs independent
testing of selected controls to identify any weaknesses and
opportunities for improvement. The results from the testing
are presented to the external auditors who determine to what
extent they can rely on this testing for the Group audit.
The Internal Audit Manager has a direct reporting line to the
Audit Committee and submits regularly reports on fi ndings
identifi ed in the audits together with updates on the status of
management’s implementation of agreed actions. The Audit
Committee assists the Board in their role to ensure that steps
are taken to address any weaknesses revealed in internal and
external audits and to implement proposed actions.
Joint venture audits
It is common in the oil and gas industry that projects
are organised through joint ventures with production
licences awarded to a group of companies forming
a joint venture. When entering into an exploration
license there is no guarantee that oil or gas will
be found and in a joint venture the risk is shared
between the partners. One partner is appointed to
be the operator and is responsible for managing the
operations, including the accounting for the joint
venture. All partners have audit rights over the
joint venture to ensure that costs are incurred in
accordance with the joint operating agreement and
that accounting procedures are followed.
44
Lundin Petroleum Annual Report 2017
Stockholm, 23 March 2018
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 2017 on pages 28–44 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 suffi cient 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 26 March 2018
PricewaterhouseCoopers AB
Johan Rippe
Authorised Public Accountant
Lead Partner
Johan Malmqvist
Authorised Public Accountant
Lundin Petroleum Annual Report 2017
45
FINANCIAL REPORT | Contents
FINANCIAL REPORT
Financial Report
2017 has been an inflection year for Lundin Petroleum with
record high operating cash flow leading to free cash flow
generation for the first time since 2011.
The exceptional operational performance during 2017, combined with an improving macro
environment, has allowed us to accelerate our inaugural cash dividend and has positioned the
Company to be able to grow the dividend going forward at the same time as leaving capacity to
fund our organic growth strategy.
Financial summary
Continuing operations
Production in Mboepd
Revenue in MUSD
EBITDA in MUSD
Operating cash f low in MUSD
Net result in MUSD
Earnings/share in USD1
Earnings/share fully diluted in USD1
Net debt
2017
86.1
1,997.0
1,501.5
1,530.0
380.9
1.13
1.13
3,883.6
2016
59.3
950.0
752.5
857.9
-399.3
-0.79
-0.79
4,075.5
The numbers included in the table above are based on continuing operations (including 2016 comparatives)
1 Based on net result attributable to shareholders of the Parent Company
46
Lundin Petroleum Annual Report 2017
FINANCIAL REPORT
“
With our strong cash flow generation we have
the capacity to fund our organic growth, repay
debt and pay dividends
Teitur Poulsen
Chief Financial Officer
Financial Report 2017
Directors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash fl ow
Consolidated statement of changes in equity
Accounting policies
Notes to the fi nancial 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 – Share in result of associated company
- Note 7 – Income tax
- Note 8 – Loss from sale of assets
- Note 9 – Discontinued operations
- Note 10 – Oil and gas properties
- Note 11 – Other tangible assets
- Note 12 – Goodwill
- Note 13 – Financial assets
- Note 13.1 – Other shares and participations
- Note 14 – Inventories
- Note 15 – Trade and other receivables
- Note 16 – Cash and cash equivalents
- Note 17 – Equity
- Note 17.1 – Share capital and share premium
- Note 17.2 – Other reserves
- Note 17.3 –Earnings per share
- Note 18 – Financial liabilities
- Note 19 – Provisions
- Note 20 – Trade and other payables
- Note 21 – Financial assets and liabilities
48
59
60
61
62
63
64
70
70
70
70
72
72
72
72
74
75
76
78
78
78
79
79
79
79
80
80
80
81
81
81
82
83
- Note 22 – Changes in liabilities with cash fl ow
movements from fi nancing activities
- Note 23 – Financial risks, sensitivity analysis and
derivative instruments
- Note 24 – Pledged assets
- Note 25 – Contingent liabilities and assets
- Note 26 – Related party transactions
- Note 27 – Average number of employees
- Note 28 – Remuneration to the Board of Directors,
Group management and other employees
- Note 29 – Long-term incentive plans
- Note 30 – Remuneration to the Group’s auditors
- Note 31 – 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 fl ow
Parent Company statement of changes in equity
85
85
88
88
88
89
90
92
93
93
94
95
95
96
97
97
Notes to the fi nancial statements of the Parent Company 98
98
- Note 1 – Finance income
98
- Note 2 – Finance costs
98
- Note 3 – Income taxes
98
- Note 4 – Other receivables
- Note 5 – Accrued expenses and prepaid income
98
- Note 6 – Pledged assets, contingent liabilities and assets 98
- Note 7 – Remuneration to the auditor
98
- Note 8 – Proposed Disposition of Unappropriated
Earnings
- Note 9 – Shares in subsidiaries
98
99
Board assurance
Auditor’s report
100
101
Lundin Petroleum Annual Report 2017
47
FINANCIAL REPORT
Directors’ Report
Lundin Petroleum AB (publ) Reg No. 556610-8055
The address of Lundin Petroleum AB’s registered offi ce is
Hovslagargatan 5, Stockholm, Sweden.
Lundin Petroleum is an independent oil and gas exploration
and production company with operations focused on Norway.
The spin-off of Lundin Petroleum’s non-Norwegian producing
assets into International Petroleum Corporation (IPC) was
completed at the end of April 2017 and the results from the
assets in Malaysia, France and the Netherlands are reported as
discontinued operations.
The Group does not carry out any signifi cant research and
development. The Parent Company has no foreign branches.
Changes in the Group
On 24 April 2017, Lundin Petroleum completed the spin-off of
its assets in Malaysia, France and the Netherlands (the IPC assets)
into IPC by distributing the IPC shares, on a pro-rata basis, to
Lundin Petroleum shareholders. The results of the IPC business
are included in the Lundin Petroleum fi nancial statements until
the completion of the spin-off and are shown as discontinued
operations. For more information see Note 9.
Lundin Petroleum has updated the accounting judgement of
the consolidation of the Russian operations and concluded that
the investment in Mintley Caspian Ltd., which is the holding
company of PetroResurs, Lundin Petroleum´s investment in
Russia, should be reclassifi ed to a joint venture. The investment
in Mintley Caspian Ltd. was therefore deconsolidated at the end
of the third quarter 2017. The deconsolidation has no signifi cant
impact to the income statement since the investment in Russia
was fully impaired in prior years and the carrying value is
considered to be close to zero. The deconsolidation has triggered
a shift of MUSD 82.0 within total equity between equity
attributable to the owners of the parent company and non-
controlling interest. The shift within total equity had a negative
impact on equity attributable to the owners of the parent
company with this change being recorded during 2017.
Brynhild transaction
Lundin Petroleum divested a 39 percent working interest in the
Brynhild fi eld to CapeOmega with an effective date of 1 January
2017 and a completion date of 30 November 2017. The
transaction involved a consideration of MUSD 93.7, including
historical tax and uplift balances. The transaction resulted in
a net after tax accounting loss of MUSD 14.4 arising from the
difference between the consideration received and the book
value of the associated assets being divested.
In accordance with the Norwegian Petroleum Tax Act the
consideration is paid on an after tax basis and the remaining
tax balances were transferred from Lundin Petroleum to
CapeOmega. Lundin Petroleum is therefore not liable to
tax payments for the consideration received. For further
information see Note 8.
Operational review
All the reported numbers and updates in the operational review
relate to the fi nancial year ended 31 December 2017 unless
otherwise specifi ed.
Corporate Structure as at 31 December 2017
Lundin Petroleum AB (S)
Lundin Petroleum Holding BV (N)
Lundin Petroleum SA (Sw)
Lundin Norway AS (No)
Lundin Russia BV (N)
Lundin Petroleum
Marketing SA (Sw)
Lundin Petroleum
Services BV (N)
Jurisdiction
(N)
(No)
(S)
(Sw)
Netherlands
Norway
Sweden
Switzerland
Lundin Lagansky BV (N)
Note: The Group structure shows significant subsidiaries only.
See the Parent Company Financial Statements Note 9 for full legal
names and all subsidiaries.
48
Lundin Petroleum Annual Report 2017
Continuing Operations Norway
Reserves and resources
Lundin Petroleum has 726.3 million barrels of oil equivalent
(MMboe) of proved plus probable net reserves and 895.5 MMboe
of proved plus probable plus possible net reserves as at
31 December 2017 as certifi ed by an independent third party.
Lundin Petroleum also has discovered oil and gas resources
which classify as contingent resources and are not yet classifi ed
as reserves. The best estimate contingent resources net to
Lundin Petroleum amounted to 203.4 MMboe as at 31 December
2017.
Production
Production for the year amounted to 86.1 thousand barrels
of oil equivalent per day (Mboepd) (compared to 59.3 Mboepd
for 2016), which was above the revised production guidance
for the year of at or above 85 Mboepd and 15 percent
above the mid-point of the original production guidance of
70 to 80 Mboepd. This performance is due to strong facilities
and reservoir performance at both the Edvard Grieg fi eld and
the Alvheim area. The production guidance for 2018 is between
74 to 82 Mboepd.
Total cash operating cost for the year, including netting off tariff
income, was USD 4.25 per barrel which was 20 percent below
the original guidance of USD 5.30 per barrel. This performance
is due to a combination of reduced costs and the increased
production volumes.
The production was comprised as follows:
Production in Mboepd
2017
2016
Norway
Crude oil
Gas
Total production
Quantity in Mboe
Production in
Mboepd
Edvard Grieg
Ivar Aasen
Alvheim
Volund
Bøyla
Brynhild
Gaupe
WI1
65%2
1.385%
15%
35%
15%
51%3
40%
Quantity in Mboepd
1 Lundin Petroleum’s working interest (WI)
2 WI 50% up to 30 June 2016
3 WI 90% up to 30 November 2017
77.6
8.5
86.1
53.2
6.1
59.3
31,427.7
21,701.4
2017
2016
66.7
0.7
12.4
3.9
1.1
1.2
0.2
86.1
42.0
–
10.0
2.7
1.7
2.6
0.3
59.3
Net production from the Edvard Grieg fi eld during the year
was higher than forecast at 66.7 Mboepd due to increased
facilities capacity, good production effi ciency and strong
reservoir performance. The Ivar Aasen fi eld, which produces
through the Edvard Grieg facilities, commenced production in
December 2016 and the combined fi elds have been producing
with a strong level of reliability, with Edvard Grieg production
effi ciency of 94 percent for the year. Capacity testing of the
Edvard Grieg facilities confi rmed that the facilities are able to
produce at rates 15 percent above design levels at 145 thousand
barrels of oil per day (Mbopd) combined from Edvard Grieg
and Ivar Aasen. The current production fully utilises this
higher facilities capacity whilst also honouring the contractual
allocation of facilities capacity between the Edvard Grieg and
Ivar Aasen fi elds. The contractual allocation changes through
time, with the fi nal contractual change occurring at the end of
the third quarter 2018. The contractual capacity allocation is
refl ected in the 2018 production guidance.
The total operating cost for the Edvard Grieg fi eld was USD 4.61
per barrel for the year and cash operating cost, including netting
off tariff income, was USD 3.71 per barrel for the year.
In April 2017, Lundin Petroleum announced the successful
Edvard Grieg Southwest appraisal well 16/1-27 which
encountered a 15 metres gross oil column with signifi cantly
better sand quality and thickness compared to prognosis. The
well results confi rmed additional reserves in this area of the
fi eld, which combined with the results from the other wells
drilled during the year and the strong reservoir performance,
which has seen no water production to date, has resulted in
the fi eld’s best estimate gross ultimate recovery increasing
by 51 MMboe to 274 MMboe as at year end 2017, which is a
47 percent increase on the original estimate in the Plan for
Development and Operation (PDO).
The Edvard Grieg development drilling plan within the PDO
has been optimised within the same number of planned wells
to access the southwest area of the fi eld with one production
well and one water injection well targeting this area of the
fi eld. During the year, three production wells and two water
injection wells were successfully drilled on the Edvard Grieg
fi eld with results in line or better than expectations. Two further
production wells have been successfully drilled in the fi rst
quarter of 2018. To date, 13 out of a total of 14 development
wells have been completed with drilling operations planned
to continue into the second quarter of 2018. The production
capacity from the nine production wells drilled so far exceeds
expectations and signifi cantly exceeds the available facilities
capacity.
Net production from the Ivar Aasen fi eld during the year was in
line with forecast at 0.7 Mboepd. Water injection commenced
during the second quarter of 2017 and the PDO drilling
programme was completed during the third quarter of 2017.
Lundin Petroleum Annual Report 2017
49
FINANCIAL REPORT | Directors’ Report
Production during the year from the Alvheim area, consisting
of the Alvheim, Volund and the Bøyla fi elds, was ahead of
forecast due to reservoir performance continuing to be better
than expected as well as higher than expected Alvheim FPSO
production effi ciency of 97 percent. The total operating cost for
the Alvheim area was USD 3.70 per barrel for the year.
Net production from the Alvheim fi eld during the year was
better than forecast at 12.4 Mboepd. The reservoir continues
to outperform with the most recent infi ll well A5 as well as
the Viper and Kobra wells, which came on stream in 2016, all
continuing to produce ahead of expectations. Drilling of two
infi ll wells on the Boa area of the fi eld were completed during
the year with results in line with expectations and both wells
started production in the fi rst quarter of 2018.
Net production from the Volund fi eld during the year was
ahead of forecast at 3.9 Mboepd. Two new Volund infi ll wells
were completed during the year and came on stream in the
third quarter, with production from both wells exceeding
expectations.
Net production from the Bøyla fi eld during the year was in line
with forecast at 1.1 Mboepd.
Net production from the Brynhild fi eld during the year was
lower than forecast at 1.2 Mboepd. The fi eld has been shut-in
since July 2017 due to a fl ow restriction that developed in the
pipeline between the Brynhild subsea wells and the Haewene
Brim FPSO. The restriction was due to an oil-water emulsion
that developed in the pipeline due to a failure of the subsea
emulsion inhibitor chemical injection system. Operations to
clear the restriction have been successfully completed and the
plan is to re-start production from the fi eld during the second
quarter 2018. The water injection system was re-instated in
February 2017. Terms for a revised processing and operations
service agreement were agreed with Shell, which reduces future
operating costs for the fi eld.
In June 2017, Lundin Petroleum announced that it had entered
into an agreement to divest a 39 percent working interest in
the Brynhild fi eld to CapeOmega. Lundin Norway has retained
operatorship of the Brynhild fi eld and following completion
of the transaction at the end of November 2017 has a 51
percent working interest in the fi eld. The effective date of the
transaction is 1 January 2017.
Despite no remaining reserves being attributed to the Gaupe
fi eld, the fi eld is producing intermittently subject to favourable
economic conditions and net production during the year was in
line with forecast at 0.2 Mboepd.
Development
Johan Sverdrup
Phase 1 of the Johan Sverdrup project is on schedule with close
to 70 percent completed in February 2018. Construction on
all elements of Phase 1 of the project is underway with over
50 million direct man-hours having been worked to date. With
the good progress on the project Phase 1 costs continue to be
reduced.
Construction of the steel jacket for the riser platform was
completed at the Kværner Verdal yard in Norway and was
installed offshore at the end of July 2017. This is the fi rst major
offshore installation milestone and was achieved on schedule.
The remaining three jackets and the four topsides are scheduled
for installation in 2018 and 2019.
Construction of the remaining three steel jackets is underway at
the Kværner Verdal yard in Norway and 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 respectively and construction of the riser platform and
processing platform is ongoing at Samsung Heavy Industries in
Korea with Aker Solutions being contracted for the procurement
and engineering of the riser platform and processing platform.
The three large modules making up the drilling platform
topsides were assembled on a barge on schedule in September
2017 and are currently located in Haugesund in Norway for
hook-up and fi nal completion. Installation of the four subsea
water injection drilling templates and associated fl owlines
has been completed. In addition, civil engineering works are
underway on the onshore power system at Haugsneset and for
the oil export pipeline landfall at Mongstad.
The pre-drilling of development wells commenced in March
2016 with eight production wells completed in 2016 with results
in line with expectations. Three pilot wells have been drilled to
assist with the placement of the development wells with results
in line with or better than prognosis. In addition, the pre-drilling
of nine water injection wells was completed in 2017 with results
in line with expectations. Pre-drilling activities were completed
signifi cantly ahead of schedule.
At the time of submitting the Phase 1 PDO in 2015, the capital
expenditure for Phase 1 was estimated at gross NOK 123
billion (nominal). Due to improvements in project execution
and delivery the latest cost estimate, as released by Statoil in
February 2018, is NOK 88 billion (nominal). This represents a
saving of almost 30 percent compared to the original estimate in
the PDO, excluding additional foreign exchange rate savings in
US dollar terms. The gross oil production capacity for Phase 1 of
the project is estimated at 440 Mbopd and is scheduled to start
production in late 2019.
Development
Licence
Field
WI
Operator
PDO Approval
Estimated gross
reserves
Production start
achieved/expected
Gross plateau
production rate
expected
Johan Sverdrup
Unit
Johan Sverdrup
22.6% Statoil
August 2015
2.1–3.1 billion boe
Late 2019
660 Mbopd
50
Lundin Petroleum Annual Report 2017
The Johan Sverdrup partnership has decided on concept
selection (DG2) for Phase 2 of the project, which will involve the
installation of an additional processing platform bridge linked
to the Phase 1 fi eld centre and additional subsea facilities to
allow the tie-in of 28 additional wells to access the Avaldsnes,
Kvitsøy and Geitungen satellite areas of the fi eld. These
additional facilities will take the full fi eld gross plateau level to
660 Mbopd. Phase 2 costs are estimated at below NOK 45 billion
(nominal) and represent approximately a 50 percent reduction
compared to the estimate in the original PDO for Phase 1, which
is due to a combination of market conditions and optimisation
of the Phase 2 facilities concept. Front End Engineering Design
(FEED) contracts in connection with Phase 2 of the project have
been awarded to Aker Solutions for the processing platform,
Kværner for the jacket and Siemens for the expansion of the
power from shore facilities. Additionally, procurement activities
are being progressed for long-lead equipment items for Phase 2.
The PDO submission for Phase 2 is scheduled for the second half
of 2018 and Phase 2 is scheduled to come onstream in 2022.
In February 2018, Statoil also provided an update on resources
for the Johan Sverdrup fi eld with gross resources increasing to
between 2.1 and 3.1 billion boe with 95 percent of the resources
being oil.
Full fi eld breakeven oil price is estimated at below 20 USD per
barrel.
Appraisal
In February 2017, the Tonjer well testing a possible northern
extension of the Johan Sverdrup fi eld was announced to have
encountered an oil column of 16 metres in Draupne reservoirs
of lower quality compared to the main Johan Sverdrup reservoir.
This result has no impact on the Johan Sverdrup development
or the resources and the partnership will assess the results of the
well as regards to possible future development.
In April 2017, Lundin Petroleum announced the completion
of the Edvard Grieg Southwest appraisal well with results as
reported in the Production section above.
In May 2017, Lundin Petroleum announced that the Gohta-3
appraisal well located in PL492 some 4 km north of the original
discovery well encountered a 300 metres gross sequence
of Permian age carbonates with poor reservoir quality. The
resource estimate for the discovery has been reduced as a
consequence of this well. Gohta is considered a possible joint
development opportunity together with the larger adjacent Alta
discovery.
In July 2017, Lundin Petroleum announced that the Alta-4
appraisal well located approximately 2 km south of the original
Alta discovery well had encountered a gross hydrocarbon
column of 48 metres, comprising 4 metres of gas and 44 metres
of oil in a sequence of Permian-Triassic carbonate sediments of
varying reservoir characteristics. Pressure data show the same
fl uid contacts and gradients as observed in previous wells drilled
on the Alta discovery, confi rming good communication across
the large Alta structure. A production test was performed in
the oil zone, producing at a stabilised rate of 6,050 bopd with
low pressure drawdown and constrained by rig testing facilities.
The production test confi rmed very good reservoir properties
and good lateral continuity within the Permian-Triassic
clastic reservoirs. In August 2017, a geological sidetrack was
completed approximately 900 metres north of the Alta-4 well
which confi rmed the reservoir sequence and fl uid contacts. An
extended well test will be conducted at Alta in 2018 to reduce
the uncertainty around the recovery mechanism in this complex
reservoir and provide the basis for development studies.
Lundin Petroleum has a rig contract with Ocean Rig for the
charter of the Leiv Eiriksson semi-submersible rig on a fl exible
basis which has drilled all of the operated wells in the southern
Barents Sea in 2017 and will be used to conduct the Alta
extended well test in 2018.
Lundin Petroleum has a rig contract with COSL Offshore
Management for the charter of the COSL Innovator semi-
submersible rig for a fl exible term with multiple well option
slots for a well programme in the Utsira High area in 2018. The
rig will be utilised to drill appraisal wells at Luno II in PL359 and
at Rolvsnes in PL338C. Both Luno II and Rolvsnes are possible
subsea tie-back development opportunities to the Edvard Grieg
facilities. Drilling operations at Luno II commenced in February
2018.
2017 appraisal well programme
Licence
Operator
WI
Well
Spud Date
Status
PL265
Statoil
22.6%
PL338
Lundin Norway
PL492
PL609
Lundin Norway
Lundin Norway
65%
40%
40%
16/2-22S (Johan
Sverdrup – Tonjer)
16/1-27 (Edvard Grieg
Southwest)
January 2017
Completed February 2017
March 2017
Completed April 2017
7120/1-5 (Gohta-3)
March 2017
Completed May 2017
7220/11-4 (Alta-4)
June 2017
Completed July 2017 sidetrack
completed August 2017
Lundin Petroleum Annual Report 2017
51
FINANCIAL REPORT | Directors’ Report
Exploration
In February 2017, Lundin Petroleum announced a discovery on
the Filicudi prospect in PL533 in the southern Barents Sea. The
well, which was drilled approximately 40 km southwest of the
Johan Castberg discovery in PL532, encountered a 129 metres
hydrocarbon column, with 63 metres of oil and 66 metres of
gas, in high quality Jurassic and Triassic sandstone reservoirs.
A sidetrack well was drilled that also confi rmed the reservoir
and hydrocarbon column. After full review of the well data the
discovery is estimated to contain gross contingent resources of
23 MMboe with additional upside potential in the eastern area
of the discovery that would require further appraisal drilling.
In June 2017, the Volund West prospect in PL150B in the North
Sea, to the west of the Volund fi eld, was drilled and was dry.
While the well encountered good reservoir sands there were
poor hydrocarbon shows.
In August 2017, the Korpfjell prospect in PL859 in the
southeastern Barents Sea was drilled and proved a small non-
commercial gas discovery. The well encountered a gas column
of 34 metres in sandstones with good reservoir quality in the
shallow Jurassic age target with estimated gross resources of
between 40 and 75 MMboe. Further drilling is planned in 2018
in PL859 to test the deeper prospectivity on the block.
block was drilled. The well encountered good quality Jurassic
reservoir sands but was dry.
In February 2018, the Frosk prospect in PL340 in the North Sea,
located northwest of the Bøyla fi eld, was drilled and proved
an oil discovery. The discovery is estimated to contain gross
resources of between 30 and 60 MMboe, which is signifi cantly
more than the pre-drill estimates, and has a positive impact on
the assessment of further exploration potential in the area.
Additionally, acquisition of a large high-specifi cation 3D seismic
survey was completed in September 2017 over the Alta, Gohta
and Filicudi discoveries and associated prospectivity. Processed
seismic data from the survey will be available in 2018.
Licence awards, transactions and relinquishments
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%) and two non-
operated in PL896 and PL869 (both with WI 20%).
In November 2017, Lundin Petroleum applied for licences in
the 24th licensing round and awards are anticipated to be
announced in mid-2018.
In September 2017, the Børselv prospect in PL609 located
on-trend north of the Alta and Neiden oil discoveries in
the southern Barents Sea was drilled and was dry. The
well encountered a 380 metres thick sequence of Permian-
Carboniferous carbonates with medium to poor reservoir quality
with oil shows, but the reservoir was water bearing.
In November 2017, the Hufsa prospect in PL533 in the southern
Barents Sea on trend with the Filicudi oil discovery in the same
block was drilled. The well encountered Jurassic and Triassic
reservoir sands. A non-commercial gas discovery was made in
the main well while the sidetrack was dry.
In January 2018, the Hurri prospect in PL533 in the southern
Barents Sea on trend with the Filicudi oil discovery in the same
During the year, a licence exchange was completed with Engie
to swap 10 percent of Lundin Petroleum’s working interest in
PL778 for Engie’s 20 percent working interest in both PL715 and
PL722. The acquisitions of Shell’s 20 percent working interest
in PL715 and North E&P’s 40 percent working interest in PL805
were completed. In addition, Lundin Petroleum completed
a farm-in with Fortis Petroleum for a 10 percent working
interest each in PL539 and PL860 on the Mandal High in the
Norwegian North Sea. Subsequent to which Lundin Petroleum
agreed the acquisition of a package of licences from Fortis
Petroleum including a further 10 percent interest in each of
PL539 and PL860 and 30 percent working interests in each of
PL820S and PL825. Lundin Petroleum has agreed a licence swap
arrangement to acquire Statoil’s 20 percent working interest
in PL860 which is subject to government approval and upon
2017 exploration well programme
Licence
Well
Spud Date
Target
WI
Operator
Result
Southern Barents Sea
7219/12-1
November 2016
Filicudi
35% Lundin Norway
Oil and gas discovery
7435/12-1
August 2017
Korpfjell
15% Statoil
Small non-commercial gas
discovery
7220/6-3
August 2017
Børselv
40% Lundin Norway
Dry
7219/12-2
October 2017
Hufsa
35% Lundin Norway
Non-commcercial gas discovery
7219/12-3
December 2017
Hurri
35% Lundin Norway
Dry
PL533
PL859
PL609
PL533
PL533
Alvheim Area
PL150B
24/9-11S
June 2017
Volund West
35% Aker BP
Dry
PL340
24/9-12S
January 2018
Frosk
15% Aker BP
Oil discovery
52
Lundin Petroleum Annual Report 2017
completion will increase Lundin Petroleum’s working interest in
PL860 to 40 percent. Lundin Petroleum farmed out its 20 percent
working interest in PL685 to Wellesley Petroleum and farmed
out a 15 percent interest and transferred operatorship in each of
PL758 and PL800 to Capricorn.
During the year, Lundin Petroleum relinquished PL410,
PL579, PL625, PL653, PL674BS, PL678, PL694, PL734, PL736S,
PL765, PL766, PL778 and PL789. Notices were also provided to
relinquish PL700, PL700B, PL715 and PL805 which will become
effective in 2018.
In January 2018, the Ministry of Petroleum and Energy
announced the licence awards in the 2017 APA licensing round.
Lundin Petroleum was awarded a total of 14 licences, of which
six as operator in PL934 (WI 40%), PL886B (WI 40%), PL950
(WI 50%), PL952 (WI 60%), PL954 (WI 40%) and PL533B (WI 35%).
Eight non-operated licences were awarded in PL904 (WI 20%),
PL167C (20%), PL914S (WI 1.385%), PL916 (WI 20%), PL917 (WI
20%), PL919 (WI 15%), PL935 (WI 20%) and PL936 (WI 30%).
Russia
At year end 2016, Lundin Petroleum removed the contingent
resources from its books associated with the Morskaya oil
discovery and wrote down the entire book value of the asset.
Management is reviewing options for the Morskaya asset. An
appraisal plan has been agreed with the Russian licensing
authority, Rosnedra, in order to maintain the licence in good
standing while options for the asset are being reviewed. The
appraisal plan requires no signifi cant activities for several years.
Discontinued Operations
Non-Norwegian Producing Assets
The discontinued operations are reported on and accounted for
until 24 April 2017 when the spin-off to IPC was completed.
Reserves and resources
The non-Norwegian producing assets spun-off to IPC had
29.4 MMboe of proved plus probable reserves as at 31 December
2016 as certifi ed by an independent third party.
Production
Production for the non-Norwegian producing assets spun-off to
IPC amounted to 3.8 Mboepd and was comprised as follows:
Production in Mboepd
2017
2016
Crude oil
France
Malaysia
Total crude oil production
Gas
Netherlands
Indonesia
Total gas production
Total production
Quantity in Mboe
0.8
2.5
3.3
0.5
–
0.5
3.8
2.6
8.6
11.2
1.6
0.5
2.1
13.3
1,370.4
4,858.2
The Indonesian assets were sold to PT Medco Energi
International TBK effective April 2016 and thus there was no
production.
Health, safety and environment
For continuing operations, six low potential medical treatment
incidents and one low level lost time incident were reported
for the year in Norway, resulting in a Lost Time Incident Rate
(LTIR) of 0.47 per million hours worked and a Total Recordable
Incident Rate (TRIR) of 3.30 per million hours worked.
There were no material environmental incidents.
Financial review
Result
The operating profi t from continuing operations for the
fi nancial year ended 31 December 2017 amounted to
MUSD 812.4 (MUSD -244.7). The operating profi t for the year
was driven by the increased production and higher oil prices
compared to last year. Last year was also negatively impacted by
an impairment charge of MUSD 506.1 in respect of Russia.
The net result from continuing operations for the year
amounted to MUSD 380.9 (MUSD -399.3). The net result
from continuing operations in the year was mainly driven
by the excellent production performance and a net foreign
exchange gain as a result of the weakening US Dollar against
the Norwegian Krone and the Euro, partly offset by expensed
exploration costs and an impairment charge.
The net result from continuing operations attributable to
shareholders of the Parent Company for the year amounted
to MUSD 384.7 (MUSD -256.7) or MUSD 431.2 (MUSD -356.7)
including discontinued operations representing earnings per
share from continuing operations of USD 1.13 (USD -0.79) or
USD 1.27 (USD -1.09) including discontinued operations.
Earnings before interest, tax, depletion and amortisation
(EBITDA) from continuing operations for the year amounted
to MUSD 1,501.5 (MUSD 752.5) representing EBITDA per share
of USD 4.41 (USD 2.31). Operating cash fl ow from continuing
operations for the year amounted to MUSD 1,530.0 (MUSD
857.9) representing operating cash fl ow per share of USD 4.50
(USD 2.63).
Revenue and other income
Revenue and other income for the year amounted to
MUSD 1,997.0 (MUSD 950.0) 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 1,958.3
(MUSD 975.9). The average price achieved by Lundin Petroleum
for a barrel of oil equivalent from own production amounted to
USD 51.63 (USD 42.31) and is detailed in the following table. The
average Dated Brent price for the year amounted to USD 54.25
(USD 43.73) per barrel.
Lundin Petroleum Annual Report 2017
53
FINANCIAL REPORT | Directors’ Report
Net sales of oil and gas from own production for the year are
detailed in Note 3 and were comprised as follows:
Sales from own production
Average price per boe expressed in USD
2017
2016
Production costs
Production costs including inventory movements for the year
amounted to MUSD 164.2 (MUSD 168.4) and are detailed in
Note 2. The total production cost per barrel of oil equivalent
produced is detailed in the table below:
Crude oil sales
Norway
– Quantity in Mboe
– Average price per boe
Gas and NGL sales
Norway
– Quantity in Mboe
– Average price per boe
Total sales from continuing operations
– Quantity in Mboe
– Average price per boe
28,106.9
53.37
20,654.5
43.60
3,943.1
39.23
2,352.1
30.94
32,050.0
51.63
23,006.6
42.31
The table above excludes crude oil revenue from third party activities.
Net sales of crude oil from third party activities for the year
amounted to MUSD 303.5 (MUSD 2.1) and consisted of crude
oil purchased from outside 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. 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 an
income of MUSD 13.8 (cost of MUSD 29.1) in the year due to the
timing of the cargo liftings compared to production.
Other revenue amounted to MUSD 24.9 (MUSD 3.2) for the year
and included a quality differential compensation on Alvheim
blended crude and tariff income of MUSD 21.7 (MUSD 0.3)
which is due to net income from Ivar Aasen tariffs paid to
Edvard Grieg.
Production costs from
continuing operations
Cost of operations
– In MUSD
– In USD per boe
Tariff and transportation expenses
– In MUSD
– In USD per boe
Cash operating costs
– In MUSD
– In USD per boe 1
Change in inventory position
– In MUSD
– In USD per boe
Other
– In MUSD
– In USD per boe
Production costs from
continuing operations
– In MUSD
– In USD per boe
2017
2016
117.3
3.73
37.9
1.21
155.2
4.94
-0.4
-0.02
9.4
0.30
113.1
5.21
33.9
1.56
147.0
6.77
-0.7
-0.04
22.1
1.02
164.2
5.22
168.4
7.75
Note: USD per boe is calculated by dividing the cost by total production
volume for the year.
1 The numbers in this table are excluding tariff income netting. Lundin
Petroleum’s cash operating cost for the reporting period of USD 4.94 is
reduced to USD 4.25 when tariff income is netted off.
The total cost of operations for the year amounted to
MUSD 117.3 (MUSD 113.1). The total cost of operations
excluding operational projects amounted to MUSD 105.9
(MUSD 103.8).
The cost of operations per barrel amounted to USD 3.73
(USD 5.21) including operational projects and USD 3.37
(USD 4.78) excluding operational projects.
Tariff and transportation expenses for the year amounted to
MUSD 37.9 (MUSD 33.9) or USD 1.21 (1.56) per barrel. The
main reason for the reduction per barrel is due to the increased
volumes in the Oseberg transportation system that the Edvard
Grieg pipeline is part of.
Other costs amounted to MUSD 9.4 (MUSD 22.1) and related
to the business interruption insurance and the operating cost
share arrangement on the Brynhild fi eld whereby the amount
of operating cost varies with the oil price until the end of May
2017. This arrangement was being marked-to-market against the
oil price curve.
54
Lundin Petroleum Annual Report 2017
Depletion and decommissioning costs
Depletion and decommissioning costs amounted to MUSD 567.3
(MUSD 386.2) at an average rate of USD 18.05 (USD 17.80) per
barrel and are detailed in Note 10. The higher depletion costs
for the year compared to last year is due to the depletion charge
associated with the Edvard Grieg fi eld as a result of the higher
production levels achieved.
Exploration costs
Exploration costs expensed in the income statement for the
year amounted to MUSD 73.1 (MUSD 101.9) and are detailed in
Note 10. 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.
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 1.8 (MUSD 29.1).
The US Dollar weakened against the Euro during the year
resulting in a net foreign currency exchange gain on the US
Dollar denominated external loan which is borrowed by a
subsidiary using Euro as functional currency. In addition,
the Norwegian Krone weakened against the Euro in the
year, generating a net foreign currency exchange loss on an
intercompany loan balance denominated in Norwegian Krone.
Finance costs
Finance costs for the year amounted to MUSD 186.6
(MUSD 221.5) and are detailed in Note 5.
During the year, exploration costs relating to Norway
of MUSD 72.0 were expensed and mainly related to the
unsuccessful Gohta appraisal well in PL492, the non-commercial
gas discovery on the Korpfjell prospect in PL859, and the dry
wells on the Hufsa prospect in PL533, the Volund West prospect
in PL150B, the Børselv prospect in PL609 and the Hurri prospect
in PL533 as well as a number of Norwegian exploration licences
in the process of relinquishment.
Interest expenses for the year amounted to MUSD 115.0
(MUSD 137.3) and represented the portion of interest charged
to the income statement. An additional amount of interest
of MUSD 63.5 (MUSD 23.4) 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 higher interest rates. The result on interest rate hedge
settlements amounted to a loss of MUSD 17.4 (MUSD 19.5).
Impairment costs of oil and gas properties
Impairment costs amounted to MUSD 30.6 (MUSD 506.1)
and are detailed in Note 10. The impairment costs related
to the Brynhild fi eld in PL148. The impairment costs in the
comparative period related to Russia.
Loss from sale of assets
Loss from sale of assets for the year amounted to MUSD 14.4
(MUSD –) and related to the after tax result on the divestment
of a 39 percent working interest in the Brynhild fi eld and are
detailed in Note 8.
The amortisation of the deferred fi nancing fees amounted
to MUSD 17.5 (MUSD 38.9) for the year and related to the
expensing of the fees incurred in establishing the fi nancing
facilities over the period of usage of the facilities. The decrease
compared to last year is related to the fact that the current
fi nancing facilities were entered into during the second quarter
of 2016 following which the unamortised portion of the
capitalised fi nancing fees incurred in establishing the previous
fi nancing facilities and the short term revolving credit facility
were expensed amounting to MUSD 22.3.
Other cost of sales
Other costs of sales for the year amounted to MUSD 303.3
(MUSD 2.1) and related to oil purchased from outside the Group
by Lundin Petroleum Marketing SA.
Loan facility commitment fees for the year amounted to
MUSD 11.1 (MUSD 9.3) with the increase compared to the same
period last year being due to the increased available borrowing
amounts under the Group’s reserve-based lending facility.
General, administrative and depreciation expenses
The general administrative and depreciation expenses for the
year amounted to MUSD 31.7 (MUSD 30.0) which included a
charge of MUSD 4.3 (MUSD 4.6) in relation to the Group’s long-
term incentive plans (LTIP), see Note 29. Fixed asset depreciation
expenses for the year amounted to MUSD 2.5 (MUSD 3.1).
Finance income
Finance income for the year amounted to MUSD 256.7
(MUSD 2.7) and is detailed in Note 4.
Lundin Petroleum owns 121.5 million shares in ShaMaran
Petroleum Corp. (ShaMaran) and this investment 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 were being recognised in the consolidated statement of
comprehensive income. During the year, ShaMaran announced
that it had achieved fi rst oil from the Atrush fi eld. As the
share price of ShaMaran did not recover in the period since
fi rst oil, an impairment charge was recorded representing the
cumulative loss recorded in other comprehensive income equal
to MUSD 11.2 that was recycled to the income statement.
The net foreign currency exchange gain for the year amounted
to MUSD 255.3 (MUSD –). 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
Share in result of associated company
Share in result of associated company amounted to
MUSD 0.4 (MUSD –) and related to the share in the result
of the investment in Mintley Caspian Ltd. following the
deconsolidation of this investment at the end of the third
quarter 2017 and are detailed in Note 6.
Lundin Petroleum Annual Report 2017
55
FINANCIAL REPORT | Directors’ Report
Tax
The overall tax charge for the year amounted to MUSD 501.2
(credit of MUSD 64.2) and is detailed in Note 7.
The current tax charge for the year amounted to a credit of
MUSD 0.5 (credit MUSD 78.4) which included a tax credit of
MUSD 1.5 (credit MUSD 78.9) relating to the tax refund on
Norwegian exploration and appraisal expenditure.
The deferred tax charge for the year amounted to MUSD 501.7
(MUSD 14.2) which predominantly related to Norway. The
deferred tax amount arises primarily where there is a difference
in depletion for tax and accounting purposes.
The Group operates in various countries and fi scal regimes
where corporate income tax rates are different from the
regulations in Sweden. Corporate income tax rates for the
Group vary between 12.5 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 net foreign currency exchange
gain, Norwegian fi nancial items 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 -3.8 (MUSD -142.6) and related to the
non-controlling interest’s share in Mintley Caspian Ltd., which
is the holding company of Lundin Petroleum´s investment in
Russia, which was fully consolidated up to the end of the third
quarter 2017. Lundin Petroleum has updated the accounting
judgement of the consolidation of this investment and
concluded that this investment should be reclassifi ed to a joint
venture. The investment was therefore deconsolidated at the
end of the third quarter 2017.
Discontinued operations
The net result from discontinued operations amounted to
MUSD 46.5 (MUSD -100.0) and is detailed in Note 9.
Balance sheet
Non-current assets
Oil and gas properties amounted to MUSD 4,937.1
(MUSD 4,376.4) and are detailed in Note 10.
Development and exploration and appraisal expenditure
incurred for the year was as follows:
Development expenditure
in MUSD
Norway
Development expenditures from
continuing operations
2017
950.0
950.0
2016
877.1
877.1
An amount of MUSD 950.0 (MUSD 877.1) of development
expenditure was incurred in Norway during the year, primarily
on the Johan Sverdrup, Edvard Grieg and Alvheim area. In
addition an amount of MUSD 63.5 of interest was capitalised.
Exploration and appraisal
expenditure in MUSD
Norway
Russia
Exploration and appraisal expenditure
from continuing operations
2017
227.1
1.1
228.2
2016
142.1
1.4
143.5
Exploration and appraisal expenditure of MUSD 227.1
(MUSD 142.1) was incurred in Norway during the year, primarily
on the Filicudi, Hufsa and Hurri exploration wells in PL533,
the Korpfjell exploration well in PL859, the Børselv exploration
well in PL609 and the appraisal wells Edvard Grieg Southwest in
PL338, Gotha-3 in PL492 and Alta-4 in PL609.
Other tangible fi xed assets amounted to MUSD 13.2
(MUSD 166.1) and the decrease compared to the last year is
related to the spin-off of the IPC business and are detailed in
Note 11.
Goodwill associated with the accounting for the Edvard Grieg
transaction during 2016 amounted to MUSD 128.1 (MUSD 128.1)
and is detailed in Note 12.
Financial assets amounted to MUSD 6.7 (MUSD 9.4) and are
detailed in Note 13. Other shares and participations amounted
to MUSD 6.3 (MUSD 8.9) and related to the shares held in
ShaMaran which are reported at market value.
Derivative instruments amounted to MUSD 26.5 (MUSD 17.0)
and related to the marked-to-market gain on the outstanding
interest rate and currency hedge contracts due to be settled after
twelve months and are detailed in Note 21.
Current assets
Inventories amounted to MUSD 33.7 (MUSD 54.9) and are
detailed in Note 14. The decrease compared to last year is related
to the spin-off of the IPC business.
Trade and other receivables amounted to MUSD 304.4
(MUSD 288.9) and are detailed in Note 15. Trade receivables,
which are all current, amounted to MUSD 202.7 (MUSD
193.4) and included invoiced cargoes. Underlift amounted to
MUSD 29.4 (MUSD 28.9) and was attributable to an underlift
position on the producing fi elds, mainly from the Alvheim
area. Joint operations debtors relating to various joint venture
receivables amounted to MUSD 15.6 (MUSD 31.2). Prepaid
expenses and accrued income amounted to MUSD 29.3
(MUSD 29.4) and represented mainly prepaid operational and
insurance expenditure. Brynhild operating cost share amounted
to MUSD – (MUSD 3.0) and related to the marked-to-market
valuation of the arrangement where the share of the operating
cost varies with the oil price. This arrangement ended during
the year. IPC working capital receivable amounted to MUSD 23.5
(MUSD –) and related to a residual receivable from IPC for
working capital balances following the IPC spin-off which is due
in 2018. Other current assets amounted to MUSD 3.9 (MUSD 3.0)
and included VAT receivables and other miscellaneous
receivable balances.
56
Lundin Petroleum Annual Report 2017
Derivative instruments amounted to MUSD 7.7 (MUSD 0.8) and
related to the marked-to-market gain on the outstanding interest
rate and currency hedge contracts due to be settled within
twelve months and are detailed in Note 21.
Derivative instruments amounted to MUSD 6.4 (MUSD 37.6) and
related to the marked-to-market loss on outstanding interest rate
and currency hedge contracts due to be settled within twelve
months and are detailed in Note 21.
Current tax assets amounted to MUSD – (MUSD 77.5) and
related to the Norwegian corporate tax refund in respect of 2016
which was received in the fourth quarter of 2017.
Current provisions amounted to MUSD 7.7 (MUSD 6.9) and
related to the current portion of the provision for Lundin
Petroleum’s Unit Bonus Plan.
Cash and cash equivalents amounted to MUSD 71.4 (MUSD 69.5).
Cash balances are held to meet ongoing operational funding
requirements.
Annual General Meeting
The Annual General Meeting will be held in Stockholm on
3 May 2018.
Non-current liabilities
Financial liabilities amounted to MUSD 3,880.0 (MUSD 4,048.3)
and are detailed in Note 18. Bank loans amounted to
MUSD 3,955.0 (MUSD 4,145.0) and related to the outstanding
loan under the Group’s reserve-based lending facility.
Capitalised fi nancing fees relating to the establishment costs
of the Group’s fi nancing facility amounted to MUSD 75.0
(MUSD 96.7) and are being amortised over the expected life of
the facility.
Board’s Proposal for Remuneration to Group
Management
The intention of the Board of Directors is to propose to the
2018 AGM the adoption of a Policy on Remuneration for 2018
that follows in essence the same principles as applied in 2017
and that contains similar elements of remuneration for Group
management as the 2017 Policy on Remuneration being base
salary, yearly variable salary, Long-term Incentive Plan (LTIP)
and other benefi ts.
Provisions amounted to MUSD 420.6 (MUSD 420.0) and
are detailed in Note 19. The provision for site restoration
amounted to MUSD 414.6 (MUSD 407.1) and related to future
decommissioning obligations. The site restoration provision
related to Norway amounted to MUSD 414.6 (MUSD 316.1). The
increase in Norway mainly refl ects the additional liability for
Edvard Grieg, the Alvheim area and for the Johan Sverdrup
development project partly offset by the 39 percent divestment
in Brynhild. The buyers decommissioning costs are limited at
MNOK 305 for the 39 percent share in Brynhild.
Deferred tax liabilities amounted to MUSD 1,302.2 (MUSD 669.3)
and are detailed in Note 7. 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 3.1 (MUSD 29.8) and
related to the marked-to-market loss on outstanding interest
rate and currency hedge contracts due to be settled after twelve
months and are detailed in Note 21.
Other non-current liabilities amounted to MUSD – (MUSD 33.8)
and related to the full consolidation of Mintley Caspian Ltd.
in which the non-controlling interest entity has made funding
advances. The subsidiary was deconsolidated at the end of the
third quarter, see section Changes in the Group on page 48.
Current liabilities
Trade and other payables amounted to MUSD 259.0
(MUSD 308.4) and are detailed in Note 20. Overlift amounted
to MUSD 12.8 (MUSD 29.9) and was attributable to an overlift
position on the producing fi elds, mainly from Brynhild and
NGL from Edvard Grieg. Joint operations creditors and accrued
expenses amounted to MUSD 188.9 (MUSD 238.8) and related
to activity in Norway. Other accrued expenses amounted to
MUSD 19.5 (MUSD 16.9) and other current liabilities amounted
to MUSD 7.7 (MUSD 9.5).
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, LTIP 2016 and LTIP 2017 approved by the 2014 AGM, the
2015 AGM, the 2016 AGM and the 2017 AGM respectively. LTIP
2018 gives the participants the possibility to receive shares in
Lundin Petroleum subject to the fulfi lment of a performance
condition under a three year performance period commencing
on 1 July 2018 and expiring on 1 July 2021. 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 2018. The total number of
performance shares that may be allotted under LTIP 2018 is
460,000, 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 refl ected in the outcome of
the performance condition, for example, in light of operating
cash fl ow, reserves, and health and safety performance.
The participants will not be entitled to transfer, pledge or
dispose of the LTIP awards or any rights or obligations under
LTIP 2018, or perform any shareholders’ rights regarding the
LTIP awards during the performance period. The LTIP awards
entitle participants to acquire already existing shares. The
Lundin Petroleum Annual Report 2017
57
FINANCIAL REPORT | Directors’ Report
Board of Directors will consider means to secure the Company’s
expected fi nancial exposure related to LTIP 2018. 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 specifi c case.
For a detailed description of the Policy on Remuneration applied
in 2017, see the Corporate Governance report on pages 42–43.
The remuneration to Board and Group management is detailed
in Notes 28 and 29.
Share information
For the number of shares outstanding and the repurchases of own
shares, see page 30, Corporate Governance Report.
For the AGM resolution on the authorisation to issue new shares,
see page 32, Corporate Governance Report.
Dividend
The Board of Directors proposes to the AGM 2018 that an
inaugural cash dividend distribution for the year 2017 of
SEK 4.00 per share be made for payment after the 2018 AGM.
This represents an amount equal to approximately MSEK 1,354.1,
or approximately MUSD 165, based on the current number of
shares, excluding own shares held by the Company.
For details of the dividend policy, see page 10, Share and
Shareholders.
Proposed disposition of unappropriated earnings
The Annual General Meeting 2018 has an unrestricted equity at
its disposal of MSEK 54,071.8, including the net result for the
year of MSEK 46,648.6.
The Board of Directors propose that the Annual General Meeting
dispose of the unrestricted equity as follows:
Based on a comprehensive review of the fi nancial position of
the Company and the Group as a whole, as well as the proposed
authorisation to repurchase shares, the Board of Directors is of
the opinion that the proposed dividend is justifi able in view of
the requirements that the nature and scope of, and risks involved
in the Company’s operations, place on the size of the Company’s
and Group’s equity, as well as their consolidation needs, liquidity
and position in other respects. The Board of Directors considered
that there is negative equity at Group level, however such equity
is based on historical accounting determinations of book value,
depreciations and foreign exchange results, and does not take
into account the fair market value of the assets held by the
Group. The Board of Directors’ full statement in accordance with
Chapter 18, Section 4 of the Swedish Companies Act is available
on www.lundin-petroleum.com.
Changes in Board of Directors
At the 2018 AGM, all the current members of the Board of
Directors will be proposed for re-election by the Nomination
Committee. In addition, the Nomination Committee proposes
that the size of the Board of Directors be increased to nine
members and that Torstein Sanness, the former Managing
Director of Lundin Norway AS, will be elected as a new member
of the Board of Directors.
Financial statements
The result of the Group’s operations and fi nancial position at
the end of the fi nancial year are shown in the following income
statement, statement of comprehensive income, balance sheet,
statement of cash fl ow, statement of changes in equity and
related notes, which are presented in US Dollars.
The Parent Company’s income statement, balance sheet,
statement of cash fl ow, statement of changes in equity and
related notes presented in Swedish Krona can be found on pages
94–99.
Subsequent events
Subsequent events are detailed in Note 31.
Risk management
For a detailed description of risk management, see the Strategic
report on pages 24–27.
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
28–44.
MSEK
Dividend payable at SEK 4.00 per share 1
Brought forward
Unrestricted equity
1,354.1
52,717.7
54,071.8
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.
1 Dividend is based on the number of shares outstanding at the record
date and the total dividend amount may change by the record date
depending on repurchases of own shares.
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.
58
Lundin Petroleum Annual Report 2017
FINANCIAL REPORT
Consolidated Income Statement
for the Financial Year Ended 31 December
Expressed in MUSD
Revenue and other income
Cost of sales
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Loss from sale of assets
Other cost of sales
Gross profi t/loss
General, administration and depreciation expenses
Operating profi t/loss
Net fi nancial items
Finance income
Finance costs
Share in result of associated company
Profi t/loss before tax
Income tax
Net result from continuing operations
Discontinued operations
Net result – IPC
Net result
Attributable to:
Shareholders of the Parent Company
Non-controlling interest
Earnings per share – USD1
From continuing operations
From discontinued operations
Earnings per share – fully diluted – USD1
From continuing operations
From discontinued operations
1 Based on net result attributable to shareholders of the Parent Company.
Note
1
2
10
10
10
8
3
4
5
6
7
9
17.3
17.3
2017
1,997.0
-164.2
-567.3
-73.1
-30.6
-14.4
-303.3
844.1
-31.7
812.4
256.7
-186.6
70.1
-0.4
882.1
-501.2
380.9
46.5
427.4
431.2
-3.8
427.4
1.13
0.14
1.13
0.14
2016
950.0
-168.4
-386.2
-101.9
-506.1
–
-2.1
-214.7
-30.0
-244.7
2.7
-221.5
-218.8
–
-463.5
64.2
-399.3
-100.0
-499.3
-356.7
-142.6
-499.3
-0.79
-0.30
-0.79
-0.30
Lundin Petroleum Annual Report 2017
59
FINANCIAL REPORT
Consolidated Statement of Comprehensive Income
for the Financial Year Ended 31 December
Expressed in MUSD
Net result
Items that may be subsequently reclassifi ed to profi t or loss:
Exchange differences foreign operations
Cash fl ow hedges
Available-for-sale fi nancial assets
Other comprehensive income
Total comprehensive income
Attributable to:
Shareholders of the Parent Company
Non-controlling interest
2017
427.4
-96.2
76.4
4.9
-14.9
412.5
416.3
-3.8
412.5
2016
-499.3
13.8
64.3
5.3
83.4
-415.9
-278.2
-137.7
-415.9
60
Lundin Petroleum Annual Report 2017
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 fi xed 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
Note
2017
2016
10
11
12
13
7
21
14
15
21
7
16
17.1
17.1
17.2
18
19
7
21
20
21
7
19
4,937.1
13.2
128.1
6.7
–
26.5
5,111.6
33.7
304.4
7.7
–
71.4
417.2
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
5,528.8
5,202.1
0.5
527.9
-445.7
-864.7
431.2
-350.8
–
-350.8
3,880.0
420.6
1,302.2
3.1
–
5,605.9
259.0
6.4
0.6
7.7
273.7
5,879.6
5,528.8
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
Lundin Petroleum Annual Report 2017
61
FINANCIAL REPORT
Consolidated Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MUSD
Note
Cash fl ows from operating activities
Net result
Adjustments for:
Exploration costs
Depletion, depreciation and amortisation
Impairment of oil and gas properties
Current tax
Deferred tax
Impairment of other shares
Long-term incentive plans
Foreign currency exchange gain/loss
Interest expense
Capitalised fi nancing 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 fl ows from operating activities
Cash fl ows from investing activities
Investment in oil and gas properties
Investment in other fi xed assets
Investment in other shares and participations1
Decommissioning costs paid
Disposal of fi xed assets2
Other
Total cash fl ows from investing activities
Cash fl ows from fi nancing activities
Changes in long-term liabilities
Financing fees paid
Cash funded from/to discontinued operations
Purchase of own shares
Issuance of shares/Sale of treasury shares3
Total cash fl ows from fi nancing 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 of deconsolidated operations
Cash and cash equivalents of discontinued operations
Cash and cash equivalents at the end of the year
22
2017
380.9
73.1
570.9
30.6
-0.5
501.7
11.2
12.7
-258.0
115.0
17.5
26.4
1.0
-177.3
82.2
-3.8
-2.0
126.9
-17.1
-192.1
1,299.3
-1,178.2
-1.6
-1.3
-0.4
93.7
-7.8
-1,095.6
-188.7
–
31.7
-28.0
–
-185.0
18.7
56.1
-3.2
-0.2
–
71.4
2016
-399.3
101.9
391.7
506.1
-78.4
14.2
–
15.6
-24.9
137.3
38.9
12.6
2.3
-153.7
273.5
-15.3
-2.1
163.0
29.9
-344.6
668.7
-1,020.6
-1.1
25.8
-1.0
–
–
-996.9
288.7
-104.0
92.5
–
64.1
341.3
13.1
42.4
0.6
–
13.4
69.5
1 Comparative amount of MUSD 25.8 relates to cash received on closing of the Edvard Grieg transaction with Statoil ASA.
2 Cash received on the divestment of a 39 percent working interest in the Brynhild fi eld 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 fl ow. Cash and cash equivalents comprise cash and short-term deposits maturing within less than three months.
62
Lundin Petroleum Annual Report 2017
FINANCIAL REPORT
Consolidated Statement of Changes in Equity
for the Financial Year Ended 31 December
Expressed in MUSD
Balance at 1 January 2016
Comprehensive income
Net result
Currency translation difference
Cash fl ow hedges
Available-for-sale fi nancial assets
Total comprehensive income
Transactions with owners
Share issuance
Value of employee services
Total transactions with owners
Balance at 31 December 2016
Comprehensive income
Net result
Currency translation difference
Cash fl ow hedges
Available-for-sale fi nancial assets
Total comprehensive income
Transactions with owners
Change in consolidation
Distributions
Purchase of own shares
Spin off IPC
Share based payments
Value of employee services
Total transactions with owners
Balance at 31 December 2017
Attributable to owners of the Parent Company
Share
capital1
Additional
paid-in-
capital
Other
reserves2
Retained
earnings
0.5
445.0
-509.3
-434.4
Non-
controlling
interest
Total
equity
24.1
-474.1
Total
-498.2
–
–
–
–
–
0.0
–
0.0
0.5
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
–
–
–
–
534.1
–
534.1
979.1
–
–
–
–
–
–
-410.0
-28.0
–
-13.2
–
-451.2
527.9
–
8.9
64.3
5.3
78.5
–
–
–
–
3.7
3.7
-430.8
-787.4
–
-96.2
76.4
4.9
-14.9
–
–
–
–
–
–
–
431.2
–
–
–
431.2
-82.0
–
–
–
–
4.7
-77.3
-445.7
-433.5
-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
534.1
3.7
537.8
-238.6
431.2
-96.2
76.4
4.9
416.3
-82.0
-410.0
-28.0
–
-13.2
4.7
-528.5
-350.8
–
–
–
-113.6
534.1
3.7
537.8
-352.2
-3.8
427.4
–
–
–
-96.2
76.4
4.9
-3.8
412.5
117.1
–
–
0.3
–
–
117.4
–
35.1
-410.0
-28.0
0.3
-13.2
4.7
-411.1
-350.8
1 Lundin Petroleum AB’s issued share capital described in detail in Note 17.1.
2 Other reserves are described in detail in Note 17.2.
Lundin Petroleum Annual Report 2017
63
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 specifi ed in the Parent Company
accounting policies on page 94.
The preparation of fi nancial statements in conformity with IFRS
requires the use of certain critical accounting estimates and also
requires management to exercise its judgement in the process
of applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are signifi cant to the consolidated
fi nancial statements are disclosed under the headline “Critical
accounting estimates and judgements”. The consolidated
fi nancial statements have been prepared under the historical
cost convention, as modifi ed by the revaluation of available for
sale fi nancial assets and fi nancial assets and liabilities (including
derivative instruments) at fair value through other comprehensive
income.
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 fi nancial statements of the Group.
The Group has not adopted the following standards and
interpretations that are not mandatory for the fi nancial year 2017.
The Group has assessed the impact on the Group’s consolidated
fi nancial statements for the standards with an effective date of
1 January 2018.
IFRS 9 Financial instruments, the standard addresses the
classifi cation, measurement and recognition of fi nancial assets
and fi nancial liabilities, introduces new rules for hedge accounting
and a new impairment model for fi nancial assets. Effective from
1 January 2018, the new impairment model under this standard
requires the recognition of impairment provisions based on
expected credit losses rather than only incurred credit losses as is
the case under IAS 39. The Group has concluded that this standard
has no signifi cant impact on the fi nancial statements. The Group
will apply the new rules retrospectively from 1 January 2018
which means that the comparatives will not be restated.
IFRS 15 Revenue from contract with customers, the standard
addresses revenue recognition and establishes principles for
reporting useful information to users of fi nancial statements.
Effective from 1 January 2018, the standard permits either a
full retrospective or a modifi ed retrospective approach for the
adoption. The Group has concluded that this standard will have
no impact on the timing when revenue is recognised in the Group,
but will have an impact on the consolidated income statement as
certain transactions will no longer be reported as revenue but as
other revenue instead. This change primarily relates to reporting
of change in under- and overlift which is detailed in Note 1. The
Group intends to adopt the standard using the full retrospective
approach which means that the comparatives will be restated.
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.
Identifi able assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
The non-controlling interest in a subsidiary represents the
portion of the subsidiary not owned by the Group. The equity
of the subsidiary relating to the non-controlling shareholders
is shown as a separate item within equity for the Group. The
Group recognises any non-controlling interest on an acquisition-
by-acquisition basis, either at fair value or at the non-controlling
interest’s proportionate share of the recognised amounts of the
acquiree’s identifi able net assets.
Inter-company transactions, balances, income and expenses
on transactions between group companies are eliminated.
Profi ts 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 fi nancial 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.
64
Lundin Petroleum Annual Report 2017
Associated companies
An investment in an associated company is an investment in
an undertaking where the Group exercises signifi cant infl uence
but not control, generally accompanying a shareholding of at
least 20 percent but not more than 50 percent of the voting
rights. Such investments are accounted for in the consolidated
fi nancial statements in accordance with the equity method
and are initially recognised at cost. The difference between
the acquisition cost of shares in an associated company and
the net fair value of the assets, liabilities and contingent
liabilities of the associated company recognised at the date of
acquisition is recognised as goodwill. The goodwill is included
within the carrying amount of the investment and is assessed
for impairment as part of the investment. The Group’s share
in the post-acquisition results of the associated company is
recognised in the income statement and the Group’s share in
post-acquisition movements in other comprehensive income
of the associated company are recognised directly in other
comprehensive income of the Group. When the Group’s
accumulated share of losses in an associated company equals or
exceeds its interest in the associated company, the Group does
not recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its
associates are eliminated to the extent of the Group’s percentage
in the associates. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of associates have been changed
where necessary to ensure consistency with the policies adopted
by the Group.
Other shares and participations
Investments where the shareholding is less than 20 percent of
the voting rights are treated as available for sale fi nancial assets.
If the value of these assets has declined signifi cantly or has
lasted for a longer period, the cumulative loss is removed from
equity and an impairment charge is recognised in the income
statement. Dividends received attributable to these assets are
recognised in the income statement as part of net fi nancial
items.
Foreign currencies
Items included in the fi nancial statements of each of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (functional
currency). The consolidated fi nancial statements are presented
in 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
fi nance income/costs in the income statement except deferred
exchange differences on qualifying cash fl ow 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
fi nancing exploration activities, are recorded directly in other
comprehensive income.
For the preparation of the annual fi nancial statements, the
following currency exchange rates have been used.
31 December 2017
31 December 2016
Average Period end
Average Period end
1 USD equals NOK
8.2712
8.2050
8.4014
1 USD equals EUR
0.8855
0.8338
0.9037
1 USD equals SEK
8.5481
8.2080
8.5610
8.6200
0.9487
9.0622
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
fi eld area cost centre basis.
Costs directly associated with an exploration well are capitalised.
If it is determined that a commercial discovery has not been
achieved, these exploration costs are charged to the income
statement. During the exploration and development phases,
no depletion is charged. The fi eld will be transferred from the
non-production cost pool to the production cost pool within oil
and gas properties once production commences, and accounted
for as a producing asset. Routine maintenance and repair costs
for producing assets are expensed as production costs when they
occur.
Net capitalised costs to reporting date, together with anticipated
future capital costs for the development of the proved and
probable reserves determined at the balance sheet date price
levels, are depleted based on the year’s production in relation
to estimated total proved and probable reserves of oil and gas,
in accordance with the unit of production method. Depletion of
Lundin Petroleum Annual Report 2017
65
FINANCIAL REPORT | Accounting Policies
a fi eld area is charged to the income statement through cost of
sales once production commences.
Proved reserves are those quantities of petroleum which, by
analysis of geological and engineering data, can be estimated
with reasonable certainty to be commercially recoverable, from
a given date forward, from known reservoirs and under current
economic conditions, operating methods and governmental
regulations. Proved reserves can be categorised as developed
or undeveloped. If deterministic methods are used, the term
reasonable certainty is intended to express a high degree of
confi dence that the quantities will be recovered. If probabilistic
methods are used, there should be at least a 90 percent
probability that the quantities actually recovered will equal or
exceed the estimates.
Probable reserves are those unproved reserves which analysis
of geological and engineering data 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 defi cit is included in
the income statement.
Impairment tests are performed annually or when there are
facts and circumstances that suggest that the carrying value
of an asset capitalised costs within each fi eld area less any
provision for site restoration costs, royalties and deferred
production or revenue related taxes is higher than the
anticipated future net cash fl ow from oil and gas reserves
attributable to the Group’s interest in the related fi eld areas.
Capitalised costs cannot be carried unless those costs can be
supported by future cash fl ows from that asset. Provision
is made for any impairment, where the net carrying value,
according to the above, exceeds the recoverable amount, which
is the higher of value in use and fair value less costs to sell,
determined through estimated future discounted net cash fl ows
using prices and cost levels used by Group management in their
internal forecasting. If there is no decision to continue with a
fi eld specifi c exploration programme, the costs will be expensed
at the time the decision is made.
Other tangible assets
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 fi ve years for offi ce equipment and
other assets.
Additional costs to existing assets are included in the assets’ net
book value or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefi ts associated
with the item will fl ow to the Group and the cost of the item can
be measured reliably. The net book value of any replaced parts
is written off. Other additional expenses are deemed to be repair
and maintenance costs and are charged to the income statement
when they are incurred.
The net book value is written down immediately to its
recoverable amount when the net book value is higher. The
recoverable amount is the higher of an asset’s fair value less cost
to sell and value in use.
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 identifi able assets acquired and
liabilities assumed. If this consideration is lower than the fair
value of the net assets acquired, the difference is recognised in
profi t 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 fl ows to their present value using a
discount rate that refl ects current market assessments of the
time value of money and the risks specifi c to the asset. When
the recoverable amount is less than the carrying value an
impairment loss is recognised with the expensed charge to the
income statement. If indications exist that previously recognised
impairment losses no longer exist or are decreased, the
recoverable amount is estimated. When a previously recognised
impairment loss is reversed the carrying amount of the asset
is increased to the estimated recoverable amount but the
increased carrying amount may not exceed the carrying amount
after depreciation that would have been determined had no
impairment loss been recognised for the asset in prior years.
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 fl ows from the investments have
expired, or have been transferred and the Group has transferred
substantially all risks and rewards of ownership.
66
Lundin Petroleum Annual Report 2017
Lundin Petroleum recognises the following fi nancial assets and
liabilities:
· Loans and receivables and other fi nancial 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 fi nancing exploration activities and for which no fi xed
terms of repayment exist, which are recorded directly in other
comprehensive income.
· Other shares and participations (available for sale fi nancial
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 fi nancial assets shall
be recognised in other comprehensive income, except for
impairment losses and foreign exchange gains and losses until
the fi nancial 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 fl ows of hedged items. When derivatives
do not qualify for hedge accounting, changes in fair value are
recognised immediately in the income statement.
The Group has only cash fl ow hedges which qualify for hedge
accounting. The effective portion of changes in the fair value
of derivatives that qualify as cash fl ow hedges are recognised in
other comprehensive income. The gain or loss relating to the
ineffective portion is recognised immediately in the income
statement. Amounts accumulated in other comprehensive
income are transferred to the income statement in the period
when the hedged item will affect the income statement. When
a hedging instrument no longer meets the requirements for
hedge accounting, expires or is sold, any accumulated gain
or loss recognised in other comprehensive income remains in
shareholders’ equity until the forecast transaction no longer is
expected to occur, at which point it is transferred to the income
statement
Inventories
Inventories of consumable well supplies are stated at the lower
of cost and net realisable value, cost being determined on a
weighted average cost basis. Net realisable value is the estimated
selling price in the ordinary course of business, less applicable
variable selling expenses. Inventories of hydrocarbons are
stated at the lower of cost and net realisable value. Under or
overlifted positions of hydrocarbons are valued at market prices
prevailing at the balance sheet date. An underlift of production
from a fi eld is included in the current receivables and valued
at the reporting date spot price or prevailing contract price
and an overlift of production from a fi eld is included in the
current liabilities and valued at the reporting date spot price or
prevailing contract price.
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 outfl ow of resources is
required to settle the obligation and a reliable estimate can be
made of the amount.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a discount
rate that refl ects current market assessments of the time value of
money and the risks specifi c to the obligation. The increase in the
provision due to passage of time is recognised as fi nance costs.
On fi elds where the Group is required to contribute to site
restoration costs, a provision is recorded to recognise the future
commitment. An asset is created, as part of the oil and gas
property, to represent the discounted value of the anticipated
site restoration liability and depleted over the life of the fi eld
on a unit of production basis. The corresponding accounting
entry to the creation of the asset recognises the discounted value
Lundin Petroleum Annual Report 2017
67
FINANCIAL REPORT | Accounting Policies
of the future liability. The discount applied to the anticipated
site restoration liability is subsequently released over the life
of the fi eld and is charged to fi nancial expenses. Changes in
site restoration costs and reserves are treated prospectively and
consistent with the treatment applied upon initial recognition.
Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised costs using the effective interest method, with
interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a fi nancial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the fi nancial liability, or a shorter
period where appropriate.
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 proven and
probable reserves are determined and commercial production
has commenced.
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 refl ected through the change in under/
overlift position as part of other income.
Service income, generated by providing technical and
management services to joint operations, is recognised as other
income. The fi scal regime in the area of operations defi nes
whether royalties are payable in cash or in kind. Royalties
payable in cash are accrued in the accounting period in which
the liability arises. Royalties taken in kind are subtracted from
production for the period to which they relate.
Borrowing costs
Borrowing costs attributable to the acquisition, construction or
production of qualifying assets are added to the cost of those
assets. Qualifying assets are assets that take a substantial period
of time to complete for their intended use or sale. Investment
income earned on the temporary investment of specifi c
borrowings pending to be used for the qualifying asset, is
deducted from the borrowing costs eligible for capitalisation.
This applies on the interest on borrowings to fi nance fi elds
under development which is capitalised within oil and gas
properties until production commences. All other borrowing
costs are recognised in the income statement in the period
in which they occur. Interest on borrowings to fi nance the
acquisition of producing oil and gas properties is charged to the
income statement as incurred.
Employee benefits
Short-term employee benefi ts
Short-term employee benefi ts such as salaries, social premiums
and holiday pay, are expensed when incurred.
Pension obligations
Pensions are the most common long-term employee benefi ts.
The pension schemes are funded through payments to insurance
companies. The Group’s pension obligations consist mainly of
defi ned contribution plans. A defi ned contribution plan is a
pension plan under which the Group pays fi xed contributions.
The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised
as an expense when they are due.
The Group has one obligation under a defi ned benefi t plan.
The relating liability recognised in the balance sheet is valued
at the discounted estimated future cash outfl ows as calculated
by an external actuarial expert. Actuarial gains and losses are
recognised in other comprehensive income. The Group does not
have any designated plan assets.
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 fi nancial statements but not
deductible for tax purposes until they are actually incurred.
However, the deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction
68
Lundin Petroleum Annual Report 2017
other than a business combination that at the time of the
transaction affects neither accounting nor taxable profi t nor
loss. Deferred income tax is provided on temporary differences
arising on investments in subsidiaries and associates, except
where the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred
income tax is determined using tax rates (and laws) that have
been enacted or substantively enacted by the balance sheet date
and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profi t will be available against
which the temporary differences can be utilised.
Deferred tax assets are offset against deferred tax liabilities in
the balance sheet where they relate to the same jurisdiction.
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 fi scal
environment, is at a country level. Information for segments
is only disclosed when applicable. Segmental information is
presented in Note 3, Note 7 and Note 10.
Critical accounting estimates and judgements
The management of Lundin Petroleum has to make estimates
and judgements when preparing the fi nancial statements of the
Group. Uncertainties in the estimates and judgements could
have an impact on the carrying amount of assets and liabilities
and the Group’s result. The most important estimates and
judgements in relation thereto are:
Estimates 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 109 Reserve Quantity Information.
Changes in estimates of oil and gas reserves, resulting in
different future production profi les, will affect the discounted
cash fl ows used in impairment testing, the anticipated date of
site decommissioning and restoration and the depletion charges
in accordance with the unit of production method. Changes
in estimates in oil and gas reserves could for example result
from additional drilling, observation of long-term reservoir
performance or changes in economic factors such as oil price
and infl ation rates.
Information about the carrying amounts of the oil and gas
properties and the amounts charged to income, including
depletion, exploration costs, and impairment costs is presented
in Note 10.
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 a potential
impairment the assumptions that management uses to estimate
the future cash fl ows to calculate the recoverable amounts are
future oil and gas prices and expected production volumes.
These assumptions and judgements of management that are
based on them are subject to change as new information
becomes available. Changes in economic conditions can also
affect the rate used to discount future cash fl ow estimates and
the discount rate applied is reviewed throughout the year.
Goodwill relating to acquisitions of oil and gas properties forms
part of the impairment testing of oil and gas properties and is
tested at least once a year.
Information about the carrying amounts of the oil and gas
properties and impairment of oil and gas properties is presented
in Note 3 and Note 10.
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 outfl ows in
relation to the site decommissioning and restoration can be
different. To refl ect the effects due to changes in legislation,
requirements and technology and price levels, the carrying
amounts of site restoration provisions are reviewed on a regular
basis.
The effects of changes in estimates do not give rise to prior year
adjustments and are treated prospectively over the estimated
remaining commercial reserves of each fi eld. While the Group
uses its best estimates and judgement, actual results could differ
from these estimates.
Information about the carrying amounts of the Provision for site
restoration is presented in Note 19.
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 profi ts 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 profi ts.
Events after the balance sheet date
All events up to the date when the fi nancial statements were
authorised for issue and which have a material effect in the
fi nancial statements have been disclosed. Subsequent events are
presented in Note 31.
Lundin Petroleum Annual Report 2017
69
FINANCIAL REPORT
Notes to the Financial Statements
of the Group
Note 1 Revenue and Other Income
MUSD
Crude oil from own production
Crude oil from third party activities
Condensate
Gas
Net sales of oil and gas from continuing operations
Change in under/over lift position
Other revenue
Revenue and other income from continuing operations
2017
1,500.2
303.5
43.0
111.6
1,958.3
13.8
24.9
1,997.0
For further information on revenue, see the Directors Report on pages 53–54.
Note 2 Production Costs
MUSD
Cost of operations
Tariff and transportation expenses
Change in inventory position
Other production costs
Production costs from continuing operations
2017
117.3
37.9
-0.4
9.4
164.2
For further information on production costs, see the Directors Report on page 54.
Note 3 Segment Information
2016
901.0
2.1
14.3
58.5
975.9
-29.1
3.2
950.0
2016
113.1
33.9
-0.7
22.1
168.4
The Group operates within several geographical areas with the focus on Norway following the IPC spin-off during the year. Operating segments
are reported at country level which is consistent with the internal reporting provided to Group management.
The following tables present segment information from continuing operations regarding; revenue and other income, production costs,
depletion and decommissioning costs, exploration costs, impairment costs of oil and gas properties, loss from sale of assets, other cost of
sales, gross profi t/loss and certain asset and liability information regarding the Group’s business segments. In addition segment information is
reported in Note 7 and Note 10.
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. These intercompany transactions are reported
into segment 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
25 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 from own production
Condensate
Gas
Net sales of oil and gas
Change in under/over lift position
Other revenue
Revenue and other income
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Loss from sale of assets
Gross profi t
2017
1,500.2
43.0
111.6
1,654.8
13.8
24.4
1,693.0
-164.2
-567.3
-72.0
-30.6
-14.4
844.5
2016
901.0
14.3
58.5
973.8
-29.1
1.5
946.2
-168.4
-386.2
-101.9
–
–
289.7
70
Lundin Petroleum Annual Report 2017
Note 3 continued
MUSD
Other
Crude oil from third party activities
Net sales of oil and gas
Other revenue
Revenue and other income
Exploration costs
Impairment costs of oil and gas properties1
Other cost of sales
Gross profi t
1 The impairment costs of oil and gas properties relates to Russia.
MUSD
Total from continuing operations
Crude oil from own production
Crude oil from third party activities
Condensate
Gas
Net sales of oil and gas
Change in under/over lift position
Other revenue
Revenue and other income
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Loss from sale of assets
Other cost of sales
Gross profi t/loss
MUSD
Norway
Russia
Sweden
France
Netherlands
Malaysia
Indonesia
Corporate
Other
Intercompany balance elimination
Assets/liabilities per country
Shareholders’ equity
Non-controlling interest
Total equity for the Group
Total consolidated
2017
2016
303.5
303.5
0.5
304.0
-1.1
–
-303.3
-0.4
2017
1,500.2
303.5
43.0
111.6
1,958.3
13.8
24.9
1,997.0
-164.2
-567.3
-73.1
-30.6
-14.4
-303.3
844.1
2017
5,427.7
0.3
1.5
–
–
–
–
3,237.4
170.0
-3,308.1
5,528.8
N/A
N/A
N/A
5,528.8
2.1
2.1
1.7
3.8
–
-506.1
-2.1
-504.4
2016
901.0
2.1
14.3
58.5
975.9
-29.1
3.2
950.0
-168.4
-386.2
-101.9
-506.1
–
-2.1
-214.7
Assets
Equity and Liabilities
2016
2017
4,608.4
0.7
2.6
220.8
75.0
343.6
6.8
4,225.0
162.1
-4,442.9
5,202.1
N/A
N/A
N/A
4,998.4
1.6
23.7
–
–
–
–
3,979.9
184.1
-3,308.1
5,879.6
-350.8
–
-350.8
5,202.1
5,528.8
2016
4,291.8
372.2
7.5
121.7
45.1
466.0
195.2
4,335.3
162.4
-4,442.9
5,554.3
-238.6
-113.6
-352.2
5,202.1
For detailed information of the oil and gas properties per country, see also Note 10.
For further information on revenue and other income, production costs, depletion and decommissioning costs, exploration costs, impairment
costs of oil and gas properties, loss from sale of assets and other cost of sales, see the Directors Report on pages 53–55.
Lundin Petroleum Annual Report 2017
71
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 4 Finance Income
MUSD
Foreign currency exchange gain, net
Interest income
Guarantee fees
Finance income from continuing operations
2017
255.3
1.0
0.4
256.7
2016
–
2.3
0.4
2.7
Exchange rate variations result primarily from fl uctuations in the value of the USD currency against a pool of currencies which mainly
includes, amongst others, EUR and NOK. 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 55.
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 fi nancing fees
Loan facility commitment fees
Impairment of other shares
Other
Finance costs from continuing operations
2017
115.0
–
17.4
13.7
17.5
11.1
11.2
0.7
186.6
2016
137.3
4.2
19.5
11.6
38.9
9.3
–
0.7
221.5
During 2017, MUSD 63.5 (MUSD 23.4) of interest was capitalised relating to development projects.
Note 6 Share in Result of Associated Company
MUSD
Group´s share of net result
Total result from share in result of associated company
2017
0.4
0.4
2016
–
–
The result from share in associated company consisted of the 70 percent non-controlling equity share of the result of Mintley Caspian Ltd
owned by Lundin Petroleum. The results of Mintley Caspian Ltd have been fully consolidated into the Lundin Petroleum consolidated accounts
until 30 September 2017 and as such, there is no amount recorded for 2016 in the share in result from associated company.
Note 7 Income Taxes
Tax charge
MUSD
Current tax
Norway
Russia
Other
Current tax from continuing operations
Deferred tax
Norway
Russia
Other
Deferred tax from continuing operations
Total tax from continuing operations
2017
-1.5
0.1
0.9
-0.5
501.7
–
–
501.7
501.2
2016
-78.9
0.1
0.4
-78.4
98.5
-83.5
-0.8
14.2
-64.2
For further information on income taxes, see the Directors Report on page 56.
72
Lundin Petroleum Annual Report 2017
Note 7 continued
The tax on the Group’s profi t before tax differs from the theoretical amount that would arise using the tax rate of Sweden as follows:
MUSD
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 from continuing operations
2017
882.1
-194.1
-398.7
-76.3
108.4
69.4
1.1
-12.4
1.4
-501.2
2016
-463.5
102.0
-60.8
-120.3
150.9
-5.9
8.6
-7.1
-3.2
64.2
The tax rate in Norway is 78 percent and is the primary reason for the effect of foreign tax rates in the table above. The effect of non deductible
expenses mainly relates to non deductible fi nancial expenses in Norway. The uplift on expenses relates to uplift on development expenses for
oil and gas assets in Norway. The effect of non-taxable income mainly relates to non taxable foreign currency exchange gains.
There is no tax charge/credit relating to components of other comprehensive income.
Corporation tax liability - current and deferred
MUSD
Current
Deferred
2017
2016
2017
Norway
France
Netherlands
Switzerland
Russia
Total
–
–
–
0.3
0.3
0.6
–
–
–
–
0.2
0.2
1,302.2
–
–
–
–
1,302.2
2016
621.3
50.0
-2.0
–
–
669.3
There was also a tax receivable of MUSD 77.5 reported in current tax assets as per 31 December 2016 mainly related to Norway.
For further information on tax liabilities, see the Directors Report on page 57.
Specifi cation 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
2017
526.7
18.4
545.1
1,846.4
–
0.9
–
1,847.3
2016
708.6
9.6
718.2
1,371.1
1.6
1.1
0.2
1,374.0
1 The specifi cation of deferred tax assets and tax liabilities does not agree to the face of the balance sheet due to the netting off of balances in the balance
sheet when they relate to the same jurisdiction.
The deferred tax asset is primarily relating to tax loss carried forwards in Norway for an amount of MUSD 135.3 (MUSD 320.7) and unused
uplift carry forward in Norway of MUSD 391.4 (MUSD 374.3). 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 in Norway. The deferred tax liability will be released over the life of the assets as the book value is depleted for accounting purposes.
Lundin Petroleum Annual Report 2017
73
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 7 continued
Unrecognised tax losses
The Group has Dutch tax loss carry forwards of approximately MUSD 29. The tax losses can be carried forward and utilised for up to 9 years. A
deferred tax asset of MUSD 7 relating to the tax loss carry forwards has not been recognised as at 31 December 2017 due to the uncertainty as
to the timing and the extent of the tax loss carry forward utilisation. As a result of the IPC spin-off, Dutch tax loss carry forwards as per spin-off
date are no longer available for the Group.
The Group also has Swedish tax loss carry forwards of approximately MUSD 73 (MUSD 47). 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.
Note 8 Loss from Sale of Assets
Lundin Petroleum divested a 39 percent working interest in the Brynhild fi eld to CapeOmega with an effective date of 1 January 2017 and a
completion date of 30 November 2017. The transaction involved a consideration of MUSD 93.7, including historical tax and uplift balances.
The transaction resulted in a net after tax accounting loss of MUSD 14.4 arising from the difference between the consideration received and
the book value of the associated assets being divested. The after tax accounting loss is reported as loss from sale of assets as detailed in the
following table:
MUSD
Assets
Oil and gas properties
Deferred tax
Total assets divested
Liabilities
Site restoration provision
Working capital
Total liabilities divested
Net assets divested
Consideration received
Net after tax accounting loss
–
143.9
143.9
32.0
3.8
35.8
108.1
93.7
14.4
74
Lundin Petroleum Annual Report 2017
Note 9 Discontinued Operations
On 24 April 2017, Lundin Petroleum completed the spin-off of its assets in Malaysia, France and The Netherlands (the IPC assets) into a newly
formed company called International Petroleum Corporation (IPC) by distributing the IPC shares, on a pro- rata basis to Lundin Petroleum
shareholders. The results of the IPC business are included in the Lundin Petroleum fi nancial statements until spin-off date and are shown as
discontinued operations.
MUSD
Revenue and other income
Cost of sales
Production costs
Depletion and decommissioning costs
Depletion of other assets
Exploration costs
Impairment costs of oil and gas properties
Gross profi t/loss
Sale of assets
General, administration and depreciation expenses
Operating profi t/loss
Net fi nancial items
Finance income
Finance costs
Profi t/loss before tax
Income tax
Gain on distribution of assets
Net result from discontinued operations
2017
69.1
-17.4
-19.1
-10.4
0.1
–
22.3
–
-2.3
20.0
–
-24.1
-24.1
-4.1
11.2
-5.3
51.8
46.5
2016
209.9
-59.1
-85.2
-31.1
-14.2
-126.0
-105.7
-3.5
-1.9
-111.1
23.9
-7.9
16.0
-95.1
-4.9
-100.0
–
-100.0
Lundin Petroleum Annual Report 2017
75
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 10 Oil and Gas Properties
MUSD
Production cost pools
Non-production cost pools
31 December
2017
31 December
2016
2,169.7
2,767.4
4,937.1
2,641.8
1,734.6
4,376.4
2017 production cost pools
MUSD
Cost
1 January
Additions
Spin off IPC
Change in estimates
Currency translation difference
31 December
Depletion
1 January
Depletion charge for the year
Spin off IPC
Impairment
Currency translation difference
31 December
Norway
France
Netherlands
Malaysia
Total
4,351.6
250.3
–
66.9
223.2
4,892.0
-2,016.2
-568.4
–
-30.6
-107.1
-2,722.3
306.3
0.9
-328.6
–
21.4
–
-142.2
-4.6
162.2
–
-15.4
–
119.2
0.6
-124.1
–
4.3
–
-107.3
-1.9
113.1
–
-3.9
–
423.8
1.3
-425.1
–
–
–
-293.4
-12.6
306.0
–
–
–
5,200.9
253.1
-877.8
66.9
248.9
4.892.0
-2,559.1
-587.5
581.3
-30.6
-126.4
-2,722.3
Net book value
2,169.7
–
–
–
2,169.7
2016 production cost pools
MUSD
Cost
1 January
Additions
Change in estimates
Disposal
Reclassifi cations
Currency translation difference
31 December
Depletion
1 January
Depletion charge for the year
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
Depletion from continuing operations amounted to MUSD 568.4 (MUSD 388.7) and is included within the depletion and decommissioning costs
line in the income statement. Depletion from discontinued operations amounted to MUSD 19.1 (MUSD 85.2) and is included within the net result
from discontinued operations line in the income statement.
76
Lundin Petroleum Annual Report 2017
Note 10 continued
2017 non-production cost pools
MUSD
1 January
Additions
Expensed exploration costs
Spin off IPC
Change in estimates
Currency translation difference
31 December
2016 non-production cost pools
MUSD
1 January
Additions
Expensed exploration costs
Impairment
Change in estimates
Reclassifi cations
Currency translation difference
31 December
Norway
France
Netherlands
Russia
Malaysia
Total
1,720.6
990.3
-72.0
–
35.6
92.9
2,767.4
6.9
0.1
–
-7.2
–
0.2
–
7.1
0.1
–
-7.5
–
0.3
–
–
1.1
-1.1
–
–
–
–
–
-0.1
0.1
–
–
–
–
1,734.6
991.5
-73.0
-14.7
35.6
93.4
2,767.4
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
Expensed exploration costs from continuing operations amounted to MUSD 73.1 (MUSD 101.9) and are included within the exploration costs
line in the income statement. Expensed exploration costs from discontinued operations amounted to MUSD -0.1 (MUSD 14.2) and is included
within the net result from discontinued operations line in the income statement.
Impairment
Lundin Petroleum carried out its impairment testing at 31 December 2017 on an asset basis in conjunction with the annual reserves audit
process. Lundin Petroleum used a combination of the oil price forward curve at the year end and the price deck as used by ERCE for the year-
end 2017 reserves certifi cation process as a basis for its price forecast, a future cost infl ation factor of 2% (2%) per annum and a discount rate
of 8% (8%) to calculate the future post-tax cash fl ows.
Non-cash impairment costs from continuing operations amounted to MUSD 30.6 (MUSD 506.1) and related to the Brynhild fi eld in PL148 with
the impairment costs in the comparative period relating to the Morskaya oil discovery in the Russian Caspian Sea. Non cash impairment costs
from discontinued operations amounted to MUSD – (MUSD 126.0) and are included within the net result from discontinued operations line in
the income statement.
Capitalised borrowing costs
During 2017, MUSD 63.5 (MUSD 23.4) of capitalised interest costs were added to oil and gas properties and relate to Norwegian development
projects. The interest rate for capitalised borrowing costs is calculated at the external facility borrowing rate of LIBOR plus a margin of 3.15%
per annum (margin of 3.00% per annum increased to 3.15% per annum from February 2016).
Exploration and appraisal expenditure commitments
The Group participates in joint operations with third parties in oil and gas exploration and appraisal activities. The Group is contractually
committed under various concession agreements to complete certain exploration and appraisal programmes. The commitments as at
31 December 2017 are estimated to be MUSD 52.8 (MUSD 88.6 of which MUSD 85.5 related to continuing operations) of which third parties
who are joint operations partners will contribute approximately MUSD 31.1 (MUSD 61.4 of which MUSD 59.8 related to continuing operations).
Lundin Petroleum Annual Report 2017
77
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 11 Other Tangible Assets
MUSD
Cost
1 January
Additions
Disposals
Spin off IPC
Change in consolidation
Currency translation difference
31 December
Depreciation
1 January
Disposals
Depreciation charge for the year
Spin off IPC
Change in consolidation
Reclassifi cation
Currency translation difference
31 December
Net book value
2017
Real
estate
Other
Total
FPSO
2016
Real
estate
Other
Total
11.2
–
–
–
-0.6
–
10.6
-1.8
–
–
–
0.6
–
–
-1.2
9.4
36.5
1.6
–
-8.6
-0.4
1.3
30.4
-29.8
–
-2.8
6.8
0.3
–
-1.1
-26.6
252.5
1.6
–
-214.1
-1.0
2.0
41.0
-86.4
–
-13.2
72.0
0.9
–
-1.1
-27.8
207.2
-1.7
–
–
–
-0.7
204.8
-23.7
–
-31.1
–
–
–
–
-54.8
3.8
13.2
150.0
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
6.7
166.1
FPSO
204.8
–
–
-205.5
–
0.7
–
-54.8
–
-10.4
65.2
–
–
–
–
–
The depreciation charge for the year is based on cost and an estimated useful life of three to fi ve years for offi ce equipment and other
assets. Real estate is depreciated using an estimated useful life of 20 years and taking into account its residual value. Depreciation from
continuing operations amounted to MUSD 2.5 (MUSD 3.1) and is included within the general, administration and depreciation line in the
income statement. Depreciation from discontinued operations amounted to MUSD 0.3 (MUSD 1.2) and is included within the net result from
discontinued operations line in the income statement.
The FPSO located on the Bertam fi eld, Malaysia, is being depreciated over the committed contract term and included in the net result from
discontinued operations line in the income statement.
Note12 Goodwill
MUSD
1 January
Additions
31 December
2017
128.1
–
128.1
2016
–
128.1
128.1
The Group’s goodwill arose from the acquisition of a further 15 percent interest in the Edvard Grieg fi eld in 2016. Goodwill was included in
the Group’s impairment testing as per 31 December 2017 and will be tested for impairment annually as part of the annual impairment testing
of oil and gas properties.
Note 13 Financial Assets
MUSD
Other shares and participations
Other
31 December
2017
31 December
2016
6.3
0.4
6.7
8.9
0.5
9.4
78
Lundin Petroleum Annual Report 2017
Note 13.1 Other Shares and Participations
ShaMaran Petroleum Corp.
31 December 2017
Number of shares
121,584,842
Share %
5.6 %
Book amount
MUSD
31 December 2016
Book amount
MUSD
6.3
6.3
8.9
8.9
During 2017, the fair value of the ShaMaran shares was impaired by MUSD 11.2, see section fi nancial expenses in the Directors´ report, page
55.
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
Note 14 Inventories
MUSD
Hydrocarbon stocks
Drilling equipment and consumable materials
Note 15 Trade and Other Receivables
MUSD
Trade receivables
Underlift
Joint operations debtors
Prepaid expenses and accrued income
Brynhild operating cost share
IPC working capital
Other
2017
8.9
1.4
-6.2
2.2
6.3
2016
4.1
–
5.2
-0.4
8.9
31 December
2017
31 December
2016
4.1
29.6
33.7
17.1
37.8
54.9
31 December
2017
31 December
2016
202.7
29.4
15.6
29.3
–
23.5
3.9
304.4
193.4
28.9
31.2
29.4
3.0
–
3.0
288.9
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. This arrangement ended during the year.
The IPC working capital relates to a residual receivable from IPC for working capital balances following the IPC spin-off which is due in 2018.
Note 16 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 2017.
Lundin Petroleum Annual Report 2017
79
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 17 Equity
Note 17.1 Share Capital and Share Premium
Share capital
Additional paid
in capital
Number of shares
Par value
MSEK
Par value
MUSD
MUSD
31 December 2015
Share issuance
Treasury shares transferred
Movements
31 December 2016
Distributions
Purchase of own shares
Share based payments
Movements
311,070,330
29,316,115
–
29,316,115
340,386,445
–
–
–
–
3.2
0.3
–
0.3
3.5
–
–
–
–
3.5
0.5
0.0
–
0.0
0.5
–
–
–
–
0.5
MUSD
445.0
499.8
34.3
534.1
979.1
-410.0
-28.0
-13.2
-451.2
527.9
31 December 2017
340,386,445
Included in the number of shares issued at 31 December 2017 are 1,233,310 shares which Lundin Petroleum holds in its own name. In 2016,
Lundin Petroleum AB issued 27,580,806 new shares to Statoil ASA as part of the Edvard Grieg transaction where an additional 15 percent
working interest in the Edvard Grieg fi eld was acquired. In addition, the Company also issued 1,735,309 new shares and transferred 2 million
treasury shares held to Statoil ASA.
Note 17.2 Other Reserves
MUSD
1 January 2016
Total comprehensive income
31 December 2016
Total comprehensive income
31 December 2017
Available-for-
sale reserve
Hedge reserve
Currency translation
reserve
-10.2
-141.0
-358.1
Total
-509.3
5.3
-4.9
4.9
–
64.3
-76.7
76.4
-0.3
8.9
78.5
-349.2
-430.8
-96.2
-14.9
-445.4
-445.7
80
Lundin Petroleum Annual Report 2017
Note 17.3 Earnings Per Share
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
From continuing operations
From discontinued operations
Weighted average number of shares for the year
Earnings per share, USD
From continuing operations
From discontinued operations
2017
2016
384,692,005
46,460,065
431,152,070
-256,696,668
-100,043,259
-356,739,927
340,237,772
325,808,486
1.13
0.14
1.27
-0.79
-0.30
-1.09
Weighted average diluted number of shares for the year
341,380,316
326,738,233
Earnings per share, USD
From continuing operations
From discontinued operations
Earnings per share fully diluted, USD
Note 18 Financial Liabilities
MUSD
Bank loans
Capitalised fi nancing fees
31 December
2017
31 December
2016
3,955.0
-75.0
3,880.0
4,145.0
-96.7
4,048.3
1.13
0.14
1.27
-0.79
-0.30
-1.09
Capitalised fi nancing fees amounted to MUSD 75.0 (MUSD 96.7) and related to the establishment costs of the external credit facility. The
capitalised fi nancing fees are being amortised over the duration of the credit facility.
For further information, see Note 21
Note 19 Provisions
MUSD
1 January 2017
Additions
Changes in estimates
Disposals
Payments
Unwinding of discount
Spin off IPC
Currency translation difference
31 December 2017
Non-current
Current
Total
Site
Restoration
407.1
78.3
24.2
-32.0
-3.8
13.7
-91.1
18.2
414.6
414.6
–
414.6
LTIP
10.1
7.7
–
–
-8.1
–
–
–
9.7
2.8
6.9
9.7
Farm in
payment
Pension
provision
Other
5.0
–
–
–
–
–
-5.2
0.2
–
–
–
–
1.2
0.1
–
–
-0.1
–
–
–
1.2
1.2
–
1.2
3.5
0.9
–
–
-0.3
–
-1.4
0.1
2.8
2.0
0.8
2.8
Total
426.9
87.0
24.2
-32.0
-12.3
13.7
-97.7
18.5
428.3
420.6
7.7
428.3
Lundin Petroleum Annual Report 2017
81
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 19 continued
MUSD
1 January 2016
Additions
Changes in estimates
Payments
Unwinding of discount
Reclassifi cation
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
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 additions in 2017 mainly relates to the liability associated with Norwegian development
projects. Based on the estimates used in calculating the site restoration provision as at 31 December 2017, 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 29.
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 (TCHF 138) 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 (TCHF 1,800).
Note 20 Trade and Other Payables
MUSD
Trade payables
Overlift
Joint operations creditors and accrued expenses
Other accrued expenses
Other
31 December
2017
31 December
2016
30.1
12.8
188.9
19.5
7.7
259.0
13.3
29.9
238.8
16.9
9.5
308.4
82
Lundin Petroleum Annual Report 2017
Note 21 Financial Assets and Liabilities
Financial assets and liabilities by category
The accounting policies for fi nancial assets and liabilities have been applied to the line items below:
31 December 2017
MUSD
Other shares and participations
Other non-current fi nancial assets
Derivative instruments
Joint operations debtors
Other current receivables1
Cash and cash equivalents
31 December 2017
MUSD
Financial liabilities
Derivative instruments
Joint operations creditors
Other current liabilities
31 December 2016
MUSD
Other shares and participations
Other non-current fi nancial assets
Derivative instruments
Joint operations debtors
Other current receivables1
Cash and cash equivalents
31 December 2016
MUSD
Financial liabilities
Other non-current liabilities
Derivative instruments
Joint operations creditors
Other current liabilities
Loan receivables and
other receivables at
amortised cost
Financial assets
at amortised cost
Assets at
fair value
in OCI 2
Fair value
recognised in
profi t/loss
Derivatives
used for
hedging
–
–
–
15.6
230.1
71.4
317.1
–
0.4
–
–
–
–
0.4
6.3
–
–
–
–
–
6.3
–
–
–
–
29.4
–
29.4
–
–
34.2
–
–
–
34.2
Other liabilities at
amortised cost
Financial liabilities
at amortised cost
Fair value
recognised in
profi t/loss
Derivatives used
for hedging
–
–
188.9
38.4
227.3
3,880.0
–
–
–
3,880.0
–
–
–
12.8
12.8
–
9.5
–
–
9.5
Loan receivables and
other receivables at
amortised cost
Financial assets
at amortised cost
Assets at
fair value
in OCI2
Fair value
recognised in
profi t/loss
Derivatives
used for
hedging
–
–
–
31.2
276.9
69.5
377.6
–
0.5
–
–
–
–
0.5
8.9
–
–
–
–
–
8.9
–
–
–
–
28.9
–
28.9
–
–
17.8
–
–
–
17.8
Other liabilities at
amortised cost
Financial liabilities
at amortised cost
Fair value
recognised in
profi t/loss
Derivatives used
for hedging
–
33.8
–
238.8
23.0
295.6
4,048.3
–
–
–
–
4,048.3
–
–
–
–
29.9
29.9
–
–
67.4
–
–
67.4
Total
6.3
0.4
34.2
15.6
259.5
71.4
387.4
Total
3,880.0
9.5
188.9
51.2
4,129.6
Total
8.9
0.5
17.8
31.2
305.8
69.5
433.7
Total
4,048.3
33.8
67.4
238.8
52.9
4,441.2
1 Prepayments are not included in other current assets, as prepayments are not deemed to be fi nancial instruments.
2 Other comprehensive income.
The fair value of loan receivables and other receivables is a fair approximation of the book value.
For fi nancial 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.
Lundin Petroleum Annual Report 2017
83
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 21 continued
Based on this hierarchy, fi nancial assets and liabilities measured at fair value can be detailed as follows:
31 December 2017
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 2016
MUSD
Assets
Other shares and participations
Derivative instruments – non-current
Derivative instruments – current
Underlift
Liabilities
Derivative instruments - non current
Derivative instruments - current
Overlift
Level 1
Level 2
Level 3
6.3
–
–
29.4
35.7
–
–
12.8
12.8
–
26.5
7.7
–
34.2
3.1
6.4
–
9.5
–
–
–
–
–
–
–
–
–
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
–
–
–
–
–
–
The outstanding derivative instruments can be specifi ed as follows:
Fair value of outstanding derivative instruments in
the balance sheet
MUSD
31 December 2017
31 December 2016
Assets
Liabilities
Assets
Liabilities
Interest rate swap
Currency hedge
Total
Non-current
Current
Total
28.3
5.9
34.2
26.5
7.7
34.2
6.7
2.8
9.5
3.1
6.4
9.5
17.8
–
17.8
17.0
0.8
17.8
31.6
35.8
67.4
29.8
37.6
67.4
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 2017 amounted to a net receivable of MUSD 21.6 (MUSD -13.8).
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 2017 amounted to a net receivable of MUSD 3.1
(MUSD -35.8).
For risks in the fi nancial reporting, see the section Internal control over fi nancial reporting in the Corporate Governance report on page 44 and
Risk Management on pages 24–27 for more information.
84
Lundin Petroleum Annual Report 2017
Note 22 Changes in Liabilities with Cash Flow Movements from Financing Activities
The changes in liabilities whose cash fl ow movements are disclosed as part of fi nancing activities in the cash fl ow statement are as follows.
Financial liabilities
Other non-current liabilities
At 1 January
2017
4,048.3
33.8
4,082.1
Cash
fl ows
-190.0
1.3
-188.7
Amortisation
of deferred
fi nancing fees
Spin off
IPC
Change in
consolidation
Foreign
exchange
movement
At 31 December
2017
17.5
–
17.5
8.6
–
8.6
–
-35.1
-35.1
-4.4
–
–
3,880.0
–
3,880.0
Non-cash changes
Note 23 Financial Risks, Sensitivity Analysis and Derivative Instruments
As an international oil and gas exploration and production company, Lundin Petroleum is exposed to fi nancial risks such as currency risk,
interest rate risk, credit risks, liquidity risks as well as the risk related to the fl uctuation in the oil price. The Group seeks to control these risks
through sound management practice and the use of internationally accepted fi nancial instruments, such as oil price, interest rate and foreign
exchange hedges. Lundin Petroleum uses fi nancial instruments solely for the purpose of minimising risks in the Group’s business.
For further information on risks in the fi nancial reporting, see the section Internal Control over fi nancial reporting in the Corporate
Governance report on page 44 and Risk Management on pages 24–27.
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 fl exibility. Lundin Petroleum is not subject
to any externally imposed capital requirements.
Apart from the proposed inaugural cash dividend to the AGM 2018, no signifi cant changes were made in the objectives, policies or processes
during 2017.
Lundin Petroleum monitors capital on the basis of net debt and fi nancial agreements. Net debt is calculated as bank loans as shown in the
balance sheet less cash and cash equivalents.
MUSD
31 December 2017
31 December 2016
Bank loans
Cash and cash equivalents
Net debt
3,955.0
-71.4
3,883.6
4,145.0
-69.5
4,075.5
The decrease in net debt compared to 2016 is mainly due to the positive free cash fl ow generated during 2017.
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 3.15% per annum (margin of 3.00% per annum
increased to 3.15% per annum from February 2016). Lundin Petroleum will assess the benefi ts of interest rate hedging on borrowings on a
continuous basis. If the hedging contract provides a reduction in the interest rate risk at a price that is deemed acceptable to the Group, then
Lundin Petroleum may choose to enter into an interest rate hedge.
The total interest expense for 2017 amounted to MUSD 178.5 which included MUSD 63.5 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 13.4, taking into account the Group’s interest rate hedges for 2017.
Lundin Petroleum Annual Report 2017
85
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 23 continued
The Group has entered into interest rate hedging as follows:
Borrowings
MUSD
Fixing of fl oating LIBOR
Rate per annum
3,000
3,000
1,750
1,000
1,000
1.87%
1.42%
2.01%
2.17%
2.37%
Settlement period
Jan 2018 – Dec 2018
Jan 2019 – Dec 2019
Jan 2020 – Dec 2020
Jan 2021 – Dec 2021
Jan 2022 – Dec 2022
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 fl uctuations of these currencies against the US Dollar.
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 fi xing the rate of exchange from US Dollar into Norwegian Krone to meet Norwegian
Krone operational requirements as summarised in the table below.
Buy
MNOK 3,493.0
MNOK 1,672.4
MNOK 1,000.0
MNOK 750.0
MNOK 500.0
Sell
MUSD 424.2
MUSD 200.4
MUSD 130.0
MUSD 98.3
MUSD 65.6
Average contractual
exchange rate
Settlement
period
NOK 8.23:USD 1
NOK 8.35:USD 1
NOK 7.69:USD 1
NOK 7.63:USD 1
NOK 7.62:USD 1
Jan 2018 – Dec 2018
Jan 2019 – Dec 2019
Jan 2020 – Dec 2020
Jan 2021 – Dec 2021
Jan 2022 – Dec 2022
Under IAS 39, subject to hedge effectiveness testing, all of the hedges are treated as effective and changes to the fair value are refl ected in
other comprehensive income. At 31 December 2017, a net current receivable of MUSD 1.3 (MUSD -36.8) and a net non-current receivable of
MUSD 23.4 (MUSD -12.8) 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 profi t through the
conversion of the income statements of the Group’s subsidiaries from functional currency to the presentation currency US Dollar for the year
ended 31 December 2017.
Operating result in the fi nancial statements, MUSD
812.4
812.4
Shift of currency exchange rates
EUR/USD
SEK/USD
NOK/USD
RUR/USD
CHF/USD
Total effect on operating result, MUSD
Average rate 2017
0.8855
8.5481
8.2712
58.3353
0.9848
10% USD weakening
0.8050
7.7710
7.5193
53.0321
0.8953
-69.2
10% USD strengthening
0.9741
9.4029
9.0983
64.1688
1.0833
69.2
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 55, 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 a MUSD 318.5 lower reported foreign exchange gain in the income statement.
The impact on the foreign exchange result from a change in the US Dollar currency compared to the other Group currencies is mainly due to
the bank loans denominated in US Dollar.
86
Lundin Petroleum Annual Report 2017
Note 23 continued
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 fi nancial investors and market
uncertainty. Factors that infl uence these include operational decisions, natural disasters, economic conditions, political instability or confl icts
or actions by major oil exporting countries. Price fl uctuations can affect Lundin Petroleum’s fi nancial position.
The table below summarises the effect that a change in the oil price would have had on the net result and equity at 31 December 2017:
Net result from continuing operations in the fi nancial statements, MUSD
Possible shift
Total effect on net result from continuing operations, MUSD
380.9
-10%
-38.5
380.9
10%
38.5
The impact on the net result from a change in oil price is reduced due to the 78 percent tax rate in Norway.
Lundin Petroleum’s policy is to adopt a fl exible approach towards oil price hedging, based on an assessment of the benefi ts of the hedge
contract in specifi c circumstances. Based on analysis of the circumstances, Lundin Petroleum will assess the benefi ts of forward hedging
monthly sales contracts for the purpose of establishing cash fl ow. If it believes that the hedging contract will provide an enhanced cash fl ow
then it may choose to enter into an oil price hedge.
For the year ended 31 December 2017, the Group did not enter into oil price hedging contracts and there are no oil price hedging contracts
outstanding as at 31 December 2017.
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 2017, the Group’s trade receivables amounted to MUSD 202.7 (MUSD 193.4). 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 2017.
Cash and cash equivalents are maintained with banks having strong long-term credit ratings.
Liquidity risk
Liquidity risk is defi ned as the risk that the Group could not be able to settle or meet its obligations on time or at a reasonable price. Group
treasury is responsible for liquidity, funding as well as settlement management. In addition, liquidity and funding risks and related processes
and policies are overseen by 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 fl ows generated by the Group. The amount available under the facility is recalculated every six months based upon the
calculated cash fl ow generated by certain producing fi elds and fi elds 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 specifi ed in the agreement, as are customary in fi nancing agreements of this size and nature. Two of the
main covenants are the net debt to EBIDTA and the EBITDA to fi nancial charges testing the ability to repay debt. If such an event of default
occurs and subject to any applicable cure periods, the external lenders may take certain specifi ed actions to enforce their security, including
accelerating the repayment of outstanding amounts under the credit facility.
Lundin Petroleum Annual Report 2017
87
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 23 continued
The table below analyses the Group’s fi nancial liabilities into relevant maturity groupings based on the remaining period at the balance sheet
date to the contractual maturity date. Loan repayments are made based upon a net present value calculation of the assets’ future cash fl ows.
No loan repayments are currently forecast under this calculation.
MUSD
31 December 2017
31 December 2016
Non-current
Repayment within 1–2 years:
– Derivative instruments
Repayment within 2–5 years:
– Bank loans
– Derivative instruments
Repayment after 5 years:
– Bank loans
– 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 24 Pledged Assets
–
3,955.0
3.1
–
–
3,958.1
30.1
12.8
0.6
188.9
7.7
3.2
3.2
246.5
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
In February 2016, Lundin Petroleum entered into a committed seven year senior secured reserve-based lending facility of USD 5.0 billion.
The fi nancing facility is a reserve-based lending facility secured against certain cash fl ows generated by the Group. The amount available
under the facility is recalculated every six months based upon the calculated cash fl ow generated by certain producing fi elds and fi elds under
development at an oil price and economic assumptions agreed with the banking syndicate providing the facility. 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 2017 amounted to MUSD 6.715.3 (MUSD 743.8) and represented the carrying value of the pledge of the Group companies
whose shares are pledged as described in the Parent Company section on page 98.
Note 25 Contingent Liabilities and Assets
Contingent liabilities
As part of the IPC spin-off that was completed on 24 April 2017, the Company has indemnifi ed IPC for certain legal proceedings related to
the period before spin-off. The Company has not provided for any costs in relation hereto as per 31 December 2017 as it does not believe the
proceedings will lead to any liability for the Company.
Note 26 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 signifi cant infl uence over the entity.
88
Lundin Petroleum Annual Report 2017
Note 26 continued
During the year, the Group has entered into transactions with related parties on a commercial basis and the material transactions are described
below:
MUSD
Sale of oil and related products
Sale of services
Purchase of services
2017
176.2
3.4
-1.9
2016
155.0
0.3
-0.4
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 176.2 for the year (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 28. The increase in related party transactions compared to 2016 is due to the IPC spin off following what certain services are provided to
and purchased from IPC.
As at the date of the IPC spin-off, the Group had a residual receivable for working capital from IPC of MUSD 27.4 which has been reduced to
MUSD 23.5. This receivable is reported as current asset as it is due during 2018.
Note 27 Average Number of Employees
Average number of employees per country
Parent Company in Sweden
Subsidiaries abroad continuing operations
Norway
Switzerland
Russia
Netherlands
Total
Total continuing operations
Discontinued operations1
Malaysia
France
Netherlands
Total discontinued operations1
1 Average number of employees until IPC spin-off.
Board members and Group management
Parent Company in Sweden
Board members1
Subsidiaries abroad
Group management
Total Group
2017
2016
Total
employees
of which men
Total
employees
of which men
2
354
34
16
1
405
407
57
47
5
109
1
2
266
21
10
1
298
299
36
36
3
75
344
45
16
1
406
408
105
48
5
158
1
258
26
10
1
295
296
66
40
3
109
2017
2016
Total at
year end
of which men
Total at
year end
of which men
7
7
14
4
5
9
7
7
14
4
6
10
1 Alex Schneiter, Chief Executive Offi cer (CEO) and Board Member is only included in Group management.
Lundin Petroleum Annual Report 2017
89
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 28 Remuneration to the Board of Directors, Group Management and Other Employees
Salaries, other remuneration and social security costs
TUSD
Parent Company in Sweden
Board members
Employees
Subsidiaries abroad continuing operations
Group management
Other employees
Total continuing operations
of which pension costs
Discontinued operations
Other employees
of which pension costs
Note: No performance based incentive plan vested in 2016.
2017
Salaries
and other
remuneration
2016
Social security
costs
Salaries and other
remuneration
Social security
costs
569
314
10,625
84,730
96,238
3,612
106
178
1,325
20,910
22,519
8,822
804
314
582
308
6,696
75,432
83,018
17,960
116
157
1,069
18,812
20,154
7,655
3,025
1,157
Salaries and other
remuneration for the
Board members and
Group management 1
TUSD
Parent Company in
Sweden
Board members
Ian H. Lundin
Peggy Bruzelius
C. Ashley Heppenstall
Lukas H. Lundin
Grace Reksten Skaugen
Jakob Thomasen
Magnus Unger
Cecilia Vieweg
Total Board members
Subsidiaries abroad
Group management
Alex Schneiter
Other 3
Total Group management
Fixed Board
remuneration/
fi xed salary
Other
benefi ts1
Short-term
variable
salary 2
Performance
based
incentive
plan
Remuneration
for committee
work
Remuneration
outside of
directorship
Pension
Total
2017
126
60
60
60
60
31
29
60
486
772
2,048
2,820
–
–
–
–
–
–
–
–
–
19
269
288
–
–
–
–
–
–
–
–
–
965
1,601
2,566
–
–
3,516
–
–
–
–
–
3,516
2,183
2,768
4,951
12
18
12
–
12
6
6
17
83
–
–
–
175
–
609
–
–
–
18
–
802
–
–
–
–
–
–
–
–
–
–
–
–
313
78
4,197
60
72
37
53
77
4,887
176
404
4,115
7,090
580
11,205
1 Other benefi ts include school fees and health insurance for Group management.
2 To improve the relevance of remuneration reporting, this table will from this year on include the short-term variable salary for the fi nancial year
reported, previously having refl ected timing of decision. This column shows bonuses awarded for achievements in 2017, including a discretionary
award to the CEO and some other members of Group management, see page 41.
3 Comprises nine persons which is higher than in prior years as part of Group management moved to IPC following the IPC spin-off. Comprises Chief
Financial Offi cer (both pre and post IPC spin-off), Chief Operating Offi cer, Vice President Corporate Responsibility, Vice President Legal (both pre and
post IPC spin-off), Vice President Communications and Investor Relations, Vice President Corporate Finance and Vice President Human Resources and
Shared Services.
Note: The performance based incentive plan that was awarded in 2014 when C. Ashley Heppenstall was the CEO of the Company vested in 2017. The
amount mentioned in the table above relates to this award and does not relate to his work as Board Member.
90
Lundin Petroleum Annual Report 2017
Note 28 continued
Salaries and other
remuneration for the
Board members and Group
management1
TUSD
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
Alex Schneiter
Other3
Total Group management
Fixed Board
remuneration/
fi xed salary
Other
benefi ts1
Short-term
variable
salary2
Unit
bonus
plan
Remuneration
for committee
work
Remuneration
for work outside
of directorship Pension
Total
2016
123
58
58
58
29
58
58
58
500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
771
2,598
3,369
39
144
183
900
1,998
2,898
–
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
1,872
5,424
7,296
¹ Other benefi ts include school fees and health insurance for Group management.
2 To improve the relevance of remuneration reporting, this table will from this year on include the short-term variable salary for the fi nancial year
reported, previously having refl ected timing of decision. This column shows bonuses awarded for achievements in 2016, including a discretionary
award to the CEO and some other members of Group management, see also page 41. Due to this, the numbers in this table have changed compared to
the annual report 2016.
3 Comprises six persons (Chief Financial Offi cer, Chief Operating Offi cer, Vice President Corporate Responsibility, Vice President Legal, Vice President
Corporate Planning and Investor Relations, Vice President Corporate Finance).
Note: No performance based incentive plan vested in 2016.
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 defi ned as
annual base salary and short-term variable salary and is capped at approximately TCHF 846 (TCHF 846). The normal retirement age for the CEO
is 65 years.
A mutual termination period of between three months 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 benefi ts 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 page 41–43 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 2017.
Lundin Petroleum Annual Report 2017
91
FINANCIAL REPORT | Notes to the Financial Statements of the Group
Note 29 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 fi nal third after three years. The cash payment is conditional upon the holder of
the units remaining an employee of the Group at the time of payment. The share price for determining the cash payment at the end of each
vesting period will be the average of the Lundin Petroleum closing share price for the period fi ve trading days prior to and following the actual
vesting date. The exercise price at vesting date 31 May 2017 was SEK 169.79.
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 2017 and the year in which
the units will vest.
Unit Bonus Plan
Outstanding at the beginning of the period
Recalculation awards following IPC spin-off / dividend
Awarded during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Vesting date
31 May 2018
31 May 2019
31 May 2020
Outstanding at the end of the period
2014
117,433
7,405
–
-466
-124,372
–
–
–
–
–
2015
277,928
17,002
–
-10,188
-148,840
135,902
135,902
–
–
135,902
The costs associated with the unit bonus plans are as given in the following table.
Plan
2016
360,099
21,339
–
-28,163
-129,232
224,043
113,320
110,723
–
224,043
2017
–
–
288,216
–
–
288,216
96,072
96,072
96,072
288,216
Total
755,460
45,746
288,216
-38,817
-402,444
648,161
345,294
206,795
96,072
648,161
Unit Bonus Plan
MUSD
2013
2014
2015
2016
2017
2017
–
1.5
1.9
2.4
1.7
7.5
2016
2.0
2.0
3.6
2.5
–
10.1
LTIP awards are recognised in the fi nancial statements pro rata over their vesting period. The total carrying amount for the provision for the
Unit Bonus Plan including social costs at 31 December 2017 amounted to MUSD 9.7 (MUSD 10.1). The provision is calculated based on Lundin
Petroleum’s share price at the balance sheet date. The closing share price at 31 December 2017 was SEK 187.80.
Performance Based Incentive Plan
The 2015, 2016 and 2017 AGMs resolved a long-term performance based incentive plan in respect of Group management and a number of key
employees.
The 2017 plan is effective from 1 July 2017 and the 2017 award has been accounted for from the second half of 2017. The awards made in
respect of 2017 vest over three years from 1 July 2017 subject to certain performance conditions being met. Each award was fair valued at the
date of grant at SEK 100.10 using an option pricing model.
The 2016 plan is effective from 1 July 2016 and vest over three years from 1 July 2016 subject to certain performance conditions being met. The
outstanding number of awards increased compared to the original number of awards as a result of the dividend distribution of the IPC business
as per the plan rules. Each original award was fair valued at the date of grant at SEK 89.30 using an option pricing model. Awards given to
employees now employed by IPC following the IPC spin-off have been pro-rated until the spin-off date 24 April 2017.
The 2015 plan is effective from 1 July 2015 and vest over three years from 1 July 2015 subject to certain performance conditions being met. The
outstanding number of awards increased compared to the original number of awards as a result of the dividend distribution of the IPC business
as per the plan rules. Each original award was fair valued at the date of grant at SEK 91.40 using an option pricing model. Awards given to
employees now employed by IPC following the IPC spin-off have been pro-rated until the spin-off date 24 April 2017.
92
Lundin Petroleum Annual Report 2017
Note 29 continued
The following table shows the number of units issued under the LTIPs, the amount outstanding as at 31 December 2017 and the year in which
the units will vest.
Performance Based Incentive Plan
Outstanding at the beginning of the period
Recalculation awards following IPC spin-off / dividend
Awarded during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Vesting date
30 June 2018
30 June 2019
30 June 2020
Outstanding at the end of the period
2014
602,554
38,077
–
–
-640,631
–
–
–
–
–
2015
684,372
38,310
–
-76,179
–
646,503
646,503
–
–
646,503
Plan
2016
512,595
24,615
–
-130,308
–
406,902
–
406,902
–
406,902
2017
–
–
355,954
–
–
355,954
–
–
355,954
355,954
Total
1,799,521
101,002
355,954
-206,487
-640,631
1,409,359
646,503
406,902
355,954
1,409,359
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
2017
2017
0.8
1.5
1.4
0.7
4.4
2016
1.5
1.9
0.9
–
4.3
LTIP awards are recognised in the fi nancial statements pro rata over their vesting period. The total effect on equity for the Performance Based
Incentive Plan at 31 December 2017 amounted to MUSD 7.3 (MUSD 7.7). The effect on equity is calculated based on the fair value at date of grant.
Note 30 Remuneration to the Group’s Auditors
TUSD
2017
2016
PwC
Audit fees
Out of which to PricewaterhouseCoopers AB
Audit related
Out of which to PricewaterhouseCoopers AB
Tax advisory services
Out of which to PricewaterhouseCoopers AB
Other fees
Out of which to PricewaterhouseCoopers AB
Total PwC
Out of which to PricewaterhouseCoopers AB
Remuneration to other auditors than PwC
Total audit fees excluding fees for IPC spin-off
Out of which to PricewaterhouseCoopers AB
Fees PwC for IPC spin-off
Out of which to PricewaterhouseCoopers AB
Total audit fees
Out of which to PricewaterhouseCoopers AB
501
242
44
20
23
–
18
7
586
269
79
665
269
471
–
1,136
269
830
200
84
–
24
–
36
6
974
206
41
1,015
206
–
–
1,015
206
Audit fees include the review of the 2017 half year report. Audit related costs include special assignments such as licence audits and
PSC audits.
Note 31 Subsequent Events
There are no subsequent events to report.
Lundin Petroleum Annual Report 2017
93
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 46,648.6 (MSEK -103.3) for the year.
The result included MSEK 46,542.9 fi nancial income as a result of an internal restructuring prior to the IPC spin-off. The result
excluding this fi nancial income amounts to MSEK 105.7 (MSEK -103.3).
The result included general and administrative expenses of MSEK 146.7 (MSEK 106.6) and net fi nance income of MSEK 243.1
(MSEK -0.5) when excluding the fi nance income as a result of the internal restructuring. Net fi nancial income includes MSEK 238.6
(MSEK –) dividend received from a subsidiary.
The fi nancial income as a result of the internal restructuring consists of received dividends from a subsidiary and results on the sale
of subsidiary companies offset by the charges in relation to the IPC spin-off. As part of the internal restructuring that was completed
on 7 April 2017, Lundin Petroleum AB sold all the shares held in two subsidiary companies and acquired all the shares of a newly
incorporated company that holds all the shares in Lundin Norway AS. These transactions increased the shares in subsidiaries of the
Company to MSEK 55,118.9.
Pledged assets of MSEK 55,118.9 (MSEK 6,740.3) relate to the carrying value of the pledge of the shares in respect of the fi nancing
facility entered into by its fully-owned subsidiary Lundin Petroleum Holding BV, see also Note 24 in the notes to the fi nancial
statements of the Group.
In June 2010, the Swedish International Public Prosecution Offi ce commenced an investigation into alleged violations of international
humanitarian law in Sudan during 1997–2003. The Company has cooperated extensively and proactively with the Prosecution Offi ce
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 Offi ce and were notifi ed 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 will cooperate
with the Prosecution Offi ce’s investigation. Lundin Petroleum strongly believes that it was a force for good in Sudan and that its
activities contributed to the improvement of the lives of the people of Sudan.
Accounting Policies
The fi nancial statements of the Parent Company are prepared in accordance with accounting policies generally accepted in Sweden,
applying RFR 2 issued by the Swedish Financial Reporting Board and the Annual Accounts Act (1995: 1554). RFR 2 requires the
Parent Company to use similar accounting policies as for the Group, i.e. IFRS to the extent allowed by RFR 2. The Parent Company’s
accounting policies do not in any material respect deviate from the Group policies, see pages 64–69.
94
Lundin Petroleum Annual Report 2017
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 fi nancial investments
Finance income
Finance cost
Profi t/loss before tax
Income tax
Net result
Note
1
2
3
2017
9.4
-146.7
-137.3
46,786.4
-0.5
46,785.9
46,648.6
–
46,648.6
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
2017
46,648.6
–
46,648.6
46,648.6
46,648.6
2016
3.8
-106.6
-102.8
3.5
-4.0
-0.5
-103.3
–
-103.3
2016
-103.3
–
-103.3
-103.3
-103.3
Lundin Petroleum Annual Report 2017
95
FINANCIAL REPORT
Parent Company Balance Sheet
for the Financial Year Ended 31 December
Expressed in MSEK
ASSETS
Non-current assets
Shares in subsidiaries
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
Payables to Group companies
Accrued expenses and prepaid income
Other liabilities
Total current liabilities
Note
2017
2016
9
4
5
55,118.9
55,118.9
1.5
6.0
4.8
12.3
12,256.6
12,256.6
5.4
15.3
3.2
23.9
55,131.2
12,280.5
3.5
861.3
864.8
6,599.2
824.0
46,648.6
54,071.8
54,936.6
0.6
–
0.6
3.0
181.9
8.7
0.4
194.0
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
TOTAL EQUITY AND LIABILITIES
55,131.2
12,280.5
96
Lundin Petroleum Annual Report 2017
FINANCIAL REPORT
Parent Company Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MSEK
Cash fl ow from operations
Net result
Adjustment for
Foreign currency exchange loss
Internal restructuring
Other
Changes in working capital:
Changes in current assets
Changes in current liabilities
Total cash fl ow from operations activities
Cash fl ow from fi nancing activities
Changes in long-term liabilities
Purchase of own shares
Proceeds from share issues /treasury shares
Total cash fl ow from fi nancing 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
2017
46,648.6
-1.6
-46,606.6
–
13.2
176.0
229.6
–
-229.6
–
-229.6
–
3.2
1.6
4.8
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
Parent Company Statement of Changes in Equity
for the Financial Year Ended 31 December
Expressed in MSEK
Balance at 1 January 2016
Total comprehensive income
Transactions with owners
Issuance of shares/sale of treasury shares
Balance at 31 December 2016
Total comprehensive income
Transactions with owners
Purchase of own shares
Distributions
Total transactions with owners
Balance at 31 December 2017
Restricted Equity
Unrestricted Equity
Share
capital
Statutory
reserve
Other
reserves
Retained
earnings
3.2
–
0.31
3.5
–
–
–
–
3.5
861.3
–
–
861.3
–
–
–
–
861.3
2,295.3
–
4,533.51
6,828.8
–
-299.6
–
-299.6
6,599.2
4,622.6
-103.3
–
4,519.3
46,648.6
–
-3,695.3
-3,695.3
47,472.6
Total
6,917.9
-103.3
4,533.5
11,348.1
46,648.6
-299.6
3,695.3
-3,924.9
Total
equity
7,782.4
-103.3
4,533.8
12,212.9
46,648.6
-299.6
3,695.3
-3,924.9
54,071.8
54,936.6
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.
Lundin Petroleum Annual Report 2017
97
FINANCIAL REPORT
Notes to the Financial Statements
of the Parent Company
Note 1 Finance Income
Note 5 Accrued Expenses and Prepaid Income
MSEK
2017
2016
MSEK
Result on internal restructuring
Dividend
Guarantee fees
Foreign exchange gain
46,542.9
238.6
3.3
1.6
46,786.4
–
–
3.5
–
3.5
Social security costs
Directors fees
Audit fees
Outside services
31 December
2017
31 December
2016
1.5
1.3
0.6
5.0
8.7
1.6
0.5
0.8
11.5
14.4
The result on the internal restructuring consists of received
dividends from a subsidiary (MSEK 54,656.2), the result on the
sale of subsidiary companies (MSEK -8,049.1) and the charges in
relation to the IPC spin-off (MSEK 64.2).
Note 2 Finance Costs
MSEK
2017
2016
Interest expenses Group
Foreign exchange losses, net
0.5
–
0.5
1.8
2.2
4.0
Note 3 Income Tax
MSEK
Net result before tax
Tax calculated at the corporate tax rate
in Sweden 22% (22%)
2017
46,648.6
-10,262.7
Tax effect of received dividend
12,076.9
Tax effect of expenses non-deductible for
tax purposes
Increase unrecorded tax losses
-1,775.7
-38.5
–
2016
-103.3
22.7
–
-1.9
-20.8
–
Note 4 Other Receivables
MSEK
Due from Group companies
VAT receivable
Other
31 December
2017
31 December
2016
Note 6 Pledged Assets, Contingent Liabilities and
Assets
Pledged assets relate to the carrying value of the pledge of the
shares in respect of the fi nancing facility entered into by the
wholly-owned subsidiary Lundin Petroleum Holding BV, see
Note 23 in the notes to the fi nancial statements of the Group.
Note 7 Remuneration to the Auditor
MSEK
PwC
Audit fees
Audit related
2017
2016
2.1
0.1
2.2
1.6
–
1.6
There has been no remuneration to any auditors other than
PricewaterhouseCoopers AB.
Note 8 Proposed Disposition of Unappropriated
Earnings
The Annual General Meeting 2018 has an unrestricted equity at
its disposal of MSEK 54,071.8, including the net result for the
year of MSEK 46,648.6.
The Board of Directors propose that the Annual General Meeting
dispose of the unrestricted equity as follows:
0.7
1.2
4.1
6.0
11.7
0.7
2.9
15.3
MSEK
Dividend payable at 4.00 SEK per share 1
Brought forward
Unrestricted equity
1,354.1
52,717.7
54,071.8
1 Dividend is based on the number of shares outstanding at the record
date and the total dividend amount may change by the record date
depending on repurchases of own shares.
98
Lundin Petroleum Annual Report 2017
Note 9 Shares in Subsidiaries
Registration
number
Registered offi ce
Total number
of shares
issued
Percentage
owned
Nominal
value
per share
Book
amount
31 Dec
2017
MSEK
Directly owned
Lundin Petroleum Holding BV
68246226
The Hague, Netherlands
100
100
EUR 1.00
55,118.9
Indirectly owned
Lundin Norway AS
986 209 409
Lysaker, Norway
4,930,000
100
NOK 100.00
1,000
100
CHF 100.00
Lundin Petroleum Marketing SA
660.6.133.015-6
Lundin Petroleum SA
660.0.330.999-0
Lundin Petroleum Services BV
Lundin Russia BV
- Lundin Russia Ltd.
- Culmore Holding Ltd
- Lundin Lagansky BV
68359985
27290574
656565-4
162316
27292984
Collonge-Bellerive,
Switzerland
Collonge-Bellerive,
Switzerland
The Hague, Netherlands
The Hague, Netherlands
1,000
100
18,000
Vancouver, Canada
55,855,414
Nicosia, Cyprus
The Hague, Netherlands
1,002
18,000
100
CHF 100.00
100
100
100
100
100
EUR 1.00
EUR 1.00
CAD 1.00
CYP 1.00
EUR 1.00
Lundin Petroleum Annual Report 2017
99
FINANCIAL REPORT
Board Assurance
As at 23 March 2018, the Board of Directors and the President of Lundin Petroleum AB have adopted this annual report for the
fi nancial year ended 31 December 2017.
Board Assurance
The Board of Directors and the President & CEO certify that the annual fi nancial report for the Parent Company has been prepared
in accordance with generally accepted accounting principles in Sweden and that the consolidated accounts have been prepared in
accordance with IFRS as adopted by the EU and give a true and fair view of the fi nancial position and profi t of the Company and the
Group and provides a fair review of the performance of the Group’s and Parent Company’s business, and describes the principal risks
and uncertainties that the Company and the companies in the Group face.
Stockholm, 23 March 2018
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
Jakob Thomasen
Board Member
Cecilia Vieweg
Board Member
Our audit report was issued on March 26, 2018
PricewaterhouseCoopers AB
Johan Rippe
Authorised Public Accountant
Lead Partner
Johan Malmqvist
Authorised Public Accountant
100
Lundin Petroleum Annual Report 2017
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
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.
Opinions
We have audited the annual accounts and consolidated accounts of
Lundin Petroleum AB (publ) for the year 2017. The annual accounts
and consolidated accounts of the company are included on pages
46–100 in this document.
We tailored the scope of our audit in order to perform suffi cient work
to enable us to provide an opinion on the consolidated fi nancial
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.
In our opinion, the annual accounts have been prepared in
accordance with the Annual Accounts Act and present fairly, in all
material respects, the fi nancial position of parent company as of 31
December 2017 and its fi nancial performance and cash fl ow for the
year then ended in accordance with the Annual Accounts Act. The
consolidated accounts have been prepared in accordance with the
Annual Accounts Act and present fairly, in all material respects, the
fi nancial position of the group as of 31 December 2017 and their
fi nancial performance and cash fl ow 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.
Our opinions in this report on the the annual accounts and
consolidated accounts are consistent with the content of the
additional report that has been submitted to the parent company’s
audit committee in accordance with the Audit Regulation (537/2014)
Article 11.
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 fulfi lled our ethical responsibilities in accordance with
these requirements. This includes that, based on the best of our
knowledge and belief, no prohibited services referred to in the Audit
Regulation (537/2014) Article 5.1 have been provided to the audited
company or, where applicable, its parent company or its controlled
companies within the EU.
We believe that the audit evidence we have obtained is suffi cient 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 have been located in
Norway, Malaysia, France, the Netherlands and Russia during the
fi nancial year 2017. As per 24 April 2017 a dividend in kind was
executed in the form of shares in the newly formed International
Petroleum Corporation, where the operations in Malaysia, France
and the Netherlands had been placed. Thereafter the operations were
primarily located in Norway during the rest of fi nancial year. We
designed our audit by determining materiality and assessing the risks
of material misstatement in the consolidated fi nancial statements.
In particular, we considered where management made subjective
judgements; for example, in respect of signifi cant accounting
estimates that involved making assumptions and considering future
events that are inherently uncertain. As in all of our audits, we also
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
offi ces. Following the group’s organisation certain processes for
accounting and fi nancial reporting are 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 specifi ed 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 specifi ed audit
procedures in the Netherlands. For entities considered to be of
insignifi cant 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 management from Norway including physical
visits to the Norwegian offi ce location.
We have obtained reporting from our component auditors at two
occasions during 2017 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, 2017 and after
the year-end audit of the fi nancial year 2017.
Materiality
The scope of our audit was infl uenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the fi nancial 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 infl uence the economic decisions of users
taken on the basis of the consolidated fi nancial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall group
materiality for the consolidated fi nancial 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 fi nancial statements as a
whole.
Key audit matters
Key audit matters of the audit are those matters that, in our
professional judgment, were of most signifi cance 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.
Lundin Petroleum Annual Report 2017
101
FINANCIAL REPORT | Auditor’s Report
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
MUSD 4,937.1 (MUSD 4,376.4) as per 31 December 2017.
During the year management follows a process to identify potential
indicators of impairment and to the extent that indicators are
identifi ed impairment tests are prepared.
In an impairment test 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 fl ow forecasts, or fair value less
cost of disposal (recoverable amount). The assessment is performed
for each cash generating unit separately both for producing and non-
producing fi elds. Each fi eld, or fi elds with shared infrastructure, in the
development or production phase, typically represents a separate cash
generating unit. For exploration and evaluation assets, the assessment
is generally performed on a fi eld cost centre basis and by exploration
well.
The assessment to identify potential impairment indicators and to
perform impairment tests requires management to exercise signifi cant
judgement as described in the Accounting Policies “Critical accounting
estimates and judgements” as well as in note 10 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 determination of cash
generating units, the Group’s intention to proceed with a future work
programme, the probability of success of future drilling, the size of
proved and probable reserves, short and long term oil prices, future
capital expenditures and operating costs as well as discount and
infl ation rates.
The estimation of oil and natural gas reserves is a signifi cant area of
judgement due to the technical uncertainty in assessing the estimated
quantities. The estimates have a direct impact on depletion charges
and are fundamental to the impairment assessment of oil and gas
properties, but are also an indicator of the future potential of the
Group’s performance.
Following the impairment tests for producing fi elds, impairment
charges were recorded during the second and third quarter of
MUSD 30.6 in total related to the Brynhild fi eld in PL148. The
assessment as per 31 December 2017 concluded that there were no
additional impairment indicators identifi ed for producing fi elds and
no impairment or reversal of impairment was recorded.
As part of the impairment testing process for producing fi elds,
the goodwill of MUSD 128.1 that originates from the Edvard Grieg
transaction in 2016 was also tested for impairment which is in
accordance with the requirement to test goodwill on an annual
basis. Management has concluded that the carrying values could be
supported as per 31 December 2017.
For non-producing fi elds the company has written off MUSD 73.1
during the year as exploration costs.
Refer to pages 55 and 56 in the Directors’ report, pages 65 and 69 in
the Accounting Policies and note 10 in the fi nancial statements for
more information.
For producing fi elds we obtained the Group’s impairment tests
supporting the impairment charges in the second and third quarters as
well as the impairment indicator assessment as per 31 December 2017.
As part of our internal controls work, we evaluated management’s
controls over determining the impairment indicators and the process
by which this was performed. Our internal controls testing supported
management’s conclusion that impairment indicators existed in
the second and third quarters but that there were no additional
impairment indicators triggering the need for further impairment tests
for the Company’s oil and gas assets or goodwill as per 31 December
2017.
Following this assessment we performed testing for the Brynhild fi eld
in PL148 where impairment indicators had existed during the year and
where the carrying value had been fully impaired. In respect of the
impairment model applied by management, we considered and tested
controls around input data to the impairment test and the review and
approval of the impairment calculation.
The assumptions that underpin management’s assessment of
potential impairment indicators and impairment tests are inherently
judgmental. Our audit work therefore assessed and challenged the
reasonableness of management’s key judgements. Specifi cally our
work included, but was not limited to, the following procedures:
· evaluation of the determination of cash generating units;
· testing the model applied by management to assess potential
impairment indicators and to perform impairment tests;
· comparison of short-term oil and gas price assumptions against
external oil and gas price forward curves;
· comparison of long-term oil and gas price assumptions against views
published by brokers, consultancy fi rms and peers;
· comparison of production profi les and proved and probable reserves
to the reserve report prepared by ERC Equipoise Ltd;
· verifi cation of estimated future operating costs and capital
expenditures by agreement to budgets;
· consideration of infl ation and discount rate applied;
· testing of the mathematical accuracy of the model to calculate the
recoverable amount including assessment of the consistency year on
year of the application of policies.
We obtained the estimation of proven and probable reserves certifi ed
by the Group’s external reserves auditor, ERC Equipoise Ltd (ERCE).
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 ERCE as expert, to satisfy
ourselves they were appropriately qualifi ed to carry out the reserves
estimation;
· validation that the reserves estimates were included appropriately
in the Group’s consideration of impairment and in accounting for
depletion charges;
· testing of management’s controls for assessing the validity of the
data included in the ERCE reserve report for depletion charges.
For non-producing oil and gas properties we obtained a listing of
capitalised exploration expenditures by fi eld cost centre and by well
as of December 31, 2017. 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 fi elds and discussed with management.
On a sample basis, we also reconciled and corroborated information
provided on expenditures incurred and wells drilled to license budgets,
resource and value estimates, progress reporting in the joint venture,
future plans and/or well commitments.
102
Lundin Petroleum Annual Report 2017
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 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.
For the year ended 31 December 2017 the current and deferred
income tax expense amounted to MUSD 501.2 (MUSD 64.2) of which
MUSD 501.7 (MUSD 14.2) related to deferred tax.
The group has recognised a net deferred tax liability of MUSD 1,302.2
at December 31, 2017 (MUSD 669.3) that primarily relate to Lundin
Norway AS. This net amount relates to deferred tax liabilities arising
primarily from the tax value of oil and gas assets being lower than the
book value resulting in a temporary difference with offsetting entries
for deferred tax assets that are mainly related to asset retirement
obligations and losses and uplift carried forward that are expected to
be utilised in the future.
As part of the sales transaction for the Brynhild fi eld, the tax basis
for the license was transferred to the buyer. As a result, the related
deferred tax asset of MUSD 143.9 was expensed and presented
together with the consideration from the sale resulting in a net loss of
MUSD 14.4.
Refer to pages 56 and 57 in the Directors’ report, pages 68 and 69 in
the Accounting Policies and note 7 and 8 in the fi nancial statements
for more information.
Estimation of decommissioning and site restoration provisions
The group has recognised site restoration provisions in the amount of
MUSD 414.6 as of December 31, 2017 (MUSD 407.1).
The calculation of decommissioning and site restoration provisions
requires signifi cant management judgement amongst other due to the
inherent complexity in estimating future decommissioning 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 fi elds and
wells on an ongoing basis as installations are made offshore. This
review incorporates the effects of any changes in local regulations,
management’s expected approach to decommissioning, cost estimates,
year of decommissioning, infl ation and discount rates, and the effects
of changes in exchange rates.
Refer to page 57 in the Directors’ report, pages 67–69 in the
Accounting Policies and note 19 in the fi nancial statements for more
information.
The tax calculation is subject to the company’s internal controls. We
tested management’s review control over the detailed tax calculation
and effective tax rate reconciliation, 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 calculation and formulas applied. We reconciled
the tax positions as of December 31, 2017 and December 31, 2016 used
in the calculation to underlying documentation. We examined the
application of the tax regulations and considered the classifi cation of
tax expense including the presentation of net loss from the Brynhild
sales transaction.
Furthermore, we tested the reconciliation of the effective tax 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.
The recorded provisions are subject to the company’s internal controls.
We tested management’s controls over preparation and review of
cost estimates used in calculating the provisions and the review and
approval of the fi nal site restoration provisions.
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 fi eld. We tested mathematical accuracy of the calculations
and reconciled the calculated provision 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. We also corroborated the assumptions to other
assumptions made by the Company including as part of impairment
testing.
For non-operated assets we have assessed the competence and
objectivity of the operator performing the estimate, challenged
the discount rate, year of decommissioning and other assumptions
applied in the calculation and verifi ed that the accounting records
appropriately refl ect the external estimates performed.
Lundin Petroleum Annual Report 2017
103
FINANCIAL REPORT | Auditor’s Report
Key audit matter
How our audit addressed the Key audit matter
Spin-off of International Petroleum Corporation
On 24 April 2017, Lundin Petroleum completed the spin-off of its
assets in Malaysia, France and the Netherlands in the form of a
distribution of the International Petroleum Corporation (IPC) shares
to the Lundin Petroleum shareholders.
The distribution was approved by an Extraordinary General
Meeting in the fi rst quarter 2017 and resulted in a dividend liability
and a decrease of equity of MUSD 410.0 that was accounted for
in the report for the three months ended 31 March 2017. Upon
completion of the distribution that was executed on 24 April
2017 a net gain on of MUSD 51.9 was recorded in the group’s
income statement. This gain is recorded in accordance with IFRIC
17 and represent the difference in book value of the assets being
distributed (net assets in IPC) and the book value of the distribution
liability.
Before the completion of the distribution, a restructuring of the
group was performed which resulted in a dividend income of
MSEK 46,543 in the parent company’s income statement and an
uplift in the value of shares in subsidiaries to MSEK 55,119 in the
parent company’s balance sheet.
We have examined management’s documentation describing the
transactions and collected all relevant documents, approvals and contracts
presented by management.
Our work related to the impact on the group’s fi nancial statements has
included but not been limited to:
· obtaining management’s calculation of the fair value of the distribution
being recorded in the report for the three months period ended 31
March 2017;
· obtaining and evaluating the key assumptions applied by management
in the calculation of the fair value of the distribution, being future
oil prices, proved and probable reserves as well as contingent and
prospective reserves and the discount rate;
· obtaining management’s calculation of the net gain recorded upon
distribution and compared the amounts to relevant supporting
documents;
· testing of the mathematical accuracy of the calculations.
Our work over the impact from the internal restructuring to the parent
company’s income statement and balance sheet included but was not
limited to:
· obtaining all the relevant contracts supporting the internal
restructuring;
· comparing the individual transactions and their impact to contracts and
Refer to pages 48 and 53 in the Directors’ report and note 9 in the
fi nancial statements.
other supporting materials;
· testing of the mathematical accuracy of the calculations.
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 1–27,
and 106-111. The Board of Directors and the Managing Director 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.
In connection with our audit of the annual accounts and
consolidated accounts, our responsibility is to read the information
identifi ed above and consider whether the 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.
Responsibilities of the Board of Directors and the Managing
Director
The Board of Directors and the Managing Director are responsible for
the preparation of the annual accounts and consolidated 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 Managing Director 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 Managing Director 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 Managing Director 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 fi nancial 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 infl uence 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
Revisorsinspektionen’s website www.revisorsinspektionen.se/
revisornsansvar. This description is part of the auditor´s report.
104
Lundin Petroleum Annual Report 2017
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 Managing Director of Lundin Petroleum AB (publ)
for the year 2017 and the proposed appropriations of the company’s
profi t or loss.
We recommend to the general meeting of shareholders that the
profi t be appropriated in accordance with the proposal in the
statutory administration report and that the members of the Board
of Directors and the Managing Director be discharged from liability
for the fi nancial year.
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 Managing Director 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 profi t 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.
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 fulfi lled our ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is suffi cient and
appropriate to provide a basis for our opinions.
Responsibilities of the Board of Directors and the Managing Director
The Board of Directors is responsible for the proposal for
appropriations of the company’s profi t or loss. At the proposal of
a dividend, this includes an assessment of whether the dividend
is justifi able 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 fi nancial situation and ensuring that the company’s
organization is designed so that the accounting, management of
assets and the company’s fi nancial affairs otherwise are controlled
in a reassuring manner. The Managing Director shall manage
the ongoing administration according to the Board of Directors’
guidelines and instructions and among other matters take measures
that are necessary to fulfi ll the company’s accounting in accordance
with law and handle the management of assets in a reassuring
manner.
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 profi t 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 Revisorsinspektionen’s website:
www.revisorsinspektionen.se/revisornsansvar. This description is
part of the auditor´s report.
PricewaterhouseCoopers AB, Torsgatan 21, 113 97 Stockholm, was
appointed by the Annual General meeting on 4 May 2017 and has
been the company’s auditor since the company was listed on the
Stockholm Stock Exchange 6 September, 2001.
Stockholm, 26 March 2018
PricewaterhouseCoopers AB
Johan Rippe
Authorised Public Accountant
Lead Partner
Johan Malmqvist
Authorised Public Accountant
Lundin Petroleum Annual Report 2017
105
ADDITIONAL INFORMATION
Key Financial Data
Lundin Petroleum discloses alternative performance measures as part of its fi nancial statements prepared in accordance with ESMA’s
(European Securities and Markets Authority) guidelines. Defi nitions of the performance measures are provided under the key ratio defi nitions
below.
Financial data from continuing operations
MUSD
Revenue
EBITDA1
Net result
Operating cash fl ow1
Data per share from continuing operations
USD
Shareholders’ equity per share
Operating cash fl ow per share
Cash fl ow from operations per share
Earnings per share
Earnings per share fully diluted
EBITDA per share
EBITDA per share fully diluted
Dividend per share
2017
1,997.0
1,501.5
380.9
1,530.0
-1.03
4.50
3.82
1.13
1.13
4.41
4.40
1.21
2016
950.0
752.5
-399.3
857.9
-0.70
2.63
2.05
-0.79
-0.79
2.31
2.30
–
2015
380.3
246.3
-679.7
558.1
-1.61
1.81
0.77
-2.18
-2.18
0.80
0.79
–
2014
627.2
570.9
-414.8
1,046.9
1.40
3.39
1.43
-1.33
-1.33
1.85
1.84
–
2013
952.4
833.8
60.2
863.8
3.90
2.79
2.23
0.21
0.21
2.69
2.69
–
Number of shares issued at year end
340,386,445
340,386,445
311,070,330
311,070,330
317,910,580
Number of shares in circulation at year end
339,153,135
340,386,445
309,070,330
309,070,330
309,570,330
Weighted average number of shares for the year
340,237,772
325,808,486
309,070,330
309,170,986
310,017,074
Weighted average number of shares for the year
fully diluted
341,380,316
326,738,233
310,019,890
309,475,038
–
Share price
SEK
Share price
Key ratios from continuing operations (%)
Return on equity 2
Return on capital employed
Net debt/equity ratio 2
Equity ratio
Share of risk capital
Interest coverage ratio
Operating cash fl ow/interest ratio
Yield
187.80
198.10
122.60
112.40
125.40
–
22
–
-6
17
6
12
5
–
-9
–
-17
-3
-2
5
n/a
–
-19
–
-10
1
-8
7
n/a
-48
-8
605
9
28
-10
45
n/a
5
15
99
29
53
45
128
n/a
1 Excludes the reported after tax accounting loss of MUSD 14.4 in 2017 on the divestment of a 39 percent working interest in the Brynhild fi eld..
2 As the equity at 31 December 2017, 31 December 2016 and 31 December 2015 is negative, these ratios have not been calculated.
106
Lundin Petroleum Annual Report 2017
ADDITIONAL INFORMATION
Key Ratio Definitions
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation):
Operating profi t before depletion of oil and gas properties, exploration costs, impairment costs, depreciation of other tangible assets and gain
on sale of assets.
Operating cash fl ow:
Revenue less production costs and less current taxes.
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 fl ow per share:
Operating cash fl ow divided by the weighted average number of shares for the year.
Cash fl ow from operations per share:
Cash fl ow from operations in accordance with the consolidated statement of cash fl ow divided by the weighted average number of shares for
the year.
Earnings per share:
Net 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 fi nancial loans divided by the average capital employed
(the average balance sheet total less non-interest bearing liabilities).
Net debt/equity ratio:
Bank loan less cash and cash equivalents divided by shareholders’ equity.
Equity ratio:
Total equity divided by the balance sheet total.
Share of risk capital:
The sum of the total equity and the deferred tax provision divided by the balance sheet total.
Interest coverage ratio:
Result after fi nancial items plus interest expenses plus/less currency exchange differences on fi nancial loans
divided by interest expenses.
Operating cash fl ow/interest ratio:
Revenue less production costs and less current taxes divided by the interest expense for the
year.
Yield:
Dividend per share in relation to quoted share price at the end of the fi nancial year.
Lundin Petroleum Annual Report 2017
107
ADDITIONAL INFORMATION
Five Year Financial Data
Income statement summary 1
MUSD
Revenue from own production
Revenue from third party activities
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Loss from sale of assets
Other cost of sales
Gross profi t/loss
General, administration and depreciation expenses
Operating profi t/loss
Net fi nancial items
Share in result of associated company
Profi t/loss before tax
Income tax
Net result from continuing operations
Net result from discontinued operations
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 fi xed 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
2017
1,693.5
303.5
-164.2
-567.3
-73.1
-30.6
-14.4
-303.3
844.1
-31.7
812.4
70.1
-0.4
882.1
-501.2
380.9
46.5
427.4
431.2
-3.8
427.4
2017
4,950.3
161.3
417.2
5,528.8
-350.8
–
-350.8
1,725.9
3,880.0
273.7
5,528.8
2016
947.9
2.1
-168.4
-386.2
-101.9
-506.1
–
-2.1
-214.7
-30.0
-244.7
-218.8
–
-463.5
64.2
-399.3
-100.0
-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
380.3
–
-104.6
-159.1
-146.5
-526.0
–
–
2014
627.2
–
-11.3
-88.5
-272.2
-400.7
–
–
-555.9
-145.5
-32.8
-588.7
-670.9
–
-1,259.6
579.9
-679.7
-186.6
-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
-48.4
-193.9
-480.0
–
-673.9
259.1
-414.8
-17.1
-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
2013
952.4
–
-85.1
-130.2
-285.4
-81.7
–
–
370.0
-36.8
333.2
-73.2
–
260.0
-199.8
60.2
12.7
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
1 The above table is based on continuing operations only (excluding the discontinued IPC operations following the spin-off in 2017 and excluding
the discontinued Russian onshore assets following the sale in 2014). The result from discontinued operations is reported separately in the income
statement.
108
Lundin Petroleum Annual Report 2017
ADDITIONAL INFORMATION
Reserve Quantity Information
Proved plus probable reserves (2P)
from continuing operations
1 January 2017
Changes during the year
Sales
Revisions
Extensions and discoveries
Production
31 December 2017
1 The year end 2017 2P oil reserves reported include 19.3 MMbbl of NGL’s.
2 The factor of 6,000 is used by the Company to convert one scf to one boe.
Proved plus probable plus possible reserves (3P)
from continuing operations
1 January 2017
Changes during the year
Sales
Revisions
Extensions and discoveries
Production
31 December 2017
1 The year end 2017 3P oil reserves reported include 23.8 MMbbl of NGL’s.
2 The factor of 6,000 is used by the Company to convert one scf to one boe.
Norway
oil reserves
MMbbl
684.4
-1.7
40.1
2.1
-29.2
695.7 1
Norway
oil reserves
MMbbl
858.0
-2.2
27.1
2.6
-29.2
856.3 1
Norway
gas reserves
Bn scf 2
178.1
–
20.2
1.1
-15.8
183.6
Norway
gas reserves
Bn scf 2
240.8
–
9.2
1.4
-15.8
235.6
Lundin Petroleum Annual Report 2017
109
ADDITIONAL INFORMATION
Definitions and Abbreviations
Reserves defined
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
defi ned 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 defi ned 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 and its Proved plus Probable plus Possible (3P) reserves.
Proved reserves
Probable reserves
Possible reserves
3P Reserves
2P Reserves
Proved reserves are those quantities of petroleum
which, by analysis of geological and engineering
data, can be estimated with reasonable certainty
to be commercially recoverable, from a given
date forward, from known reservoirs and under
current economic conditions, operating methods
and governmental regulations. Proved reserves
can be categorised as developed or undeveloped.
If deterministic methods are used, the term
reasonable certainty is intended to express a high
degree of confi dence that the quantities will be
recovered. If probabilistic methods are used, there
should be at least a 90 percent probability that
the quantities actually recovered will equal or
exceed the estimates.
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 2P reserves. 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.
Possible Reserves are those additional reserves
which analysis of geoscience and engineering
data suggest are less likely to be recoverable
than Probable reserves. The total quantities
ultimately recovered from the project have
a low probability to exceed the sum of 3P
reserves, which is equivalent to the high
estimate scenario. In this context, when
probabilistic methods are used, there should be
at least a 10 percent probability that the actual
quantities recovered will equal or exceed the
3P estimate.
Resources defined
Contingent resources
Contingent resources are those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations, by application of
development projects, but which are not currently considered to be commercially
recoverable due to one or more contingencies. 2C is the best estimate of the
quantity that will actually be recovered from the accumulation by the project. It is
the most realistic assessment of recoverable quantities if only a single result were
reported. If probabilistic methods are used, there should be at least 50 percent
probability (P50) that the quantities actually recovered will equal or exceed the
best estimate. Unless stated otherwise, Lundin Petroleum reports its 2C contingent
resources.
Prospective resources
Prospective resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable
from undiscovered accumulations by application of future
development projects. Prospective resources have both an
associated chance of discovery and chance of development.
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 equivalent
bbl
bcf
Bn
boe
boepd
bopd
Bn boe
Mbbl
Mboe
Mboepd Thousand barrels of oil equivalent per day
MMboe Million barrels of oil equivalent
MMbbl Million barrels
MMbopd Million barrels of oil per day
Mcf
MMscf Million standard cubic feet
Billion standard cubic feet
Bn scf
Thousand cubic feet
110
Lundin Petroleum Annual Report 2017
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
ADDITIONAL INFORMATION
Share Data
Share data
Since Lundin Petroleum was incorporated in May 2001 and up to 31 December 2017 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
Lundin Petroleum Annual Report 2017
111
ADDITIONAL INFORMATION
Shareholder Information
Lundin Petroleum will publish the following interim reports:
· 2 May 2018
· 31 July 2018
· 7 November 2018
· 31 January 2019
Three month report (January – March 2018)
Six month report (January – June 2018)
Nine month report (January – September 2018)
Year end report
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 fi nancial year. All shareholders who are registered
in the shareholders’ register and who have duly notifi ed 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 3 May 2018 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 26 April 2018; and
· notify Lundin Petroleum of their intention to attend the meeting no later than Thursday 26 April 2018.
Confi rmation of attendance
· in writing to Lundin Petroleum AB, c/o Computershare AB, P.O. Box 610, SE 182 16 Danderyd, Sweden
· by telephone: +46 8 518 01 554
· 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
26 April 2018.
112
Lundin Petroleum Annual Report 2017
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 29 March 2018.
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 refl ect conclusions that
are based on certain assumptions that the reserves and resources can be economically exploited. Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”,
“may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions)
are not statements of historical fact and may be “forward-looking statements”. Forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated
in such forward-looking statements. No assurance can be given that these expectations and assumptions will prove to be correct
and such forward-looking statements should not be relied upon. These statements speak only as on the date of the information and
the Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required
by applicable laws. These forward-looking statements involve risks and uncertainties relating to, among other things, operational
risks (including exploration and development risks), productions costs, availability of drilling equipment, reliance on key personnel,
reserve estimates, health, safety and environmental issues, legal risks and regulatory changes, competition, geopolitical risk, and
fi nancial risks. These risks and uncertainties are described in more detail under the heading “Risks and Risk Management” and
elsewhere in the Company’s annual report. Readers are cautioned that the foregoing list of risk factors should not be construed
as exhaustive. Actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-
looking statements are expressly qualifi ed by this cautionary statement.
i
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Lundin Petroleum Annual Report 2017
113
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
114
Lundin Petroleum Annual Report 2017