Annual Report 2010

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DIRECTORS’ REPORT In 2009, Lundin Petroleum fully consolidated two subsidiaries in Russia over which it had control, with the portion not owned by Lundin Petroleum shown as a non-controlling interest. The average production for Russia for the ﬁnancial year ended 31 December 2009 adjusted to Lundin Petroleum’s share of ownership was 4.8 Mboepd. Lundin Petroleum sold the two controlled Russian subsidiaries during the second half of 2009. Production quantities in a period can diﬀer from sales quantities for a number of reasons. Timing diﬀerences can arise due to inventory, storage and pipeline balances eﬀects. Other diﬀerences arise as a result of paying royalties in kind as well as the eﬀects from production sharing agreements. Operating income Net sales of oil and gas for the reporting period amounted to MUSD 785.2 (MUSD 567.5) and are detailed in Note 1. The average price achieved by Lundin Petroleum for a barrel of oil equivalent amounted to USD 72.26 (USD 57.16) and is detailed in the following table. The average Dated Brent price for the reporting period amounted to USD 79.50 (USD 61.67) per barrel. Sales for the reporting period were comprised as follows: Sales Average price per boe expressed in USD Norway - Quantity in Mboe - Average price per boe France - Quantity in Mboe - Average price per boe Netherlands - Quantity in Mboe - Average price per boe Indonesia - Quantity in Mboe - Average price per boe Russia - Quantity in Mboe - Average price per boe Tunisia - Quantity in Mboe - Average price per boe Total from continuing operations - Quantity in Mboe - Average price per boe Discontinued operations - United Kingdom - Quantity in Mboe - Average price per boe Total - Quantity in Mboe - Average price per boe 11,731.9 72.26 13,919.4 57.16 814.4 76.82 3,630.8 62.83 10,917.5 71.92 10,288.6 55.16 382.6 77.15 465.5 54.72 1,290.0 51.65 1,976.4 37.64 607.7 65.31 609.4 60.58 756.7 44.37 759.3 50.49 1,168.0 79.35 1,277.9 60.94 6,712.5 77.93 5,200.1 60.48 2010 2009 Etrion’s solar business. Also included in other operating income is tariﬀ income from France and the Netherlands and income for maintaining strategic inventory levels in France. Production costs Production costs for the reporting period amounted to MUSD 157.1 (MUSD 155.3) and are detailed in Note 2. The production and depletion costs per barrel of oil equivalent produced from continuing oil and gas operations are detailed in the table below: Production cost and depletion USD per boe Cost of operations Tariﬀ and transportation expenses Royalty and direct taxes Changes in inventory/overlift Other Total production costs Depletion Total cost per boe 2010 8.63 1.57 3.74 -0.31 0.38 14.01 12.85 26.86 2009 9.22 1.52 3.96 0.01 0.30 15.01 11.41 26.42 Actual cost of operations for oil and gas operations for the reporting period was MUSD 96.1 and was in line with the comparative period of MUSD 95.4. Production volumes were 8 percent higher than 2009 resulting in the lower cost of operations per barrel compared to the comparative reporting period. The cost of operations per barrel for the reporting period of USD 8.63 per barrel was also signiﬁcantly below the original market guidance of USD 10.35 per barrel for continuing operations for 2010 due to the higher production and lower costs. The average cost of operations per barrel for 2011 is expected to remain at this lower level. The tariﬀ and transportation expenses for 2010 is 11 percent higher at MUSD 17.4 compared to the comparative reporting period at MUSD 15.7. This increase is mainly due to the increased production contribution from the Volund ﬁeld, Norway. The operating cost of the Volund ﬁeld consists of an operating expense share and a tariﬀ element payable to the Alvheim ﬁeld consortium. The operating expense of the Alvheim production facilities is shared between the Alvheim (WI 15%), Volund (WI 35%) and Vilje (WI -%) ﬁelds based on volume throughput. Lundin Petroleum has a 15 percent working interest in the Alvheim ﬁeld and a 35 percent interest in the Volund ﬁeld and the tariﬀ self-to-self element is eliminated for accounting purposes leaving a net 20 percent cost for Volund in tariﬀ and transportation expenses. Royalty and direct taxes includes Russian Mineral Resource Extraction Tax (“MRET”) and Russian Export Duties. The rate of MRET is levied on the volume of Russian production and varies in relation to the international market price of Urals blend and the Rouble exchange rate. MRET averaged USD 13.83 (USD 10.23) per barrel of Russian production for the reporting period. The rate of export duty on Russian oil is revised by the Russian Federation monthly and is dependent on the average price obtained for Urals Blend for the preceding one month period. The export duty is levied on the volume of oil exported from Russia and averaged USD 37.59 (USD 21.42) per barrel for the reporting period. The royalty and direct taxes have increased compared to the comparative period following the rise in crude prices impacting the cost of Russian MRET and export duty. There are both permanent and timing diﬀerences that result in sales volumes not being equal to production volumes during a period. Changes to the hydrocarbon inventory and under or overlift positions result from these timing diﬀerences and an amount of MUSD 3.4 (MUSD 0.1) was credited to the income statement for the reporting period. The oil produced in Russia is sold on either the Russian domestic market or exported into the international market. 40 percent (40 percent) of Russian sales for the reporting period were on the international market at an average price of USD 76.17 per barrel (USD 57.23 per barrel) with the remaining 60 percent (60 percent) of Russian sales being sold on the domestic market at an average price of USD 34.98 per barrel (USD 24.67 per barrel). Other operating income amounted to MUSD 13.4 (MUSD 4.3) for the reporting period and includes MUSD 9.3 (MUSD –) of income relating to 60 Lundin Petroleum ANNUAL REPORT 2010

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