Annual Report 2010

Sivu: 1 Sivu: 2 Sivu: 3 Sivu: 4 Sivu: 5 Sivu: 6 Sivu: 7 Sivu: 8 Sivu: 9 Sivu: 10 Sivu: 11 Sivu: 12 Sivu: 13 Sivu: 14 Sivu: 15 Sivu: 16 Sivu: 17 Sivu: 18 Sivu: 19 Sivu: 20 Sivu: 21 Sivu: 22 Sivu: 23 Sivu: 24 Sivu: 25 Sivu: 26 Sivu: 27 Sivu: 28 Sivu: 29 Sivu: 30 Sivu: 31 Sivu: 32 Sivu: 33 Sivu: 34 Sivu: 35 Sivu: 36 Sivu: 37 Sivu: 38 Sivu: 39 Sivu: 40 Sivu: 41 Sivu: 42 Sivu: 43 Sivu: 44 Sivu: 45 Sivu: 46 Sivu: 47 Sivu: 48 Sivu: 49 Sivu: 50 Sivu: 51 Sivu: 52 Sivu: 53 Sivu: 54 Sivu: 55 Sivu: 56 Sivu: 57

Sivu: 58

RISK FACTORS The major risk the Lundin Petroleum Group faces is the nature of oil and gas exploration and production itself. Oil and gas exploration, development and production involve high operational and ﬁnancial risks, which even a combination of experience, knowledge and careful evaluation may not be able to fully eliminate or which are beyond the Company’s control. Lundin Petroleum’s long-term commercial success depends on its ability to ﬁnd, acquire, develop and commercially produce oil and natural gas reserves. A future increase in Lundin Petroleum’s reserves will depend not only on its ability to explore and develop any properties Lundin Petroleum may have from time to time, but also on its ability to select and acquire suitable producing properties or prospects. In addition, there is no assurance that commercial quantities of oil and gas will be discovered or acquired by Lundin Petroleum. Other risks have been categorised to either Operational Risks or Financial Risks. Estimates of proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history and production practices will result in variations in the estimated reserves and such variations could be material. Health, safety and environment (HSE) Extensive national, state, and local environmental laws and regulations in foreign jurisdictions aﬀect nearly all of the operations of Lundin Petroleum. These laws and regulations set various standards regulating certain aspects of health and safety, and environmental quality, provide for civil and criminal penalties and other liabilities for the violation of such standards and establish in certain circumstances obligations to remediate current and former facilities and locations where operations are or were conducted. In addition, special provisions may be appropriate or required in environmentally sensitive areas of operation. See also pages 34–40 Corporate Responsibility for more information. Operational risk The Group faces a number of risks and uncertainties in the areas of operation which may have an adverse impact on its ability to successfully pursue its exploration, appraisal and development plans as well as on its production of oil and gas. Legal risks Production costs Completion of a well does not assure a proﬁt on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various ﬁeld operating conditions may adversely aﬀect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insuﬃcient storage or transportation capacity or other geological and mechanical conditions. While diligent well supervision and eﬀective maintenance operations can contribute to maximising production rates over time, production delays and declines from normal ﬁeld operating conditions cannot be eliminated and can be expected to adversely aﬀect revenue and cash ﬂow levels to varying degrees. The Company could be the target of legal complaints raised by customers, employees and other third parties in the areas of health, environmental, safety or business related issues or the failure to comply with applicable legislation and regulations. Even if such disputes were to be resolved successfully, without ﬁnancial consequences they could negatively impact the Group’s reputation and take up resources that could be used for other purposes. Competition The petroleum industry is competitive in all its phases. Lundin Petroleum’s competitors will include oil and natural gas companies that have substantially greater ﬁnancial resources, staﬀ and facilities than those of Lundin Petroleum. Lundin Petroleum’s ability to increase reserves in the future will depend not only on its ability to explore and develop its present properties, but also on its ability to select and acquire suitable producing properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural gas include price and methods and reliability of delivery. Availability of drilling equipment and access Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment in the particular areas where such activities will be conducted. Demand for such limited equipment or access restrictions may aﬀect the availability of such equipment to Lundin Petroleum and may delay exploration and development activities. Geopolitical risk Lundin Petroleum is, and will be, actively engaged in oil and gas operations in various countries. Risks may arise in changes in laws aﬀecting foreign ownership, government participation, taxation, royalties, duties, rates of exchange and exchange control. Further, certain aspects of Lundin Petroleum’s exploration and production programmes require the consent or favourable decisions of governmental bodies. In addition, Lundin Petroleum’s exploration, development and production activities may be subject to political and economic uncertainties, expropriation of property and cancellation or modiﬁcation of contract rights, taxation, royalties, duties, foreign exchange restrictions and other risks arising out of foreign governmental sovereignty over the areas in which Lundin Petroleum’s operations are conducted, as well as risks of loss in some countries due to civil strife, acts of war, guerrilla activities and insurrection. Oil installations are known to be likely objects, and even targets, of military operations and terrorism. Given their vulnerability and the considerable economic interests involved, this adds to the risk proﬁle of Lundin Petroleum’s interests. Reliance on key personnel Lundin Petroleum’s success depends in large measure on certain key personnel. The competition for qualiﬁed personnel in the oil and natural gas industry is intense and there can be no assurance that Lundin Petroleum will be able to continue to attract and retain all personnel necessary for the development and operation of its business. Reserve estimates In general, estimates of economically recoverable oil and natural gas reserves and the future net cash ﬂows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and gas, royalty rates, the assumed eﬀects of regulation by governmental agencies and future operating costs, all of which may vary from actual results. All such estimates are to some degree speculative, and classiﬁcations of reserves are only attempts to deﬁne the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classiﬁcation of such reserves based on risk of recovery and estimates of future net revenues expected therefrom prepared by diﬀerent engineers, or by the same engineers at diﬀerent times, may vary. Financial risk Financial risks such as ﬂuctuations in currency rates, oil price, interest rates, liquidity risk and credit risk as well as derivative instruments used has been described in Note 21 on pages 84–86 in the Financial Report. Risks in the ﬁnancial reporting are described in the Internal Control Report on pages 48–49, and in Our Market on pages 18–19. 56 Lundin Petroleum ANNUAL REPORT 2010

Sivu: 58 Sivu: 59 Sivu: 60 Sivu: 61 Sivu: 62 Sivu: 63 Sivu: 64 Sivu: 65 Sivu: 66 Sivu: 67 Sivu: 68 Sivu: 69 Sivu: 70 Sivu: 71 Sivu: 72 Sivu: 73 Sivu: 74 Sivu: 75 Sivu: 76 Sivu: 77 Sivu: 78 Sivu: 79 Sivu: 80 Sivu: 81 Sivu: 82 Sivu: 83 Sivu: 84 Sivu: 85 Sivu: 86 Sivu: 87 Sivu: 88 Sivu: 89 Sivu: 90 Sivu: 91 Sivu: 92 Sivu: 93 Sivu: 94 Sivu: 95 Sivu: 96 Sivu: 97 Sivu: 98 Sivu: 99 Sivu: 100 Sivu: 101 Sivu: 102 Sivu: 103 Sivu: 104 Sivu: 105 Sivu: 106 Sivu: 107 Sivu: 108