Annual Report 2010

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NOTES TO THE FINANCIAL STATEMENTS OF THE GROUP continued – NOTE 46 No incentive warrants were exercised during 2009 or 2010. The 1,410,750 incentive warrants that were exercisable at 31 December 2009 lapsed on 29 May 2010. There were no incentive warrants outstanding at 31 December 2010. The Performance Share Plan included a conditional award of Lundin Petroleum shares with a vesting period of three years and subject to the achievement of a performance condition relative to TSR. The number of shares awarded under the Performance Share Plan was based on the value of the options granted under the Share Option Plan. The employees could earn between 50 and 100% of the award of shares depending upon the Company’s performance measured using a relative TSR. Under the Performance Share Plan, Lundin Petroleum made a conditional award of 67,751 shares subject to the achievement of performance criteria. In June 2007, Lundin Petroleum acquired 68,000 of its own shares to fully hedge its potential obligation under the Performance Share Plan. On 29 May 2010, the 67,751 performance shares were delivered to employees. The related total expense accounted for during the period amounted to TUSD 7,814 (TUSD 4,281). Unit Bonus Plan At the AGM on 13 May 2008, the shareholders of Lundin Petroleum approved the implementation of a new LTIP which related to the Company’s share price and consisted of an annual grant of units that would be converted into a cash payment at vesting. The cash payment would be determined at the end of each vesting period by multiplying the number of units by the share price at the relevant time. The 2008 LTIP had a three year duration whereby the initial grant of units vested equally in three tranches: one third after one year; one third after two years; and the ﬁnal third after three years. The cash payment is conditional upon the holder of the units remaining an employee of the Lundin Petroleum Group at the time of payment. At the AGMs on 13 May 2009 and 6 May 2010, the shareholders of Lundin Petroleum approved the implementation of LTIPs for employees other than Executive Management (being the Chief Executive Oﬃcer, the Chief Operating Oﬃcer, the Chief Financial Oﬃcer and the Senior Vice President Operations) that follow the same principles as the 2008 LTIP. The following table shows the number of units issued under LTIP, the amount outstanding as at 31 December 2010 and the year in which the units will vest. Year of vesting 1 Unit Bonus Plan 2008 2009 2010 1 Total units 723,239 670,400 723,950 Outstanding 31 Dec 2010 211,807 435,498 701,250 2009 205,821 – – 2010 222,855 232,437 – 2011 213,940 219,980 236,299 2012 – 219,980 236,299 2013 – – 236,300 The numbers provided for the year of vesting have been recalculated from the number outstanding at 31 December 2010 to reﬂect the Etrion distribution. On 9 April 2010, Lundin Petroleum distributed the shares of EnQuest that it had received in consideration for the sale of the UK business. Under the rules of the LTIPs, the distribution triggered a recalculation of the number of units allocated. On 12 November 2010, Lundin Petroleum distributed the shares of Etrion. This event triggered a recalculation of the number of units allocated. This recalculation of the units was approved by the Compensation Committee in February 2011. The total number of units vesting do not necessarily equal the units awarded due to the recalculation following distributions by Lundin Petroleum oﬀsetting units that have lapsed following employees leaving the Group. The costs associated with the unit bonus plans are as given in the following table. Unit Bonus Plan (TUSD) 2008 2009 2010 On 12 November 2010, Lundin Petroleum distributed the shares of Etrion. This event triggered a recalculation of the number of phantom options allocated and the exercise price at which the phantom options are exercisable. This recalculation of the units was approved in February 2011. The number of phantom options outstanding at 31 December 2010 amounted to 5,500,928 (4,000,000) with an exercise price of SEK 52.91 (SEK 72.76). For further details regarding these LTIPs, please see Note 45. The results of Etrion were consolidated during 2010 until 12 November 2010 when the shares in Etrion held by Lundin Petroleum were distributed to its shareholders. Included within the consolidated general and administration costs was an amount of MUSD 2.7 representing costs under Etrion’s stock option plan. NOTE 47 – SUBSEQUENT EVENTS 2010 1,625 2,901 3,070 7,596 2009 1,696 2,585 – 4,281 In March 2011, Lundin Petroleum converted MUSD 13.0 of a MUSD 23.8 convertible loan receivable from Africa Oil Corporation (AOC) into 14 million shares in AOC at a conversion price of Canadian Dollars (CAD) 0.90 per share. The shares were subsequently sold on the open market for CAD 2.00 per share realising MCAD 28.0 in proceeds. In addition to the primary listing on the NASDAQ OMX, Stockholm the Lundin Petroleum share has started trading on 24 March 2011 on the Toronto Stock Exchange. No additional shares were issued in connection to the secondary listing. In March 2011, Lundin Petroleum was awarded a PSC for the Gurita Block (WI 100%), Indonesia. The costs for 2010 also included an amount of TUSD 218 relating to employees of the UK operations that were shown as discontinued items. Phantom Option Plan At the AGM on 13 May 2009, the shareholders of Lundin Petroleum approved the implementation of a new LTIP for Executive Management consisting of a grant of phantom options exercisable after ﬁve years from the date of grant. The exercise of these options entitles the recipient to receive a cash payment based on the appreciation of the market value of such shares. Payment of the award under these phantom options will occur in two equal instalments: (i) ﬁrst on the date immediately following the ﬁfth anniversary of the date of grant, and (ii) second on the date which is one year following the date of the ﬁrst payment. The total costs related to the 2009 LTIP for Executive Management amounted to TUSD 8,894 (TUSD 657) for the ﬁnancial year ended 31 December 2010. On 9 April 2010, Lundin Petroleum distributed the shares of EnQuest that it had received in consideration for the sale of the UK business. Under the rules of the LTIP the distribution triggered a recalculation of the number of phantom options allocated and the strike price at which the phantom options are exercisable. 92 Lundin Petroleum ANNUAL REPORT 2010

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