Annual Report 2010

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WORDS FROM THE CHAIRMAN “ Lundin Norway has achieved an average discovery rate of 39 percent resulting in seven discoveries on the NCS over the past five years. IAN H. LUNDIN CHAIRMAN Dear fellow shareholders, 2010 was a monumental year for our Company and commodities in general. Global oil consumption increased by over 2.5 million barrels a day as supplies were restricted by aging giant oil ﬁelds and lack of investments in infrastructure around the world. Entry barriers in oil rich regions such as the Middle East and Russia continue to limit access to IOC’s (international oil companies) while NOC’s (national oil companies) are stretched to develop their huge existing resource base let alone explore for more. Norway is one exception of a nation rich in natural resources making a daring political decision to open its oil and gas sector to the independent industry. The results speak for themselves: the Norwegian Petroleum Directorate has announced that in 2010 alone 16 new discoveries were made on the Norwegian Continental Shelf (NCS). A total of 32 exploration wells were completed in 2010. This means a discovery success rate of 50 percent. Ten of the discoveries were made in the North Sea and six in the Norwegian Sea. Of these 32 wells Lundin Petroleum participated in six and made two discoveries in the North Sea, one of which, well 16/2-6 (Avaldsnes) could prove to be signiﬁcantly bigger than the large Luno discovery which the Company made in 2007. Avaldsnes is perhaps the largest oil discovery on the NCS since Snorre (discovered by Saga Petroleum in the late 80’s). Lundin Petroleum has achieved an average discovery rate of 39 percent resulting in seven discoveries on the NCS over the past ﬁve years. The average ﬁnding cost over that period is USD 2.9 per barrel pre tax (USD 0.6 per barrel post tax). In 2011 Lundin Petroleum is expected to participate in ten wells on the NCS of which two are exploration wells in the Barents Sea. We look forward to repeating the success achieved on the NCS in South East Asia where the Company has been very busy building another strategic portfolio of assets over the last ﬁve years. In 2011 we expect to start a drilling campaign consisting of ﬁve wells in Malaysia where Lundin Petroleum has long historical links and from where it is launching its South East Asian eﬀort. Having spun oﬀ the mature UK North Sea assets into EnQuest and thereby creating signiﬁcant value for the shareholders, Lundin Petroleum is now much more agile and less encumbered in order to better tackle new challenges in its ongoing quest to ﬁnd more oil and gas. I expect that the reserves and production that was transferred to EnQuest will be replaced in short order from the exploration successes and the strong production growth that Lundin Petroleum has achieved in Norway. The oil industry suﬀered a major setback in 2010 with the Macondo oil spill. The accident occurred in April and while response measures were taken forthwith, the ﬁrst relief well was successfully completed and the well was declared “eﬀectively dead” in September. According to the technical group responsible for controlling the spill, the total leak amounted to about 4.9 million barrels of oil, thus overtaking the 1989 Exxon Valdez oil spill as the largest ever to originate in the United States. The long-term environmental impact of this blowout, which also caused the death of 11 rig workers, will not be known for several years but the fact that the spill occurred in very deep water and far away from the coast line certainly limited its impact. It was later concluded by an oﬃcial inquiry that the root cause of this blowout was systemic management failures. Until the disaster occurred, the industry had a very good track record thanks to very strict safety and 6 Lundin Petroleum ANNUAL REPORT 2010

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