April 2008

Words from the Chairman

I would like to begin this letter by quoting the International Energy Agency in its World Energy Outlook, 2007. The Executive Summary is available online and is a must read for any investor in the energy field (www.worldenergyoutlook.org).“

The world’s primary energy needs in the Reference Scenario are projected to grow by 55 percent between 2005 and 2030, at an average annual rate of 1.8 percent per year. Demand reaches 17.7 billion tonnes of oil equivalent, compared with 11.4 billion tonnes in 2005. Fossil fuels remain the dominant source of primary energy, accounting for 84 percent of the overall increase in demand between 2005 and 2030. Oil remains the single largest fuel, though its share in global demand falls from 35 percent to 32 percent. Oil demand reaches 116 million barrels per day in 2030 – 32 MMbopd (mb/d), or 37 percent, up on 2006. In line with the spectacular growth of the past few years, coal sees the biggest increase in demand in absolute terms, jumping by 73 percent between 2005 and 2030 and pushing its share of total energy demand up from 25 percent to 28 percent. Most of the increase in coal use arises in China and India. The share of natural gas increases more modestly, from 21 percent to 22 percent. Electricity use doubles, its share of final energy consumption rising from 17 percent to 22 percent. Some USD 22 trillion of investment in supply infrastructure is needed to meet projected global demand. Mobilising all this investment will be challenging.”

So for those who think that the oil era is coming to an end, think again. What the IEA does not grasp fully in my opinion is that world oil production is now reaching its peak at roughly 90 million barrels per day (or more than 30 billion barrels per year). The best we can hope from now on is that the decline will not be too drastic, but even that will require massive investments. The peaking of oil production is being felt in the market; in spite of talk of economic slowdown and lower consumption the oil price is knocking down new records almost on a daily basis. USD 100 per barrel will soon be remembered as the good old days of cheap oil.

For Lundin Petroleum this only means one thing, we have to continue to get maximum exposure to new oil and gas discoveries and thereby increase our reserves base in an organic and efficient way. 2007 was a good year for the Company in terms of new licence awards with a total of 28 contract areas awarded in six countries. We expect to sign several new production sharing contracts in 2008. We now have an enviable acreage position in Europe, Africa and South-East Asia. Our ongoing active exploration effort is starting to bear fruit. In Norway we have made what could be the largest discovery the country has seen in the past ten years with our first ever operated well in the Norwegian Continental Shelf; the exploration well 16/1-8 on the Luno prospect on PL338. As a result of this well and another successful test in the UK sector our contingent reserves were increased by some 40 percent last year. With the recent award of seven new licences in the latest Norwegian APA licensing round, Lundin Petroleum is placing itself as the most important independent oil company operating in Norway. 2008 will see the drilling of a dozen high potential wells including the long awaited and numerously delayed wells in the Muglad Basin of Sudan and in the Russian sector of the Caspian Sea.

On the production side the importance is to maintain strong growth. From 2006 to 2007 we grew our average daily production by a respectable 16 percent and we expect to grow it by another (more modest) 6-10 percent from end to 2007 to end 2008. Furthermore our replacement ratio continues to exceed 100 percent (148 percent in 2007) simply by applying good oilfield practice and the most modern production tools available. It is worth pointing out that most major and super major companies have seen declines in their production in the last couple of years let alone the fact that their replacement ratios are way below 100 percent. Our near term production growth will come more or less exclusively from Norway and more precisely the Alvheim field which is due to come on stream during the second quarter of 2008.

Beyond that Volund is due on stream towards the end of 2009 (as a tie-in to Alvheim) and there are several potential developments of existing discoveries in the North Sea which will follow in 2010 and beyond.

Lundin Petroleum has also continued to evolve as a good corporate citizen with a strong commitment to social and environmental responsibility. The success of our various operations around the world depends to a large extent on the positive impact we have on the local communities, initially through local employment and community projects and eventually through oil revenues.

On the environmental front, we are acutely aware of the ongoing debate surrounding climate change. There is no doubt that the growing hunger for energy in the emerging markets of the world economy is in direct conflict to the stated requirement to reduce our CO2 emissions. However the unprecedented growth of these markets is transforming living standards for billions of people. There can be no question of asking these countries selectively to curb growth so as to solve problems which are global. What we can do is to increase efficiency and reduce waste at all levels of the company without affecting productivity. Our objective is to ingrain energy saving and the recycling of waste into our corporate culture as should be the case for all responsible organisations and institutions.

Finally I would like to sincerely thank all the employees of Lundin Petroleum on behalf of the Board for their hard work, dedication and strong motivation to achieve the ambitious targets we have set for ourselves. I also thank you, fellow shareholders, for your ongoing support.

Sincerely,

Ian H. Lundin
Chairman of the Board