Lundin Energy : Year End Report 2020 (regulatory)

Q4

YEAR END REPORT 2020

Lundin Energy AB (publ)

company registration number 556610-8055

Highlights

• Strong financial performance with free cash flow generation of MUSD 448, operating cost below guidance at USD 2.69 per boe and reduced net debt to USD 3.9 billion
• Balance sheet re-financed with USD 5 billion corporate facility with significantly improved terms
• Board of Directors propose to increase 2020 dividend by 80 percent to USD 1.80 per share corresponding to MUSD 512
• Record quarterly production in the fourth quarter of 185 Mboepd and 2021 production guidance set between 170 to 190 Mboepd
• Johan Sverdrup Phase 1 plateau production raised to 500 Mbopd gross, with expectation to increase up to 535 Mbopd by mid-2021
• Edvard Grieg reserves increased by 50 MMboe to 350 MMboe gross 2P ultimate recovery, extending plateau a further year to late 2023
• Delivering growth with resource additions of 210 percent of production in 2020 and pipeline of new projects with net resources of approximately 200 MMboe being matured for development within the temporary tax incentives
• Acceleration of Decarbonisation Strategy achieving carbon neutrality from 2025 from operational emissions

Financial summary

	1 Jan 2020-	1 Oct 2020-	1 Jan 2019-	1 Oct 2019-
	31 Dec 2020	31 Dec 2020	31 Dec 2019	31 Dec 2019
	12 months	3 months	12 months	3 months
Production in Mboepd	164.5	185.1	93.3	135.1
Revenue and other income in MUSD	2,564.4	779.7	2,948.7	749.7
CFFO in MUSD	1,528.0	276.7	1,378.2	392.9
Per share in USD	5.38	0.97	4.36	1.20
EBITDAX in MUSD1	2,140.2	708.4	1,918.4	695.5
Per share in USD1	7.53	2.49	6.07	2.45
Free cash flow in MUSD	448.2	-97.5	1,271.7	153.8
Per share in USD	1.58	-0.34	4.03	0.54
Net result in MUSD	384.2	303.7	824.9	155.3
Per share in USD	1.35	1.07	2.61	0.56
Adjusted net result in MUSD	280.0	86.9	252.7	78.9
Per share in USD	0.99	0.31	0.80	0.28
Net debt in MUSD	3,911.5	3,911.5	4,006.7	4,006.7

1 Excludes the reported after tax accounting gain of MUSD 756.7 in 2019 on the divestment of a 2.6 percent working interest in the Johan Sverdrup project.

Comment from Nick Walker, President and CEO of Lundin Energy:

"I'm pleased to report that in 2020 Lundin Energy delivered another strong set of results. Our operations and key projects remain on track, despite the impact of COVID-19 and unprecedented oil price volatility, demonstrating the resilience of our industry leading, low- cost business.

"This was a challenging year for all, with the impact from COVID-19 on people's health, society and of course the global oil market. At Lundin Energy we continue to handle the impact with agility and flexibility, safeguarding our people's well-being whilst keeping our main business priorities on course. We exited 2020 with record production in the fourth quarter of 185 Mboepd, resulting in annual production of 165 Mboepd at the top end of the original guidance range, despite the production cuts imposed by the Norwegian government. Operating costs were just USD 2.69 per boe, below the guidance for the year.

"Our world class assets continue to outperform and production is now set to exceed 200 Mboepd by 2023. Edvard Grieg gross 2P ultimate recovery was raised to 350 MMboe, almost double the original project sanction level. Alongside area tie-back developments this extends the production plateau to end 2023, which I anticipate will go further with upsides and area exploration opportunities. At Johan Sverdrup we reached Phase 1 plateau production ahead of schedule and the facilities capacity has been lifted significantly with an expectation of reaching up to 535 Mbopd gross from mid-2021. This is an increase of 95 Mbopd on design levels, and the full field plateau should increase to 720 Mbopd, when Phase 2 starts up in the fourth quarter of 2022.

"Our growth strategy continues to deliver results with total resource additions in 2020 of 210 percent of produced volumes. With a pipeline of nine potential new projects, prioritised for development within the new tax environment, and our active exploration and appraisal programme in 2021, targeting over 300 MMboe of net unrisked resources, I am confident that we can continue to grow resources.

"Financially we had a strong year, despite record low oil prices, delivering free cash flow of MUSD 448, covering our 2020 dividend more than 1.4 times, enabling us to deleverage the business at an average realised oil price of USD 40.0 per barrel. Liquidity was further strengthened with the successful refinancing of the business through a USD 5 billion committed corporate facility, with significantly improved terms. I am pleased to note that the Board of Directors is recommending a 80 percent increased dividend of USD 1.80 per share (in total MUSD 512), clearly demonstrating our commitment to sustain and increase shareholder returns. The Company's policy remains to pay a sustainable dividend even below USD 50 per barrel.

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Highlights

"We have also delivered on our Decarbonisation Strategy in 2020. Work continues on the electrification of our key producing assets alongside our investments in renewable energy to offset and replace the electricity we consume. When combined with our natural carbon capture projects, we can now achieve carbon neutrality from 2025; a first for the upstream industry, and showing we can deliver both profitable growth and environmental benefits.

"It is an honour to be taking up the reins of this industry-leading Company and I would like to express my deep gratitude to Alex Schneiter for providing exceptional leadership over the past five years. His foresight and ambition means that Lundin Energy is, and will continue to be, at the forefront of the industry. I would like to thank all our stakeholders for their support during this very challenging year. I look forward to reporting on our active 2021 programme and I am encouraged by the outlook for the business, which is well positioned to deliver resilient, sustainable growth into the future."

Lundin Energy has grown from an oil and gas exploration company into an experienced Nordic energy developer and operator. We continue to explore new ideas, new concepts and new solutions to maintain our position as an industry leader in production efficiency, sustainability and decarbonisation.

(Nasdaq Stockholm: LUNE). For more information, please visit us at www.lundin-energy.com or download our App www.myirapp.com/lundin

For definitions and abbreviations, see pages 32 and 34.

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OPERATIONAL REVIEW

All the reported numbers and updates in the operational review relate to the financial year ended 31 December 2020, unless otherwise specified.

COVID-19 Crisis and Low Oil Price Response

The COVID-19 crisis, its economic impact and the oil price collapse led to a challenging market backdrop during 2020. The main focus of the Company's response has been, and continues to be, on reducing the risk of the virus spreading in the operations and safeguarding the well-being of the Company's employees and contractors, whilst at the same time minimising the potential impact on the business. To date there have been no disruptions to production due to the COVID-19 situation. Detailed contingency plans have been established to mitigate the risk, a key element of which is that all personnel visiting the Company's operated production and drilling sites are now tested for the virus before travelling offshore.

Lundin Energy has high quality, low cost assets, which are resilient in a low oil price environment. Nevertheless, the Company took steps to defer activity and reduce spend, where it did not impact safety, asset integrity or production, in order to further strengthen the financial resilience of the business. Total expenditure reductions and deferrals in 2020 were over MUSD 360 from original guidance, including capital expenditures, operating costs and G&A.

Reserves and Resources

Lundin Energy has 671 million barrels of oil equivalent (MMboe) of proved plus probable net reserves (2P) and 826 MMboe of proved plus probable plus possible net reserves (3P) as at 31 December 2020, as certified by an independent third party. Lundin Energy has additional oil and gas resources which classify as contingent resources (2C) and the best estimate net contingent resources amounted to 275 MMboe as at 31 December 2020. The total resource, which is 2P reserves plus 2C resources, are 946 MMboe as at 31 December 2020.

Production

Production was 164.5 Mboepd, which was above the upper end of the updated guidance range for the year of between 161 and 163 Mboepd, and at the top end of the original guidance range of between 145 and 165 Mboepd. Fourth quarter production was 185.1 Mboepd due to increased facilities capacity and high uptime performance at Edvard Grieg and Johan Sverdrup.

In May 2020, the Norwegian Government announced oil production restriction measures as a response to the oil price collapse and oversupply in the global market. However, in the fourth quarter 2020, the authorities increased the production permits for certain fields, which benefitted the Johan Sverdrup, Edvard Grieg and Alvheim fields.

Operating cost, including netting off tariff income, was USD 2.69 per boe, which is below the updated guidance of USD 2.80 per boe.

		1 Jan 2020-	1 Oct 2020-	1 Jan 2019-	1 Oct 2019-
Production		31 Dec 2020	31 Dec 2020	31 Dec 2019	31 Dec 2019
in Mboepd		12 months	3 months	12 months	3 months
Crude oil		152.7	171.9	83.5	123.4
Gas		11.8	13.2	9.8	11.7
Total production		164.5	185.1	93.3	135.1
		1 Jan 2020-	1 Oct 2020-	1 Jan 2019-	1 Oct 2019-
Production	WI1	31 Dec 2020	31 Dec 2020	31 Dec 2019	31 Dec 2019
in Mboepd	12 months	3 months	12 months	3 months
Johan Sverdrup	20%	87.6	100.3	14.0	55.5
Edvard Grieg	65%	63.6	72.1	63.7	63.7
Ivar Aasen	1.385%	0.8	0.7	0.8	0.8
Alvheim Area	15% - 35%	12.5	12.0	14.8	15.0
		164.5	185.1	93.3	135.1

1 Lundin Energy's working interest (WI)

Production from Johan Sverdrup Phase 1 was two percent ahead of forecast, driven by a high production efficiency in the fourth quarter of 99 percent and increased facilities capacity. Four production wells and one water injection well were completed during 2020, with results from all five wells in line with or above expectations. The field is currently producing from 12 wells and reservoir performance continues to be excellent, with total well capacity exceeding the available facilities capacity. In the first quarter of 2020, it was announced that due to higher established processing capacity, the Phase 1 plateau production rate was increased from 440 thousand barrels of oil per day (Mbopd) gross to 470 Mbopd. The increased Phase 1 plateau level of 470 Mbopd was achieved in April 2020, more than two months earlier than scheduled. In November 2020, it was announced that following successful capacity testing, the Phase 1 plateau production rate was increased further to 500 Mbopd and as a result the full field plateau, when Phase 2 comes on stream, was increased to 720 Mbopd. The Phase 1 processing capacity is expected to increase further, up to 535 Mbopd, following modification work to upgrade the water injection facilities, which is expected to be complete by mid-2021. Operating costs were USD 1.56 per boe.

Production from the Edvard Grieg field was two percent ahead of forecast, supported by high production efficiency in the fourth quarter of 100 percent and increased available facilities capacity, as a result of Ivar Aasen not utilizing its full contractual share. In September 2020, the Company announced a 50 MMboe increase in Edvard Grieg field gross 2P reserves, lifting the gross 2P ultimate recovery to 350 MMboe. The plateau production period for the Greater Edvard Grieg Area, which also includes the Solveig Phase 1 and Rolvsnes Extended Well Test (EWT) developments, was extended by a further year to late 2023. The increase in reserves and plateau extension are as a result of higher oil in place, following an updated reservoir model which incorporated data referencing the lower water production levels and a 4D seismic survey, showing the injection water flood front to be further away from the production wells than previously predicted. In the third quarter 2020, a planned ten-day maintenance shutdown took place, to take advantage of the flexibility offered by the excess production capacity while production was restricted. The planned three well infill drilling programme at Edvard Grieg commenced post period end in January 2021, using the Rowan Viking jack-up rig. The Edvard Grieg electrification project, which involves the retirement of the existing gas turbine power generation system on the platform, installation of electric boilers to provide process heat and installation of a power cable from Johan Sverdrup to Edvard Grieg, is underway and is expected to be operational in late 2022. Operating costs, including netting off tariff income, were USD 3.47 per boe.

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