Annual Report 2011

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During the third quarter of 2011, the Batu Hitam exploration well drilled on Block PM308A, offshore Malaysia, was plugged and abandoned as a dry well. The costs associated with the well were expensed in the third quarter and amounted to MUSD 11.0. During the fourth quarter of 2011, following the drilling of two unsuccessful wells in Congo (Brazzaville), MUSD 51.3 of well costs and associated capitalised licence costs were expensed. General, administrative and depreciation expenses The general, administrative and depreciation expenses for the reporting period amounted to MUSD 67.0 (MUSD 41.0) of which MUSD 44.9 (MUSD 10.3) related to non-cash charges in relation to the Group’s Long-term Incentive Plan (LTIP) scheme. The comparative reporting period includes an amount of MUSD 11.7 relating to Etrion. The cost for the reporting period increased due to the increase in the LTIP provision as a result of a higher Lundin Petroleum share price at the balance sheet date. The value of the LTIP awards, based on Lundin Petroleum’s share price at the balance sheet date, is applied to the vested portion of all outstanding LTIP awards. The charge to the income statement for the reporting period includes the revaluation of the provision relating to prior reporting periods. Lundin Petroleum has mitigated the exposure of the LTIP by purchasing 6,882,638 of its own shares. For more detail refer to Note 35. Financial income Financial income for the reporting period amounted to MUSD 46.5 (MUSD 21.0) and is detailed in Note 6. Interest income for the reporting period amounted to MUSD 4.1 (MUSD 3.4). The interest income in the reporting period includes an amount of MUSD 1.5 relating to a loan to Etrion Corporation which is no longer eliminated on consolidation, following the distribution of the shares held in Etrion in November 2010. The Etrion loan was repaid during the second quarter of 2011. In the comparative reporting period, there is MUSD 0.6 of interest income on a tax refund. Foreign exchange gains for the reporting period amounted to MUSD 8.9 (MUSD 13.4). The US Dollar strengthened against the Euro and the Norwegian Kroner during the reporting period giving rise to exchange gain movements on the intercompany loans and working capital balances. In March 2011, Lundin Petroleum converted MUSD 13.0 of the MUSD 23.8 convertible loan receivable from Africa Oil Corporation (AOC) loan 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 a gain of MUSD 15.6. In April 2011, the remainder of the loan was converted into 11.85 million shares at a conversion price of CAD 0.90 per share and the shares were sold on the open market for CAD 2.10 per share realising a further gain of MUSD 14.3. Financial expenses Financial expenses for the reporting period amounted to MUSD 21.0 (MUSD 33.5) and are detailed in Note 7. Interest expenses for the reporting period amounted to MUSD 5.4 (MUSD 10.0). Included in the comparative period is MUSD 3.6 of interest expenses relating to Etrion’s loan facilities. In January 2008, the Group entered into an interest rate hedging contract to fix the LIBOR rate of interest at 3.75 percent per year on MUSD 200 of the Group’s USD borrowings for the period from January 2008 until January 2012. An amount of MUSD 7.0 (MUSD 7.0) was charged to the income statement for the reporting period for settlements under the hedging contracts. A provision for the costs of site restoration is recorded in the balance sheet at the discounted value of the estimated future cost. The effect of the discount is unwound each year and charged to the income statement. An amount of MUSD 4.5 (MUSD 4.0) has been charged to the income statement for the reporting period. Tax The tax charge for the reporting period amounted to MUSD 574.4 (MUSD 251.9) and is detailed in Note 8. The current tax charge for the reporting period amounted to MUSD 400.2 (MUSD 68.2) of which MUSD 365.6 (MUSD 36.1) relates to Norway. The increase in the Norway current tax charge from the comparative period is mainly due to the utilisation of the tax losses in 2010, as well as higher production and higher oil prices in 2011. The deferred tax charge for the reporting period amounted to MUSD 174.2 (MUSD 183.7) and arises primarily where there is a difference in depreciation for tax and accounting purposes and tax losses have offset the current tax charge. MUSD 166.2 (MUSD 183.3) of the deferred tax charge is attributable to Norway. The Group operates in various countries and fiscal regimes where corporate income tax rates are different from the regulations in Sweden. Corporate income tax rates for the Group vary between 20 percent and 78 percent. The effective tax rate for the Group for the reporting period amounted to 79 percent. This effective rate is calculated from the face of the income statement and does not reflect the effective rate of tax paid within each country of operation. The effective rate of tax is driven by Norway where the tax rate is 78 percent reduced by the effect of uplift for tax purposes on development expenditure. The effective rate is increased due to a number of non-tax adjusted items in the reporting period including the exploration costs of Congo (Brazzaville) and Malaysia, certain general and administrative costs and certain financial items. Excluding the impact of the exploration costs relating to Congo (Brazzaville) and Malaysia the operational effective tax rate would be 69 percent for the reporting period. Non-controlling interest The net result attributable to non-controlling interest for the reporting period amounted to MUSD -4.9 (MUSD -13.4) and mainly relates to the non-controlling interest’s share in a Russian subsidiary which is fully consolidated. Discontinued operations The net result from discontinued operations for the reporting period amounted to MUSD – (MUSD 369.0). The amount in the comparative period is attributable to the net result for the United Kingdom up to 6 April 2010, the date of the UK spin-off. For more detail refer to Note 9. 69

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