Lundin Petroleum : Q2 report 2016

Report for the

ended 30 June 2016

Lundin Petroleum AB (publ)

company registration number 556610-8055

› 1 ‹

• Production of 63.1 Mboepd (27.4 Mboepd)

• Revenue of MUSD 456.6 (MUSD 279.1)

• EBITDA of MUSD 330.9 (MUSD 192.4)

• Operating cash flow of MUSD 386.0 (MUSD 347.3)

• Net result of MUSD 66.0 (MUSD -171.0) including a net foreign exchange gain of MUSD 95.1 (loss of MUSD 176.7)

• Net debt of MUSD 4,224 (31 December 2015: MUSD 3,786)

• Record production level achieved following the Edvard Grieg field start-up in late 2015.

• Transaction to acquire 15 percent interest in the Edvard Grieg field and interests in associated pipeline assets from Statoil ASA completed on 30 June 2016. Lundin Petroleum AB issued 27.6 million new shares to Statoil ASA in consideration for the assets. In addition, the Company also issued 1.7 million new shares and transferred 2 million shares to Statoil ASA for a cash consideration of MUSD 64.1.

• New reserve-base lending facility of USD 5.0 billion entered into with an initial firm commitment of USD 4.3 billion subsequently increased by USD 0.7 billion to USD 5.0 billion.

  Second quarter ended 30 June 2016 (30 June 2015)

• Production of 63.9 Mboepd (28.9 Mboepd)

• Revenue of MUSD 265.3 (MUSD 157.8)

• EBITDA of MUSD 206.1 (MUSD 106.5)

• Operating cash flow of MUSD 223.4 (MUSD 191.6)

• Net result of MUSD -48.3 (MUSD 59.9) including a net foreign exchange loss of MUSD 63.5 (gain of MUSD 27.3).

1 Based on net result attributable to shareholders of the Parent Company.

Definitions

An extensive list of definitions can be found on www.lundin-petroleum.com under the heading "Definitions".

I am very pleased with our second quarter operational performance with production about 15 percent ahead of mid-point guidance and corresponding cash operating costs at USD 8.85 per barrel. These strong results are led by the Edvard Grieg field which continues to perform ahead of expectations with high uptime and good reservoir performance. Our producing assets at the Alvheim hub as well as our other areas of operations have also contributed positively to our operational performance.

Whilst we continue to witness significant oil price volatility, we are beginning to see encouraging signs of a market rebalancing between supply and demand as a consequence of the significant scaling back of industry investments and project deferrals as well as oil demand continuing to grow at a healthy pace. This has led to a strengthening in oil prices from the lows in January of below USD 30 per barrel to current levels of close to USD 45 per barrel. Nevertheless, it is my view that we must be prepared to live with oil prices remaining lower for longer and retain our focus on optimising our costs and improving our operational efficiency to maintain a strong balance sheet and deliver significant sustainable value growth.

I am also excited to see the start of our exploration drilling activities in the southern Barents Sea, a core organic growth area for Lundin Petroleum.

Towards the end of the second quarter we successfully completed the acquisition of an additional 15 percent interest in the Edvard Grieg field from Statoil ASA, raising Lundin Petroleum's stake to 65 percent working interest in the field. I am very pleased to have completed this value driven transaction as it presented Lundin Petroleum the opportunity to increase our exposure to a world class field which we operate in one of our core areas. This transaction has further consolidated our balance sheet and will materially improve our operating cash flow during the years ahead of the Johan Sverdrup start-up.

Following the completion of this transaction, Lundin Petroleum has issued 29.3 million new shares to Statoil which now owns approximately 68.4 million shares of Lundin Petroleum, representing 20.1 percent of the 340.4 million outstanding shares of Lundin Petroleum.

On the operational side we continue to deliver a strong performance with the second quarter average production for the Company of 63,900 boepd exceeding our mid-point guidance by about 15 percent. Performance on the Edvard Grieg field continues to exceed expectations and we are also very pleased to have successfully completed our first water injector well which is now fully operational. We experienced some delays in drilling the first water injection well and consequently the remaining drilling schedule has slipped somewhat which is likely to result in our production performance for the second half of 2016 being in the lower half of our production guidance. However, we firmly remain on track to achieve our full year production guidance of between 65,000 and 75,000 boepd. We also continue to achieve record low cash operating costs at USD 8.85 per barrel during the second quarter 2016.

On the financial side, another major milestone was achieved during the second quarter by bringing the total firm commitment from existing and new banks under the current reserve-based lending facility to USD 5.0 billion from the previously reported commitment of USD 4.5 billion. This puts Lundin Petroleum in an enviable position of strength for years to come.

Johan Sverdrup is progressing according to plan and I continue to firmly believe that we will see further costs savings as we progress with the project and as we finalise the definition of the Phase 2 concept selection.

In parallel, we continue to work on the feasibility studies of three existing discoveries: Alta and Gohta in the southern Barents Sea and the Luno II discovery in the Utsira high area.

Our organic growth strategy continues and I was very pleased with the results of the 23rd licensing round which saw Lundin Norway as one of the leading companies in terms of licence awards received. Five new licences in the southern Barents Sea have been awarded to the Company in what is likely to become one of the most exciting growth areas in Norway in the years to come. In parallel, we have resumed our exploration and appraisal drilling activities on the Loppa High in the southern Barents Sea, with the drilling of three back to back wells. The southern Barents Sea is a key growth area for the Company and we have built over the years a very enviable strategic position in this exciting hydrocarbon province.

At this point, suffice to say, it is mission accomplished in terms of major Company developments during the first half of 2016. This is the result of a lot of enthusiasm, entrepreneurship and a hardworking culture within Lundin Petroleum. I am very grateful to the team for what they have achieved during these challenging yet rewarding times.

To you, fellow shareholders, the Board, I thank you for your continued support. Full steam ahead!

Yours Sincerely,

Alex Schneiter

President and CEO Stockholm, 3 August 2016