ANNUAL REPORT 2020
AR
resilience
sustainability
growth
2020
Lundin Energy is an experienced
Nordic oil and gas company that
explores for, develops and produces
resources economically, efficiently
and responsibly. We focus on
value creation for our shareholders
and wider stakeholders through
three strategic pillars: Resilience,
Sustainability and Growth. Our high
quality, low cost assets mean we are
resilient to oil price volatility, and our
organic growth strategy, combined
with our sustainable approach and
commitment to decarbonisation,
firmly establishes our leadership role
in a lower carbon energy future.
Annual Report 2020
Introduction
Highlights 2020
CEO’s review
Words from the Chairman
Directors’ Report
Corporate structure
Operational and financial review
Share information
Risk management
Corporate Governance Report
Financial Statements and Notes
1
2
3
4
5
14
16
19
38
39
44
Financial summary
Financial statements of the Group
Accounting policies
Notes to the financial statements of
the Group
50
Financial statements of the Parent Company 73
Notes to the financial statements of the
Parent Company
Board assurance
Auditor’s report
77
79
80
Additional Information
Key financial data
Relevant reconciliations of alternative
performance measures
Key ratio definitions
Five year financial data
Reserve and resource quantity information
Investments in joint operations
Definitions and abbreviations
Share data
Shareholder information
83
84
85
86
87
88
90
91
92
Sustainability Report 2020
Read more about Lundin Energy’s performance
and management approach on environmental,
social and governance issues in the Sustainability
Report available on www.lundin-energy.com.
This report constitutes the Annual Report for Lundin
Energy AB (publ), company registration number
556610-8055.
Lundin Energy AB (“Lundin Energy” or “the Company”)
is a Swedish public limited liability company listed on
Nasdaq Stockholm with ticker LUNE.
Highlights 2020
• Strong financial performance with free cash f low generation of MUSD 448, operating cost below guidance at
USD 2.69 per boe and reduced net debt to USD 3.9 billion
• Balance sheet re-financed with USD 5 billion corporate facility with significantly improved terms
• Board of Directors propose to increase 2020 dividend by 80 percent to USD 1.80 per share corresponding to
MUSD 512, raising it back to the original 2019 dividend proposal pre-COVID-19
• Record quarterly production in the fourth quarter of 185 Mboepd and 2021 production guidance set between
170 to 190 Mboepd
• Johan Sverdrup Phase 1 plateau production raised to 500 Mbopd gross, with expectation to increase up to
535 Mbopd by mid-2021
• Edvard Grieg reserves increased by 50 MMboe to 350 MMboe gross 2P ultimate recovery, extending plateau by a
further year to late 2023
• Delivering growth with resource additions of 210 percent of production in 2020 and pipeline of potential new
projects with net resources of approximately 200 MMboe being matured for development within the temporary
tax incentives
• Acceleration of Decarbonisation Strategy achieving carbon neutrality from 2025 from operational emissions
Production in Mboepd
Revenue and other income in MUSD
CFFO in MUSD
Per share in USD
EBITDAX in MUSD1
Per share in USD1
Free cash flow in MUSD
Per share in USD
Net result in MUSD
Per share in USD
Adjusted net result in MUSD
Per share in USD
Net debt in MUSD
2020
164.5
2,564.4
1,528.0
5.38
2,140.2
7.53
448.2
1.58
384.2
1.35
280.0
0.99
2019
93.3
2,948.7
1,378.2
4.36
1,918.4
6.07
1,271.7
4.03
824.9
2.61
252.7
0.80
3,911.5
4,006.7
1 Excludes the reported after tax accounting gain of MUSD 756.7 in 2019 on the divestment of a 2.6 percent working interest in the Johan Sverdrup
project.
Lundin Energy Annual Report 2020
1
INTRODUCTION
CEO’s review
The past year was incredibly challenging
for all, with the impact of COVID-19 on
people’s health, society more widely and
the global economy.
We know that some of these challenges will continue through
2021 and at Lundin Energy we continue to handle any
impact with agility and flexibility, safeguarding our people's
well-being whilst keeping our main business priorities on
course. Thanks to the hard work of our dedicated team, I am
pleased to report that in 2020 Lundin Energy delivered strong
results and our key projects remain on track, despite the
impact of COVID-19 and unprecedented oil price volatility,
demonstrating the resilience of our industry leading low-cost
business.
As I step into the CEO role of this exciting Company, we are in
strong shape and well placed for our next phase of growth. Our
main strategy will continue to be organic growth focused value
creation, complemented by industry leading low costs and low
carbon emissions. This powerful combination positions us well
to deliver resilient, sustainable, growth into the future.
Our world class assets continue to outperform, with 2020
production at the top of the original guidance range and a
record of 185 Mboepd in the fourth quarter. Edvard Grieg
reserves were raised to 350 MMboe gross, almost double the
original project sanction level. Alongside the Solveig and
Rolvsnes tie-back developments, which will start-up in 2021,
this extends the production plateau to end 2023, which I
anticipate will go further with upsides and area exploration
opportunities. Johan Sverdrup continues to deliver good news,
with Phase 1 reaching plateau production ahead of schedule
and the facilities capacity being lifted significantly with an
expectation of reaching up to 535 Mbopd gross from mid-2021.
The full field plateau, when Phase 2 starts up in the fourth
quarter of 2022, should now increase to 720 Mbopd. The result
of both these factors is that the Company’s production is set to
exceed 200 Mboepd by 2023.
Our growth strategy continues to deliver results, with total
resource additions in 2020 of over two times our produced
volumes. A pipeline of nine potential new projects, accelerated
by the recent tax incentives, are being progressed towards
development. And we remain one of the most active explorers
in Norway, continuing to drill through the oil price cycle.
grow the business. This is underpinned by long-term operating
costs of USD 3 to 4 per barrel and free cash flow break-
even of approximately USD 10 per barrel, before dividends
and averaged over the next six years, making the business
resilient to low oil prices. Liquidity was further strengthened
with the successful refinancing of the business with a
USD 5 billion committed corporate facility with significantly
improved terms. I am pleased that the Board of Directors has
recommended a 80 percent increased dividend of USD 1.80
per share (in total MUSD 512), clearly demonstrating our
commitment to sustain and increase shareholder returns. The
Company's policy remains to pay a sustainable dividend even
below an oil price of USD 50 per barrel.
In 2020 we have also delivered on our Decarbonisation
Strategy, which clearly sets out our path to become a carbon
neutral business in the production of our barrels. It is
supported by real action, with the commitment of MUSD 750
to reduce carbon emissions through the electrification of our
key assets using power from shore, investments in renewable
energy to offset and replace the electricity we use and natural
carbon capture projects. It continues to develop at pace and we
are on track to achieve industry leading low carbon intensity
of less than 2 kg CO2 per barrel by 2023. We can therefore
now achieve carbon neutrality from 2025, as one of the first
companies to do so in the upstream industry.
Looking forward I am excited by the growth outlook for the
business coupled with delivering some of the best barrels
in the world: lower carbon, efficient, safe and responsibly
produced. Showing we can deliver both profitable economic
growth as well as environmental benefits, positioning us as an
industry leader in the energy transition.
Such great results, during these challenging times, would not
have been possible without my colleagues, to whom I express
my sincerest thanks for their hard work and commitment. I
would also like to express my deep gratitude to Alex Schneiter,
for providing exceptional leadership at the helm over the
past five years as CEO. His foresight and ambition has meant
that Lundin Energy is, and will continue to be, an industry
leader. Finally, I would also like to thank our shareholders,
stakeholders and the Board of Directors for your continued
strong support.
We have a big programme for 2021 and I very much look
forward to reporting on our activities in what is shaping up to
be another exciting year for Lundin Energy!
Financially we had a strong year, despite record low oil prices,
delivering free cash flow of over 1.4 times our dividend
payments, whilst at the same time maintaining investment to
Nick Walker
President and CEO
2
Lundin Energy Annual Report 2020
Words from the Chairman
As we moved from 2020 to 2021
the infection rates of the COVID-19
virus were still high across the world.
Lockdowns were being extended and
new measures being introduced. As the
current wave of the pandemic continues
we can expect another year of economic
challenges around the world.
However, it is important we stay hopeful and thanks to the
introduction of several vaccines there is light at the end of
the tunnel. We wait to see the efficacy of these vaccines,
especially with new strains and of course the logistics of mass
vaccinations have to be overcome, but Israel for example
vaccinated more than 10 percent of the population in less than
two weeks. This will hopefully allow individuals, companies
and countries to get back on their feet and able to become
socially and economically active again for the benefit of all.
Within the energy sector, OPEC+ is showing real signs of
discipline and a true willingness to stabilise the market for the
benefit of both producers and consumers. A Brent price around
USD 60 seems to be holding without encouraging uneconomic
and environmentally unfriendly projects from being
sanctioned. The industry has been able to adapt to many new
situations due mainly to the volatility of the market but now it
is facing an even greater challenge which is to be accepted as a
socially and environmentally responsible actor.
The question is not whether the world needs oil and gas
resources to allow humanity to prosper and improve living
conditions for all; it does. The question is whether these
resources can be developed and produced in an economically,
environmentally and socially sound manner. At Lundin Energy
we believe we have the answer; yes, we can.
As of 1st January 2021 Nick Walker took over from Alex
Schneiter as CEO. The Board of Directors and I very much look
forward to working with Nick in his new capacity as CEO.
With his expert knowledge, not only of our assets but the
offshore oil and gas industry as a whole, he is the ideal leader
to take the Company into the next, exciting phase of our
organic growth story and as one of the first E&P companies to
reach our goal of becoming carbon neutral in our operations
from 2025.
Alex has played a major role in the success of the Company
not just as CEO, but throughout his career with Lundin
Energy and the wider Lundin Group, for almost 30 years. His
contribution has been outstanding, both as a technical expert
and explorer, and as a CEO and leader of the teams across all
the jurisdictions in which we have operated. I wish him all the
best in his future endeavours and look forward to continuing
to work with him on the Board of Directors.
On behalf of the Board of Directors I would also like to say how
sad we were to hear of the passing of Hans Christen Rønnevik
in early 2021. Hans Christen was not only a true pioneer in
the early development of the oil and gas industry in Norway,
but was an architect of the original success of Lundin Energy
there. It was he who developed the model for exploration of
the Utsira High and, with his team, discovered both Edvard
Grieg and Johan Sverdrup. Whilst he will be missed by all who
knew him, his legacy will continue for decades to come.
Finally I would like to thank all our devoted and loyal
employees for their dedication and hard work without
which we would not be in our current position as best in
class with such an amazing asset base. And to you my fellow
shareholders and stakeholders, thank you for sticking with us
and for being part of this great adventure.
Ian H. Lundin
Chairman of the Board
Lundin Energy Annual Report 2020
3
DIRECTORS' REPORT
Directors’ Report
Lundin Energy AB (publ) Reg No. 556610-8055
The address of Lundin Energy AB’s registered office is
Hovslagargatan 5, Stockholm, Sweden.
Lundin Energy is an independent oil and gas exploration and
production company with operations focused on Norway.
The Parent Company has no foreign branches.
Changes in the Group
In January 2020, Lundin Energy completed a transaction
with OX2 AB (OX2) to acquire a 100 percent interest in the
Metsälamminkangas (MLK) wind farm project, in mid Finland. In
March 2020, Lundin Energy completed a transaction with Sval
Energi AS (Sval), a portfolio company of HitecVision, to farm
down 50 percent of its MLK wind farm project. The 50 percent
interest in MLK is recognised as an investment in a joint venture
in the consolidated accounts of the Group.
In June 2020, Lundin Energy completed a transaction with
Sognekraft AS to acquire a 50 percent non-operated interest in
the Leikanger hydropower project, in mid-west Norway. The
50 percent interest in Leikanger is recognised as an investment
in a joint venture in the consolidated accounts of the Group.
Corporate structure as at 31 December 2020
Lundin Energy AB (S)
Lundin Energy Holding BV (N)
Lundin Energy SA (Sw)
Lundin Energy
Marketing SA (Sw)
Lundin Energy
Services BV (N)
Jurisdiction
(F)
(N)
(No)
(S)
(Sw)
Finland
Netherlands
Norway
Sweden
Switzerland
Lundin Energy
Norway AS (No)
Lundin Energy Renewables
Holding BV (N)
Lundin Energy MLK BV (N)
Metsälamminkangas Wind Oy (F)
Leikanger Kraft AS (No)
Note: The Group structure shows significant subsidiaries only.
See the Parent Company Financial Statements Note 8 for full legal
names and all subsidiaries.
Subsidiaries are 100% owned unless otherwise stated.
4
Lundin Energy Annual Report 2020
50%50% Operational review
Production in Mboepd
2020
2019
All the reported numbers and updates in the operational review
relate to the financial year ended 31 December 2020, unless
otherwise specified.
COVID-19 crisis and low oil price response
The COVID-19 crisis, its economic impact and the oil price
collapse led to a challenging market backdrop during 2020. The
main focus of the Company’s response has been, and continues
to be, on reducing the risk of the virus spreading in the
operations and safeguarding the well-being of the Company’s
employees and contractors, whilst at the same time minimising
the potential impact on the business. To date there have been
no disruptions to production due to the COVID-19 situation.
Detailed contingency plans have been established to mitigate
the risk, a key element of which is that all personnel visiting the
Company’s operated production and drilling sites are now tested
for the virus before travelling offshore.
Lundin Energy has high quality, low cost assets, which are
resilient in a low oil price environment. Nevertheless, the
Company took steps to defer activity and reduce spend,
where it did not impact safety, asset integrity or production,
in order to further strengthen the financial resilience of the
business. Total expenditure reductions and deferrals in 2020
were over MUSD 360 from original guidance, including capital
expenditures, operating costs and G&A.
Reserves and resources
Lundin Energy has 671 million barrels of oil equivalent (MMboe)
of proved plus probable net reserves (2P) and 826 MMboe
of proved plus probable plus possible net reserves (3P) as at
31 December 2020, as certified by an independent third party.
Lundin Energy has additional oil and gas resources which
classify as contingent resources (2C) and the best estimate
net contingent resources amounted to 275 MMboe as at
31 December 2020. The total resource, which is 2P reserves plus
2C resources, are 946 MMboe as at 31 December 2020. For more
information see page 87.
Production
Production was 164.5 Mboepd, which was above the upper end
of the updated guidance range for the year of between 161 and
163 Mboepd, and at the top end of the original guidance range
of between 145 and 165 Mboepd. Fourth quarter production
was 185.1 Mboepd due to increased facilities capacity and high
uptime performance at Edvard Grieg and Johan Sverdrup.
In May 2020, the Norwegian Government announced oil
production restriction measures as a response to the oil price
collapse and oversupply in the global market. However, in the
fourth quarter 2020, the authorities increased the production
permits for certain fields, which benefitted the Johan Sverdrup,
Edvard Grieg and Alvheim fields.
Operating cost, including netting off tariff income, was USD
2.69 per boe, which is below the updated guidance of USD 2.80
per boe.
Norway
Crude oil
Gas
Total production
Production in
Mboepd
Johan Sverdrup
Edvard Grieg
Ivar Aasen
Alvheim Area
WI1
20%
65%
1.385%
15–35%
Quantity in Mboepd
1 Lundin Energy’s working interest (WI)
152.7
11.8
164.5
2020
87.6
63.6
0.8
12.5
164.5
83.5
9.8
93.3
2019
14.0
63.7
0.8
14.8
93.3
Production from Johan Sverdrup Phase 1 was two percent ahead
of forecast, driven by a high production efficiency in the fourth
quarter of 99 percent and increased facilities capacity. Four
production wells and one water injection well were completed
during 2020, with results from all five wells in line with or
above expectations. The field is currently producing from 12
wells and reservoir performance continues to be excellent, with
total well capacity exceeding the available facilities capacity. In
the first quarter of 2020, it was announced that due to higher
established processing capacity, the Phase 1 plateau production
rate was increased from 440 thousand barrels of oil per day
(Mbopd) gross to 470 Mbopd. The increased Phase 1 plateau
level of 470 Mbopd was achieved in April 2020, more than
two months earlier than scheduled. In November 2020, it was
announced that following successful capacity testing, the Phase
1 plateau production rate was increased further to 500 Mbopd
and as a result the full field plateau, when Phase 2 comes on
stream, was increased to 720 Mbopd. The Phase 1 processing
capacity is expected to increase further, up to 535 Mbopd,
following modification work to upgrade the water injection
facilities, which is expected to be complete by mid-2021.
Operating costs were USD 1.56 per boe.
Production from the Edvard Grieg field was two percent
ahead of forecast, supported by high production efficiency
in the fourth quarter of 100 percent and increased available
facilities capacity, as a result of Ivar Aasen not utilizing its full
contractual share. In September 2020, the Company announced
a 50 MMboe increase in Edvard Grieg field gross 2P reserves,
lifting the gross 2P ultimate recovery to 350 MMboe. The plateau
production period for the Greater Edvard Grieg Area, which
also includes the Solveig Phase 1 and Rolvsnes Extended Well
Test (EWT) developments, was extended by a further year to
late 2023. The increase in reserves and plateau extension are as
a result of higher oil in place, following an updated reservoir
model which incorporated data referencing the lower water
production levels and a 4D seismic survey, showing the injection
water flood front to be further away from the production wells
than previously predicted. In the third quarter 2020, a planned
ten-day maintenance shutdown took place, to take advantage
of the flexibility offered by the excess production capacity while
production was restricted. The planned three well infill drilling
programme at Edvard Grieg commenced post period end in
Lundin Energy Annual Report 2020
5
DIRECTORS’ REPORT | Operational and financial review
Development
Project
Johan Sverdrup Phase 2
Solveig Phase 1
Rolvsnes EWT
1 Johan Sverdrup full field
WI
20%
65%
80%
Operator
Equinor
Lundin Norway
Lundin Norway
Estimated
gross reserves
2.2–3.2 Bn boe1
57 MMboe
–
Production start
expected
Expected gross
plateau production
Q4 2022
Q3 2021
Q3 2021
720 Mbopd1
30 Mboepd
3 Mboepd
January 2021, using the Rowan Viking jack-up rig. The Edvard
Grieg electrification project, which involves the retirement
of the existing gas turbine power generation system on the
platform, installation of electric boilers to provide process heat
and installation of a power cable from Johan Sverdrup to Edvard
Grieg, is underway and is expected to be operational in late
2022. Operating costs, including netting off tariff income, were
USD 3.47 per boe.
Production from the Ivar Aasen field was four percent below
forecast. Two infill wells have been drilled and are expected to
come on stream in the first quarter 2021.
Production from the Alvheim Area, consisting of the Alvheim,
Volund and Bøyla fields, was in line with forecast reflecting the
production restriction measures imposed by the Norwegian
Government. One infill well has been drilled in the Alvheim
field, which came on stream in November 2020, with results in
line with expectations. In December 2020, drilling commenced
on a second infill well at the Alvheim field, which is expected
to come on stream late first quarter 2021. In the third
quarter 2020, a planned maintenance shutdown took place
to take advantage of excess production capacity, due to the
aforementioned production restrictions. Operating costs for the
Alvheim Area were USD 5.68 per boe.
Development
The development expenditure in 2020 was MUSD 640 which was
slightly below the updated guidance of MUSD 650.
Johan Sverdrup Phase 2
The Johan Sverdrup Phase 2 development project involves
a second processing platform bridge linked to the Phase 1
field centre, subsea facilities to access the Avaldsnes, Kvitsøy
and Geitungen satellite areas of the field, implementation of
full field water alternating gas injection (WAG) for enhanced
recovery and the drilling of 28 additional wells. The drilling
contract for the subsea wells, has been awarded to the Deepsea
Atlantic semi-submersible rig, which was the same rig used for
the Phase 1 pre-drilled wells. The Johan Sverdrup field reserves
are in the range 2.2 to 3.2 billion boe and the ambition of the
partners in the field, is to achieve a recovery factor of more than
70 percent. Due to higher established processing capacity for
Phase 1 of the development, the full field plateau, when Phase
2 comes on stream will be at the increased level of 720 Mbopd.
Full field break-even oil price, including past investments, is
estimated at below USD 20 per boe. The PDO for Phase 2 was
approved in May 2019.
The Phase 2 capital expenditure is estimated at gross NOK 41
billion (nominal), which is unchanged from the Phase 2 PDO
estimate. Construction is ongoing on the second processing
platform topsides and jacket, the new modules to be installed on
the existing Riser Platform and the subsea facilities. There have
been some disruptions to project activities due to COVID-19,
which have been effectively managed and first oil remains on
schedule for the fourth quarter of 2022, with progress now over
50 percent complete.
Johan Sverdrup is being operated with power supplied from
shore and is one of the lowest CO2 emitting offshore fields in
the world with CO2 emissions of less than 0.2 kg per boe in 2020
(below the original forecast of approximately 0.7 kg per boe).
The project also includes expansion of the power from shore
facilities for Phase 2, which includes additional capacity for the
Utsira High Power grid, including for the Edvard Grieg field.
Greater Edvard Grieg Area tie-back projects
Solveig Phase 1 is the first Edvard Grieg subsea tie-back
development and will contribute to keeping the Edvard Grieg
platform on plateau production to the end of 2023. Phase 1 gross
2P reserves are estimated at 57 MMboe and will be developed
with three oil production wells and two water injection wells,
achieving gross peak production of 30 Mboepd. The PDO for
Solveig Phase 1 was approved in June 2019. The capital cost
estimate for the development is within the PDO estimate of
MUSD 810 gross, with an improved break-even oil price of below
20 USD per boe, based on the tax incentives announced in 2020.
The potential for further phases of development, which will
capture the upside potential in the discovered resources, will be
de-risked by production performance from Phase 1.
The Rolvsnes EWT project, which was approved by the
authorities in July 2019, will be conducted through a 3km
subsea tie-back of the existing Rolvsnes horizontal well to
the Edvard Grieg platform. The EWT will provide important
reservoir data to support a decision on the potential Rolvsnes
full field development. The project is being implemented
together with the Solveig project to take advantage of
contracting and implementation synergies.
In order to manage the COVID-19 risk, a decision was taken
to defer activity and both projects are on schedule for revised
first oil in the third quarter 2021. The Edvard Grieg field has
excess well capacity and the deferrals have no impact on the
Company’s net production. Installation of the subsea facilities
commenced in March 2020 and all production and injection
pipelines and the satellite well head structures have been
installed. The start of development drilling operations using
the West Bollsta semi-submersible rig, is scheduled for the
second quarter of 2021. The Solveig Phase 1 project progress is
over 50 percent complete and the Rolvsnes EWT project is over
75 percent complete.
6
Lundin Energy Annual Report 2020
2020 appraisal well programme
Licence
Operator
PL894
Wintershall DEA
WI
10%
Well
Balderbrå
Spud Date
Status
January 2020
Completed February 2020
Appraisal
In February 2020, an appraisal well was completed on the
Balderbrå gas discovery in PL894 in the Norwegian Sea. The
results were below expectations, leading to a reduction in
the resource estimate and a commercial development of the
discovery is not considered viable.
In June 2020, the Norwegian Government, to stimulate
activity, announced temporary tax incentives that apply to
PDO’s submitted for approval before the end of 2022 and
being approved before the end of 2023. These tax incentives
significantly improve project economics and the Company has
nine potential projects that could be accelerated to benefit
from this opportunity. The Company’s net resources for these
potential projects, inclusive of the acquisition announced
in September 2020 of an interest in the Wisting field, totals
approximately 200 MMboe, with the main projects being Solveig
Phase 2 and Segment D, Lille Prinsen, Rolvsnes Full Field, Iving,
Alta, Wisting and the Alvheim Area projects of Kobra East/Gekko
and Frosk. The plan is to accelerate appraisal activities and field
development studies for all of these potential projects, with the
aim of maturing them to PDO within the time-line of the tax
incentives.
Exploration
The re-phased and scaled back 2020 exploration drilling
programme involved five wells, with the drilling of the Merckx
exploration well delayed to 2021. The exploration and appraisal
expenditure in 2020 was MUSD 153, slightly below the updated
guidance of MUSD 160.
In March 2020, the dual target Evra and Iving prospect in
PL820S, located in the Norwegian North Sea close to the Balder
and Ringhorne fields, was drilled yielding two discoveries. At
Iving, an oil and gas discovery was made with gross resources
estimated to be between 12 to 71 MMboe. The well was
production tested in the Skagerrak formation and flowed at
a maximum rate of around 3,000 barrels per day of light 40
degree API oil, constrained by surface equipment. At Evra, the
well encountered gas and oil in Eocene/Paleocene age injectite
reservoir sands, with further appraisal required to determine
the resource potential. Appraisal drilling is planned in 2021
with the aim of developing the discovery as a tie-back to existing
nearby infrastructure. Follow-up prospectivity exists in the
licence and will be evaluated in light of this discovery.
Decarbonisation Strategy and renewable energy
projects
Since formalising the Decarbonisation Strategy in January 2020,
good progress has been made across the business with the net
carbon intensity for all assets of 2.6 kg CO2 per boe, which is
approximately 50 percent lower than the 2019 average, and
lower than the Company’s target of 4 kg CO2 per boe. This
reduction is largely due to Johan Sverdrup coming on stream,
which had a carbon intensity during the reporting period of less
than 0.2 kg CO2 per boe, and a strong focus within the business
of minimising emissions. Lundin Energy’s carbon emissions
performance is set to improve further with the Edvard Grieg
platform being fully electrified in late 2022, when the average
net carbon intensity for all the Company’s producing assets is
expected to be below 2 kg CO2 per boe, approximately one-tenth
of the industry average.
A key driver of the Decarbonisation Strategy is the electrification
of the Company’s main producing assets and the investment
in renewable energy projects to replace the Company’s net
electricity consumption. With electrification of the Utsira High
Area, including the Edvard Grieg and Johan Sverdrup fields by
late 2022, over 95 percent of the Company’s production will be
powered from shore, consuming around 500 GWh per annum.
To partially replace this electricity usage, two investments have
been made in the Leikanger hydropower project in Norway and
the Metsälamminkangas (MLK) wind farm project in Finland.
When fully operational these projects will together generate
around 300 GWh per annum net, which is approximately 60
percent of the Company’s net electricity usage from 2023. It
is Lundin Energy’s strategy to fully replace all net electricity
usage for power from shore by end 2023 with further direct
investments in renewable energy electricity generation.
In 2019, Lundin Energy signed an agreement with Sognekraft AS
to acquire a 50 percent non-operated interest in the Leikanger
2020 exploration well programme
Licence
Operator
WI
Well
Spud Date
Result
PL917
PL820S1
PL609/PL1027
PL960
PL533
ConocoPhillips
MOL
Lundin Energy
Equinor
Lundin Energy
20%
40%
47.5%
20%
40%
Hasselbaink
Evra/Iving
Polmak
Spissa
Bask
January 2020
November 2019
October 2020
November 2020
December 2020
Dry
Two oil & gas discoveries
Dry
Dry
Dry
1 Lundin Energy’s working interest in Licence PL820S will increase to 41 percent on closing of the Wintershall DEA transaction
Lundin Energy Annual Report 2020
7
DIRECTORS’ REPORT | Operational and financial review
run-of-river hydropower project, with the transaction closing in
June 2020. Leikanger will produce around 208 GWh per annum
gross and initial power generation commenced on schedule in
June 2020, with performance ahead of expectations, and the
project will become fully operational in mid-2021. Net electricity
generation from Leikanger during the reporting period was
approximately one third of the Company’s net electricity usage
at Johan Sverdrup over the same period.
In January 2020, Lundin Energy completed a transaction
with OX2 AB (OX2) to acquire a 100 percent interest in the
MLK onshore wind farm project, which will produce around
400 GWh per annum gross once it is operational in early 2022.
The MLK operations will be managed by OX2. In March 2020,
Lundin Energy completed a farm-down of 50 percent of the MLK
project to Sval Energi AS, a portfolio company of HitecVision, on
equivalent terms that the Company acquired the project from
OX2. Construction of the wind farm started in April 2020 and is
progressing according to plan.
Lundin Energy’s total investment commitments in renewable
energy projects amounts to approximately MUSD 160 over
the period 2020/2021. The renewables expenditure in 2020
was MUSD 96 which was in line with the updated guidance of
MUSD 95.
In January 2021, Lundin Energy announced the acceleration
of its Decarbonisation Strategy to achieve carbon neutrality
for operational emissions from 2025, from the original target
of 2030. This change is underpinned by the good progress on
the electrification and renewables projects, coupled with a
partnership with Land Life Company B.V., to invest MUSD 35 to
plant approximately eight million trees between 2021 and 2025,
capturing 2.6 million tonnes of CO2.
Decommissioning
The decommissioning plan for the Brynhild field was approved
by the UK authorities in June 2020 and by the Norwegian
authorities in September 2020. In October 2020, the Rowan
Viking jack-up rig completed operations to abandon the
four Brynhild sub-sea wells. The contract for the removal of
the subsea facilities has been awarded to DeepOcean, with
operations planned in the third quarter of 2021.
The Gaupe field ceased production in 2018 and preparation of
the decommissioning plan for the field is ongoing.
The decommissioning expenditure in 2020 was MUSD 53 which
was in line with the updated guidance of MUSD 50. Following
completion of Brynhild and Gaupe decommissioning, the
Company has no further planned decommissioning spend until
around 2035.
Research and Development
The Company invested MUSD 13.9 in research and development
(R&D) in 2020. The main goal for the R&D is to maximise the
value of the existing assets, improve operational preparedness
in new areas of operation and developing platforms for
future business opportunities. This means improvement of
subsurface understanding which benefits both exploration and
development activities. Approximately one-third of the R&D
investments have been used to focus on external environment,
energy efficiency and CO2 emissions reduction.
Licence awards and transactions
In January 2020, the Company was awarded 12 licences in the
2019 APA licensing round, of which seven are as operator.
In March 2020, Lundin Energy entered into a sales and purchase
agreement with Capricorn Norge AS involving the acquisition
of a 30 percent working interest in PL1057. The transaction
increased Lundin Energy’s working interest to 60 percent in
PL1057 and the Company has become the operator of the
licence.
In September 2020, Lundin Energy entered into a sales
and purchase agreement with Vår Energi AS, involving the
acquisition of a 50 percent working interest in PL229E.
In October 2020, Lundin Energy entered into a sales and
purchase agreement with Idemitsu Petroleum Norge AS
involving the acquisition of a 10 percent working interest in
the Wisting oil discovery in licences PL537 and PL537B. Wisting
is estimated to contain gross resources of 500 MMbo and is
scheduled to be one of the next Barents Sea production hubs.
Equinor, the operator of Wisting in the development phase, is
targeting a PDO by end 2022, to benefit from the temporary
tax incentives established by the Norwegian Government in
June 2020. The transaction also involves a 15 percent working
interest in PL609, PL609B, PL609C, PL609D and PL851, which
increases Lundin Energy’s working interest from 40 to 55
percent in the Alta discovery. The transaction, which is effective
from January 2020, adds estimated net contingent resources of
approximately 70 MMboe for a cash consideration of MUSD 125,
and was completed in November 2020.
In November 2020, Lundin Energy entered into a sales and
purchase agreement with Wintershall Dea Norge AS, involving
the acquisition of a 1 percent working interest in PL820S,
containing the Iving Discovery with estimated gross resources of
12 to 71 MMboe. The transaction, which was as part of a wider
cooperation agreement, is subject to customary Government
approvals, and will increase the Company’s working interest to
41 percent on completion.
In December 2020, Lundin Energy entered into a sales and
purchase agreement with Equinor Energy AS, involving the
acquisition of a 20 percent working interest and transfer of the
operatorship in PL167, PL167B and PL167C containing the Lille
Prinsen discovery. The transaction will increase the Company’s
working interest to 40 percent in the licences and is subject to
customary Government approvals.
In January 2021, the Company was awarded 19 licences in the
2020 APA licensing round, of which seven are as operator.
Currently the Company holds 101 licences in Norway, which is
an increase of approximately 23 percent from the beginning of
2020.
8
Lundin Energy Annual Report 2020
Health, safety and environment
In May 2020, one person was seriously injured during an
incident on a contractor operated vessel that was working on
behalf of the Company on the subsea installation activities
for the Edvard Grieg tie-back projects. The incident has been
thoroughly investigated and mitigating measures implemented.
During the reporting period, one further lost time incident and
three medical treatment incidents occurred, resulting in a Lost
Time Incident Rate of 1.1 per million hours worked and a Total
Recordable Incident Rate of 2.8 per million hours worked. There
were no material environmental incidents during the reporting
period.
Financial review
Result
The operating profit for the year amounted to MUSD 1,420.7
(MUSD 1,970.7), with the decrease compared to the comparative
period mainly driven by a MUSD 756.7 after tax accounting
gain on the sale of 2.6 percent of Johan Sverdrup during the
comparative period. The operating profit for the comparative
period excluding this accounting gain amounted to MUSD
1,214.0 with the increase during the year mainly driven by
higher sales volumes. Sales volumes increased by 77 percent
compared to the comparative period as a result of the startup of
production from the Johan Sverdrup field in October 2019, but
this was partly offset by lower oil prices and higher depletion
charges during the year. Operating profit was also positively
impacted by the fact that there were no impairment charges
during the year compared to MUSD 128.3 in the comparative
period.
The net result for the year amounted to MUSD 384.2
(MUSD 824.9), representing earnings per share of USD 1.35
(USD 2.61). Net result was impacted by a foreign currency
exchange gain during the year of MUSD 171.0 (MUSD -131.7), a
MUSD 756.7 after tax accounting gain in the comparative period
on the sale of 2.6 percent of Johan Sverdrup and a MUSD 128.3
impairment charge in the comparative period. Adjusted net
result for the year amounted to MUSD 280.0 (MUSD 252.7),
representing adjusted earnings per share of USD 0.99 (USD 0.80).
Adjusted net result separates out the effects of accounting gains/
losses from asset sales, loan modification gains, foreign currency
exchange results, impairment charges and the tax impacts from
these items and better reflects the net result generated by the
Company’s operational performance for the year.
Earnings before interest, tax, depletion, amortization and
exploration expenses (EBITDAX) for the year amounted to
MUSD 2,140.2 (MUSD 1,918.4) representing EBITDAX per share
of USD 7.53 (USD 6.07), with the increase compared to the
comparative period mainly caused by higher sales volumes,
partly offset by lower oil prices. Cash flow from operating
activities (CFFO) for the year amounted to MUSD 1,528.0
(MUSD 1,378.2), representing CFFO per share of USD 5.38
(USD 4.36) with the increase compared to the comparative
period, again impacted by higher sales volumes, partly offset
by lower oil prices, further positively impacted by working
capital changes during the year but partially offset by higher
tax payments during the year. Free cash flow for the year
amounted to MUSD 448.2 (MUSD 1,271.7), representing free
cash flow per share of USD 1.58 (USD 4.03), with the decrease
compared to the comparative period mainly impacted by the
cash inflow of MUSD 959.0 from the sale of 2.6 percent of Johan
Sverdrup during the comparative period. Free cash flow for the
comparative period excluding this cash inflow amounted to
MUSD 312.7 with the increase during the year mainly impacted
by higher CFFO.
The above mentioned numbers on a per share basis are,
compared to the comparative period, positively impacted by the
redemption of approximately 54.5 million shares during the
third quarter of 2019.
Norwegian tax changes
On 19th June 2020, certain temporary changes in the Norwegian
Petroleum Tax Law were enacted. The temporary changes
allow investments incurred in 2020 and 2021 to be fully
deducted against the Special Petroleum Tax (SPT) in the year
of investment, compared to a six year linear depreciation for
the ordinary tax regime. There is a further deduction available
against the SPT in the form of an uplift. For the years 2020
and 2021, the uplift has been changed to 24 percent of the
investment incurred in the year and is fully deductible in the
year the investment is incurred, versus the previous uplift
treatment which stipulated that the investment incurred during
the year qualified for an uplift of 5.2 percent annually over
four years (i.e. 20.8 percent uplift). The temporary changes in
the Petroleum Tax Law also apply for Plan for Development
and Operations submitted within 2022. These tax rules changes
resulted in a reduction on current taxes for the year and an
increase in deferred taxes for the year. The changes for the
Norwegian SPT will reduce the Company’s current tax charge
for the years 2020 and 2021 with the cash flow impact spread
over the period 2020 to 2022, due to the phasing of the tax
instalments in Norway.
Changes in the Group
In January 2020, Lundin Energy completed a transaction
with OX2 AB (OX2) to acquire a 100 percent interest in the
Metsälamminkangas (MLK) wind farm project, in mid Finland. In
March 2020, Lundin Energy completed a transaction with Sval
Energi AS (Sval), a portfolio company of HitecVision, to farm
down 50 percent of its MLK wind farm project. MLK will produce
around 400 GWh per annum gross, once it is fully operational in
early 2022, from 24 onshore wind turbines. The MLK operations
will be managed by OX2. The investment to Lundin Energy,
including the acquisition cost, is approximately MUSD 110 over
2020 and 2021 and the project is anticipated to be free cash flow
positive from 2022. The 50 percent interest in MLK is recognised
as an investment in a joint venture in the consolidated accounts
of the Group.
In June 2020, Lundin Energy completed a transaction with
Sognekraft AS to acquire a 50 percent non-operated interest
in the Leikanger hydropower project, in mid-west Norway.
Leikanger will produce around 208 GWh per annum gross, once
it is fully operational in 2021, from a river run off hydropower
generation scheme. The investment to Lundin Energy, including
the acquisition cost, is approximately MUSD 50 and the project
Lundin Energy Annual Report 2020
9
DIRECTORS’ REPORT | Operational and financial review
is estimated to be free cash flow positive from 2022. The
50 percent interest in Leikanger is recognised as an investment
in a joint venture in the consolidated accounts of the Group.
In October 2020, Lundin Energy entered into a sales and
purchase agreement with Idemitsu Petroleum Norge AS
involving the acquisition of a 10 percent working interest in
the Wisting oil discovery in licences PL537 and PL537B. Wisting
is estimated to contain gross resources of 500 MMbo and is
scheduled to be one of the next Barents Sea production hubs.
Equinor, the operator of Wisting in the development phase, is
targeting a PDO by end 2022, to benefit from the temporary
tax incentives established by the Norwegian Government in
June 2020. The transaction also involves a 15 percent working
interest in PL609, PL609B, PL609C, PL609D and PL851, which
increases Lundin Energy’s working interest from 40 to 55
percent in the Alta discovery. The transaction, which is effective
from January 2020, adds estimated net contingent resources of
approximately 70 MMboe for a cash consideration of MUSD 125,
and was completed in November 2020.
Revenue and other income
Revenue and other income for the year amounted to
MUSD 2,564.4 (MUSD 2,948.7) and was comprised of net sales of
oil and gas and other revenue as detailed in Note 1.
Net sales of oil and gas for the year amounted to MUSD 2,533.2
(MUSD 2,158.6). The average price achieved by Lundin Energy
for a barrel of oil equivalent from own production, amounted to
USD 38.35 (USD 61.00) and is detailed in the following table. The
average Dated Brent price for the year amounted to USD 41.84
(USD 64.21) per barrel.
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
2020
2019
Crude oil sales
– Quantity in Mboe
– Average price per boe
Gas and NGL sales
– Quantity in Mboe
– Average price per boe
Total sales
– Quantity in Mboe
– Average price per boe
54,263.6
39.96
29,769.7
65.16
6,013.2
23.80
4,235.7
31.77
60,276.8
38.35
34,005.4
61.00
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 221.5 (MUSD 84.3) and consisted of crude oil
purchased from outside the Group by Lundin Energy Marketing
SA and sold to the market. Revenue from sale of oil and gas are
recognised when control of the products is transferred to the
customer.
Edvard Grieg. Other income for the year also included MUSD 0.8
(MUSD –) relating to Dated Brent differential derivatives.
Gain from sale of assets in the comparative period amounted
to MUSD 756.7 and related to the sale of 2.6 percent of Johan
Sverdrup.
Production costs
Production costs including under/over lift movements and
inventory movements for the year amounted to MUSD 177.2
(MUSD 164.8) and are detailed in Note 2. The total production
cost per barrel of oil equivalent produced is detailed in the table
below:
Production costs
2020
2019
Cost of operations
– In MUSD
– In USD per boe
Tariff and transportation expenses
– In MUSD
– In USD per boe
Operating costs
– In MUSD
– In USD per boe 1
Change in under/over lift position
– In MUSD
– In USD per boe
Change in inventory position
– In MUSD
– In USD per boe
Other
– In MUSD
– In USD per boe
Production costs
– In MUSD
– In USD per boe
134.5
2.24
50.7
0.84
185.2
3.08
-2.7
-0.05
-11.2
-0.19
5.9
0.10
118.1
3.47
46.3
1.36
164.4
4.83
-0.9
-0.03
-2.8
-0.08
4.1
0.12
177.2
2.94
164.8
4.84
Note: USD per boe is calculated by dividing the cost by total production
volume for the period.
1 The numbers in this table are excluding tariff income netting. Lundin
Energy’s operating cost for the year of USD 3.08 (USD 4.83) per barrel is
reduced to USD 2.69 (USD 4.03) when tariff income is netted off.
The total cost of operations for the year amounted to
MUSD 134.5 (MUSD 118.1) and the total cost of operations
excluding operational projects amounted to MUSD 127.8
(MUSD 108.6). The increase compared to the comparative period
related to the start up of production from the Johan Sverdrup
field in October 2019, partly offset by a weaker Norwegian
Krone.
The cost of operations per barrel for the year amounted to
USD 2.24 (USD 3.47) including operational projects and USD 2.12
(USD 3.19) excluding operational projects. The lower unit costs
compared to the comparative period are mainly relating to the
start up of the Johan Sverdrup field, which has a lower unit
operating cost, in addition to a weaker Norwegian Krone.
Other income for the year amounted to MUSD 31.2 (MUSD 33.4)
and mainly included tariff income of MUSD 23.2 (MUSD 27.2),
which is due to net income from Ivar Aasen tariffs paid to
Tariff and transportation expenses for the year amounted to
MUSD 50.7 (MUSD 46.3) or USD 0.84 (USD 1.36) per barrel. The
10
Lundin Energy Annual Report 2020
decrease on a per barrel basis compared to the comparative
period, is again driven by the start up of production from the
Johan Sverdrup field in October 2019, in addition to a weaker
Norwegian Krone.
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 is valued at production
cost including depletion cost, and amounted to MUSD -2.7
(MUSD -0.9) in the year due to the timing of the cargo liftings
compared to production. The change in inventory position is
also valued at production cost including depletion cost, and
amounted to MUSD -11.2 (MUSD 2.8) in the year due to a cargo
lifting at the end of the year that was sold in early 2021. Sales
quantities and production quantities are detailed in the table
below:
Change in over/underlift position
in Mboepd
Production volumes
Johan Sverdrup inventory movements
Production volumes excluding inventory
movements
Sales volumes from own production
Change in overlift position
2020
164.5
-1.7
162.8
164.7
-1.9
2019
93.3
-0.7
92.6
93.2
-0.6
Other costs for the year amounted to MUSD 5.9 (MUSD 4.1) and
related to the business interruption insurance.
Depletion and decommissioning costs
Depletion and decommissioning costs for the year amounted
to MUSD 607.7 (MUSD 443.8) at an average rate of USD 10.09
(USD 13.03) per barrel and are detailed in Note 9. The lower
depletion costs for the year compared to the comparative period,
is due to the start up of production from the Johan Sverdrup
field at a lower depletion rate per barrel. The depletion costs are
further positively impacted by a lower depletion rate per barrel
in USD terms, as the depletion rate per barrel is calculated in
Norwegian Krone with the Norwegian Krone having weakened
against the USD compared to the comparative period.
Exploration costs
Exploration costs expensed in the income statement for the
year amounted to MUSD 104.9 (MUSD 125.6) and are detailed
in Note 9. Exploration and appraisal costs are capitalised as
they are incurred. When exploration and appraisal drilling is
unsuccessful, the capitalised costs are expensed. All capitalised
exploration costs are reviewed on a regular basis and are
expensed when facts and circumstances suggest that the
carrying value of an exploration and evaluation asset may
exceed its recoverable amount.
Impairment costs of oil and gas properties
No impairment costs were charged to the income statement
during the period. Impairment costs charged to the income
statement in the comparative period amounted to MUSD 128.3
and related to certain licences in the Barents Sea of which future
economic development is considered uncertain. A non-cash
pre-tax impairment charge of MUSD 128.3 was recognised with
an offsetting MUSD 101.3 deferred tax credit recognised in the
income statement, yielding a net after tax charge of MUSD 27.0.
Purchase of crude oil from third parties
Purchase of crude oil from third parties for the year amounted
to MUSD 217.8 (MUSD 84.3) and related to crude oil purchased
from outside the Group.
General, administrative and depreciation expenses
The general administrative and depreciation expenses for the
year amounted to MUSD 36.1 (MUSD 31.2), which included
a charge of MUSD 4.8 (MUSD 4.6) in relation to the Group’s
long-term incentive plans (LTIP), see also Note 29. Fixed asset
depreciation expenses for the year amounted to MUSD 6.9
(MUSD 6.7).
Finance income
Finance income for the year amounted to MUSD 172.3
(MUSD 27.5) and is detailed in Note 4.
The net foreign currency exchange gain for the year amounted
to MUSD 171.0 (MUSD -131.7). Foreign exchange movements
occur on the settlement of transactions denominated in foreign
currencies and the revaluation of working capital and loan
balances to the prevailing exchange rate, at the balance sheet
date where those monetary assets and liabilities are held in
currencies other than the functional currencies of the Group’s
reporting entities. Lundin Energy is exposed to exchange rate
fluctuations relating to the relationship between US Dollar and
other currencies. Lundin Energy has entered into derivative
financial instruments to address this exposure for exchange rate
fluctuations for capital expenditure amounts and Corporate and
Special Petroleum Tax amounts. For the year, the net realised
exchange loss on these settled foreign exchange instruments
amounted to MUSD 65.6 (MUSD 60.9).
The US Dollar weakened nine percent 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 six percent 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 318.6
(MUSD 322.5) and are detailed in Note 5.
Interest expenses for the year amounted to MUSD 104.3
(MUSD 93.4) and represented the portion of interest charged to
the income statement and includes MUSD 9.1 interest expenses
in relation to the Idemitsu deal and 2019 taxes paid during the
year in Norway. An additional amount of interest of MUSD 25.8
(MUSD 85.7), associated with the funding of the Norwegian
development projects was capitalised in the year. The total
interest expenses for the year decreased compared to the
comparative period as a result of a lower LIBOR rate since the
second quarter of 2020 and partly offset by higher average debt
relative to the comparative period.
Lundin Energy Annual Report 2020
11
DIRECTORS’ REPORT | Operational and financial review
The result on interest rate hedge settlements amounted to a loss
of MUSD 44.5 (gain of MUSD 25.7), as a result of the lower LIBOR
rate.
The amortisation of the deferred financing fees for the year
amounted to MUSD 37.6 (MUSD 19.7) and related mainly to
the expensing of the fees incurred in establishing the reserve-
based lending facility over the period of usage of the facility. In
addition, the unamortised portion of the capitalised financing
fees incurred in establishing the reserve-based lending facility,
the MUSD 160 revolving credit facility for the renewable power
projects and the MUSD 340 unsecured corporate facility were
expensed during the year following the successful refinancing in
December 2020.
Loan facility commitment fees for the year amounted to
MUSD 11.6 (MUSD 10.9) and include commitment fees in
relation to the revolving credit facility for the financing of
the renewable power projects and the MUSD 340 unsecured
corporate facility.
The unwinding of the loan modification gain for the year
amounted to MUSD 99.7 (MUSD 41.5) and related to the
expensing of the accounting gain from the re-negotiated
improved borrowing terms in 2018 for the reserve-based lending
facility over the period of usage of the facility. In addition, the
remaining portion of the capitalised loan modification gain was
expensed during the year following the successful refinancing in
December 2020.
Share in result of joint ventures and associated company
Share in result of joint ventures and associated company for
the year amounted to MUSD -0.1 (MUSD -1.8) and related to the
50 percent non-operated interest in the Leikanger hydropower
project in Norway, with the project commencing production
during the second quarter 2020 and is detailed in Note 6. The
loss in the comparative period related to the share in the result
of the investment in Mintley Caspian Ltd. and this company is
now liquidated.
Tax
The overall tax charge for the year amounted to MUSD 890.1
(MUSD 849.0) and is detailed in Note 7.
The current tax charge for the year amounted to MUSD 511.8
(MUSD 405.8) and mainly related to Norway. The current tax
charge for Norway for the year related to both Corporate Tax
and Special Petroleum Tax (SPT). The SPT tax losses were fully
utilised during the fourth quarter of 2019, which resulted
in increased current tax charges for the year and the current
tax charge for Norway for the comparative period related
therefore, to Corporate Tax only. The paid tax instalments in
Norway during the year amounted to MUSD 426.0, which has
in combination with the current tax charge for the year and
exchange rate movements resulted in an increase in current tax
liabilities compared to the end of last year from MUSD 343.3 to
MUSD 444.4.
On 19th June 2020 certain temporary changes in the Norwegian
Petroleum Tax Law were enacted. The temporary changes allow
investments incurred in 2020 and 2021 to be fully deducted
against SPT in the year of investment compared to a six year
linear depreciation for the ordinary tax regime. There is a
further deduction available against the SPT in the form of an
uplift. For the years 2020 and 2021, the uplift has been changed
to 24 percent of the investment incurred in the year and is fully
deductible in the year the investment is incurred, versus the
previous uplift treatment which stipulated that the investment
incurred during the year qualified for an uplift of 5.2 percent
annually over four years (i.e. 20.8 percent uplift). The temporary
changes in the Petroleum Tax Law also apply for Plan for
Development and Operations submitted within 2022. These tax
rules changes resulted in a reduction on current taxes for the
year and an increase in deferred tax for the year.
The deferred tax charge for the year amounted to MUSD 378.3
(MUSD 443.2) and related to Norway. A deferred tax amount
arises primarily where there is a difference in depletion for tax
and accounting purposes, with the deferred tax charge increased
for the year due to the temporary tax changes for the Special
Petroleum Tax in Norway as outlined above.
The Group operates in various countries and fiscal regimes
where corporate income tax rates are different from the
regulations in Sweden. Corporate income tax rates for the
Group vary between 13.7 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
results, Norwegian financial items and by the uplift allowance
applicable in Norway for development expenditures against
the offshore tax regime. The effective tax rate for the year was
mainly impacted by the reported foreign currency exchange
gain and the effective tax rate on the adjusted net results for the
year amounted to 77 percent.
Balance sheet
Non-current assets
Oil and gas properties amounted to MUSD 5,902.4
(MUSD 5,473.2) and are detailed in Note 9.
Development, exploration and appraisal expenditure incurred
for the year was as follows:
Development expenditure
in MUSD
Norway
Development expenditures
2020
639.8
639.8
2019
672.3
672.3
Development expenditure of MUSD 639.8 (MUSD 672.3)
was incurred in Norway during the year, primarily on the
Johan Sverdrup and Solveig fields. In addition an amount of
MUSD 25.8 (MUSD 85.7) of interest was capitalised.
Exploration and appraisal expenditure
in MUSD
Norway
Exploration and appraisal expenditure
2020
152.9
152.9
2019
298.4
298.4
12
Lundin Energy Annual Report 2020
Exploration and appraisal expenditure of MUSD 152.9
(MUSD 298.4) was incurred in Norway during the year, primarily
for the exploration and appraisal wells as summarised on page 7.
and insurance expenditure. Other current assets amounted to
MUSD 9.1 (MUSD 7.1).
Other tangible fixed assets amounted to MUSD 45.2 (MUSD 49.4)
and are detailed in Note 10.
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 11.
Investments in joint ventures amounted to MUSD 110.6 (MUSD –)
and related to the 50 percent interest held by Lundin Energy in
the Metsälamminkangas (MLK) wind farm project in Finland and
the Leikanger hydropower project in Norway and is detailed in
Note 12.
The net investments by the Company in the renewable energy
business, through its joint ventures, for the year was at follows:
Renewables investments
in MUSD
MLK Windfarm – Finland
Leikanger Hydropower – Norway
Renewables investments
2020
2019
46.3
49.8
96.1
–
–
–
Financial assets amounted to MUSD 13.5 (MUSD 14.3) and are
detailed in Note 13. The sale of 2.6 percent of Johan Sverdrup
during 2019 included a contingent consideration based
on future reserve reclassifications and is due in 2026. This
contingent consideration was fair valued by the Company and
amounted to MUSD 12.7 (MUSD 12.4).
Trade and other receivables amounted to MUSD 17.3 (MUSD –)
and related to prepayments with a long-term nature and are
detailed in Note 15.
Derivative instruments amounted to MUSD 3.8 (MUSD 2.7) and
related to the marked-to-market gain on outstanding currency
hedge contracts due to be settled after twelve months and are
detailed in Note 21.
Current assets
Inventories amounted to MUSD 59.1 (MUSD 40.7) and included
both well supplies and hydrocarbon inventories. Hydrocarbon
inventories included a cargo lifting at the end of the year that
was sold in early 2021 and are detailed in Note 14.
Trade and other receivables amounted to MUSD 278.6
(MUSD 349.5) and are detailed in Note 15. Trade receivables,
which are all current, amounted to MUSD 215.5 (MUSD 305.1)
with the decrease mainly caused by lower oil prices partly offset
by higher sales volumes in December 2020. Underlift amounted
to MUSD 5.7 (MUSD 2.0) and was attributable to an underlift
position on the producing fields, mainly relating to oil from the
Johan Sverdrup field. Joint operations debtors relating to various
joint venture receivables amounted to MUSD 21.8 (MUSD 11.4).
Prepaid expenses and accrued income amounted to MUSD
26.5 (MUSD 23.9) and represented mainly prepaid operational
Derivative instruments amounted to MUSD 12.1 (MUSD 11.3)
and related to the marked-to-market gain on outstanding
currency hedge contracts due to be settled within twelve months
and are detailed in Note 21.
Cash and cash equivalents amounted to MUSD 82.5 (MUSD 85.3).
Cash balances are mainly held to meet ongoing operational
funding requirements, see also Note 16.
Non-current liabilities
Financial liabilities amounted to MUSD 3,983.9 (MUSD 3,888.4)
and are detailed in Note 18. Bank loans amounted to MUSD
3,994.0 (MUSD 4,000.0) and related to the long-term portion of
the outstanding bank loans. Capitalised financing fees relating
to the establishment of the facilities amounted to MUSD 37.1
(MUSD 37.1) and are being amortised over the expected life of
the facilities. The lease commitments amounted to MUSD 27.0
(MUSD 31.1) and related to the long-term portion of the lease
commitments under IFRS 16. The short-term portion of the lease
commitments was classified as current liabilities.
Provisions amounted to MUSD 565.6 (MUSD 528.1) and are
detailed in Note 19. The provision for site restoration amounted
to MUSD 560.5 (MUSD 522.2) and related to the long-term
portion of the future decommissioning obligations. The short-
term portion of the future decommissioning obligations was
classified as current liabilities and amounted to MUSD 16.0
(MUSD 49.2). The increase in site restoration is mainly
caused by additional liability following installations for the
development projects in combination with the strengthening
of the Norwegian Krone during the year partly offset by
decommissioning work done on the Brynhild field.
Deferred tax liabilities amounted to MUSD 2,893.9
(MUSD 2,412.7) 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 144.7 (MUSD 110.8)
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.
Current liabilities
Current financial liabilities amounted to MUSD 6.1 (MUSD 97.5)
and are detailed in Note 18. Current financial liabilities related
mainly to the short-term portion of the outstanding lease
commitments and included in the comparative period MUSD
92.0 relating to the short-term portion of the outstanding bank
loans.
Dividends amounted to MUSD 72.3 (MUSD 106.0) and related to
the cash dividend approved by the AGM held on 31 March 2020
in Stockholm, paid in quarterly instalments.
Lundin Energy Annual Report 2020
13
DIRECTORS’ REPORT | Operational and financial review
Trade and other payables amounted to MUSD 202.5
(MUSD 177.4) and are detailed in Note 20. Overlift amounted to
MUSD 1.6 (MUSD 0.9) and was attributable to an overlift position
mainly in relation to NGL from the Johan Sverdrup and Edvard
Grieg fields. Joint operations creditors and accrued expenses
amounted to MUSD 151.3 (MUSD 133.6) and related to activity
in Norway. Other accrued expenses amounted to MUSD 31.7
(MUSD 16.6) and other current liabilities amounted to MUSD 9.2
(MUSD 8.5).
Derivative instruments amounted to MUSD 87.6 (MUSD 33.2) 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 liabilities amounted to MUSD 444.4 (MUSD 343.3)
and related mainly to Norway and are detailed in Note 7.
Current provisions amounted to MUSD 21.3 (MUSD 55.9)
and are detailed in Note 19. The short-term portion of the
future decommissioning obligations amounted to MUSD 16.0
(MUSD 49.2) mainly relating to the Brynhild field. The short-term
portion of the provision for Lundin Energy’s Unit Bonus Plan
amounted to MUSD 5.3 (MUSD 6.7).
Share information
For the number of shares outstanding and the repurchases of own
shares, see Note 17.1.
For the AGM resolution on the authorisation to issue new shares,
see page 22, Corporate Governance Report.
Dividend
In accordance with the dividend policy, the Board of Directors
propose that the Annual General Meeting resolves on a
dividend for 2020 of USD 1.80 per share, corresponding
to USD 512 million (rounded off), to be paid in quarterly
instalments of USD 0.45 per share, corresponding to
USD 128 million (rounded off). Before payment, each quarterly
dividend of USD 0.45 per share shall be converted into a SEK
amount, and paid out in SEK, based on the USD to SEK exchange
rate published by Sweden’s central bank (Riksbanken) four
business days prior to each record date (rounded off to the
nearest whole SEK 0.01 per share). The final USD equivalent
amount received by the shareholders may therefore slightly
differ depending on what the USD to SEK exchange rate is on
the date of the dividend payment. The SEK amount per share to
be distributed each quarter will be announced in a press release
four business days prior to each record date.
The first dividend payment is expected to be paid around
8 April 2021, with an expected record date of 1 April 2021
and expected ex-dividend date of 31 March 2021. The second
dividend payment is expected to be paid around 7 July 2021,
with an expected record date of 2 July 2021 and expected ex-
dividend date of 1 July 2021. The third dividend payment is
expected to be paid around 7 October 2021, with an expected
record date of 4 October 2021 and an expected ex-dividend date
of 1 October 2021. The fourth dividend payment is expected to
be paid around 11 January 2022, with an expected record date
of 5 January 2022 and an expected ex-dividend date of 4 January
2022.
In order to comply with Swedish company law, a maximum total
SEK amount shall be pre-determined to ensure that the dividend
distributed does not exceed the available distributable reserves
of the Company and such maximum amount for the 2020
dividend has been set to a cap of SEK 7.636 billion (i.e., SEK 1.909
billion per quarter). If the total dividend would exceed the cap
of SEK 7.636 billion, the dividend will be automatically adjusted
downwards so that the total dividend corresponds to the cap of
SEK 7.636 billion.
For details of the dividend policy, see page 22.
Proposed disposition of unappropriated earnings
The 2021 Annual General Meeting has an unrestricted equity at
its disposal of MSEK 54,215.2, including the net result for the
year of MSEK 2,641.9.
Based on the proposed dividend, the Board of Directors propose
that the Annual General Meeting dispose of the unrestricted
equity as follows:
MSEK
The Board of Directors proposes that the shareholders
are paid a dividend of USD 1.80 per share 1
Brought forward
Unrestricted equity
4,236.6
49,978.6
54,215.2
1 The amount is based on the USD to SEK exchange rate published by
Sweden’s central bank (Riksbanken) as at 24 February 2021. The amount
is based on the number of shares in circulation on 24 February 2021 and
the total dividend amount may change by the record dates as a result
of repurchases of own shares or as a result of issue of new shares. The
dividend is USD denominated, fluctuations in the USD to SEK exchange
rate between 24 February 2021 and approval of the dividend proposal by
the Annual General Meeting will have an impact on the total dividend
amount reported in SEK. If the dividend proposal is approved by the
Annual General Meeting, the dividend will be recorded as a liability in
USD on the date of the Annual General Meeting and the SEK equivalent
of the USD liability will fluctuate until the fourth tranche is converted
from USD to SEK.
Based on a comprehensive review of the financial 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 justifiable 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
14
Lundin Energy Annual Report 2020
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-energy.com.
Changes in Board of Directors
At the 2021 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 ten
members and that Adam I. Lundin will be elected as a new
member of the Board of Directors.
Financial statements
The result of the Group’s operations and financial position at
the end of the financial year are shown in the income statement,
statement of comprehensive income, balance sheet, statement
of cash flow, statement of changes in equity and related notes,
which are presented in US Dollars on pages 39–72.
The Parent Company’s income statement, balance sheet,
statement of cash flow, statement of changes in equity and
related notes presented in Swedish Krona can be found on
pages 73–78.
Subsequent events
Subsequent events are detailed in Note 31.
Sustainability Report
Lundin Energy has issued a Sustainability Report, which is
separate from the Financial Statements. The Sustainability
Report is available on www.lundin-energy.com.
Report on Payments to Government
Lundin Energy 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-energy.com.
Lundin Energy Annual Report 2020
15
DIRECTORS’ REPORT | Risk management
Risk management
Lundin Energy uses a standardised risk management methodology to perform risk assessments. This enables the Company to make
informed decisions and to prioritise control activities and resources to deal effectively with any potential opportunities and threats.
Risk areas
Lundin Energy’s primary risks fall into three areas, which also include external risks that could influence the Company’s business
operations or reputation; operational risks, financial risks and strategic risks.
Operational risks
Concentration of operations
Risk: All of our production comes from a few assets on the Norwegian Continental Shelf. This concentration of operations increases the
vulnerability for long-term production shutdowns due to unexpected events.
Response: Highly skilled and experienced operational teams are employed throughout the organisation, the facilities are built and
maintained to a high standard and critical spares are held in inventory. Insurance partially covering the cash flow impact on the Company
from a loss of production is subscribed for our main producing assets, reducing the financial impact of any unexpected long-term shutdowns.
Delay of development projects
Risk: Oil and gas projects may be curtailed or delayed for many reasons such as health and safety incidents, changes in installation
schedules or missed targets. This includes the risk of cost overruns and a delay in production that could affect liquidity.
Response: Lundin Energy has a robust project management system in place and highly competent project management teams that have
a proven track record of safely and successfully delivering development projects. The partner operated Johan Sverdrup Phase 2 project is
progressing well and is on schedule for first oil in the fourth quarter of 2022 as planned, with cost estimates unchanged since project sanction.
The Solveig Phase 1 and Rolvsnes extended well test projects, which are tie-backs to the Edvard Grieg facility, are also progressing well with first
oil planned in the third quarter of 2021, later than the original plan due to project activities being deferred to manage the COVID-19 risk. This
deferral has no negative impact on the Company’s net production in 2021 and 2022, and therefore limited financial impact.
Health, Safety, Environment and Quality
Risk: Operational incidents such as major accidents involving impact on people and the environment, a significant fire, process safety,
collisions or well control issues are a significant risk within the oil and gas industry.
Response: Lundin Energy has a strong Health, Safety, Environment and Quality (HSEQ) management system to reduce the risk and impact
of such incidents, which is subject to incident investigations and audits. The Company maintains a robust HSEQ culture throughout the
organisation to ensure safety and security for people and the environment.
Information and cyber security
Risk: As in all industries, there is potential for cyber intrusion leading to financial loss, information data loss, data privacy infringement
and system irregularities.
Response: Security risks are regularly monitored and audited. Business continuity plans are in place, networks are built and monitored
to prevent and remedy any external cyber attacks and the Company focuses on preventative action including continuous training on
information security.
Organic growth
Risk: Long-term inability to target and mature unrisked resources and replace reserves through exploration success, affecting stakeholder
value creation. The Company may not achieve its strategic objectives of successfully replacing reserves as they are produced.
Response: Lundin Energy cultivates business opportunities in our existing market of Norway, where there is excellent resource
potential supporting our organic growth strategy. The combination of technical expertise, latest and new subsurface technology and an
entrepreneurial culture allows for the creation and continued portfolio of attractive exploration prospects. The Company has good dialogue
with Norwegian authorities to continue to obtain access to good quality acreage. The Company also continues to allocate material capital
towards E&A to create the possibility of continued organic growth.
Reserves and resources
Risk: Uncertainty in estimates of economically recoverable reserves and inability to bring estimates into resources and reserves.
Response: Reserves and resources evaluations are performed according to international industry standards and undergo a comprehensive
internal peer review in addition to an annual reserves audit process by an external independent reserves auditor.
16
Lundin Energy Annual Report 2020
Financial risks
Asset retirement
Risk: Incorrect financial estimates of future decommissioning costs for fields at the end of the economic life cycle could lead to a negative
financial impact, with an increased liability from removal and other implications of abandonment and reclamation.
Response: Decommissioning cost estimates are reviewed on an annual basis throughout an asset’s life cycle, including in the development
phase, according to the Company’s policy on asset retirement liability. Following completion of decommissioning of the minor Brynhild
and Gaupe fields, the Company has no further planned decommissioning spend until around 2035.
Financial reporting
Risk: Delayed or inaccurate financial reporting impacting external reporting requirements. The Company may face the risk of regulatory
action, fiscal uncertainty, shareholder lawsuits and loss of investor confidence.
Response: Lundin Energy maintains robust internal controls and reporting processes to mitigate this risk. Financial reporting is subject
to internal controls, a monthly management reporting process and is verified by internal and external audits. The Company has attractive
fiscal terms for a full cycle strategy.
Interest and currency
Risk: As a result of the Company carrying debt, a rise in interest rates carries a risk of affecting the Company’s earnings and free cash flow
potential. A foreign exchange risk exists in relation to market fluctuations of foreign currencies, given that the underlying value of the
Company’s assets is predominantly USD denominated, whilst certain costs are denominated in other currencies.
Response: The exposure to interest rate and currency risk is continuously assessed and monitored. Hedging instruments are used to manage
this risk according to the Company’s Hedging Policy and Procedure, which is also subject to robust internal controls.
Liquidity and funding
Risk: Investments and costs overrunning budgets or production underperformance may lead to the Company being unable to fund its
financial commitments from cash flow, debt or equity.
Response: Access to debt capital markets is achieved through a proactive banking relationship to ensure optimal debt availability. Access
to the equity capital markets is achieved through an active investor relations strategy. Lundin Energy also strives to maintain a good asset
management strategy to ensure continued asset performance levels to maximise cash flow and borrowing capacity.
Market conditions
Risk: Shareholder value is affected by our inability to meet stakeholder expectations and create value, either through current business
strategies or due to market conditions. Prolonged low oil and gas prices, as an effect of COVID-19 or other market uncertainties, could
erode the profitability of some of the Company’s assets; affect financial earnings, cash flow generation and the overall investment and
liquidity position.
Response: Lundin Energy mitigates the impact of fluctuating oil prices on our financial performance by having robust processes in
place such as the Asset Business Plan (long-term liquidity tests) and continuously assessing the assets’ debt borrowing capacity, enabling
management to forecast ahead of time a potential liquidity shortage. Through regular updates of the Asset Business Plan, the Company
stress tests the business for a prolonged period of lower oil prices. The Company’s high quality and low cost assets also make it resilient to
oil price volatility. Moreover, the tax regime in Norway reduces the post-tax impact on the Company’s financial performance due to the
78 percent marginal tax rate.
Lundin Energy Annual Report 2020
17
DIRECTORS’ REPORT | Risk management
Strategic risks
Business interruption and personnel health and safety in relation to COVID-19
Risk: Effect of COVID-19 on projects and operations causing delays, production interruptions, higher costs, variation orders and health
risks (to personnel, change of manning, ways of working, etc.).
Response: Lundin Energy has good procedures in place including testing of offshore personnel and keeping a strong focus on health and
safety of all employees and contractors. The Company follows strict rules of safety including social distancing, remote working and has a
robust health and safety culture.
Climate change
Risk: The impacts from climate change and the role of oil and gas companies in the energy transition present a range of strategic risks.
Investors and lenders are demanding more transparency on climate change impacts and risks, and divestment may occur in the absence
of evidence of decarbonisation. Stricter climate regulations and policies may impact the Company, whether directly through carbon costs
and taxes, or indirectly through technology developments. In addition, a negative public opinion of oil and gas companies can lead to
reputational impacts, share price erosion and an inability to attract new talent.
Response: Lundin Energy will become carbon neutral from 2025 from operational emissions and aims to have an industry-leading low
carbon intensity of less than 2 kg CO2/boe by 2023. The Company is investing MUSD 750 to reach these goals, in electrification to receive
power from shore for its main producing assets, replacing its net electricity usage through investments in renewable electricity generation,
and to develop proprietary natural carbon capture projects. Our sustainability reporting provides transparency of the Company’s
performance in relation to carbon emissions and how we manage and mitigate climate change related risks. This year’s Sustainability
Report has also been aligned with the recommendations of the Task Force on Climate Related Financial Disclosures.
Ethical business conduct
Risk: Risk of non-compliance with ethical business practices, fraud, bribery and corruption. Non-compliance could lead to investigations and
litigation, loss of legal or social licence to operate and negative impacts on reputation with shareholders, lenders and other stakeholders.
Response: Lundin Energy operates according to the highest level of ethical standards, ensured through the consistent application of its
Code of Conduct and policies and procedures. Mandatory awareness training is conducted to communicate expectations of ethical business
conduct to staff and reference to the Code of Conduct is integrated into business supplier contracts.
Laws and regulations
Risk: Changes to applicable laws and regulations, or complexity of legislation, could negatively affect the Company, lead to investigations,
litigation, tax impact, negative financial impact, reputational damage and cancellation or modification of contractual rights.
Response: Lundin Energy adheres to applicable laws and regulations and has a robust corporate governance framework in place to ensure
it acts in accordance with good oilfield practice and high standards of corporate citizenship. Lundin Energy operates in Norway, a country
with a world-leading regulatory framework for oil and gas activities.
Legal process in Sweden
Risk: The preliminary investigation by the Swedish Prosecution Authority into past activities in Sudan (1997–2003), and allegations of
interference of judicial proceedings, are a direct risk to the former CEO and Chairman and pose reputational, and potential financial, risks
for the Company, especially if they proceed to indictment and trial. These could include financial penalties, negative investor and bank
perception leading to divestments and critical media coverage of the Company and its directors.
Response: The Company actively defends its interests both through the Swedish legal process and in the public domain, and maintains
transparent and effective engagement with key stakeholders to ensure open and informed dialog. More information on the case, why we
believe it is unfounded and the ongoing legal process can be found on page 31.
i
This summary gives an overview of Lundin Energy’s risk
universe, however other risks may also exist or arise.
More information on how Lundin Energy works to
address risks related to maintaining a sustainable and
ethical business can be found in the Sustainability
Report.
18
Lundin Energy Annual Report 2020
DIRECTORS’ REPORT | Corporate Governance Report
Corporate governance
Corporate Governance Report
Guiding principles
Shareholders’ meetings
External auditors of the Company
Nomination Committee
Board of Directors
Board committees
Group management
Policy on Remuneration
Internal control over financial reporting
19
21
22
23
24
25
30
32
36
Lundin Energy’s corporate governance
framework seeks to ensure that the
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.
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 Swedish
Corporate Governance Code and has been subject
to a review by the Company’s statutory auditor.
Lundin Energy reports no deviations from the
Corporate Governance Code in 2020. There were no
infringements of applicable stock exchange rules
during the year, nor any breaches of good practice
on the securities market.
Lundin Energy AB (publ), company registration
number 556610-8055, has its corporate head office
at Hovslagargatan 5, 111 48 Stockholm, Sweden
and the registered seat of the Board of Directors
is Stockholm, Sweden. The Company’s website is
www.lundin-energy.com.
2021 Annual General Meeting
The 2021 Annual General Meeting (AGM) will be
held on 30 March 2021 at 1 p.m. As a consequence
of the global COVID-19 pandemic, the Board of
Directors has decided to hold the AGM as a virtual
meeting combined with proxy and postal voting
options, in accordance with the Swedish Act on
Temporary Exemptions to Facilitate the Execution
of General Meetings in Companies and Associations
(SFS 2020:198). Shareholders who wish to attend
the meeting must be recorded in the share register
maintained by Euroclear Sweden on the day falling
six business days prior to the meeting and must
notify the Company of their intention to attend the
AGM no later than the date set out in the notice of
the AGM.
Further information about registration to and
attendance at the AGM, as well as voting by mail
or proxy, can be found in the notice of the AGM,
available on the Company’s website.
Guiding principles of corporate governance
Since its creation in 2001, Lundin Energy has been guided by
general principles of corporate governance, which form an
integral part of the Company’s business model. Lundin Energy
is an experienced Nordic oil and gas company that explores for,
develops and produces resources economically, efficiently and
responsibly. We focus on value creation for our shareholders and
wider stakeholders through three strategic pillars: Resilience,
Sustainability and Growth. Our high quality, low cost assets
mean we are resilient to oil price volatility, and our organic
growth strategy, combined with our sustainable approach
and commitment to decarbonisation, firmly establishes our
leadership role in a lower carbon energy future. To achieve such
sustainable value creation, Lundin Energy applies a governance
structure that favours straightforward decision making processes,
with easy access to relevant decision makers, while nonetheless
providing the necessary checks and balances for the control of
the activities, both operationally and financially. Lundin Energy’s
principles of corporate governance seek to:
· Protect shareholder rights
· Provide a safe and rewarding working environment to
all employees and contractors
· 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 Energy 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. Abiding to corporate
governance principles builds trust in Lundin Energy, which
results in increased shareholder value. By ensuring the business
is conducted in a responsible manner, the corporate governance
structure ultimately paves the way to increased efficiency.
Corporate governance rules and regulations
Swedish Corporate Governance Code
The Corporate Governance Code is based on the tradition of self-
regulation and the principle of “comply or explain”. It acts as a
complement to the corporate governance rules contained in the
Swedish Companies Act, the Annual Accounts Act, EU rules and
Lundin Energy Annual Report 2020
19
DIRECTORS’ REPORT | Corporate Governance Report
Lundin Energy – governance structure
External
audit
Shareholders’ meeting
Nomination
Committee
Board of Directors
Audit
Committee
Compensation
Committee
Sustainability
Committee
Internal
audit
CEO and Group management
Independent
qualified
reserves auditor
Main external rules and regulations for
corporate governance at Lundin Energy
Main internal rules and regulations for corporate
governance at Lundin Energy
· Swedish Companies Act
· Swedish Annual Accounts Act
· The Articles of Association
· The Code of Conduct
· Nasdaq Stockholm Rule Book for Issuers
· Policies, Procedures and Guidelines
· Swedish Corporate Governance Code
· 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
· Code of Internal Audit Activity
· Nomination Committee process
Highlights 2020
The 2020 AGM approved a
change of the Company’s
Articles of Association with
the effect of amending
the name from Lundin
Petroleum AB to Lundin
Energy AB, to better reflect
the operating context of the
Company.
Nick Walker was
appointed as the
Company’s Chief
Executive Officer, and
Daniel Fitzgerald was
appointed as the Chief
Operating Officer,
effective as of 1 January
2021.
The 2020 AGM resolved
to declare a reduced cash
dividend of USD 1.00
per share, to be paid in
quarterly instalments, in
accordance with a revised
proposal of the Board of
Directors as a response
to the global COVID-19
pandemic.
Accelerating the Company’s
Decarbonisation Strategy to
achieve carbon neutrality for
operational emissions from
2025, from the original target
of 2030.
20
Lundin Energy Annual Report 2020
other regulations such as the Rule Book for Issuers and good
practice on the securities market. The Corporate Governance
Code can be found on www.bolagsstyrning.se. A revised version
of the Corporate Governance Code applies as of 1 January
2020 and new rules on remuneration for management and on
incentive schemes applies from 1 January 2021.
Lundin Energy’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 2020 AGM approved the change
of the Company’s Articles of Association with the effect of
amending the name of the Company from Lundin Petroleum AB
to Lundin Energy AB, as well as certain editorial amendments.
The Articles of Association are available on the Company’s
website.
Lundin Energy’s Code of Conduct
Lundin Energy’s Code of Conduct is a set of principles
formulated by the Board to give overall guidance to employees,
contractors and partners on how the Company is to conduct
its activities in an economically, socially and environmentally
responsible way, for the benefit of all stakeholders, including
shareholders, employees, business partners, host and home
governments and local communities. The Company applies
the same standards to 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
oilfield practice and high standards of corporate citizenship. The
Code of Conduct is an integral part of the Company’s contracting
procedures and any violations of the Code of Conduct will be
the subject of an inquiry and appropriate remedial measures.
In addition, performance under the Code of Conduct and
sustainability is regularly reported to the Board. The Code of
Conduct is available on the Company’s website.
Lundin Energy’s policies, procedures, guidelines and HSEQ
Leadership Charter
Corporate policies, procedures and guidelines have been
developed to outline specific rules and controls, to increase
efficiency and improve performance by facilitating compliance.
They cover areas such as Operations, Accounting and Finance,
Health and Safety, Environment and Quality (HSEQ), Anti-
Fraud, Anti-Corruption, Anti-Money Laundering, Human Rights,
Stakeholder Relations, Legal, Corporate Security, Information
Security, Remuneration, Crisis Management, Competition,
Diversity, Whistleblowing, Tax, Insurance & Risk Management,
Human Resources, Inside Information and Corporate
Communications. All policies, procedures and guidelines are
continuously reviewed and updated as and when required
and have been integrated into local management systems.
During 2020, a complete review of all policies, procedures and
guidelines was undertaken and updates and changes were
implemented, including removing some and adopting several
new ones. Several policies are available on the Company’s
website.
Lundin Energy’s Corporate HSEQ Leadership Charter, sets out
the governance framework as well as operational governance for
managing the business in accordance with the highest standards.
The Charter sets out four core foundation themes: leadership,
risk and opportunity management, continuous improvement
and implementation and is applicable across the organisation. It
further details how these themes are to be operationalised.
Lundin Energy’s Rules of Procedure of the Board
The Rules of Procedure of the Board contain the fundamental
rules regarding the division of duties between the Board, the
Committees, the Chairman of the Board and the Chief Executive
Officer (CEO). The Rules of Procedure also include instructions
to the CEO, instructions for the financial reporting to the Board
and the terms of reference of the Board Committees and the
Investment Committee. The Rules of Procedure are reviewed and
approved annually by the Board.
Share capital and shareholders
The shares of Lundin Energy are listed on Nasdaq Stockholm. The
total number of shares is 285,924,614. Each share has a quota
value of SEK 0.01 (rounded-off) and the registered share capital
of the Company is SEK 3,478,713 (rounded-off). All shares of
the Company carry the same voting rights and the same rights
to a share of the Company’s assets and earnings. The Board has
been authorised by previous Annual General Meetings (AGMs) to
decide upon repurchases and sales of the Company’s own shares
as an instrument to optimise the Company’s capital structure
and to secure the Company’s obligations under its incentive
plans. During 2020, the Company did not purchase any own
shares and held as per 31 December 2020 1,573,143 own shares
in total.
At the end of 2020, Lundin Energy had a total of 45,805
shareholders listed with Euroclear Sweden, which represents an
increase of 12,692 compared to the end of 2019, i.e. an increase
of approximately 38 percent. Shares in free float amounted to
approximately 67 percent and exclude shares held by an entity
associated with the Lundin family.
The 10 largest shareholders
as at 31 December 2020
Nemesia1
BlackRock
Vanguard
T. Rowe Price
Miura
Norges Bank
State Street Global Advisors
Saudi Arabian Monetary Agency
Amundi
JPMorgan
Other shareholders
Total
Number
of shares
Percent
(rounded)
95,478,606
33.39
8,721,222
6,919,173
6,061,550
5,894,976
4,568,838
3,989,593
3,303,444
2,975,644
2,900,438
3.05
2.42
2.12
2.06
1.60
1.40
1.16
1.04
1.01
145,111,130
285,924,614
50.75
100.00
1 An investment company wholly owned by Lundin family trusts.
Source: Q4 Inc.
Shareholders’ meetings
The shareholders’ meeting is the highest decision-making body
of Lundin Energy where the shareholders exercise their voting
rights and influence the business of the Company. 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
Lundin Energy Annual Report 2020
21
DIRECTORS’ REPORT | Corporate Governance Report
Dividend Policy
Lundin Energy’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
expectation is to create shareholder returns both
through share price appreciation and by distributing
a sustainable yearly dividend - paid in quarterly
instalments and denominated in USD - with the plan of
maintaining or increasing the dividend over time in line
with the Company’s financial performance and being
sustainable even below an oil price of USD 50 per barrel.
The dividend shall be sustainable in the context of
allowing the Company to continue to pursue its organic
growth strategy and to develop its contingent resources
whilst maintaining a conservative gearing ratio and
retaining an appropriate liquidity position within its
available credit lines.
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 prior to the AGM and all proceedings are simultaneously
translated from Swedish to English and from English to Swedish.
2020 AGM
The 2020 AGM was held on 31 March 2020 at Grand Hôtel
in Stockholm. The AGM was attended by 773 shareholders,
personally or by proxy, representing 57.8 percent of the share
capital. Due to the extraordinary circumstances as a result of
the global COVID-19 pandemic, and as also supported by the
Corporate Governance Board through permitted deviations to
the Corporate Governance Code, the Chairman of the Board,
also as a member of the Nomination Committee, and the
CEO attended the meeting via a video link. Some of the Board
members also attended the meeting via the video link, to be
able to answer potential questions from the shareholders. Other
Board members followed the AGM through a livestream.
The resolutions passed by the 2020 AGM include:
· Election of advokat Klaes Edhall as Chairman of the AGM.
· Adoption of the Company’s income statement and balance
sheet and the consolidated income statement and balance
sheet for 2019 and resolving to declare a dividend of USD 1.00
per share to be paid out in four quarterly instalments with
record dates of 2 April 2020, 3 July 2020, 2 October 2020 and
4 January 2021. Before payment, each quarterly dividend of
USD 0.25 per share were to be converted into a SEK amount
based on the USD to SEK exchange rate published by Sweden’s
central bank (Riksbanken) four business days prior to each
record date (rounded off to the nearest whole SEK 0.01 per
share).
· Discharge of the Board and the CEO from liability for the
administration of the Company’s business for 2019.
· Approval of the remuneration of USD 130,000 to the Chairman
of the Board and USD 62,000 to other Board members, except
for the CEO, and USD 20,300 to each Committee Chair and
USD 14,700 to other Committee members with the total fees
for Committee work, including fees for the Committee Chairs
not to exceed USD 193,200.
· Re-election of Peggy Bruzelius, C. Ashley Heppenstall, Ian H.
Lundin, Lukas H. Lundin, Grace Reksten Skaugen, Torstein
Sanness, Alex Schneiter, Jakob Thomasen and Cecilia Vieweg
as Board members.
· Re-election of Ian H. Lundin as Chairman of the Board.
· Approval of the remuneration of the statutory auditor.
· Election of the registered accounting firm Ernst & Young AB
as the Company’s new statutory auditor until the 2021 AGM,
authorised public accountant Anders Kriström being the
designated auditor in charge.
· Approval of the Company’s 2020 Policy on Remuneration for
Group management.
· Approval of a long-term incentive plan (LTIP) 2020 for
members of Group management and a number of key
employees.
· Approval of the transfer of treasury shares held by the
Company to the participants under the 2017, 2018, 2019 and
2020 LTIPs.
· Authorisation for the Board to issue new shares and/or
convertible debentures corresponding to in total not more
than 28.5 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.
· Rejection of two shareholder proposals, which were put to the
meeting by a minority shareholder.
· Approval of the change of the Company’s Articles of
Association with the effect of amending the name of the
Company from Lundin Petroleum AB to Lundin Energy AB, as
well as certain editorial amendments.
All AGM materials, in Swedish and English, are available on the
Company’s website, together with the Chairman’s statement to
the AGM.
External auditors of the Company
Statutory auditor
Lundin Energy’s statutory auditor audits annually the
Company’s financial statements, the consolidated financial
statements, the Board’s and the CEO’s administration of the
Company’s affairs and reports on the Corporate Governance
Report. The auditor also reviews the Sustainability Report to
confirm 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 Company’s statutory auditor was the registered accounting
firm PricewaterhouseCoopers AB up until the 2020 AGM where
the registered accounting firm Ernst & Young AB was elected
as the Company’s new statutory auditor. The auditor’s fees are
described in the notes to the financial statements, see Note
30 on page 72 and Note 6 on page 77. The auditor’s fees also
detail payments made for assignments outside the regular audit
mandate. Such assignments are kept to a minimum to ensure
22
Lundin Energy Annual Report 2020
the auditor’s independence towards the Company and require
prior approval of the Company’s Audit Committee.
Independent qualified reserves auditor
Lundin Energy’s independent qualified reserves auditor
certifies annually the Company’s oil and gas reserves and
certain contingent resources, i.e. the Company’s core assets,
although such assets are not included in the Company’s balance
sheet. The current auditor is ERC Equipoise Ltd. For further
information regarding the Company’s reserves and resources,
see the Operations Review on page 5.
Nomination Committee
The Nomination Committee is formed in accordance with the
Company’s Nomination Committee Process approved at the
2020 AGM. According to the Process, the Company shall invite
a minimum of three and a maximum of four of the larger
shareholders of the Company based on shareholdings as per
1 June 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-energy.com.
Nomination Committee for the 2021 AGM
The members of the Nomination Committee for the 2021
AGM were announced and posted on the Company’s website
on 16 June 2020. The Nomination Committee has held four
meetings during its mandate so far. At the first meeting, Aksel
Azrac was unanimously elected as Chairman of the Nomination
Committee. 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, commented at the
meetings on the Company’s business operations and future
outlook, as well as on the oil and gas and energy industry in
general.
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 2021 AGM.
· Considering Board and statutory auditor remuneration issues
and proposals to the 2021 AGM.
· Considering a proposal to appoint an external independent
Chairman for the 2021 AGM.
· Considering amendments to the Nomination Committee
Process and that no changes should be imposed.
· Considering the size and composition of the Board in light of
the diversity recommendations in the Corporate Governance
Code, including gender balance, age, educational and
professional backgrounds and the proposed Board members’
individual and collective qualifications, experiences and
capabilities in respect of the Company’s current position and
expected development.
· Considering the results of the external assessment of the Board
and the functioning of its work.
· Members of the Nomination Committee met and had
discussions with current Board members Alex Schneiter and
Jakob Thomasen to discuss the work and functioning of the
Board, and also met with the new proposed Board member
Adam I. Lundin.
The full Nomination Committee report, including the final
proposals to the 2021 AGM, is available on the Company’s
website.
Nomination Committee for the 2021 AGM
Member
Representing
Aksel Azrac
Nemesia S.à.r.l
Filippa Gerstädt Nordea Funds
Ian H. Lundin
Chairman of the Board
of Lundin Energy
Meeting
attendance
Shares
represented
as at 1 Jun 2020
Shares
represented as
at 31 Dec 2020
Independent of the
Company and Group
management
Independent of the
Company’s major
shareholders
4/4
4/4
4/4
33.4%
1.2%
N/a2
33.4%
0.9%
N/a2
Yes
Yes
Yes
No1
Yes
No2
Total 34.6%
Total 34.3%
1 Nemesia S.à.r.l holds 33.4 percent of the shares in Lundin Energy.
2 For details, see schedule on pages 28–29.
Lundin Energy Annual Report 2020
23
DIRECTORS’ REPORT | Corporate Governance Report
Board of Directors
The Board of Directors of Lundin Energy is responsible for the
organisation of the Company and management of the Company’s
operations. The Board is to manage the Company’s affairs in the
interests of the Company and all shareholders with the aim of
creating long-term sustainable 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.
Composition of the Board
The Board of Lundin Energy shall, according to the Articles of
Association, consist of a minimum of three and a maximum of ten
directors with a maximum of three deputies, and the AGM decides
the final number each year. The Board members are elected for a
period of one year. There are no deputy members and no members
appointed by employee organisations. In addition, the Board is
supported by a corporate secretary, the Company’s Vice President
Legal Henrika Frykman, who is not a Board member.
The Nomination Committee for the 2020 AGM considered that a
Board size of nine members would be appropriate and that the
Board size should not be increased taking into account the nature,
size and complexity of the Company’s business. The Nomination
Committee considered that the Board as proposed and elected by
the 2020 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 international
business environment. The Board members possess substantial
expertise and experience relating to the oil and gas industry
globally and specifically Norway, being Lundin Energy’s core area
of operation, public company financial matters, Swedish practice
and compliance matters and sustainability and HSEQ matters.
The Nomination Committee considered that the proposed Board
fulfilled the requirements regarding independence in relation
to the Company, Group management and the Company’s major
shareholders.
Gender balance was specifically discussed and the Nomination
Committee noted that 33 percent of the proposed Board members
were women. The Company aims to promote diversity at all
levels of the Company, and the Nomination Committee applies
the diversity requirements of the Corporate Governance Code.
The recommendation of the Swedish Corporate Governance
Board is that larger listed Swedish companies should strive to
achieve a 35 percent Board representation of the least represented
gender by 2018, which had been achieved by the Company
from 2015 to 2018, and 40 percent beyond 2020. Whilst the
percentage of women on the proposed Board was slightly below
the recommendation, the Nomination Committee considered that
the skills and broad experience of the Board members outweighed
such variance. The Nomination Committee supports the ambition
of the Swedish Corporate Governance Board regarding levels
and timing of achieving gender balance and believes that it is
important to continue to strive for gender balance when future
changes in the composition of the Board are considered. The
Nomination Committee further reviewed the remuneration of
the Board and to achieve alignment with the Company’s USD
denominated business, considered that it is rational to propose
that fees payable to the members of the Board of Directors and to
the Chairman of the Board of Directors also be USD denominated.
24
Lundin Energy Annual Report 2020
Board meetings and work in 2020
The Chairman of the Board, Ian H. Lundin, is responsible for
ensuring that the Board’s work is well organised and conducted
in an efficient manner. He upholds the reporting instructions for
management, as drawn up by the CEO and as approved by the
Board, however, he does not take part in the day-to-day decision-
making concerning the operations of the Company. The Chairman
maintains close contacts with the CEO to ensure the Board is at
all times sufficiently informed of the Company’s operations and
financial status.
To continue developing the Board’s knowledge of the Company
and its operations, generally 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. During
2020, it was however not considered possible to hold a Board
meeting in an operational location due to the global COVID-19
pandemic. Group management attended Board meetings during
the year to present and report on specific questions and a monthly
operational report was further circulated to the Board.
Principal tasks of the Board of Directors
· Establishing the overall goals and strategy of the
Company.
· Making decisions regarding the supply of capital.
· Identifying how the Company’s risks and business
opportunities are affected by sustainability aspects.
· Appointing, evaluating and, if necessary, dismissing the
CEO.
· Ensuring that there is an effective system for follow-up
and control of the Company’s operations and the risks to
the Company that are associated with its operations.
· Ensuring that there is a satisfactory process for
monitoring the Company’s compliance with laws and
other regulations relevant to the Company’s operations,
as well as the application of internal guidelines.
· Defining necessary guidelines to govern the Company’s
conduct in society, with the aim of ensuring its long-
term value creation capability.
· Ensuring that the Company’s external communications
are characterised by openness, and that they are
accurate, reliable and relevant.
· Ensuring that the Company’s organisation in respect of
accounting, management of funds and the Company’s
financial position in general include satisfactory systems
of internal control.
· Continuously evaluating the Company’s and the Group’s
economic situation, including its fiscal position.
Board committees
To maximise the efficiency of the Board’s work and to ensure
a thorough review of specific issues, the Board has established
a Compensation Committee, an Audit Committee and a
Sustainability Committee. 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.
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. 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 31–35.
Compensation Committee work during 2020:
· Ongoing review of the performance management process
through various meetings across the year.
· Based on the previous changes in Swedish legislation as a
result of the European Union Shareholder Rights Directive II
and the new Policy on Remuneration that was prepared for
and adopted by the 2020 AGM, the Committee has overseen
the development of the first Remuneration Report for Board
and AGM approval.
· Review of the Policy on Remuneration adopted by the 2020
AGM and decision not to propose any changes to the 2021
AGM.
· Review and discussion on remuneration levels and practices
throughout the Company for consideration in relation to
Group management remuneration.
· 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 2019.
· Continuous monitoring and evaluation of remuneration
structures, levels, programmes and the Policy on
Remuneration.
· Consultation and meetings with Company stakeholders,
regarding the proposed long-term incentive plan (LTIP) 2020
and Company remuneration practices.
· Preparing a proposal for LTIP 2020 for Board and AGM
approval through various work sessions and preparation
discussions.
· Review of fulfilment of LTIP 2017 performance conditions and
confirmation of vesting.
· Preparing a proposal for remuneration and other terms of
employment for the new 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, including the new COO.
· Review of the CEO’s proposals for the principles of
compensation of other employees.
· Review and approval of the CEO’s proposals for 2020 LTIP
awards and in principle awards for 2021 LTIP.
· Frequent contacts, ongoing dialogue and decisions outside
of formal meetings to provide oversight and approvals for
remuneration issues as presented by Group management.
· Review of the Group management succession plan.
· Review of the LTIP performance targets and decision to
propose a revised peer group for LTIP 2021 to the Board.
· Performing a mid-year review of performance targets as a
consequence of the impact of the COVID-19 pandemic and the
oil price downturn.
· Proposal for the compensation arrangement of the previous
CEO in connection with him stepping down for Board
approval.
Audit Committee
The Audit Committee assists the Board in ensuring that the
Company’s financial reports are prepared in accordance with
International Financial Reporting Standards (IFRS), the Swedish
Annual Accounts Act and accounting practices applicable
to a company incorporated in Sweden and listed on Nasdaq
Stockholm. The Audit Committee supervises the Company’s
financial reporting and gives recommendations and proposals
to ensure the reliability of the reporting. The Committee also
supervises the efficiency of the Company’s financial internal
controls, internal audit and risk management in relation to
the financial reporting and provides support to the Board in
the decision making processes regarding such matters. The
Committee monitors the audit of the Company’s financial
reports and also reports thereon to the Board. In addition,
the Committee is empowered by the Committee’s terms of
reference to make decisions on certain issues delegated to it,
such as review and approval of the Company’s first and third
quarter 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.
The Audit Committee members have extensive experience
in financial, accounting and audit matters. Peggy Bruzelius’
current and previous assignments include high level
management positions in financial institutions and companies
and she has chaired Audit Committees of other companies. 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 financial matters.
Lundin Energy Annual Report 2020
25
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. All Board members fulfil the policy
requirement.
The remuneration of the Board, including for work performed
outside the directorship, is detailed further in the schedule on
pages 28–29 and in the notes to the financial statements, see
Note 28 on pages 68–69.
Evaluation of the Board’s work
An external review of the work of the Board was conducted in
the fall through an on-line survey specifically tailored for the
Company. The purpose of the external review was to assess if
the Board functions in an efficient manner and to enable the
Board to improve on matters which may be raised. The results
were also reported to the Nomination Committee.
The overall feedback from the external review was positive and
showed that the Board functions well. Drivers for shareholder
value creation are clearly connected to the Company’s strategy,
and the Board is quick to respond to changing business
conditions and the Chairman is well qualified to lead the Board.
The Board frequently assesses how strategies are implemented
by Group management and sustainability matters are regularly
included in the Board meeting agendas. Internal financial
controls were considered as working well and investments are
given appropriate and robust reviews. The composition of the
Board was considered appropriate and the Board members
collectively exhibit diversity and breadth in respect of their
qualifications, experience and background.
DIRECTORS’ REPORT | Corporate Governance Report
Audit Committee work during 2020:
· Assessment of the 2019 year end report and the 2020 half year
report for completeness and accuracy and recommendation for
approval to the Board.
· Assessment and approval of the first and third quarter reports
2020 on behalf of the Board.
· Evaluation of accounting issues in relation to the assessment
of the financial reports.
· Follow-up and evaluation of the results of the internal audit
and risk management of the Group.
· Three meetings with the statutory auditor to discuss the
financial reporting, internal controls, risk management, etc.
· Evaluation of the audit performance and the independence
and impartiality of the statutory auditor.
· Review and approval of statutory auditor’s fees.
· Assisting the Nomination Committee in its work to propose a
statutory auditor for election at the 2021 AGM.
· Reviewing the amended dividend proposal and sharing a
recommendation to the Board.
· Reviewing and approving various matters in relation to risk
management including proposals on hedging and business
interruption insurance
Sustainability Committee
The Sustainability Committee (previously the ESG/H&S
Committee) assists the Board to monitor the performance and
key risks that the Company faces in relation to environmental,
social and governance matters. It also makes recommendations
to the Board it deems appropriate on any area within its remit
where action or improvement is needed. The Sustainability
Committee’s tasks further include reviewing and monitoring
sustainability policies, as well as considering sustainability
issues, risks, strategies and responses to climate change issues.
The Sustainability Committee reviews Group management’s
proposals on sustainability targets and goals, monitors the
appropriateness of sustainability audit strategies and plans,
the execution and results of such plans and reviews and makes
recommendations to the Board.
The Sustainability Committee’s work during 2020 includes:
· Review the investigation findings for all serious safety
incidents.
· Review of key local and corporate sustainability risks and
management responses, including risks imposed by COVID-19.
· Discussion on strategy for carbon neutrality and actions
required, including investment in developing natural carbon
capture projects.
· Accelerating the Company’s Decarbonisation Strategy to
achieve carbon neutrality for operational emissions from 2025,
from the original target of 2030.
· Review of external ESG Ratings.
· Discussion and recommendation to align external reporting
with the recommendations of the Task Force on Climate
Related Financial Disclosures (TCFD).
· Review of overall sustainability performance with particular
focus on trends and performance improvement.
· Review of the sustainability audits and actions carried out
during the year.
· Review of the Sustainability Committee’s terms of reference
and changing the name of the Committee.
26
Lundin Energy Annual Report 2020
Board’s yearly work cycle
Q1 / Q2 activities
· Approval of the year end report
· Consideration of recommendation to the AGM to declare a dividend
· 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 (if
applicable)
· Approval of the Remuneration Report
· Determination of the AGM details and approval of the AGM materials
· Statutory meeting following the AGM to confirm Board fees,
Committee compensation, signatory powers, appointment of
corporate secretary
· Audit Committee report regarding the first quarter report
· Approval of the annual Sustainability Report
· Meeting with the auditor without management present to discuss the
audit process, risk management and internal controls
· Review of the Rules of Procedure
Board of Directors work 2020
Q3 / Q4 activities
· Executive session with Group management
· Adoption of the budget and work programme
· Consideration of the Board 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
· Detailed discussion of strategy issues
· In-depth analysis of the Company’s business
· Adoption of the half year report, reviewed by the statutory
auditor
16 board meetings were held in 2020 and in addition to the topics covered by the Board as per its yearly work cycle, the following significant
matters were addressed by the Board during the year:
· Discussing in detail the Company’s performance in 2019 and 2020 and resolving to propose to the 2020 AGM that an increased cash
dividend of USD 1.80 per share should be paid to the shareholders, as well as subsequent discussions and decision to amend the proposal
to USD 1.00 per share based on the uncertainties caused by the global COVID-19 pandemic.
· Discussing and deciding to propose to the 2020 AGM that the Company’s Articles of Association shall be changed with the effect of
amending the name of the Company from Lundin Petroleum AB to Lundin Energy AB.
· Reviewing and approving a short-term bridge facility to provide increased liquidity during uncertain market conditions.
· Reviewing and approving a revolving credit facility for renewable investments.
· Considering the temporary Norwegian tax incentives and their impact on the Company’s development portfolio.
· Discussions regarding the Company’s risk management.
· Considering the Company’s production performance, forecasts and future outlook.
· Considering and discussing in detail the Johan Sverdrup project and remaining project risks, time schedule, production and capacity
increases, Phase 2 development progress, operator performance and cost expectations.
· Considering the reserves revision in relation to the Edvard Grieg field and the ensuing reserves increase, as well as the tie-back projects for
Solveig Phase 1 and Rolvsnes extended well test.
· Considering and approving the acquisition of a Barents Sea portfolio from Idemitsu Petroleum Norge AS.
· Discussing the Company’s licence position 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.
· Reviewing the Company’s oil and gas reserves and resources positions.
· Discussing the Swedish Prosecution Authority’s ongoing preliminary investigation into alleged complicity in violations of international
humanitarian law in Sudan during 1997–2003, as well as the preliminary investigation into alleged instigation of interference in a
judicial matter.
· Considering and discussing sustainability matters, including operations in the Barents Sea, climate change and the Company’s efforts to
reduce its carbon footprint and environmental impact, including approving an accelerated Decarbonisation Strategy achieving carbon
neutrality from 2025 from operational emissions, the Company’s partnership with the Lundin Foundation and sustainability trends and
initiatives, as well as further investment opportunities into renewable energy assets.
· Considering and approving an agreement to invest in the Metsälamminkangas windfarm in Finland as well as divest 50 percent to Sval
Energi AS.
· Considering and discussing the Company’s HSEQ performance, including incidents that occurred during the year, HSEQ audits, and the
HSEQ Leadership Charter.
· Considering the proposal for a performance based long-term incentive plan (LTIP) 2020, following similar principles as the previous
LTIPs approved by the 2014–2019 AGMs, including continued stakeholder engagement discussions, revising the applicable peer group,
approving participants, allocating individual awards and approving the detailed plan rules, subject to 2020 AGM approval.
· Reviewing the Company’s new investment grade credit rating and discussing the implications thereof.
· Considering the stepping down of the Company’s previous CEO Alex Schneiter and discussing the succession plan in place, as well as
appointing Nick Walker as the new CEO as per 1 January 2021.
· Discussing in detail the financing of the Company, including the Company’s financial risk management, cash flows, sources of funding,
foreign exchange movements, hedging strategy and liquidity position and reviewing and approving a new corporate USD 5 billion facilities
agreement with sustainability linked key performance indicators to replace the previous USD 5 billion reserve-based lending facility.
Lundin Energy Annual Report 2020
27
DIRECTORS’ REPORT | Corporate Governance Report
Board of Directors:
Ian H. Lundin
Alex Schneiter
Peggy Bruzelius
C. Ashley Heppenstall
Chairman (since 2002)
Elected 2001
Born 1960
Compensation Committee
member
Director
Elected 2016
Born 1962
Director
Elected 2013
Born 1949
Audit Committee chair
Director
Elected 2001
Born 1962
Audit Committee member
B.Sc. Petroleum
Engineering from the
University of Tulsa.
M.Sc. Geophysics and
degree in Geology from the
University of Geneva.
M.Sc. Economics and
Business from the
Stockholm School of
Economics.
B.Sc. Mathematics from the
University of Durham.
Function
Education
Experience
CEO of International
Petroleum Corp. 1989–
1998.
CEO of Lundin Oil AB
1998–2001.
CEO of Lundin Energy
2001–2002.
Various positions within
Lundin related companies
since 1993.
COO of Lundin Energy
2001–2015.
CEO of Lundin Energy
2015–2020.
Managing Director of ABB
Financial Services AB
1991–1997.
Head of the asset
management division of
Skandinaviska Enskilda
Banken AB 1997–1998.
Other board duties
Member of the board of
Etrion Corporation and
member of the advisory
board of Adolf H. Lundin
Charitable Foundation
(AHLCF).
Shares as at
31 December 2020
Attendance
Board
Audit Committee
Compensation Committee
Sustainability Committee
Remuneration1
Board and Committee
work
Special assignments
outside the directorship
Independent of the
Company and Group
management
Independent of major
shareholders
Nil2
16/16
–
5/5
–
USD 72,350 and
SEK 426,667
USD 52,632 and
SEK 333,333
Yes
No2
–
444,142
16/16
–
–
–
Nil
Nil
No3
Yes
Various positions within
Lundin related companies
since 1993.
CFO of Lundin Oil AB
1998–2001.
CFO of Lundin Energy
2001–2002.
CEO of Lundin Energy
2002–2015.
Chairman of the board of
International Petroleum
Corp. and Josemaria
Resources Inc. and
member of the board of
Lundin Gold Inc. and
Lundin Mining Corp.
Chair of the board of
Lancelot Asset
Management
AB and member of the
board of International
Consolidated Airlines
Group S.A. and Skandia
Liv.
8,000
16/16
7/7
–
–
Nil4
16/16
7/7
–
–
USD 41,150 and
SEK 243,733
USD 38,350 and
SEK 226,667
Nil
Yes
Yes
Nil
Yes
Yes
1 See also Note 28 on pages 68–69.
2 Ian H. Lundin is in the Nomination Committee’s and the Company’s opinion not deemed independent of the Company’s major shareholder as Ian H. Lundin is a
member of the Lundin family that holds, through family trusts, Nemesia S.à.r.l., which holds 95,478,606 shares in the Company.
3 Alex Schneiter is in the Nomination Committee’s and the Company’s opinion not deemed independent of the Company and Group management since he was the
President and CEO of Lundin Energy up until the end of 2020.
4 C. Ashley Heppenstall holds 1,442,618 shares in Lundin Energy AB through an investment company, Rojafi.
5 Lukas H. Lundin is in the Nomination Committee’s and the Company’s opinion not deemed independent of the Company’s major shareholder as Lukas H. Lundin
is a member of the Lundin family that holds, through family trusts, Nemesia S.à.r.l., which holds 95,478,606 shares in the Company.
28
Lundin Energy Annual Report 2020
Board of Directors:
Ian H. Lundin
Alex Schneiter
Peggy Bruzelius
C. Ashley Heppenstall
Lukas H. Lundin
Grace Reksten Skaugen
Torstein Sanness
Jakob Thomasen
Cecilia Vieweg
Function
Chairman (since 2002)
Director
Elected 2016
Born 1962
Director
Elected 2013
Born 1949
Director
Elected 2001
Born 1962
Compensation Committee
Audit Committee chair
Audit Committee member
Elected 2001
Born 1960
member
Education
B.Sc. Petroleum
Engineering from the
University of Tulsa.
M.Sc. Geophysics and
M.Sc. Economics and
B.Sc. Mathematics from the
degree in Geology from the
Business from the
University of Durham.
University of Geneva.
Stockholm School of
Economics.
Experience
CEO of International
Various positions within
Managing Director of ABB
Various positions within
Petroleum Corp. 1989–
Lundin related companies
Financial Services AB
Lundin related companies
1998.
since 1993.
1991–1997.
since 1993.
CEO of Lundin Oil AB
COO of Lundin Energy
Head of the asset
CFO of Lundin Oil AB
1998–2001.
2001–2015.
management division of
1998–2001.
CEO of Lundin Energy
CEO of Lundin Energy
2001–2002.
2015–2020.
Skandinaviska Enskilda
Banken AB 1997–1998.
Other board duties
Member of the board of
Etrion Corporation and
member of the advisory
board of Adolf H. Lundin
Charitable Foundation
(AHLCF).
Shares as at
31 December 2020
Attendance
Board
Audit Committee
Compensation Committee
Sustainability Committee
Remuneration1
Board and Committee
work
Special assignments
outside the directorship
Independent of the
Company and Group
management
Independent of major
shareholders
Nil2
16/16
–
5/5
–
Yes
No2
USD 72,350 and
SEK 426,667
USD 52,632 and
SEK 333,333
–
444,142
16/16
–
–
–
Nil
Nil
No3
Yes
CFO of Lundin Energy
2001–2002.
CEO of Lundin Energy
2002–2015.
Chairman of the board of
International Petroleum
Corp. and Josemaria
Resources Inc. and
member of the board of
Lundin Gold Inc. and
Lundin Mining Corp.
Chair of the board of
Lancelot Asset
Management
AB and member of the
board of International
Consolidated Airlines
Group S.A. and Skandia
Liv.
8,000
16/16
7/7
–
–
Nil
Yes
Yes
Nil4
16/16
7/7
–
–
Nil
Yes
Yes
Director
Elected 2018
Born 1947
Sustainability Committee
member
Director
Elected 2017
Born 1962
Audit Committee member
Sustainability Committee
member
Director
Elected 2013
Born 1955
Compensation Committee
chair
Director
Elected 2001
Born 1958
Graduate (engineering)
from the New Mexico
Institute of Mining and
Technology.
Various key positions
within companies where
the Lundin family has a
major shareholding.
Director
Elected 2015
Born 1953
Sustainability Committee
chair
Compensation Committee
member
MBA from the BI Norwegian
School of Management,
Ph.D. Laser Physics and
B.Sc. Honours Physics from
Imperial College of Science
and Technology at the
University of London.
Former Director of
Corporate Finance with SEB
Enskilda Securities in Oslo.
Board member/deputy chair
of Statoil ASA 2002–2015.
Member of HSBC European
Senior Advisory Council.
Chairman of the board
of Lundin Mining Corp.,
Lucara Diamond Corp.,
Lundin Gold Inc., Lundin
Foundation and Bukowski
Auktioner AB and
member of the board of
Filo Mining Corp.
Member of the board of
Investor AB, Euronav NV
and PJT Partners, founder
and board member of
the Norwegian Institute
of Directors, trustee and
council member of the
International Institute
for Strategic Studies in
London.
M.Sc. Engineering in
geology, geophysics and
mining engineering from
the Norwegian Institute of
Technology in Trondheim.
Various positions in Saga
Petroleum 1972–2000.
Managing Director of Det
Norske Oljeselskap AS
2000–2004.
Managing Director of
Lundin Norway AS
2004–2015.
Chairman of the board
of Magnora ASA, deputy
chairman of Panoro Energy
ASA and member of the
board of International
Petroleum Corp. and TGS
Nopec ASA.
Graduate of the University
of Copenhagen, Denmark,
M.Sc. in Geoscience and
completed the Advanced
Strategic Management
programme at IMD,
Switzerland.
Former CEO of Maersk
Oil and a member of the
Executive Board of the
Maersk Group 2009–2016.
Chairman of the DHI
Group, ESVAGT, RelyOn
Nutec and Hovedstadens
Letbane.
425,0005
16/16
–
–
–
6,000
15/16
–
5/5
2/2
93,310
16/16
–
–
2/2
8,820
16/16
7/7
–
2/2
L.L.M. from the University
of Lund.
General Counsel and
member of the Executive
Management of AB
Electrolux 1999–2017.
Senior positions in AB
Volvo Group 1990–1998.
Lawyer in private practice.
Member of the Swedish
Securities Council
2006–2016.
–
5,000
15/16
–
5/5
–
USD 41,150 and
SEK 243,733
USD 38,350 and
SEK 226,667
USD 31,000 and
SEK 183,333
USD 48,500 and
SEK 286,667
USD 38,350 and
SEK 226,667
USD 45,700 and
SEK 270,000
USD 41,150 and
SEK 243,333
Nil
Yes
No5
Nil
Yes
Yes
Nil
Yes
Yes
Nil
Yes
Yes
Nil
Yes
Yes
i
More information on the Board members can be
found on www. lundin‑energy.com
Lundin Energy Annual Report 2020
29
DIRECTORS’ REPORT | Corporate Governance Report
Group management
Management structure
Lundin Energy’s Group and local management consists of
highly experienced individuals with extensive worldwide oil
and gas experience. The Company’s CEO, Nick Walker, replaced
on 1 January 2021 the Company’s previous CEO, Alex Schneiter,
who stepped down from his position after having worked with
the Company since its inception in 2001, and as its CEO since
2015. The CEO is responsible for the management of the day-
to-day operations of Lundin Energy. 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.
The Company’s Investment Committee consists of, in
addition to the CEO, the Chief Operating Officer (COO), Daniel
Fitzgerald, who is responsible for Lundin Energy’s exploration,
development and production operations and HSEQ, and the
Chief Financial Officer (CFO), Teitur Poulsen, who is responsible
for the financial reporting, internal control, risk management,
treasury function, commercial and economics. The Investment
Committee 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.
In addition to the members of the Investment Committee,
Lundin Energy’s Group management comprises:
· The Vice President Legal, Henrika Frykman, who is responsible
for all legal and tax matters within the Group, the Vice
President Corporate Affairs, Alex Budden, who is responsible
for corporate affairs and strategic communications within
the Group, the Vice President Investor Relations Edward
Westropp, who is responsible for investor relations and
financial communications within the Group and the Vice
President Sustainability, Zomo Fisher who is responsible for
the Group’s corporate sustainability strategy.
· Local management, who are responsible for the day-to-day
operational activities.
Group management tasks and duties
The tasks of the CEO and the division of duties between the
Board and the CEO are defined in the Rules of Procedure and
the Board’s instructions to the CEO. In addition to the overall
management of the Company, the CEO’s tasks include ensuring
that the Board receives all relevant information regarding
the Company’s operations, including profit trends, financial
position and liquidity, as well as information regarding
important events such as significant disputes, agreements
and developments in important business relations. The CEO
is also responsible for preparing the required information for
Board decisions and for ensuring that the Company complies
with applicable legislation, securities regulations and other
rules such as the Corporate Governance Code. Furthermore,
the CEO maintains regular contacts with the Company’s
stakeholders, including shareholders, the financial markets,
business partners and public authorities. To fulfil his duties, the
CEO works closely with the Chairman of the Board to discuss
Major topics addressed by Group management in 2020
· Overseeing the Johan Sverdrup project, including production matters, capacity increases and progress on Phase 2 development.
· Overseeing the reserves revision in relation to the Edvard Grieg field and the ensuing reserves increase.
· Overseeing the progress on the Edvard Grieg tie-back projects Solveig Phase 1 and Rolvsnes extended well test.
· Discussing and negotiating the terms for the acquisition of a Barents Sea portfolio from Idemitsu Petroleum Norge AS.
· Management of the Norwegian acreage position through active licence acquisition and divestment management to optimise the Norwegian
licence portfolio.
· Management of the ongoing exploration activities, development projects, appraisal activities and production operations.
· Consideration of organisational changes and improvements.
· Considering new ventures and opportunities.
· Developing an updated Decarbonisation Strategy, including to reach carbon neutrality from 2025.
· Analysis of climate change risks and implications to the business, and alignment with the recommendations of the Task Force on Climate
Related Financial Disclosures.
· Considering several further investment opportunities into renewables projects.
· Negotiating the terms for the acquisition of 100 percent interest in the Metsälamminkangas wind farm project in Finland as well as the
subsequent divestment of 50 percent to Sval Energi AS.
· Considering in detail operational safety incidents that occurred including mitigating actions for the future.
· Discussing the impact of the global COVID-19 pandemic and taking necessary actions to ensure the safety of employees and to mitigate the
impact on the Company’s operations.
· Focussing on cost control measures to mitigate the impact of COVID-19, including through cost reductions and phasing of operations.
· Negotiating a short-term bridge facility to provide increased liquidity during uncertain market conditions.
· Negotiating a revolving credit facility for renewable investments.
· Negotiating and overseeing the refinancing of the existing reserve-based lending facility agreement into a new corporate facilities agreement
with sustainability linked key performance indicators.
· Preparing and implementing an inaugural public credit rating from S&P Global Ratings.
· Defence of the Swedish Prosecution Authority’s ongoing preliminary investigation into alleged complicity in violations of international
humanitarian law in Sudan during 1997–2003 as well as the preliminary investigation into alleged instigation of interference in a judicial matter.
30
Lundin Energy Annual Report 2020
the Company’s operations, financial status, up-coming Board
meetings, implementation of decisions and other matters.
Under the leadership of the CEO, Group management is
responsible for ensuring that the operations are conducted
in compliance with the Code of Conduct, all Group policies,
procedures and guidelines and the HSEQ Leadership Charter
in a professional, efficient and responsible manner. Regular
management meetings are held to discuss all commercial,
technical, sustainability, financial, legal and other issues
within the Group to ensure the established short- and long-
term business objectives and goals will be met. A detailed
weekly operations report is circulated to Group management
summarising the operational events, highlights and issues of the
week in question. Group management also travel frequently to
oversee the ongoing operations, seek new business opportunities
and meet with various stakeholders, including business
partners, suppliers and contractors, government representatives
and financial institutions. In addition, Group management
liaises continuously with the Board, and in particular the Board
Committees, 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.
Internal audit
The internal audit function is responsible for providing
independent and objective assurance in order to systematically
evaluate and propose improvements for more effective
governance, internal control and risk management processes.
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 significant risks
identified within the Group. 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 efficiency of the governance, internal control and
risk management processes which have been identified through
the internal 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 findings
identified in the audits together with updates on the status of
management’s implementation of agreed actions. For additional
information on internal control, see page 36.
Remuneration
Group principles of remuneration
Lundin Energy 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) annual variable remuneration; (iii) long-
term incentive plan (LTIP); and (iv) other benefits. As part of the
yearly assessment process, a performance management process
has been established to align individual and team performance
to the strategic and operational goals and objectives of the
overall business. Individual performance measures are
formally agreed and key elements of variable remuneration
are clearly linked to the achievement of such stated and agreed
performance measures.
To ensure compensation packages within the Group
remain competitive and in line with market conditions, the
Compensation Committee undertakes yearly benchmarking
studies. For each study, a peer group of international oil and
Sudan
In June 2010, the Swedish Prosecution Authority began a preliminary investigation into alleged complicity in violations of
international humanitarian law in Sudan during 1997–2003. The Company has cooperated extensively and proactively with
the investigation by providing information regarding its operations in Block 5A in Sudan during the relevant time period. We
remain convinced that there is no link between Lundin and the alleged primary crimes, and that the company was a force
for good for the development of Sudan. Ian H. Lundin and Alex Schneiter have been interviewed by the Swedish Prosecution
Authority and have, together with the Company, been notified of the relevant suspicions and received final notice of the
investigation, which is being reviewed and commented on by the defence.
In 2018, the Company was notified by the Swedish Prosecution Authority that the Company may be liable to a corporate fine
of SEK 3 million and forfeiture of economic benefits from the alleged offense in the amount of SEK 3,282 million, based on
the profit of the sale of the Block 5A asset in 2003 of SEK 720 million. Any potential corporate fine or forfeiture could only be
imposed after the conclusion of a trial, should one occur.
In 2018, the Swedish Prosecution Authority also began a preliminary investigation into alleged interference in a judicial
matter as a result of allegations of witness harassment. The Company and its representatives are not aware of any details of
the alleged actions, despite several requests for information, and reject any knowledge of, or involvement in, any wrongdoing.
Ian H. Lundin and Alex Schneiter have been interviewed by the Swedish Prosecution Authority and have been notified of the
suspicions that form the basis for the investigation.
Neither investigation means that charges have been, or will be, brought against any individuals or the Company. Lundin Energy
knows that there are absolutely no grounds for any allegations of wrongdoing by the Company or any Company representatives
in respect of any of these allegations. More information regarding the past activities in Sudan during 1997–2003 can be found
on www.lundinsudanlegalcase.com.
Lundin Energy Annual Report 2020
31
DIRECTORS’ REPORT | Corporate Governance Report
gas companies of similar size and operational reach is selected,
against which the Group’s remuneration practices are measured.
The levels of base salary, annual variable remuneration 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.
Due to the fact that no salary increases would be made and
considering the uncertain times, it was decided not to undertake
a benchmarking study in 2020.
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 for approval by the
Board and for submission for final approval to the AGM, a Policy
on Remuneration for Group management when any changes are
proposed or at least every four years. No changes are proposed
to the 2020 Policy on Remuneration as approved by the 2020
AGM.
The yearly variable remuneration for Group management
is assessed against annual performance targets that reflect
the key drivers for value creation and growth in shareholder
value. These annual performance targets include delivery
against specific production of oil and gas, reserves and resource
replacement, financial, health and safety, sustainability, carbon
dioxide gas emissions and strategic targets. Each member of
Group management is set different performance weightings
against each of the specific targets reflecting their influence on
the performance outcome. The performance target structure
and specific 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 specific targets are approved by the Board.
Within the 2020 Policy on Remuneration, the Board of Directors
could approve annual variable remuneration in excess of 12
months’ base salary up to a cap of 18 months’ base salary in
circumstances or in respect of performance which it considered
to be exceptional. To have had this discretion was 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 Note 28 on pages 68–69. The Board determined
that it was reasonable to recognise the excellent performance of
the CEO during a year which presented exceptional challenges,
and equally the performance of the CFO for his efforts in
ensuring a successful refinancing of the existing reserve-based
lending facility into a new corporate facilities agreement under
the challenging circumstances.
Long-term incentive plan 2020
The 2020 AGM resolved to approve a performance based LTIP
2020, that follows similar principles as the previously approved
LTIPs 2014–2019, for Group management and a number of
key employees of Lundin Energy, which gives the participants
the possibility to receive shares in Lundin Energy subject to
the fulfilment of a performance condition under a three year
performance period commencing on 1 July 2020 and expiring
on 30 June 2023. The performance condition is based on the
share price growth and dividends (Total Shareholder Return)
of the Lundin Energy 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 Energy 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 2020 and the total LTIP award made
in respect of 2020 was 393,113.
The Board of Directors may reduce (including reduce to zero)
the allotment of performance shares at its discretion, should it
consider the underlying performance not to be reflected in the
outcome of the performance condition, for example, in light
of operating cash flow, reserves and HSE performance. The
participants will not be entitled to transfer, pledge or dispose
of the LTIP awards or any rights or obligations under LTIP 2020,
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 2020 are further subject to
certain disposition restrictions to ensure participants build
towards a meaningful shareholding in Lundin Energy. 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 2020, an external review of the CEO’s performance
was undertaken through an online survey, and the results
were reported to and discussed by the Board. The Board also
considered proposals regarding the compensation of the CEO
and other members of Group management. Neither the CEO nor
other members of Group management were present at the Board
meetings when such discussions took place.
The tasks of the Compensation Committee also include
monitoring and evaluating the general application of the
Policy on Remuneration, as approved by the AGM, and the
Compensation Committee prepares in connection therewith a
yearly report, for approval by the Board, on the application of
the Policy on Remuneration and the evaluation of remuneration
of Group management. As part of its review process, the
statutory auditor of the Company also verifies on a yearly
basis whether the Company has complied with the Policy on
Remuneration. Both reports are available on the Company’s
website.
Board’s proposal for remuneration to Group management to
the 2021 AGM
The Board does not propose any changes to the Policy on
Remuneration for Group management as approved by the 2020
AGM.
32
Lundin Energy Annual Report 2020
POLICY ON REMUNERATION FOR GROUP
MANAGEMENT AS APPROVED BY THE 2020 AGM1
Company and to encourage and appropriately and fairly reward
executives for their contributions to Lundin Energy’s success.
Application of the Policy
This Policy on Remuneration (the “Policy”) applies to the
remuneration of “Group Management” at Lundin Energy AB
(“Lundin Energy” or the “Company”), which includes (i) the
President and Chief Executive Officer (the “CEO”), (ii) the Deputy
CEO, who from time to time will be designated from one of
the other members of Group Management, and (iii) the Chief
Operating Officer, Chief Financial Officer and Vice President
level employees. The Policy also applies to members of the Board
of Directors (the “Board”) of the Company where remuneration
is paid for work performed outside the directorship.
Background to the changes to the 2020 Policy
compared to the Policy approved in 2019
The Policy approved by the 2020 AGM was the result of a review
to comply with revised Swedish legislation resulting from the
European Union Shareholder Rights Directive II and the 2020
revised Swedish Corporate Governance Code. Few material
changes were made to how the Company manages executive
remuneration matters, however the new legislation, together
with discussions with shareholders’ representatives, led to some
changes to the Policy that were submitted to the shareholders
for approval. The differences between the 2020 Policy and the
Policy approved by the 2019 AGM were as follows:
· the 2020 Policy is more explicit than the 2019 Policy on the
links to strategy, long-term performance and sustainability and
requires that the Compensation Committee (the “Committee”)
takes shareholders’ opinions into account, as well as
remuneration across the broader employee population, when
making its decisions and recommendations to the Board.
· The Board can continue to award annual variable
remuneration worth up to 12 months’ base salary but the 2020
Policy provides more clarity by imposing a cap of 18 months’
base salary for occasions when individuals have delivered
outstanding performance.
· The 2020 Policy describes the design and governance of
different elements of remuneration in more detail than the
2019 Policy, as well as their relative proportions of total
remuneration.
· There is more information on terms and decision making
processes and considerations, including how the Company can
deviate from the Policy.
The 2020 Policy is, together with previous years’ Policies,
available on the Company’s website www.lundin-energy.com
and it will remain available for ten years.
Key remuneration principles at Lundin Energy
Lundin Energy’s remuneration principles and policies are
designed to ensure responsible and sustainable remuneration
decisions that support the Company’s strategy, shareholders’
long-term interests and sustainable business practices. It is
the aim of Lundin Energy to recruit, motivate and retain high
calibre executives capable of achieving the objectives of the
1 At the time of approval of the Policy, the Company was named “Lundin
Petroleum AB”, herein replaced throughout with references to the Com-
pany’s new name “Lundin Energy AB”. The Policy has also been updated
to reflect the fact that the Policy has been approved by the 2020 AGM
and is no longer a proposal.
Remuneration to members of the Board
In addition to Board 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.
Compensation Committee
The Board has established the Compensation Committee to
support it on matters of remuneration relating to the CEO, the
Deputy CEO, other members of Group Management and other
key employees of the Company. The objective of the Committee
is to structure and implement remuneration principles to
achieve the Company’s strategy, the principal matters for
consideration being:
· the review and implementation of the Company’s
remuneration principles for Group Management, including
this Policy which requires approval by the General Meeting of
Shareholders;
· the remuneration of the CEO and the Deputy CEO, as well as
other members of Group Management, and any other specific
remuneration issues arising;
· the design of long-term incentive plans that require approval
by the General Meeting of Shareholders; and
· compliance with relevant rules and regulatory provisions,
such as this Policy, the Swedish Companies Act and the
Swedish Corporate Governance Code.
When the Committee makes decisions, including determining,
reviewing and implementing the Policy, it follows a process
where:
· the Board sets and reviews the terms of reference of the
Committee;
· the Chair of the Committee approves the Committee’s agenda;
· the Committee considers reports, data and presentations and
debates any proposal. In its considerations the Committee
will give due regard to the Company’s situation, the general
and industry specific remuneration environment, the
remuneration and terms of employment of the broader
employee population, feedback from different stakeholders,
relevant codes, regulations and guidelines published from
time to time;
· the Committee may request the advice and assistance of
management representatives, other internal expertise and of
external advisors. However, it shall ensure that there is no
conflict of interest regarding other assignments that any such
advisors may have for the Company and Group Management;
· the Committee ensures through a requirement to notify
and recuse oneself that no individual with a conflict of
interest will take part in a remuneration decision that may
compromise such a decision;
· once the Committee is satisfied that it has been properly and
sufficiently informed, it will make its decisions and, where
required, formulate proposals for approval by the Board; and
· the Board will consider any items for approval or proposals
from the Committee and, following its own discussions, make
decisions, proposals for a General Meeting of Shareholders
and/or further requests for the Committee to deliberate on.
Lundin Energy Annual Report 2020
33
DIRECTORS’ REPORT | Corporate Governance Report
Elements of remuneration for Group Management
There are four key elements to the remuneration of Group Management:
a) Base salary
b) Annual variable
remuneration
c) Long-term incentive plan
Description, purpose and link to
strategy and sustainability
· Fixed cash remuneration paid
monthly. Provides predictable
remuneration to aid attraction and
retention of key talent.
Process and governance
Relative share of
estimated/maximum
total reward 1
· The Committee reviews salaries
30% / 20%
every year as part of the review of
total remuneration (see below for
a description of the benchmarking
process).
· Annual bonus is paid for performance
· The annual review of total
20% / 25%
over the financial year.
· Awards are capped at 18 months’
base salary, paying up to 12 months’
base salary for ranges of stretching
performance requirements. Any value
over 12 months’ base salary is paid for
delivering outstanding performance.
· Signals and rewards the strategic and
operational results and behaviours
expected for the year that contribute
to the long-term, sustainable value
creation of the Company.
remuneration also considers annual
bonus awards, outcomes, target
structure, weightings of targets and
specific target levels of performance.
· Measurable financial and non-
financial performance requirements
are identified according to position
and responsibilities and include
delivery against production of oil
and gas, reserves and resource
replacement, financial, health and
safety, ESG, carbon dioxide gas
emissions and strategic targets.
· The Committee reviews the design
of annual variable remuneration
separately.
40% / 50%
· Performance share plan that aligns the
interests of participants with those of
shareholders through awards in shares
worth up to 36 months’ base salary on
award, vesting after 3 years subject to
performance.
· Relative Total Shareholder Return
(“TSR”) summarises the complex set
of variables for long-term sustainable
success in oil and gas exploration and
production into a single performance
test relative to peers that the Company
competes with for capital.
· Annual review of total remuneration
considers long-term incentive awards,
outcomes, TSR peer group and
targets.
· Participants are required to build a
significant personal shareholding
of up to 200% of base salary over
time by retaining shares until
a predetermined limit has been
achieved.
· The Committee reviews the design of
long-term incentives separately.
d) Benefits
· Predictable benefits to help facilitate
the discharge of each executive’s
duties, aiding the attraction and
retention of key talent.
10% / 5%
· The Committee reviews benefits and
contractual terms regularly to ensure
that the Company does not fall
behind the market.
· Benefits are set with reference to
external market practices, internal
practices, position and relevant
reference remuneration.
Total
100% / 100%
1 Estimated reward shows the percentage of total reward where proportions are estimated assuming 50 percent of maximum annual bonus and 50
percent of the long-term incentive without any share price or dividend effect. Proportions of maximum reward assume full vesting of both annual
variable remuneration and the long-term incentive but without any share price or dividend effect. Different actual awards and the variable nature of
incentives means that the actual proportions for an individual may be different.
34
Lundin Energy Annual Report 2020
Review and benchmarking
Every year the Committee undertakes a review of the
Company’s remuneration policies and practices considering the
total remuneration of each executive as well as the individual
components. Levels are set considering:
· the total remuneration opportunity;
· the external pay market;
· the scope and responsibilities of the position;
· the skills, experience and performance of the individual;
· the Company’s performance, affordability of reward and
general market conditions; and
· levels and increases in remuneration, as well as other terms of
employment, for other positions within the Company.
External benchmarks for total remuneration are found from
one or more sets of companies that compete with Lundin
Energy for talent, taking into consideration factors like size,
complexity, geography and business profile when determining
such peer groups.
Variable remuneration
The Company considers that variable remuneration forms
important parts of executives’ remuneration packages, where
associated performance targets reflect the key drivers for
pursuing the Company’s strategy, and to achieve sustainable
value creation and growth in long-term shareholder value. The
Committee ensures that performance and design align with
the strategic direction and risk appetite of the Company before
incentives are approved by the Board.
There is no deferral of incentive payments, however, the Board
can recover annual bonuses paid in the unlikely event of
outcomes based on information which is subsequently proven
to have been manifestly misstated. The Board can also in
exceptional circumstances reduce long-term incentive awards,
including reducing them to zero, should it consider the vesting
outcome to incorrectly reflect the true performance of the
Company.
Benefits
Benefits provided shall be based on market terms and shall
facilitate the discharge of each executive’s duties. The pension
provision is the main benefit and follows the local practice
of the geography where the individual is based. The pension
benefits consist of a basic defined contribution pension plan,
where the employer provides 60 percent and the employee
40 percent of an annual contribution of up to 18 percent of
the capped pensionable salary and a supplemental defined
contribution pension plan where the employer provides 60
percent and the employee 40 percent of a contribution up to
14 percent of the capped pensionable salary.
Severance arrangements
Executives have rolling contracts where mutual notice periods
of between three and twelve months apply between the
Company and the executive, 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 in the event of termination of
employment due to a change of control of the Company. Such
compensation, together with applicable notice periods, shall
not exceed 24 months’ base salary.
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 12 months’ base salary; no
other benefits shall be included.
In all circumstances, severance payments in aggregate (i.e. for
notice periods and severance arrangements) shall be limited to
a maximum of 24 months’ base salary.
Authorisation for the Board
In accordance with Chapter 8, Section 53 of the Swedish
Companies Act, the Board shall be authorised to approve
temporary deviations from the Policy on any element of
remuneration described in this Policy, except from the
maximum award of annual variable remuneration, which shall
at all times be limited to 18 months’ base salary. Deviations
shall be considered by the Committee and shall be presented to
the Board for approval. Deviations may only be made in specific
cases if there are special reasons outside of normal business
that make it necessary to increase reward in order to help
secure the Company’s long-term interests, financial viability
and/or sustainability by recognising exceptional contributions.
The reasons for any deviation shall be explained in the
remuneration report to be submitted to the AGM.
Outstanding remunerations1
Remunerations outstanding to Group Management comprise
awards granted under the Company’s previous long-term
incentive programs and include 258,619 shares for awards
under the LTIP 2017, 195,658 shares for awards under the LTIP
2018, 222,148 shares for awards under LTIP 2019 and 2,746
unit bonus awards under the 2017 Unit Bonus Plan. Further
information about these plans is available in Note 28 of the
Company’s Annual Report 2019.
1 As at the 2020 AGM
Lundin Energy Annual Report 2020
35
DIRECTORS’ REPORT | Corporate Governance Report
Internal control over financial
reporting
The control environment is the foundation of Lundin Energy’s
system for internal control over financial reporting.
According to the Swedish Companies Act and the Corporate
Governance Code, 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 Energy.
Lundin Energy’s system for internal control over financial
reporting is based on the Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The five components of this framework
are control environment, risk assessment, control activities,
information and communication and monitoring activities.
Control environment
The control environment is the foundation of Lundin Energy’s
system for internal control over financial reporting and is
characterised by the fact that the main part of the Group’s
operations is located in Norway where the Company has carried
out operations for many years using well established processes.
The control environment is defined by the Company’s policies
and procedures, guidelines and codes as well as its responsibility
and authority structure. In the area of control activities Lundin
Energy has documented all critical, financial processes and
controls in the Group. The business culture established within
the Group is also fundamental to ensure highest level of ethics,
morals and integrity.
Risk assessment
Risks relating to financial 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 determining the potential impact on the financial 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.
Control activities
Control activities range from high level reviews of financial
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 financial reporting
made on Company level and Group level are important control
activities performed to ensure that the financial reporting does
not contain any significant 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.
Information and communication
Lundin Energy has processes in place aiming to ensure effective
and correct information in regards to financial reporting,
both internally within the organisation as well as externally
to the public to meet the requirements for a listed company.
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 finance meetings. In addition,
the Communications- and Investor Relations policies ensure
that the public is provided with accurate, reliable, and relevant
information concerning the Group and its financial position at
the right time.
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. Controls that have failed
the testing must be remediated which means establishing
and implementing actions to correct weaknesses. 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 findings
identified 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 licence
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.
36
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Financial statements and notes
Annual accounts of the Parent Company
Parent Company income statement
Parent Company comprehensive income statement
Parent Company balance sheet
Parent Company statement of cash flow
Parent Company statement of changes in equity
73
74
74
75
76
76
Notes to the financial statements of the Parent Company 77
77
- Note 1 – Finance income
77
- Note 2 – Finance costs
77
- Note 3 – Income taxes
77
- Note 4 – Other receivables
77
- Note 5 – Accrued expenses and prepaid income
- Note 6 – Remuneration to the auditor
77
- Note 7 – Proposed disposition of unappropriated
earnings
- Note 8 – Shares in subsidiaries
77
78
Board assurance
Auditor’s report
79
80
Financial summary
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flow
Consolidated statement of changes in equity
Accounting policies
38
39
40
41
42
43
44
Notes to the financial statements of the Group
- Note 1 – Revenue and other income
- Note 2 – Production costs
- Note 3 – Segment information
- Note 4 – Finance income
- Note 5 – Finance costs
- Note 6 – Share in result of joint ventures and associated
50
50
50
50
52
52
company
- Note 7 – Income taxes
- Note 8 – Gain from sale of assets
- Note 9 – Oil and gas properties
- Note 10 – Other tangible fixed assets
- Note 11 – Goodwill
- Note 12 – Investments in joint ventures
- Note 13 – Financial assets
- Note 13.1 – Associated companies
- 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 –Retained earnings
- Note 17.4 –Earnings per share
- Note 17.5 –Adjusted earnings per share
- Note 18 – Financial liabilities
- Note 19 – Provisions
- Note 20 – Trade and other payables
- Note 21 – Financial assets and liabilities
- Note 22 – Changes in liabilities with cash flow
movements from financing 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
52
52
54
54
55
56
56
56
56
56
57
57
57
57
58
58
58
59
59
60
60
61
63
63
66
66
67
67
68
70
72
72
Lundin Energy Annual Report 2020
37
FINANCIAL STATEMENTS AND NOTES
Financial Summary
Financial summary
Lundin Energy’s financial resilience has excelled through what has been an exceptionally challenging year in terms of global market
prices due to the COVID-19 outbreak. The Company’s world class assets with industry-leading low unit costs and high quality oil has
generated an EBITDAX margin of in excess of 90 percent for the third consecutive year. Despite a drop of 37 percent in the realised
sales price during 2020 compared to 2019 the Company has posted a record EBITDAX of USD 2.1 billion and a FCF before dividends of
USD 0.45 billion and thus covering the dividend payments by 1.4x.
During 2020 the Company gained its inaugural public credit rating from S&P Global Rating with a BBB- rating and also successfully
re-financed its balance sheet through a USD 5 billion corporate credit facility at significantly improved terms including certain
ESG-linked KPIs. The Company de-levered it’s debt levels during 2020 with a year-end net debt level of USD 3.9 billion and a net
debt/EBITDAX ratio of 1.8x. With a continued outperformance from all the key producing assets in combination with an outlook of
continued strong credit metrics, the 2020 dividend proposal has been set at USD 1.80 per share representing an 80 percent increase
on 2019.
Production in Mboepd
Revenue and other income in MUSD
CFFO in MUSD
Per share in USD
EBITDAX in MUSD 1
Per share in USD 1
Free cash f low in MUSD
Per share in USD
Net result in MUSD
Per share in USD
Adjusted net result in MUSD
Per share in USD
Net debt
2020
164.5
2,564.4
1,528.0
5.38
2,140.2
7.53
448.2
1.58
384.2
1.35
280.0
0.99
3,911.5
2019
93.3
2,948.7
1,378.2
4.36
1,918.4
6.07
1,271.7
4.03
824.9
2.61
252.7
0.80
4,006.7
1 Excludes the reported after tax accounting gain of MUSD 756.7 in 2019 on the divestment of a 2.6 percent working interest in the Johan Sverdrup
project.
38
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Consolidated Income Statement
for the Financial Year Ended 31 December
Expressed in MUSD
Revenue and other income
Revenue
Gain from sale of assets
Other income
Cost of sales
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Purchase of crude oil from third parties
Gross profit
General, administration and depreciation expenses
Operating profit
Net financial items
Finance income
Finance costs
Share in result of joint ventures and associated company
Profit before tax
Income tax
Net result
Earnings per share – USD
Earnings per share – fully diluted – USD
Adjusted earnings per share – USD
Adjusted earnings per share fully diluted – USD
Note
2020
8
1
2
9
9
9
3
4
5
6
7
17.4
17.4
17.5
17.5
2,533.2
–
31.2
2,564.4
-177.2
-607.7
-104.9
–
-217.8
1,456.8
-36.1
1,420.7
172.3
-318.6
-146.3
-0.1
1,274.3
-890.1
384,2
1.35
1.35
0.99
0.98
2019
2,158.6
756.7
33.4
2,948.7
-164.8
-443.8
-125.6
-128.3
-84.3
2,001.9
-31.2
1,970.7
27.5
-322.5
-295.0
-1.8
1,673.9
-849.0
824.9
2.61
2.61
0.80
0.80
Lundin Energy Annual Report 2020
39
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Comprehensive Income
for the Financial Year Ended 31 December
Expressed in MUSD
Net result
Items that may be subsequently reclassified to profit or loss:
Exchange differences foreign operations
Cash flow hedges
Other comprehensive income
Total comprehensive income
Attributable to:
Shareholders of the Parent Company
Non-controlling interest
2020
384.2
-210.1
-63.4
-273.5
110.7
110.7
–
110.7
2019
824.9
29.0
-82.5
-53.5
771.4
771.4
–
771.4
40
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Consolidated Balance Sheet
for the Financial Year Ended 31 December
Expressed in MUSD
ASSETS
Non-current assets
Oil and gas properties
Other tangible fixed assets
Goodwill
Investments in joint ventures
Financial assets
Trade and other receivables
Derivative instruments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative instruments
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
Total equity
Liabilities
Non-current liabilities
Financial liabilities
Provisions
Deferred tax liabilities
Derivative instruments
Total non-current liabilities
Current liabilities
Financial liabilities
Dividends
Trade and other payables
Derivative instruments
Current tax liabilities
Provisions
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
Note
2020
2019
9
10
11
12
13
15
21
14
15
21
16
17.1
17.1
17.2
17.3
17.3
18/22
19
7
21
18/22
20
21
7
19
5,902.4
45.2
128.1
110.6
13.5
17.3
3.8
6,220.9
59.1
278.6
12.1
82.5
432.3
5,473.2
49.4
128.1
–
14.3
–
2.7
5,667.7
40.7
349.5
11.3
85.3
486.8
6,653.2
6,154.5
0.5
323.7
-769.2
-1,708.3
384.2
-1,769.1
3,983.9
565.6
2,893.9
144.7
7,588.1
6.1
72.3
202.5
87.6
444.4
21.3
834.2
8,422.3
6,653.2
0.5
326.0
-571.8
-2,178.4
824.9
-1,598.8
3,888.4
528.1
2,412.7
110.8
6,940.0
97.5
106.0
177.4
33.2
343.3
55.9
813.3
7,753.3
6,154.5
Lundin Energy Annual Report 2020
41
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MUSD
Note
Cash flows from operating activities
Net result
Adjustments for:
Gain from sale of assets
Exploration costs
Depletion, depreciation and amortisation
Impairment of oil and gas properties
Current tax
Deferred tax
Long-term incentive plans
Foreign currency exchange gain/loss
Interest expense
Unwinding of loan modification gain
Amortisation of deferred financing fees
Other
Interest received
Interest paid
Income taxes paid
Changes in working capital:
Changes in inventories
Changes in underlift position
Changes in receivables
Changes in overlift position
Changes in liabilities
Total cash flows from operating activities
Cash flows from investing activities
Investment in oil and gas properties
Investment in renewable energy business1
Investment in other fixed assets
Investment in financial assets
Disposal of fixed assets2
Decommissioning costs paid
Total cash flows from investing activities
Cash flows from financing activities
Net drawdown/repayment of corporate credit facility
Net drawdown/repayment of reserve-based lending facility
Repayment of principal portion of lease liabilities
Financing fees paid
Dividends paid
Share redemption
Total cash flows from financing activities
Changes in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Currency exchange difference in cash and cash equivalents
Cash and cash equivalents at the end of the year
22
22
22
22
2020
384.2
–
104.9
614.6
–
511.8
378.3
9.5
-230.3
104.3
99.7
37.6
6.3
0.8
-126.6
-428.5
-7.2
-3.7
94.2
0.7
-22.6
1,528.0
-919.7
-99.8
-2.4
–
–
-57.9
-1,079.8
3,994.0
-4,092.0
-3.2
-36.8
-318.2
–
-456.2
-8.0
85.3
5.2
82.5
2019
824.9
-756.7
125.6
450.5
128.3
405.8
443.2
14.7
70.8
93.4
41.5
19.7
17.8
1.8
-177.4
-132.7
-4.2
-0.1
-140.3
-0.8
-47.6
1,378.2
-1,057.8
-1.2
-2.5
-0.3
959.0
-3.7
-106.5
–
627.0
-3.4
-3.3
-355.6
-1,517.2
-1,252.5
19.2
66.8
-0.7
85.3
1 Includes incurred cost relating to the acquisition of the renewable energy business and working capital funding
2 Cash received on the divestment of a 2.6 percent working interest in the Johan Sverdrup field on closing including interest and pro and contra funding
settlement from effective date to completion date as well as working capital balances and incurred expenses
The effects of currency exchange differences due to the translation of foreign group companies have been excluded as these effects do
not affect the cash flow. Cash and cash equivalents comprise cash and short-term deposits maturing within less than three months.
42
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Changes in Equity
for the Financial Year Ended 31 December
Expressed in MUSD
Balance at 1 January 2019
Reclassification currency translation reserves3
Restated equity at 1 January 2019
Comprehensive income
Net result
Currency translation difference
Cash flow hedges
Total comprehensive income
Transactions with owners
Cash distributions
Share redemption
Bonus issue (sw. fondemission)
Share based payments4
Value of employee services5
Total transactions with owners
Balance at 31 December 2019
Comprehensive income
Net result
Currency translation difference
Cash flow hedges
Total comprehensive income
Transactions with owners
Cash distributions
Issuance of treasury shares
Share based payments4
Value of employee services5
Total transactions with owners
Balance at 31 December 2020
Attributable to owners of the Parent Company
Share
capital1
Additional
paid-in-
capital
Other
reserves2
Retained
earnings
Total equity
0.5
–
0.5
–
–
–
–
–
-0.1
0.1
–
–
–
0.5
–
–
–
–
–
–
–
–
–
339.7
–
339.7
–
–
–
–
–
–
–
-13.7
–
-13.7
326.0
–
–
–
–
–
7.3
-9.6
–
-2.3
-518.3
76.1
-442.2
–
29.0
-82.5
-53.5
–
–
–
–
–
–
-495.7
–
-210.1
-63.4
-273.5
–
–
–
–
–
-205.7
-76.1
-281.8
824.9
–
–
824.9
-383.8
–
-383.8
824.9
29.0
-82.5
771.4
-501.0
-501.0
-1,476.9
-1,477.0
-0.1
–
5.3
-1,972.7
-1,429.6
384.2
–
–
384.2
–
-13.7
5.3
-1,986.4
-1,598.8
384.2
-210.1
-63.4
110.7
-284.1
-284.1
–
–
5.4
7.3
-9.6
5.4
-278.7
-281.0
0.5
323.7
-769.2
-1,324.1
-1,769.1
1 Lundin Energy AB’s issued share capital described in detail in Note 17.1.
2 Other reserves are described in detail in Note 17.2.
3 In accordance with IAS8 in relation to the deconsolidation of the Russian operations back in 2017.
4 Represents the cost to hedge the equity-settled share-based long-term incentive plan as described in Note 29.
5 Represents the fair value at the date of grant of the equity-settled share-based long-term incentive plan that is recognised over the vesting period as
described in Note 29.
Lundin Energy Annual Report 2020
43
FINANCIAL STATEMENTS AND NOTES
Accounting Policies
Basis of preparation
Lundin Energy’s annual report has been prepared in accordance
with prevailing International Financial Reporting Standards (IFRS)
and International Financial Reporting Interpretation Committee
(IFRIC) interpretations adopted by the EU Commission and the
Swedish Annual Accounts Act (1995:1554). In addition, RFR 1
“Supplementary Rules for Groups” has been applied as issued
by the Swedish Financial Reporting Board. The Parent Company
applies the same accounting policies as the Group, except as
specified in the Parent Company accounting policies on page 73.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates and also
requires management to exercise its judgement in the process
of applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed under the headline “Critical
accounting estimates and judgements”. The consolidated
financial statements have been prepared under the historical cost
convention, except for items that are required to be accounted
for at fair value as detailed in the Group’s accounting policies.
Intercompany transactions and balances have been eliminated.
Accounting standards, amendments and interpretations
As from 1 January 2020, Lundin Energy has not applied any new
accounting standards. As from 1 January 2019, Lundin Energy
applied the following new accounting standard:
IFRS 16 Leases, the standard requires recognition in the balance
sheet for each contract, with some exceptions, that meets the
definition of a lease as a right of use asset and lease liability,
while lease payments are to be reflected as interest expense and a
reduction of lease liability. Effective from 1 January 2019, the
Group has made the following transition choices in relation to IFRS
16: (a) application of the modified retrospective method, (b) right
of use assets will be measured at an amount equal to the lease
liability and (c) leases with a less than 12 months remaining lease
term at year end 2018 will not be reflected as leases. The Group
has made the following application policy choice: short-term leases
(less than 12 months) and leases of low value assets will not be
reflected in the balance sheet, but will be expensed as incurred.
Lundin Energy has assessed the impact of IFRS 16 on the financial
statements of the Group and only identified one relevant contract
containing a lease with no material impact on the financial
statements of the Group. The Company accounted for right of use
assets and lease liabilities amounting to MUSD 36.6 per effective
date 1 January 2019.
The company may enter into lease contracts as an operator on
behalf of a licence, and will for such leases only recognise its net
share of the related lease liability. The company may also enter
into lease contracts in its own name at the initial signing, and
subsequently allocate the related right of use asset to operated
licences. In such cases, the licence allocation will normally be the
basis for determining both the commencement and the duration
of the lease, and application of the short-term lease exemption.
Principles of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the
entity. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing
the Group’s control. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group and are de-
consolidated from the date that control ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition
of a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date.
The non-controlling interest in a subsidiary represents the portion
of the subsidiary not owned by the Group. The equity of the
subsidiary relating to the non-controlling shareholders is shown as
a separate item within equity for the Group. The Group recognises
any non-controlling interest on an acquisition-by-acquisition
basis, either at fair value or at the non-controlling interest’s
proportionate share of the recognised amounts of the acquiree’s
identifiable net assets.
Inter-company transactions, balances, income and expenses on
transactions between group companies are eliminated. Profits
and losses resulting from intercompany transactions are also
eliminated. Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies adopted
by the group.
Joint arrangements
Oil and gas operations are conducted by the Group as co-licences
in unincorporated joint operations with other companies, These
joint operations are a type of joint arrangement whereby the
parties have joint control. The Group’s financial statements
account for the production, capital costs, operating costs and
current assets and liabilities relating to its working interests in
joint arrangements.
For information about unincorporated joint arrangements, see
pages 88–89 Investments in joint operations.
Joint ventures
An investment in a joint venture is an investment in an
undertaking where the Group has joint control, generally
accompanying a shareholding of not more than 50 percent of
the voting right. Joint control is the contractually agreed sharing
of control, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing
control. Such investments are accounted for in the consolidated
financial statements in accordance with the equity method
and are initially recognised at cost. The difference between the
acquisition cost of shares in a joint venture and the net fair value
of the assets, liabilities and contingent liabilities of the joint
venture recognised at the date of acquisition is recognised as
goodwill. The goodwill is included within the carrying amount
of the joint venture and is assessed for impairment as part of the
investment. The Group’s share in the post-acquisition results
of the joint venture is recognised in the income statement
and the Group’s share in post-acquisition movements in other
comprehensive income of the joint venture are recognised
44
Lundin Energy Annual Report 2020
directly in other comprehensive income of the Group. When the
Group’s accumulated share of losses in a joint venture equals
or exceeds its interest in the joint venture, the Group does not
recognise further losses, unless it has incurred obligations or
made payments on behalf of the joint venture.
Unrealised gains on transactions between the Group and its joint
ventures are eliminated to the extent of the Group’s percentage
in the joint ventures. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred.
Associated companies
An investment in an associated company is an investment in an
undertaking where the Group exercises significant influence 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 financial
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.
Foreign currencies
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (functional currency).
The consolidated financial statements are presented in US
Dollars, which is the currency the Group has elected to use as the
presentation currency.
Transactions and balances
Monetary assets and liabilities denominated in foreign currencies
are translated at the rates of exchange prevailing at the balance
sheet date and foreign exchange currency differences are
recognised in the income statement. Transactions in foreign
currencies are translated at exchange rates prevailing at the
transaction date. Exchange differences are included in finance
income/costs in the income statement except deferred exchange
differences on qualifying cash flow hedges which are recorded in
other comprehensive income.
Presentation currency
The balance sheets and income statements of foreign Group
companies are translated for consolidation purposes. 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.
For the preparation of the annual financial statements, the
following currency exchange rates have been used.
31 December 2020
31 December 2019
Average Period end
Average Period end
1 USD equals NOK
9.4146
8.5326
8.8003
1 USD equals EUR
0.8762
0.8149
0.8932
1 USD equals SEK
9.2092
8.1772
9.4581
8,7803
0.8902
9.2993
Classification of assets and liabilities
Non-current assets, long-term liabilities and non-current
provisions consist of amounts that are expected to be recovered
or paid more than twelve months after the balance sheet date.
Current assets, current liabilities and current provisions consist
solely of amounts that are expected to be recovered or paid within
twelve months after the balance sheet date.
Oil and gas properties
Oil and gas properties are recorded at historical cost less
depletion. All costs for acquiring concessions, licences or interests
in production sharing contracts and for the survey, drilling and
development of such interests are capitalised on a field area cost
centre basis.
Costs directly associated with an exploration well are capitalised.
If it is determined that a commercial discovery has not been
achieved, these exploration costs are charged to the income
statement. During the exploration and development phases,
no depletion is charged. The field will be transferred from the
non-production cost pool to the production cost pool within oil
and gas properties once production commences, and accounted
for as a producing asset. Routine maintenance and repair costs
for producing assets are expensed as production costs when they
occur.
Net capitalised costs to reporting date, together with anticipated
future capital costs for the development of the proved and
probable reserves determined at the balance sheet date price
levels, are depleted based on the year’s production in relation to
estimated total proved and probable reserves of oil and gas, in
accordance with the unit of production method. Depletion of a
field area is charged to the income statement through cost of sales
once production commences.
Proved reserves are those quantities of petroleum which, by
analysis of geological and engineering data, can be estimated with
reasonable certainty to be commercially recoverable, from a given
date forward, from known reservoirs and under current economic
conditions, operating methods and governmental regulations.
Proved reserves can be categorised as developed or undeveloped.
If deterministic methods are used, the term reasonable certainty
is intended to express a high degree of confidence that the
quantities will be recovered. If probabilistic methods are
Lundin Energy Annual Report 2020
45
FINANCIAL STATEMENTS AND NOTES | Accounting Policies
used, there should be at least a 90 percent probability that the
quantities actually recovered will equal or exceed the estimates.
Probable reserves are those unproved reserves which analysis
of geological and engineering data indicate are less likely to be
recovered than Proved reserves but more certain to be recovered
than Possible reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of
the estimated Proved plus Probable reserves (2P). In this context,
when probabilistic methods are used, there should be at least a 50
percent probability that the actual quantities recovered will equal
or exceed the 2P estimate.
Proceeds from the sale or farm-out of oil and gas concessions in
the exploration stage are offset against the related capitalised
costs of each cost centre, with any excess of net proceeds over the
costs capitalised included in the income statement. In the event
of a sale in the exploration stage, any deficit is included in the
income statement.
Impairment tests are performed annually or when there are facts
and circumstances that suggest that the carrying value of an asset
capitalised costs within each field area less any provision for site
restoration costs, royalties and deferred production or revenue
related taxes is higher than the anticipated future net cash flow
from oil and gas reserves attributable to the Group’s interest in
the related field areas. Capitalised costs cannot be carried unless
those costs can be supported by future cash flows from that asset.
Provision is made for any impairment, where the net carrying
value, according to the above, exceeds the recoverable amount,
which is the higher of value in use and fair value less costs to sell,
determined through estimated future discounted net cash flows
using prices and cost levels used by Group management in their
internal forecasting. If there is no decision to continue with a
field specific exploration programme, the costs will be expensed
at the time the decision is made.
Other tangible fixed assets
Other tangible fixed assets are stated at cost less accumulated
depreciation. Depreciation is based on cost and is calculated on a
straight line basis over the estimated economic life of 20 years for
real estate and three to five years for office equipment and other
assets.
Additional costs to existing assets are included in the assets’ net
book value or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with
the item will flow to the Group and the cost of the item can be
measured reliably. The net book value of any replaced parts is
written off. Other additional expenses are deemed to be repair
and maintenance costs and are charged to the income statement
when they are incurred.
Goodwill
Goodwill is initially measured as the excess of the aggregate of the
consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the
net assets acquired, the difference is recognised in profit or loss.
Goodwill is also recognised as the offsetting accounting entry to
the deferred tax liability booked on the difference between the
assigned fair value of an asset and the related tax base acquired in
a business combination.
Impairment of assets including goodwill
At each balance sheet date the Group assesses whether there is
an indication that an asset may be impaired. Where an indicator
of impairment exists or when impairment testing for an asset is
required, the Group makes a formal assessment of the recoverable
amount. Where the carrying value of a cash generating unit
(CGU) exceeds its recoverable amount the CGU is considered
impaired and is written down to its recoverable amount. A CGU is
an individual field or a group of fields with shared infrastructure
in the development or production phase. Goodwill relating to
acquisitions of oil and gas properties is tested for impairment at
least once a year and is measured at CGU level.
The recoverable amount is the higher of fair value less costs to
sell and value in use. Value in use is calculated by discounting
estimated future cash flows to their present value using a
discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
When the recoverable amount is less than the carrying value
an impairment loss is recognised with the expensed charge
to the income statement. If indications exist that previously
recognised impairment losses no longer exist or are decreased,
the recoverable amount is estimated. When a previously
recognised impairment loss is reversed the carrying amount of
the asset is increased to the estimated recoverable amount but the
increased carrying amount may not exceed the carrying amount
after depreciation that would have been determined had no
impairment loss been recognised for the asset in prior years.
Financial assets and liabilities
Assets and liabilities are recognised initially at fair value plus
transaction costs and subsequently measured at amortised cost
unless stated otherwise. Financial assets are derecognised when
the rights to receive cash flows from the investments have
expired, or have been transferred and the Group has transferred
substantially all risks and rewards of ownership.
Lundin Energy recognises the following financial assets and
liabilities:
Financial assets at amortised cost
Financial assets that are held for collection of contractual
cash flows where those cash flows represent solely payments
of principal and interest are measured at amortised cost. The
Group’s loans and receivables consist of fixed or determined
cash flows related solely to principal and interest amounts or
contractual sales of oil and gas. The Group’s intent is to hold
these receivables until cash flows are collected. Loans are
recognised initially at fair value, net of any transaction costs
incurred and subsequently measured at amortised cost.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets measured at FVTPL are assets which do not
qualify as financial assets at amortised cost or at fair value
through other comprehensive income.
Financial liabilities at amortised cost
Financial liabilities are measured at amortised cost, unless they
are required to be measured at FVTPL, or the Group has opted
to measure them at FVTPL. Borrowings and accounts payable
are recognised initially at fair value, net of any transaction costs
incurred, and subsequently at amortised cost using the effective
interest method.
46
Lundin Energy Annual Report 2020
Financial liabilities at FVTPL
Financial liabilities measured at FVTPL are liabilities which
include embedded derivatives and cannot be classified as
amortised cost.
Impairment of financial assets
The measurement of impairment of financial assets is based
on the expected credit losses model. For the trade and other
receivables, the Group applies the simplified approach which
requires the use of the lifetime expected loss provision for
all trade receivables. In estimating the lifetime expected loss
provision, the Group considered historical industry default rates
as well as credit ratings of major customers. Additional disclosure
related to the Group’s financial assets is included in Note 21.
Derivatives used for hedging
Derivative financial instruments are used to manage economic
exposure to market risks relating to foreign currency exchange
rates and interest rates. Policies and procedures are in place with
respect to required documentation and approvals for the use of
derivative financial instruments. Derivative financial instruments
are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured at their
fair value. Where specific financial instruments are executed, The
Group assesses, both at the time of purchase and on an ongoing
basis, whether the financial instrument used in the particular
transaction is effective in offsetting changes in fair values or cash
flows of the transaction.
All cash flow hedges entered into by the Group qualify for hedge
accounting. The effective portion of changes in the fair value of
derivatives that qualify as cash flow hedges are recognised in other
comprehensive income. The gain or loss relating to the ineffective
portion, if any, 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 and under
or overlift positions of hydrocarbons are stated at the lower of cost
and net realisable value. An underlift of production from a field is
included in the current receivables and an overlift of production
from a field is included in the current liabilities.
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 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 is more
likely than not that an outflow of resources is required to settle the
obligation and a reliable estimate can be made of the amount.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation and the discount
rate used in the calculation is the risk-free rate with the addition
of a credit risk element. The increase in the provision due to
passage of time is recognised as finance costs.
On fields where the Group is required to contribute to site
restoration costs, a provision is recorded to recognise the future
commitment. An asset is created, as part of the oil and gas
property, to represent the discounted value of the anticipated
site restoration liability and depleted over the life of the field
on a unit of production basis. The corresponding accounting
entry to the creation of the asset recognises the discounted value
of the future liability. The discount applied to the anticipated
site restoration liability is subsequently released over the life
of the field and is charged to financial expenses. Changes in
site restoration costs and reserves are treated prospectively and
consistent with the treatment applied upon initial recognition.
Borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised
costs using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or a shorter
period where appropriate.
Lundin Energy Annual Report 2020
47
FINANCIAL STATEMENTS AND NOTES | Accounting Policies
Revenue
Revenues from the sale of oil and gas are recognised in the
income statement based on the sales method. Sales of oil and
gas are recognised upon delivery of products and customer
acceptance. Incidental revenues from the production of oil and
gas are also recognised as revenue.
Service income, generated by providing technical and
management services to joint operations, is recognised upon
performance of services and is recognised as other income.
Borrowing costs
Borrowing costs attributable to the acquisition, construction or
production of qualifying assets are added to the cost of those
assets. Qualifying assets are assets that take a substantial period
of time to complete for their intended use or sale. Investment
income earned on the temporary investment of specific
borrowings pending to be used for the qualifying asset, is
deducted from the borrowing costs eligible for capitalisation.
This applies on the interest on borrowings to finance fields under
development which is capitalised within oil and gas properties
until production commences. All other borrowing costs are
recognised in the income statement in the period in which
they occur. Interest on borrowings to finance the acquisition
of producing oil and gas properties is charged to the income
statement as incurred.
Employee benefits
Short-term employee benefits
Short-term employee benefits such as salaries, social premiums
and holiday pay, are expensed when incurred.
Pension obligations
Pensions are the most common long-term employee benefits.
The pension schemes are funded through payments to insurance
companies. The Group’s pension obligations consist mainly of
defined contribution plans. A defined contribution plan is a
pension plan under which the Group pays fixed contributions. The
Group has no further payment obligations once the contributions
have been paid. The contributions are recognised as an expense
when they are due.
The Group has one obligation under a defined benefit plan. The
relating liability recognised in the balance sheet is valued at the
discounted estimated future cash outflows as calculated by an
external actuarial expert. Actuarial gains and losses are recognised
in other comprehensive income. The Group does not have any
designated plan assets.
Share-based payments
Cash-settled share-based payments are recognised in the income
statement as expenses during the vesting period and as a liability
in relation to the long-term incentive plan. The liability is
measured at fair value and revalued using the Black & Scholes
pricing model at each balance sheet date and at the date of
settlement, with any change in fair value recognised in the income
statement for the period. Equity-settled share-based payments are
recognised in the income statement as expenses during the vesting
period and as equity in the Balance Sheet. The option is measured
at fair value at the date of grant using an options pricing model
and is charged to the income statement over the vesting period
without revaluation of the value of the option.
Income taxes
The components of tax are current and deferred. Tax is recognised
in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in
equity, in which case it is matched.
Current tax is tax that is to be paid or received for the year in
question and also includes adjustments of current tax attributable
to previous periods.
Deferred income tax is a non-cash charge provided, using the
liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying values.
Temporary differences can occur, for example, where investment
expenditure is capitalised for accounting purposes but the tax
deduction is accelerated, or where site restoration costs are
provided for in the financial statements but not deductible for
tax purposes until they are actually incurred. However, the
deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects
neither accounting nor taxable profit nor loss. Deferred income
tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the
reversal of the temporary difference is controlled by the Group
and it is probable that the temporary difference will not reverse
in the foreseeable future. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when
the related deferred income tax asset is realised or the deferred
income tax liability is settled. Deferred income tax assets are
recognised to the extent that it is probable that future taxable
profit will be available against which the temporary differences
can be utilised.
Deferred tax assets are offset against deferred tax liabilities in the
balance sheet where they relate to the same jurisdiction.
Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision
maker being Group management, which, due to the unique
nature of each country’s operations, commercial terms or fiscal
environment, is at a country level. Information for segments
is only disclosed when applicable. Segmental information is
presented in Note 3 and Note 7.
Critical accounting estimates and judgements
The management of Lundin Energy has to make estimates and
judgements when preparing the financial statements of the
Group. Uncertainties in the estimates and judgements could have
an impact on the carrying amount of assets and liabilities and the
Group’s result. The most important estimates and judgements in
relation thereto are:
Estimates in oil and gas reserves
Estimates of oil and gas reserves are used in the calculations
for impairment tests and accounting for depletion and site
restoration. Standard recognised evaluation techniques are used
to estimate the proved and probable reserves. These techniques
take into account the future level of development required to
produce the reserves. An independent reserves auditor reviews
these estimates, see page 87 Reserve and Resource Quantity
Information. Changes in estimates of oil and gas reserves,
48
Lundin Energy Annual Report 2020
resulting in different future production profiles, will affect the
discounted cash flows used in impairment testing, the anticipated
date of site decommissioning and restoration and the depletion
charges in accordance with the unit of production method.
Changes in estimates in oil and gas reserves could for example
result from additional drilling, observation of long-term reservoir
performance or changes in economic factors such as oil price and
inflation rates.
Information about the carrying amounts of the oil and gas
properties and the amounts charged to income, including depletion,
exploration costs, and impairment costs is presented in Note 9.
Impairment of oil and gas properties
Lundin Energy carries out impairment tests of individual cash-
generating units when impairment triggers are identified.
Goodwill relating to the acquisition of oil and gas properties is
tested for impairment at least annually. No impairment triggers
were identified for 2020. Lundin Energy therefore only performed
impairment testing for goodwill.
Key assumptions in the impairment models relate to prices
and costs that are based on forward curves and the long-term
corporate assumptions. 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 flows 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 flow estimates and the
discount rate applied is reviewed throughout the year.
Information about the carrying amounts of the oil and gas
properties and impairment of oil and gas properties is presented
in Note 3 and Note 9.
Provision for site restoration
Amounts used in recording a provision for site restoration are
estimates based on current legal and constructive requirements
and current technology and price levels for the removal of facilities
and plugging and abandoning of wells. Due to changes in relation
to these items, the future actual cash outflows in relation to the site
decommissioning and restoration can be different. To reflect the
effects due to changes in legislation, requirements and technology
and price levels, the carrying amounts of site restoration provisions
are reviewed on a regular basis.
The effects of changes in estimates do not give rise to prior year
adjustments and are treated prospectively over the estimated
remaining commercial reserves of each field. While the Group
uses its best estimates and judgement, actual results could differ
from these estimates.
Information about the carrying amounts of the Provision for site
restoration is presented in Note 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 profits will be
available against which the losses can be utilised. Estimation and
judgement is required to determine the value of the deferred tax
asset, based upon the timing and level of future taxable profits.
COVID-19 crisis and low oil price response
The COVID-19 crisis, its economic impact and the oil price
collapse led to a challenging market backdrop during 2020. The
main focus of the Company’s response has been, and continues to
be, on reducing the risk of the virus spreading in the operations
and safeguarding the well-being of the Company’s employees and
contractors, whilst at the same time minimising the potential
impact on the business. To date there have been no disruptions to
production due to the COVID-19 situation. Detailed contingency
plans have been established to mitigate the risk, a key element
of which is that all personnel visiting the Company’s operated
production and drilling sites are now tested for the virus before
travelling offshore.
Lundin Energy has high quality, low cost assets, which are
resilient in a low oil price environment. Nevertheless, the
Company took steps to defer activity and reduce spend, where it
did not impact safety, asset integrity or production, in order to
further strengthen the financial resilience of the business. Total
expenditure reductions and deferrals in 2020 were over MUSD
360 from original guidance, including capital expenditures,
operating costs and G&A.
Strategic response to climate risks
Lundin Energy faces both physical climate change risks as well as
energy transition risks. As an efficient offshore operator, we assess
physical risks from climate change as essentially non-material
to our business, due to the fact that our assets were designed to
withstand acute and chronic physical impacts, such as sea level
rise and extreme weather. However, transition risks require more
focus and active management, with the top risk for Lundin Energy
being the changing long-term demand for oil.
Our portfolio is highly resilient in the IEA’s Sustainable
Development Scenario (SDS), which is considered a ‘well below
2 degrees C’ scenario. We have modelled impacts of a lower oil price
and higher carbon taxes, both of which do not have any material
impacts on the economic resilience of our assets.
Long-term oil price outlook
Being one of the lowest cost operators with world class assets
means that our portfolio is highly resilient under lower oil price
scenarios, with low oil price free cash flow break-even (before
dividend and debt repayment). Our assets have a remaining life
of field break-even (pre-tax, debt repayment and dividend) of
31 USD/boe, which is well below the long-term oil price outlook
under the IEA’s Sustainable Development Scenario of 53 USD/
boe in 2040, allowing us room to continue servicing debt and
paying dividends. The economic cut off of our assets is also not
materially impacted under lower oil price scenarios.
Events after the balance sheet date
All events up to the date when the financial statements were
authorised for issue and which have a material effect in the
financial statements have been disclosed. Subsequent events are
presented in Note 31.
Lundin Energy Annual Report 2020
49
FINANCIAL STATEMENTS AND NOTES
Notes to the Financial Statements
of the Group
Note 1 Revenue and Other Income
MUSD
Revenue
Crude oil from own production
Crude oil from third party activities
NGL
Gas
Net sales of oil and gas
Gain from sale of assets
Other income
Revenue and other income
2020
2019
2,168.5
221.5
63.8
79.4
2,533.2
–
31.2
2,564.4
1,939.8
84.3
41.4
93.1
2,158.6
756.7
33.4
2,948.7
2019
118.1
46.3
-0.9
-2.8
4.1
164.8
For further information on revenue, see the Directors Report on page 10.
Note 2 Production Costs
MUSD
Cost of operations
Tariff and transportation expenses
Change in under/over lift position
Change in inventory position
Other production costs
Production costs
2020
134.5
50.7
-2.7
-11.2
5.9
177.2
For further information on production costs, see the Directors Report on pages 10–11.
Note 3 Segment Information
The Group operates within several geographical areas with a focus on Norway. Operating segments are reported at country level which is
consistent with the internal reporting provided to Group management.
The following tables present segment information regarding; revenue 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 profit/loss and certain asset
and liability information regarding the Group’s business segments. In addition segment information is reported in Note 7.
Revenues are derived from various external customers. There were no intercompany sales or purchases in the year or in the previous year
other than to Lundin Energy Marketing SA which performs marketing 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
28 percent of the total revenue is contracted with one customer. The Parent Company is included in Other in the following table.
50
Lundin Energy Annual Report 2020
Note 3 continued
MUSD
Norway
Crude oil from own production
NGL
Gas
Net sales of oil and gas
Gain from sale of assets
Other income
Revenue and other income
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Gross profit
Other
Crude oil from third party activities
Revenue
Other income
Revenue and other income
Purchase of crude oil from third parties
Gross profit
2020
2019
2,168.5
63.8
79.4
2,311.7
–
30.3
2,342.0
-177.2
-607.7
-104.9
–
1,452.2
221.5
221.5
0.9
222.4
-217.8
4.6
1,939.8
41.4
93.1
2,074.3
756.7
33.4
2,864.4
-164.8
-443.8
-125.6
-128.3
2,001.9
84.3
84.3
–
84.3
-84.3
0.0
MUSD
2020
2019
Total
Crude oil from own production
Crude oil from third party activities
NGL
Gas
Net sales of oil and gas
Gain from sale of assets
Other income
Revenue and other income
Production costs
Depletion and decommissioning costs
Exploration costs
Impairment costs of oil and gas properties
Purchase of crude oil from third parties
Gross profit
MUSD
Norway
Sweden
Other
Corporate
Intercompany balance elimination
Assets/liabilities per country
Shareholders’ equity
Total equity for the Group
2,168.5
221.5
63.8
79.4
2,533.2
–
31.2
2,564.4
-177.2
-607.7
-104.9
–
-217.8
1,456.8
2020
6,500.1
72.8
227.6
2,367.6
-2,514.9
6,653.2
N/A
N/A
1,939.8
84.3
41.4
93.1
2,158.6
756.7
33.4
2,948.7
-164.8
-443.8
-125.6
-128.3
-84.3
2,001.9
Assets
Equity and Liabilities
2019
2020
6,114.2
122.5
296.0
2,399.7
-2,777.9
6,154.5
N/A
N/A
6,174.9
77.6
220.4
4,464.3
-2,514.9
8,422.3
-1,769.1
-1,769.1
2019
5,774.0
109.2
299.6
4,348.4
-2,777.9
7,753.3
-1,598.8
-1,598.8
6,154.5
Total consolidated
6,653.2
6,154.5
6,653.2
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 10–11.
Lundin Energy Annual Report 2020
51
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 4 Finance Income
MUSD
Foreign currency exchange gain, net
Interest income
Gain on interest rate hedge settlement
Finance income
2020
171.0
1.3
–
172.3
2019
–
1.8
25.7
27.5
Exchange rate variations result primarily from fluctuations in the value of the USD currency against a pool of currencies which mainly
includes, amongst others, EUR and NOK. Lundin Energy 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 pages 11.
For further information on finance income, see the Directors Report on page 11.
Note 5 Finance Costs
MUSD
Foreign currency exchange loss, net
Interest expense
Loss on interest rate hedge settlement
Unwinding of site restoration discount
Amortisation of deferred financing fees
Loan facility commitment fees
Unwinding of loan modification gain
Other
Finance costs
2020
–
104.4
44.5
19.2
37.6
11.5
99.7
1.7
318.6
For further information on finance costs, see the Directors Report on pages 11–12.
Note 6 Share in Result of Joint Ventures and Associated Company
MUSD
Group´s share of net result of joint ventures
Group´s share of net result of associated company
Share in result of joint ventures and associated
company
2020
-0.1
–
-0.1
2019
131.7
93.4
–
17.9
19.7
10.9
41.5
7.4
322.5
2019
–
-1.8
-1.8
For further information on share in result of joint ventures and associated company, see the Directors Report on page 12.
Note 7 Income Taxes
Tax charge
MUSD
Current tax
Norway
Switzerland
Other
Current tax
Deferred tax
Norway
Deferred tax
Income taxes
2020
510.0
0.9
0.9
511.8
378.3
378.3
890.1
2019
405.2
0.6
–
405.8
443.2
443.2
849.0
On 19th June 2020, certain temporary changes in the Norwegian Petroleum Tax Law were enacted. The temporary changes allow
investments incurred in 2020 and 2021 to be fully deducted against the Special Petroleum Tax (SPT) in the year of investment, compared
to a six year linear depreciation for the ordinary tax regime. There is a further deduction available against the SPT in the form of an
uplift. For the years 2020 and 2021, the uplift has been changed to 24 percent of the investment incurred in the year and is fully
deductible in the year the investment is incurred, versus the previous uplift treatment which stipulated that the investment incurred
during the year qualified for an uplift of 5.2 percent annually over four years (i.e. 20.8 percent uplift). The temporary changes in the
52
Lundin Energy Annual Report 2020
Note 7 continued
Petroleum Tax Law also apply for Plan for Development and Operations submitted within 2022. These tax rules changes resulted in a
reduction on current taxes for the year and an increase in deferred taxes for the year. The changes for the Norwegian SPT will reduce
the Company’s current tax charge for the years 2020 and 2021 with the cashflow impact spread over the period 2020 to 2022, due to
the phasing of the tax instalments in Norway.
For further information on income taxes, see the Directors Report on page 12.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of Sweden as follows:
MUSD
Profit before tax
Tax calculated at the corporate tax rate in Sweden 21.4% (21.4%)
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 per income statement
2020
1,274.3
-272.7
-687.0
-105.2
140.2
23.7
12.8
-4.8
2.9
-890.1
2019
1,673.9
-358.2
-1,091.6
-85.1
83.1
615.4
0.6
-6.1
-7.1
-849.0
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 foreign currency exchange losses and interest charges. The uplift on expenses relates to uplift on
development expenses for oil and gas assets in Norway. The effect of non-taxable income in the comparative period mainly relates to the
presentation of the gain from the sale of 2.6 percent of Johan Sverdrup on an after tax basis, see also Note 8.
There is no tax charge/credit relating to components of other comprehensive income.
Corporation tax liability - current and deferred
MUSD
Norway
Switzerland
Total
Specification of deferred tax assets and tax liabilities 1
MUSD
Deferred tax assets
Temporary differences
Deferred tax liabilities
Accelerated allowances
Deferred tax on excess values
Current
Deferred
2020
2,893.9
–
2,893.9
2019
2,412.7
–
2,412.7
2020
444.3
0.1
444.4
2020
54.2
54.2
2,934.1
14.0
2,948.1
2019
342.7
0.6
343.3
2019
44.0
44.0
2,456.2
0.5
2,456.7
1 The specification of deferred tax assets and tax liabilities does not agree to the face of the balance sheet due to the netting off of balances in the balance
sheet when they relate to the same jurisdiction.
The deferred tax 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.
Tax value Norwegian Oil and Gas properties
The future tax value from historical development expenses by tax depreciations and uplift amounts to approximately USD 1.1 billion as at
31 December 2020.
Unrecognised tax losses
The Group has Dutch tax loss carry forwards of approximately MUSD 66 (MUSD 36). The tax losses can be carried forward and utilised varying
from six years up to nine years. 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.
The Group also has Swedish tax loss carry forwards of approximately MUSD 141 (MUSD 106). 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.
Lundin Energy Annual Report 2020
53
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 8 Gain from Sale of Assets
In July 2019, Lundin Energy entered into a sales and purchase agreement for the sale of a 2.6 percent working interest in the Johan Sverdrup
development project to Equinor. The transaction decreased the Company’s working interest in the Johan Sverdrup development project to
20 percent. The transaction involved a cash consideration payable by Equinor of MUSD 962.0, which includes a nominal MUSD 52.0 contingent
payment on future reserve reclassifications. The transaction was completed in August 2019, with economic effect from 1 January 2019. The
transaction was accounted for at closing resulting in a net after tax accounting gain of MUSD 756.7 arising from the difference between the
consideration received and the book value of the associated assets being divested. The accounting gain is reported as gain from sale of assets as
detailed in the following table. The gain from the sale is presented on an after tax basis as the consideration is determined net after tax based
on the Norwegian Petroleum Tax regulations. There are no gains or losses from sale of assets in 2020.
MUSD
Assets
Oil and gas properties
Total assets divested
Liabilities
Site restoration provision
Deferred tax liabilities
Working capital
Total liabilities divested
Net assets divested
Consideration received1
Incurred expenses
Net after tax accounting gain
2019
343.7
343.7
16.2
108.9
4.0
129.1
214.6
974.0
-2.7
756.7
1 Includes fair value of the contingent consideration on future reserve reclassifications, received interest and pro and contra funding settlement from
effective date to completion date as well as working capital balances.
Note 9 Oil and Gas Properties
MUSD
Production cost pools
Non-production cost pools
Production cost pools
MUSD
Cost
1 January
Additions
Reclassification from non-production cost pools
Change in estimates
Currency translation difference
31 December
Depletion
1 January
Depletion charge for the year
Currency translation difference
31 December
Net book value
31 December
2020
31 December
2019
3,776.9
2,125.5
5,902.4
Norway
2020
7,451.5
172.8
25.1
7.3
240.6
7,897.3
-3,386.2
-605.6
-128.6
-4,120.4
3,776.9
4,065.3
1,407.9
5,473.2
Norway
2019
4,751.3
95.5
2,687.9
2.3
-85.5
7,451.5
-2,992.0
-424.4
30.2
-3,386.2
4,065.3
Depletion amounted to MUSD 605.6 (MUSD 424.4) and is included within the depletion and decommissioning costs line in the income
statement.
54
Lundin Energy Annual Report 2020
Note 9 continued
Non-production cost pools
MUSD
1 January
Additions
Reclassification to production cost pools
Disposals
Expensed exploration costs
Impairment costs of oil and gas properties
Change in estimates
Currency translation difference
31 December
Norway
2020
1,407.9
788.7
-25.1
–
-104.9
–
0.1
58.8
2,125.5
Norway
2019
3,581.8
1,115.4
-2,687.9
-343.7
-125.6
-128.3
1.4
-5.2
1,407.9
Non-production cost pools at 31 December 2020 consisted of MUSD 1,216.1 (MUSD 652.2) assets under development and MUSD 909.4 (MUSD 755.7)
capitalised exploration and appraisal expenditure.
Impairment
Lundin Energy carries out impairment tests of individual cash-generating units when impairment triggers are identified. No impairment
triggers were identified for 2020. Non-cash impairment costs amounted to MUSD – (MUSD 128.3) with the impairment costs in 2019 relating
to certain licences in the Barents Sea of which future economic development is considered uncertain.
Capitalised borrowing costs
During 2020, MUSD 25.8 (MUSD 85.7) 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 between
1.6 percent to 2.5 percent.
Development expenditure commitments
The Group is contractually committed to development projects with a remaining commitment as at 31 December 2020 of approximately
USD 1.5 billion (USD 2.0 billion), mainly relating to the Johan Sverdrup Phase 2 project and excluding the renewable power project.
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 2020 are estimated to be MUSD 149.2 (MUSD 107.0) of which third parties who are joint operations partners will contribute
approximately MUSD 103.8 (MUSD 71.5) resulting in a net commitment of approximately MUSD 45.4 (MUSD 35.5).
Contracted drilling rigs commitments
The Group has entered into lease contracts for drilling. As the leases have not commenced yet as at 31 December 2020 or have a short-
term nature, no lease liability is recognised in the balance sheet for these contracts as at 31 December 2020. The commitments under these
contracts are estimated to be MUSD 204.5 (MUSD 290.7) of which third parties who are joint operations partners will contribute approximately
MUSD 73.0 (MUSD 109.8). The net lease commitment of approximately MUSD 131.5 (MUSD 180.9) is already included in the above mentioned
development and exploration and appraisal expenditure commitments as at 31 December 2020.
Note 10 Other Tangible Fixed Assets
MUSD
Real estate
Other
Total
Real estate
Other
Total
2020
2019
Cost
1 January
Additions
Change in right of use asset
Currency translation difference
31 December
Depreciation
1 January
Depreciation charge for the year
Currency translation difference
31 December
Net book value
51.2
–
-0.8
1.1
51.5
-5.5
-4.4
-0.1
-10.0
41.5
33.7
2.3
–
1.3
37.3
-30.0
-2.5
-1.1
-33.6
3.7
84.9
2.3
-0.8
2.4
88.8
-35.5
-6.9
-1.2
-43.6
45.2
10.6
41.0
–
-0.4
51.2
-1.2
-4.3
–
-5.5
45.7
32.0
2.0
–
-0.3
33.7
-27.8
-2.4
0.2
-30.0
3.7
42.6
43.0
–
-0.7
84.9
-29.0
-6.7
0.2
-35.5
49.4
Lundin Energy Annual Report 2020
55
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 10 continued
The depreciation charge for the year is based on cost and an estimated useful life of three to five years for office equipment and other assets.
Real estate is depreciated using an estimated useful life of 20 years and taking into account its residual value. Depreciation is included within
the general, administration and depreciation line in the income statement. Real estate additions in the comparative period mainly relate to
office premises that fall under IFRS16 which is depreciated based on the remaining contractual life of the office lease.
Note 11 Goodwill
MUSD
1 January
Change
31 December
2020
128.1
–
128.1
2019
128.1
–
128.1
The Group’s goodwill arose from the acquisition of a further 15 percent interest in the Edvard Grieg field in 2016 and is tested for impairment at
least annually. Impairment is recognised when the book value of an asset or a cash-generating unit, including associated goodwill, exceeds the
recoverable amount. Impairment testing has been based on value in use. In the assessment Lundin Energy used a combination of the oil price
forward curve at year end and the price deck as used by ERCE for the year-end 2020 reserves certification process as a basis for its price forecast, a
future cost inflation factor of 2 percent (2 percent) per annum and a discount rate of 8 percent (8 percent) to calculate the future post-tax cash flows.
Note 12 Investments in Joint Ventures
Metsälamminkangas Wind Oy, Finland
Leikanger Kraft AS, Norway
31 December 2020
Number of shares
Share %
1,250
289,000
50.0
50.0
Book amount
MUSD
31 December 2019
Book amount
MUSD
53.8
56.8
110.6
–
–
–
The 50 percent interest held in Metsälamminkangas Wind Oy relates to the wind farm project in Finland and the 50 percent interest held in
Leikanger Kraft AS relates to the hydropower project in Norway.
Note 13 Financial Assets
MUSD
Contingent consideration
Associated companies
Other
31 December 2020
31 December 2019
12.7
0.3
0.5
13.5
12.4
0.3
1.6
14.3
The sale of 2.6 percent of Johan Sverdrup in 2019 included a contingent consideration based on future reserve reclassifications and is due in
2026, This contingent consideration was fair valued by the Company and amounted to MUSD 12.4.
Note 13.1 Associated Companies
Johan Sverdrup Eiendom DA
Note 14 Inventories
MUSD
Hydrocarbon inventories
Drilling equipment and consumable materials
31 December 2020
Number of shares
N/A
Share %
20.0
Book amount
MUSD
31 December 2019
Book amount
MUSD
0.3
0.3
0.3
0.3
31 December 2020
31 December 2019
17.4
41.7
59.1
6.1
34.6
40.7
Hydrocarbon inventories included a cargo lifting on 31 December 2020 that was sold in early 2021.
56
Lundin Energy Annual Report 2020
Note 15 Trade and Other Receivables
MUSD
Non-current:
Prepaid expenses and accrued income
Current:
Trade receivables
Underlift
Joint operations debtors
Prepaid expenses and accrued income
Other
31 December
2020
31 December
2019
17.3
17.3
215.5
5.7
21.8
26.5
9.1
278.6
295.9
–
–
305.1
2.0
11.4
23.9
7.1
349.5
349.5
Non-current trade and other receivables relates to prepayments with a long-term nature. 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.
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 2020.
Note 17 Equity
Note 17.1 Share Capital and Share Premium
MUSD
1 January 2019
Share redemption
Bonus issue (sw. fondemission)
Share based payments
Movements
31 December 2019
Issuance of treasury shares
Share based payments
Movements
Share capital
Number
of shares
Par value
MSEK
Par value
MUSD
Additional paid
in capital
MUSD
339.7
–
–
-13.7
-13.7
326.0
7.3
-9.6
-2.3
323.7
3.5
-0,6
0.6
–
–
3.5
–
–
–
3.5
0.5
-0,1
0.1
–
–
0.5
–
–
–
0.5
340,386,445
-54,461,831
–
–
–
285,924,614
–
–
–
31 December 2020
285,924.614
Included in the number of shares issued at 31 December 2020 are 1,573,143 shares (1,873,310 shares) which Lundin Energy holds in its own
name. During 2017, Lundin Energy purchased 1,233,310 of its own shares at an average price of SEK 186.14 based on the approval granted
at the AGM 2017. During 2018, Lundin Energy purchased an additional 640,000 of its own shares at an average price of SEK 186.77 based on
the approval granted at the AGM 2018. During 2020, Lundin Energy used 300,167 of the purchased own shares for settlement of the 2017
performance based incentive plan resulting in 1,573,143 of its own shares held at the end of the year.
The EGM of Lundin Energy held on 31 July 2019 in Stockholm approved the redemption of 54,461,831 shares previously held by Equinor,
amounting to 16 percent of the outstanding shares at a price of SEK 266.40 per share. The total number of shares in issue decreased because
of the share redemption from 340,386,445 shares to 285,924,614 shares. The issued share capital includes a bonus issue (sw. fondemission) to
restore the share capital of Lundin Energy to the same amount as immediately prior to the share redemption.
Lundin Energy Annual Report 2020
57
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 17.2 Other Reserves
MUSD
1 January 2019
Total comprehensive income
31 December 2019
Total comprehensive income
31 December 2020
Note 17.3 Retained Earnings
MUSD
1 January
Net result for the year
Distributions
Share redemption
Bonus issue (sw. fondemission)
Value of employee services
31 December
Hedge reserve
Currency translation
reserve
-74.4
-82.5
-156.9
-63.4
-220.3
-367.8
29.0
-338.8
-210.1
-548.9
2020
-1,429.6
384.2
-284.1
–
–
5.4
-1,324.1
Total
-442.2
-53.5
-495.7
-273.5
-769.2
2019
-281.8
824.9
-501.0
-1,476.9
-0.1
5.3
-1,429.6
The AGM of Lundin Energy held on 31 March 2020 in Stockholm approved a cash dividend distribution for the year 2019 of USD 1.00 per
share, to be paid in quarterly instalments of USD 0.25 per share. Based on the number of shares outstanding, excluding own shares held by
the Company, the dividend distribution amounted to MSEK 2,867.8, equaling MUSD 284.1 based on the exchange rate on the date of AGM
approval. The first dividend payment was made on 7 April 2020, the second dividend payment was made on 8 July 2020, the third dividend
payment was made on 7 October 2020 and the fourth dividend payment was made on 8 January 2021.
The AGM of Lundin Energy held on 29 March 2019 in Stockholm approved a cash dividend distribution for the year 2018 of USD 1.48 per
share, to be paid in quarterly instalments of USD 0.37 per share. Based on the number of shares outstanding, excluding own shares held by
the Company, the dividend distribution amounted to MSEK 4,638.7, equaling MUSD 501.0 based on the exchange rate on the date of AGM
approval. The actual paid out dividend subsequently reduced to MUSD 460.7 following the redemption of 54,461,831 shares in August 2019.
The first dividend payment was made on 5 April 2019, the second dividend payment was made on 8 July 2019, the third dividend payment was
made on 7 October 2019 and the fourth dividend payment was made on 9 January 2020.
The EGM of Lundin Energy held on 31 July 2019 in Stockholm approved the redemption of 54,461,831 shares previously held by Equinor,
amounting to 16 percent of the outstanding shares at a price of SEK 266.40 per share. The share redemption adjusted for outstanding dividends
amounted to MSEK 14,124.2, equaling MUSD 1,476.9 based on the exchange rate on the date of EGM approval.
Note 17.4 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, MUSD
2020
384.2
2019
824.9
Weighted average number of shares for the year
284,177,604
315,833,140
Earnings per share, USD
1.35
2.61
Weighted average diluted number of shares for the year
284,830,491
316,551,300
Earnings per share fully diluted, USD
1.35
2.61
58
Lundin Energy Annual Report 2020
Note 17.5 Adjusted earnings Per Share
Adjusted earnings per share are calculated by dividing the adjusted net result attributable to shareholders of the Parent Company by the
weighted average number of shares for the year. For the calculation of adjusted net result, reference is made to page 84.
Adjusted net result attributable to shareholders of the Parent Company, MUSD
2020
280.0
2019
252.7
Weighted average number of shares for the year
284,177,604
315,833,140
Adjusted earnings per share, USD
0.99
0.80
Weighted average diluted number of shares for the year
284,830,491
316,551,300
Adjusted earnings per share fully diluted, USD
0.98
0.80
Note 18 Financial Liabilities
MUSD
Non-current:
Bank loans
Capitalised financing fees
Capitalised loan modification gain
Lease liabilities
Current:
Bank loans
Lease liabilities
Others
31 December
2020
31 December
2019
3,994.0
-37.1
–
27.0
3,983.9
–
5.7
0.4
6.1
4,000.0
-37.1
-105.6
31.1
3,888.4
92.0
5.5
–
97.5
The short-term portion of the bank loans which is due within 1 year is classified as current liabilities.
3,990.0
3,985.9
Capitalised financing fees amounted to MUSD 37.1 (MUSD 37.1) and related to the establishment costs of the five year corporate facility of
USD 5.0 billion entered into in December 2020. The capitalised financing fees in the comparative period related to the establishment costs of
the reserve-based credit facility with the unamortised portion of these fees being expensed during 2020 following the successful refinancing in
December 2020. The capitalised financing fees are being amortised over the duration of the facility.
Capitalised loan modification gain amounted to MUSD – (MUSD 105.6) and related to the re-negotiated improved borrowing terms for the
reserve-based credit facility. The capitalised loan modification gain is being amortised over the duration of the facility with the remaining
portion of the capitalised loan modification gain being expensed during 2020 following the successful refinancing in December 2020.
Lease liabilities relates to leased office premises with the short-term portion of the lease liabilities classified as current liabilities.
For further information, see Note 21.
Lundin Energy Annual Report 2020
59
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 19 Provisions
MUSD
1 January 2020
Additions
Changes in estimates
Payments
Unwinding of discount
Currency translation difference
31 December 2020
Non-current
Current
Total
MUSD
1 January 2019
Additions
Changes in estimates
Disposals
Payments
Unwinding of discount
Currency translation difference
31 December 2019
Non-current
Current
Total
Site
Restoration
571.4
19.9
5.0
-57.9
19.2
18.9
576.5
560.5
16.0
576.5
Site
Restoration
490.5
65.6
23.0
-16.2
-3.7
17.9
-5.7
571.4
522.2
49.2
571.4
LTIP
9.4
4.3
–
-6.3
–
0.2
7.6
2.3
5.3
7.6
LTIP
8.3
8.9
–
–
-7.7
–
-0.1
9.4
2.7
6.7
9.4
Pension
provision
Other
1.2
0.1
–
-0.1
–
0.1
1.3
1.3
–
1.3
2.0
–
-0.2
-0.3
–
–
1.5
1.5
–
1.5
Pension
provision
Other
1.2
0.1
–
–
-0.1
–
–
1.2
1.2
–
1.2
1.6
1.1
–
–
-0.6
–
-0.1
2.0
2.0
–
2.0
Total
584.0
24.3
4.8
-64.6
19.2
19.2
586.9
565.6
21.3
586.9
Total
501.6
75.7
23.0
-16.2
-12.1
17.9
-5.9
584.0
528.1
55.9
584.0
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. The additions
in 2020 mainly relate to the liability associated with Norwegian development projects. Based on the estimates used in calculating the site
restoration provision as at 31 December 2020, approximately 75 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
2020
31 December
2019
8.7
1.6
151.3
31.7
9.2
202.5
17.8
0.9
133.6
16.6
8.5
177.4
60
Lundin Energy Annual Report 2020
Note 21 Financial Assets and Liabilities
Financial assets and liabilities by category
The accounting policies for financial assets and liabilities have been applied to the line items below:
31 December 2020
MUSD
Contingent consideration
Other non-current financial assets
Derivative instruments
Joint operations debtors
Other current receivables1
Cash and cash equivalents
31 December 2020
MUSD
Financial liabilities
Derivative instruments
Joint operations creditors
Other current liabilities2
31 December 2019
MUSD
Contingent consideration
Other non-current financial assets
Derivative instruments
Joint operations debtors
Other current receivables1
Cash and cash equivalents
31 December 2019
MUSD
Financial liabilities
Derivative instruments
Joint operations creditors
Other current liabilities2
Loan receivables and
other receivables at
amortised cost
Financial assets
at amortised cost
Fair value
recognised in
profit/loss
Derivatives used
for hedging
–
–
–
21.8
224.6
82.5
328.9
–
0.5
–
–
–
–
0.5
12.7
–
–
–
–
–
12.7
–
–
15.9
–
–
–
15.9
Other liabilities at
amortised cost
Financial liabilities at
amortised cost
Derivatives used
for hedging
–
–
151.3
462.3
613.6
3,990.0
–
–
–
3,990.0
–
232.3
–
–
232.3
Loan receivables and
other receivables at
amortised cost
Financial assets
at amortised cost
Fair value
recognised in
profit/loss
Derivatives used
for hedging
–
–
–
11.4
312.2
85.3
408.9
–
1.6
–
–
–
–
1.6
12.4
–
–
–
–
–
12.4
–
–
14.0
–
–
–
14.0
Other liabilities
at amortised cost
Financial liabilities
at amortised cost
Derivatives used
for hedging
–
–
133.6
369.6
503,2
3,985.9
–
–
–
3,985.9
–
144.0
–
–
144.0
Total
12.7
0.5
15.9
21.8
224.6
82.5
358.0
Total
3,990.0
232.3
151.3
462.3
4,835.9
Total
12.4
1.6
14.0
11.4
312.2
85.3
436.9
Total
3,985.9
144.0
133.6
369.6
4,633.1
1 Prepayments and underlift are not included in other current assets, as prepayments and underlift are not deemed to be financial instruments.
2 Accruals and overlift are not included in other current liabilities, as accruals and overlift are not deemed to be financial instruments.
The fair value of loan receivables and other receivables is a fair approximation of the book value.
For financial assets and liabilities measured at fair value in the balance sheet, the following fair value measurement hierarchy is used:
– Level 1: based on quoted prices in active markets;
– Level 2: based on inputs other than quoted prices as within level 1, that are either directly or indirectly observable;
– Level 3: based on inputs which are not based on observable market data.
Lundin Energy Annual Report 2020
61
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 21 continued
Based on this hierarchy, financial assets and liabilities measured at fair value can be detailed as follows:
31 December 2020
MUSD
Assets
Contingent consideration
Derivative instruments – non-current
Derivative instruments – current
Liabilities
Derivative instruments – non-current
Derivative instruments – current
31 December 2019
MUSD
Assets
Contingent consideration
Derivative instruments – non-current
Derivative instruments – current
Liabilities
Derivative instruments - non-current
Derivative instruments - current
Level 1
Level 2
Level 3
–
–
–
–
–
–
–
–
3.8
12.1
15.9
144.7
87.6
232.3
12.7
–
–
12.7
–
–
–
Level 1
Level 2
Level 3
–
–
–
–
–
–
–
–
2.7
11.3
14.0
110.8
33.2
144.0
12.4
–
–
12.4
–
–
–
The outstanding derivative instruments can be specified as follows:
Fair value of outstanding derivative instruments in
the balance sheet
MUSD
31 December 2020
31 December 2019
Assets
Liabilities
Assets
Liabilities
Interest rate swap
Foreign currency contracts
Total
Non-current
Current
Total
15.9
–
15.9
3.8
12.1
15.9
46.2
186.1
232.3
144.7
87.6
232.3
0.2
13.8
14.0
2.7
11.3
14.0
66.7
77.3
144.0
110.8
33.2
144.0
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 2020 amounted to a net payable of MUSD 30.3 (MUSD 66.5).
The fair value of the foreign currency contracts is calculated using the forward exchange rate curve applied to the outstanding foreign
currency contracts. The effective portion of the foreign currency contracts as at 31 December 2020 amounted to a net payable of MUSD 186.1
(MUSD 63.5).
62
Lundin Energy Annual Report 2020
Note 22 Changes in Liabilities with Cash Flow Movements from Financing Activities
The changes in liabilities whose cash flow movements are disclosed as part of financing activities in the cash flow statement are as follows:
At 1 January
2020
Cash flows
Amortisation
of deferred
financing fees
Non-cash changes
Unwinding
of loan
modification
gain
Initial
recognition
lease under
IFRS16
Foreign
exchange
movement
At 31
December
2020
Financial liabilities
3,985.9
-138.0
37.6
99.7
–
4.8
3,990.0
At 1 January
2019
Cash flows
Amortisation
of deferred
financing fees
Non-cash changes
Unwinding
of loan
modification
gain
Initial
recognition
lease under
IFRS16
Foreign
exchange
movement
At 31
December
2019
Financial liabilities
3,262.0
623.6
19.7
41.5
40.5
-1.4
3,985.9
Note 23 Financial Risks, Sensitivity Analysis and Derivative Instruments
As an international oil and gas exploration and production company, Lundin Energy is exposed to financial risks such as currency risk, interest
rate risk, credit risks, liquidity risks as well as the risk related to the fluctuation in the oil price. The Group seeks to control these risks through
sound management practice and the use of internationally accepted financial instruments, such as oil price, interest rate and foreign exchange
hedges. Lundin Energy uses financial instruments solely for the purpose of minimising risks in the Group’s business.
For further information on risks in the financial reporting, see the section Internal Control over financial reporting in the Corporate
Governance report on page 36 and Risk Management on pages 16–18.
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 objectives and to maintain flexibility. Lundin Energy is not subject to any
externally imposed capital requirements.
Lundin Energy monitors capital on the basis of net debt and financial agreements. Net debt is calculated as bank loans less cash and cash
equivalents.
MUSD
31 December 2020
31 December 2019
Bank loans
Cash and cash equivalents
Net debt
3,994.0
-82.5
3,911.5
4,092.0
-85.3
4,006.7
The decrease in net debt compared to 2019 is mainly due to the positive free cash flow generated during 2020 partly offset by the paid
dividends during 2020.
Interest rate risk
Interest rate risk is the risk to the earnings due to uncertain future interest rates.
Lundin Energy is exposed to interest rate risk through the corporate credit facility, see also Liquidity risk below. The interest rate for capitalised
borrowing costs is calculated at the corporate credit facility borrowing rate of LIBOR plus a margin of approximately 1.6 percent per annum.
The interest rate for capitalised borrowing costs up until refinancing in December 2020 was calculated at the reserve-based credit facility
borrowing rate of LIBOR plus a margin of 2.25 percent to 2.5 percent per annum. Lundin Energy will assess the benefits of interest rate
hedging on borrowings on a continuous basis. If the hedging contract provides a reduction in the interest rate risk at a price that is deemed
acceptable to the Group, then Lundin Energy may choose to enter into an interest rate hedge.
The total interest expense for 2020 amounted to MUSD 130.1 which included MUSD 25.8 of capitalised interest related to borrowings for the
Group’s development activities and also included MUSD 9.1 interest expenses in relation to the Idemitsu deal and 2019 taxes paid during the
year in Norway. A 100 basis point increase in the interest rate would have resulted in a change in the total interest expense for the year of
MUSD 5.8, taking into account the Group’s interest rate hedges for 2020.
Lundin Energy Annual Report 2020
63
FINANCIAL STATEMENTS AND NOTES | 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 floating LIBOR
Rate per annum
3,100
3,200
2,700
2,200
1,400
1,100
2.28%
2.20%
1.38%
1.47%
0.71%
0.81%
Settlement period
Jan 2021 – Dec 2021
Jan 2022 – Dec 2022
Jan 2023 – Dec 2023
Jan 2024 – Dec 2024
Jan 2025 – Dec 2025
Jan 2026 – Jun 2026
Currency risk
Lundin Energy 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 Energy’s subsidiaries are Norwegian Krone (NOK) and Euro (EUR), as well as US Dollar, making Lundin
Energy sensitive to fluctuations of these currencies against the US Dollar.
Transaction exposure
Lundin Energy’s policy on 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 derivative financial instruments to address its exposure for exchange rate fluctuations for capital expenditure
amounts relating to its committed field development projects and Corporate and Special Petroleum Tax amounts as summarised in the table
below.
Buy
MNOK 4,332.6
MNOK 1,430.0
MNOK 530.0
MNOK 300.0
Sell
MUSD 516.5
MUSD 183.4
MUSD 64.2
MUSD 33.0
Average contractual
exchange rate
Settlement
period
NOK 8.39:USD 1
NOK 7.80:USD 1
NOK 8.26:USD 1
NOK 9.09:USD 1
Jan 2021 – Dec 2021
Jan 2022 – Dec 2022
Jan 2023 – Dec 2023
Jan 2024 – Dec 2024
Under IFRS 9, subject to hedge effectiveness testing, all of the hedges are treated as effective and changes to the fair value are reflected in other
comprehensive income. At 31 December 2020, a net current payable of MUSD 75.5 (MUSD 21.9) and a net non-current payable of MUSD 140.9
(MUSD 108.1) have been recognised representing the fair value of the outstanding currency and interest rate hedges.
Foreign exchange exposure
The following table summarises the effect that a change in these currencies against the US Dollar would have on operating profit through the
conversion of the income statements of the Group’s subsidiaries from functional currency to the presentation currency US Dollar for the year
ended 31 December 2020.
Sensitivity analysis foreign exchange exposure:
Operating result in the financial statements, MUSD
1,420.7
1,420.7
Shift of currency exchange rates
EUR/USD
SEK/USD
NOK/USD
Total effect on operating result, MUSD
Average rate 2020
0.8762
9.2092
9.4146
10% USD weakening
0.7965
8.3542
8.4749
-83.3
10% USD strengthening
0.9638
10.1086
10.2546
64.4
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 11, the foreign exchange result in the income statement is mainly impacted by foreign exchange
movements on the revaluation of the loan and working capital balances. A 10 percent strengthening in the US Dollar currency rate against the
other Group currency rates would result in an additional, mainly non cash, MUSD 426.7 foreign exchange loss 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 loan denominated in US Dollar.
64
Lundin Energy Annual Report 2020
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 financial investors and market
uncertainty. Factors that influence these include operational decisions, natural disasters, economic conditions, political instability or conflicts
or actions by major oil exporting countries. Price fluctuations can affect Lundin Energy’s financial position.
The table below summarises the effect that a change in the oil price would have had on the net result and equity at 31 December 2020.
Sensitivity analysis oil price exposure:
Net result in the financial statements, MUSD
Possible shift
Total effect on net result, MUSD
384.2
-25%
-127.1
384.2
25%
127.1
The impact on the net result from a change in oil price is reduced due to the 78 percent tax rate in Norway.
Lundin Energy’s policy is to adopt a flexible approach towards oil price hedging, based on an assessment of the benefits of the hedge contract
in specific circumstances. Based on analysis of the circumstances, Lundin Energy will assess the benefits of forward hedging monthly sales
contracts for the purpose of establishing cash flow. If it believes that the hedging contract will provide an enhanced cash flow then it may
choose to enter into an oil price hedge.
For the year ended 31 December 2020, the Group did not enter into oil price hedging contracts and there are no oil price hedging contracts
outstanding as at 31 December 2020. The Group did enter into some Dated Brent Differential derivatives contracts during the year.
Credit risk
Lundin Energy’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 2020, the Group’s trade receivables amounted to MUSD 215.5 (MUSD 305.1). There is no recent history of default and there
are no expected losses. Other long-term and short-term receivables are considered recoverable and no provision for bad debt was accounted for
as at 31 December 2020. Cash and cash equivalents are maintained with banks having strong long-term credit ratings.
Liquidity risk
Liquidity risk is defined as the risk that the Group could not be able to settle or meet its obligations on time or at a reasonable price. Group
treasury is responsible for liquidity, funding as well as settlement management. In addition, liquidity and funding risks and related processes
and policies are overseen by Group management.
In December 2020, Lundin Energy entered into a five year corporate facility of USD 5.0 billion. The facility is a combination of a five-year
USD 1.5 billion revolving credit facility and USD 3.5 billion term loans, split across two, three, four and five year maturities. The facility has a
weighted average interest rate margin over LIBOR of 1.6 percent which is 0.9 percentage points lower compared to the previous financing. The
facility also includes the option to bring in additional commitments in an accordion option of up to USD 1 billion. In line with the Company’s
best in class environmental profile, ESG KPIs on carbon intensity and renewable electricity generation have been incorporated into the margin
structure, providing further financial incentives for the delivery of the Decarbonisation Strategy and the 2025 carbon neutrality target. The
structure of the Facility is such, that it is compatible with unsecured bond issuances through the debt capital markets at pari passu terms,
which could be utilised at an appropriate time to diversify the Company’s capital structure. The facility is secured by a pledge over the shares
of Lundin Energy Norway AS, a pledge over the Company’s working interest in some production licences and a charge over a bank account of
the pledged company. The size of the facility will reduce from USD 5.0 billion to USD 4.5 billion as per 11 December 2022, to USD 3.5 billion as
per 11 December 2023 and to USD 2.5 billion as per 11 December 2024 with a final maturity on 11 December 2025.
The facility agreement provides that an “event of default” occurs where the Group does not comply with certain material covenants or
where certain events occur as specified in the agreement, as are customary in financing agreements of this size and nature. Two of the main
covenants are the net debt to EBITDAX and the EBITDAX to financial 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 specified actions to enforce their security, including
accelerating the repayment of outstanding amounts under the facility.
The Company received on 29 July 2020 its inaugural public credit rating from S&P Global Rating, with a rating of BBB- with a stable outlook.
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet
date to the contractual maturity date. The Group has further financial liabilties in relation to interest on the five year corporate credit facility
of USD 5.0 billion. The size of these interest payments depends on the outstanding loan balance under facility and the applicable LIBOR rate.
Lundin Energy Annual Report 2020
65
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 23 continued
MUSD
31 December 2020
31 December 2019
Non-current
Repayment within 1–2 years:
– Bank loans
– Lease liabilities
– Derivative instruments
Repayment within 2–5 years:
– Bank loans
– Lease liabilities
– Derivative instruments
Repayment after 5 years:
– Lease commitments
Current
Repayment within 6 months:
– Lease liabilities
– Trade payables
– Others
– Tax liabilities
– Joint operations creditors
– Other current liabilities
– Derivative instruments
Repayment after 6 months:
– Bank loans
– Lease liabilities
– Tax liabilities
– Derivative instruments
Note 24 Pledged Assets
–
5.3
88.8
3,994.0
14.6
55.9
7.1
4,165.7
2.9
8.7
0.4
362.2
151.3
9.2
41.6
–
2.8
82.2
46.0
707.3
1,500.0
5.3
85.4
2,500.0
14.5
25.4
11.3
4,141.9
2.7
17.8
–
58.7
133.6
8.5
16.6
92.0
2.8
284.6
16.6
633.9
In December 2020, Lundin Energy entered into a five year corporate facility of USD 5.0 billion as mentioned in note 23. The facility is a
combination of a five-year USD 1.5 billion revolving credit facility and USD 3.5 billion term loans, split across two, three, four and five year
maturities. The facility is secured by a pledge over the shares of Lundin Energy Norway AS, a pledge over the Company’s working interest in
some production licences and a charge over a bank account of the pledged company.
Note 25 Contingent Liabilities and Assets
The Swedish Prosecution Authority issued a notification of a corporate fine and forfeiture of economic benefits against Lundin Energy in
relation to past activities in Sudan from 1997 to 2003. The notification indicated that the Prosecutor might seek a corporate fine of MSEK 3
and forfeiture of economic benefits from the alleged offense in the amount of MSEK 3,282, based on the profit of the sale of the Block 5A asset
in 2003 of MSEK 720. Any potential corporate fine or forfeiture would only be imposed after the conclusion of a trial, should one occur. The
investigation is in its eleventh year and Lundin remains convinced that there are absolutely no grounds for any allegations of wrongdoing
by any Company representative and the Company will firmly contest any corporate fine or forfeiture of economic benefits. The Company
considers this to be a contingent liability and therefore no provision has been recognised.
As part of the IPC spin-off that was completed on 24 April 2017, the Company has indemnified 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 2020 as it does not believe the
proceedings will lead to any liability for the Company.
66
Lundin Energy Annual Report 2020
Note 26 Related Party Transactions
Lundin Energy recognises the following related parties: associated companies, jointly controlled entities, key management personnel and
members of their close family or other parties that are partly, directly or indirectly, controlled by key management personnel or of its family or
of any individual that controls, or has joint control or significant influence over the entity.
During the year, the Group has entered into transactions with related parties on a commercial basis and the material transactions are described
below:
MUSD
Sale of oil and related products
Sale of services
Purchase of services
Interest income
2020
–
3.8
2.5
0.5
2019
107.3
4.0
1.5
0.2
Following the redemption of 16 percent of the outstanding Lundin Energy shares previously held by Equinor, as approved at the Extraordinary
General Meeting of Lundin Energy held on 31 July 2019, the Equinor Group is no longer considered a related party. Until end July 2019, the
Group has sold oil and related products to the Equinor group on an arm’s-length basis amounting to MUSD 107.3.
The related party transactions include 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.
Note 27 Average Number of Employees
Average number of employees per country
Parent Company in Sweden
Subsidiaries abroad
Norway
Switzerland
Netherlands
Total subsidiaries abroad
Total
Board members and Group management
Parent Company in Sweden
Board members1
Subsidiaries abroad
Group management
Total Group
2020
2019
Total
employees
of which men
Total
employees
of which men
4
405
45
2
452
456
2
5
296
29
2
327
329
389
41
2
432
437
2
285
25
2
312
314
2020
2019
Total at
year end
of which men
Total at
year end
of which men
8
7
15
5
6
11
8
8
16
5
6
11
1 Alex Schneiter, Chief Executive Officer (CEO) and Board Member is only included in Group management.
Lundin Energy Annual Report 2020
67
Parent Company in Sweden
Board members
Employees
Subsidiaries abroad
Group management
Other employees
Total
of which pension costs
2020 Salaries and other
remuneration for the
Board members and
Group management
TUSD
Parent Company in
Sweden
Board members
Ian H. Lundin
Peggy Bruzelius
C. Ashley Heppenstall
Lukas H. Lundin
Grace Reksten Skaugen
Jakob Thomasen
Cecilia Vieweg
Torstein Sanness
Total Board members
Subsidiaries abroad
Group management
Alex Schneiter
Nick Walker
Teitur Poulsen
Other 5
Total Group management
FINANCIAL STATEMENTS AND NOTES | 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
2020
Salaries
and other
remuneration
575
689
16,355
81,389
99,008
2019
Social security
costs
Salaries and other
remuneration
Social security
costs
146
354
2,273
20,383
23,156
9,252
654
646
15,187
83,394
99,881
125
339
1,959
21,271
23,694
9,058
Fixed Board
remuneration/
base salary
Other
benefits1
Short-term
variable
remuneration
2
Performance
based
incentive
plan 3
Remuneration
for Committee
work
Remuneration
for special
assignments
outside of
directorship
Pension
Total
2020
105
50
50
50
50
50
50
50
455 4
913
668
536
1,497
3,614
–
–
–
–
–
–
–
–
–
1,931
83
45
734
2,793
–
–
–
–
–
–
–
–
–
1,423
623
688
864
3,598
–
–
–
–
–
–
–
–
–
2,926
1,665
1,087
672
6,350
12
16
12
–
28
24
16
12
120
–
–
–
–
–
91
–
–
–
–
–
–
–
91
–
–
–
–
–
–
–
–
–
–
–
–
–
–
208
66
62
50
78
74
66
62
666
365
179
159
229
932
7,558
3,218
2,515
3,996
17,287
1 Other benefits may include, but not limited to, severance and notice period payments, school fees and health insurance for Group management.The
Board has decided that Alex Schneiter on stepping down as President and CEO on 1 January 2021 will be eligible for one year’s salary notice and one
year’s salary severance payments in accordance with the Policy on Remuneration.
2 The Board determined that it was reasonable to recognise the excellent performance of Alex Schneiter during a year which presented exceptional
challenges, and equally the performance of Teitur Poulsen for his efforts in ensuring a successful refinancing of the existing reserve-based lending
facility into a new corporate facilities agreement under the challenging circumstances, and awarded short-term variable remuneration beyond 12
months base salary.
3 Performance Based Incentive Plan 2017 and Unit Bonus Plan 2017, awarded in 2017 and vested in 2020.
4 Board remuneration is reported on a cash basis. The timing of board remuneration payments was changed during 2020 resulting in payment of ten
months of board remuneration during the year.
5 Comprises Vice President Sustainability, Vice President Legal, Vice President Corporate Affairs, Vice President Investor Relations and Vice President
Human Resources and Shared Services.
68
Lundin Energy Annual Report 2020
Note 28 continued
2019 Salaries and other
remuneration for the
Board members and
Group management
TUSD
Parent Company in
Sweden
Board members
Ian H. Lundin
Peggy Bruzelius
C. Ashley Heppenstall
Lukas H. Lundin
Grace Reksten Skaugen
Jakob Thomasen
Cecilia Vieweg
Torstein Sanness
Total Board members
Subsidiaries abroad
Group management
Alex Schneiter
Nick Walker
Other 3
Total Group management
Fixed Board
remuneration/
base salary
Other
benefits1
Short-term
variable
remuneration 2
Performance
based
incentive plan
Remuneration
for Committee
work
Remuneration
for special
assignments
outside of
directorship
Pension
Total
2019
120
57
57
57
57
57
57
57
519
798
622
2,065
3,485
–
–
–
–
–
–
–
–
–
30
71
316
417
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
927
601
1,554
3,082
4,464
2,358
1,381
8,203
13
19
13
–
32
26
19
13
135
–
–
–
–
106
–
–
–
–
–
–
–
106
–
–
–
–
–
–
–
–
–
–
–
–
–
239
76
70
57
89
83
76
70
760
173
169
372
714
6,392
3,821
5,688
15,901
¹ Other benefits may include, but not limited to, severance and notice period payments, school fees and health insurance for Group management.
2 This column shows bonuses awarded for achievements in 2019, including a discretionary award to the CEO and some other members of Group
management.
3 Comprises Chief Financial Officer, Vice President Corporate Responsibility, Vice President Legal, Vice President Corporate Affairs, Vice President
Investor Relations and Vice President Human Resources and Shared Services.
Board members
There are no severance pay agreements in place for any non-executive directors and such directors are not eligible to participate in any of the
Group’s incentive programmes.
Group management
The pension contribution for Group management is between 15 percent and 18 percent of the qualifying income for pension purposes. The
Company provides for 60 percent of the pension contribution and the employee for the remaining 40 percent. Qualifying income is defined
as annual base salary and short-term variable remuneration and is capped at approximately TCHF 853 (TCHF 846). The typical contractual
retirement age for men is 65 years and for women 64 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 benefits shall be included. Severance payments in aggregate (i.e. for notice periods and severance
arrangements) shall be limited to a maximum of two years’ base salary.
See page 31–35 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 2020.
Lundin Energy Annual Report 2020
69
FINANCIAL STATEMENTS AND NOTES | 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 Energy implemented an LTIP scheme consisting of a Unit Bonus Plan which provides for an annual grant of units that will
lead to a cash payment at vesting. The LTIP has a three year duration whereby the initial grant of units vested equally in three tranches: one
third after one year; one third after two years; and the final third after three years. The cash payment is conditional upon the holder of the
units remaining an employee of the Group at the time of payment. The share price for determining the cash payment at the end of each
vesting period will be the average of the Lundin Energy closing share price for the five trading days prior to and following the actual vesting
date adjusted for any dividend payments between grant date and vesting date. The exercise price at vesting date 31 May 2020 was SEK 235.80.
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 2020 and the year in which
the units will vest.
Unit Bonus Plan
Outstanding at the beginning of the period
Awarded during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Vesting date
31 May 2021
31 May 2022
31 May 2023
Outstanding at the end of the period
2017
89,508
–
-2,174
-87,334
–
–
–
–
–
2018
143,492
–
-3,716
-70,123
69,653
69,653
–
–
69,653
Plan
2019
188,425
–
-3,352
-61,889
123,184
61,463
61,721
–
123,184
2020
–
267,601
-864
–
266,737
88,819
88,819
89,099
266,737
Total
421,425
267,601
-10,106
-219,346
459,574
219,935
150,540
89,099
459,574
The costs associated with the Unit Bonus Plan are as given in the following table.
Unit Bonus Plan
MUSD
2016
2017
2018
2019
2020
2020
2019
–
-0.1
0.5
1.7
2.3
4.4
0.8
2.4
3.4
2.2
–
8.8
LTIP awards are recognised in the financial statements pro rata over their vesting period. The total carrying amount for the provision for the
Unit Bonus Plan including social costs at 31 December 2020 amounted to MUSD 7.6 (MUSD 9.4). The provision is calculated based on Lundin
Energy’s share price at the balance sheet date. The closing share price at 31 December 2020 was SEK 222.30.
Performance Based Incentive Plan
The 2014–2020 AGMs resolved a long-term performance based incentive plan in respect of Group management and a number of key
employees.
The 2020 plan is effective from 1 July 2020 and the 2020 award has been accounted for from the second half of 2020. The awards made in
respect of 2020 vests over three years from 1 July 2020 subject to certain performance conditions being met. Each award was fair valued at the
date of grant at SEK 147.10 using an option pricing model.
The 2019 plan is effective from 1 July 2019 and vests over three years from 1 July 2019 subject to certain performance conditions being met.
Each award was fair valued at the date of grant at SEK 169.00 using an option pricing model.
The 2018 plan is effective from 1 July 2018 and vests over three years from 1 July 2018 subject to certain performance conditions being met.
Each award was fair valued at the date of grant at SEK 167.10 using an option pricing model.
70
Lundin Energy Annual Report 2020
Note 29 continued
The 2017 plan was effective from 1 July 2017 and vested on 30 June 2020. Each original award was fair valued at the date of grant at SEK
100.10 using an option pricing model. Based on the performance conditions of the 2017 plan, the 2017 plan vested in full in 2020 with Lundin
Energy’s total shareholder return (TSR) ranking well above the upper quartile level as 2nd of 17 peers. The TSR movements of peers that were
taken over were measured by the acquiring companies post acquisition.
The following table shows the number of units issued under the LTIPs, the amount outstanding as at 31 December 2020 and the year in which
the awards will vest.
Performance Based Incentive Plan
Outstanding at the beginning of the period
Awarded during the period
Increase due to dividends 1
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
End of performance period
30 June 2021
30 June 2022
30 June 2023
Outstanding at the end of the period
2017
350,419
–
–
-436
-349,983
–
–
–
–
–
2018
271,159
–
–
-11,104
–
260,055
260,055
–
–
260,055
Plan
2019
324,578
–
18,894
-15,395
–
328,077
–
328,077
–
328,077
2020
–
393,113
13,026
–
–
406,139
–
–
406,139
406,139
Total
946,156
393,113
31,920
-26,935
-349,983
994,271
260,055
328,077
406,139
994,271
¹ As from the 2019 plan, the number of performance shares are increased to reflect dividends. For the 2017 and 2018 plan, the dividend equivalent on
vested shares is paid in cash at vesting.
The costs associated with the Performance Based Incentive Plan are as given in the following table.
Performance Based Incentive Plan
MUSD
2020
2019
2016
2017
2018
2019
2020
–
0.7
1.7
1.9
1.1
5.4
0.6
1.5
1.7
1.0
–
4.8
LTIP awards are recognised in the financial statements pro rata over their vesting period. The total effect on equity for the Performance Based
Incentive Plan at 31 December 2020 amounted to MUSD 8.3 (MUSD 7.3). The effect on equity is calculated based on the fair value at date of grant.
Lundin Energy Annual Report 2020
71
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 30 Remuneration to the Group’s Auditors
TUSD
2020
2019
EY / PwC
Audit fees
Out of which to Ernst & Young
Out of which to PricewaterhouseCoopers
Audit related
Out of which to Ernst & Young
Out of which to PricewaterhouseCoopers
Tax advisory services
Out of which to Ernst & Young
Out of which to PricewaterhouseCoopers
Other fees
Out of which to Ernst & Young
Out of which to PricewaterhouseCoopers
Total EY / PwC
Out of which to Ernst & Young
Out of which to PricewaterhouseCoopers
Remuneration to other auditors than Group’s auditor
Total audit fees
Out of which to Ernst & Young
Out of which to PricewaterhouseCoopers
532
480
52
11
11
–
5
5
–
90
90
–
638
586
52
54
692
586
52
536
–
536
22
–
22
6
–
6
90
–
90
654
–
654
68
722
–
654
Lundin Energy changed its auditor as from 2020 replacing PricewaterhouseCoopers with Ernst & Young.
Audit fees include the review of the half year report. Audit related costs include special assignments such as licence audits and PSC audits.
Other fees include the review of the sustainability report.
Note 31 Subsequent Events
In January 2021, drilling was completed on the Bask prospect in PL533B in the southern Barents Sea and was dry and will be expensed in 2021.
72
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Annual Accounts of the Parent Company
Parent Company
The business of the Parent Company is investment in and management of oil and gas assets and renewable energy projects. The net
result for the Parent Company amounted to MSEK 2,641.9 (MSEK 18,885.5) for the year. The net result for the year included MSEK
2,867.8 (MSEK 19,148.4) financial income as a result of received dividends from a subsidiary. The net result excluding received
dividends amounted to MSEK -225.9 (MSEK -262.9).
The net result included general and administrative expenses of MSEK 240.1 (MSEK 248.1) and net finance expenses of MSEK 5.3
(MSEK 33.7) when excluding the received dividends as mentioned above.
The Swedish Prosecution Authority issued a notification of a corporate fine and forfeiture of economic benefits against Lundin Energy
in relation to past activities in Sudan from 1997 to 2003. The notification indicated that the Prosecutor might seek a corporate fine
of MSEK 3 and forfeiture of economic benefits from the alleged offense in the amount of MSEK 3,282, based on the profit of the sale
of the Block 5A asset in 2003 of MSEK 720. Any potential corporate fine or forfeiture would only be imposed after the conclusion of
a trial, should one occur. The investigation is in its eleventh year and Lundin Energy remains convinced that there are absolutely
no grounds for any allegations of wrongdoing by any Company representative and the Company will firmly contest any corporate
fine or forfeiture of economic benefits. The Company considers this to be a contingent liability and therefore no provision has been
recognised.
Accounting Policies
The financial statements of the Parent Company are prepared in accordance with accounting policies generally accepted in Sweden,
applying RFR 2 issued by the Swedish Financial Reporting Board and the Annual Accounts Act (1995: 1554). RFR 2 requires the
Parent Company to use similar accounting policies as for the Group, i.e. IFRS to the extent allowed by RFR 2. The Parent Company’s
accounting policies do not in any material respect deviate from the Group policies, see pages 44–49.
Lundin Energy Annual Report 2020
73
FINANCIAL STATEMENTS AND NOTES
Parent Company Income Statement
for the Financial Year Ended 31 December
Expressed in MSEK
Revenue
General and administration expenses
Operating loss
Result from financial investments
Finance income
Finance cost
Profit before tax
Income tax
Net result
Note
1
2
3
2020
19.5
-240.1
-220.6
2,867.8
-5.3
2,862.5
2,641.9
–
2,641.9
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
2020
2,641.9
–
2,641.9
2,641.9
2,641.9
2019
18.9
-248.1
-229.2
19,148.5
-33.8
19,114.7
18,885.5
–
18,885.5
2019
18,885.5
–
18,885.5
18,885.5
18,885.5
74
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Parent Company Balance Sheet
for the Financial Year Ended 31 December
Expressed in MSEK
ASSETS
Non-current assets
Shares in subsidiaries
Other tangible fixed assets
Total non-current assets
Current assets
Prepaid expenses and accrued income
Other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Restricted equity
Share capital
Statutory reserve
Total restricted equity
Unrestricted equity
Other reserves
Retained earnings
Net result
Total unrestricted equity
Total equity
Non-current liabilities
Provisions
Total non-current liabilities
Current liabilities
Dividends
Payables to Group companies
Accrued expenses and prepaid income
Other liabilities
Total current liabilities
Note
2020
2019
8
4
5
55,118.9
0.5
55,119.4
1.0
567.5
26.6
595,1
55,118.9
0.4
55,119.3
2.4
1,105.0
31.7
1,139.1
55,714.5
56,258.4
3.5
861.3
864.8
6,542.8
45,030.5
2,641.9
54,215.2
55,080.0
0.9
0.9
591.5
30.2
11.1
0.8
633.6
3.5
861.3
864.8
6,479.7
29,012.8
18,885.5
54,378.0
55,242.8
1.0
1.0
985.7
0.3
27.5
1.1
1,014.6
TOTAL EQUITY AND LIABILITIES
55,714.5
56,258.4
Lundin Energy Annual Report 2020
75
FINANCIAL STATEMENTS AND NOTES
Parent Company Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MSEK
Cash flow from operating activities
Net result
Adjustment for
Foreign currency exchange loss
Dividends from subsidiary
Other
Changes in working capital:
Changes in current assets
Changes in current liabilities
Total cash flow from operating activities
Cash flow from investing activities
Investments in other fixed assets
Total cash flow from investing activities
Cash flow from financing activities
Dividends paid
Share redemption
Issuance of treasury shares
Total cash flow from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Currency exchange difference in cash and cash equivalents
Cash and cash equivalents at the end of the year
2020
2,641.9
5.1
-717.0
0.9
1,032.8
-25.5
2,938.2
-0.2
-0.2
-3,003.1
–
63.1
-2,940.0
-2.0
31.7
-3.1
26.6
2019
18,885.5
0.2
-1,159.5
1.4
137.9
-4.9
17,860.6
-0.1
-0.1
-3,347.6
-14,510.3
–
-17,857.9
2.6
29.5
-0.4
31.7
Parent Company Statement of Changes in Equity
for the Financial Year Ended 31 December
Expressed in MSEK
Balance at 1 January 2019
Total comprehensive income
Transactions with owners
Cash distributions
Share redemption
Bonus issue (sw. fondemission)
Total transactions with owners
Balance at 31 December 2019
Total comprehensive income
Transactions with owners
Cash distributions
Issuance of treasury shares
Total transactions with owners
Balance at 31 December 2020
Restricted Equity
Unrestricted Equity
Share
capital
Statutory
reserve
Other
reserves
3.5
–
–
-0.6
0.6
–
3.5
–
–
–
–
3.5
861.3
6,479.7
–
–
–
–
–
861.3
–
–
–
–
–
–
–
–
–
6,479.7
–
–
63.1
63.1
861.3
6,542.8
Retained
earnings
47,776.3
18,885.5
-4,638.7
-14,124.2
-0.6
-18,763.5
47,898.3
2,641.9
Total
54,256.0
18,885.5
-4,638.7
-14,124.2
-0.6
-18,763.5
54.378.0
2,641.9
Total
equity
55,120.8
18,885.5
-4,638.7
-14,124.8
–
-18,763.5
55.242.8
2,641.9
-2,867.8
-2,867.8
-2,867.8
–
-2,867.8
47,672.4
63.1
-2,804.7
54,215.2
63.1
-2.804.7
55,080.0
76
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Notes to the Financial Statements
of the Parent Company
Note 1 Finance Income
Note 6 Remuneration to the Auditor
2020
2019
MSEK
2020
2019
2,867.8
19,148.4
–
–
0.1
–
EY / PwC
Audit fees
Audit related
2,867.8
19,148.5
Other fees
1.4
–
0.5
1.9
1.8
–
0.7
2.5
MSEK
Dividend
Interest income
Foreign exchange gain
Note 2 Finance Costs
MSEK
Interest expenses
Foreign exchange loss
Other
Note 3 Income Tax
2020
–
5.1
0.2
5.3
2019
0.2
0.2
33.4
33.8
MSEK
2020
2019
Net result before tax
2,641.9
18,885.5
Tax calculated at the corporate tax rate
in Sweden 21.4% (21.4%)
-565.4
-4,041.5
Tax effect of received dividend
613.7
4,097.8
Tax effect of expenses non-deductible for
tax purposes
Increase unrecorded tax losses
-4.4
-43.9
–
-4.3
-52.0
–
Note 4 Other Receivables
MSEK
Due from Group companies
VAT receivable
Other
31 December
2020
31 December
2019
564.7
2.1
0.7
567.5
1,101.3
1.7
2.0
1,105.0
Note 5 Accrued Expenses and Prepaid Income
MSEK
Social security costs
Directors fees
Audit fees
Outside services
31 December
2020
31 December
2019
1.4
1.7
1.0
7.0
11.1
1.7
0.6
1.4
23.8
27.5
Lundin Energy changed its auditor as from 2020 replacing
PricewaterhouseCoopers with Ernst & Young. There has
been no remuneration to any auditors other than
PricewaterhouseCoopers and Ernst & Young.
Note 7 Proposed Disposition of Unappropriated
Earnings
The 2021 Annual General Meeting has an unrestricted equity at
its disposal of MSEK 54,215.2, including the net result for the
year of MSEK 2,641.9.
In accordance with the dividend policy, the Board of Directors
propose that the Annual General Meeting resolves on a dividend
for 2020 of USD 1.80 per share, corresponding to USD 512
million (rounded off), to be paid in quarterly instalments of
USD 0.45 per share, corresponding to USD 128 million (rounded
off). Before payment, each quarterly dividend of USD 0.45
per share shall be converted into a SEK amount, and paid out
in SEK, based on the USD to SEK exchange rate published by
Sweden’s central bank (Riksbanken) four business days prior
to each record date (rounded off to the nearest whole SEK 0.01
per share). The final USD equivalent amount received by the
shareholders may therefore slightly differ depending on what
the USD to SEK exchange rate is on the date of the dividend
payment. The SEK amount per share to be distributed each
quarter will be announced in a press release four business days
prior to each record date.
The first dividend payment is expected to be paid around 8 April
2021, with an expected record date of 1 April 2021 and expected
ex-dividend date of 31 March 2021. The second dividend payment
is expected to be paid around 7 July 2021, with an expected
record date of 2 July 2021 and expected ex-dividend date of 1 July
2021. The third dividend payment is expected to be paid around
7 October 2021, with an expected record date of 4 October 2021
and an expected ex-dividend date of 1 October 2021. The fourth
dividend payment is expected to be paid around 11 January 2022,
with an expected record date of 5 January 2022 and an expected
ex-dividend date of 4 January 2022.
In order to comply with Swedish company law, a maximum
total SEK amount shall be pre-determined to ensure that the
dividend distributed does not exceed the available distributable
reserves of the Company and such maximum amount for the
2020 dividend has been set to a cap of SEK 7.636 billion (i.e.,
SEK 1.909 billion per quarter). If the total dividend would exceed
the cap of SEK 7.636 billion, the dividend will be automatically
adjusted downwards so that the total dividend corresponds to
the cap of SEK 7.636 billion.
Lundin Energy Annual Report 2020
77
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Parent Company
Note 7 continued
Based on the above, the Board of Directors propose that the Annual General Meeting dispose of the unrestricted equity as follows:
MSEK
The Board of Directors proposes that the shareholders are paid a dividend of USD 1.80 per share 1
Brought forward
Unrestricted equity
4,236.6
49,978.6
54,215.2
1 The amount is based on the USD to SEK exchange rate published by Sweden’s central bank (Riksbanken) as at 24 February 2021. The amount is based
on the number of shares in circulation on 24 February 2021 and the total dividend amount may change by the record dates as a result of repurchases of
own shares or as a result of issue of new shares. The dividend is USD denominated, fluctuations in the USD to SEK exchange rate between 24 February
2021 and approval of the dividend proposal by the Annual General Meeting will have an impact on the total dividend amount reported in SEK. If the
dividend proposal is approved by the Annual General Meeting, the dividend will be recorded as a liability in USD on the date of the Annual General
Meeting and the SEK equivalent of the USD liability will fluctuate until the fourth tranche is converted from USD to SEK.
Based on a comprehensive review of the financial 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 justifiable 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-energy.com.
Note 8 Shares in Subsidiaries
MSEK
Directly owned
Registration
number
Registered office
Total number of
shares issued
Percentage
owned
Nominal
value
per share
Book
amount
31 Dec 2020
Lundin Energy Holding BV
68246226
The Hague, Netherlands
100
100
EUR 1.00
55,118.9
Indirectly owned
Lundin Energy Norway AS
986 209 409
Lysaker, Norway
4,930,000
100
NOK 100.00
Lundin Energy Marketing SA
660.6.133.015-6
Lundin Energy SA
660.0.330.999-0
Collonge-Bellerive,
Switzerland
Collonge-Bellerive,
Switzerland
Lundin Energy Renewables
Holding BV
- Lundin Energy MLK BV
Lundin Energy Services BV
Lundin Russia BV
- Lundin Russia Ltd.
76493202
The Hague, Netherlands
77530004
68359985
27290574
656565-4
The Hague, Netherlands
The Hague, Netherlands
The Hague, Netherlands
Vancouver, Canada
1,000
1,000
100
100
100
18,000
55,855,414
100
CHF 100.00
100
CHF 100.00
100
100
100
100
100
EUR 1.00
EUR 1.00
EUR 1.00
EUR 1.00
CAD 1.00
78
Lundin Energy Annual Report 2020
FINANCIAL STATEMENTS AND NOTES
Board Assurance
As at 1 March 2021, the Board of Directors and the President of Lundin Energy AB have adopted this annual report for the financial
year ended 31 December 2020.
Board Assurance
The Board of Directors and the President & CEO certify that the annual financial report for the Parent Company has been prepared
in accordance with generally accepted accounting principles in Sweden and that the consolidated accounts have been prepared in
accordance with IFRS as adopted by the EU and give a true and fair view of the financial position and profit of the Company and the
Group and provides a fair review of the performance of the Group’s and Parent Company’s business, and describes the principal risks
and uncertainties that the Company and the companies in the Group face.
Stockholm, 1 March 2021
Lundin Energy AB (publ) Reg. Nr. 556610-8055
Ian H. Lundin
Chairman of the Board
Nick Walker
President and CEO
Alex Schneiter
Board Member
Peggy Bruzelius
Board Member
C. Ashley Heppenstall
Board Member
Lukas H. Lundin
Board Member
Torstein Sanness
Board Member
Grace Reksten Skaugen
Board Member
Jakob Thomasen
Board Member
Cecilia Vieweg
Board Member
Our audit report was issued on 1 March 2021
Ernst & Young AB
Anders Kriström
Authorised Public Accountant
Lead Partner
Lundin Energy Annual Report 2020
79
FINANCIAL STATEMENTS AND NOTES
Auditor’s Report
To the general meeting of the shareholders of Lundin Energy
AB (publ), corporate identity number 556610-8055
Report on the annual accounts and consolidated accounts
Opinions
We have audited the annual accounts and consolidated accounts
of Lundin Energy AB (publ) except for the corporate governance
statement on pages 19–36 for the year 2020. The annual accounts
and consolidated accounts of the company are included on pages
4–79 in this document.
In our opinion, the annual accounts have been prepared in
accordance with the Annual Accounts Act and present fairly, in all
material respects, the financial position of the parent company as of
31 December 2020 and its financial performance and cash flow for
the year then ended in accordance with the Annual Accounts Act.
The consolidated accounts have been prepared in accordance with
the Annual Accounts Act and present fairly, in all material respects,
the financial position of the group as of 31 December 2020 and their
financial performance and cash flow for the year then ended in
accordance with International Financial Reporting Standards (IFRS),
as adopted by the EU, and the Annual Accounts Act. Our opinions do
not cover the corporate governance statement on pages 19–36. 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 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 fulfilled 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 sufficient and
appropriate to provide a basis for our opinions.
Key Audit Matters
Key audit matters of the audit are those matters that, in our
professional judgment, were of most significance in our audit of the
annual accounts and consolidated accounts of the current period.
These matters were addressed in the context of our audit of, and in
forming our opinion thereon, the annual accounts and consolidated
accounts as a whole, but we do not provide a separate opinion on
these matters. For each matter below, our description of how our
audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s
responsibilities for the audit of the financial statements section of
our report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to
our assessment of the risks of material misstatement of the financial
statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis
for our audit opinion on the accompanying financial statements.
Recoverable amounts of oil and gas properties and goodwill
Description
How our audit addressed this key audit matter
Oil and gas properties represent a significant part of the Company’s assets
and amounted to USD 5,902.4 million as of 31 December 2020. Goodwill
amounted to USD 128.1 million as of December 31, 2020. Oil and gas
properties and goodwill are tested for impairment when impairment
indicators are identified. Goodwill is tested for impairment at least annually.
As disclosed in the Accounting Policies and note 9 and note 11 to the
consolidated financial statements, assessing the recoverable amounts of
the assets involves significant judgement. When estimating the recoverable
amount, the expected cash flow approach is applied. The estimates of
recoverable amounts are prepared for each cash generating unit. The
individual fields or fields with shared infrastructure represent the cash
generating units for producing assets and assets under development,
while for capitalized exploration and appraisal expenditure the cash
generating unit is the field cost pool or the individual exploration well.
The assumptions used in forecasting future cash flows include assessing
the cash generating units, future price assumptions, future expected
production volumes and capital and operating expenses and discount
rates. These critical assumptions are judgmental and forward-looking
and may be influenced by future market developments and economic
developments.
We therefore consider management’s impairment indicator assessment
and the impairment test of oil and gas properties and goodwill to be a key
audit matter given the significance of the accounts on the balance sheet
and the complexity and uncertainty of the estimates and assumptions used
by management in the cash flow models.
We have obtained an understanding of the Company’s process,
evaluated the design and tested the operating effectiveness of controls
regarding the assessment of impairment indicators and the estimation
of recoverable amounts of oil and gas properties and goodwill. We
have further evaluated management’s methodology; assessment of
cash generating units and tested the clerical accuracy of the models
used and assessed the reasonableness of the discount rates applied. We
involved valuation specialists in this assessment.
To assess the inputs to the discounted cash flow models we evaluated
management’s methodology to determine future commodity prices
and compared such assumptions to analysts’ forecasts and those
applied by other international oil companies; compared reserve
volumes to external verifications of expected reserves; and compared
the capital and operating expenditure profiles to prior period profiles.
For capitalized exploration and appraisal expenditure we have
in addition evaluated the conditions for continued capitalization
by assessing management’s future plans and commitments and
considered available corroborative information.
We have assessed the appropriateness of the information provided in
the annual report relating to oil and gas properties and goodwill. For
information see accounting principles, note 9 and note 11.
80
Lundin Energy Annual Report 2020
Accounting for current and deferred income tax
Description
How our audit addressed this key audit matter
For the year ended 31 December 2020 the Company’s income tax
expense amounted to USD 890.1 million. As of 31 December 2020,
the Company has recognized a deferred tax liability of USD 2 893.9
million and a current tax liability of USD 444.4 million. The income
tax expense and the tax liabilities are primarily related to the
Norwegian subsidiary Lundin Energy Norway AS which is subject to
the Norwegian Petroleum Tax Act. Refer to Accounting Policies note
and note 7 to the consolidated financial statements. The Norwegian
Petroleum Tax Act is complex in nature and application of the tax
regulations leads to complexity in the calculation of current and
deferred tax. Given the tax rate of 78% for petroleum activities in
Norway the income tax amounts involved are significant.
We have obtained an understanding of the Company’s process,
evaluated the design and tested the operating effectiveness of controls
over the income tax calculation. We have further tested the clerical
accuracy of the tax calculation model. We agreed the book and tax
bases to accounting records and tax returns, we tested the effective tax
rate calculation and assessed application of tax regulations. Uncertain
tax positions were investigated by inspecting correspondence with
tax authorities and assessing the compliance with tax regulations. We
involved our tax specialists in our audit procedures.
We have assessed the appropriateness of the information provided in
the annual report relating to income tax. For information see note 7.
We consider the calculation of current and deferred income tax to be a
key audit matter given the complexity in the tax calculations and the
significance of the related accounts.
Other Information than the annual accounts and consolidated
accounts
This document also contains other information than the annual This
document also contains other information than the annual accounts
and consolidated accounts and is found on pages 1—3 and 83–93.
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
identified 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.
Auditor’s responsibility
Our objectives are to obtain reasonable assurance about whether the
annual accounts and consolidated accounts as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinions. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs and generally accepted auditing
standards in Sweden will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these annual accounts and consolidated
accounts.
A further description of our responsibilities for the audit of the
annual accounts and the consolidated accounts is located at
Revisorsinspektionen’s (the Swedish Inspectorate of Auditors) website
at: http://www.revisorsinspektionen.se/rn/showdocument/documents/
rev_dok/revisors_ansvar.pdf. This description forms part of our
auditor’s report.
Lundin Energy Annual Report 2020
81
FINANCIAL STATEMENTS AND NOTES | Auditor’s Report
Our objective concerning the audit of the proposed appropriations of
the company’s profit or loss, and thereby our opinion about this, is
to assess with reasonable degree of assurance whether the proposal
is in accordance with the Companies Act.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with generally
accepted auditing standards in Sweden will always detect actions or
omissions that can give rise to liability to the company, or that the
proposed appropriations of the company’s profit or loss are not in
accordance with the Companies Act.
A further description of our responsibilities for the audit of
the administration is located at Revisorsinspektionen’s (the
Swedish Inspectorate of Auditors) website at: http://www.
revisorsinspektionen.se/rn/showdocument/documents/rev_dok/
revisors_ansvar.pdf. This description forms part of our auditor’s
report.
The auditor’s examination of the corporate governance
statement
The Board of Directors is responsible for that the corporate
governance statement on pages 19–36 has been prepared in
accordance with the Annual Accounts Act.
Our examination of the corporate governance statement is
conducted in accordance with FAR´s auditing standard RevU 16
The auditor´s examination of the corporate governance statement.
This means that our examination of the corporate governance
statement is different and substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
and generally accepted auditing standards in Sweden. We believe
that the examination has provided us with sufficient basis for our
opinions.
A corporate governance statement has been prepared. Disclosures
in accordance with chapter 6 section 6 the second paragraph
points 2–6 of the Annual Accounts Act and chapter 7 section 31
the second paragraph the same law are consistent with the other
parts of the annual accounts and consolidated accounts and are in
accordance with the Annual Accounts Act.
Ernst & Young AB, P.O Box 7850 103 99 Stockholm, was appointed
auditor of Lundin Energy AB (publ) by the general meeting of the
shareholders on the 31 March 2020 and has been the company’s
auditor since 2020.
Stockholm 1 March, 2021
Ernst & Young AB
Anders Kriström
Authorized Public Accountant
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 Energy AB (publ) for
the year 2020 and the proposed appropriations of the company’s
profit or loss.
We recommend to the general meeting of shareholders that the
profit be appropriated in accordance with the proposal in the
statutory administration report and that the members of the Board
of Directors and the Managing Director be discharged from liability
for the financial year.
Basis for opinions
We conducted the audit in accordance with generally accepted
auditing standards in Sweden. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities
section. We are independent of the parent company and the
group in accordance with professional ethics for accountants in
Sweden and have otherwise fulfilled our ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinions.
Other matters
The audit of the annual accounts for 2019 was performed by another
auditor who submitted an auditor´s report dated 2 March 2020, with
unmodified opinions in the Report on the annual accounts.
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 profit or loss. At the proposal of
a dividend, this includes an assessment of whether the dividend
is justifiable considering the requirements which the company’s
and the group’s type of operations, size and risks place on the size
of the parent company’s and the group’s equity, consolidation
requirements, liquidity and position in general.
The Board of Directors is responsible for the company’s organization
and the administration of the company’s affairs. This includes
among other things continuous assessment of the company’s and
the group’s financial situation and ensuring that the company’s
organization is designed so that the accounting, management of
assets and the company’s financial affairs otherwise are controlled
in a reassuring manner. The 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 fulfill the company’s accounting in accordance
with law and handle the management of assets in a reassuring
manner
Auditor’s responsibility
Our objective concerning the audit of the administration, and
thereby our opinion about discharge from liability, is to obtain audit
evidence to assess with a reasonable degree of assurance whether
any member of the Board of Directors or the 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.
82
Lundin Energy Annual Report 2020
ADDITIONAL INFORMATION
Key Financial Data
Lundin Energy discloses alternative performance measures as part of its financial statements prepared in accordance with ESMA’s (European
Securities and Markets Authority) guidelines. Lundin Energy believes that that the alternative performance measures provide useful
supplement information to management, investors, security analysts and other stakeholders and are meant to provide an enhanced insight
into the financial development of Lundin Energy’s business operations and to improve comparability between periods. Relevant reconciliations
of alternative performance measures are provided on page 84. Definitions of the performance measures are provided under the key ratio
definitions below.
Financial data from continuing operations
MUSD
Revenue and other income
Operating cash flow1
CFFO
EBITDAX1
Free cash flow
Net result
Adjusted net result
Net debt
Data per share from continuing operations
USD
Shareholders’ equity per share
Operating cash flow per share 1
CFFO per share
EBITDAX per share 1
Free cash flow per share
Earnings per share
Earnings per share fully diluted
Adjusted earnings per share
Adjusted earnings per share fully diluted
Dividend per share 2
2020
2,564.4
1,657.6
1,528.0
2,140.2
448.2
384.2
280.0
3,911.5
-6.22
5.83
5.38
7.53
1.58
1.35
1.35
0.99
0.98
1.12
2019
2,948.7
1,537.1
1,378.2
1,918.4
1,271.7
824.9
252.7
4,006.7
-5.63
4.87
4.36
6.07
4.03
2.61
2.61
0.80
0.80
1.11
2018
2,640.7
1,864.1
1,718.3
1,932.5
663.0
225.7
295.3
2017
1,997.0
1,530.0
1,299.3
1,501.5
203.7
380.9
156.5
2016
950.0
857.9
668.7
752.5
-328.2
-399.3
28.6
3,398.2
3,883.6
4,075.5
-1.13
5.51
5.07
5.71
1.96
0.67
0.66
0.87
0.87
0.45
-1.03
4.50
3.82
4.41
0.60
1.13
1.13
0.46
0.46
1.21
-0.70
2.63
2.05
2.31
-1.01
-0.79
-0.79
0.09
0.09
–
Number of shares issued at year end
285,924,614
285,924,614
340,386,445
340,386,445
340,386,445
Number of shares in circulation at year end
284,351,471
284,051,304
338,513,135
339,153,135
340,386,445
Weighted average number of shares for the year
284,177,604
315,833,140
338,592,250
340,237,772
325,808,486
Weighted average number of shares for the year
fully diluted
284,830,491
316,551,300
339,513,634
341,380,316
326,738,233
Share price
Share price in SEK
Share price in USD 3
Key ratios from continuing operations (%)
Return on equity4
Return on capital employed
Net debt/equity ratio4
Net debt/EBITDAX ratio 1
Equity ratio
Share of risk capital
Interest coverage ratio
Operating cash flow/interest ratio 1
Yield
222.30
27.19
318.30
34.23
221.40
24.72
187.80
22.88
198.10
21.86
–
22
–
1.8
-27
17
8
11
4
–
35
–
2.1
-26
13
20
16
3
–
28
–
1.8
-7
29
17
21
2
–
16
–
2.6
-6
17
6
12
5
–
-9
–
5.4
-17
-3
-2
5
n/a
1 Excludes the reported after tax accounting gain of MUSD 756.7 in 2019 on the divestment of a 2.6 percent working interest in the Johan Sverdrup project
and 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 field.
2 Dividend per share represents the actual paid out dividend per share.
3 Share price at period end in USD is calculated based on quoted share price in SEK and applicable SEK/USD exchange rate as per period end.
4 As the equity at 31 December 2020, 31 December 2019, 31 December 2018, 31 December 2017 and 31 December 2016 is negative, these ratios have not
been calculated.
Lundin Energy Annual Report 2020
83
ADDITIONAL INFORMATION
Relevant Reconciliations of Alternative Performance
Measures
EBITDAX
MUSD
Operating profit
Minus: gain from sale of assets
Add: depletion of oil and gas properties
Add: exploration costs
Add: impairment costs of oil and gas properties
Add: loss from sale of assets
Add: depreciation of other tangible assets
2020
1,420.7
–
607.7
104.9
–
–
6.9
2019
1,970.7
-756.7
443.8
125.6
128.3
–
6.7
2018
1,418.7
–
458.0
53.2
–
–
2.6
2017
812.4
–
568.4
73.1
30.6
14.4
2.6
EBITDAX
2,140.2
1,918.4
1,932.5
1,501.5
Operating cash flow
MUSD
Revenue and other income
Minus: gain from sale of assets
Minus: production costs
Minus: purchase of crude oil from third parties
Minus: current taxes
Operating cash flow
Free cash flow
MUSD
2,564.4
2,948.7
2,640.7
1,997.0
–
-177.2
-217.8
-511.8
-756.7
-164.8
-84.3
-405.8
–
-152.4
-533.8
-90.4
–
-164.2
-303.3
0.5
1,657.6
1,537.1
1,864.1
1,530.0
Cash flows from operating activities (CFFO)
Minus: cash flows from investing activities
Free cash flow
1,528.0
-1,079.8
448.2
1,378.2
-106.5
1,271.7
1,718.3
-1,055.3
663.0
1,299.3
-1,095.6
203.7
Adjusted net result
MUSD
Net result
Adjusted for gain or loss from sale of assets
Adjusted for impairment costs of oil and gas properties
Adjusted for impairment of other shares
Adjusted for loan modification gain
Adjusted for unwinding of loan modification gain
Adjusted for foreign currency exchange gain or loss
Adjusted for tax effects of above mentioned items
Adjusted net result
384.2
–
–
–
–
99.7
-171.0
-32.9
280.0
824.9
-756.7
128.3
–
–
41.5
131.7
-117.0
252.7
225.7
380.9
–
–
–
-183.7
26.1
164.9
62.3
295.3
14.4
30.6
11.2
–
–
-255.3
-25.3
156.5
2016
-244.7
–
386.2
101.9
506.1
–
3.0
752.5
950.0
–
-168.4
-2.1
78.4
857.9
668.7
-996.9
-328.2
-399.3
–
506.1
–
–
–
4.2
-82.4
28.6
Net debt
MUSD
Bank loans
Minus: cash and cash equivalents
Net debt
3,994.0
-82.5
3,911.5
4,092.0
-85.3
4,006.7
3,465.0
-66.8
3,398.2
3,955.0
-71.4
3,883.6
4,145.0
-69.5
4,075.5
84
Lundin Energy Annual Report 2020
ADDITIONAL INFORMATION
Key Ratio Definitions
Adjusted earnings per share: Adjusted net result attributable to shareholders of the Parent Company divided by the weighted average
number of shares for the year.
Adjusted earnings per share fully diluted: Adjusted 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.
Adjusted net result: Net result adjusted for the following items:
· Gain or loss from sale of assets is adjusted since the gain or loss does not give an indication of future or periodic performance.
· Impairment and reversal of impairment is adjusted since this affects the economics of an asset for the lifetime of that asset, not only the
period in which it is impaired or the impairment is reversed.
· Other items of income and expenses are adjusted when the impact on net result in the period is not reflective of the company’s underlying
performance in the period. Such items may be unusual or infrequent transactions but they may also include transactions that are significant
which would not necessarily qualify as either unusual or infrequent.
· Foreign currency exchange gain or loss is adjusted since the gain or loss does not give an indication of future or periodic performance as
currency exchange rates change between periods.
· Tax effects of the above mentioned adjustments to net result
CFFO per share: Cash flow from operating activities (CFFO) divided by the weighted average number of shares for the year.
Dividend per share: Paid out dividends per share 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.
EBITDAX (Earnings Before Interest, Taxes, Depletion, Amortisation and Exploration expenses): Operating profit before depletion of oil
and gas properties, exploration costs, impairment costs, depreciation of other tangible assets and gain on sale of assets.
EBITDAX per share: EBITDAX divided by the weighted average number of shares for the year.
Equity ratio: Total equity divided by the balance sheet total.
Free cash flow: Cash flow from operating activities (CFFO) less cash flow from investing activities in accordance with the consolidated
statement of cash flow.
Free cash flow per share: Free cash flow divided by the weighted average number of shares for the year.
Interest coverage ratio: Result after financial items plus interest expenses plus/less currency exchange differences on financial loans divided
by interest expenses.
Net debt: Bank loan less cash and cash equivalents.
Net debt/EBITDAX ratio: Bank loan less cash and cash equivalents divided by EBITDAX of the last four quarters.
Net debt/equity ratio: Bank loan less cash and cash equivalents divided by shareholders’ equity.
Operating cash flow: Revenue and other income less production costs less purchase of crude oil from third parties less current taxes and less
gain on sale of assets.
Operating cash flow per share: Operating cash flow divided by the weighted average number of shares for the year.
Operating cash flow/interest ratio: Operating cash flow divided by the interest expense for the year.
Return on capital employed: Income before tax plus interest expenses plus/less currency exchange differences on financial loans divided by
the average capital employed (the average balance sheet total less current liabilities).
Return on equity: Net result divided by average total equity.
Shareholders’ equity per share: Shareholders’ equity divided by the number of shares in circulation at year end.
Share of risk capital: The sum of the total equity and the deferred tax provision divided by the balance sheet total.
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.
Yield: Dividend per share in relation to quoted share price at the end of the year.
Lundin Energy Annual Report 2020
85
ADDITIONAL INFORMATION
Five Year Financial Data
Income statement summary 1
MUSD
Revenue from own production
Revenue from third party activities
Gain from sale of assets
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 profit/loss
General, administration and depreciation expenses
Operating profit/loss
Net financial items
Share in result of joint ventures and associated company
Profit/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 fixed assets
Other non-current assets
Current assets
Total assets
Shareholders’ equity
Non-controlling interest
Total equity
Non-current provisions
Non-current liabilities
Current liabilities
Total shareholders’equity and liabilities
2020
2,311.7
221.5
–
31.2
-177.2
-607.7
-104.9
–
–
-217.8
1,456.8
-36.1
1,420.7
-146.3
-0.1
1,274.3
-890.1
384.2
–
384.2
384.2
–
384.2
2020
5,947.6
273.3
432.3
6,653.2
2019
2,074.3
84.3
756.7
33.4
-164.8
-443.8
-125.6
-128.3
–
-84.3
2,001.9
-31.2
1,970.7
-295.0
-1.8
1,673.9
-849.0
824.9
–
824.9
824.9
–
824.9
2019
5,522.6
145.1
486.8
6,154.5
-1,769.1
-1,598.8
–
–
-1,769.1
-1,598.8
3,604.2
3,983.9
834.2
6,653.2
3,051.6
3,888.4
813.3
6,154.5
2018
2,071.8
536.1
–
32.8
-152.4
-458.0
-53.2
–
–
-533.8
1,443.3
-24.6
1,418.7
-153.2
-1.3
1,264.2
-1,038.5
225.7
–
225.7
225.7
–
225.7
2018
5,354.7
131.2
353.9
5,839.8
-383.8
–
-383.8
2,657.8
3,262.0
303.8
5,839.8
2017
1,654.8
303.5
–
38.7
-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
973.8
2.1
–
-25.9
-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
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.
86
Lundin Energy Annual Report 2020
ADDITIONAL INFORMATION
Reserve and Resource Quantity Information
Proved plus probable reserves (2P)
1 January 2020
Changes during the year
- Production
+ Acquisitions/ - Dispositions
+ Revisions
31 December 2020
1 The year end 2020 2P oil reserves reported include 20.5 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)
1 January 2020
Changes during the year
- Production
+ Acquisitions/ - Dispositions
+ Revisions
31 December 2020
1 The year end 2020 3P oil reserves reported include 26.0 MMbbl of NGL’s.
2 The factor of 6,000 is used by the Company to convert one scf to one boe.
Best estimate contingent resources (2C)
1 January 2020
Changes during the year
+ Acquisitions/ - Dispositions
+ Revisions/Discoveries
31 December 2020
1 The factor of 6,000 is used by the Company to convert one scf to one boe.
Oil
MMbbl
661.2
-58.0
0.0
37.0
640.2 1
Oil
MMbbl
814.5
-58.0
0.0
28.6
785.1 1
Oil and gas 1
MMboe
185.3
78.4
11.8
275.5
Gas
Bn scf
192.4
-21.7
0.0
13.6
184.2
Gas
Bn scf
258.3
-21.7
0.0
8.7
245.3
Oil and gas 2
MMboe
693.3
-61.6
0.0
39.3
670.9
Oil and gas 2
MMboe
857.5
-61.6
0.0
30.0
826.0
Lundin Energy Annual Report 2020
87
ADDITIONAL INFORMATION
Investments in Joint Operations
Licence
PL036C
PL088BS
PL148
PL150
PL167
PL167B
PL167C
PL203
PL229E
PL265
PL292
PL292B
PL338
PL338BS
PL338 C
PL338DS
PL338E
PL340
PL340BS
PL359
PL492
PL501
PL501B
PL533
PL533B
PL537
PL537B
PL609
PL609B
PL609C
PL609D
PL695
PL722
PL758
PL764
PL767
PL767B
PL800
PL815
PL820S
PL830
PL850
PL851
PL853
PL857
PL859
PL860
PL869
PL886
PL886B
Field / Discovery
WI 1
31 December 2020
WI 1
31 December 2019
Brynhild
Volund
Lille Prinsen
Alvheim, Kobra East, Gekko
Johan Sverdrup 2
Gaupe
Edvard Grieg
Rolvsnes
Bøyla & Frosk
Solveig
Gotha
Johan Sverdrup 2
Wisting
Alta
15
15
51
35
20 (40)
20 (40)
20 (40)
15
50
7.384
40
40
65
50
80
65
80
15
15
65
40
37.384
37.384
40
40
10
10
55
55
55
55
40
20
–
–
–
–
–
60
Iving
40 (41)
40
–
55
–
–
–
40
20
60
60
15
15
51
35
20
20
20
15
–
7.384
40
40
65
50
80
65
80
15
15
65
40
37.384
37.384
35 (40)
35 (40)
–
–
40
40
40
–
40
20
20
40
50
50
20
60
40
40
30
40
60
20
15
40
20
40 (60)
40 (60)
1 Lundin Energy’s working interest (%) with changes awaiting government approval per year end mentioned between brackets
2 Lundin Energy’s working interest (%) in the Johan Sverdrup field amounts to 20 percent
88
Lundin Energy Annual Report 2020
Licence
PL894
PL896
PL902
PL902B
PL904
PL914S
PL916
PL917
PL917B
PL919
PL921
PL924
PL926
PL929
PL934
PL935
PL936
PL950
PL952
PL954
PL960
PL962
PL965
PL976
PL981
PL987
PL987B
PL988
PL989
PL991
PL998
PL1011
PL1023
PL1027
PL1029
PL1032
PL1041
PL1045
PL1048
PL1051
PL1057
PL1069
PL1082
PL1083
Field / Discovery
WI 1
31 December 2020
WI 1
31 December 2019
10
30
40
40
20
1.385
–
20
20
15
–
15
10
10
40
20
30
–
–
40
20
20
60
50
60
20
20
40
30
40
30
40
50
40
40
40
30
15
50
40
60
50
50
40
– (10)
30
40
40
20
1.385
20
20
–
15
15
15
10
10
40
20
30
40
50
40
20
20
60
50
60
20
–
40
30
40
30
40
50
40
40
–
–
–
–
–
–
–
–
–
1 Lundin Energy’s working interest (%) with changes awaiting government approval per year end mentioned between brackets
Lundin Energy Annual Report 2020
89
ADDITIONAL INFORMATION
Definitions and Abbreviations
Reserves defined
Lundin Energy estimates reserves and resources according to 2018 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 Energy’s reserves are audited by ERC Equipoise Ltd. (ERCE), an independent reserves auditor. Reserves are defined
as those quantities of petroleum which are anticipated to be commercially recovered by application of development projects to known accumulations
from a given date forward under defined conditions. Estimation of reserves is inherently uncertain and to express an uncertainty range, reserves are
subdivided into Proved, Probable and Possible categories. Unless stated otherwise, Lundin Energy reports its Proved plus Probable (2P) reserves and its
Proved plus Probable plus Possible (3P) reserves.
Proved reserves
Probable reserves
Possible reserves
2P Reserves
3P Reserves
Proved reserves are those quantities of petroleum
which, by analysis of geological and engineering
data, can be estimated with reasonable certainty
to be commercially recoverable, from a given
date forward, from known reservoirs and under
current economic conditions, operating methods
and governmental regulations. Proved reserves
can be categorised as developed or undeveloped.
If deterministic methods are used, the term
reasonable certainty is intended to express a high
degree of confidence that the quantities will be
recovered. If probabilistic methods are used, there
should be at least a 90 percent probability that
the quantities actually recovered will equal or
exceed the estimates.
Probable reserves are those unproved
reserves which analysis of geological and
engineering data indicate are less likely
to be recovered than Proved reserves but
more certain to be recovered than Possible
reserves. It is equally likely that actual
remaining quantities recovered will be
greater than or less than the sum of the
estimated 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 Energy 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
CHF
CAD
EUR
GBP
NOK
SEK
USD
TCHF
TSEK
TUSD
MSEK
MUSD
Swiss Franc
Canadian Dollar
Euro
British Pound
Norwegian Krone
Swedish Krona
US Dollar
Thousand CHF
Thousand SEK
Thousand USD
Million SEK
Million USD
Barrel (1 barrel = 159 litres)
bbl
Billion cubic feet (1 cubic foot = 0.028 m3)
bcf
Billion
Bn
Barrels of oil equivalent
boe
Barrels of oil equivalent per day
boepd
Barrels of oil per day
bopd
Billion barrels of oil equivalent
Bn boe
Thousand barrels
Mbbl
Thousand barrels of oil equivalent
Mboe
Mboepd Thousand barrels of oil equivalent per day
Mbopd
Thousand barrels of oil 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
Natural Gas Liquids
NGL
Thousand cubic feet
90
Lundin Energy Annual Report 2020
ADDITIONAL INFORMATION
Share Data
Share data
Since Lundin Energy was incorporated in May 2001 and up to 31 December 2020 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
Cancellation of shares/Bonus issue
Total
2006
2014
2016
2019
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
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
-54,461,831
285,924,614
285,924,614
285,924,614
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
3,478,713
Lundin Energy Annual Report 2020
91
ADDITIONAL INFORMATION
Shareholder Information
Lundin Energy will publish the following interim reports:
· 29 April 2021
· 28 July 2021
· 28 October 2021
· 1 February 2022
Three month report (January–March 2021)
Six month report (January–June 2021)
Nine month report (January–September 2021)
Year end report
The reports are available on www.lundin-energy.com in Swedish and English directly after public announcement.
Annual General Meeting
The Annual General Meeting (AGM) is held within six months from the close of the financial year. All shareholders who are registered
in the shareholders’ register and who have duly notified their intention to attend the AGM may do so and vote in accordance with
their level of shareholding. Shareholders may also attend the AGM through a proxy and a shareholder shall in such a case issue a
written and dated proxy. A proxy form is available on www.lundin-energy.com.
Lundin Energy’s AGM is to be held on Tuesday 30 March 2021 at 13.00 CEST. As a consequence of the global COVID-19 pandemic, the
Board of Directors have decided to hold the AGM as a virtual meeting combined with proxy and postal voting options, in accordance
with the Swedish Act on Temporary Exemptions to Facilitate the Execution of General Meetings in Companies and Associations (SFS
2020:198).
Attendance at the meeting
Shareholders wishing to attend the meeting shall:
· be recorded in the share register maintained by Euroclear Sweden AB on Monday 22 March 2021; and
· notify Lundin Energy of their intention to attend the AGM no later than Wednesday 24 March 2021 through the website
www.lundin-energy.com (only applicable to individuals) or by mail to Computershare AB, “Lundin Energy AB’s AGM”, Box 5267,
102 46 Stockholm, Sweden, by telephone Int +46-8-518 01 554 or by e-mail info@computershare.se
Shareholders whose shares are registered in the name of a nominee must temporarily register, through the nominee, the shares in
their own names in order to be entitled to attend the AGM. Such registration must be effected by 22 March 2021, at the latest.
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92
Lundin Energy Annual Report 2020
ADDITIONAL INFORMATION
This information is information that Lundin Energy AB is required to make public pursuant to the Swedish Securities Markets Act.
The information was submitted for publication at 08.00 CET on 3 March 2021.
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 Lundin Energy’s future performance, business prospects or opportunities. Forward-looking statements include, but are not
limited to, statements with respect to estimates of reserves and/or resources, future production levels, future capital expenditures and
their allocation to exploration and development activities, future drilling and other exploration and development activities. Ultimate
recovery of reserves or resources are based on forecasts of future results, estimates of amounts not yet determinable and assumptions
of management.
All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and
probable reserves and resource estimates may also be deemed to constitute forward-looking statements and reflect conclusions that
are based on certain assumptions that the reserves and resources can be economically exploited. Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”,
“may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions)
are not statements of historical fact and may be “forward-looking statements”. Forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated
in such forward-looking statements. No assurance can be given that these expectations and assumptions will prove to be correct
and such forward-looking statements should not be relied upon. These statements speak only as on the date of the information and
Lundin Energy does not intend, and does not assume any obligation, to update these forward-looking statements, except as required
by applicable laws. These forward-looking statements involve risks and uncertainties relating to, among other things, operational
risks (including exploration and development risks), productions costs, availability of drilling equipment, reliance on key personnel,
reserve estimates, health, safety and environmental issues, legal risks and regulatory changes, competition, geopolitical risk, and
financial risks. These risks and uncertainties are described in more detail under the heading “Risk management” and elsewhere in
Lundin Energy’s Annual Report. Readers are cautioned that the foregoing list of risk factors should not be construed as exhaustive.
Actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements
are expressly qualified by this cautionary statement.
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The climate impact from producing this Report has been compensated by Tricorona by sourcing emission
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Lundin Energy Annual Report 2020
93
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Lundin Energy AB (publ)
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T +46-8-440 54 50
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