Annual Report 2011

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How did Lundin Petroleum make the giant Johan Sverdrup discovery? An interview with HANS CHRISTEN RØNNEVIK Lundin Petroleum made a world class oil discovery, Johan Sverdrup, in an area most people in the industry considered uninteresting. With the appraisal wells in 2011 and confirmation that the discovery stretched into the Statoil operated neighbouring licence, the Johan Sverdrup discovery is considered one of the largest discoveries ever made in Norway. Lundin Petroleum’s Exploration Manager in Norway, Hans Christen Rønnevik has gained much recognition in recent months. He is considered the mastermind behind Lundin Petroleum’s incredible exploration success on the Norwegian Continental Shelf. How did you assess the potential on the Norwegian Continental Shelf? Our general philosophy was that the oil was not finished on the Norwegian Continental Shelf – there was more to find. I have the advantage that I’ve grown up with the development of the Norwegian Continental Shelf. Starting off in the Norwegian Petroleum Directorate was useful for acquiring an overall view. During the last 40 years we have seen a step change in the technology used to find oil. New 3D seismic and an array of other tools have provided more certainty when identifying prospects today. For a long period of time, Norway was only open to the supermajors who focused on easily identifiable structures. This resulted in a drilling density in Norway far less than the United Kingdom, where the sector opened up to independents far earlier. There were still large areas offshore, Norway that were largely unexplored. The Norwegian Continental Shelf has opened up to new players with a different risk appetite who are pursuing new opportunities. How would you describe the evolution of the activities on the Norwegian Continental Shelf? The trend in the 1990s was that oil companies became bigger and bigger and consequently there were fewer operators on the Norwegian Continental Shelf. Their view that there was no more oil to be found became a self-fulfilling prophecy when large companies began to buy other companies to meet reserve replacements rather than find it themselves. Production began to decline because exploration drilling was reduced in the belief that the time for making large discoveries was over. How did the Norwegian government manage to stop the decline? They opened the shelf for new players. Today 40 new companies are involved in the Norwegian oil industry which has led to 15 separate development projects and more than 20 discoveries that are close to existing infrastructure. Lundin Petroleum entered the Norwegian shelf in 2003 and currently has more than 50 licences with an exploration programme in Norway of eight exploration wells in 2012 and this level of activity is expected to continue. The licensing process of awards in predefined areas (APA) took its present form in 2003 and is designed to encourage companies to work or relinquish their licences to stimulate activity in mature areas. This has made new acreage available and encourages completion of work programmes. Another initiative of the government that stimulated activity was to make cash reimbursement of tax losses incurred through exploration, thereby funding a large proportion of the cost of exploration. An important feature regarding our exploration is that it is self-supporting. We have a 15 percent stake in the Alvheim field and 35 percent in the satellite Volund field providing cash flow. Our exploration expenditure is deductible against the tax due on this cash flow and is therefore funded largely by the government. When geologists make unexpected discoveries they often say that they have succeeded with a new geological model. What is a geological model? A geological model is a conceptual four-dimensional map obtained from the tools such as 3D seismic showing the structural development of the rocks in the area you are focusing on. The geophysical model is supplemented by a diversity of geological data that is needed to discriminate the critical aspects of various structures. It is in unfolding these details that you must have a well-knitted team with respect for knowledge, development of new methods and new technology. What is the background to the incredible Johan Sverdrup discovery? Several companies have previously “sniffed” around the area in which Lundin Petroleum made the giant discovery, Johan Sverdrup. Esso was given the exploration licence for the area in the first licensing round in 1965. The licence has been relinquished several times, and in addition to Esso, Statoil and Elf also held the licence. The Johan Sverdrup discovery followed on from the Luno discovery, we made in 2007, when we found the key to unlocking the Southern Utsira High. The Luno discovery was an unconventional play, discovered by utilising new technology and coupled with Lundin Petroleum’s corporate mentality to assume exploration risk. It is easier to achieve such success in a small company. Lundin Petroleum benefits because its management team can use new technology and adopt new theories which do not have to be checked by others since the team continuously creates them itself. This cocktail has proven to deliver excellent exploration success. Ashley Heppenstall said at a press conference that you promised several new discoveries. Will you and your team be able to make further big discoveries? Only the future can tell, but I am convinced that there is much more oil to be found. 21

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