Annual Report 2010

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DIRECTORS’ REPORT Result from share in associated company The result from share in associated company for the comparative reporting period amounted to MUSD -25.5 and consisted of the 44.81 percent equity share of the result of Etrion owned by Lundin Petroleum. The results of Etrion have been fully consolidated into the Lundin Petroleum consolidated accounts from 30 September 2009 and up until the distribution, and as such, there is no amount recorded for 2010 in the result from share in associated company. Included in the expense of MUSD 25.5 for the comparative period is an amount of MUSD 22.8 relating to the write down of Etrion’s Venezuelan oil and gas assets. Tax The tax charge for the reporting period amounted to MUSD 251.9 (MUSD 45.7) and is detailed in Note 12. The current tax charge on continuing operations for the reporting period amounted to MUSD 68.2 (MUSD 32.0). In the reporting period, there is a MUSD 36.1 (MUSD 2.2) current tax charge relating to Norway in respect of the 28 percent onshore tax regime where the losses brought forward have been utilised. The tax charge in Norway consists of both the 28 percent onshore regime and the 50 percent oﬀshore regime. Certain tax allowances earned on development expenditure are currently oﬀsetting the 50 percent Norway oﬀshore tax regime The deferred tax charge amounted to MUSD 183.7 (MUSD 13.7) for the reporting period. The deferred tax charge for 2009 includes a MUSD 86.9 deferred tax release on the Lagansky block impairment taken in 2009. 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 20 percent and 78 percent. The eﬀective tax rate for the Group for the reporting period amounted to 66 percent including the gain on sales of assets. Excluding the gain on sales of assets, the eﬀective tax rate for the Group for the reporting period amounted to 80 percent. These eﬀective rates are calculated from the face of the income statement and do not reﬂect the eﬀective rate of tax paid within each country of operation. The main contributor to the tax charge is Norway with an eﬀective tax rate of 74 percent. Reported losses in non-operating entities, with zero or low tax credits recorded, increase the eﬀective rate. The eﬀective rate of cash tax payable in the reporting period is 22 percent excluding the gain on sale of assets, because tax loss carry forwards and exploration expenditure provided a tax deduction in Norway during the year. Non-controlling interest The net result attributable to non-controlling interest for the reporting period amounted to MUSD -13.4 (MUSD -125.8) and mainly relates to the non-controlling interest’s share in Etrion which was fully consolidated until the date of the distribution of the Etrion shares. The net result attributable to non-controlling interest for the comparative period primarily consisted of the non-controlling interest’s share in the Lagansky Block impairment. Discontinued operations The net result from discontinued operations for the reporting period amounted to MUSD 369.0 (MUSD 8.7) and relates to the net result of MUSD 10.9 (MUSD 8.7) for the United Kingdom up to 6 April 2010, the date of the UK spin-oﬀ, and the subsequent gain on the sale of the UK assets of MUSD 358.1 (MUSD –). For more detail refer to Note 13. BALANCE SHEET Non-current assets Oil and gas properties amounted to MUSD 1,999.0 (MUSD 2,540.3) and are detailed in Note 14. Development and exploration expenditure incurred for the reporting period was as follows: Development expenditures in MUSD Norway France Netherlands Indonesia Russia Development expenditures from continuing operations Discontinued operations - United Kingdom Development expenditures 2010 106.3 13.2 4.5 10.2 6.6 140.8 17.1 157.9 2009 88.1 6.3 5.3 34.9 10.1 144.7 63.5 208.2 Exploration expenditure in MUSD Norway France Indonesia Russia Vietnam Congo (Brazzaville) Malaysia Other Exploration expenditures from continuing operations Discontinued operations - United Kingdom Exploration expenditures 2010 160.8 1.0 13.5 18.3 15.3 2.5 10.6 4.4 226.4 0.2 226.6 2009 198.5 3.1 9.7 45.2 9.2 13.8 23.9 4.7 308.1 2.3 310.4 Other tangible assets amounted to MUSD 15.3 (MUSD 15.3) and represents oﬃce ﬁxed assets and real estate. See Note 16. Financial assets amounted to MUSD 114.9 (MUSD 85.4) and are detailed in Notes 19 to 23. Other shares and participations amounted to MUSD 68.6 (MUSD 32.4) and primarily relate to the shares held in ShaMaran Petroleum. Long-term receivables amounted to MUSD 23.8 (MUSD 24.2) and relates to the convertible loan provided to Africa Oil Corporation for MUSD 23.8 (MUSD 23.8). Other ﬁnancial assets amounted to MUSD 22.5 (MUSD 28.6) and mainly represents VAT paid on costs in Russia that is expected to be recovered amounting to MUSD 16.5 (MUSD 17.5) and capitalised ﬁnancing fees of MUSD 4.7 (MUSD 7.5). The deferred tax asset amounted to MUSD 15.1 (MUSD 27.9) and mainly relates to unutilised tax losses in the Netherlands. Current assets Receivables and inventories amounted to MUSD 236.2 (MUSD 198.0) and are detailed in Notes 24 to 27. Inventories include hydrocarbons and consumable well supplies and amounted to MUSD 20.0 (MUSD 27.4). The main reduction in value is due to the sale of the Indonesian Salawati assets which carried inventories of hydrocarbons and well supplies. Trade receivables amounted to MUSD 94.2 (MUSD 80.7). Higher levels of production from Norway following the start up of the Volund ﬁeld have oﬀset the receivables due from the UK and Salawati ﬁelds that were sold during 2010 but were included in the comparative period. The short-term loan receivable of MUSD 74.5 (MUSD 33.9) mainly relates to the loan outstanding to Etrion. The comparative period includes a MUSD 30.0 advance in relation to the acquisition of the 30 percent interest in the Lagansky Block to the non-controlling partner. This transaction was successfully completed during the third quarter of 2010. 62 Lundin Petroleum ANNUAL REPORT 2010

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