information to the shareholders in lundin …petroleum’s strategic objective is to establish...
TRANSCRIPT
INFORMATION TO THE SHAREHOLDERS IN
LUNDIN PETROLEUM AB (PUBL)
PERTAINING TO THE COMPANY’S
SHARES BEING TRADED ON
THE NEW MARKET AT STOCKHOLMSBÖRSEN
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lundin Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Words from the Chairman . . . . . . . . . . . . . . . . . . . . . . 4
President’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Market description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Oil exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Lundin Petroleum’s asset portfolio . . . . . . . . . . . . . . 13
Exploration and production sharing agreements 22
Lundin Petroleum’s approach . . . . . . . . . . . . . . . . . . . 25
Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Pro forma financial statements . . . . . . . . . . . . . . . . . 29
Share capital and ownership structure . . . . . . . . . . 34
Board of Directors, management and auditors . . 36
Supplementary information . . . . . . . . . . . . . . . . . . . . 38
Tax issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Articles of association . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Auditors’ statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Definitions and terms used . . . . . . . . . . . . . . . . . . . . . 48
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Definitions: References to “Lundin Petroleum” or “the Company” pertain tothe corporate group in which Lundin Petroleum AB (publ) (com-pany registration number 556610-8055) is the parent companyor to Lundin Petroleum AB (publ), depending on the context.
References to “Lundin Oil” pertain to Lundin Oil AB (publ)(company registration number 556297-9483).
References to “Talisman” pertain to Talisman Energy Inc.and/or its Swedish subsidiary Talisman Energy AB.
References to “Öhman” pertain to E. Öhman J:or Fond-kommission AB.
References to “the Information material” pertain to thisdocument containing information to the shareholders in LundinPetroleum AB (publ) pertaining to the Company’s shares beingtraded on the New Market at Stockholmsbörsen. The Informa-tion material has been prepared on the basis of the SwedishFinancial Supervisory Authorities’ listing particulars forprospectuses (FFFS 1995:21). However, due to the fact thatthere are no legal requirements, this Information material hasnot been registered or approved by any governmental or regu-latory agency in Sweden.
This is a translation of a document that has been prepared by the Board of Directors of Lundin Petroleum as information to the shareholdersin Lundin Petroleum pertaining to the Company’s shares being traded on the New Market at Stockholmsbörsen. In case of any discrepan-cies between the English and the Swedish versions, or, in any other context, the Swedish version shall have precedence.
FINANCIAL REPORTSInterim report(4 May – 30 September 2001)will be published 7 November 2001.
Preliminary annual statement(4 May – 31 December 2001)will be published 15 February 2002.
Annual general meetings will be held in May.
On 21 June 2001, Talisman announced that it wouldmake a public offer to the shareholders and holdersof warrants in Lundin Oil for the purchase of all out-standing shares and warrants in Lundin Oil (”theOffer”). The Offer was for Lundin Oil excludingLundin Oil’s wholly-owned subsidiary Lundin Petro-leum, making the Offer conditional upon (i) the trans-fer of certain assets to Lundin Petroleum (ii) the dis-tribution of all of the shares of Lundin Petroleum tothe shareholders of Lundin Oil.1 The ExtraordinaryGeneral Meeting of Lundin Oil, held 9 August 2001,resolved in accordance with the proposal by theBoard of Directors, and subject to Talisman declaringthe Offer unconditional, to distribute the shares ofLundin Petroleum to Lundin Oil’s shareholdersthrough distribution rights. As a consequence ofTalisman declaring the Offer unconditional on21 August 2001, assets were transferred and thedistribution rights received were automaticallyconverted to shares in Lundin Petroleum. The LundinPetroleum shares will begin to trade on the New Mar-ket at Stockholmsbörsen with Öhman as sponsor. Thefirst day of trading is scheduled to be 6 September2001.
The distribution of shares in Lundin Petroleum isanticipated to be tax exempt for Swedish sharehold-ers since the so-called Lex Asea is expected to beapplicable (see further information on pages 40–41).
The assets of Lundin Petroleum principallyinclude the following:� A 40.375 percent working interest in Block 5A,
operated by Lundin Petroleum and located inSouthern Sudan and a non-operated workinginterest of 24.500 percent in Block 5B, a blockadjoining Block 5A.
� A 100 percent working interest in the Halaib Blocklocated partly onshore and partly off the coast ofNorthern Sudan in the Red Sea. The block is cur-rently in suspension.
� Cash amounting to SEK 75.7 million.� The shares in Khanty Mansiysk Oil Corporation
(“KMOC”) held by Lundin Oil, amounting toapproximately 10 percent of the undiluted2 sharecapital, a USD 1.3 million promissory note issuedby KMOC and 115,4403 warrants to purchaseshares in KMOC for USD 11.25 per share.
� The shares of Lundin Oil Services SA, a Swiss com-pany which employs the Company’s corporate,financial and technical staff in Geneva.
In addition, Lundin Petroleum also has a 5-yearoption to purchase all or part of Lundin Oil’s currentinterests in Somalia from Talisman.
The former management of Lundin Oil is dedi-cated full time to the management of Lundin Petro-leum.
Shareholders of Lundin Petroleum will have equityparticipation in a well-positioned oil and gas explo-ration company with attractive growth opportunitiesthrough existing oil discoveries and with exposure tosome of the largest oil basins in the world. LundinPetroleum’s strategic objective is to establish LundinPetroleum as a significant oil and gas exploration andproduction company with a large and valuable assetbase.
For other information, refer to the presentation inthe Information material, which has been preparedby the Board of Directors of Lundin Petroleum. Assur-ance is hereby given that, to the best of the Board ofDirectors’ knowledge, the information herein pertain-ing to actual conditions is accurate and that nothingthat could have material impact on such descriptionshas been omitted.
Stockholm, 28 August 2001
Lundin Petroleum AB (publ)The Board of Directors
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1 Direct or beneficial holders of Lundin Oil shares with addresses in the United States and holders of Global Depositary Shares (“GDSs”) were exempt from the rightto receive shares in Lundin Petroleum due to the U.S. Sudanese Sanctions Regulations (see further information on page 35).
2 Not taken into account outstanding warrants and the proposed new share issue.3 After given effect to a 40 for 1 common share split to be effected prior to the completion of the proposed public offering (see further information on page 21).
BACKGROUND
Lundin Petroleum is an oil and gas exploration company with assets and interests mainlyin the exploration and appraisal stages. The aim is to establish the Company as asignificant oil and gas company with a large and valuable asset base consisting of explo-ration, development and production assets.
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MISSIONLundin Petroleum’s mission is to explore for, and pro-duce, oil and gas in the most economically efficientand socially and environmentally responsible way, forthe benefit of shareholders, employees and co-ven-turers.
VISIONLundin Petroleum’s vision is to build a significant oiland gas exploration and production company, whichwill deliver significant growth and provide increasingvalue to the shareholders.
STRATEGYIn order to realise Lundin Petroleum’s vision, theBoard of Directors has decided to pursue the follow-ing strategy: � Continue to explore and develop existing asset
base in SudanHaving initiated exploration and appraisal activi-ties in targeted areas in Sudan, Lundin Petroleumwill focus on continued exploration while seekingto develop existing oil discoveries.
� Pursue an active search for new explorationacreage in targeted areasThe Company intends to increase the asset port-folio by fostering new, and using existing, rela-tionships to enter into additional agreements innew areas, by use of Lundin Petroleum’s extensivenetwork. The search for new exploration acreageis geographically focused on, but not limited to,Northern Africa and the Middle East.
OVERVIEW OF LUNDIN PETROLEUM’SASSET PORTFOLIO Lundin Petroleum holds a working interest of approx-imately 40.4 percent in, and is the operator of, anarea called Block 5A located in Southern Sudan. Theinitial exploration well, called Thar Jath-1, flowed at acumulative rate of 4,260 bopd and the appraisal welldrilled nearby, Thar Jath-2, flowed at a cumulativerate of over 2,000 bopd.
In addition, Lundin Petroleum holds a non-operated working interest of 24.5 percent in Block5B, the block adjoining Block 5A. Both areas arelocated in the prospective Muglad Basin, which isone of the few remaining largely undeveloped butproven oil basins in the world.
Lundin Petroleum also holds the Halaib Blocklocated partly onshore and partly off the coast of
Northern Sudan in the Red Sea. This block is in sus-pension and the blocks in Somalia, Blocks 35 and M-10A, which Lundin Petroleum has an option toacquire from Talisman are in force majeure.
As a financial fixed asset, Lundin Petroleum holdsapproximately 10 percent of the undiluted share cap-ital in KMOC, a United States company with variousoil and gas assets in the Russian Federation. KMOCis currently pursuing a public offering of its shares,which are proposed to be listed on Nasdaq in theUnited States.
All necessary approvals for the transfer of controlof the interests and companies from Lundin Oil toLundin Petroleum have been received.
LUNDIN PETROLEUM’S FINANCIAL POSITIONAt present, Lundin Petroleum has limited liquid finan-cial resources. As at 30 June 2001, the Company’s proforma cash position amounted to SEK 75.7 million. Asa consequence thereof and considering the antici-pated costs and capital expenditures associated withfuture development and exploration, which in terms offuture exploration expenditure obligations amount toapproximately USD 12 million, Lundin Petroleum pro-poses to effect a fund raising through a rights offeringscheduled for the autumn 2001 to the then existingshareholders. During September 2001, the Board ofDirectors of Lundin Petroleum expects to announcethe details regarding a proposed rights offeringtotalling approximately SEK 400 million.
In order to provide adequate liquidity until thesettlement of the proposed rights offering, LundinPetroleum’s main shareholder Adolf H. Lundin hasagreed to provide liquid funds through a loan agree-ment. In accordance with the loan agreement withLundin Petroleum, Adolf H. Lundin has agreed toprovide liquid funds up to a maximum of USD 10 mil-lion (see further information on page 35).
Currency exposureLundin Petroleum’s cash flow is affected by changesin the SEK/USD exchange rate due to operating cashoutflows being denominated in USD. Further, theCompany’s exploration expenditure obligations andpotential future oil and gas revenues will be denomi-nated in USD. The Company also has limited cashoutflows in CHF and in SEK. Lundin Petroleum entersinto hedging contracts when deemed necessary oradvantageous.
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Dividend policy The primary objective is to add value to the share-holders, employees and society through profitableoperations and growth. The added value will beexpressed partly by dividends paid and partly by along-term increase in the share price. This will beachieved by increased hydrocarbon reserves, devel-oping discoveries and thereby increasing productionand ultimately cash flow and net income.
The size of the dividend has to be determined bythe Company’s financial position and the possibilitiesfor growth through profitable investments. Dividendswill be paid when the Company generates sustain-able cash flow and net income from operations tomaintain long-term financial strength and flexibility.
Over time we expect that the total return toshareholders should accrue to a greater extent fromthe increase in share price than from dividendsreceived.
Due to the nature of Lundin Petroleum’s opera-tions, the dividend policy is to give funding priority tothe ongoing exploration projects, and satisfy theimmediate capital requirements of the Company. Theextent to which future dividends can be paid isdependant on when these requirements have beenmet and the Company is able to generate positivecash flow from the production of oil and gas. It isunlikely that a dividend will be payable for the fore-seeable future.
ORGANISATIONLundin Petroleum employs 53 persons on a full-timebasis, 24 of whom are based at the technical and cor-porate offices in Stockholm, Sweden and Geneva,Switzerland and 29 of whom are based in Sudan.
In addition to the corporate and financial staff,Lundin Petroleum maintains a workforce of full-timekey technical personnel within crucial activities suchas geophysics, geology, reservoir engineering anddrilling.
Lundin Petroleum is managed from its corporatehead office in Geneva where the President, FinanceDirector and Exploration Director are responsible forthe strategic management of the Company. Thisinvolves the implementation of strategic and invest-
ment decisions in relation to existing and new busi-ness areas as well as the funding for the Company.The Sudan operations are managed by the LundinSudan Limited Managing Director in Khartoum,Sudan, reporting to the President in Geneva, who hasday to day responsibility for the implementation ofoperations in the country.
In certain stages of the exploration and develop-ment process, Lundin Petroleum hires specialisedcompanies and/or people for a limited period oftime. Stages in which this would typically come intoquestion include acquisition of seismic data, drillingand building of infrastructure. During certain periodsof time the use of sub-contractors and temporarilyemployed staff can exceed the number of full-timestaff.
COMPETITIONLundin Petroleum competes globally with otherupstream companies, including major oil and gascompanies, for exploration acreage and producingassets that may come up for sale.
Other companies are often competitors in thestage where exploration acreage is acquired, but canbecome partners in the stage when possible farm-outagreements are made. Hence, the line separatingcompetitors from partners varies over time.
FORWARD LOOKING STATEMENTLundin Petroleum’s Board of Directors believes theCompany is well positioned for a favourable long-term development considering the existing oil dis-coveries and the exposure to some of the largest oilbasins in the world. However, the management ofLundin Petroleum does not expect the Company togenerate positive cash flow and an operating profitbefore the Thar Jath discovery, or any other discov-ery, yields commercial quantities of oil. Lundin Petro-leum is expected to incur losses as it meets ongoingadministration costs prior to the development of anyrevenue streams. In addition, Lundin Petroleum isexpected to experience negative cash flow as itincurs significant capital expenditures on the explo-ration and development of its assets.
WORDS FROM THE CHAIRMAN
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Lundin Petroleum is start-ing operations as anaggressive upstream com-pany with a most attractiveasset base and at the mostfortuitous point in time.
The Company’s oilinterests in Sudan, Blocks5A and 5B, are of worldclass importance. TheMuglad basin, where
Lundin Petroleum’s blocks are located, is alreadyproducing in excess of 200,000 bopd. LundinPetroleum’s target discovery is substantial and it iswith great confidence that we look forward to thecommercial development of this find and the discov-ery and exploitation of additional, major oil reservesin this basin.
In addition, Lundin Petroleum will target its explo-ration efforts in very select high potential areas.
Most importantly, the long-term case for the oilindustry is very promising. Due to world populationgrowth and the standard of living of developingcountries, the consumption of energy is axiomaticallygoing to grow. Oil and gas are the two principalsources of energy and thus the world will be facedwith rising prices for these commodities.
It is indeed rare that a company will commence itsexistence with such extraordinary valuable oil assetsat such a promising point in time for the petroleumindustry. Yet, this is the situation for Lundin Petro-leum.
Sincerely,
Adolf H. LundinChairman
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PRESIDENT’S STATEMENT
Lundin Petroleum is off toa strong start as a new“Swedish Independent Oiland Gas Exploration Com-pany”. Soon we plan toadd the word “Produc-tion” to that description.
The Company will con-centrate its efforts in areasof the world where thereare:
� Proven petroleum systems.� Large reserves potential.� Lack of recent exploration activity (for various
reasons including political).� Access to existing infrastructure and export
markets.
The assets in Sudan (40.4 percent in Block 5A and24.5 percent in Block 5B) meet all of the above crite-ria. The Muglad Basin, of which approximately 50percent of the surface area is covered by Blocks 5Aand 5B, is one of the last undeveloped oil basins ofthe world. So far, over 1 billion barrels have been dis-covered in the northern half of the Basin and at leastas much remains to be discovered in the other half.The first well drilled on Block 5A for instance, resultedin the discovery of the Thar Jath Field, which couldbecome the largest oil producing field in the wholebasin. Currently, most of the oil production from thebasin is transported via a 1,540-kilometre pipeline tothe Red Sea Coast. 50,000 bopd is delivered to theKhartoum refinery through the same pipeline. Impor-tantly, up to 100,000 bopd of capacity in the exportpipeline is reserved for third parties such as LundinPetroleum and its partners in Blocks 5A and 5B.
We plan to start producing from Block 5A as soonas practicable taking into account all the technical,commercial and environmental issues that have to beaddressed.
In terms of new venture activities and futureacquisitions, we will be concentrating in NorthernAfrica and the Middle East where there is still a lot ofoil to be discovered.
The timing for Lundin Petroleum to start tradingcould not be better. The oil price in real terms is at afairly high level compared to the last decade. How-ever, I believe it is going to increase over time. Therationale behind this view is that oil is the dominantfuel in the world, and will probably be for the fore-seeable future, combined with the fact that newreserves are not being discovered at the same rate asold reserves are being consumed. Hence, demandwill increase at a faster rate than supply, thus creatingan upward price development. Various analysts alsosupport this view. Mr. Barton Biggs, a well-knownWall Street strategist, believes there is considerableevidence that oil has moved into a new higher pricezone (in the USD 24–32 per bbl range), throughwhich it will be fluctuating over the next few years.
As a single-product-company our corporate strat-egy is simple: we will build the Company by findingoil. And we have the necessary skills, industry con-tacts and asset base to find a lot of it. The Companywill have the same Board of Directors and manage-ment that made Lundin Oil a success. All of the keyemployees within our organisation are hard working,intelligent and very ambitious. As a team we comple-ment each other well having worked together foryears. The Board of Directors and the managementshare the common view of success through explo-ration.
Some people have asked us if we plan to slowdown or even retire after the sale of Lundin Oil. Thebest answer is probably yes we would, if we didn’thave so much fun.
Sincerely,
Ian H. LundinPresident and Chief Executive Officer
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MARKET DESCRIPTION
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CRUDE OILCrude oil is a naturally occurring substance foundtrapped in certain rocks below the earth’s crust. Theliquid is dark and sticky and is classed as a hydro-carbon, a compound containing only hydrogen andcarbon. Crude oil is highly flammable and can beburned to create energy.
Crude oil comes in different qualities dependingon what region and what area in the respectiveregion the crude oils origins from. The name of the oilis then based on the field from which it was extracted.One of the most commonly known qualities is theBrent blend, which is extracted from various fields inthe North Sea, including the Brent field. Prices of oilfrom other fields are often benchmarked againstcommonly traded blends, such as Brent blend.
The burning of crude oil in itself is of limitedvalue. To obtain a higher value, the crude oil isrefined into different products, such as petrol. The listof products derived from crude oil is long, some arefuels, as is the case for petrol, fuel oil and kerosene,other products are asphalt for road construction,lubricants and a wide range of petrochemical endproducts such as plastics, synthetic rubbers andchemical fertilisers.
GLOBAL OIL RESERVESOil is found on all continents of the world. The MiddleEast is by far the region where the largest proven oilreserves are found, followed by South and CentralAmerica and Africa. In total, global proven oilreserves amounted to 1,046 billion bbls at the end of2000, of which 66 percent was attributable to theMiddle East (see figure 2).
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Former Soviet Union65
Asia Pacific 44
Middle East 684
Africa 75
Europe 19
North America 64
South and Central America 95
Source: BP statistical review of world energy, June 2001.
Middle East 66%South and Central America 9%
Africa 7%
Former Soviet Union 6%
North America 6%Asia Pacific 4% Europe 2%
Figure 2: Proven reserves by region
Figure 1: Global proven oil reserves at the end of 2000 (billion bbls)
Source: BP statistical review of world energy, June 2001.
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GLOBAL OIL CONSUMPTIONThe primary driving force behind the demand for oilis economic growth. To a great extent the world’senergy needs are met by fossil fuels, of which oil isthe dominant fuel. In developing countries, demandfor energy is much in line with economic growth,whereas in industrialised countries the growth indemand is more volatile in comparison with eco-nomic growth.
The consumption per capita varies greatlybetween different regions. North America has by farthe greatest consumption per capita, followed bythe Middle East with roughly half the consumptionper capita compared with North America. Oil con-sumption per capita was much the same in 2000 as in1985, with modest increases in most parts of theworld offset by a major fall in the former SovietUnion.
OIL PRICE DEVELOPMENTHistorically, oil prices have fluctuated widely. Asidefrom supply and demand, factors affecting the oilprices include global and regional economic andpolitical developments in resource-producing regionsas well as the extent to which the Organization ofPetroleum Exporting Countries (“OPEC”) and otherproducing nations influence global production levels.In addition, prices of alternative fuels, global eco-nomic conditions and weather conditions affect theoil prices.
OPECOPEC is an international organisation founded in1960, consisting of eleven oil-exporting developingnations. Representatives of the member countriesmeet at least twice a year to decide on output levels,hence adjusting the global supply of oil. Togetherwith some of the large non-member oil producers fol-lowing the organisation’s recommendations, OPEChas a strong impact on the prices of oil.
The OPEC members supply roughly 40 percent ofthe world’s output of oil and 15 percent of gas andpossess more than three-quarters of the world’s totalproven crude oil reserves.
The OPEC members
Algeria IndonesiaIran IraqKuwait LibyaNigeria QatarSaudi Arabia United Arab EmiratesVenezuela
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Figure 3: Yearly oil consumption per capita, bbls
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North AmericaEuropeAsia PacificFormer Soviet Union
South and Central AmericaMiddle EastAfrica
Figure 4: Oil consumption by region 1990–2000
Source: BP Statistical Review of World Energy June 2001.
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Figure 5: Oil price development in realterms 1965–2001, denominated inyear 2000 prices
Source: Tor Wergeland (Norwegian School of Economics &Business Administration)/BP Statistical Review ofWorld Energy/Pareto Securities.
Source: BP Statistical Review of World Energy, June 2001/PRB 2001World Population Data Sheet.
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THE PRESENCE OF OIL IN AFRICA AND THE MIDDLE EASTAfrica’s share of the world’s proven reserves amountsto roughly 7 percent (see figure 2). The largest provenoil reserves in Africa are found in Algeria, Libya andNigeria to which more than 80 percent of the reservesare attributable. Due to economic, social and politicalinstability in many of the African countries, the level ofexploration has historically been low.
The Middle Eastern countries hold the majority ofthe global proven oil reserves and oil has been oneof the major reasons for the fast development ofmany of the countries in the region. In addition to theproven reserves, there is still a great potential inmany of the countries for further oil discoveries. Dueto various factors, some of the countries have beenclosed for foreign investments for a long time and thelevel of exploration has been low. However, duringrecent years these countries have begun to open upfor investments by foreign oil companies.
BRIEF DESCRIPTIONS OF RELEVANTCOUNTRIESThe Republic of the SudanSudan is situated in the Northeast of Africa, border-ing Egypt, Libya, Chad, Central African Republic,Congo, Uganda, Kenya, Ethiopia and Eritrea, withsea access through the Red Sea in the north-easterncorner of the country. The total area compromises2,506 million square kilometres, which is about 5.5times larger than Sweden or slightly more than one-quarter of the size of the United States. Sudan is thelargest country in Africa and has a population ofaround 35 million, with a majority of the populationhaving agriculture as their occupation. In 2000, theindustrial sector composed 17 percent of GDP.Khartoum, the capital city, is situated in the middle ofthe country. The climate in the north is arid desertand in the south tropical.
Due to cultural diversity and tribal rivalry, thecountry has experienced civil unrest for the last 50years. The conflicts are mainly between the Khartoumgovernment and the rebel movements in the south,but they are also intertribal in nature. Sudan’s exter-nal ties are assessed to be strengthened in the com-ing years, although slowly. The European Union iscurrently holding dialogue meetings with theSudanese government in order to address humanrights, democracy and to continue the peaceprocess. In November 1997, the United Statesimposed sanctions against Sudan based on theSudanese government’s alleged sponsorship of inter-national terrorism. The sanctions prohibit UnitedStates companies from trading with, and investing in,Sudan.
Sudan has been exporting oil since mid 1999. Theoil exploration activity however, began in the late1950s in the coastal waters of the Red Sea and theSudanese continental shelf. In 1984, due to the polit-ical instability and the new outbreak of the civil war,Chevron Corporation, the main foreign operator ofthe time, withdrew its operations from Sudan. How-ever, ever since the early 1990s foreign companieshave begun to return. The threat of sanctions haskept United States oil companies out of Sudan.Today, a number of companies are active in Sudan,including China National Petroleum Corporation,Gulf Petroleum Corporation, Lundin Petroleum,National Iranian Gas Company, OMV1, Petronas2,Royal Dutch/Shell, Sudapet3 and Talisman.
Sudan’s recoverable oil reserves are estimated ataround 1 billion bbls. In 2000, the productionamounted to approximately 200,000 bopd, of which115,000 bopd were exported mainly to East Asianrefineries.
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Figure 6: Map over Africa indicating Sudan and Somalia
1 References to OMV pertain to OMV Aktiengesellschaft and/or its subsidiaries.2 References to Petronas pertain to Petroliam Nasional Berhad and/or its subsidiaries.3 References to Sudapet pertain to Sudapet Ltd. and/or its subsidiaries.
SomaliaSomalia is situated in Eastern Africa, borderingKenya, Ethiopia and Djibouti. A large part of thecountry borders the Indian Ocean and the Gulf ofAden. The total area is around 638 thousand squarekilometres, roughly 1.4 times the size of Sweden orslightly smaller than Texas, mainly made up of desert.The population is around 7 million, working mainlywith agriculture. Mogadishu, the capital city of Somalia,is situated on the coast of the Indian Ocean. Theclimate is hot and dry with very little rainfall.
Somalia has experienced 24 years of intermittentcivil war and constant famine conditions. Conflicts aremainly between clans battling for control over keyeconomic areas, but border conflicts also exists withnearby states such as Ethiopia. The country has been
without a central government since January 1991.Self-declared administrations have been set up bothin the Northwest (Somaliland) and the Northeast(Puntland) of Somalia, where conditions now are rela-tively stable compared to the south. In October 2000,after a long period of negotiations, a transitional gov-ernment was selected for an interim 3-year period.However, the government, which has not beenaccepted by the powerful regional warlords, has onlybeen able to take control over Mogadishu.
The industrial sector is very small (in 2000, 10 per-cent of GDP) and most facilities have been shut downdue to the civil war. All oil exploration activities havebeen suspended since 1991 and all licenses areunder force majeure and are likely to be until thesituation stabilises.
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Bridge over the Bahr el Gahzal river in Southern Sudan, built by Lundin Sudan Limited
OIL EXPLORATION
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A schematic oil exploration process follows the stepsdescribed below:1. Identify possible areas
The first step in the process is for the geologistsand other exploration staff to identify areas wherethere is a likelihood of discovering oil and dobackground research on current oil fields in thearea. This survey is done in co-operation withmanagement to make use of their possible con-tacts with relevant key people within the relevantcountry.
2. Initiate contacts with governmentsWhen an area has been identified, contacts areinitiated with the government at appropriate levelsto find out about the government’s plans forfuture concessions and if possible, receive furtherinformation.
3. Identify possible partnersIn oil exploration it is rare to find a company work-ing by itself. Most often the company holding theconcession seek partners to reduce the risk borneby the company. It is important to find partnerswho can add value to the process, for instancethrough technology, access to governments orfinancing.
4. Sign concession agreement with host govern-ments and joint venture partnersAfter having received the concession for the area,the concession holding company invites the pos-sible partners to form a joint venture. The invitedcompanies contribute to the joint venture in differ-ent ways depending on their respective situation.Often the invited companies are offered an intereston a promoted basis, where they are responsiblefor the payment of certain stages in the explo-ration.
5. Acquire seismic data/test and sampleThe first step in the actual fieldwork is the acqui-sition of seismic data and samples. The acquisi-tion provides an overview of the area and identi-fies potential structures. The work is ratherdemanding with many hours spent on setting upthe testing and acquisition.
5. Acquire seismic data/test and sample1. Identify possible areas
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6. Interpret seismic data and samples All the data from the acquisition is gathered andinterpreted by geophysicists to find leads wherethe continued work should be focused to avoidunnecessary costs. A thorough interpretationreduces the future exploration costs.
7. Drill exploration wellsBased on the results from the interpretation ofseismic data and samples, a number of leadsusually are defined. To find out if the leads are oildiscoveries, exploration drilling takes place.
8. TestThe wells drilled are tested using various methodsto evaluate the presence and quality of hydro-car-bons.
9. AppraiseIf oil is discovered, appraisal drilling will takeplace to evaluate the size of the discovery prior toa decision on a commercial development.
10. Design development planWhen commercial discoveries have been madethe next step is to enable the extraction of oilfrom the subsurface and ensure transportation tothe market. A development plan is produced,which incorporates drilling of development wells,building of infrastructure and pipelines, estimatesof the development costs and production rates.
11. Construct infrastructure and drill developmentwellsThe actual building of the infrastructure com-mences, including extraction equipment, camps,roads and pipelines. To a large extent, existingand surrounding infrastructure, especially pipe-lines, is used whenever possible, to minimisecosts. At this stage, development wells for theextraction of oil are drilled.
12. Produce oil The final step in the chain is to produce oil anddeliver it to the market.
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6. Interpret seismic data and samples 7. Drill exploration wells
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A schematic technical department of an oil andgas exploration companyThe technical staff consists of geologists, geophysi-cists, reservoir and drilling engineers, computerspecialists and numerous technical support staff.Together they are responsible for identifying, evalu-ating, executing and developing all petroleumexploration and development opportunities.
GeologistsIn the early stages of an exploration project, thegeologists and geophysicists are the primary projectpersonnel. The geologist of today requires adiverse background in order to synthesise the dataand make recommendations as to whether to entera project. In the early years of the industry, thegeologist’s primary job was to map rocks and struc-tural features in the field in order to determinedrilling location. Today, the geologist must alsoprocess electrical logging data, gravity and mag-netic data, geochemical analyses, satellite imagesand engineering data. In order to properly analysethis data, a good working knowledge of computertechnology is also essential. By looking at all ofthese factors, the geologist’s main purpose is todetermine whether or not conditions in an area arefavourable for the entrapment of hydrocarbons.
GeophysicistsThe geophysicist is the other half of the explorationteam. The primary tool of the geophysicist is seismicreflection data. This data is the result of seismicwaves, which are transmitted down through earthby either dynamite explosions or large vibrationmachines. The reflections are recorded on the sur-face using geophones and give a “picture” of therocks below the surface. This technology employshigh-powered computers to record and processthese waves and display them on video worksta-tions for interpretation purposes. With recent
advances in this technology, particularly in 3Dseismic, the geophysicist is becoming more andmore important in identifying exploration drillingprospects. The geophysicist is the one who eventu-ally picks the spot on the earth where the well willbe drilled.
Drilling engineersOnce the drilling location is selected, the drillingengineer takes over. The drilling engineer musthave a background, which is part mechanicalengineer, part construction foreman, part logisticsco-ordinator, part safety engineer and part contractanalyst. The task of finding the proper drilling rig,making sure that all the equipment, supplies andpersonnel show up at the right time and at the rightplace is truly a complex and difficult assignment.Once the drilling of the well commences, thedrilling engineer’s prime responsibility is to see tothat the drilling is done in a safe, efficient and costeffective manner. The drilling engineer will also bea key member of any development project as thedrilling of additional wells is one of the largestexpenditures as well as the key to success of theproject.
Reservoir engineersOnce an oil reservoir has been identified, a reser-voir engineer then becomes the key person to testthe oil and come up with the procedures toappraise and develop the accumulation. The reser-voir engineer must co-ordinate between facilitiesdesign engineers, pipeline and transportation engi-neers, drilling engineers, geologists, geophysicistsand economists to ensure that the most efficientdevelopment program, designed to recover themaximum economically recoverable amount of oil,is implemented. Once again, knowledge of com-plex computer simulation programs is required inorder to pull all of these parameters together.
The following factors affect the general competitiveness of oil and gas exploration companies when com-peting for new exploration acreage:1. Technical capability
A unique technical capability in exploration or development can enable the company to obtain conces-sions that would be hard to explore and develop using more traditional methods.
2. Access to governmentsAccess to governments can provide the company with an advantage in obtaining information about geologyand country specific factors, thus improving the standing in negotiations for concessions.
3. Access to partnersAccess to partners enables the company to find the most suitable co-venturers in the process, or providesopportunities to participate in other company’s concessions.
4. Financial strengthFinancial strength is crucial in the negotiations with governments and partners to ensure the ability to fulfiland carry out work obligations.
LUNDIN PETROLEUM’S ASSET PORTFOLIO
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The parent company Lundin Petroleum AB (publ) hasa number of wholly-owned subsidiaries. The functionof, and the assets held by, each subsidiary is shownbelow. The parent company, Lundin Petroleum AB
(publ), is based in Stockholm, Sweden. Lundin OilServices SA in Geneva is a Swiss company employingthe corporate, financial and technical management.
LundinPetroleum AB (publ)
KMOC(approx. 10%)
LundinPetroleum
Holdings Limited1
Lundin Sudan(Halaib) Limited2
LundinSudan (Block 5B)
Limited
LundinSudan Limited
Lundin OilServices SA
LundinMunir Limited
Lundin TechnicalServices Limited3
LundinSomalia Limited
Lundin SudanHalaib
EPSA (100%)
Lundin Sudan5B EPSA(24.500%)
Lundin Sudan5A EPSA(40.375%)
Corporate, finan- cial and technical
management
Somalia Blocks35 and M-10A
option
Company (all subsidiaries are wholly-owned)
Shares and promissory note
Asset or function
Contingent asset
All of Lundin Petroleum’s assets are in the explorationand/or appraisal stages, other than the equity interestin KMOC, which is a United States company with pro-duction and development assets in Western Siberia inthe Russian Federation. Lundin Petroleum’s explo-ration and appraisal areas are found in the MugladBasin in Southern Sudan, a large basin with high
potential. In more explored parts of the Muglad basin,large oil discoveries have been made by companiesother than Lundin Petroleum. At present, the Com-pany also holds an asset in Northern Sudan, which is insuspension. In addition, Lundin Petroleum has anoption to acquire interests in 2 blocks in Somalia, cur-rently in force majeure, from Talisman.
Working Paying JointArea, interest, interest, venture
Country Block km2 %1 %1 Operator partners Status
Assets
Sudan 5A 20,000 40.375 42.500 Lundin Petronas, OMV ExplorationPetroleum and Sudapet and appraisal2
Sudan 5B 20,119 24.500 27.222 Petronas Petronas, OMV Seismicand and Sudapet operations
Sudapet in 20023
Sudan Halaib 10,304 100.000 100.000 Lundin None Suspension4
Petroleum
Contingent asset
Somalia 35 and 16,282 20.000 20.000 BP Amoco BP Amoco5, Force M-10A Murphy6, Fortum7 majeure
and Gulfstream8
1 See definitions on page 48.2 See points 5–9 on pages 10–11.3 See point 5 on page 10.4 Due to a border dispute between Egypt and Sudan.5 References to BP Amoco pertain to BP p.l.c. and/or its subsidiaries.6 References to Murphy pertain to Murphy Oil Corporation and/or its subsidiaries.7 References to Fortum pertain to Fortum Oy and/or its subsidiaries.8 References to Gulfstream pertain to Gulfstream Resources Canada Limited and/or its subsidiaries.
Figure 7: Lundin Petroleum
Figure 8: Lundin Petroleum’s assets
1 The name is currently being changed from Lundin Petroleum 305 Limited.2 The name is currently being changed from International Petroleum Sudan Limited.3 The name is currently being changed from Lundin Muglad Limited.
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THE SUDAN ASSETS Three wholly-owned subsidiaries of Lundin Petroleumare parties to Exploration and Production SharingAgreements (“EPSAs”) with the Republic of theSudan (for further information see pages 22–24). The3 exploration areas covered by the EPSAs arereferred to as Block 5A, Block 5B, and the HalaibBlock, respectively. In the case of EPSAs for Blocks 5Aand 5B, parties are Petronas, OMV, and Sudapet(together with Lundin Petroleum referred to as the“Sudan Partners”).
The following map over Sudan and surroundingcountries indicates the location of the Sudaneseblocks in which Lundin Petroleum has interests.
In respect of Blocks 5A and 5B, the relevantLundin Petroleum subsidiary is obligated, togetherwith Petronas and OMV, to bear the initial explo-ration, appraisal and development costs of Sudapet.This obligation results in the Lundin Petroleum sub-sidiary having a cost-bearing interest (“the payinginterest”) in excess of its working interest. The addi-tional cost incurred between the paying interest andthe working interest will be recovered out ofSudapet’s share of oil produced.
Muglad basinThe Muglad Basin is situated in Southern Sudan and ispart of a Cretaceous rift system, which extends acrossCentral Africa and contains the Doba Basin currentlybeing developed by a Royal Dutch/Shell led consor-tium in Chad. The basin is roughly the size of the NorthSea rift system and is substantially under-explored (seefigure 11).
Figure 10: Map indicating Lundin Petroleum’s interests in Sudan
EXPLORATION EXPENDITURE OBLIGATIONSLundin Petroleum participates in joint ventures withthird parties in oil and gas exploration activities. TheCompany is contractually committed under variousconcession agreements to complete certain explo-ration programmes. The present minimum expendi-ture obligations are USD 41 million, of which thirdparties who are joint venture partners have contrac-tually agreed to contribute approximately USD 29million.
The obligations and liabilities under the conces-sion agreements are joint and several. As a conse-quence thereof, Lundin Petroleum and its sub-sidiaries may be held responsible for obligations andliabilities in connection with the other joint venturepartners in case of default. However, the parent com-panies of Lundin Petroleum’s joint venture partnersare large and well established companies with sub-stantial asset portfolios.
Figure 9: Lundin Petroleum’s future exploration expenditure obligations
Total Lundin Lundin Petroleum’sexpenditure Petroleum’s expenditure
obligation, paying obligation, Minimum workCountry Block USD million interest, % USD million obligation Duration
Sudan 5A 8.0 42.500 3.4 Drill 2 explo- 24 months,ration wells.1 commencing
6 August 2001
Sudan 5B 33.0 27.222 9.0 Drill 3 exploration 48 months,wells, review exist- commencing
ing and acquire and 2 May 2001process 1,000 km of
new 2D seismic data.2
1 The Sudan Partners have the option to decide whether the work obligation of 1 of the exploration wells should be replaced by either the aquisition of500 kilometres of 2D seismic or 166 square kilometres of 3D seismic. The EPSA is in the beginning of the second commitment period (see further information onpages 22–23).
2 The EPSA is in the beginning of the first commitment period (see further information on pages 23–24).
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15Figure 11: Size comparison showing the North Sea and Muglad rift basins at the same scale
Reservoirs are primarily Upper Cretaceous sand-stones of fluvial-deltaic origin with excellent reservoirproperties. Source rocks are found in the lacustrineAbu Gabra of Aptian age and are quite thick (500m+)with total organic carbon ranging from 1 to 8 percent.A large portion of the basin is currently within the oiland gas generative window. The trend where geo-logically favourable conditions are expected to bepresent extends over a large portion of the block.Traps are formed by rift-related block faulting and aresealed by overlying shaly intervals, which form topand cross-fault seals.
The Muglad Basin contains Blocks 5A and 5B,making up approximately 50 percent of the MugladBasin. The Muglad Basin also contains Blocks 1, 2and 4 where there are oil fields currently producingand being developed by a consortium of interna-tional companies. The consortium includes ChinaNational Petroleum Corporation, Petronas, Sudapetand Talisman and is known as the Greater Nile Petro-leum Operating Company (“GNPOC”). GNPOC iscurrently producing in excess of 200,000 bopd andhas discovered proven and probable oil reserves ofapproximately 1 billion bbls.
GNPOC owns a pipeline, which provides anexport route from the Muglad Basin to Port Sudan atthe coast of the Red Sea. The 1,540-kilometrepipeline was completed in August 1999 and currentlyhas a total capacity in excess of 250,000 bopd. Byadding additional pumping stations, this capacity canbe expanded to a maximum of 450,000 bopd. Aspart of GNPOC’s agreements with the Republic of theSudan, capacity of at least 100,000 bopd is availableto other oil producers operating in the area. Theseagreements provide the Sudan Partners with anexport route for oil produced from Block 5A and/orBlock 5B. Tariffs for using the pipeline are expectedto range between USD 4 and USD 6 per bbl.
Block 5A covers an area of approximately 20,000square kilometres and is located adjacent to and onthe same geological trend as the blocks currentlybeing exploited by GNPOC. Block 5B, covering anarea of 20,119 square kilometres, in turn adjoinsBlock 5A.
Several recent discoveries nearby, includingMunga South, less than 3 kilometres from the Block5A boundary, and El Khairat, have dramaticallyincreased the prospectivity of the area.
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Block 5ALundin Petroleum currently holds a working interestof approximately 40.4 percent and a 42.5 percentpaying interest (arising out of its obligation to bear ashare of the initial exploration, appraisal and develop-ment costs of Sudapet) in an EPSA dated 6 February1997 with the Republic of the Sudan. On 7 April1999, a joint operation agreement was entered into.Working interests are Petronas 28.5 percent, OMV26.1 percent and Sudapet 5.0 percent with LundinPetroleum as operator (the “Lundin Sudan 5AEPSA”). Up to 40 percent of all oil produced will beavailable to the Sudan Partners to recover explo-ration, development and operating costs. The LundinSudan 5A EPSA stipulates that the Sudan Partners’share of profit oil produced after cost recovery will bebetween 18.7 and 28.5 percent depending on theaverage daily production.
Figure 12: Map over Blocks 5A and 5B
The term of the Lundin Sudan 5A EPSA consistsof 3 commitment periods and a development andproduction period lasting 27 years from the date ofexecution of the Lundin Sudan 5A EPSA. The firstcommitment period is for 54 months with 2 exten-sions (the second and the third commitment period)of 24 months and 18 months, respectively. The SudanPartners have completed the work obligation for thefirst commitment period and have entered the sec-ond commitment period. As a result of the extension,30 percent of the area originally covered by theLundin Sudan 5A EPSA has been relinquished.
During the first commitment period, the SudanPartners have committed to a work obligation con-sisting of the drilling of 2 exploration wells. As stipu-lated in the work obligation, Lundin Petroleum hasalso completed 1,485 line kilometres of seismic sur-veys, which defined 3 drillable prospects. The first ofthese, the Thar Jath-1 prospect, was drilled in thesecond quarter of 1999. Lundin Petroleum com-pleted the testing of the Thar Jath-1 well in February2001 and the well flowed at a cumulative rate of4,260 bopd from 3 drill stem tests over the Bentiuand Aradeiba formations.
The Republic of the Sudan The Sudan Partners
Production sharing
Working interest
Sudapet
5.0%
OMV
26.1%
Petronas
28.5%
LundinPetroleum
40.4%
18.7–28.5%71.5–81.2%
Profit oil1 Cost oil1
Oil produced in Block 5A
Not less than 60% Not more than 40%
Figure 13: Illustration of the terms for production sharing in Block 5A if oil is produced
1 For definitions see page 48.
The second exploration well that Lundin Petro-leum drilled on Block 5A was Jarayan 1, situated 12kilometres Southeast of the Thar Jath-1 well locatedon trend with the Thar Jath-1 discovery. The well didnot encounter economic volumes of hydrocarbonsand has been suspended. On the completion of theexploration well Jarayan 1, the minimum work obli-gation in Block 5A was fulfilled. Lundin Petroleum hasacquired 182 square kilometres of 3D seismic dataover the Thar Jath structure, which is currently beinginterpreted (see further information on pages 22–23).
Following the Thar Jath-1 well test and the explo-ration well Jarayan 1, the first appraisal well on theThar Jath structure named Thar Jath-2 was drilled.The appraisal well flowed at a cumulative rate ofmore than 2,000 bopd from 2 separate tests in theBentiu and Aradeiba formations.
Block 5BLundin Petroleum currently holds a 24.5 percentworking interest and 27.2 percent paying interest inan EPSA dated 2 May 2001, with the Republic of theSudan and the Sudan Partners (working interests arePetronas 41.0 percent (joint operator), OMV 24.5 per-cent and Sudapet 10.0 percent (joint operator) (the“Lundin Sudan 5B EPSA”). In the case of a commer-cial discovery going into production, the Sudan Part-ners will, in accordance with the Lundin Sudan 5BEPSA, receive a share of profit oil produced in therange of 20 to 30 percent depending on the averagedaily production. This profit oil is, after cost oil beingup to 50 percent of gross oil production, available tothe Sudan Partners to recover exploration, develop-ment and operating costs.
The term of the Lundin Sudan 5B EPSA consists ofa 6-year exploration period and a development andproduction period lasting 25 years from the date ofexecution of the Lundin Sudan 5B EPSA. The explo-ration period consists of a 48-month period with theoption to extend the period for a further 24 months.The Sudan Partners are committed to spend USD33 million or drill 3 exploration wells and acquire andprocess 1,000 kilometres of 2D seismic data in thefirst 48-month period. The commitment for the sec-ond 24-month period is to spend USD 18 million ordrill 2 exploration wells and acquire 400 kilometres of2D seismic data. In order to extend the explorationperiod, Lundin Petroleum must fulfil the work obliga-tion for the preceeding period.
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The Sudan Partners have recently approved a2001/2002 work program for Block 5A, which will include:
� Drilling an additional exploration well. � Completing a conceptual development plan
study on the Thar Jath field with a view to initi-ating the development of the Thar Jath field in2002. The Sudan Partners and the Republic ofthe Sudan are in principle committed to the fasttrack development of the Thar Jath fieldthrough the installation of a pipeline connect-ing the Thar Jath field to the nearby GNPOCpipeline and facilities.
� Acquiring new 2D seismic data on existingleads.
� Establishing an infrastructure and operationsbase, allowing the Sudan Partners to proceed,subject to the results of the conceptual devel-opment plan study, with the development ofthe Thar Jath field.
� Drilling 2 further appraisal wells on Thar Jath.� Completing the construction of key elements of
the infrastructure in preparation for the fulldevelopment of Thar Jath.
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The Republic of the Sudan The Sudan Partners
Production sharing
Working interest
20.0–30.0%70.0–80.0%
Profit oil1 Cost oil1
Oil produced in Block 5B
Not less than 50% Not more than 50%
Sudapet
10.0%
OMV
24.5%
Petronas
41.0%
LundinPetroleum
24.5%
Figure 14: Illustration of the terms for production sharing in Block 5B if oil is produced
Halaib BlockLundin Petroleum has a 100 percent working interestin the Halaib Block located partly onshore and partlyoff the coast of Northern Sudan in the Red Sea. Thearea where the Halaib Block is situated has been sub-ject to a border dispute between Sudan and Egyptsince 1992. The term of the Halaib Block has beensuspended until the dispute is resolved. LundinPetroleum has no remaining work obligation on theHalaib Block.
In an EPSA dated 17 December 1991 with theRepublic of the Sudan (the ”Lundin Sudan HalaibEPSA”), Lundin Petroleum is granted the right toexplore for oil and gas in the Halaib Block. Originally,the EPSA covered 2 blocks, Halaib and Delta Tokar, ofwhich the latter was relinquished 17 December 1997.
The term for the EPSA stipulates an initial com-mitment period of 48 months with an option of a sec-ond commitment period of 24 months. The develop-ment period is 25 years commencing from the dateof the first commercial discovery. With the consent ofthe Republic of the Sudan, the development periodcan be renewed for an additional 5 years.
Production will be shared between the Republic ofthe Sudan and Lundin Petroleum, with Lundin Petro-leum’s share ranging from 20 to 35 percent depend-ing on average daily production. The cost of explo-ration, development and operations will, in the caseof a commercial discovery, be repaid to Lundin Petro-leum out of the oil produced.
Women carrying water provided by Lundin Sudan Limited
1 For definitions see page 48.
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Sudan is the area of operations where the Companyhas focused the greatest attention in view of theimportance of the operations to the Company aswell as the specific context it represents. In carryingout its operations, the Company has put into prac-tice its health, safety and environmental policies,commissioning environmental studies prior to newundertakings and implementing measures aimed atensuring a safe and healthy environment for itspeople. Further, given that the area in which theCompany operates in Sudan is one where manybasic needs are not met, the Company has initiateda Community Development and HumanitarianAssistance Program (“CDHAP”), which is imple-mented by a dedicated staff at corporate, countryand field level.
Reasons for the Community Development andHumanitarian Assistance ProgramWhile Lundin Petroleum’s main objective in Sudan isto explore for and produce oil, it also seeks,through its activities, to contribute to the welfare ofthe people of Sudan, particularly those situated inthe concession area. In the long-term, it can achievethis objective by helping the country achieve eco-nomic development by bringing its resources intocommercial production. In the short-term, it can doso by helping the population cope with some press-ing needs.
With these objectives in mind, Lundin Petro-leum, through its subsidiary Lundin Sudan Limited,held consultations with representatives of the localpopulation, tribal leaders, representatives of theState and the Government of Sudan, and other rel-evant stakeholder groups to determine key needs.Initially, the Company carried out activities on atime/needs basis. As a result of the consultationprocess, it then elaborated CDHAP, which LundinOil began implementing in January 2001.
CDHAP objectivesCDHAP has 3 main objectives:� To promote better health, hygiene, education
and quality of life for the current and futureinhabitants of the concession area of Block 5A.
� To contribute to the economic and social devel-opment of the area.
� To promote friendly relations between the con-sortium and the people in the area.
CDHAP projectsThe initial CDHAP-period covering the pre-produc-tion phase of Lundin Petroleum’s operations, is2001–2003. Activities are carried out mainly inBlock 5A and particularly areas south of Bentiu,which are not currently receiving attention from theGNPOC or Talisman programs.
Activities undertaken to date consist of a com-bination of humanitarian assistance and communitydevelopment. Where feasible, the activities are cou-pled with self-help measures, to reinforce and pro-long their positive effects.
Projects 2001Projects carried out under CDHAP during 2001include the following: � Freshwater supply
– daily delivery of 13,000 litres of water to cisterns placed along the all weather road (“AWR”),
– drilling of 6 shallow water wells along the AWR pro-viding a permanent supply of freshwater,
– repair of 10 water wells in the town of Lehr, – distribution of one thousand 20-litre water contain-
ers for the local population.� Health
– visit of medical doctor and provision of basic med-ical services in accessible areas of Block 5A such asLehr, Dorang and Rier before the onset of the rainyseason,
– distribution of blankets, mosquito nets, plasticsheeting and soap, to prevent the spread of dis-eases during the rainy season,
– facilitation of vaccination programs launched byother institutions,
– needs assessment for the feasibility of setting upand staffing tent clinics.
� Education– distribution of school supplies (school kits, chalk-
boards and chalk to existing schools). � Self-help measures
– distribution of farming tools to agricultural villagecommittees for the upcoming farming season (handspray pumps, hand grinding flour mills etc),
– employment of Sudanese for general operations,– employment of Sudanese for seismic programs (over
80 percent of total staff),– employment of Sudanese staff for CDHAP purposes.
Plans for 2002–2004CDHAP will focus on providing longer-term solu-tions to medical problems and educational require-ments, and increased employment opportunitiesand preservation of the environment. Importantwork will be undertaken to continue to build up thelocal infrastructure. Main activities projected con-templated include the refurbishment (and staffing)of a hospital in Lehr, the extension of the AWR toLehr, drilling of deepwater wells in the block areaand setting up and equipping schools.
In addition, during this second phase, LundinPetroleum plans to focus on capacity buildingmeasures in order to diversify people’s means andsources of income. These may include adult educa-tional programs, vocational training, enhancementof existing skills and micro-credits. In this manner,the Company hopes to help local people achieveself-reliance and sufficiency.
Lundin Petroleum’s Community Development and Humanitarian Assistance Program in Sudan
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THE SOMALI CONTINGENT ASSETS Lundin Oil currently has a 20 percent working interestin Block 35 and Block M-10A in Northern Somalia,also referred to as Somaliland. Lundin Petroleum willhave a 3-year option to purchase 100 percent of thisinterest from Talisman, subject to receiving the requi-site government and third party approvals. Duringthe subsequent 2 years, Lundin Petroleum will havethe option to purchase 50 percent of the interest. Theoptions to purchase are at nominal values of USD 100and USD 50, respectively, plus a proportionate shareof any subsequent expenditure by Talisman.
In 1986, Lundin Oil and Gulfstream jointly exe-cuted a concession agreement (the “Somalia Con-cession Agreement”) with the State of Somalia,thereby acquiring 2 onshore blocks (Blocks 35 and36) in Northern Somalia, on the coast of the Gulf ofAden, East of Berbera. Lundin Oil held a 66.67percent working interest in the blocks. The 2 blockswere acquired on the premise that the petroliferousMa’arib-Jawf (in which Hunt Oil’s 500 mmbo Aliffield in the Republic of Yemen is sited) extends into Somalia.
A 450-kilometre seismic program in Block 35 wascompleted in mid 1986, in conjunction with extensivegeological and geochemical sampling and mapping
in both Blocks 35 and 36. The analysis of that datademonstrated the prospectivity of Block 35, whilerevealing the lack of Jurassic source rocks essentialfor oil generation in Block 36. Consequently, Block 36was relinquished in 1987 and replaced with Block M-10A, which is the offshore extension of Block 35.The geological conclusions by analogy with theYemen oil fields are that the Somali blocks have pro-lific oil source rocks, which are mature at the presentdepth of burial with impermeable seals or cap rocksover potential reservoirs.
Farm-out agreements were reached with BPAmoco (50 percent), Fortum (10 percent) and Murphy(10 percent), and with Lundin Oil and Gulfstreamretaining a 20-percent and 10-percent working inter-est, respectively, in the Somalia Concession Agree-ment.
Due to military strife between government forcesand rebellious elements, which limited access to theconcession area and prevented spudding of the pro-jected wells in complete safety in Northern Somalia,operations were suspended 11 July 1989 due toforce majeure. The significance of the indefinite post-ponement of the Somalia project is the ongoingsuspension of the work program due to the forcemajeure situation.
Figure 15: Map indicating Lundin Petroleum’s interests in Somalia
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KHANTY MANSIYSK OIL CORPORATION Lundin Petroleum holds 1,507,6801 shares, repre-senting approximately 10 percent of the undilutedshare capital in the United States Delaware companyKMOC. KMOC develops, produces and marketscrude oil from the Khanty Mansiysk region in WesternSiberia in the Russian Federation. The region is partof one of the largest hydrocarbon basins in the world.
The average operated production, excluding a22.3 percent indirect equity interest in a Russian com-pany, increased from 4,099 bopd in 1999 to 8,436bopd in 2000. The current production is in excess of10,000 bopd. The estimated total proven reserves asof 31 December 2000, verified by a third party (RyderScott Co.), were 410 mmbo. KMOC currently holdsproduction licenses to 9 fields, 3 of which are cur-rently producing.
Lundin Oil’s acquisition of shares and promissorynote in KMOC has been made through various pur-chases totalling USD 8.4 million. A total of 115,4401
warrants are attached to the promissory note, entitlingLundin Petroleum to subscribe for 115,4401 newshares in KMOC at a subscription price of USD 11.25per share. The warrants may be exercised for subscrip-tion during the period 19 October 2000 –14 October2002. The shares and the promissory note were trans-ferred to Lundin Petroleum at a value of USD 21.1million, which was based upon the price per shareachieved in KMOC’s most recent private placementin 2000.
KMOC is currently pursuing a public offering of itsshares, which are proposed to be listed on Nasdaq inthe United States. In the public offering, LundinPetroleum has exercised its contractual right toinclude 307,8241 shares.
Figure 16: Map over KMOC’s producing and developmentassets in the Russian Federation
Source: KMOC.
1 After given effect to a 40 for 1 common share split to be effected prior to the completion of the proposed public offering.
EXPLORATION AND PRODUCTION SHARING AGREEMENTS
22
INTRODUCTIONThe assets in Lundin Petroleum include interests inthe EPSAs concerning Blocks 5A and 5B. The Com-pany also holds the Halaib Block located partlyonshore and partly off the coast of Northern Sudan inthe Red Sea. This block is in suspension as a result ofa boundary dispute between Egypt and Sudan andthe blocks in Somalia, Blocks 35 and M-10A, whichLundin Petroleum has an option to acquire from Talisman, are in force majeure.
Sudanese law governs the two EPSAs concerningBlocks 5A and 5B, including the Sudanese PetroleumAct. The EPSAs are signed by the Minister of Energyand Mining, representing the Government of theRepublic of the Sudan, after the form of the EPSAhaving been approved by the Petroleum Board,which is chaired by the President of the Republic ofthe Sudan. The decisions made by the PetroleumBoard are not officially published.
The Republic of the Sudan shall assume, pay anddischarge the parties’ Sudanese income taxes as wellas any other taxes that might be imposed now or inthe future on the parties operations out of the sumsreceived by the Government from its share of crudeoil and gas. By Sudanese income taxes is meantincome or profits tax, municipal tax, defence tax,development tax or any other payable tax or chargeimposed by the Republic of the Sudan and theregional, provincial or municipal subdivision thereof.
THE LUNDIN SUDAN 5A EPSAOn 6 February 1997, IPC Sudan Limited (renamedLundin Sudan Limited and hereafter referred to asLundin Sudan Limited) entered into an EPSA with theRepublic of the Sudan. Lundin Sudan Limited is giventhe exclusive rights to oil and gas exploration andproduction in an area defined as Block 5A. The blockis located in Southern Sudan and covered originally29,885 square kilometres (20,000 square kilometresafter relinquishment in 2001).
On 29 May 1997, Lundin Sudan Limited assigned30 percent of its interest in the EPSA to Petronas. On2 June 1997, Lundin Sudan Limited assigned an addi-tional 27,5 percent of its interest in the EPSA to OMV.As a result of the assignment, OMV assumed theobliation to pay 55 percent of the initial explorationcosts up to USD 27.5 million. On 10 June 1997,Lundin Sudan Limited, Petronas and OMV assignedtheir proportionate share of a 5 percent interest toSudapet, a wholly-owned company of the Republicof the Sudan. Sudapet is a carried partner, meaningthat Lundin Sudan Limited, OMV and Petronas areobliged to bear the initial exploration, appraisal anddevelopment costs of Sudapet. In the event oil is pro-duced and sufficient revenue streams are developed,
all of the costs associated with the differencebetween paying and working interests will be recov-ered out of Sudapet’s share of cost and profit oil.
Figure 17: Participating interests in the LundinSudan 5A EPSA
Joint venture Working Payingpartner interest, % interest, %
Lundin Petroleum 40.375 42.500Petronas 28.500 30.000OMV 26.125 27.500Sudapet 5.000 0.000
Lundin Petroleum, OMV and Petronas (the“Party”) and Sudapet are jointly and severally respon-sible towards the Republic of the Sudan for all obli-gations and liabilities set forth in the EPSA.
The EPSA has two stages, the exploration stageand the production stage. The exploration stage isdivided into the first commitment period, the secondcommitment period (24 months, commencing6 August 2001) and the third commitment period(18 months), a total of 8 years. The second and thethird period are optional. With reference to the effec-tive date of 6 February 1997, the current status of theEPSA is that it is in the beginning of the second com-mitment period (see figure 9). The EPSA is termi-nated if there have been no commercial discoverieswithin the exploration stage. Provided commercialdiscoveries are made, the EPSA may be in effect for27 years from 6 February 1997.
The Party shall bear all the costs and expensesrequired in carrying out exploration, development,production and all other operations related thereto,including, but not limited to, transportation ofpetroleum from wells to the export and/or refineryterminals, transportation of the same to internaldistribution points and all other operations autho-rised, required or contemplated under the EPSA(“petroleum operations”).
The Party is committed to a minimum expendi-ture obligation for the duration of the explorationstage, amounting to a minimum of USD 28.0 million.During the second commitment period the Party iscommitted to spend the higher of USD 8.0 million orthe cost associated with the drilling of 1 explorationwell, and either the drilling of a second explorationwell or the acquisition of 500 kilometres of 2D seismicdata or 166 square kilometres of 3D seismic data.Lundin Petroleum’s share of this minimum expendi-ture obligation is USD 3.4 million. However, the fulfil-ment of the minimum expenditure obligation shallnot relieve the parties of the corresponding minimumwork obligation. The minimum expenditure obliga-
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tion during the optional third commitment period isthe higher of USD 5 milllion or the cost associatedwith the drilling of 2 exploration wells.
In addition to costs relating to petroleum opera-tions, the Party is committed to pay various bonuses,fees and other payments to the Republic of theSudan. The production bonuses are as follows: � USD 2.0 million as a production bonus upon the
commencement of commercial production.� USD 3.0 million as a further production bonus when
for the first time the total average daily productionof crude oil is sustained at the rate of 50 mbbl for aperiod of 30 consecutive producing days.
� USD 2.0 million as a further production bonus whenfor the first time the total average daily productionof crude oil is sustained at the rate of 100 mbbl fora period of 30 consecutive producing days.
� USD 3.0 million as a further production bonus whenfor the first time the total average daily productionof crude oil is sustained at the rate of 150 mbbl fora period of 30 consecutive producing days.
Further, a scholarship and a social developmentbonus of USD 0.15 million each are payable at thebeginning of each financial year while the EPSAremains in effect. Provided a commercial discovery ismade, this payment will increase to USD 0.3 millionper year commencing from the first regular shipmentfor export.
The Party shall pay, in advance, annual surfacerentals for areas retained under the agreement asfollows:� USD 2 per annum for each 1 square kilometre in the
first commitment period, excluding any develop-ment area.
� USD 10 per annum for each 1 square kilometre inthe second commitment period excluding anydevelopment area.
� USD 20 per annum for each 1 square kilometre inthe third commitment period, and any extension.
� During the exploration stage, USD 50 per annumfor each 1 square kilometre of contract areaincluded in a development area.
� After the termination of the third commitmentperiod, USD 50 for each 1 square kilometre ofcontract area remaining under this agreement.
Expenditures related to exploration, productionand development are recoverable upon commence-ment of production with 40 percent of oil producedper year and 60 percent of gas produced per yearafter deduction of oil transportation costs.
The remaining part of the annual gross produc-tion from the contract area shall be shared by theParty and the Republic of the Sudan proportionally.
The share of the Party varies from 18.7 to 28.5 per-cent of the oil and 15.0 to 20.0 percent of the gas.
Joint operation agreement Block 5AOn 7 April 1999, Lundin Sudan Limited, Petronas,OMV and Sudapet entered into a joint operationagreement concerning Block 5A, which governs therights and obligations of the participating parties inthe Lundin Sudan 5A EPSA.
Sudapet’s share of all costs and expenses in oper-ations shall from the effective date of the EPSA anduntil the commencement of commercial productionbe funded by the Party in proportion to their partici-pating interests.
Lundin Petroleum is designated to act as operator.This is an exclusive right to conduct and supervise allpetroleum operations, being responsible for carryingout petroleum operations, reporting, budgeting,representing etc. The responsibilities of the operatorare quite comprehensive, but the operator shouldneither suffer a loss nor make a profit as a result of itsactivities in this respect.
THE LUNDIN SUDAN 5B EPSAOn 2 May 2001 Lundin Muglad Limited (which sub-sequently assigned its interest to Lundin Sudan(Block 5B) Limited) entered into an EPSA with theRepublic of the Sudan, Petronas, OMV and Sudapetregarding the exploration, development, productionand transportation of petroleum in an area defined asBlock 5B, a block adjoining Block 5A, covering20,119 square kilometres.
Figure 18: Participating interests in the LundinSudan 5B EPSA
Joint venture Working Payingpartner interest, % interest, %
Lundin Petroleum 24.500 27.222Petronas 41.000 45.556OMV 24.500 27.222Sudapet 10.000 0.000
According to the EPSA the parties are given theexclusive right to conduct petroleum operations inBlock 5B. The parties shall each be jointly and sever-ally responsible towards the Republic of the Sudanfor all obligations and liabilities of the parties underthe EPSA.
Sudapet is a carried partner, which means that theother parties to the EPSA shall carry the costs ofSudapet. Such costs shall be recoverable upon com-mencement of production with 50 percent of the oilproduced per year and 60 percent of the gas producedper year.
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The duration of the EPSA is 25 years starting fromthe date of signature, consisting of a mandatory ini-tial 48-month first commitment period and, at theparties option, a 24-month second commitmentperiod. The EPSA is currently in the beginning of thefirst commitment period (see figure 9). Block 5B shallbe relinquished if no commercial discovery is madeby the end of the second commitment period. If anyof the parties to the EPSA are in material breach oftheir obligations or fails to make any payments, theRepublic of Sudan can terminate the EPSA within aperiod of 90 or 60 days, respectively, if the men-tioned defaults have not been rectified within theseperiods.
During the first commitment period, LundinSudan (Block 5B) Limited and its partners are obligedto review existing seismic data, acquire and process400 kilometres of new 2D seismic data and drill 3exploration wells with a minimum expenditure ofUSD 33 million. During the second commitmentperiod, Lundin Sudan (Block 5B) Limited and its part-ners are obliged to acquire and process 400 kilometreof new 2D seismic data, drill 2 exploration wells or 1exploration well and 1 appraisal well with a minimumexpenditure of USD 18 million. However, the fulfil-ment of the minimum expenditure obligation shallnot relieve the parties of the corresponding minimumwork obligation.
According to the EPSA, the parties are obliged topay production bonuses of: � USD 1.5 million when accumulated production first
exceeds 750 mbbl over 30 producing days.� USD 2.0 million when accumulated production first
exceeds 1,500 mbbl over 30 producing days.� USD 2.5 million when accumulated production first
exceeds 3,000 mbbl over 30 producing days.
Further, the parties are obliged to pay a scholar-ship bonus and a social bonus, each payable withUSD 0.15 million per year, rising to USD 0.30 millionper year after start of commercial production.
In addition, the parties shall pay, in advance,annual surface rentals for areas retained under theagreement as follows:� USD 10 per annum for each 1 square kilometre the
first 4 years of the EPSA.� USD 20 per annum for each 1 square kilometre the
next 2 years of the EPSA.� USD 50 per annum for each retained 1 square kilo-
metre after the expiry of the exploration stage.
Upon commencement of oil production, theproduction from Block 5B shall be taken and dis-posed separately by the Republic of the Sudan andthe parties varying in proportions depending on theaverage daily production of crude oil and gas in afinancial year. The share of the parties varies from 20to 30 percent of the extracted oil and gas.
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Lundin Petroleum´s drilling crew on the rig site
LUNDIN PETROLEUM’S APPROACH
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In order to ensure that Lundin Petroleum conductsbusiness in an economically efficient and a sociallyand environmentally responsible way the Companyhas established a Code of Conduct (the “Code”). TheCode, which is set forth below, is an importantcornerstone on which the Company’s values, respon-sibilities and principles are based.
At the corporate level, the formal adoption of theCode entails integration of Corporate Social Respon-sibility (“CSR”) considerations in strategic planningand decisions, development of mechanisms toensure that CSR aspects are fully integrated in oper-ations as well as examination of current operationsfrom a CSR perspective. Further, the Code entails theestablishment of guidelines for CSR projects. At theoperations level the Code entails that the Companyis acting in accordance with stipulated values andprinciples, carrying out activities in accordance withthe Code as well as developing projects and programsin furtherance of the Code.
Lundin Petroleum will continue and improve itspractice of contributing to the development of itsareas of operations through health, education,employment and humanitarian initiatives. TheCompany is committed to its Code and to enhanceits overall performance as a responsible corporatecitizen.
CODE OF CONDUCTValuesLundin Petroleum is committed:� To act in a fair, honest and equitable way.� To observe local laws and regulations.� To respect local customs and traditions.� To observe applicable international laws and
standards.
ResponsibilitiesLundin Petroleum is responsible:� Towards shareholders, to realise and sustain a
good return on investment and continuing growthof the assets.
� Towards employees, to provide a safe and reward-ing working environment.
� Towards host countries, owners of the resources, tofind and produce oil and gas professionally andefficiently.
� Towards local communities, to contribute to local development and higher standard of living.
� Towards society, to contribute to wealth generationwhile limiting possible adverse impacts on theenvironment.
Drilling of water well, sponsored by Lundin Sudan Limited.
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Lundin Petroleum’s guiding principlesAttitude towards businessLundin Petroleum seeks to achieve high standards ofperformance, while being attentive and sensitive tothe way business is conducted. Lundin Petroleum iscommitted to:� Promote innovation throughout the operations.� Be flexible and take measured risks.� Practice free and fair competition.� Maintain transparency in the way operations are
conducted.� Honour the Company’s commitments.� Use appropriate and adequate means to protect
staff and operations.� Refrain from accepting/offering improper pay-
ments, gifts or engaging in bribery or corruptbusiness practices.
� Seek similar standards from co-venturers and sub-contractors.
Attitude towards employeesLundin Petroleum’s performance as a corporateentity is dependent upon the performance of theemployees as individuals. The Company thereforeaim to achieve maximum employee satisfaction andultimate standards of performance. To that endLundin Petroleum is committed to:� Respect and promote employees’ rights.� Offer rewarding working conditions.� Provide a safe and healthy working environment.� Realise each employee’s individual potential
through training and job promotion.� Respect the cultural diversity of employees.� Ensure equal opportunity without discrimination
on the basis of age, culture, disability, gender,race, religion etc.
� Avoid the direct or indirect use of child or forcedlabour.
Attitude towards host countriesLundin Petroleum seeks to respect and gain therespect of the countries in which the Company oper-ates. Good relations with host countries are prereq-uisites to the Company’s business. Wherever LundinPetroleum operates, the Company is committed to:� Observe local laws and rules.� Respect the sovereignty of the state.� Observe and, through the Company’s example,
promote the rule of law.
Attitude towards local communitiesLocal communities may be affected by Lundin Petro-leum’s operations. To ensure that communities ben-efit from the Company’s presence, Lundin Petroleumis committed to:� Encourage employment of indigenous people.� Engage in capacity building, through the transfer
of skills and technologies.� Work with local communities by contributing to
improve their health, education and welfare.� Respect indigenous people and their traditions.� Minimise disturbances that may be caused by the
Company’s operations.� Be mindful of the impact of the Company’s secu-
rity arrangements on the communities.� Refrain from any implications in tribal or internal
armed conflicts or acts of violence.
Attitude towards the environmentLundin Petroleum strives to limit adverse impacts onthe environment, thereby contributing to sustain-able development, and are committed to:� Comply with applicable environmental laws and
regulations and international standards.� Adhere to the Company’s environmental policy
and sound management practises.� Use sound technologies.� Co-operate with industry, government and the
public on programs to protect the environment.� Minimise and mitigate the effects of pollution
within the scope of operations.� Review and monitor the Company’s environmental
performance.
RISK FACTORS
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In addition to the other information contained in thisInformation material, Lundin Petroleum faces anumber of risks and uncertainties in its properties,which may adversely impact on its ability to success-fully pursue its exploration, appraisal and develop-ment plans. The Board of Directors believes that therisk factors set out below should be taken intoaccount when evaluating Lundin Petroleum and itsoperations. The risk factors mentioned below shouldnot be considered exhaustive and are not set forth inany order of priority.
NATURE OF OIL AND GAS EXPLORATIONAND PRODUCTIONOil and gas exploration, development and produc-tion involves high operational and financial risks,which even a combination of experience, knowledgeand careful evaluation may not be able to eliminate.Lundin Petroleum’s prospects depend on its ability toexploit the oil and gas assets it holds, and to fosternew relationships to enter into additional agreementsin other areas. The marketability of the oil and gasacquired or discovered is affected by numerous fac-tors beyond the control of the Company. These fac-tors include market fluctuations in terms of supplyand demand, proximity and capacity of oil and gaspipelines and processing equipment and govern-ment regulations (including regulations relating toroyalties, allowable production, importing andexporting of oil and gas and environmental protec-tion).
Oil and gas drilling activities are subject tonumerous risks, many of which are beyond the Com-pany’s control. The Company’s operations may becurtailed, delayed or cancelled as a result of weatherconditions, mechanical difficulties, shortages ordelays in the delivery of equipment and compliancewith governmental requirements. In addition, there isno assurance that commercial quantities of oil andgas will be recovered within any of the Company’sexploration projects. Drilling may involve unprof-itable efforts, not only with respect to dry wells, butalso with respect to wells that are productive but donot produce sufficient net revenues to return a profitafter drilling, operating and other costs.
Among the inherent risks related to oil and gasexploration, development and production, specialmention should be given to the danger of causingserious damage to the environment. There is a signif-icant risk that the Company’s activities, so far carriedout onshore, will entail emissions to the air, the earthand the ground water, which may pose a threat to theenvironment. In particular, the environment will sufferin case of an accident in connection with the activi-ties. Under applicable laws and regulations as well ascontracts, the Company may be held liable towards
governments, the Company’s joint venture partnersand third parties for such damage.
PROPERTY AND/OR BORDER DISPUTESLongitude and latitude establish the co-ordinates ofthe Company’s concession areas. There could besome doubt as to the exact location of certain areasof the Company’s concession areas being exploredand/or developed relative to the established co-ordi-nates. Further, the jurisdictions within which LundinPetroleum’s concessions exist, periodically becomethe subject of disputes. Failure to resolve these dis-putes or any disputes, which may arise in the future,could materially and adversely affect the Company’sability to develop a concession area and may have amaterial adverse effect on the Company’s business,financial condition and results of operations.
POLITICAL UNCERTAINTIES AND MILITARY DISTURBANCESLundin Petroleum is, and will be, actively engaged inoil and gas operations in various countries. Risks mayarise in changes in laws affecting foreign ownership,government participation, taxation, royalties, duties,rates of exchange and exchange control. Further, cer-tain aspects of Lundin Petroleum’s exploration pro-gram require the consent or favourable decisions ofgovernmental bodies. In addition, the Company’sexploration and development activities are subject topolitical and economic uncertainties, expropriation ofproperty and cancellation or modification of contractrights, taxation, royalties, duties, foreign exchangerestrictions and other risks arising out of foreign gov-ernmental sovereignty over the areas in which theCompany’s operations are conducted, as well as risksof loss in some countries due to civil strife, acts ofwar, guerrilla activities and insurrection. Oil installa-tions are known to be likely objects, and even targets,of military operations and terrorism. Given theirvulnerability and the considerable economic interestsinvolved, this adds to the high risk profile of LundinPetroleum's interests.
LIABILITIES AND OBLIGATIONS UNDER EPSAsLundin Petroleum participates in joint ventures withthird parties in oil and gas exploration activities. TheCompany and its joint venture partners are contrac-tually committed under various EPSAs to completecertain exploration programmes. The liabilities andobligations under the EPSAs are joint and severalmeaning that failure of one such joint venture partnerto perform its share of the liabilities and obligationsin the EPSA shall not relieve the other joint venturepartners of its or their liabilities and obligations toperform fully all of the liabilities and obligations pur-suant to the terms of the EPSA.
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LAWS GOVERNING THE EPSAsSudanese Law governs the EPSAs concerning Block5A, Block 5B and the Halaib Block. Due to the uncer-tainties concerning the consequences of this law thismay be a risk factor. Further, any arbitration proceed-ings concerning Block 5B and the Halaib Block shall beheld in Khartoum, Sudan, which could be disadvanta-geous for Lundin Petroleum.
LOSSES AND NEGATIVE CASH FLOWLundin Petroleum is expected to incur losses as itmeets ongoing administration costs prior to thedevelopment of any revenue streams. In addition,Lundin Petroleum is expected to experience negativecash flow as it incurs capital expenditures in theexploitation of its assets. If revenues grow moreslowly than anticipated, or if operating expenses aregreater than expected, Lundin Petroleum’s business,financial conditions and financial results may beadversely affected.
FINANCING RISKAt present, Lundin Petroleum has limited liquid finan-cial resources. As a consequence thereof, LundinPetroleum proposes to effect a fund raising througha rights offering scheduled for the autumn of 2001.However, there can be no assurance that a rightsoffering will be completed in a timely manner or thatit will be completed at all, implying that the Companywould have to seek other sources of financing.
Due to the nature of oil and gas exploration andproduction activities, further fund raising is expectedto be required in the future.
DEPENDENCE ON KEY EMPLOYEESThe Company’s success is largely dependent on theefforts and abilities of certain senior executives andkey employees. While the Company does not foreseeany reason why such executives or key employees willnot remain with the Company, if for any reason theydo not, it could have a material adverse effect on theCompany’s business, financial condition and resultsof operations.
COMPETITIONThe oil and gas exploration and production industryis highly competitive. Lundin Petroleum competeswith other companies, including major oil and gascompanies. Some of these companies have greaterfinancial and other resources than the Company and,as a result, may be in a better position to compete forfuture business opportunities.
NO PREVIOUS TRADING IN THE LUNDIN PETROLEUM SHARESLundin Petroleum was recently spun-off from LundinOil and consequently there has been no trading inthe shares prior to the commencement of trading ofthe Company’s shares on the New Market at Stock-holmsbörsen. Although all requirements are fulfilledfor the Company’s shares to start trading on the NewMarket, there can be no assurance as to whether anactive trading in the shares will develop and hencethe share price may be volatile and fluctuate signifi-cantly.
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED SUMMARISED INCOME STATEMENT
Expressed in SEK million 1 January – 30 June 2001
Net sales of oil and gas –Service income 2.2
Result from operations 2.2
Other income 1.8General and administrative expenses –20.2
Operating result –16.2
Financial income and expenses, net 0.5
Income before tax –15.7
Tax –
Net result –15.7
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BASES OF PREPARATION Lundin Petroleum was registered with the SwedishPatent and Registration Office on 4 May 2001. Con-sequently, the financial statements on page 43 onlyinclude the period of 4 May – 30 June 2001. The proforma consolidated summarised balance sheet,which has been prepared for illustrative purposesonly, has been based on the unaudited financialstatements of Lundin Oil and its subsidiaries as at30 June 2001 and for known and anticipated trans-actions and assumptions detailed below.
The principal adjustments arise from the assump-tions that the following had occurred on or before30 June 2001:
� Lundin Petroleum is incorporated with a share cap-ital of SEK 1,065,436.90 through cash contributionsfrom Lundin Oil.
� Lundin Petroleum’s shareholders’ funds are furtherincreased through a shareholders’ contribution bythe means of the contribution of promissory notesfrom Lundin Oil to the value of USD 58,814,935.
� Lundin Petroleum acquires Lundin Oil’s shares in,and promissory note from, KMOC for USD21,088,300 in consideration for partial forgivenessof the promissory notes.
� Lundin Petroleum acquires 1 Swiss and 7 Bermudansubsidiary companies from Lundin Oil for USD1,002,966. These companies possess, among otherassets, Lundin Oil’s license interests in Sudan at acarrying value of SEK 315.5 million.
� Lundin Petroleum assumes the outstanding debt ofthe subsidiary companies in exchange for forgive-ness of the outstanding promissory notes to thevalue of USD 37,726,635.
� cashcalls to the value of USD 2,979,759 are paid forSudan Block 5A.
� all necessary approvals for the transfer of control ofthe license interests and assets are received.
The pro forma consolidated summarised incomestatement and cash flow statement have been pre-pared on the basis that the Lundin Petroleum Groupwas formed 31 December 2000 and that the 6-monthresult reflects interest earned on the promissory notefrom KMOC, service income received from operatedjoint ventures and administration expenses based onthe Group’s anticipated structure. The cash flowstatement reflects the capital expenditure incurredon the acquired oil and gas properties during the6-month period.
Accounting principles applied are described onpages 44–46. USD transactions and balances havebeen converted at a convenience exchange rate ofUSD 1 equal to SEK 10.4.
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PRO FORMA CONSOLIDATED SUMMARISED BALANCE SHEET
Expressed in SEK million Note 30 June 2001
AssetsTangible fixed assetsOil and gas properties 1 315.5Other fixed assets 7.2
Total tangible assets 322.7
Financial fixed assets 2 250.5
Total fixed assets 573.2
Current assetsCurrent receivables and inventories 3.9Cash and bank, and short term investments 44.6
Total current assets 48.5
Total assets 621.7
Shareholders’ equity and liabilitiesShareholders’ equity including net result for the period 3 608.0Current liabilities 13.7
Total shareholders’ equity and liabilities 621.7
PRO FORMA CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
Expressed in SEK million 1 January – 30 June 2001
Cash flow used in operationsNet result for the period –15.7Adjustments for non-cash items 0.1Changes in working capital –8.8
Total cash flow used in operations –24.4
Cash flow used for investmentsInvestment in oil and gas properties –127.6Change in restricted cash –31.1
Total cash flow used for investments –158.7
Change in cash and bank –183.1Pro forma cash and bank at the beginning of the period 227.7
Cash and bank at the end of the period 44.6
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NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
Note 1: Oil and gas properties
Expressed in SEK million
Sudan 315.5
Total oil and gas properties 315.5
Note 2: Financial fixed assets
Expressed in SEK million
Shares in KMOC 205.9Promissory note from KMOC 13.5Bank deposit to support a guarantee in respect of work obligations of Sudan, Block 5B 31.1
Total financial fixed assets 250.5
Note 3: Shareholders’ equity, including net result for the period
Number Share Restricted RetainedExpressed in SEK million of shares capital reserves earnings
Pro forma opening balance retained earnings – – – 10.9Initial formation of the Company 1,000 0.1 – –Share split 9,999,000 – – –New share issue 92,861,283 0.9 – –New share issue 3,342,501 0.0 – –Shareholders’ contribution – – 611.7 –Net result for the period – – – –15.7
Total shareholders’ equity,including net result for the period 106,203,784 1.1 611.7 –4.8
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PRO FORMA KEY DATA
1 January – 30 June 2001
Return on equity, %1 –2.55Return on capital employed, %2 –2.55Debt/equity ratio, %3 –Equity ratio, %4 97.79Share of risk capital, %5 97.79Interest coverage ratio, %6 –Operating cash flow/interest expenses, %7 –Yield, %8 –
1 Return on equity is defined as the Group’s net result divided by average shareholders’ equity (the average over the last 2 financial periods).2 Return on capital employed is defined as the Group’s income before tax plus interest expenses plus/less exchange differences on financial loans divided by the
average capital employed (the average balance sheet total less non interest-bearing liabilities over the last 2 financial periods).3 Debt/equity ratio is defined as the Group’s interest-bearing liabilities in relation to shareholders’ equity.4 Equity ratio is defined as the Group’s shareholders’ equity, including minority interest, in relation to balance sheet total.5 Share of risk capital is defined as the sum of the shareholders’ equity and deferred taxes, including minority interest, divided by balance sheet total.6 Interest coverage ratio is defined as the Group’s income before tax plus interest expenses plus/less exchange differences on financial loans divided by interest
expenses.7 Operating cash flow/interest expenses is defined as the Group’s operating income less production costs and less current taxes divided by the interest charge for
the period.8 Yield is defined as dividend in relation to quoted share price at the end of the financial period.
PRO FORMA DATA PER SHARE
1 January – 30 June 2001
Shareholders’ equity, SEK1 5.72Operating cash flow, SEK2 0.02Cash flow used in operations, SEK3 –0.23Earnings, SEK4 –0.15Earnings, (fully diluted), SEK5 –0.15Dividend, SEK –Quoted price at the end of the financial period (regards the parent company), SEK n/aNumber of shares at period end 106,203,784Weighted average number of shares for the period6 106,203,784Weighted average number of shares for the period (fully diluted)5 106,203,784
1 Shareholders’ equity per share is defined as the Group’s shareholders’ equity divided by the number of shares at period end.2 Operating cash flow per share is defined as the Group’s operating income less production costs and less current taxes divided by the weighted average number of
shares for the period.3 Cash flow used in operations per share is defined as cash flow used in operations in accordance with the consolidated statement of cash flow divided by the
weighted average number of shares for the period.4 Earnings per share is defined as the Group’s net result divided by the weighted average number of shares for the period.5 Earnings per share fully diluted is defined as the Group’s net result divided by the fully diluted weighted average number of shares for the period. The warrants to
be issued to employees will have an exercise price calculated as the average of the first 20 trading days. No dilution has been calculated given the uncertaintyrelating to the issue and trading prices.
6 Weighted average number of shares is defined as the number of shares at the beginning of the period with newly issued shares weighted for the proportion of theperiod they are in issue.
Income statementIncome for the period is mainly attributable to serviceincome amounting to SEK 2.2 million, which are pay-ments by the Sudan Partners to cover a portion of theoverhead expenses that Lundin Petroleum hasincurred as the operator of Block 5A in Sudan.
Other income of SEK 1.8 million relates to workperformed on operated joint ventures and recoveredfrom joint venture partners.
General and administrative expenses amountingto SEK 20.2 million are mainly attributable to salaries,office leases and corporate costs. Financial net ofSEK 0.5 million arises from interest received on theSEK 13.5 million promissory note issued by KMOC,payable at a rate of 10 percent per annum.
Fixed assetsTangible fixed assetsAs at 30 June 2001, tangible fixed assets of SEK322.7 million, of which SEK 315.5 million are attribut-able to oil and gas properties in Sudan (for informa-tion regarding warranties and indemnities underEPSAs see page 39). Tangible fixed assets are in fullattributable to capitalised costs of exploration,appraisal and development accounted for using thefull cost method further described on page 45.
Financial fixed assetsLundin Petroleum holds 1,507,6801 shares represent-ing approximately 10 percent of the undiluted2
shares in the United States Delaware companyKMOC. Lundin Petroleum also holds a USD 1.3 mil-lion promissory note issued by KMOC payable at aninterest rate of 10 percent per annum. A total of115,4401 warrants are attached to the promissorynote, entitling Lundin Petroleum to subscribe for115,4401 new shares in KMOC at a subscription priceof USD 11.25 per share. The warrants may be exer-cised for subscription during the period 19 October2000 –14 October 2002.
The shares and the promissory note were trans-ferred from Lundin Oil to Lundin Petroleum at a valueof USD 21.1 million, reflecting the price achieved inKMOC’s most recent private placement of shares in2000.
KMOC is currently pursuing a public offering of itsshares, which are proposed to be listed on Nasdaq inthe United States. A final filing with the U.S. Securitiesand Exchange Commission (“SEC”) was made1 August 2001. In the public offering, Lundin Petro-leum will exercise its contractual right to include307,8241 shares.
In the SEC filing, KMOC stated an estimated pricerange for the offering of the shares of USD 14–16 pershare. There is no assurance, however, that such pricewill be achieved.
Restricted cashAs at 30 June 2001, restricted cash of SEK 31.1 mil-lion reflects an amount placed as collateral for a bankguarantee to the Minister of Energy and Mining,representing the Republic of the Sudan, in relation tothe first commitment period in Block 5B. The totalexploration expenditure commitment amounts toUSD 33 million, of which 33.3 percent is guaranteedby the Sudan Partners. The restricted cash reflectsLundin Petroleum’s paying interest of 27.2 percent.The collateral for the bank guarantee, and hence therestricted cash, will be reduced in proportion withwork performed.
Current receivables As at 30 June 2001, current receivables of SEK 3.9million are attributable to joint venture partners inrespect of operated ventures.
Cash and bankAs at 30 June 2001, Lundin Petroleum’s cash positionamounts to SEK 44.6 million.
Current liabilitiesAs at 30 June 2001, current liabilities of SEK 13.7 mil-lion are attributable to Lundin Petroleum’s portion ofjoint venture operations payables.
Financial net and financial position As at 30 June 2001, there are no interest-bearingliabilities. The equity/asset ratio is 98 percent.
Cash flow The change in cash and bank is attributable to theinvestment in, and funding of, the oil and gas opera-tions in Sudan. The pro forma cash and bank at thebeginning of the period is implied by the level ofactivity during the pro forma period.
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COMMENTS TO THE PRO FORMA FINANCIAL STATEMENTS
1 After given effect to a 40 for 1 common share split to be effected prior to the completion of the proposed public offering.2 Not taken into account outstanding warrants and proposed new share issue.
SHARE CAPITAL AND OWNERSHIP STRUCTURE
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SHARE CAPITALLundin Petroleum’s registered share capital as at28 August 2001, amounted to SEK 1,062,037.84 dis-tributed among 106,203,784 shares with a par valueof SEK 0.01 and representing 1 vote each. All sharesoutstanding are common shares and carry equal
rights to participation in Lundin Petroleum’s assetsand earnings.
Since the incorporation of Lundin Petroleum andup to the most recent new share issue in July 2001,Lundin Petroleum’s share capital has developed asshown below.
Month Number of Share capital Share capital in Lundin Petroleum and year new shares after increase, SEK
Initial formation of the Company May, 2001 1,000 100,000.00Share split June, 2001 9,999,000 100,000.00New share issue June, 2001 92,861,283 1,028,612.83New share issue July, 2001 3,342,501 1,062,037.84
Total 106,203,784 1,062,037.84
OWNERSHIP STRUCTUREThe ownership structure in Lundin Petroleum isshown in the table below at the time of the distribu-tion of the shares of Lundin Petroleum to Lundin Oil’sshareholders, as if it was effected as at 29 June 2001.As at the record date 16 August 2001, the ownershipstructure was identical to that of Lundin Oil, withregard to the owners’ percentage of share capital.
However, since all shares in Lundin Petroleum carryequal voting rights, as opposed to Lundin Oil wherethere were both Series A shares and Series B shares,the percentage of voting differed. The table is basedon Lundin Oil’s owner register as at 29 June 2001.The total number of shareholders amounted toapproximately 32,000.
Number of Share capital/ Shareholders as at 29 June 2001 shares votes, %
Lundin Adolf H. 25,137,693 23.7Yasmin Settlement1 3,079,464 2.9SEB 1,529,899 1.4Wiman Henric, via family and companies 577,333 0.5Akelius Insurance Ltd 505,000 0.5Intensive AB 500,000 0.5Lefwander Johan, via family and companies 419,300 0.4Sundquist Kjell-Åke 418,000 0.4Örup Sven 410,681 0.4Andersson Johan 361,159 0.3Other shareholders, including foreign owners and nominees 73,265,255 69.0
Total 106,203,784 100.0
1 Ian H. Lundin is the settlor of the trust Yasmin Settlement.
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VENDOR PLACEMENTA significant portion of Lundin Petroleum’s assetsrelates to oil exploration activities in the Republic ofSudan, a country against which the United Statesgovernment maintains a comprehensive tradeembargo. Because of the risk that such sanctions mayhave applied to United States shareholders and hold-ers of GDSs, if Lundin Petroleum shares had been dis-tributed to them, it has been arranged that sharesreceived in respect of distribution rights for UnitedStates shareholders and holders of GDSs will be soldand for the net cash proceeds of the sale to be dis-tributed on a pro rata basis to such shareholders andholders of GDSs.
INCENTIVE PROGRAMOn 20 June 2001, an Extraordinary General Meetingof the shareholders of Lundin Petroleum adopted aresolution regarding an issue of 2,500,000 deben-tures, each with a nominal value of SEK 0.10. On9 August 2001, the resolution was supported at theExtraordinary General Meeting of the shareholders ofLundin Oil.1
A detachable warrant is attached to each deben-ture and entitles the holder to subscribe for one newshare in Lundin Petroleum at a subscription price cor-responding to the weighted average of the quotedprice during the first twenty trading days followingthe market quotation. The intention is to divide thewarrants corresponding to 2,500,000 shares amongexecutive Directors, management and other employ-ees as part of their compensation scheme. The war-rants may be exercised for subscription during theperiod 1 May 2002 –1 May 2004. The dilution effectin the event of full exercise of the warrants will beapproximately 2.3 percent.
The Board of Directors of Lundin Petroleumintends, on an annual basis, to seek approval by theAnnual General Meeting to issue warrants as part ofthe Company’s compensation scheme.
FUND RAISING Authorised securitiesAn Extraordinary General Meeting in Lundin Petro-leum held 20 June 2001, authorised the Board ofDirectors to, at one or more occasions prior to thenext Annual General Meeting, resolve to issue newshares and/or other securities. The purpose of theauthorisation is to permit the Company to raise fundsthrough a rights offering scheduled for the autumn of2001.
Proposed rights offeringAs a consequence of Lundin Petroleum’s limitedliquid financial resources, the Company proposes toeffect a fund raising through a rights offering sched-uled for the autumn 2001 to the then existing share-holders. During September 2001, the Board of Direc-tors of Lundin Petroleum expects to announce thedetails regarding a proposed rights offering totallingapproximately SEK 400 million.
Loan agreement with Adolf H. LundinIn order to provide adequate liquidity until the settle-ment of the proposed rights offering, Adolf H. Lundinhas agreed to provide liquid funds through loanagreement. In accordance with the loan agreementwith Lundin Petroleum, Adolf H. Lundin has agreedto provide liquid funds up to a maximum of USD 10million. Funds provided by Adolf H. Lundin will carryan annual interest rate of 7 percent and will be repaidout of the proceeds of the proposed rights offering orat the latest as at 31 December 2001. Undrawnamounts will incur a commitment fee of 1.5 percentper annum.
1 The resolution regarding an issue by Lundin Petroleum was subject to the provisions of the Act Concerning Certain Directed Issues in Stock Market Companies.In order for the resolution to be valid, the resolution had to be supported at the Extraordinary General Meeting of the shareholders of Lundin Oil by shareholdersholding at least nine tenth of the shares voted and represented at the shareholders’ meeting.
BOARD OF DIRECTORS, MANAGEMENT AND AUDITORS
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BOARD OF DIRECTORSAdolf H. LundinChairmanBorn 1932Other board duties: Chairman of North AtlanticNatural Resources AB and Vostok Nafta Investment Ltd.Board Member of Khanty Mansiysk Oil Corporation. Master of Science degree (Department of Engineer-ing) from the Royal Institute of Technology, Stockholm.Master of Business Administration degree from Centred´Etudes Industrielles, Geneva.Shares in Lundin Petroleum: 25,137,693.
Carl BildtDirectorBorn 1949Other board duties: Chairman of Teleoptimering AB,board member of HiQ AB, Humany AB, Melody Inter-active Solutions AB, E. Öhman J:or FondkommissionAB, KREAB and Talisman Energy AB.Member of the Swedish Parliament 1979–2001.Prime Minister of Sweden 1991–1994. UN SecretaryGeneral’s Special Envoy for the Balkans 1999–2001.Shares in Lundin Petroleum: 0.
Kai HietarintaDirectorBorn 1932Other board duties: Board member of Vostok NaftaInvestment Ltd. and NCC Finland Oy 1995–2001.Master of Science degree in Engineering fromHelsinki University of Technology. MBA from HelsinkiSchool of Economics. Dr of Economics HC from theSchool of Economics and Business Administration inTurku.Shares in Lundin Petroleum: 0.
Lukas H. LundinDirectorBorn 1958Other board duties: Chairman of Tanganyika Oil Co.Ltd. and International Curator, board member ofNorth Atlantic Natural Resources AB, Vostok NaftaInvestment Ltd., Tenke Mining Corp. and SantaCatalina Mining Corp.Graduate from New Mexico Institution of Mining,Technology and Engineering.Shares in Lundin Petroleum: 196,822.
William A. RandDirectorBorn 1942Master of Law degree in international law from theLondon School of Economics.Shares in Lundin Petroleum: 22,000.
From left standing: Ashley Heppenstall, Magnus Unger, Lukas H. Lundin, Carl Bildt, William A. Rand and Kai Hietarinta. From left sitting: Adolf H. Lundin and Ian H. Lundin.
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Ian H. LundinPresident and Chief Executive OfficerBorn 1960Other board duties: Board member of Vostok NaftaInvestment Ltd.Bachelor of Science degree in petroleum engineeringfrom the University in Tulsa.Shares in Lundin Petroleum: 01.
Magnus UngerDeputy Managing DirectorBorn 1942Other board duties: Chairman of the Odin Group.MBA from the Stockholm School of Economics.Shares in Lundin Petroleum: 22,909.
Ashley HeppenstallFinance DirectorBorn 1962Bachelor of Science degree in mathematics from theUniversity of Durham.Shares in Lundin Petroleum: 157,300.
AUDITORSCarl-Eric BohlinBorn 1946Authorised Public AccountantPricewaterhouseCoopers AB, Stockholm
Klas BrandBorn 1956Authorised Public AccountantPricewaterhouseCoopers AB, Gothenburg
Deputy AuditorBo HjalmarssonBorn 1960Authorised Public AccountantPricewaterhouseCoopers AB, Stockholm
MANAGEMENTAdolf H. LundinChairman of the Board, see Board of Directors
Ian H. LundinPresident and Chief Executive Officer, see Boardof Directors
Magnus UngerDeputy Managing Director, see Board of Directors
Ashley HeppenstallFinance Director, see Board of Directors
Alexandre SchneiterExploration Director Born 1962Bachelor of Science in Geology from theUniversity of Geneva and a Masters degree inGeophysics. Shares in Lundin Petroleum: 53,000.
1 Ian H. Lundin is the settlor of the trust Yasmine Settlement, which holds 3,079,464 shares in Lundin Petroleum.
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SIGNIFICANT AGREEMENTSLundin Petroleum entered into a reorganisationagreement dated 21 June 2001 (the “ReorganizationAgreement”) with Lundin Oil, Talisman and variouscompanies that will become subsidiaries of LundinPetroleum (the “Lundin Petroleum Subsidiaries”) pur-suant to which Lundin Petroleum and the LundinPetroleum Subsidiaries have agreed, inter alia, toindemnify Talisman and Lundin Oil for all losses, lia-bilities and damages arising out of or relating to anumber of different matters, including:� Any misrepresentation, breach of warranty or fail-
ure to fulfill a covenant set forth in the Reorganiza-tion Agreement by Lundin Petroleum or anyLundin Petroleum Subsidiary.
� Any liability or obligation of Lundin Petroleum orany Lundin Petroleum Subsidiary which Lundin Oil,any of its subsidiaries or Talisman is or becomesliable for.
� Any liability arising from the internal reor-ganisation effected prior to the distribution of theshares of Lundin Petroleum or arising out of thesame.
FUTURE RELATIONSHIP BETWEEN LUNDIN PETROLEUM AND LUNDIN OILOn 13 August 2001, Talisman, Lundin Petroleum andLundin Oil entered into a transition agreement. Theterm of the agreement is until the earlier of 6 monthsfollowing 21 August 2001 or upon written notice fromTalisman to Lundin Petroleum that no further serviceswill be required under the agreement. Lundin Oil andLundin Petroleum have agreed to provide certainservices to Talisman in connection with the transitionof ownership, operation and administration of theLundin Oil companies acquired by Talisman and theirassets and the knowledge and information trans-ferred to Talisman. The parties have agreed to segre-gate, as soon as possible, inter alia the books,records and data and information systems and tech-nology relating to each of the Lundin Oil companiesand the Lundin Petroleum companies.
SHAREHOLDERS’ AGREEMENTTo the best knowledge of the Company’s Board ofDirectors, there are no shareholders’ agreementsbetween the Company’s current owners.
LITIGATIONThere are no current or pending legal proceedings towhich the Company or any of its subsidiaries is aparty or to which any of their assets or properties issubject, which, either individually or in the aggre-gate, are expected by the Company to have a mate-rial adverse effect on its consolidated financial posi-tion, liquidity or results of operations.
INSURANCE The Board of Directors believes that Lundin Petroleumhas satisfactory insurance cover in view of the risksarising from operations.
EMPLOYMENT AGREEMENTSThe executives have entered into employment agree-ments with the Company which provide for, amongother things, standard employment terms, includingcompensation, termination and assignment of intellec-tual property rights. Pursuant to these employmentagreements, employment can be terminated upon1 month’s notice during the first year of employment,2 months’ notice from 2 to 9 years of employmentand 3 months’ notice from 10 years of employment,after which the executive officers remain subject toconfidentiality clause.
REMUNERATION OF MANAGEMENT ANDTHE BOARD OF DIRECTORSThe President’s yearly remuneration amounts to CHF358,800 and total yearly remuneration to other seniorexecutives amounts to a total of CHF 662,400. Inaddition, the President and the other senior execu-tives receive additional benefits in respect of the pay-ment of school fees and company cars.
The President and the other senior executives aresubject to notice periods as previously describedunder “Employment agreements”.
The President and the other senior executives areentitled to pension benefits on market terms.
The Chairman’s yearly remuneration amounts toCHF 275,000. Total yearly remuneration to the non-executive Board of Directors amounts to SEK 210,000each. The Deputy Managing Director receives thesame yearly remuneration as the non-executiveBoard of Directors. In addition, the Deputy ManagingDirector receives remuneration directly in respect ofany time associated with executive duties.
There are no severance payment agreements.
PROPERTIESThe Company’s executive offices are located in 209square metres of leased space in 2 locations inGeneva, Switzerland under leases that expire in Julyand November 2004, respectively. In addition to theoffices in Geneva, the Company also leases an officespace in Stockholm, Sweden, of 355 square meters.The lease contract expires in September 2002. TheCompany expects that its current domestic and inter-national facilities will be sufficient to meet its needsfor at least the next 12 months, other than in Sudan.A subsidiary of the Company leases an office in Khar-toum, which lease expires in May 2002. The Com-pany intends to enter into a new lease agreementwith respect to a larger office space by such time.
SUPPLEMENTARY INFORMATION
PENSIONSThe Company makes all mandatory social securitypayments required under Swiss law and all otherapplicable local laws in respect of the Company’semployees in all relevant jurisdictions. The Companyhas no other pension or retirement plan for itsemployees.
AGREEMENTS WITH CLOSELY RELATEDPARTIESLundin Petroleum has entered into a service agree-ment with Namdo Management Services Ltd., a pri-vate company owned by Lukas H. Lundin, a Directorof the Company. Namdo Management Services Ltd.,which has 16 employees, provides administrative andinvestor relation services to, among a number of pub-lic companies, Lundin Petroleum. Yearly service feesamount to CAD 60,000.
WARRANTIES AND INDEMNITIES UNDER EPSAsCertain subsidiaries of Lundin Petroleum are partiesto EPSAs with the Republic of the Sudan. In order tosecure their obligations under such EPSAs, the sub-sidiaries are required to provide security in the formof performance guarantees or bank guarantees.
With respect to Lundin Sudan Limited, LundinPetroleum has provided a parent company guaranteeto secure the performance of all obligations, agree-ments and undertakings of Lundin Sudan Limitedunder the Lundin Sudan 5A EPSA to the Republic ofthe Sudan. The term of the guarantee is for the dura-tion of the EPSA and thereafter while there remainsany outstanding obligations or liabilities owed byLundin Sudan Limited in respect of, or arising under,the EPSA.
With respect to Lundin Sudan (Block 5B) Limited,SEK 31.1 million has been placed as a collateral for abank guarantee to secure Lundin Sudan (Block 5B)Limited’s obligations under the Lundin Sudan 5BEPSA to the Republic of the Sudan.
With respect to Lundin Sudan (Halaib) Limited,Lundin Petroleum has provided a parent companyguarantee to secure the performance of all obliga-tions, agreements and undertakings of Lundin Sudan(Halaib) Limited under the Lundin Sudan Halaib EPSAto the Republic of the Sudan. The term of the guar-antee is for the duration of the EPSA and thereafterwhile there remains any outstanding obligations orliabilities owed by Lundin Sudan (Halaib) Limited inrespect of, or arising under, the EPSA.
CORPORATE REGISTRATION NUMBER, ETC.Lundin Petroleum’s corporate registration number is556610-8055. Its registered office is located at Hov-slagargatan 5, SE-111 48 Stockholm, Sweden. TheCompany was registered with the Swedish Patentand Registration Office 4 May 2001. The current com-pany name was registered 26 June 2001. The Com-pany’s form of association is governed by theSwedish Companies Act (1975:1385).
LUNDIN PETROLEUM’S SPONSOR ON THE NEW MARKET According to the terms for being traded on the NewMarket, Öhman is acting sponsor for Lundin Petro-leum, being responsible for the Company acting incompliance with the rules and regulations of the NewMarket.
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The following presentation summarises certain taxconsequences related to the distribution and quota-tion of the shares in Lundin Petroleum. The summaryis based on current Swedish tax legislation and isintended only as general information for sharehold-ers, who are resident or domiciled in Sweden for taxpurposes, if not otherwise stated. The presentationdoes not cover cases where shares are held as currentassets in a business operation or are held by a part-nership.
The tax treatment of each shareholder willdepend, in part, on the shareholder’s specific situa-tion. Special tax consequences that are not describedbelow may also apply for certain categories of tax-payers, including persons who are not Swedish citi-zens or residents in Sweden. Each shareholder shouldconsult a tax advisor for information with respect tothe special tax consequences that may arise as aresult of the distribution of the shares in Lundin Petro-leum, including the applicability and effect of foreignincome tax regulations, provisions contained intreaties to avoid double taxation and other ruleswhich may be applicable.
DISTRIBUTION OFLUNDIN PETROLEUM SHARESIn accordance with a special tax legislation, “LexAsea” (Chapter 42, Section 16 of the SwedishIncome Tax Act), the distribution of the shares inLundin Petroleum is expected to be exempt fromtax in Sweden. The acquisition value for tax pur-poses of the Lundin Oil share that entitles the share-holders to receive the distribution should be basedon an apportionment of the acquisition valuebetween the shares in Lundin Oil and Lundin Petro-leum. The apportionment of the acquisition valuefor tax purposes is done on the basis of the declinein value of the Lundin Oil shares due to the distri-bution of the shares in Lundin Petroleum.
Lundin Oil will apply to the National Tax Board forrecommendations pertaining to the distribution ofacquisition value. Lundin Oil will provide informationon the National Tax Board’s recommendationsthrough advertisements in the Swedish daily press.
DISPOSAL OF LUNDIN PETROLEUMSHARES RECEIVEDHolders of Lundin Petroleum shares who sell theirshares are subject to capital gains taxation. The cap-ital gain or loss will be calculated as the differencebetween the sales proceeds after deduction for salesexpenses and the acquisition value for tax purposesof the shares sold.
The acquisition value for tax purposes of theLundin Petroleum shares received through the tax-exempt distribution from Lundin Oil will, when calcu-lating the capital gain, correspond to the value estab-lished on the basis of the recommendation from theNational Tax Board.
The acquisition value for tax purposes of allshares of the same class and type shall, however, beadded together and determined collectively in accor-dance with the so-called average method. Thismeans that the average acquisition value for tax pur-poses is affected if, for example, additional shares ofLundin Petroleum are acquired.
The so-called “standard rule” (according to whichthe acquisition cost is considered to be 20 percent ofthe net sale price) may be used on disposals of quotedshares such as the shares in Lundin Petroleum.
For individuals who are fiscally domiciled in Sweden, all capital income such as interest, dividendsand capital gains are taxed in the income tax sched-ule as income from capital. The tax rate is 30 percent.Capital losses on quoted shares, such as the shares inLundin Petroleum, are fully deductible against capitalgains on quoted shares and other quoted securitiesthat are taxed as shares but also against capital gainson unquoted shares. 70 percent of a loss in excess ofsuch gains will be deductible from other income fromcapital. If a deficit arises in income from capital, areduction of the tax on income from employment andbusiness operations, as well as the tax on property isallowed. The tax reduction allowed amounts to 30percent of a deficit that does not exceed SEK100,000 and 21 percent of a deficit in excess of SEK100,000. Deficits may not be carried forward to alater tax year.
Limited liability companies are taxed on all incomeas income from business activities. The tax rate is 28percent. Capital losses on shares (or securities that aretaxed as shares) which are held as capital investmentsmay be offset only against gains on securities that aretaxed as shares. Capital losses on securities that aretaxed as shares which have not been deducted fromcapital gains within a certain year, may be carried for-ward and be offset against capital gains in futureyears with no limitation in time. Specific tax conse-quences may be applicable to certain categories ofcorporations.
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CASH DIVIDENDSDividends on shares are taxed at a rate of 30 percentas income from capital for individuals and at a taxrate of 28 percent for limited liability companies asincome from business activities. For individuals domi-ciled in Sweden and estates of deceased Swedishpersons, preliminary tax of 30 percent on the divi-dend amount is withheld. Preliminary tax is normallywithheld by VPC or, in the case of shares registeredwith a nominee, by the nominee.
NET WEALTH TAXATIONShares in a Swedish company traded on the Stock-holmsbörsen’s New Market, such as the Lundin Petro-leum shares, will be exempt from wealth tax.
INHERITANCE AND GIFT TAXFor inheritance and gift tax purposes shares tradedon the Stockholmsbörsen’s New Market are valued at30 percent of their quoted value.
TAX CONSIDERATIONS FOR SHAREHOLDERSNOT RESIDING IN SWEDENFor shareholders who are fiscally not domiciled orresiding in Sweden and who receive dividends onshares in a Swedish limited liability company, Swedishwithholding tax is payable. However, no Swedishwithholding tax will be withheld on the distribution ofthe shares in Lundin Petroleum. The shareholder may,however, be liable for tax in his or her country ofdomicile.
Dividends from Lundin Petroleum are subject toSwedish withholding tax. The tax rate is 30 percent.The tax rate is, however, generally reduced throughtreaties with other countries to avoid double taxation.In Sweden, VPC, or, for nominee-registered shares,the nominee, normally effect withholding tax deduc-tions.
Generally, shareholders who are not liable toSwedish income tax will not be liable to Swedish taxon the disposal of Swedish shares. The shareholdermay, however, be liable for tax in his or her country ofdomicile. According to a special tax rule, individualswho are fiscally residents outside Sweden may beliable to Swedish tax on the disposal of Swedishsecurities if they have been residents of Sweden orpermanently lived here at any time during the 10calendar years immediately preceding the year ofthe sale. The application of this rule is, however, inmany cases limited by tax treaties between Swedenand other countries.
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§ 1 NameThe name of the Company is Lundin Petroleum AB.The Company is a public company (publ).
§ 2 Registered officeThe Board of Directors shall have its registered officein Stockholm.
§ 3 Object of the CompanyThe object of the Company’s business is to explore forand exploit gas, oil and gold and activities compatibletherewith, either directly, through its subsidiaries,associated companies or other forms of partnerships.
§ 4 Share capitalThe share capital of the Company shall amount to notless than SEK 1,000,000 and not more than SEK4,000,000.
§ 5 SharesShares shall have a nominal value of SEK 0.01.
§ 6 Financial yearThe financial year of the Company shall be January 1 –December 31.
§ 7 Board of DirectorsThe Board of Directors shall consist of not less thanthree and not more than ten members with not morethan three deputies.
The Board of Directors shall be elected annuallyat the Ordinary General Meeting for the time until theend of the next ordinary general meeting.
§ 8 AuditorsWith the duties to examine the Company’s annualreport and financial statements as well as the man-agement of the Company by the Board of Directorsand the President, one or two auditors with not morethan two deputy auditors shall be appointed. Theauditors are appointed for a term until the end of theannual general meeting of shareholders that are heldon the fourth financial year after the election tookplace.
§ 9 Shareholders’ meetingAt an Ordinary General Meeting the following mat-ters shall be dealt with;1. Election of a chairman at the meeting,2. Preparation and approval of the voting list,3. Election of at a minimum one person to attest the
minutes,4. Approval of the agenda5. Determination as to whether the meeting has
been duly convened,6. Presentation of the annual statement of accounts
and the auditor’s report
7. Resolutions in respect ofa) adoption of the profit and loss statement and
the balance sheet and the consolidated profitand loss statement and consolidated balancesheet,
b) appropriation of the Company’s profit or lossaccording to the adopted balance sheet,
c) discharge of the Directors and President fromliability
8. Resolutions in respect to the fees payable to theBoard of Directors and, where applicable, to theauditors,
9. Election of the members of the Board of Directorsand, where applicable, of auditors
10. Other matters which should be addressed bythe Annual General Meeting according to theSwedish Companies Act (1975:1385) or theArticles of Association
§ 10 NoticeNotice convening shareholders meeting shall begiven through announcement in the Post- och InrikesTidningar (the Swedish Gazette) and in SvenskaDagbladet or other Swedish daily newspaper withnation-wide coverage.
Notice of Annual General Meeting and any Extra-ordinary General Meeting at which a proposal foramendment of the articles of association is to beconsidered shall be given not earlier than six weeksand not sooner than four weeks before the meeting.Notice of other Extraordinary General Meetings shallbe given not earlier than six weeks and not soonerthan two weeks before to the meeting.
Shareholders who wish to participate in a GeneralMeeting shall be registered in the share register ofthe Company pertaining to conditions ten days priorto the General Meeting, and shall notify the Companyof the same on the date stated in the notice. The lat-ter shall not be a Saturday, Sunday, holiday, Mid-Sum-mer’s Eve, Christmas Eve, New Year’s Eve and not fallearlier than five working days before the generalshareholders meeting.
§ 11 Record date provisionPersons who, on the recorded date, are registered inthe share register or in a schedule in accordance withChapter 3 section 12 of the Swedish Companies Act(1975:1385) shall be deemed entitled to receive divi-dends and, in connection with a bonus issue, newshares to which the holder is entitled.
Lundin Petroleum’s Articles of Association wereadopted at the Extraordinary General Meeting20 June 2001.
ARTICLES OF ASSOCIATION
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The presentation below shows Lundin Petroleum AB (publ)’s financial statements for the period 4 May – 30 June2001. Lundin Petroleum was registered with the Swedish Patent and Registration Office 4 May 2001. Operationsconducted in Lundin Petroleum before the registration date were conducted in Lundin Oil. As at 30 June 2001, thetransactions set forth on page 29, had not yet been effectuated. The financial statements reflect Lundin Petroleum’sstructure as regards operations and capital structure as at 30 June 2001. These summarised financial statementshave been included to fulfil customary practice.
FINANCIAL STATEMENTS
CASH FLOW STATEMENT
Expressed in SEK million 4 May – 30 June 2001
Cash flow used in operationsNet result 0.0
Total cash flow used in operations 0.0
Cash flow from financingProceeds from share issues 1.0
Total cash flow from financing 1.0
Change in cash and bank 1.0Cash and bank at the beginning of the period –
Cash and bank at the end of the period 1.0
BALANCE SHEET
Expressed in SEK million Note 30 June 2001
Assets Current assets Cash and bank, and short term investments 1.0
Total assets 1.0
Shareholders’ equity and liabilities Shareholders’ equity including net result for the period 1 1.0
Total shareholders’ equity and liabilities 1.0
Pledged assets and contingent liabilities –
INCOME STATEMENT
Expressed in SEK million 4 May – 30 June 2001
Net sales of oil and gas –Service income –
Result from operations –
Other income –General and administrative expenses 0.0
Operating result 0.0
Financial income and expenses, net –
Income before tax 0.0
Tax –
Net result 0.0
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NOTE TO THE FINANCIAL STATEMENTS
Note 1: Shareholders’ equity, including net result
Expressed in SEK million Number of shares Share capital
Initial formation of the Company 1,000 0.1Share split 9,999,000 –New share issue 92,861,283 0.9Net result – 0.0
Total shareholders’ equity, including net result 102,861,283 1.0
ACCOUNTING PRINCIPLESThe accounting principles set forth below areadopted by Lundin Petroleum Group and have beenused in the preparation of the pro forma financialstatements on pages 29–33.
Principles of consolidationThe consolidated financial statements include theaccounts of the parent company and each of thosecompanies in which it owns, directly or indirectly,shares representing more than 50 percent of the vot-ing rights or has the sole right to exercise controlover the operations.
The consolidated financial statements of theLundin Petroleum Group have been prepared usingthe purchase method of accounting. Under the pur-chase method of accounting, in addition to the par-ent company equity, only changes in subsidiaryequity arising after acquisitions are included in groupequity.
All intercompany profits, transactions and balancesare eliminated on consolidation.
Accounting for investments in associated companiesAn investment in an associated company is an invest-ment in an undertaking where the Group holdingrepresents at least 20 percent but not more than 50percent of the votes, and over which the Group exer-cises significant influence. Such investments areaccounted for in the consolidated financial state-ments in accordance with the equity method. The dif-ference between the acquisition cost of shares in anassociated company and the amount these representof the fair market value of the net assets in the under-taking at the time of acquisition is treated as goodwilland amortised over 5 years. The Group’s share in theassociated company’s income before taxes for thefinancial year is accounted for as participations inassociated companies in the income statement. Taxexpense relating to the associated companies isaccounted for in the Group’s tax expense.
Foreign currenciesThe balance sheets and income statements of foreignsubsidiary companies are translated using the currentrate method. All assets and liabilities of the subsidiarycompanies are translated at the balance sheet daterates of exchange, whereas the income statementsare translated at weighted average rates of exchangefor the period. The translation differences, whicharise, are taken directly to shareholders’ equity.
Monetary assets and liabilities denominated in for-eign currencies are translated at the rates ofexchange prevailing at the balance sheet date. Trans-actions in foreign currencies are translated atexchange rates prevailing at the transaction date.Exchange differences are included in the incomestatement.
Corporation TaxesCurrent taxCorporation tax payable is provided on taxableprofits at the current tax rate.
Deferred taxDeferred tax (which arises from differences in the tim-ing of the recognition of items, principally depletionand site restoration charges, in the accounts and bythe tax legislation) is calculated using the liabilitymethod. To the extent that a net liability on a field byfield basis exists deferred tax is provided on tempo-rary differences, between the carrying amounts ofassets and liabilities and their tax bases, net of lossesavailable for future relief, at the current tax rate.
Valuation principlesAssets and liabilities are included at their acquisitioncost and nominal amounts respectively unless statedotherwise.
Share issue costs associated with the issuance ofnew equity are treated as a direct reduction of pro-ceeds.
Receivables are valued at the amounts they areexpected to realise.
Short-term investments are valued at the lower ofcost and market value for the portfolio taken as awhole.
Inventories of consumable well supplies are statedat the lower of cost and net realisable value, costbeing determined on a first in first out basis. Invento-ries of hydrocarbons are valued at the lower of costand net realisable value.
Long-term investments are valued at cost or atwritten-down amounts to reflect any diminution invalue, which is other than temporary.
Other tangible fixed assets are stated at cost lessaccumulated depreciation. Depreciation is based oncost and is calculated on a straight-line basis over theestimated economic life.
Fees associated with long-term financing aredeferred and amortised over the life of the financing.
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Oil and gas operationsAccounting for costs of exploration, appraisal and developmentOil and gas operations are accounted for using thefull cost method. All costs for acquiring concessions,licenses or interests in production sharing contractsand for the survey, drilling and development of suchinterests have been capitalised on a country-by-coun-try cost centre basis.
Net capitalised costs, together with anticipatedfuture capital costs determined at the balance sheetdate price levels, are depleted based on the year’sproduction in relation to estimated total proven andprobable reserves of oil and gas in accordance withthe unit of production method.
Proven reserves are defined as the estimated quan-tities of crude oil, natural gas and natural gas liquids,which geological and engineering data, as presentedby independent third parties, demonstrate withreasonable certainty (more than 90 percent) to berecoverable in future years from known reservoirsunder existing economic and operating conditions,that is prices and costs as at the date the estimate ismade.
Probable reserves are defined as those reserveswhich are not yet proven, but which are estimated, byindependent third parties, to have better than a 50percent chance of being technically and economi-cally producible.
Proceeds from the sale or farm-out of oil and gasconcessions are offset against the related capitalisedcosts of each cost centre in the exploration stage withany excess of net proceeds over all costs capitalisedincluded in the income statement.
A gain or loss is recognised on the sale or farm-outof producing areas when the depletion rate ischanged by more than 20 percent.
Total costs capitalised in a country cost centre arewritten-off when future recovery of such costs isdetermined to be unlikely.
RevenuesRevenues from the sale of oil and gas are recognisedin the income statement net of royalties taken in kindand are accounted for when the major risks andbenefits are passed to the buyer.
Incidental revenues from the production of oil andgas are offset against capitalised costs of the relatedcost centre until quantities of proven and probablereserves are determined and commercial productionhas commenced.
Service incomeService income, generated by providing technicaland management services to joint ventures, is recog-nised as revenue in accordance with the terms ofeach concession agreement.
Joint venturesOil and gas operations are conducted by the Groupas co-licensees in joint ventures with other com-panies. The accounts reflect the relevant proportionsof production, capital costs, operating costs andcurrent assets and liabilities applicable to the Group’sinterests.
Ceiling testsCeiling tests are carried out at least annually to deter-mine that the net book amount of capitalised costswithin each country cost centre less any provision forsite restoration costs, royalties and deferred produc-tion or revenue related taxes is covered by the antic-ipated future net revenue from oil and gas reservesattributable to the Group’s interest in related fields.
Provision is made for any permanent impairment,where the net book amount, according to the above,exceeds the estimated future discounted net cashflows using prices and cost levels used by Groupmanagement in their internal forecasting.
Site restoration costsOn fields where the company is required to con-tribute to site restoration costs, a provision is createdto recognise the future liability. At the date of acqui-sition of the field or at first production, an asset iscreated to represent the discounted value of theanticipated site restoration liability and depleted overthe life of the field on a unit of production basis. Thecorresponding accounting entry to the creation of theasset recognises the discounted value of the futureliability. The discount applied to the anticipated siterestoration liability is subsequently released over thelife of the field and is charged to financial expenses.
Effects of changes in estimatesThe effects of changes in estimated costs and com-mercial reserves or other factors affecting unit of pro-duction calculations for depletion and site restorationcosts do not give rise to prior year adjustments andare dealt with prospectively over the estimatedremaining commercial reserves of each field. Whilethe Group uses its best estimates and judgement,actual results could differ from these estimates.
Over- and underliftsThe quantities of oil and other hydrocarbons lifted bythe Group may differ from its equity share of produc-tion giving rise to over- or underlifts, which areaccounted for as follows:� an underlift of production from a field is included
in current receivables and valued at the reportingdate spot price or prevailing contract price.
� an overlift of production from a field is included incurrent liabilities and valued at the reporting datespot price or prevailing contract price.
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RoyaltiesWhere royalties are calculated on sales income andare payable in cash, royalties are charged to incomein the same period as the sales to which they relateand are included within the production cost.
Where royalties are taken in kind and are deductedfrom the production allocation, no entry for royaltiesis recorded.
InterestInterest on borrowings to finance the acquisition ofproducing oil and gas properties is charged toincome as incurred. Interest on borrowings to financefields under development is capitalised within oil andgas properties until production commences.
AUDITORS’ STATEMENT
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In our capacity as auditors of Lundin Petroleum AB (publ), we have reviewed this Informationto the shareholders in Lundin Petroleum AB (publ) pertaining to the company’s shares beingtraded on the New Market at Stockholmsbörsen (”the Information material”). Our review hasbeen carried out in accordance with a recommendation issued by FAR (the Swedish Institutefor the accountancy profession in Sweden) for examination of prospectuses.
Interim financial information on page 43 has been subject to a limited review. Pro forma financial statements have been prepared using the bases of preparation
described on page 29. Assets and liabilities in the pro forma financial statements as at30 June 2001, have only been subject to a limited review.
Forward looking statements have not been subject to review. Nothing has come to our attention that caused us to believe that the Information mate-
rial does not comply with the Swedish Financial Supervisory Authorities’ listing particulars forprospectuses (FFFS 1995:21).
Stockholm, 28 August 2001
Carl-Eric Bohlin Klas BrandAuthorised Public Accountant Authorised Public Accountant
PricewaterhouseCoopers AB PricewaterhouseCoopers AB
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CURRENCY ABBREVIATIONS
CAD Canadian dollar
CHF Swiss franc
SEK Swedish krona
USD US dollar
OIL RELATED TERMS AND MEASUREMENTSBbl Barrel
Bbls Barrels
Bopd Barrels of oil per day
Mbbl Thousand barrels (in Latin mille)
Mmbo Million barrels of oil
Mmbopd Million barrels of oil per day
INDUSTRY SPECIFIC TERMS
Barrel One barrel is equivalent to 159 litres.Basin A depression of large size in which sediments have accumulated.
Cost oil A share of oil produced used to cover ongoing operations costs andto recover past exploration, appraisal and development expenditures.
Cretaceous A period in geological history from about 65 to 141 million years ago.
EPSA Exploration Production Sharing Agreement.
Hydrocarbons Naturally occurring organic substances composed of hydrogen andcarbon. They include crude oil, natural gas and natural gas condensate.
Jurassic A period in geological history from about 141 to 195 million years ago.
Paying interest The cost-bearing interest arising out of the obligation to bear initialexploration, appraisal and development costs on behalf of a partner.The difference between the paying interest and the working interestwill be recovered out of the partner’s share of oil produced.
Probable reserves Probable reserves are defined as those reserves which are not yetproven, but which are estimated, by independent third parties, tohave better than a 50 percent chance of being technically andeconomically producible.
Profit oil The remaining share of oil produced after cost recovery through thecost oil. The profit oil is shared according to the production sharingagreement and working interests.
Proven reserves Proven reserves are defined as the estimated quantities of crude oil,natural gas and natural gas liquids, which geological and engineeringdata, as presented by independent third parties, demonstrate withreasonable certainty (more than 90 percent) to be recoverable infuture years from known reservoirs under existing economic and oper-ating conditions, that is prices and costs as at the date the estimate ismade.
Seal An impermeable rock (usually claystone or shale) which prevents thepassage of hydrocarbons.
Seismic A method of geophysical prospecting involving the interaction ofsound waves and buried rocks.
Source rock The geological formation in which oil, gas and/or other mineralsoriginate.
Working interest The actual interest owned by a party.
OTHER TERMS GDP Gross Domestic Product is the value-added produced in the domestic
economy regardless of the origin of the production factors.
CORPORATE HEAD OFFICELundin Petroleum AB (publ)Hovslagargatan 5SE-111 48 StockholmTelephone: +46-8-440 54 50Telefax: +46-8-440 54 59E-mail: [email protected]: www.lundin-petroleum.com
PRESIDENT’S OFFICELundin Oil Services SA 6, rue de RiveP.O. Box 3410CH-1211 Geneva 3SwitzerlandTelephone: +41-22 319 66 00Telefax: +41-22 319 66 65
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Lundin Petroleum AB (publ)Hovslagargatan 5, SE-111 48 Stockholm
Telephone: +46-8-440 54 50, Telefax: +46-8-440 54 59E-mail: [email protected]
Website: www.lundin-petroleum.com