21
ar
Annual
Report
Lundin Energy
resilience
sustainability
growth
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.
Introduction
Highlights 2021
1
CEO’s review
2
Words from the Chairman
3
Directors’ Report
Corporate structure
4
Operational and financial review
5
Share information
14
Risk management
16
Corporate Governance Report
19
Financial Statements and Notes
Financial summary
38
Financial statements of the Group
39
Accounting policies
44
Notes to the financial statements of
the Group
51
Financial statements of the Parent Company
78
Notes to the financial statements of the
Parent Company
83
Board assurance
85
Auditor’s report
86
Additional Information
Key financial data
90
Relevant reconciliations of alternative
performance measures
92
Key ratio definitions
93
Reserve and resource quantity information
94
Investments in joint operations
95
Definitions and abbreviations
97
Share data
98
Shareholder information
99
Sustainability Report 2021
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.
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 2021
Highlights 2021
• Board of Directors of Lundin Energy and Aker BP agreed on a combination to create the leading European
independent E&P company, with completion of the transaction anticipated around mid 2022
• Record financial performance in 2021, with free cash flow generation of USD 1.6 billion and net debt reduced
to USD 2.7 billion
• Board of Directors proposes to increase 2021 quarterly dividend by 25 percent to USD 0.5625 per share until
completion of the Aker BP transaction
• Record quarterly production for the fourth quarter of 195 Mboepd and 2022 production guidance set between
180 and 200 Mboepd
• Key projects progressing on schedule, with Johan Sverdrup Phase 2 set for first oil in the fourth quarter of 2022
and five new projects heading towards sanction within the temporary tax incentives
• Delivering growth with resource additions of 200 percent of production in 2021
• On track with Decarbonisation Plan to achieve carbon neutrality by 2023 from operational emissions
Financial summary1
2021
2020
Production in Mboepd
190.3
164.5
Revenue and other income in MUSD
5,484.7
2,564.4
CFFO in MUSD
3,058.0
1,528.0
Per share in USD
10.75
5.38
EBITDAX in MUSD
4,822.8
2,140.2
Per share in USD
16.96
7.53
Free cash flow in MUSD
1,645.5
448.2
Per share in USD
5.79
1.58
Net result in MUSD
493.8
384.2
Per share in USD
1.74
1.35
Adjusted net result in MUSD
795.7
280.0
Per share in USD
2.80
0.99
Net debt in MUSD
2,747.9
3,911.5
1 All numbers in this table relate to continuing and discontinued operations combined. For a further breakdown between continuing and
discontinued operations, reference is made to pages 90–92.
Lundin Energy Annual Report 2021
1
At the same time, we are making great progress on our
industry leading Decarbonisation Plan and are set to become
carbon neutral by 2023 from operational emissions, with
around 60 percent of our production already being carbon
neutral. I see this as something that has been and continues to
be a key value differentiator for Lundin Energy.
Financially we had a record year, delivering free cash flow
of USD 1.6 billion, covering our 2021 dividend three times
and allowing us to reduce net debt to USD 2.7 billion. I’m
pleased to note that the Board of Directors is recommending
a 25 percent increase in the quarterly dividend, clearly
demonstrating our commitment to long-term growth of
shareholder returns.
An announcement of significant importance not only for our
shareholders, but also for Norway and our entire industry
came as the year was about to end, when we made public
that the Board of Directors of Lundin Energy and Aker
BP had reached an agreement to combine our two very
successful businesses. This deal creates the leading European
independent E&P company. Value creation is at the heart of
our business and this deal is a unique opportunity to create
a world class company, with significant scale, production
growth and strong free cashflow generation into the next
decade. Coupled with that is a business with industry leading
low costs and low carbon emissions. I am convinced that the
combination proposal with Aker BP is a “win-win” outcome
for both sets of shareholders, as it creates a business that
is positioned to prosper through the energy transition and
deliver increased and sustainable dividends. For Lundin
Energy shareholders, this will deliver a significant up-front
cash consideration, the opportunity to become a shareholder
in the leading European E&P company and a retained interest
a renewables business that is positioned for growth. We are
anticipating that the proposed combination will be completed
around the middle of 2022.
I would like to thank all our stakeholders for their continued
support over the last year, and our employees for their
tremendous efforts in delivering these record results - year
after year. It has been an honour for me to serve as the CEO of
our fantastic company, second to none in this industry and I
will proudly continue to do so until the merger with Aker BP
has been completed. As the next chapter in this great story
unfolds, I am convinced that we can look forward to many
more years of outstanding value creation.
Nick Walker
President and CEO
As the next chapter in this great
story unfolds, I am convinced that
we can look forward to many more
years of outstanding value creation.
I’m pleased to report that in 2021 our company delivered
record production and financial results, underpinned by
continued excellent operational performance and strong oil
and gas prices. The strength that we saw in the oil and gas
markets during 2021 has gained further momentum in the
beginning of 2022, which has resulted in the price of our
commodities hitting levels not seen since 2014.
Even more importantly, our world class assets continue to
outperform by all measures - with industry leading production
efficiency and low operating costs. We exited the year with
production at just under 200 Mboepd and full year production
came in above the top of our original guidance range.
The giant Johan Sverdrup field, discovered by Lundin
Energy more than a decade ago, keeps on delivering above
expectations and Phase 2 of the project, which will lift
production to 755 Mbopd gross, is making excellent progress
and is firmly on track for first oil in the fourth quarter of 2022.
At the Greater Edvard Grieg Area, the completion of the infill
drilling programme and the Solveig and Rolvsnes tie-back
projects, together with several new projects being planned,
will keep the facilities full for the foreseeable future. This is a
prolific area where I see great opportunity to further extend
the production plateau.
We completed the acquisition of a further interest in the
major Wisting oil development project, taking our share to 35
percent, which will help sustain the production profile of the
business long term with a significant addition of low carbon
emissions barrels. The Wisting development concept has been
decided upon and the project is heading towards sanction at
the end of 2022.
Our growth strategy continues to deliver results with total
resource additions in 2021 of 200 percent of produced
volumes, supported by further reserves growth in the Greater
Edvard Grieg Area and the above-mentioned additional interest
in Wisting. I see multiple opportunities to continue to grow
the business with significant potential resource upside at Johan
Sverdrup, a pipeline of new projects being progressed towards
development and an active exploration programme.
CEO’s review
INTRODUCTION
2
Lundin Energy Annual Report 2021
negative territory, something never experienced before. This
was of course a testing time for all of us, but also a time when
it became clear what a resilient world class business we had
built at Lundin Energy.
Just before the start of the festive period in late December
2021, the Board of Directors of Lundin Energy and Aker BP
were able to announce a combination of the two companies’
businesses – a merger that will serve to create the leading
European E&P company and the third largest company by
market capitalisation on the Oslo Stock Exchange. Through
the merger of Lundin Energy’s oil and gas assets with Aker BP,
a world class company with production growth into the next
decade, and industry leading low operating cost and carbon
intensity business is born. The combined business is perfectly
placed to prosper through the energy transition, where scale
and quality will ensure the best barrels are continued to be
used, in a country with probably the most forward-thinking
energy policy from a fiscal, regulatory and environmental
perspective. In addition, the combined business will be able
to access a unique talent pool when Lundin Energy's fantastic
team in Norway is integrated with Aker BP's successful
organisation. The Board and I believe that it is the right time to
combine our two great companies to ensure continued strong
production growth and thus sustainable dividend growth.
Value creation and long-term growth is at the heart of the
Lundin Energy ethos and that is what this deal is all about.
My belief is that the oil price will remain strong for quite
some time to come. This is mainly because our sector has been
underinvested for a few years now - and renewable energy is
still very far from taking over from fossil fuels as the world’s
main source of energy. The high energy prices we have
experienced this winter are at least partly as a result of low
electricity generation due to the intermittency of renewable
power.
As a result, I am convinced that unique investment
opportunities will be created in the global energy transition,
and we will be involved in creating continued shareholder
value from this process. The birth of our new Lundin Energy
with a focus on renewable energy and opportunities stemming
from the energy transition that is now being created is no
exception. I'm quite excited about the opportunities ahead,
as we ensure that we do exactly what we did with Lundin
Energy - to build the best possible team to be able to seize the
opportunities.
Finally I would like to thank our employees and our
shareholders for all your support over the years. I also hope
that you, just like me and my family will remain shareholders
of both the combined entity as we merge Lundin Energy with
Aker BP and of the renewables-focused company that will be
created using the Lundin Energy platform. Exciting times lie
ahead!
Ian H. Lundin
Chairman of the Board
I have mixed emotions writing this
year’s Chairman’s letter, for what
has been one of the most significant
years in the history of the Company.
We delivered record results on all fronts in 2021, production
hit 200 Mboepd at times and at the end of the year the Board
proposed a combination of our great business with Aker BP's to
create the leading European E&P company.
During the past two decades, Lundin Energy has grown
into something none of us dared to dream about when the
Company was listed on the First North Exchange in September
2001. After an initial financing of 350 million SEK (at SEK 3 per
share) the per share value has grown over 100 times providing
a compound annual return to shareholders of 28 percent per
year for over 20 years.
Through hard work and perseverance and above all a strong
management team, with the right skill set, the Company
flourished into one of the leading E&P companies globally.
Not only leading in terms of resource growth and operating
performance but even more importantly, we are setting the
standard in the field of decarbonisation by becoming the first
company in our industry to be carbon neutral from operational
emissions by 2023.
I am particularly happy that we have been able to fulfill the
vision of my father, the founder, Adolf Lundin, who dreamed
of discovering a giant oil field (with more than 1 billion barrels
of recoverable oil reserves). So how did we get here? In a
nutshell, Lundin Energy was among the first independent E&P
companies to establish itself on the Norwegian Continental
Shelf (NCS) after Norway changed the entry rules in order to
promote competition. The first break came with the discovery
of the Edvard Grieg field, our first operated well in Norway.
Although the Greater Edvard Grieg Area is today one of the
largest producing complexes on the NCS it pales in comparison
to Johan Sverdrup, the true giant. Discovered in 2010 by
Lundin Energy’s legendary exploration team it is truly a world
class asset that unlocked the enormous resource potential of
the Utsira High. We have always said that big fields tend to
get bigger over time, and this has certainly been true in the
case of Johan Sverdrup – which with total gross reserves of
between 2.2 and 3.2 billion barrels and production set to grow
to 755 Mbopd by the fourth quarter of 2022, is a testament to
this, as it will represent more than a third of Norway´s total oil
production in 2022.
As with all success stories Lundin Energy has had its fair share
of hard times. Fresh in our memories is the oil price collapse
of 2020, driven by fear of what the effects of the COVID-19
pandemic on global growth would be. From where we stand
today, it is easy to forget that it is less than two years ago that
the Dated Brent price dipped to under 20 USD per barrel and
the WTI (West Texas Intermediate) even briefly went into
Words from the Chairman
3
Lundin Energy Annual Report 2021
4
Lundin Energy Annual Report 2021
Lundin Energy AB (S)
Jurisdiction
Finland
Netherlands
Norway
Sweden
Switzerland
(F)
(N)
(No)
(S)
(Sw)
Lundin Energy
Norway AS (No)
Lundin Energy Renewables
Holding BV (N)
Lundin Energy SA (Sw)
Lundin Energy
Marketing SA (Sw)
Lundin Energy
Services BV (N)
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.
Lundin Energy Holding BV (N)
Lundin Energy MLK BV (N)
Metsälamminkangas Wind Oy (F)
Leikanger Kraft AS (No)
Karskruv Vind AB (S)
Karskruv Nät AB (S)
50%
50%
Lundin Energy
Finance BV (N)
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 April 2021, the Company completed a transaction with
OX2 AB (OX2) to acquire a 100 percent interest in the Karskruv
onshore wind farm project in southern Sweden.
In October 2021, Lundin Energy entered into a sales and
purchase agreement for the acquisition of OMV Norge’s
25 percent working interest in the Wisting discovery. The
transaction increased the Company’s working interest to
35 percent.
In December 2021, Lundin Energy announced that it had
entered into an agreement with Aker BP whereby Aker BP
will absorb Lundin Energy’s E&P business through a cross-
border merger in accordance with Norwegian and Swedish
law. Consequently Lundin Energy presents its E&P business as
discontinued operations in the consolidated Income
Statement and presents the asset and liabilities associated with
the E&P business as assets and liabilities held for distribution in
the consolidated Balance Sheet.
Corporate structure as at 31 December 2021
DIRECTORS' REPORT
Directors’ Report
Lundin Energy AB (publ) Reg No. 556610-8055
5
Lundin Energy Annual Report 2021
Operational review
All the reported numbers and updates in the operational review
relate to the financial year ending 31 December 2021 unless
otherwise specified.
COVID-19 crisis
Lundin Energy has maintained a proactive approach in
safeguarding the wellbeing of the Company’s employees
and contractors and ensuring the virus has minimal impact
on its operations. To date there have been no disruptions to
production due to the COVID-19 situation and while certain
project activities have been affected, the disruptions have been
successfully managed to avoid any negative impact on the
production outlook.
Discontinued Operations
Discontinued operations represents all of Lundin Energy AB’s
E&P business.
Reserves and resources
Lundin Energy has 639 million barrels of oil equivalent (MMboe)
of proved plus probable net reserves (2P) and 799 MMboe of
proved plus probable plus possible net reserves (3P) as at 31
December 2021, as certified by an independent third party.
Lundin Energy has an additional 380 MMboe net oil and gas
resources, which classify as best estimate contingent resources
(2C) as at 31 December 2021. The total resource base, made up
of 2P reserves plus 2C contingent resources, is 1.0 Bn boe as at
31 December 2021.
Production
Production was 190 thousand barrels of oil equivalent per day
(Mboepd), at the top end of both the original guidance range of
170 to 190 Mboepd, and the updated guidance range of 180 to
195 Mboepd, released in June 2021.
Operating costs, net of tariff income, were USD 3.14 per boe
for 2021, which was slightly above guidance. The increase was
mainly driven by increased environmental taxes and higher
electricity prices in the latter half of the year, a stronger NOK
and somewhat offset by higher production volumes.
Production in Mboepd
2021
2020
Crude oil
177.4
152.7
Gas
12.9
11.8
Total production
190.3
164.5
Production in Mboepd
WI1
2021
2020
Johan Sverdrup
20%
106.3
87.6
Greater Edvard Grieg Area2
65–80%
72.9
63.6
Ivar Aasen
1.385%
0.6
0.8
Alvheim Area
15–35%
10.5
12.5
Quantity in Mboepd
190.3
164.5
1 Lundin Energy’s working interest (WI)
2 Consisting – Edvard Grieg, Solveig and Rolvsnes EWT
The Johan Sverdrup field continues to exceed expectations, with
high uptime, increased processing capacity, excellent reservoir
performance and well productivities. Production from Johan
Sverdrup Phase 1 has delivered in line with mid-year guidance
with a production efficiency of 97 percent. In May 2021, the
Phase 1 processing capacity was increased from 500 to 535
thousand barrels of oil per day (Mbopd), followed by upgrades
to the water injection system to support the increased offtake.
The Company’s 2P reserves at year end 2021 includes for the
first time a contribution from eight infill wells (previously
contingent resources), extending the plateau production period.
The Company recognises that there is upside resource potential
in several parts of the field which will be realised through
further infill drilling, optimised reservoir management and
increased facilities capacity. A total of five wells were drilled and
completed in 2021, with results in line with expectations. 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 0.1 kg per boe for the year.
Operating costs were USD 1.78 per boe.
Edvard Grieg has continued to perform above expectations
during 2021, consistently delivering above guidance with a
production efficiency of 98 percent. All three infill wells on
Edvard Grieg, including the Company´s first multi-lateral and
fishbone wells, were completed on time and below budget.
The first well came on stream in the second quarter, while the
last two came on stream in the fourth quarter. The innovative
“Fishbones” technology was successfully deployed on two of the
wells, resulting in a significant increase in well productivities.
The 2021 reservoir performance has also resulted in an increase
in the gross 2P reserves of 29 MMboe. The gross ultimate
recovery for Edvard Grieg is now 379 MMboe, which is an
increase of over 100 percent since the PDO.
First oil from the Solveig Phase 1 tie-back project was achieved
in the third quarter of 2021. The drilling programme has been
progressing as planned with four out of five wells completed
and results are ahead of expectations. The Edvard Grieg hub,
including the Solveig and Rolvsnes fields, has an excess of well
capacity, and production will be optimized between all three
fields to ensure maximum throughput from the hub. During
the fourth quarter, Edvard Grieg production was prioritized over
Solveig, leading to higher than expected rates from the Edvard
Grieg field and lower than expected rates from the Solveig field.
Drilling results and early production performance on the Solveig
Phase 1 development has resulted in a reserves increase of 11
MMboe gross, representing a 20 percent increase in 2P reserves.
The Rolvsnes Extended Well Test (EWT) commenced production
in the third quarter and reservoir performance has continued in
line with expectations. Overall, the Greater Edvard Grieg Area
has a gross ultimate recovery of 450 MMboe with a 97 percent
replacement ratio of its production in 2021. Operating costs
for the Greater Edvard Grieg Area, net of tariff income, were
USD 4.25 per boe.
Power from shore at Edvard Grieg is expected to be completed in
late 2022, with the project progressing on schedule. The power
cable has been installed on Edvard Grieg and laid on the seabed
at Johan Sverdrup, awaiting arrival of the Phase 2 processing
platform in 2022. The retirement of the existing gas turbine
power generation system on the platform and installation of
electric boilers to provide process heat is on schedule and is
DIRECTORS’ REPORT | Operational and financial review
6
Lundin Energy Annual Report 2021
expected to be operational in late 2022. It is also estimated that
the Company will benefit from a 10 percent increase in gas sales
from Edvard Grieg compared to current gas sales, due to the
removal of the turbine power generation.
Production from the Alvheim Area was slightly ahead of
guidance with a production efficiency of 95 percent. Two infill
wells came on stream during 2021, with performance ahead
of expectations. First oil from the third infill well is expected
in February 2022. Operating costs for the Alvheim Area were
USD 7.79 per boe.
Development
Total development expenditure was MUSD 738, compared to
latest guidance of MUSD 770, as updated at the time of the third
quarter results. The reduction is due to better than expected
drilling performance at Edvard Grieg and Solveig, as well as cost
reductions and re-phasing of Johan Sverdrup costs into 2022.
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 Johan
Sverdrup gross field reserves are in the range of 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. In June 2021, the
Company announced that the full field gross processing capacity
will be increased to 755 Mbopd once Phase 2 comes on stream.
The increase is a result of debottlenecking work on the Phase
2 topsides and studies to optimise the full field integrated
processing and export capacity. The full field breakeven oil price
for Johan Sverdrup, including past investments, is less than
USD 15 per boe.
The Phase 2 capital expenditure is estimated at gross NOK 41
billion (nominal), which is unchanged from the Phase 2 PDO
estimate in 2019. The three modules that constitute the second
processing platform topsides were successfully assembled in
May 2021, the Jacket for the second processing platform was
successfully installed offshore in June 2021 and the new module
on the existing riser platform was successfully installed offshore
in July 2021. The operation to install the second processing
platform topsides on the jacket is planned for March 2022. The
subsea facilities and flowlines installation work is progressing
as per schedule and will be completed early 2022, with drilling
operations on the subsea wells having commenced in January
2022. First oil remains on schedule for fourth quarter 2022, with
project progress now approximately 70 percent complete.
Greater Edvard Grieg Area tie-back projects
Solveig Phase 1 came on stream in September 2021, on schedule
and is the first Edvard Grieg subsea tie-back development.
Drilling of the Phase 1 development wells are almost complete,
with three production wells and one injection well completed in
2021 and the final water injection well scheduled for completion
in the first quarter of 2022. The capital cost for the Phase 1
development is below the PDO estimate of MUSD 810 gross, with
a breakeven oil price below USD 20 per boe.
The Rolvsnes EWT project, has been developed through a 3 km
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 of the
Rolvsnes full field development and it holds important
information on the general basement potential for the Utsira
High. The project has been developed in conjunction with
the Solveig project, to take advantage of contracting and
implementation synergies. The project achieved first oil, on
schedule and below budget, in August 2021 with reservoir
performance since start up in line with expectations..
Wisting
The Wisting project is scheduled to be one of the next Barents
Sea production hubs and will be a significant contributor
to sustaining the Company’s long term production profile.
With the acquisition of a further 25 percent working interest
announced on 28 October 2021, the Company’s working
interest in the project has increased to 35 percent and will add
material pre-development resources in a strategic core area
for the Company, with significant surrounding prospectivity.
In November 2021, the project development concept was
approved by the licence partners, with the project on track
for PDO submission by end 2022, allowing the project to
benefit from the temporary tax incentives established by the
Norwegian Government in June 2020. The Wisting project has
strong economics, and the development plan is aligned with
Lundin Energy’s Decarbonisation Plan, with a power from
shore solution being matured as part of the PDO. In addition,
in December 2021, Lundin Energy concluded a cooperation
agreement with Equinor for the Wisting development, whereby
Equinor will retain operatorship of the Wisting development
into the operations phase. The cooperation agreement also
gives the Company operatorship in the exploration licences
surrounding Wisting (PL1133 and PL1134), including an increase
in working interests to 35 percent. The agreement also covers
licences applied for in the 2021 APA round. It has also been
agreed that employees from the Company will be placed in key
technical and operational positions within the Wisting project.
This agreement further strengthens the relationship between
Equinor and Lundin Energy and sets out a strong collaboration
for exploration and operations in what will be the next Barents
Sea production hub.
Development
Project
WI
Operator
Estimated
gross reserves
Production start
expected
Expected gross
plateau production
Johan Sverdrup Phase 2
20%
Equinor
2.2–3.2 Bn boe1
Q4 2022
755 Mbopd1
Solveig Phase 1
65%
Lundin Norway
69 MMboe
Sept 2021
30 Mboepd
Rolvsnes EWT
80%
Lundin Norway
3 MMboe
Aug 2021
3 Mboepd
Kobra East/Gekko (KEG)
15%
Aker BP
39 MMboe
Q1 2024
28 Mboepd
Frosk
15%
Aker BP
9 MMboe
Q2 2023
13 Mboepd
Wisting
35%
Equinor
500 MMboe
Q2 2028
150 Mboepd
1 Johan Sverdrup full field
DIRECTORS’ REPORT | Operational and financial review
7
Lundin Energy Annual Report 2021
Sea close to the Balder and Ringhorne fields. The results were
below expectation and the project has been assessed as non-
commercial.
In September 2021, the exploration and appraisal programme
on Lille Prinsen in PL167, located on the Utsira High in the
Norwegian part of the North Sea, was successfully completed.
The wells confirmed a combined gross resource range of 12 to
60 MMboe. A development solution is currently being matured,
aiming for project sanction in 2022.
In 2020, the Norwegian Government introduced temporary
tax incentives aiming to increase activity on the Norwegian
Continental Shelf, which applies to projects with PDO’s
submitted before the end of 2022. These tax incentives
significantly improve project economics, and the Company has
taken steps to accelerate activities for the potential projects,
which could benefit from this opportunity. Further projects to
be de-risked include Solveig Phase 2 (incorporating the Segment
D discovery) and Rolvsnes Full Field, both of which require
production experience to mature development solutions. At
both Lille Prinsen and Trell and Trine, the field development
and concept select studies are progressing well with an aim to
submit the PDO’s for both projects before the end of 2022.
Decarbonisation
Decarbonisation is a key strategic pillar for Lundin Energy
and a significant differentiator for the business. The
Decarbonisation Plan is composed of four pillars – reducing
operational emissions, powering key assets from shore,
investing in renewable power to replace net electricity usage
and investments in natural carbon capture projects to neutralise
residual emissions. A critical step towards carbon neutrality
will be the electrification of the Edvard Grieg platform, which
is being executed in parallel with the Johan Sverdrup Phase
2 development and will be operational in late 2022. Carbon
emissions were 2.9 kg of CO2 per boe in 2021, which is well
within the Company’s 2021 target of less than 4 kg of CO2
per boe. On completion of the electrification of Edvard Grieg,
the Company’s average net carbon intensity is expected to be
approximately 1 kg CO2 per boe, over fifteen times better than
the industry average. Considering this, in September 2021, the
decision was taken to accelerate decarbonisation by two years to
achieve carbon neutrality for operational emissions by 2023.
In January 2021, the Company signed a partnership with Land
Life Company B.V., to invest MUSD 35 in high quality re-
forestation projects to plant approximately seven million trees
between 2021 and 2025, capturing approximately 2.5 million
tonnes of CO2. During the year, approximately 480,000 trees
were planted in Spain and Ghana.
Kobra East/Gekko (KEG)
In June 2021, the PDO for the joint development of the
two discoveries Kobra East and Gekko was submitted to the
Norwegian Ministry of Petroleum and Energy and was approved
in January 2022. The development will be a subsea tie-back
to the Alvheim FPSO and phase one of the development will
include four tri-lateral production wells targeting the oil zones
of the two discoveries. Phase two of the development consists
of a gas production well targeting the gas cap at Gekko, which
will be drilled at a later stage once gas processing capacity is
available on the Alvheim FPSO. Drilling operations are expected
to commence in early 2023, with first oil planned in the first
quarter of 2024. Total gross 2P reserves for the project amount
to 39 MMboe and the development will provide gross peak
production of approximately 28 Mboepd. This project will be
developed under the Norwegian temporary tax regime and has a
breakeven oil price of less than USD 30 per boe.
Frosk
In September 2021, the PDO for the development of the
Frosk discovery was submitted to the Norwegian Ministry of
Petroleum and Energy. The development will be a subsea tie-
back to the Alvheim FPSO through the existing Bøyla Manifold.
The development includes the drilling of two new wells. Drilling
operations are expected to commence in 2022, with first oil
planned in the first half of 2023. Total gross reserves for the
project amount to approximately 9 MMboe and the development
will provide gross peak production of approximately 13 Mboepd,
with a breakeven oil price of less than USD 25 per boe.
Exploration and appraisal
The 2021 exploration and appraisal programme consisted of
eight wells. Discoveries were made in the Segment D of the
Solveig field and at Lille Prinsen. The exploration and appraisal
expenditure guidance for 2021 was updated due to increased
scope at the Segment D, Iving, Lille Prinsen wells and the
additional 25 percent working interest in Wisting, effective from
1 January 2021. Total exploration and appraisal expenditure for
2021 was MUSD 301 which is below the updated guidance of
MUSD 325.
In March 2021, the Segment D prospect, located north of the
Solveig field on the Utsira High in the Norwegian North Sea
in PL359, was drilled yielding an oil discovery. A 10 metre oil
column was encountered in Triassic reservoir sandstones and
the discovery is estimated to hold gross recoverable resources of
3 to 9 MMboe. A development will be evaluated in parallel with
a potential future phase development at Solveig.
In July 2021, a two-well appraisal drilling campaign was
completed on the Iving discovery located in the Central North
2021 exploration and appraisal well programme
Licence
Operator
WI
Well
Spud Date
Result
PL359
Lundin Energy
65%
Segment D
February 2021
Oil discovery
PL722
Equinor
20%
Shenzhou
April 2021
Dry
PL820S
MOL
41%
Iving (2 wells)
May 2021
Non-commercial oil discovery
PL167
Lundin Energy
40%
Lille Prinsen
July 2021
Oil discovery
PL981
Lundin Energy
60%
Merckx
September 2021
Dry
PL976
Lundin Energy
40%
Dovregubben
September 2021
Dry
PL1041
Aker BP
15%
Lyderhorn
October 2021
Non-commercial oil discovery
PL886
Lundin Energy
60%
Melstein
January 2022
Dry
8
Lundin Energy Annual Report 2021
In September 2021, Lundin Energy signed a partnership with
EcoPlanet Bamboo WA ll. The Company will invest MUSD 9 in
sustainable bamboo plantations where over 1 million bamboo
clumps will be planted on degraded land between 2022–2024,
capturing approximately 1.7 million tonnes of CO2 over 10 years.
All of Lundin Energy’s carbon capture projects will transfer to
Aker BP after completion of the proposed combination.
In November 2021, Lundin Energy was included in the S&P
Global Dow Jones Sustainability Europe Index (DJSI) for the first
time, and ranked as one of the top three companies in Europe
within its industry. The DJSI comprises European ESG leaders
and represents the top 20 percent of ranked companies from the
largest 600 companies in the S&P Global Broad Market Index.
Certified carbon neutrally produced crude oil sale
In April 2021, Lundin Energy announced that it had sold a
cargo of certified carbon neutrally produced Edvard Grieg crude
to Saras S.p.A, the first such cargo in the world to have been
traded and a significant step forward for the international oil
market, in terms of a barrel of crude oil trading on the merits
of its carbon emissions. Lundin Energy’s Edvard Grieg field
was the first oil field in the world to be independently certified
by Intertek Group plc (Intertek), under its CarbonClearTM
certification. The field is certified as low carbon at 3.4 kg of CO2e
per boe, including exploration, development and production.
Following the success of the first certified, carbon neutrally
produced barrels at Edvard Grieg, in June 2021, Lundin Energy
announced that all future barrels of oil the Company sells from
the Johan Sverdrup field will be certified as carbon neutrally
produced under the CarbonZeroTM standard. The field has been
independently certified at 0.4 kg CO2e per boe, approximately 40
times better than the world average. The first carbon neutrally
produced cargo from Johan Sverdrup was sold to GS Caltex,
Korea in June 2021.
In order to supply a carbon neutrally produced barrel, residual
emissions for both the Edvard Grieg and Johan Sverdrup fields
were compensated through high quality, natural carbon capture
projects, certified by the Verified Carbon Standard (VCS) and
independently certified by Intertek. Almost 60 percent of the
Company’s current net production is certified as carbon neutrally
produced. Carbon neutrally produced cargo sales have continued
during the year, adding competitive advantage to our marketing
efforts and it is management’s strong belief that as the market for
carbon neutrally produced crudes matures, a premium per barrel
will be realised, adding significant value potential.
Decommissioning
The Brynhild field ceased production in 2018 and the
decommissioning plan was approved by Norwegian and UK
authorities in 2020. Abandonment of the four Brynhild subsea
wells was completed in 2020 and the marine campaign for
removal of the subsea facilities was completed in July 2021.
The Gaupe field ceased production in 2018 and preparation
of the decommissioning plan for the field is ongoing, with
decommissioning activities expected to commence in 2023.
Following completion of Brynhild and Gaupe decommissioning,
the Company has no further planned decommissioning spend
until around 2035. The decommissioning expenditure in 2021
was MUSD 12.
Research and development
The Company invested MUSD 18.8 in research and development
(R&D) in 2021. The main goal for 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 2021, the Company was awarded 19 licences in the
2020 APA licencing round, of which seven are as operator.
In February 2021, Lundin Energy entered into a sales and
purchase agreement with Aker BP involving the acquisition of a
six percent working interest in licences PL036E, PL036F, PL102H,
PL102F, PL102D and PL102G which includes the Trell and
Trine Unit. The transaction included the sale of a five percent
working interest in PL869 and a 15 percent working interest in
PL1041. In January 2022 Lundin Energy entered into a sales and
purchase agreement with MOL involving the acquisition of a ten
percent working interest in licences PL102F and PL102G, which
includes the Trell discovery and Trell Nord prospect, equivalent
to 6.84 percent in the Trell and Trine Unit, bringing Lundin
Energy’s total working interest to 12.84 percent in the Unit.
In May 2021 Lundin Energy entered into a sales and purchase
agreement with One-Dyas involving the divestment of a ten
percent working interest in PL976.
In June 2021, Lundin Energy was awarded two licences in the
25th licencing round.
In October 2021, Lundin Energy entered into a purchase
agreement with OMV Norge AS involving the acquisition of
an additional 25 percent working interest in licence PL537,
which includes the Wisting discovery, bringing Lundin
Energy’s working interest to 35 percent. The transaction, which
completed in December 2021, is effective from January 2021
and adds estimated net contingent resources of approximately
131 MMboe for a cash consideration of MUSD 320. An additional
consideration may become payable contingent upon whether
there is a reduction in the project’s estimated capital investment
as stipulated in the final PDO compared to the current estimated
capital investment, thus enabling both parties to share the
benefits of further capital investment reductions.
Lundin Energy increased its interests in PL917 from 20 percent
to 40 percent and acquired a 20 percent interest in PL956 and
a 10 percent interest in PL985, through two transactions, one
with ConocoPhillips and one with Vår Energi. PL917 contains
interesting follow up potential to the King discovery that was
made in the neighbouring licence. An exploration well is
planned to be drilled on the Ringhorne Ty prospect in 2023 and
PL985 contains attractive prospectivity north of the PL956.
In January 2022, the Company was awarded 10 licences in the
2021 APA round, of which five are as operator.
The Company currently holds 97 licences in Norway.
Health, safety and environment
During the year, there were no lost time incidents, resulting
in a Lost Time Incident Rate of zero per million hours worked
for 2021. The Total Recordable Incident Rate for the year was
2.14 per million hours worked. There were no process safety or
material environmental incidents during the year.
DIRECTORS’ REPORT | Operational and financial review
9
Lundin Energy Annual Report 2021
Continuing operations
Continuing operations represents Lundin Energy AB’s renewable
energy portfolio of onshore assets in the Nordics. In addition,
the Company will retain certain non-Norwegian potential
liabilities related to past operations.
Renewable energy generation portfolio
In April 2021, the Company completed a transaction with
OX2 AB (OX2) to acquire a 100 percent interest in the
Karskruv onshore wind farm project in southern Sweden. The
construction works on the wind farm have already commenced
and are progressing on schedule with the facility planned to
be operational in late 2023 with production of an estimated
290 GWh per annum, from 20 onshore wind turbines. The total
investment in Karskruv, including the acquisition cost, will
amount to MEUR 130 with the majority of the spend occurring
in 2022 and 2023 and the project will be cash flow positive from
2024.
Construction and commissioning of the second phase of the
Leikanger hydropower project in Norway was completed in
March 2021 and is now operational at full capacity.
The project works are progressing well on the
Metsälamminkangas (MLK) wind farm in Finland, with most of
the construction work completed. Power has already started to
be generated with the first wind turbine online in early October.
Commercial handover of the wind farm to the Company was
originally planned for late fourth quarter 2021 but has been
pushed into the first half of 2022 with final commissioning
taking longer than first anticipated. Lundin Energy is covered by
liquidated damages in the year up to commercial handover for
the entire delay period.
The Company has now committed to three renewable projects,
with a combined net power generation capacity of around
600 GWh per annum from late 2023 and these investments
will remain in the Company after the combination with Aker
BP with an aim to become a platform for growth. Renewable
energy expenditure for 2021 was MUSD 79 compared to the
guidance of MUSD 100, due to the delayed completion of the
MLK project.
Financial review
Aker BP transaction
On 21 December 2021, Lundin Energy announced that it had
entered into an agreement (the transaction) with Aker BP
whereby Aker BP will absorb Lundin Energy’s E&P business
through a cross-border merger in accordance with Norwegian
and Swedish law. Before completion of the cross-border merger,
the shares in the company holding Lundin Energy’s E&P
business will be distributed to Lundin Energy shareholders.
Consequently Lundin Energy presented its E&P business as
discontinued operations in the consolidated Income Statement
and presented the asset and liabilities associated with the E&P
business as assets and liabilities held for distribution in the
consolidated Balance Sheet. Once the transaction with Aker
BP is completed, the renewable business, which is reported as
continuing operations, will be debt free and have a cash balance
of MUSD 130, to cover capital expenditure and other working
capital items. The renewable business is expected to be free cash
flow positive from late 2023, when the renewable portfolio has
been fully built out and all projects are operational.
Under the agreement with Aker BP, in exchange for Lundin
Energy’s E&P business, shareholders will be entitled to a cash
consideration totaling BUSD 2.22 (approximately SEK 71.0 per
share after conversion from USD at 20 December 2021 exchange
rates), 271,910,019 Aker BP shares (representing 0.951 Aker
BP share for every 1 Lundin Energy share, equivalent to SEK
279.3 per share at 20th December 2021) and will retain their
existing shareholding in Lundin Energy and its renewables
business (detail on business plan, management and governance
will be published by 7 March 2022). Accordingly following
the completion of the transaction, (subject to shareholder
approval at the Company’s AGM on 31 March 2022, shareholder
approval by Aker BP’s General Meeting and receipt of necessary
governmental approvals), the shareholders of Lundin Energy
will hold 43 percent of the total shares and votes of Aker BP,
(based on a total of 360,113,509 shares and votes in Aker BP).
Result
The numbers in this financial review section refer to the
continuing and discontinued operations combined unless stated
otherwise. For a further breakdown between continuing and
discontinued operations of the key financial data, reference is
made to pages 90–92.
The Company generated record high revenue and other income
for the year of MUSD 5,484.7 (MUSD 2,564.4) with the increase
compared to the comparative period mainly driven by higher
sales volumes and higher oil and gas prices. Sales volumes
increased by 19 percent compared to the comparative period
caused by better production performance, inventory movements
and overlift movements during the year. Realised prices per boe
increased by 85 percent compared to the comparative period
with realised gas and NGL prices for the year being almost four
times higher compared to 2020.
The net result for the year amounted to MUSD 493.8
(MUSD 384.2), representing earnings per share of USD 1.74
(USD 1.35). Net result was driven by the higher revenue and
other income and negatively impacted by higher cost of sales,
a largely non-cash foreign currency exchange loss during the
year of MUSD 216.3 (MUSD -171.8) and higher income tax
charges. Adjusted net result for the year amounted to MUSD
795.7 (MUSD 280.0), representing adjusted earnings per share of
USD 2.80 (USD 0.99). Adjusted net result separates out the effects
of loan modification gains, foreign currency exchange results,
ineffective interest rate hedge contracts and other non recurring
finance costs, and the tax impacts from these items and better
reflects the net result generated by the Company’s operational
performance for the year.
The Company generated earnings before interest, tax, depletion,
amortization and exploration expenses (EBITDAX) for the year of
MUSD 4,822.8 (MUSD 2,140.2) representing EBITDAX per share
of USD 16.96 (USD 7.53), with the increase compared to the
comparative period mainly caused by the higher sales volumes
and higher oil prices. Cash flow from operating activities
(CFFO) for the year amounted to MUSD 3,058.0 (MUSD 1,528.0),
representing CFFO per share of USD 10.75 (USD 5.38) with the
increase compared to the comparative period, again impacted
by higher sales volumes and higher oil prices, but negatively
impacted by working capital changes and higher tax payments
during the year. Free cash flow for the year amounted to
MUSD 1,645.5 (MUSD 448.2), representing free cash flow per
share of USD 5.79 (USD 1.58), with the increase compared to
the comparative period mainly impacted by higher CFFO partly
offset by higher investments in oil and gas properties. Driven
10
Lundin Energy Annual Report 2021
by the strong free cash flow generation during the year, the
Company reduced its net debt from MUSD 3,911.5 as per the
end of 2020 to MUSD 2,747.9 as per the end of 2021, a reduction
of approximately BUSD 1.2.
Changes in the Group
In April 2021, the Company completed a transaction with
OX2 AB (OX2) to acquire a 100 percent interest in the Karskruv
onshore wind farm project in southern Sweden. The wind
farm will become operational in late 2023 and will produce an
estimated 290 GWh per annum, from 20 onshore wind turbines.
The total investment in Karskruv, including the acquisition
cost, will amount to MEUR 130 with the majority of the spend
occurring in 2022 and 2023.
In October 2021, Lundin Energy entered into a sales and
purchase agreement for the acquisition of OMV Norge’s 25
percent working interest in licence PL537, which contain the
Wisting discovery. The transaction increased the Company’s
working interest to 35 percent. The transaction involved a
cash consideration payable to OMV Norge of MUSD 320.0 and
was completed in December 2021, with economic effect from
1 January 2021. The transaction was accounted for as an asset
acquisition.
On 21 December 2021, Lundin Energy announced the transaction
with Aker BP as mentioned above resulting in the E&P business
presented as discontinued operations in the consolidated Income
Statement and the asset and liabilities associated with the E&P
business presented as assets and liabilities held for distribution in
the consolidated Balance Sheet.
Revenue and other income
Revenue and other income for the year amounted to MUSD
5,484.7 (MUSD 2,564.4) and was comprised of net sales of oil
and gas and other revenue as detailed in Note 19.1. Revenue and
other income fully related to the discontinued operations.
Net sales of oil and gas for the year amounted to MUSD 5,452.9
(MUSD 2,533.2). The average price achieved by Lundin Energy
for a barrel of oil equivalent (boe) from own production,
amounted to USD 71.01 (USD 38.35) and is detailed in the
following table. The average Dated Brent price for the year
amounted to USD 70.91 (USD 41.84) per barrel.
Net sales of oil and gas from own production for the year are
detailed in Note 19.3 and were comprised as follows:
Sales from own production
Average price per boe expressed in USD
2021
2020
Crude oil sales
– Quantity in Mboe
65,381.1
54,263.6
– Average price per boe
69.36
39.96
Gas and NGL sales
– Quantity in Mboe
6,281.8
6,013.2
– Average price per boe
88.10
23.80
Total sales
– Quantity in Mboe
71,662.9
60,276.8
– Average price per boe
71.01
38.35
The table above excludes crude oil revenue from third party activities.
The sales of crude oil from third party activities for the year
amounted to MUSD 364.4 (MUSD 221.5) 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.
Other income for the year amounted to MUSD 31.8 (MUSD 31.2)
and mainly included tariff income of MUSD 21.6 (MUSD 23.2),
which is due to net income from Ivar Aasen tariffs paid to
Edvard Grieg. Other income for the year also included a gain of
MUSD 2.0 (MUSD 0.8) relating to short-term oil price derivatives.
Production costs
Production costs including under/over lift movements and
inventory movements for the year amounted to MUSD 265.4
(MUSD 177.2) and are detailed in Note 19.2. Production
costs fully related to the discontinued operations. The total
production cost per barrel of oil equivalent produced is detailed
in the table below:
Production costs
2021
2020
Cost of operations
– In MUSD
167.5
134.5
– In USD per boe
2.41
2.24
Tariff and transportation expenses
– In MUSD
71.9
50.7
– In USD per boe
1.03
0.84
Operating costs
– In MUSD
239.4
185.2
– In USD per boe 1
3.44
3.08
Change in under/over lift position
– In MUSD
7.9
-2.7
– In USD per boe
0.11
-0.05
Change in inventory position
– In MUSD
11.5
-11.2
– In USD per boe
0.17
-0.19
Other
– In MUSD
6.5
5.9
– In USD per boe
0.09
0.10
Production costs
– In MUSD
265.4
177.2
– In USD per boe
3.81
2.94
Note: USD per boe is calculated by dividing the cost by total production
volume for the year.
1 The numbers in this table are excluding tariff income netting. Lundin
Energy’s operating cost for the year of USD 3.44 (USD 3.08) per barrel is
reduced to USD 3.14 (USD 2.69) when tariff income is netted off.
The total cost of operations for the year amounted to
MUSD 167.5 (MUSD 134.5) and the total cost of operations
excluding operational projects amounted to MUSD 160.2
(MUSD 127.8). The cost of operations per barrel for the year
amounted to USD 2.41 (USD 2.24) including operational projects
and USD 2.31 (USD 2.12) excluding operational projects. The
higher unit costs compared to the comparative period are
mainly caused by higher electricity prices and environmental
taxes in the latter half of the year and a stronger Norwegian
Krone which is partly offset by higher production volumes.
DIRECTORS’ REPORT | Operational and financial review
11
Lundin Energy Annual Report 2021
Tariff and transportation expenses for the year amounted to
MUSD 71.9 (MUSD 50.7) or USD 1.03 (USD 0.84) per boe. The
increase on a per barrel basis compared to the comparative
period is caused by a stronger Norwegian Krone and an increase
in a few crude and gas unit tariffs.
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 7.9
(MUSD -2.7) 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 11.5 (MUSD -11.2) in the year due to a cargo
in transit at the end of 2020 that was sold in early 2021. Sales
quantities and production quantities are detailed in the table
below:
Change in over/underlift position
in Mboepd
2021
2020
Production volumes
190.3
164.5
Johan Sverdrup inventory movements
1.7
-1.7
Production volumes excluding inventory
movements
192.0
162.8
Sales volumes from own production
196.3
164.7
Change in overlift position
-4.3
-1.9
Other costs for the year amounted to MUSD 6.5 (MUSD 5.9) and
related to the business interruption insurance.
Depletion and decommissioning costs
Depletion and decommissioning costs for the year amounted
to MUSD 703.0 (MUSD 607.7), at an average rate of USD 10.12
(USD 10.09) per boe and are detailed in Note 3 and fully related
to the discontinued operations. Depletion costs on a per barrel
basis compared to the comparative period were stable consisting
of a lower depletion rate per barrel in Norwegian Krone as
a result of increased reserves in Norway offset by a stronger
Norwegian Krone as the depletion rate per boe is calculated
in Norwegian Krone. Following the announcement of the
Aker BP transaction on 21 December 2021 and the subsequent
reclassification of the E&P business as assets and liabilities
held for distribution in the consolidated Balance Sheet, the
company ceased depletion as per IFRS5 from the date of the deal
announcement on 21 December 2021.
Exploration costs
Exploration costs expensed in the income statement for the year
amounted to MUSD 258.1 (MUSD 104.9) and are detailed in Note
3 and fully related to the discontinued operations. 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.
Purchase of crude oil from third parties
Purchase of crude oil from third parties for the year amounted
to MUSD 361.7 (MUSD 217.8) and related to crude oil purchased
from outside the Group. Purchase of crude oil from third parties
and fully related to the discontinued operations.
General, administrative and depreciation expenses
The general administrative and depreciation expenses for
the year amounted to MUSD 41.9 (MUSD 36.1) of which
MUSD 19.4 (MUSD 16.4) related to the continuing operations
and MUSD 22.5 (MUSD 19.7) to the discontinued operations.
The general administrative and depreciation expenses included
a charge of MUSD 6.1 (MUSD 4.8) in relation to the Group’s
long-term incentive plans (LTIP), see also Note 27. Fixed asset
depreciation expenses for the year amounted to MUSD 7.1
(MUSD 6.9).
Finance income
Finance income for the year amounted to MUSD 3.8
(MUSD 173.1) of which MUSD 2.6 (MUSD 0.5) related to the
continuing operations and MUSD 1.2 (MUSD 172.6) to the
discontinued operations and is detailed in Notes 1 and 19.4.
Finance costs
Finance costs for the year amounted to MUSD 473.0
(MUSD 319.4) of which MUSD 0.2 (MUSD 0.9) related to the
continuing operations and MUSD 472.8 (MUSD 318.5) to the
discontinued operations and is detailed in Notes 2 and 19.5.
The net foreign currency exchange loss for the year amounted
to MUSD 216.3 (MUSD -171.8). 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 22.9 (MUSD 65.6). As a result of the Aker BP
transaction, part of the outstanding foreign currency exchange
instruments are no longer considered effective under hedge
effectiveness testing resulting in an additional non-cash charge
to the income statement of MUSD 15.5 based on the marked-to-
market foreign exchange rates as of 31 December 2021.
The US Dollar strengthened eight percent against the Euro
during the year, resulting in a net foreign currency exchange
loss on the US Dollar denominated external loan, which is
borrowed by a subsidiary using Euro as functional currency
and generating a net foreign currency exchange loss on an
intercompany loan balance denominated in US Dollar, which is
also borrowed by a subsidiary using Euro as functional currency.
In addition, the Norwegian Krone strengthened five percent
against the Euro during the year, generating a net foreign
currency exchange gain on an intercompany loan balance
denominated in Norwegian Krone.
Interest expenses for the year amounted to MUSD 52.5
(MUSD 104.4) and represented the portion of interest charged
to the income statement. An additional amount of interest of
MUSD 23.6 (MUSD 25.8), mainly associated with the funding
of the Norwegian development projects was capitalised during
the year. The total interest expenses for the year decreased
compared to the comparative period as a result of a lower LIBOR
rate, a lower interest rate margin over LIBOR following the
refinancing in December 2020 and a lower average outstanding
debt relative to the comparative period.
12
Lundin Energy Annual Report 2021
The result on interest rate hedges for the year amounted to
a loss of MUSD 122.0 (MUSD 44.5), as a result of the lower
LIBOR rate, which included a MUSD 71.0 charge to the income
statement in relation to interest rate hedge contracts no longer
considered effective under hedge effectiveness testing and of
which MUSD 53.4 was non-cash. The Company issued USD 2
billion of Senior Notes in June 2021 with a fixed interest rate
and used the net proceeds, in combination with cash on hand,
to repay USD 2 billion of the corporate credit facility term loans
with a floating interest rate. The company repaid a further
USD 0.3 billion of the corporate credit facility in November
2021 and as a result, part of the outstanding interest rate hedge
contracts are no longer effective under hedge effectiveness
testing. As a result of the Aker BP transaction, additional
outstanding interest rate hedge contracts are no longer
considered effective under hedge effectiveness testing.
The amortisation of the deferred financing fees for the year
amounted to MUSD 35.5 (MUSD 37.6) and related to the
expensing of the fees incurred in establishing the credit
facility over the year of usage of the facility. In addition, the
unamortised portion of the capitalised financing fees incurred
in relation to the repaid USD 2.3 billion corporate credit facility
term loans were expensed during the year. As a result of the
Aker BP transaction, additional capitalised financing fees were
expensed during the year. Following the successful refinancing
in December 2020, unamortised capitalised financing fees in
relation to the reserve-based lending facility, the MUSD 160
revolving credit facility and the MUSD 340 unsecured corporate
facility were expensed during the comparative period.
Loan facility commitment fees for the year amounted to
MUSD 7.2 (MUSD 11.5) and related to commitment fees for the
undrawn amounts under the revolving corporate credit facility
which was undrawn at the end of the year.
The unwinding of the loan modification gain in the comparative
period amounted to MUSD 99.7 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. Following the successful
refinancing in December 2020, the remaining portion of the
capitalised loan modification gain was expensed during the
comparative period.
Share in result of joint ventures
Share in result of joint ventures for the year amounted to
MUSD 0.9 (MUSD -0.1) and related to the 50 percent non-
operated interest in the Leikanger hydropower project in
Norway. Share in result of joint ventures fully related to the
continuing operations.
Tax
The overall tax charge for the year amounted to MUSD 2,892.5
(MUSD 890.1) of which MUSD – (MUSD 1.0) related to the
continuing operations and MUSD 2,892.5 (MUSD 889.1) to
the discontinued operations. The tax charge relating to the
discontinued operations is detailed in Note 19.6.
The current tax charge for the year amounted to MUSD 2,562.8
(MUSD 511.8) 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 paid tax instalments in
Norway during the year amounted to MUSD 1,387.3, 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 end 2020, from MUSD 444.4 to
MUSD 1,573.7.
On 19 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 2020
and 2021 and an increase in deferred taxes.
The Norwegian Government has further proposed to revise
the SPT system as of 2022, replacing the rules on depreciation
and uplift with immediate investment expensing (cash-flow
tax), though the combined tax rate for corporation tax and SPT
will remain unchanged at 78 percent. These changes have no
implication for the rules for the temporary changes described
above.
The deferred tax charge for the year amounted to MUSD 329.7
(MUSD 378.3) 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 decreased
for the year due to the temporary tax changes for the Special
Petroleum Tax in Norway enacted in June 2020, 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 loss
and the expensed interest rate hedge contracts which are no
longer considered effective under hedge effectiveness testing.
The effective tax rate on the adjusted net results for the year
amounted to 78 percent.
Balance sheet - continuing operations
Non-current assets
Renewable energy properties amounted to MUSD 31.5 (MUSD –)
and related to the fully consolidated 100 percent interest in the
Karskruv onshore wind farm project in southern Sweden and is
detailed in Note 4.
Investments in joint ventures amounted to MUSD 108.7
(MUSD 110.6) and related to the 50 percent interest in the
Metsälamminkangas (MLK) wind farm project in Finland and
the 50 percent interest in the Leikanger hydropower project
in Norway which are not fully consolidated and reported as
investments in joint ventures and are detailed in Note 7.
DIRECTORS’ REPORT | Operational and financial review
13
Lundin Energy Annual Report 2021
Receivables from joint ventures amounted to MUSD 35.1
(MUSD –) and related to long term interest bearing loans
provided to the joint ventures holding the investments in the
Metsälamminkangas (MLK) wind farm project in Finland and
the Leikanger hydropower project in Norway and are detailed in
Note 8.
The net investments by the Company in the renewable energy
business, part through its joint ventures, for the year was at
follows:
Renewable investment
in MUSD
2021
2020
Karskruv Windfarm – Sweden
30.9
–
MLK Windfarm – Finland
40.0
46.3
Leikanger Hydropower – Norway
1.2
49.8
Natural Carbon Capture
5.6
–
Renewables investments
78.7
96.1
The Natural Carbon Capture projects as included in the table
will be part of the discontinued operations.
Current assets
Assets held for distribution amounted to MUSD 7,468.2
(MUSD –) and is detailed in Note 19.
Trade and other receivables amounted to MUSD 5.3 and related
mainly to working capital balances within the continuing
operations and are detailed in Note 11.
Receivable from discontinued operations amounted to MUSD
128.6 (MUSD –) and equals the dividend liability as approved
by the AGM held on 30 March 2021 in Stockholm which is
paid in quarterly instalments and are detailed in Note 12. The
discontinued operations have committed to fund the dividend
and this receivable was settled early 2022 when the fourth
quarterly dividend was paid to the shareholders.
Cash and cash equivalents amounted to MUSD 130.0 (MUSD
82.5) and related to the cash balance which will be retained
by the continuing operations to cover capital expenditure and
other working capital items, see also Note 13.
The renewable business is expected to be free cash flow positive
from late 2023, when the renewable portfolio has been fully
built out and all projects are operational.
Current liabilities
Liabilities held for distribution amounted to MUSD 9,194.0
(MUSD –) and is detailed in Note 19.
Dividends amounted to MUSD 128.6 (MUSD 72.3) and related to
the cash dividend approved by the AGM held on 30 March 2021
in Stockholm, paid in quarterly instalments.
Trade and other payables amounted to MUSD 4.2 and are
detailed in Note 18 and related mainly to working capital
balances within the continuing operations.
Balance sheet - discontinued operations
All balance sheet items relating to the discontinued operations
have been reclassified as assets held for distribution and
liabilities held for distribution as detailed in Note 19.
Comparative numbers have not been reclassified under IFRS
and therefore not included in Note 3.
Assets held for distribution
Oil and gas properties amounted to MUSD 6,222.2 and are
detailed in Note 3. Oil and gas properties included Right of use
assets as per IFRS16 and amounted to MUSD 5.3 relating to a
drilling rig recognised under IFRS 16 during the year.
Development, exploration and appraisal expenditure incurred
for the year was as follows:
Development expenditure
in MUSD
2021
2020
Norway
738.4
639.8
Development expenditures
738.4
639.8
Development expenditure of MUSD 738.4 (MUSD 639.8)
was incurred in Norway during the year, primarily on the
Johan Sverdrup, Edvard Grieg, Solveig and Rolvsnes fields. In
addition an amount of MUSD 23.1 (MUSD 25.8) of interest was
capitalised.
Exploration and appraisal expenditure
in MUSD
2021
2020
Norway
300.6
152.9
Exploration and appraisal expenditure
300.6
152.9
Exploration and appraisal expenditure of MUSD 300.6
(MUSD 152.9) was incurred in Norway during the year, primarily
for the exploration and appraisal wells as summarised on page 7.
Other tangible fixed assets amounted to MUSD 42.0 and are
detailed in Note 5. Other tangible fixed assets included Right of
use assets as per IFRS 16 and amounted to MUSD 27.2.
Goodwill associated with the accounting for the Edvard Grieg
transaction during 2016 amounted to MUSD 128.1 and is detailed
in Note 6.
Financial assets amounted to MUSD 12.7 and are detailed in
Note 19.7. 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.
Inventories amounted to MUSD 55.7 and included both well
supplies and hydrocarbon inventories and are detailed in Note
19.8.
Trade and other receivables amounted to MUSD 657.2 and are
detailed in Note 19.9. Trade receivables, which are all current,
amounted to MUSD 523.9. Underlift amounted to MUSD 23.2
and was attributable to an underlift position on the producing
fields, mainly relating to oil from the Edvard Grieg field. Joint
operations debtors relating to various joint venture receivables
amounted to MUSD 36.2. Prepaid expenses and accrued income
amounted to MUSD 68.7 and included MUSD 44.2 related to
cargo liftings during the year not yet invoiced and prepaid
operational and insurance expenditure. Other current assets
amounted to MUSD 5.2.
Derivative instruments amounted to MUSD 18.5 and related to
the marked-to-market valuation of outstanding currency hedge
contracts and are detailed in Note 20.
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Lundin Energy Annual Report 2021
Current tax assets amounted to MUSD 9.7 and related to payments
of tax instalments outside Norway during the year and are
expected to be recovered in the future, see also Note 19.6.
Cash and cash equivalents amounted to MUSD 322.1. Cash
balances are mainly held to meet ongoing operational funding
requirements as well as to provide headroom liquidity, see also
Note 19.10.
Liabilities held for distribution
Financial liabilities amounted to MUSD 3,211.5 and are detailed in
Note 19.11. The Company issued USD 2 billion of Senior Notes in
June 2021 consisting of USD 1 billion 2.0 percent Senior Notes due
in 2026 at a price equal to 99.827 percent and USD 1 billion 3.1
percent Senior Notes due in 2031 at a price equal to 99.81 percent
with interest payable semi-annually. Capitalised financing fees
relating to the bonds issuance amounted to MUSD 16.7 and are
being amortised over the expected life of the bonds. Bank loans
amounted to MUSD 1,200.0 and related to the outstanding term
loans under the corporate credit facility. The Company repaid
USD 2 billion of the corporate credit facility term loans in June
2021 following the bonds issuance and repaid a further USD 0.3
billion in November. Capitalised financing fees relating to the
establishment of the credit facility amounted to MUSD 2.4 and
are being amortised over the expected life of the facility. The lease
commitments amounted to MUSD 34.0 and related to the lease
commitments under IFRS 16.
Provisions amounted to MUSD 664.7 and are detailed in Note 16.
The provision for site restoration amounted to MUSD 650.8 and
related to the future decommissioning obligations. The provision
for Lundin Energy’s Unit Bonus Plan amounted to MUSD 10.3.
Deferred tax liabilities amounted to MUSD 3,120.6 and are detailed
in Note 19.6. The provision mainly arises on the excess of book
value over the tax value of oil and gas properties. Deferred tax
assets are netted off against deferred tax liabilities where they
relate to the same jurisdiction.
Trade and other payables amounted to MUSD 404.2 and are
detailed in Note 19.12. Trade payables amounted to MUSD 80.4.
Overlift amounted to MUSD 27.0 and was attributable to an
overlift position on the producing fields, mainly relating to oil
from the Solveig field. Joint operations creditors and accrued
expenses amounted to MUSD 209.0 and related to activity in
Norway. Other accrued expenses amounted to MUSD 63.7 and
other current liabilities amounted to MUSD 24.1.
Derivative instruments amounted to MUSD 90.7 and related to
the marked-to-market valuation of outstanding interest rate and
currency hedge contracts and are detailed in Note 20.
Current tax liabilities amounted to MUSD 1,573.7 and related to
Norway and are detailed in Note 19.6. The current tax liabilities
have increased during the year mainly due to a current tax charge
for the year of MUSD 2,562.8 offset by cash tax payments of
MUSD 1,387.3 during the year.
Payables to continuing operations amounted to MUSD 128.6
and equals the dividend liability as approved by the AGM held
on 30 March 2021 in Stockholm which is paid in quarterly
instalments. The discontinued operations have committed to fund
the dividend and this payable was settled early 2022 when the
fourth quarterly dividend was paid to the shareholders, see also
Note 12.
Statement of cash flows
Changes in working capital
Changes in working capital for the year, as included in the
consolidated statement of cash flows, amounted to MUSD -229.2
(MUSD 61.4). Working capital increases mainly related to higher
receivables at the end of the year as a result of increasing oil and
gas prices, partly offset by higher payables.
Share information
For the number of shares outstanding and the repurchases of own
shares, see Note 14.1.
For the AGM resolution on the authorisation to issue new shares,
see page 22, Corporate Governance Report.
Dividend
Ordinary cash dividend
As communicated by the Company on 29 October 2021 and in
accordance with the dividend policy, the Board of Directors will
propose to the 2022 Annual General Meeting a quarterly dividend
of USD 0.5625 per share, corresponding to USD 160 million
(rounded off) per quarter, which reflects a 25 percent increase
compared to the 2020 dividend. Before payment, each quarterly
dividend of USD 0.5625 per share will 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) prior to
each record date. 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 prior to each record date.
The first dividend payment is expected to be paid around 7 April
2022, with an expected record date of 4 April 2022 and expected
ex-dividend date of 1 April 2022. The second dividend payment
is expected to be paid around 12 July 2022, with an expected
record date of 7 July 2022 and expected ex-dividend date of 6 July
2022. The third dividend payment is expected to be paid around
7 October 2022, with an expected record date of 4 October 2022
and an expected ex-dividend date of 3 October 2022. The fourth
dividend payment is expected to be paid around 11 January 2023,
with an expected record date of 5 January 2023 and an expected
ex-dividend date of 4 January 2023.
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
dividend has been set to a cap of SEK 7.040 billion. If the total
dividend would exceed the cap of SEK 7.040 billion, the dividend
will be automatically adjusted downwards so that the dividend
corresponds to the cap of SEK 7.040 billion.
On 21 December 2021, the Company entered into an agreement
regarding a combination of Aker BP and the Company’s E&P
business. Completion of the combination with Aker BP is subject
to certain terms and conditions, including approval by the Annual
General Meeting of the Company and Aker BP receiving necessary
governmental clearances. The Board of Directors proposes to
the Annual General Meeting that quarterly dividends as per the
above shall only be payable for as long as the Company owns the
E&P business. Accordingly, no quarterly dividends shall be paid
DIRECTORS’ REPORT | Operational and financial review
15
Lundin Energy Annual Report 2021
by the Company after the completion of the combination with
Aker BP. According to a preliminary timetable, completion of the
combination is planned to occur in late Q2 2022.
For details on the dividend policy, see page 22.
Lex Asea distribution of the E&P business
The combination with Aker BP will be carried out as a statutory
cross-border merger in accordance with Norwegian and Swedish
law, through which Aker BP will absorb a company (“LEAB
MergerCo”) that will contain Lundin Energy’s E&P business.
Shortly before the completion of the combination with Aker
BP, the shares in LEAB MergerCo will be distributed to the
shareholders of Lundin Energy through a so-called lex asea
dividend. The merger consideration that thereafter will be payable
to the (new) shareholders of LEAB MergerCo will consist of a mix
of cash and shares in Aker BP.
The Board of Directors proposes to the 2022 Annual General
Meeting that all shares in LEAB MergerCo are distributed to the
shareholders, whereby one share in the Company shall entitle to
one share in LEAB MergerCo.
Proposed disposition of unappropriated earnings
The 2022 Annual General Meeting has an unrestricted equity at its
disposal of MSEK 62,760.7, including the net result for the year of
MSEK 12,956.5.
Based on the above, the Board of Directors proposes that the
Annual General Meeting disposes of the unrestricted equity as
follows:
MSEK
The Board of Directors proposes that the shareholders
are paid a quarterly dividend of USD 0.5625 per share1
6,091.9
The Board of Directors proposes a distribution of all
shares in LEAB MergerCo2
55,118.9
Brought forward
1,549.9
Unrestricted equity
62,760.7
1 The quarterly dividend shall only be payable for as long as the Company owns all
shares in LEAB MergerCo. Accordingly, no quarterly dividends shall be paid by
the Company after the completion of the combination with Aker BP. The amount
included in the table above is based on four quarterly dividend payments but will
change if less than four quarterly dividends have been paid when the Company
ceases to own all shares in LEAB MergerCo. The completion of the combination
with Aker BP is currently expected to occur end of June which would result in one
quarterly dividend payment. The amount is based on the USD to SEK exchange rate
published by Sweden’s central bank (Riksbanken) as at 24 February 2022. The amount
is based on the number of shares in circulation on 24 February 2022 and the total
dividend amount may change by the record dates as a result of repurchases of own
shares, sale of treasury 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
2022 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, and once the assessment has been made
that the condition for payment has been fulfilled in relation to each quarterly pay-
ment the dividend will be recorded as a liability in USD and the SEK equivalent of
any USD liability recognised will fluctuate between the date it is recognised until it is
converted from USD to SEK.
2 The value of the shares in LEAB MergerCo is determined based on the book value of
Lundin Energy Holding BV at the end of 2021 with the book value of the newly in-
corporated LEAB MergerCo as per distribution date expected to be the same following
internal restructuring steps prior to completion of the Aker BP transaction. The value
might change up until the distribution of the shares in LEAB MergerCo but will never,
in combination with the proposed quarterly dividend, exceed the unrestricted equity
of the Company.
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 dividends are 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
will be positive after completion of the Aker BP transaction. 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 2022 AGM, all the current members of the Board of
Directors will be proposed for re-election by the Nomination
Committee.
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 39–77.
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 78–84.
Subsequent events
Subsequent events are detailed in Note 29.
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.
16
Lundin Energy Annual Report 2021
Risk management
Lundin Energy places risk management responsibility at all levels to continually identify, understand and manage threats and
opportunities affecting our business. This enables the Company to make informed decisions and to prioritise control activities and
resources to deal effectively with any potential threats and opportunities.
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 to 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, effects of the pandemic 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 on time and on schedule. The partner operated Johan Sverdrup
Phase 2 project is progressing well and is on schedule for first oil in the fourth quarter of 2022, 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, achieved first oil as
planned in 2021.
Evaluation of reserves and resources
Risk: Uncertainty in the evaluation of 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.
Health, Safety, Environment and Quality
Risk: Major accidents and the pandemic can affect our operations, our people and the environment. Examples of such are a significant fire,
process safety, collisions or well control issues, which are all significant risks within the oil and gas industry.
Response: Lundin Energy has a strong Health, Safety, Environment and Quality (HSEQ) management system and industry leading standards
to reduce the risk and impact of such incidents, which is subject to incident investigations and audits. The Company maintains a robust
HSEQ culture, and focus on business continuity 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. The Company focuses on preventative action including continuous training on information
security risks and the establishment of a group-wide Information Security Advisory Committee.
DIRECTORS’ REPORT | Risk management
17
Lundin Energy Annual Report 2021
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 Gaupe field,
the Company has no further decommissioning spend planned 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.
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.
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 volatility in oil and gas prices, the effect of the pandemic 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: Even though the oil and gas sector is used to the highs and lows of economic and price cycles, 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.
Operational risks continued
Replacing reserves
Risk: Long-term inability to target and mature unrisked resources and replace reserves through exploration success or non-organic growth
can affect 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 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 exploration and appraisal activities to create the possibility of continued growth.
Supply chain
Risk: The post pandemic supply chain delays could lead to strained capacity and resources in all industries with long lead times in
manufacturing causing delays for spare parts and development projects.
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. We have regular discussions and long-term agreements with
some of our key suppliers to ensure that they are able to procure spare parts and execute projects with the attention, quality and results
expected in this current market environment.
18
Lundin Energy Annual Report 2021
Strategic risks
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 by 2023 in our operational emissions and will have an industry leading low
carbon intensity of less than 1 kg CO2/boe by 2023. The Company is investing MUSD 800 to reach these goals, in electrification to receive
power from shore for its main producing assets, replacing its net electricity usage through direct 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. We align with the
recommendations of the Task Force on Climate Related Financial Disclosures in our annual Sustainability Report.
Ethics and compliance
Risk: Risk of non-compliance with legal regulations such as Anti-corruption, Anti-Money Laundering and Data Protection, as well as non-ethical
business practices like fraud, bribery and corruption. Non-compliance could lead to investigations and litigation, as well as negative impacts on
reputation with shareholders, lenders and other stakeholders.
Response: Lundin Energy operates according to the highest level of legal and 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 legal
compliance and 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, tax regulations and legislation, or complexity thereof, could negatively affect the Company, lead to
investigations, litigation, 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 indictment by the Swedish Prosecution Authority into past activities in Sudan (1999–2003), and preliminary investigation
concerning allegations of interference of judicial proceedings, are a direct risk to the Director and the Chairman, and pose reputational,
and potential financial risks for the Company. 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 will continue to actively defend its interests both through the Swedish legal process and in the public domain,
and maintains transparent and effective engagement with key stakeholders to ensure an open and informed dialogue as we challenge
the legal basis for the Swedish Prosecution Authority´s criminal charges. The Company is convinced that it did nothing wrong and that
there are no grounds for any allegations of wrongdoing by any of its representatives. 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.
DIRECTORS’ REPORT | Risk management
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
Corporate Governance Report
Guiding principles
19
Shareholders’ meeting
21
External auditors of the Company
22
Nomination Committee
23
Board of Directors
23
Board committees
24
Group management
30
Policy on Remuneration
32
Internal control over financial reporting
36
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 2021. 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.
2022 Annual General Meeting
The 2022 Annual General Meeting (AGM) will be
held on 31 March 2022 at 13.00 CEST at the Hotel
at Six, Brunkebergstorg 6, in Stockholm. The Board
of Directors has decided, pursuant to the Swedish
Act on Temporary Exemptions to Facilitate the
Execution of General Meetings in Companies and
Associations that shareholders shall have the right
to exercise their voting rights by postal voting.
Consequently, shareholders may choose to exercise
their voting rights at the Annual General Meeting
by attending in person, through a proxy or by
postal voting. 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.
Corporate governance
DIRECTORS’ REPORT | Corporate Governance Report
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.
19
Lundin Energy Annual Report 2021
DIRECTORS’ REPORT | Corporate Governance Report
Highlights 2021
On 21 December 2021 the
Company entered into an
agreement with Aker BP
regarding the combination
of the Company’s E&P
business with Aker BP in
return for cash and shares
in Aker BP. The Company
will retain its investments in
renewable energy.
Adam I. Lundin
appointed as a new Board
member at the AGM held
on 30 March 2021.
Inaugural bond issuance
of USD 2 billion senior
notes in two tranches of
USD 1 billion each with
maturity in 2026 and
2031, respectively.
Further accelerating the
Company’s Decarbonisation Plan
to achieve carbon neutrality for
operational emissions by 2023,
from the previous target of 2025.
Main external rules and regulations for
corporate governance at Lundin Energy
· Swedish Companies Act
· Swedish Annual Accounts Act
· Nasdaq Stockholm Rule Book for Issuers
· Swedish Corporate Governance Code
· Swedish Rules on Remuneration of the Board
and Executive Management and on Incentive
Programmes
Main internal rules and regulations for corporate
governance at Lundin Energy
· The Articles of Association
· The Code of Conduct
· Policies, Procedures and Guidelines
· The HSEQ Leadership Charter
· The Rules of Procedure of the Board,
instructions to the CEO and for the financial
reporting to the Board and the terms of
reference of the Board Committees and the
Investment Committee
· Code of Internal Audit Activity
· Nomination Committee process
Shareholders’ meeting
CEO and Group management
Board of Directors
Audit
Committee
External
audit
Nomination
Committee
Independent
qualified
reserves auditor
Internal
audit
Compensation
Committee
Sustainability
Committee
Lundin Energy – governance structure
20
Lundin Energy Annual Report 2021
other regulations such as the Rule Book for Issuers, the Rules
on Remuneration of the Board and Executive Management and
on Incentive Programmes and good practice on the securities
market.
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 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), Compliance,
Human Rights, Stakeholder Relations, Legal, Corporate
Security, Information Security, Crisis Management, Diversity,
Whistleblowing, Tax, Insurance & Risk Management, Human
Resources, Inside Information and Corporate Communications
& Investor Relations. All policies, procedures and guidelines
are continuously reviewed and updated at a local and group
level when required, and are continuously integrated into local
management systems. During 2021 several new policies were
added, some policies were removed and others were updated. A
number of 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 2021, the Company did not purchase any own
shares and held as per 31 December 2021 1,356,436 own shares
in total.
At the end of 2021, Lundin Energy had a total of 40,702
shareholders listed with Euroclear Sweden, which represents a
decrease of 5,103 compared to the end of 2020, i.e. a decrease
of approximately 11 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 2021
Number
of shares
Percent
(rounded)
Nemesia1
95,478,606
33.39
BlackRock
10,044,086
3.51
Vanguard
6,494,118
2.27
State Street Global Advisors
5,459,719
1.91
T. Rowe Price
4,744,871
1.66
Norges Bank
4,730,352
1.65
OM Asset Management
4,572,141
1.60
JPMorgan
4,228,709
1.48
Amundi
3,924,943
1.37
Janus Henderson Group
3,667,501
1.28
Other shareholders
142,579,568
49.88
Total
285,924,614
100.00
1 An investment company wholly owned by Lundin family trusts.
Source: Q4 Inc.
Shareholders’ meeting
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
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.
21
Lundin Energy Annual Report 2021
DIRECTORS’ REPORT | Corporate Governance Report
2021 AGM
The 2021 AGM was held on 30 March 2021. As a consequence
of the global COVID-19 pandemic, the Board of Directors
decided to hold the AGM online 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). The
AGM was attended by 830 shareholders, personally or by
proxy, representing 54.3 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 a video link, to be able to answer
potential questions from the shareholders. Other Board
members followed the AGM online.
The resolutions passed by the 2021 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 2020 and resolving to declare a dividend of USD 1.80
per share to be paid out in four quarterly instalments with
record dates of 1 April 2021, 2 July 2021, 4 October 2021 and
5 January 2022. Before payment, each quarterly dividend of
USD 0.45 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 2020.
· Approval of the Remuneration Report prepared by the Board.
· Approval of the remuneration of USD 130,000 to the Chairman
of the Board and USD 62,000 to other Board members 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 and election of Adam I. Lundin as a new
Board member.
· Re-election of Ian H. Lundin as Chairman of the Board.
· Approval of the remuneration of the statutory auditor.
· Re-election of the registered accounting firm Ernst & Young
AB as the Company’s statutory auditor until the 2022 AGM,
authorised public accountant Anders Kriström being the
designated auditor in charge.
· Approval of a long-term incentive plan (LTIP) 2021 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 2021 LTIP.
· 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.
· Approval of an extraordinary cash compensation to a Board
member, equally the former CEO.
· Rejection of two shareholder proposals, which were put to the
meeting by a minority shareholder.
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 is the registered accounting
firm Ernst & Young AB, which was first elected as the Company’s
statutory auditor at the 2020 AGM. The auditor’s fees are
described in the notes to the financial statements, see Note
28 on page 77 and Note 6 on page 82. The auditor’s fees also
detail payments made for assignments outside the regular audit
mandate. Such assignments are kept to a minimum to ensure
the auditor’s independence towards the Company and generally
require prior approval of the Company’s Audit Committee.
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.
22
Lundin Energy Annual Report 2021
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 2022 AGM
The members of the Nomination Committee for the 2022 AGM
were announced and posted on the Company’s website on 24
June 2021. The Nomination Committee has held five 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 2022 AGM.
· Considering Board and statutory auditor remuneration issues
and proposals to the 2022 AGM, including additional Board
remuneration for 2021 tied to the increased workload during
the year.
· Considering a proposal to appoint an external independent
Chairman for the 2022 AGM.
· 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, as well as the indictment of two Board
members and announced transaction with Aker BP.
· Discussing succession planning matters.
· 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 Cecilia Vieweg, Grace
Reksten Skaugen, Jakob Thomasen and C. Ashley Heppenstall
to discuss the work and functioning of the Board.
The full Nomination Committee report, including the final
proposals to the 2022 AGM, is available on the Company’s
website.
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.
Nomination Committee for the 2022 AGM
Member
Representing
Meeting
attendance
Shares
represented
as at 1 Jun 2021
Shares
represented as
at 31 Dec 2021
Independent of the
Company and Group
management
Independent of the
Company’s major
shareholders
Aksel Azrac
Nemesia S.à.r.l
5/5
33.4%
33.4%
Yes
No1
Oscar Börjesson
Livförsäkringsbolaget
Skandia, ömsesidigt
5/5
0.6%
0.5%
Yes
Yes
Ian H. Lundin
Chairman of the Board
of Lundin Energy
5/5
N/a2
N/a2
Yes
No2
Total 34.0%
Total 33.9%
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.
23
Lundin Energy Annual Report 2021
DIRECTORS’ REPORT | Corporate Governance Report
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 2021 AGM was requested by
the major shareholder of the Company to consider the nomination
of Adam I. Lundin as a new Board member considering his wide
range of skills in both finance and the extractive industries, and
due to succession planning considerations. The Nomination
Committee considered that a Board size of ten members would be
appropriate 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 2021 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 30 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 would be slightly reduced as
a result of the proposed appointment of Adam I. Lundin, the
Nomination Committee considered that the skills and broad
experience of the Board members, as well as succession planning
considerations, 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 but decided that no increase should be proposed as
a result of the uncertainty surrounding the ongoing COVID-19
pandemic.
Board meetings and work in 2021
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
2021, 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.
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.
Principal tasks of the Board of
Directors
· Establishing the overall goals and strategy of the
Company.
· Making decisions regarding the supply and allocation 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.
24
Lundin Energy Annual Report 2021
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 and the separate Remuneration
Report available on the Company’s website.
Compensation Committee work during 2021:
· Ongoing review of the performance management process
through various meetings across the year.
· Preparing the Remuneration Report for Board and AGM
approval and considering enhancements for the 2021
Remuneration Report.
· Continuous monitoring and evaluation of remuneration
structures, levels, programmes and the Policy on
Remuneration.
· Review of the Policy on Remuneration adopted by the 2020
AGM and decision not to propose any changes to the 2022
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 proposal for LTIP 2021 for Board and AGM
approval through various work sessions and preparation
discussions.
· Review of fulfilment of LTIP 2018 performance conditions and
confirmation of vesting.
· Review of the CEO’s proposals for remuneration and other
terms of employment of the other members of Group
management for Board approval.
· Review of the CEO’s proposals for the principles of
compensation of other employees.
· Review and approval of the CEO’s proposals for 2021 LTIP
awards.
· Preparation of proposals for the CEO’s remuneration.
· Frequent contacts, ongoing dialogue and decisions outside
of formal meetings to provide oversight and approvals for
remuneration issues as presented by Group management.
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.
Audit Committee work during 2021:
· Assessment of the 2020 year end report and the 2021 half year
report for completeness and accuracy and recommendation for
approval to the Board.
· Assessment and approval of the first and third quarter reports
2021 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 2022 AGM.
· Reviewing the 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.
25
Lundin Energy Annual Report 2021
DIRECTORS’ REPORT | Corporate Governance Report
Sustainability Committee
The Sustainability 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 2021 includes:
· Review of material local and corporate sustainability risks and
management responses, including risks imposed by COVID-19
and prevention measures.
· Discussion on how to protect the workforce against risks posed
by COVID-19.
· Review of the Company’s Decarbonisation Plan and overall
sustainability performance.
· Discussion on strategy for carbon neutrality and actions
required, including acceleration of carbon neutrality
commitment to 2023, adoption of a 50% absolute emissions
reduction target and investments in natural carbon capture
projects.
· Discussion on the growing focus of sustainability disclosures
and investment landscape in light of evolving stakeholder
expectations and increased investor/lender focus on ESG.
· Review of refreshed materiality assessment and investor
perception study.
· Discussion on the evolving regulatory landscape to ensure
readiness for necessary disclosures, namely the EU Green
Taxonomy and the Draft EU Corporate Due Diligence and
Accountability Directive.
· Discussion and proposal to align external reporting with the
recommendations of the Sustainability Accounting Standards
Board.
Remuneration of Board members
The remuneration of the Chairman and other Board members
follows the resolution adopted by the AGM. The Board members,
are not employed by the Company, do not receive any salary
from the Company and are not eligible for participation in
incentive programmes for Group management and other
employees. 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 26 on pages 74–75.
Evaluation of the Board’s work
An external review of the work of the Board was conducted in
the autumn through an online survey specifically tailored for
the Company. The purpose of the external review was to build
on last year’s external review and assess areas of improvement.
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. The Board contributes
well to the overall strategy of the Company and collaborates
effectively with Group management. The Board is considered to
have the knowledge and experience required to support delivery
of the strategy and exhibits diversity and breadth in respect
of qualifications, experience and background. Sustainability
matters are regularly included in the Board meeting agendas
and all Board Committees are working well.
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
· Approval of the annual Report on Payments to Governments
· Meeting with the auditor without management present to discuss the
audit process, risk management and internal controls
· Review of the Rules of Procedure
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
26
Lundin Energy Annual Report 2021
Board of Directors work 2021
The Board’s work in 2021 was unusually time consuming and demanding, with 19 board meetings held and substantial deliberations and
contacts in-between meetings. 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:
· Considering several strategic opportunities for the business and recommendation to the AGM to approve the combination of the
Company’s E&P business with Aker BP in return for cash and shares in Aker BP, subject to customary approvals, whilst retaining the
Company’s investments in renewable energy after completion of the combination.
· Discussing in detail the Company’s performance in 2020 and resolving to propose to the 2021 AGM that an increased cash dividend of USD
1.80 per share should be paid to the shareholders.
· Considering an anticipated dividend proposal to the AGM 2022 to increase the 2021 dividend by 25 percent to USD 2.25 per share, given
the favourable market conditions and should such conditions prevail for the rest of the year.
· Considering in detail Company strategy and evaluating several potential business opportunities.
· Reviewing the Company’s oil and gas reserves and resources positions.
· Considering the Company’s production and asset performance, business forecasts and future outlook.
· Considering and discussing the Johan Sverdrup performance and cost expectation, capacity increase, remaining Phase 2 project risks and
schedule, including the electrification of the Phase 2 platform and Utsira High through power from shore.
· Considering the development projects in the Greater Edvard Grieg Area, including the production start-up on Solveig Phase 1 and the
Rolvsnes extended well test, as well as further potential with the Greater Edvard Grieg Area.
· Discussing the Company’s exploration position, including approving licence applications and acquisitions, to optimise the Company’s
acreage position and ensure future organic growth opportunities.
· Considering and approving the acquisition of an additional 25 percent working interest in the Wisting development.
· Considering potential upcoming Norwegian tax changes and their impact on the Company’s development portfolio.
· 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 Plan achieving carbon
neutrality by 2023 from operational emissions, sustainability trends and initiatives, and the partnerships with Land Life Company and
EcoPlanet Bamboo to invest in high quality re-forestation projects.
· Considering the added value of carbon neutrally produced crude, including the world’s first certified carbon neutrally produced crude sale
from the Edvard Grieg field, and the sales of Johan Sverdrup crude on a carbon neutral basis.
· Reviewing the progression of the Company’s renewable assets, including completion of the Leikanger hydropower project and first power
from the Metsälamminkangas (MLK) wind farm.
· Considering and approving an agreement to acquire and invest in the Karskruv wind farm in Sweden.
· Considering and discussing the Company’s HSEQ performance, including incidents that occurred during the year and HSEQ audits.
· Considering the proposal for a performance based long-term incentive plan (LTIP) 2021, following similar principles as the previous
LTIPs approved by the 2014–2020 AGMs, including continued stakeholder engagement discussions, revising the applicable peer group,
approving participants, allocating individual awards and approving the detailed plan rules, subject to 2021 AGM approval.
· 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.
· Reviewing and approving the inaugural offering of USD 2 billion senior notes in two tranches of USD 1 billion each with maturity in 2026
and 2031, respectively.
· Discussions regarding the Company’s risk management, including in respect of the COVID-19 pandemic.
· Discussing the Swedish Prosecution Authority’s preliminary investigation and decision to bring charges against the Chairman of the
Board, Ian H. Lundin, and Director, Alex Schneiter, for alleged complicity in crime against international law, gross crime, in Sudan during
1999–2003 and 2000–2003, respectively.
· Assessing in detail the impact of an indictment for the Company, including the notified claims regarding a company fine and forfeiture of
economic proceeds.
27
Lundin Energy Annual Report 2021
Board of Directors:
Ian H. Lundin
Alex Schneiter
Peggy Bruzelius
C. Ashley Heppenstall
Adam I. Lundin
Function
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
Director
Elected 2021
Born 1987
Education
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.
Studies in Mining
Technology
and Marketing
Management at the
British Columbia
Institute of
Technology.
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
2002–2015.
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.
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.
CEO & President of
Josemaria Resources,
former CEO &
President of Filo
Mining Corp. Co-head
of the London office
for an international
investment bank.
Other board duties
Member of the board
of Etrion Corporation
and member of the
advisory board of Adolf
H. Lundin Charitable
Foundation (AHLCF).
–
Chair of the board of
Lancelot Asset
Management
AB and member of the
board of International
Consolidated Airlines
Group S.A. and
Skandia Liv.
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.
Chairman of the
board of Filo Mining
Corp, member of
the board of NGEx
Minerals, Josemaria
Resources and Lundin
Foundation.
Shares as at
31 December 2021
Nil2
521,126
8,000
Nil4
Nil5
Attendance
Board
17/19
18/19
19/19
18/19
13/155
Audit Committee
–
–
7/7
7/7
–
Compensation
Committee
9/9
–
–
–
–
Sustainability
Committee
–
–
–
–
–
Remuneration1
Board and Committee
work
USD 144,700
Nil
USD 82,300
USD 76,700
USD 31,000
Special assignments
outside the
directorship
USD 114,197
Nil
Nil
Nil
Nil
Independent of the
Company and Group
management
Yes
No3
Yes
Yes
Yes
Independent of
major shareholders
No2
Yes
Yes
Yes
No5
1 See also Note 26 on pages 74–75.
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 1,142,618 shares in Lundin Energy AB through an investment company, Rojafi.
5 Adam I. Lundin is a member of the Board of Directors as of 30 March 2021. Adam I. Lundin is in the Nomination Committee’s and the Company’s opinion not
deemed independent of the Company’s major shareholder as Adam I. Lundin is a member of the Lundin family that holds, through a family trust, Nemesia
S.à.r.l., which holds 95,478,606 shares in the Company.
6 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.
DIRECTORS’ REPORT | Corporate Governance Report
28
Lundin Energy Annual Report 2021
Lukas H. Lundin
Grace Reksten Skaugen
Torstein Sanness
Jakob Thomasen
Cecilia Vieweg
Director
Elected 2001
Born 1958
Director
Elected 2015
Born 1953
Sustainability Committee
chair
Compensation Committee
member
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
Graduate (engineering)
from the New Mexico
Institute of Mining and
Technology.
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.
M.Sc. Engineering in
geology, geophysics and
mining engineering from
the Norwegian Institute of
Technology in Trondheim.
Graduate of the University of
Copenhagen, Denmark, M.Sc.
in Geoscience and completed
the Advanced Strategic
Management programme at
IMD, Switzerland.
L.L.M. from the University
of Lund.
Various key positions
within companies where
the Lundin family has a
major shareholding.
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.
Various positions in Saga
Petroleum 1972–2000.
Managing Director of Det
Norske Oljeselskap AS
2000–2004.
Managing Director of Lundin
Norway AS 2004–2015.
Former CEO of Maersk
Oil and a member of the
Executive Board of the
Maersk Group 2009–2016.
General Counsel and
member of the Executive
Management of AB
Electrolux 1999–2018.
Senior positions in AB Volvo
Group 1990–1998.
Lawyer in private practice.
Member of the Swedish
Securities Council
2006–2016.
Chairman of the board
of Lundin Mining Corp.,
Lucara Diamond Corp.,
Lundin Gold Inc. 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.
Chairman of the board
of Magnora ASA, deputy
chairman of Panoro Energy
ASA and member of the
board of International
Petroleum Corp. and Carbon
Transition ASA.
Chairman of the DHI Group,
ESVAGT, RelyOn Nutec and
Hovedstadens Letbane.
–
425,0006
6,000
93,310
8,820
5,000
16/19
18/19
18/19
19/19
19/19
–
–
–
7/7
–
–
9/9
–
–
9/9
–
2/2
2/2
2/2
–
USD 62,000
USD 97,000
USD 76,700
USD 91,400
USD 82,300
Nil
Nil
Nil
Nil
Nil
Yes
Yes
Yes
Yes
Yes
No6
Yes
Yes
Yes
Yes
More information on the Board members can
be found on www. lundin‑energy.com
i
29
Lundin Energy Annual Report 2021
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, 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 Investor Relations and Communications, Edward
Westropp, who is responsible for investor relations and
financial and strategic communications within the Group, the
Vice President Sustainability, Zomo Fisher, who is responsible
for the Group’s corporate sustainability strategy and the
Vice President Commodities Trading and Marketing, David
Michelis, who is responsible for the marketing strategy and
the physical commodities trading of the Group.
· 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 2021
· Reviewing several strategic opportunities and negotiating the terms of the agreement to combine the Company’s E&P business with Aker BP
in return for cash and shares in Aker BP. The agreement is subject to customary approvals and the Company will retain its investments in
renewable energy after completion of the combination.
· Overseeing the continuing development of Johan Sverdrup, including production matters, reservoir performance and optimisation, capacity
increases and progress on Phase 2 development.
· Overseeing the progress and production start of the Edvard Grieg tie-back projects Solveig Phase 1 and Rolvsnes extended well test, including
senior engagement with key contractors and suppliers.
· Overseeing the infill drilling campaign on Edvard Grieg.
· Discussing and negotiating the terms for the acquisition of an additional 25 percent working interest of the Wisting development project from
OMV (Norge) AS, including negotiation with Equinor regarding operatorship and exploration acreage.
· 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.
· Considering new ventures and opportunities.
· Overseeing the Group’s marketing of crude oil.
· Overseeing the Decarbonisation Plan, including negotiating and contracting the natural carbon capture projects and managing the progress to
reach carbon neutrality by 2023.
· Analysis of climate change risks and opportunities for the business.
· Negotiating the terms for the acquisition of 100 percent interest in the Karskruv wind farm project in Sweden.
· Considering in detail operational safety matters.
· Discussing and managing 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.
· Reviewing and assessing change in performance on external ESG ratings.
· Overseeing the framework for capital allocation throughout the Group.
· Management of the work associated with receiving additional public investment grade credit ratings from Moody’s and Fitch Ratings.
· Negotiating the inaugural offering of USD 2 billion senior notes in two tranches of USD 1 billion each with maturity in 2026 and 2031, respectively.
· Considering and managing the implications of the Swedish Prosecution Authority’s decision to bring charges in relation to past operations in
Sudan including as a result of notified claims against the Company.
30
Lundin Energy Annual Report 2021
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. Weekly
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. Under normal operations, 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 long-term sustainable
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
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.
On 11 November 2021, the Swedish Prosecution Authority brought criminal charges against the Chairman of the Board, Ian H.
Lundin, and Director, Alex Schneiter, in relation to past operations in Sudan from 1999–2003 and 2000–2003, respectively.
The charges also included claims against the Company for a corporate fine of SEK 3,000,000 and forfeiture of economic benefits
of SEK 1,391,791,000, which according to the Swedish Prosecution Authority represents the value of the gain of SEK 720,098,000
that the Company made on the sale of the business in 2003. The amount of the claim regarding forfeiture of economic benefits
is approximately half of the amount originally notified by the Swedish Prosecution Authority in 2018. Any potential corporate
fine or forfeiture could only be imposed after the conclusion of a trial.
The Company refutes that there are any grounds for allegations of wrongdoing by any of its representatives and does not
foresee any impact on the operational and financial guidance that the Company has set out previously. The Company has
also challenged the legal basis of the criminal charges and pointed out the fundamental flaws of the Swedish Prosecution
Authorities decision to indict. The Company carried out fully legitimate and responsible business operations in Sudan as part
of an international consortium. It operated within a framework of constructive engagement in the country as endorsed by the
UN, EU and Sweden. There are no valid grounds for allegations of complicity by any Company representatives. The Company
remains confident that both the defence and the extensive deficiencies in the conduct of the investigation will be considered by
the Court process in determining that its representatives did nothing wrong.
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.
More information regarding the past activities in Sudan during 1997–2003 can be found on www.lundinsudanlegalcase.com.
31
Lundin Energy Annual Report 2021
DIRECTORS’ REPORT | Corporate Governance Report
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 and the Group undertake
yearly benchmarking studies. For each study, a peer group
of international oil and gas companies of similar size and
operational reach is selected, against which the Group’s
remuneration practices are measured. The levels of base salary,
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 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 these peer groups.
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 once every four years. The Board does
not propose any changes to the Policy on Remuneration for
Group management as approved by the 2020 AGM, which is
reproduced below. The Remuneration Report, which can be
found on the Company’s website, describes in more detail
outcomes and how decisions were taken by the Compensation
Committee during 2021.
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 Policy on Remuneration approved in 2020, the
Board of Directors can 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 this discretion
is important to accommodate the uncertainties and cyclical
nature of the oil and gas industry. The Board made two such
decisions that are reported in the Remuneration Report and
noted in Note 26 on pages 74–75. The Board determined that
it was reasonable to recognise the excellent performance of two
members of Group management in relation to projects linked to
legal and communication matters.
Long-term incentive plan 2021
The 2021 AGM resolved to approve a performance based LTIP
2021, that follows similar principles as the previously approved
LTIPs 2014–2020, 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 2021 and expiring on
30 June 2024. 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 2021 and the total LTIP award made
in respect of 2021 was 262,902.
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 2021,
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 2021 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 2021, 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 Remuneration Report, for approval by the Board and the
AGM, on the application of the Policy on Remuneration and
the evaluation of Group management remuneration. 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.
32
Lundin Energy Annual Report 2021
POLICY ON REMUNERATION FOR GROUP
MANAGEMENT AS APPROVED BY THE 2020 AGM1
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
Company and to encourage and appropriately and fairly reward
executives for their contributions to Lundin Energy’s success.
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.
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.
33
Lundin Energy Annual Report 2021
DIRECTORS’ REPORT | Corporate Governance Report
Elements of remuneration for Group Management
There are four key elements to the remuneration of Group Management:
Description, purpose and link to
strategy and sustainability
Process and governance
Relative share of
estimated/maximum
total reward 1
a) Base salary
· Fixed cash remuneration paid
monthly. Provides predictable
remuneration to aid attraction and
retention of key talent.
· The Committee reviews salaries
every year as part of the review of
total remuneration (see below for
a description of the benchmarking
process).
30% / 20%
b) Annual variable
remuneration
· Annual bonus is paid for performance
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.
· The annual review of total
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.
20% / 25%
c) Long-term incentive plan
· 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.
40% / 50%
d) Benefits
· Predictable benefits to help facilitate
the discharge of each executive’s
duties, aiding the attraction and
retention of key talent.
· 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.
10% / 5%
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 2021
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
35
Lundin Energy Annual Report 2021
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.
DIRECTORS’ REPORT | Corporate Governance Report
36
Lundin Energy Annual Report 2021
37
Lundin Energy Annual Report 2021
Financial summary
38
Consolidated income statement
39
Consolidated statement of comprehensive income
40
Consolidated balance sheet
41
Consolidated statement of cash flow
42
Consolidated statement of changes in equity
43
Accounting policies
44
Notes to the financial statements of the Group
51
- Note 1 – Finance income
51
- Note 2 – Finance costs
51
- Note 3 – Oil and gas properties
51
- Note 4 – Renewable energy properties
53
- Note 5 – Other tangible fixed assets
53
- Note 6 – Goodwill
54
- Note 7 – Investments in joint ventures
54
- Note 8 – Receivables from joint ventures
54
- Note 9 – Financial assets
54
- Note 10 – Inventories
55
- Note 11 – Trade and other receivables
55
- Note 12 – Receivables from discontinued operations
55
- Note 13 – Cash and cash equivalents
55
- Note 14 – Equity
56
- Note 14.1 – Share capital and share premium
56
- Note 14.2 – Other reserves
56
- Note 14.3 – Retained earnings
57
- Note 14.4 – Earnings per share
57
- Note 15 – Financial liabilities
57
- Note 16 – Provisions
58
- Note 17 – Taxes
58
- Note 18 – Trade and other payables
59
- Note 19 – Discontinued operations - E&P business
59
- Note 19.1 – Revenue and other income - discontinued
operations
61
- Note 19.2 – Production costs - discontinued operations
61
- Note 19.3 – Segment information - discontinued
operations
61
- Note 19.4 – Finance income - discontinued operations
62
- Note 19.5 – Finance costs - discontinued operations
63
- Note 19.6 – Income taxes - discontinued operations
63
- Note 19.7 – Financial assets - assets held for distribution 65
- Note 19.7.1 – Associated companies - assets held for
distribution
65
- Note 19.8 – Inventories - assets held for distribution
65
- Note 19.9 – Trade and other receivables - assets held for
distribution
65
- Note 19.10 – Cash and cash equivalents - assets held for
distribution
65
- Note 19.11 – Financial liabilities - liabilities held for
distribution
66
- Note 19.12 – Trade and other payables - liabilities held for
distribution
66
- Note 20 – Financial assets and liabilities
66
- Note 21 – Changes in liabilities with cash flow movements
from financing activities
68
- Note 22 – Financial risks, sensitivity analysis and derivative
instruments
69
- Note 23 – Contingent liabilities and assets
72
- Note 24 – Related party transactions
73
- Note 25 – Average number of employees
73
- Note 26 – Remuneration to the Board of Directors,
Group management and other employees
74
- Note 27 – Long-term incentive plans
76
- Note 28 – Remuneration to the Group’s auditors
77
- Note 29 – Subsequent events
77
Annual accounts of the Parent Company
78
Parent Company income statement
79
Parent Company comprehensive income statement
79
Parent Company balance sheet
80
Parent Company statement of cash flow
81
Parent Company statement of changes in equity
82
Notes to the financial statements of the Parent Company
83
- Note 1 – Finance income
83
- Note 2 – Finance costs
83
- Note 3 – Income taxes
83
- Note 4 – Other receivables
83
- Note 5 – Accrued expenses and prepaid income
83
- Note 6 – Remuneration to the auditor
83
- Note 7 – Proposed disposition of unappropriated
earnings
83
- Note 8 – Shares in subsidiaries
84
Board assurance
85
Auditor’s report
86
FINANCIAL STATEMENTS AND NOTES
Financial Statements and Notes
38
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES
Financial Summary
Financial summary
2021 was a milestone year for the Company’s financial performance with record EBITDAX and Free Cash Flow generation. The
combination of production volumes being at the upper end of guidance at 190 mboepd coupled with a robust macro environment
with good oil and gas prices resulted in an EBITDAX of USD 4.8bn and Free cash flow of USD 1.6bn. This strong financial performance
meant that the Company’s Free cash flow covered the cash dividends by over 3.5 times and resulted in net debt reduced by USD 1.2bn
to a year-end net debt of USD 2.7bn.
During 2021 the Company also successfully issued two bonds of USD 1bn each at investment grade terms and with very attractive
coupon rates. This has diversified the Company’s capital structure as well as termed out the maturity of the debt profile with the
bonds having a maturity of 5 and 10 years respectively.
Since its inaugural cash dividend declared in 2018 the Company has paid a cumulative cash dividend of USD 1.4bn. With the strong
cash generation during 2021 the Company’s Board of Directors is proposing a continued progressive dividend profile with a 25
percent dividend increase to USD 2.25 per share to be paid quarterly until the E&P combination with Aker BP has completed.
The Company’s balance sheet is very robust and with it’s industry leading low cost of operations per barrel of between USD 3 - USD 4
coupled with a low capex intensity per barrel, the outlook for continued Free cash flow generation remains very strong. This financial
position provides a very good fit with Aker BP’s financial position and thus setting up a pathway for the combined entity of continued
strong operational performance with a strong Free cash flow profile into the next decade.
2021
2020
Production in Mboepd
190.3
164.5
Revenue and other income in MUSD
5,484.7
2,564.4
CFFO in MUSD
3,058.0
1,528.0
Per share in USD
10.75
5.38
EBITDAX in MUSD
4,822.8
2,140.2
Per share in USD
16.96
7.53
Free cash flow in MUSD
1,645.5
448.2
Per share in USD
5.79
1.58
Net result in MUSD
493.8
384.2
Per share in USD
1.74
1.35
Adjusted net result in MUSD
795.7
280.0
Per share in USD
2.80
0.99
Net debt
2,747.9
3,911.5
1 All numbers in this table relate to continuing and discontinuing operations combined. For a further breakdown between continuing and discontinuing operations,
reference is made to pages 90–92.
Aker BP transaction
On 21 December 2021, Lundin Energy announced that it had entered into an agreement (the transaction) with Aker BP whereby Aker
BP will absorb Lundin Energy’s E&P business through a cross-border merger in accordance with Norwegian and Swedish law. Before
completion of the cross-border merger, the shares in the company holding Lundin Energy’s E&P business will be distributed to Lundin
Energy shareholders. Consequently Lundin Energy presented its E&P business as discontinued operations in the consolidated Income
Statement and presented the asset and liabilities associated with the E&P business as assets and liabilities held for distribution in the
consolidated Balance Sheet. Once the transaction with Aker BP is completed, the renewable business, which is reported as continuing
operations, will be debt free and have a cash balance of MUSD 130, to cover capital expenditure and other working capital items. The
renewable business is expected to be free cash flow positive from late 2023, when the renewable portfolio has been fully built out and
all projects are operational.
Under the agreement with Aker BP, in exchange for Lundin Energy’s E&P business, shareholders will be entitled to a cash
consideration totaling BUSD 2.22 (approximately SEK 71.0 per share after conversion from USD at 20 December 2021 exchange rates),
271,910,019 Aker BP shares (representing 0.951 Aker BP share for every 1 Lundin Energy share, equivalent to SEK 279.3 per share at
20th December 2021) and will retain their existing shareholding in Lundin Energy and its renewables business (detail on business
plan, management and governance will be published by 7 March 2022). Accordingly following the completion of the transaction,
(subject to shareholder approval at the Company’s AGM on 31 March 2022, shareholder approval by Aker BP’s General Meeting and
receipt of necessary governmental approvals), the shareholders of Lundin Energy will hold 43 percent of the total shares and votes of
Aker BP, (based on a total of 360,113,509 shares and votes in Aker BP).
39
Lundin Energy Annual Report 2021
Consolidated Income Statement
for the Financial Year Ended 31 December
Expressed in MUSD
Note
2021
2020
General, administration and depreciation expenses
-19.4
-16.4
Operating profit
-19.4
-16.4
Net financial items
Finance income
1
2.6
0.5
Finance costs
2
-0.2
-0.9
2.4
-0.4
Share in result of joint ventures
7
0.9
-0.1
Loss before tax
-16.1
-16.9
Income tax
17
–
-1.0
Net result from continuing operations
-16.1
-17.9
Discontinued operations
Net result - E&P business
19
509.9
402.1
493.8
384.2
Attributable to:
Shareholders of the Parent Company
493.8
384.2
Earnings per share – USD
From continuing operations
14.4
-0.06
-0.06
From discontinued operations
14.4
1.80
1.41
1.74
1.35
Earnings per share fully diluted – USD
From continuing operations
14.4
-0.06
-0.06
From discontinued operations
14.4
1.79
1.41
1.73
1.35
40
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Comprehensive Income
for the Financial Year Ended 31 December
Expressed in MUSD
2021
2020
Net result
493.8
384.2
Items that may be subsequently reclassified to profit or loss:
Exchange differences foreign operations
181.2
-210.1
Cash flow hedges
183.5
-63.4
Other comprehensive income, net of tax
364.7
-273.5
Total comprehensive income
858.5
110.7
Attributable to:
Shareholders of the Parent Company
858.5
110.7
41
Lundin Energy Annual Report 2021
Consolidated Balance Sheet
for the Financial Year Ended 31 December
Expressed in MUSD
Note
2021
2020
ASSETS
Non-current assets
Oil and gas properties
3
–
5,902.4
Renewable energy properties
4
31.5
–
Other tangible fixed assets
5
0.1
45.2
Goodwill
6
–
128.1
Investments in joint ventures
7
108.7
110.6
Receivables from joint ventures
8
35.1
–
Financial assets
9
–
13.5
Trade and other receivables
11
–
17.3
Derivative instruments
20
–
3.8
Total non-current assets
175.4
6,220.9
Current assets
Assets held for distribution
19
7,468.2
–
Inventories
10
–
59.1
Trade and other receivables
11
5.3
278.6
Derivative instruments
20
–
12.1
Receivable from discontinued operations
12
128.6
–
Cash and cash equivalents
13
130.0
82.5
Total current assets
7,732.1
432.3
TOTAL ASSETS
7,907.5
6,653.2
EQUITY AND LIABILITIES
Equity
Share capital
14.1
0.5
0.5
Additional paid in capital
14.1
321.1
323.7
Other reserves
14.2
-404.5
-769.2
Retained earnings
14.3
-1,830.2
-1,708.3
Net result
14.3
493.8
384.2
Total equity
-1,419.3
-1,769.1
Liabilities
Non-current liabilities
Financial liabilities
15/21/22
–
3,983.9
Provisions
16
–
565.6
Deferred tax liabilities
17
–
2,893.9
Derivative instruments
20
–
144.7
Total non-current liabilities
–
7,588.1
Current liabilities
Liabilities held for distribution
19
9,194.0
–
Financial liabilities
15/21/22
–
6.1
Dividends
128.6
72.3
Trade and other payables
18
4.2
202.5
Derivative instruments
20
–
87.6
Current tax liabilities
17
–
444.4
Provisions
16
–
21.3
Total current liabilities
9,326.8
834.2
Total liabilities
9,326.8
8,422.3
TOTAL EQUITY AND LIABILITIES
7,907.5
6,653.2
42
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Cash Flow
for the Financial Year Ended 31 December
Expressed in MUSD
Note
2021
2020
Cash flows from operating activities
Net result from continuing operations
-16.1
-17.9
Net result from discontinued operations
509.9
402.1
Adjustments for:
Exploration costs
258.1
104.9
Depletion, depreciation and amortisation
703.2
614.6
Current tax
2,562.8
511.8
Deferred tax
329.7
378.3
Long-term incentive plans
6.1
9.5
Foreign currency exchange gain/ loss
186.4
-230.3
Interest expense
52.0
104.3
Unwinding of loan modification gain
–
99.7
Amortisation of deferred financing fees
35.5
37.6
Ineffective hedging contracts
68.9
–
Other
38.2
6.3
Interest received
1.2
0.8
Interest paid
-50.9
-126.6
Income taxes paid / received
-1,397.8
-428.5
Changes in working capital:
Changes in inventories
-8.1
-7.2
Changes in underlift position
-17.5
-3.7
Changes in receivables
-463.7
94.2
Changes in overlift position
25.4
0.7
Changes in liabilities
234.7
-22.6
Total cash flows from operating activities
3,058.0
1,528.0
- of which relates to continuing operations
-17.7
-18.1
- of which relates to discontinued operations
3,075.7
1,546.1
Cash flows from investing activities
Investment in oil and gas properties
-1,319.5
-919.7
Investment in renewable energy business1
-77.3
-99.8
Investment in other fixed assets
-4.1
-2.4
Decommissioning costs paid
-11.6
-57.9
Total cash flows from investing activities
-1,412.5
-1,079.8
- of which relates to continuing operations
-71.7
-99.8
- of which relates to discontinued operations
-1,340.8
-980.0
Cash flows from financing activities
Senior Notes
21
1,996.4
–
Net drawdown/repayment of corporate credit facility
21
-2,794.0
3,994.0
Net drawdown/repayment of reserve-based lending facility
21
–
-4,092.0
Repayment of principal portion of lease commitments
21
-26.6
-3.2
Financing fees paid
21
-21.3
-36.8
Dividends paid
-455.0
-318.2
Total cash flows from financing activities
-1,300.5
-456.2
- of which relates to continuing operations
-455.0
-318.2
- of which relates to discontinued operations
-845.5
-138.0
Change in cash and cash equivalents
345.0
-8.0
Cash and cash equivalents at the beginning of the period
82.5
85.3
Currency exchange difference in cash and cash equivalents
24.6
5.2
Cash and cash equivalents at the end of the period
452.1
82.5
- of which is included in assets held for distribution continuing
322.1
–
- of which excludes assets held for distribution
130.0
82.5
1 Includes incurred cost relating to the acquisition of the renewable energy business and working capital funding of joint ventures
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.
43
Lundin Energy Annual Report 2021
Consolidated Statement of Changes in Equity
for the Financial Year Ended 31 December
Expressed in MUSD
Share
capital1
Additional paid-
in capital
Other reserves2
Retained
earnings
Total
equity
Balance at 1 January 2020
0.5
326.0
-495.7
-1,429.6
-1,598.8
Comprehensive income
Net result
–
–
–
384.2
384.2
Currency translation differences
–
–
-210.1
–
-210.1
Cash flow hedges
–
–
-63.4
–
-63.4
Total comprehensive income
–
–
-273.5
384.2
110.7
Transactions with owners
Cash distributions
–
–
–
-284.1
-284.1
Issuance of treasury shares
–
7.3
–
–
7.3
Share based payments3
–
-9.6
–
–
-9.6
Value of employee services4
–
–
–
5.4
5.4
Total transaction with owners
–
-2.3
–
-278.7
-281.0
Balance at 31 December 2020
0.5
323.7
-769.2
-1,324.1
-1,769.1
Comprehensive income
Net result
–
–
–
493.8
493.8
Currency translation differences
–
–
181.2
–
181.2
Cash flow hedges
–
–
183.5
–
183.5
Total comprehensive income
–
–
364.7
493.8
858.5
Transactions with owners
Cash distributions
–
–
–
-511.8
-511.8
Issuance of treasury shares
–
6.4
–
–
6.4
Share based payments3
–
-9.0
–
–
-9.0
Value of employee services4
–
–
–
5.7
5.7
Total transaction with owners
–
-2.6
–
-506.1
-508.7
Balance at 31 December 2021
0.5
321.1
-404.5
-1,336.4
-1,419.3
1 Lundin Energy AB’s issued share capital described in detail in Note 14.1.
2 Other reserves are described in detail in Note 14.2 including breakdown between continuing and discontinued operations.
3 Represents the cost to hedge the equity-settled share-based long-term incentive plan as described in Note 27.
4 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 27.
44
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Accounting Policies
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 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 2021, Lundin Energy has not applied any new
accounting standards.
New accounting standards issued but which become effective after
2021 are not expected to have a material impact on the financial
statements of the Group.
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 95–96 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
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
45
Lundin Energy Annual Report 2021
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 2021
31 December 2020
Average
Period end
Average Period end
1 USD equals NOK
8.5904
8.8194
9.4146
8.5326
1 USD equals EUR
0.8450
0.8829
0.8762
0.8149
1 USD equals SEK
8.5765
9.0502
9.2092
8.1772
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.
Non-current assets held for sale or distribution and
discontinued operations
The Group classifies non-current assets and disposal groups as
held for sale or distribution if their carrying amounts will be
recovered principally through a sale transaction or distribution
rather than through continuing use. Non-current assets and
disposal groups classified as held for sale or distribution are
measured at the lower of their carrying amount and fair value
less costs to sell. Costs to sell are the incremental costs directly
attributable to the disposal of an asset (disposal group), excluding
finance costs and income tax expense.
The criteria for held for sale or distribution classification is
regarded as met only when the sale or distribution is highly
probable, and the asset or disposal group is available for
immediate sale or distribution in its present condition. Actions
required to complete the sale or distribution should indicate that
it is unlikely that significant changes to the sale or distribution
will be made or that the decision to sell or distribute will be
withdrawn. Management must be committed to the plan to sell
or distribute the asset and the sale or distribution expected to be
completed within one year from the date of the classification.
Oil and gas properties, other tangible fixed assets and intangible
assets are not depleted, depreciated or amortised anymore
once classified as held for sale or distribution. Assets and
liabilities classified as held for sale or distribution are presented
separately as current items in the statement of financial position.
Discontinued operations are excluded from the results of
continuing operations and are presented as a single amount
as profit or loss after tax from discontinued operations in the
statement of profit or loss.
Leasing
The company recognises in the balance sheet for each contract,
with some exceptions, that meets the definition of a lease, a right
of use asset and lease liability. Lease payments are reflected as
interest expense and a reduction of lease liability. 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.
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.
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.
46
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Accounting Policies
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. For the Rolvsnes
field, Contingent Resources are also included as the investment
decision is built on Rolvsnes full field. Depletion of a field area
is charged to the income statement through cost of sales once
production commences.
Proved reserves are those quantities of petroleum which, by
analysis of geological and engineering data, can be estimated with
reasonable certainty to be commercially recoverable, from a given
date forward, from known reservoirs and under current economic
conditions, operating methods and governmental regulations.
Proved reserves can be categorised as developed or undeveloped.
If deterministic methods are used, the term reasonable certainty
is intended to express a high degree of confidence that the
quantities will be recovered. If probabilistic methods are
used, there should be at least a 90 percent probability that the
quantities actually recovered will equal or exceed the estimates.
Probable reserves are those unproved reserves which analysis
of geological and engineering data indicate are less likely to be
recovered than Proved reserves but more certain to be recovered
than Possible reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of
the estimated Proved plus Probable reserves (2P). In this context,
when probabilistic methods are used, there should be at least a 50
percent probability that the actual quantities recovered will equal
or exceed the 2P estimate.
Proceeds from the sale or farm-out of oil and gas concessions in
the exploration stage are offset against the related capitalised
costs of each cost centre, with any excess of net proceeds over the
costs capitalised included in the income statement. In the event
of a sale in the exploration stage, any deficit is included in the
income statement.
Impairment tests are performed annually or when there are facts
and circumstances that suggest that the carrying value of an asset
capitalised costs within each field area less any provision for site
restoration costs, royalties and deferred 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.
Renewable energy properties
Renewable energy properties are recorded at historical cost
less depletion. Depletion is based on cost and is calculated on
a straight line basis over the estimated economic life of the
renewable energy properties.
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.
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.
47
Lundin Energy Annual Report 2021
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.
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 when entered into. 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
48
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Accounting Policies
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 and is continuously reassessed.
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 had 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. The obligation under the defined benefit
plan no longer exists as per end 2021.
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.
49
Lundin Energy Annual Report 2021
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 and only included for discontinued
operations due to the size of the discontinued operations and
no revenues generated by the continuing operations. Segmental
information is presented in Note 19.3 and Note 19.6.
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. Depletion for oil and gas assets ceased on 21
December 2021 when the E&P business was reclassified to assets
held for distribution as per IFRS5. 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 94 Reserve and
Resource Quantity Information. Changes in estimates of oil and
gas reserves, resulting in different future production profiles,
will affect the discounted cash flows used in impairment testing,
the anticipated date of site decommissioning and restoration and
the depletion charges in accordance with the unit of production
method. Changes in estimates in oil and gas reserves could for
example result from additional drilling, observation of long-term
reservoir performance or changes in economic factors such as oil
price and inflation rates.
Information about the carrying amounts of the oil and gas
properties and the amounts charged to income, including depletion,
exploration costs, and impairment costs is presented in Note 3.
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 until 21 December 2021 when the oil and gas properties
and goodwill were reclassified to assets held for distribution as
per IFRS5. Lundin Energy performed yearly impairment testing
for goodwill. Following the reclassification to assets held for
distribution, impairment is assessed for the entire group of assets
held for distribution when impairment triggers are identified.
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 19.3.
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.
50
Lundin Energy Annual Report 2021
Information about the carrying amounts of the Provision for site
restoration is presented in Note 16.
Income tax
A tax liability is recognised when a future payment, in
application of a tax regulation, is considered probable and can
be reasonably estimated. The exercise of judgment is required to
assess the impact of new events on the amount of the liability.
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that future taxable profits will be
available against which the losses can be utilised. Estimation and
judgement is required to determine the value of the deferred tax
asset, based upon the timing and level of future taxable profits.
Reclassification to held for sale
The criteria for held for sale or distribution classification is
regarded as met only when the sale or distribution is highly
probable, and the asset or disposal group is available for
immediate sale or distribution in its present condition. Actions
required to complete the sale or distribution should indicate that
it is unlikely that significant changes to the sale or distribution
will be made or that the decision to sell or distribute will be
withdrawn. Management must be committed to the plan to sell
or distribute the asset and the sale or distribution expected to be
completed within one year from the date of the classification.
Management has assessed this to be the date of the signing of the
transaction agreement with Aker BP being 21 December 2021.
Ongoing COVID-19 crisis
Lundin Energy has maintained a proactive approach in
safeguarding the wellbeing of the Company’s employees and
contractors and ensuring the virus has minimal impact on its
operations. To date there have been no disruptions to production
due to the COVID-19 situation and while certain project activities
have been affected, the disruptions have been successfully
managed to avoid any negative impact on the production
outlook.
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. Due to
our industry-leading low operating costs, our portfolio is highly
resilient under a range of different climate scenarios, including
the IEA’s Sustainable Development Scenario, which is in line with
goals of the Paris Agreement. Furthermore, in the IEA Sustainable
Development Scenario, our 2P reserves estimate is only 1.7 percent
lower than in our base case. In the Announced Pledges Scenario
(which is aligned with a 2.7 degree temperature rise), our 2P
reserves are not impacted at all. In relation to operating costs,
these are also largely insulated against carbon pricing. In 2021,
direct carbon costs were 6.6 percent of our opex per barrel, but
once we have electrified our assets, this will drop to 2.4 percent of
opex in 2023.
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) and based
on 2P of 33 USD per boe, which is well below the long-term oil
price outlook under the IEA’s Sustainable Development Scenario
of 50 USD per boe, allowing us room to continue servicing debt
and paying dividends.
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 29.
FINANCIAL STATEMENTS AND NOTES | Accounting Policies
51
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Notes to the Financial Statements
of the Group
Note 1 Finance Income
MUSD
2021
2020
Foreign currency exchange gain, net
0.2
–
Interest income
1.0
0.5
Other
1.4
–
Finance income
2.6
0.5
Other relates to the release of a pension provision under a defined benefit plan.
Note 2 Finance Costs
MUSD
2021
2020
Foreign currency exchange loss, net
–
0.8
Other
0.2
0.1
Finance costs
0.2
0.9
Note 3 Oil and Gas Properties
MUSD
31 December
2021
31 December
2020
Production cost pools
–
3,776.9
Non-production cost pools
–
2,125.5
Right of use assets
–
–
–
5,902.4
Production cost pools
MUSD
Norway
2021
Norway
2020
Cost
1 January
7,897.3
7,451.5
Additions
413.5
172.8
Reclassification from non-production cost pools
1,061.7
25.1
Change in estimates
-4.7
7.3
Reclassification to assets held for distribution
-9,079.2
–
Currency translation difference
-288.6
240.6
31 December
–
7,897.3
Depletion
1 January
-4,120.4
-3,386.2
Depletion charge for the year
-696.1
-605.6
Reclassification to assets held for distribution
4,663.9
–
Currency translation difference
152.6
-128.6
31 December
–
-4,120.4
–
3,776.9
Depletion amounted to MUSD 696.1 (MUSD 605.6) and is included within the depletion and decommissioning costs line in the income
statement of the discontinued E&P business, see Note 19.
Producing oil and gas properties amounted to MUSD 4,415.3 and were reclassified to assets held for distribution following the announcement
of the Aker BP transaction on 21 December 2021.
52
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 3 continued
Non-production cost pools
MUSD
Norway
2021
Norway
2020
1 January
2,125.5
1,407.9
Additions
1,050.9
788.7
Reclassification to production cost pools
-1,061.7
-25.1
Expensed exploration costs
-258.1
-104.9
Change in estimates
0.6
0.1
Reclassification to assets held for distribution
-1,801.6
–
Currency translation difference
-55.6
58.8
31 December
–
2,125.5
Non-producing oil and gas properties amounted to MUSD 1,801.6 and were reclassified to assets held for distribution following the
announcement of the Aker BP transaction on 21 December 2021. Non-production oil and gas properties consisted of MUSD 794.4 assets under
development and MUSD 1,007.2 capitalised exploration and appraisal expenditure.
Right of use assets
MUSD
Norway
2021
Norway
2020
1 January
–
–
Recognition right of use assets
28.8
–
Usage right of use assets
-22.3
–
Reclassification to assets held for distribution
-5.3
–
Currency translation difference
-1.2
–
31 December
–
–
Right of use assets relate to a drilling rig recognised under IFRS 16 during the year.
Right of use assets amounted to MUSD 5.3 and were reclassified to assets held for distribution following the announcement of the Aker BP
transaction on 21 December 2021.
Impairment
Lundin Energy carries out impairment tests of individual cash-generating units when impairment triggers are identified. No impairment
triggers were identified until 21 December 2021 when the E&P business was reclassified as assets held for distribution.
Capitalised borrowing costs
During 2021, MUSD 23.1 (MUSD 25.8) 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 based on the weighted average interest rate for the year and amounted
to approximately 2.5 percent (4.2 percent).
Development expenditure commitments
The Group is contractually committed to development projects with a remaining commitment as at 31 December 2021 of approximately
USD 1.2 billion (USD 1.5 billion), mainly relating to the Johan Sverdrup Phase 2 project and excluding the Wisting development as no PDO has
been submitted for this project yet and excluding the renewable power projects. The development expenditure commitments are part of the
discontinued E&P business.
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 2021 are estimated to be MUSD 166.3 (MUSD 149.2) of which third parties who are joint operations partners will contribute
approximately MUSD 115.1 (MUSD 103.8) resulting in a net commitment of approximately MUSD 51.2 (MUSD 45.4). The exploration and
appraisal expenditure commitments are part of the discontinued E&P business.
Contracted drilling rigs commitments
The Group has entered into lease contracts for drilling. A lease liability is recognised in the balance sheet for one lease contract as right of use
asset as at 31 December 2021. For lease commitments that have not commenced yet as at 31 December 2021 or that have a short-term nature,
no lease liability is recognised in the balance sheet as at 31 December 2021. The commitments under these contracts are estimated to be
MUSD 80.1 (MUSD 204.5) of which third parties who are joint operations partners will contribute approximately MUSD 61.0 (MUSD 73.0). The
net lease commitment of approximately MUSD 19.1 (MUSD 131.5) is already included in the above mentioned development and exploration
and appraisal expenditure commitments as at 31 December 2021. The contracted drilling rigs commitments are part of the discontinued E&P
business.
53
Lundin Energy Annual Report 2021
Note 4 Renewable Energy Properties
MUSD
2021
2020
1 January
–
–
Additions
32.5
–
Currency translation difference
-1.0
–
31 December
31.5
–
The renewable energy properties relate to the Karskruv onshore wind farm project in southern Sweden. The wind farm will become operational
in late 2023 and will produce an estimated 290 GWh per annum, from 20 onshore wind turbines. The total investment in the project will amount
to MEUR 130 with the majority of the spend occurring in 2022 and 2023.
Impairment
Lundin Energy carries out impairment tests of individual cash-generating units when impairment triggers are identified. No impairment
triggers were identified for 2021.
Capitalised borrowing costs
During 2021, MUSD 0.5 (MUSD –) of capitalised interest costs were added to renewable energy properties and relate to the Karskruv
development project in Sweden.
Development expenditure commitments
The Group is contractually committed to development the Karskruv project in Sweden with a remaining commitment as at 31 December 2021
of approximately USD 123 million. The development expenditure commitments are part of the continuing operations.
Note 5 Other Tangible Fixed Assets
MUSD
2021
2020
Real estate
Other
Total
Real estate
Other
Total
Cost
1 January
51.5
37.3
88.8
51.2
33.7
84.9
Additions
–
4.0
4.0
–
2.3
2.3
Change in right of use asset
1.5
–
1.5
-0.8
–
-0.8
Reclassification to assets held for distribution
-51.6
-39.9
-91.5
–
–
–
Currency translation difference
-1.4
-1.3
-2.7
1.1
1.3
2.4
31 December
–
0.1
0.1
51.5
37.3
88.8
Depreciation
1 January
-10.0
-33.6
-43.6
-5.5
-30.0
-35.5
Depreciation charge for the year
-4.8
-2.3
-7.1
-4.4
-2.5
-6.9
Reclassification to assets held for distribution
14.8
34.7
49.5
–
–
–
Currency translation difference
–
1.2
1.2
-0.1
-1.1
-1.2
31 December
–
–
–
-10.0
-33.6
-43.6
Net book value
–
0.1
0.1
41.5
3.7
45.2
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.
Other tangible fixed assets which related to the E&P business amounted to MUSD 42.0 and were reclassified to assets held for distribution
following the announcement of the Aker BP transaction on 21 December 2021.
54
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 6 Goodwill
MUSD
2021
2020
1 January
128.1
128.1
Reclassification to assets held for distribution
-128.1
–
31 December
–
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. No impairment triggers were identified until 21 December 2021 when goodwill was reclassified to assets held for
distribution as per IFRS5. Until goodwill was reclassified to assets held for distribution, impairment testing has been based on value in use. In
the assessment Lundin Energy used a combination of the oil price forward curve and the price deck as used by ERCE for the reserves certification
process as a basis for its price forecast, a future cost inflation factor of 2 percent per annum and a discount rate of 8 percent to calculate the future
post-tax cash flows.
Goodwill which related to the E&P business amounted to MUSD 128.1 and was reclassified to assets held for distribution following the
announcement of the Aker BP transaction on 21 December 2021.
Note 7 Investments in Joint Ventures
31 December 2021
31 December 2020
Number of shares
Share %
Book amount
MUSD
Book amount
MUSD
Metsälamminkangas Wind Oy, Finland
1,250
50.0
84.7
53.8
Leikanger Kraft AS, Norway
289,000
50.0
24.0
56.8
108.7
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.
Development expenditure commitments
The Group is contractually committed to development the MLK wind farm project in Finland with a remaining commitment as at 31 December
2021 of approximately USD 20 million. The development expenditure commitments are part of the continuing operations.
Note 8 Receivables from Joint Ventures
The Group provided long term interest bearing loans to its joint ventures holding the investments in the Metsälamminkangas (MLK) wind farm
project in Finland and the Leikanger hydropower project in Norway. The interest rates on the loans amounted to the applicable reference rate
of the loan (EURIBOR and NIBOR) plus a margin of 2.5 percent per annum.
Note 9 Financial Assets
MUSD
31 December 2021
31 December 2020
Contingent consideration
–
12.7
Associated companies
–
0.3
Other
–
0.5
–
13.5
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.
Financial assets which related to the E&P business were reclassified to assets held for distribution following the announcement of the Aker BP
transaction on 21 December 2021, see also Note 19.7.
55
Lundin Energy Annual Report 2021
Note 10 Inventories
MUSD
31 December
2021
31 December
2020
Hydrocarbon inventories
–
17.4
Drilling equipment and consumable materials
–
41.7
–
59.1
Hydrocarbon inventories as at 31 December 2020 included a cargo lifting on 31 December 2020 that was sold in early 2021.
Inventories which related to the E&P business were reclassified to assets held for distribution following the announcement of the Aker BP
transaction on 21 December 2021, see also Note 19.8.
Note 11 Trade and Other Receivables
MUSD
31 December
2021
31 December
2020
Non-current:
Prepaid expenses and accrued income
–
17.3
17.3
Current:
Trade receivables
–
215.5
Underlift
–
5.7
Joint operations debtors
–
21.8
Prepaid expenses and accrued income
0.2
26.5
Other
5.1
9.1
5.3
278.6
5.3
295.9
Trade and other receivables which related to the E&P business were reclassified to assets held for distribution following the announcement of
the Aker BP transaction on 21 December 2021, see also Note 19.9.
Note 12 Receivables from Discontinued Operations
Receivables from discontinued operations equals the dividend liability as approved at the AGM held on 30 March 2021 in Stockholm which is
paid in quarterly installments. The discontinued operations have committed to fund the dividend and this receivable was settled early 2022
when the fourth quarterly dividend was paid to the shareholders. No quarterly dividends shall be paid after completion of the combination
with Aker BP and accordingly, there will be no receivable from discontinued operations in relation to the funding of dividends after closing of
the transaction with Aker BP.
Note 13 Cash and Cash Equivalents
Cash and cash equivalents include only cash at hand or on bank and related to the cash balance which will be retained by the continuing
operations to cover capital expenditure and other working capital items.
Cash and cash equivalents which related to the E&P business were reclassified to assets held for distribution following the announcement of
the Aker BP transaction on 21 December 2021, see also Note 19.10.
56
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 14 Equity
Note 14.1 Share Capital and Share Premium
MUSD
Share capital
Additional paid
in capital
Number
of shares
Par value
MSEK
Par value
MUSD
MUSD
1 January 2020
285,924,614
3.5
0.5
326.0
Issuance of treasury shares
–
–
–
7.3
Share based payments
–
–
–
-9.6
Movements
–
–
–
-2.3
31 December 2020
285,924,614
3.5
0.5
323.7
Issuance of treasury shares
–
–
–
6.4
Share based payments
–
–
–
-9.0
Movements
–
–
–
-2.6
31 December 2021
285,924,614
3.5
0.5
321.1
Included in the number of shares issued at 31 December 2021 are 1,356,436 shares (1,573,143 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. During 2021, Lundin Energy used 216,707 of the purchased own shares for settlement of the 2018
performance based incentive plan resulting in 1,356,436 of its own shares held at the end of the year.
Note 14.2 Other Reserves
MUSD
Hedge reserve
Currency translation
reserve
Total
1 January 2020
-138.9
-356.8
-495.7
Other comprehensive income
-63.4
-210.1
-273.5
31 December 2020
-202.3
-566.9
-769.2
Other comprehensive income
183.5
181.2
364.7
31 December 2021
-18.8
-385.7
-404.5
The company reclassified MUSD 18.0 within other reserves between hedge reserve and currency translation reserve which has been reflected in
the balance on 1 January 2020 with no impact on the total amount of other reserves.
MUSD
Hedge reserve
Currency translation
reserve
Total
Relating to continuing operations
–
11.9
11.9
Relating to discontinued operations
-18.8
-397.6
-416.4
31 December 2021
-18.8
-385.7
-404.5
57
Lundin Energy Annual Report 2021
Note 14.3 Retained Earnings
MUSD
2021
2020
1 January
-1,324.1
-1,429.6
Net result for the year
493.8
384.2
Distributions
-511.8
-284.1
Value of employee services
5.7
5.4
31 December
-1,336.4
-1,324.1
The AGM of Lundin Energy held on 30 March 2021 in Stockholm approved a cash dividend distribution for the year 2020 of USD 1.80 per
share, to be paid in quarterly instalments of USD 0.45 per share. Based on the number of shares outstanding, excluding own shares held by
the Company, the dividend distribution amounted to MSEK 4,467.2, equaling MUSD 511.8 based on the exchange rate on the date of AGM
approval. The first dividend payment was made on 8 April 2021, the second dividend payment was made on 7 July 2021, the third dividend
payment was made on 7 October 2021 and the fourth dividend payment was made on 11 January 2022.
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.
Note 14.4 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.
2021
2020
Net result from continuing operations, MUSD
-16.1
-17.9
Net result from discontinued operations, MUSD
509.9
402.1
Net result attributable to shareholders of the Parent Company, MUSD
493.8
384.2
Weighted average number of shares for the year
284,444,685
284,177,604
Earnings per share from continuing operations, USD
-0.06
-0.06
Earnings per share from discontinued operations, USD
1.80
1.41
Earnings per share, USD
1.74
1.35
Weighted average diluted number of shares for the year
285,126,595
284,830,491
Earnings per share fully diluted from continuing operations, USD
-0.06
-0.06
Earnings per share fully diluted from discontined operations, USD
1.79
1.41
Earnings per share fully diluted, USD
1.73
1.35
Note 15 Financial Liabilities
MUSD
31 December 2021
31 December 2020
Non-current:
Bank loans
–
3,994.0
Capitalised financing fees bank loans
–
-37.1
Lease liabilities
–
27.0
–
3,983.9
Current:
Lease liabilities
–
5.7
Others
–
0.4
–
6.1
–
3,990.0
58
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 15 continued
Capitalised financing fees 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 are being amortised over the duration of the facility.
Lease liabilities relates to leased office premises with the short-term portion of the lease liabilities classified as current liabilities.
Financial liabilities which related to the E&P business were reclassified to liabilities held for distribution following the announcement of the
Aker BP transaction on 21 December 2021, see also Note 19.11.
Note 16 Provisions
MUSD
Site
Restoration
LTIP
Pension
provision
Other
Total
1 January 2021
576.5
7.6
1.3
1.5
586.9
Additions
84.5
10.9
0.2
3.1
98.7
Changes in estimates
2.0
–
-1.4
-0.5
0.1
Payments
-11.6
-7.9
-0.1
-0.5
-20.1
Unwinding of discount
20.8
–
–
–
20.8
Reclassification to liabilities held for distribution
-650.8
-10.3
–
-3.6
-664.7
Currency translation difference
-21.4
-0.3
–
–
-21.7
31 December 2021
–
–
–
–
–
1 January 2020
571.4
9.4
1.2
2.0
584.0
Additions
19.9
4.3
0.1
–
24.3
Changes in estimates
5.0
–
–
-0.2
4.8
Payments
-57.9
-6.3
-0.1
-0.3
-64.6
Unwinding of discount
19.2
–
–
–
19.2
Currency translation difference
18.9
0.2
0.1
–
19.2
31 December 2020
576.5
7.6
1.3
1.5
586.9
Non-current
560.5
2.3
1.3
1.5
565.6
Current
16.0
5.3
–
–
21.3
Total
576.5
7.6
1.3
1.5
586.9
Site Restoration provision
In calculating the present value of the site restoration provision, a pre-tax discount rate of 3.5 percent (3.5 percent) was used. The additions
in 2021 mainly relate to the liability associated with Norwegian development projects. Based on the estimates used in calculating the site
restoration provision, when the provision was reclassified to liabilities held for distribution, approximately 73 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 27.
Provisions which related to the E&P business amounted to MUSD 664.7 and were reclassified to liabilities held for distribution following the
announcement of the Aker BP transaction on 21 December 2021.
Note 17 Taxes
The tax on the Group’s profit from continuing operations before tax differs from the theoretical amount that would arise using the tax rate of
Sweden as follows:
MUSD
2021
2020
Loss before tax from continuing operations
-16.1
-16.9
Tax calculated at the corporate tax rate in Sweden 21.4% (21.4%)
3.4
3.6
Tax effect of expenses non-deductible for tax purposes
-0.4
-1.9
Tax effect of creation of unrecorded tax losses
-3.0
-1.7
Adjustments to prior year tax assessments
–
-1.0
Tax from continuing operations per income statement
–
-1.0
There is no tax charge/credit relating to components of other comprehensive income.
59
Lundin Energy Annual Report 2021
Note 17 continued
Corporation tax liability - current and deferred
MUSD
Current
Deferred
2021
2020
2021
2020
Norway
–
444.3
–
2,893.9
Switzerland
–
0.1
–
–
Total
–
444.4
–
2,893.9
Specification of deferred tax assets and tax liabilities 1
MUSD
2021
2020
Deferred tax assets
Temporary differences
–
54.2
–
54.2
Deferred tax liabilities
Accelerated allowances
–
2,934.1
Deferred tax on excess values
–
14.0
–
2,948.1
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.
Current and deferred tax liabilities which related to the E&P business were reclassified to liabilities held for distribution following the
announcement of the Aker BP transaction on 21 December 2021, see also Note 19.6.
Unrecognised tax losses
The Group has Swedish tax loss carry forwards of approximately MUSD 164 (MUSD 141). The related deferred tax asset has not been recognised
due to the uncertainty of the timing and extent of the utilisation of the tax losses.
Note 18 Trade and Other Payables
MUSD
31 December
2021
31 December
2020
Trade payables
–
8.7
Overlift
–
1.6
Joint operations creditors and accrued expenses
–
151.3
Other accrued expenses
2.6
31.7
Other
1.6
9.2
4.2
202.5
Trade and other payables which related to the E&P business were reclassified to liabilities held for distribution following the announcement of
the Aker BP transaction on 21 December 2021, see also Note 19.12.
Note 19 – Discontinued Operations - E&P Business
On 21 December 2021, Lundin Energy announced that it had entered into an agreement with Aker BP whereby Aker BP will absorb Lundin
Energy’s E&P business through a cross-border merger in accordance with Norwegian and Swedish law. Before completion of the cross-border
merger, the shares in the company holding Lundin Energy’s E&P business will be distributed to Lundin Energy shareholders. The results of
the E&P business are included in Lundin Energy’s financial statements in the reporting period and are shown as discontinued operations. The
assets and liabilities associated with the E&P business are presented as assets and liabilities held for distribution in the consolidated balance
sheet.
60
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 19 continued
The financial performance of the discontinued operations and net assets held for distribution is as follows:
Expressed in MUSD
Note
2021
2020
Revenue and other income
Revenue
5,452.9
2,533.2
Other income
31.8
31.2
19.1
5,484.7
2,564.4
Cost of sales
Production costs
19.2
-265.4
-177.2
Depletion and decommissioning costs
3
-703.0
-607.7
Exploration costs
3
-258.1
-104.9
Purchase of crude oil from third parties
19.3
-361.7
-217.8
Gross profit
3,896.5
1,456.8
General, administration and depreciation expenses
-22.5
-19.7
Operating profit
3,874.0
1,437.1
Net financial items
Finance income
19.4
1.2
172.6
Finance costs
19.5
-472.8
-318.5
-471.6
-145.9
Profit before tax
3,402.4
1,291.2
Income tax
19.6
-2,892.5
-889.1
Net result from discontinued operations
509.9
402.1
Expressed in MUSD
Note
2021
2020
Oil and gas properties
3
6,222.2
–
Other tangible fixed assets
5
42.0
–
Goodwill
6
128.1
–
Financial assets
19.7
12.7
–
Inventories
19.8
55.7
–
Trade and other receivables
19.9
657.2
–
Derivative instruments
20
18.5
–
Current tax assets
19.6
9.7
–
Cash and cash equivalents
19.10
322.1
–
Total assets held for distribution
7,468.2
–
Liabilities held for distribution
Financial liabilities
19.11/22
3,211.5
–
Provisions
16
664.7
–
Deferred tax liabilities
19.6
3,120.6
–
Trade and other payables
19.12
404.2
–
Derivative instruments
20
90.7
–
Current tax liabilities
19.6
1,573.7
–
Payable to continuing operations
12
128.6
–
Total liabilities held for distribution
9,194.0
–
Net assets held for distribution
-1,725.8
–
Amounts included in accumulated other comprehensive income:
Foreign currency translation reserve
-397.6
–
Hedging reserves
-18.8
–
Reserves of disposal Group classified as held for distribution
-416.4
–
61
Lundin Energy Annual Report 2021
Note 19.1 Revenue and Other Income - Discontinued Operations
MUSD
2021
2020
Revenue
Crude oil from own production
4,535.1
2,168.5
Crude oil from third party activities
364.4
221.5
NGL
113.5
63.8
Gas
439.9
79.4
Net sales of oil and gas
5,452.9
2,533.2
Other income
31.8
31.2
Revenue and other income
5,484.7
2,564.4
For further information on revenue and other income, see the Directors Report on page 10.
Note 19.2 Production Costs - Discontinued Operations
MUSD
2021
2020
Cost of operations
167.5
134.5
Tariff and transportation expenses
71.9
50.7
Change in under/over lift position
7.9
-2.7
Change in inventory position
11.6
-11.2
Other production costs
6.5
5.9
Production costs
265.4
177.2
For further information on production costs, see the Directors Report on page 10.
Note 19.3 Segment Information - Discontinued Operations
The Group operates its E&P business 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, gross profit/loss and certain asset and liability information regarding the Group’s business segments. In addition
segment information is reported in Note 19.6.
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
30 percent of the total revenue is contracted with one customer. The Parent Company is included in Other in the following table.
62
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 19.3 continued
MUSD
2021
2020
Norway
Crude oil from own production
4,535.1
2,168.5
NGL
113.5
63.8
Gas
439.9
79.4
Net sales of oil and gas
5,088.5
2,311.7
Other income
31.8
30.3
Revenue and other income
5,120.3
2,342.0
Production costs
-265.4
-177.2
Depletion and decommissioning costs
-703.0
-607.7
Exploration costs
-258.1
-104.9
Gross profit
3,893.8
1,452.2
Other
Crude oil from third party activities
364.4
221.5
Revenue
364.4
221.5
Other income
–
0.9
Revenue and other income
364.4
222.4
Purchase of crude oil from third parties
-361.7
-217.8
Gross profit
2.7
4.6
Total
Crude oil from own production
4,535.1
2,168.5
Crude oil from third party activities
364.4
221.5
NGL
113.5
63.8
Gas
439.9
79.4
Net sales of oil and gas
5,452.9
2,533.2
Other income
31.8
31.2
Revenue and other income
5,484.7
2,564.4
Production costs
-265.4
-177.2
Depletion and decommissioning costs
-703.0
-607.7
Exploration costs
-258.1
-104.9
Purchase of crude oil from third parties
-361.7
-217.8
Gross profit
3,896.5
1,456.8
For further information on revenue and other income, production costs, depletion and decommissioning costs and exploration costs,
see the Directors Report on pages 10–11.
Note 19.4 Finance Income - Discontinued Operations
MUSD
2021
2020
Foreign currency exchange gain, net
–
171.8
Interest income
1.2
0.8
Finance income
1.2
172.6
For further information on finance income, see the Directors Report on page 11.
63
Lundin Energy Annual Report 2021
Note 19.5 Finance Costs - Discontinued Operations
MUSD
2021
2020
Foreign currency exchange loss, net
216.3
–
Interest expense
52.5
104.4
Loss on interest rate hedge settlement
122.0
44.5
Unwinding of site restoration discount
20.8
19.2
Amortisation of deferred financing fees
35.5
37.6
Loan facility commitment fees
7.2
11.5
Unwinding of loan modification gain
–
99.7
Other
18.5
1.6
Finance costs
472.8
318.5
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 a subsidiary using a functional currency other
than USD. For further information on the foreign exchange movement, see the Directors Report on page 11.
For further information on finance costs, see the Directors Report on page 11.
Note 19.6 Income Taxes - Discontinued Operations
Tax charge
MUSD
2021
2020
Current tax
Norway
2,562.5
510.0
Switzerland
0.3
0.8
Current tax
2,562.8
510.8
Deferred tax
Norway
329.7
378.3
Deferred tax
329.7
378.3
Income taxes
2,892.5
890.1
On 19 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 2020 and 2021 and an increase in deferred taxes.
The Norwegian Government has further proposed to revise the SPT system as of 2022, replacing the rules on depreciation and uplift with
immediate investment expensing (cash-flow tax), though the combined tax rate for corporation tax and SPT will remain unchanged at 78
percent. These changes have no implication for the rules for the temporary changes described above.
For further information on income taxes, see the Directors Report on page 12.
64
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 19.6 continued
The tax on the Group’s profit from discontinued operations before tax differs from the theoretical amount that would arise using the tax rate
of Sweden as follows:
MUSD
2021
2020
Profit before tax from discontinued operations
3,402.4
1,291.2
Tax calculated at the corporate tax rate in Sweden 21.4% (21.4%)
-728.1
-276.3
Effect of foreign tax rates
-2,163.3
-687.0
Tax effect of expenses non-deductible for tax purposes
-124.3
-103.3
Tax effect of uplift on expenses
132.1
140.2
Tax effect of income not subject to tax
–
23.7
Tax effect of utilisation of unrecorded tax losses
–
12.8
Tax effect of creation of unrecorded tax losses
-6.5
-3.1
Adjustments to prior year tax assessments
-2.4
3.9
Tax from discontinued operations per income statement
-2,892.5
-889.1
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.
There is no tax charge/credit relating to components of other comprehensive income.
Corporation tax assets - current
MUSD
2021
2020
Netherlands
9.1
–
Switzerland
0.6
–
Total
9.7
–
Corporation tax liability - current and deferred
MUSD
Current
Deferred
2021
2020
2021
2020
Norway
1,573.7
–
3,120.6
–
Total
1,573.7
–
3,120.6
–
Specification of deferred tax assets and tax liabilities 1
MUSD
2021
2020
Deferred tax assets
Temporary differences
41.5
54.2
41.5
54.2
Deferred tax liabilities
Accelerated allowances
3,161.8
2,934.1
Deferred tax on excess values
0.3
14.0
3,162.1
2,948.1
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 0.8 billion as at
31 December 2021.
65
Lundin Energy Annual Report 2021
Note 19.6 continued
Unrecognised tax losses
The Group has Dutch tax loss carry forwards of approximately MUSD 73 (MUSD 66) within its discontinued operations. The Dutch tax
authorities disagree with the interpretation by the Group of a specific article of the Dutch Corporate Income Tax Act which has been brought
to Courts. The Group was successful at the Lower Court and the decision by the Lower Court has been appealed by the Dutch tax authorities.
The Group has not provided for any costs in relation hereto as per 31 December 2021 as it believes that, based on the decision of the Lower
Court and legal advice obtained, the proceedings will lead to no liability for the Group. In case the Group is ultimately unsuccessfull in the
proceedings, there will be no tax loss carry forward balances as per 31 December 2021 and the current tax asset amounting to MUSD 9.1 as per
31 December 2021 will be expensed. No deferred tax asset has been recognised in relation to the tax loss carry forwards due to the uncertainty
of the timing and extent of the utilisation of the tax losses.
Note 19.7 Financial Assets - Assets Held for Distribution
MUSD
31 December 2021
31 December 2020
Contingent consideration
12.4
–
Associated companies
0.3
–
12.7
–
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 19.7.1 Associated Companies - Assets Held for Distribution
31 December 2021
31 December 2020
Number of shares
Share %
Book amount
MUSD
Book amount
MUSD
Johan Sverdrup Eiendom DA
N/A
20.0
0.3
–
0.3
–
Note 19.8 Inventories - Assets held for distribution
MUSD
31 December 2021
31 December 2020
Hydrocarbon inventories
5.7
–
Drilling equipment and consumable materials
50.0
–
55.7
–
Note 19.9 Trade and Other Receivables - Assets Held for Distribution
MUSD
31 December 2021
31 December 2020
Trade receivables
523.9
–
Underlift
23.2
–
Joint operations debtors
36.2
–
Prepaid expenses and accrued income
68.7
–
Other
5.2
–
657.2
–
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 19.10 Cash and Cash Equivalents - Assets Held for Distribution
Cash and cash equivalents include cash at hand or on bank including short-term deposits.
66
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 19.11 Financial Liabilities - Liabilities Held for Distribution
MUSD
31 December
2021
31 December
2020
Seniot Notes 2.0% (21/26) - maturity July 2026
1,000.0
–
Senior Notes 3.1% (21/31) - maturity July 2031
1,000.0
–
Discount on bonds issuance
-3.4
–
Capitalised financing fees bonds
-16.7
–
Bank loans
1,200.0
–
Capitalised financing fees bank loans
-2.4
–
Lease liabilities
34.0
–
3,211.5
–
The Company issued USD 2bn of Senior Notes in June 2021 consisting of USD 1bn 2.0 percent Senior Notes due in 2026 at a price equal to
99.827 percent and USD 1bn 3.1 percent Senior Notes due in 2031 at a price equal to 99.81 percent with interest payable semi-annually.
Capitalised financing fees relating to the bonds issuance amounted to MUSD 16.7 and are being amortised over the expected life of the bonds.
Bank loans amounted to MUSD 1,200.0 and related to the outstanding term loans under the corporate credit facility. Capitalised financing fees
relating to the establishment of the credit facility amounted to MUSD 2.4 and are being amortised over the expected life of the facility.
Lease liabilities amounted to MUSD 34.0 and related to the lease commitments under IFRS 16.
Note 19.12 Trade and Other Payables - Liabilities Held for Distribution
MUSD
31 December
2021
31 December
2020
Trade payables
80.4
–
Overlift
27.0
–
Joint operations creditors and accrued expenses
209.0
–
Other accrued expenses
63.7
–
Other
24.1
–
404.2
–
Note 20 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 which include both continuing and
discontinuing operations:
31 December 2021
MUSD
Total
Receivables at
amortised cost
Financial assets
at amortised cost
Fair value
recognised in
profit/loss
Derivatives used
for hedging
Receivables from joint ventures
35.1
–
35.1
–
–
Contingent consideration
12.4
–
–
12.4
–
Derivative instruments
18.5
–
–
13.4
5.1
Joint operations debtors
36.2
36.2
–
–
–
Other current receivables1
543.9
543.9
–
–
–
Cash and cash equivalents
452.1
452.1
–
–
–
1,098.2
1,032.2
35.1
25.8
5.1
Receivables from joint ventures amounting to MUSD 35.1, other current receivables amounting to MUSD 5.1 and cash and cash equivalents
amounting to MUSD 130.0, all included in the table above, do relate to continuing operations with the rest relating to discontinued operations.
67
Lundin Energy Annual Report 2021
Note 20 continued
31 December 2021
MUSD
Total
Other liabilities at
amortised cost
Financial liabilities
at amortised cost
Fair value
recognised in
profit/loss
Derivatives used
for hedging
Financial liabilities
3,211.5
–
3,211.5
–
–
Derivative instruments
90.7
–
–
79.4
11.3
Joint operations creditors
209.0
209.0
–
–
–
Other current liabilities2
1,679.8
1,679.8
–
–
–
5,191.0
1,888.8
3,211.5
79.4
11.3
Other current liabilities of MUSD 1.6 included in the table above do relate to continuing operations with the rest relating to discontinued
operations.
31 December 2020
MUSD
Total
Loan receivables and
other receivables at
amortised cost
Financial assets
at amortised cost
Fair value
recognised in
profit/loss
Derivatives used
for hedging
Contingent consideration
12.7
–
–
12.7
–
Other non-current financial assets
0.5
–
0.5
–
–
Derivative instruments
15.9
–
–
–
15.9
Joint operations debtors
21.8
21.8
–
–
–
Other current receivables1
224.6
224.6
–
–
–
Cash and cash equivalents
82.5
82.5
–
–
–
358.0
328.9
0.5
12.7
15.9
31 December 2020
MUSD
Total
Other liabilities
at amortised cost
Financial liabilities
at amortised cost
Derivatives used
for hedging
Financial liabilities
3,990.0
–
3,990.0
–
Derivative instruments
232.3
–
–
232.3
Joint operations creditors
151.3
151.3
–
–
Other current liabilities2
462.3
462.3
–
–
4,835.9
613.6
3,990.0
232.3
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.
Based on this hierarchy, financial assets and liabilities measured at fair value can be detailed as follows:
31 December 2021
MUSD
Level 1
Level 2
Level 3
Assets held for distribution
Contingent consideration
–
–
12.4
Derivative instruments
–
18.5
–
–
18.5
12.4
Liabilities held for distribuion
Derivative instruments
–
90.7
–
–
90.7
–
68
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 20 continued
31 December 2020
MUSD
Level 1
Level 2
Level 3
Assets
Contingent consideration
–
–
12.7
Derivative instruments – non-current
–
3.8
–
Derivative instruments – current
–
12.1
–
–
15.9
12.7
Liabilities
Derivative instruments - non-current
–
144.7
–
Derivative instruments - current
–
87.6
–
–
232.3
–
The outstanding derivative instruments can be specified as follows:
Fair value of outstanding derivative instruments in
the balance sheet
MUSD
31 December 2021
31 December 2020
Assets
Liabilities
Assets
Liabilities
Interest rate swap
12.1
63.3
15.9
46.2
Foreign currency contracts
6.4
27.4
–
186.1
Total
18.5
90.7
15.9
232.3
Non-current
–
–
3.8
144.7
Current1
18.5
90.7
12.1
87.6
Total
18.5
90.7
15.9
232.3
1 The outstanding derivative instruments are classified as assets and liabilities held for distribution following the announcement of the Aker BP
transaction on 21 December 2021. Assets and liabilities held for distribution are classified as current.
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 fair value of the interest rate swap as at 31 December 2021 amounted to a net payable of MUSD 51.2 (MUSD 30.3).
The fair value of the foreign currency contracts is calculated using the forward exchange rate curve applied to the outstanding foreign
currency contracts. The fair value of the foreign currency contracts as at 31 December 2021 amounted to a net payable of MUSD 21.0
(MUSD 186.1).
Note 21 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:
Non-cash changes
At 1 January
2021
Cash flows
Amortisation
of deferred
financing fees
Unwinding
of loan
modification
gain
Initial
recognition
lease under
IFRS16
Foreign
exchange
movement
At 31
December
2021
Financial liabilities
3,990.0
-845.5
35.5
–
30.3
1.2
3,211.5
Non-cash changes
At 1 January
2020
Cash flows
Amortisation
of deferred
financing fees
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
69
Lundin Energy Annual Report 2021
Note 22 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. This Note relates to the
continuing and discontinued operations combined.
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 2021
31 December 2020
Bank loans
3,200.0
3,994.0
Cash and cash equivalents
-452.1
-82.5
Net debt
2,747.9
3,911.5
The decrease in net debt compared to 2020 is mainly due to the positive free cash flow generated during 2021 partly offset by the paid
dividends during 2021. Once the transaction with Aker BP is completed, the renewable business, which is reported as continuing operations,
will be debt free and have a cash balance of MUSD 130.
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 based on the weighted average interest rate for the year and amounted to approximately 2.5 percent (4.2 percent).
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 2021 amounted to MUSD 76.1 which included MUSD 23.6 of capitalised interest related to borrowings for the
Group’s development activities and also included MUSD 4.4 interest expenses in relation to the Wisting deal and 2020 taxes paid during the
year in Norway. The Company issued USD 2 billion Senior Notes in June 2021 with a fixed interest rate and used the net proceeds to repay USD
2 billion of the corporate credit facility term loans with a floating interest rate. The company repaid a further USD 0.3 billion of the corporate
credit facility in November 2021 and as a result of these transactions, the Group had outstanding interest rate hedges for the second half of
2021 above the outstanding debt levels with a floating interest rate. As a result of this, 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 -5.2, taking into account the Group’s interest rate hedges for 2021
The Group has entered into interest rate hedging as follows:
Borrowings
MUSD
Fixing of floating LIBOR
Rate per annum
Settlement period
3,200
2.20%
Jan 2022 – Dec 2022
2,700
1.38%
Jan 2023 – Dec 2023
2,200
1.47%
Jan 2024 – Dec 2024
1,400
0.71%
Jan 2025 – Dec 2025
1,100
0.81%
Jan 2026 – Jun 2026
As a result of the Aker BP transaction, outstanding interest rate hedge contracts are no longer considered effective under hedge effectiveness
testing.
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.
70
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 22 continued
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 tables
below.
Buy
Sell
Average contractual
exchange rate
Settlement
period
MNOK 1,430.0
MUSD 183.4
NOK 7.80:USD 1
Jan 2022 – Dec 2022
MNOK 530.0
MUSD 64.2
NOK 8.26:USD 1
Jan 2023 – Dec 2023
MNOK 300.0
MUSD 33.0
NOK 9.09:USD 1
Jan 2024 – Dec 2024
Buy
Sell
Average contractual strike
price put options
Settlement
period
MNOK 9,466.0
MUSD 1,143.6
NOK 8.28:USD 1
Jan 2022 – May 2022
Under IFRS 9, subject to hedge effectiveness testing, changes to the fair value of effective hedges are reflected in other comprehensive income
and changes to the fair value of ineffective hedges are reflected directly in the income statement. As a result of the Aker BP transaction,
outstanding foreign currency exchange instruments with a contractual settlement date post the expected closing date of the Aker BP
transaction are no longer considered effective under hedge effectiveness testing.
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 2021.
Sensitivity analysis foreign exchange exposure:
Operating result from continuing operations, MUSD
-19.4
-19.4
Operating result from discontinued operations, MUSD
3,874.0
3,874.0
Operating result for the year, MUSD
3,854.6
3,854.6
Shift of currency exchange rates
Average rate 2021
10% USD weakening
10% USD strengthening
EUR/USD
0.8450
0.7681
0.9294
SEK/USD
8.5765
7.7927
9.4291
NOK/USD
8.5904
7.8069
9.4463
Total effect on operating result, MUSD
-67.1
61.0
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 521.1 foreign exchange loss in the income statement and
relates to the discontinued operations.
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 and Senior Notes denominated in US Dollar.
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.
71
Lundin Energy Annual Report 2021
Note 22 continued
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 2021.
Sensitivity analysis oil price exposure:
Net result from continuing operations, MUSD
-16.1
-16.1
Net result discontinued operations, MUSD
509.9
509.9
Net result for the year, MUSD
493.8
493.8
Possible shift
-25%
25%
Total effect on net result, MUSD
-279.9
279.9
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 2021, the Group did enter into some oil price hedging contracts for specific oil sales whereby there was a
concentration of oil sales in a short period of time or whereby the pricing towards the customer was not based on Brent pricing. There are no
oil price hedging contracts outstanding as at 31 December 2021.
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 2021, the Group’s trade receivables amounted to MUSD 523.9 (MUSD 215.5). 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 2021. 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 June 2021, Lundin Energy issued USD 2 billion of Senior Notes consisting of USD 1 billion 2.0 percent Senior Notes due in 2026 at a price
equal to 99.827 percent and USD 1 billion 3.1 percent Senior Notes due in 2031 at a price equal to 99.81 percent. Interest will be payable semi-
annually and none of the bonds have financial covenants. The Company used the net proceeds, in combination with cash on hand, to repay
USD 2.0 billion of the corporate credit facility term loans entered into in December 2020. On 15 July 2021, the Senior Notes were listed on the
Securities Official List of the Luxembourg Stock Exchange.
In December 2020, Lundin Energy entered into a five year corporate credit facility of USD 5 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 with USD
2.0 billion term loans being repaid in June 2021 and USD 0.3 billion term loans being repaid in November 2021 leaving USD 1.2 billion
term loans, split across three, four and five year maturities. 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 Plan and the 2023 carbon neutrality target. The Company achieved a lower interest rate margin over LIBOR during the
year based on the ESG KPIs incorporated in the margin structure. The structure of the Facility is such, that it is compatible with the issued
unsecured bonds through the debt capital markets at pari passu terms. The size of the remaining facility will reduce from USD 3.7 billion 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 facilities 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
financial covenants are the net debt to EBITDAX and the EBITDAX to financial charges testing the ability to repay debt. In addition, certain
events (including the lex asea distribution of the shares in LEAB MergerCo as part of the transaction with Aker BP) will technically lead to
events of default under the facilities agreement. The Company is therefore seeking a waiver from the external lenders for the events of defaults
that would otherwise have been triggered by the transaction with Aker BP. The waiver is expected to be granted in good order given that post
completion of the transaction, the credit profile of Aker BP will in all likelihood strengthen. Nevertheless, the Company has also secured a
separate commitment to replace the facilities agreement if the above-mentioned waiver would not be granted under the facilities agreement.
If an event of default occurs and subject to any applicable cure periods, the external lenders may take certain specified actions, including
accelerating the repayment of outstanding amounts under the facilities agreement.
72
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 22 continued
Once the transaction with Aker BP is completed, the renewable business, which is reported as continuing operations, will be debt free and
have a cash balance of MUSD 130, to cover capital expenditure and other working capital items. The renewable business is expected to be
free cash flow positive from late 2023, when the renewable portfolio has been fully built out and all projects are operational.
The Company currently has Baa3, BBB- and BBB- credit ratings from Moody’s, S&P and Fitch respectively, all 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 with all these items being classified as liabilities held for distribution. The Group has further financial
liabilties in relation to interest on the five year corporate credit facility and in relation to the five and ten year Senior Notes. The size of the
interest payments under the five year corporate credit facility depends on the outstanding loan balance under the facility and the applicable
LIBOR rate. The size of the yearly interest payments under the five year Senior Notes amounts to MUSD 20.0 payable semi-annually in January
and July. The size of the yearly interest payments under the ten year Senior Notes amounts to MUSD 31.0 payable semi-annually in January
and July.
MUSD
31 December 2021
31 December 2020
Repayment within 6 months:
– Lease liabilities
8.1
2.9
– Trade payables
80.4
8.7
– Others
–
0.4
– Tax liabilities
1,530.7
362.2
– Joint operations creditors
209.0
151.3
– Other current liabilities
25.7
9.2
– Derivative instruments
38.5
41.6
Repayment after 6 months:
– Lease liabilities
2.9
2.8
– Tax liabilities
43.0
82.2
– Derivative instruments
39.0
46.0
Repayment within 1–2 years:
– Lease liabilities
5.3
5.3
– Derivative instruments
11.5
88.8
Repayment within 2–5 years:
– Senior Notes 2.0% (21/26)
1,000.0
–
– Bank loans
1,200.0
3,994.0
– Lease liabilities
14.9
14.6
– Derivative instruments
1.7
55.9
Repayment after 5 years:
– Senior Notes 3.1% (21/31)
1,000.0
–
– Lease commitments
2.8
7.1
5,213.5
4,873.0
Note 23 Contingent Liabilities and Assets
In November 2021 the Swedish Prosecution Authority brought criminal charges against Chairman of the Board Ian H. Lundin and Director
Alex Schneiter in relation to past operations in Sudan from 1999–2003 and 2000–2003, respectively. The charges also include claims against
the Company for a corporate fine of SEK 3,000,000 and forfeiture of economic benefits of SEK 1,391,791,000, which according to the Swedish
Prosecution Authority represents the value of the gain of SEK 720,098,000 that the Company made on the sale of the business in 2003. Any
potential corporate fine or forfeiture could only be imposed after the conclusion of a trial. The Company refutes that there are any grounds
for allegations of wrongdoing by any of its representatives and does not foresee any impact on the operational and financial guidance that the
Company has set out previously. The Company considers this to be a contingent liability and therefore no provisions has been recognised. This
contingent liability will remain with the continuing operations.
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 2021 as it does not believe the
proceedings will lead to any liability for the Company. This contingent liability will remain with the continuing operations.
The Company’s past operations in Russia were held through a Canadian holding structure when acquired back in 2006. The tax filings in
Canada since 2006 in relation to both corporate income tax and withholding tax are under review by the Canadian Tax Office. The Company
has not provided for any costs in relation hereto as per 31 December 2021 and this contingent liability will remain with the continuing
operations.
73
Lundin Energy Annual Report 2021
Note 24 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
2021
2020
Sale of services
3.0
3.8
Purchase of services
4.4
2.5
Interest income
1.0
0.5
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 26.
During the year, the Group entered into a sponsorship agreement with Team Tilt SA, a Swiss sailing racing team, for their participation
in the SailGP high-speed racing catamaran series. The sponsorship agreement spans over three years, with an annual payment of between
MUSD 2.6 to MUSD 3.5, with the first payment of MUSD 2.0 made during the year and included in purchase of services.
Team Tilt SA’s majority owner is Sebastien Schneiter, an internationally recognised sailor who has represented Switzerland at European, World
and Olympic events. Sebastien Schneiter is a close family member of the Company’s current Board member and former CEO Alex Schneiter.
The sponsorship agreement with Team Tilt SA is part of discontinued operations.
Note 25 Average Number of Employees
2021
2020
Average number of employees per country
Total
employees
of which men
Total
employees
of which men
Parent Company in Sweden
3
2
4
2
Subsidiaries abroad
Norway
412
303
405
296
Switzerland
46
29
45
29
Netherlands
2
2
2
2
Total subsidiaries abroad
460
334
452
327
Total
463
336
456
329
2021
2020
Board members and Group management
Total at
year end
of which men
Total at
year end
of which men
Parent Company in Sweden
Board members1
10
7
8
5
Subsidiaries abroad
Group management
8
7
7
6
Total Group
18
14
15
11
1 Alex Schneiter, Chief Executive Officer during 2020 (CEO) and Board Member is only included in Group management in 2020.
74
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 26 Remuneration to the Board of Directors, Group Management and Other Employees
Salaries, other remuneration and social security costs
TUSD
2021
2020
Salaries
and other
remuneration
Social security
costs
Salaries and other
remuneration
Social security
costs
Parent Company in Sweden
Board members
744
147
575
146
Employees
709
367
689
354
Subsidiaries abroad
Group management
10,516
1,489
16,355
2,273
Other employees
96,963
24,843
81,389
20,383
Total
108,932
26,846
99,008
23,156
of which pension costs
10,262
9,252
2021 Salaries and other
remuneration for the
Board members and
Group management
TUSD
Fixed Board
remuneration/
base salary
Other
benefits1
Short-term
variable
remuneration
3
Performance
based
incentive
plan 4
Remuneration
for Committee
work
Remuneration
outside of
directorship
Pension
Total
2021
Parent Company in
Sweden
Board members
Ian H. Lundin
130
–
–
–
15
114
–
259
Adam I. Lundin
31
–
–
–
–
–
–
31
Alex Schneiter
–
–
–
–
–
2,5555
–
2,555
Peggy Bruzelius
62
–
–
–
20
–
–
82
C. Ashley Heppenstall
62
–
–
–
15
–
–
77
Lukas H. Lundin
62
–
–
–
–
–
–
62
Grace Reksten Skaugen
62
–
–
–
35
–
–
97
Jakob Thomasen
62
–
–
–
29
–
–
91
Cecilia Vieweg
62
–
–
–
20
–
–
82
Torstein Sanness
62
–
–
–
15
–
–
77
Total Board members
5956
–
–
–
149
2,669
–
3,413
Subsidiaries abroad
Group management
Nick Walker
875
94
875
1,621
–
–
189
3,654
Teitur Poulsen
551
30
551
1,058
–
–
166
2,356
Daniel Fitzgerald2
492
15
492
19
–
–
80
1,098
Other 7
1,449
283
1,355
756
–
–
192
4,035
Total Group management
3,367
422
3,273
3,454
–
–
627
11,143
1 Other benefits may include, but are not limited to, school fees and health insurance for Group management.
2 Daniel Fitzgerald was appointed COO on 1 January 2021. As part of his recruitment Lundin Energy agreed with his former employer International
Petroleum SA that he would retain the right to payment of outstanding awards granted under the “IPC Performance and Restricted Share Plan” and that
Lundin Energy will reimburse International Petroleum SA for such costs
3 Bonus consideration above 12 months base salary has been approved for Vice President Legal and Vice President Corporate Affairs.
4 Performance Based Incentive Plan 2018 and Unit Bonus Plan 2018, awarded in 2018 and vested in 2021.
5 The performance based incentive plan that was awarded in 2018 when Alex Schneiter was the CEO of the Company vested in 2021. The
amount mentioned in the table above relates to this award and does not relate to his work as Board Member.
6 Board remuneration is reported on a cash basis.
7 Comprises Vice President Sustainability, Vice President Legal, Vice President Corporate Affairs, Vice President Investor Relations and Communications
and Vice President Commodities Trading and Marketing promoted to VP in August 2021.
75
Lundin Energy Annual Report 2021
Note 26 continued
2020 Salaries and other
remuneration for the
Board members and
Group management
TUSD
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
2020
Parent Company in
Sweden
Board members
Ian H. Lundin
105
–
–
–
12
91
–
208
Peggy Bruzelius
50
–
–
–
16
–
–
66
C. Ashley Heppenstall
50
–
–
–
12
–
–
62
Lukas H. Lundin
50
–
–
–
–
–
–
50
Grace Reksten Skaugen
50
–
–
–
28
–
–
78
Jakob Thomasen
50
–
–
–
24
–
–
74
Cecilia Vieweg
50
–
–
–
16
–
–
66
Torstein Sanness
50
–
–
–
12
–
–
62
Total Board members
455 4
–
–
–
120
91
–
666
Subsidiaries abroad
Group management
Alex Schneiter
913
1,931
1,423
2,926
–
–
365
7,558
Nick Walker
668
83
623
1,665
–
–
179
3,218
Teitur Poulsen
536
45
688
1,087
–
–
159
2,515
Other 5
1,497
734
864
672
–
–
229
3,996
Total Group management
3,614
2,793
3,598
6,350
–
–
932
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.
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 860 (TCHF 853). 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 32–36 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 2021.
76
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements of the Group
Note 27 Long-term Incentive Plans
The Company maintains the long-term incentive plans (LTIP) described below which relates to the discontinued operations.
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 2021 was SEK 287.84.
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 2021 and the year in which
the units will vest.
Unit Bonus Plan
Plan
2018
2019
2020
2021
Total
Outstanding at the beginning of the period
69,653
123,184
266,737
–
459,574
Awarded during the period
–
–
–
262,792
262,792
Forfeited during the period
-1,123
-3,507
-8,188
-42,823
-55,641
Exercised during the period
-68,530
-60,224
-87,019
–
-215,773
Outstanding at the end of the period
–
59,453
171,530
219,969
450,952
Vesting date
31 May 2022
–
59,453
85,765
73,323
218,541
31 May 2023
–
–
85,765
73,323
159,088
31 May 2024
–
–
–
73,323
73,323
Outstanding at the end of the period
–
59,453
171,530
219,969
450,952
The costs associated with the Unit Bonus Plan are as given in the following table.
Unit Bonus Plan
MUSD
2021
2020
2017
–
-0.1
2018
0.8
0.5
2019
1.9
1.7
2020
4.9
2.3
2021
2.9
–
10.5
4.4
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 2021 amounted to MUSD 10.3 (MUSD 7.6). The provision is calculated based on Lundin
Energy’s share price at the balance sheet date. The closing share price at 31 December 2021 was SEK 324.50.
Performance Based Incentive Plan
The 2014–2021 AGMs resolved a long-term performance based incentive plan in respect of Group management and a number of key employees.
The 2021 plan is effective from 1 July 2021 and the 2021 award has been accounted for from the second half of 2021. The awards made in
respect of 2021 vests over three years from 1 July 2021 subject to certain performance conditions being met. Each award was fair valued at the
date of grant at SEK 173.10 using an option pricing model.
The 2020 plan is effective from 1 July 2020 and 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. Based on the performance conditions of the 2018
plan, the 2018 plan vested in full in 2021 with Lundin Energy’s total shareholder return (TSR) ranking 2nd in the peer group for the 2018 plan.
The following table shows the number of units issued under the LTIPs, the amount outstanding as at 31 December 2021 and the year in which
the awards will vest.
77
Lundin Energy Annual Report 2021
Note 27 continued
Performance Based Incentive Plan
Plan
2018
2019
2020
2021
Total
Outstanding at the beginning of the period
260,055
328,077
406,139
–
994,271
Awarded during the period
–
–
–
262,902
262,902
Increase due to dividends 1
–
12,924
16,000
3,208
32,132
Forfeited during the period
–
–
-7,975
-11,321
-19,296
Exercised during the period
-260,055
–
–
–
-260,055
Outstanding at the end of the period
–
341,001
414,164
254,789
1,009,954
End of performance period
30 June 2022
–
341,001
–
–
341,001
30 June 2023
–
–
414,164
–
414,164
30 June 2024
–
–
–
254,789
254,789
Outstanding at the end of the period
–
341,001
414,164
254,789
1,009,954
¹ As from the 2019 plan, the number of performance shares are increased to reflect dividends. For the 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
2021
2020
2017
–
0.7
2018
0.9
1.7
2019
1.9
1.9
2020
2.1
1.1
2021
0.9
–
5.8
5.4
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 2021 amounted to MUSD 8.8 (MUSD 8.3). The effect on equity is calculated based on the fair value at date of grant.
Note 28 Remuneration to the Group’s Auditors
TUSD
2021
2020
EY / PwC
Audit fees
702
532
Out of which to Ernst & Young
702
480
Out of which to PricewaterhouseCoopers
–
52
Audit related
357
11
Out of which to Ernst & Young
357
11
Out of which to PricewaterhouseCoopers
–
–
Tax advisory services
6
5
Out of which to Ernst & Young
6
5
Out of which to PricewaterhouseCoopers
–
–
Other fees
102
90
Out of which to Ernst & Young
102
90
Out of which to PricewaterhouseCoopers
–
–
Total EY / PwC
1,167
638
Out of which to Ernst & Young
1,167
586
Out of which to PricewaterhouseCoopers
–
52
Remuneration to other auditors than Group’s auditor
215
54
Total audit fees
1,382
692
Out of which to Ernst & Young
1,382
586
Out of which to PricewaterhouseCoopers
–
52
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 the bonds issuance process,
licence audits and PSC audits. Other fees include the review of the sustainability report.
Note 29 Subsequent Events
There are no subsequent events to report.
78
Lundin Energy Annual Report 2021
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 12,956.5 (MSEK 2,641.9) for the year. The net result for the year included MSEK
13,310.2 (MSEK 2,867.8) financial income as a result of received dividends from a subsidiary. The net result excluding received
dividends amounted to MSEK -353.7 (MSEK -225.9).
The net result included general and administrative expenses of MSEK 240.7 (MSEK 240.1) and net finance costs of MSEK 133.4
(MSEK 5.3) when excluding the received dividends as mentioned above.
In November 2021 the Swedish Prosecution Authority brought criminal charges against Chairman of the Board Ian H. Lundin and
Director Alex Schneiter in relation to past operations in Sudan from 1999–2003 and 2000–2003, respectively. The charges also
include claims against the Company for a corporate fine of SEK 3,000,000 and forfeiture of economic benefits of SEK 1,391,791,000,
which according to the Swedish Prosecution Authority represents the value of the gain of SEK 720,098,000 that the Company made
on the sale of the business in 2003. Any potential corporate fine or forfeiture could only be imposed after the conclusion of a trial.
The Company refutes that there are any grounds for allegations of wrongdoing by any of its representatives and does not foresee
any impact on the operational and financial guidance that the Company has set out previously. The Company considers this to be
a contingent liability and therefore no provisions has been recognised. This contingent liability will remain with the continuing
operations.
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 44–50.
79
Lundin Energy Annual Report 2021
Parent Company Income Statement
for the Financial Year Ended 31 December
Expressed in MSEK
Note
2021
2020
Revenue
20.4
19.5
General and administration expenses
-240.7
-240.1
Operating loss
-220.3
-220.6
Result from financial investments
Finance income
1
13,310.2
2,867.8
Finance cost
2
-133.4
-5.3
13,176.8
2,862.5
Profit before tax
12,956.5
2,641.9
Income tax
3
–
–
Net result
12,956.5
2,641.9
Parent Company Comprehensive Income Statement
for the Financial Year Ended 31 December
Expressed in MSEK
2021
2020
Net result
12,956.5
2,641.9
Other comprehensive income
–
–
Total comprehensive income
12,956.5
2,641.9
Attributable to:
Shareholders of the Parent Company
12,956.5
2,641.9
12,956.5
2,641.9
80
Lundin Energy Annual Report 2021
Expressed in MSEK
Note
2021
2020
ASSETS
Non-current assets
Shares in subsidiaries
8
55,118.9
55,118.9
Other tangible fixed assets
0.4
0.5
Total non-current assets
55,119.3
55,119.4
Current assets
Prepaid expenses and accrued income
2.8
1.0
Other receivables
4
9,811.1
567.5
Cash and cash equivalents
44.3
26.6
Total current assets
9,858.2
595,1
TOTAL ASSETS
64,977.5
55,714.5
EQUITY AND LIABILITIES
Restricted equity
Share capital
3.5
3.5
Statutory reserve
861.3
861.3
Total restricted equity
864.8
864.8
Unrestricted equity
Other reserves
6,599.0
6,542.8
Retained earnings
43,205.2
45,030.5
Net result
12,956.5
2,641.9
Total unrestricted equity
62,760.7
54,215.2
Total equity
63,625.5
55,080.0
Non-current liabilities
Provisions
1.6
0.9
Total non-current liabilities
1.6
0.9
Current liabilities
Dividends
1,163.9
591.5
Payables to Group companies
27.8
30.2
Accrued expenses and prepaid income
5
152.3
11.1
Other liabilities
6.4
0.8
Total current liabilities
1,350.4
633.6
TOTAL EQUITY AND LIABILITIES
64,977.5
55,714.5
FINANCIAL STATEMENTS AND NOTES
Parent Company Balance Sheet
for the Financial Year Ended 31 December
81
Lundin Energy Annual Report 2021
Expressed in MSEK
2021
2020
Cash flow from operating activities
Net result
12,956.5
2,641.9
Adjustment for
Foreign currency exchange loss
0.8
5.1
Dividends from subsidiary
-9,774.7
-717.0
Other
1.9
0.9
Changes in working capital:
Changes in current assets
528.6
1,032.8
Changes in current liabilities
145.4
-25.5
Total cash flow from operating activities
3,858.5
2,938.2
Cash flow from investing activities
Investments in other fixed assets
-0.1
-0.2
Total cash flow from investing activities
-0.1
-0.2
Cash flow from financing activities
Dividends paid
-3,898.5
-3,003.1
Issuance of treasury shares
56.2
63.1
Total cash flow from financing activities
-3,842.3
-2,940.0
Change in cash and cash equivalents
16.1
-2.0
Cash and cash equivalents at the beginning of the year
26.6
31.7
Currency exchange difference in cash and cash equivalents
1.6
-3.1
Cash and cash equivalents at the end of the year
44.3
26.6
Parent Company Statement of Cash Flow
for the Financial Year Ended 31 December
82
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES
Parent Company Statement of Changes in Equity
for the Financial Year Ended 31 December
Restricted Equity
Unrestricted Equity
Expressed in MSEK
Share
capital
Statutory
reserve
Other
reserves
Retained
earnings
Total
Total
equity
Balance at 1 January 2020
3.5
861.3
6,479.7
47,898.3
54.378.0
55.242.8
Total comprehensive income
–
–
–
2,641.9
2,641.9
2,641.9
Transactions with owners
Cash distributions
–
–
–
-2,867.8
-2,867.8
-2,867.8
Issuance of treasury shares
–
–
63.1
–
63.1
63.1
Total transactions with owners
–
–
63.1
-2,867.8
-2,804.7
-2.804.7
Balance at 31 December 2020
3.5
861.3
6,542.8
47,672.4
54.215.2
55.080.0
Total comprehensive income
–
–
–
12,956.5
12,956.5
12,956.5
Transactions with owners
Cash distributions
–
–
–
-4,467.2
-4,467.2
-4,467.2
Issuance of treasury shares
–
–
56.2
–
56.2
56.2
Total transactions with owners
–
–
56.2
-4,467.2
-4,411.0
-4,411.0
Balance at 31 December 2021
3.5
861.3
6,599.0
56,161.7
62,760.7
63,625.5
83
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements
of the Parent Company
Notes to the Financial Statements
of the Parent Company
Note 1 Finance Income
MSEK
2021
2020
Dividend
13,310.2
2,867.8
13,310.2
2,867.8
Note 2 Finance Costs
MSEK
2021
2020
Foreign exchange loss
0.8
5.1
Other
132.6
0.2
133.4
5.3
Note 3 Income Tax
MSEK
2021
2020
Net result before tax
12,956.5
2,641.9
Tax calculated at the corporate tax rate
in Sweden 21.4% (21.4%)
-2,772.7
-565.4
Tax effect of received dividend
2,848.4
613.7
Tax effect of expenses non-deductible for
tax purposes
-4.7
-4.4
Increase unrecorded tax losses
-71.0
-43.9
–
–
Note 4 Other Receivables
MSEK
31 December
2021
31 December
2020
Due from Group companies
9,803.8
564.7
VAT receivable
3.0
2.1
Other
4.3
0.7
9,811.1
567.5
Note 5 Accrued Expenses and Prepaid Income
MSEK
31 December
2021
31 December
2020
Social security costs
1.0
1.4
Directors fees
2.0
1.7
Audit fees
1.4
1.0
Outside services
147.9
7.0
152.3
11.1
Note 6 Remuneration to the Auditor
MSEK
2021
2020
EY / PwC
Audit fees
1.3
1.4
Audit related
0.3
–
Other fees
0.7
0.5
2.3
1.9
Lundin Energy changed its auditor as from 2020 replacing
PricewaterhouseCoopers with Ernst & Young. There has been no
remuneration to any auditor other than Ernst & Young in 2021
and there has been no remuneration to any auditors other than
PricewaterhouseCoopers and Ernst & Young in 2020.
Note 7 Proposed Disposition of Unappropriated
Earnings
The 2022 Annual General Meeting has an unrestricted equity at its
disposal of MSEK 62,760.7, including the net result for the year of
MSEK 12,956.5.
Ordinary cash dividend
As communicated by the Company on 29 October 2021 and in
accordance with the dividend policy, the Board of Directors propose
that the Annual General Meeting resolves on a quarterly dividend of
USD 0.5625 per share, corresponding to USD 160 million (rounded
off) per quarter, which reflects a 25 percent increase compared to
the 2020 dividend. Before payment, each quarterly dividend of USD
0.5625 per share will 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) prior to each record date. 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 prior to each record date.
The first dividend payment is expected to be paid around 7 April
2022, with an expected record date of 4 April 2022 and expected
ex-dividend date of 1 April 2022. The second dividend payment is
expected to be paid around 12 July 2022, with an expected record
date of 7 July 2022 and expected ex-dividend date of 6 July 2022.
The third dividend payment is expected to be paid around 7 October
2022, with an expected record date of 4 October 2022 and an
expected ex-dividend date of 3 October 2022. The fourth dividend
payment is expected to be paid around 11 January 2023, with an
expected record date of 5 January 2023 and an expected ex-dividend
date of 4 January 2023.
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 dividend has been set
to a cap of SEK 7.040 billion. If the total dividend would exceed the
cap of SEK 7.040 billion, the dividend will be automatically adjusted
downwards so that the dividend corresponds to the cap of SEK 7.040
billion.
On 21 December 2021, the Company entered into an agreement
regarding a combination of Aker BP and the Company’s E&P
business. Completion of the combination with Aker BP is subject
to certain terms and conditions, including approval by the Annual
General Meeting of the Company and Aker BP receiving necessary
governmental clearances. The Board of Directors proposes to
the Annual General Meeting that quarterly dividends as per the
above shall only be payable for as long as the Company owns the
E&P business. Accordingly, no quarterly dividends shall be paid
by the Company after the completion of the combination with
Aker BP. According to a preliminary timetable, completion of the
combination is planned to occur in late Q2 2022.
84
Lundin Energy Annual Report 2021
Note 7 continued
Lex Asea distribution of the E&P business
The combination with Aker BP will be carried out as a statutory cross-border merger in accordance with Norwegian and Swedish law, through
which Aker BP will absorb a company (“LEAB MergerCo”) that will contain Lundin Energy’s E&P business. Shortly before the completion of the
combination with Aker BP, the shares in LEAB MergerCo will be distributed to the shareholders of Lundin Energy through a so-called lex asea
dividend. The merger consideration that thereafter will be payable to the (new) shareholders of LEAB MergerCo will consist of a mix of cash
and shares in Aker BP.
The Board of Directors proposes to the 2022 Annual General Meeting that all shares in LEAB MergerCo are distributed to the
shareholders, whereby one share in the Company shall entitle to one share in LEAB MergerCo.
Based on the above, the Board of Directors proposes that the Annual General Meeting disposes of the unrestricted equity as follows:
MSEK
The Board of Directors proposes that the shareholders are paid a quarterly dividend of USD 0.5625 per share 1
6,091.9
The Board of Directors proposes a distribution of all shares in LEAB MergerCo 2
55,118.9
Brought forward
1,549.9
Unrestricted equity
62,760.7
1 The quarterly dividend shall only be payable for as long as the Company owns all shares in LEAB MergerCo. Accordingly, no quarterly dividends shall
be paid by the Company after the completion of the combination with Aker BP. The amount included in the table above is based on four quarterly
dividend payments but will change if less than four quarterly dividends have been paid when the Company ceases to own all shares in LEAB MergerCo.
The completion of the combination with Aker BP is currently expected to occur end of June which would results in one quarterly dividend payment.
The amount is based on the USD to SEK exchange rate published by Sweden’s central bank (Riksbanken) as at 24 February 2022. The amount is based
on the number of shares in circulation on 24 February 2022 and the total dividend amount may change by the record dates as a result of repurchases of
own shares, sale of treasury 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 2022 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, and once the assessment has been made that the condition for
payment has been fulfilled in relation to each quarterly payment the dividend will be recorded as a liability in USD and the SEK equivalent of any USD
liability recognised will fluctuate between the date it is recognised until it is converted from USD to SEK.
2 The value of the shares in LEAB MergerCo is determined based on the book value of Lundin Energy Holding BV at the end of 2021 with the book value
of the newly incorporated LEAB MergerCo as per distribution date expected to be the same following internal restructuring steps prior to completion
of the Aker BP transaction. The value might change up until the distribution of the shares in LEAB MergerCo but will never, in combination with the
proposed quarterly dividend, exceed the unrestricted equity of the Company.
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 dividends are 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 will be
positive after completion of the Aker BP transaction. 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
Registration
number
Registered office
Total number of
shares issued
Percentage
owned
Nominal
value
per share
Book
amount
31 Dec 2021
Directly owned
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 Collonge-Bellerive,
Switzerland
1,000
100
CHF 100.00
Lundin Energy SA
660.0.330.999-0 Collonge-Bellerive,
Switzerland
1,000
100
CHF 100.00
Lundin Energy Finance BV
82927561
The Hague, Netherlands
100
100
EUR 1.00
Lundin Energy Renewables
Holding BV
76493202
The Hague, Netherlands
100
100
EUR 1.00
- Lundin Energy MLK BV
77530004
The Hague, Netherlands
100
100
EUR 1.00
- Karskuv Vind AB
559211-6106
Stockholm, Sweden
500
100
EUR 9.88
- Karskruv Nät AB
559036-7289
Stockholm, Sweden
1,000
100
SEK 100.00
Lundin Energy Services BV
68359985
The Hague, Netherlands
100
100
EUR 1.00
Lundin Russia BV
27290574
The Hague, Netherlands
18,000
100
EUR 1.00
- Lundin Russia Ltd.
656565-4
Vancouver, Canada
55,855,414
100
CAD 1.00
FINANCIAL STATEMENTS AND NOTES | Notes to the Financial Statements
of the Parent Company
85
Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Board Assurance
Board Assurance
As at 25 February 2022, the Board of Directors and the President of Lundin Energy AB have adopted this annual report for the
financial year ended 31 December 2021.
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, 25 February 2022
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
Adam I. Lundin
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 25 February 2022
Ernst & Young AB
Anders Kriström
Authorised Public Accountant
Lead Partner
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Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Auditor’s Report
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 2021. The annual accounts
and consolidated accounts of the company are included on pages
4–85 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 2021 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 2021 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.
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Lundin Energy Annual Report 2021
Accounting for current and deferred income tax
Description
How our audit addressed this key audit matter
For the year ended 31 December 2021 the Company’s income tax
expense amounted to USD 2,892.5 million. As of 31 December
2021, the Company has recognized a deferred tax liability of
USD 3,120.6 million and a current tax liability of USD 1,573.7
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 19.6 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 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.
For information, see the Accounting Policies section and Note 19.6.
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.
Assets Held for Sale – transaction agreement between Lundin Energy AB and Aker BP ASA
Description
How our audit addressed this key audit matter
On December 21, 2021, Lundin Energy AB and Aker BP ASA entered
into a transaction agreement to combine the exploration and
production activities of the two companies. Upon completion of
the transaction agreement, Lundin Energy AB’s exploration and
production-related assets will be combined with Aker BP ASA through a
statutory merger. The transaction is expected to close in mid-2022.
The completion of the transaction agreement is subject to, among other
things, approval by the shareholders of Lundin Energy AB and Aker BP
ASA at their respective general meetings and obtaining the necessary
regulatory approvals (including competition authorities, the Norwegian
Ministry of Petroleum and Energy and the Norwegian Ministry of
Finance).
Under IFRS 5, non-current assets and disposal groups shall be classified
as Assets Held for Sale if management considers that their carrying
amount will be recovered mainly through a sales transaction rather
than through continuous use and presented as Discontinued operations
if the assets held for sale represent a separate major line of business.
Furthermore, there are significant accounting issues and judgement
related to the transaction agreement and in the long run, the
termination of the exploration and production activities of the
company such as hedge accounting, accounting for amortized cost of
financial liabilities, transaction-related costs and share-based payments.
We believe that the classification of assets held for sale and
presentation of discontinued operations together with the above-
mentioned related accounting issues constitutes a key audit matter
in the audit due to the element of judgement and assumptions, the
importance of the transaction agreement and the complexity of the
related accounting issues.
For further information, see the Accounting Policies section and
Note 19.
We have taken this key audit matter into account in our audit
through the following main procedures:
- We have established an understanding of the transaction
agreement as well as the facts and circumstances associated
with the combination. This has included an understanding of
the legal structure of the proposed combination and the assets
and liabilities included in the disposal group.
- We have audited the accounting of the non-current assets held
for sale and discontinued operations against the applicable
criteria in accordance with IFRS 5.
- We have audited management’s assessments and assumptions
regarding how the termination of the exploration and
production activities affects hedge accounting, accounting for
amortized cost of financial liabilities, transaction-related costs
and share-based payments. The audit procedures have included
verification and assessment of the terms and conditions of the
underlying agreements for the above-mentioned areas and
examination of how the company have considered the effects of
the transaction agreement in the accounting.
We have audited the information provided in the annual report
in respect of assets held for sale and presentation of discontinued
operations.
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Lundin Energy Annual Report 2021
FINANCIAL STATEMENTS AND NOTES | Auditor’s Report
Other Information than the annual accounts and
consolidated accounts
This document also contains other information than the annual
accounts and consolidated accounts and is found on pages 1—3
and 90—99. 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
Revisors¬inspektionen’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.
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 2021 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.
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.
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
89
Lundin Energy Annual Report 2021
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 ESEF report
Opinion
In addition to our audit of the annual accounts and consolidated
accounts, we have also examined that the Board of Directors and
the Managing Director have prepared the annual accounts and
consolidated accounts in a format that enables uniform electronic
reporting (the Esef report) pursuant to Chapter 16, Section 4(a) of
the Swedish Securities Market Act (2007:528) for Lundin Energy AB
(publ) for the financial year 2021.
Our examination and our opinion relate only to the statutory
requirements.
In our opinion, the ESEF report #(fad773e7ee80db45730d1459689
ebadcbafba84c30eb61c9476da43bfe02ca26) has been prepared in
a format that, in all material respects, enables uniform electronic
reporting.
Basis for opinion
We have performed the examination in accordance with FAR’s
recommendation RevR 18 Examination of the ESEF report. Our
responsibility under this recommendation is described in more
detail in the Auditors’ responsibility section. We are independent
of Lundin Energy AB (publ) 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 evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
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 Esef report in accordance with Chapter 16,
Section 4(a) of the Swedish Securities Market Act (2007:528), and for
such internal control that the Board of Directors and the Managing
Director determine is necessary to prepare the Esef report without
material misstatements, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to obtain reasonable assurance whether the Esef
report is in all material respects prepared in a format that meets the
requirements of Chapter 16, Section 4(a) of the Swedish Securities
Market Act (2007:528), based on the procedures performed.
RevR 18 requires us to plan and execute procedures to achieve
reasonable assurance that the Esef report is prepared in a format
that meets these requirements.
Reasonable assurance is a high level of assurance, but it is not a
guarantee that an engagement carried out according to RevR 18
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 aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the Esef report.
The audit firm applies ISQC 1 Quality Control for Firms that Perform
Audits and Reviews of Financial Statements, and other Assurance
and Related Services Engagements and accordingly maintains a
comprehensive system of quality control, including documented
policies and procedures regarding compliance with professional
ethical requirements, professional standards and legal and regulatory
requirements.
The examination involves obtaining evidence, through various
procedures, that the Esef report has been prepared in a format that
enables uniform electronic reporting of the annual and consolidated
accounts. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement
in the report, whether due to fraud or error. In carrying out this
risk assessment, and in order to design audit procedures that are
appropriate in the circumstances, the auditor considers those
elements of internal control that are relevant to the preparation of
the Esef report by the Board of Directors and the Managing Director,
but not for the purpose of expressing an opinion on the effectiveness
of those internal controls. The examination also includes an
evaluation of the appropriateness and reasonableness of assumptions
made by the Board of Directors and the Managing Director.
The procedures mainly include a technical validation of the Esef
report, i.e. if the file containing the Esef report meets the technical
specification set out in the Commission’s Delegated Regulation (EU)
2019/815 and a reconciliation of the Esef report with the audited
annual accounts and consolidated accounts.
Furthermore, the procedures also include an assessment of whether
the Esef report has been marked with iXBRL which enables a fair and
complete machine-readable version of the consolidated statement of
financial performance, financial position, changes in equity and cash
flow.
The auditor’s examination of the corporate governance statement
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 30 March 2021 and has been the company’s
auditor since 2020.
Stockholm 25 February, 2022
Ernst & Young AB
Anders Kriström
Authorized Public Accountant
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Lundin Energy Annual Report 2021
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 92. Definitions of the performance measures are provided under the key ratio
definitions on page 93.
Financial data
MUSD
2021
2020
Revenue and other income
From continuing operations
–
–
From discontinued operations
5,484.7
2,564.4
5,484.7
2,564.4
Operating cash flow
From continuing operations
–
-1.0
From discontinued operations
2,294.8
1,658.6
2,294.8
1,657.6
CFFO
From continuing operations
-17.7
-18.1
From discontinued operations
3,075.7
1,546.1
3,058.0
1,528.0
EBITDAX
From continuing operations
-19.4
-16.4
From discontinued operations
4,842.2
2,156.6
4,822.8
2,140.2
Free cash flow
From continuing operations
-89.4
-117.9
From discontinued operations
1,734.9
566.1
1,645.5
448.2
Net result
From continuing operations
-16.1
-17.9
From discontinued operations
509.9
402.1
493.8
384.2
Adjusted net result
From continuing operations
-16.3
-17.1
From discontinued operations
812.0
297.1
795.7
280.0
Net debt
2,747.9
3,911.5
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Lundin Energy Annual Report 2021
Data per share
USD
2021
2020
Operating cash flow per share
From continuing operations
–
-0.00
From discontinued operations
8.07
5.83
8.07
5.83
CFFO per share
From continuing operations
-0.06
-0.06
From discontinued operations
10.81
5.44
10.75
5.38
EBITDAX per share
From continuing operations
-0.07
-0.06
From discontinued operations
17.03
7.59
16.96
7.53
Free cash flow per share
From continuing operations
-0.31
-0.42
From discontinued operations
6.10
2.00
5.79
1.58
Earnings per share
From continuing operations
-0.06
-0.06
From discontinued operations
1.80
1.41
1.74
1.35
Earnings per share fully diluted
From continuing operations
-0.06
-0.06
From discontinued operations
1.79
1.41
1.73
1.35
Adjusted earnings per share
From continuing operations
-0.06
-0.06
From discontinued operations
2.86
1.05
2.80
0.99
Adjusted earnings per share fully diluted
From continuing operations
-0.06
-0.06
From discontinued operations
2.85
1.04
2.79
0.98
Shareholders’ equity per share
-4.99
-6.22
Dividend per share1
1.60
1.12
Yield
4
4
Number of shares issued at period end
285,924,614
285,924,614
Number of shares in circulation at period end
284,568,178
284,351,471
Weighted average number of shares for the period
284,444,685
284,177,604
Weighted average number of shares for the period fully diluted
285,126,595
284,830,491
Share price
Share price at period end in SEK
324.50
222.30
Share price at period end in USD2
35.86
27.19
Key ratios from continuing operations3
Return on equity (%)
-6
-10
Return on capital employed (%)
-6
-9
Net debt/equity ratio (%)
–
–
Net debt/EBITDAX ratio
–
–
Equity ratio (%)
70
76
Share of risk capital (%)
70
76
Interest coverage ratio
–
–
Operating cash flow/interest ratio
–
–
1 Dividend per share represents the actual paid out dividend per share.
2 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.
3 Key ratios from continuing operations are calculated based on equity attributable to the continuing operations only instead of equity as presented in the
consolidated balance sheet and based on no debt attributable to the continuing operations.
92
Lundin Energy Annual Report 2021
ADDITIONAL INFORMATION
Relevant Reconciliations of Alternative
Performance Measures
EBITDAX
MUSD
2021
2020
From continuing operations
Operating profit
-19.4
-16.4
EBITDAX from continuing operations
-19.4
-16.4
From discontinued operations
Operating profit
3,874.0
1,437.1
Add: depletion of oil and gas properties
703.0
607.7
Add: exploration costs
258.1
104.9
Add: depreciation of other tangible assets
7.1
6.9
EBITDAX from discontinued operations
4,842.2
2,156.6
Operating cash flow
MUSD
From continuing operations
Revenue and other income
–
–
Minus: current taxes
–
-1.0
Operating cash flow from continuing operations
–
-1.0
From discontinuing operations
Revenue and other income
5,484.7
2,564.4
Minus: production costs
-265.4
-177.2
Minus: purchase of crude oil from third parties
-361.7
-217.8
Minus: current taxes
-2,562.8
-510.8
Operating cash flow from discontinued operations
2,294.8
1,658.6
Free cash flow
MUSD
From continuing operations
Cash flows from operating activities (CFFO)
-17.7
-18.1
Minus: cash flows from investing activities
-71.7
-99.8
Free cash flow from continuing operations
-89.4
-117.9
From discontinuing operations
Cash flows from operating activities (CFFO)
3,075.7
1,546.1
Minus: cash flows from investing activities
-1,340.8
-980.0
Free cash flow from discontinued operations
1,734.9
566.1
Adjusted net result
MUSD
From continuing operations
Net result
-16.1
-17.9
Adjusted for foreign currency exchange gain or loss
-0.2
0.8
Adjusted net result from continuing operations
-16.3
-17.1
From discontinuing operations
Net result
509.9
402.1
Adjusted for unwinding of loan modification gain
–
99.7
Adjusted for foreign currency exchange gain or loss
216.1
-171.8
Adjusted for ineffective interest rate hedge contracts
71.0
–
Adjusted for other non recurring finance costs
15.4
–
Adjusted for tax effects of above mentioned items
-0.4
-32.9
Adjusted net result from discontinued operations
812.0
297.1
Net debt
MUSD
Senior notes
2,000.0
–
Bank loans
1,200.0
3,994.0
Minus: cash and cash equivalents
-452.1
-82.5
Net debt
2,747.9
3,911.5
93
Lundin Energy Annual Report 2021
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.
94
Lundin Energy Annual Report 2021
Proved plus probable reserves (2P) 1
Oil
MMbbl
Gas
Bn scf
Oil and gas 3
MMboe
1 January 2021
640.2
184.2
670.9
Changes during the year
- Production
-67.1
-23.7
-71.0
+ Acquisitions/ - Dispositions
–
–
–
+ Revisions
31.5
46.6
39.3
31 December 2021
604.6 2
207.2
639.1
1 Numbers may not add up due to rounding
2 The year end 2021 2P oil reserves reported include 20.2 MMbbl of NGL’s.
3 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
Oil
MMbbl
Gas
Bn scf
Oil and gas 3
MMboe
1 January 2021
785.1
245.3
826.0
Changes during the year
- Production
-67.1
-23.7
-71.0
+ Acquisitions/ - Dispositions
–
–
–
+ Revisions
36.1
50.2
44.5
31 December 2021
754.1 2
271.8
799.4
1 Numbers may not add up due to rounding
2 The year end 2021 3P oil reserves reported include 25.5 MMbbl of NGL’s.
3 The factor of 6,000 is used by the Company to convert one scf to one boe.
Best estimate contingent resources (2C) 1
Oil and gas 2
MMboe
1 January 2021
275.5
Changes during the year
+ Acquisitions/ - Dispositions
136.9
+ Revisions/Discoveries
-32.3
31 December 2021
380.0
1 Numbers may not add up due to rounding
2 The factor of 6,000 is used by the Company to convert one scf to one boe.
ADDITIONAL INFORMATION
Reserve and Resource Quantity Information
95
Lundin Energy Annual Report 2021
Investments in Joint Operations
Licence
Field / Discovery
WI 1
31 December 2021
WI 1
31 December 2020
PL036C
15
15
PL036E
Trell & Trine
6
–
PL036F
Trell & Trine
6
–
PL088BS
15
15
PL102D
Trell & Trine
6
–
PL102F
Trell & Trine
6
–
PL102G
Trell & Trine
6
–
PL102H
Trell & Trine
6
–
PL148
Brynhild
51
51
PL150
Volund
35
35
PL167
Lille Prinsen
40
20 (40)
PL167B
40
20 (40)
PL167C
40
20 (40)
PL203
Alvheim
15
15
PL229E
50
50
PL229G
50
–
PL265
Johan Sverdrup 2
7.384
7.384
PL292
Gaupe
40
40
PL292B
40
40
PL338
Edvard Grieg
65
65
PL338BS
50
50
PL338 C
Rolvsnes
80
80
PL338DS
65
65
PL338E
80
80
PL340
Bøyla & Frosk
15
15
PL340BS
15
15
PL359
Solveig
65
65
PL492
Gotha
40
40
PL501
Johan Sverdrup 2
37.384
37.384
PL501B
37.384
37.384
PL533
40
40
PL533B
40
40
PL537
Wisting
35
10
PL537B
35
10
PL609
Alta
55
55
PL609B
55
55
PL609C
–
55
PL609D
55
55
PL695
–
40
PL722
–
20
PL815
60
60
PL820S
41
40 (41)
PL820SB
41
–
PL830
40
40
PL851
–
55
PL860
–
40
PL869
15
20
PL886
60
60
PL886B
60
60
PL894
10
10
PL896
30
30
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
96
Lundin Energy Annual Report 2021
Licence
Field / Discovery
WI 1
31 December 2021
WI 1
31 December 2020
PL902
–
40
PL902B
–
40
PL904
–
20
PL914S
1.385
1.385
PL917
20
20
PL917B
20
20
PL919
15
15
PL924
15
15
PL926
–
10
PL929
10
10
PL934
–
40
PL935
20
20
PL936
–
30
PL954
–
40
PL960
20
20
PL962
–
20
PL965
–
60
PL976
40
50
PL981
60
60
PL987
–
20
PL987B
–
20
PL988
–
40
PL989
30
30
PL991
–
40
PL998
–
30
PL1023
–
50
PL1027
40
40
PL1029
40
40
PL1032
40
40
PL1041
15
30
PL1045
15
15
PL1045B
15
–
PL1048
50
50
PL1051
40
40
PL1057
60
60
PL1069
50
50
PL1082
50
50
PL1083
40
40
PL1084
60
–
PL1087
50
–
PL1089
50
–
PL1090
30
–
PL1091
40
–
PL1092
50
–
PL1094
60
–
PL1095
50
–
PL1097
30
–
PL1099
30
–
PL1102
60
–
PL1104
40
–
PL1106
20
–
PL1126
30
–
PL1129
30
–
PL1131
20
–
PL1133
20
–
PL1134
30
–
1 Lundin Energy’s working interest (%) with changes awaiting government approval per year end mentioned between brackets
ADDITIONAL INFORMATION | Investments in Joint Operations
97
Lundin Energy Annual Report 2021
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.
3P Reserves
2P Reserves
Proved reserves
Probable reserves
Possible 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
Prospective 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 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
bbl
Barrel (1 barrel = 159 litres)
bcf
Billion cubic feet (1 cubic foot = 0.028 m3)
Bn
Billion
boe
Barrels of oil equivalent
boepd
Barrels of oil equivalent per day
bopd
Barrels of oil per day
Bn boe
Billion barrels of oil equivalent
Mbbl
Thousand barrels
Mboe
Thousand barrels of oil equivalent
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
Thousand cubic feet
MMscf
Million standard cubic feet
Bn scf
Billion standard cubic feet
NGL
Natural Gas Liquids
CO2
Carbon dioxide
CO2e
Carbon dioxide equivalents
Currency abbreviations
CHF
Swiss Franc
CAD
Canadian Dollar
EUR
Euro
GBP
British Pound
NOK
Norwegian Krone
SEK
Swedish Krona
USD
US Dollar
TCHF
Thousand CHF
TSEK
Thousand SEK
TUSD
Thousand USD
MSEK
Million SEK
MUSD
Million USD
MEUR
Million Euro
BUSD
Billion USD
98
Lundin Energy Annual Report 2021
ADDITIONAL INFORMATION
Share Data
Share data
Since Lundin Energy was incorporated in May 2001 and up to 31 December 2021 the Parent Company share capital has developed as
shown below.
Share data
Year
Quota value
SEK
Change in number of
shares
Total number
of shares
Total share capital
SEK
Formation of the Company
2001
100.00
1,000
1,000
100,000
Share split 10,000:1
2001
0.01
9,999,000
10,000,000
100,000
New share issue
2001
0.01
202,407,568
212,407,568
2,124,076
Warrants
2002
0.01
35,609,748
248,017,316
2,480,173
Incentive warrants
2002–2008
0.01
14,037,850
262,055,166
2,620,552
Valkyries Petroleum Corp. acquisition
2006
0.01
55,855,414
317,910,580
3,179,106
Cancellation of shares/Bonus issue
2014
0.01
-6,840,250
311,070,330
3,179,106
New share issue
2016
0.01
29,316,115
340,386,445
3,478,713
Cancellation of shares/Bonus issue
2019
0.01
-54,461,831
285,924,614
3,478,713
Total
285,924,614
285,924,614
3,478,713
99
Lundin Energy Annual Report 2021
Shareholder Information
Lundin Energy will publish the following interim reports:
· 27 April 2022
Three month report (January–March 2022)
· 27 July 2022
Six month report (January–June 2022)
· 26 October 2022
Nine month report (January–September 2022)
· 31 January 2023
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 31 March 2022 at 13.00 CEST at the Hotel at Six, Brunkebergstorg 6, in Stockholm. The Board
of Directors has decided, pursuant to the Swedish Act on Temporary Exemptions to Facilitate the Execution of General Meetings in
Companies and Associations that shareholders shall have the right to exercise their voting rights by postal voting. Consequently,
shareholders may choose to exercise their voting rights at the Annual General Meeting by attending in person, through a proxy or by
postal voting.
Attendance at the meeting
Shareholders wishing to attend the meeting shall:
· be recorded in the share register maintained by Euroclear Sweden AB on Wednesday 23 March 2022; and
· notify Lundin Energy of their intention to attend the AGM no later than Friday 25 March 2022 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 23 March 2022, at the latest.
100
Lundin Energy Annual Report 2021
These materials do not constitute an offer of securities for sale or a solicitation of an offer to purchase the securities described in such
materials in the United States. In particular, any securities referred to in these materials have not been and will not be registered
under the U.S. Securities Act of 1933 (the “Securities Act”), or under the securities laws of any state or other jurisdiction of the United
States and may not be offered, sold or delivered, directly or indirectly, in or into the United States except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable
securities laws of any state or other jurisdiction of the United States. There will be no public offering of securities in the United States.
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 1 March 2022.
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.
ADDITIONAL INFORMATION
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Lundin Energy Annual Report 2021
Corporate Head Office
Lundin Energy AB (publ)
Hovslagargatan 5
SE-111 48 Stockholm, Sweden
T +46-8-440 54 50
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