Annual Report 2010

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NOTES TO THE FINANCIAL STATEMENTS OF THE GROUP NOTE 19 – SHARES IN JOINTLY CONTROLLED ENTITIES AND ASSOCIATED COMPANIES (TUSD) Consolidation method Ikdam Production SA RF Energy Investments Ltd. - CJSC Pechoraneftegas 1 - LLC Zapolyarneftegas 1 - LLC NK Recher-Komi 1 - Geotundra BV 1 Equity Proportional consolidation Number of shares 1,600 11,540 20,000 1 1 20,000 Share % 40.00 50.00 Direct 100.00, indirect 50.00 Direct 100.00, indirect 50.00 Direct 100.00, indirect 50.00 Direct 100.00, indirect 50.00 Book amount 31 December 2010 0 – – – – – 0 1 Book amount 31 December 2009 0 – – – – – 0 Through the proportional consolidation of RF Energy Investments Ltd. the subsidiaries of RF Energy Investments Ltd. are also proportionally consolidated in the Lundin Petroleum accounts. “Direct” refers to RF Energy’s ownership percentage, “indirect” refers to the Group’s ultimate ownership percentage. The amounts included below for the jointly controlled entities and associated companies represent 100% of the reported accounts. Income statement per 31 December 2010 Revenue Operating cost Net result Balance Sheet per 31 December 2010 Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities Total liabilities Ikdam Production SA 2,737 -4,971 -2,234 RF Energy consolidated 133,248 -126,622 6,626 Ikdam Production SA 3,497 881 4,378 -11,547 15,373 552 4,378 RF Energy consolidated 127,696 24,116 151,812 89,022 48,569 14,221 151,812 NOTE 20 – OTHER SHARES AND PARTICIPATIONS (TUSD) 31 December 2010 Other shares and participation comprise: ShaMaran Petroleum Corp. Cofraland B.V. Maison de la géologie Baripetrol SA PetroCumarebo SA Island Oil and Gas plc Number of shares 50,000,000 31 2 – – – Share % 8.02 7.75 1.25 – – – Book amount 68,205 404 4 – – – 68,613 31 December 2009 Book amount 21,426 436 4 8,100 1,900 503 32,369 In October 2009, Lundin Petroleum received 50 million shares of ShaMaran Petroleum Corp. (ShaMaran) in consideration for the sale of Lundin International BV (LIBV), a 100% owned subsidiary, which had commenced negotiations for Production Sharing Contracts (PSCs) for three separate exploration and development blocks in Kurdistan. Lundin Petroleum will receive an additional 50 million shares of ShaMaran if ShaMaran receives the approval of a development plan for the PSC covering the Pulkhana Block, Kurdistan. There can be no assurance that this condition will be satisﬁed. The fair value of ShaMaran is calculated using the quoted share price at the Toronto Stock Exchange. During 2010, Lundin Petroleum sold its shareholding in Island Oil and Gas and also distributed Etrion which held shares in Baripetrol SA and PetroCumarebo SA. As at 31 December 2010, the other shares and participations include TUSD 408.0 recognised at cost because their fair value cannot be measured reliably since there is no quoted share price and due to the uncertainty of the timing of the future cash ﬂows from these companies. NOTE 21 – FINANCIAL RISKS, SENSITIVITY ANALYSIS AND DERIVATIVE INSTRUMENTS (TUSD) As an international oil and gas exploration and production company operating globally, Lundin Petroleum is exposed to ﬁnancial risks such as ﬂuctuations in currency rates, oil price, interest rates as well as credit ﬁnancing. The Group shall seek to control these risks through sound management practice and the use of internationally accepted ﬁnancial instruments, such as oil price hedges and interest rate hedges. Lundin Petroleum uses ﬁnancial instruments solely for the purpose of minimising risks in the Group’s business. Currency fluctuations Lundin Petroleum is a Swedish company which is operating globally and therefore attracts substantial foreign exchange exposure, both transactional as well as conversion from functional currency to presentation currency. The functional currency of Lundin Petroleum’s subsidiaries are Norwegian Kroner (NOK), Euro (EUR) and Russian Rouble (RUR), as well as US Dollar, making Lundin Petroleum sensitive for ﬂuctuation of these currencies against the US Dollar, the presentation currency. As at 31 December 2010 and 2009, no foreign exchange forward contracts were entered into. Conversion exposure The following table summarises the eﬀect a shift of these currencies against the US Dollar would have on operating result through the conversion of the income statements of the Group’s subsidiaries from functional currency to the presentation currency US Dollar for the year ended at 31 December 2010. Operating result in the financial statements (MUSD) Shift of currency exchange rates to: USD/EUR SEK/USD NOK/USD RUR/USD Total effect on operating result (MUSD) 1.4595 6.5413 5.4859 27.5973 37.5 1.2062 7.9149 6.6380 33.3927 -37.5 393.9 393.9 The foreign currency risk to the Group’s income and equity from conversion exposure is not hedged. 84 Lundin Petroleum ANNUAL REPORT 2010

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