Lundin warns of $249M costs hit in first quarter

Sweden’s Lundin Petroleum will expense pre-tax exploration costs of approximately $45 million and a net foreign exchange loss of approximately $204 million for the first quarter of 2015.

The profitability for the first quarter of 2015 will be impacted by certain expensed exploration costs as well as a foreign currency exchange loss, mainly related to the revaluation of loan balances. These items are largely non-cash charges and will have no impact on the reported operating cash flow or EBITDA for the period.

Exploration Costs

During the first quarter of 2015, Lundin Petroleum will incur pre-tax exploration costs of approximately $45 million which will be charged to the income statement offset by a tax credit of approximately $35 million. The exploration costs mainly relate to two exploration wells drilled in Norway during the first quarter of 2015. The Gemini well in PL338C was announced as dry and the Zulu well in PL674BS as a gas discovery. According to Lundin, following further analysis, the Zulu discovery has been concluded as non-commercial and the associated costs will therefore be expensed.

Foreign Exchange Loss

Lundin Petroleum will recognise a largely non-cash foreign exchange loss in its income statement for the first quarter of 2015 of approximately $204 million. This foreign exchange loss mainly relates to the revaluation of loan balances at the prevailing exchange rates at the end of the reporting period. The US Dollar strengthened significantly against the Euro during the first quarter of 2015 resulting in a foreign exchange loss on the US Dollar denominated external loan which is borrowed by a subsidiary using Euro as functional currency. This foreign exchange loss was partly offset by a smaller foreign exchange gain relating to the strengthening of the Norwegian Krone against the Euro in the first quarter of 2015, generating a foreign exchange gain on an intercompany loan balance denominated in Norwegian Krone.

Mike Nicholson, Chief Financial Officer of Lundin Petroleum comments: “Whilst Lundin Petroleum has generated a largely non-cash foreign exchange loss driven primarily by the impact of a stronger US Dollar on our intra group loan balances, we must recognise that a strong US Dollar is positive for the Company. The majority of our revenues are earned in US Dollars, and the value of the assets of the Company is predominantly US Dollar driven. In addition, a strong US Dollar is beneficial in terms of lowering the cost of funding our non US dollar denominated expenditures.”

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