Annual Report 2011

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CORPORATE GOVERNANCE REPORT 2011 REMUNERATION Group Principles of Remuneration Lundin Petroleum aims to offer all its employees compensation packages that are competitive and in line with market conditions to ensure it can recruit, motivate and retain highly skilled individuals, in a manner that nonetheless enhances shareholder value. The principles of remuneration within the Group are therefore made up of four elements, being (i) basic salary; (ii) yearly variable salary; (iii) long-term incentive plans; and (iv) other benefits. As part of the yearly assessment process, the Company has established a Performance Management Process to align individual and team performance to the strategic and operational goals and objectives of the overall business. Individual performance measures are formally agreed and key elements of variable remuneration are clearly linked and defined to the achievement of stated and agreed performance measures. To ensure compensation packages within the Group remain competitive and in line with market conditions, the Compensation Committee undertakes regular benchmarking studies and may request the advice and assistance of external reward consultants, which it did in 2011 through the HayGroup. The HayGroup did not perform any other assignments for the Company or the Executive Management. Remuneration of Executive Management The remuneration of Executive Management follows the principles that are applicable to all employees, however, the principles must be approved by the AGM. The Compensation Committee therefore prepares yearly for approval to the Board, and for submission for final approval to the AGM, a Policy on Remuneration for the Executive Management. Based on the approved Policy on Remuneration, the Compensation Committee subsequently proposes to the Board for approval the remuneration and other terms of employment of the CEO, and the CEO proposes to the Compensation Committee, for approval by the Board, the remuneration and other terms of employment of the other members of the Executive Management. The tasks of the Compensation Committee include monitoring and evaluating the application of the Policy on Remuneration approved by the AGM, and to fulfil this task, the Compensation Committee prepares a yearly report, for approval by the Board, on the evaluation of remuneration of the Executive Management. The external auditor of the Company also verifies on a yearly basis whether the Company has complied with the Policy on Remuneration. Both reports are available on the Company’s website and the Policy on Remuneration approved by the 2011 AGM is included in this Corporate Governance Report. Further details regarding the remuneration of Executive Management in 2011 can be found in the notes to the financial statements – see Notes 34 –35 on pages 93–95. For information regarding the Board’s proposal for remuneration to the Executive Management to the 2012 AGM, please see page 71. LUNDIN PETROLEUM AB’S 2011 POLICY ON REMUNERATION FOR THE EXECUTIVE MANAGEMENT (AS APPROVED BY THE 2011 AGM) Application and Objectives of the Policy In this Policy on Remuneration, the terms “Executive Management” or “Executives” refers to the President and Chief Executive Officer (CEO), the Executive Vice President and Chief Operating Officer, the Vice President Finance and Chief Financial Officer, and the Senior Vice President Operations. It is the aim of Lundin Petroleum to recruit, motivate and retain high calibre Executives capable of achieving the objectives of the Group, and to encourage and appropriately reward performance in a manner that enhances shareholder value. Accordingly, the Group operates this Policy on Remuneration to ensure that there is a clear link to business strategy and a close alignment with shareholder interests and current best practice, and aims to ensure that the Executive Management is rewarded fairly for its contribution to the Group’s performance. Compensation Committee The Board of Directors of Lundin Petroleum has established the Compensation Committee to, among other things, administer this Policy on Remuneration. The Compensation Committee is to receive information and prepare the Board of Directors’ and the Annual General Meeting’s decisions on matters relating to the principles of remuneration, remunerations and other terms of employment of the Executive Management. The Compensation Committee meets regularly and its tasks include monitoring and evaluating programmes for variable remuneration for the Executive Management and the application of this Policy on Remuneration, as well as the current remuneration structures and levels in the Company. Elements of Remuneration There are four key elements to the remuneration of Executive Management: a) b) c) d) basic salary; yearly variable salary; long-term incentive plan; and other benefits. Basic Salary The Executive’s basic salary shall be based on market conditions, shall be competitive and shall take into account the scope and responsibilities associated with the position, as well as the skills, experience and performance of the Executive. The Executive’s basic salary, as well as the other elements of the Executive’s remuneration, shall be reviewed annually to ensure that such remuneration remains competitive and in line with market conditions. As part of this assessment process, the Company, as well as the Compensation Committee, periodically undertakes benchmarking comparisons in respect of its remuneration policy and practices. In such circumstances, the comparator group is chosen with regard to: a) companies both within and outside the oil and gas industry; b) the size of the company (turnover, profits and employee numbers); c) the diversity and complexity of the company’s business; d) the geographical nature of the company’s business; and e) the company’s growth, expansion and change profile. 50 Lundin Petroleum ANNUAL REPORT 2011

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