Annual Report 2005 (6 MB) - Lundin Petroleum

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IAS 36 – Impairment of assets Under GAAP used for the preparation of the 2004 fi nancial statements, Lundin Petroleum has based their impairment testing on a country by country cost pool basis under the full cost method of accounting. In accordance with IAS 36 impairment testing is carried out on a fi eld by fi eld basis. The recoverable amount is the higher of an assets’ fair value less costs to sell and value in use. Exploration costs can no longer be carried as capitalised costs within a cost pool unless the capitalised costs can be supported by future cash fl ows from that cost pool. If there is no decision to continue with a fi eld specifi c exploration programme then the costs will be expensed at the time the decision is made. Lundin Petroleum has incurred exploration costs in France and Indonesia which under the adoption of IFRS have been expensed in the fi nancial statements for 2004. The eff ect on shareholders’ equity amounted to MSEK -16.1 net of deferred tax at 1 January 2004 and the impact on the result for the year ended 31 December 2004 amounted to MSEK -19.4 net of deferred tax. IAS 32 and 39 – Derivative fi nancial instruments IAS 32 and 39 deal with the recognition, measurement, disclosure and presentation of fi nancial instruments. In accordance with IAS 39 all derivative instruments are initially recognised at fair value on the date a derivative contract is entered into and are remeasured at their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether or not the derivative is designated as a hedging instrument. The Lundin Petroleum Groups’ foreign exchange forward contracts are example of derivatives that do no qualify for hedge accounting. Lundin Petroleum had in place in 2004 and 2005 cash fl ow hedges by means of interest rate hedging contracts and oil price hedging contracts. Under Swedish GAAP, Lundin Petroleum had treated the hedging contracts as off -balance sheet instruments, whereas IFRS requires these contracts to be recorded in the fi nancial statements valuing these contracts at fair value. The impact on the opening balance of the hedging reserve within shareholders’ equity at 1 January 2005 amounted to MSEK -98.2 net of deferred tax. The fi nancial fi xed assets increased with MSEK 64.5 mainly due to the related deferred tax assets, the current receivables increased with MSEK 1.9 relating to a short term hedge asset and the current liabilities increased with MSEK 162.3 in connection to short term hedge liabilities. IFRS 6 Exploration for and Evaluation of Mineral Resources This standard became eff ective at 1 January 2006. The group has elected to early adopt this Standard in 2005, with no eff ect on the net result or shareholders’ equity. IFRS 6 permits an entity to develop an accounting policy for exploration and evaluation assets without specifi cally considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Thus, an entity adopting IFRS 6 may continue > 51 < to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies. IFRS 6 also sets the disclosure demands on the assets, liabilities, income and expenses arising from the exploration and evaluation of mineral resources. Reconciliation from Swedish GAAP to IFRS Group Net result in TSEK 2004 Parent Company 2004 Net result under Swedish GAAP 620,154 -17,961 Reclassifi cation of minority interest 7,013 – Share based payments Eff ects of changes in functional -10,712 -10,712 currency 8,230 – Impairment of assets -22,359 – Taxes 2,932 – Net result under IFRS 605,258 -28,673 Group equity in TSEK Total equity under Swedish GAAP 1 Jan 2004 31 Dec 2004 1 Jan 2005 1,841,195 2,407,375 2,407,375 Reclassifi cation of minority interest 20,036 2,931 2,931 Change in functional currency -11,547 -4,610 -4,610 Impairment of assets -16,057 -35,483 -35,483 Adjustment for fi nancial instruments – – -98,194 Total equity under IFRS 1,833,627 2,370,213 2,272,019 Parent Company equity in TSEK Total equity under Swedish GAAP 1 Jan 2004 31 Dec 2004 1 Jan 2005 810,665 808,739 808,739 Reclassifi cation of minority interest – – – Change in functional currency – – – Impairment of assets – – – Adjustment for fi nancial instruments – – – Total equity under IFRS 810,665 808,739 808,739
ACCOUNTING PRINCIPLES ACCOUNTING PRINCIPLES ADOPTED BY THE GROUP Principles of consolidation Subsidiaries Subsidiaries are all entities over which the Group has the sole right to exercise control over the operations and govern the fi nancial policies generally accompanying a shareholding of more than half of the voting rights. The existence and eff ect of potential voting rights that are currently exercisable or convertible are considered when assessing the Group’s control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. The consolidated fi nancial statements of the Lundin Petroleum Group have been prepared using the purchase method of accounting. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifi able net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the diff erence is recognised directly in the income statement. The minority interest in a subsidiary represents the portion of the subsidiary not owned by the Company. The equity of the subsidiary relating to the minority shareholders is shown as a separate item within equity for the Group. All intercompany profi ts, transactions and balances are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Associated companies An investment in an associated company is an investment in an undertaking where the Group exercises signifi cant infl uence but not control, generally accompanying a shareholding of at least 20% but not more than 50% of the voting rights. Such investments are accounted for in the consolidated fi nancial statements in accordance with the equity method. The diff erence between the acquisition cost of shares in an associated company and the net fair value of the assets, liabilities and contingent liabilities of the associated company recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. The Group’s share in the post-acquisition results of the associated company is recognised in the income statement and the Group’s share in post-acquisition movements in the equity of the associated company are recognised the > 52 < Group’s equity. When the Group’s accumulated share of losses in an associated company equals or exceeds its interest in the associated company, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Other shares and participations Investments where the shareholding is less than 20% of the voting rights are treated as fi nancial instruments. Jointly controlled entities Oil and gas operations are conducted by the Group as co-licensees in unincorporated joint ventures with other companies. The Group’s fi nancial statements refl ect the relevant proportions of production, capital costs, operating costs and current assets and liabilities of the joint venture applicable to the Group’s interests. Foreign currencies Items included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘functional currency’). The consolidated fi nancial statements are presented in SEK, which is the currency the Group has elected to use as the presentation currency. Functional currency Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the balance sheet date and recognised in the income statement. Transactions in foreign currencies are translated at exchange rates prevailing at the transaction date. Exchange diff erences are included in the income statement. Presentation currency The balance sheets and income statements of foreign subsidiary companies are translated for consolidation using the current rate method. All assets and liabilities of the subsidiary companies are translated at the balance sheet date rates of exchange, whereas the income statements are translated at weighted average rates of exchange for the year. The translation diff erences which arise are taken directly to the foreign currency translation reserve within shareholders’ equity. On a disposal of a foreign operation the translation diff erences relating to that operation will be transferred from equity to the income statement and included in the result on sale. Translation diff erences on long term intercompany loans, used for fi nancing exploration activities, are taken directly to shareholders’ equity. For the preparation of the annual fi nancial statements, the following currency exchange rates have been used. Average Period end 1 Euro equals SEK 9.2800 9.3885 1 USD equals SEK 7.4550 7.9584
Page 1 and 2:
ANNUAL REPORT 2005
Page 3 and 4: PRODUCTION (BOEPD) 40,000 30,000 20
Page 5 and 6: LETTER TO SHAREHOLDERS ...fi rst pr
Page 7 and 8: WORDS FROM THE CHAIRMAN IAN H. LUND
Page 9 and 10: UNDERSTANDING RESERVES AND RESOURCE
Page 11 and 12: MARKET DESCRIPTION World Oil Produc
Page 13 and 14: OPERATIONS REVIEW 2005 was another
Page 15 and 16: OPERATIONS REVIEW Solan/ Strathmore
Page 17 and 18: OPERATIONS REVIEW Workover rig, Par
Page 19 and 20: OPERATIONS REVIEW INDONESIA Lundin
Page 21 and 22: OPERATIONS REVIEW IRELAND In Januar
Page 23 and 24: OUR PEOPLE ARE OUR STRENGTH We have
Page 25 and 26: CORPORATE RESPONSIBILITY In view of
Page 27 and 28: SHARE INFORMATION Lundin Petroleum
Page 29 and 30: BOARD OF DIRECTORS The Annual Gener
Page 31 and 32: BOARD OF DIRECTORS From left to rig
Page 33 and 34: MANAGEMENT Standing from left to ri
Page 35 and 36: CORPORATE GOVERNANCE REPORT- Chairm
Page 37 and 38: INTERNAL CONTROL REPORT THE BOARD O
Page 39 and 40: KEY FINANCIAL DATA Data per share 2
Page 41 and 42: DIRECTORS’ REPORT PRODUCTION AND
Page 43 and 44: DIRECTORS’ REPORT Sudan A compreh
Page 45 and 46: DIRECTORS’ REPORT Write off Write
Page 47 and 48: DIRECTORS’ REPORT hydrocarbons an
Page 49 and 50: BALANCE SHEET CONSOLIDATED AND PARE
Page 51 and 52: STATEMENT OF CHANGES IN EQUITY CONS
Page 53: ACCOUNTING PRINCIPLES Introduction
Page 57 and 58: ACCOUNTING PRINCIPLES The Group cat
Page 59 and 60: ACCOUNTING PRINCIPLES Site restorat
Page 61 and 62: NOTES 2005 SEK Average crude sales
Page 63 and 64: NOTES NOTE 4 - WRITE-OFF OF OIL AND
Page 65 and 66: NOTES The tax on the Group’s prof
Page 67 and 68: NOTES 2005 Production cost pools UK
Page 69 and 70: NOTES Venezuela In November 2002, L
Page 71 and 72: NOTES NOTE 12 - SHARES IN ASSOCIATE
Page 73 and 74: NOTES The Group has entered into th
Page 75 and 76: NOTES life. It was further agreed t
Page 77 and 78: NOTES NOTE 33 - EARNINGS PER SHARE
Page 79 and 80: NOTES Salaries, other remuneration
Page 81 and 82: NOTES NOTE 39 - INCENTIVE WARRANTS
Page 83 and 84: SUPPLEMENTAL INFORMATION - RESERVE
Page 85: Corporate Head Offi ce Lundin Petro
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Annual Report 2005 (6 MB) - Lundin Petroleum

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