Lundin Petroleum ANNUAL REPORT 2010 LUNDINABANNUAL PETROLEUM REPORT 2010
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Lundin Petroleum ANNUAL REPORT 2010 LUNDIN PETROLEUM AB ANNUAL REPORT PETROLEUM AB ANNUAL LUNDIN 2010 Corporate Head Offi ce Lundin Petroleum AB (publ) Hovslagargatan 5 SE-111 48 Stockholm Sweden Telephone: 46-8-440 54 50 Telefax: 46-8-440 54 59 E-mail: [email protected] www.lundin-petroleum.com organic value creation OIL RELATED MEASUREMENTS CURRENCY ABBREVIATIONS bbl Barrel (1 barrel = 159 litres) CHF Swiss Franc Lundin Petroleum explores for, bcf Billion cubic feet (1 cubic foot = 0.028 m3) EUR Euro Bn Billion GBP British Pound develops and produces oil and gas boe Barrels of oil equivalents NOK Norwegian Kroner boepd Barrels of oil equivalents per day RUR Russian Rouble in ten countries across the globe bopd Barrels of oil per day SEK Swedish Kroner Bn boe Billion barrels of oil equivalents USD US Dollar Mbbl Thousand barrels (in Latin mille) TCHF Thousand CHF Mbo Thousand barrels of oil TSEK Thousand SEK Mboe Thousand barrels of oil equivalents TUSD Thousand USD LUNDIN PETROLEUM Mboepd Thousand barrels of oil equivalents per day MSEK Million SEK MMbo Million barrels of oil MUSD Million USD 2010 achievements / highlights 2 MMboe Million barrels of oil equivalents 2011 outlook / forecast 3 MMbpd Million barrels per day Letter to shareholders – C. Ashley Heppenstall, CEO 4 MMbopd Million barrels of oil per day Words from the Chairman – Ian H. Lundin 6 Mcf Thousand cubic feet Our business model 8 Mcfpd Thousand cubic feet per day Our people 16 MMscf Million standard cubic feet Our market 18 MMscfd Million standard cubic feet per day MMbtu Mllion British thermal units OPERATIONS Norway 20 South East Asia 24 Other areas 26 Reserves, resources and production 30 GOVERNANCE Corporate responsibility 34 Corporate governance report 2010 41 - Internal control and risk management 48 - Board of Directors 50 - Executive Management 52 FORWARD-LOOKING STATEMENTS The Lundin Petroleum share and shareholders 54 Certain statements made and information contained herein constitute “forward-looking information” (within the meaning of applicable Canadian Risk factors 56 securities legislation). Such statements and information (together, “forward looking statements”) relate to future events or the Company’s future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to estimates of reserves and or resources, future production levels, future capital expenditures and their allocation to exploration and development activities, future FINANCIALS drilling and other exploration and development activities, ultimate recovery of reserves or resources are based on forecasts of future results, estimates of Directors’ report 57 amounts not yet determinable and assumptions of management. Financial tables 65 All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable reserves and Accounting principles 70 resource estimates may also be deemed to constitute forward-looking statements and refl ect conclusions that are based on certain assumptions that Notes to the fi nancial statements of the Group 77 the reserves and resources can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, Annual accounts of the Parent Company 93 beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and Notes to the fi nancial statements of the Parent Company 97 similar expressions) are not statements of historical fact and may be “forward-looking statements”. Forward-looking statements involve known and Board assurance 99 unknown risks, uncertainties and other factors that may cause actual results or events to diff er materially from those anticipated in such forward-looking Auditors’ report 100 statements. No assurance can be given that these expectations and assumptions will prove to be correct and such forward-looking statements should not be unduly relied upon. These statements speak only as on the date of this annual report and the Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable laws. These forward-looking statements involve risks ADDITIONAL INFORMATION and uncertainties relating to, among other things, operational risks (including exploration and development risks), productions costs, availability of Five year fi nancial data 101 drilling equipment and access, reliance on key personnel, reserve estimates, health, safety and environmental issues, legal risks and regulatory changes, Key fi nancial data 102 competition, geopolitical risk, fi nancial risks. These risks and uncertainties are described in more detail under the heading “Risk Factors” and elsewhere Reserve quantity information 103 in this this annual report. Readers are cautioned that the foregoing list of risk factors should not be construed as exhaustive. Actual results may diff er materially from those expressed or implied by such forward-looking statements. Forward looking statements included in this new release are expressly Shareholder information 104 qualifi ed by this cautionary statement. Defi nitions 105 CONTINGENT AND PROSPECTIVE RESOURCES This annual report contains certain estimates relating to contingent and prospective resources. The recovery and production estimates of the Company’s contingent and prospective resources provided herein are only estimates and there is no guarantee that the estimated contingent and prospective Defi nitions: resources will be developed or recovered. Actual contingent and prospective resources may be greater than or less than the estimates provided here. References to “Lundin Petroleum” or “the Company” pertain to the corporate group There is no certainty that any portion of prospective resources will be discovered. There is no certainty that it will be commercially viable for the in which Lundin Petroleum AB (publ) (company registration number 556610–8055) Company to produce any portion of the contingent resources or, if discovered, the prospective resources, on any of its properties. is the parent company or to Lundin Petroleum AB (publ), depending on the context. Printed in Sweden 2011 Lundin Petroleum ANNUAL REPORT 2010 Landsten Reklam – Sjuhäradsbygdens Tryckeri AB 105 organic value creation a successful business strategy exploration - organic growth through the drill bit reserves and production - converting discoveries into cash fl ow opportunistic value realisation - unlocking value in our asset portfolio 1 2010 achievements OPERATING CASH FLOW* MUSD 599 EBITDA* MUSD 636 PRODUCTION* 32,700 boepd RESERVES 187 MMboe up 18% Reserves replacement ratio 237% * includes UK for the fi rst quarter HIGHLIGHTS » Two major discoveries in Norway » First oil from Volund fi eld, Norway » Strong production from Alvheim and Volund fi elds, Norway » Increase in Luno reserves, Norway » Spin-off of UK business with distribution of EnQuest shares 2 Lundin Petroleum ANNUAL REPORT 2010 2011outlook INVESTMENT CAPEX MUSD 540 exploration and development budget PROSPECTIVE RESOURCES 483 MMboe targeted by 21 wells FORECAST PRODUCTION 28,000 – 33,000 boepd FORECAST » Gaupe fi rst oil, Norway » Luno Plan of Development submission, Norway » Commence exploration drilling programme in Malaysia » Commence exploration drilling programme in the Barents Sea, Norway » Total of 21 exploration and appraisal wells 3 LETTER TO SHAREHOLDERS In my opinion our ability to “ grow our reserve base is the most important factor in increasing shareholder value. C. ASHLEY HEPPENSTALL PRESIDENT AND CEO Dear fellow shareholders, on the spin-off of our UK business. Our remaining operations 2010 was a very successful year for Lundin Petroleum. The continue to produce strong operating cash fl ow, achieving fundamental cornerstone of our strategy is to create shareholder MUSD 157 in the fourth quarter of 2010 to give a total operating value through exploration and this delivered positive results in cash fl ow for the reporting period of MUSD 599. The generation of 2010 with the Avaldsnes and Apollo discoveries in the Greater strong operating cash fl ow is driven by our Norwegian production Luno Area off shore Norway. We have already commenced in 2011 where the cost of operations is below USD 3.50 per barrel. an additional fi ve well drilling programme in the Greater Luno Area to appraise the Avaldsnes discovery as well as targeting Production additional exploration prospects. I believe that our Avaldsnes Production for 2010 averaged 32,700 boepd or 28,400 boepd discovery has the potential to open up a new production hub if we exclude the contribution from our United Kingdom and on the Norwegian Continental Shelf and with Lundin Petroleum Indonesian assets sold during the year. Strong production from being one of the largest owners of acreage in this area which will our Norwegian fi elds, Alvheim and Volund contributed positively be extremely positive for us. to our production fi gures which were at the high end of our guidance range. Our forecast 2011 production is 28,000 - 33,000 We also crystallised the value of our United Kingdom business in boepd. 2010 through the spin-off of these assets into EnQuest plc, a new independent oil company with a particular focus on the United Development