April 2010

Dear fellow shareholders,

The steep economic downturn which began in 2008 is still weighing heavily on the world. However, even though many countries are still struggling with recession, China’s growth was barely affected having since returned an astronomical rate (9.0% year on year). The country now outpaces the US in terms of car sales and is catching up in terms of imports of petroleum products and crude oil, breaking 5 million barrels per day at the end of 2009. In terms of economic growth the Middle East, South America, Africa and the rest of Asia (other than Japan) also continue to outpace the OECD countries by a wide margin. Of course economic growth means better living standards and with that comes increasing energy consumption. A return to economic growth in the developed world and continued growth in the rest of the world is simply not possible without affordable and abundant sources of energy.

The energy mix
Meeting growing energy demand is at the forefront of government policy in most countries around the world. Coal, gas and nuclear power represent the three pillars required to meet the growing electricity demand. Although renewable energy will become more important in everyday use it will unfortunately never be able to meet base load electricity demand, or at least not until we have developed a way to store electricity in large quantities. We should also not forget that renewable energy, whether it is bio fuels or wind power, has its own “carbon footprint”, which in some cases, is not negligible.

As far as transportation is concerned, oil products are still the most efficient and I would argue the cleanest fuels in existence. The technological advances made in recent years in internal combustion engines in combination with new light weight materials used in the manufacturing process of vehicles have reduced car emissions to a fraction of what they were in the past. These advances are breath taking and continue unabated such as the recently introduced stop-start technology. We should be on our guard when the car industry tries to convince us that electric and hybrids vehicles are the future of road transportation. These vehicles have their own drawbacks, for example the batteries used in hybrids and EV’s (electronic vehicles) are heavy, expensive and serious environmental hazards.

The political debate
The debate regarding climate change and what can be done about it culminated in the Copenhagen Summit in December 2009. The failure of this summit can be at least partially attributed to the question of whether the developing world should bear the brunt of meeting the targets specified by the developed world. All the sources of greenhouse gases; such as industrial, agricultural, natural (i.e volcanoes), deforestation need to be addressed, and singling out one of them is counter productive. But if we go beyond the climate change debate and simply address the management of natural resources in the face of a growing human population, it is clear that energy efficiency cannot be ignored. Excess energy consumption is still rampant in many parts of the world and controlling waste together with better use of resources is the most straightforward method to reduce greenhouse gas emissions. High energy prices may be the main motivating factor necessary to increase efficiency but Government legislation has its role to play. Perhaps most importantly gasoline subsidies in certain countries such as Russia, China, Venezuela and Iran have to be phased out. Subsidised energy prices encourage domestic consumption on a grand scale using up natural resources wastefully and reducing export revenues. Similar subsidies exist in the form of artificially low prices for electricity, coal and natural gas and have the same undesirable effects. Energy in any form is precious and the waste of energy will continue until it is recognised as such and not used as a political tool by Governments around the world.

Where we fit in
Lundin Petroleum experienced a very active year in 2009, carrying out a large exploration drilling programme while managing producing assets and turning undeveloped reserves into production. The proven and probable reserves increased by 26 percent to 256 MMboe as production averaged 38,200 boepd, a 20 percent increase over 2008. Norway now accounts for more than half of our total prospective resources and will continue be at the forefront of the Company’s growth strategy. Norway’s stable tax regime and its fair treatment of foreign investors are two good reasons for us to be there, but as always it is the potential size of discoveries that drives us. Our significant investment in Russia suffered a big set back as a result of disappointing drilling results. However we strongly believe that the Morskaya discovery in the Lagansky block will yield a lot of oil one day. We are also very pleased to have Gunvor International as a partner in this venture which will certainly give a boost to the project. Our producing assets in United Kingdom, France, Netherlands, Tunisia and Indonesia continue to perform well. Exploration activity in South Asia is ramping up with two wells in Vietnam this year and a major drilling campaign commencing in Malaysia in 2011.

We announced recently the spin-off of our United Kingdom assets into EnQuest, a new independent oil and gas company focused on the UK North Sea. The transaction will not only allow you, the shareholders, to participate in a new and exciting investment vehicle but will also crystallise the value of the UK assets. EnQuest which will be listed on both the Stockholm and London stock exchanges has a proven management team, strong cash flow and no long-term debt.

The oil industry is often considered to be in its twilight and it is true that the average age of professionals in the business is increasing at an alarming rate. So while there is a prevailing view that fossil fuels will be phased out in the next few decades, energy dependence on these fuels is actually increasing. Responsible use of these resources is the duty of producers and consumers alike. Technological advances and efficient markets will make it easier to achieve economic goals while protecting the environment. Lundin Petroleum will do its part by developing and producing its oil and gas reserves in a sound and responsible manner.

Finally I would like to thank all our employees for a job well done and you, our shareholders, for your continued support.

Yours sincerely,

Ian H. Lundin
Chairman of the Board