Dear fellow shareholders,
A record breaking year
With 2016 now behind us we can confidently say that it is mission accomplished. 2016 has been an outstanding year for Lundin Petroleum. We have seen record production levels achieved with over 72,000 boepd produced for the year at a record low cash operating cost of USD 7.80 per barrel. This is primarily on the back of the excellent performance of the Edvard Grieg field that came onstream in November 2015, in addition to the continued robust performance from our operated assets in Malaysia and France that have delivered ahead of expectation. However, our net result for the year was impacted by a non-cash after tax impairment charge of MUSD 548.6 following the decision taken to remove the booked contingent resources associated with discoveries in Russia and in Malaysia. This impairment charge does not impact the cash flow generation of the Company.
In addition, we have seen the reserves in Edvard Grieg increasing from the original PDO estimate of 186 MMboe to 223 MMboe and we all know that big fields tend to get bigger. Already in the first quarter of 2017 we will be drilling one further appraisal well which has the potential to add further reserves.
The year was further marked by the acquisition of an additional 15 percent equity in Edvard Grieg from Statoil. This transaction not only increased our production and reserves but also strengthened our financial position further by improving an already very solid liquidity position following the signing of the USD 5.0 billion reserve-based lending facility earlier in the year.
At the same time, our largest development project Johan Sverdrup continues to deliver good news with lower project costs, higher increased production capacity and a reserves increase when compared to the original PDO estimates.
We have also seen our southern Barents Sea exploration strategy unfolding with the highly anticipated 23rd Licensing round awards. We were very pleased to be one of the most successful companies in this 23rd round and our ongoing 2017 exploration activity has the potential to add significant resources.
Outlook for 2017 and beyond
With the outlook for 2017 and beyond I am convinced that what lies ahead of us will be as equally exciting as 2016. In 2017 we will continue to see our production increasing while on the project development side, we will have the most active year ever with Johan Sverdrup Phase 1 project execution. It will also be the year when the concept will be selected for Phase 2 of the Johan Sverdrup project and we progress towards the execution phase.
In parallel, we will be drilling some world class exploration targets in the southern Barents Sea while continuing to work on an appraisal programme in our Alta and Gohta discoveries. Work towards development concept selection studies for Alta, Gohta and Luno II discoveries will be a priority.
In our “do nothing case” we will see our production level reach in excess of 120,000 boepd by the time Johan Sverdrup Phase 1 comes onstream. By the time Johan Sverdrup Phase 2 reaches plateau our production will reach in excess of 150,000 boepd. We also expect that we will do better with new developments in the pipeline and the new resources we will discover in the years to come.
Strong focus on HSE excellence
Our health, safety and environmental track record for 2016 has also been solid and we will continue to keep a strong focus on HSE excellence as the Company grows.
Such great results would not be possible without the enthusiasm, professionalism and entrepreneurship from my colleagues and the management team. My first year as the new CEO of Lundin Petroleum has been a very rewarding one and it is all down to the great team work and team spirit that exists within the Company.
To you, fellow shareholders, the Board, and the Lundin Petroleum team, I thank you for your continued support.
President and CEO