Annual Report 2011

Sivu: 1 Sivu: 2 Sivu: 3 Sivu: 4 Sivu: 5 Sivu: 6 Sivu: 7 Sivu: 8 Sivu: 9 Sivu: 10 Sivu: 11 Sivu: 12 Sivu: 13 Sivu: 14 Sivu: 15

Sivu: 16

OUR MARKET OIL PRICE AND SUPPLY/DEMAND At the start of 2011, most market commentators were predicting a fall in the oil price from the prevailing level of USD 110 as all market indicators pointed towards a slowing of the global economy. An expected reduction in China’s growth rate, the threat of recession across Europe and the downgrade of sovereign credit ratings all supported the argument that the demand for oil would slow. But despite these recessionary concerns, oil demand remained strong throughout the year and Dated Brent achieved an average price of USD 111 for the year. The market in 2011 supports Lundin Petroleum’s view that the oil price will remain strong in the medium term. The short term price may be affected by various one off events but in the medium term, we believe that demand will continue to grow at a greater rate than the oil companies’ ability to find, develop and produce new resources. Oil demand is forecast to continue to grow in the medium term as shown in Graph 1. The graph demonstrates that whilst OECD demand is flattening off, overall demand is still increasing through growth in the non-OECD, led by China and India. GDP growth in China in the fourth quarter of 2011 was higher than analysts’ expectations, coming in at nine percent, and forecast to continue at high levels. Indian GDP growth averaged over seven percent for the year. Market strategists continue to forecast increased supplies to meet this demand through the utilisation of spare capacity and through greater investment in new production. Firstly, the ability to utilise this spare capacity has not been tested, in terms of the time it takes to bring this spare capacity onstream, whether it is the right quality to satisfy the market needs, transportation limitations and current refinery structures. Secondly, any investment decision in new production will depend ultimately on the economic viability of the project. The marginal cost of any additional production provided through new investment has increased, both through a higher cost of discovering and developing frontier and unconventional producing areas, and through governments using greater oil royalties and taxation to fund national budgets. a value of approximately USD 600 million to fund the Valkyries acquisition. In 2010 Lundin Petroleum distributed shares in subsidiaries to shareholders valued at approximately USD 750 million, which is in excess of all the equity raised up to that point. Graph 2 shows the share price of Lundin Petroleum over the ten years the Company has been in existence reflecting the success of Lundin Petroleum’s growth strategy. Graph 3 shows Lundin Petroleum amongst a peer group predominantly composed of European independent oil and gas companies. Lundin Petroleum is now one of the largest European independent oil and gas companies. In 2011, the Lundin Petroleum share price increased by 100 percent as shown in Graph 4. This increase is due to exploration success, particularly the appraisal of the Johan Sverdrup discovery, and the continuation of momentum gained through reserve replacement and value growth. DEBT FUNDING As its principal source of external funding, Lundin Petroleum has always utilised secured revolving credit lines, in the form of reserve based lending. In 2002, a reserve based lending facility of USD 130 million was raised to fund the Coparex acquisition, subsequently repaid in 2003. A new reserve based lending facility of USD 385 million was raised in 2004 for the DNO acquisition. This facility was subsequently increased to USD 500 million to fund Lundin Petroleum’s organic growth programme. In 2007, Lundin Petroleum took advantage of prevailing positive market conditions to increase the facility to USD 850 million, complemented by a USD 150 million corporate facility providing liquidity for the Company to quickly respond to growth opportunities. The success of Lundin Petroleum’s organic growth strategy has resulted in a need, in 2012, to secure a new loan facility to fund development activities over the coming five years. Lundin Petroleum is seeking this funding in a time of unpredictability in the economy and with serious liquidity issues being experienced by many banks. Even though Lundin Petroleum’s proposed refinancing represents a significant increase over previous funding levels, based on an extensive market sounding and initial discussions with banks, we believe there is sufficient depth and appetite in the bank market, both through existing lenders and new banks, to support our development project funding requirements. CAPITAL AND DEBT MARKETS Equity Markets Lundin Petroleum raised an initial USD 50 million through the equity markets when it was first established in 2001. This was followed in 2006 when Lundin Petroleum issued new shares at 14 Lundin Petroleum ANNUAL REPORT 2011

Sivu: 16 Sivu: 17 Sivu: 18 Sivu: 19 Sivu: 20 Sivu: 21 Sivu: 22 Sivu: 23 Sivu: 24 Sivu: 25 Sivu: 26 Sivu: 27 Sivu: 28 Sivu: 29 Sivu: 30 Sivu: 31 Sivu: 32 Sivu: 33 Sivu: 34 Sivu: 35 Sivu: 36 Sivu: 37 Sivu: 38 Sivu: 39 Sivu: 40 Sivu: 41 Sivu: 42 Sivu: 43 Sivu: 44 Sivu: 45 Sivu: 46 Sivu: 47 Sivu: 48 Sivu: 49 Sivu: 50 Sivu: 51 Sivu: 52 Sivu: 53 Sivu: 54 Sivu: 55 Sivu: 56 Sivu: 57 Sivu: 58 Sivu: 59 Sivu: 60 Sivu: 61 Sivu: 62 Sivu: 63 Sivu: 64 Sivu: 65 Sivu: 66 Sivu: 67 Sivu: 68 Sivu: 69 Sivu: 70 Sivu: 71 Sivu: 72 Sivu: 73 Sivu: 74 Sivu: 75 Sivu: 76 Sivu: 77 Sivu: 78 Sivu: 79 Sivu: 80 Sivu: 81 Sivu: 82 Sivu: 83 Sivu: 84 Sivu: 85 Sivu: 86 Sivu: 87 Sivu: 88 Sivu: 89 Sivu: 90 Sivu: 91 Sivu: 92 Sivu: 93 Sivu: 94 Sivu: 95 Sivu: 96 Sivu: 97 Sivu: 98 Sivu: 99 Sivu: 100 Sivu: 101 Sivu: 102 Sivu: 103 Sivu: 104 Sivu: 105 Sivu: 106 Sivu: 107 Sivu: 108 Sivu: 109 Sivu: 110 Sivu: 111 Sivu: 112