Annual Report 2005 (6 MB) - Lundin Petroleum

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NOTE 38 – REMUNERATION TO BOARD OF DIRECTORS’ AND MANAGEMENT The Board of Directors of Lundin Petroleum has established a Compensation Committee to administer the Company’s executive compensation programme. The Committee is composed of four non-management directors and meets at least annually to receive information on and determine matters regarding executive compensation, in accordance with policies approved by the Board. The guiding philosophy of the Committee in determining compensation for executives is the need to provide a compensation package that is competitive and motivating; will attract and retain qualifi ed executives; and encourages and motivates performance. Performance includes achievement of the Company’s strategic objective of growth and the enhancement of shareholder value through increases in the stock price resulting from advances in the Company’s business, continued low cost operations and enhanced cash fl ow and earnings. In establishing compensation for executive offi cers, the Committee takes into consideration individual performance, responsibilities, length of service and levels of compensation provided by industry competitors. The committee can recommend bonus payments to executive management in respect of work related to individual projects or in special circumstances. There is no policy for the guaranteed payment of an annual bonus. Please see the page 27 for further information on the compensation committee. Salaries and other remuneration to non-executive directors (TSEK) Fees Other 1 Benefits > 77 < Pension payments 2 Total 2005 Total 2004 Ian H. Lundin 700 2,280 – – 2,980 3,804 Adolf H. Lundin 20 – – 1,236 1,256 1,239 Magnus Unger 438 – – – 438 904 Carl Bildt 350 – – – 350 293 Kai Hietarinta 375 – – – 375 303 Lukas Lundin 385 – – – 385 303 William Rand 525 – – – 525 313 Viveca Ax:son Johnson 195 – – – 195 – 1 Other remuneration paid during 2005 relates to fees paid for special projects undertaken on behalf of the Group. The payment of such fees was in accordance with fees approved at the 2004 AGM. 2 The pension payment to Adolf H. Lundin is described in more detail in Note 24 – Pensions. There are no severance pay agreements in place for any of the Directors. Salaries and other remuneration to Executive Management (TSEK) Salary Bonuses 4 Benefits 1 Total 2005 Total 2004 Pensions 2005 2 Pensions 2004 C. Ashley Heppenstall 3,236 270 464 3,970 4,578 387 304 Other management3 8,622 765 757 10,144 10,995 1,142 932 1 Benefi ts paid include school fees and health insurance. 2 Pension contributions are payments to non-contributory pension funds of approximately fi ve times above the minimum Swiss statutory levels. 3 Other management comprise the 6 Vice Presidents in offi ce during the year. 4 In December 2005 the Compensation Committee awarded a bonus for 2005 of one month’s salary to the CEO and to the Vice Presidents. In January 2006 the Compensation Committee met and reassessed the bonus payments made for 2005 considering the employee’s contributions to the results of the Company and the achievement of personal targets. The committee awarded C. Ashley Heppenstall an additional bonus of TSEK 1,348 equal to fi ve months salary and awarded bonuses to the 6 Vice Presidents of TSEK 1,744 equal to between one and three months salary. The additional bonuses are not included in the table above. There are no severance pay agreements in place for any of the members of the executive management. The following incentive warrants have been issued to the board of directors and executive management. Incentive warrants issued Incentive warrants outstanding 31 December 2005 2003 2004 2005 2003 2004 2005 Non-executive Directors programme programme programme programme programme programme Ian H. Lundin 400,000 – – 150,000 – – The non-executive directors received incentive warrants whilst employed in an executive management position. Executive Management 2003 programme Incentive warrants issued Incentive warrants outstanding 31 December 2005 2004 programme 2005 programme 2003 programme 2004 programme 2005 programme C. Ashley Heppenstall 600,000 350,000 400,000 – 150,000 400,000 Other management 795,000 500,000 650,000 50,000 380,000 650,000 For incentive warrants, see also note 39.
NOTES NOTE 39 – INCENTIVE WARRANTS PROGRAMME The Company runs an incentive programme for employees whereby warrants are issued to employees enabling them to buy shares in the company. The warrants were issued at a price equal to or at a premium to the average share price for the ten trading days following the AGM. The warrants are valid for three years but can not be exercised within the fi rst year of issue. Issued warrants to employees leaving the Company within the fi rst year of issue, are forfeited. Movements in the number of incentive warrants outstanding and their related weighted average exercise prices are as follows: Average weighted exercise price in SEK per share 2005 2004 Incentive warrants outstanding > 78 < Average weighted exercise price in SEK per share Incentive warrants outstanding At 1 January 24.11 5,249,800 4.15 5,247,300 Granted 60.20 2,900,000 45.80 2,250,000 Forfeited – – 45.80 -65,000 Exercised 17.48 -3,391,800 7.16 -2,182,500 Lapsed 45.80 -80,000 – – At 31 December 50.93 4,678,000 24.11 5,249,800 The weighted average share price relating to the incentive warrants exercised during 2005 amounted to SEK 68.77 per share. The fair value of incentive warrants granted during the period using Black & Scholes method valuation model amounted to TSEK 21,286 based on an assessed volatility of 27% and the continuously compounded Swedish government bond interest rate of 2.38%. The total expense accounted for during the period amounted to TSEK 18,981. Incentive warrants outstanding at the end of the year have the following expiry date and exercise prices: Issued 2003 Issued 2004 Issued 2005 Exercise price (SEK) 10.10 45.80 60.20 Exercise period 31 May 2004– 31 May 2005– 15 June 2006– 31 May 2006 31 May 2007 31 May 2008 Valuation per warrant 1 2.53 7.97 7.34 1 The valuation has been calculated using the Black & Scholes method. NOTE 40 – SUBSEQUENT EVENTS In the UK Budget 2006 dated 22 March 2006 it was announced that the oil and gas supplemental tax will be increased from 10% to 20% in 2006. This will increase the eff ective tax rate for the UK oil and gas properties from 40% to 50%. The eff ects of this increase will be accounted for during the year ended 31 December 2006. At 7 April 2006, the Board of Directors and the President of Lundin Petroleum AB have adopted this annual report for the fi nancial year ended 31 December 2005. Stockholm, 7 April 2006 Ian H. Lundin C. Ashley Heppenstall Carl Bildt Chairman of the Board President & CEO Adolf H. Lundin Lukas H. Lundin Kai Hietarinta Honorary Chairman Viveca Ax:son Johnson William A. Rand Magnus Unger
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 and 54: ACCOUNTING PRINCIPLES Introduction
Page 55 and 56: ACCOUNTING PRINCIPLES ACCOUNTING PR
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: NOTES Salaries, other remuneration
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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