Annual Report 2009

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DIRECTORS’ REPORT Ethiopia/Kenya In April 2009 Lundin Petroleum completed the sale of its Kenyan and Ethiopian assets to Africa Oil Corporation for a consideration of a convertible loan of MUSD 23.7. In July 2009, Lundin Petroleum sold the 50 percent shareholding in CJSC Oilgaztet (Oilgaztet) for a cash consideration of MUSD 4.0 (MSEK 27.9). The result of Oilgaztet has been fully consolidated into the Lundin Petroleum consolidated accounts up to the completion of the sale. In August 2009, Lundin Petroleum entered into an agreement to acquire the 30 percent interest in the Lagansky Block held by a minority partner for MUSD 30.0 (MSEK 209.6) and certain deferred consideration payable on future commercial discoveries and on certain levels of certified reserves within the Lagansky Block. The agreement is subject to applicable Russian government approval. Lundin has advanced the MUSD 30.0 acquisition price to the seller as an interest free loan pending the governmental approval. In September 2009, Lundin Petroleum entered into an agreement to sell a 30 percent interest in the Lagansky Block to Gunvor Cyprus Holding Ltd (Gunvor) for MUSD 30.0 and certain deferred consideration payable on future commercial discoveries and on certain levels of certified reserves within the Lagansky Block. The agreement is subject to applicable Russian government approval. Lundin has received an advance of the MUSD 30.0 acquisition price from Gunvor as an interest free loan pending the governmental approval. As a result of this transaction, Gunvor will become a full paying partner in respect of its 30 percent interest from commencement of the preparations for drilling the Petrovskaya-1 well. Lundin Petroleum will retain its rights to recover the shareholder loan previously funded 100 percent by it into the Lagansky Block. As a result of the above two transactions Lundin Petroleum will continue to hold 70 percent of the Lagansky Block. At the end of 2008, Lundin Petroleum owned approximately 45 percent of the issued and outstanding common shares of PetroFalcon Corporation (PetroFalcon). The shareholding in PetroFalcon was accounted for under the equity method whereby only the change in equity is accounted for in the income statement of the Group under the heading Result from share in associated company. During the third quarter of 2009, PetroFalcon changed its name to Etrion Corporation (Etrion) and acquired a 90 percent interest in a renewable energy company which will be Etrion’s primary business focus going forward. At the same time, Lundin Petroleum gained control of the board of directors of Etrion, and this, along with the combined shareholding of Etrion by Lundin Petroleum and certain of its directors gave deemed control for accounting purposes to Lundin Petroleum. As a result of this deemed control, Lundin Petroleum is required to fully consolidate the results of Etrion into the Lundin Petroleum consolidated accounts and has done so with an effective date of 30 September 2009. The effects of the consolidation of Etrion into the Lundin Petroleum accounts are shown in the table below. TUSD Carrying value 30 September 2009 Assigned values upon consolidation Other tangible assets Other shares and participations Other financial assets Other intangible assets Working capital Goodwill Cash and cash equivalents Deferred tax provision Other provisions IFRS 2 reserve Minority interest Total assigned value 30 September 2009 460 10,000 44 3,079 -418 674 27,006 -840 -111 -6,225 -18,770 14,899 3,217 69,876 307 21,512 -2,909 4,708 188,709 -5,873 -777 -43,501 -131,166 104,103 14,899 TSEK 104,103 FUTURE OUTLOOK Lundin Petroleum is actively pursuing opportunities to further expand its oil and gas portfolio and increasing its reserves through organic growth of producing assets and exploration and exploitation of existing assets complemented by acquisitions. Reference is made to Note 44 in relation to the spin-off of the UK business in 2010. ENVIRONMENT Lundin Petroleum and its international exploration and production affiliates conduct their international exploration and production operations, at a minimum, in accordance with all applicable environmental procedures and programmes. The Group has no operations in Sweden. FINANCIAL RESULT AND CONDITION OF THE GROUP Result Lundin Petroleum reports a net result for the financial year ended 31 December 2009 of MSEK -3,790.0 (MSEK 310.3). The reported result for the financial year ended 31 December 2009 was affected by the following non-recurring and non-cash items: Result attributable to Lundin Result Minority Petroleum after tax interest -3,790.0 -899.5 -2,890.5 Expressed in MSEK Reported result Impairment of Russian carrying value Other one off items - Etrion impairment - Sale of Lundin International BV - Sale of NOGAT - Sale of Russian onshore fields Exploration costs Net Result before adjustments Result before tax -3,376.5 Tax -413.5 4,588.5 -618.4 3,970.1 761.5 3,208.6 409.3 -211.2 -80.4 179.1 1,051.0 – – – – -544.1 409.3 -211.2 -80.4 179.1 506.9 – – – – 59.8 409.3 -211.2 -80.4 179.1 447.1 2,559.8 -1,576.0 983.8 -78.2 1,062.0 Net result attributable to shareholders of the Parent Company for the financial year ended 31 December 2009 amounted to MSEK -2,890.5 (MSEK 560.0) representing earnings per share on a fully diluted basis of SEK -9.22 (SEK 1.77) for the financial year ended 31 December 2009. Operating cash flow for the financial year ended 31 December 2009 amounted to MSEK 3,597.3 (MSEK 4,092.1) representing operating cash flow per share on a fully diluted basis of SEK 11.48 (SEK 12.96) for the financial year ended 31 December 2009. Earnings before interest, tax, depletion and amortisation (EBITDA) for the financial year ended 31 December 2009 amounted to MSEK 3,678.5 (MSEK 3,878.4) representing EBITDA per share on a fully diluted basis of SEK 11.74 (SEK 12.29) for the financial year ended 31 December 2009. Changes in the Group In April 2009, Lundin Petroleum completed the sale of its 100 percent owned subsidiaries Lundin Kenya B.V. and Lundin East Africa B.V., holding the Group’s Kenyan and Ethiopian assets, to Africa Oil Corporation for a consideration of a convertible loan of MUSD 23.7 (MSEK 181.3). 48 Lundin Petroleum ANNUAL REPORT 2009

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