LUNDIN OIL: REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2001
BOARD RECOMMENDS ACCEPTANCE OF TALISMAN OFFER
* Talisman offers SEK 36.50 per share for Lundin Oil AB
* Talisman offer expires on 17 August, 2001
* Sudan assets to be spun off into new company
* Profit after tax MSEK 100.8 (SEK 0.98 per share)
* Operating cashflow MSEK 302.5
* Major oil discoveries in Malaysia/Vietnam
Lundin Oil AB is a Swedish independent oil company with exploration and
production activities in eight different countries worldwide. The Company is
listed on NASDAQ (symbol “LOILY”) and the Stockholm Stock Exchange
(symbol “LOILB”).
For further information, please contact:
Ian H Lundin
President
Tel: +41 22 319 66 00
or
Ashley Heppenstall
Finance Director
Tel:+ 41 22 319 66 00
or
Maria Hamilton
Corporate Communications
Tel:+ 41 22 319 66 00
Visit our website: www.lundinoil.com
Letter to shareholders
Dear fellow shareholders,
Board recommends Talisman offer
Review of Operations
During the six months ended June 30, 2001 the Company made a profit after
tax of MSEK 100.8 (MUSD 9.9), which corresponds to a 21% drop from the
same period last year.
Average working interest production for the period was 13,632 boepd and
average realised oil price was USD 26.21 per barrel, which correspond to a
7% decrease and a 7% increase, respectively, over the same period in the
previous year.
The lower profit figure is partially due to the write-off of the exploration costs
related to Falkland Islands and partially due to the deferred tax benefit
recorded in the first six months of 2000. The lower production figure is due
to the natural decline observed in the UK North Sea.
On the drilling front, the East Bunga Raya-1 exploration well on Block
PM3CAA offshore Malaysia/Vietnam flowed at 5,500 bopd confirming the
presence of a new oil and gas accumulation on this highly prospective Block.
In Sudan the Company drilled another exploration well on Block 5A after
successfully testing the Thar Jath-1 well at a combined rate of 4,260 bopd
from four zones. The second exploration well encountered sub-commercial
quantities of oil. The drilling rig was then moved back to Thar Jath where it
successfully drilled and tested the first appraisal well on the oil-bearing
structure. This well flowed at a combined rate of over 2,000 bopd from two
zones. The Company is currently evaluating the best manner in which to
proceed with the development of this significant find. Up to 100,000 bopd is
reserved for the third party users in the 1600-km pipeline connecting the
nearby oil fields in Blocks 1 and 2 with Port Sudan on the Red Sea Coast. In
April 2001, the Company signed a new Exploration and Production Sharing
Contract covering Block 5B (immediately adjacent to Block 5A). The
consortium, which consists of Petronas Carigali Overseas SDN BHD, OMV
AG, Sudapet Ltd and Lundin Oil now control the entire southern half of the
highly prolific Muglad Basin.
In Albania, the Company withdrew from Block 2 after a deep well, (drilled on
the Block) failed to encounter commercial quantities of hydrocarbons.
Finally, on the corporate front, the Company increased its shareholding in
Sodra Petroleum AB from 50.01% to 95.4% as a result of the conversion of
Sodra shares into Lundin Oil shares by the Sodra shareholders. On 17 July
2001 the Company has commenced compulsory acquisition of the remaining
shares in accordance with the Swedish Companies Act.
The Talisman Offer
June 20, 2001 was an historic day in the life of Lundin Oil AB. On that day,
the Board of the Company considered and approved an offer from Talisman
Energy AB to purchase all the outstanding shares in Lundin Oil for SEK
36.50 in cash. In addition to the cash offer, the Lundin Oil shareholders will
receive one share in Lundin Petroleum AB for each share held in Lundin Oil.
It is expected that the shares of Lundin Petroleum will start trading on the
New Market in Stockholm during September 2001.
Lundin Petroleum AB will inherit from Lundin Oil the assets in Sudan, an
approximate 10% investment in a US Company with large oil reserves in the
Russian Federation and approximately US$ 6.5 million in cash.
The core management team of Lundin Oil and the Board of Directors will
remain in place to manage Lundin Petroleum giving the new Company the full
benefit of the experience and expertise acquired by Lundin Oil over the
years.
The prospects for Lundin Petroleum are indeed exciting:
* In Sudan there is a major discovery known as Thar Jath on Block 5A. We
are together with our partners and the Government of Sudan committed to
the fast track development of the Thar Jath field through the installation of a
pipeline connecting Thar Jath to the main trunk line that goes to Port Sudan.
* The remaining prospectivity of Block 5A and Block 5B is significant. The
potential of these two Blocks (which cover most of the Southern Half of the
Muglad Basin) is similar to the northern half of the Basin where
approximately 1 billion barrels of oil have been discovered to date.
* As part of the transaction, Lundin Petroleum will also inherit certain rights,
which may result in the acquisition of other highly prospective blocks in the
Middle East and North Africa.
* The new Company will have the management resources to build Lundin
Petroleum into a force in the oil business. We are all fully committed to
achieve this objective.
After spending the better part of two decades building an oil company with a
strong asset base in different parts of the world, the shareholders now have
the opportunity to realize part of their investment while maintaining an
interest in a new company with enormous potential.
The Future
Demand for oil keeps growing (although the growth rate has shown some
signs of slowing down recently) and new oil fields are becoming very difficult
to find, especially in so-called “politically stable areas”. This is why we
believe that a small oil company (such as Lundin Petroleum AB) with
exposure to large discoveries (wherever they may be) has the opportunity to
realise enormous value over the next few years. The reason for this is that
major oil companies, as well as large independents, are finding it more and
more difficult to replace their reserves let alone actually add to them through
exploration. Therefore, they have no choice but to acquire these reserves in
the market. Having said that our objective is not simply to find oil so we can
turn around and sell it to the best bidder. We are aiming to recreate the
success of Lundin Oil through a new vehicle by focusing on a few selected
areas with large reserves potential. Finally we will inherit the Code of
Conduct (adopted by Lundin Oil early 2001) and will continue to ensure that
wherever we invest the local population will see direct benefits in terms of
community development and job creation.
I sincerely hope that you will join us on our next journey in the quest to meet
the world’s energy requirements.
Yours sincerely,
Ian H Lundin
President
RESULT AND CASH FLOW
The Group
The Lundin Oil AB Group (Lundin Oil or the Group) reports a profit after tax
for the six months ended 30 June 2001 of MSEK 100.8 (MSEK 128.2 for the
corresponding period during 2000) corresponding to SEK 0.98 per share
(1.47 SEK per share). The six months result has been adversely affected by
the write-off of the explorationexpenditure in the Falkland Islands whilst the
result for the corresponding period of 2000 benefited from a reversal of
deferred tax charge.
Operating cash flow for the six months ended 30 June 2001 was MSEK
302.5 (MSEK 293.6) corresponding to 2.94 SEK per share (3.36 SEK per
share). The operating cash flow for the first six months is at the same level
as for the same period in the prior year.
Lundin Oil received an average price on its crude oil sales of USD 26.21
(USD 24.35) per barrel for the six months after the effects of the oil price
hedge during 2001. The average price received for crude oil sales for the six
months without the effects of the hedge was USD 26.16 (USD 28.29). The
average price achieved for the year ended 31 December 2000 after the
effects of the oil price hedge was USD 24.35.
Oil and gas related income for the six months ended 30 June 2001
amounted to MSEK 592.7(MSEK 465.6) and relates to Lundin Oil’s assets in
the UK North Sea and Malaysia which generated operating income of MSEK
351.7 (MSEK 327.7) and MSEK 232.7 (MSEK 135.3), respectively.
Production cost in the first six months ended 30 June 2001 was MSEK
211.8 (MSEK 106.1). The increase in production costs is primarily related
to stock movements of MSEK 53.4, an amount of MSEK 11.1 for
non-recurring well work-over cost in Malaysia and higher FPSO costs in
Malaysia compared to the previous period. The benefit from the well
work-over costs has been increased production in this and subsequent
quarters. The depletion charge on oil and gas assets for the six months
ended 30 June 2001 was MSEK 134.4 (MSEK 129.1).
Administration expenses were MSEK 45.9 (MSEK 28.2) for the six months
ended 30 June 2001. The increase was partially due to costs incurred with
the Talisman bid process. Within the transaction agreement between
Talisman and Lundin Oil it has been agreed that an amount of MUSD 8.5 will
be paid by Lundin Oil for the payment of assignment fees, reorganisation
costs and severance and bonus payments to the management and
employees of Lundin Oil, of which payments of MUSD 1.0 have been included
within the half year results.
Net financial income and expenses for the six months ended 30 June 2001
were MSEK –8.0 (MSEK -11.4). Included within the six months ended 30
June 2001 was interest income of MSEK 8.3 (MSEK 10.8) offset by interest
expenses of MSEK 19.2 (MSEK 20.3) arising from bank debt.
Tax for the six months ended 30 June 2001 was MSEK 94.3 (MSEK 65.5).
The current corporation tax charge for the six months ended 30 June 2001
was MSEK 64.5 (MSEK 45.8) and current Petroleum Revenue Tax, PRT, was
MSEK 13.9 (MSEK 20.2). The increase in current tax charges was due to the
tax charge incurred in Malaysia following the full utilisation of tax losses
carried forward during 2000. The deferred corporation tax charge for the six
months ended 30 June 2001 was MSEK 11.7 (tax benefit of MSEK 7.9)
relating primarily to the Malaysian operation. The deferred corporation tax
benefit for 2000 is the reversal of a deferred tax provision in the UK following
the reorganisation of the UK Group.
Parent Company
The net profit for the parent company for the six months ended 30 June
2001 amounted to MSEK 29.2 (net loss of MSEK 9.7). The profit resulted
mainly from the receipt of a dividend from the Lundin UK Group of MSEK
42.9. Administration charges of MSEK 16.1 (MSEK 8.2) and interest
expense of MSEK 9.6 (MSEK 10.2) were offset by a foreign exchange gain of
MSEK 10.6 (MSEK 4.2).
PRODUCTION
Production for the six months ended 30 June 2001 on a working interest
basis amounted to 2,467,562 (2,644,738) barrels of oil equivalents of
which 2,155,351 (2,309,073) were barrels of oil. This corresponds to a
production of 13,633 (14,531) barrels of oil equivalents per day (boepd) for
the six months ended 30 June 2001 including production from the UK North
Sea and Malaysia of 7,404 (8,696) boepd and 6,229 (5,835) boepd,
respectively. Production allocated for the six months ended 30 June 2001
from Malaysia on an entitlement basis after government share amounted to
773,247 (732,830) barrels or 4,272 (4,026) bopd.
FINANCING AND LIQUIDITY
The Group
Liquid assets at 30 June 2001 amounted to MSEK 344.2 (MSEK 344.7).
Parent Company
Liquid assets at 30 June 2001 amounted to MSEK 20.6 (MSEK 57.0).
INVESTMENTS
During the six months ended 30 June 2001, investments in oil and gas
assets have been made in an amount of MSEK 359.8 (MSEK 149.2). These
primarily relate to ongoing exploration costs in Libya of MSEK 15.2, Sudan of
MSEK 94.2 and Albania of MSEK 21.9, and development costs in Malaysia
of MSEK 129.4 and Libya of MSEK 37.9.
FINANCIAL INSTRUMENTS
The Group entered into interest rate hedging contracts to tie the LIBOR
based floating rate for part of the Group’s USD borrowings to a fixed rate of
interest for a period of three years expiring December 2001. The contracts
are in the amount of USD 50.0 million with an interest rate fixed at 5.87%.
The Group had bought a put option set at USD 19.00 for Dated Brent in
respect of 5,000 bopd for the calendar year 2001. The put option was sold in
April 2001.
The Group entered into forward oil price sales that are tied to forecast
production from the UK and Malaysia/Vietnam. From 1 January 2001 to 31
December 2001, 2,750 bopd of production have been fixed at a West Texas
Intermediate price of USD 28.55 per barrel and from 1 April 2001 to 31
December 2001, 2,500 bopd of production have been fixed at an average
Dated Brent price of USD 26.505 per barrel.
Lundin Oil AB has entered into a share swap agreement with Skandinaviska
Enskilda Banken AB (SEB) under which SEB has purchased 2.3 million
Lundin Oil AB B shares to hedge Lundin Oil AB’s obligation under the 1999
and 2000 employee stock option programs. In the event that the Lundin Oil
share price falls below the purchase price at which the shares were acquired
by SEB, Lundin Oil will be responsible for any financial exposures resulting
there from. In the event that employees exercise under these programs, it is
expected that SEB will deliver shares purchased under this swap agreement.
As a result, if such options are exercised, Lundin Oil will not need to issue
new shares for which the Company has existing shareholder approval. Lundin
Oil AB entered into a second share swap agreement with SEB to hedge the
employee stock options proposed to be issued in 2001. SEB had acquired
150,000 shares when purchasing was suspended during the period when the
Lundin Oil shares were subject to an acquisition offer from Talisman Energy.
CHANGES IN BOARD OF DIRECTORS
At the Annual General meeting all the directors were re-elected with the
exception of Magnus Nordin who declined re-election and resigned from the
Board.
SHARE DATA
Lundin Oil AB’s registered share capital at 30 June 2001 amounts to SEK
51,430,641.50 represented by 102,861,283 shares of nominal value SEK
0.50 each. The shares are divided into 678,200 A shares with 10 votes
each and 102,183,083 B shares with one vote each. In addition, 3,342,501
B shares have been issued but not registered as at 30 June 2001 resulting
from the conversion of Sodra Petroleum shares as detailed below.
Lundin had outstanding, at the start of the financial period, 3,400,000
warrants with an exercise price of SEK 0.50, exercisable between 5 and 23
November 2001, to Sodra Petroleum AB (Sodra). Sodra and Lundin
shareholders at the Annual General Meetings of the companies approved an
amendment to the convertible shares allowing the convertible shares to be
exchangeable for shares in Lundin at the ratio of 11 convertible shares of
Sodra for one new B share of Lundin at the nominal price of SEK 0.50. The
conversion period for this exchange was between 21 May and 14 June 2001.
36,767,511 convertible shares in Sodra were submitted for conversion and
as a result of the transaction 34,195 shares were bought by the Company at
a price of SEK 2.00 per share. The process of compulsory acquisition to
purchase the outstanding Sodra Petroleum convertible shares was instigated
on 17 July 2001.
Under the Group incentive program for employees 1,250,000 incentive
warrants with a strike price of SEK 49 expiring on 15 May 2001 had been
issued. These warrants have expired. A further 1,150,000 incentive
warrants with a strike price of SEK 24 expiring on 11 March 2002 and
1,200,000 incentive warrants issued at a strike price of SEK 23.00 expiring
on 22 May 2003 have been issued. At the Annual General Meeting of Lundin
Oil AB the issue of 1,200,000 warrants expiring on 1 June 2004 were
authorised for issue. If the Talisman offer is completed the warrants expiring
in 2004 will not be issued.
ACCOUNTING PRINCIPLES
This interim report has been prepared using the accounting principles
applied to the Financial Statements for the year ended 31 December 2000
and in accordance with the Swedish Financial Accounting Standards
Council’s recommendation RR 20 Interim Financial Reporting except for the
change described below.
CHANGE IN ACCOUNTING PRINCIPLES
Inventories of hydrocarbons have been valued at cost whereas previously
they have been valued at market prices prevailing at the balance sheet date.
The effect of this change in accounting principle is a reduction in profit for
the year ended 31 December 1999 from TSEK 12,622 to TSEK 8,505, a
reduction in the profit for the six months ended 30 June 2000 from TSEK
127,961 to TSEK 128,165 and a reduction in the profit for the year ended
31 December 2000 from TSEK 225,503 to TSEK 224,754. The
comparative financial statements have been restated in this report.
FINANCIAL INFORMATION
The Company will publish the following interim reports:
* Nine months report (January – September 2001) will be published on 8
November 2001.
Stockholm, 9 August 2001
Ian H. Lundin
President
AUDITORS’ REPORT
We have performed a limited review of this six months interim report at 30
June 2001 of Lundin Oil AB in accordance with a recommendation issued by
FAR (The Swedish Institute of Accountancy Profession in Sweden). A limited
review is considerably less in scope than a full audit. Nothing has come to
our attention that caused us to believe that this six months interim report at
30 June 2001 of Lundin Oil AB does not comply with the requirements of the
Swedish Annual Accounts Act.
Stockholm, 9 August 2001
Carl-Eric Bohlin Klas Brand
Authorised Public Accountant Authorised Public Accountant
PricewaterhouseCoopers AB
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