FORM 20-F
(Mark One)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
OR
|_| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report ________________
Commission File Number 1-14966
CNOOC LIMITED
[CHINESE LANGUAGE OMITTED]
(Exact name of Registrant as specified in its charter)
Hong Kong
(Jurisdiction of incorporation or organization)
65th Floor, Bank of China Tower
One Garden Road, Central
Hong Kong
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of
the Act.
Title of each class Name of each exchange on which registered
American depositary shares, each representing 100 shares of
par value HK$0.02 per share..................................................... New York Stock Exchange, Inc.*
Shares of par value HK$0.02 per share.............................................. New York Stock Exchange, Inc.**
Securities registered or to be registered pursuant to Section 12(g) of
the Act. None (Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act. None (Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by
the annual report.
Shares, par value HK$0.02 per share................................................ 41,054,675,375*
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes |X| No |_|
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes |X| No |_|
Note - Checking the box above will not relieve any registrant required
to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, nor a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_|
Indicate by check mark which financial statement item the Registrant has elected to follow.
Item 17 |_| Item 18 |X|
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes |_| No |_|
** Not for trading, but only in connection with the registration of American depositary shares.
Table of Contents
Page
TERMS AND CONVENTIONS..............................................................................................................1
FORWARD-LOOKING STATEMENTS.........................................................................................................5
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS................................................................6
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE..............................................................................6
ITEM 3. KEY INFORMATION......................................................................................................6
A. Selected Financial Data..............................................................................................6
B. Capitalization and Indebtedness.....................................................................................10
C. Reasons for the Offer and Use of Proceeds...........................................................................10
D. Risk Factors........................................................................................................10
ITEM 4. INFORMATION ON THE COMPANY..........................................................................................20
A. History and Development.............................................................................................20
B. Business Overview...................................................................................................23
ITEM 4A. UNRESOLVED STAFF COMMENTS...........................................................................................68
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS........................................................................68
A. Operating Results...................................................................................................68
B. Liquidity and Capital Resources.....................................................................................81
C. Research and Development, Patents and Licenses, etc.................................................................88
D. Trend Information...................................................................................................88
E. Off-Balance Sheet Arrangements......................................................................................88
F. Tabular Disclosure of Contractual Obligations.......................................................................88
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..........................................................................89
A. Directors and Senior Management.....................................................................................89
B. Compensation of Directors and Officers..............................................................................96
C. Board Practice......................................................................................................96
D. Employees..........................................................................................................100
E. Share Ownership....................................................................................................100
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................................................105
A. Major Shareholders.................................................................................................105
B. Related Party Transactions.........................................................................................105
C. Interests of Experts and Counsel...................................................................................114
ITEM 8. FINANCIAL INFORMATION..............................................................................................114
A. Consolidated Statements and Other Financial Information............................................................115
B. Significant Changes................................................................................................116
ITEM 9. THE OFFER AND LISTING..............................................................................................117
ITEM 10. ADDITIONAL INFORMATION.............................................................................................118
A. Share Capital......................................................................................................118
B. Memorandum and Articles of Association.............................................................................118
C. Material Contracts.................................................................................................121
D. Exchange Controls..................................................................................................121
E. Taxation...........................................................................................................122
F. Dividends and Paying Agents........................................................................................125
G. Statement by Experts...............................................................................................125
H. Documents on Display...............................................................................................125
I. Subsidiary Information.............................................................................................126
ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.........................................................126
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............................................................127
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................................................................128
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.......................................128
A. Material Modifications to the Instruments Defining the Rights of Security Holders..................................128
B. Material Modifications to the Rights of Registered Securities by Issuing or Modifying any other Class of
Securities.........................................................................................................128
C. Withdrawal or Substitution of a Material Amount of the Assets Securing any Registered Securities...................128
D. Change of Trustees or Paying Agents for any Registered Securities..................................................128
E. Use of Proceeds....................................................................................................128
ITEM 15. CONTROLS AND PROCEDURES............................................................................................128
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT...................................................................................128
ITEM 16B. CODE OF ETHICS.....................................................................................................128
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................................................................129
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.........................................................130
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.............................................130
PART III
ITEM 17. FINANCIAL STATEMENTS...............................................................................................131
ITEM 18. FINANCIAL STATEMENTS...............................................................................................131
ITEM 19. EXHIBITS...........................................................................................................131
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TERMS AND CONVENTIONS
Definitions
Unless the context otherwise requires, references in this annual report to:
o "CNOOC" are to our controlling shareholder, China National Offshore Oil Corporation, a PRC state-owned enterprise, and its affiliates, excluding us and our subsidiaries;
o "CNOOC Limited," are to CNOOC Limited, a Hong Kong limited liability company and the registrant of this annual report;
o "Our company," "we," "our" or "us" are to CNOOC Limited and its subsidiaries;
o "China" or "PRC" are to the People's Republic of China, excluding for purposes of geographical reference in this annual report, the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan;
o "Hong Kong Stock Exchange" or "HKSE" are to The Stock Exchange of Hong Kong Limited;
o "Hong Kong Stock Exchange Listing Rules" are to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
o "HK$" are to Hong Kong dollar, the legal currency of the Hong Kong Special Administrative Region;
o "JPY" are to Japanese yen, the legal currency of Japan;
o "Rmb" are to Renminbi, the legal currency of the PRC;
o "Rupiah" are to Indonesian Rupiah, the legal currency of the Republic of Indonesia; and
o "US$" are to U.S. dollar, the legal currency of the United States of America.
Conventions
We have translated amounts from Renminbi into U.S. dollars solely for
the convenience of the reader at the noon buying rate in New York for cable
transfers payable in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York on December 30, 2005 of US$1.00=Rmb
8.0702. We have also translated amounts in Hong Kong dollars solely for the
convenience of the reader at the rate of HK$7.80 to US$1.00, the linked
exchange rate between such currencies under policies of the Hong Kong
government in effect on December 31, 2005. We make no representation that the
Renminbi amounts or Hong Kong dollar amounts could have been, or could be,
converted into U.S. dollars at those rates on December 31, 2005, or at all.
For further information on exchange rates, see Item 3 "Key
Information--Selected Financial Data."
Totals presented in this annual report may not total correctly due to rounding of numbers.
Our "average net realized price" for oil and gas in each period is derived from a numerator divided by a denominator, where:
o the numerator is equal to the sum of (i) revenues from our oil and gas sales offshore China for the applicable period; (ii) the 30% ownership share of revenues from gas sales for the applicable period from our associated company, Shanghai Petroleum and Natural Gas Company Limited; and (iii) the revenues from oil and gas sales for the applicable period from our overseas interests; while:
o the denominator is equal to the sum of (i) the volume of oil and gas sales offshore China for the applicable period; (ii) 30% of the volume of gas sales for the applicable period from our associated company, Shanghai Petroleum and Natural Gas Company Limited; and (iii) the volume of oil and gas sales for the applicable period from our overseas interests.
Our "net proved reserves" consist of our percentage interest in
reserves, including our 100% interest in the independent oil and gas
properties and our participating interest in the properties covered under the
production sharing contracts in the PRC, less: (a) an adjustment for our share
of royalties payable by us to the PRC government and our participating
interest in share oil payable to the PRC government under the production
sharing contracts, and (b) an adjustment for production allocable to foreign
partners under the PRC production sharing contracts as reimbursement for
exploration expenses attributable to our participating interest; and plus (i)
our 5.3% participating interest in North West Shelf Project in Australia, and
(ii) our participating interest in the properties covered under the production
sharing contracts in Indonesia less an adjustment for share oil attributable
to the Indonesian government and the domestic market obligation. In this
annual report, we use "share oil" to refer to the portion of production that
must be allocated to the relevant government entity or company under our
production sharing contracts.
Net proved reserves do not include any deduction for production taxes payable by us, which are included in our operating expenses. Net production is calculated in the same way as net proved reserves. Unless otherwise noted, all information in this annual report relating to oil and natural gas reserves is based upon estimates prepared by us. In calculating barrels-of-oil equivalent, or BOE, amounts, we have assumed that 6,000 cubic feet of natural gas equals one BOE, with the exception of natural gas from certain fields which is converted using the actual heating value of the natural gas.
Glossary of Technical Terms
Unless otherwise indicated in the context, references to:
o "API gravity" means the American Petroleum Institute's scale for specific gravity for liquid hydrocarbons, measured in degrees. The lower the API gravity, the heavier the liquid and, generally, the lower its commercial value. For example, asphalt has an API gravity of eight degrees, West Texas Intermediate, a benchmark crude oil, has an API of 40 degrees, and gasoline has an API gravity of 50 degrees.
o "appraisal well" means an exploration well drilled after a successful wildcat well to gain more information on a newly discovered oil or gas reserve.
o "condensate" means light hydrocarbon liquids separated from natural gas in the field through condensation when natural gas is exposed to surface temperature and pressure. This group generally includes slightly heavier hydrocarbons than natural gas liquids, such as pentane. It is combined with crude oil production and reserve figures.
o "crude oil" means crude oil and liquids, including condensate, natural gas liquids and liquefied petroleum gas.
o "development cost" means, for a given period, costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas.
o "dry hole" means an exploration well that is not commercial (i.e., economically feasible to develop). Dry hole costs include the full costs for such drilling and are charged as an expense.
o "exploration well" means a wildcat or appraisal well.
o "lifting cost" means, for a given period, costs incurred to operate and maintain wells and related equipment and facilities, including applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities, plus production taxes. Also known as production cost. The U.S. dollar amount of the lifting cost in this annual report may be different from what we disclosed in Hong Kong annual report due to the usage of different conversion rates.
o "natural gas liquids" means light hydrocarbons that can be extracted in liquid form from natural gas through special separation plants. This group includes typically lighter liquid hydrocarbons than condensate, such as butane, propane and ethane. It is combined with crude oil production but not with crude oil reserve figures.
o "net wells" means a party's working interest in wells.
o "proved developed reserves" means proved reserves of oil and natural gas that can be expected to be recovered through existing wells with existing equipment and operating methods.
o "proved reserves" means estimated quantities of crude oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made.
o "proved undeveloped reserves" means proved reserves that are expected to be recovered from new wells in undrilled areas, or from existing wells where significant expenditure is required for completion.
For further definitions relating to reserves:
o "reserve replacement ratio" means, for a given year, total additions to proved reserves divided by production during the year.
o "reserve-to-production ratio" means the ratio of proved reserves to annual production of crude oil or, with respect to natural gas, to wellhead production excluding flared gas.
o "seismic data" means data recorded in either two-dimensional (2D) or three-dimensional (3D) form from sound wave reflections off of subsurface geology. This is used to understand and map geological structures for exploratory purposes to predict the location of undiscovered reserves.
o "success" means a discovery of oil or gas by an exploration well. Such an exploration well is a successful well and is also known as a discovery. A successful well is commercial, which means there are enough hydrocarbon deposits discovered for economical recovery.
o "success rate" means the total number of successful exploration wells divided by the total number of exploration wells drilled in a given period. Success rate can be applied to wildcat wells or appraisal wells in general.
o "wildcat well" means an exploration well drilled in an area or rock formation that has no known reserves or previous discoveries.
References to:
o bbls means barrels, which is equivalent to approximately 0.134 tons of oil (33 degrees API);
o mmbbls means million barrels;
o BOE means barrels-of-oil equivalent;
o BOE per day means barrels-of-oil equivalent per day;
o million BOE means million barrels-of-oil equivalent;
o mcf means thousand cubic feet;
o mmcf means million cubic feet;
o bcf means billion cubic feet, which is equivalent to approximately 283.2 million cubic meters;
o BTU means British Thermal Unit, a universal measurement of energy; and
o km means kilometers, which is equivalent to approximately 0.62 miles.
FORWARD-LOOKING STATEMENTS
This annual report includes "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this annual report that address activities, events or developments which we expect or anticipate will or may occur in the future are forward-looking statements. The words "believe," "intend," "expect," "anticipate," "project," "estimate," "predict" and similar expressions are also intended to identify such forward-looking statements.
These forward-looking statements address, among others, such issues as:
o the amount and nature of future exploration, development and other capital expenditures,
o wells to be drilled or reworked,
o oil and gas prices and demand,
o future earnings and cash flow,
o development projects,
o exploration prospects,
o estimates of proved oil and gas reserves,
o potential reserves,
o development and drilling potential,
o drilling prospects,
o expansion and other development trends of the oil and gas industry,
o business strategy,
o production of oil and gas,
o development of undeveloped reserves,
o expansion and growth of our business and operations, and
o our estimated financial information.
These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties which could cause our actual results, performance and financial condition to differ materially from our expectation. For a description of such risks and uncertainties, see "Item 3-Key Information-Risk Factors."
Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable, but see "Item 6--Directors, Senior Management and Employees--Directors and Senior Management."
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
You should read our selected historical consolidated financial data set forth below in conjunction with our consolidated financial statements and their notes under "Item 18--Financial Statements" and "Item 5--Operating and Financial Review and Prospects" in this annual report.
On June 6, 2002, Ernst & Young replaced Arthur Andersen & Co as our independent public accountants. For a discussion on such change of accountants, see "Item 3--Key Information--Risk Factors--Risks relating to our business--You may not be able to assert claims against Arthur Andersen, our independent public accountants for periods prior to 2002, nor may you be able to assert claims against our current independent public accountants for financial statements previously audited by Arthur Andersen" and "Item 5--Operating and Financial Review and Prospects--Change of Accountants."
The Hong Kong Institute of Certified Public Accountants issued a number of new standards and interpretations, effective January 1, 2005, which are applicable to our financial statements for the fiscal year ended on December 31, 2005. Certain prior year amounts have been restated upon adoption of such new policies, details of which are included in note 2.4 to our consolidated financial statements under "Item 18--Financial Statements" in this annual report.
We have prepared and presented our consolidated financial statements in accordance with Hong Kong generally accepted accounting principles ("Hong Kong GAAP"). For an explanation of the reconciliation of our net income and shareholders' equity to U.S. generally accepted accounting principles ("US GAAP"), see note 37 to our consolidated financial statements under "Item 18--Financial Statements" in this annual report.
Year ended December 31,
--------------------------------------------------------------------------------
2001(g) 2002 2003 2004 2005 2005
-------- -------- -------- -------- -------- -------
Rmb Rmb Rmb Rmb Rmb US$
-------- -------- -------- -------- -------- -------
(in millions, except per share and per ADS data)
Income Statement Data:
Hong Kong GAAP (Restated) (Restated) (Restated)
Operating revenues:
Oil and gas sales............................ 17,561 23,779 28,117 36,886 53,418 6,619
Marketing revenues........................... 2,537 2,377 12,399 18,191 15,901 1,970
Other income................................. 722 217 434 145 137 17
-------- -------- -------- -------- -------- -------
Total operating revenues..................... 20,820 26,374 40,950 55,222 69,456 8,606
-------- -------- -------- -------- -------- -------
Expenses:
Operating expenses........................... (2,329) (3,775) (4,513) (5,070) (5,935) (735)
Production taxes............................. (884) (1,023) (1,239) (1,726) (2,597) (322)
Exploration expenses......................... (1,039) (1,318) (848) (1,316) (1,294) (160)
Depreciation, depletion and amortization..... (2,567) (4,020) (4,643) (5,455) (5,965) (739)
Dismantlement................................ (90) (126) (167) (202) (253) (31)
Impairment losses related to property,
plant and equipment.......................... -- -- -- -- (90) (11)
Crude oil and product purchases.............. (2,453) (2,326) (12,295) (17,963) (15,704) (1,946)
Selling and administrative expenses.......... (616) (1,033) (e) (1,250) (e) (1,104) (e) (1,370) (170)
Others....................................... (618) (31) (350) (46) (76) (10)
-------- -------- -------- -------- -------- -------
(10,596) (13,652) (25,305) (32,882) (33,284) (4,124)
-------- -------- -------- -------- -------- -------
Interest income................................. 318 148 184 207 359 44
Finance costs................................... (117) (295) (355) (442) (1,100) (136)
Exchange gains (losses), net.................... 235 (114) (7) 29 287 36
Short term investment income.................... 221 193 124 72 248 31
Share of profits of associates................. 90 165 220 344 307 38
Non-operating income (expenses), net............ 35 (71) 315 519 28 4
-------- -------- -------- -------- -------- -------
Income before tax............................... 11,006 12,748 16,125 23,070 36,301 4,498
Tax............................................. (3,048) (3,541) (4,628) (6,931) (10,978) (1,360)
-------- -------- -------- -------- -------- -------
Net income...................................... 7,958 9,207 11,497 16,139 25,323 3,138
======== ======== ======== ======== ======== =======
Net income per share (basic)(a)(b).............. 0.20 0.22 0.28 0.39 0.62 0.08
Net income per share (diluted)(a)(c)............ 0.20 0.22 0.28 0.39 0.61 0.08
Net income per ADS (basic)(a)(b)................ 20.04 22.42 27.99 39.31 61.68 7.64
Net income per ADS (diluted)(a)(c).............. 20.04 22.40 27.97 39.19 61.01 7.56
Dividend per share(a)
Special interim dividend declared in
place of 2003 final dividend(d)............. -- -- -- 0.060 -- --
Interim...................................... 0.022 0.024 0.030 0.030 0.052 0.006
Interim (in US$)............................. 0.003 0.003 0.004 0.004 -- --
Special interim.............................. -- -- 0.038 0.050 0.052 0.006
Special interim (in US$)..................... -- -- 0.005 0.006 -- --
Proposed final(d)............................ 0.032 0.032 0.026 0.030 0.103 0.013
Proposed final (in US$)(d)................... 0.004 0.004 0.003 0.004 -- --
Proposed special final(d).................... -- 0.032 0.038 0.050 -- --
Proposed special final (in US$)(d)........... -- 0.004 0.005 0.006 -- --
U.S. GAAP Operating revenues:
Oil and gas sales............................... 17,561 23,779 28,117 36,886 53,418 6,619
Marketing revenues.............................. 2,537 2,377 12,399 18,191 15,901 1,970
Other income.................................... 722 217 434 145 137 17
-------- -------- -------- -------- -------- -------
Total operating revenues........................ 20,820 26,374 40,950 55,222 69,456 8,606
-------- -------- -------- -------- -------- -------
Net Income...................................... 7,920 9,086 11,980 16,176 25,343 3,140
Net income per share (basic)(a)(b).............. 0.20 0.22 0.29 0.39 0.62 0.08
Net income per share (diluted)(a)(c)............ 0.20 0.22 0.29 0.39 0.61 0.08
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Year ended December 31,
--------------------------------------------------------------------------------
2001(g) 2002 2003 2004 2005 2005
-------- -------- -------- -------- -------- -------
Rmb Rmb Rmb Rmb Rmb US$
-------- -------- -------- -------- -------- -------
(in millions, except per share and per ADS data)
Net income per ADS (basic)(a)(b)................ 19.95 22.12 29.17 39.40 61.73 7.65
Net income per ADS (diluted)(a)(c).............. 19.95 22.13 29.14 39.28 61.06 7.57
As of December 31,
--------------------------------------------------------------------------------
2001(g) 2002 2003 2004 2005 2005
-------- -------- -------- -------- -------- -------
Rmb Rmb Rmb Rmb Rmb US$
-------- -------- -------- -------- -------- -------
(in millions)
Balance Sheet Data:
Hong Kong GAAP (Restated) (Restated) (Restated)
Cash and cash equivalents....................... 6,394 7,839 14,400 14,092 8,992 1,114
Time deposits with maturities over three months. 2,050 4,690 2,323 8,603 12,200 1,512
Short term investments.......................... 8,896 6,531 5,684 5,444 13,847 1,716
Current assets.................................. 20,030 24,486 29,263 35,293 44,421 5,504
Property, plant and equipment, net.............. 23,828 35,797 (f) 42,849 (f) 57,182 (f) 66,625 8,256
Investment in associates........................ 462 537 1,118 1,327 1,402 174
Intangible assets............................... -- -- -- -- 1,300 161
Long term available-for-sale financial assets... -- -- -- -- 1,017 126
Total assets.................................... 44,320 60,820 (f) 73,229 (f) 93,802 (f) 114,765 14,221
Current liabilities............................. 4,392 7,134 9,307 10,402 13,616 1,687
Long term bank loans, net of current portion.... 3,256 941 890 865 24 3
Long term guaranteed notes ..................... -- 4,071 8,142 16,313 16,532 2,049
Total long term liabilities..................... 6,617 13,393 17,461 26,957 27,546 3,413
Total liabilities............................... 11,009 20,527 26,768 37,359 41,162 5,100
Shareholders' equity............................ 33,311 40,293 (e),(f) 46,461 (e),(f) 56,443 (e),(f) 73,603 9,120
U.S. GAAP
Total assets.................................... 44,062 60,444 73,234 93,846 114,809 14,226
Total long term liabilities..................... 6,617 13,393 17,461 26,957 27,546 3,413
Shareholders' equity............................ 33,053 40,344 46,496 56,487 73,647 9,126
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(b) Net income per share (basic) and net income per ADS (basic) for 2001 have been computed, without considering the dilutive effect of the shares underlying our share option scheme, by dividing net income by the weighted average number of shares and the weighted average number of ADSs of 39,706,916,525 and 397,069,165 respectively (based on a ratio of 100 shares to one ADS) for the period. Net income per share (basic) and net income per ADS (basic) for 2002 have been computed, without considering the dilutive effect of the shares underlying our share option scheme, by dividing net income by the weighted average number of shares and the weighted average number of ADSs of 41,070,828,275 and 410,708,283 respectively (based on a ratio of 100 shares to one ADS) for the period. Net income per share (basic) and net income per ADS (basic) for 2003 have been computed, without considering the dilutive effect of the shares underlying our share option scheme, by dividing net income by the weighted average number of shares and the weighted average number of ADSs of 41,070,828,275 and 410,708,283 respectively (based on a ratio of 100 shares to one ADS) for the period. Net income per share (basic) and net income per ADS (basic) for 2004 have been computed, without considering the dilutive effect of the shares underlying our share option scheme and convertible bonds, by dividing net income by the weighted average number of shares and the weighted average number of ADSs of 41,060,240,659 and 410,602,407 respectively (based on a ratio of 100 shares to one ADS) for the period. Net income per share (basic) and net income per ADS (basic) for 2005 have been computed, without considering the dilutive effect of the shares underlying our share option scheme and convertible bonds, by dividing net income by the weighted average number of shares and the weighted average number of ADSs of 41,054,499,982 and 410,545,000 respectively (based on a ratio of 100 shares to one ADS) for the period.
(c) Net income per share (diluted) and net income per ADS (diluted) for 2001 have been computed, after considering the dilutive effect of the shares underlying our share option scheme, using 39,711,444,015 and 397,114,440 respectively. Net income per share (diluted) and net income per ADS (diluted) for 2002 have been computed, after considering the dilutive effect of the shares underlying our share option scheme, using 41,096,426,920 and 410,964,269 respectively. Net income per share (diluted) and net income per ADS (diluted) for 2003 have been computed, after considering the dilutive effect of the shares underlying our share option scheme, by using 41,110,339,095 and 411,103,391 respectively. Net income per share (diluted) and net income per ADS (diluted) for 2004 have been computed, after considering the dilutive effect of the shares underlying our share option scheme and convertible bonds, by using 41,179,513,436 and 411,795,134 respectively. Net income per share (diluted) and net income per ADS (diluted) for 2005 have been computed, after considering the dilutive effect of the shares underlying our share option scheme and convertible bonds, by using 42,386,055,766 and 423,860,558 respectively.
(d) The proposed final dividend and special final dividend for 2003 were cancelled and replaced by the special interim dividend of HK0.06 per share declared and paid in 2004.
(e) In periods prior to 2005, no recognition and measurement of share-based transactions in which employees (including directors) were granted share options in our company were required until such options were exercised by the employees, at which time the share capital and share premium were credited with the proceeds received. In 2005, we have adopted the provisions of Hong Kong Financial Reporting Standard ("HKFRS") retrospectively to all stock options granted from the date of our incorporation. Under HKFRS 2, when employees (including directors) render services as consideration for equity transactions ("equity-settled transaction"), the cost of equity-settled transaction is measured by reference to the fair value on the date on which the instrument is granted.
(f) Certain prior year amounts have been restated upon adoption of new Hong Kong accounting policies, details of which are included in note 2.2 to our financial statements (under HK GAAP). In prior periods, we classified the on-shore processing plants as land and buildings and depreciated over 30-50 years on a straight-line basis. Upon the adoption of HKAS 16, we have retrospectively reclassified our property, plant and equipment into two categories: oil and gas properties, and vehicles and office equipment. We have reclassified the onshore terminals previously classified as land and buildings to oil and gas properties as they will be used in similar operations and are expected to have similar economic useful lives. We have also changed our accounting policy retrospectively for 2002, 2003 and 2004 to state the onshore terminals at cost instead of valuation and to amortize those terminals by the unit-of-production method on a property-by-property basis.
(g) The 2001 selected consolidated income statement data and consolidated balance sheet data were audited by Arthur Anderson & Co., which voluntarily relinquished its license to practice public accounting in 2002. Our current auditors, Ernst & Young, have not reaudited the financial statements of 2001. As such, no restatement was made for 2001 as the impacts on the consolidated financial statements are considered not material.
Year ended December 31,
--------------------------------------------------------------------------------
2001(g) 2002 2003 2004 2005 2005
-------- -------- -------- -------- -------- -------
Rmb Rmb Rmb Rmb Rmb US$
-------- -------- -------- -------- -------- -------
Other Financial Data:
Hong Kong GAAP
Capital expenditures paid........................ 4,343 6,833 8,272 12,843 16,606 2,058
Cash provided by (used for):
Operating activities....................... 11,759 14,742 17,819 22,328 32,154 3,984
Investing activities....................... (11,366) (11,724) (9,513) (24,607) (29,349) (3,637)
Financing activities....................... 3,204 (1,573) (1,745) 1,970 (7,786) (965)
Ratio of total debt to total
capitalization(1).............................. 12.3% 11.6% 16.2% 23.3% 19.1% 19.1 %
U.S. GAAP
Cash provided by (used for):
Operating activities....................... 11,759 14,742 17,819 22,328 32,154 3,984
Investing activities....................... (11,366) (11,724) (9,513) (24,607) (29,349) (3,637)
Financing activities....................... 3,204 (1,573) (1,745) 1,970 (7,786) (965)
Ratio of cash provided by operating
activities to gross interest expense(2)...... 37.2x 36.4x 35.1x 39.4x 41.5x 41.5x
Ratio of total debt to cash provided by
operating activities............................. 0.4x 0.4x 0.5x 0.8x 0.5x 0.5x
Net income....................................... 7,920 9,086 11,980 16,176 25,343 3,140
Net income margin(3)............................. 38.0% 34.5% 29.3% 29.3% 36.5% 36.5%
Ratio of net income to gross interest expense(2). 25.1x 22.4x 23.6x 28.5x 32.7x 32.7x
Ratio of total debt to net income................ 0.6x 0.6x 0.8x 1.1x 0.7x 0.7x
Ratio of total debt to total capitalization(1)... 12.4% 11.8% 16.3% 23.4% 19.1% 19.1%
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(2) Gross interest expense includes capitalized interest.
(3) Net income margin represents net income as a percentage of our total operating revenues, as computed under U.S. GAAP.
We publish our financial statements in Renminbi. Unless otherwise indicated, all translations from Renminbi to U.S. dollars have been made at a rate of Rmb 8.0702 to US$1.00, the noon buying rate as certified for customs purposes by the Federal Reserve Bank of New York on December 30, 2005. We do not represent that Renminbi or U.S. dollar amounts could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rate below or at all.
The following table sets forth the noon buying rates for U.S. dollars in New York City for cable transfers in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York for the periods indicated:
Noon Buying Rate
------------------------------------------------
Period End Average(1) High Low
------ ------ ------ ------
(Rmb per US$1.00)
2001........................ 8.2766 8.2772 8.2786 8.2676
2002........................ 8.2800 8.2772 8.2800 8.2669
2003........................ 8.2767 8.2771 8.2800 8.2765
2004........................ 8.2765 8.2768 8.2774 8.2764
2005........................ 8.0702 8.1998 8.2765 8.0702
December 2005............... 8.0702 -- 8.0808 8.0702
January 2006................ 8.0608 -- 8.0702 8.0596
February 2006............... 8.0415 -- 8.0616 8.0415
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March 2006.................. 8.0167 -- 8.0505 8.0167 April 2006.................. 8.0165 -- 8.0248 8.0040 May 2006.................... 8.0215 -- 8.0300 8.0005 --------- |
(1) Determined by averaging the noon buying rates on the last business day of each month during the relevant period.
As of June 6, 2006, the noon buying rate for cable transfers in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York was Rmb 8.0120 to US$1.00.
The Hong Kong dollar is freely convertible into the U.S. dollar. Since 1983, the Hong Kong dollar has been linked to the U.S. dollar. The Hong Kong government has also stated that it has no intention of imposing exchange controls in Hong Kong and that the Hong Kong dollar will remain freely convertible into other currencies, including the U.S. dollar. However, we cannot assure that the Hong Kong government will maintain the link at HK$7.80 to US$1.00 or at all.
The following table sets forth the noon buying rates for U.S. dollars in New York City for cable transfers in Hong Kong dollars as certified for customs purposes by the Federal Reserve Bank of New York for the periods indicated.
Noon Buying Rate
------------------------------------------------
Period End Average(1) High Low
------ ------ ------ ------
(HK$ per US$1.00)
2001........................ 7.7980 7.7996 7.8004 7.7970
2002........................ 7.7988 7.7996 7.8095 7.7970
2003........................ 7.7640 7.7864 7.8001 7.7285
2004........................ 7.7723 7.7891 7.8010 7.7632
2005........................ 7.7533 7.7755 7.7999 7.7514
December 2005............... 7.7533 -- 7.7548 7.7514
January 2006................ 7.7561 -- 7.7571 7.7506
February 2006............... 7.7584 -- 7.7618 7.7564
March 2006.................. 7.7597 -- 7.7620 7.7570
April 2006.................. 7.7529 -- 7.7598 7.7529
May 2006.................... 7.7567 -- 7.7575 7.7510
---------
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(1) Determined by averaging the noon buying rates on the last business day of each month during the relevant period.
As of June 6, 2006, the noon buying rate for cable transfers in Hong Kong dollars as certified for customs purposes by the Federal Reserve Bank of New York was HK$7.7596 to US$1.00.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Risks relating to our business
Our business, revenues and profits fluctuate with changes in oil and gas prices
Even relatively modest declines in crude oil prices may adversely affect our business, revenues and profits. Our profitability is determined in large part by the difference between the prices received for the crude oil we produce and the costs of exploring for, developing, producing and selling these products.
Prices for crude oil fluctuate widely in response to relatively minor changes in the supply and demand for oil, market uncertainty and various other factors that are beyond our control, including:
o political developments in petroleum producing regions;
o the ability of the Organization of Petroleum Exporting Countries and other petroleum producing nations to set and maintain production levels and prices;
o the price and availability of other energy sources, such as coal;
o domestic and foreign government regulations;
o weather conditions; and
o overall economic conditions.
Our revenues and net income have increased significantly in the past five years, mainly due to increasing oil prices. However, we can not assure that oil price will remain high in the future. In 2005, oil prices for West Texas Intermediate, the international benchmark for crude oil, rose 44.9% from US$42.13 per barrel on January 3, 2005 to US$61.04 per barrel on December 30, 2005. The conflict and turmoil in the Middle East in the past three years raised concerns about the security and availability of ample supplies to meet growing global demand. West Texas Intermediate reached a high in 2005 of US$69.82 per barrel on August 30, 2005 and was US$72.50 per barrel on June 6, 2006. For a description of oil prices in recent years, see "Item 4--Information on the Company--Business Overview--Sales and Marketing--Sales of Offshore Crude Oil--Pricing" in this annual report. Any future declines in oil and gas prices would adversely affect our revenues and net income.
The prices for the natural gas we sell are determined by negotiations between us and the prospective buyers. Our typical contracts with gas buyers include provisions for periodic resets and adjustment formulas that depend on a basket of crude oil prices and inflation as well as various other factors. These resets and adjustment formulas can result in natural gas price fluctuations which may adversely affect our business, results of operations and financial condition.
Lower oil and gas prices may result in the write-off of higher cost reserves and other assets and may lower our earnings or cause losses. Lower oil and natural gas prices may also reduce the amount of oil and natural gas we can produce economically and render existing contracts that we have entered into uneconomical. For further details regarding the effects of oil and gas price fluctuations on our financial condition and results of operations, see "Item 5--Operating and Financial Review and Prospects."
The oil and gas reserve estimates in this annual report may require substantial revision as a result of future drilling, testing and production
The reliability of reserves estimates depends on a number of factors, including:
o the quality and quantity of technical and economic data;
o the prevailing oil and gas prices for our production;
o the production performance of reservoirs;
o extensive engineering judgments; and
o royalty and share oil policies in the PRC and foreign countries and regions where we have operations or assets.
Many of the factors, assumptions and variables involved in estimating reserves are beyond our control and may prove to be incorrect over time. Consequently, the results of drilling, testing and
production may require substantial upward or downward revisions in our initial reserves data. For more information on our oil and gas reserves data, see "Item 4--Information on the Company--Business Overview--Oil and Natural Gas Reserves."
Any failure to develop our proved undeveloped reserves and gain access to additional reserves could impair our ability to achieve certain growth objectives
Our ability to achieve certain growth objectives depends upon our success in finding and acquiring or gaining access to additional reserves. Future drilling, exploration and acquisition activities may not be successful. If our exploration and development activities or acquisition of properties containing proved reserves are unsuccessful, our total proved reserves will decline.
Approximately 50.9% of our proved reserves were undeveloped as of December 31, 2005. Our future success will depend on our ability to develop these reserves in a timely and cost-effective manner. There are various risks in developing reserves, including construction, operational, geophysical, geological and regulatory risks.
Our future prospects largely depend on our capital expenditure plans, which are subject to various risks
The oil and gas exploration and production business is capital intensive. We currently plan to spend US$2,233.2 million to develop our oil and gas properties and US$457.8 million for exploration in 2006. In addition to these amounts, we may make additional capital expenditures and investments to implement our business strategy.
The ability to maintain and increase our revenues, net income and cash flows depends upon continued capital spending. We adjust our capital expenditure and investment budget each year. Our capital expenditure plans are subject to a number of contingencies, some of which are beyond our control. These variables include:
o our ability to generate sufficient cash flows from operations to finance our capital expenditures, investments and other requirements;
o the availability and terms of external financing;
o changes in crude oil and natural gas prices, which may affect cash flows from operations and capital expenditure and investment plans;
o the mix of exploration and development activities conducted on an independent basis and under production sharing contracts;
o new investment opportunities that may be presented to us, including international investment opportunities and liquefied and other natural gas projects;
o approvals required from foreign governments for certain capital expenditures and investments outside the PRC;
o our ability to obtain sufficient foreign currency to finance our capital expenditures; and
o economic, political and other conditions in the PRC and in foreign countries and regions where we have operations.
Therefore, our actual capital expenditures and investments in the future may differ significantly from our current planned amounts. There can be no assurance that we will be able to execute our capital expenditure program on schedule or as planned.
Any failure to implement our natural gas business strategy may adversely affect our business and financial position
As part of our business strategy and to meet increasing market demand in China, we continue to expand our natural gas business. This strategy involves a number of risks and uncertainties including the following:
o we have limited experience in investing in liquefied natural gas facilities, gas transmission and distribution systems, and overseas upstream natural gas properties;
o any additional capital expenditures that are necessary to implement our natural gas strategy could divert resources from our core oil and gas exploration and production business and require us to seek additional financing;
o our new natural gas operations may face additional competition from a number of international and PRC companies. In particular, PetroChina Company Limited, or PetroChina, has constructed natural gas pipelines to link its natural gas fields located in the western part of China to the eastern coastal regions;
o our new natural gas activities may subject us to additional government regulation in China and foreign countries and regions;
o our overseas natural gas businesses are subject to economic and political risks in the relevant countries and regions. See "--We are exposed to operating risks in some foreign countries and regions as a result of our acquisition of oil and gas interests located in these regions;"
o we do not have the same preferential rights or access to natural gas businesses or overseas natural gas investments that we enjoy with respect to our upstream natural gas business offshore China; and
o we are evaluating the options to invest in CNOOC's liquefied natural gas projects in China. However, we have not decided whether to exercise these options. The options are subject to various conditions, including the receipt of certain governmental approvals.
Due to the above factors or other reasons, we may fail to implement our natural gas strategy successfully.
The infrastructure and demand for natural gas in the PRC may proceed at a slower pace than our planned increase in production
Our proposed expansion of natural gas production in China is currently constrained by a lack of natural gas transmission and supply infrastructure and an underdeveloped natural gas market. Construction of transmission and supply pipelines and other infrastructure depends on many factors, many of which are beyond our control, such as funding, costs of land acquisition, national and local government approvals, and timely completion of construction. Development of the natural gas market depends on the establishment of long-term natural gas supply contracts with natural gas utilities or large end-users, such as power and chemical plants. The demand of these buyers for natural gas could be affected by a number of regulatory and market factors, such as regulation of coal prices, government power and utility policies, chemical commodity cycles, electricity pricing and demand, and environmental policies.
CNOOC largely controls us and we regularly enter into related party transactions with CNOOC and its affiliates
CNOOC indirectly owned 66.41% of our shares as of June 6, 2006. As a result, CNOOC is able to control the composition of our board of directors, determine the timing and amount of our dividend payments and otherwise control us. Although CNOOC is required to comply with provisions in the Hong
Kong Stock Exchange Listing Rules relating to protection for minority shareholders, there can be no assurance that CNOOC will act in a manner that benefits all of our shareholders. If CNOOC takes actions that favor its interests over ours, our results of operations and financial position may be adversely affected. We regularly enter into transactions with CNOOC and its affiliates, including China Oilfield Services Limited and Offshore Oil Engineering Company Limited. For the year ended December 31, 2005, sales to CNOOC and its affiliates accounted for 38.3% of our total revenues. For further details, see "Item 7--Major Shareholders and Related Party Transactions." Our transactions with CNOOC and its affiliates constitute connected transactions under the Hong Kong Stock Exchange Listing Rules. However, We must obtain the prior approval of the Hong Kong Stock Exchange to engage in some of these transactions and may also be required to obtain the prior approval of our independent directors and our independent shareholders. If we do not obtain these approvals, we may not be allowed to execute these transactions and our business operations and financial condition could be adversely affected.
Under current PRC law, CNOOC has the exclusive right to enter into production sharing contracts with foreign oil and gas companies for petroleum exploration and production offshore China. CNOOC has undertaken to us that it will transfer all of its rights and obligations under any new production sharing contracts to us, except those relating to its administrative functions. PRC law restricts us from contracting directly with foreign enterprises for these purposes without CNOOC. The interests of CNOOC in entering into production sharing contracts with international oil and gas companies may differ from our interests, especially with respect to the criteria for determining whether, and on what terms, to enter into production sharing contracts. Our future business development may be adversely affected if CNOOC does not enter into new production sharing contracts on terms that are acceptable to us.
Our business performance relies heavily on our sales to several major customers and a substantial drop in sales to any of these customers could have a material adverse effect on our results of operations
We sell a significant proportion of our production to CNOOC and its affiliates and China Petroleum & Chemical Corporation, or Sinopec. For the years ended December 31, 2003, 2004 and 2005, sales to CNOOC and its affiliates accounted for 20.3%, 25.3% and 38.3%, respectively, of our total operating revenues, while sales to Sinopec accounted for 17.0%, 19.3% and 22.5%, respectively, of our total operating revenues. CNOOC has a controlling interest in us. However, our transactions with CNOOC and its affiliates are on commercial terms and CNOOC does not guarantee our sales volume or profit margin. Sinopec has its own oil and gas fields and has the right to import crude oil directly from the international market. We do not have any long-term sales contracts with CNOOC and its affiliates or Sinopec. Our business, results of operations and financial condition would be adversely affected if either CNOOC and its affiliates or Sinopec significantly reduces their crude oil purchases from us and we cannot find another ready buyer in the international market to purchase our crude oil at comparable prices.
The PRC petroleum and natural gas industries are highly competitive and our success depends on several factors
We compete in the PRC and international markets for customers, capital financing and business opportunities, including desirable oil and gas prospects. The performance of our competitors may also affect the international market price for comparable crude oil, which in turn would likely affect the price of our crude oil. Our principal competitors in the PRC market are PetroChina and Sinopec. For further details, see "Item 4--Information on the Company--Business Overview--Competition."
We are the dominant player in the oil and gas industry offshore China. Currently, we are the only company permitted to engage in oil and gas exploration offshore China in cooperation with foreign oil and gas companies. Any change to PRC law that allows new entrants to conduct oil and gas exploration activities offshore China in cooperation with international oil and gas companies could increase the competition for new oil and gas properties offshore China.
CNOOC has undertaken to us that so long as it retains a controlling interest in us and our securities are listed on the Hong Kong Stock Exchange, the New York Stock Exchange or other securities
trading systems in other parts of the world, we will have the exclusive right to exercise CNOOC's rights to engage in offshore oil and gas exploration, development, production and sales in the PRC and that it will not compete with us in such business. However, CNOOC's controlling interest in us may not continue in the future and CNOOC's undertaking may be subject to interpretative challenges. See "Item 4--Information on the Company--History and Development--Corporate Structure" and "Item 7--Major Shareholders and Related Party Transactions."
Exploration, development and production risks and natural disasters affect our operations and could result in losses that are not covered by insurance
Our petroleum exploration, development and production operations are subject to various risks, including pipeline ruptures and spills, fires, explosions, encountering formations with abnormal pressures, blowouts, cratering and natural disasters. Any of these risks could result in loss of hydrocarbons, environmental pollution and other damage to our properties and the properties of operators under production sharing contracts. In addition, we face the risk that we may not discover any economically productive natural gas or oil reservoirs. The costs of drilling, completing and operating wells also are uncertain and are subject to numerous factors beyond our control, including:
o weather conditions;
o natural disasters;
o availability of equipment and services;
o equipment shortages and delays; and
o lack of adequate transportation facilities.
We maintain insurance coverage against some, but not all, potential losses. We do not maintain business interruption insurance for all of our oil and gas fields. We may suffer material losses resulting from uninsurable or uninsured risks or insufficient insurance coverage.
For further information on insurance coverage, see "Item 4--Information on the Company--Business Overview--Operating Hazards and Uninsured Risks."
Some foreign countries and regions in which we have operations or may have operations in the future may not have diplomatic or trade relations with other countries and may be subject to trade or economic sanctions imposed by such other countries
We currently have operations and assets in various foreign countries and regions, including Indonesia, Australia, Canada, Morocco, Nigeria and Myanmar. We may expand our operations into other countries to further enhance our reserve base and diversify our geographic risk profile. While these countries in which we have operations or may have operations in the future may maintain an amicable relationship with China, some of them may not have diplomatic or trade relations with other countries and may be subject to trade or economic sanctions imposed from time to time by such other countries. We will endeavor to limit our investment and scale of operations in these foreign jurisdictions to minimize our exposure, but we cannot assure that the operations and assets that we currently have or in the future may have in foreign countries and regions will not be affected by trade or economic sanctions that may be imposed by other countries due to their deteriorated relations with each other. Our business and results of operations may be adversely affected if such sanctions are imposed and result in interruption of our overseas operations or non-accessibility of our overseas assets for a significant period of time.
We are exposed to operating risks in some foreign countries and regions as a result of our acquisition of oil and gas interests located in these regions
We have acquired interests in oil and gas properties located in various foreign countries and regions, including Indonesia, Australia, Canada, Morocco, Nigeria and Myanmar. See "Item 4--
Information on the Company--Business Overview--Principal Oil and Gas Regions--Overseas Activity," "--Natural Gas Business--Overseas Activity" and "Item 5--Operating and Financial Review and Prospects--Operating Results--Acquisitions and Overseas Activities." These interests are subject to operating risks in their respective regions, including economic and political risks.
Our non-PRC interests are subject to the laws and regulations of these non-PRC jurisdictions respectively, including those relating to the development, production, marketing, pricing, transportation and storage of crude oil and natural gas, taxation and environmental and safety matters. In addition, our overseas operations generally are subject to production sharing arrangements with production sharing partners. As we expand to different countries, we may become exposed to various operating risks in each of these jurisdictions. Our non-PRC interests may be adversely affected by changes in governmental policies or social instability or other political, economic or diplomatic developments in or affecting these foreign nations which are not within our control including, among other things, a change in crude oil or natural gas pricing policy, the risks of war and terrorism, expropriation, nationalization, renegotiation or nullification of existing concessions and contracts, taxation policies, foreign exchange and repatriation restrictions, changing political conditions, foreign exchange rate fluctuations and currency controls.
We may not be able to obtain external financing that is acceptable to us for business development purposes
From time to time, we may need to procure external debt and equity financing to implement our development plans and fund our other business requirements.
Our ability to obtain external financing is subject to various uncertainties, including:
o our results of operations, financial condition and cash flows;
o the amount of capital that other PRC and Hong Kong entities may seek to raise in the international capital markets;
o economic, political and other conditions in the PRC and Hong Kong;
o the PRC government's policies relating to foreign currency borrowings; and
o conditions in the PRC, Hong Kong and international capital markets.
If we are unable to obtain sufficient funding for our operations or development plans, our business, revenues, net income and cash flows could be adversely affected. For additional information on our capital expenditure plans and financing requirements, see "Item 5--Operating and Financial Review and Prospects--Liquidity and Capital Resources."
Once we issue debt securities or otherwise incur indebtedness, we become subject to risks that impact the underlying principal of such indebtedness. While all our current debt securities are rated investment grade by rating agencies, we cannot assure that such ratings will not change due to internal or external factors. These factors may be beyond our control. Even if there is no default or event of default on our part, a market perception of an increased likelihood of a default may have a material adverse effect on our outstanding indebtedness as well as on our business operations.
You may not be able to assert claims against Arthur Andersen, our independent public accountants for periods prior to 2002, nor may you be able to assert claims against our current independent public accountants for financial statements previously audited by Arthur Andersen
On June 6, 2002, we terminated the engagement of Arthur Andersen & Co as our independent public accountants. Prior to that date, Arthur Andersen had audited our financial statements. Our selected historical financial data for the year ended, and as of, December 31, 2001 set forth in "Item 3--Key Information--Selected Financial Data" were based on our financial statements audited by Arthur Andersen. On June 15, 2002, Arthur Andersen was convicted of federal obstruction of justice charges in
connection with the U.S. government's investigation of Enron Corporation. On August 31, 2002, Arthur Andersen voluntarily relinquished its licenses to practice public accountancy in all states of the United States, thereby effectively ceasing to exist as a global accounting firm. Accordingly, it may be difficult or impossible for you to assert any claims against, or recover any damages from, Arthur Andersen, in respect of this annual report, including in respect of the financial statements previously audited by Arthur Andersen. Moreover, our current independent public accountants, Ernst & Young, have not reaudited the financial statements previously audited by Arthur Andersen. Therefore, it is highly unlikely that you will be able to assert claims against, or recover any damages from, Ernst & Young, in respect of the financial statements that were previously audited by Arthur Andersen.
Risks relating to the PRC petroleum industry
A change in PRC petroleum industry regulations could have an adverse effect on our operations
The PRC government exercises control over the PRC petroleum industry, including with respect to licensing, exploration, production, distribution, pricing, taxation, imports and exports and allocation of various resources. In the past, we have benefited from various favorable PRC government policies, laws and regulations that have been enacted to encourage the development of the offshore petroleum industry. See "Item 4--Information on the Company--Regulatory Framework--Special Policies Applicable to the Offshore Petroleum Industry in China." We cannot assure that the legal regime affecting our businesses will remain substantially unchanged or that we will continue to benefit from favorable PRC government policies.
In addition, existing PRC regulations require us to apply for and obtain various PRC government licenses and other approvals, including in some cases approvals for amendments and extensions of existing licenses and approvals, to conduct exploration and development activities offshore China. If we are unable to obtain any necessary approvals, our reserves and production would be adversely affected. See "Item 4--Information on the Company--Regulatory Framework."
Increasing competition from foreign companies as a result of China's entry into the World Trade Organization may adversely affect our business
Effective December 11, 2001, the PRC became a member of the World Trade Organization, or WTO. China's WTO commitments require it, within five years from the date of China's accession to the WTO, to lift restrictions that prohibit foreign companies from directly selling crude and processed oil in China. The sale of natural and liquefied petroleum gas is not specifically dealt with under China's market-access commitments relating to distribution services (as is the case with crude and processed oil). On April 6, 2004, the PRC Ministry of Commerce promulgated the Measures for the Administration on Foreign Investment in Commercial Fields, which generally allow foreign companies, through foreign-invested enterprises, to engage in retail and wholesale businesses other than those subject to special administration by the PRC government such as direct sale of crude and processed oil in China. The lifting of the restrictions on distribution of natural liquefied petroleum gas and the subsequent lifting of the restrictions on distribution of crude and processed oil in accordance with China's WTO commitments may increase competition and may adversely affect our business.
We may be penalized if we fail to comply with existing or future environmental laws and regulations
Our business is subject to environmental protection laws and regulations in the PRC, as well as other jurisdictions, which, among other things:
o impose fees for the discharge of waste substances;
o require the payment of fines and damages for serious environmental pollution; and
o provide that the government may, at its discretion, close or suspend any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage.
We believe that all of our facilities and operations are in material compliance with the requirements of the relevant environmental protection laws and regulations. However, amendment of existing laws or regulations may impose additional or more stringent requirements. In addition, our compliance with such laws or regulations may require us to incur significant capital expenditures or other obligations or liabilities, which could create a substantial financial burden on us. For a further discussion of the environmental regulations, particularly those in the PRC, see "Item 4--Information on the Company--Business Overview--Environmental Regulation."
Risks relating to the PRC
PRC economic and political conditions may adversely affect our operations
Most of our businesses, assets and operations are located in the PRC. The economic system of the PRC differs from the economies of most developed countries in many respects, including:
o government investment;
o level of development;
o control of capital investment;
o control of foreign exchange; and
o allocation of resources.
The economy of the PRC has been undergoing a transformation from a planned economy to a market-oriented economy. In recent years the PRC government has implemented economic reform measures emphasizing decentralization, utilization of market forces in the development of the PRC economy and a higher level of management autonomy. These economic reform measures have and will continue to subject our businesses to some uncertainty. In the future, our operating results could be adversely affected by changes to the laws and regulations that govern our industry and changes in the PRC political and economic systems.
The PRC economy has experienced significant growth since 1978, but the growth has been uneven both geographically and among various sectors of the economy. The PRC government has implemented various policies from time to time to restrain the rate of such economic growth, control inflation and otherwise regulate economic expansion. In addition, the PRC government has attempted to control inflation by controlling the prices of basic commodities. Severe measures or other actions by the PRC government, such as placing additional controls on prices of petroleum and petroleum products, could restrict our business operations and adversely affect our financial position.
Government control of currency conversion and future movements in exchange rates may adversely affect our operations and financial condition
A portion of our Renminbi revenue may need to be converted into other currencies by our wholly owned principal operating subsidiary in the PRC to meet our foreign currency obligations. We have substantial requirements for foreign currency, including:
o debt service on foreign currency denominated debt;
o overseas acquisitions of oil and gas properties;
o purchases of imported equipment; and
o payment of dividends declared in respect of shares held by international investors.
Our wholly owned subsidiary in the PRC may undertake current account foreign exchange transactions without prior approval from the State Administration for Foreign Exchange. It has access to current account foreign exchange so long as it can produce commercial documents evidencing such transactions and provided that they are processed through certain banks in China. Foreign exchange transactions under the capital account, including principal payments with respect to foreign currency denominated obligations, will be subject to the registration requirements of the State Administration for Foreign Exchange.
The value of the Renminbi against Hong Kong dollar, U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in China's political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People's Bank of China. The official exchange rate for the conversion of Renminbi into U.S. dollar has generally been stable during the past 10 years. On July 21, 2005, China reformed its foreign exchange regime by moving into a managed floating exchange rate system based on market supply and demand with reference to a basket of currencies. Renminbi would no longer be pegged to the U.S. dollar. From that day to December 31, 2005, Renminbi appreciated about 2.5% against the U.S. dollar. Changes in the PRC government's currency policies may lead to further fluctuations in the exchange rates for the conversion of Renminbi into foreign currencies which could have an uncertain effect on our business and operating results.
For further information on foreign exchange risks, foreign exchange rates and hedging activities, see "Item 3--Key Information--Selected Financial Data" and "Item 11--Qualitative and Quantitative Disclosure about Market Risk." However, we may be unable to hedge our exposure to foreign currencies fully and future Renminbi exchange rate movements could adversely affect our results of operations and financial condition. Since we receive substantially all of our revenues and express our profits in Renminbi, any devaluation of the Renminbi may also materially and adversely affect the value of, and any dividends payable on our shares and American depositary shares in foreign currency terms.
Certain legal restrictions on dividend distribution may have a material adverse effect on our cash flows
We are a holding company. Our exploration, development, production and sales businesses are owned and conducted through various wholly owned subsidiaries, including CNOOC China Limited, our wholly foreign-owned enterprise in the PRC. Accordingly, our future cash flows will consist principally of dividends from our subsidiaries. The subsidiaries' ability to pay dividends to us is subject to PRC regulations, including restriction that companies may pay dividends only out of net income determined in accordance with PRC accounting standards and regulations. In addition, under PRC laws, CNOOC China Limited is required to allocate at least 10% of its net profit to a reserve fund until the balance of the fund has reached 50% of its registered capital. Such reserve is not distributable as cash dividends. Therefore, there is a risk that we could not maintain sufficient cash flows due to these restrictions on dividend distribution.
The interpretation and enforcement of PRC laws and regulations is subject to some uncertainty
The PRC legal system is based on statutory law. Under this system, prior court decisions may be referred to but are not binding. Since 1979, the PRC government has been developing a comprehensive system of commercial laws and considerable progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporate organization and governance, foreign investments, commerce, taxation and trade. Because these laws, regulations and legal requirements are relatively new, and because of the limited volume of published cases and judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty.
The PRC government underwent substantial reforms after the National People's Congress meeting in March 2003. The PRC government has reiterated its policy of furthering reforms in the
socialist market economy. No assurance can be given that these changes will not have an adverse effect on business conditions in China generally or on our business in particular.
Risks relating to our ADSs and shares
Additional shares or ADSs eligible for public sale could adversely affect the price of our shares or ADSs
Sales, or the real or perceived possibility of sales, of a significant number of additional shares in the public market could adversely affect prevailing market prices for our shares and ADSs. As of June 6, 2006, CNOOC, through its wholly owned subsidiaries, CNOOC (BVI) Limited and Overseas Oil & Gas Corporation Ltd., held approximately 66.41% of our shares and the rest of our shares were held by public investors, including institutional and corporate investors. We cannot predict the effect, if any, that sales of our shares, including sales of large positions held by institutional and corporate investors, or the availability of our shares for future sale, will have on the market price of our shares or ADSs.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT
Our legal and commercial name is CNOOC Limited. We were incorporated with limited liability on August 20, 1999 in Hong Kong under the Companies Ordinance of Hong Kong. Our business registration number in Hong Kong is 685974. Under the third section of our Memorandum of Association, we may do anything which we are permitted to do by any enactment or rule of law. Our head office is located at 65th Floor, Bank of China Tower, One Garden Road, Central, Hong Kong, and our telephone number is 852-2213-2500. We have appointed CT Corporation System, 111 Eighth Avenue, New York, New York 10011, as our agent for service of process.
The PRC government established CNOOC, our controlling shareholder, as the state-owned offshore petroleum company of China in 1982 under the Regulation of the People's Republic of China on Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises, whereby CNOOC assumed overall responsibility for the administration and development of PRC offshore petroleum operations with foreign oil and gas companies. Prior to March 2003, CNOOC was regulated and supervised by the State Economic and Trade Commission. Since March 2003, the PRC government has undergone substantial reform. The National Development and Reform Commission has succeeded the State Economic and Trade Commission as the primary coordinator for the petroleum industry.
Prior to CNOOC's internal business reorganization in 1999, CNOOC and its various affiliates performed both commercial and administrative functions relating to petroleum exploration and development offshore China, including:
o exercising the exclusive right to cooperate with foreign partners in offshore petroleum exploration, development, production and sales activities, and taking participating interests in production sharing contracts;
o organizing international bidding for offshore petroleum exploitation;
o conducting independent exploration, development, production and sales activities in independently operated oil and gas fields offshore China;
o awarding projects to and signing bilateral contracts with foreign partners for offshore petroleum exploitation;
o reviewing and confirming appraisal reports and overall development plans required under production sharing contracts; and
o obtaining from the PRC government all approvals, permits, licenses, consents and special policies necessary under production sharing contracts.
Reorganization
Pursuant to CNOOC's internal business reorganization in 1999, CNOOC transferred all of its then and current operational and commercial interests in its offshore petroleum business to us. As a result, we and our subsidiaries are the only vehicle through which CNOOC engages in petroleum exploration, development, production and sales activities both within and outside China.
The assets and liabilities primarily relating to the offshore petroleum business that were transferred to us in the reorganization included:
o 37 production sharing contracts and one geophysical survey agreement;
o 8 independent development and production projects;
o a 30% interest in Shanghai Petroleum and Natural Gas Company Limited;
o the land use rights to terminal facilities in Nanhai, Weizhou and the western part of the Bohai Bay; and
o loans from, and swap agreements with, various PRC and foreign banks.
In addition, CNOOC transferred 917 employees to us to facilitate the transfer of the oil and natural gas businesses previously operated by CNOOC.
CNOOC retained its commercial interests in operations and projects not related to oil and gas exploration and production, including:
o a petrochemical project in Huizhou, Guangdong Province;
o a fertilizer plant in Hainan Province; and
o a liquefied natural gas project in Guangdong Province.
CNOOC also retained all of its administrative functions, which it performed prior to the reorganization, including:
o organizing international bidding for offshore petroleum exploitation;
o awarding projects to and signing bilateral contracts with foreign partners for offshore petroleum exploitation;
o approving any extension of the period for the completion of the appraisal work on petroleum discovery under the production sharing contracts; and
o submitting the overall development plans, reports of the oil and gas fields and the environmental impact statements related to the production sharing contracts to the PRC governmental authorities.
Undertakings
CNOOC has undertaken to us that:
o we will enjoy the exclusive right to exercise all of CNOOC's commercial and operational rights under the PRC laws and regulations relating to the exploration, development, production and sales of oil and natural gas offshore China;
o it will transfer to us all of CNOOC's rights and obligations under any new production sharing contracts and geophysical exploration operations, except those relating to CNOOC's administrative functions;
o it will not engage or be interested, directly or indirectly, in oil and natural gas exploration, development, production and sales in or outside the PRC;
o we will be able to participate jointly with CNOOC in negotiating new production sharing contracts and to set out our views to CNOOC on the proposed terms of new production sharing contracts;
o we will have unlimited and unrestricted access to all data, records, samples and other original data owned by CNOOC relating to oil and natural gas resources;
o we will have an option to make investment in liquefied natural gas projects that CNOOC invested or proposed to invest, and CNOOC will at its own expense help us to procure all necessary government approvals needed for our participation in these projects; and
o we will have an option to participate in other businesses related to natural gas in which CNOOC invested or proposed to invest, and CNOOC will procure all necessary government approvals needed for our participation in such business.
The undertakings from CNOOC will cease to have any effect:
o if we become a wholly owned subsidiary of CNOOC;
o if our securities cease to be listed on any stock exchange or automated trading system; or
o 12 months after CNOOC or any other PRC government-controlled entity ceases to be our controlling shareholder.
Organizational Structure
CNOOC indirectly owned or controlled an aggregate of approximately 66.41% of our shares as of June 6, 2006. There have been no changes to our corporate structure since such date. Accordingly, CNOOC continues to be able to exercise all the rights of a controlling shareholder, including electing our directors and voting to amend our articles of association. Although CNOOC has retained a controlling interest in us, the management of our business will be our directors' responsibility.
The following chart sets forth our controlling entities and our principal subsidiaries as of June 6, 2006.
--------------------------
China National Offshore
Oil Corporation
(PRC)
--------------------------
|
| 100%
|
--------------------------
Overseas Oil & Gas
Corporation, Ltd(1)
(Bermuda)
--------------------------
|
| 100%
|
--------------------------
CNOOC (BVI) Limited
(British Virgin Islands)
--------------------------
-------------------------- |
Public Shareholders and |
Corporate Investors \ | 66.41%
\ 33.59% |
-------------------------- \ |
\ --------------------------
\ CNOOC Limited
\ (Hong Kong)
--------------------------
|
|
|
----------------------------------------------------------------------------------------------
| | | |
| 100% | 100% | 100% | 100%
| | | |
-------------------------- -------------------------- -------------------------- --------------------------
CNOOC China Offshore Oil Finance
International CNOOC China (Singapore) Subsidiaries(5)
Limited(2) Limited(3) International Pte. Ltd.(4) (British Virgin Islands)
(British Virgin Islands) (PRC) (Singapore)
-------------------------- -------------------------- -------------------------- --------------------------
|
(1) Overseas Oil & Gas Corporation, Ltd also directly owns five shares of our company.
(2) Owner of our overseas interests in petroleum exploration and production businesses and operations.
(3) Owner of substantially all of our PRC petroleum exploration and production businesses, operations and properties.
(4) Business vehicle through which we engage in sales and marketing activities in the international markets.
(5) Include CNOOC Finance (2002) Limited, the financing vehicle through which we issued our US$500 million 6.375% guaranteed notes due 2012, CNOOC Finance (2003) Limited, the financing vehicle through which we issued our US$200 million 4.125% guaranteed notes due 2013 and US$300 million 5.5% guaranteed notes due 2033, and CNOOC Finance (2004) Limited, the financing vehicle through which we issued our US$1 billion zero coupon guaranteed convertible bonds due 2009. These finance companies are our wholly owned subsidiaries with our company as their sole corporate director.
Capital Expenditures
Our capital expenditures in 2003, 2004 and 2005 amounted to Rmb 12,372.5 million, Rmb 18,622.0 million and Rmb 17,469.5 million (US$2,164.7 million) , respectively. For 2006, we have budgeted approximately US$3.08 billion for capital expenditures, approximately US$316.3 million of which is budgeted for general exploration activities offshore China and approximately US$1,860.1 million is budgeted for development activities offshore China. We expect to fund our capital expenditures with our cash flows from operations and our borrowings. For further details about our capital expenditures, see "Item 5--Operating and Financial Review and Prospects--Liquidity and Capital Resources--Capital Expenditures and Investments."
B. BUSINESS OVERVIEW
Overview
We are an oil and gas company engaged in the exploration, development and production of crude oil and natural gas primarily offshore China. We are the dominant producer of crude oil and natural gas offshore China and the only company permitted to conduct exploration and production activities with foreign oil and gas companies offshore China. As of December 31, 2005, we had estimated net proved reserves of 2,362.6 million BOE, comprised of 1,457.4 million barrels of crude oil and condensate and 5,430.9 billion cubic feet of natural gas. For 2005, our net production averaged 356,868 barrels per day of
crude oil, condensate and natural gas liquids and 389.6 million cubic feet per day of natural gas, which together totaled 424,108 BOE per day.
Our net proved reserves increased from 1,787.1 million BOE as of December 31, 2001 to 2,362.6 million BOE as of December 31, 2005 which represents a compound annual growth rate of 7.2%. Based on net proved reserves, we are one of the largest independent oil and gas exploration and production companies in the world. In the petroleum industry, an "independent" company owns oil and gas reserves independently of other downstream assets, such as refining and marketing assets, whereas an integrated company owns downstream assets in addition to oil and gas reserves. As of December 31, 2005, approximately 50.9% of our net proved reserves were classified as net proved undeveloped. We plan to spend US$1,860.1 million developing our reserves primarily offshore China and US$316.3 million for exploration primarily offshore China in 2006.
We conduct exploration, development, production and sale activities through both independent operations and production sharing contracts with foreign partners. We have added to our reserves in recent years primarily through our independent operations. As of December 31, 2005, independent properties accounted for 61.9% of our total net proved reserves and independent net proved undeveloped reserves accounted for 67.2% of our total net proved undeveloped reserves. We are the operator of all of our independent producing properties. For the year ended December 31, 2005, production from our independent properties accounted for 45.5% of our total net production.
Our controlling shareholder, CNOOC, has the exclusive right to enter into contracts with international oil and gas companies to conduct exploration and production activities offshore China. Under these production sharing contracts, we have the sole right to acquire, at no cost, participating interests in any successful discovery offshore China made by our foreign partners. Our foreign partners can recover their exploration costs under the production sharing contracts only if a commercially viable discovery is made. As of December 31, 2005, we had approximately 28 foreign partners under our existing production sharing contracts offshore China, all of which are international oil and gas companies, including Agip, BP, Burlington Resources, Chevron, ConocoPhillips, Devon Energy, Husky, Kerr-McGee, Newfield Exploration and Royal Dutch Shell. As of December 31, 2005, we were a party to 34 production sharing contracts offshore China. We are currently the operator or joint operator of most of the properties developed under our production sharing contracts.
Natural gas is becoming an increasingly important part of our business strategy because of rapidly growing domestic demand. In view of increasing demand for natural gas, we have continued to develop our natural gas reserves and invested in liquefied natural gas related upstream projects outside the PRC. We continue to explore for natural gas and develop natural gas properties. We have acquired interests in gas reserves located in Tangguh, Indonesia and the North West Shelf of Australia. In addition, CNOOC, our controlling shareholder, has granted us an option to invest in liquefied natural gas projects or other natural gas related business in which CNOOC invested or proposed to invest. The terms of this option require us, if we exercise the option, to reimburse CNOOC for any contribution CNOOC has made with respect to the facility together with interest calculated at the prevailing market rate.
Competitive Strengths
We believe that our historical success and future prospects are directly related to a combination of our strengths, including the following:
o large proved reserve base with significant exploitation opportunities;
o sizable operating areas with demonstrated exploration potential;
o successful independent exploration and development record;
o competitive cost structure;
o reduced risks and access to capital and technology through production sharing contracts;
o strategic position in China's growing natural gas markets; and
o experienced management team.
Large proved reserve base with significant exploitation opportunities
Based on net proved reserves as of December 31, 2005 and average net daily production for the year ended December 31, 2005, we had a reserve-to-production ratio of 15.3 years. As of December 31, 2005, approximately 50.9% of our net proved reserves were classified as net proved undeveloped. We expect our production to grow significantly as these undeveloped properties begin production.
Sizable operating area with demonstrated exploration potential
The offshore China exploration area is approximately 1.3 million square kilometers in size, about twice as large as the U.S. Gulf of Mexico exploration area. Only limited exploration has been conducted in Western South China Sea and East China Sea. Since CNOOC's inception in 1982 to the end of 2005, a total of 820 exploration wells have been drilled offshore China, including 526 wildcat wells with a success rate of approximately 35%. During the past five years ended December 31, 2005, we made 31 discoveries and foreign partners announced 17 discoveries offshore China.
Successful independent exploration and development record.
From the inception of CNOOC in 1982 to December 31, 2005, we achieved a success rate of approximately 44% on our 237 offshore China independent wildcat wells, while our foreign partners achieved a success rate of approximately 28% on their 289 offshore China wildcat wells. As of December 31, 2005, independent properties accounted for 61.9% of our total net proved reserves and independent net proved undeveloped reserves accounted for 67.2% of our total net proved undeveloped reserves. In 2005, we completed four of our major independent development projects on time and under budget.
Competitive cost structure
For the year ended December 31, 2005, our total offshore China lifting costs were US$6.34 per BOE. Total lifting costs for independent operations offshore China were US$5.86 per BOE during the same period. Lifting costs consist of operating expenses and production taxes. We have kept our offshore China lifting costs low through various measures including more efficient use of existing offshore facilities, the linking of employee bonuses to cost reduction and the adoption of new technology in our operations. We believe that such cost structure allows us to compete effectively even in a low crude oil price environment.
Reduced risks and access to capital and technology through production sharing contracts
Production sharing contracts help us minimize our offshore China finding costs, exploration risks and capital requirements because our foreign partners are responsible for all costs associated with exploration. Our foreign partners recover their exploration costs only if a commercially viable discovery is made.
Strategic position in China's growing natural gas markets
The proximity of our natural gas reserves to the major demand areas in the coastal regions of China provides us with a competitive advantage over other natural gas suppliers in China, whose natural gas reserves are located primarily in northwest and southwest China. We have natural gas fields near many of China's rapidly growing coastal areas, including Hong Kong, Shanghai and Guangzhou. We have also acquired interests in gas reserves located in Tangguh, Indonesia and the North West Shelf of Australia. In addition, CNOOC has granted us an option to invest in liquefied natural gas projects or other natural gas related businesses in the PRC in which CNOOC invested or proposed to invest. For further information, see "--Natural Gas Business."
Experienced management team
Our senior management team has extensive experience in the oil and gas industry, and most of our executives have been with the CNOOC group since its inception in 1982. We evolved from a company heavily reliant on production sharing contracts with foreign partners to a company with a balance of both independent and production sharing contract operations. Our management team and staff have had the opportunity to work closely with foreign partners both within and outside China. We have implemented international management practices including incentive compensation schemes for our employees. In addition, we have adopted share option schemes for our employees. See "Item 6--Directors, Senior Management and Employees--Share Ownership."
Business Strategy
We intend to continue expanding our oil and gas exploration and production activities and, where appropriate, to continue making strategic investments in natural gas businesses. While our expansion strategy will continue to focus primarily on offshore China, we may also consider overseas acquisition opportunities that may be presented to us. The principal components of our strategy are as follows:
o increase production primarily through the development of our net proved undeveloped reserves;
o add to our reserves through independent exploration and production sharing contracts;
o capitalize on the growing demand for natural gas in China;
o selectively pursue acquisitions to ensure long-term production growth, geographical reserves risk diversification, and to further our natural gas strategy;
o maintain operational efficiency and low production costs; and
o maintain financial flexibility through prudent financial practices.
Increase production primarily through the development of our net proved undeveloped reserves
As of December 31, 2005, approximately 50.9 % of our proved reserves were classified as net proved undeveloped, which gives us the opportunity to achieve substantial production growth even without additional reserve discoveries, assuming that we will be able to develop these reserves more quickly than we deplete our currently producing reserves. We are currently undertaking a number of large development projects located primarily in the Bohai Bay and the Western South China Sea, which we expect to substantially increase production. We plan to spend approximately US$1,860.1 million in 2006 to develop our net proved undeveloped reserves offshore China. We also plan to spend approximately US$373.1 million to develop our overseas reserves in 2006.
Add to our reserves through independent exploration and production sharing contracts
We plan to concentrate our independent exploration efforts in existing operating areas. We plan to spend approximately US$457.8 million in 2006 on exploration activities. We plan to increase independent exploration efforts while continuing to enter into production sharing contracts with foreign partners to lower capital requirements and exploration risks. In 2006, we plan to drill approximately 67 exploration wells, and acquire independently approximately 25,300 kilometers and 4,050 square kilometers of 2D seismic data and 3D seismic data, respectively. Our foreign partners under existing production sharing contracts plan to drill approximately 22 exploration wells, and acquire approximately 13,200 kilometers and 5,320 square kilometers of 2D seismic data and 3D seismic data, respectively, in 2006.
Capitalize on the growing demand for natural gas in China
We plan to capitalize on the growth potential of the PRC natural gas market through the following initiatives:
o continue to develop natural gas fields and focus independent exploration efforts on natural gas;
o evaluate whether to exercise the options to invest in CNOOC's liquefied natural gas projects in China; and
o evaluate investment opportunities in related natural gas businesses that will help develop markets for our natural gas production.
To the extent we invest in businesses and geographic areas where we have limited experience and expertise, we plan to structure our investments as alliances or partnerships with parties possessing the relevant experience and expertise.
Selectively pursue acquisitions to ensure long-term production growth, geographical reserves risk diversification, and to further our natural gas strategy
We plan to make selective acquisitions that will meet one or more of our strategic objectives of enhancing our production profile, diversifying our reserve base and geographic risk profile and furthering our natural gas strategy. In addition, we evaluate acquisition opportunities based on our expected economic return criteria. In 2004 and 2005, we, Golden Aaron Pte. Ltd. and China Global Construction Limited. formed a joint venture and entered into six production sharing contracts with Myanmar Oil and Gas Enterprise. We act as the operator under these production sharing contracts. In early 2005, through our wholly owned subsidiary CNOOC Canada Limited, we acquired a 16.69% interest in MEG Energy Corp. at a consideration of 150 million Canadian dollars. In April 2006, we completed the acquisition of a 45% working interest in an offshore oil-mining license "OML 130" in Nigeria for a cash consideration of US$2.268 billion. On April 28, 2006, through our wholly-owned subsidiary CNOOC Africa Limited, we signed production sharing contracts for six blocks with a total area of 115,343 square kilometers in Kenya.
We are continuously implementing our natural gas strategy. In April, 2006, we signed Farm-in Agreements with BHP Billiton Limited and Kerr-McGee Australia Exploration and Production Pty Ltd through our subsidiary, CNOOC Australia E&P Pty Ltd, and obtained a 25% interest in four Exploration Permits in the Outer Browse Basin of Australia. We believe these upstream participation will enhance our natural gas strategy as well as provide us with access to other gas-rich basins for further growth opportunities.
Maintain operational efficiency and low production costs
We will continue to maintain our low cost structure and operational efficiency through the following initiatives:
o Apply up-to-date drilling, production and offshore engineering technology to our operations through our oilfield service providers. This technology includes long-range extension wells, multilateral wells, advanced formation testing, multi-phase transmission, monolayer pipeline and subsea technology, minimal structure techniques and suction foundation technology;
o Proactively manage service contracts and cooperate with our oilfield service providers to improve exploration efficiency and reduce exploration costs. This measure includes using operational techniques such as cluster drilling, which reduces drilling time by one-third and lowers the related costs by up to 40%; and
o Maintain high production volume levels on an individual well basis and increase the productivity of producing wells.
Maintain financial flexibility through prudent financial practices
Currently, we have a strong financial profile with a low leverage ratio. We intend to maintain our financial strength by managing key measures such as capital expenditures, cash flows and fixed charge coverage. We intend to actively manage our accounts receivable and inventory positions to enhance liquidity and improve profitability. We will continue to monitor our foreign currency denominated debt and to minimize our exposure to foreign exchange rate fluctuations.
Selected Operating and Reserves Data
The following table sets forth our operating data and our net proved reserves as of the time and for the periods indicated.
Year ended December 31,
------------------------------
2003 2004 2005
-------- -------- --------
Net Production:
Oil (daily average bbls/day).................. 306,464 319,436 356,868
Gas (daily average mmcf/day).................. 291.0 364.1 389.6
Oil equivalent (BOE/day)...................... 356,729 382,513 424,108
Average net realized prices:
Oil (per bbl)........................... US$28.11 US$35.41 US$47.31
Gas (per mcf)........................... 2.87 2.75 2.82
Offshore China lifting costs (per BOE)........ 4.66 5.31 6.34
Overseas lifting costs (per BOE)(1)........... 9.27 10.72 12.41
Net Proved Reserves (end of period):
Oil (mmbbls).................................. 1,436.1 1,455.6 1,457.4
Gas (bcf)..................................... 4,154.4 4,646.6 5,430.9
Total (million BOE)........................... 2,128.5 2,230.0 2,362.6
Proved developed reserves (million BOE)....... 914.6 1,080.7 1,159.8
Annual reserves replacement ratio............. 187% 173% 186%
Estimated reserves life (years)............... 16.3 15.9 15.3
Standardized measure of discounted future
net cash flow (million Rmb)................. 109,800 125,387 199,427
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|
(1) Overseas lifting costs reflect lifting costs associated with our operations in Indonesia and are calculated using the net entitlement method.
Our finding and development costs per BOE reported in prior years was calculated by dividing the net reserve change for each reporting period (excluding production and sales) into the costs incurred for the period, as reported in the "Costs Incurred" disclosure required by Statement of Financial accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." Due to the timing of the related costs incurred to find and develop such proved reserves, this often includes quantities of proved reserves for which a majority of the costs of development have not yet been incurred. Conversely, it also often includes costs to develop proved reserves that had been added in earlier years. Because it may not necessarily represent total finding and development costs for projects under way or may not be indicative of expected future finding and development costs, we discontinued reporting such information.
At our request, Ryder Scott Company, an independent petroleum engineering consulting company, carried out an independent evaluation of the reserves of selected properties as of December 31, 2003, 2004 and 2005. For further information regarding our reserves, see "Item 3--Key Information--Risk Factors--Risks relating to our business--The oil and gas reserve estimates in this annual report may require substantial revision as a result of future drilling, testing and production" and "--Oil and Natural Gas Reserves."
The following table sets forth summary information with respect to our estimated net proved reserves of crude oil and natural gas as of the dates indicated.
Net proved reserves Net proved reserves
at December 31, at December 31, 2005
------- ------- ------- ----- -------
2003 2004 Developed Undeveloped Total
------- ------- --------- ----------- -------
Bohai Bay:
Crude oil (mmbbls)................................. 990.4 974.6 452.0 468.2 920.2
Natural gas (bcf).................................. 566.6 706.2 304.4 436.3 740.7
------- ------- --------- ----------- -------
Total (million BOE):............................ 1,084.8 1,092.3 502.7 541.0 1,043.7
======= ======= ========= =========== =======
Independent (million BOE).................... 556.3 605.5 336.0 286.4 622.4
Production sharing contracts (million BOE)... 528.5 486.8 166.7 254.6 421.3
Western South China Sea:
Crude oil (mmbbls)................................. 173.7 189.7 77.6 128.1 205.7
Natural gas (bcf).................................. 2,564.0 2,484.8 1,733.5 870.4 2,604.0
------- ------- --------- ----------- -------
Total (million BOE):............................ 601.0 603.8 366.5 273.2 639.7
======= ======= ========= =========== =======
Independent (million BOE).................... 476.7 482.6 264.7 266.5 531.2
Production sharing contracts (million BOE)... 124.3 121.2 101.8 6.7 108.5
Eastern South China Sea:
Crude oil (mmbbls)................................. 154.8 168.0 112.0 99.2 211.2
Natural gas (bcf).................................. 548.2 730.8 -- 784.2 784.2
------- ------- --------- ----------- -------
Total (million BOE):............................ 246.1 289.8 112.0 229.9 341.9
======= ======= ========= =========== =======
Independent (million BOE).................... 141.1 183.8 39.6 180.7 220.3
Production sharing contracts (million BOE)... 105.0 106.0 72.4 49.2 121.6
East China Sea:
Crude oil (mmbbls)................................. 13.9 21.5 2.8 18.4 21.2
Natural gas (bcf).................................. 275.3 403.4 60.0 342.2 402.2
------- ------- --------- ----------- -------
Total (million BOE):............................ 59.8 88.7 12.8 75.4 88.2
======= ======= ========= =========== =======
Independent (million BOE).................... 12.7 88.7 12.8 75.4 88.2
Production sharing contracts (million BOE)... 47.1 -- -- -- --
Overseas:
Crude oil (mmbbls)................................. 103.4 101.9 77.1 22.0 99.1
Natural gas (bcf).................................. 200.3 321.4 532.4 367.5 899.9
------- ------- --------- ----------- -------
Total (million BOE):............................ 136.8 155.5 165.8 83.3 249.1
======= ======= ========= =========== =======
Independent (million BOE).................... -- -- -- -- --
Production sharing contracts (million BOE)... 136.8 155.5 165.8 83.3 249.1
Total:
Total crude oil (mmbbls)........................... 1,436.1 1,455.6 721.5 735.9 1,457.4
Total natural gas (bcf)............................ 4,154.3 4,646.6 2,630.3 2,800.6 5,430.9
------- ------- --------- ----------- -------
Total (million BOE):............................ 2,128.5 2,230.0 1,159.9 1,202.7 2,362.6
======= ======= ========= =========== =======
Independent (million BOE).................... 1,186.9 1,360.5 653.2 809.0 1,462.2
Production sharing contracts (million BOE)... 941.6 869.5 506.7 393.7 900.4
|
New Contracts Signed in 2005
In 2005, our controlling shareholder, CNOOC, signed seven petroleum contracts offshore China as follows:
Interest of
Partner(s) in the
Exploration Phase Date of
No. Basin Block Partner (%) Agreement Area (km(2)
------------------------------------------------------------------------------------------------------------------------------------
1 Pearl River Mouth Kerr-McGee China Petroleum Ltd. 100% 02/04/2005 9,729
Basin 43/11
2 East China Sea 25/34 Primeline Energy China Limited/ 100% 03/24/2005 7,006
Primeline Petroleum Corporation
3 Pearl River Mouth 28/20 Texas American Resources-Asia, 100% 10/18/2005 7,625
Basin Inc.
4 Pearl River Mouth 03/27 Texas American Resources-Asia, 100% 10/18/2005 10,569
Basin Inc.
5 Pearl River Mouth 42/05 Devon Energy China, Ltd. 100% 12/06/2005 6,939
Basin
6 Pearl River Mouth 16/05 New Field China, LDC 100% 12/12/2005 2,064
Basin
7 Pearl River Mouth 17/08 New Field China, LDC 100% 12/12/2005 7,106
Basin
|
In 2005 and the first four months of 2006, we signed 11 overseas petroleum contracts or agreements as follows:
Our Participating Date of
No. Country Block Partners Interest (%) Agreement Area (km(2))
------------------------------------------------------------------------------------------------------------------------------------
1 Myanmar C1 Golden Aaron Pte Limited HQCEC 81.25 01/25/05 16,988
2 Myanmar C2 Golden Aaron Pte Limited HQCEC 81.25 01/25/05 26,506
3 Myanmar M2 Golden Aaron Pte Limited HQCEC 81.25 01/25/05 9,653
4 Equatorial Guinea S GEPetrol 75 02/17/06 2,287
5 Morocco RAS TAFELNEY Vanco 11.25 04/21/05 14,000
6 Nigeria OML130 Total 45 01/09/06 1,295
Petrobras
SAPETRO
30
|
7 Nigeria OPL229 EERL 35 01/27/06 1,376
AMNI
AERD
BOGI
8 Philippines SC57 PNOC-EC 51 04/02/06 2,881.5
9 Australia WA-301-P BHPB 25 04/03/06 7,430
10 Australia WA-303-P BHPB 25 04/03/06 13,570
WA-304-P Kerr McGee
WA-305-P
11 Kenya Block 1, Block 100 04/28/06 115,342
9, Block 10A,
L2, L3, L4
|
Exploration and Production
Summary
We currently conduct exploration, development and production activities primarily in four areas offshore China:
o the Bohai Bay;
o the Western South China Sea;
o the Eastern South China Sea; and
o the East China Sea.
[GRAPHIC OMITTED]
In addition, we hold several equity interests in oil and gas properties in foreign countries and regions including Indonesia, Australia, Canada, Morocco, Nigeria and Myanmar. See "--Overseas Activity," "--Natural Gas Business--Overseas Activity" and "Item 5--Operating and Financial Review and Prospects--Operating Results--Acquisitions and Overseas Activities."
As of December 31, 2005, we had estimated net proved reserves of 2,362.6 million BOE, comprised of 1,457.4 million barrels of crude oil and condensate and 5,430.9 billion cubic feet of natural gas. As of December 31, 2005, we had interests in 41 producing properties and 49 properties under development and appraisal offshore China. In 2005, seven properties offshore China commenced production. For 2005, net production averaged 356,868 barrels per day of crude oil, condensate and natural gas liquids and 389.6 million cubic feet per day of natural gas, which together totaled 424,108 BOE per day, representing a 10.9% increase over the annual average daily production for 2004.
We conduct our exploration, development and production activities independently as well as through production sharing contracts with foreign partners. A production sharing contract contains provisions regarding the exploration, development, production and operation of an oil and gas field and the formula through which foreign partners may recover exploration, development and production costs and share in the production after the successful development of petroleum reserves. See "--Production Sharing Contracts--Offshore China" for a detailed discussion of these arrangements.
We also conduct exploration efforts through geophysical survey agreements with foreign companies. These geophysical survey agreements allow international oil and gas companies to conduct geophysical studies before deciding whether to negotiate a production sharing contract with CNOOC. If a foreign partner decides to enter into a production sharing contract with CNOOC, the costs and expenses that the foreign partner incurs in conducting geophysical exploration may be recovered during the production period by the foreign partner, subject to our confirmation. See "--Geophysical Survey Agreements" for a detailed discussion of these arrangements. As of December 31, 2005, we were not a party to any geophysical survey agreements, although we may enter into such agreements in the future.
The offshore China exploration area is approximately 1.3 million square kilometers in size. We currently have rights to operate independently or in conjunction with international oil and gas companies in 134 exploration blocks covering approximately 627,271 square kilometers. We have access to 902,476 kilometers of 2D seismic data and 45,217 square kilometers of 3D seismic data. From the beginning of CNOOC's operations in 1982 to December 31, 2005, a total of 820 exploration wells have been drilled, including 526 wildcat wells, with a success rate of approximately 35%. During this period we achieved a success rate of approximately 44% on 237 independent exploration wildcat wells, while our foreign partners achieved a success rate of approximately 28% on their 289 exploration wildcat wells.
Oil and Natural Gas Reserves
We have a large base of net proved undeveloped reserves as a result of our exploration successes. As of December 31, 2005, approximately 50.9% of our net proved reserves were classified as net proved undeveloped. We are undertaking a number of large development projects located primarily in the Bohai Bay and the Western South China Sea and expect these projects to substantially increase our production.
Our "net proved reserves" consist of our percentage interest in reserves, including our 100% interest in the independent oil and gas properties and our participating interest in the properties covered under the production sharing contracts in PRC, less: (a) an adjustment for our share of royalties payable by us to the PRC government and our participating interest in share oil payable to the PRC government under the production sharing contracts, and (b) an adjustment for production allocable to foreign partners under the PRC production sharing contracts as reimbursement for exploration expenses attributable to our participating interest; and plus (i) our 5.3% participating interest in North West Shelf Project in Australia, and (ii) our participating interest in the properties covered under the production sharing contracts in Indonesia less an adjustment for share oil attributable to the Indonesian government and the domestic market obligation. Net proved reserves do not include any deduction for production taxes, which are included in our operating expenses. Net production is calculated in the same way as net proved reserves.
We explore and develop our reserves offshore China under exploration and production licenses granted by the PRC government. The PRC government generally grants exploration licenses for individual blocks while production licenses generally are granted for individual fields. All of our proved reserves are under production licenses granted by the PRC government.
At our request, Ryder Scott Company, an independent petroleum engineering consulting company, evaluated our selected properties as of December 31, 2003, 2004 and 2005. For further information regarding our reserves, see "Item 3--Key Information--Risk Factors--Risks relating to our business--The oil and gas reserves data in this annual report may require substantial revisions as a result of future drilling, testing and production."
The following tables set forth net proved crude oil reserves, net proved natural gas reserves and total net proved reserves, as of the dates indicated, for our independent and production sharing contract operations in each of our operating areas.
Total Net Proved Crude Oil Reserves
(mmbbls)
As of December 31, As of December 31, 2005
-------------------- ----------------------------------------------
2003 2004 Developed Undeveloped Total
------- ------- --------- ----------- -------
Offshore China
Independent
Bohai Bay.......................... 474.3 487.8 285.3 213.6 498.9
Western South China Sea............ 135.2 147.6 43.2 125.8 169.0
Eastern South China Sea............ 56.6 69.1 39.6 56.9 96.5
East China Sea..................... 4.6 21.5 2.8 18.4 21.2
------- ------- --------- ----------- -------
Total......................... 670.8 726.0 370.9 414.7 785.6
Production Sharing Contracts
Bohai Bay.......................... 516.1 486.8 166.7 254.6 421.3
Western South China Sea............ 38.5 42.0 34.5 2.3 36.8
Eastern South China Sea............ 98.1 98.8 72.4 42.3 114.7
East China Sea..................... 9.3 -- -- -- --
------- ------- --------- ----------- -------
Total......................... 662.0 627.6 273.6 299.2 572.8
Combined
Bohai Bay.......................... 990.4 974.6 452.0 468.2 920.2
Western South China Sea............ 173.7 189.7 77.6 128.1 205.7
Eastern South China Sea............ 154.8 168.0 112.0 99.2 211.2
East China Sea..................... 13.9 21.5 2.8 18.4 21.2
------- ------- --------- ----------- -------
Total......................... 1,332.7 1,353.8 644.4 713.9 1,358.3
Overseas(1)
Indonesia.......................... 103.4 101.9 62.7 11.0 73.7
North West Shelf, Australia........ -- -- 14.4 11.0 25.4
------- ------- --------- ----------- -------
Total.............................. 103.4 101.9 77.1 22.0 99.1
Total.................................... 1,436.1 1,455.6 721.5 735.9 1,457.4
======= ======= ========= =========== =======
---------
(1) As of December 31, 2005, our net proved reserves attributable to
overseas operations were derived mainly from Indonesia and Australia. We
conduct our operations in Indonesia through production sharing contracts
and technical assistance contracts. In Australia, we hold interests in
the North West Shelf project.
Total Net Proved Natural Gas Reserves
(bcf)
As of December 31, As of December 31, 2005
-------------------- ----------------------------------------------
2003 2004 Developed Undeveloped Total
------- ------- --------- ----------- -------
Offshore China
Independent
Bohai Bay......................... 491.9 706.2 304.4 436.3 740.7
Western South China Sea........... 2,049.3 2,009.7 1,329.4 844.4 2,173.8
Eastern South China Sea........... 506.9 687.7 -- 742.8 742.8
East China Sea.................... 48.7 403.4 60.0 342.2 402.2
------- ------- --------- ----------- -------
Total........................ 3,096.8 3,807.0 1,693.8 2,365.8 4,059.6
Production Sharing Contracts
Bohai Bay......................... 74.7 -- -- -- --
Western South China Sea........... 514.7 475.1 404.1 26.0 430.1
Eastern South China Sea........... 41.2 43.0 -- 41.3 41.3
East China Sea.................... 226.7 -- -- -- --
------- ------- --------- ----------- -------
Total........................ 857.3 518.1 404.1 67.3 471.4
Combined
Bohai Bay ....................... 566.6 706.2 304.4 436.3 740.7
Western South China Sea........... 2,564.0 2,484.8 1,733.5 870.4 2,603.9
Eastern South China Sea........... 548.2 730.8 -- 784.2 784.2
East China Sea.................... 275.3 403.4 60.0 342.2 402.2
------- ------- --------- ----------- -------
Total........................ 3,954.1 4,325.2 2,097.9 2,433.1 4,531.0
34
|
As of December 31, As of December 31, 2005
-------------------- ----------------------------------------------
2003 2004 Developed Undeveloped Total
------- ------- --------- ----------- --------
Overseas(1)
Indonesia......................... 200.3 321.4 154.6 142.2 296.9
North West Shelf, Australia....... -- -- 377.7 225.3 603.0
------- ------- --------- ----------- --------
Total........................ 200.3 321.4 532.3 367.5 899.9
Total................................... 4,154.4 4,646.6 2,630.3 2,800.6 5,430.9
======= ======= ========= =========== ========
---------
(1) As of December 31, 2005, our net proved reserves attributable to
overseas operations were derived mainly from Indonesia and Australia. We
conduct our operations in Indonesia through production sharing contracts
and technical assistance contracts. In Australia, we hold interests in
the North West Shelf project.
Total Net Proved Reserves
(million BOE)
As of December 31, As of December 31, 2005
-------------------- ----------------------------------------------
2003 2004 Developed Undeveloped Total
------- ------- --------- ----------- --------
Offshore China
Independent
Bohai Bay......................... 556.3 605.5 336.0 286.4 622.4
Western South China Sea........... 476.7 482.6 264.7 266.5 531.2
Eastern South China Sea........... 141.1 183.7 39.6 180.7 220.3
East China Sea.................... 12.7 88.7 12.8 75.4 88.2
------- ------- --------- ----------- --------
Total........................ 1,186.9 1,360.5 653.1 809.0 1,462.1
Production Sharing Contracts
Bohai Bay......................... 528.5 486.8 166.7 254.6 421.3
Western South China Sea........... 124.3 121.2 101.8 6.7 108.5
Eastern South China Sea........... 105.0 106.0 72.4 49.2 121.6
East China Sea.................... 47.1 -- -- -- --
------- ------- --------- ----------- --------
Total........................ 804.9 714.0 340.9 310.5 651.4
Combined
Bohai Bay......................... 1,084.8 1,092.3 502.7 541.0 1,043.7
Western South China Sea........... 601.0 603.8 366.5 273.2 639.7
Eastern South China Sea........... 246.1 289.8 112.0 229.9 341.9
East China Sea.................... 59.8 88.7 12.8 75.4 88.2
------- ------- --------- ----------- --------
Total........................ 1,991.7 2,074.6 994.0 1,119.5 2,113.5
Overseas(1)
Indonesia......................... 136.7 155.5 88.5 34.7 123.2
North West Shelf, Australia....... -- -- 77.3 48.6 125.9
------- ------- --------- ----------- --------
Total........................ 136.7 155.5 165.8 83.3 249.1
Total................................... 2,128.5 2,230.0 1,159.8 1,202.7 2,362.6
======= ======= ========= =========== ========
|
Oil and Natural Gas Production
The following tables show average daily net oil production, net natural gas production, and average net total production for the periods indicated. Oil production comprises crude oil, condensate and natural gas liquids.
Average Daily Net Production of Crude Oil
(bbls per day)
Year ended December 31,
---------------------------------
2003 2004 2005
------- ------- -------
Offshore China
Independent
Bohai Bay......................... 98,790 94,769 118,605
Western South China Sea........... 27,547 26,737 24,913
Eastern South China Sea........... 13,708 19,497 20,047
East China Sea.................... 2,536 2,121 1,706
------- ------- -------
Total........................ 142,581 143,123 165,271
Production Sharing Contracts
Bohai Bay......................... 30,716 39,744 60,235
Western South China Sea........... 33,397 29,136 24,103
Eastern South China Sea........... 59,273 77,492 83,694
East China Sea.................... - - -
------- ------- -------
Total........................ 123,386 146,372 168,032
Combined
Bohai Bay......................... 129,506 134,512 178,840
Western South China Sea........... 60,944 55,873 49,016
Eastern South China Sea........... 72,981 96,989 103,741
East China Sea.................... 2,536 2,121 1,706
------- ------- -------
Total........................ 265,967 289,495 333,303
Overseas(1)
Indonesia......................... 40,497 29,941 23,565
------- ------- -------
Total........................ 40,497 29,941 23,565
Total................................... 306,464 319,436 356,868
======= ======= =======
-----------
|
(1) As of December 31, 2005, our net production attributable to overseas operations were derived entirely from our operations in Indonesia. We conduct our operations in Indonesia through production sharing contracts and technical assistance contracts.
Average Daily Net Production of Natural Gas
(mmcf per day)
Year ended December 31,
2003 2004 2005
Offshore China
Independent
Bohai Bay......................... 47.1 47.7 49.1
Western South China Sea........... 29.1 83.7 99.4
Eastern South China Sea........... - - -
East China Sea.................... 14.2 17.1 18.3
------- ------- -------
Total........................ 90.4 148.5 166.8
Production Sharing Contracts
Bohai Bay......................... - - -
Western South China Sea........... 98.7 131.6 130.1
Eastern South China Sea........... - - -
East China Sea.................... - - -
------- ------- -------
Total........................ 98.7 131.6 130.1
Combined
Bohai Bay......................... 47.1 47.7 49.1
Western South China Sea........... 127.8 215.2 229.6
Eastern South China Sea........... - - -
East China Sea.................... 14.2 17.1 18.3
------- ------- -------
Total........................ 189.1 280.0 296.9
Overseas(1)
Indonesia......................... 101.9 84.1 92.7
------- ------- -------
Total........................ 101.9 84.1 92.7
Total................................... 291.0 364.1 389.6
======= ======= =======
-----------
|
(1) As of December 31, 2005, our net production attributable to overseas operations were derived entirely from our operations in Indonesia. We conduct our operations in Indonesia through production sharing contracts and technical assistance contracts.
Average Daily Net Production
(BOE per day)
Year ended December 31,
---------------------------------
2003 2004 2005
------- ------- -------
Offshore China
Independent
Bohai Bay......................... 106,637 102,725 126,786
Western South China Sea........... 32,391 40,683 41,486
Eastern South China Sea........... 13,708 19,497 20,047
East China Sea.................... 4,908 4,963 4,751
------- ------- -------
Total........................ 157,644 167,868 193,069
Production Sharing Contracts
Bohai Bay......................... 30,716 39,744 60,235
Western South China Sea........... 51,619 53,454 48,097
Eastern South China Sea........... 59,274 77,492 83,694
East China Sea.................... - - -
------- ------- -------
Total........................ 141,609 170,690 192,026
Combined
Bohai Bay......................... 137,353 142,469 187,020
Western South China Sea........... 84,010 94,137 89,583
Eastern South China Sea........... 72,981 96,989 103,741
East China Sea.................... 4,908 4,963 4,751
------- ------- -------
Total........................ 299,252 338,558 385,095
Overseas(1)
Indonesia......................... 57,477 43,955 39,013
------- ------- -------
Total........................ 57,477 43,955 39,013
------- ------- -------
Total................................... 356,729 382,513 424,108
======= ======= =======
-----------
|
(1) As of December 31, 2005, our net production attributable to overseas operations were derived entirely from our operations in Indonesia. We conduct our operations in Indonesia through production sharing contracts and technical assistance contracts.
Principal Oil and Gas Regions
Bohai Bay
The Bohai Bay holds our largest net proved reserves and, for the year ended December 31, 2005, was our largest producing area for crude oil and natural gas. The Bohai Bay exploration area is located in the northeastern part of China, approximately 200 kilometers east of Beijing and is approximately 58,100 square kilometers in size. As of December 31, 2005, we had rights to operate, independently or in conjunction with international oil and gas companies, in 15 blocks covering approximately 43,244 square kilometers of the total Bohai Bay exploration area. Our operating area contains oil and gas fields in shallow waters with typical depths ranging from 10 to 30 meters. The crude oil is generally of heavy gravity ranging from 15 to 20 degrees API. As of December 31, 2005, net proved reserves in this region were 920.2 million barrels of crude oil and condensate and 740.7 billion cubic feet of natural gas, totaling 1,043.7 million BOE and representing approximately 44.2% of our total net proved reserves.
The Bohai Bay has been a prolific area with significant oil discoveries in recent years and will continue to be one of our principal areas for exploration in the near future. In 2005, we independently drilled in this area 11 wildcat wells, six of which were successful, and four appraisal wells, two of which were successful. In 2005, our foreign partners drilled in this area four wildcat wells, three of which were successful, and three appraisal wells, one of which was successful. We and our foreign partners made six and three discoveries, respectively, in this area in 2005.
The following table sets forth principal exploration blocks under exploration licenses for both our independent operations and our production sharing contracts in the Bohai Bay as of December 31, 2005. All exploration licenses expiring on or before June 6, 2006 are being renewed.
Exploration License
(Commencement-
Blocks Block Area (km(2)) Expiration)
--------------------------------------------------------------------------------
Middle of Bohai Bay 4,974 04/26/04~04/26/06
Southern Bohai Bay 3,679 06/08/04~06/08/06
Western Bohai Bay 1,895 06/08/04~06/08/06
Western Liaodong Bay 3,344 03/31/00~04/08/06
Eastern Liaodong Bay 2,829 07/02/01~07/02/06
Eastern Bozhong 1,861 05/30/04~05/30/06
Bohai Block 09/11 843 04/05/04~04/05/06
Bohai Block 06/17 2,586 02/20/03~02/20/07
Bohai Block 02/31 4,990 05/29/03~05/29/07
Bohai Block 11/19 3,068 06/08/04~06/08/06
Bohai Block 05/36 2,721 04/07/05~02/10/07
Eastern Bohai Block 11/05 3,601 02/10/04~02/10/06
Western Bohai Block 11/05 2,897 02/01/04~02/01/06
Bohai Block 09/18 2,234 02/04/05~02/04/07
Bohai Block 04/36 1,691 09/23/05~09/23/07
--------------------------------------------------------------------------------
Total 43,213
|
During the year ended December 31, 2005, we independently acquired 2,770 kilometers of 2D seismic data and 775 square kilometers of 3D seismic data and our foreign partners acquired 21 square kilometers of 3D seismic data in the Bohai Bay. We have an aggregate of approximately 181,663 kilometers and 10,530 square kilometers of independent 2D and 3D seismic data, respectively, in the Bohai Bay. We also have access through our production sharing contract partners to approximately 66,903 kilometers and 9,177 square kilometers of additional 2D and 3D seismic data, respectively, in this area. Our exploration capital expenditures for 2005 were US$84.3 million. In 2006, we plan to drill 24 exploration wells in the Bohai Bay.
For 2005, net production in this region averaged 178,840 barrels per day of crude oil, condensate and natural gas liquids and 49.1 million cubic feet per day of natural gas, representing approximately 44.1% of our total daily net production. Our development capital expenditures for the Bohai Bay for 2005 were US$856.4 million.
The following table sets forth our principal oil and gas properties under production in the Bohai Bay as of December 31, 2005.
Average Net Net
Production Reserves as of
for year 2005 December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (BOE per day) (million BOE)
----------------------------------------------------------------------------------------------------------------------------------
Liaoxi Jinzhou20-2, Jinzhou9-3, Suizhong36-1, 100% 104,680 323.0
Luda4-2, Luda5-2, Luda10-1
----------------------------------------------------------------------------------------------------------------------------------
09/18 Chengbei 100% 4,229 5.5
----------------------------------------------------------------------------------------------------------------------------------
Boxi Qikou18-1, Qikou18-2, Qikou17-2, Qikou17-3 100% 10,008 18.5
----------------------------------------------------------------------------------------------------------------------------------
05/36 Nanbao35-2 100% 21,914 121.3
------------------------------------------
Qinghuangdao32-6 75.5%
----------------------------------------------------------------------------------------------------------------------------------
11/05 Penglai19-3 51% 7,422 132.5
----------------------------------------------------------------------------------------------------------------------------------
Bonan Bozhong34-2, Bozhong34-4, Bozhong28-1, 100% 21,797 184.4
Bozhong26-2,
------------------------------------------
38
|
Average Net Net
Production Reserves as of
for year 2005 December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (BOE per day) (million BOE)
----------------------------------------------------------------------------------------------------------------------------------
Bozhong25-1/25-1S 83.8%
----------------------------------------------------------------------------------------------------------------------------------
04/36 Caofeidian11-1, Caofeidian11-2, 51% 16,970 28.8
Caofeidian11-3, Caofeidian11-5
----------------------------------------------------------------------------------------------------------------------------------
|
The following table sets forth our principal oil and gas properties under development in the Bohai Bay as of December 31, 2005.
Net
Reserves as of
December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (million BOE)
--------------------------------------------------------------------------------------------------------
Liaoxi Jinzhou21-1, Jinzhou25-1S 100% 90.6
--------------------------------------------------------------------------------------------------------
Bozhong Qinhuangdao33-1, Bozhong3-1, Bozhong3-2 100% 9.8
--------------------------------------------------------------------------------------------------------
Boxi Caofeidian18-1, Caofeidian18-2, Qikou18-9, 100% 20.1
Bozhong13-1
--------------------------------------------------------------------------------------------------------
11/05 Penglai25-6 51% 10.5
--------------------------------------------------------------------------------------------------------
04/36&05/36 Caofeidian12-1, Caofeidian12-1S 51% 13.8
--------------------------------------------------------------------------------------------------------
Bonan Bozhong34-1, Bozhong34-1S, Bozhong34-3, 100% 28.3
Bozhong34-5
--------------------------------------------------------------------------------------------------------
Liaodong Luda27-2, Luda32-2 100% 37.4
--------------------------------------------------------------------------------------------------------
11/19 Bozhong19-4, Bozhong26-2N 100% 19.1
--------------------------------------------------------------------------------------------------------
|
Western South China Sea
The Western South China Sea has been our most important natural gas producing area. The Western South China Sea is located in the southern part of China southwest of Hong Kong and is approximately 712,480 square kilometers in size. As of December 31, 2005, we had rights to operate, independently or in conjunction with international oil and gas companies, in 34 blocks covering approximately 180,507 square kilometers of the Western South China Sea exploration area. Typical water depths in this region range from 40 meters to 120 meters. The crude oil produced is of medium to light gravity, ranging from 27 to 41 degrees API. As of December 31, 2005, we had net proved reserves of 205.7 million barrels of crude oil and condensate and 2,603.9 billion cubic feet of natural gas in this region, totaling 639.7 million BOE and representing 27.1% of our total net proved reserves.
The Western South China Sea is one of our least explored areas but will become increasingly important as the markets for natural gas in the southern part of China develop. In 2005, we independently drilled in this area six wildcat wells, three of which were successful, and three appraisal wells, three of which were successful. In 2005, our foreign partners drilled in this area four wildcat wells, one of which was successful. We and our foreign partners made three discoveries and one discovery, respectively, in this area in 2005.
The following table sets forth the principal exploration blocks under exploration licenses for both our independent operations and our production sharing contracts in the Western South China Sea as of December 31, 2005. Licenses expire on or before June 6, 2006 are being renewed.
Exploration License
Block Area (Commencement-
Blocks (km2) Expiration)
------------------------------------------------------------------------------
Weizhou 12 (Beibu Gulf) 6,980 05/11/01~05/11/06
Yulin 35 (Beibu Gulf) 6,050 05/11/01~05/11/06
Weizhou 26 (Beibu Gulf) 4,358 11/05/03~05/11/06
|
Ledong 01 (Yinggehai) 6,543 12/03/03~12/03/05 Lingtou 20 (Yinggehai) 2,692 08/30/00~08/30/07 Lingao 11 (Yinggehai) 4,117 05/11/01~05/11/06 Songtao 22 (Qiongdongnan) 4,063 05/11/01~05/11/06 Songtao 31 (Qiongdongnan) 5,264 05/11/01~05/11/06 Lingshui 18 (Qiongdongnan) 7,738 08/06/02~08/06/07 Yangjiang 31 (Pearl River Mouth Basin) 6,003 12/03/03~12/03/05 Qionghai 28 (Pearl River Mouth Basin) 5,208 05/11/01~05/11/06 Wenchang 11 (Pearl River Mouth Basin) 4,901 05/11/01~05/11/06 North Wanan-21 A 6,801 09/30/05~09/30/07 North Wanan-21 B 6,118 09/30/05~09/30/07 North Wanan-21 C 6,372 09/30/05~09/30/07 North Wanan-21 D 6,126 09/30/05~09/30/07 ------------------------------------------------------------------------------ Total 89,334 |
During the year ended December 31, 2005, we independently acquired 5,664 kilometers of 2D seismic data and 787 square kilometers of 3D seismic data and our foreign partners acquired 186,504 kilometers of 2D seismic data and 8,844 square kilometers of 3D seismic data in the Western South China Sea. We have an aggregate of approximately 186,504 kilometers and 8,844 square kilometers of independent 2D and 3D seismic data, respectively, in the Western South China Sea. We also have access through our production sharing contract partners to approximately 106,907 kilometers and 4,656 square kilometers of additional 2D and 3D seismic data, respectively, in this area. Our exploration capital expenditures for the Western South China Sea for 2005 were US$76.0 million. In 2006, we plan to drill 18 exploration wells in the Western South China Sea area.
For 2005, net production in this region averaged 49,016 barrels per day of crude oil, condensate and natural gas liquids and 229.6 million cubic feet per day of natural gas, representing approximately 21.1% of our total daily net production. Our development capital expenditures for the Western South China Sea for 2005 were US$161.3 million.
The following table sets forth our principal oil and gas properties under production in the Western South China Sea area as of December 31, 2005.
Average net Net
Production Reserves as of
for year 2005 December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (BOE per day) (million BOE)
------------------------------------------------------------------------------------------------------------------------------------
Yulin35 Weizhou Oil Field 100% 25,864 46.4
------------------------------------------------------------------------------------------------------------------------------------
Yangjiang31 Wenchang13-1, Wenchang13-2 60% 23,077 30.1
------------------------------------------------------------------------------------------------------------------------------------
Ledong01 Yacheng13-1 51% 25,020 76.2
------------------------------------------------------------------------------------------------------------------------------------
Changjiang25 Dongfang1-1 100% 15,622 223.1
------------------------------------------------------------------------------------------------------------------------------------
|
The following table sets forth our principal oil and gas properties under development in the Western South China Sea area as of December 31, 2005.
Net
Reserves as of
December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (million BOE)
---------------------------------------------------------------------------------------------------------------------
Yangjiang31/32 Wenchang8-3, Wenchang14-3, Wenchang15-1, 100% 123.6
Wenchang19-1, Wenchang9-2, Wenchang9-3,
Wenchang10-3
---------------------------------------------------------------------------------------------------------------------
Ledong01 Yacheng13-4, Ledong22-1, Ledong15-1 100% 101.8
---------------------------------------------------------------------------------------------------------------------
Yulin35 Weizhou6-1, Weizhou11-1, Weizhou11-1N, 100% 38.5
Weizhou11-4N, Weizhou6-10,
-----------------------------------------------------------------------
Weizhou12-8 51%
---------------------------------------------------------------------------------------------------------------------
|
Eastern South China Sea
The Eastern South China Sea is currently one of our most important oil producing areas in terms of its contribution to our total production and sales. The Eastern South China Sea exploration area is located in the southern part of China, directly southeast of Hong Kong, and is approximately 174,420 square kilometers in size. As of December 31, 2005, we had rights to operate, independently or in conjunction with international oil and gas companies, in 38 blocks covering approximately 193,704 square kilometers in the Eastern South China Sea exploration area. This area includes the important Pearl River Mouth Basin. Typical water depths in this region range from 100 meters to 120 meters. The crude oil produced is of medium to light gravity, ranging from 30 to 40 degrees API. As of December 31, 2005, we had net proved reserves of 211.2 million barrels of crude oil and condensate and 784.2 billion cubic feet of natural gas in this region, totaling 341.9 million BOE and representing approximately 14.5% of our total net proved reserves.
In 2005, we independently drilled in this area six wildcat wells, all of which were unsuccessful, and one appraisal well, which was successful. In 2005, our foreign partners drilled in this area four wildcat wells, one of which was successful, and one appraisal wells, which was successful. Our foreign partners made one discovery in this area in 2005.
The following table sets forth the principal exploration blocks under exploration licenses for both our independent operations and our production sharing contracts in the Eastern South China Sea as of December 31, 2005. All exploration licenses expiring on or before June 6, 2006 are being renewed.
Exploration License
Block Area (Commencement-
Blocks (km(2) Expiration)
--------------------------------------------------------------------------------
Xijiang 04 (Pearl River Mouth Basin) 7,969 05/11/01~05/11/06
Xijiang 33 (Pearl River Mouth Basin) 4,983 05/12/05~05/12/07
Lufeng 06 (Pearl River Mouth Basin) 4,457 05/11/01~05/11/06
Huizhou 31 (Pearl River Mouth Basin) 3,074 05/11/01~05/11/06
Enping 15 (Pearl River Mouth Basin) 5,833 05/11/01~05/11/06
Enping 10 (Pearl River Mouth Basin) 6,547 05/11/01~05/11/06
Panyu 33 (Pearl River Mouth Basin) 4,830 05/11/01~05/11/06
Liuhua 07 (Pearl River Mouth Basin) 4,172 05/11/01~05/11/06
Dongsha 04 (Pearl River Mouth Basin) 5,295 05/11/01~05/11/06
Kaiping 14 (Pearl River Mouth Basin) 7,753 05/11/01~05/11/06
Kaiping 32 (Pearl River Mouth Basin) 8,104 05/11/01~05/11/06
Dongsha 32(Pearl River Mouth Basin) 7,350 11/05/03~11/05/10
Liwan 14 (Pearl River Mouth Basin) 7,752 05/11/01~05/11/06
Zijin 27 (Pearl River Mouth Basin) 5,396 05/11/01~05/11/06
15/20 (Pearl River Mouth Basin) 1,895 05/11/00~10/16/06
16/02 (Pearl River Mouth Basin) 3,495 03/31/01~03/31/07
Baiyun 15 (Pearl River Mouth Basin) 6,463 05/11/01~05/11/06
Huizhou 30 (Pearl River Mouth Basin) 5,862 05/11/01~05/11/06
Lufeng 08 (Pearl River Mouth Basin) 4,684 06/06/05~06/06/07
16/05 (Pearl River Mouth Basin) 3,007 03/31/00~03/31/07
--------------------------------------------------------------------------------
Total 108,921
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During the year ended December 31, 2005, we independently acquired 6,512 kilometers of 2D seismic data and 1,111 square kilometers of 3D seismic data and our foreign partners acquired 3,153 kilometers of 2D seismic data in the Eastern South China Sea area. We have an aggregate of approximately 72,817 kilometers and 3,769 square kilometers of independent 2D seismic data and 3D seismic data, respectively, in the Eastern South China Sea. We also have access through our production sharing contract partners to approximately 112,415 kilometers and 6,431 square kilometers of additional
2D and 3D seismic data, respectively, in this area. Our exploration capital expenditures for the Eastern South China Sea for 2005 were US$52.9 million. We plan to drill 3 exploration wells in the Eastern South China Sea in 2006.
For 2005, net production in this region averaged approximately 103,741 barrels per day of crude oil, condensate and natural gas liquids, representing approximately 24.5% of our total daily net production. Our development capital expenditures for this region for 2005 were US$554.1 million.
The following table sets forth our principal oil and gas properties under production in the Eastern South China Sea as of December 31, 2005.
Average Net Net
Production Reserves as of
for year 2005 December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (BOE per day) (million BOE)
------------------------------------------------------------------------------------------------------------------------------------
Huizhou14 Huizhou Oil Fields 51% 18,117 22.0
------------------------------------------------------------------------------------------------------------------------------------
16/19 Huzhou19-3, Huizhou19-2, Huizhou19-1 51% 2,782 21.6
------------------------------------------------------------------------------------------------------------------------------------
15/12 Xijiang24-3 51% 16,576 15.0
------------------------------------------------------------------------------------------------------------------------------------
Xijiang24 Xijiang30-2 40% 10,788 8.5
------------------------------------------------------------------------------------------------------------------------------------
Huizhou31 Liuhua11-1 100% 18,699 29.8
------------------------------------------------------------------------------------------------------------------------------------
16/05 Lufeng13-1 25% 3,513 20.6
------------------------------------------------------------------
Lufeng13-2 100%
------------------------------------------------------------------------------------------------------------------------------------
Lufeng08 Lufeng22-1 25% 2,382 2.4
------------------------------------------------------------------------------------------------------------------------------------
15/34 Panyu4-2, Panyu5-1 51% 30,885 29.7
------------------------------------------------------------------------------------------------------------------------------------
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The following table sets forth our principal oil and gas properties under development in the Eastern South China Sea as of December 31, 2005.
Net
Reserves as of
Our December 31, 2005
Name of Block Major Oil and Gas Field Interest (million BOE)
--------------------------------------------------------------------------------
Liuhua07 Panyu30-1, Liuhua19-5 100% 96.7
--------------------------------------------------------------------------------
Panyu33 Panyu34-1 100% 30.7
--------------------------------------------------------------------------------
Xijiang04 Xijiang23-1 100% 47.2
--------------------------------------------------------------------------------
15/34 Panyu11-6 51% 2.6
--------------------------------------------------------------------------------
Huizhou14 Huizhou21-1(G) 51% 9.1
--------------------------------------------------------------------------------
Huizhou16 Huizhou25-1, Huizhou25-3 51% 6.1
--------------------------------------------------------------------------------
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East China Sea
The East China Sea is the least explored area of our four principal regions offshore China, and an area that we expect to become an important natural gas production base in the future. The East China Sea is approximately 339,580 square kilometers in size and is located east of Shanghai. As of December 31, 2005, we had rights to operate, independently or in conjunction with international oil and gas companies, in 47 blocks (excluding the Pinghu block) covering approximately 209,816 square kilometers of the total East China Sea. On August 19, 2003, CNOOC, Sinopec, Pecten Orient Company of the United States (a subsidiary company of Shell) and Unocal reached an agreement to explore, develop and market natural gas, oil and condensate in Xihu Trough, East China Sea. Under the agreement CNOOC owned 30% of the project and accordingly, we acquired a 30% working interest in the project from CNOOC. In September 2004, Pecten Orient and Unocal exited the project and as a result, our working interest in the Xihu Trough project was increased to 50%. The project comprises three exploration and two development contract areas of the Xihu Trough covering approximately 22,000 square kilometers. The first development under the contracts will be in the Chunxiao development area, which is expected to
come on stream in the first half of 2006. The total block area of the Xihu Trough is approximately 59,565 square kilometers. Typical water depths in this region are approximately 90 meters and the crude oil and condensate are of light gravity. As of December 31, 2005, our net proved reserves in the Xihu Trough were 18.1 million barrels of crude oil and condensate and 365.7 billion cubic feet of natural gas, totaling 79.1 million BOE and representing 3.7% of our total net proved reserves. We are the operator of the project.
In 2005, we and our foreign partners drilled no wells in this area.
The following table sets forth the principal exploration blocks under existing exploration licenses or pending exploration licenses for both our independent operations and our production sharing contracts in the East China Sea as of December 31, 2005. All exploration licenses expiring on or before June 6, 2006 are being renewed.
Exploration License
Block Area (Commencement-
Blocks (km2) Expiration)
--------------------------------------------------------------------------------
North Yellow Sea 6,471 05/25/01~05/25/06
Northern Trough (Northern South Yellow Sea) 912 08/30/00~08/30/07
Xihu Hangzhou 26 (East China Sea) 3,642 03/31/03~03/31/07
Xihu Hangzhou 17 (East China Sea) 4,227 08/28/01~08/28/08
Xihu Huangyan 04 (East China Sea) 2,848 08/28/01~08/28/08
Xihu Zhenhai 01 (East China Sea) 1,536 08/28/01~08/28/08
Lishui 33 (East China Sea) 2,999 12/05/05~07/01/09
Wenzhou 21 (East China Sea) 1,437 12/05/05~07/01/07
East China Sea 25/34 7,017 12/05/05~12/05/07
Kunshan Block 02 (East China Sea) 2,628 05/11/01~05/11/06
Jinhua Block 12 (East China Sea) 6,931 05/11/01~05/11/06
Tiantai 32 (East China Sea) 5,400 07/17/01~07/17/06
Fuzhou Block 02 (East China Sea) 3,064 05/11/01~05/11/06
Taibei Block 27 (East China Sea) 7,379 07/09/01~07/09/06
Taoyuan 07 (East China Sea) 6,457 07/09/01~07/09/06
Jilong 25 (East China Sea) 5,692 07/09/01~07/09/06
--------------------------------------------------------------------------------
Total 68,640
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During the year ended December 31, 2005, we independently acquired 940 square kilometers of 3D seismic data. We have an aggregate of approximately 115,990 kilometers and 1,317 square kilometers of independent 2D and 3D seismic data, respectively, in the East China Sea area. We also have access through our production sharing contract partners to approximately 48,255 kilometers and 475 square kilometers, respectively, of additional 2D and 3D seismic data in this area. Our exploration capital expenditures for the East China Sea for 2005 were US$6.3 million. We plan to drill one exploration well in this area in 2006.
For 2005, our net production in this region averaged 1,706 barrels per day of crude oil, condensate and natural gas liquids and 18.3 million cubic feet per day of natural gas, representing 1.1% of our total daily net production. Our development capital expenditures for the East China Sea for 2005 were US$105.0 million.
The following table sets forth the principal oil and gas properties under production or development in the East China Sea as of December 31, 2005.
Average net Net
production Reserves as of
for year 2005 December 31, 2005
Name of Block Major Oil and Gas Field Our Interest (BOE per day) (million BOE)
-------------------------------------------------------------------------------------------------------------
Under Production
-------------------------------------------------------------------------------------------------------------
Pinghu Pinghu Gas Field 30% 4,751 9.1
-------------------------------------------------------------------------------------------------------------
Under Development
-------------------------------------------------------------------------------------------------------------
Xihu Trough Canxue, Duanqiao, 50% - 79.2
Chunxiao, Tianwaitian,
Baoyunting, Wuyunting
-------------------------------------------------------------------------------------------------------------
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Overseas Activity
In early 2003 and 2004, we acquired interests in the Tangguh LNG project located in Indonesia. The Tangguh LNG partners have signed contracts to provide liquefied natural gas to South Korea and North America. For further details of these interests, see "--Natural Gas Business--Overseas Activity."
In December 2004, we completed the North West Shelf Project acquisition. We acquired a 25% stake in the China LNG Joint Venture, a new joint venture established within the NWS Gas Project. Under the terms of the transaction, We also acquired approximately a 5.3% interest in certain production licences, retention leases and an exploration permit of the NWS Gas Project, and a right to participate in future exploration undertaken over and above the proven reserves. See "--Natural Gas Business--Overseas Activity."
In April 2002, our wholly owned subsidiary, CNOOC Southeast Asia Limited, acquired subsidiaries in Indonesia formerly owned by Repsol YPF, S.A. These Indonesian subsidiaries together hold a portfolio of interests in oil and gas production sharing and technical assistance contracts in areas located offshore and onshore Indonesia. The main businesses of the Indonesian subsidiaries are the exploration, development and production of oil and gas offshore and onshore Indonesia. Their main assets comprise a portfolio of interests in four production sharing contracts and a technical assistance contract in that region. We estimate that our net proved reserves of the assets in Indonesia as of December 31, 2005 were approximately 123.2 million BOE.
The interests owned by the Indonesian subsidiaries comprise the following assets:
o South East Sumatra Production Sharing Contract. The Indonesian subsidiaries own a 65.5409% interest in the South East Sumatra production sharing contract. This contract area covers approximately 8,100 square kilometers located offshore Sumatra and is the largest of the assets held by the Indonesian subsidiaries. It is operated and majority-owned by us. It is also one of the largest offshore oil developments in Indonesia and has produced more than one billion barrels of oil in over 20 years of production. The concession expires in 2018.
o Offshore North West Java Production Sharing Contract. The Indonesian subsidiaries own a 36.7205% interest in the Offshore North West Java production sharing contract. This contract area covers approximately 13,800 square kilometers in the Southern Java Sea, offshore Jakarta and has produced more than one billion BOE in over 20 years of production. It is operated by a member of the BP group and currently produces crude oil and natural gas. Its natural gas is sold to the Indonesia State Electric Company and the Indonesia State Gas Utility Company. The concession expires in 2017.
o West Madura Production Sharing Contract and Poleng Technical Assistance Contract. These subsidiaries own a 25.0% interest in the West Madura production sharing contract and a 50.0% interest in the Poleng technical assistance contract. These contract areas are located offshore Java, near the island of Madura and the Java city of Surabaya and cover approximately 1,600 square kilometers combined. Kodeco Energy Company is the operator for the West Madura production sharing contract and Korea Development Company is the
operator for the Poleng technical assistance contract, each assisted by certain of the Indonesian subsidiaries. These contract areas currently produce crude oil and natural gas. Their natural gas is sold to the Indonesia State Electric Company. The West Madura production sharing contract expires in May 2011. The Poleng technical assistance contract expires in December 2013. Three new oil and gas discoveries were made in this area in 2003.
o Blora Production Sharing Contract. The Indonesian subsidiaries own a 16.7% interest in the Blora production sharing contract. This contract area lies entirely onshore Java and covers an area of approximately 4,800 square kilometers. There has been no production of crude oil or natural gas from this concession. The current operator is Coparex Blora. The concession expires in 2026.
The remaining interests in the above assets at the time of our acquisition were owned by independent third parties, including Lundin Petroleum, BP, Kodeco, Kalila Energy, BG Group, Pertamina, INPEX, Kanematsu, Nissho Iwai, Nisseki Mitsubishi, Paladin Resources, C. Itoh and Co. and Amerada Hess.
In addition to our Indonesian subsidiaries and the acquisition of interests in the Tangguh LNG project, we have a 39.51% participating interest in a production sharing contract in the Malacca Strait in Indonesia.
On May 3, 2004, we, through our wholly owned subsidiary CNOOC Morocco Limited, acquired from Vanco Energy Corporation an 11.25% interest in a petroleum agreement for Ras Tafelney offshore Morocco.
In 2004 and 2005, we, Golden Aaron Pte. Ltd. and China Global Construction Limited. formed a joint venture and entered into six production sharing contracts with Myanmar Oil and Gas Enterprise. We act as the operator under these production sharing contracts. In early 2005, through our wholly owned subsidiary CNOOC Canada Limited, we acquired a 16.69% interest in MEG Energy Corp. for a consideration of 150 million Canadian dollars.
In June 2005, we made an offer to merge with Unocal for US$67 per share, or a total consideration of approximately US$18.5 billion. However, in light of considerable uncertainties and risks associated with the political climate in the United States, we withdrew the offer on August 2, 2005.
In January 2006, we signed an agreement with South Atlantic Petroleum Limited to acquire a 45% working interest in an offshore oil-mining license "OML 130" in Nigeria for a cash consideration of US$2.268 billion. The acquisition was completed in April 2006. On January 27, 2006, CNOOC Africa Limited, a wholly-owned subsidiary of CNOOC International Ltd., signed an agreement of share sale and purchase deed with ARED Projects Nigeria Limited to acquired a 35% working interest in an offshore oil prospecting license "OPL 229" in Nigeria. CNOOC Africa Limited will pay US$ 60 million for the acquisition. In addition, we signed a production sharing contract for block S in Equatorial Guinea. Block S is an exploration block and covers a total area of approximately 2,287 square kilometers in the south offshore Equatorial Guinea.
On April 28, 2006, through our wholly-owned subsidiary CNOOC Africa Limited, we signed production sharing contracts (PSCs) for six blocks in Kenya. These six blocks, namely Block 1, Block 9, Block 10A, L2, L3, and L4 are located in the three basins of LAMU, ANZA and MANDERA. The total area is 115,343 square kilometers.
As of December 31, 2005, our net proved reserves in our overseas properties were 99.1 million barrels of crude oil and 899.9 billion cubic feet of natural gas. For 2005, net production from our overseas properties averaged 23,565 barrels per day of crude oil, condensate and natural gas liquids and 92.7 million cubic feet of natural gas, representing approximately 6.6% and 23.8%, respectively, of our total daily net production of crude oil and total daily net production of natural gas. Our interests in the production sharing contracts are held by our wholly owned subsidiaries.
We currently conduct all of our international oil sales through China Offshore Oil (Singapore) International Pte. Ltd., our wholly owned Singapore subsidiary. In the past, this subsidiary also engaged in oil trading activities.
The following table sets forth our principal overseas oil and gas properties under production or development as of December 31, 2005.
Average net Net
production Reserves as of
for year 2005 December 31, 2005
Name of Block Major Oil and Gas Field (BOE per day) (million BOE)
----------------------------------------------------------------------------------------------------------------
Under Production
----------------------------------------------------------------------------------------------------------------
Indonesia South East Sumatra, Offshore North West Java, 39,013 123.2
West Madura, Poleng, and Malacca Strait
----------------------------------------------------------------------------------------------------------------
Under Development
----------------------------------------------------------------------------------------------------------------
Australia North West Shelf - 125.9
----------------------------------------------------------------------------------------------------------------
Indonesia Tangguh - -
----------------------------------------------------------------------------------------------------------------
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Other Oil and Gas Data
Production Cost Data
The following table sets forth average sales prices per barrel of crude oil, condensate and natural gas liquids sold, average sales prices per thousand cubic feet of natural gas sold and production costs per BOE produced for each of our independent, production sharing contract and combined operations for the periods indicated.
Year ended December 31,
---------------------------------
2003 2004 2005
----- ----- -----
(US$) (US$) (US$)
Average Sales Prices of Petroleum Produced
Per Barrel of Crude Oil, Condensate and Natural Gas Liquids Sold........................ 28.11 35.41 47.31
Per Thousand Cubic Feet of Natural Gas Sold............................................. 2.87 2.75 2.82
Offshore China Average Lifting Costs per BOE Produced
Independent............................................................................. 4.78 5.28 5.86
Production Sharing Contracts............................................................ 4.53 5.35 6.81
Offshore China Average.................................................................. 4.66 5.31 6.34
Overseas Average Lifting Costs per BOE Produced
Net Entitlement......................................................................... 9.27 10.72 12.41
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Drilling and Productive Wells
The following table sets forth our exploratory and productive wells drilled offshore China as of December 31, 2005 by independent and production sharing contract operations in each of our operating areas. It includes exploratory and productive wells drilled offshore China prior to our inception in 1982.
As of December 31, 2005
-------------------------------------------------------------------------------
Western Eastern
South South East
Total Bohai Bay China Sea China Sea China Sea Overseas
------ --------- ----------- --------- --------- --------
Independent
Net Exploratory Wells......................... 525 312 170 27 16 -
Net Productive Wells.......................... 574.4 453 88 28 5.4 -
Crude Oil..................................... 541.7 437 74 28 2.7 -
Natural Gas................................... 32.7 16 14 - 2.7 -
46
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Production Sharing Contracts Net Exploratory Wells......................... 20.3 3.8 1.2 0.5 2.6 12.2 Net Productive Wells*......................... 965.4 229.9 20 78.7 - 636.8 Crude Oil..................................... 918.5 229.9 14.4 78.2 - 596.0 Natural Gas................................... 46.9 - 5.6 0.5 - 40.8 Totals Net Exploratory Wells......................... 545.3 315.8 171.2 27.5 18.6 12.2 Net Productive Wells.......................... 1539.8 682.9 108 106.7 5.4 636.8 Crude Oil..................................... 1460.2 666.9 88.4 106.2 2.7 596.0 Natural Gas................................... 79.6 16 19.6 0.5 2.7 40.8 |
Drilling Activity
The following tables set forth our net exploratory and development wells broken down by independent and production sharing contract operations in each of our operating areas for the years ended December 31, 2005, 2004 and 2003.
Year ended December 31, 2005
------------------------------------------------------------------------
Western Eastern
South South East
Bohai China China China
Total Bay Sea Sea Sea Overseas
----- ----- ------- ------- ----- --------
Independent
Net Exploratory Wells Drilled................. 31 15 9 7 - -
Successful................................. 15 8 6 1 - -
Dry........................................ 16 7 3 6 - -
Net Development Wells Drilled................. 84 68 14 2 - -
Successful................................. 84 68 14 2 - -
Dry........................................ - - - - - -
Production Sharing Contracts
Net Exploratory Wells Drilled................. 6.3 3.8 1.2 - - 1.3
Successful................................. 3.8 3.8 - - - -
Dry........................................ 2.5 - 1.2 - - 1.3
Net Development Wells Drilled................. 54 42 - 4 2 6
Successful................................. 54 42 - 4 2 6
Dry........................................ - - - - - -
Year ended December 31, 2004
------------------------------------------------------------------------
Western Eastern
South South East
Bohai China China China
Total Bay Sea Sea Sea Overseas
----- ----- ------- ------- ----- --------
Independent
Net Exploratory Wells Drilled................. 36 19 8 6 3 -
Successful................................. 21 14 3 4 - -
Dry........................................ 15 5 5 2 3 -
Net Development Wells Drilled................. 42 34 4 2 2 -
Successful................................. 42 34 4 2 2 -
Dry........................................ - - - - - -
Production Sharing Contracts
Net Exploratory Wells Drilled................. 4.6 - - - 0.6 4
Successful................................. 3.3 - - - 0.3 3
Dry........................................ 1.3 - - - 0.3 1
Net Development Wells Drilled................. 73 62 - 11 - -
Successful................................. 73 62 - 11 - -
Dry........................................ - - - - - -
47
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Year ended December 31, 2003
------------------------------------------------------------------------
Western Eastern
South South East
Bohai China China China
Total Bay Sea Sea Sea Overseas
----- ----- ------- ------- ----- --------
Independent
Net Exploratory Wells Drilled................. 28.0 16.0 5.0 7.0 - -
Successful................................. 14.0 6.0 3.0 5.0 - -
Dry........................................ 14.0 10.0 2.0 2.0 - -
Net Development Wells Drilled................. 20.1 11.1 9.0 - - -
Successful................................. 20.1 11.1 9.0 - - -
Dry........................................ - - - - - -
Production Sharing Contracts
Net Exploratory Wells Drilled................. 3.5 - - 0.5 - 3.0
Successful................................. - - - - - -
Dry........................................ 3.5 - - 0.5 - 3.0
Net Development Wells Drilled................. 78.0 42.9 - 3.1 - 32.0
Successful................................. 72.0 42.9 - 3.1 - 26.0
Dry........................................ 6.0 - - - - 6.0
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Natural Gas Business
Natural gas is becoming an increasingly important part of our business strategy. We intend to exploit our natural gas reserves to meet rapidly growing demand in the PRC for natural gas. In light of increasing demand for natural gas in the PRC, we have made strategic investments in liquefied natural gas projects outside the PRC and may continue to do so in the future.
PRC Activity
CNOOC, our controlling shareholder, has granted us an option to invest in liquefied natural gas projects or other natural gas related businesses in which CNOOC has invested or proposed to invest. The terms of this option require us, if we exercise the option, to reimburse CNOOC for any contribution CNOOC has made with respect to the facility together with interest calculated at the prevailing market rate. CNOOC's major liquefied natural gas projects in the PRC include:
Guangdong LNG Facility. CNOOC is currently engaged in a project to build China's first proposed liquefied natural gas import facility in Guangdong Province in southern China. We have not entered into any negotiations with CNOOC on the detailed terms under which we may exercise our option to acquire CNOOC's interest in this facility. CNOOC has committed to take a 33% ownership interest in the project. Other partners include Hong Kong Electric Holding Company and Hong Kong & China Gas Company Limited, each committed to 3% ownership interests, and five customers of the proposed facility who have collectively committed to a 31% ownership interest. Through a competitive selection process, BP Global Investment Limited was selected as the foreign partner to take the remaining 30% interest in the project.
The project involves the construction of a receiving terminal with capacity of 3.7 million tonnes per year and a 380-kilometer trunk line. Project construction began in the third quarter of 2003. The facility is scheduled to commence operations in 2006.
Fujian Development. In October 2001, CNOOC signed an agreement with the Fujian provincial government on natural gas market development in Fujian Province. The agreement provides for a joint investment commitment to increase natural gas supply and gas market development in Fujian Province. Both parties are committed to sourcing gas, including liquefied natural gas, from all viable sources, including from offshore production and overseas. The parties also agreed to invest in gas-fired power plants and related infrastructure. The parties contemplate that the Tangguh LNG project in Indonesia will supply liquefied natural gas to this project. In August 2002, CNOOC announced that China's second LNG terminal would be built in Fujian by CNOOC and its partners. CNOOC owns a 60% interest in the
project. Construction for the project began in the third quarter of 2003. The project is scheduled to commence operations in 2008.
Zhejiang Development. In March 2004, CNOOC signed an agreement with Zhejiang provincial government to jointly develop China's third LNG terminal in Zhejiang. The joint development will include construction of an LNG re-gasification terminal, a gas trunk line and a gas-fired power plant. CNOOC will take a 51% interest in the project, with a Zhejiang government affiliate and a Ningbo city government affiliate taking a 29% interest and a 20% interest, respectively, in the project. Based on current plan and estimate, phase one construction of the project will be completed in 2008.
Shanghai LNG Project. In September 2004, CNOOC signed an agreement with a Shanghai municipal government affiliate to build a liquefied natural gas import facility in Shanghai. This project involves the construction of a receiving terminal and a submarine trunk line. Based on current arrangements, CNOOC will take a 45% equity interest in the project, with the Shanghai partner taking the remaining 55% interest. Based on current plan and estimate, phase one construction of the project will be completed in 2008.
Overseas Activity
On January 1, 2003, we acquired BP Muturi Limited, which owned a 44.0% interest in the Muturi production sharing contract offshore Indonesia, and BP Wiriagar Limited's 42.4% interest in the Wiriagar production sharing contract offshore Indonesia for a consideration of approximately US$275 million. The Muturi production sharing contract and Wiriagar production sharing contract, together with the Berau production sharing contract, make up the Tangguh LNG project. The Tangguh LNG project is a greenfield project located offshore Indonesia and is one of the largest natural gas projects in Asia. On May 12, 2004, we completed our acquisition of an additional 20.767% interest in the Muturi production sharing contract from British Gas International Limited for a consideration of US$105.1 million. As a result, our interest in the Muturi production sharing contract increased to 64.767%.
Our interests in these production sharing contracts represent 16.96% of the total reserves and upstream production of the Tangguh LNG project. The remaining interests in the Tangguh LNG project are held by BP Berau, BP Muturi, BP Wiriagar, MI Berau, Nippon, KG Berau, KG Wiriagar and Indonesia Natural Gas Resources Muturi. The partners in the Tangguh LNG project have applied to the Indonesia government to consolidate the three production sharing contracts and expect that BP will serve as the operator for the project.
In connection with our acquisition of interests in the Tangguh LNG project, the partners in the Tangguh LNG project entered into a conditional 25-year supply contract to provide up to 2.6 million tonnes of liquefied natural gas per year to a liquefied natural gas terminal project in Fujian Province, China. Supply of liquefied natural gas under this supply contract is expected to begin in 2009. In July 2004, the Tangguh PSC partners signed the LNG sales and purchases agreement("SPA") with POHANG Steel Co to provide up to 0.55 million tonnes per annum ("mtpa") LNG for 20 years. In August 2004, the Tangguh PSC partners signed the LNG SPA with K-Power. Co. Ltd. to provide up to 0.6 mtpa LNG for 20 years. In October 2004, the Tangguh PSC partners signed the LNG SPA with Sempra Energy LNG Marketing Corp. to provide up to 3.615 mtpa LNG for 20 years.
Given the proximity of the Tangguh LNG project to many major industrial and commercial areas, we expect the project to secure additional LNG supply contracts in the near future.
In May 2003, we signed an agreement with the original North West Shelf project partners to acquire an aggregate interest of 5.3% in the reserves and upstream production of Australia's North West Shelf project for a consideration of US$348 million. We completed this acquisition in December 2004. We booked 125.9 million BOE of gas reserves from this project in 2005. Woodside Petroleum is the operator for the project.
Pursuant to the agreement, we also acquired a 25% interest in the China LNG Joint Venture established by the six original partners to supply liquefied natural gas from the North West Shelf project
to a liquefied natural gas terminal currently being developed by CNOOC, our controlling shareholder, and various partners in Guangdong Province, China. The terms of this transaction require us to pay the other partners in the North West Shelf project for gas production and processing services provided over the term of the China LNG Joint Venture. We are also required to make an upfront tariff payment of approximately US$180 million in relation to liquefied natural gas processing facilities. The partners of the project signed a 25-year LNG supply agreement in December 2004 to provide liquefied natural gas to the Guangdong liquefied natural gas terminal starting 2006.
On October 24, 2003, we entered into an agreement with the joint venture participants of the Gorgon natural gas project in Australia based on a memorandum of understanding, under which we agreed to acquire certain interest in the upstream production and reserves of the Gorgon natural gas project. The memorandum of understanding expired in March 2005.
In April, 2006, we signed Farm-in Agreements with BHP Billiton Limited and Kerr-McGee Australia Exploration and Production Pty Ltd through our subsidiary, CNOOC Australia E&P Pty Ltd, and obtained a 25% interest in four Exploration Permits in the Outer Browse Basin of Australia.
To the extent we invest in businesses and geographic areas where we have limited experience and expertise, we plan to structure our investments as alliances and partnerships with parties possessing the relevant experience and expertise.
Segment Information
The following table shows the breakdown of our total consolidated operating revenues for each of the periods indicated and the percentage contribution of each revenue component to our total operating revenues:
Year ended December 31,
------------------------------------------------------------------------------
2003 2004 2005
------------------- --------------------- ----------------------
Rmb'000 % Rmb'000 % Rmb'000 %
---------- ----- ---------- ----- ---------- -----
Independent operations................... 12,049,054 29.4 16,104,429 29.2 24,419,997 35.2
Production sharing contracts............. 20,231,534 49.4 24,396,521 44.2 38,179,412 55.0
Trading businesses....................... 12,398,661 30.3 18,191,353 32.9 15,901,325 22.9
Unallocated and elimination.............. (3,728,976) (9.1) (3,470,240) (6.3) (9,044,991) (13.1)
---------- ----- ---------- ----- ---------- -----
Total operating revenues................. 40,950,273 100.0 55,222,063 100.0 69,455,743 100.0
---------- ----- ---------- ----- ---------- -----
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We are mainly engaged in the exploration, development and production of crude oil and natural gas primarily offshore China. For the year ended December 31, 2005, approximately 56.1% of our total revenue was contributed by PRC customers. Our overseas activities are mainly conducted in Indonesia, Australia, Myanmar and Nigeria.
Sales and Marketing
Sales of Offshore Crude Oil
We sell crude oil and natural gas to the PRC market through our wholly owned PRC subsidiary, CNOOC China Limited, and sell to the international market through our wholly owned subsidiary, China Offshore Oil (Singapore) International Pte. Ltd., located in Singapore.
We submit production and sales plans to the National Development and Reform Commission each year. Based on information provided by China's three crude oil producers, PetroChina, Sinopec and us, the National Development and Reform Commission compiles an overall national plan to coordinate sales. Our sales of crude oil to the international market also require us to obtain export licenses issued by the PRC Ministry of Commerce. Historically, we have been able to obtain all required export licenses.
Pricing
We price our crude oil with reference to prices for crude oil of comparable quality in the international market, including a premium or discount mutually agreed upon by us and our customers according to market conditions at the time of the sale. Prices are quoted in U.S. dollars, but domestic sales are billed and paid in Renminbi. We currently produce three types of crude oil: Nanhai Light, Medium Grade and Heavy Crude. The table below sets forth the sales and marketing volumes, pricing benchmarks and average realized prices for each of these three types of crude oil for the periods indicated.
Year ended December 31,
------------------------------
2003 2004 2005
-------- -------- --------
Sales and Marketing Volumes (benchmark)
(mmbbls)(1)
Nanhai Light (APPI(2) Tapis(3))............... 20.4 13.1 18.4
Medium Grade (Daqing OSP(4)).................. 69.6 91.8 85.3
Heavy Crude (APPI(2) Duri(5))................. 60.2 63.9 86.7
Average Realized Prices (US$/bbl)(6)
Nanhai Light.................................. US$30.27 US$41.24 US$54.52
Medium Grade.................................. 29.45 37.57 51.88
Heavy Crude................................... 26.56 31.78 42.81
Benchmark Prices (US$/bbl)
APPI(2) Tapis(3) ............................. US$29.59 US$40.68 US$57.05
Daqing OSP(4) ................................ 28.94 36.55 52.56
APPI(2) Duri(5) .............................. 25.46 31.92 42.48
ICP Duri...................................... 27.11 32.09 46.01
ICP(7) Cinta.................................. 28.04 35.62 51.14
ICP Widuri.................................... 28.05 35.65 51.19
West Texas Intermediate (US$/bbl)............. US$31.07 US$41.44 US$61.04
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(1) Includes the sales volumes of us and our foreign partners under
production sharing contracts.
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(2) Asia petroleum price index.
(3) Tapis is a light crude oil produced in Malaysia.
(4) Daqing official selling price. Daqing is a medium crude oil produced in
northeast China.
(5) Duri is a heavy crude oil produced in Indonesia.
(6) Includes the average realized prices of us and our foreign partners
under production sharing contracts.
(7) Indonesian crude price.
The international benchmark crude oil price, West Texas Intermediate, was US$61.13 per barrel as of December 30, 2005 and US$72.50 per barrel as of June 6, 2006.
Markets and Customers
We sell most of our crude oil production in the PRC domestic market. We also sell to customers in South Korea, Japan, the United States and Australia, as well as to crude oil traders in the spot market. For the years ended December 31, 2003, 2004 and 2005, we sold approximately 73.5%, 81.2% and 70.9%, respectively, of our crude oil in the PRC, and exported approximately 26.5%, 18.8% and 29.1%, respectively.
Most of our crude oil production sales in the PRC domestic market are to refineries and petrochemical companies that are affiliates of Sinopec, PetroChina and CNOOC, our controlling shareholder. Sales volume to Sinopec has been high historically because most of the PRC refineries and petrochemical companies were affiliates of Sinopec. After the restructuring of the PRC petroleum industry in July 1998, some refineries and petrochemical companies were transferred to PetroChina from Sinopec. For the years ended December 31, 2003, 2004 and 2005, sales to Sinopec were approximately
36.8%, 38.4% and 41.9%, respectively, and sales to PetroChina were approximately 7.7%, 7.0% and 5.0%, respectively, of our total crude oil sales in the PRC domestic market. Together these two customers accounted for approximately 44.5%, 45.4% and 46.9%, respectively, of our total crude oil sales in the PRC domestic market. For the same periods, sales to affiliates of CNOOC were approximately 43.9%, 41.2% and 48.0%, respectively, of our total crude oil sales in the PRC domestic market. For further information about our sales to CNOOC-affiliated companies, please see note 27 to our consolidated financial statements attached to this annual report.
The following table presents, for the periods indicated, our revenues sourced in the PRC and outside the PRC:
Year ended December 31,
----------------------------
2003 2004 2005
------ ------ ------
(Rmb in millions,
except percentages)
Revenues sourced in the PRC................... 25,416 30,453 38,993
Revenues sourced outside the PRC.............. 15,534 24,769 30,463
------ ------ ------
Total revenues................................ 40,950 55,222 69,456
====== ====== ======
% of revenues sourced outside the PRC......... 37.9% 44.9% 43.9%
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Sales Contracts
We sign sales contracts with our oil customers for each shipment. Sales contracts are standard form contracts containing ordinary commercial terms such as quality, quantity, price, delivery and payment. All sales are made on free-on-board terms. Some of our customers are required to make payments within 30 days after the shipper takes possession of the crude oil cargo at our delivery points. Some of them are required to make prepayment or provide guarantee letters or letter of credit. As of December 31, 2003, 2004 and 2005, most of our account receivables were aged within six months. During the years ended December 31, 2003, 2004 and 2005, the accounts receivable turnover were approximately 47.5 days, 42.3 days and 32.6 days, respectively. Doubtful accounts provision during the years ended December 31, 2003, 2004 and 2005 were Rmb 1.5 million, nil and nil, respectively.
We have a credit control policy, including credit investigation of customers and periodic assessment of credit terms. Sales clerks are directly responsible for liaising with customers on the collection of receivables within the credit terms.
We price our crude oil in U.S. dollars. PRC customers are billed and make actual payments in Renminbi based on the exchange rate prevailing at the bill of lading date, while overseas customers are billed and are required to make payments in U.S. dollars within 30 days of the bill of lading date.
Sales of Natural Gas from Offshore China
Driven by environmental and efficiency concerns, the PRC government is increasingly encouraging residential and industrial use of natural gas to meet primary energy needs. In 1989, in order to encourage natural gas production, the PRC government adopted a favorable royalty treatment, which provides a royalty exemption for natural gas production up to two billion cubic meters (70.6 billion cubic feet or 11.8 million BOE) per year as compared to a royalty exemption available for crude oil production of up to one million tons or approximately seven million BOE per year. The favorable treatment also includes lower royalty rates on incremental increases in natural gas production as compared with the royalty rates for crude oil production.
Since 1989, the PRC government has adopted the following sliding scale of royalty payments of up to 3% of the annual gross production of natural gas:
Annual gross production Royalty rate Less than 2 billion cubic meters................................. - 2-3.5 billion cubic meters....................................... 1.0% 3.5-5 billion cubic meters....................................... 2.0% Above 5 billion cubic meters..................................... 3.0% |
We sell a large portion of our offshore China natural gas production to Hong Kong and Hainan Province. In December 1992, Castle Peak Power in Hong Kong signed a long-term gas supply contract under which it agreed to buy from the partners approximately 102.4 billion cubic feet of natural gas per year on a take-or-pay basis until 2015. Gas prices are quoted and paid in U.S. dollars. The payments are made in U.S. dollars on a monthly basis and are reconciled annually. Castle Peak Power purchased approximately 38.4% of our total offshore China natural gas production for the year ended December 31, 2005. We sold the remaining of our total offshore China natural gas production to mainland China customers, including Hainan Fertilizer, Hainan Yangpu Power, Shandong Yantai Zhongshi Gas and Hainan Refinery.
The price of gas sold to the PRC market is determined by negotiations between us and the buyers based on market conditions. Contracts typically consist of a base price with provisions for annual or seasonal resets and adjustment formulas which depend on a basket of crude oil prices, inflation and various other factors.
Procurement of Services
We usually outsource work in connection with the acquisition and processing of seismic data, reservoir studies, well drilling services, wire logging and perforating services and well control and completion service to independent third parties or our connected parties.
In the development stage, we normally employ independent third parties for single point mooring and floaring production storage and offloading, or FPSO, services and both independent third parties and CNOOC affiliates for other services by entering into contracts with them. We conduct a bidding process to determine who we employ to construct platforms, terminals and pipelines, to drill production wells and to install offshore production facilities. Both independent third parties and CNOOC affiliates participate in the bidding process. We are closely involved in the design and management of services by contractors and exercise extensive control over their performance, including their costs, schedule, quality and HSE (health, safety, and environment) measures.
Competition
Domestic Competition
The petroleum industry is highly competitive. We compete in the PRC and in international markets for customers as well as capital to finance our exploration, development and production activities. Our principal competitors in the PRC market are PetroChina and Sinopec.
We price our crude oil on the basis of comparable crude oil prices in the international market. The majority of our customers for crude oil are refineries affiliated with Sinopec and PetroChina to which we have been selling crude oil, from time to time, since 1982. Based on our dealings with these refineries, we believe that we have established a stable business relationship with them.
We are the dominant player in the oil and gas industry offshore China and are the only company permitted to engage in oil and gas exploration and production offshore China in cooperation with foreign parties. We may face increasing competition in the future from other petroleum companies in obtaining new PRC offshore oil and gas properties, or, as a result of changes in current PRC laws or regulations permitting an expansion of existing companies' activities or new entrants into the industry.
As part of our business strategy, we intend to expand our natural gas business to meet rapidly increasing domestic demand. Our competitors in the PRC natural gas market are PetroChina and, to a lesser extent, Sinopec. Our principal competitor, PetroChina, is the largest supplier of natural gas in China in terms of volume of natural gas supplied. PetroChina's natural gas business benefits from strong
market positions in Beijing, Tianjin, Hebei Province and northern China. We intend to develop related natural gas businesses in China's coastal provinces, where we may face competition from PetroChina and, to a lesser extent, Sinopec. We believe that our extensive natural gas resources base, the proximity of these resources to the markets in China, our relatively advanced technologies and our experienced management team will enable us to compete effectively in the domestic natural gas market.
Foreign Competition and the World Trade Organization
Imports of crude oil are subject to tariffs, import quotas, handling fees and other restrictions. The PRC government also restricts the availability of foreign exchange with which the imports must be purchased. The combination of tariffs, quotas and restrictions on foreign exchange has, to some extent, limited the competition from imported crude oil.
In line with the general progress of its economic reform programs, the PRC government has agreed to reduce import barriers as part of its WTO commitments. As a result of China joining the World Trade Organization as a full member on December 11, 2001, it is required to further reduce its import tariffs and other trade barriers over time, including with respect to certain categories of petroleum and crude oil. Notwithstanding China's WTO related concessions, crude and processed oil remain, for the time being, subject to restrictions on import rights and only certain designated state-owned enterprises may import crude and processed oil. Sinopec, PetroChina and several other domestic companies have received permission to import crude oil on their own. At present, foreign owned or foreign invested entities and other none-state-owned enterprises are subject to certain import quotas.
PRC Fiscal Regimes for Offshore Crude Oil and Natural Gas Activities
We conduct exploration and production operations either independently or jointly with foreign partners under our production sharing contracts. The PRC government has established different fiscal regimes for crude oil and natural gas production from our independent operations and from our production sharing contracts.
Royalties paid to the PRC government are based on our gross production from both independent operations and oil and gas fields under production sharing contracts. The amount of the royalties varies up to 12.5% based on the annual production of the relevant property. The PRC government has provided companies such as ours with a royalty exemption for up to approximately one million tons, or seven million BOE, per year for our crude oil production and for up to 70.6 billion cubic feet, or approximately 11.8 million BOE, per year for our natural gas production. The limits in these exemptions apply to our total production from both independent properties and properties under production sharing contracts. In addition, we pay production taxes to the PRC government equal to 5% of our crude oil and gas produced independently and 5% of our crude oil and gas produced under production sharing contracts.
Under our production sharing contracts, production of crude oil and gas is allocated among us, the foreign partners and the PRC government according to a formula contained in the contracts. Under this formula, a percentage of production under our production sharing contracts is allocated to the PRC government as its share oil. For more information about the allocation of production under the production sharing contracts, see "--Production Sharing Contracts--Offshore China--Production Sharing Formula."
We cannot give any assurance that the fiscal regime outlined above will not change significantly in the future.
Production Sharing Contracts
Offshore China
When exploration and production operations offshore China are conducted through a production sharing contract, the operator of the oil or gas field must submit a detailed evaluation report upon discovery of petroleum reserves. If such a discovery is determined commercially viable pursuant to the procedures set forth in the production sharing contract, an overall development plan must be submitted to
a joint management committee established under the production sharing contract for its review and adoption. After that, the overall development plan must also be submitted to CNOOC. After CNOOC confirms the overall development plan, CNOOC submits it to the National Development and Reform Commission for approval. After receiving the governmental approval, the parties to the production sharing contract may begin the commercial development of the oil and gas field.
As part of the reorganization in 1999, CNOOC transferred all of its economic interests and obligations under its then existing production sharing contracts to us and our subsidiaries. It also undertook to transfer its future production sharing contracts to us and our subsidiaries. As of December 31, 2005, we had 34 production sharing contracts.
Under PRC law, the negotiation of a production sharing contract is a function that only a state-owned national company, such as CNOOC, may perform. This function cannot be transferred to us because we are a pure commercial entity. Since the reorganization, under the terms of its undertaking with us, CNOOC, after entering into production sharing contracts with international oil and gas companies, is required to assign immediately to us all of its economic interests and obligations under the production sharing contracts. For further details, see "Item 4--Information on the Company--History and Development" and "Item 7--Major Shareholders and Related Party Transactions--Related Party Transactions."
New production sharing contracts are entered into between CNOOC and foreign partners primarily through bidding organized by CNOOC and direct negotiation.
Bidding Process
The bidding process typically involves the following steps:
o CNOOC, with the approvals of the PRC government, determines which blocks are open for bidding and prepares geological information packages and bidding documentation for these blocks;
o CNOOC invites foreign enterprises to bid;
o potential bidders are required to provide information, including estimates of minimum work commitments, exploration costs and percentage of share oil payable to the PRC government; and
o CNOOC evaluates each bid and negotiates a production sharing contract with the successful bidder.
Under CNOOC's undertaking with us, we may participate with CNOOC in all negotiations of new production sharing contracts.
The term of a production sharing contract typically lasts for 30 years and has three distinct phases:
o Exploration. The exploration period shall be divided into three phases with three, two and two years for each phase, and may be extended with the consent of CNOOC and the approval of relevant PRC regulatory authorities. During this period, exploratory and appraisal work on the exploration block is conducted in order to discover petroleum and to enable the parties to determine the commercial viability of any petroleum discovery.
o Development. The development period begins on the date on which the relevant PRC regulatory authorities approve the overall development plan, which outlines the recoverable reserves and schedule for developing the discovered petroleum reserves. The development phase ends when the design, construction, installation, drilling and related research work for the realization of petroleum production as provided in the overall development plan have been completed.
o Production. The production period begins when commercial production commences and usually lasts for 15 years. The production period may be extended upon approval of the PRC government.
Minimum Work Commitment
Under production sharing contracts that involve exploration activities, the foreign partners must complete a minimum amount of work during the exploration period, generally including:
o drilling a minimum number of exploration wells;
o producing a fixed amount of seismic data; and
o incurring a minimum amount of exploration expenditures.
Foreign partners are required to bear all exploration costs during the exploration period. However, such exploration costs can be recovered according to the production sharing formula after commercial discoveries are made and production begins. During the exploration period, foreign partners are required to return 25% of the contract area, excluding the development and production areas, to CNOOC at the end of each phase of the exploration period. At the end of the exploration period, all areas, excluding the development areas, production areas and areas under evaluation, must be returned to CNOOC.
Participating Interests
Pursuant to production sharing contracts, we have the right to take participating interests in any oil or gas field discovered in the contract area and may exercise this right after the foreign partners have made commercially viable discoveries. The foreign partners retain the remaining participating interests.
Production Sharing Formula
A chart illustrating the production sharing formula under our production sharing contracts is shown below.
Percentage of annual gross
production Allocation
--------------------------------------------------------------------------------
5.0% Production tax payable to the PRC government, or
VAT(1)
0.0% -- 12.5%(2) Royalty oil payable to the PRC government
50.0% -- 62.5%(2) Cost recovery oil allocated according to the
following priority:
1. recovery of current year operating costs
by us and foreign partner(s);
2. recovery of earlier exploration costs by
foreign partner(s);
3. recovery of development costs by us and
foreign partner(s) based on participating
interests;(3) and
4. any excess, allocated to the remainder
oil.
32.5%(3) Remainder oil allocated according to the
following formula:
1. (1-X) multiplied by 32.5% represents
share oil payable to the PRC government;
and
2. X multiplied by 32.5% represents
remainder oil distributed according to
each partner's participating interest.(4)
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(1) The production tax is also referred to as "value-added tax" (VAT) in PRC
production sharing contracts.
(2) Assumes annual gross production of more than four million metric tons,
approximately 30 million barrels of oil. For lower amounts of
production, the royalty rate will be lower and the cost recovery will be
greater than 50.0% by the amount that the royalty rate is less than
12.5%.
(3) The ratio "X" is agreed in each production sharing contract based on
commercial considerations and ranges from 8% to 100%.
(4) See "--Principal Oil and Gas Regions" for our participating interest
percentage in our production sharing contracts.
The first 5.0% of the annual gross production is paid to the PRC government as production tax. The PRC government is also entitled to a royalty payment equal to the next 0% to 12.5% of the annual gross production based on the following sliding scale:
Royalty
Annual gross production of oil(1) rate
-------------------------------------------------------------------------------
Less than 1 million tons............................................. 0.0%
1-1.5 million tons................................................... 4.0%
1.5-2.0 million tons................................................. 6.0%
2.0-3.0 million tons................................................. 8.0%
3.0-4.0 million tons................................................. 10.0%
Above 4 million tons................................................. 12.5%
---------
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(1) The sliding scale royalty for natural gas reaches a maximum at 3.0%.
Depending on the percentage of the PRC government's royalty payment, an amount equal to the next 50.0% to 62.5% of the annual gross production is allocated to the partners for cost recovery purposes. This amount is allocated according to the following priority schedule:
o recovery of operating costs incurred by the partners during the year;
o recovery of exploration costs, excluding interest accrued thereon, incurred but not yet recovered by foreign partners during the exploration period; and
o recovery of development investments incurred but not yet recovered, and interest accrued in the current year, according to each partner's participating interest.
The remaining 32.5% of the annual gross production, which is referred to as the remainder oil, is distributed to each of the PRC government, us and the foreign partners according to a "ratio X" agreed to by CNOOC and the foreign partners in the production sharing contracts. An amount of oil and gas equal to the product of the remainder oil and one minus the "ratio X" is first distributed to the PRC government as share oil. The balance of the remainder oil, which is referred to as the allocable remainder oil, is then distributed to us and the foreign partners based on each party's participating interest.
We pay production tax and royalty to the PRC government on a monthly basis for oil and natural gas production. At the end of each month, we calculate the production tax and royalty payable and file this information with the PRC tax bureau for current month payment. We make adjustments for any overpayment or underpayment of production tax and royalty at the end of the year.
The foreign partners have the right to either take possession of their allocable remainder oil for sale in the international market, or sell such crude oil to us for resale in the PRC market.
Management and Operator
Under each production sharing contract, a party will be designated as an operator to undertake the execution of the production sharing contract which includes:
o preparing work programs and budgets;
o procuring equipment and materials relating to operations;
o establishing insurance programs; and
o issuing cash-call notices to the parties to the production sharing contract to raise funds.
A joint management committee, which usually consists of six or eight persons, is set up under each production sharing contract to perform supervisory functions, and each of us and the foreign partners as a group has the right to appoint an equal number of representatives to form the joint management committee. The chairman of the joint management committee is the chief representative designated by us and the vice chairman is the chief representative designated by the foreign partners as a group. The joint management committee has the authority to make decisions on matters including:
o reviewing and approving operational and budgetary plans;
o determining the commercial viability of each petroleum discovery;
o reviewing and adopting the overall development plan; and
o approving significant procurements and expenditures, and insurance coverage.
Daily operations of a property subject to a production sharing contract are carried out by the designated operator. The operator is typically responsible for determining and executing operational and budgetary plans and all routine operational matters. Upon discovery of petroleum reserves, the operator is required to submit a detailed overall development plan to the joint management committee.
After the foreign partner has fully recovered its exploration and development costs under production sharing contracts in which the foreign partner is the operator, we have the exclusive right to take over the operation of the particular oil or gas field. With the consent of the foreign partner, we may also take over the operation before the foreign partner has fully recovered its exploration and development costs.
Ownership of Data and Assets
All data, records, samples, vouchers and other original information obtained by foreign partners in the process of exploring, developing and producing offshore petroleum become the property of CNOOC as a state-owned national oil company under PRC law. Through CNOOC, we have unlimited and unrestricted access to the data.
Our foreign partners and we have joint ownership in all of the assets purchased, installed or constructed under the production sharing contract until either:
o the foreign partners have fully recovered their development costs, or
o upon the expiration of the production sharing contract.
After that, as a state-owned national oil company under PRC law, CNOOC will assume ownership of all of the assets under the production sharing contracts; our foreign partners and we retain the exclusive right to use the assets during the production period.
Abandonment Costs
Any party to our production sharing contracts must give prior written notice to the other party or parties if it plans to abandon production of the oil or gas field within the contracted area. If the other party or parties agree to abandon production from the oil or gas field, all parties pay abandonment costs in proportion to their respective percentage of participating interests in the field. If we decide not to abandon production upon notice from a foreign partner, all of such foreign partner's rights and obligations under the production sharing contract in respect of the oil or gas field, including the responsibilities for payment of abandonment costs, terminate automatically. We bear the abandonment costs if we decide to abandon production after an initial decision to proceed with production. In 2005, we accrued for dismantlement costs of approximately Rmb 100 million for oil and gas fields governed by production sharing contracts.
Production Tax
The PRC production tax rate on the oil and natural gas produced under production sharing contracts is currently 5%.
Overseas
In addition to our production sharing arrangements in the PRC, we have made production sharing arrangements in several foreign countries and regions, including Indonesia, Australia, Morocco, Nigeria and Myanmar etc.
We have interests in production sharing contracts and a technical assistance contract in Indonesia. Indonesian oil and gas activities are currently supervised and controlled by BP MIGAS, the executive agency for upstream oil and gas activities in Indonesia. Under current Indonesian law, BP MIGAS is the sole entity authorized to manage Indonesia's oil and gas resources on behalf of the Indonesian government and to enter into agreements with foreign and domestic companies, functions previously conducted by Pertamina.
BP MIGAS enters into production sharing arrangements with private energy companies. The arrangements allow such private companies to explore and develop oil and gas in specified areas in exchange for a percentage interest in the production from such areas. These production sharing arrangements are mainly governed by production sharing contracts, as well as by technical assistance contracts, each of which is described further below. Upon entering into a production sharing arrangement, the operator commits to spending a specified sum of capital to implement an agreed work program.
Production sharing arrangements in Indonesia are based on the following principles:
o contractors are responsible for all investments (exploration, development and production);
o a contractor's investment and production costs are recovered from production;
o the profit split between the Indonesian government and contractors is based on production after the cost recovery, domestic market oil, etc;
o ownership of tangible assets remains with the Indonesian government; and
o overall control lies with BP MIGAS on behalf of the Indonesian government.
An original production sharing contract is awarded to explore for and to establish commercial hydrocarbon reserves in a specified area prior to commercial production. The contract is generally awarded for a number of years depending on the contract terms, subject to discovery of commercial quantities of oil and gas within a certain period. The term of the exploration period can generally be extended by agreement between the contractor and BP MIGAS. The contractor is generally required to relinquish specified percentages of the contract area by specified dates unless such designated areas correspond to the surface area of any field in which oil and gas has been discovered.
BP MIGAS is typically responsible for managing all production sharing contract operations, assuming and discharging the contractor from all taxes (other than Indonesian corporate taxes, taxes on interest, dividends and royalties and others as set forth in the production sharing contract), obtaining approvals and permits needed by the project and approving the contractor's work program and budget. The responsibilities of a contractor under a production sharing contract generally include advancing necessary funds, furnishing technical aid and preparing and executing the work program and budget. In return, the contractor may freely lift, dispose of and export its share of crude oil and retain the proceeds obtained from its share.
The contractor generally has the right to recover all finding and developing costs, as well as operating costs, in each production sharing contract against available revenues generated after deduction of first tranche production of oil and gas, or FTP. Under FTP terms, the parties are entitled to take and receive an annually agreed percentage of production from each production zone or formation each year,
prior to any deduction for recovery of operating costs, investment credits and handling of production. FTP for each year is generally shared between the Indonesian government and the contractor in accordance with the standard sharing splits. The balance is available for cost recovery. Post-cost recovery, the Indonesian government is entitled to a specified profit share of crude oil production and of natural gas production. Under each production sharing arrangement, the contractor is obligated to pay Indonesian corporate taxes on its specified profit share at the Indonesian corporate tax rate in effect at the time the agreement is executed.
Production sharing contracts in Indonesia have long included a provision known as the domestic market obligation, or DMO, under which a contractor must sell a specified percentage of its crude oil to the local market at a reduced price. After the first five years of a field's production, the contractor is required to supply, the lesser of (i) 25% of the contractor's before-tax share of total crude oil production or (ii) the contractor's share of profit oil. This reduced price varies from contract to contract and is calculated at the point of export.
The new Indonesian Oil and Gas Law, which came into force on November 23, 2001, stipulates a gas DMO, under which the contractor must sell up to 25% of its gas entitlement to the domestic market, although it is not clear at what price this gas must be sold. Production sharing contract parties have stated that they would prefer that this price be determined on the open market, and that it be recognized that if there are pre-existing gas sale agreements, or if the project produces LNG for export, the obligation to sell gas into the local market may not be feasible.
Technical assistance contracts are awarded when a field has prior or existing production. The oil or gas production is divided into non-shareable and shareable portions. The non-shareable portion represents the expected production from the field at the time the technical assistance contract is signed and is retained by Pertamina. The shareable portion represents the additional production resulting from the operator's investment in the field and is split in the same way as for an original production sharing contract as described above.
We also have interests in production sharing contracts in various countries, including Morocco, Nigeria and Myanmar. On May 3, 2004, we, through our wholly owned subsidiary CNOOC Morocco Limited, acquired from Vanco Energy Corporation an 11.25% interest in a petroleum agreement for Ras Tafelney offshore Morocco. In 2004 and 2005, we, Golden Aaron Pte. Ltd. and China Global Construction Limited formed a joint venture in Myanmar and had entered into six production sharing contracts as of June 8, 2005. In January 2006, we acquired a 35% working interest in the contract for OPL 229 in Nigeria. In April 2006, we acquired a 45% interest in offshore Nigerian oil mining license "OML 130".
On February 17, 2006, we signed a production sharing contract for block S in Equatorial Guinea. On April 28, 2006, through our wholly-owned subsidiary CNOOC Africa Limited, we signed production sharing contracts for six blocks in Kenya. We will act as the operator under these production sharing contracts.
Geophysical Survey Agreements
Historically, we conducted our exploration operations through geophysical survey agreements with leading international oil and gas companies through production sharing contracts. For the year ended December 31, 2005, we did not enter into any geophysical survey agreements with third parties, but may enter such agreements in the future.
Geophysical survey agreements are designed for foreign petroleum companies to conduct certain geophysical exploration before they decide whether to enter into production sharing contract negotiations with CNOOC. Geophysical survey agreements usually have a term of less than two years. International oil and gas companies must complete all of the work confirmed by both parties in the agreements and bear all the costs and expenses. If a foreign partner decides to enter into a production sharing contract with CNOOC, the costs and expenses that the foreign partner incurs in conducting geophysical survey may be recovered by the foreign partner in the production period subject to our confirmation. CNOOC
has the sole ownership of all data and information obtained by the foreign partner during the geophysical survey, and, through CNOOC, we have access to all such data.
Under PRC law, the negotiation of a geophysical survey agreement is a function that only a state-owned national company, such as CNOOC, can perform. As part of its reorganization in 1999, CNOOC transferred to us all its commercial rights under a geophysical survey agreement, which has since been completed. In the future, CNOOC has agreed to assign to us all of its commercial rights under any geophysical survey agreements it enters into with international oil and gas companies.
Operating Hazards and Uninsured Risks
Our operations are subject to hazards and risks inherent in the drilling, production and transportation of crude oil and natural gas, including pipeline ruptures and spills, fires, explosions, encountering formations with abnormal pressures, blowouts, cratering and natural disasters, any of which can result in loss of hydrocarbons, environmental pollution and other damage to our properties and the properties of operators under production sharing contracts. In addition, certain of our crude oil and natural gas operations are located in areas that are subject to tropical weather disturbances, some of which can be severe enough to cause substantial damage to facilities and interrupt production.
As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses, including the loss of wells, blowouts, pipeline leakage or other damage, certain costs of pollution control and physical damages on certain assets. Our insurance coverage includes oil and gas field properties and construction insurance, marine hull insurance, protection and indemnity insurance, drilling equipment insurance, marine cargo insurance and third party and comprehensive general liability insurance. We also carry business interruption insurance for Pinghu Field. In Indonesia, the operators of the production sharing contracts in which we participate are required by local law to purchase insurance policies customarily taken out by international petroleum companies. As of December 31, 2005, we paid an annual insurance premium of approximately Rmb 163.1 million to maintain our insurance coverage. We believe that our level of insurance is adequate and customary for the PRC petroleum industry and international practices. However, we may not have sufficient coverage for some of the risks we face, either because insurance is not available or because of high premium costs. See "Item 3--Key Information--Risk Factors--Risks relating to our business--Exploration, development and production risks and natural disasters affect our operations and could result in losses that are not covered by insurance."
For the year ended December 31, 2005, we did not have any uninsured losses.
Research and Development
Historically, we used research and development services provided by CNOOC's affiliates, including CNOOC Research Center, as well as other international research entities. In July 2003, we established our own research center, CNOOC (China) Limited Research Center, to undertake most of our research and development activities. During the years ended December 31, 2003, 2004 and 2005, our research and development costs were approximately Rmb 165.8 million, Rmb 268.5 million and Rmb 401.6 million, respectively.
Our research efforts have focused on:
o enhancing oil recovery in offshore China heavy oil fields;
o engineering and developing deepwater fields;
o engineering and developing marginal fields; and
o developing new offshore exploration technology and new exploration areas.
We are also studying various ways of utilizing our existing reserves including:
o building more accurate reservoir models;
o re-processing existing seismic and log data to locate potential areas near existing fields to be integrated into existing production facilities; and
o researching ways to reduce development risks for marginal fields and to group fields into joint developments to share common facilities.
For further information regarding our agreement with CNOOC Research Center, see "Item 7--Major Shareholders and Related Party Transactions--Related Party Transactions--Categories of Connected Transactions--Research and development services."
Regulatory Framework
Government Control
The PRC government owns all of China's petroleum resources and exercises regulatory control over petroleum exploration and production activities in China. We are required to obtain various governmental approvals, including those from the Ministry of Land and Resources, the State Administration for Environmental Protection, the National Development and Reform Commission and the Ministry of Commerce before we are permitted to conduct production activities. Our sales are coordinated by the National Development and Reform Commission. For joint exploration and production with foreign enterprises, we are required to obtain various governmental approvals, through CNOOC, including those from:
o the Ministry of Land and Resources, for a permit for exploration blocks, an approval of a geological reserve report submitted through CNOOC;
o the Ministry of Land and Resources or the National Development and Reform Commission to designate such blocks as an area for foreign cooperation;
o the Ministry of Commerce for the production sharing contracts between CNOOC and the foreign enterprises;
o the State Administration for Environmental Protection for an environmental impact report submitted through CNOOC;
o the National Development and Reform Commission for an overall development plan submitted through CNOOC; and
o the Ministry of Land and Resources, for an extraction permit.
Since the conclusion of the meeting of the National People's Congress in March 2003, the PRC government has undergone substantial reform. It is believed that market-oriented reforms will continue.
Special Policies Applicable to the Offshore Petroleum Industry in China
Since the early 1980s, the PRC government has adopted policies and measures to encourage the development of the offshore petroleum industry. These policies and measures, which were applicable to CNOOC's operations prior to the reorganization, became applicable to our operations in accordance with an undertaking agreement between us and CNOOC. As approved by the relevant PRC government authorities, including the Ministry of Land and Resources and the Ministry of Commerce, these policies and measures have provided us with the following benefits:
o the exclusive right to explore for, develop and produce petroleum offshore China in cooperation with international oil and gas companies and to sell this petroleum in China;
o the flexibility to set our prices in accordance with international market prices and determine where to sell our crude oil, with only minimal supervision from the PRC government;
o a favorable 5% production tax on the crude oil and natural gas we produce both independently and under production sharing contracts, rather than the 17% rate generally applicable to the independent production of domestic petroleum companies in China; and
o production from one of our major gas fields, Yacheng 13-1, is exempt from the PRC royalties under an approval by the State Tax Bureau in May 1989 and the 5% production tax applicable to the oil and gas produced under other production sharing contracts in accordance with an approval by the Ministry of Finance in August 1985. Our natural gas revenues from Yacheng 13-1 for each of the five years ended December 31, 2001, 2002, 2003, 2004 and 2005 represented approximately 7.3%, 5.6%, 3.6%, 3.2% and 2.3%, respectively, of our total oil and natural gas sales in those years.
Although we historically have benefited from the foregoing special policies, we cannot assure that such policies will continue in the future. We are also regulated by the PRC government in various other aspects of our business and operations, including required government approvals for new independent development and production projects and new production sharing contracts. For a further discussion of ways in which we are regulated by the PRC government, see "--Government Control."
Policies Applicable to International Oil and Gas Companies Operating Offshore China
The PRC government encourages foreign participation in offshore petroleum exploration and production through exclusive cooperation with CNOOC. In 1982, the State Council promulgated the Regulation of the People's Republic of China on Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises, which grants to CNOOC the exclusive right to enter into joint cooperation arrangements with foreign enterprises for offshore petroleum exploration and production. From 1982 to 2000, CNOOC successfully completed several rounds of bidding for offshore petroleum exploration and production projects, and many international oil and gas companies have been involved and awarded exploration blocks for joint exploration, development and production with CNOOC.
In October 2001, the State Council amended the regulation referred to above as a part of the comprehensive review of all business laws and regulations by the Chinese government to ensure their compliance with its WTO commitments. The amendment revised such terms in the law governing offshore exploration as restrictive provisions on technology transfers and domestic components requirements in procurement. The removal of these restrictions will provide a level playing field for all oilfield service contractors, domestic or international. These amendments are expected to benefit CNOOC's businesses as well as our exploration and production business and further increase production sharing contract activities offshore China. CNOOC will continue to enjoy the exclusive right to conduct production sharing contract activities with foreign contractors and is entitled to all rights and privileges under the previous regulation. The regulation also states that CNOOC, as a state-owned enterprise, is to be in charge of all efforts to exploit petroleum resources with contractors in Chinese waters. Currently, international oil and gas companies can only undertake offshore petroleum exploration and production activities in China after they have entered into a production sharing contract with CNOOC.
In March 2006, the State Council issued the Decision to Impose a Levy on Special Oil Income and the Ministry of Finance promulgated the Management Rules on the Administration of Special Oil Income Levy, effective March 26, 2006. According to the rules, the Ministry of Finance will impose a special oil income levy on any income derived from the sales by an oil exploration and production company of locally produced crude oil at a price which exceeds US$40 per barrel. The special oil income levy will be collected on a quarterly basis. As the international oil prices, exchange rate of Renminbi and our crude oil production fluctuate, the full impact on us as a result of the implementation of the Special oil income levy cannot be ascertained at this time.
Environmental Regulation
Our operations are required to comply with various applicable environmental laws and regulations, including PRC laws and regulations administered by the central and local government environmental protection bureaus for our operations in China. We are also subject to the environmental rules introduced by governments in whose jurisdictions our onshore logistical support facilities are located. The State Administration for Environmental Protection sets national environmental protection standards and local environmental protection bureaus may set stricter local standards.
The relevant environment protection bureau must approve or review each stage of a project. We must file an environmental impact statement or, in some cases, an environmental impact assessment outline before an approval can be issued. The filing must demonstrate that the project conforms to applicable environmental standards. The relevant environmental protection bureau generally issues approvals and permits for projects using modern pollution control measurement technology.
The PRC national and local environmental laws and regulations impose fees for the discharge of waste substances above prescribed levels, require the payment of fines for serious violations and provide that the PRC national and local governments may at their own discretion close or suspend any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage.
For the year ended December 31, 2005, we did not experience any major incident of oil spillage.
The PRC environmental laws require offshore petroleum developers to pay abandonment costs. Our financial statements include provisions for costs associated with the dismantlement of oil and gas fields during the years ended December 31, 2003, 2004 and 2005 of approximately Rmb 167.3 million, Rmb 201.6 million and Rmb 252.9 million, respectively.
Environmental protection and prevention costs and expenses in connection with the operation of offshore petroleum exploitation are covered under each individual production sharing contract. Environmental protection and prevention costs and expenses represented on average approximately 4% of our annual operating costs relating to projects constructed offshore China during the three years ended December 31, 2005. Each platform has its own environmental protection and safety staff responsible for monitoring and operating the environmental protection equipment. However, no assurance can be given that the PRC government will not impose new or stricter regulations which would require additional environmental protection expenditures.
We are not currently involved in any environmental claims and believe that our environmental protection systems and facilities are adequate for us to comply with applicable national and local environmental protection regulations.
Legal Proceedings
We are not a defendant in any material litigation, claim or arbitration, and know of no pending or threatened proceeding which would have a material adverse effect on our financial condition.
Patents and Trademarks
We own or have licenses to use two trademarks which are of value in the conduct of our business. CNOOC is the owner of the "CNOOC" trademark. Under two non-exclusive license agreements between CNOOC and us, we have obtained the right to use this trademark for a nominal consideration.
Real Properties
Our corporate headquarters is located in Hong Kong. We also lease several other properties from CNOOC in China and Singapore. The rental payments under these lease agreements are determined with
reference to market rates. For further details regarding the terms of these leases, see "Item 7--Major Shareholders and Related Party Transactions--Related Party Transactions--Categories of Connected Transactions--Lease agreement in respect of the Nanshan Terminal," and "--Lease and property management services."
We own the following main property interests in the PRC:
o land, various buildings and structures at Xingcheng JZ 20-2 Natural Gas Separating Plant, Dongyao Village, Shuangsu Township, Xingcheng City, Liaoning Province;
o land, various buildings and structures located at Boxi Processing Plant, South of Jintang Subway, Tanggu District, Tianjin City;
o land, various buildings and structures at Weizhou Terminal Processing Plant, Weizhou Island, Weizhou Town, Beihai City, Guangxi Zhuang Autonomous Region;
o a parcel of land at Suizhong 36-1 Base, Xiaolihuang Village, Gaoling Town, Suizhong County, Liaoning Province;
o land, various buildings and structures located at Bonan Processing Plant, Jimu Island, Longgang Development Zone, Longkou City, Shandong Province;
o land, various buildings and structures located at Dongfang 1-1 Processing Plant, Shugang Road, Dongfang City, Hainan Province;
o 50% interest in land, various buildings and structures located at Panyu-Huizhou Gas Processing Plant, Huandao North Road, Hengqin Town, Zhuhai City, Guangdong Province; and
o land, various buildings and structures located at Chunxiao Gas Processing Plant, Chunxiao Road, Chunxiao Town, Beilun District, Ningbo City, Zhejiang Province.
Employees and Employee Benefits
During the years ended December 31, 2003, 2004 and 2005, we employed 2,447 persons, 2,524 persons and 2,696 persons, respectively. Of the 2,696 employees we employed as of December 31, 2005, approximately 72.4% were involved in petroleum exploration, development and production activities, approximately 7.1% were involved in accounts and finance work and the remainder were senior management, coordinators of production sharing contracts and safety and environmental supervisors. Workers for the operation of the oil and gas fields, maintenance personnel and ancillary service workers are hired on a contract basis.
We have a trade union that:
o protects employees' rights;
o organizes educational programs;
o assists in the fulfillment of economic objectives;
o encourages employee participation in management decisions; and
o assists in mediating disputes between us and individual employees.
We have not been subjected to any strikes or other labor disturbances and believe that relations with our employees are good.
The total remuneration of employees includes salary, bonuses and allowances. Bonus for any given period is based primarily on individual and our performance. Employees also receive subsidized housing, health benefits and other miscellaneous subsidies.
We have implemented an occupational health and safety program similar to that employed by other international oil and gas companies. Under this program, we closely monitor and record health and safety incidents and promptly report them to government agencies and organizations. On March 15, 2000, we finalized and implemented our occupational health and safety program. We believe this program is broadly in line with the United States government's Occupational Safety & Health Administration guidelines.
All full-time employees in the PRC are covered by a government-regulated pension. The PRC government is responsible for the pension of these retired employees. We are required to contribute monthly approximately 9% to 22% of our employees' salaries, with each employee contributing 4% to 8% of his or her salary for retirement. The contributions vary from region to region.
Our Indonesian subsidiaries employ approximately 900 employees, including approximately 50 expatriates. We provide benefits to expatriates that we believe to be in line with customary international practices. Our local staff in Indonesia enjoy welfare benefits mandated by Indonesian labor laws.
For further details regarding retirement benefits, see note 31 to our consolidated financial statements attached to this annual report.
Health, Safety and Environmental Policy
We are committed to the promotion of the concept and culture of health, safety and environmental ("HSE") protection among all the staff. The oil and gas field development projects that were started during the year all underwent simultaneous reviews on HSE protection in accordance with the laws of the PRC. In 2005, nearly all the staff from the management to the operational level participated in our HSE training sessions. In addition, the scope of our HSE training has been extended to the employees of contractors. More than 10,000 person-time from our contractors participated in our training sessions in 2005.
In 2005, we also placed considerable emphasis on safety in helicopter, diving and vehicle operations. Professional auditors were hired to conduct annual safety audit and safety checks on 11 leased helicopters. In 2006, we plan to carry out special audits on diving operations.
We introduced the system of occupation health profiles to all branches in order to strengthen the health management of offshore operating staff in addition to requiring them to submit health certificates. The submitted health data is to be analyzed so as to offer the staff proactive and constructive advices on health improvement.
As an International Association of Oil and Gas Producer (OGP) member, we assisted OGP in organizing the "Workshop on Safety Management of Offshore Accidents" in 2005.
In 2005, we organized a large-scale offshore emergency drill. There were over 300 participants, including our offshore service contractors and transportation service contractors. We continued to work with other entities to set up Oil Spill Response Base in Tangguh, Longkou, Weizhou and Zhuhai. We believe such initiatives strengthened our capability in handling offshore oil spill emergencies.
In 2005, we made sustained progress in respect of HSE management. During the year, we were neither involved in any material injury liability case, spillage or pollution incidents, nor subject to any safety-related liability claims for losses of over US$120,000. Our OSHA Statistics results continued to be above average when compared with international peers.
We seek to align our operations with international standards and have been applying for the ISO14000 environmental management qualification for our oilfields. By the end of 2005, our
Qinhuangdao 32-6 oilfield and Wenchang oilfields were certified under the ISO14000 environmental management system.
We are a member of the "National Offshore Oil Spillage Response Plan" organized by the State Oceanic Administration. In 2005, we continued to conduct researches and participated in discussions on issues relating to resources sharing and risk assessment in the event of oil spillage offshore China. We also continued to cooperate with the Bohai Bay Oil Spillage Awareness Center and facilitated the establishment of the oil spillage response organizations in the South China Sea.
In accordance with changes to the statistical requirements of the U.S. Occupational Safety and Health Administration, or OSHA, we revised our internal documentation procedures to keep abreast with OSHA's standard, which uses OGP reporting methods to record the differences and standards of particular incidents. We have also adopted new OSHA and incident reporting forms in order to better meet the requirements of international associations such as OGP and API. We deliver working hour statistics and incident reports to investors and API on a quarterly basis.
Human Resources Development
As an oil and gas exploration and production company operating in highly competitive markets, we depend in large part on our employees for effective and efficient operations. We devote significant resources to train our technical employees. During 2005, we held 818 training workshops, which were attended by 12,215 participants. To ensure smooth implementation of our overseas strategy, we have established an international human resources system to attract and retain talents in the international market. During the year, we completed the "Compensation Administration and Adjustment Plan". We also introduced various incentive schemes, including the "Project Team Incentive Scheme" and the "New discovery Incentive Scheme". With respect to overseas staff, we continued to improve our remuneration policy to make it competitive in the international market. We also started to build up an international recruitment database to support our overseas business expansion.
We have adopted four stock option schemes for our senior management since February 4, 2001, and granted options under three of the schemes.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
You should read the following discussion and analysis in conjunction with our consolidated financial statements, selected historical consolidated financial data and operating and reserves data, in each case together with the accompanying notes, contained in this annual report. Our consolidated financial statements have been prepared in accordance with Hong Kong GAAP, which differ in certain material respects from U.S. GAAP. Note 38 to our consolidated financial statements attached to this annual report provides an explanation of our reconciliation to U.S. GAAP of net income and shareholders' equity. Certain statements set forth below constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. See "Forward-Looking Statements."
Overview
We are an oil and gas company engaged in the exploration, development and production of crude oil and natural gas primarily offshore China. We are the dominant producer of crude oil and natural gas offshore China and the only company permitted to conduct exploration and production activities with international oil and gas companies offshore China. As of December 31, 2005, we had estimated net proved reserves of 2,362.6 million BOE, comprised of 1,457.4 million barrels of crude oil and condensate
and 5,430.9 billion cubic feet of natural gas. In 2005, our net production averaged 356,868 barrels per day of crude oil, condensate and natural gas liquids and 389.6 million cubic feet per day of natural gas, which together totaled 424,108 BOE per day.
Our revenues and profitability are largely determined by our production volume and the prices we realize for our crude oil and natural gas, as well as the costs of our exploration and development activities. Although crude oil prices depend on various market factors and have been volatile historically, our production volume has increased steadily over the past few years.
The following table sets forth our net production of crude oil, condensate and natural gas liquids and net income for the periods indicated.
Year ended December 31,
-----------------------------------------------------------
2001 2002 2003 2004 2005
------- ------- ------- ------- -------
Net production of crude oil,
condensate and natural gas
liquids (BOE/day) ........... 228,874 298,625 306,464 319,436 356,868
Net production of natural gas
(mmcf/day) .................. 195.0 272.6 291.0 364.1 389.6
Net income (Rmb in millions)
(Restated) .................. 7,957.6 9,207.0 11,497.0 16,139.0 25,323.1
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We sold 46.9% of our crude oil production in 2005 to customers affiliated with Sinopec or PetroChina in the PRC domestic market. We sold 38.4% of our natural gas production offshore China in 2005 to Castle Peak Power Company Limited in Hong Kong under a long-term take-or-pay contract.
For a further description of these factors and certain other factors affecting our financial performance, see "Item 3--Key Information--Risk Factors."
Relationship with CNOOC
Prior to the October 1999 reorganization of CNOOC, we did not exist as a separate legal entity and our business and operations were conducted by CNOOC and its various affiliates. In connection with the reorganization, CNOOC's oil and gas exploration, development, production and sales business and operations conducted both inside and outside China were transferred to us. See "Item 4--Information on the Company--History and Development--Corporate Structure," "Item 7--Major Shareholders and Related Party Transactions" and note 27 to our consolidated financial statements attached to this annual report.
Before the reorganization, certain PRC affiliates of CNOOC provided various materials, utilities and ancillary services for CNOOC's exploration and production activities. In connection with the reorganization, we entered into various agreements under which we continued to use various services and properties provided by these CNOOC affiliates. These agreements include: (i) a materials, utilities and ancillary services supply agreement; (ii) technical service agreements; (iii) agreements for the sale of crude oil, condensate oil and liquefied petroleum gas; (iv) various lease agreements with other affiliates of CNOOC for office and residential premises used by us; and (v) a research and development services agreement with China Offshore Oil Research Center for the provision of general geophysical exploration services, comprehensive exploration research services, information technology services and seismic study. We have renewed these agreements on substantially the same terms. In 2002, CNOOC consolidated most of its oilfield services operations and established China Oilfield Services Limited. This CNOOC affiliate now provides most of the technical services to us.
For a description of the services provided under these agreements, see "Item 7--Major Shareholders and Related Party Transactions."
Acquisitions and Overseas Activities
On January 1, 2003, we acquired BP Muturi Limited, which owned a 44.0% interest in the Muturi production sharing contract offshore Indonesia, and BP Wiriagar Limited's 42.4% interest in the Wiriagar
production sharing contract offshore Indonesia for a total consideration of approximately US$275 million. The Muturi production sharing contract and Wiriagar production sharing contract, together with the Berau production sharing contract, make up the Tangguh LNG project. Our interests in these production sharing contracts represented approximately 12.5% of the total reserves and upstream production of the Tangguh LNG project. On May 12, 2004, we completed our acquisition of an additional 20.767% interest in the Muturi production sharing contract from the BG Group. As a result, our interests in these production sharing contracts now represent 16.96% of the total reserves and upstream production of the Tangguh LNG project. The remaining interests are held by BP Berau, BP Muturi, BP Wiriagar, MI Berau, Nippon, BG, KG Berau, KG Wiriagar and Indonesia Natural Gas Resources Muturi. The Tangguh LNG project is a greenfield project located offshore Indonesia and represents one of the largest natural gas projects in Asia.
In connection with our acquisition of interests in the Tangguh LNG project, the partners in the Tangguh LNG project entered into a conditional 25-year supply contract to provide up to 2.6 million tonnes of liquefied natural gas per year to a liquefied natural gas terminal project in Fujian Province, China. Supply of liquefied natural gas under this supply contract is expected to begin in 2008.
In May 2003, we signed an agreement with the original North West Shelf project partners to acquire an aggregate interest of 5.3% in the upstream production and reserves of the North West Shelf project for a consideration of US$348 million, plus an upfront tariff payment relating to certain LNG processing facilities amounting to US$180 million. We also agreed to acquire a 25% interest in the China LNG joint venture established by the North West Shelf project partners to supply liquefied natural gas from the North West Shelf project to a liquefied natural gas terminal currently being developed by CNOOC, our controlling shareholder, and various partners in Guangdong Province, China. We completed the acquisition in December 2004. Our share of reserves from this project is expected to be approximately 1.2 trillion cubic feet of natural gas. Our share of natural gas together with associated liquids is expected to be approximately 210 million BOE. The partners of the project signed a 25-year LNG supply agreement in December 2004 to provide liquefied natural gas to the Guangdong liquefied natural gas terminal starting 2006. Woodside Petroleum is the operator for the project. See "Item 4--Information on the Company--Business Overview--Natural Gas Business--Overseas Activity."
On October 24, 2003, we entered into an agreement with the joint venture participants of the Gorgon natural gas project in Australia based on a memorandum of understanding previously entered into with them, under which we agreed to acquire certain interest in the upstream production and reserves of the Gorgon natural gas project. The memorandum of understanding expired in March 2005.
At the end of 2004, we and Golden Aaron Pte. Ltd. and China Global Construction Limited formed a joint venture in Myanmar and entered into six production sharing contracts as of June 8, 2005. We will act as the operator under these production sharing contracts.
In early 2005, through our wholly owned subsidiary CNOOC Belgium BVBA, we acquired a 16.69% interest in MEG Energy Corp., a Canada based oil sand company, at a consideration of 150 million Canadian dollars.
On January 8, 2006, we signed an agreement with South Atlantic Petroleum Limited to acquire a 45% working interest in an offshore oil-mining license 130 "OML 130" in Nigeria for a cash consideration of US$2.268 billion. The acquisition was completed in April 2006. We also acquired a 35% working interest in the contract for OPL 229 in Nigeria for a consideration of US$60 million. On February 17, 2006, we signed a production sharing contract for block S in Equatorial Guinea.
On April 28, 2006, through our wholly-owned subsidiary CNOOC Africa Limited, we signed production sharing contracts for six blocks with a total area of 115,343 square kilometers in Kenya.
Production Sharing Contracts Offshore China
We conduct a significant amount of our offshore China oil and gas activities through production sharing contracts with international oil and gas companies. Under these production sharing contracts, our
foreign partners are required to bear all exploration costs during the exploration period. The parties to the contracts may recover exploration costs after commercial discoveries are made and production begins. The amount of exploration costs recoverable is derived from a production sharing formula set forth in each contract. Our production sharing contracts provide us with the option to take participating interests in properties covered by the production sharing contracts which we may exercise after the foreign partners have made viable commercial discoveries. The foreign partners retain the remaining participating interests. We and the foreign partners fund our development and operating costs according to our respective participating interests. Based on a formula contained in the applicable contract, we are entitled to allocate specified amounts of the annual gross production of petroleum from those producing fields. See "Item 4--Information on the Company--Business Overview--Production Sharing Contracts--Offshore China--Production Sharing Formula."
Before we exercise our option to take a participating interest in a production sharing contract, we do not account for the exploration costs incurred, as these costs were incurred by our foreign partners. After we exercise the option to take a participating interest in a production sharing contract, we account for the oil and gas properties using the "proportional method" under which we recognize our share of development costs, revenues and expenses from such operations based on our participating interest in the production sharing contracts. See note 5 to our consolidated financial statements attached to this annual report.
The foreign partners have the right to either take possession of their petroleum for sale in the international market or sell their petroleum to us for resale in the PRC market. See "Item 4--Information on the Company--Business Overview--Production Sharing Contracts--Offshore China."
As described above, production of crude oil and natural gas is allocated among us, our foreign partners and the PRC government according to a formula contained in the production sharing contracts. We have excluded the government's share oil from net sales in our historical consolidated financial statements. Since our historical consolidated financial statements already exclude the government's share oil from our net sales figure, we do not expect any future share oil payments to affect our results of operations or operating cash flows differently than the effects reflected in our historical consolidated financial statement. For information regarding the historical amounts of government share oil payable to the government, see note 5 to our consolidated financial statements attached to this annual report. For information regarding treatment of the PRC government's share oil, see "Item 4--Information on the Company--Business Overview--Production Sharing Contracts--Offshore China--Production Sharing Formula."
Shanghai Petroleum and Natural Gas Company Limited, which owns the Pinghu field, is our associated company. Our 30% equity interest in this company is accounted for using the equity method, under which our proportionate share of the net income or loss of Shanghai Petroleum and Natural Gas Company Limited is included in our consolidated statements of income as a share of income or loss of the associated company.
Our cost structures for production sharing contracts and for independent operations are different. The total expenses per unit of production under production sharing contracts are generally higher due to our foreign partners' use of expatriate staff, who generally command higher wages, as well as administrative and overhead costs that may be allocated by the operators, a higher percentage of capital expenditures and larger proportion of imported equipment.
Production from Independent Operations offshore China versus Production from Production Sharing Contracts offshore China
Historically we have cooperated with foreign partners under production sharing contracts, which have provided us with the expertise to undertake our independent operations more effectively. The percentage of our net production arising from independent operations offshore China was 52.7%, 49.6% and 50.2%, respectively, for the years ended December 31, 2003, 2004 and 2005, respectively. Although
we will continue to focus on independent operations, we plan to continue seeking appropriate opportunities to cooperate with foreign partners under production sharing contracts.
Provision for dismantlement
Prior to 2002, we estimated future dismantlement costs for our oil and gas properties and accrued the costs over the economic lives of the assets using the unit-of-production method. We estimated future dismantlement costs for oil and gas properties with reference to the estimates provided from either internal and external engineers after taking into consideration the anticipated method of dismantlement required in accordance with then current legislation and industry practice. In 2002, we changed the method of accounting for the provision for dismantlement in compliance with Hong Kong Statement of Standard Accounting Practice or HK SSAP 28 (HKAS 37 replaced HK SSAP 28 in 2005), "Provisions, contingent liabilities and contingent assets." HK SSAP 28 requires the provision to be recorded for a present obligation whether that obligation is legal or constructive. The associated cost is capitalized and the liability is discounted and accretion expense is recognized using the credit adjusted risk-free rate in effect when the liability is initially recognized. The dismantlement costs for the years ended December 31, 2003, 2004 and 2005 were Rmb 167.3 million, Rmb 201.6 million and Rmb 252.9 million, respectively. The accrued liability is reflected in our consolidated balance sheet under "provision for dismantlement." See note 28 to our consolidated financial statements attached to this annual report.
Production Imbalance
We account for oil overlifts and underlifts using the entitlement method, under which we record overlifts as liabilities and underlifts as assets. An overlift occurs when we sell more than our percentage interest of oil from a property subject to a production sharing contract. An underlift occurs when we sell less than our participating interest of oil from a property under a production sharing contract. During the historical periods presented in our consolidated financial statements attached to this annual report, we had no gas imbalances. We believe that production imbalance has not had a significant effect on our operations, liquidity or capital resources.
Allowances for Doubtful Accounts
We evaluate our accounts receivable by considering the financial condition of our customers, their past payment history and credit standing and other specific factors, including whether the accounts receivable in question are under dispute. We make provisions for accounts receivable when they are overdue for six months and we are concerned about our ability to collect them. For the year ended December 31, 2003, 2004 and 2005, allowances for doubtful accounts were not material in the context of total operating expenses and did not have a material effect on our results of operations or financial condition.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with Hong Kong GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of our assets and liabilities, the disclosure of our contingent assets and liabilities as of the date of our financial statements and the reported amounts of our revenues and expenses during the periods reported. Management makes these estimates and judgments based on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following significant accounting policies may involve a higher degree of judgment in the preparation of our consolidated financial statements. For additional discussion of our significant accounting policies, see note 3 to our consolidated financial statements attached to this annual report.
Oil and Gas Properties
For oil and gas properties, we have adopted the successful efforts method of accounting. As a result, we capitalize initial acquisition costs of oil and gas properties and recognize impairment of initial
acquisition costs based on exploratory experience and management judgment. Upon discovery of commercial reserves, we transfer acquisition costs to proved properties and capitalize the costs of drilling and equipping successful exploratory wells, all development costs, and the borrowing costs arising from borrowings used to finance the development of oil and gas properties before they are substantially ready for production. We treat the costs of unsuccessful exploratory wells and all other related exploration costs as expenses when incurred. We amortize capitalized acquisition costs of proved properties by the unit-of-production method on a property-by-property basis based on the total estimated units of proved reserves. We estimate future dismantlement costs for oil and gas properties with reference to the estimates provided from either internal or external engineers after taking into consideration the anticipated method of dismantlement required in accordance with current legislation and industry practices. The associated cost is capitalized and the liability is discounted and an accretion expense is recognized using the credit-adjusted risk-free interest rate in effect when the liability is initially recognized.
Impairment of Assets
We make an assessment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, or when there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. In any event, we would make an estimate of the asset's recoverable amount, which is calculated as the higher of the asset's value in use or its net selling price. We recognize an impairment loss only if the carrying amount of an asset exceeds its recoverable amount. We charge an impairment loss to the income statement in the period in which it arises unless the asset is carried at a revalued amount. For a revalued asset, we account for the impairment loss in accordance with the relevant accounting policy for such revalued asset. A previously recognized impairment loss is reversed only if there has been a change in our estimates used to determine the recoverable amount of an asset. However, no reversal may put the value of the asset higher than the carrying amount that we would have determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years.
A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.
Provisions
We recognize a provision when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation so long as a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognized for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement. We make provisions for dismantlement based on the present value of our future costs expected to be incurred, on a property-by-property basis, in respect of our expected dismantlement and abandonment costs at the end of the related oil exploration and recovery activities.
Deferred Tax
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Recognition of Revenue from Oil and Gas Sales and Marketing
We recognize revenue when it is probable that the economic benefits will flow to us and when the revenue can be measured reliably. For oil and gas sales, our revenues represent the invoiced value of sales of oil and gas attributable to our interests, net of royalties and any government share oil that is lifted and sold on behalf of the PRC government. Sales are recognized when the significant risks and rewards
of ownership of oil and gas have been transferred to customers. Oil and gas lifted and sold by us above or below our participating interests in any production sharing contract result in overlifts and underlifts. We record these transactions in accordance with the entitlement method under which overlifts are recorded as liabilities and underlifts are recorded as assets at year-end oil prices. Settlement will be in kind when the liftings are equalized or in cash when production ceases. We enter into gas sales contracts with customers which typically contain take-or-pay clauses. These clauses require our customers to take a specified minimum volume of gas each year. If a customer fails to take the minimum volume of gas, the customer must pay for the gas even though it did not take the gas. The customer can offset the deficiency payment against any future purchases in excess of the specified volume. We record any deficiency payment as deferred revenue which is included in other payables until any make-up gas is taken by the customer or the expiry of the contract. Our marketing revenues represent sales of oil purchased from the foreign partners under our production sharing contracts and revenues from the trading of oil through our subsidiary in Singapore. The title, together with the risks and rewards of the ownership of such oil purchased from the foreign partners, are transferred to us from the foreign partners and other unrelated oil and gas companies before we sell such oil to our customers. The cost of the oil sold is included in crude oil and product purchases.
Results of Operations
Overview
The following table summarizes the components of our revenues and net production as percentages of our total revenues and total net production for the periods indicated:
Year ended December 31,
------------------------------------------------------------------------------
2003 2004 2005
------------------------ ------------------------ ------------------------
(Rmb in millions, except percentages, production data and prices)
Revenues:
Oil and gas sales: (1)
Crude oil ................. 25,792 63.0% 34,081 61.7% 50,361 72.5%
Natural gas ............... 2,325 5.7% 2,805 5.1% 3,057 4.4%
---------- ---------- ---------- ---------- ---------- ----------
Total oil and gas sales ... 28,117 68.7% 36,886 66.8% 53,418 76.9%
Marketing revenues .......... 12,398 30.3% 18,191 32.9% 15,901 22.9%
Other income ................ 435 1.1% 145 0.3% 137 0.2%
---------- ---------- ---------- ---------- ---------- ----------
Total revenues ............ 40,950 100.0% 55,222 100.0% 69,456 100.0%
========== ========== ========== ========== ========== ==========
Net production (million BOE):
Crude oil ................... 111.9 85.9% 116.9 83.5% 130.3 84.2%
Natural gas ................. 18.3 14.1% 23.1 16.5% 24.5 15.8%
---------- ---------- ---------- ---------- ---------- ----------
Total net production ...... 130.2 100.0% 140.0 100.0% 154.8 100.0%
========== ========== ========== ========== ========== ==========
Average net realized prices:
Crude oil (per bbl)...... US$28.11 US$35.41 US$47.31
Natural Gas (per mcf).... 2.87 2.75 2.82
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The following table sets forth, for the periods indicated, certain income and expense items in our consolidated income statements as a percentage of total revenues:
Year ended December 31,
----------------------------------------
2003 2004 2005
---------- ---------- ----------
Operating Revenues: (based on restated amounts)
Oil and gas sales ........................................ 68.7% 66.8% 76.9%
Marketing revenues ....................................... 30.2 32.9 22.9
Other income ............................................. 1.1 0.3 0.2
---------- ---------- ----------
Total revenues ....................................... 100.0% 100.0% 100.0%
========== ========== ==========
Expenses:
Operating expenses ....................................... (11.0)% (9.2)% (8.5)%
73
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Production taxes ......................................... (3.0) (3.1) (3.7)
Exploration costs ........................................ (2.1) (2.4) (1.9)
Depreciation, depletion and amortization ................. (11.3) (9.9) (8.6)
Dismantlement ............................................ (0.4) (0.4) (0.4)
Impairment losses related to property, plant and equipment (0.0) (0.0) (0.1)
Crude oil and product purchases .......................... (29.9) (32.5) (22.6)
Selling and administrative expenses ...................... (3.1) (1.9) (2.0)
Other .................................................... (0.9) (0.1) (0.1)
---------- ---------- ----------
(61.7)% (59.5)% (47.9)%
---------- ---------- ----------
Interest income ............................................... 0.4% 0.4% 0.5%
Finance costs ................................................. (0.9) (0.8) (1.6)
Exchange gain (loss), net ..................................... (0.0) 0.1 0.4
Short term investment income .................................. 0.3 0.1 0.4
Share of profit of an associate ............................... 0.5 0.6 0.4
Non-operating profit (loss), net .............................. 0.8 0.9 0.0
---------- ---------- ----------
Income before tax ............................................. 39.4 41.8 52.3
Tax ........................................................... (11.3) (12.6) (15.8)
---------- ---------- ----------
Net income .................................................... 28.1% 29.2% 36.5%
========== ========== ==========
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Calculation of Revenues
China
We report total revenues, which consist of oil and gas sales, marketing revenues and other income, in our consolidated financial statements attached to this annual report. With respect to revenues derived from our offshore China operations, oil and gas sales represent gross oil and gas sales less royalties and share oil payable to the PRC government. These amounts are calculated as follows:
o gross oil and gas sales consist of our percentage interest in total oil and gas sales, comprised of (i) a 100% interest in our independent oil and gas properties and (ii) our participating interest in the properties covered under our production sharing contracts, less an adjustment for production allocable to foreign partners under our production sharing contracts as reimbursement for exploration expenses attributable to our participating interest;
o royalties represent royalties we pay to the PRC government on production with respect to each of our oil and gas fields. The amount of royalties varies from 0% up to 12.5% based on the annual production of the relevant property. We pay royalties on oil and gas we produce independently and under production sharing contracts;
o government share oil, which is only paid on oil and gas produced under production sharing contracts, is calculated as described under "--Overview--Production Sharing Contracts Offshore China;"
o other income mainly represents project management fees charged to our foreign partners and handling fees charged to end customers--both fees are recognized when the services are rendered; and
o we pay production taxes to the PRC government that are equal to 5% of the oil and gas we produce independently and under production sharing contracts. Our oil and gas sales are not reduced by production taxes. Production taxes are included in our expenses under "production taxes."
Marketing revenues represent our sales of our foreign partners' oil and gas produced under our production sharing contract and purchased by us from our foreign partners under such contracts as well as from international oil and gas companies through our wholly owned subsidiary in Singapore. Net marketing revenues represent the marketing revenues net of the cost of purchasing oil and gas from foreign partners and from international oil and gas companies. Our foreign partners have the right to
either take possession of their oil and gas for sale in the international market or to sell their oil and gas to us for resale in the PRC market.
Our share of the oil and gas sales of our associated company is not included in our revenues, but our share of the profit or loss of our associated company is included in our consolidated statements of income under "share of profit of associates."
Indonesia
The oil and gas sales from our subsidiaries in Indonesia consist of our participating interest in the properties covered under the relevant production sharing contracts, less adjustments for share oil payable under our Indonesian production sharing contracts and for a domestic market obligation under which the contractor must sell a specified percentage of its crude oil to the local Indonesian market at a reduced price.
2005 versus 2004
The discussions under "--2005 versus 2004" are based on the restated amounts, where applicable, as a result of the adoption of new HKFRSs. See note 2.4 to our consolidated financial statements under "Item 18-Financial Statement" in this annual report.
Consolidated Net Profit
Our consolidated net income after tax was Rmb 25,323.1 million (US$3,137.9 million) in 2005, an increase of Rmb 9,184.0 million (US$1,138.0 million), or 56.9%, from Rmb 16,139.1 million in 2004.
Revenue
Our oil and gas sales for 2005 were Rmb 53,417.7 million (US$6,619.1 million), an increase of Rmb 16,531.7 million (US$2,048.5 million), or 44.8%, from Rmb 36,886.0 million in 2004. The increase primarily reflects the rise in global crude oil prices and production grants. Our sales volume of crude oil and natural gas in 2005 increased by 11.6% and 6.8%, respectively, as compared to 2004. The average realized price for our crude oil was US$47.31 per barrel in 2005, an increase of US$11.9, or 33.6% from US$35.41 per barrel in 2004. The average realized price of natural gas was US$2.82 per thousand cubic feet in 2005, an increase of US$0.07, or 2.6%, from US$2.75 per thousand cubic feet in 2004.
In 2005, our net marketing profit, which were derived from marketing revenue less purchase cost of crude oil and oil products, were Rmb 197.2 million (US$24.4 million), a decrease of Rmb 30.7 million (US$3.8 million), or 13.5%, from Rmb 227.9 million in 2004. Since we are one of the three companies that have the right to sell crude oil in China, upon request by our production sharing contract partners, we may purchase the oil of these partners for sale in China. However, the amount of oil we may purchase and sell in China depends on our foreign partners and, therefore, we cannot control the amount of crude oil that we are able to sell for any specific period. In 2005, marketing revenue from our wholly-owned subsidiary, CNOOC China Limited, was Rmb 9,430.8 million (US$1,168.6 million), representing an increase of Rmb 1,688.2 million (US$209.2 million) from Rmb 7,742.6 million in 2004. The net marketing profit, however, decreased Rmb 71.6 million, or 45.7%, from Rmb 156.6 million in 2004. The decrease was primarily due to the significant reduction in sales margin which was mainly influenced by market prices in the local markets. The net marketing profit from our wholly-owned subsidiary, China Offshore Oil (Singapore) International Pte Ltd., was Rmb 112.2 million (US$13.9 million), an increase of Rmb 40.9 million, or 57.4%, from Rmb 71.3 million in 2004.
Our other income, reported on a net basis, was derived from our other income less corresponding costs. In 2005, the total other income was Rmb 59.7 million (US$7.4 million), a decrease of Rmb 39.1 million (US$4.8 million) from Rmb 98.8 million in 2004. The decrease was primarily due to the lower service fees received from our production sharing contract projects.
Expenses
Operating expenses. Our operating expenses were Rmb 5,934.6 million (US$735.4 million) in 2005, an increase of Rmb 864.3 million (US$107.1 million), or 17.0%, from Rmb 5,070.3 million in 2004. The increase was mainly attributable to the commencement of production of seven new oil and gas fields in China in 2005. Operating expenses in 2005 were Rmb 38.8 (US$4.8) per BOE, an increase of 5.7% from Rmb 36.7 per BOE in 2004. Operating expenses for our offshore China operations in 2005 were Rmb 32.5 (US$4.0) per BOE, representing an increase of 8.7% from 2004. The increase was mainly attributable to the higher service fees, supply vessels, equipment lease, maintenance materials, chemicals and fuel, resulting from the higher international crude oil price. Operating expenses for our offshore Indonesia operations were Rmb 100.2 (US$12.4) per BOE, an increase of 13.0% over 2004. The increase in operating expenses per barrel for our Indonesian oil fields was due to lower net production volume based on their profit sharing models. Based on working interest production, operating expenses for our offshore Indonesia operations in 2005 were Rmb 48.7 (US$6.0) per BOE.
Production taxes. Our production taxes for 2005 were Rmb 2,596.5 million (US$321.7 million), an increase of Rmb 870.8 million (US$107.9 million), or 50.5% from Rmb 1,725.7 million in 2004. The increase was primarily due to the increased income from oil and gas sales.
Exploration costs. Our exploration costs for 2005 were Rmb 1,293.7 million (US$160.3 million), a slight decrease of Rmb 22.5 million (US$2.8 million), or 1.7%, from Rmb 1,316.2 million in 2004, as a result of an increase in capitalization of investment in exploration activities.
Depreciation, depletion and amortization expenses. Our depreciation, depletion and amortization expenses for 2005 were Rmb 5,964.7 million (US$739.1 million), an increase of Rmb 509.6 million (US$63.1 million), or 9.3%, from Rmb 5,455.1 million in 2004. On a unit of production basis, depreciation, depletion and amortization expenses for 2005 were Rmb 39.0 (US$4.8) per BOE, as compared to Rmb 39.5 per BOE in 2004.
Dismantlement costs. Our dismantlement costs for 2005 were Rmb 252.9 million (US$31.3 million), an increase of Rmb 51.3 million (US$6.4 million), from Rmb 201.6 million in 2004. The increase was primarily due to the increased dismantling costs resulting from the commencement of production at new oil and gas fields and a revision of the dismantlement liabilities for certain existing oil and gas fields. Our dismantlement costs were Rmb 1.7 (US$0.2) per BOE, a corresponding increase from Rmb 1.5 per BOE in 2004.
Impairment losses related to property, plant and equipment. Our impairment losses for 2005 were Rmb 90.2 million (US$11.2 million). The impairment was due to the downward revision of the reserve of BZ34-2/4 and HZ19-3 oil and gas fields. The average impairment costs were Rmb 0.6 (US$0.07) per BOE.
Selling and administrative expenses. Our selling and administrative
expenses for 2005 were Rmb 1,370.4 million (US$169.8 million), an increase of
Rmb 266.1 million (US$33.0 million), or 24.1%, from Rmb 1,104.3 million in 2004.
Of which, our selling and administrative expenses of companies in China in 2005
were Rmb 6.3 (US$0.8) per BOE, an increase of 14.5% over 2004.
Compared with 2004, the increase was mainly attributable to an increase in
management fees related to the increased number of production sharing contract
projects under production, and increases in labor costs and general research
expenditure in 2005.
Finance costs, net of interest income
Our net finance costs for 2005 was Rmb 741.2 million (US$91.8 million), an increase of 215.5%, from the net interest expenses of Rmb 235.0 million in 2004. On the one hand, our interest income increased by Rmb 152.4 million from Rmb 206.9 million in 2004 to Rmb 359.3 million in 2005. On the other hand, the finance costs increased significantly mainly due to the interest expenses on our US$1 billion bonds issued in December 2004, the losses on fair value changes of the embedded derivative component of the convertible bonds and the effect of increased amount of provision of dismantlement arising from the passage of time. The increases due to the factors mentioned above were Rmb 164.4
million (US$20.4 million), Rmb 373.1 million (US$46.2) and Rmb 79.2 million (US$9.8 million), respectively.
Exchange Gain/Loss, net
Our net exchange gain for 2005 was Rmb 287.0 million (US$35.6 million), an increase of Rmb 257.7 million (US$31.9 million), from net exchange gains of Rmb 29.3 million in 2004. Compared with 2004, the increased exchange gains mainly came from the Chinese government's efforts on the improvement of rate-forming mechanism and the following appreciation of Renminbi in the second half of the year.
Investment Income
Our short term investment income for 2005 was Rmb 247.9 million (US$30.7 million), a significant increase of Rmb 175.5 million (US$21.7 million), or 242.4%, from Rmb 72.4 million in 2004. For the purpose of improving performance of current assets portfolio, we increased the investment in financial instruments such as money market funds. Benefiting from the structural changes in the investment portfolio and the influence from the market, we obtained a favorable return in this year.
Share of Profits of Associates
In 2005, there were gains from our investments in Shanghai Petroleum and Natural Gas Company Limited and CNOOC Finance Corporation Limited. Of them, share of profit from Shanghai Petroleum and Natural Gas Company Limited was Rmb 261.8 million (US$32.4 million), representing a decrease of 12.1% from 2004, which was mainly due to the change in tax rate from favorable rate of 16.5% to normal rate of 33.0% and resulting from the increased income tax payment of 2005. Share of profit from CNOOC Finance Corporation Limited was Rmb 45.3 million (US$5.6 million) during the period, relatively comparable to that from 2004.
Non-operating Income/Expenses, Net
Our net non-operating income for 2005 was Rmb 28.6 million (US$3.5 million), as compared to non-operating income of Rmb 519.2 million for 2004. In 2004, the net non-operating income represented the tax refund from re-investment in China.
Income tax
Our income tax for 2005 was Rmb 10,977.8 million (US$1,360.3 million), an increase of Rmb 4,047.0 million (US$501.5 million), or 58.4%, from Rmb 6,930.8 million in 2004. The primary reason for the increase was the increase in profit before tax. The effective tax rate for 2005 was 30.2%, slightly higher than the effective rate of 30.0% in 2004.
2004 versus 2003
The discussions under "--2004 versus 2003" are based on the restated amounts, where applicable, as a result of the adoption of new HKFRSs. See note 2.4 to our consolidated financial statements under "Item 18 - Financial Statements" in this annual report.
Consolidated Net Profit
Our consolidated net income after tax was Rmb 16,139.1 million in 2004, an increase of Rmb 4,641.4 million, or 40.4%, from Rmb 11,497.7 million in 2003.
Revenue
Our oil and gas sales for 2004 were Rmb 36,886.0 million, an increase of Rmb 8,769.2 million or 31.2%, from Rmb 28,116.8 million in 2003. The increase primarily reflects the rise in global crude oil prices and our higher production level. Our sales of crude oil and natural gas in 2004 increased by 5% and 26%, respectively, as compared to 2003. The average realized price for our crude oil was US$35.41 per barrel in 2004, an increase of US$7.3, or 26.0% from US$28.11 per barrel in 2003. The average realized price of natural gas was US$2.75 per thousand cubic feet in 2004, a decrease of US$0.12, or 4.2%, from US$2.87 per thousand cubic feet in 2003. The decrease was due to the increased weighting of production of low-priced gas fields.
In 2004, our net marketing profit, which were derived from marketing revenue less purchase cost of crude oil and oil products, were Rmb 227.9 million, an increase of Rmb 124.5 million, or 120.3%, from Rmb 103.4 million in 2003. Since we are one of the three companies that have the right to sell crude oil in China, upon request by our production sharing contract partners, we may purchase the oil of these partners for sale in China. However, the amount of oil we may purchase and sell in China depends on our foreign partners and, therefore, we cannot control the amount of crude oil that we are able to sell for any specific period. In 2004, our marketing profit from our wholly owned subsidiary, China Offshore Oil (Singapore) International Pte Ltd., was Rmb 71.3 million, an increase of 36.1% from Rmb 52.4 million in 2003.
Our other income, reported on a net basis, was derived from our other income less corresponding costs. In 2004, the total other income was Rmb 98.8 million, an increase of Rmb 14.3 million (US$1.7 million) from Rmb 84.5 million in 2003.
Expenses
Operating expenses. Our operating expenses were Rmb 5,070.3 million in 2004, an increase of Rmb 557.5 million, or 12.4%, from Rmb 4,512.8 million in 2003. The increase primarily resulted from the increased operating expenses in connection with the commencement of operations in new properties. Operating expenses were Rmb 36.7 per BOE in 2004, an increase of 4.2% from Rmb 35.2 per BOE in 2003. Operating expenses offshore China in 2004 were Rmb 29.9 per BOE, an increase of 10.7% from Rmb 27.0 per BOE in 2003. Operating expenses offshore Indonesia were Rmb 88.7 per BOE, an increase of 15.6% from Rmb 76.7 per BOE in 2003. The increases were primarily due to the high international crude oil prices and an increase in operating expenses per barrel for our Indonesian oilfields due to their lower production volume based on their profit sharing model. Based on working interest production, operating expenses for our offshore Indonesia operations in 2004 were Rmb 42.0 per BOE, which were in line with the operating expenses for our offshore Indonesia operations in the previous year.
Production taxes. Our production taxes for 2004 were Rmb 1,725.7 million, an increase of Rmb 487.1 million, or 39.3%, from Rmb 1,238.6 million in 2003. The increase was primarily due to increase in oil and gas sales in 2004.
Exploration costs. Our exploration costs for 2004 were Rmb 1,316.2 million, an increase of Rmb 468.1 million, or 55.2%, from Rmb 848.1 million in 2003. The increase was primarily due to a significant increase in exploration activities. In 2004, some successful exploration wells were written off because we did not expect to develop these wells within the next couple years. The write-off amount was Rmb 155.8 million.
Depreciation, depletion and amortization expenses. Our depreciation, depletion and amortization expenses for 2004 were Rmb 5,455.1 million, an increase of Rmb 812.3 million, or 17.5%, from Rmb 4,642.8 million in 2003. On a unit of production basis, depreciation, depletion and amortization expenses for 2004 were Rmb 39.5 per BOE, an increase of 9.2% compared to Rmb 36.2 per BOE in 2003. The primary reason for the increase was the higher amortization costs for the oilfields that commenced operations in 2004 and the lower production level of the Indonesian oilfields. Based on our profit sharing model, our production level of our Indonesian oilfields is directly affected by oil price fluctuation.
Dismantlement costs. Our dismantlement costs for 2004 were Rmb 201.6 million, an increase of Rmb 34.3 million, or 20.5%, from Rmb 167.3 million in 2003. The increase was primarily due to the increased dismantlement costs resulting from the commencement of production at new oil and gas properties. On a unit production basis, our dismantlement costs were Rmb 1.5 per BOE, an increase of 15.3% compared to Rmb 1.3 per BOE in 2003.
Selling and administrative expenses. Our selling and administrative expenses for 2004 were Rmb 1, 104.3 million, a decrease of Rmb 145.9 million, or 11.7%, from Rmb 1,250.3 million in 2003. The primary reason for the decrease was a decrease in labor costs resulting from the direct charge of some labor costs to specific projects and the replacement of some foreign employees that received higher salaries with local employees. On a unit of production basis, selling and administrative expenses were Rmb 8.0 per BOE in 2004, a decrease of 19.1% from Rmb 9.7 per BOE in 2003. Our selling and administrative expenses in China in 2004 were Rmb 5.5 per BOE, a decrease of 17.9% from 2003.
Net interest expenses/income
Our net interest expense for 2004 was Rmb 235.0 million, an increase of Rmb 63.6 million, or 37.1%, from Rmb 171.4 million in 2003. The increase was primarily due to the interest expenses on our US$500 million bonds issued in 2003. Rmb 94.8 million of the increase in interest expense was attributable to our long term guaranteed notes.
Exchange Gain/Loss, net
Our net exchange gain for 2004 was Rmb 29.3 million, compared with a net exchange loss of Rmb 6.7 million in 2003. The exchange gain in 2004 was mainly attributable to our foreign currency swaps for our yen-denominated loans.
Short Term Investment Income
Our short term investment income for 2004 was Rmb 72.4 million, a decrease of Rmb 51.1 million, or 41.4%, from Rmb 123.5 million in 2003. The decrease was primarily due to the structural change to our investment portfolio, where we disposed of some of our investment in corporate bonds and reinvested the proceeds in market funds.
Share of Profit of Associates
Our share of profit of associates for 2004 was Rmb 344.5 million, an increase of Rmb 124.2 million, or 56.4%, from Rmb 220.3 million in 2003. This item reflected our share of profit generated by Shanghai Petroleum and Natural Gas Company Limited resulting primarily from increases in production and oil prices and our share of profit generated by CNOOC Finance Corporation Limited.
Non-operating Income/Expenses, Net
Our net non-operating income for 2004 was Rmb 519.2 million, compared to non-operating income of Rmb 315 million for 2003. In 2004, the net non-operating income was mainly due to the tax refund from re-investment in China.
Income tax
Our income tax for 2004 was Rmb 6,930.8 million, an increase of Rmb 2,303.0 million, or 49.8%, from Rmb 4,627.8 million in 2003. The primary reason for the increase was the increase in profit before tax. In 2003, we received Rmb 252.0 million tax rebate for using domestic equipment. The effective tax rate for 2004 was 30.0%, as compared with the effective rate of 28.7% in 2003.
B. LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our cash flows for the periods presented:
Year ended December 31,
-----------------------------------
2003 2004 2005
--------- --------- ---------
(Rmb in millions)
Cash provided by (used for):
Operating activities ................ 17,819 22,328 32,154
Investing activities ................ (9,513) (24,607) (29,349)
Financing activities ................ (1,745) 1,970 (7,787)
--------- --------- ---------
Net increase/(decrease) in cash and cash
equivalents ...................... 6,561 (309) (4,982)
========= ========= =========
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Cash Provided by Operations
Net cash generated from operating activities in 2005 amounted to Rmb 32,153.8 million (US$3,984.3 million), representing an increase of Rmb 9,825.9 million (US$1,217.6 million), or 44.0% from Rmb 22,327.9 million in 2004. The increase was primarily due to an increase in profit before tax of Rmb 13,231.0 million (US$1,639.5 million), an increase in depreciation, depletion and amortization expenses of Rmb 509.7 million (US$63.2 million), an increase in finance costs of Rmb 658.7 million (US$81.6 million), an increase in provision for inventory of Rmb 35.8 million (US$4.4 million), an increase in dismantlement costs of Rmb 51.2 million (US$6.3 million), a decrease in share of profits of associates of Rmb 37.4 million (US$4.6 million), an increase in amortization of discount of long term guaranteed notes of Rmb 26.3 million (US$3.3 million), and an increase in impairment losses related to property, plant and equipment of Rmb 90.2 million (US$11.2 million).
Increase of cash flow was also partially offset by an increase of income tax paid of Rmb 2,447.2 million (US$303.2 million), an increase in our finance exchange gain and loss of Rmb 257.8 million (US$31.9 million), an increase in investment income received of Rmb 175.5 million (US$21.7 million), a decrease in the loss on disposal and write off of property, plant and equipment of Rmb 14.3 million (US$1.8 million), an increase in interest income of Rmb 152.4 million (US$18.9 million) and a decrease in compensation cost for share based payment of Rmb 17.5 million (US$2.2 million).
In another aspect, compared with 2004, the increase in operating cash flow was partially attributable to the increase in changes of working capital, mainly due to the increase in changes of current assets from operating activities excluding cash and bank balances of Rmb 2,103.9 million (US$260.7 million), and a simultaneous increase in changes of current liabilities from operating activities of Rmb 71.0 million (US$8.8 million).
Capital Expenditures and Investments
Net cash outflow from investing activities in 2005 was Rmb 29,349.2 million (US$3,636.7 million), representing an increase of Rmb 4,742.0 million (US$587.6 million), from Rmb 24,607.2 million in 2004. In line with our use of "successful efforts" method of accounting, total capital expenditures and investments primarily include successful exploration and development expenditures and purchasing costs of oil and gas properties. Total capital expenditures were Rmb 17,469.5 million (US$2,164.7 million) in 2005, representing a decrease of Rmb 1,152.5 million (US$142.8 million), or 6.2%, from Rmb 18,622.0 million in 2004.
The capital expenditures in 2005 mainly comprised of Rmb 875.8 million (US$108.5 million) for capitalized exploration activities, Rmb 15,729.7 million (US$1,949.1 million) for development activities, and Rmb 1,017.0 million (US$126.0 million) for acquiring 16.69% equity interest in MEG, netting off a tax refund of Rmb 153.0 million (US$ 19.0 million) for the North West Shelf project in Australia. Our development expenditures in 2005 related principally to the development of PanYu 30-1, Bozhong 25-1/25-1S, PL19-3 phase II and NanPu 35-2 oil and gas fields.
In addition, cash outflow was attributable to the increase in time deposits with maturities over three months of Rmb 3,597 million (US$445.7 million), and the net purchase of available-for-sale financial assets of Rmb 8,282.7 million (US$1,026.3 million).
Total capital expenditures were Rmb 18,622.0 million in 2004, an increase of Rmb 6,249.5 million, or 50.5%, from Rmb 12,372.5 million in 2003. The capital expenditures in 2004 included Rmb 783.5 million for capitalized exploration activities, Rmb 12,059.4 million for development activities, and Rmb 5,779.1 million for acquiring the Tangguh LNG project, the North West Shelf project and other oil and gas properties. Our development expenditures in 2004 related principally to the development of Bozhong 25-1/25-1S, Luda, Bonan and Caofeidian oil and gas fields. In addition, cash outflow in 2004 was in part attributable to an increase in time deposits with maturities over three months of Rmb 6,280 million, which was partially offset by cash inflow from net disposal of short-term investment of Rmb 294.8 million.
For 2006, we have budgeted approximately US$3.08 billion for capital expenditures, approximately US$316.3 million of which is budgeted for general exploration activities offshore China, approximately US$1,860.1 million of which is budgeted for development activities offshore China and approximately US$514.5 million of which is budgeted for our exploration and development activities overseas.
The following table sets forth actual or budgeted capital expenditures on an accrual basis for our key operating areas for the periods indicated.
Year ended December 31,
-------------------------
2005(1) 2006(2)
---------- ----------
Operating Area: (US$ in millions)
Bohai Bay
Development ................................... 856.4 1,099.5
Exploration ................................... 84.3 136.5
Western South China Sea
Development ................................... 161.3 441.3
Exploration ................................... 76.0 113.4
East China Sea
Development ................................... 105.0 30.3
Exploration ................................... 6.3 12.1
East South China Sea
Development ................................... 554.1 271.5
Exploration ................................... 52.9 32.9
Other Offshore China
Development ................................... -- 17.4
Exploration ................................... 13.4 21.4
Overseas
Development ................................... 288.5 373.1
Exploration ................................... 19.6 141.4
---------- ----------
Total ...................................... 2,217.7 2,690.8
========== ==========
-----------------------
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(1) Figures for 2005 represent our actual spending for capital expenditure
purposes.
(2) Figures for 2006 represent our budgeted capital expenditures.
In addition to the budgeted development and exploration expenditures relating to the oil and gas properties described above, we may make additional capital expenditures and investments in these periods consistent with our business strategy. See "Item 4--Information on the Company--Business Overview--Business Strategy."
Our ability to maintain and grow our revenues, net income and cash flows depends upon continued capital spending. We adjust our capital expenditure and investment budget on an annual basis. Our capital expenditure plans are subject to a number of risks, contingencies and other factors, some of
which are beyond our control. Therefore, our actual future capital expenditures and investments will likely be different from our current planned amounts, and such differences may be significant. See "Item 3--Key Information--Risk Factors--Risks relating to our business--Our future prospects largely depend on our capital expenditure plans, which are subject to various risks."
Financing activities
The net cash outflow arising from financing activities in 2005 was Rmb 7,786.4 million (US$964.8 million) as compared to a net cash inflow of Rmb 1,970.5 million from financing activities in 2004. There was no issuance of debt financing instruments or bank loan increase in 2005. The net cash outflow in 2005 was primarily due to the distribution of dividends of Rmb 7,772.2 million (US$963.1 million) and the repayment of bank loans of Rmb 18.7 million (US$2.3 million). Some cash inflow was generated by the proceeds from the exercise of share options of Rmb 4.5 million (US$0.6 million) in 2005.
We had net cash inflows from financing activities of Rmb 1,970.5 million in 2004, primarily attributable to the convertible bond issuance which generated cash inflow of approximately Rmb 8,154.1 million. The cash inflows were partially offset by our repayment of Rmb 21.1 million in bank loans, dividend distributions of Rmb 6,101.4 million and a cash outflow of Rmb 61.2 million resulting from our share repurchases in 2004.
We have debt service obligations consisting of principal and interest payments on our outstanding indebtedness. The following table summarizes the maturities of our long-term debt outstanding as of December 31, 2005. As of the date this annual report is filed, we have not incurred any material long-term debt since December 31, 2005.
Debt maturities (principal only)
------------------------------------------------------------------
Original currency
-------------------------------------- Total Rmb Total US$
Due by December 31, US$ JPY Rmb equivalents equivalents
------------------------ ---------- ---------- ---------- ---------- ----------
(in millions, except percentages)
2006 ................... 100.0 271.5 -- 825.7 102.3
2007-2009 .............. 1,000.0 271.4 -- 8,088.9 1,002.3
2010-2011 .............. -- -- -- -- --
2011 and beyond ........ 1,000.0 -- -- 8,070.2 1,000.0
Total ............... 2,100.0 542.9 -- 16,984.8 2,104.6
Percentage of total debt 99.8% 0.2% -- 100.0% 100.0%
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As of June 6, 2006, we had a total U.S. dollar debt of US$2,100.0 million and a total foreign currency debt of US$2,104.6 million.
After we became a separate entity in October 1999, we paid a dividend of Rmb 1,045.4 million in 1999 and declared and paid a final dividend of Rmb 6,426.4 million in 2000. In 2002, 2003 and 2004, we paid dividends totaling Rmb 2,265.1 million, Rmb 5,403.7 million and Rmb 6,101.4 million, respectively. In 2005, we declared and paid dividends totaling Rmb 7,772.2 million (US$963.1 million). The payment and the amount of any dividends in the future will depend on our results of operations, cash flows, financial condition, the payment by our subsidiaries of cash dividends to us, future prospects and other factors which our directors may consider relevant. The amount of dividends we paid historically is not indicative of the dividends that we will pay in the future.
We believe our future cash flows from operations, borrowing capacity and funds raised from our debt offerings will be sufficient to fund planned capital expenditures and investments, debt maturities and working capital requirements through at least 2006. Several large financial institutions have expressed an interest in supporting our business development, although we have not entered into any agreements for additional financing with these institutions. However, our ability to obtain adequate financing to satisfy our capital expenditure and debt service requirements may be limited by our financial condition and results of operations and the liquidity of international and domestic financial markets, including the following factors:
o Any failure by us to achieve timely rollover, extension or refinancing of our short-term debt may result in our inability to meet our obligations in connection with debt service, accounts payable and/or other liabilities when they become due and payable.
o Our primary operating subsidiary is a PRC incorporated company. Therefore, prior to accessing the international capital markets we will be subject to limitations imposed by various PRC government authorities, including the State Administration for Foreign Exchange, depending on the type of international financing raised. We may also need to obtain PRC government support for any project involving significant capital investment in the operations of our PRC subsidiary.
o In addition, financing sources often look to similarly situated entities when determining whether, and at what rates, to provide financing. Successful or unsuccessful financing by Hong Kong and PRC entities similarly situated to us could have an impact on our ability to obtain external financing.
See "Item 3--Key Information--Risk Factors--Risks relating to our business--Our future prospects largely depend on our capital expenditure plans, which are subject to various risks" and "--We may not be able to obtain external financing that is acceptable to us for business development purposes."
Employee Benefits
When we became a separate entity as a result of CNOOC's reorganization in October 1999, CNOOC retained all liabilities for retirement benefits for its employees, both former and current, who had not been transferred to us. As compensation for CNOOC's retention of liabilities for retirement benefits payable to approximately 7,000 retired CNOOC employees who were previously engaged in the oil and gas business that was transferred to us in the reorganization, we made a one-time payment to CNOOC of Rmb 1,660.0 million in 2001.
All of our full-time employees in the PRC are covered by a government-regulated pension plan and are entitled to an annual pension at their retirement dates. The PRC government is responsible for the pension liabilities to these retired employees under this government pension plan. The actual pension payable to each retiree is subject to a formula based on the status of the individual pension account, general salary and inflation movements. We are required to make annual contributions to the government pension plan at rates ranging from 9% to 22% of our employees' salaries. The related pension costs are expensed as incurred.
The expenses attributable to mandatory contributions under the current government pension plan are included in our historical consolidated statements of income under either operating expenses for our production staff or selling and administrative expenses for our administrative staff. We expect that, under the current PRC rules and regulations regarding employee retirement benefits, the future costs of the current government plan will be comparable to our historical costs, subject to customary increases largely in line with salary increases of our employees.
We are required to make contributions to a mandatory provident fund at a rate of 5% of the base salaries for full-time employees in Hong Kong. The costs are expensed as incurred.
Our Indonesian subsidiaries employ approximately 900 employees, including approximately 50 expatriates. We provide benefits to expatriates that we believe to be in line with customary international practices. Our local staff in Indonesia enjoy welfare benefits mandated by Indonesia labor laws.
Holding Company Structure
We are a holding company. Our entire petroleum exploration, development, production and sales business in the PRC is owned and conducted by CNOOC China Limited, our wholly foreign-owned enterprise in the PRC. Our entire petroleum exploration, development and production business outside the PRC is owned and conducted by CNOOC International Limited, our wholly-owned subsidiary
incorporated in the British Virgin Islands. International sales of crude oil are conducted by China Offshore Oil (Singapore) International Pte. Ltd., our wholly-owned subsidiary incorporated in Singapore. Accordingly, our future cash flows will consist principally of dividends from our subsidiaries. The subsidiaries' ability to pay dividends to us is subject to various restrictions, including legal restrictions in their jurisdictions of incorporation. For example, legal restrictions in the PRC permit payment of dividends only out of net income determined in accordance with PRC accounting standards and regulations. In addition, under PRC law, CNOOC China Limited is required to set aside a portion of its net income each year to fund certain reserve funds. These reserves are not distributable as cash dividends.
Inflation/Deflation
According to the China Statistical Bureau, China experienced an overall national deflation rate, as represented by the general consumer price index, of 1.2% in 2003, an overall inflation rate of 3.9% in 2004 and an overall inflation rate of 1.8% in 2005. Neither the deflation nor the inflation has had a significant impact on our results of operations in the respective years.
U.S. GAAP Reconciliation
Our consolidated financial statements are prepared in accordance with Hong Kong GAAP, which differ in certain material respects from U.S. GAAP. These differences relate primarily to the treatment of impairment of long-lived assets and the treatment for convertible bonds. For differences between Hong Kong GAAP and U.S. GAAP that affect our net income or shareholders' equity. Please refer to note 38 to our consolidated financial statements attached to this annual report.
Taxation
We are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdictions in which we and each of our subsidiaries are domiciled and operate. We are not liable for income taxes in Hong Kong as we currently do not have any assessable income from Hong Kong sources. Pursuant to a notice issued by the State Administration of Taxation in March 2001, we are entitled to all tax benefits conferred by Chinese law on foreign invested enterprises.
Our PRC subsidiary, absent exemptions, is subject to enterprise income tax at the rate of 33%. Following the October 1999 reorganization, our PRC subsidiary became a wholly foreign owned enterprise and accordingly was exempted from 3% local surcharges, reducing its enterprise income tax rate to the current rate of 30%. The PRC enterprise income tax is levied based on taxable income including income from operations as well as other components of earnings, as determined in accordance with the generally accepted accounting principles in the PRC, or PRC GAAP. Besides income taxes, our PRC subsidiary also pays certain other taxes, including:
o production taxes equal to 5% of independent production and production under production sharing contracts; and
o business tax of 5% on other income.
Our subsidiary in Singapore, China Offshore Oil (Singapore) International Pte. Ltd., is subject to income tax at the rate of 10% and 20% for its oil trading activities and other income-generating activities, respectively. Our subsidiaries that own interests in oil properties in Indonesia along the Malacca Strait are subject to corporate and branch profit tax of 44%. The nine subsidiaries of Repsol-YPF, S.A. in Indonesia acquired by us during 2002 are all subject to corporate and dividend tax at rates ranging from 43.125% to 51.875%. None of our other subsidiaries were subject to any income taxes in their respective jurisdictions for the years presented.
We calculate deferred taxation to account for temporary differences between our tax bases, which is used for income tax reporting and prepared in accordance with applicable tax guidelines, and our accounting bases, which is prepared in accordance with applicable financial reporting requirements. Major temporary differences include accelerated amortization allowances for oil and gas properties,
which are offset in part by provision for dismantlement and a provision for impairment of property, plant and equipment and write-off of unsuccessful exploratory drilling. As of December 31, 2003, 2004 and 2005, we had Rmb 5,783.2 million, Rmb 6,688.5 million and Rmb 6,827.9 million (US$846.1 million), respectively, in net deferred tax liabilities. See note 13 to our consolidated financial statements attached to this annual report.
Change of Accountants
On June 6, 2002, we terminated the engagement of Arthur Andersen & Co as our independent public accountants. Prior to such date, Arthur Andersen had audited our consolidated financial statements, including financial statements as of and for the year ended December 31, 2001 presented in "Item 3--Selected Financial Data." On June 15, 2002, Arthur Andersen was convicted of federal obstruction of justice charges in connection with the U.S. government's investigation of Enron Corporation. On August 31, 2002, Arthur Andersen voluntarily relinquished its licenses to practice public accountancy in all states of the United States and, accordingly, cannot furnish any written consent to the issue of this annual report with the inclusion of its reports in the form and context in which they are included. For a discussion of risks related to Arthur Andersen, see "Item 3--Key Information--Risk Factors--Risks relating to our business--You may not be able to assert claims against Arthur Andersen, our independent public accountants for periods prior to 2002, nor may you be able to assert claims against our current independent public accountants for financial statements previously audited by Arthur Andersen."
On June 6, 2002, we appointed Ernst & Young as our independent accountants. Ernst & Young audited our consolidated financial statements for the year period ended December 31, 2003, 2004 and 2005 included in this annual report.
Impact of Recently Issued Accounting Standards
U.S. GAAP
In December 2004, the Financial Accounting standards Board ("FASB"), issued SFAS No. 153, "Exchanges of Non-monetary Assets an amendment of APB Opinion No. 29". This Statement, which addresses the measurement of exchanges of non-monetary assets, is effective prospectively for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this Statement is not expected to impact our consolidated financial position or results of operations.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" (FAS No.123R), which replaces FAS No. 123 and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." FAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim period after June 15, 2005, with early adoption encouraged. Under the SEC's rules, FAS No. 123R is effective for us beginning January 1, 2006. The pro forma disclosures previously permitted under FAS No. 123 are no longer an alternative to financial statement recognition. We believe the adoption of the FAS No. 123R will have no material impact on our consolidated financial position or results of operations as we currently account for the stock options under the fair value recognition provision of FAS No. 123.
In 2005, the FASB has finalized an amendment to Statement No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" (FAS No. 19) that change the way oil and gas producers account for deferred exploratory drilling costs. The new standard would relax the one-year limitation, so long as oil and gas reserves have been discovered and an enterprise "is making sufficient progress assessing the reserves and the economic and operating viability of the project." We believe the adoption of amendment to FAS No. 19 will have no material impact on our consolidated financial position or results of operations. This amendment is effective for the first reporting period beginning after April 4, 2005.
In March 2005, the FASB issued FASB Interpretation Number 47 (FIN No. 47), "Accounting for Conditional Asset Retirement Obligations". The interpretation clarifies the requirement to record
abandonment liabilities arising from legal obligations when the asset retirement depends on a conditional future event. FIN No. 47 requires that the uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information available. FIN No. 47 is effective for fiscal years ending after December 15, 2005 and application of the interpretation did not change our calculation of abandonment obligations.
In May 2005, the FASB issued SFAS No.154, iss.Accounting Changes and Error Corrections,i<168>a replacement of APB Opinion No.20, iss.Accounting Changesi<168> and SFAS No.3, iss.Reporting Accounting Changes in Interim Financial Statementsi<168> (" SFAS No.154 "). SFAS No.154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, voluntary changes in accounting principles were generally required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No.154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No.154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of SFAS No.155 will have a material effect on our financial position, cash flows or results of operations.
In February 2006, the FASB issued SFAS No.155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No.133 and 140" ("SFAS No.155"). SFAS No.155 clarifies certain issues relating to embedded derivatives and beneficial interests in securitized financial assets, including permitting fair value measurement for any hybrid financial instrument that contains an embedded derivative, eliminating the prohibition on a qualifying special-purpose entity from holding certain derivative instruments, and providing clarification that concentrations of credit risk in the form of subordination are not embedded derivatives. The provisions of SFAS No.155 are effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. We do not believe adoption of SFAS No.154 will have a material effect on our financial position, cash flows or results of operations.
Hong Kong GAAP
The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised HKFRSs, some of which are not mandatory for the current year financial statements. The following new and revised HKFRSs, although not early adopted by us, will have an impact on our financial statements once applied. Unless otherwise stated, the following HKFRSs are effective for accounting periods beginning on or after January 1, 2006:
HKAS 1 Amendment Capital Disclosures
HKAS 21 Amendment The effects of Changes in Foreign Exchange Rate -
Net Investment in a Foreign Operation
HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup
Transactions
HKAS 39 Amendment The Fair Value Option
HKFRSs 1 & 6 Amendments First-time Adoption of Hong Kong Financial
Reporting Standards and Exploration for and
Evaluation of Mineral Resources
HKFRS 6 Exploration for and Evaluation of Mineral Resources
HKFRS 7 Financial Instruments: Disclosures
HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease
HK(IFRIC)-Int 5 Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
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HKAS 1 Amendment shall be applied for accounting periods beginning on or after January 1, 2007. The revised standard will affect the disclosure of qualitative information about our objective, policies and processes for managing capital; quantitative data about what we regard as capital; and compliance with any capital requirements and the consequences of any non-compliance.
HKFRS 6 deals with the accounting for exploration for and evaluation of mineral resources, including oil and gas. We do not expect the adoption of HKFRS 6 to have any significant impact on our results of operations and financial position.
HKFRS 7 has modified the disclosure requirements of HKAS 32 relating to financial instruments, and will replace HKAS 32. This HKFRS shall be applied for accounting periods beginning on or after January 1, 2007.
Except as stated above, we do not expect the adoption of the other pronouncements listed above to have any significant impact on our financial statements in the period of initial application.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
See "Item 4--Information on the Company--Business Overview--Research and Development" and "Item 7--Major Shareholders and Related Party Transactions--Related Party Transactions--Categories of Connected Transactions--Research and Development Services."
D. TREND INFORMATION
Crude oil price is a major driver of our results of operation. We price our crude oil with reference to the international crude oil prices, which have fluctuated considerably over the years. On January 3, 2005 the international benchmark crude oil, West Texas Intermediate, was US$42.13 per barrel. As of June 6, 2006, it was US$72.50 per barrel. In addition, continued political and economic uncertainties in Iraq and threat of terrorism worldwide raise concerns about the security and availability of ample supplies to meet growing demand. It is expected that crude oil price will remain relatively high in 2006. For more information about crude oil prices, see "Item 3--Key Information--Risk Factors--Risks Relating to Our Business--Our business, revenues and profits fluctuate with changes in oil and gas prices," "Item 4--Information on the Company--Business Overview--Sales and Marketing--Sales of Offshore Crude Oil--Pricing," and "Item 5--Operating and Financial Review and Prospects--Operating Results--Results of Operations--2005 versus 2004."
In additional to crude oil, natural gas is becoming an increasingly important part of our business. The Chinese government promotes the use of natural gas as a clean and efficient fuel. Demand for natural gas in the PRC is likely to increase significantly. We have expanded and will continue to expand our natural gas business and intend to exploit our natural gas reserves to meet growing demand for natural gas. For more information about our natural gas business, see "Item 3--Key Information--Risk Factors--Risks Relating to Our Business--Any failure to implement our natural gas business strategy may adversely affect our business and financial position," "--The infrastructure and demand for natural gas in the PRC may proceed at a slower pace than our planned increase in production," "Item 4--Information on the Company--Business Overview--Competitive Strengths--Strategic Position in China's Growing Natural Gas Market" and "--Natural Gas Business."
E. OFF-BALANCE SHEET ARRANGEMENTS
None
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table sets forth information regarding our contractual obligations for the periods indicated.
Payments due by period
--------------------------------------------------------------
Contractual Obligations Less than More than
Total 1 year 1-3 years 3-5 years 5 years
---------- ---------- ---------- ---------- ----------
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
87
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Long-term debt obligations ......................... 17,381,846 825,674 24,392 8,538,453 7,993,327
Operating lease obligations ........................ 1,576,067 340,318 409,191 294,682 531,876
Other long-term liabilities reflected on our balance
sheet under Hong Kong GAAP ..................... 4,161,663 -- -- -- 4,161,663
---------- ---------- ---------- ---------- ----------
Total ..................................... 23,119,576 1,165,992 433,583 8,833,135 12,686,866
========== ========== ========== ========== ==========
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As of December 31, 2005, we had the following capital commitments, principally for the construction and purchase of property, plant and equipment:
Capital Commitments 2005 2004
------------------- ---------- ----------
Rmb'000 Rmb'000
Contracted for............................................ 7,511,100 9,568,971
Authorized, but not contracted for........................ 23,736,582 20,331,504
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As of December 31, 2005, we had unutilized banking facilities amounting to approximately Rmb 33,450.8 million (US$4,145.0 million) as compared to Rmb 20,662.1 million as of December 31, 2004.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
In accordance with Hong Kong law and our articles of association, our affairs are managed by our board of directors. The board of directors has 12 members, including five independent non-executive directors.
The table below sets forth information about our directors and senior officers:
Name Year of Birth Position
------------------- ------------- -----------------------------------------
Chengyu Fu......... 1951 Chairman of Board of Directors and Chief
Executive Officer
Han Luo............ 1953 Director
Longsheng Jiang.... 1945 Director (retired on June 1, 2005)
Shouwei Zhou....... 1950 Director and President
Xinghe Cao......... 1949 Director (since August 31, 2005)
Zhenfang Wu........ 1952 Director (since August 31, 2005)
Guangqi Wu......... 1957 Director and Compliance Officer (since
June 1, 2005)
Hua Yang........... 1961 Director (since August 31, 2005),
Executive Vice President and Chief
Financial Officer
Edgar W.K. Cheng... 1943 Independent Non-executive Director (since
May 24, 2006)
Sung Hong Chiu..... 1947 Independent Non-executive Director
Kenneth S. Courtis. 1946 Independent Non-executive Director
(retired on May 24, 2006)
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Evert Henkes....... 1943 Independent Non-executive Director
Lawrence J. Lau.... 1944 Independent Non-executive Director (since
August 31, 2005)
Erwin 1940 Independent Non-executive Director
Schurtenberger..... (resigned on April 1, 2005)
Aloysius Hau Yin 1948 Independent Non-executive Director (since
Tse................ June 8, 2005)
Yunshi Cao......... 1945 Senior Vice President, General Counsel
and Company Secretary (retired on April
18, 2006)
Victor Zhikai Gao.. 1962 Senior Vice President, General Counsel
and Company Secretary (since April 18,
2006)
Jian Liu........... 1958 Executive Vice President
Wei Chen........... 1958 Senior Vice President and General
Director of CNOOC China Limited Beijing
Research Center
Guohua Zhang....... 1960 Senior Vice President and General Manager
of CNOOC China Limited Shanghai Branch
Ning Li............ 1964 Senior Vice President and General Manager
of CNOOC China Limited Shenzhen Branch
Bi Chen............ 1961 Vice President and General Manager of
CNOOC China Limited Tianjin Branch
Weilin Zhu......... 1956 Vice President and General Manager of
Exploration Department
Mingcai Zhu........ 1956 Vice President and President of CNOOC
International Limited
Zhi Fang........... 1962 Vice President and President of CNOOC
Southeast Asia Ltd.
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We have a management team with extensive experience in the oil and gas industry. As a result of our cooperation with international oil and gas companies, the management team and staff have had the opportunity to work closely with foreign partners both within and outside China. Such opportunities, in conjunction with management exchange programs with foreign partners, have provided valuable training to our personnel in international management practices. A description of the business experience and present position of each director and executive officer is provided below. Our principal executive offices are located at 65th Floor, Bank of China Tower, One Garden Road, Central, Hong Kong.
Directors
Chengyu Fu received a B.S. degree in geology from the Northeast Petroleum Institute in China and a Master's degree in petroleum engineering from the University of Southern California in the United States. He has over 30 years of experience in the oil industry in the PRC. He previously worked in China's Daqing, Liaohe and Huabei oil fields. He joined CNOOC, our controlling shareholder, in 1982 and has since been appointed as the Chairman of the Management Committee formed through a joint venture between CNOOC, BP Amoco, Chevron, Texaco, Phillips Petroleum, Shell and Agip. From 1994
to 1995, Mr. Fu was the Deputy General Manager of China Offshore Oil Eastern South China Sea Corporation, a subsidiary of CNOOC. In December 1995, he was appointed as the Vice President of Phillips China Inc. and the General Manager of the Xijiang Development Project. In 1999, Mr. Fu was appointed as the General Manager of China Offshore Oil Eastern South China Sea Corporation, a subsidiary of CNOOC. In 2000, Mr. Fu was appointed as the Vice President of CNOOC. Subsequently, he was appointed as our Executive Vice President, President and Chief Operating Officer in 2001. In August 2002 he became the Chairman and Chief Executive Officer of China Oilfield Services Limited ("COSL"), a company listed on The Stock Exchange of Hong Kong Limited and a subsidiary of CNOOC. In October 2003, Mr. Fu was appointed as the President of CNOOC. He was also appointed as our Chairman of the Board of Directors and Chief Executive Officer with effect from October 16, 2003. In November 2003, Mr. Fu resigned from his Chief Executive Officer position in COSL. He also serves as the Chairman of the Board of Directors of CNOOC Finance Corporation Limited, a subsidiary of CNOOC, as well as CNOOC China Limited and CNOOC International Limited, both being our subsidiaries. Mr. Fu was appointed our Executive Director with effect from August 23, 1999.
Han Luo received a doctorate degree from the Petroleum University in China. He has over 30 years of experience in the oil industry in the PRC. He joined CNOOC in 1982. From 1993 to 1999, Mr. Luo served as the Vice President of China Offshore Oil Eastern South China Sea Corporation and concurrently as the Chairman of the CACT (CNOOC-AGIP-Chevron-Texaco) operators group, and the Executive Vice President of China Offshore Oil East China Sea Corporation, a subsidiary of CNOOC. In 1999, he served as the General Manager of CNOOC China Limited's Shanghai Branch. Mr. Luo is a Vice President of CNOOC, a position he has held since 2000. He also serves as the Chairman of the Board of Directors of Zhonghai Trust & Investment Co., Ltd., a subsidiary of CNOOC, and the Director of CNOOC China Limited, our subsidiary. Mr. Luo was appointed as our Executive Director with effect from December 20, 2000.
Longsheng Jiang received a B.S. degree from the Beijing Petroleum Institute in China. He has over 35 years of experience in the oil industry in the PRC. He was appointed as a Director of our company in December 2000 and has been the Vice President of CNOOC since 1998. From 1994 to 1998, he was the General Manager of China Offshore Oil Southern Drilling Company. From 1991 to 1994, Mr. Jiang served as the Deputy Chief Drilling Engineer and was later appointed as the Chief Drilling Engineer of China Offshore Oil Western South China Sea Corporation. He joined CNOOC in 1982. Mr. Jiang retired from our board of director with effect from June 1, 2005.
Shouwei Zhou received a doctorate degree from the Southwest Petroleum Institute in China and is a senior engineer. He joined CNOOC in 1982. Mr. Zhou served as the Deputy General Manager of China Offshore Oil Bohai Corporation, a subsidiary of CNOOC and the General Manager of CNOOC China Limited Tianjin Branch. He was appointed as our Executive Vice President in September 1999 and our President in July 2002. Since 2000, Mr. Zhou has been the Vice President of CNOOC. Mr. Zhou serves as the Director and the President of CNOOC China Limited and the Director of CNOOC International Limited, both being our subsidiaries. He also serves as the Chairman of CNOOC Southeast Asia Limited, our wholly-owned subsidiary since April 2003. Mr. Zhou became the chairman of Offshore Oil Engineering Company Limited, a listed company in Shanghai Stock Exchange and a subsidiary of CNOOC, on December 6, 2003. Mr. Zhou was appointed as our Executive Director with effect from August 23, 1999.
Xinghe Cao graduated from Tianjin Politics and Law Management College majoring in Economic Laws and later studied for MBA in Capital University of Economics and Business. Mr. Cao has forty years of experience in the petroleum industry since he started work in 1965. He worked for Shengli oilfield and Dagang oilfield before he joined CNOOC in 1982. From 1985 to 1996, Mr. Cao worked as Manager of Bohai Oil Commercial Company and later as the Manager of Bohai Oil Transportation Company, both being the subsidiaries of CNOOC. From 1996 to 2003, he worked as Deputy General Manager and General Manager of CNOOC Bohai Corporation successively. From April 2003 to July 2004, Mr. Cao worked as the Assistant President of CNOOC. He became the Vice President of CNOOC in August 2004. Mr. Cao also serves as the Chairman of the Board of Directors of CNOOC
Base Group Limited, a subsidiary of CNOOC. Mr. Cao was appointed as our Executive Director with effect from August 31, 2005.
Zhenfang Wu is a senior engineer and graduated with a bachelor's degree from Dalian University of Technology, majoring in Offshore Petroleum Engineering and Construction. He later studied for EMBA in Shanghai Jiao Tong University. Mr. Wu joined the petroleum industry in 1971. He joined CNOOC in 1982. From 1993 to 1997, he was Deputy General Manager of CNOOC Nanhai West Corporation. He became the President of CNOOC Chemical Limited in 2000. He was also the Chairman of the Board of Directors of Fudao Fertilizer Limited and CNOOC Chemical Limited from 2001 to 2003 and 2003 to 2005 respectively. From 2003 to 2004, Mr. Wu was Assistant President of CNOOC. In August 2004, he became the Vice President of CNOOC. Mr. Wu also serves as the Chairman of a number of subsidiaries of CNOOC (including Guangdong Dapeng LNG Company Limited, CNOOC Fujian Natural Gas Limited, CNOOC Oil & Petrochemicals Co., Ltd. and CNOOC Zhejiang Ningbo LNG Co., Ltd.), the Chairman and President of CNOOC Gas and Power Limited and the Vice Chairman of Shanghai Petroleum and Natural Gas Company Limited. Mr. Wu was appointed as our Executive Director with effect from August 31, 2005.
Guangqi Wu is a geologist and graduated with a Bachelor of Science degree from the Ocean University of China, majoring in Marine Geology. He also holds a master's degree in Management from the China Petroleum University. Mr. Wu joined CNOOC in 1982. He became the Deputy General Manager of CNOOC Oil Technical Services Company, a subsidiary of CNOOC, in 1994. Mr. Wu was appointed as Director of the Administration Department of CNOOC in 1995 and became the Director of the Ideology Affairs Department of CNOOC in 2001. Mr. Wu was appointed Assistant President in 2003, and has been the Vice President of CNOOC since 2004. Mr. Wu has also served as an Independent Non-executive Director of China Yangtze Power Limited, a company listed on the Shanghai Stock Exchange, since May 2003, and our Compliance Officer since June 1, 2005. Mr. Wu was appointed as our Executive Director with effect from June 1, 2005.
Hua Yang is an engineer and graduated from Petroleum University with a B.S. degree in Petroleum Engineering. He also received a MBA degree from the Sloan School of Management at MIT as a Sloan Fellow. Mr. Yang joined CNOOC in 1982 and has over 23 years' experience in petroleum exploration and production. Mr. Yang spent the first-eleven year of his career with China Offshore Oil Research Center to serve as a number of positions including the Director of Field Development Department, the Manager for Reservoir Engineering Department, the Project Manager and Team Leaders. Mr. Yang spent his second-twelve year with international business, corporate finance and capital market in our Company and its subsidiaries. From 1993 to 1999, he served as our Deputy Chief Geologist, our Deputy Director and our Acting Director for Overseas Development Department and the Vice President of CNOOC International Limited, our wholly-owned subsidiary. In 1999, he became our Senior Vice President and then became our Executive Vice President in December 2005. From 2002 to 2003, Mr. Yang was the Director and President of CNOOC Southeast Asia Limited, our wholly-owned subsidiary. He was appointed as our Chief Financial Officer with effect from January 1, 2005. He also serves as the Director of CNOOC International Limited and CNOOC Southeast Asia Limited. Mr. Yang was appointed as our Executive Director with effect from August 31, 2005.
Independent Non-executive Directors
Edgar W.K. Cheng was a graduate from the University of Notre Dame and the Medical College of Wisconsin, USA. He was Clinical Associate Professor of Medicine at Cornell University Medical College and practiced medicine and conducted clinical research at the Memorial Sloan-Kettering Cancer Centre in New York. Dr. Cheng was a former Chairman of the University Grants Commission in Hong Kong, and a member of the Education Commission. Dr. Cheng has been in many other financial market positions such as Chairman of the Stock Exchange of Hong Kong, Vice-Chairman and non-executive director of the Hang Seng Bank Ltd., Vice President of the International Federation of Stock Exchange, Founding Chairman of the Hong Kong Securities Institute, Member of the Board of Directors of the Hong Kong Futures Exchange Ltd., and Member of the Conference Board's Global Advisory Council. He was appointed by the Chinese Government as a Hong Kong Affairs Advisor (1991 - 1997). He became a
Member of the Preparatory Committee and also the Selection Committee for the
Hong Kong Special Administrative Region of the National People's Congress (1996
- 1997). Dr. Cheng served as the Head of the Central Policy Unit of the
Government of Hong Kong Special Administrative Region from 1999 - 2001. He is at
present Chairman of the Council of the Chinese University of Hong Kong, the
Chairman of the World-Wide Investment Co. Ltd. and a member of the Board of
Directors of the Hong Kong Institute for Monetary Research, non-executive
director of the Standard Chartered Bank (Hong Kong) Ltd, independent director of
Goldman Sachs Gao Hua Securities Co. Ltd, a member of The Greater Pearl River
Delta Business Council, a member of the Commission on Strategic Development as
well as the Vice-Chairman of the Council for Sustainable Development. He is also
a member of the 10th Chinese People's Political Consultative Conference National
Committee. Dr. Cheng was appointed as our Independent Non-executive Director
with effect from May 24, 2006.
Sung Hong Chiu received an LL.B. degree from the University of Sydney. He is admitted as a solicitor of the Supreme Court of New South Wales and the High Court of Australia. He has over thirty years' experience in legal practice and is a director of a listed company in Australia. Mr. Chiu is the founding member of the Board of Trustees of Australian Nursing Home Foundation and served as the General Secretary of the Australian Chinese Community Association of New South Wales. Mr. Chiu was appointed as our Independent Non-executive Director with effect from September 7, 1999.
Erwin Schurtenberger is a senior advisor to the China Training Center for Senior Personnel Management Officials. He received a Ph.D. Degree in Economics and was trained in political science and philosophy at the University of Paris. He was the Ambassador of Switzerland to the People's Republic of China, the Democratic People's public of Korea and the Republic of Mongolia from 1988 to 1995. He joined the Swiss Foreign Services in 1969. Over the years, he held various diplomatic positions in Bangkok, Hong Kong, Beijing and Tokyo. He also served as the Ambassador of Switzerland to Iraq. He has been an independent business advisor to various European multinationals, American groups and humanitarian aid organizations. He was the President of the Swiss-Asia Foundation. He serves on the boards of directors of ROBERT BOSCH RBint, BUHLER GROUP Switzerland, FIRMENICH-China, TAIKANG Life Insurance and WINTERTHUR Insurances (Asia). Dr. Schurtenberger resigned from our board of directors with effect from April 1, 2005.
Kenneth S. Courtis was the Managing Director of Goldman Sachs and Vice Chairman of Goldman Sachs Asia and retired in March 2006. He specializes in economics and strategy throughout the Asia-Pacific region as well as in Europe and North America. After graduating with honors from Glendon College in Toronto, Dr. Courtis received an M.A. in international economics from Sussex University, England, an M.B.A. in finance and strategy from the European Institute of Business Administration and a Ph.D. from the Institute of Economic and Political Studies in Paris. Prior to joining Goldman Sachs, he served as Chief Asia Economist and Strategist for Deutsche Bank. Dr. Courtis was appointed as our Independent Non-executive Director with effect from November 11, 2002 and retired from our board of directors with effect from May 24, 2006.
Evert Henkes served as the CEO of Shell global chemical business from 1998 to 2003. Since joining Shell in 1973, he held various executive positions worldwide, including Managing Director of Shell Chemicals UK Ltd., Managing Director of Shell UK, President of Billiton Metals, Shell's Metals Coordinator, Shell's Chemical Coordinator, and Director of Strategy & Business Services of Shell International Chemicals Ltd. He also served as directors in regional and global industrial bodies, including CEFIC and ICCA. He is also a director of Tate & Lyle Plc, SembCorp Industries Ltd. and Outokumpu Oy. Mr. Henkes was appointed as our Independent Non-executive Director with effect from September 16, 2003.
Lawrence J. Lau is an economist and graduated with a B.S. degree (with Great Distinction) in Physics and Economics from Stanford University in 1964, and received his M.A. and Ph.D. degrees in Economics from the University of California at Berkeley in 1966 and 1969 respectively. Professor Lau joined the faculty of the Department of Economics at Stanford University in 1966, becoming Professor of Economics in 1976 and the first Kwoh-Ting Li Professor of Economic Development at Stanford University in 1992. From 1992 to 1996, he served as a Co-Director of the Asia-Pacific Research Center
at Stanford University, and from 1997 to 1999, as the Director of the Stanford Institute for Economic Policy Research. He was also awarded the honorary degree of Doctor of Social Sciences by the Hong Kong University of Science and Technology in 1999. Professor Lau has authored or edited five books and published more than one hundred and sixty articles and notes in professional journals. Professor Lau is an Honorary Professor of a large number of universities and institutions in mainland China such as the Institute of Systems Science at the Chinese Academy of Sciences, Jilin University, Nanjing University, Renmin University of China, Shantou University, Southeast University and the School of Economics and Management, Tsinghua University. In July 2004, Professor Lau assumed office as Vice-Chancellor of The Chinese University of Hong Kong. He currently provides useful public service to the local community in his capacity as member of the Executive Committee of the HKSAR Government's Commission on Strategic Development, the Advisory Committee of the Independent Commission Against Corruption, and the Steering Committee on Innovation and Technology. He also serves on the Board of Directors of the Hong Kong Science and Technology Park Corporation as an independent non-executive director, as well as the Far EasTone Corporation as an independent director and the Shin Kong Financial Holdings Corporation as an independent supervisor, both listed companies in Taiwan. Professor Lau was appointed as our Independent Non-executive Director with effect from August 31, 2005.
Aloysius Hau Yin Tse is a fellow of The Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants ("HKICPA"). Mr. Tse is a past president of the HKICPA. He joined KPMG in 1976 and became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive Chairman of KPMG's operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is currently an independent non-executive director of China Construction Bank Corporation, China Telecom Corporation Limited, Wing Hang Bank, Limited and Linmark Group Limited, companies listed on The Stock Exchange of Hong Kong Limited. Mr. Tse is also the chairman of the International Advisory Council of the People's Municipal Government of Wuhan. Mr. Tse was appointed as our Independent Non-executive Director with effect from June 8, 2005.
Company Secretary
Victor Zhikai Gao graduated from Suzhou University in 1981 with a B.A. degree in English Literature and from Beijing University of Foreign Studies in 1983 with a M.A. degree in English Literature. Mr. Gao obtained a M.A. degree in Political Science from Yale Graduate School in 1990 and a J.D. degree from Yale Law School in 1993. Mr. Gao is a licensed attorney-at-law in the State of New York, and was a licensed financial advisor with the Securities and Futures Commission of Hong Kong from 1994 to 1999. Mr. Gao's extensive previous working experiences included services with the Chinese Ministry of Foreign Affairs in Beijing, the United Nations Secretariat in New York City, Milbank Tweed Hadley & McCloy in New York City, Morgan Stanley in Hong Kong, China International Capital Corporation in Beijing and Hong Kong, PCCW and Henderson (China) Investment Co., Ltd. Mr. Gao was the China Policy Advisor with the Securities and Futures Commission of Hong Kong between 1999 and 2000. Mr. Gao was appointed as our Senior Vice President, General Counsel and Company Secretary with effect from April 18, 2006.
Other Members of Senior Management
Jian Liu Born in 1958, Mr. Liu is the Executive Vice President of the Company. He graduated from Huazhong University of Science and Technology with a B.S. degree and received his MBA degree from Tianjin University in 2000. He is responsible for the management of oil/gas field development and production. Mr. Liu joined CNOOC in 1982. He served as the manager of CNOOC Bohai Corporation, the Deputy General Manager of the Tianjin Branch, the General Manager of the Zhanjiang Branch, the Senior Vice President and General Manager of the Department of Development and Production at CNOOC.
Wei Chen Born in 1958, Mr. Chen is a Senior Vice President of the Company and General Director of the CNOOC China Limited Research Center. He received his B.S. degree from Petroleum
University and holds an MBA degree from Tsinghua University. He has over 23 years of experience in petroleum exploration and production. Mr. Chen joined CNOOC in 1984 and previously served as the Deputy Manager for the Exploration and Development Department of CNOOC Research Center, the Deputy Manager of the Overseas Research Department, the Manager of the Information Department, the Deputy Director of CNOOC Research Center and the General Manager of the Human Resources Department of CNOOC, and the Senior Deputy General Manager & General Manager of our Administration Department of CNOOC Limited.
Guohua Zhang Born in 1960, Mr. Zhang is a Senior Vice President of the company and General Manager of CNOOC China limited-Shanghai. He graduated from Qingdao Oceanographic Institute with a B.S. degree. He studied in the Business Institute of University of Alberta in Canada in 2001. He joined CNOOC in 1982 and served as Manager of the Exploration Department of China Offshore Oil Naihai West Corporation, Chief Geologist of CNOOC Research Center, Assistant to General Manager of CNOOC China Limited and General Manager of CNOOC limited Exploration Department.
Ning Li Born in 1963, Mr. Li is a Senior Vice President of the Company and General Manager of CNOOC Limited Shenzhen Branch. He received his B.S. degree from Petroleum University of China and holds a MBA degree from Tianjin University. Mr. Li joined CNOOC in 1983 and served as Vice President of Design & Engineering Corporation of CNOOC, Vice General Manager of Engineering Department of CNOOC, General Manager of DongFang 1-1 project, Vice General Manager of CNOOC Limited Zhanjiang Branch and General Manager of Engineering Department. Mr. Li was appointed as Senior Vice President of CNOOC Limited in 2003.
Bi Chen Born in 1961, Mr. Chen is a Vice President of CNOOC Limited and General Manager of CNOOC China Limited-Tianjin. He graduated from the Development Department of Southwest Petroleum Institute, and acquired the Bachelor of Engineering. He received a Master's degree in Petroleum Engineering Department of Edinburgh Heriot-Watt University in 1988. He has received a degree of Master of Business Administration from Tsinghua University in 2000. Mr. Chen joined CNOOC in 1982. He served as the Deputy Manager of CNOOC Nanhai West Corporation Oil Production Company, Director of Production Section of the Development and Production Department of CNOOC Limited Deputy Manager and then General Manager of Development and Production Department of CNOOC Limited.
Weilin Zhu Born in 1956, Mr. Zhu is a Vice President and General Manager of Exploration Department. He graduated from Tongji University with a Ph.D degree. Mr. Zhu joined CNOOC in 1982. He served as the General Geologist of CNOOC Research Center, the Deputy Manager and Chief Manager of Exploration Department of CNOOC Limited, and the General Manager of the Zhanjiang Branch.
Mingcai Zhu Born in 1956, Mr. Zhu is a Vice President of CNOOC Limited and General Manager of CNOOC International Limited. He graduated from South West Petroleum Institute with B.S. degree and received a MBA degree from the Management School of Lancaster University in UK. Mr. Zhu joined CNOOC in 1985. He served as the Vice President of CNOOC Bohai Corporation, the General Manager of Tianjin Branch and the President of Shenzhen Branch.
Zhi Fang Born in 1962, Mr. Fang is a Vice President of CNOOC Limited and the President of CNOOC Southeast Asia Ltd. and is responsible for the company's businesses in Indonesia. He graduated from Zhejiang University with a B.S. degree and was conferred a MBA degree by the University of Birmingham in 1995. Mr. Fang joined CNOOC in 1982. He served as Deputy Director of the Research Center and Manager of Exploration and Development Department in China National Offshore Oil Nanhai East Corporation, Deputy General Manager of CNOOC-AMOCO Liuhua Joint Operating Group, Deputy General Manager and General Manager of CNOOC China Limited Shenzhen Branch during his career in the domestic operations.
B. COMPENSATION OF DIRECTORS AND OFFICERS
Each of the executive directors entered into a service contract with a 12 month term and on a 12 month rolling basis as determined by our board of directors or our shareholders. Particulars of these contracts are in all material respects identical except as indicated below:
o the annual salaries for Mr. Chengyu Fu and Mr. Shouwei Zhou during the initial three years are HK$1,880,000 and HK$1,680,000, respectively;
o the chairman of our board of director and each other director (other than independent non-executive directors) shall be entitled to a maximum annual paid leave of 30 working days and 25 working days, respectively;
o each of the directors (other than independent non-executive directors) is entitled to the use of an apartment as his residence and the use of a car provided free of charge by us together with certain other benefits and reimbursements;
o the annual salary for each of the other directors (other than independent non-executive directors) during the initial three years is HK$388,000; and
o we may, at our sole discretion, pay director (other than independent non-executive directors) a bonus in such amount as the board of directors may determine in respect of each completed financial year.
The salaries for Mr. Chengyu Fu and Mr. Shouwei Zhou were HK$3,952,381 and HK$3,095,238, respectively, for 2005. The aggregate amounts of salaries, housing allowances, other allowances and benefits in kind paid to our directors (other than independent non-executive directors) during the years ended December 31, 2003, 2004 and 2005 were approximately Rmb 10.7 million, Rmb 7.8 million and Rmb 20.3 million (US$2.5 million), respectively, while the amounts paid to our executive officers for the same periods were approximately Rmb 11.0 million, Rmb 12.6 million and Rmb 14.0 million (US$1.7 million), respectively. Under our pension plan for 2005, we set aside an aggregate amount of Rmb 104,000 (US$12,886.9) for pension and similar benefits in kind for our directors (other than independent non-executive directors) and our executive officers. Our directors (other than independent non-executive directors) and executive officers contributed an additional Rmb 104,000 (US$12,886.9) to the pension plan for 2005. Each director's annual compensation, including salary, allowances, pension and benefits in kind, is disclosed in Note 11 to our consolidated financial statements under Item 18 in this annual report. For further details regarding employee compensation, see "Item 4--Information on the Company--Business Overview--Employees and Employee Benefits." For further details regarding share options granted to our directors, officers and employees, see "--Share Ownership" below.
C. BOARD PRACTICE
Audit and Other Committees
We have established an audit committee, a remuneration committee and a nomination committee. Our audit committee meets at least twice a year and is responsible for reviewing the completeness, accuracy and fairness of our accounts, evaluating our auditing scope and procedures, and evaluating internal control systems. The committee is also responsible for setting up internal monitoring systems so as to allow our board of directors to monitor our financial position, protect our assets, and prevent major errors resulting from financial reporting or loss. Our board of directors is responsible for these systems and appropriate delegations and guidance have been made. The audit committee regularly reports to the board of directors. Since May 25, 2006, our audit committee consists of Mr. Aloysius Hau Yin Tse, Mr. Sung Hong Chiu and Professor Lawrence J. Lau.
The primary responsibilities of our remuneration committee are to review information in respect of our executives' remuneration, share option schemes, performance appraisal systems and retirement plans. Since May 25, 2006, our remuneration committee consists of Mr. Sung Hong Chiu, Mr. Evert Henkes, Mr. Aloysius Hau Yin Tse and Mr. Xinghe Cao.
The primary responsibilities of our nomination committee include nominating candidates for directors subject to our board of directors' approval, conducting routine examination of the structure, scale and composition of our board of directors, and review the leadership capabilities of our directors in order to ensure that we remain competitive. Since May 25, 2006, our nomination committee consists of Mr. Han Luo, Dr. Edgar W.K. Cheng and Professor Lawrence J. Lau.
For information on our audit committee finance expert and our code of ethics, see "Item 16A--Audit Committee Finance Expert," and "Item 16B--Code of Ethics."
International Advisory Board
On October 29, 2001, we announced the establishment of an International Advisory Board with globally well-respected political figures and corporate leaders as members. The purpose of the International Advisory Board is to provide the management with strategic advice on world events and macro issues that may impact our development. Chengyu Fu, Chairman of our board of director, is the Chairman of the International Advisory Board.
Set forth below is information on the current members of our International Advisory Board.
Name Biographical Information
------------------- ---------------------------------------------------------
Chengyu Fu See "--A. Directors and Senior Management--Directors"
Erwin Schurtenberger The Ambassador of Switzerland to the People's Republic of
China, the Democratic People's Republic of Korea and the
Republic of Mongolia from 1988 to 1995. He joined the
Swiss Foreign Services in 1969. Over the years, he held
various diplomatic positions in Bangkok, Hong Kong,
Beijing and Tokyo. He also served as the Ambassador of
Switzerland to Iraq. He has been an independent business
advisor to various European multinationals, American
groups and humanitarian aid organizations. He was the
President of the Swiss-Asia Foundation. He serves on the
Boards of ROBERT BOSCH RBint and its International
Advisory Board, BUHLER GROUP Switzerland, FIRMENICH-China,
TAIKANG Life Insurance, WINTERTHUR Insurances (Asia). Dr.
Schurtenberger is also a senior advisor to the China
Training Center for Senior Personnel Management Officials.
He is a graduate in both political science and philosophy
of the University of Paris and received a Ph.D. Degree in
Economics. Dr Schurtenberger was a director on our board
of directors from November 11, 2002 to April 1, 2005.
Simon Murray Chairman of General Enterprise Management Services Limited
(GEMS), a private equity fund management company owned by
Simon Murray & Associates Limited. Formerly, the Executive
Chairman of Asia Pacific for the Deutsche Bank Group, and
the Group Managing Director of Hutchison Whampoa Ltd. He
is currently a Director of a number of companies that
include Hutchison Whampoa, Cheung Kong Holdings, Orient
Overseas (International) Limited, Compagnie Financiere
Richemont SA and Sino-Forest Corporation.
Edward S. Steinfeld Assistant professor at the MIT Sloan School of Management.
He received both his undergraduate and doctoral training
at Harvard University. As a China specialist, he has
conducted extensive firm-level research in China.
Charles Freeman Became Chairman of Projects International, Inc. in 1995,
after an extensive career in the U.S. Government spanning
three decades and numerous senior positions, including
U.S. Ambassador to Saudi Arabia and Assistant Secretary of
Defense for International Security Affairs. He is
currently president of the Middle East Policy Council,
co-chair of the U.S. China Policy Foundation, vice-chair
of the Atlantic Council, and a trustee of the Institute
for Defense Analyses, among other positions. Ambassador
Freeman attended the National Autonomous University of
Mexico and received his A.B. from Yale University as well
as a J.D. from the Harvard Law School. He is the author of
two widely circulated books on statecraft and diplomacy:
The Diplomat's Dictionary and Arts of Power.
|
Summary of Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual
We are incorporated under the laws of Hong Kong. The principal trading market for our shares is the Hong Kong Stock Exchange. In addition, because our ordinary shares are registered with the United States Securities and Exchange Commission and are listed on the New York Stock Exchange (the "NYSE"), we are subject to certain corporate governance requirements. However, many of the corporate governance rules in the NYSE Listed Company Manual (the "NYSE Standards") do not apply to us as a "foreign private issuer" and we are permitted to follow the corporate governance practices in Hong Kong in lieu of most corporate governance standards contained in the NYSE Standards. Section 303A.11 of the NYSE Standards requires NYSE-listed foreign private issuers to describe the significant differences between their corporate governance practices and the corporate governance standards applicable to U.S.
domestic companies listed on the NYSE ("U.S. domestic issuers"). We set forth below a brief summary of such significant differences.
1. Board and Committee Independence
While NYSE Standards require U.S. domestic issuers to have a majority of independent directors, we are not subject to this requirement. Five of our twelve directors are independent non-executive directors.
NYSE Standards require U.S. domestic issuers to schedule an executive session at least once a year to be attended by only independent directors. We are not subject to such requirement and our independent directors attend all board meetings where possible.
NYSE Standards require U.S. domestic issuers to disclose a method for interested parties to communicate directly with the presiding director or with non-management directors as a group. We are not subject to such requirement and we have not adopted such a method yet.
2. Audit Committee
If an audit committee member simultaneously serves on the audit committees of more than three public companies, and the listed company does not limit the number of audit committees on which its audit committee members serve to three or less, then in each case, the boards of directors of U.S. domestic issuers are required to determine that such simultaneous service would not impair the ability of such member to effectively serve on its audit committee and disclose such determination in its annual proxy statement or annual report. We are not subject to such requirement and we have not addressed this in our audit committee charter.
NYSE Standards require audit committees of U.S. domestic issuers to discuss guidelines and policies that govern the process by which risk assessment and risk management are handled and include such responsibilities in their audit committee charters. We are not subject to such requirement and our audit committee charter does not have such provision. Our audit committee charter only provides that our audit committee shall review with our auditors and the Director of Internal Audit the scope, adequacy and effectiveness of our corporate accounting and financial controls, and any related significant findings regarding risks or exposures and consider recommendations for improvement of such controls according to the Hong Kong Stock Exchange Listing Rules.
3. Remuneration Committee
NYSE Standards require U.S. domestic issuers to have a compensation committee composed entirely of independent directors. We are not subject to such requirement and have a remuneration committee that consists of three independent non-executive directors and one executive director.
NYSE Standards require U.S. domestic issuers to address in their remuneration committee charters matters regarding committee member removal and committee structure and operations (including authority to delegate to subcommittees). We are not subject to such requirement and we have not addressed this in our remuneration committee charter.
NYSE Standards require remuneration committees of U.S. domestic issuers to produce a remuneration committee report annually and include such report in their annual proxy statements or annual reports on Form 10-K. We are not subject to such requirement and we have not addressed this in our remuneration committee charter. We disclose the amounts of compensation of our directors on a named basis and the five highest paid employees in our annual reports according to the requirements of Hong Kong Stock Exchange Listing Rules.
4. Nomination Committee
While NYSE Standards require U.S. domestic issuers to have only independent directors on their nomination committee, we are not subject to such requirement and our nomination committee consists of two independent non-executive directors and one executive director.
NYSE Standards require U.S. domestic issuers to address in their nomination committee charters matters regarding committee member removal and committee structure and operations (including authority to delegate to subcommittees). We are not subject to such requirement and we have not addressed this in our nomination committee charter.
NYSE Standards require U.S. domestic issuers to adopt and disclose corporate governance guidelines. They must state in their annual proxy statements or annual reports that such corporate governance guidelines are available on their website and in print form to any shareholder who requests it. We are not subject to such requirement. We have adopted a set of corporate governance guidelines in accordance with the Hong Kong Stock Exchange Listing Rules, including a code of ethics, to govern various aspects of our corporate governance. We have posted the code of ethics on our website.
D. EMPLOYEES
See "Item 4--Information on the Company--Business Overview--Employees and Employee Benefits."
E. SHARE OWNERSHIP
We have adopted the following share option schemes for the grant of options to our directors, senior management and other eligible grantees:
1. Pre-Global Offering Share Option Scheme (as defined below);
2. 2001 Share Option Scheme (as defined below);
3. 2002 Share Option Scheme (as defined below); and
4. 2005 Share Option Scheme (as defined below).
Under these share option schemes, the remuneration committee of our board of directors had, and will, from time to time propose for our board's approval for the recipient of and the number of shares underlying each option. The maximum aggregate number of shares (including those that could be substituted for under the Pre-Global Offering Share Option Scheme, the 2001 Share Option Scheme, the 2002 Share Option Scheme and the 2005 Share Option Scheme) which may be granted shall not exceed 10% of our total issued share capital as of December 31, 2005, being the date on which our shareholders approved the 2005 Share Option Scheme, excluding shares issued upon exercise of options granted under these schemes from time to time.
Pre-Global Offering Share Option Scheme On February 4, 2001, we adopted a pre-global offering share option scheme or the Pre-Global Offering Share Option Scheme. Pursuant to the Pre-Global Offering Share Option Scheme:
1. options for an aggregate of 23,100,000 shares have been granted;
2. the subscription price per share is HK$1.19; and
3. the period during which an option may be exercised is as follows:
(a) 50% of the rights to exercise the options shall vest 18 months after the date of the grant; and
(b) 50% of the rights to exercise the options shall vest 30 months after the date of the grant.
The exercise periods for options granted under the Pre-Global Offering Share Option Scheme shall end not later than 10 years from March 12, 2001. No further options may be granted under the Pre-Global Offering Share Option Scheme.
2001 Share Option Scheme
On February 4, 2001, we adopted a share option scheme, or the 2001 Share Option Scheme for the purposes of recognizing the contribution that certain individuals had made to our company and attracting and retaining the best available personnel to our company. Pursuant to the 2001 Share Option Scheme:
1. options for an aggregate of 44,100,000 shares have been granted;
2. the subscription price per share is HK$1.232; and
3. the period during which an option may be exercised is as follows:
(a) one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
(b) one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
(c) one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise periods for options granted under the 2001 Share Option Scheme shall end not later than 10 years from August 27, 2001.
In view of the amendments to the relevant provisions of Hong Kong Stock Exchange Listing Rules regarding the requirements of share option schemes of a Hong Kong listed company effective on September 1, 2001, no further options will be granted under the 2001 Share Option Scheme.
2002 Share Option Scheme
In June 2002, we adopted a new share option scheme, or the 2002 Share Option Scheme. Under the 2002 Share Option Scheme, our directors may, at their discretion, invite employees, including executive directors, of our company or any of our subsidiaries, to take up options to subscribe for our shares. The maximum number of shares which may be granted under the 2002 Share Option Scheme to any individual in any 12-month period up to the next grant shall not exceed 1% of our total issued share capital from time to time.
According to the 2002 Share Option Scheme, the consideration payable by a grantee for the grant of an option will be HK$1.00. The subscription price of a share payable by a grantee upon the exercise of an option is determined by our directors at their discretion at the date of grant, except that such price may not be set below a minimum price which is the highest of:
1. the nominal value of our share on the date of the grant of the option;
2. the average closing price of the shares on the HKSE as stated in the HKSE's quotation sheets for the five trading days immediately preceding the date of grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's quotation sheets on the date of grant of the option.
On February 24, 2003, our board of directors approved to grant options in respect of 42,050,000 shares to our directors and senior management under the 2002 Share Option Scheme. The exercise price for such options is HK$2.108 per share. The closing market price immediately before the date on which such options were granted was HK$2.11 per share. Such options granted under the 2002 Share Option Scheme may be exercised, in whole or in part, in accordance with the following vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise periods for the above options granted under the 2002 Share Option Scheme shall end not later than 10 years from February 24, 2003.
On February 5, 2004, our board of directors approved a grant of options in respect of 50,700,000 shares to our directors and senior management under the 2002 Share Option Scheme. The exercise price for such options is HK$3.152 per share. The closing market price immediately before the date on which such options were granted was HK$3.146 per share. Such options granted under the 2002 Share Option Scheme may be exercised, in whole or in part, in accordance with the following vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise periods for the above options granted under the 2002 Share Option Scheme shall end not later than 10 years from February 5, 2004.
On August 31, 2005, our board of directors approved a grant of options in respect of 65,870,000 shares to our directors and senior management under the 2002 Share Option Scheme. The exercise price of such options is HK$5.62 per share. The closing market price immediately before the date on which such options were granted was HK$5.75 per share. Such options granted under the 2002 Share Option Scheme may be exercised, in whole or in part, in accordance with the following vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise periods for the above options granted under the 2002 Share Option Scheme shall end not later than 10 years from August 31, 2005.
2005 Share Option Scheme
We had undertaken a review of the 2002 Share Option Scheme in 2005 and noted that certain provisions could be clarified and improved. Accordingly, our board had proposed, and on December 31, 2005, we adopted a new share option scheme, or the 2005 Share Option Scheme and terminated the 2002 Share Option Scheme. Upon termination of the 2002 Share Option Scheme, no further options may be granted under the 2002 Share Option Scheme, but in all other respects the provisions of the 2002 Share Option Scheme shall remain in force. The outstanding options under the 2002 Share Option Scheme shall continue to be subject to the provisions of the 2002 Share Option Scheme, and the adoption of the 2005 Share Option Scheme will not in any way affect the terms of the exercise of such outstanding options.
Under the 2005 Share Option Scheme, our board will have the authority to grant options to subscribe for shares to our directors, officers and employees and or of our subsidiaries, and any other persons who in sole discretion of our board have contributed or will contribute to our group. Unless approved by our shareholders, the total number of shares issued and to be issued upon exercise of the options granted to each individual (including exercised and unexercised options) under the 2005 Share Option Scheme or any other share option scheme adopted by us, in any 12 months period, must not exceed 1% of the shares in issue.
According to the 2005 Share Option Scheme, the consideration payable by a grantee for the grant of an option will be HK$1.00. The subscription price of a share payable by a grantee upon the exercise of an option will be determined by our directors at their discretion at the date of the grant, except that such price may not be set below a minimum price which is the highest of:
1. the nominal value of our share on the date of the grant of the option;
2. the average closing price of the shares on the HKSE as stated in the HKSE's quotation sheets for the five trading days immediately preceding the date of the grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's quotation sheet on the date of the grant of the option.
The period within which the options must be exercised, as well as any minimum holding period or performance targets which apply to the options, will be specified by our board at the time of grant. The exercise periods for options granted under the 2005 Share Option Scheme shall end not later than 10 years from the date of the grant of the option. During the year, no options have been granted or exercised under the 2005 Share Option Scheme.
As of December 31, 2005, our directors and employees had the following personal interests in options to subscribe for shares granted under our share option schemes:
Number of shares involved in
the options outstanding as of
------------------------------- -------------------------------------
Closing
price per
share
immediately
before the Exercise
December 31, date of Price
Name of Grantee January 1, 2005 2005 Date of Grant Date of Expiration*** grant (HK$)** (HK$)
--------------- --------------- ------------ ----------------- --------------------- ------------- --------
Directors:
Chengyu Fu 1,750,000 1,750,000 March 12, 2001 March 12, 2011 1.23 1.19
1,750,000 1,750,000 August 27, 2001 August 27, 2011 1.46 1.232
1,150,000 1,150,000 February 24, 2003 February 24, 2013 2.09 2.108
2,500,000 2,500,000 February 5, 2004 February 5, 2014 3.13 3.152
102
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- 3,500,000 August 31, 2005 August 31, 2015 5.75 5.62
Han Luo 1,400,000 1,400,000 March 12, 2001 March 12, 2011 1.23 1.19
1,150,000 1,150,000 August 27, 2001 August 27, 2011 1.46 1.232
1,150,000 1,150,000 February 24, 2003 February 24, 2013 2.09 2.108
1,150,000 1,150,000 February 5, 2004 February 5, 2014 3.13 3.152
- 1,610,000 August 31, 2005 August 31, 2015 5.75 5.62
Longsheng Jiang* 1,400,000 1,400,000 March 12, 2001 March 12, 2011 1.23 1.19
1,150,000 1,150,000 August 27, 2001 August 27, 2011 1.46 1.232
1,150,000 766,700 February 24, 2003 February 24, 2013 2.09 2.108
1,150,000 383,300 February 5, 2004 February 5, 2014 3.13 3.152
Shouwei Zhou 1,400,000 1,400,000 March 12, 2001 March 12, 2011 1.23 1.19
1,750,000 1,750,000 August 27, 2001 August 27, 2011 1.46 1.232
1,750,000 1,750,000 February 24, 2003 February 24, 2013 2.09 2.108
1,750,000 1,750,000 February 5, 2004 February 5, 2014 3.13 3.152
- 2,450,000 August 31, 2005 August 31, 2015 5.75 5.62
Xinghe Cao - 800,000 August 31, 2005 August 31, 2015 5.75 5.62
Zhenfang Wu - 800,000 August 31, 2005 August 31, 2015 5.75 5.62
Guangqi Wu - 1,610,000 August 31, 2005 August 31, 2015 5.75 5.62
Hua Yang 1,150,000 1,150,000 March 12, 2001 March 12, 2011 1.23 1.19
1,150,000 1,150,000 August 27, 2001 August 27, 2011 1.46 1.232
1,150,000 1,150,000 February 24, 2003 February 24, 2013 2.09 2.108
1,150,000 1,150,000 February 5, 2004 February 5, 2014 3.13 3.152
- 1,610,000 August 31, 2005 August 31, 2015 5.75 5.62
Sung Hong Chiu 1,150,000 1,150,000 February 5, 2004 February 5, 2014 3.13 3.152
Evert Henkes 1,150,000 1,150,000 February 5, 2004 February 5, 2014 3.13 3.152
Erwin 1,150,000 0 February 5, 2004 February 5, 2014 3.13 3.152
Schurtenberger*
Kenneth S Courtis 1,150,000 1,150,000 February 5, 2004 February 5, 2014 3.13 3.152
Employees:
Other Employees 6,550,000 4,850,000 March 12, 2001 March 12, 2011 1.23 1.19
22,650,000 19,150,000 August 27, 2001 August 27, 2011 1.46 1.232
26,500,000 21,999,900 February 24, 2003 February 24, 2013 2.09 2.108
35,850,000 30,783,400 February 5, 2004 February 5, 2014 3.13 3.152
- 49,500,000 August 31, 2005 August 31, 2015 5.75 5.62
|
As of June 6, 2006, 2,300,100 options granted under our share option schemes have been exercised. The weighted average closing price of our shares on the day immediately preceding the exercise of the options was HK$4.04.
On April 1, 2005, Dr. Erwin Schurtenberger resigned from our board. He also surrendered the share options we granted to him upon resignation.
The share options exercised during the year ended December 31, 2005 resulted in the issue of 2,300,100 ordinary shares and new share capital of Rmb 49,000 and share premium of Rmb 4,451,000. No share options had been cancelled during the year ended December 31, 2005.
As of December 31, 2005, we had 169,063,300 share options outstanding under these share option schemes which represented approximately 0.4% of our shares in issues as of that date.
For further details about our share option schemes, see notes 11 and 29 to our consolidated financial statements attached to this annual report.
As of June 6, 2006, none of our directors and employees owned 1% or more of our shares including the shares underlying the stock options granted as of that date.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth information regarding the ownership of our outstanding shares by major shareholders as of June 6, 2006.
Shareholder Number of Shares Owned Percentage --------------------------- ------------------------ ------------ CNOOC(1).................. 28,772,727,273 66.41% ------------------------ |
(1) CNOOC owns our shares indirectly through its wholly owned subsidiaries, CNOOC (BVI) Limited and Overseas Oil & Gas Corporation, Ltd.
As of June 6, 2006, CNOOC's interest in our company was reduced from approximately 70.64% to approximately 66.41% as a result of placing 2,500,000,000 existing shares to independent investors and subscribing 2,272,727,273 new shares by CNOOC (BVI) Limited.
Our major shareholder listed above does not have different voting rights. Except as set forth in the above table, we are not aware of any holders of more than 5% of our shares. Except as disclosed above, we are not aware of any significant changes in the percentage ownership of our major shareholder over the course of the past three years. To our knowledge, no arrangements are currently in place that could lead to a change of control of our company.
As of June 6, 2006, 8,661,634 American depositary shares were outstanding in the United States, representing approximately 2% of our then outstanding shares. At such date, the number of registered American depositary share holders in the United States was 24.
B. RELATED PARTY TRANSACTIONS
Overview
We regularly enter into transactions with related parties, including CNOOC, its subsidiaries and associates, as defined under the Hong Kong Stock Exchange Listing Rules. Since CNOOC indirectly owns an aggregate of approximately 66.41% of our issued share capital, some of these transactions constitute connected transactions under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange Listing Rules, and are regulated by the Hong Kong Stock Exchange.
Under the Hong Kong Stock Exchange Listing Rules, many of these connected transactions normally would require full disclosure and the prior approval of our independent shareholders. However, since the connected transactions are carried out in the ordinary and usual course of business and occur on a regular basis on normal commercial terms and on terms that are fair and reasonable as far as our shareholders are concerned, the Hong Kong Stock Exchange has granted us a waiver from strict compliance with requirements of the Hong Kong Stock Exchange Listing Rules for the period from January 1, 2003 to December 31, 2005, and we have also obtained independent shareholders' approval at our extraordinary general meeting on December 31, 2005 for the continuing connected transactions for the period from January 1, 2006 to December 31, 2007. The continuing connected transactions are newly categorized into different categories, and each category of connected transactions are subject to annual caps and other conditions as specified below.
We originally obtained a waiver from the Hong Kong Stock Exchange on April 3, 2001, shortly after our shares were listed on the Hong Kong Stock Exchange. This waiver expired on December 31, 2002, and we renewed the waiver with the Hong Kong Stock Exchange on January 7, 2003. The renewed
waiver covers the period from January 1, 2003 to December 31, 2005. Following the amendments to the Hong Kong Stock Exchange Listing Rules in March 2004, waivers for connected transactions from the Hong Kong Stock Exchange are no longer required, and we are only required to obtain independent shareholders' approval for continuing connected transactions. Accordingly, we obtained independent shareholders' approval for our continuing connected transactions with CNOOC, its subsidiaries and associates for the period from January 1, 2006 to December 31, 2007 using a new categorization.
Existing Categories of Connected Transactions
Our ongoing connected transactions in respect of which we were granted a waiver for the period from January 1, 2003 to December 31, 2005 consist of the following eight categories:
o Contracts with foreign petroleum companies;
o Trademark license agreements;
o Lease agreement in respect of the Nanshan terminal;
o Provision of materials, utilities and ancillary services;
o Technical services;
o Research and development services;
o Lease and property management services; and
o Sales of crude oil, condensate oil and liquefied petroleum gas.
Contracts with foreign petroleum companies. In preparation for our initial public offering, CNOOC transferred to us all of its rights and obligations under all existing and any future production sharing contracts with various international oil and gas companies. As required by PRC law, CNOOC retained certain administrative functions and will remain a party to the production sharing contracts. PRC law requires CNOOC, which is a State-owned entity, to negotiate and conclude an initial production sharing contract with a foreign partner offshore China. New production sharing contracts continue to be entered into between CNOOC and foreign partners, primarily through bidding organized by CNOOC and, to a lesser extent, through direct negotiation.
Trademark license agreements. CNOOC has licensed to us two "CNOOC" trademarks under non-exclusive license agreements that will expire on September 8, 2008. We paid a nominal amount of Rmb 1,000 for each of the trademarks. The registrations for the two trademarks will expire on December 6, 2008 and April 20, 2009, respectively. CNOOC has undertaken that so long as it is our controlling shareholder, it will renew the trademark registrations to enable us to continue using them without any additional consideration.
Lease agreement in respect of the Nanshan Terminal. Under an agreement dated September 9, 1999, CNOOC has granted us the right to use the Nanshan Terminal, Yacheng 13-1, free-of-charge for a period of 20 years. We use the property to process natural gas.
Provision of materials, utilities and ancillary services. Various affiliates of CNOOC provide us with the use of certain facilities and ancillary services and products, including:
o materials for offshore oil and gas production (including cement, diesel oil, mud, fuels, barite and paint);
o oil and gas production labor services;
o warehousing and storage;
o road transportation services;
o telecommunication and network services;
o wharf services;
o construction services, including the construction of roads, piers, buildings, plants and embankment;
o major equipment maintenance and repair works;
o medical, child care and social welfare services;
o water, electricity and heat supply;
o security and fire services; technical training; accommodation;
o repair and maintenance of buildings; and
o catering services.
Under agreements between these affiliates of CNOOC and us, the facilities and ancillary products and services are to be provided at:
(i) state-prescribed prices; or
(ii) where there is no state-prescribed price, market prices, including the local or national market prices or the prices at which CNOOC's affiliates previously provided the relevant materials, utilities and ancillary services to independent third parties; or
(iii) when neither (i) nor (ii) is applicable, the cost to CNOOC's associates of providing the relevant materials, utilities and ancillary services, including the cost of sourcing or purchasing from third parties, plus a margin of not more than 5%, before any applicable taxes.
The prices, volumes and other terms of the agreements are reviewed by the parties annually. If any of the terms are amended, the parties must enter into a supplemental agreement no later than 60 days prior to the end of the financial year preceding the financial year in which the amendment takes effect. If the parties fail to reach an agreement by then, the existing terms of the supply agreement will continue to apply until the parties agree on the terms of the supplemental agreement. We have undertaken to the Hong Kong Stock Exchange that we will comply with the provisions of the Hong Kong Stock Exchange Listing Rules with respect to any supplemental agreements.
For the years ended December 31, 2003, 2004 and 2005, the amounts we paid to affiliates of CNOOC for these services were approximately Rmb 1,018 million, Rmb 1,296 million and Rmb 2,996 million, respectively, representing 2.5%, 2.3% and 4.3%, respectively, of our total revenues in that year.
Technical services. Various affiliates of CNOOC, including China Oilfield Services Limited and Offshore Oil Engineering Company Limited, provide us with technical services for our offshore oil and gas production activities, including:
o offshore drilling;
o ship tugging, oil tanker transportation and security services;
o well surveys, well logging, well cementing and other related technical services;
o collection of geophysical data, ocean geological prospecting, and data processing;
o platform fabrication service and maintenance; and
o design, construction, installation and test of offshore and onshore production facilities.
For the years ended December 31, 2003, 2004 and 2005, the amounts we paid to affiliates of CNOOC for these services totaled approximately Rmb 3,828 million, Rmb 6,362 million and Rmb 6,651 million, respectively, representing 9.3%, 11.5% and 9.6%, respectively, of our total revenue in that year. We generally conduct an open bidding process to select these services providers and the charges for these services are based on arm's-length negotiations between the parties and reflect considerations such as volume of sales, length of contracts, overall customer relationship and other market factors.
Research and development services. Various affiliates of CNOOC, including China Offshore Oil Research Center, have been providing us with research and development services, including:
o geophysical exploration services;
o seismic data processing;
o comprehensive exploration research services; and
o information technology services.
In July 2003, we established our own research center department, CNOOC China Limited Research Center, to undertake most of our research and development activities. In March 2006, we established CNOOC China Limited Beijing Research Center as a branch.
During the years ended December 31, 2003, 2004 and 2005, we paid approximately Rmb 56 million, Rmb 8 million and Rmb 8 million, respectively, to China Offshore Oil Research Center for its provision of general research and development services. We occasionally also hired research institutes, including China Offshore Oil Research Center, through an open bidding process for specific research and development projects.
Lease and property management services. We have entered into lease and property management agreements with CNOOC and its affiliates for premises located in Beijing, Tianjin, Zhanjiang, Shanghai and Shenzhen in the PRC and in Singapore. Most of the premises are necessary for our operations, and the agreements are based on normal commercial terms. For the years ended December 31, 2003, 2004 and 2005, the aggregate rentals and management fees payable by us to CNOOC and its affiliates were approximately Rmb 57 million, Rmb 77 million and Rmb 77 million, respectively.
Sales of crude oil, condensate oil and liquefied petroleum gas. We sell crude oil, condensate oil and liquefied petroleum gas to affiliates of CNOOC that engage in the downstream petroleum business. The prices for these products are based on prices in the international market. For the years ended December 31, 2003, 2004 and 2005, the affiliates of CNOOC paid us approximately Rmb 8,324 million, Rmb 13,946 million and Rmb 26,576 million, respectively, representing approximately 20.3%, 25.3% and 38.3% of our total revenues for the respective periods.
Waiver Conditions
The waiver granted by the Hong Kong Stock Exchange to us in January 2003 in respect of ongoing connected transactions for the period from January 1, 2003 to December 31, 2005 contains the following typical conditions:
i. in relation to the ongoing connected transactions referred to in the paragraphs headed "Contracts with foreign petroleum companies," "Trademark license agreements" and "Lease agreement in respect of the Nanshan Terminal" the transactions, and the respective
agreements (if any) governing such transactions, must be on terms that are fair and reasonable so far as our shareholders are concerned and in relation to the ongoing connected transactions referred to in the paragraphs headed "Provision of materials, utilities and ancillary services," "Technical services," "Research and development services," "Lease and property management services" and "Sales of crude oil, condensate oil and liquefied petroleum gas" the transactions, and the respective agreements (if any) governing such transactions must be:
a. entered into by us in our ordinary and usual course of business;
b. either on normal commercial terms or, where there is no available comparison, on terms no less favorable than those available to or from independent third parties; and
c. on terms that are fair and reasonable so far as our shareholders are concerned;
ii. brief details of the continuing connected transactions in each year as required by Rule 14.25(1)(A) to (D) of the Hong Kong Stock Exchange Listing Rules then in force before March 31, 2004 (i.e., the date or period of the transaction, the parties thereto and a description of their connected relationship, a brief description of the transaction and the purpose of the transaction, the total consideration and the terms, and the nature and the extent of the interest of the connected person in the transaction), must be disclosed in our annual report and accounts for the relevant year;
iii. our independent non-executive directors must review annually the transactions and confirm, in our annual report and accounts for the year in question, that such transactions have been conducted in the manner stated in (i) above and, where applicable, within the annual limit stated in (v) below;
iv. our auditors must carry out review procedures annually in relation to the connected transactions and must confirm in writing whether the transactions:
a. received the approval of our board of directors;
b. have been entered into in accordance with the pricing policies as stated in our financial statements; and
c. have been entered into in accordance with the terms of the agreement governing the transactions or, where there is no agreement, on terms that are not less favorable than terms available to or from independent third parties;
For the purpose of the above review by our auditors, CNOOC has undertaken to us that it will provide the auditors with access to its relevant accounting records;
v. the aggregate annual volume of transactions shall not exceed the proposed annual limits set out in the following table:
------------------------------------------------------------
Transaction Annual Limit
------------------------------------------------------------
Materials, utilities and 10% of our audited consolidated
ancillary services supply total revenues in the preceding
agreements financial year
------------------------------------------------------------
Technical services In respect of the three financial
years ending December 31, 2005,
Rmb 5,853 million, Rmb 7,338
million and Rmb 7,218* million,
respectively
------------------------------------------------------------
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------------------------------------------------------------
Research and development In respect of the three financial
services for particular years ending December 31, 2005,
projects Rmb 141 million, Rmb 148 million
and Rmb 153 million, respectively
------------------------------------------------------------
Sales of crude oil, In respect of the three financial
condensate oil and years ending December 31, 2005,
liquefied petroleum gas 42%, 56% and 82%, respectively,
of our audited consolidated total
revenues in the preceding
financial year
------------------------------------------------------------
General research and Rmb 110 million
development services
agreement
------------------------------------------------------------
Lease and management Rmb 78 million
services
------------------------------------------------------------
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* On December 31, 2005, we proposed a revised cap for the category of technical services of continuing connected transactions at the extraordinary general meeting and obtained the approval of our independent shareholders.
vi. we undertook that if any of the terms of the agreements or arrangements referred to above are altered or if we enter into any new agreements with any connected persons (within the meaning of the Hong Kong Stock Exchange Listing Rules) in the future or if the limits stated in (v) above are exceeded, we will comply with the standard disclosure and shareholder approval provisions in the Hong Kong Stock Exchange Listing Rules unless we apply for and obtain a separate waiver from the Hong Kong Stock Exchange.
New Categories of Continuing Connected Transactions
In order to present a more coherent, logical and understandable picture to shareholders, and also to enable our company to monitor the status of connected transactions following each category more effectively going forward, we adopted a new categorization for continuing connected transactions, and obtained independent shareholders' approval at our extraordinary general meeting on December 31, 2005. The new categorization of continuing connected transactions, which are discloseable under the Hong Kong Stock Exchange Listing Rules and applicable to our company for the period from January 1, 2006 to December 31, 2007, are set out below:
o Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us;
o Provision of management, technical, facilities and ancillary services, including the supply of materials from us to CNOOC and/or its associates;
o Sales of petroleum and natural gas products by us to CNOOC and/or its associates.
Since the establishment of CNOOC, certain associates of CNOOC specialized in exploration, oil and gas development, oil and gas production, as well as marketing, management and ancillary services provided these services to us through bidding process. We will continue to use these services provided by associates of CNOOC, including but not limited to China Oilfield Services Limited, or COSL, Offshore Oil Engineering Co., Ltd., or CNOOC Engineering and CNOOC Oil Base Group Limited, or COBGL. CNOOC also provides certain of these services from time to time. The services provided by CNOOC and/or its associates are set out below.
Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us
(a) Provision of exploration and support services to us. The services provided by CNOOC and/or its associates to us on exploration operations include:
o well site survey;
o seismic data acquisition and processing;
o integrated exploration research services;
o exploration well operation;
o related technical services on exploration well;
o tow-boat, transportation and safety services; and
o other related technical and supporting services.
(b) Provision of oil and gas development and support services to us. The services provided by CNOOC and/or its associates to us on oil and gas development operations include:
o platform survey;
o drilling and completion well operation;
o related technical services on drilling and completion;
o design, construction, installation and tuning of production
facilities;
o shipping transportation;
o provision of materials;
o integrated research on development techniques; and
o other related technical and supporting services.
(c) Provision of oil and gas production and support services to us. The services provided by CNOOC and/or its associates to us on oil and gas production operations are set out below. In addition, the scope of business of these companies also include various facilities and ancillary services, such as provision of different types of materials, medical and employee welfare services, maintenance and repair of major equipments and supply of water, electricity and heat to us, some of which may not be available from independent third parties or available on comparable terms.
o integrated research on production techniques;
o well workover;
o shipping transportation;
o oil tanker transportation;
o provision of materials;
o maintenance of platform;
o repair of equipment and pipeline;
o production operations;
o oil and gas production labour services;
o warehousing and storage;
o lease of equipment and building;
o road transportation services;
o telecommunication and network services;
o wharf services;
o construction services, including roads, wharf, buildings,
factories and water barrier;
o maintenance and repair of major equipment;
o medical, childcare and social services;
o provision of water, electricity and heat;
o security and fire services;
o technical training;
o accommodation;
o maintenance and repair of buildings;
o catering services; and
o other related technical and supporting services.
(d) Provision of marketing, management and ancillary services to us. CNOOC and/or its associates provide marketing, administration and management, management of oil and gas operations and integrated research services to us, as well as other ancillary services relating to the exploration, development, production and research activities of us. Details of these services are set out below:
o marketing services;
o management;
o staff recruitment;
o publishing;
o telecommunications;
o leases of properties;
o property management;
o water, electricity and heat supply;
o car rental;
o integrated services such as record keeping, filing, repair
of computer, catering and photocopying; and
o integrated research.
In addition, as part of providing administration and management services to us, CNOOC and/or its associates leased certain premises. In addition to leasing these properties, CNOOC and/or its associates also provided management services in respect of certain properties leased to us.
(e)FPSO vessel lease agreements. We lease floating production, storage and offloading (FPSO) vessel from COBGL for use in oil and gas production operations at market prices on normal commercial terms which are calculated on a daily basis. FPSO vessels are usually located next to the offshore oil platforms and are an integrated facility used by us during its offshore oil and gas production for processing, storage and channelling of crude oil. The terms of FPSO vessel leases are usually determined based on the expected term of oil and gas exploration, development and production. We currently lease a FPSO vessel for a term of 20 years from an associate of CNOOC, with such term being determined based on the expected term of oil and gas exploration, development and production.
Provision of management, technical, facilities and ancillary services, including the supply of materials to CNOOC and/or its associates.
In addition to providing various services to us, CNOOC and/or its associates may also utilise various types of management, facilities and ancillary services, including the supply of materials provided by us from time to time. The services that may be provided by us to CNOOC and/or its associates include:
o technical consulting;
o technology transfer;
o management;
o technical research services; and
o other supporting services.
Sales of petroleum and natural gas products by us to CNOOC and/or its associates.
(a) Sales of petroleum and natural gas products. We may sell petroleum and natural gas products, including crude oil, condensate oil, liquefied petroleum gas, natural gas and liquefied natural gas, to CNOOC and/or its associates which engage in downstream petroleum business.
(b)Long term sales of natural gas and liquefied natural gas. We sell natural gas to CNOOC and/or its associates which engage in the downstream petroleum business. We have also invested and acquired interests in liquefied natural gas related upstream projects in Tangguh, Indonesia and the North West Shelf of Australia. It is also envisaged that from time to time we may sell liquefied natural gas explored from these gas reserves mentioned above and other gas reserves in which we may invest in the future to CNOOC and/or its associates.
Disclosure and/or Independent Shareholders' approval requirements
Under the Hong Kong Stock Exchange Listing Rules, the following categories amongst the new categories of continuing connected transactions are exempted from the independent shareholders' approval requirement but are subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Hong Kong Stock Exchange Listing Rules:
o Marketing, management and ancillary services;
o FPSO vessel leases; and
o Provision of management, technical, facilities and ancillary
services, including the supply of materials from us to CNOOC and/or
its associates.
Under the Hong Kong Stock Exchange Listing Rules, the following categories amongst the new categories of continuing connected transactions, or the Non-Exempt Continuing Connected Transactions, are subject to the reporting, announcement and independent shareholders' approval requirements:
o Provision of exploration, oil and gas development, oil and gas
production as well as marketing, management and ancillary services
by CNOOC and/or its associates to us;
(a) Exploration and support services;
(b) Oil and gas field development and support services;
(c) Oil and gas field production and support services;
o Sales of petroleum and natural gas products by us to CNOOC and/or
its associates
(a) Sales of petroleum and natural gas products;
(b) Long term Sales of natural gas and liquefied natural gas.
We have obtained independent shareholders' approval at our extraordinary general meeting on December 31, 2005 for the Non-Exempt Continuing Connected Transactions on the condition that:
i. The annual amount of each category of the Non-Exempt Continuing Connected Transactions shall not exceed the applicable Proposed Cap set out in the following table:
The continuing connected
transactions Caps
Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us
(a) Exploration and support services For the two years ending 31
December 2007, Rmb 2,117 million
and Rmb 2,293 million, respectively
(b) Oil and gas field development and For the two years ending 31
support services December 2007, Rmb 7,628 million
and Rmb 10,458 million,
respectively
(c) Oil and gas field production and For the two years ending 31
support services December 2007, Rmb 3,935 million
and Rmb 4,132 million, respectively
(d) Marketing, management and ancillary For the two years ending 31
services December 2007, Rmb 478 million and
Rmb 504 million, respectively
(e) FPSO vessel leases For the two years ending 31
December 2007, Rmb 453 million and
Rmb 463 million, respectively
Provision of management, technical, facilities and ancillary services, including
the supply of materials from us to CNOOC and/or its associates
Provision of management, technical, For the two years ending 31
facilities and ancillary services, December 2007, Rmb 50 million and
including the supply of materials to CNOOC Rmb 100 million, respectively
and/or its associates
Sales of petroleum and natural gas products by us to CNOOC and/or its associates
(a) Sales of petroleum and natural gas For the two years ending 31
products December 2007, Rmb 33,469 million
and Rmb 44,199 million,
respectively
(b) Long term sales of natural gas and For the two years ending 31
liquefied natural gas December 2007, Rmb 1,960 million
and Rmb 3,599 million, respectively
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ii. (i) The Non-Exempt Continuing Connected Transactions will be entered into in our usual and ordinary course of businesses and either (A) on normal commercial terms or (B) if there is no available comparison, on terms no less favourable to us than terms available from independent third parties; and
(ii) The Non-Exempt Continuing Connected Transactions will be entered into in accordance with the relevant Comprehensive Framework Agreements and on terms that are fair and reasonable and in the interests of the Shareholders as a whole.
We will comply with other relevant provisions of the Hong Kong Stock Exchange Listing Rules in relation to each category of the Non-Exempt Continuing Connected Transactions.
For further information regarding related party transactions, see note 27 to our consolidated financial statements attached to this annual report.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See pages beginning on page F-1 following Item 19.
Legal Proceedings
We are not a defendant in any material litigation, claim or arbitration, and we know of no pending or threatened proceeding which would have a material adverse effect on our financial condition.
Dividend Distribution Policy
We intend to declare and pay dividends in the future. The payment and the amount of any dividends will depend on our earnings, capital expenditure requirements, financial conditions, future prospects and other factors which our directors may consider relevant. In addition, CNOOC, as our controlling shareholder, will be able to influence our dividend policy. Holders of our shares will be entitled to receive such dividends declared by our board of directors pro rata according to the amounts paid up or credited as paid up on the shares. Subject to the factors described above, we currently intend to pursue a dividend policy consistent with other international oil and gas exploration and production companies. Based on current share prices and dividends of international oil and gas exploration and production companies, we currently intend to target an initial dividend yield of approximately 1% to 3%.
Dividends may be paid only out of our distributable profits as permitted under Hong Kong law, which does not restrict the payment of dividends to nonresident holders of our securities. To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in our operations.
Holders of our ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, to the same extent as holders of our shares, less the fees and expenses payable under the deposit agreement. Cash dividends will be paid to the depositary in Hong Kong dollars and, will be converted by the depositary into U.S. dollars and paid to holders of ADSs. Stock dividends, if any, will be distributed to the depositary and will be distributed by the depositary, in the form of additional ADSs, to holders of the ADSs.
Following the reorganization of CNOOC and our establishment as a separate legal entity in October 1999, we paid a dividend of Rmb 1,045.4 million in 1999 and declared and paid a final dividend of Rmb 6,426.4 million in 2000. In 2001, 2002 and 2003, we declared and paid dividends totaling Rmb 871.1 million, Rmb 2,265.1 million and Rmb 5,403.7 million, respectively. In 2004, we declared dividends totaling Rmb 6,101.4 million and paid dividends totaling Rmb 6,091.4 million. The difference between the amount of dividends declared and paid in 2004 was because that we repurchased and canceled some of our shares in 2004. Out of the total dividends declared and paid in 2004, Rmb 2,617.5 million (US$316.3 million) was attributable to a special interim dividend to replace the 2003 final dividend and final special dividend proposed by our board of directors in 2003. In 2005, we declared and paid dividends totaling Rmb 7,772.2 million (US$963.1 million). The amount of dividends we paid historically is not indicative of the dividends that we will pay in the future.
Substantially all our dividend payments result from dividends paid to us by CNOOC China Limited. CNOOC China Limited must follow the laws and regulations of the PRC and its articles of association in determining its dividends. As a wholly foreign owned enterprise in China, CNOOC China has to provide for a reserve fund and staff and workers' bonus and welfare fund, each of which is appropriated from net profit after taxation but before dividend distribution according to the prevailing accounting rules and regulations in the PRC. CNOOC China is required to allocate at least 10% of its net profit to the reserve fund until the balance of this fund has reached 50% of its registered capital. Appropriations to the staff and workers' bonus and welfare fund, which are determined at the discretion of CNOOC China's directors, are charged to expense as incurred in the consolidated financial statements, which were prepared under Hong Kong GAAP. None of CNOOC China's contributions to these statutory funds may be used for dividend purposes.
For the years ended December 31, 2003, 2004 and 2005, CNOOC China Limited made the following appropriations to the statutory reserves:
For the year ended For the year ended For the year ended
December 31, 2003 December 31, 2004 December 31, 2005
----------------- ----------------- -----------------
Percentage Rmb Percentage Rmb Percentage Rmb
of Net Profits (in millions) of Net Profits (in millions) of Net Profits (in millions)
-------------- ------------- -------------- ------------- -------------- -------------
Reserve fund ............... 10% 818.1 10% 1,363.1 10% 2,268.4
Staff and workers' bonus and
welfare fund ............ -- -- -- -- -- --
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B. SIGNIFICANT CHANGES
First Quarter 2006 Financial and Operating Results
During the first quarter of 2006, our unaudited revenues from the sale of oil and gas were Rmb 16.4 billion. Our daily average crude oil production was 383,519 barrels per day during this period, compared to 351,579 barrels per day in 2005, while our daily average natural gas production was 390 million cubic feet per day, compared to 348 million cubic feet per day in 2005. The average net realized price of our crude oil was US$58.13 per barrel during the first quarter of 2006, compared to US$41.73 per barrel in 2005, while the average net realized price of our natural gas was US$3.10 per thousand cubic feet, compared to US$2.92 per thousand cubic feet in 2005.
Change of Directors and Management
On April 18, 2006, Mr. Yunshi Cao ceased to be our Senior Vice President, General Counsel and Company Secretary. On the same day, Mr. Victor Zhikai Gao was appointed as our Senior Vice President, General Counsel and Company Secretary.
On May 24, 2006, Dr. Kenneth S. Courtis retired as an Independent Non-executive Director of our Company in accordance with the retirement provisions in article 97 of our articles of association, following the conclusion of our annual general meeting. On the same day, Dr. Edgar W. K. Cheng was elected by our shareholders as an Independent Non-executive Director.
Effective May 25, 2006, the composition of our board committees is set forth in the table below.
Audit Committee Nomination Committee Remuneration Committee
--------------- -------------------- ----------------------
Before From Before From Before From
May 25, 2006 25 May, 2006 May 25, 2006 25 May, 2006 May 25, 2006 25 May, 2006
------------ ------------ ------------ ------------ ------------ ------------
Chairman Sung Hong Chiu Aloysius Hau Yin, Han Luo Han Luo Sung Hong Chiu Sung Hong Chiu
Tse
(Financial Expert)
Members Kenneth S. Courtis Sung Hong Chiu Sung Hong Chiu Edgar W. K. Cheng Evert Henkes Evert Henkes
(Financial Expert)
Aloysius Hau Yin Lawrence J. Lau Lawrence J. Lau Lawrence J. Lau Aloysius Hau Aloysius Hau Yin
Tse Yin Tse Tse
Aloysius Hau Xinghe Cao
Yin Tse
Total 3 3 4 3 3 4
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Placing Existing Shares and Subscription of New Shares
On April 27, 2006, we entered into a Placing Agreement and a Subscription Agreement with CNOOC (BVI) Limited (the "Vendor"), a wholly-owned subsidiary of CNOOC. At the time of the agreements, the Vendor held 28,999,999,995 of our issued shares and pursuant to the Placing Agreement, the Vendor agreed to place 2,500,000,000 shares in our share capital to independent investors at HK$6.15 per share. Within 14 days of the Placing Agreement, the Vendor will, pursuant to the Subscription Agreement, subscribe for 2,272,727,273 new shares at HK$6.15 per share (the "Subscription").
The Placing Shares represent approximately 6.09% of our issued share capital of 41,054,675,375 shares and approximately 5.77% of our issued share capital as enlarged by the Subscription. The net proceeds from the Subscription of approximately HK$13.78 billion will be used to finance our continuing capital expenditure requirements in relation to the OML 130 in offshore Nigeria, as well as our general working capital needs.
As the Subscription was completed before the record date of May 16, 2006 for the 2005 final dividends of HK$0.10 per Share declared by our board of directors on March 24, 2006, the Shares under the Subscription will be entitled to the final dividends. We would therefore be required to pay an amount of additional dividends of HK$227,272,727. As a result, our aggregate final dividends payable for the year ended December 31, 2005 would be HK$4,332,740,265.
ITEM 9. THE OFFER AND LISTING
Not applicable, except for Item 9.A.4 and Item 9.C.
We listed our shares on the Hong Kong Stock Exchange and our ADSs on the New York Stock Exchange in February 2001. Our shares are listed on the Hong Kong Stock Exchange under the stock code "883" and our ADSs are listed on the New York Stock Exchange under the symbol "CEO." On March 17, 2004, our shareholders approved a five-for-one stock split of our shares. The stock split was effected by dividing each of our issued and unissued shares of HK$0.10 each into five shares of HK$0.02 each. The ratio of our American depositary shares listed on the New York Stock Exchange also changed such that each ADS now represents 100 subdivided shares of HK$0.02 each, as opposed to 20 shares of HK$0.10 each prior to the stock split. The following table sets forth, for the periods indicated, the high and low closing prices per share, as reported on the Hong Kong Stock Exchange and adjusted retroactively to reflect the stock split, and per ADS, as reported on the New York Stock Exchange.
Hong Kong Stock Exchange New York Stock Exchange
------------------------ -----------------------
Period High Low High Low
(HK$ per share) (US$ per ADS)
2001.................... 1.74 1.20 21.85 15.70
2002.................... 2.33 1.48 29.44 19.01
2003.................... 3.54 1.96 42.78 23.83
2004.................... 4.53 2.75 58.73 35.00
2005.................... 6.05 3.80 76.73 48.16
2004 Financial Quarters
1st Quarter........... 3.4 2.95 43.65 38.80
2nd Quarter........... 3.45 2.65 44.23 35.00
3rd Quarter........... 4.07 3.20 52.60 41.75
4th Quarter........... 4.53 3.97 58.73 51.21
2005 Financial Quarters
1st Quarter........... 4.525 3.800 56.34 48.16
2nd Quarter........... 4.650 3.950 58.78 49.82
3rd Quarter........... 6.05 4.600 76.73 59.13
4th Quarter........... 5.60 4.825 71.95 61.70
2006 Financial Quarter
1st Quarter........... 6.80 5.25 88.03 69.19
Last Six Months
December 2005......... 5.60 5.25 71.95 67.40
January 2006.......... 6.55 5.25 86.31 69.19
February 2006......... 6.80 6.30 88.03 81.99
March 2006............ 6.60 5.90 85.62 77.16
April 2006............ 6.85 6.00 87.90 78.00
May 2006.............. 6.55 5.85 83.50 73.90
--------------
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ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
We were incorporated with limited liability on August 20, 1999 in Hong Kong under the Companies Ordinance of Hong Kong. Our company registration number in Hong Kong is 685974. Under section three of our memorandum of association, we have the capacity and the rights, powers and privileges of a natural person and in addition and without limit, we may do anything which we are permitted to do by any enactment or rule of law. The following are summaries of provisions of our memorandum of association and articles of association and the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). For further details, you should read our memorandum of association which was filed as an exhibit to our registration statement on Form F-1 (Registration No.333-10862) and our articles of association, as amended, which is filed as an exhibit to this annual report.
Issue of Shares
Under the Companies Ordinance of Hong Kong, our directors may, without prior approval of the shareholders, offer to allot new shares in our company to existing shareholders pro rata. Our directors may not allot new shares of our company in any other manner without the prior approval of our shareholders in a general meeting. Any approval given at a general meeting shall continue in force from the date of the passing of the resolution until the earliest of:
o the conclusion of the next annual general meeting,
o the expiration of the period within which the next annual general meeting is required by any applicable laws or our articles of the association to be held, or
o the revocation or variation of the authority given under an ordinary resolution of the shareholders, in a general meeting of our company.
If such approval is given, the unissued shares of our company shall be at the disposal of the board of directors. Our directors may offer, allot, grant options over or otherwise dispose of the unissued shares to persons at such times and for such consideration and upon such terms and conditions as our directors may determine, subject to the restrictions under the Hong Kong Stock Exchange Listing Rules.
In accordance with Hong Kong Stock Exchange Listing Rules, any such approval of the shareholders must be limited to shares with an aggregate nominal value not exceeding 20% of the aggregate value of our share capital in issue as of the date of granting such approval plus the aggregate nominal amount of share capital repurchased by us since the granting of such approval.
Dividends
Subject to the Companies Ordinance of Hong Kong, the shareholders in a general meeting may declare dividends to be paid to shareholders. However, under our articles of association, dividends cannot be declared in excess of the amount recommended by our board of directors.
In addition to dividends declared in a general meeting, our board of directors may declare and pay to the shareholders interim dividends as appear to our board of directors to be justified by our financial position. Our board of directors may also pay any fixed dividend on any shares of our company semi-annually or at other suitable intervals, whenever our financial position, in their opinion, justifies such payment.
Winding Up
If we are wound up, the liquidator may, with the sanction of a special resolution, divide among our shareholders in specie or in kind the whole or any part of our assets or vest any part of our assets in trustees upon such trusts for the benefit of our shareholders or any of them as the resolution shall provide.
Voting Rights
Under the Companies Ordinance of Hong Kong, any action to be taken by the shareholders in a general meeting requires the affirmative vote of either an ordinary or a special resolution passed at such meeting.
o An ordinary resolution is a resolution passed by the majority of shareholders that are entitled to, and do, vote in person or by proxy at a general meeting;
o A special resolution is a resolution passed by not less than 75% of shareholders that are entitled to, and do, vote in person or by proxy at a general meeting.
Generally, resolutions of shareholders are passed by ordinary resolution. However, the Companies Ordinance of Hong Kong provides that some matters may only be passed as special resolutions. These matters include, for example:
o alteration of the object clause;
o alteration of the articles;
o change of a company's name;
o reduction of share capital; and
o voluntary winding up.
Voting at any meeting of shareholders is by a show of hands unless a poll is demanded. If voting is by a show of hands, every shareholder who is present at the meeting in person or by proxy has one vote. On a poll, every shareholder who is present in person or by proxy has one vote for every share held or represented by him. A poll may be demanded by:
o the chairman of the meeting;
o at least three members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and entitled to vote at the meeting;
o any member or members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and representing in the aggregate not less than 10% of the total voting rights of all members having the right to attend and vote at the meeting; or
o any member or members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than 10% of the total sum paid up on all shares conferring that right.
Any action to be taken by the shareholders requires the affirmative vote of the requisite majority of the shares at a meeting of shareholders. There are no cumulative voting rights. Accordingly, the
holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so.
General Meetings
We are required to hold an annual general meeting of shareholders each year within 15 months from the date of our last annual general meeting. We may also hold extraordinary general meetings of shareholders from time to time. Our board of directors may convene an extraordinary general meeting at will, and shall on requisition in accordance with the Companies Ordinance of Hong Kong, proceed to convene an extraordinary general meeting. Our annual general meeting and any extraordinary general meeting called for the purpose of passing a special resolution requires at least 21 days' prior notice, and any other general meeting requires at least 14 days' prior notice. The notice must specify the place, day and time of the meeting and, in the case of special business, the general nature of that business. The quorum for a general meeting is two shareholders present in person or by proxy. If within thirty minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition in accordance with the Companies Ordinance of Hong Kong, must be dissolved; but in any other case it must stand adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the Chairman of the meeting may determine. If at such adjourned meeting a quorum is not present within thirty minutes from the time appointed for the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting is called.
Modification of Rights
Subject to the Companies Ordinance of Hong Kong, any of the rights attaching to any class of shares, unless otherwise provided for by the terms of issue of the shares of that class, may be varied or abrogated with the written consent of the holders of not less than 75% of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of that class.
Borrowing Powers
Our board of directors may exercise all the powers of our company to borrow money and to mortgage or charge all or any part of our undertaking, property and assets, whether present or future, and uncalled capital. Our board of directors may issue debentures, debenture stock, bonds or other securities of our company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party. These borrowing powers are subject to variation by a special resolution of our company.
Interested Transactions
Subject to the exceptions described below, none of our directors may vote on any contract, arrangement or proposal in which the director or any of his or her associates is materially interested. For this purpose, existence of material interest is presumed if a company, in which the director and/or his or her associates beneficially own 5% or more of any class of its shares or voting rights, is materially interested in the transaction. Our directors may, however, vote on the following matters:
o any contract or arrangement to give security or indemnity to the director or his or her associates for money lent or obligations undertaken by such director or his or her associates at the request of or for the benefit of our company or subsidiaries;
o any contract or arrangement to give security or indemnity to a third party for our debts or debts of our subsidiaries for which such director or his or her associates assumed responsibility by giving guarantee or security;
o any contract or arrangement concerning offering of securities by us (or any company which we may promote or be interested in purchasing) for which the director or his or her associates participate in the underwriting or sub-underwriting;
o any contract or arrangement in which the director or his or her associates are interested only by virtue of their interest in our securities;
o any contract or arrangement concerning any other company in which the director or his or her associates are interested as an officer or executive or a shareholder in which the director or his or her associates are beneficially interested in shares of that company other than a company in which they in aggregate beneficially own more than 5% of the issued shares of any class or voting rights;
o any proposal or arrangement concerning employee benefits that do not provide privileges to our directors or their associates, including employee share schemes and retirement, death or disability benefits schemes; and
o any proposal or arrangement concerning the adoption, modification or operation of any employees' share scheme involving the issue or grant of options over shares or other securities by us to, or for the benefit of, our employees or employees of our subsidiaries under which the director or his or her associates may benefit.
C. MATERIAL CONTRACTS
Incorporated by reference to our registration statement on Form F-1 (Registration No.333-10862) and annual reports on Form 20-F for fiscal years 2003, 2004 and 2005 (File No.1-14966), to which most of our current material contracts were filed as exhibits. For additional information on our material contracts, see "Item 7--Major Shareholders and Related Party Transactions--Related Party Transactions" and "Item 19--Exhibits."
D. EXCHANGE CONTROLS
A portion of our Renminbi revenue may need to be converted into other currencies by our wholly owned principal operating subsidiary in the PRC, CNOOC China Limited, to meet our foreign currency obligations. We have substantial requirements for foreign currency, including:
o debt service on foreign currency denominated debt;
o overseas acquisitions of oil and gas properties;
o purchases of imported equipment; and
o payment of dividends declared in respect of shares held by international investors.
CNOOC China Limited may undertake current account foreign exchange transactions without prior approval from the State Administration for Foreign Exchange. It has access to current account foreign exchange so long as it can produce commercial documents evidencing such transactions and provided that they are processed through certain banks in China. Foreign exchange transactions under the capital account, including principal payments with respect to foreign currency denominated obligations, will be subject to the registration requirements of the State Administration for Foreign Exchange.
Since 1994, the conversion of Renminbi into Hong Kong and United States dollars has been based on rates set by the People's Bank of China, which are set daily based on the previous day's PRC interbank foreign exchange market rate and current exchange rates on the world financial markets. The PRC government has stated publicly that it intends to make Renminbi freely convertible in the future. On July 21, 2005, China reformed its foreign exchange regime by moving into a managed floating exchange rate system based on market supply and demand with reference to a basket of currencies. Renminbi
would no longer be pegged to the U.S. dollar. From that day to December 31, 2005, Renminbi appreciated about 2.5% against the U.S. dollar. However, we cannot predict when the PRC government will allow free conversion of Renminbi into foreign currencies. Changes in the PRC government's currency policies may lead to further fluctuations in the exchange rates for the conversion of Renminbi into foreign currencies which could have an uncertain effect on our business and operating results. Since the benchmark oil and gas prices are usually in U.S. dollars, the appreciation of Renminbi against U.S. dollars will decrease our revenues derived from oil and gas sales while such effects may be partially offset by decreases in the costs of imported equipment denominated in U.S. dollar and our debt servicing payments in U.S. dollar. Except for our Yen-denominated debts, we do not hedge exchange rate fluctuations between the Renminbi and foreign currencies and currently have no plans to do so. For further information on foreign exchange risks, foreign exchange rates and hedging activities, see "Item 3--Key Information--Selected Financial Data" and "Item 11--Qualitative and Quantitative Disclosure about Market Risk."
E. TAXATION
The taxation of income and capital gains of holders of our shares or ADSs is subject to the laws and practices of Hong Kong and of jurisdictions in which holders of our shares or ADSs are resident or otherwise subject to tax. The following is a summary of taxation provisions that are anticipated to be material based on current law and practice, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in our shares or ADSs. In particular, the discussion does not address the tax consequences under state, local and other laws, such as non-Hong Kong and non-U.S. federal laws. Accordingly, we urge you to consult your tax adviser regarding the tax consequences of an investment in our shares and ADSs. The discussion is based upon laws and relevant interpretations in effect as of the date of this annual report, all of which are subject to changes. There is no reciprocal tax treaty in effect between Hong Kong and the United States.
Hong Kong
Tax on Dividends
Under the current practices of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in connection with dividends paid by us.
Profits Tax
No tax is imposed in Hong Kong in respect of capital gains from the sale of property, such as the shares and ADSs. Trading gains from the sale of property by persons carrying on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax which is currently imposed at the rate of 17.5% on corporations and at a maximum rate of 16% on individuals. Gains from sales of the shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of shares or ADSs realized by persons carrying on a business of trading or dealing in securities in Hong Kong.
Stamp Duty
Hong Kong stamp duty, currently charged at the rate of HK$1.00 per HK$1,000 or part thereof on the higher of the consideration for or the value of the shares, will be payable by the purchaser on every purchase and by the seller on every sale of shares. For example, a total of HK$2.00 per HK$1,000 or part thereof is currently payable on a typical sale and purchase transaction involving shares. In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of shares. The withdrawal of shares upon the surrender of ADRs, and the issuance of ADRs upon the deposit of shares, will also attract stamp duty at the rate described above for sale and purchase transactions unless the withdrawal or deposit does not result in a change in the beneficial ownership of the shares under Hong Kong law. The issuance of the ADRs upon the deposit of shares issued directly to the depositary or for the account of the
depositary does not attract stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong.
Estate Duty
The shares are Hong Kong property under Hong Kong law, and accordingly such shares may be subject to estate duty on the death of the beneficial owner of such shares, regardless of the place of the owner's residence, citizenship or domicile. We cannot assure that the Hong Kong Inland Revenue Department will not treat the ADRs as Hong Kong property that may be subject to estate duty on the death of the beneficial owner of the ADR even if the ADRs are located outside Hong Kong at the date of such death. Hong Kong estate duty is imposed on a progressive scale from 5% to 15%. The rate of and the threshold for estate duty has, in the past, been adjusted on a fairly regular basis. No estate duty is payable when the aggregate value of the dutiable estate does not exceed HK$7.5 million, and the maximum rate of duty of 15% applies when the aggregate value of the dutiable estate exceeds HK$10.5 million. The Hong Kong Government is considering abolishing estate duty in Hong Kong.
United States
Federal Income Tax Considerations
The following is a summary of United States federal income tax
considerations that are anticipated to be material for U.S. Holders, as defined
below. This summary is based upon existing United States federal income tax law,
which is subject to change, possibly with retroactive effect. This summary does
not discuss all aspects of United States federal income taxation which may be
important to particular investors in light of their individual investment
circumstances, such as investors subject to special tax rules including:
partnerships, financial institutions, insurance companies, broker-dealers,
tax-exempt organizations, and, except as described below, non-U.S. Holders, or
to persons that will hold our shares or ADSs as part of a straddle, hedge,
conversion, or constructive sale transaction for United States federal income
tax purposes or that have a functional currency other than the United States
dollar, all of whom may be subject to tax rules that differ significantly from
those summarized below. In addition, this summary does not discuss any foreign,
state, or local tax considerations. This summary assumes that investors will
hold our shares or ADSs as "capital assets" (generally, property held for
investment) under the United States Internal Revenue Code. Each prospective
investor is urged to consult its tax advisor regarding the United States
federal, state, local, and foreign income and other tax considerations of the
purchase, ownership, and disposition of our shares or ADSs.
For purposes of this summary, an U.S. Holder is a beneficial owner of shares or ADSs that is for United States federal income tax purposes:
o an individual who is a citizen or resident of the United States;
o a corporation, partnership or other entity created in or organized under the laws of the United States or any State or political subdivision thereof;
o an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source;
o a trust the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust; or
o a trust that was in existence on August 20, 1996, was treated as a United States person, for United States federal income tax purposes, on the previous day, and elected to continue to be so treated.
A beneficial owner of our shares or ADSs that is not a U.S. Holder is referred to herein as a "Non-U.S. Holder."
A foreign corporation will be treated as a "passive foreign investment company" or "PFIC", for United States federal income tax purposes, if 75% or more of its gross income consists of certain types of "passive" income or 50% or more of its assets produce or are held for the production of passive income. Based on our current and projected income, assets, and activities, we presently believe that we are not a PFIC and do not anticipate becoming a PFIC. This is, however, a factual determination made on an annual basis. Because the classification of certain of our interests for United States federal income tax purposes is uncertain and the PFIC rules are subject to administrative interpretation, however, no assurance can be given that we are not or will not be treated as a PFIC. The discussion below under "U.S. Holders-Dividends" and "U.S. Holders-Sale or Other Disposition of Shares or ADSs," assumes that we will not be subject to treatment as a PFIC for United States federal income tax purposes.
U.S. Holders
For United States federal income tax purposes, a U.S. Holder of an ADS will be treated as the owner of the proportionate interest of the shares held by the depositary that is represented by an ADS and evidenced by such ADS. Accordingly, no gain or loss will be recognized upon the exchange of an ADS for the holders' proportionate interest in the shares. A U.S. Holder's tax basis in the withdrawn shares will be the same as the tax basis in the ADS surrendered therefore, and the holding period in the withdrawn shares will include the period during which the holder held the surrendered ADS.
Dividends. Any cash distributions paid by us out of our earnings and profits, as determined under United States federal income tax principles, will be subject to tax as ordinary dividend income and will be includible in the gross income of a U.S. Holder upon receipt. Cash distributions paid by us in excess of our earnings and profits will be treated as a tax-free return of capital to the extent of the U.S. Holder's adjusted tax basis in our shares or ADSs, and after that as gain from the sale or exchange of a capital asset. Dividends paid in Hong Kong dollars will be includible in income in a United States dollar amount based on the United States dollar to Hong Kong dollar exchange rate prevailing at the time of receipt of such dividends by the depositary, in the case of ADSs, or by the U.S. Holder, in the case of shares held directly by such U.S. Holder. U.S. Holders should consult their tax advisors regarding the United States federal income tax treatment of any foreign currency gain or loss recognized on the subsequent conversion of Hong Kong dollars received as dividends to United States dollars. Dividends received on shares or ADSs will not be eligible for the dividends received deduction allowed to corporations.
Under current law, "qualified dividend income" received by an individual for taxable years beginning after December 31, 2002 and for taxable years beginning before January 1, 2009 is subject to United States federal income tax rates lower than those applicable to ordinary income. The top federal income tax rate on such qualified dividend income received by an individual is 15% or 5% for those individuals whose incomes fall in the 10 or 15% brackets. Based upon our existing and anticipated future operations and current assets, we believe that we are a "qualified foreign corporation" and that our dividends paid to U.S. Holders who are individuals will be eligible to be treated as "qualified dividend income" provided that such U.S. Holders satisfy applicable holding period requirements with respect to the ADSs and other applicable requirements. Dividends paid by foreign corporations that are classified as PFICs are not eligible to be treated as "qualified dividend income". See "PFIC Considerations" below.
Dividends received on shares or ADSs will be treated, for United States federal income tax purposes, as foreign source income. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on shares or ADSs. U.S. Holders who do not elect to claim a foreign tax credit for federal income tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which the U.S. Holder elects to do so for all creditable foreign income taxes.
In addition, the United States Treasury has expressed concerns that parties to whom depositary shares are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of ADSs. Accordingly, the analysis of the creditability of foreign withholding taxes could be affected by future actions that may be taken by the United States Treasury.
Sale or Other Disposition of Shares or ADSs. A U.S. Holder will recognize capital gain or loss upon the sale or other disposition of shares or ADSs in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder's adjusted tax basis in such shares or ADSs, as each is determined in U.S. dollars. Any such capital gain or loss will be long-term if the shares or ADSs have been held for more than one year and will generally be United States source gain or loss. The claim of a deduction in respect of a capital loss, for United States federal income tax purposes, may be subject to limitations. If a U.S. Holder receives Hong Kong dollars for any such disposition, such U.S. Holder should consult its tax advisor regarding the United States federal income tax treatment of any foreign currency gain or loss recognized on the subsequent conversion of the Hong Kong dollars to United States dollars.
PFIC Considerations
If we were to be classified as a PFIC in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States federal income tax that a U.S. Holder could derive from investing in a foreign company that does not distribute all of its earnings on a current basis. In such event, a U.S. Holder of the shares or ADSs may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sales of the shares or ADSs and (ii) any "excess distribution" paid on the shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, a U.S. Holder may be subject to an interest charge on such gain or excess distribution. Prospective investors are urged to consult their tax advisors regarding the potential tax consequences to them if we are or do become a PFIC, as well as certain elections that may be available to them to mitigate such consequences.
Non-U.S. Holders
An investment in shares or ADSs by a Non-U.S. Holder will not give rise to any United States federal income tax consequences unless:
o the dividends received or gain recognized on the sale of the shares or ADSs by such person is treated as effectively connected with the conduct of a trade or business by such person in the United States as determined under United States federal income tax law, or
o in the case of gains recognized on a sale of shares or ADSs by an individual, such individual is present in the United States for 183 days or more and certain other conditions are met.
In order to avoid back-up withholding on dividend payments made in the United States, a Non-U.S. Holder of the shares or ADSs may be required to complete, and provide the payer with, an Internal Revenue Service Form W-8BEN, or other documentary evidence, certifying that such holder is an exempt foreign person.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We are also subject to the informational requirements of the Exchange Act and accordingly file reports and other information with the Securities and Exchange Commission. You may inspect and copy our reports and other information we file with the Securities and Exchange Commission at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, NE, Washington, D.C. 20549. You may also inspect such documents at the office of the New York Stock Exchange, Wall Street, New York, New York 10005. Copies of such material may also be obtained from the Public Reference Section of the Securities and Exchange Commission at 100 F Street, NE,
Washington, D.C. 20549, at prescribed rates. You may obtain information regarding the Washington D.C. Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330 or by contacting the Securities and Exchange Commission over the internet at its website at http://www.sec.gov.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposures primarily consist of fluctuations in oil and gas prices, exchange rates and interest rates.
Commodity Price Risks
We are exposed to fluctuations in prices of crude oil and natural gas. International oil and gas prices are volatile and this volatility has a significant effect on our net sales and net income. We do not hedge market risk resulting from fluctuations in oil and gas prices. See "--Overview" and "Item 3--Key Information--Risk Factors--Risks relating to our business--Our business, revenues and profits fluctuate with changes in oil and gas prices."
Currency Risk
Our foreign exchange exposure gives rise to market risk associated with exchange rate movements.
Substantially all of our oil and gas sales are denominated in Renminbi and U.S. dollars. In the last ten years, the PRC government's policy of maintaining a stable exchange rate and China's ample foreign reserves have contributed to the stability of the Renminbi. On July 21, 2005, China reformed its foreign exchange regime by moving into a managed floating exchange rate system based on market supply and demand with reference to a basket of currencies. Renminbi would no longer be pegged to the U.S. dollar. From that day to December 31, 2005, Renminbi appreciated about 2.5% against the U.S. dollar. However, the Chinese government has not yet determined if or when the exchange rate will be deregulated. Since the benchmark oil and gas prices are usually in U.S. dollars, the appreciation of Renminbi against U.S. dollars will decrease our revenues derived from oil and gas sales while such effects may be partially offset by decreases in the costs of imported equipment denominated in U.S. dollar and our debt servicing payments in U.S. dollar.
As of December 31, 2005, the balance of our Yen-denominated loans was only Rmb 37.3 million. Since we have hedged our Yen loans against foreign currency swaps, we do not expect any exchange risk relating to Japanese Yen in the future.
For a discussion of our currency risk, see "Item 3--Key Information--Risk Factors--Risks relating to the PRC-- Government control of currency conversion and future movements in exchange rates may adversely affect our operations and financial condition."
Interest Rate Risk
We are exposed to interest rate risk arising from our loans. An upward fluctuation in interest rates increases the cost of new debt. We may use interest rate swap transactions, from time to time, to hedge our interest rate exposure when considered appropriate, based on existing and anticipated market conditions.
As of December 31, 2005, the interest rates for our outstanding debts were fixed. The term of the weighted average balance was approximately eight years. The average interest rate payable by the Group is favorable under the environment of interest rate hike. We do not currently engage in any interest rate hedging activities.
The following table sets forth additional information about the expected maturity dates of our outstanding debt as of December 31, 2005.
Fair value
as of
2011 December
2006 2007 2008 2009 2010 and after Total 31, 2005
--------- --------- --------- --------- --------- --------- --------- ---------
(Rmb in millions, except percentages)
Long-term debt, including current
portion
Fixed rate ............ 825.7 18.7 -- -- -- -- 844.4 869
Average interest rate . 8.956% 4.1% -- -- -- -- -- --
Long-term guaranteed notes
Fixed rate ............ -- -- -- 8,070.2 -- 8,070.2 16,140.4 16,592
Average interest rate . 3.331% 3.331% 3.331% 3.381% 5.663% 5.663% -- --
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The above table takes into account our early repayment of certain loans in 2003. For additional discussions of our market risks, see "Item 3--Key Information--Risk Factors."
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. MATERIAL MODIFICATIONS TO THE INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
None.
B. MATERIAL MODIFICATIONS TO THE RIGHTS OF REGISTERED SECURITIES BY ISSUING OR MODIFYING ANY OTHER CLASS OF SECURITIES
None.
C. WITHDRAWAL OR SUBSTITUTION OF A MATERIAL AMOUNT OF THE ASSETS SECURING ANY REGISTERED SECURITIES
Not applicable.
D. CHANGE OF TRUSTEES OR PAYING AGENTS FOR ANY REGISTERED SECURITIES
Not applicable.
E. USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
(a) We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and designed to ensure that material information relating to us and our consolidated subsidiaries as required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported as and when required.
(b) There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors had determined that Dr. Kenneth S. Courtis, our independent non-executive director, was an audit committee financial expert serving on our audit committee. Dr. Courtis was independent as defined in the listing standards of the New York Stock Exchange. Effective May 25, 2006, Mr. Aloysius Hau Yin Tse has been designated by our board as an audit committee financial expert upon Dr. Courtis' retirement. Mr. Tse is independent as defined in the listing standards of the New York Stock Exchange.
ITEM 16B. CODE OF ETHICS
Our board of directors adopted a code of ethics ("Code of Ethics") on August 28, 2003 to provide guidelines to our senior management and directors in legal and ethical matters as well as the sensitivities involved in reporting illegal and unethical matters. The Code of Ethics covers such areas as supervisory rules, insider dealing, market malpractices, conflict of interests, company opportunities, protection and proper use of our assets as well as reporting requirements.
All our directors and senior management members are required to familiarize themselves with and follow the Code of Ethics to ensure that our operations are honest and legal. Violations of the rules will be disciplined and serious offences will result in dismissals.
We reviewed our Code of Ethics and adopted the revised code of ethics (the "New Code of Ethics") in 2005, as part of our continuing efforts to improve our corporate governance standards. The New Code of Ethics clarified the scope of senior management, and expanded the applicability of prohibitions against insider trading and other market misconduct to any "manager, secretary of, or any other person involved in the management of, a corporation." Other revisions made in the New Code of Ethics are technical or administrative in nature. We have provided all our directors and senior officers with a copy of the New Code of Ethics and require them to comply with the New Code of Ethics, so as to ensure our operation is proper and lawful. We will take disciplinary actions towards any act which is in breach of the New Code of Ethics. Any change or waiver, explicit or implicit, with respect to our code of ethics, must be disclosed to our shareholders either in our annual report or on our internet website, www.cnoocltd.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional services rendered by our principal accountants for the audit of our annual financial statements or services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements were Rmb 6.8 million for 2004 and Rmb 8.0 million (US$1.0 million) for 2005.
Audit-Related Fees
The aggregate fees billed for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit Fees" were Rmb 993,180 for 2004 and Rmb 2,098,252 (US$260,000) for 2005. The audit-related services provided included accounting advice, transaction support services and advisory to our implementation of Section 404 of the Sarbanes-Oxley Act.
Tax Fees
The aggregate fees billed for professional service rendered by the principal accountant for tax compliance, tax advice and tax planning were Rmb 99,318 for 2004 and nil for 2005.
All other fees
The aggregate fees billed for products and services provided by our principal accountant, other than the services reported above, were nil for fiscal year 2004 and 2005.
Audit Committee's pre-approval policies and procedures
The audit committee under our board of directors is responsible for the appointment, compensation and oversight of the work of our independent auditor. In 2003, our audit committee adopted a policy calling for the audit committee's pre-approval for the engagement of independent auditor for audit and permitted non-audit services. Our board of directors has also ratified the policy and procedures. Under this audit committee policy, proposed services may be pre-approved by the audit committee either on an annual basis or on a case-by-case basis. Appendices to the audit committee policy
sets forth (1) the audit, audit-related, tax and other services that may be subject to the general annual pre-approval of the audit committee; (2) non-audit services of a routine and recurring nature that may be subject to specific pre-approval from the audit committee on a case-by-case basis; and (3) a list of prohibited non-audit services. The audit committee will periodically review and revise these attached lists based on its subsequent determinations. The audit committee policy also provides for procedures to establish annual fee levels or budgets for pre-approved services and ratios between different categories of pre-approved services. In addition, the audit committee policy contains provisions that deal with compliance, monitoring, reporting and other related matters.
During 2005, all of the audit-related services, and all of tax fees paid to our principal accountant were approved by the audit committee. Our principal accountant audited our financial statements for 2005 solely through its full-time, permanent employees, without involvement of its part-time or temporary employees.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
No purchases of equity securities by US or any affiliated purchaser during the period covered by this annual report.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See pages beginning on page F-1 following Item 19.
ITEM 19. EXHIBITS
The following documents are filed as part of this annual report:
Exhibit
Number Document
1.1 Articles of Association of the Registrant, as amended in 2005.
1.2 Memorandum of Association of the Registrant, incorporated by
reference to Exhibit 3.2 to our Registration Statement on Form
F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
2.1 Form of Indenture, incorporated by reference to Exhibit 2.1 to
our annual report on Form 20-F for fiscal year 2002 filed with
the Securities and Exchange Commission (File Number: 1-14966).
2.2 Trust Deed dated December 15, 2004 among CNOOC Limited, CNOOC Finance
(2004) Limited and J.P. Morgan Corporate Trustee Services Limited,
incorporated by reference to Exhibit 2.2 to our annual report on Form
20-F for fiscal year 2004 filed with the Securities and Exchange
Commission (File Number: 1-14966).
4.1 The Asset Swap Agreement dated July 20, 1999 between CNOOC and
Offshore Oil Company Limited, incorporated by reference to Exhibit
10.1 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number: 333-10862).
4.2 The Asset Allocation Agreement dated July 20, 1999 between CNOOC and
Offshore Oil Company Limited, incorporated by reference to Exhibit
10.2 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number: 333-10862).
4.3 The Reorganization Agreement dated September 13, 1999 between CNOOC,
Offshore Oil Company Limited and CNOOC Limited, incorporated by
reference to Exhibit 10.3 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.4 Form of the Equity Transfer Agreement between CNOOC and CNOOC Limited,
incorporated by reference to Exhibit 10.4 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
4.5 Form of the Transfer Agreement dated October 1, 1999 between
CNOOC and Offshore Oil Company Limited regarding the transfer of
the rights and obligations of CNOOC under the 37 production
sharing contracts and one geophysical exploration agreement,
incorporated by reference to Exhibit 10.5 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
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4.6 Form of Equity Transfer Agreement between China Offshore Oil East
China Sea Corporation and Offshore Oil Company Limited regarding the
transfer of the rights and obligations under Joint Venture Contract of
Shanghai Petroleum and Natural Gas Company Limited dated July 28, 1992
to Offshore Oil Company Limited, incorporated by reference to Exhibit
10.6 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number: 333-10862).
4.7 Transfer Agreement dated September 9, 1999 between CNOOC and Offshore
Oil Company Limited regarding the transfer of the rights and
obligations of CNOOC under the Natural Gas Sale and Purchase Contract
dated December 22, 1992 to Offshore Oil Company Limited, incorporated
by reference to Exhibit 10.7 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.8 Transfer Agreement dated September 9, 1999 between CNOOC and Offshore
Oil Company Limited regarding the transfer of the rights and
obligations of CNOOC under the Natural Gas Sale and Purchase Contract
dated November 7, 1992 to Offshore Oil Company Limited, incorporated
by reference to Exhibit 10.8 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.9 Transfer Agreement dated September 9, 1999 among CNOOC, Offshore Oil
Company Limited, the four PRC subsidiaries and CNOOC's affiliates
regarding the transfer of the rights and obligations of the technical
services agreements to Offshore Oil Company Limited, incorporated by
reference to Exhibit 10.9 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.10 Nanshan Terminal Leasing Agreement dated September 9, 1999 between
CNOOC, Hainan China Oil and Offshore Natural Gas Company and Offshore
Oil Company Limited, incorporated by reference to Exhibit 10.10 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission (File Number: 333-10862).
4.11 Trademark License Agreement dated September 9, 1999 between CNOOC,
Offshore Oil Company Limited and CNOOC Limited, incorporated by
reference to Exhibit 10.11 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.12 Trademark License Agreement dated September 9, 1999 between China
Offshore Oil Marketing Company, CNOOC Limited and Offshore Oil Company
Limited and CNOOC Limited, incorporated by reference to Exhibit 10.12
to our Registration Statement on Form F-1 filed with the Securities
and Exchange Commission (File Number: 333-10862).
4.18 Property Leasing Agreement dated September 9, 1999 between Wui Hai
Enterprise Company Limited and Offshore Oil Company Limited in respect
of the office premises at 6th, 7th and 8th Floors, CNOOC Plaza, No. 6
Dong Zhi Men Wai Xiao Jie, Beijing, incorporated by reference to
Exhibit 10.18 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number: 333-10862).
4.19 Property Leasing Agreement dated September 9, 1999 between China
Offshore Oil Western South China Sea Corporation and Offshore Oil
Company Limited in respect of the office premises at 1st to 9th
Floors, Nantiao Road, Potou District Zhangjiang, Guangdong,
incorporated by reference to Exhibit 10.19 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
4.20 Property Leasing Agreement dated September 9, 1999 between China
Offshore Oil Bohai Corporation and Offshore Oil Company Limited in
respect of the office premises at 1st to 7th Floors and 9th Floor,
2-37 He Kou Jie, Tanggu District, Tianjin, incorporated by reference
to Exhibit 10.20 to our Registration Statement on Form F-1 filed with
the Securities and Exchange Commission (File Number: 333-10862).
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4.21 Property Leasing Agreement dated September 9, 1999 between China
Offshore Oil East China Sea Corporation and Offshore Oil Company
Limited in respect of the office premises at 20th, 22nd and 23rd
Floors, 583 Ling Ling Road, Shanghai, the PRC, incorporated by
reference to Exhibit 10.21 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.22 Property Leasing Agreement dated September 9, 1999 between China
Offshore Oil Eastern South China Sea Corporation and Offshore Oil
Company Limited in respect of the office premises at 3rd Floor and 6th
to 11th Floors, 1 Second Industrial Road, Shekou, Shenzhen, the PRC,
incorporated by reference to Exhibit 10.22 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
4.23 Property Leasing Agreement dated September 9, 1999 between China
Offshore Oil Bohai Corporation and Offshore Oil Company Limited
in respect of the Chengbei Warehouse, Chengbei Road, Tanggu
District, Tianjin City, the PRC, incorporated by reference to
Exhibit 10.23 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission (File Number:
333-10862).
4.24 Property Leasing Agreement dated September 9, 1999 between Overseas
Oil & Gas Corporation Ltd. and China Offshore Oil (Singapore)
International Pte. Ltd. in respect of the residential premises at
10-01 and 17-002 Aquamarine Tower, 50 Bayshore Road, 13-05 Jade Tower,
60 Bayshore Road, Singapore, incorporated by reference to Exhibit
10.24 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number: 333-10862).
4.25 Suizhong Pier Agreement dated September 9, 1999 between Offshore Oil
Company Limited and China Offshore Bohai Corporation, incorporated by
reference to Exhibit 10.25 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
4.26 Form of Novation Agreement among CNOOC, CNOOC China Limited, the
Banks and other financial institution and the Fuji Bank Limited
Hong Kong Branch, as agent, in respect of the transfer of the
US$110 million syndicated loan, incorporated by reference to
Exhibit 10.26 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission (File Number:
333-10862).
4.27 Form of the Undertaking Agreement between CNOOC and CNOOC Limited,
incorporated by reference to Exhibit 10.27 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
4.28 Service Agreement between CNOOC Limited and Chengyu Fu.
4.29 Service Agreement between CNOOC Limited and Han Luo.
4.30 Service Agreement between CNOOC Limited and Shouwei Zhou.
4.31 Service Agreement between CNOOC Limited and Xinghe Cao.
4.32 Service Agreement between CNOOC Limited and Zhenfang Wu.
4.33 Service Agreement between CNOOC Limited and Guangqi Wu.
4.34 Service Agreement between CNOOC Limited and Hua Yang.
4.35 Form of Pre-Global Offering Share Option Scheme for the Senior
Management of CNOOC Limited, incorporated by reference to Exhibit
10.31 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number: 333-10862).
4.36 Form of Share Option Scheme for the Senior Management of CNOOC
Limited, incorporated by reference to Exhibit 10.32 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission (File Number: 333-10862).
4.37 CNOOC Limited Share Option Scheme adopted on December 31, 2005
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4.38 Subscription Agreement dated March 17, 2000 among CNOOC Limited,
CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et
al., incorporated by reference to Exhibit 10.33 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission (File Number: 333-10862).
4.39 Subscription Agreement dated May 31, 2000 among CNOOC Limited,
CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and
Hutchison International Limited, incorporated by reference to
Exhibit 10.34 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission (File Number:
333-10862).
4.40 Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC
(BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hong Kong
Electric Holdings Limited, incorporated by reference to Exhibit 10.35
to our Registration Statement on Form F-1 filed with the Securities
and Exchange Commission (File Number: 333-10862).
4.41 Subscription Agreement dated June 28, 2000 among CNOOC Limited, CNOOC
(BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al.,
incorporated by reference to Exhibit 10.36 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
4.42 Corporation Placing Agreement dated February 6, 2001 among CNOOC
Limited, China National Offshore Oil Corporation, Shell Eastern
Petroleum (Pte) Limited and Merrill Lynch Far East Limited,
incorporated by reference to Exhibit 10.37 to our Registration
Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
4.43 Equity Transfer Agreement dated September 5, 2003 between CNOOC China
Limited and CNOOC (Summary Translation), incorporated by reference to
Exhibit 4.38 to our annual report on Form 20-F for fiscal year 2003
filed with the Securities and Exchange Commission (File Number:
1-14966).
4.44 Framework Agreement dated April 8, 2004 with CNOOC Finance Corporation
Limited (Summary Translation), incorporated by reference to Exhibit
4.39 to our annual report on Form 20-F for fiscal year 2003 filed with
the Securities and Exchange Commission (File Number: 1-14966).
4.45 Framework Agreement dated December 8, 2005 with CNOOC (Summary
Translation)
4.46 Framework Agreement dated December 8, 2005 with China Oilfield
Services Limited (Summary Translation)
4.47 Framework Agreement dated December 8, 2005 with Offshore Oil
Engineering Co., Ltd (Summary Translation)
4.48 Supplemental Agreement to the Undertaking agreement with CNOOC,
dated December 8, 2005
4.49 Sale and Purchase Agreement, dated January 8, 2006 between CNOOC
Exploration & Production Limited and South Atlantic Petroleum Limited
(certain statements, marked with an asterisk in brackets [*], have
been omitted from this agreement pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended, and the omitted materials have been
filed separately in paper form with the Securities and Exchange
Commission).
8.1 List of Subsidiaries
10.1 Letter from CNOOC Limited dated May 23, 2002 regarding receipt of
certain representations from Arthur Andersen & Co pursuant to the
requirements of the Securities and Exchange Commission, incorporated
by reference to Exhibit 10 to our annual report on Form 20-F for
fiscal year 2001 filed with the Securities and Exchange Commission
(File Number: 1-14966).
11.1 Code of Ethics for Directors and Senior Officers, as amended in
2005.
12.1 Certification by the Chief Executive Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002.
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12.2 Certification by the Chief Financial Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Sarbanes-Oxley Act of 2002 Section 906 Certification furnished to (not
filed with) the Securities and Exchange Commission.
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SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CNOOC Limited
By: /s/Victor Zhikai Gao
---------------------------------
Name: Victor Zhikai Gao
Title: Senior Vice President,
General Counsel and Company
Secretary
Date: June 26, 2006
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CNOOC LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEX TO FINANCIAL STATEMENTS
Page
CNOOC LIMITED AND ITS SUBSIDIARIES
Report of Independent Public Accountants............................. F-3 Consolidated income statements for the years ended December 31, 2005, 2004, and 2003..................................................... F-4 Consolidated balance sheets as of December 31, 2005 and 2004......... F-6 Consolidated statements of changes in equity for the years ended December 31, 2005, 2004, and 2003.................................. F-7 Consolidated cash flow statements for the years ended December 31, 2005, 2004, and 2003............................................... F-9 Notes to the consolidated financial statements....................... F-10 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
CNOOC Limited
(Incorporated in Hong Kong with limited liability)
We have audited the accompanying consolidated balance sheets of CNOOC Limited (the "Company") and its subsidiaries (the "Group") as of December 31, 2005 and 2004, and the related consolidated income statements, changes in shareholders' equity and cash flows for each of the three years ended December 31, 2005, 2004 and 2003. These financial statements are the responsibility of the management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2005 and 2004 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in Hong Kong ("Hong Kong GAAP").
Accounting principles generally accepted in Hong Kong vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 38 to the consolidated financial statements.
As discussed in note 2.2 to the financial statements, in 2005 the company changed its classification of property, plant and equipment, its method of accounting for land and buildings, its method of accounting for investments in equity and debts securities and convertible bonds, and its method of accounting for share-based transactions, upon the adoption of recently issued Hong Kong Financial Reporting Standards.
/s/ Ernst & Young ----------------------------------------- Ernst & Young Certified Public Accountants Hong Kong March 24, 2005 |
CNOOC LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Notes 2003 2004 2005 2005
---------- ----------------- ----------------- ------------------ ---------------
RMB'000 RMB'000 RMB'000 US$'000
(Restated) (Restated)
REVENUE
Oil and gas sales 7,27 28,116,831 36,886,019 53,417,669 6,619,126
Marketing revenues 8 12,398,661 18,191,353 15,901,325 1,970,376
Other income 434,781 144,691 136,749 16,944
----------------- ----------------- ------------------ ---------------
40,950,273 55,222,063 69,455,743 8,606,446
----------------- ----------------- ------------------ ---------------
EXPENSES
Operating expenses ( 4,512,809) ( 5,070,344) ( 5,934,598) ( 735,372)
Production taxes ( 1,238,598) ( 1,725,674) ( 2,596,543) ( 321,745)
Exploration expenses ( 848,072) ( 1,316,160) ( 1,293,687) ( 160,304)
Depreciation, depletion and
amortisation ( 4,642,753) ( 5,455,062) ( 5,964,740) ( 739,107)
Dismantlement 28 ( 167,326) ( 201,637) ( 252,857) ( 31,332)
Impairment losses related to
property, plant and equipment - - (90,190) (11,176)
Crude oil and product
purchases 8 (12,295,238) ( 17,963,461) ( 15,704,100) ( 1,945,937)
Selling and administrative
expenses 9 ( 1,250,270) ( 1,104,348) ( 1,370,368) ( 169,806)
Others ( 350,232) ( 45,844) ( 77,062) ( 9,548)
----------------- ----------------- ------------------ ---------------
( 25,305,298) ( 32,882,530) ( 33,284,145) ( 4,124,327)
----------------- ----------------- ------------------ ---------------
PROFIT FROM OPERATING ACTIVITIES 15,644,975 22,339,533 36,171,598 4,482,119
Interest income 183,576 206,872 359,294 44,521
Financial costs 10 ( 354,940) ( 441,825) ( 1,100,532) ( 136,370)
Exchange gains/(losses), net ( 6,746) 29,269 287,027 35,566
Investment income 123,483 72,438 247,893 30,717
Share of profit of associates 220,263 344,469 307,075 38,050
Non-operating income/(expenses), net 314,968 519,206 28,579 3,543
----------------- ----------------- ------------------ ---------------
PROFIT BEFORE TAX 16,125,579 23,069,962 36,300,934 4,498,146
Tax 13 ( 4,627,836) ( 6,930,826) ( 10,977,812) ( 1,360,290)
----------------- ----------------- ------------------ ---------------
NET PROFIT 11,497,743 16,139,136 25,323,122 3,137,856
================= ================= ================== ===============
The accompanying notes are an integral part of these financial statements.
|
CNOOC LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (CONT'D)
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Notes 2003 2004 2005 2005
--------- ---------------- --------------- --------------- --------------
RMB'000 RMB'000 RMB'000 US$'000
(Restated) (Restated)
DIVIDENDS
Special interim dividend
declared in place of 2003
final dividend * -- 2,617,526 -- --
Interim 14 1,220,132 1,306,451 2,138,128 264,941
Special interim 14 1,568,741 2,177,418 2,138,128 264,941
Proposed final* 14 1,050,460 1,310,022 4,250,391 526,678
Proposed special final* 14 1,575,691 2,183,371 -- --
---------------- --------------- --------------- --------------
5,415,024 9,594,788 8,526,647 1,056,560
================ =============== =============== ==============
DIVIDENDS PER SHARE
Special interim dividend -- RMB0.060 -- --
declared in place of 2003
final dividend*
Interim 14 RMB0.030 RMB0.030 RMB0.052 US$ 0.006
Special interim 14 RMB0.038 RMB0.050 RMB0.052 US$ 0.006
Proposed final* 14 RMB0.026 RMB0.030 RMB0.103 US$ 0.013
Proposed special final* 14 RMB0.038 RMB0.050 -- --
EARNINGS PER SHARE
Basic 15 RMB0.28 RMB0.39 RMB0.62 US$ 0.08
Diluted 15 RMB0.28 RMB0.39 RMB0.61 US$ 0.08
EARNINGS PER ADS
Basic 15 RMB27.99 RMB39.31 RMB61.68 US$ 7.64
Diluted 15 RMB27.97 RMB39.19 RMB61.01 US$ 7.56
* The proposed final dividend and special final dividend for 2003 were cancelled and replaced by the special interim
dividend declared in 2004.
The accompanying notes are an integral part of these financial statements.
|
CNOOC LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Notes 2004 2005 2005
-------------- -------------------- ------------------ -----------------
RMB'000 RMB'000 US$'000
(Restated)
NON-CURRENT ASSETS
Property, plant and equipment, net 16 57,182,026 66,625,167 8,255,702
Intangible assets 17 -- 1,299,643 161,042
Investments in associates 18 1,327,109 1,401,839 173,706
Available-for-sale financial assets -- 1,017,000 126,019
-------------------- ------------------ -----------------
58,509,135 70,343,649 8,716,469
-------------------- ------------------ -----------------
CURRENT ASSETS
Accounts receivable, net 19 4,276,489 5,277,784 653,984
Inventories and supplies 20 1,147,294 1,199,626 148,649
Due from related companies 27 1,173,374 2,099,197 260,117
Other current assets 556,931 806,115 99,887
Available-for-sale financial assets
/Short term investments 21 5,444,113 13,846,935 1,715,811
Time deposits with maturities over
three months 8,603,000 12,200,000 1,511,735
Cash and cash equivalents 27 14,091,524 8,991,758 1,114,193
-------------------- ------------------ -----------------
35,292,725 44,421,415 5,504,376
-------------------- ------------------ -----------------
TOTAL ASSETS 93,801,860 114,765,064 14,220,845
==================== ================== =================
CURRENT LIABILITIES
Accounts payable 22 3,102,024 2,867,678 355,342
Other payables and accrued liabilities 23 4,191,024 5,206,943 645,206
Current portion of long term bank loans 24 24,364 825,674 102,311
Due to the parent company 26,27 370,060 488,482 60,529
Due to related companies 27 211,425 759,934 94,166
Tax payable 13 2,503,466 3,467,505 429,668
-------------------- ------------------ -----------------
10,402,363 13,616,216 1,687,222
-------------------- ------------------ -----------------
NON-CURRENT LIABILITIES
Long term bank loans 24 865,211 24,392 3,022
Long term guaranteed notes 25 16,313,550 16,531,780 2,048,497
Provision for dismantlement 28 3,089,448 4,161,663 515,683
Deferred tax liabilities 13 6,688,498 6,827,916 846,065
-------------------- ------------------ -----------------
26,956,707 27,545,751 3,413,267
-------------------- ------------------ -----------------
CAPITAL AND RESERVES
Issued capital 29 876,586 876,635 108,626
Reserves 30 55,566,204 72,726,462 9,011,730
-------------------- ------------------ -----------------
56,442,790 73,603,097 9,120,356
-------------------- ------------------ -----------------
TOTAL EQUITY AND LIABILITIES 93,801,860 114,765,064 14,220,845
==================== ================== =================
The accompanying notes are an integral part of these financial statements.
|
CNOOC LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Share
premium Statutory
Issued and capital Asset Cumulative and non-
share redemption revaluation translation distributive Other Retained
capital reserve reserve reserve reserve reserve earnings
--------- ----------- ------------ ----------- ------------ ------- --------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Balances at January 1, 2003 as
previously reported 876,978 20,761,205 274,671 ( 13,596) 2,232,410 - 16,436,820
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) - - - - - 25,755 ( 25,755)
Cumulative adjustment for the
adoption of HKAS 16 (note 2.2) - - ( 274,671) - - - -
--------- ----------- ------------ ----------- ------------ ------- --------
Balances at January 1 2003
as restated 876,978 20,761,205 - (13,596) 2,232,410 25,755 16,411,065
Exchange realignment - - - 36,243 - - -
--------- ----------- ------------ ----------- ------------ ------- --------
Total income and expenses for the
year recognised directly in equity - - - 36,243 - - -
Net profit for the year as restated - - - - - - 11,497,743
--------- ----------- ------------ ----------- ------------ ------- --------
Total income and expenses for the
year - - - 36,243 - - 11,497,743
Appropriation to statutory reserve - - - - 818,079 - (818,079)
2002 final dividends - - - - - - (1,307,408)
2002 special final dividends - - - - - - (1,307,408)
2003 interim dividends - - - - - - (1,220,132)
2003 special interim dividends - - - - - - (1,568,741)
Transfer to/(from) reserve - - - - 5,000,000 - (5,000,000)
Equity-settled share option expense - - - - - 37,747 -
--------- ----------- ------------ ----------- ------------ ------- --------
Balances at December 31, 2003 as
restated 876,978 20,761,205 - 22,647 8,050,489 63,502 16,687,040
========= =========== ============ =========== ============ ======= ==========
Balances at January 1, 2004 as
previously reported 876,978 20,761,205 274,671 22,647 8,050,489 - 16,750,542
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) - - - - - 63,502 (63,502)
Cumulative adjustment for the
adoption of HKAS 16 (note 2.2) - - (274,671) - - - -
--------- ----------- ------------ ----------- ------------ ------- --------
Balances at January 1, 2004
as restated 876,978 20,761,205 - 22,647 8,050,489 63,502 16,687,040
Exchange realignment - - - ( 42,301) - - -
--------- ----------- ------------ ----------- ------------ ------- --------
Total income and expenses for the
year recognised directly in equity - - - ( 42,301) - - -
Net profit for the year as restated - - - - - - 16,139,136
--------- ----------- ------------ ----------- ------------ ------- --------
Total income and expenses for the
year - - - (42,301) - - 16,139,136
Repurchases of shares (392) - - - - - (60,761)
Transfer of reserve upon
share repurchases - 392 - - - - (392)
2004 special interim dividend
declared in place of 2003 final
dividends - - - - - - (2,617,526)
2004 interim dividends - - - - - - (1,306,451)
2004 special interim dividends - - - - - - (2,177,418)
Appropriation to statutory reserve - - - - 1,363,121 - (1,363,121)
Equity-settled share option expenses - - - - - 46,642 -
--------- ----------- ------------ ----------- ------------ ------- --------
Balances at 31 December 2004
as restated 876,586 20,761,597 - (19,654) 9,413,610 110,144 25,300,507
========= =========== ============ =========== ============ ======= ==========
Total
-----------
RMB'000
Balances at January 1, 2003 as
previously reported 40,568,488
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) -
Cumulative adjustment for the
adoption of HKAS 16 (note 2.2) (274,671)
-----------
Balances at January 1 2003
as restated 40,293,817
Exchange realignment 36,243
-----------
Total income and expenses for the
year recognised directly in equity 36,243
Net profit for the year as restated 11,497,743
-----------
Total income and expenses for the year 11,533,986
Appropriation to statutory reserve -
2002 final dividends (1,307,408)
2002 special final dividends (1,307,408)
2003 interim dividends (1,220,132)
2003 special interim dividends (1,568,741)
Transfer to/(from) reserve -
Equity-settled share option expense 37,747
-----------
Balances at December 31, 2003 as
restated 46,461,861
===========
Balances at January 1, 2004 as
previously reported 46,736,532
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) -
Cumulative adjustment for the
adoption of HKAS 16 (note 2.2) (274,671)
-----------
Balances at January 1, 2004
as restated 46,461,861
Exchange realignment ( 42,301)
-----------
Total income and expenses for the
year recognised directly in equity ( 42,301)
Net profit for the year as restated 16,139,136
-----------
Total income and expenses for the
year 16,096,835
Repurchases of shares (61,153)
Transfer of reserve upon
share repurchases -
2004 special interim dividend
declared in place of 2003 final
dividends (2,617,526)
2004 interim dividends (1,306,451)
2004 special interim dividends (2,177,418)
Appropriation to statutory reserve -
Equity-settled share option expenses 46,642
-----------
Balances at 31 December 2004
as restated 56,442,790
===========
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CNOOC LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY (CONT'D)
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Share
premium Statutory
Issued and capital Asset Cumulative and non-
share redemption revaluation translation distributive Other Retained
capital reserve reserve reserve reserve reserve earnings
--------- ----------- ----------- ----------- ----------- ---------- ----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Balances at January 1 2005
as previously reported 876,586 20,761,597 274,671 (19,654) 9,413,610 -- 25,410,651
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) - - - - - 110,144 (110,144)
Cumulative adjustment for the
adoption of HKAS 16 (note 2.2) - - (274,671) - - - -
--------- ----------- ----------- ----------- ----------- ---------- ----------
Balances at January 1 2005
as restated 876,586 20,761,597 - (19,654) 9,413,610 110,144 25,300,507
Changes in fair value of
available-for-sale investments - - - - - 69,069 -
Exchange realignment - - - (493,289) - - -
--------- ----------- ----------- ----------- ----------- ---------- ----------
Total income and expenses for the
year recognised directly in equity - - - (493,289) - 69,069 -
Net profit for the year - - - - - - 25,323,122
--------- ----------- ----------- ----------- ----------- ---------- ----------
Total income and expenses for the
year - - - (493,289) - 69,069 25,323,122
2004 final dividends - - - - - - (3,495,962)
2005 interim dividends - - - - - - (4,276,256)
Exercise of share options 49 4,451 - - - - -
Appropriation to statutory reserve - - - - 2,268,364 - (2,268,364)
Equity-settled share option expenses - - - - - 29,123 -
--------- ----------- ----------- ----------- ----------- ---------- ----------
Balances at 31 December 2005 876,635 20,766,048 - (512,943) 11,681,974 208,336 40,583,047
========= =========== =========== =========== =========== ========== ==========
Total
-----------
RMB'000
Balances at January 1 2005
as previously reported 56,717,461
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) -
Cumulative adjustment for the
adoption of HKAS 16 (note 2.2) (274,671)
-----------
Balances at January 1 2005
as restated 56,442,790
Changes in fair value of
available-for-sale investments 69,069
Exchange realignment (493,289)
-----------
Total income and expenses for the
year recognised directly in equity (424,220)
Net profit for the year 25,323,122
-----------
Total income and expenses for the
year 24,898,902
2004 final dividends (3,495,962)
2005 interim dividends (4,276,256)
Exercise of share options 4,500
Appropriation to statutory reserve -
Equity-settled share option expenses 29,123
-----------
Balances at 31 December 2005 73,603,097
===========
* These reserve accounts comprise the consolidated reserves of RMB72,726,462,000 (2004: RMB55,566,204,000
(restated), 2003: RMB45,584,883,000 (restated)), in the consolidated balance sheet.
The accompanying notes are an integral part of these financial statements.
|
CNOOC LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Notes 2003 2004 2005 2005
------ ------------- -------------- ------------- ----------------
RMB'000 RMB'000 RMB'000 US$'000
OPERATING ACTIVITIES
Cash generated from operations 32(a) 21,142,911 29,705,761 41,695,648 5,166,619
Income taxes paid ( 3,514,807) ( 7,402,280) ( 9,849,454) ( 1,220,472)
Income tax refund - - - -
Interest received 183,576 206,871 359,294 44,521
Dividends received 90,000 135,000 232,346 28,791
Short term investments income received 55,840 4,626 45,785 5,673
Interest paid ( 138,801) ( 322,118) ( 329,797) ( 40,866)
------------- ------------- ------------- --------------
Net cash inflow from operating activities 17,818,719 22,327,860 32,153,822 3,984,266
------------- ------------- ------------- --------------
INVESTING ACTIVITIES
Acquisition of and prepayment for oil and gas
properties 32(b) ( 4,100,900) ( 5,779,140) ( 864,007) ( 107,061)
Additions of property, plant and equipment ( 8,271,564) ( 12,842,905) ( 16,605,548) ( 2,057,638)
Proceeds from disposals of property, plant and
equipment - - - -
Investment in an associate ( 450,000) - - -
(Increase)/decrease in time deposits with
maturities over three months 2,367,000 ( 6,280,000) ( 3,597,000) ( 445,714)
Purchase of available-for-sale financial
assets/ short term investments ( 8,144,702) ( 5,735,093) ( 21,487,478) ( 2,662,571)
Disposals of available-for-sale financial
assets/ short term investments 9,087,581 6,029,946 13,204,817 1,636,244
------------- ------------- ------------- --------------
Net cash outflow from investing activities ( 9,512,585) ( 24,607,192) ( 29,349,216) ( 3,636,740)
-------------- ------------- ------------- --------------
FINANCING ACTIVITIES
Proceeds from issuance of long term guaranteed
notes 3,995,773 8,154,085 - -
Repayment of bank loans ( 336,938) ( 21,075) ( 18,654) ( 2,312)
Dividends paid ( 5,403,689) ( 6,101,395) ( 7,772,218) ( 963,076)
Share repurchases - ( 61,153) - -
Proceeds from exercise of share options - - 4,500 558
-------------- ------------- ------------- --------------
Net cash (outflow)/inflow from financing
activities ( 1,744,854) 1,970,462 ( 7,786,372) ( 964,830)
-------------- ------------- ------------- --------------
NET INCREASE/(DECREASE)IN CASH AND CASH EQUIVALENTS 6,561,280 ( 308,870) ( 4,981,766) ( 617,304)
Cash and cash equivalents at beginning of year 7,839,114 14,400,394 14,091,524 1,746,118
Effect of foreign exchange rate changes, net - - ( 118,000) ( 14,621)
-------------- ------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 14,400,394 14,091,524 8,991,758 1,114,193
-------------- ------------- ------------- --------------
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and cash equivalents balances 14,400,394 14,091,524 8,991,758 1,114,193
============== ============== ============= =============
The accompanying notes are an integral part of these financial statements.
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
1. CORPORATE INFORMATION
CNOOC Limited (the "Company") was incorporated in the Hong Kong Special
Administrative Region ("Hong Kong"), the People's Republic of China (the
"PRC") on 20 August 1999 to hold the interests in certain entities
whereby creating a group comprising the Company and its subsidiaries.
During the year, the Company and its subsidiaries (hereinafter
collectively referred to as the "Group") were principally engaged in the
exploration, development, production and sale of crude oil, natural gas
and other petroleum products.
The registered office address is 65/F, Bank of China Tower, 1 Garden
Road, Hong Kong.
In the opinion of the directors, the parent and the ultimate holding
company is China National Offshore Oil Corporation ("CNOOC"), a company
established in the PRC.
Particulars of the principal subsidiaries are as follows:
Nominal value of
issued and paid Percentage of
Place and date of /registered equity
incorporation/ ordinary share attributable
Name establishment capital to the Group Principal activities
--------------------------- --------------------- ------------------- ------------- --------------------
Directly held subsidiaries:
CNOOC China Limited Tianjin, the PRC RMB15 billion 100% Offshore petroleum
September 15, 1999 exploration,
development,
production and sale
in the PRC
CNOOC International Limited British Virgin US$2 100% Investment holding
Islands
August 23, 1999
China Offshore Oil Singapore S$3 million 100% Sale and marketing
(Singapore) International May 14, 1993 of petroleum outside
Pte., Ltd. of the PRC
CNOOC Finance (2002) Limited British Virgin US$1,000 100% Bond issuance
Islands
January 24, 2002
CNOOC Finance (2003) Limited British Virgin US$1,000 100% Bond issuance
Islands
April 2, 2003
CNOOC Finance (2004) Limited British Virgin US$1,000 100% Bond issuance
Islands
December 9, 2004
Indirectly held subsidiaries*:
Malacca Petroleum Limited Bermuda US$12,000 100% Offshore petroleum
November 2, 1995 exploration,
development and
production in
Indonesia
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CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
1. CORPORATE INFORMATION (CONT'D)
Nominal value of
issued and paid Percentage of
Place and date of /registered equity
incorporation/ ordinary share attributable to
Name establishment capital the Group Principal activities
----------------------------- --------------------- ----------------- --------------- --------------------
Indirectly held subsidiaries* (cont'd):
OOGC America, Inc. State of Delaware, US$1,000 100% Investment holding
United States of
America
September 2, 1997
OOGC Malacca Limited Bermuda US$12,000 100% Offshore petroleum
November 2, 1995 exploration,
development and
production in
Indonesia
CNOOC Southeast Asia Limited Bermuda US$12,000 100% Investment holding
May 16, 1997
CNOOC ONWJ Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
March 27, 2002 development and
production in
Indonesia
CNOOC SES Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
March 27, 2002 development and
production in
Indonesia
CNOOC Poleng Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
March 27, 2002 development and
production in
Indonesia
CNOOC Madura Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
March 27, 2002 development and
production in
Indonesia
CNOOC Blora Ltd. Labuan, F.T., US$1 100% Onshore petroleum
Malaysia exploration,
March 27, 2002 development and
production in
Indonesia
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CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
1. CORPORATE INFORMATION (CONT'D)
Nominal value of
issued and paid Percentage of
Place and date of /registered equity
incorporation/ ordinary share attributable to
Name establishment capital the Group Principal activities
----------------------------- ------------------- ---------------- --------------- --------------------
Indirectly held subsidiaries* (cont'd):
CNOOC NWS Private Ltd. Singapore S$1 100% Offshore petroleum
October 8, 2002 exploration,
development and
production in
Australia
CNOOC Wiriagar Overseas Ltd. British Virgin US$1 100% Offshore petroleum
Islands exploration,
January 15, 2003 development and
production in
Indonesia
CNOOC Muturi Ltd. The Isle of Man US$7,780,700 100% Offshore petroleum
February 8, 1996 exploration,
development and
production in
Indonesia
|
* Indirectly held through CNOOC International Limited. The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.
2.1 BASIS OF PREPARATION
These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") (which also include Hong Kong Accounting Standards ("HKASs") and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong ("Hong Kong GAAP") and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention except for available-for-sale investments and derivative financial instruments which have been measured at fair value. These financial statements are presented in Renminbi ("RMB") and all values are rounded to the nearest thousand (RMB'000) except when otherwise indicated.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December 31, 2005. The results of subsidiaries are consolidated from the date of acquisition being the date on which the Group obtains control and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.
The acquisition of subsidiaries or an interest in a joint venture or associate during the year has been accounted for using the purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued (if any) and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs")
The Hong Kong Institute of Certified Public Accountants has issued a number of new Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and interpretations, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after January 1, 2005. The following new and revised HKFRSs affect the Group and are adopted for the first time for the current year's financial statements:
HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Investments in Associates HKAS 31 Interests in Joint Ventures HKAS 32 Financial Instruments: Disclosure and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 37 Provisions, Contingent Liabilities and Contingent Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 Amendment Transition and Initial Recognition of Financial Assets and Financial Liabilities HKFRS 2 Share-based Payment HKFRS 3 Business Combinations |
The adoption of HKASs 1, 2, 7, 8, 10, 12, 14, 17, 18, 19, 21, 23, 24, 27, 28, 31, 33, 36, 37, 38 and HKFRS 3 has no material impact on the accounting policies of the Group and the methods of computation in the Group's financial statements. The impacts of adopting other HKFRSs are detailed as follows:
(a) HKAS 16 - Property, Plant and Equipment In prior years, the Group's property, plant and equipment were classified into three categories: oil and gas properties, land and buildings (representing the onshore terminals for oil and gas processing), and vehicles and office equipment. Land and buildings were stated at valuation less accumulated depreciation. Depreciation for land and buildings is calculated on the straight-line basis at an annual rate estimated to write off the valuation of each asset over its expected useful life, ranging from 30 to 50 years.
According to HKAS 16, property, plant and equipment are required to be categorised by major component and different useful lives, if any, should be applied in calculating the depreciation.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs")(CONT'D)
(a) HKAS 16 - Property, Plant and Equipment (continued)
Upon the adoption of HKAS 16, the Group has classified its property, plant and equipment into two categories: oil and gas properties and vehicles and office equipment. The Group has reclassified the onshore terminals previously classified as land and buildings to oil and gas properties as they will be used in similar operations and are expected to have similar economic useful lives.
The Group has also decided to change its accounting policy to state the onshore terminals at cost instead of valuation and to amortise those terminals by the unit-of-production method on a property-by-property basis computed based on the total estimated units of proved developed reserves instead of the straight line method. Management believes the new policy will provide more relevant information and consistent accounting approach for oil and gas related assets.
The effect of this change in accounting policy is to decrease both property, plant and equipment and the revaluation reserve as at January 1, 2005 and 2004 by RMB 274,671,000. No adjustment was made to the prior years' amounts as the impact on the prior years' consolidated income statements was not material. The effects of the above changes are summarized in note 2.4 to the financial statements.
(b) HKASs 32 and 39 - Financial Instruments
(i) Investments in equity and debt securities
In prior periods, the Group classified its investments in short term debt and equity securities as short term investments which were not intended to be held on a continuing basis and those investments were stated at fair value at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of such securities were credited or charged to the income statement in the period in which they arose.
Upon the adoption of HKAS 39, these securities held by the Group at January 1, 2005 in the amount of RMB 5,444,113,000 were designated as available-for-sale investments under the transitional provisions of HKAS 39 and accordingly are stated at fair value with gains or losses being recognised as a separate component of equity until subsequent derecognition or impairment.
(ii) Convertible bonds
In prior periods, convertible bonds were stated at amortised cost.
Upon the adoption of HKAS 32 and HKAS 39, the Group's convertible bonds issued with a cash settlement option and other derivative features are split into liability and derivative components based on their fair values for measurement purposes. The effects of the above changes are summarised in note 2.4 to the financial statements. In accordance with HKAS 32, comparative amounts have been restated.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs")(CONT'D)
(c) HKFRS 2 - Share-based Payment
In prior periods, no recognition and measurement of share-based transactions in which employees (including directors) were granted share options over shares in the Company were required until such options were exercised by employees, at which time the share capital and share premium were credited with the proceeds received.
Upon the adoption of HKFRS 2, when employees (including directors) render services as consideration for equity instruments ("equity-settled transactions"), the cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which the instruments are granted.
The main impact of HKFRS 2 on the Group is the recognition of the cost of these transactions and a corresponding entry to equity for employee share options. The revised accounting policy for share-based payment transactions is described in more detail in note 3 "Summary of significant Accounting Policies" below.
The Group has adopted the provisions of HKFRS 2 retrospectively to all stock options granted from the date of its incorporation. The effects of adopting HKFRS 2 are summarized in note 2.4 to the financial statements.
2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS
The HKICPA has issued a number of new and revised HKFRSs that are not mandatory for these financial statements. The Group has not early applied these HKFRSs in these financial statements. The following new and revised HKFRSs, although not early adopted by the Group, will have impact on the Group's financial statements in the period of initial application. Unless otherwise stated, the following HKFRSs are effective for accounting periods beginning on or after January 1, 2006:
HKAS 1 Amendment Capital Disclosures
HKAS 21 Amendment The effects of Changes in Foreign
Exchange Rate - Net Investment in a
Foreign Operation
HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast
Intragroup Transactions
HKAS 39 Amendment The Fair Value Option
HKFRSs 1 & 6 Amendments First-time Adoption of Hong Kong
Financial Reporting Standards and
Exploration for and Evaluation of Mineral
Resources
HKFRS 6 Exploration for and Evaluation of Mineral
Resources
HKFRS 7 Financial Instruments: Disclosures
HK(IFRIC)-Int 4 Determining whether an Arrangement
contains a Lease
HK(IFRIC)-Int 5 Rights to Interests arising from
Decommissioning, Restoration and
Environmental Rehabilitation Funds
|
The HKAS 1 Amendment shall be applied for accounting periods beginning on or after January 1, 2007. The revised standard will affect the disclosures about qualitative information about the Group's objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (CONT'D)
HKFRS 6 deals with the accounting for exploration for and evaluation of mineral resources, including oil and gas. This HKFRS should be applied for accounting periods beginning on or after January 1, 2006. The Group expects that the adoption of HKFRS 6 will not have any significant impact on its results of operations and financial position.
HKFRS 7 will replace HKAS 32 and has modified the disclosure requirements of HKAS 32 relating to financial instruments. This HKFRS shall be applied for accounting periods beginning on or after January 1, 2007.
Except as stated above, the Group expects that the adoption of the other pronouncements listed above will not have any significant impact on the Group's financial statements in the period of initial application.
2.4 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES
(a) Effect on the consolidated balance sheet
Effect of adopting
---------------------------------------------
At January 1, 2005 HKAS 16# HKFRS 2#
Effect of new policies Property, plant Recognition of
Increase/(decrease) and equipment share-based payment Total
RMB'000 RMB'000 RMB'000
Assets
Property, plant and equipment, net (274,671) -- (274,671)
-----------
Liabilities/equity
Asset revaluation reserve (274,671) -- (274,671)
Other reserves -- 110,144 110,144
Retained earnings -- (110,144) (110,144)
-----------
(274,671)
-----------
|
Effect of adopting
-------------------------------------------------------------------
HKAS 16# HKASs 32 HKAS 39* HKFRS 2#
At December 31, 2005 and 39* Change in Recognition of
Effect of new policies Property, plant Convertible classification of share-based
Increase/(decrease) and equipment bonds equity investments payment Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Assets
Property, plant and equipment, net (274,671) -- -- -- (274,671)
------------
Liabilities/equity
Long term guaranteed notes -- 373,060 -- -- 373,060
Asset revaluation reserve (274,671) -- -- -- (274,671)
Other reserves -- -- 69,069 139,267 208,336
Retained earnings -- (373,060) (69,069) (139,267) (581,396)
------------
(274,671)
------------
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
2.4 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (CONT'D)
(b) Effects on the balances of equity at January 1, 2003, 2004 and 2005
Effect of adopting
---------------------------------------------
HKAS 16# HKFRS 2#
Effect of new policies Property, plant Recognition of
Increase/(decrease) and equipment share-based payment Total
RMB'000 RMB'000 RMB'000
January 1, 2003
Asset revaluation reserve (274,671) -- (274,671)
Other reserves -- 25,755 25,755
Retained earnings -- (25,755) (25,755)
------------
(274,671)
------------
January 1, 2004
Asset revaluation reserve (274,671) -- (274,671)
Other reserves -- 63,502 63,502
Retained earnings -- (63,502) (63,502)
(274,671)
------------
January 1, 2005
Asset revaluation reserve (274,671) -- (274,671)
Other reserves -- 110,144 110,144
Retained earnings -- (110,144) (110,144)
------------
(274,671)
------------
* Adjustments taken effect prospectively from January 1, 2005.
# Adjustments taken effect retrospectively.
(c) Effect on the consolidated income statement for the years ended
December 31, 2005, 2004 and 2003
Effect of adopting
---------------------------------------------------
HKAS 16 HKAS 39 HKFRS 2
Recognition of
Property, plant Convertible share-based
Effect of new policies and equipment bonds payment Total
RMB'000 RMB'000 RMB'000 RMB'000
Year ended December 31, 2005
Increase in depreciation,
depletion and amortisation 19,269 -- -- 19,269
Increase in a loss on embedded
derivatives in convertible bonds -- 373,060 -- 373,060
Increase in selling and
administrative expenses -- -- 29,123 29,123
------------------------------------------------------------------------
Total decrease in profit 19,269 373,060 29,123 421,452
------------------------------------------------------------------------
Year ended December 31, 2004
Increase in selling and
administrative expenses -- -- 46,642 46,642
------------------------------------------------------------------------
Total decrease in profit -- -- 46,642 46,642
------------------------------------------------------------------------
Year ended December 31, 2003
Increase in selling and
administrative expenses -- -- 37,747 37,747
------------------------------------------------------------------------
Total decrease in profit -- -- 37,747 37,747
------------------------------------------------------------------------
There was no material impact on basic earnings per share and diluted earnings per share for the years ended December
31, 2005, 2004 and 2003 for the adoption of the above new policies.
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Subsidiaries
A subsidiary is a company in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its Board of Directors.
The results of subsidiaries are included in the Company's income statement to the extent of dividends received and receivable. The Company's interests in subsidiaries are stated at cost less any impairment losses.
Associates
An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.
The Group's share of the post-acquisition results and reserves of the associates are included in the consolidated income statement and consolidated reserves, respectively. The Group's proportionate interests in the associates are stated in the consolidated balance sheet at the Group's share of net assets under the equity method of accounting, less any impairment losses.
Joint Ventures
Certain of the group's activities are conducted through joint arrangements, including the production sharing arrangements detailed in note 5 below. These arrangements are a form of joint venture whereby a contractual arrangement exists between two or more parties to undertake an economic activity that is subject to joint control. These joint arrangements are included in the consolidated financial statements in proportion to the group's interests in the income, expenses, assets and liabilities of these arrangements.
Related parties
A party is considered to be related to the Group if:
(a) the party directly or indirectly through one or more intermediaries,
(i) controls, is controlled by, or is under common control with, the
Group ; (ii) has an interest in the Group that gives it significant
influence over the Group; or (iii) has joint control over the Group;
(b) the party is an associate;
(c) the party is a jointly controlled entity;
(d) the party is a member of the key management personnel of the Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d); or
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e).
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Impairment of assets
Where an indication of impairment exists, or when annual impairment testing for an asset (other than inventories and financial assets) is required, the asset's recoverable amount is estimated. An asset's recoverable amount is calculated as the higher of the asset's or cash-generating unit's value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated.
A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years.
A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Property, plant and equipment
Property, plant and equipment comprise oil and gas properties, and vehicles and office equipment.
(i) Oil and gas properties For oil and gas properties, the successful efforts method of accounting is adopted. The Group capitalises initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognised based on exploratory experience and management judgment. Upon discovery of commercial reserves, acquisition costs are transferred to proved properties. The costs of drilling and equipping successful exploratory wells, all development expenditures on construction, installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the drilling of development wells, including those renewals and betterments which extend the economic lives of the assets, and the borrowing costs arising from borrowings used to finance the development of oil and gas properties before they are substantially ready for production are capitalised. The costs of unsuccessful exploratory wells and all other exploration costs are expensed as incurred.
Exploratory wells are evaluated for economic viability within one year of completion. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon successful completion of further exploratory work remain capitalised and are reviewed periodically for impairment.
Productive oil and gas properties and other tangible and intangible costs of producing properties are amortised using the unit-of-production method on a property-by-property basis under which the ratio of produced oil and gas to the estimated remaining proved developed reserves is used to determine the depreciation, depletion and amortisation provision. Costs associated with significant development projects are not depleted until commercial production commences and the reserves related to those costs are excluded from the calculation of depletion.
Capitalised acquisition costs of proved properties are amortised by the unit-of-production method on a property-by-property basis computed according to the total estimated units of proved reserves.
The Group estimates future dismantlement costs for oil and gas properties with reference to the estimates provided from either internal or external engineers after taking into consideration the anticipated method of dismantlement required in accordance with current legislation and industry practices. The associated cost is capitalised and the liability is discounted and an accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised. No market-risk premium has been included in the Company's calculation of asset retirement obligations balances since no reliable estimate can be made by the Company.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Property, plant and equipment (cont'd)
(ii) Vehicles and office equipment
Vehicles and office equipment are stated at cost less accumulated depreciation and impairment losses. The straight-line method is adopted to depreciate the cost less any estimated residual value of these assets over their expected useful lives. The Group estimates the useful lives of vehicles and office equipment to be five years.
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a recoverable basis among the parts and each part is depreciated separately.
Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each balance sheet date.
An item of property, plant and equipment is derecognised upon disposal or where no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year that the asset is derecognised is the difference between the net sales proceeds and the carrying value of the relevant asset.
Intangible assets
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed as least at each balance sheet date.
Research and development costs
All research costs are charged to the income statement as incurred.
Expenditure (other than relating to oil and gas properties discussed above) incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. No development costs were capitalised during the year.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Investments and other financial assets
Applicable to the year ended December 31, 2004:
Short term investment
Short term investments are investments in debt and equity securities not
intended to be held on a continuing basis and are stated at their fair
values on the basis of their quoted market prices at the balance sheet
date, on an individual investment basis. The gains or losses arising
from changes in the fair value of a security are credited or charged to
the income statement in the period in which they arise.
Applicable to the year ended December 31, 2005:
Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.
All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
(a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category "financial assets at fair value through profit or loss". Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated and effective hedging instruments. Gains or losses on investments held for trading are recognised in the income statement.
(b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date, which are included in non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet.
(c) Held-to-maturity investments During this year, the Group did not hold any investments assets in this category.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Investments and other financial assets (continued)
(d) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets in listed and unlisted equity securities that are designated as available-for-sale or are not classified in any of the other categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.
When the fair value of unlisted equity securities can not be
reliably measured because (a) the variability in the range of
reasonable fair value estimates is significant or that investment or
(b) the probabilities of the various estimates within the range
cannot be reasonably assessed and used in estimating fair value,
such securities are stated at cost less any impairment losses.
Fair Value
The fair value of investments that are actively traded in organised
financial markets is determined by reference to quoted market bid price
at the close of business at the balance sheet date. For investments
where there is no active market, fair value is determined using
valuation techniques. Such techniques include using recent arm's length
market transactions; reference to the current market value of another
instrument which is substantially the same; a discounted cash flow
analysis; and option pricing models.
Impairment of financial assets (Applicable to the year ended December 31, 2005)
The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and
receivables carried at amortised cost has been incurred, the amount of
the loss is measured as the difference between the asset's carrying
amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the
financial asset's original effective interest rate (i.e., the effective
interest rate computed at initial recognition). The carrying amount of
the asset is reduced either directly or through the use of an allowance
account. The amount of the impairment loss is recognised in profit or
loss.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Impairment of financial assets (Applicable to the year ended December 31, 2005) (continued)
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.
Available-for-sale financial assets If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Impairment losses on equity instruments classified as available-for-sale are not reversed through profit or loss.
Derecognition of financial assets (applicable to the year ended December 31, 2005) A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:
o the rights to receive cash flows from the asset have expired;
o the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a "pass-through" arrangement; or
o the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Where continuing involvement takes the form of a written and/or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the Group's continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group's continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.
Convertible bonds
The Group's convertible bonds issued with a cash settlement option and other embedded derivative features are split into liability and derivative components according to their fair values for measurement purposes.
The fair value of the liability component is determined using the market rate for an equivalent non-convertible bond on the issuance of convertible bonds and this amount is carried as a long term liability on the amortised cost basis until extinguished on conversion or redemption. The derivative component is remeasured at each balance sheet date and any gains or losses arising from change in the fair value are recognised in the income statement. Both the liability and the related embedded derivative components are presented together for financial statements reporting purposes.
Derecognition of financial liabilities (applicable to the year ended December 31, 2005)
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.
Derivative financial instruments (applicable to the year ended December 31, 2005)
The Group uses currency swaps to hedge its risks associated with currency exchange fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year.
The fair value of currency swap contracts is determined by reference to market values for similar instruments.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Inventories and supplies
Inventories consist primarily of oil and supplies consist mainly of items for repairs and maintenance of oil and gas properties. Inventories are stated at the lower of cost and net realisable value. Costs of inventories and supplies represent purchase or production cost of goods and are determined on a weighted average basis. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. Supplies are capitalised to property, plant and equipment when used for renewals and betterments of oil and gas properties and have resulted in an increase in the future economic values of oil and gas properties or are recognised as expenses when used.
Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are payable on demand and form an integral part of the Group's cash management.
For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, and term deposits with maturities of three months or less which are not restricted to use.
Provisions
A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.
Provisions for dismantlement are made based on the present value of the future costs expected to be incurred, on a property-by-property basis, in respect of the Group's expected dismantlement and abandonment costs at the end of the related oil exploration and recovery activities.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Income tax
Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period directly in equity.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences:
o Except where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
o in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
o Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
o in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:
(i) Oil and gas sales Oil and gas sales represent the invoiced value of sales of oil and gas attributable to the interests of the Group, net of royalties and PRC government share oil that are lifted and sold on behalf of the PRC government. Sales are recognised when the significant risks and rewards of ownership of oil and gas have been transferred to customers.
Oil and gas lifted and sold by the Group above or below the Group's participating interests in the production sharing contracts result in overlifts and underlifts. The Group records these transactions in accordance with the entitlement method under which overlifts are recorded as liabilities and underlifts are recorded as assets at year end oil prices. Settlement will be in kind when the liftings are equalised or in cash when production ceases.
The Group has entered into gas sales contracts with customers which contain take-or-pay clauses. The clauses require those customers to take a specified minimum volume of gas each year. If the minimum volume of gas is not taken, those customers must pay for the deficiency gas, even though the gas is not taken. Those customers can offset the deficiency payment against any future purchases in excess of the specified volume. The Group records any deficiency payments as deferred revenue which is included in other payables until any make-up gas is taken by those customers or the expiry of the contracts.
(ii) Marketing revenues Marketing revenues represent sales of oil purchased from the foreign partner under the production sharing contracts and revenues from the trading of oil through the Company's subsidiary in Singapore. The title, together with the risks and rewards of the ownership of such oil purchased from the foreign partners, is transferred to the Group from the foreign partners and other unrelated oil and gas companies before the Group sells such oil to its customers. The cost of the oil sold is included in crude oil and product purchases.
(iii) Other income Other income mainly represents project management fees charged to the foreign partners and handling fees charged to customers and is recognised when the services are rendered.
(iv) Dividend income Dividend income is recognised when the shareholders' right to receive payment has been established.
(v) Interest income Interest income from deposits placed with banks and other financial instruments is recognised on a time proportion basis taking into account the effective yield on the assets.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Employee benefits
Share-based payment transactions
The Company has adopted share option schemes for the purpose of providing
incentives and rewards to eligible participants who contribute to the
success of the Group's operations. Employees (including directors) of the
Group will from time to time receive remuneration in the form of
share-based payment transactions, whereby employees render services as
consideration for equity instruments ("equity-settled transactions").
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using a Black-Scholes model, further details of which are given in note 31. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company, if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the "vesting date"). The cumulative expenses recognised for equity-settled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expenses not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The Group has adopted the provisions of HKFRS 2 retrospectively to all stock options granted from the date of its incorporation.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Retirement and termination benefits
The Group participates in defined contribution plans in accordance with local laws and regulations for full-time employees in the PRC and other countries in which it operates. The plans provide for contributions ranging from 5% to 22% of the employees' basic salaries. The Group's contributions to these defined contribution plans are charged to expense in the year to which they relate.
Dividends
Final and special final dividends proposed by the directors are classified as a separate allocation of retained earnings within the equity section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.
Interim and special interim dividends are simultaneously proposed and declared, because the Company's memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.
To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation on that asset is determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings.
To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the borrowings of the group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalised incurred during a period should not exceed the amount of borrowing cost incurred during that period.
Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including amortisation of discounts or premiums relating to the borrowing, and amortisation of ancillary costs incurred in connection with arranging the borrowing.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Foreign currencies
These financial statements are presented in RMB. Each entity in the Group maintains its books and records in its own functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. Exchange differences are dealt with in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
On consolidation, the balance sheet of the Company and the overseas subsidiaries, other than the subsidiaries in the PRC, are translated into RMB at the exchange rates ruling at the balance sheet date and, their income statements are translated into RMB at the weighted average exchange rates for the year. The resulting translation differences are included in the cumulative translation reserve.
For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.
Repairs, maintenance and overhaul costs
Repairs, maintenance and overhaul costs are normally charged to the income statement as operating expenses in the period in which they are incurred.
Operating leases
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Company is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.
Contingencies
Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.
A contingent asset is not recognised in the financial statements, but are disclosed when an inflow of economic benefits is probable.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Subsequent events
Post-year-end events that provide additional information about the Company's position at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.
Use of estimates
The preparation of financial statements in conformity with Hong Kong GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved oil and gas reserve volumes and the future development, purchase price allocation, provision for dismantlement and impairment as well as estimates relating to certain oil and gas revenues and expenses. Actual amounts could differ from those estimates and assumptions. More details are given in notes 3, 16 and 28.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
4. ACQUISITIONS
During the year, the Group completed the acquisition of the North West Shelf Project ("NWS Project"), including an interest of approximately 5.3% in the NWS Project and a 25% interest in the China LNG Joint Venture, a new joint venture established within the NWS Project. The Group acquired the NWS Project to expand its upstream oil and gas reserves and production. The Group's participation in the NWS Project has not started commercial operations.
Details of the net assets acquired are as follows:
Purchase consideration: RMB'000
-------------
Consideration paid 4,341,783
Direct costs relating to the acquisition 87,522
--------------
Total purchase consideration 4,429,305
--------------
|
The assets and liabilities arising from the acquisition are as follows:
Oil and gas properties 3,129,662
Intangible assets - gas processing rights 1,299,643
--------------
Net assets acquired 4,429,305
--------------
Purchase consideration settled in cash 4,429,305
--------------
|
The purchase price allocation set out above is still preliminary, pending the confirmation of the tax basis of the underlying assets.
The interest of the Group in the NWS Project has been charged to the other partners of the Project as security for certain of the Group's liabilities relating to the Project.
In addition, the Company, through its wholly-owned subsidiary, has signed an agreement with a Canadian based company, MEG Energy Corporation ("MEG"), to acquire a 16.69% equity interest in MEG. The Company completed the transaction and paid C$150 million (equivalent of RMB1,017 million) for the acquisition of 13,636,364 common shares of MEG in March 2005. MEG is principally engaged in the exploitation and production of oil sands. The investment in the unlisted shares of this company is accounted for as a non-current available-for-sales asset and is stated at cost less any impairment.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
5. PRODUCTION SHARING CONTRACTS
PRC
For production sharing contracts in the PRC, the foreign parties to the contracts ("foreign partners") are normally required to bear all exploration costs during the exploration period and such exploration costs can be recovered according to the production sharing formula after commercial discoveries are made and production begins.
After the initial exploration stage, the development and operating costs are funded by the Group and the foreign partners according to their respective participating interests.
In general, the Group has the option to take up to 51% participating interest in a production sharing contract and may exercise such option after the foreign partners have independently undertaken all the exploration risks and costs and made viable commercial discoveries.
After the Group exercises its option to take a participating interest in a production sharing contract, the Group accounts for the oil and gas properties using the proportional method under which the Group recognises its share of development costs, revenues and expenses from such operations according to its participating interest in the production sharing contract. The Group does not account for either the exploration costs incurred by its foreign partners or the foreign partners' share of development costs and revenues and expenses from such operations.
Part of the annual gross production of oil and gas in the PRC is distributed to the PRC government as settlement of royalties which are payable pursuant to a sliding scale. The Group and the foreign partners also pay the value-added tax to the tax bureau at a pre-determined rate. In addition, there is a pre-agreed portion of oil and gas designated to recover all exploration costs, development costs, operating costs incurred and related interest according to the participating interests between the Group and the foreign partners. Any remaining oil after the foregoing priority allocations is first distributed to the PRC government as government share oil on a pre-determined ratio pursuant to a sliding scale, and then distributed to the Group and the foreign partners according to their respective participating interests. As the government share is not included in the Group's interest in the annual production, the net sales of the Group do not include the sales revenue of the government share oil.
The foreign partners have the right either to take possession of their allocable remainder oil for sale in the international market, or to negotiate with the Group to sell their allocable remainder oil to the Group for sale in the PRC market.
Overseas
The Group and the other partners to the overseas production sharing contracts are required to bear all exploration, development and operating costs according to their respective participating interests. Exploration, development and operating costs which qualify for recovery can be recovered according to the production sharing formula after commercial discoveries are made and production begins.
The Group's net interest in the production sharing contracts in overseas consists of its participating interest in the properties covered under the relevant production sharing contracts, less oil and gas distributed to the local government and the domestic market obligation.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
6. SEGMENT INFORMATION
Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.
Intersegment transactions: segment revenue, segment expenses and segment performance include transfers between business segments and between geographical segments. Such transfers are accounted for at cost. Those transfers are eliminated on consolidation.
(a) Business segments
The Group is organised on a worldwide basis into three major operating segments. The Group is involved in the upstream operating activities of the petroleum industry that comprise independent operations, production sharing contracts with foreign partners and trading business. These segments are determined primarily because the senior management makes key operating decisions and assesses performance of the segments separately. The Group evaluates the performance of each segment based on profit or loss from operations before income taxes.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
6. SEGMENT INFORMATION (CONT'D)
(a) Business segments (cont'd)
The following table presents revenue, profit and certain assets, liabilities and expenditures information for the Group's business segments for the years ended December 31, 2005 and 2004.
Independent operations Production sharing contracts
------------------------------------------------------------------------------------------
Segment revenue 2003 2004 2005 2003 2004 2005
--------------- ------------ ------------ ------------ ------------ ------------ -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated) (Restated) (Restated)
Sales to external customers:
Oil and gas sales 12,040,587 15,177,621 22,808,733 16,076,244 21,708,398 30,608,936
Marketing revenues -- -- -- -- -- --
Intersegment revenues -- 920,669 1,598,171 3,730,797 2,551,181 7,467,429
Other income 8,468 6,139 13,093 424,493 136,942 103,047
------------ ------------ ------------ ------------ ------------ ------------
Total 12,049,055 16,104,429 24,419,997 20,231,534 24,396,521 38,179,412
------------ ------------ ------------ ------------ ------------ ------------
Segment results
---------------
Operating expenses (1,579,004) (1,828,614) (2,095,273) (2,933,805) (3,241,730) (3,839,325)
Production taxes (626,897) (775,210) (1,154,771) (611,701) (950,464) (1,441,772)
Exploration costs (590,541) (1,136,055) (1,025,993) (257,531) (180,105) (267,694)
Depreciation, depletion and amortisation (1,855,983) (2,235,064) (2,554,896) (2,786,770) (3,219,998) (3,409,844)
Dismantlement (96,206) (117,310) (152,796) (71,120) (84,327) (100,061)
Impairment loss related to property,
plant and equipment -- -- (39,494) -- -- (50,696)
Crude oil and product purchases -- (920,669) (1,598,171) (3,730,797) (2,551,181) (7,467,429)
Selling and administrative expenses (62,247) (50,721) (39,486) (666,369) (557,521) (676,062)
Others (36,406) -- -- (313,826) (45,844) (77,062)
Interest income -- -- -- 14,302 2,077 7,328
Finance costs (60,358) (135,119) (183,325) (20,817) (64,956) (94,885)
Exchange gains/(losses), net -- -- -- 124 (15,308) (5,119)
Investments income -- -- -- -- -- --
Share of profit of associates -- -- -- -- -- --
Non-operating income/(expenses), net -- -- -- -- -- --
Tax -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net profit 7,141,413 8,905,667 15,575,792 8,853,224 13,487,164 20,756,791
------------ ------------ ------------ ------------ ------------ ------------
Other segment information
-------------------------
Segment assets 36,087,581 21,120,584 25,054,275 26,821,223 37,851,716 51,125,491
Investment in associates -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ----------
Total assets 36,087,581 21,120,584 25,054,275 26,821,223 37,851,716 51,125,491
Segment liabilities (3,554,720) (3,913,905) (5,187,124) (12,620,113) (11,453,307) (12,876,516)
Capital expenditure 5,960,071 6,309,397 7,806,927 2,264,625 13,145,839 8,914,306
============ ============ ============ ============ ============ ============
|
Trading business
--------------------------------------------
Segment revenue 2003 2004 2005
--------------- ------------ ------------ ------------
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Sales to external customers:
Oil and gas sales -- -- --
Marketing revenues 12,398,661 18,191,353 15,901,325
Intersegment revenues -- -- --
Other income -- -- --
------------ ------------ ------------
Total 12,398,661 18,191,353 15,901,325
------------ ------------ ------------
Segment results
---------------
Operating expenses -- -- --
Production taxes -- -- --
Exploration costs -- -- --
Depreciation, depletion and amortisation -- -- --
Dismantlement -- -- --
Impairment loss related to property, plant
and equipment -- -- --
Crude oil and product purchases (12,295,238) (17,963,461) (15,704,100)
Selling and administrative expenses -- -- --
Others -- -- --
Interest income -- -- --
Finance costs -- -- --
Exchange gains/(losses), net -- -- --
Investments income -- -- --
Share of profit of associates -- -- --
Non-operating income/(expenses), net -- -- --
Tax -- -- --
------------ ------------ ------------
Net profit 103,423 227,892 197,225
------------ ------------ ------------
Other segment information
-------------------------
Segment assets 2,629,009 1,712,212 2,413,195
Investment in associates -- -- --
------------ ------------ ------------
Total assets 2,629,009 1,712,212 2,413,195
Segment liabilities (2,173,828) (809,663) (667,336)
Capital expenditure -- -- --
============ ============ ============
|
Unallocated Eliminations
----------------------------------------------------------------------------
Segment revenue 2003 2004 2005 2003 2004
--------------- ------------ ------------ ------------ ------------ ------------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated) (Restated) (Restated)
Sales to external customers:
Oil and gas sales -- -- -- -- --
Marketing revenues -- -- -- -- --
Intersegment revenues -- -- -- (3,730,797) (3,471,850)
Other income 1,820 1,610 20,609 -- --
------------ ------------ ------------ ------------ ------------
Total 1,820 1,610 20,609 (3,730,797) (3,471,850)
------------ ------------ ------------ ------------ ------------
Segment results
---------------
Operating expenses -- -- -- -- --
Production taxes -- -- -- -- --
Exploration costs -- -- -- -- --
Depreciation, depletion and amortisation -- -- -- -- --
Dismantlement -- -- -- -- --
Impairment loss related to property, plant
and equipment -- -- -- -- --
Crude oil and product purchases -- -- -- 3,730,797 3,471,850
Selling and administrative expenses (521,654) (496,106) (654,820) -- --
Others -- -- -- -- --
Interest income 169,274 204,795 351,966 -- --
Finance costs (273,765) (241,750) (822,322) -- --
Exchange gains/(losses), net (6,870) 44,577 292,146 -- --
Investments income 123,483 72,438 247,893 -- --
Share of profit of associates 220,263 344,469 307,075 -- --
Non-operating income/(expenses), net 314,968 519,206 28,579 -- --
Tax (4,627,836) (6,930,826) (10,977,812) -- --
------------ ------------ ------------ ------------ ------------
Net profit (4,600,317) (6,481,587) (11,206,686) -- --
------------ ------------ ------------ ------------ ------------
Other segment information
-------------------------
Segment assets 6,848,849 31,790,239 34,770,264 -- --
Investment in associates 1,117,640 1,327,109 1,401,839 -- --
------------ ------------ ------------ ------------ ------------
Total assets 7,966,489 33,117,348 36,172,103 -- --
Segment liabilities (8,419,109) (21,182,195) (22,430,991) -- --
Capital expenditure 46,868 164,775 144,442 -- --
============ ============ ============ ============ ============
|
Consolidated
------------------------------------------------------------
Segment revenue 2005 2003 2004 2005
--------------- ------------ ------------ ------------ ------------
RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Sales to external customers:
Oil and gas sales -- 28,116,831 36,886,019 53,417,669
Marketing revenues -- 12,398,661 18,191,353 15,901,325
Intersegment revenues (9,065,600) -- -- --
Other income -- 434,781 144,691 136,749
------------ ------------ ------------ ------------
Total (9,065,600) 40,950,273 55,222,063 69,455,743
------------ ------------ ------------ ------------
Segment results
---------------
Operating expenses -- (4,512,809) (5,070,344) (5,934,598)
Production taxes -- (1,238,598) (1,725,674) (2,596,543)
Exploration costs -- (848,072) (1,316,160) (1,293,687)
Depreciation, depletion and amortisation -- (4,642,753) (5,455,062) (5,964,740)
Dismantlement -- (167,326) (201,637) (252,857)
Impairment loss related to property, plant
and equipment -- -- -- (90,190)
Crude oil and product purchases 9,065,600 (12,295,238) (17,963,461) (15,704,100)
Selling and administrative expenses -- (1,250,270) (1,104,348) (1,370,368)
Others -- (350,232) (45,844) (77,062)
Interest income -- 183,576 206,872 359,294
Finance costs -- (354,940) (441,825) (1,100,532)
Exchange gains/(losses), net -- (6,746) 29,269 287,027
Investments income -- 123,483 72,438 247,893
Share of profit of associates -- 220,263 344,469 307,075
Non-operating income/(expenses), net -- 314,968 519,206 28,579
Tax -- (4,627,836) (6,930,826) (10,977,812)
------------ ------------ ------------ ------------
Net profit -- 11,497,743 16,139,136 25,323,122
------------ ------------ ------------ ------------
Other segment information
-------------------------
Segment assets -- 72,386,662 92,474,751 113,363,225
Investment in associates -- 1,117,640 1,327,109 1,401,839
------------ ------------ ------------ ------------
Total assets -- 73,504,302 93,801,860 114,765,064
Segment liabilities -- (26,767,770) (37,359,070) (41,161,967)
Capital expenditure -- 8,271,564 19,620,011 16,865,675
============ ============ ============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
6. SEGMENT INFORMATION (CONT'D)
(b) Geographical segments
In determining the Group's geographical segments, revenues and results are attributed to the segments based on the location of the Group's customers, and assets are attributed to the segments based on the location of the Group's assets.
The Group mainly engaged in the exploration, development and production of crude oil and natural gas in offshore China. Any activities outside the PRC are mainly conducted in Indonesia, Australia, Canada and Singapore. The following table presents revenue and certain asset and expenditure information for the Group's geographical segments for the years ended December 31, 2005 and 2004.
PRC Outside PRC Total
---------------------------------- ---------------------------------- -----------------------------------
2003 2004 2005 2003 2004 2005 2003 2004 2005
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated) (Restated) (Restated)
External sales 25,416,466 30,453,453 38,992,740 15,533,807 24,768,610 30,463,003 40,950,273 55,222,063 69,455,743
Segment assets 61,357,931 75,023,500 92,845,974 12,146,371 18,778,360 21,919,090 73,504,302 93,801,860 114,765,064
Capital expenditures 7,727,171 12,014,894 14,496,690 544,393 7,605,117 2,368,985 8,271,564 19,620,011 16,865,675
|
(c) An analysis of sales to major customers by business segment is as follows:
2003 2004 2005
----------- ----------- -----------
RMB'000 RMB'000 RMB'000
Production sharing contracts
China Petroleum & Chemical Corporation 3,848,361 6,932,008 9,996,768
PetroChina Company Limited 1,446,169 1,944,709 1,410,369
Castle Peak Power Company Limited 841,285 1,070,436 1,107,314
----------- ----------- -----------
6,135,815 9,947,153 12,514,451
----------- ----------- -----------
Independent operations
China Petroleum & Chemical Corporation 3,126,708 3,702,058 5,628,968
PetroChina Company Limited -- -- 365,830
----------- ----------- -----------
3,126,708 3,702,058 5,994,798
----------- ----------- -----------
9,262,523 13,649,211 18,509,249
=========== =========== ===========
7. OIL AND GAS SALES
2003 2004 2005
----------- ----------- -----------
RMB'000 RMB'000 RMB'000
Gross sales 30,556,967 39,955,702 57,988,465
Royalties (478,454) (610,055) (708,537)
PRC government share oil (1,961,682) (2,459,628) (3,862,259)
----------- ----------- -----------
28,116,831 36,886,019 53,417,669
=========== =========== ===========
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
8. MARKETING PROFIT
2003 2004 2005
----------- ----------- -----------
RMB'000 RMB'000 RMB'000
Marketing revenues 12,398,661 18,191,353 15,901,325
Crude oil and product purchases (12,295,238) (17,963,461) (15,704,100)
----------- ----------- -----------
103,423 227,892 197,225
=========== =========== ===========
9. SELLING AND ADMINISTRATIVE EXPENSES
2003 2004 2005
----------- ----------- -----------
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Salary and staff benefits 393,165 311,649 392,791
Utility and office expenses 90,801 115,817 143,204
Transportation and entertainment 74,218 75,675 94,590
Rentals and maintenance 107,310 128,579 111,426
Management fee 219,771 218,087 243,730
Selling expenses 30,686 36,015 32,983
(Reversal) of/Provision for inventory obsolescence 8,745 (2,710) 33,088
Other 325,574 221,236 318,556
----------- ----------- -----------
1,250,270 1,104,348 1,370,368
=========== =========== ===========
10. FINANCE COSTS
2003 2004 2005
----------- ----------- -----------
RMB'000 RMB'000 RMB'000
Interest on bank loans which are:
- wholly repayable within five years 81,539 80,829 98,892
Interest on long term guaranteed notes 391,005 485,812 671,849
Other borrowing costs 34,933 163 3,773
----------- ----------- -----------
Total interest 507,477 566,804 774,514
Less: Amount capitalised in property, plant
and equipment (note 16) (245,783) (244,686) (245,987)
----------- ----------- -----------
261,694 322,118 528,527
Other finance costs:
Increase in discounted amount of provisions arising from
the passage of time (note 28) 93,246 119,707 198,945
Loss on embedded derivative component in convertible bonds -- -- 373,060
----------- ----------- -----------
354,940 441,825 1,100,532
=========== =========== ===========
|
The interest rates used for interest capitalisation represented the cost of capital from raising the related borrowings and varied from 4.1% to 9.2% per annum for the year ended December 31, 2005(2004:4.1% to 9.2%, 2003:4.1% to 9.15%).
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
11. DIRECTORS' REMUNERATION AND SHARE OPTION BENEFITS
Directors' remuneration and share option benefits for the year, disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance, are as follows:
2003 2004 2005
RMB'000 RMB'000 RMB'000
------------ ------------ ------------
(Restated) (Restated)
Fees for executive directors -- -- --
Fees for non-executive directors** 1,000 851 2,360
Other emoluments for executive directors
- Basic salaries and allowances and benefit in kind** 7,752 7,756 12,988
- Bonus 2,100 -- --
- Pension scheme contribution 207 62 104
------------ ------------ ------------
Amount paid/payable during the year 11,059 8,669 15,452
Share option benefits* 7,295 9,208 8,561
------------ ------------ ------------
18,354 17,877 24,013
============ ============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
11. DIRECTORS' REMUNERATION AND SHARE OPTION BENEFITS (CONT'D)
(a) Independent non-executive directors
The fees paid/payable to independent non-executive directors during the year were as follows:
2004 2005
RMB'000 RMB'000
---------------------
So Chak Kwong -- --
Chiu Sung Hong 213 619
Evert Henks 213 619
Kenneth S Courtis 213 619
Erwin Schurtenberger 213 350
Tse Hau Yin, Aloysius -- 153
Lawrence J. Lau -- --
=====================
|
Professor Lawrence J. Lau, appointed as the independent non-executive director of the Company on August 31, 2005, waived his remuneration in 2005.
(b) Executive directors and independent non-executive directors
Salaries, Amount
allowances Performance Pension paid/payable
and benefits related scheme during Share option
Fees** In kind** bonuses contributions the year benefits* Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------
2005
Executive directors:
Chengyu Fu -- 4,411 -- -- 4,411 2,236 6,647
Shouwei Zhou -- 3,519 -- 82 3,601 1,653 5,254
Han Luo -- 1,291 -- -- 1,291 1,086 2,377
Xinghe Cao -- 430 -- -- 430 269 699
Zhenfang Wu -- 430 -- -- 430 269 699
Guangqi Wu -- 1,377 -- -- 1,377 542 1,919
Hua Yang -- 967 -- 22 989 1,086 2,075
Longsheng Jiang -- 563 -- -- 563 55 618
----------------------------------------------------------------------------------------------
Independent non-executive
directors:
Chiu Sunghong 619 -- -- -- 619 437 1,056
Evert Henks 619 -- -- -- 619 437 1,056
Kenneth S Courtis 619 -- -- -- 619 437 1,056
Tse Hau Yin, Aloysius 350 -- -- -- 350 -- 350
Erwin Schurtenberger*** 153 -- -- -- 153 54 207
Lawrence J. Lau -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
11. DIRECTORS' REMUNERATION AND SHARE OPTION BENEFITS (CONT'D)
(b) Executive directors and independent non-executive directors
(cont'd)
Salaries, Amount
allowances Performance Pension paid/payable
and benefits related scheme during Share option
Fees** In kind** bonuses contributions the year benefits* Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------------------------
2004
Executive directors:
Chengyu Fu -- 3,934 -- -- 3,934 2,077 6,011
Han Luo -- 561 -- -- 561 1,107 1,668
Shouwei Zhou -- 2,710 -- 62 2,772 1,685 4,457
Longsheng Jiang -- 551 -- -- 551 1,107 1,658
---------------------------------------------------------------------------------------------
Independent non-executive
directors:
Chiu Sunghong 213 -- -- -- 213 808 1,021
Evert Henks 213 -- -- -- 213 808 1,021
Kenneth S Courtis 213 -- -- -- 213 808 1,021
Erwin Schurtenberger 213 -- -- -- 213 808 1,021
---------------------------------------------------------------------------------------------
|
* During the year, certain directors were granted share options in respect of their services to the Group under the applicable share option schemes of the Company, further details of which are set out in note 29 to the financial statements. Share option benefits represent the fair value at grant date of share options issued under the share option schemes of the Company amortised to the income statement during the year disregarding whether the options have been exercised or not, and have been disclosed in accordance with HKFRS 2. No share options were exercised by the directors during the year.
** Fees and salaries, allowances and benefits in kind represent the gross amount (before Hong Kong individual salary tax) paid/ payable to individual directors.
*** On April 1, 2005, Mr. Erwin Schurtenberger surrendered 1,150,000 share options following his resignation as an independent non-executive director of the Company.
Save as disclosed above, there was no arrangement under which a director waived or agreed to waive any remuneration during the year.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
12. FIVE HIGHEST PAID EMPLOYEES
The five highest paid employees during the year included three (2004:
Nil, 2003: Nil) directors and two (2004: five, 2003: five) non-directors
are as follows:
2003 2004 2005
------------ ------------ ------------
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Basic salaries, allowances and benefits in kind* 18,600 20,509 15,843
Bonus 2,550 4,589 471
Pension scheme contributions 1,332 1,509 542
------------ ------------ ------------
Amount paid/payable during the year 22,482 26,607 16,856
Share option benefits** -- 1,107 4,975
------------ ------------ ------------
22,482 27,714 21,831
============ ============ ============
Number of directors -- -- 3
Number of employees 5 5 2
|
*Salaries, allowances and benefits in kind represent the gross amount (before Hong Kong individual salary tax) paid/payable to individual employees.
**Share option benefits represent fair value at grant date of share options issued under the share option schemes of the Company amortised to the income statement during the year disregarding whether the options have been exercised or not, and have been disclosed in accordance with HKFRS2. No share options were exercised by the relevant employees during the year.
The number of highest paid employees whose remuneration fell within the following bands is as follows:
Number of employees
------------------------------
2004 2005
------------ ------------
Nil to HK$3,000,000 - 1
HK$3,000,001- HK$3,500,000 1 1
HK$3,500,001- HK$4,000,000 1 -
HK$4,000,001- HK$4,500,000 1 1
HK$4,500,001- HK$5,000,000 - -
HK$5,000,001- HK$5,500,000 - 1
HK$5,500,001- HK$6,000,000 1 -
HK$6,000,001- HK$8,000,000 - 1
HK$8,000,001- HK$8,500,000 1 -
------------ ------------
5 5
============ ============
|
During the year, share options were granted to certain of the five highest paid employees in respect of their services to the Group, further details of which are included in the disclosures in note 29 to the financial statements.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
13. TAX
(i) Income tax
The Company and its subsidiaries are subject to income taxes on an entity basis on profit arising in or derived from the tax jurisdictions in which they are domiciled and operated. The Company is not liable for profits tax in Hong Kong as it does not have any assessable income currently sourced from Hong Kong.
The Company's subsidiary in the PRC, CNOOC China Limited, is a wholly foreign-owned enterprise. It is exempt from the 3% local surcharge and is subject to an enterprise income tax of 30% under the prevailing tax rules and regulations.
The Company's subsidiary in Singapore, China Offshore Oil (Singapore) International Pte Ltd., is subject to income tax at rates of 10% and 20%, for its oil trading activities and other income generating activities, respectively. The Company's subsidiaries owning interests in oil and gas properties in Indonesia along the Malacca Strait are subject to corporate and dividend tax at the rate of 44%. The Company's subsidiaries owning interests in oil and gas properties in Indonesia acquired from Repsol YPF, S.A. are subject to corporate and dividend tax at the rate of 43.125% to 51.875%. All of the Company's other subsidiaries are not subject to any income taxes in their respective jurisdictions for the year presented.
An analysis of the provision for tax in the consolidated income statement was as follows:
2003 2004 2005
------------ ------------ ------------
RMB'000 RMB'000 RMB'000
Overseas income taxes
- Current 654,988 755,568 845,390
- Deferred (179,134) (170,118) 14,907
PRC enterprise income tax
- Current 3,623,157 6,411,417 9,912,426
- Deferred 528,825 (66,041) 205,089
------------ ------------ ------------
Tax charge for the year 4,627,836 6,930,826 10,977,812
============ ============ ============
|
A reconciliation of the statutory PRC enterprise income tax rate to the effective income tax rate of the Group is as follows:
2003 2004 2005
------------ ------------ ------------
% % %
(Restated) (Restated)
Statutory PRC enterprise income tax rate 33.0 33.0 33.0
Effect of tax exemption granted (3.0) (3.0) (3.0)
Effect of different tax rates for overseas subsidiaries (0.1) 0.3 0.5
Tax credit from government (1.4) (0.6) (0.3)
Tax effect on other permanent differences 0.2 0.3 0.0
------------ ------------ ------------
Effective income tax rate 28.7 30.0 30.2
============ ============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
13. TAX (CONT'D)
(i) Income tax (cont'd)
The tax effect of significant temporary differences of the Group was as follows:
2003 2004 2005
---------- ---------- ----------
RMB'000 RMB'000 RMB'000
Deferred tax assets
- Provision for retirement and termination benefits 114,758 112,150 98,696
- Provision for dismantlement 775,725 926,834 1,248,498
- Provision for impairment of property, plant and
equipment and write-off of unsuccessful
exploratory drillings 759,454 869,286 886,402
---------- ---------- ----------
1,649,937 1,908,270 2,233,596
---------- ---------- ----------
Deferred tax liabilities
- Accelerated amortisation allowance for oil and gas properties (7,433,133) (8,596,768) (9,061,512)
---------- ---------- ----------
Net deferred tax liabilities (5,783,196) (6,688,498) (6,827,916)
========== ========== ==========
|
As at December 31, 2005, there was no significant unrecognised deferred tax liability (2004: Nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries and associates as the Group had no liability to additional tax should such amounts be remitted.
There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.
(ii) Other taxes
The Company's PRC subsidiary pays the following other taxes:
-- Production taxes equal to 5% of independent production and production under production sharing contracts; and
-- Business tax of 3% to 5% on other income.
14. DIVIDENDS
On August 30, 2005, the Board of Directors declared an interim dividend
of HK$0.05 per share (2004: HK$0.03 per share), totaling
HK$2,052,733,769 (equivalent to approximately RMB2,138,128,000) (2004:
RMB1,306,451,000); and a special interim dividend of HK$0.05 per share
(2004: HK$0.05 per share), totaling HK$2,052,733,769 (equivalent to
approximately RMB2,138,128,000) (2004: RMB2,177,418,000). In addition,
the Company paid a special interim dividend in 2004 of HK$0.06 per
share, totaling HK$2,464,249,697 (equivalent to approximately
RMB2,617,526,000) in place of its 2003 final dividend.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
14. DIVIDENDS (CONT'D)
The Board of Directors have recommended a final dividend of HK$0.10 per ordinary share, totaling HK$4,105,467,538 (approximately equivalent to RMB4,250,391,000) for the year ended December 31, 2005.
The payment of future dividends will be determined by the Company's Board of Directors. The payment of dividends will depend upon, among other things, future earnings, capital requirements, financial conditions and general business conditions of the Company. The Company's ability to pay dividends will also depend on the cash flows determined by the dividends, if any, received by the Company from its subsidiaries and associates. As the controlling shareholder, CNOOC will be able to influence the Company's dividend policy.
Cash dividends to the shareholders in Hong Kong will be paid in Hong Kong dollars. Cash dividends to the American Depositary Receipts ("ADR") holders will be paid to the depositary in Hong Kong dollars and will be converted by the depositary into United States dollars and paid to the holders of ADRs.
15. EARNINGS PER SHARE
2003 2004 2005
--------------- --------------- ---------------
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Earnings
--------
Net profit from ordinary activities attributable
to shareholders for the year for the
purpose of basic earnings per share 11,497,743 16,139,136 25,323,122
Interest expense and losses recognised on the
derivative component of
convertible bonds -- -- 537,469
Net profit from ordinary activities attributable to
shareholders for the year for the purpose
of diluted earnings per share 11,497,743 16,139,136 25,860,591
Shares (after Stock Split)
Number of shares
Weighted average number of ordinary
shares for the purpose or basic earnings
per share before effects of shares
repurchased and share options exercised 41,070,828,275 41,070,828,275 41,052,375,275
Effects of shares repurchased -- (10,587,616) --
Effects of shares options exercised -- -- 2,124,707
--------------- --------------- ---------------
Weighted average number of ordinary shares for the
purpose of basic earnings per share 41,070,828,275 41,060,240,659 41,054,499,982
--------------- --------------- ---------------
Effect of dilutive potential ordinary shares
under the shares option scheme 39,510,820 66,720,503 38,861,432
Effect of dilutive potential ordinary shares for convertible bonds -- 52,552,274 1,292,694,352
--------------- --------------- ---------------
Weighted average number of ordinary shares for the purpose of diluted
earnings per share 41,110,339,095 41,179,513,436 42,386,055,766
=============== =============== ===============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
15. EARNINGS PER SHARE (CONT'D)
Net income per ADS for the three years ended December 31, 2005 has been computed by dividing net income by the number of ADS outstanding. Each ADS represented 100 shares.
The calculation of basic earnings per share amounts is based on the net profit for the year and the weighted average number of ordinary shares in issue during the year.
The calculation of diluted earnings per share amounts is based on the net profit for the year, adjusted to reflect the interest expense and losses recognised on the derivative component of the convertible bonds. The weighted average number of ordinary shares used in the calculation is the ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all the dilutive potential ordinary shares into ordinary shares.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
16. PROPERTY, PLANT AND EQUIPMENT, NET
Movements in the property, plant and equipment of the Group are as follows:
2005
---------------------------------------------------------
Vehicles and
Oil and gas Land and office
properties buildings equipment Total
------------ ------------ ------------ ------------
RMB'000 RMB'000 RMB'000 RMB'000
Cost:
At beginning of the year as previously reported 89,917,894 941,578 187,705 91,047,177
Cumulative adjustment for the adoption of HKAS 16 666,907 (941,578) - (274,671)
------------ ------------ ------------ ------------
At beginning of the year as restated 90,584,801 - 187,705 90,772,506
Additions 17,500,195 - 146,226 17,646,421
Acquisition (including prepayments) - - - -
Transfer from prepayment to intangible assets upon
completion of acquisition (1,299,643) - - (1,299,643)
Purchase price adjustment (152,993) - - (152,993)
Disposals and write-off - - (14,511) (14,511)
Exchange realignment (504,132) - (6) (504,138)
------------ ------------ ------------ ------------
End of year 106,128,228 - 319,414 106,447,642
============ ============ ============ ============
Accumulated depreciation, depletion and amortisation:
At beginning of the year as previously reported (33,414,136) (132,455) (43,889) (33,590,480)
Cumulative adjustment for the adoption of HKAS 16 (132,455) 132,455 - -
------------ ------------ ------------ ------------
At beginning of the year as restated (33,546,591) - (43,889) (33,590,480)
Depreciation provided during the year (6,176,784) - (57,248) (6,234,032)
Impairment recognised in the income statement during the
year (90,190) - -- (90,190)
Disposals - - 4,881 4,881
Exchange realignment 87,346 - - 87,346
------------ ------------ ------------ ------------
End of year (39,726,219) - (96,256) (39,822,475)
============ ============ ============ ============
Net book value:
Beginning of year as previously reported 56,503,758 809,123 143,816 57,456,697
============ ============ ============ ============
Beginning of the year as restated 57,038,210 - 143,816 57,182,026
============ ============ ============ ============
End of year 66,402,009 -- 223,158 66,625,167
============ ============ ============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
16. PROPERTY, PLANT AND EQUIPMENT, NET (CONT'D)
2004
---------------------------------------------------------
Vehicles and
Oil and gas Land and office
properties buildings equipment Total
------------ ------------ ------------ ------------
RMB'000 RMB'000 RMB'000 RMB'000
Cost:
At beginning of the year as previously reported 70,137,828 824,781 139,902 71,102,511
Cumulative adjustment for the adoption of HKAS 16 550,110 (824,781) - (274,671)
------------ ------------ ------------ ------------
At beginning of the year as restated 70,687,938 - 139,902 70,827,840
Additions 12,962,164 - 47,977 13,010,141
Acquisition (including prepayments) 6,934,951 - - 6,934,951
Disposals and write-off (3) - (174) (177)
Exchange realignment (249) - - (249)
------------ ------------ ------------ ------------
End of year 90,584,801 - 187,705 90,772,506
============ ============ ============ ============
Accumulated depreciation, depletion and amortisation:
At beginning of year as previously reported (27,839,105) (106,401) (33,204) (27,978,710)
Cumulative adjustment for the adoption of HKAS 16 (106,401) 106,401 - -
------------ ------------ ------------ ------------
At beginning of the year as restated (27,945,506) - (33,204) (27,978,710)
Depreciation provided during the year (5,601,168) - (10,882) (5,612,050)
Disposals - - 5 5
Exchange realignment 83 - 192 275
------------ ------------ ------------ ------------
End of year (33,546,591) - (43,889) (33,590,480)
============ ============ ============ ============
Net book value:
Beginning of the year as previously reported 42,298,723 718,380 106,698 43,123,801
============ ============ ============ ============
Beginning of the year as restated 42,742,432 - 106,698 42,849,130
============ ============ ============ ============
End of year 57,038,210 - 143,816 57,182,026
============ ============ ============ ============
|
Included in the current year additions was an amount of approximately RMB245,987,000 (2004: RMB244,686,000) in respect of interest capitalised in property, plant and equipment.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
17. INTANGIBLE ASSETS
During the year, the Company completed the acquisition of the NWS Project. Accordingly, the consideration allocated to the gas processing rights is recorded as an intangible asset and will be amortised upon the commercial production of the liquefied natural gas using the unit of production method.
18. INVESTMENTS IN ASSOCIATES
Investments in associates represent (1) a 30% equity interest of CNOOC China Limited in Shanghai Petroleum and Natural Gas Company Limited ("SPC"). SPC was incorporated on September 7, 1992 in the PRC with limited liability and is principally engaged in offshore petroleum exploration, development, production and sale in the South Yellow Sea and East China Sea areas. The issued and paid-up capital of SPC is RMB900 million; and (2) a 31.8% equity interest of CNOOC China Limited in CNOOC Finance Corporation Limited. CNOOC Finance Corporation Limited was incorporated on June 14, 2002 in the PRC with limited liability and is principally engaged in deposit-taking, transfer, settlement, loan, discounting and other financing services to CNOOC and its member entities. The issued and paid-up capital of CNOOC Finance Corporation Limited is RMB1,415 million.
2004 2005
------------ ------------
RMB'000 RMB' 000
Share of net assets 1,327,109 1,401,839
============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
19. ACCOUNTS RECEIVABLE, NET
The Group's trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The customers are required to make payment within 30 days after the delivery of oil and gas. Trade receivables are non-interest-bearing.
As at December 31, 2005 and 2004, substantially all the accounts receivable were aged within six months.
20. INVENTORIES AND SUPPLIES
2004 2005
--------- ---------
RMB'000 RMB'000
Materials and supplies 879,300 969,915
Oil in tanks 274,029 268,834
Less: Provision for inventories obsolescence (6,035) (39,123)
--------- ---------
1,147,294 1,199,626
========= =========
|
21. AVAILABLE-FOR-SALE FINANCIAL ASSETS (CURRENT) /SHORT TERM INVESTMENTS
As at December 31, 2005 and 2004, available-for-sale financial asset mainly represented investments in liquidity funds and were stated at fair value at the balance sheet date. Details of the available-for-sale financial asset were as follows:
2004 2005
------------ ------------
RMB'000 RMB'000
Unlisted investments, at fair value
Liquidity funds 3,763,959 13,185,139
Corporate bonds 1,639,956 199,877
Common stock 40,198 --
------------ ------------
Listed investments, at fair value
Common stock -- 461,919
------------ ------------
5,444,113 13,846,935
============ ============
|
The fair values of listed investments are based on quoted market prices. The fair values of unlisted investments are based on the prices quoted by fund managers. The directors believe that the estimated fair values quoted by fund managers, which are recorded in the consolidated balance sheet, and the related changes in fair values, which are recorded in the consolidated balance sheet or income statement, are reasonable, and that they are the most appropriate values at the balance sheet date.
During the year, the gross gain of the Group's and the Company's available-for-sale investments recognised directly in equity amounted to RMB69,069,142 and RMB64,900,590.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
22. ACCOUNTS PAYABLE
As at December 31, 2005 and 2004, substantially all the accounts payable were aged within six months. The accounts payable are non-interest-bearing and are normally settled within six months.
23. OTHER PAYABLES AND ACCRUED LIABILITIES
2004 2005
------------ ------------
RMB'000 RMB'000
Accrued payroll and welfare payable 156,706 178,872
Provision for retirement and termination benefits 292,128 239,591
Accrued expenses 2,818,785 3,411,784
Advances from customers 12,588 22,238
Royalties payable 142,638 297,139
Other payables 768,179 1,057,319
------------ ------------
4,191,024 5,206,943
============ ============
|
Other payables are non-interest-bearing and have an average term within
six months. The fair value of the currency swaps of RMB4,725,000 (2004:
RMB2,581,000) are included in the other payables of the Group.
24. LONG TERM BANK LOANS
As at December 31, 2005, the long term bank loans of the Group were used primarily to finance the development of oil and gas properties and to meet working capital requirements.
Effective interest rate and final maturity 2004 2005
---------------------------------------------- --------- ---------
RMB'000 RMB'000
US$ denominated bank loans Effective interest rate of 9.2% per annum with
maturities through to 2006 827,650 812,759
Japanese Yen denominated bank loans Effective interest rate of 4.1% per annum with
maturities through to 2007 61,925 37,307
--------- ---------
889,575 850,066
Less: Current portion of long term bank loans (24,364) (825,674)
--------- ---------
865,221 24,392
========= =========
|
As at December 31, 2005 and 2004, all the bank loans of the Group were unsecured and none of the outstanding borrowings were guaranteed by CNOOC.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
24. LONG TERM BANK LOANS (CONT'D)
The maturities of the long term bank loans are as follows:
2004 2005
------------ ------------
RMB'000 RMB'000
Balances due:
- Within one year 24,364 825,674
- After one year but within two years 846,471 24,392
- After two years but within three years 18,740 -
- After three years but within four years - -
- After four years but within five years - -
889,575 850,066
------------ ------------
Amount due within one year shown under current liabilities (24,364) (825,674)
------------ ------------
865,211 24,392
============ ============
|
Supplemental information with respect to long term bank loans:
Maximum Average Weighted
Weighted amount amount average
average outstanding outstanding interest rate
Balance interest rate during the during the during the
For the year ended at year end at year end year year* year**
December 31 RMB'000 RMB'000 RMB'000
------------------- ----------- ----------- ----------- ----------- -------------
2005 850,066 8.98% 889,575 869,821 8.89%
2004 889,575 8.81% 910,193 899,884 8.37%
|
* The average amount outstanding is computed by dividing the total of outstanding principal balances as at January 1 and December 31 by two.
** The weighted average interest rate is computed by dividing the total of weighted average interest rates as at January 1 and December 31 by two.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
25. LONG TERM GUARANTEED NOTES
Long term guaranteed notes comprised the following:
(i) The principal amount of US$500 million of 6.375% guaranteed notes due in 2012 issued by CNOOC Finance (2002) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2002) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.
(ii) The principal amount of US$200 million of 4.125% guaranteed notes due in 2013 and the principal amount of US$300 million of 5.500% guaranteed notes due in 2033 issued by CNOOC Finance (2003) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2003) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.
(iii) The principal amount of US$1 billion zero coupon guaranteed convertible bonds due in 2009, unconditionally and irrevocably guaranteed by, and convertible into shares of the Company issued by CNOOC Finance (2004) Limited, a wholly-owned subsidiary of the Company, on December 15, 2004. The bonds are convertible from January 15, 2005 onwards at a price of HK$6.075 per share, subject to adjustment for, among other things, the subdivision or consolidation of shares, bond issues, rights issues, capital distribution and other dilutive events. The conversion price was adjusted to HK$5.97 per share on June 7, 2005 as a result of the declaration of the final and special final dividends for 2004 by the Company. Unless previously redeemed, converted or purchased and cancelled, the bonds will be redeemed on the maturity date at 105.114% of the principal amount. CNOOC Finance (2004) Limited has an early redemption option at any time after December 15, 2007 (subject to certain criteria) and a cash settlement option when the holders exercise their conversion right. The bondholders also have an early redemption option to require CNOOC Finance (2004) to redeem all or part of the bonds on December 15, 2007 at an early redemption amount of 103.038% of the principal amount.
26. BALANCES WITH THE PARENT COMPANY
As at December 31, 2005 and 2004, the balances with CNOOC were unsecured, interest-free and were repayable on demand.
27. RELATED PARTY TRANSACTIONS
The Group has entered into several agreements with CNOOC and its affiliates, which govern the provision of materials, utilities and ancillary services, the provision of technical services, the provision of research and development services, and various other commercial arrangements.
In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year:
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
27. RELATED PARTY TRANSACTIONS (CONT'D)
2003 2004 2005
--------- --------- ---------
Notes RMB'000 RMB'000 RMB'000
Materials, utilities and ancillary services 1,018,066 1,295,598 2,995,772
Technical services (i) 3,828,282 6,362,206 6,651,240
Research and development services (ii) 83,280 7,800 8,110
Lease and property management services (iii) 56,867 76,721 77,273
(iv)
Included in:
Exploration expenses 487,293 960,031 753,534
Operating expenses 1,176,601 1,405,877 1,972,431
Selling and administrative expenses 191,349 326,004 337,816
Capitalised under property, plant and equipment 3,131,252 5,050,413 6,668,614
|
(i) Materials, utilities and ancillary services
CNOOC China Limited has entered into materials, utilities and ancillary services supply agreements with the affiliates of CNOOC. Under these agreements, the affiliates of CNOOC provide to CNOOC China Limited various materials, utilities and ancillary services.
The materials, utilities and ancillary services are provided at:
-- state-prescribed prices; or
-- where there is no state-prescribed price, at market prices, including the local or national market prices or the prices at which CNOOC's affiliates previously provided the relevant materials, utilities and ancillary services to independent third parties; or
-- where neither of the prices mentioned above is applicable, at the cost to CNOOC's affiliates of providing the relevant materials, utilities and services, including the cost of sourcing or purchasing from third parties, plus a margin of not more than 5% before any applicable taxes.
(ii) Technical services
Various affiliates of CNOOC, including China Oilfield Services Limited and Offshore Oil Engineering Company Limited, provide the Group with technical services for the Group's offshore oil and gas production activities, including:
-- offshore drilling;
-- ship tugging, oil tanker transportation and security services;
-- well survey, well logging, well cementation and other related technical services;
-- collection of geophysical data, ocean geological prospecting, and data processing;
-- platform fabrication service and maintenance; and
-- design, construction, installation and test of offshore and onshore production facilities.
The price for technical services was determined based on local market prices.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
27. RELATED PARTY TRANSACTIONS (CONT'D)
(iii) Research and development services
The Group has revised the original research and development services agreement with China Offshore Oil Research Centre (the "Centre"), CNOOC's subsidiary, due to the restructuring of operations in 2003, and only pays the Centre for particular research and development services. These research and development services were determined at local market prices.
(iv) Lease and property management services
The Group has entered into lease and property management services agreements with the affiliates of CNOOC for the leasing of various office, warehouse and residential premises. Lease charges reflect the fair and reasonable commercial market rent and management fees.
(v) Sale of crude oil, condensated oil and liquefied petroleum gas
The Group sells crude oil, condensated oil and liquefied petroleum gas to CNOOC's affiliates which engage in the downstream petroleum business at the international market price. For the year ended December 31, 2005, the total sales amounted to approximately RMB26,576,247,000 (2004: RMB13,945,565,000).
In the prior year, the Company, through its wholly-owned subsidiary, China Offshore Oil (Singapore) International Pte., Ltd. imported oil into the PRC for trading, using CNOOC's import license. The total sales to its customers through such arrangements amounted to approximately RMB447 million while the commission paid by the third party customers to CNOOC amounted to approximately RMB2.7 million for the year ended December 31, 2004. No such trading by using CNOOC's import license occurred during the year.
(vi) Transactions with CNOOC Finance Corporation Limited
The Company entered into a Framework Agreement with CNOOC Finance Corporation Limited ("CNOOC Finance") on April 8, 2004. Under the Framework Agreement, the Group utilises the financial services provided by CNOOC Finance, a 31.8% owned associate company of the Company that is also a subsidiary of CNOOC. Such services include placing of the Group's cash deposits with CNOOC Finance, and settlement services for transactions between the Group and other entities including CNOOC and its subsidiaries. Pursuant to the Framework Agreement, the financial services provided by CNOOC Finance also include provision of loan. The charges by CNOOC Finance for its financial services to the Group are based on the pricing policies of CNOOC Finance. Such pricing policies are subject to People's Bank of China guidelines, including the interest rates and foreign exchange rates, as well as guidelines published by PRC self-regulatory bodies, such as associations of finance companies. Based on these guidelines, CNOOC Finance has limited discretion in setting its prices.
For the year ended December 31, 2005, the maximum outstanding balance for deposits (including interest received in respect of these deposits) placed with CNOOC Finance amounted to approximately RMB3,922,468,000 (2004: RMB5,300,381,000).
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
28. PROVISION FOR DISMANTLEMENT
Provision for dismantlement represents the estimated costs of dismantling offshore oil platforms and abandoning oil and gas properties. The provision for dismantlement has been classified under long term liabilities. The associated cost is capitalised and the liability is discounted and an accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised. The current year's income statement charge represents the amortisation charge on the dismantlement liabilities capitalised in accordance with HKAS 37 and is included in the accumulated depreciation, depletion and amortisation in note 16.
The details of the provision for dismantlement are as follows:
2004 2005
------------ ------------
RMB'000 RMB'000
At beginning of year: 2,646,800 3,089,448
Additions during the year and capitalised in oil
and gas properties 322,941 873,270
Increase in discounted amount of provisions arising
from the passage of time 119,707 198,945
------------ ------------
At the end of year 3,089,448 4,161,663
============ ============
|
29. SHARE CAPITAL
Shares (after subdivision of shares*)
Issued
share capital
Share capital equivalent
Number of Shares HK$'000 of RMB'000
---------------- ---------------- ----------------
Authorised:
Ordinary shares of HK$0.02 each
at December 31, 2005 and 2004 75,000,000,000 1,500,000
================ ================
Issued and fully paid:
Ordinary shares of HK$0.02 each
As at January 1, 2004 41,070,828,275 821,417 876,978
Repurchased and cancelled (18,453,000) (369) (392)
---------------- ---------------- ----------------
As at December 31, 2004 41,052,375,275 821,048 876,586
Exercise of options 2,300,100 46 49
---------------- ---------------- ----------------
As at December 31, 2005 41,054,675,375 821,094 876,635
================ ================ ================
|
* Adjustment has been made to take account of the subdivision of issued and unissued shares of HK$0.10 each into five shares of HK$0.02 each effective March 17, 2004.
The repurchase of the Company's shares during the prior year was effected by the directors, pursuant to the mandate from shareholders received at the last annual general meeting.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes
The Company has adopted the following share option schemes for the grant of options to the Company's Directors, senior management and other eligible grantees:
1. Pre-Global Offering Share Option Scheme (as defined below);
2. 2001 Share Option Scheme (as defined below);
3. 2002 Share Option Scheme (as defined below); and
4. 2005 Share Option Scheme (as defined below).
Under these share option schemes, the Remuneration Committee of the Company's Board of Directors will from time to time propose for the Board's approval for the recipient of and the number of shares underlying each option. The maximum aggregate number of shares (including those that could be substituted for under the Pre-Global Offering Share Option Scheme, the 2001 Share Option Scheme, the 2002 Share Option Scheme and the 2005 Share Option Scheme) which may be granted shall not exceed 10% of the total issued share capital of the Company as at December 31, 2005, being the date on which the shareholders of the Company approved a new share option scheme, excluding shares issued upon exercise of options granted under these schemes from time to time.
Pre-Global Offering Share Option Scheme On February 4, 2001, the Company adopted a pre-global offering share option scheme (the "Pre-Global Offering Share Option Scheme"). Pursuant to the Pre-Global Offering Share Option Scheme:
1. options for an aggregate of 23,100,000 shares have been granted;
2. the subscription price per share is HK$1.19; and
3. the period during which an option may be exercised is as follows:
(a) 50% of the rights to exercise the options shall vest 18 months after the date of the grant; and
(b) 50% of the rights to exercise the options shall vest 30 months after the date of the grant.
The exercise periods for options granted under the Pre-Global Offering Share Option Scheme shall end not later than 10 years from March 12, 2001. No further options may be granted under the Pre-Global Offering Share Option Scheme.
2001 Share Option Scheme
On February 4, 2001, the Company adopted a share option scheme (the
"2001 Share Option Scheme") for the purposes of recognising the
contribution that certain individuals had made to the Company and
attracting and retaining the best available personnel to the Company.
Pursuant to the 2001 Share Option Scheme:
1. options for an aggregate of 44,100,000 shares have been granted;
2. the subscription price per share is HK$1.232; and
3. the period during which an option may be exercised is as follows:
(a) one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes (cont'd)
2001 Share Option Scheme (cont'd)
(b) one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
(c) one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise periods for options granted under the 2001 Share Option Scheme shall end not later than 10 years from August 27, 2001.
In view of the amendments to the relevant provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") regarding the requirements of share option schemes of a Hong Kong listed company effective on September 1, 2001, no further options will be granted under the 2001 Share Option Scheme.
2002 Share Option Scheme
In June 2002, the Company adopted a new share option scheme (the "2002
Share Option Scheme").
Under the 2002 Share Option Scheme, the Directors may, at their discretion, invite employees, including Executive Directors, of the Company or any of its subsidiaries, to take up options to subscribe for shares in the Company. The maximum number of shares which may be granted under the 2002 Share Option Scheme to any individual in any 12-month period up to the next grant shall not exceed 1% of the total issued share capital of the Company from time to time.
According to the 2002 Share Option Scheme, the consideration payable by a participant for the grant of an option will be HK$1.00. The subscription price of a share payable by a participant upon the exercise of an option is determined by the Directors at their discretion at the date of grant, except that such price may not be set below a minimum price which is the highest of:
1. the nominal value of the share of the Company on the date of the grant of the option;
2. the average closing price of the shares on The Stock Exchange of Hong Kong Limited ("HKSE") as stated in the HKSE's quotations sheets for the five trading days immediately preceding the date of grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's quotations sheets on the date of grant of the option.
On February 24, 2003, the Board of Directors approved to grant options in respect of 42,050,000 shares to the Company's Directors and senior management under the 2002 Share Option Scheme. The exercise price for such options is HK$2.108 per share. The closing market price immediately before the date on which such options were granted was HK$2.11 per share. Such options granted under the 2002 Share Option Scheme may be exercised, in whole or in part, in accordance with the following vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes (cont'd)
2002 Share Option Scheme (cont'd)
The exercise period for the above options granted under the 2002 Share Option Scheme shall end not later than 10 years from February 24, 2003.
On February 5, 2004, the Board of Directors approved a grant of options in respect of 50,700,000 shares to the Company's Directors and senior management under the 2002 Share Option Scheme. The exercise price for such options is HK$3.152 per share. The closing market price immediately before the date on which such options were granted was HK$3.146 per share. Such options granted under the 2002 Share Option Scheme may be exercised, in whole or in part, in accordance with the following vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise period for the above options granted under the 2002 Share Option Scheme shall end not later than 10 years from February 5, 2004.
On August 31, 2005, the Board of Directors approved a grant of options in respect of 65,870,000 shares to the Company's Directors and senior management under the 2002 Share Option Scheme. The exercise price of such options is HK$5.62 per share. The closing market price immediately before the date on which such options were granted was HK$5.75 per share. Such options granted under the 2002 Share Option Scheme may be exercised, in whole or in part, in accordance with the following vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third anniversary of the date of the grant.
The exercise period for the above options granted under the 2002 Share Option Scheme shall end not later than 10 years from August 31, 2005.
2005 Share Option Scheme
The Company had undertaken a review of the 2002 Share Option Scheme in
2005 and noted that certain provisions could be clarified and improved.
Accordingly, the Board had proposed, and on December 31, 2005, the
Company adopted a new share option scheme ("2005 Share Option Scheme")
and terminated the 2002 Share Option Scheme. Upon termination of the
2002 Share Option Scheme, no further options may be granted under the
2002 Share Option Scheme, but in all other respects the provisions of
the 2002 Share Option Scheme shall remain in force. The outstanding
options under the 2002 Share Option Scheme shall continue to be subject
to the provisions of the 2002 Share Option Scheme, and the adoption of
the 2005 Share Option Scheme will not in any way affect the terms of the
exercise of such outstanding options.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes (cont'd)
2005 Share Option Scheme (cont'd)
Under the 2005 Share Option Scheme, the Board of the Company will have the authority to grant options to subscribe for shares to the Directors, officers and employees of the Company and its subsidiaries, and any other persons who in sole discretion of the Board have contributed or will contribute to the Group. Unless approved by the shareholders, the total number of shares issued and to be issued upon exercise of the options granted to each individual (including exercised and unexercised options) under the 2005 Share Option Scheme or any other share option scheme adopted by the Company, in any 12 months period, must not exceed 1% of the shares in issue.
According to the 2005 Share Option Scheme, the consideration payable by a participant for the grant of an option will be HK$1.00. The subscription price of a share payable by a participant upon the exercise of an option will be determined by the Directors at their discretion at the date of the grant, except that such price may not be set below a minimum price which is the highest of:
1. the nominal value of the share of the Company on the date of the grant of the option;
2. the average closing price of the shares on the HKSE as stated in the HKSE's quotations sheets for the five trading days immediately preceding the date of the grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's quotations sheet on the date of the grant of the option.
The period within which the options must be exercised, as well as any minimum holding period or performance targets which apply to the options, will be specified by the Board of the Company at the time of grant. The exercise period for options granted under the 2005 Share Option Scheme shall end not later than 10 years from the date of the grant of the option. During the year, no options have been granted or exercised under the 2005 Share Option Scheme.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes (cont'd)
During the year ended December 31, 2005, the movements in the options granted under all of the above share option schemes were as follows:
Number of share options
-----------------------------------------------------------------------------------------------------
Granted Exercised Forfeited Expired At 31
Name of category At January 1, during during during during December Date of grant of
of participant 2005 the year the year the year the year 2005 share options
----------------------------------------------------------------------------------------------------------------------------------
Executive Directors
Chengyu Fu 1,750,000 -- -- -- -- 1,750,000 March 12, 2001
1,750,000 -- -- -- -- 1,750,000 August 27, 2001
1,150,000 -- -- -- -- 1,150,000 February 24, 2003
2,500,000 -- -- -- -- 2,500,000 February 5, 2004
-- 3,500,000 -- -- -- 3,500,000 August 31, 2005
Han Luo 1,400,000 -- -- -- -- 1,400,000 March 12, 2001
1,150,000 -- -- -- -- 1,150,000 August 27, 2001
1,150,000 -- -- -- -- 1,150,000 February 24, 2003
1,150,000 -- -- -- -- 1,150,000 February 5, 2004
-- 1,610,000 -- -- -- 1,610,000 August 31, 2005
Shouwei Zhou 1,400,000 -- -- -- -- 1,400,000 March 12, 2001
1,750,000 -- -- -- -- 1,750,000 August 27, 2001
1,750,000 -- -- -- -- 1,750,000 February 24, 2003
1,750,000 -- -- -- -- 1,750,000 February 5, 2004
-- 2,450,000 -- -- -- 2,450,000 August 31, 2005
Longsheng Jiang * 1,400,000 -- -- -- -- 1,400,000 March 12, 2001
1,150,000 -- -- -- -- 1,150,000 August 27, 2001
1,150,000 -- -- 383,300 -- 766,700 February 24, 2003
1,150,000 -- -- 766,700 -- 383,300 February 5, 2004
-- 1,610,000 -- 1,610,000 -- -- August 31, 2005
----------------------------------------------------------------------------------------------------------------------------------
|
Price of Weighted average
Company's price of the
shares Company's shares
----------------------------------------------
Exercise Immediately Immediately
price before the before the
Name of category Exercise period of of share grant date exercise At exercise
of participant share options** options of options date date
HK$ HK$ HK$ HK$
------------------------------------------------------------------------------------------------------------------------
Executive Directors
Chengyu Fu March 12, 2001 to March 12, 2011 1.19 1.23 -- --
August 27, 2001 to August 27, 2011 1.232 1.46 -- --
February 24, 2003 to February 24, 2013 2.108 2.09 -- --
February 5, 2004 to February 5, 2014 3.152 3.13 -- --
August 31, 2005 to August 31, 2015 5.62 5.75 -- --
Han Luo March 12, 2001 to March 12, 2011 1.19 1.23 -- --
August 27, 2001 to August 27, 2011 1.232 1.46 -- --
February 24, 2003 to February 24, 2013 2.108 2.09 -- --
February 5, 2004 to February 5, 2014 3.152 3.13 -- --
August 31, 2005 to August 31, 2015 5.62 5.75 -- --
Shouwei Zhou March 12, 2001 to March 12, 2011 1.19 1.23 -- --
August 27, 2001 to August 27, 2011 1.232 1.46 -- --
February 24, 2003 to February 24, 2013 2.108 2.09 -- --
February 5, 2004 to February 5, 2014 3.152 3.13 -- --
August 31, 2005 to August 31, 2015 5.62 5.75 -- --
Longsheng Jiang * March 12, 2001 to March 12, 2011 1.19 1.23 -- --
August 27, 2001 to August 27, 2011 1.232 1.46 -- --
February 24, 2003 to February 24, 2013 2.108 2.09 -- --
February 5, 2004 to February 5, 2014 3.152 3.13 -- --
August 31, 2005 to August 31, 2015 5.62 5.75 -- --
------------------------------------------------------------------------------------------------------------------------
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes (cont'd)
Number of share options
-------------------------------------------------------------------------------------
Granted Exercised Forfeited Expired At 31
Name of category At January 1, during during during during December Date of grant of
of participant 2005 the year the year the year the year 2005 share options
-----------------------------------------------------------------------------------------------------------------------------------
Xinghe Cao -- 800,000 -- -- -- 800,000 August 31, 2005
Zhenfang Wu -- 800,000 -- -- -- 800,000 August 31, 2005
Guangqi Wu -- 1,610,000 -- -- -- 1,610,000 August 31, 2005
Hua Yang 1,150,000 -- -- -- -- 1,150,000 March 12, 2001
1,150,000 -- -- -- -- 1,150,000 August 27, 2001
1,150,000 -- -- -- -- 1,150,000 February 24, 2003
1,150,000 -- -- -- -- 1,150,000 February 5, 2004
-- 1,610,000 -- -- -- 1,610,000 August 31, 2005
-----------------------------------------------------------------------------------------------------------------------------------
Non-executive Directors
Chiu Sung Hong 1,150,000 -- -- -- -- 1,150,000 February 5, 2004
Evert Henkes 1,150,000 -- -- -- -- 1,150,000 February 5, 2004
Kenneth S Courtis 1,150,000 -- -- -- -- 1,150,000 February 5, 2004
Erwin Schurtenberger* 1,150,000 -- -- 1,150,000 -- -- February 5,2004
Other Employees
In aggregate 6,550,000 -- -- 1,700,000 -- 4,850,000 March 12, 2001
22,650,000 -- 1,150,000 2,350,000 -- 19,150,000 August 27, 2001
26,500,000 -- 766,700 3,733,400 -- 21,999,900 February 24,2003
35,850,000 -- 383,400 4,683,200 -- 30,783,400 February 5,2004
-- 51,880,000 -- 2,380,000 -- 49,500,000 August 31, 2005
-----------------------------------------------------------------------------------------------------------------------------------
Total 124,250,000 65,870,000 2,300,100 18,756,600 -- 169,063,300
-----------------------------------------------------------------------------------------------------------------------------------
|
Price of Weighted average
Company's price of the
shares Company's shares
--------------------------------------------
Exercise Immediately Immediately
price before the before the At exercise
Name of category Exercise period of of share grant date exercise date of
of participant share options** options of options date options
HK$ HK$ HK$ HK$
-----------------------------------------------------------------------------------------------------------------------------
Xinghe Cao August 31, 2005 to August 31, 2015 5.62 5.75 -- --
Zhenfang Wu August 31, 2005 to August 31, 2015 5.62 5.75 -- --
Guangqi Wu August 31, 2005 to August 31, 2015 5.62 5.75 -- --
Hua Yang March 12, 2001 to March 12, 2011 1.19 1.23 -- --
August 27, 2001 to August 27, 2011 1.232 1.46 -- --
February 24 2003 to February 24, 2013 2.108 2.09 -- --
February 5 2004 to February 5, 2014 3.152 3.13 -- --
August 31, 2005 to August 31, 2015 5.62 5.75 -- --
-----------------------------------------------------------------------------------------------------------------------------
Non-executive Directors
Chiu Sung Hong February 5, 2004 to February 5, 2014 3.152 3.13 -- --
Evert Henkes February 5, 2004 to February 5, 2014 3.152 3.13 -- --
Kenneth S Courtis February 5, 2004 to February 5, 2014 3.152 3.13 -- --
Erwin Schurtenberger* February 5, 2004 to February 5, 2014 3.152 3.13 -- --
Other Employees
In aggregate March 12, 2001 to March 12, 2011 1.19 1.23 -- --
August 27, 2001 to August 27, 2011 1.232 1.46 4.03 4.05
February 24, 2003 to February 24, 2013 2.108 2.09 4.16 4.19
February 5, 2004 to February 5, 2014 3.152 3.13 3.85 3.93
August 31, 2005 to August 31, 2015 5.62 5.75 -- --
-----------------------------------------------------------------------------------------------------------------------------
Total
-----------------------------------------------------------------------------------------------------------------------------
|
* Mr. Erwin Schurtenberger resigned as an Independent Non-executive Director of the Company on April 1, 2005 and Mr. Jiang Longsheng retired as an Executive Director of the Company on June 1, 2005.
** The share options are only exercisable by the relevant grantees upon the vesting of such share options. The vesting of the Company's share options is by stage and the details are disclosed above.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
29. SHARE CAPITAL (CONT'D)
Share option schemes (cont'd)
The fair value of the share options granted during the year was HK$103,811,616.
The fair value of equity-settled share options granted during the year was estimated as at the date of grant, using the Black-Scholes model, taking into account the terms and conditions upon which the options were granted.
The following table lists the assumptions to the model used for the year ended December 31, 2005:
Dividend yield 2% Expected volatility 31% Risk-free interest rate 4.57% Expected life of option 5 years Weighted average share price HK$5.62 |
The expected life of the options is based on the historical data and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other feature of the options granted was incorporated into the measurement of fair value. Any changes to the above assumptions may affect the estimation of the fair value of the option.
2,300,100 share options granted under the 2002 Share Option Scheme and the 2001 Share Option Scheme have been exercised since the respective dates of grant and up to the date when the Board of Directors approved the financial statements. On April 1, 2005, Mr. Erwin Schurtengberger surrendered 1,150,000 share options following his resignation as an independent non-executive director of the Company. The weighted average closing price of the shares immediately on the day before the exercise of the options was HK$4.04.
The share options exercised during the year resulted in the issue of 2,300,100 ordinary shares of the Company and new share capital of RMB49,000 and share premium of RMB4,451,000.
The total number of options exercisable as of December 31, 2005 was 70,416,522. No share options had been cancelled during the year ended December 31, 2005.
At the balance sheet date, the Company had 169,063,300 share options outstanding under these share options schemes which represented approximately 0.4% of the Company's shares in issues as at that date. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 169,063,300 additional ordinary shares of the Company and additional share capital of RMB3,517,531 and share premium of RMB602,823,748.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
30. RESERVES
According to the laws and regulations of the PRC and the articles of association of CNOOC China Limited, CNOOC China Limited is required to provide for certain statutory funds, namely, the general reserve fund and staff and workers' bonus and welfare funds, which are appropriated from net profit (after making good losses from previous years), but before dividend distribution.
CNOOC China Limited is required to allocate at least 10% of its net profit as reported in accordance with the generally accepted accounting principles in the PRC ("PRC GAAP") to the general reserve fund until the balance of such fund has reached 50% of its registered capital. The general reserve fund can only be used, upon approval by the relevant authority, to offset against accumulated losses or to increase capital.
Appropriation to the staff and workers' bonus and welfare funds, which is determined at the discretion of CNOOC China Limited's directors, is expensed as incurred under Hong Kong GAAP. The staff and workers' bonus and welfare funds can only be used for special bonuses or collective welfare of employees, and assets acquired through this fund shall not be taken as assets of CNOOC China Limited.
As at December 31, 2005, the general reserve fund appropriated amounted to RMB6,681,974,000 (2004: RMB4,413,610,000), representing approximately 44.5% (2004: 29.4%) of the total registered capital of CNOOC China Limited.
Included in retained earnings is an amount of RMB1,146,530,000 (2004:
RMB877,109,000), being the retained earnings attributable to associates.
The Company's ability to distribute dividends will largely depends on
the dividends it receives from its subsidiaries. The dividends
distributable by the Company's subsidiaries to the Company are
determined in accordance with the relevant accounting principle required
by the local authorities. As of December 31, 2005, the aggregate amount
of the subsidiaries' retained earnings available for distributions to
the Company amounted to approximately RMB30,275,453,000 (2004:
RMB16,652,414,000).
31. RETIREMENT AND TERMINATION BENEFITS
All the Group's full-time employees in the PRC are covered by a government regulated pension, and are entitled to an annual pension. The PRC government is responsible for the pension liabilities to these retired employees. The Group is required to make annual contributions to the government-regulated pension at rates ranging from 9% to 22% of the employees' basic salaries.
The Company is required to make contributions to a defined contribution mandatory provident fund at a rate of 5% of the basic salaries of all full-time employees in Hong Kong. The related pension costs are expensed as incurred.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
31. RETIREMENT AND TERMINATION BENEFITS (CONT'D)
The Group provides retirement and termination benefits for all local employees in Indonesia in accordance with Indonesian labour law, and provides employee benefits to expatriate staff in accordance with the relevant employment contracts. The Group has adopted an accounting policy to record liabilities for the retirement and termination benefits.
32. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit before tax to cash generated from operations
2003 2004 2005
------------ ------------ ------------
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Profit before tax 16,125,579 23,069,962 36,300,934
Adjustments for:
Interest income (183,576) (206,872) (359,294)
Finance costs 354,940 441,825 1,100,532
Exchange losses/(gains), net 6,746 (29,269) (287,027)
Share of profit of associates (220,263) (344,469) (307,075)
Investments income (123,483) (72,438) (247,893)
(Reversal) of/provision for inventory obsolescence 8,745 (2,710) 33,088
Depreciation, depletion and amortisation 4,642,753 5,455,062 5,964,740
Loss on disposals and write-off of property, plant and equipment 39,818 155,876 141,574
Dismantlement 167,326 201,637 252,857
Amortisation of discount of long term guaranteed notes 11,276 15,634 41,959
Impairment losses related to property, plant and equipment -- -- 90,190
Equity-settled share option expenses 37,747 46,642 29,123
------------ ------------ ------------
Operating cash flows before movements in working capital 20,867,608 28,730,880 42,753,708
Increase in accounts receivable (1,185,304) (27,466) (1,001,296)
Increase in inventories and supplies (129,678) (96,307) (108,405)
Decrease/(increase)in other current assets 312,559 267,168 (342,087)
Increase in amounts due from related companies (302,993) (417,091) (925,824)
Increase/(decrease)in an amount due to the parent company (105,785) 205,407 118,422
Increase in accounts payable, other payables and accrued liabilities 1,448,645 1,318,415 677,522
Decrease in other taxes payable (4,772) (12,447) (24,900)
(Decrease)/increase in amounts due to related companies 242,631 (262,798) 548,508
------------ ------------ ------------
Cash generated from operations 21,142,911 29,705,761 41,695,648
============ ============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
32. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONT'D)
(b) Acquisitions
2003 2004 2005
------------ ------------ ------------
RMB'000 RMB'000 RMB'000
Acquisitions
Net assets acquired:
Property, plant and equipment, net 1,579,726 4,686,857 3,129,662
Intangible assets -- -- 1,299,643
Accounts receivable -- 453 --
Other current assets 8,959 66,744 --
Inventories and supplies 122,777 -- --
Cash and bank balances 17,580 -- --
Accounts payable (8,294) (81,547) --
Other payables and accrued liabilities (47,983) -- --
Tax payable -- -- --
Deferred tax liabilities -- (1,141,461) --
------------ ------------ ------------
1,672,765 3,531,046 4,429,305
Prepayment for NWS Project -- 4,693,809 --
Prepayment for Tangguh Project 2,445,715 -- --
Acquisition of interests of MEG -- -- 1,017,000
------------ ------------ ------------
4,118,480 8,224,855 5,446,305
============ ============ ============
Satisfied by:
Prepayment made in 2004 -- 2,445,715 4,582,298
Cash paid (including cash calls for Tangguh Project) 4,118,480 5,779,140 --
Cash paid for the interests of MEG -- -- 1,017,000
Tax refund from the NWS Project (152,993)
------------ ------------ ------------
4,118,480 8,224,855 5,446,305
============ ============ ============
|
An analysis of the net outflow of cash and cash equivalents in respect of the acquisitions is as follows:
2003 2004 2005
------------ ------------ ------------
RMB'000 RMB'000 RMB'000
Cash
Cash consideration 4,118,480 5,779,140 1,017,000
Cash and bank balances acquired (17,580) -- --
Cash received for tax refund of the NWS project -- -- (152,993)
------------ ------------ ------------
Net outflow of cash and cash equivalents 4,100,900 5,779,140 864,007
============ ============ ============
|
Further details of the acquisition of the NWS Project and MEG Project are included in note 4 to the financial statements. The purchase price allocations for NWS Project are still preliminary pending the confirmation of the tax basis of the underlying assets.
The interest in MEG has been included under long term available-for-sale financial assets.
33. CONTINGENT LIABILITIES
As of December 2005 and 2004, there were no material contingent liabilities not provided for in the financial statements.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
34. COMMITMENTS
(i) Capital commitments
As at December 31, 2005, the Group and the Company had the following capital commitments, principally for the construction and purchase of property, plant and equipment:
2004 2005
----------- -----------
RMB'000 RMB'000
Contracted for 9,568,971 7,511,100
Authorised, but not contracted for 20,331,504 23,736,582
|
As at December 31, 2005, the Group had unutilised banking
facilities amounting, to approximately RMB33,450,791,000 (2004:
RMB20,662,120,000).
(ii) Operating lease commitments
(a) Office properties
The Group leases certain of its office properties under operating lease arrangements, leases properties are negotiated for terms ranging from 10 months to 3 years.
As at December 31, 2005, the Group had total minimum lease payments under non-cancelable operating leases falling due as follows:
2004 2005
------------ ------------
RMB'000 RMB'000
Commitments due:
- Within one year 24,824 157,181
- After one year but within two years 549 22,351
- After two year but within five years -- 23,972
------------ ------------
25,373 203,504
============ ============
|
(b) Plant and equipment
The Group leases certain of its plant and equipment under operating lease arrangements for a term of 10 years.
As at December 31, 2005, the Group had total minimum lease payments under non-cancelable operating lease falling due as follows:
2004 2005
------------ ------------
RMB'000 RMB'000
Commitments due:
- Within one year 149,360 183,137
- After one year but within two years 597,442 183,137
- After two year but within five years 1,834,023 1,006,289
------------ ------------
2,580,825 1,372,563
============ ============
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
34. COMMITMENTS (CONT'D)
(iii) Financial instruments
(a) Currency swap contracts
As at December 31, 2005, the Group had a currency swap contract with a financial institution to sell United States dollars in exchange for Japanese Yen in order to hedge against future repayments of certain Japanese Yen denominated loans. The hedged Japanese Yen loans bore interest at a fixed rate of 4.5% per annum. The interest stipulated in the swap contract for the United States dollars was the floating LIBOR rate.
The details are as follows:
2004 2005
------------------------------ --------------------------
Weighted Weighted
Notional average Notional average
contract contractual contract contractual
amount exchange rate amount exchange rate
(JPY'000) (JPY/US$) (JPY'000) (JPY/US$)
Year
2005 271,470 95.00 -- --
2006 271,470 95.00 271,470 95.00
2007 271,470 95.00 271,470 95.00
|
(b) Fair value of financial instruments
The carrying value of cash and cash equivalents, time deposits, available-for-sale investments, accounts receivables, other current assets, accounts payable and other payables approximated to fair value due to the short maturity of these instruments.
The estimated fair value of long term bank loans based on
current market interest rates was approximately
RMB868,886,000 as at December 31, 2005 (2004:
RMB967,770,000).
The estimated fair value of long term guaranteed notes based
on current market interest rates was approximately RMB
16,592,412,000 as at December 31, 2005 (2004:
RMB16,428,934,000).
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
35. CONCENTRATION OF RISKS
(a) Credit risk
The carrying amount of cash and cash equivalents, time deposits, liquidity funds and bond investments, accounts receivable and other receivables, and due from related parties and other current assets except for prepayments represents our maximum exposure to credit risk in relation to financial assets.
The majority of the Group's accounts receivable is related to sales of oil and natural gas to third party customers. The Group performs ongoing credit evaluations of the customers' financial condition and generally do not require collateral on accounts receivable. The Group maintains a provision for doubtful accounts and actual losses have been within management's expectation.
No other financial assets carry a significant exposure to credit risk.
(b) Currency risk
Substantially all of the Group's oil and gas sales are denominated in Renminbi and US dollars. In the past decade, the PRC government's policy of maintaining a stable exchange rate and China's ample foreign reserves has contributed to the stability of the Renminbi. Starting from July 21, 2005, China reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Renminbi would no longer be pegged to the US dollar. From that day to December 31, 2005, Renminbi has appreciated by approximately 2.5% against US dollars.
The appreciation of Renminbi against US dollars may have the following impact on the Group. On one hand, since the benchmark oil and gas prices are usually in US dollars, the Group's oil and gas sales may decrease due to the depreciation of US dollars against Renminbi. On the other hand, the depreciation of US dollars against Renminbi will also decrease the Group's costs for imported equipment and materials, most of which are denominated in US dollars. In addition, the debt repayment by the Group will decrease since more than 99% of the Group's debts are also denominated in U.S. dollars.
As of the end of 2005, the balance of the yen-denominated loans was only RMB37,307,000. Since the Group has hedged the yen loans against foreign currency swaps, the Group does not expect any exchange risk relating to Japanese yen in the future.
(c) Interest rate risk
As of the end of 2005, the interest rates for all balance of our debts were fixed. The term of the weighted average balance was approximately 8 years. The average interest rate payable by the Group is favorable under the environment of interest rate hike.
(d) Business risk
The major operations are conducted in the PRC, Indonesia and Australia and accordingly are subject to special considerations and significant risks not typically associated with investments in equity securities of the United States of America and Western European companies. These include risks associated with, among others, the oil and gas industry, the political, economic and legal environments, influence of the national authorities over price setting and competition in the industry.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
35. CONCENTRATION OF RISKS (CONT'D)
(e) Concentration of customers
A substantial portion of the oil and gas sales of the Group is made to a small number of customers on an open account basis. Details of the sales to these customers are as follows:
2003 2004 2005
------------ ----------- -----------
RMB'000 RMB'000 RMB'000
China Petroleum & Chemical Corporation 6,975,069 10,634,066 15,625,736
PetroChina Company Limited 1,446,169 1,944,709 1,776,199
Castle Peak Power Company Limited 841,285 1,070,436 1,107,314
|
36. ADDITIONAL FINANCIAL INFORMATION
As at December 31, 2005, net current assets and total assets less current liabilities of the Group amounted to approximately RMB30,805,199,000 and RMB101,148,848,000 (2004: RMB24,890,362,000 and RMB83,399,497,000 (restated)), respectively.
37. SUBSEQUENT EVENT
On January 8, 2006, the Company signed a definitive agreement with South Atlantic Petroleum Limited ("SAPETRO") to acquire a 45% working interest in an offshore oil mining license 130 "OML 130" in Nigeria for a cash consideration of US$2.268 billion, subject to adjustment. Conditional on, among other things, the approval of the Nigerian National Petroleum Corporation ("NNPC") and the PRC government, the transaction is expected to be completed in the first half of 2006.
On January 27, 2006, CNOOC Africa Limited, a wholly-owned subsidiary of the Company, signed an agreement to acquire from AERD Projects Nigeria Limited a 35% of right to Oil Prospecting Licence 229 "OPL229" in Nigeria for US$ 60 million in cash, subject to adjustments.
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP
(a) Net profit and net equity
(i) Short term investments
In 2003, according to Hong Kong GAAP, available-for-sale investments in marketable securities were measured at fair value and related unrealised holding gains and losses are included in the current period's earnings. According to US GAAP, such investments are also measured at fair value and classified in accordance with Statement of Financial Accounting Standards ("SFAS") No.115. Under US GAAP, related unrealised gains and losses on available-for-sale securities were excluded from the current period's earnings and included in other comprehensive income.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)
(a) Net profit and net equity (continued)
(ii) Impairment of long-lived assets
Under Hong Kong GAAP, impairment charges are recognised when a long-lived asset's carrying amount exceeds the higher of an asset's fair value less costs to sell and value in use, which incorporates discounting the asset's estimated future cash flows.
Under US GAAP, long-lived assets are assessed for possible impairment in accordance with SFAS No.144, "Accounting for the impairment or disposal of long-lived assets". SFAS No. 144 requires the Group to (a) recognise an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. SFAS No. 144 requires that a long-lived asset to be abandoned, exchanged for a similar productive asset, or distributed to owners in a spin-off be considered as held and used until it is disposed of.
SFAS No. 144 also requires the Group to assess the need for an impairment of capitalised costs of proved oil and gas properties and the costs of wells and related equipment and facilities on a property-by-property basis. If an impairment is indicated based on undiscounted expected future cash flows, then an impairment is recognised to the extent that net capitalised costs exceed the estimated fair value of the property. Fair value of the property is estimated by the Group using the present value of future cash flows. The impairment was determined based on the difference between the carrying value of the assets and the present value of future cash flows. It is reasonably possible that a change in reserve or price estimates could occur in the near term and adversely impact management's estimate of future cash flows and consequently the carrying value of properties.
In addition, under Hong Kong GAAP, a subsequent increase in the recoverable amount of an asset (other than goodwill and available-for-sale equity investments) is reversed to the income statement to the extent that an impairment loss on the same asset was previously recognised as an expense when the circumstances and events that led to the write-down or write-off cease to exist. The reversal is reduced by the amount that would have been recognised as depreciation had the write-down or write-off not occurred. Under US GAAP, an impairment loss establishes a new cost basis for the impaired asset and the new cost basis should not be adjusted subsequently other than for further impairment losses.
For the year ended December 31, 2005, an impairment of approximately RMB90,190,000 was recognised under Hong Kong GAAP and US GAAP.
(iii) Acquisition of CNOOC Finance
Under HK GAAP, the Company adopted the purchase method to account for the acquisition of 31.8% equity interest in CNOOC Finance in December 2003. Under the purchase method, the acquired results are included in the consolidated results of operations of the Company from the date of the acquisition.
As the Company and CNOOC Finance are under common control of CNOOC, under US GAAP, the acquisition is considered to be a transfer of businesses under common control and the acquired assets and liabilities are accounted at historical cost in a manner similar to the pooling of interests method. Accordingly, the consolidated financial statements for all periods presented have been retroactively restated as if the current structure and operations had been in existence since inception. The cash consideration paid by the Company is treated as an equity transaction in the year of the acquisition for US GAAP purpose.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)
(a) Net profit and net equity (continued)
(iv) Accounting for convertible bonds
With effect from January 1, 2005, under HKAS 32 Financial Instruments: Disclosure and Presentation, financial instruments with cash settlement options and other derivative components will need to be bifurcated into a debt component and a derivative component. The derivative component is marked to market at each balance sheet date and the differences will be charged/credited to the income statement. The debt component is stated at amortised cost. The requirements of HKAS 32 have been applied retrospectively with comparative amounts restated.
Under US GAAP, convertible bonds are subject to different rules on the bifurcation of the debt and derivative components. However, there is no significant difference on the accounting treatment adopted under HK GAAP and US GAAP for the Group's convertible bonds.
(v) Provision for dismantlement
HK GAAP requires the provision for dismantlement to be recorded for a present obligation whether that obligation is legal or constructive. The associated cost is capitalized and the liability is discounted and accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised.
Prior to 2003, the Company accrued for dismantlement costs on a unit-of-production basis under SFAS No.19, "Financial accounting and reporting by oil and gas producing companies" under US GAAP. The Company adopted SFAS No.143 "Accounting for asset retirement obligations" on January 1, 2003. SFAS No.143 requires that the fair value of a liability for an asset retirement obligation be recognised in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalised as part of the carrying amount of long-lived asset. The liability is discounted and accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised. The impact of the adoption of SFAS No.143 is included in the cumulative effect of change in accounting policy for dismantlement liabilities below.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)
(a) Net profit and net equity (continued)
The effects on net profit of the above significant differences between Hong Kong GAAP and US GAAP are summarised below:
Net Profit
----------------------------------------------
2003 2004 2005
---------- ---------- ----------
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
As reported under Hong Kong GAAP 11,497,743 16,139,136 25,323,122
Impact of U.S GAAP adjustments:
- Equity accounting for the results of CNOOC Finance 30,913 - -
- Unrealised holding gains from available-for-sale
investments in marketable securities (21,503) 25,228 -
- Realised holding gains from available-for-sale
marketable securities 27,088 2,972 -
- Other 9,156 9,156 20,036
---------- ---------- ----------
Income before cumulative effect of change in accounting policy 11,543,397 16,176,492 25,343,158
Cumulative effect of change in accounting policy for dismantlement
liabilities 436,112 - -
---------- ---------- ----------
Net profit under US GAAP 11,979,509 16,176,492 25,343,158
========== ========== ==========
Net profit per share under US GAAP
-Basic
Before cumulative effect of change in accounting policy for
dismantlement liabilities
Cumulative effect of change in accounting policy for
dismantlement liabilities RMB0.28 RMB0.39 RMB0.62
RMB0.01 - -
---------- ---------- ----------
RMB0.29 RMB0.39 RMB0.62
========== ========== ==========
-Diluted
Before cumulative effect of change in accounting policy for
dismantlement liabilities RMB0.28 RMB0.39 RMB0.61
Cumulative effect of change in accounting policy for dismantlement
liabilities RMB0.01 - -
---------- ---------- ----------
RMB0.29 RMB0.39 RMB0.61
========== ========== ==========
|
There are no significant differences between Hong Kong GAAP and US GAAP that affect net equity.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)
(b) Comprehensive income
According to SFAS No. 130, "Reporting comprehensive income", the Group is required to include a statement of other comprehensive income for revenues and expenses, gains and losses which under US GAAP are included in comprehensive income and excluded from net income.
2003 2004 2005
RMB'000 RMB'000 RMB'000
------------------------------------------
Net income under US GAAP 11,979,509 16,176,492 25,343,158
Other comprehensive income:
Foreign currency translation adjustments 36,243 (42,301) (493,289)
Unrealised gains /(losses) on available-for-sale
investments/Short term investments 21,503 (25,228) 69,069
Less: Reclassification adjustment for gains
included in net income (27,088) (2,972) (20,036)
------------------------------------------
Comprehensive income under US GAAP 12,010,167 16,105,991 24,898,902
------------------------------------------
|
Roll forward of accumulated other comprehensive income components are as follows:
Unrealised
Foreign gains on Accumulated
currency available other
translation -for-sale comprehensive
adjustments investments income
RMB'000 RMB'000 RMB'000
------------------------------------------
Balance at January 1, 2003 (13,596) 53,821 40,225
Reversal of current year's realised gains -- (27,088) (27,088)
Current year's change 36,243 21,503 57,746
-----------------------------------------
Balance at January 1, 2004 22,647 48,236 70,883
Reversal of current year's realised gains -- (2,972) (2,972)
Current year's change (42,301) (25,228) (67,529)
-----------------------------------------
Balance at December 31, 2004 (19,654) 20,036 382
Reversal of current year realised gains -- (20,036) (20,036)
Current year's change (493,289) 69,069 (424,220)
-----------------------------------------
Balance at December 31, 2005 (512,943) 69,069 (443,874)
-----------------------------------------
|
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)
(c) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved oil and gas reserve volumes and the future development, provision for dismantlement as well as estimates relating to certain oil and gas revenues and expenses. Actual amounts could differ from those estimates and assumptions.
(d) Segment reporting
The Group's segment information is based on the segmental operating results regularly reviewed by the Group's chief operating decision maker. The accounting policies used are the same as those used in the preparation of the Group's consolidated Hong Kong GAAP financial statements.
(e) Impact of Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No.153, "Exchange of Non-monetary Asset an amendment of APB Opinion No.29".This Statement, which address the measurement of exchange of non-monetary assets, is effective prospectively for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this Statement is not expected to impact the Company's consolidated financial position or results of operations.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share Based Payment" (FAS No.123R), which replaces FAS No.123 and superseded APB Opinion No.25, "Accounting For Stock Issued to Employees". FAS No.123R requires all share-based payments to employees, including grants of employee stock options, to be recognised in the financial statement based on their fair values beginning with the first interim period after June 15, 2005, with early adoption encouraged. Under the SEC's rule, FAS No.123R is now effective for the Company beginning January 1, 2006, The proforma disclosures previously permitted under FAS No 123 no longer will be an alternative to financial statement recognition. The Company believes the adoption of the FAS No. 123R will have no material impact on its consolidated financial statement as the Company currently accounts for the stock options under the fair value recognition provision of FAS No. 123.
In 2005, the FASB has finalized an amendment to statement No.19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" ("FAS No. 19") that change the way oil and gas producers account for deferred exploratory drilling costs. The new standard would relax the one-year limitation, so long as oil and gas reserves have been discovered and an enterprise "is making sufficient progress assessing the reserves and the economic and operating viability of the project." We believe the adoption of amendment to FAS No. 19 will have no material impact on its consolidated financial position or results of operations.
CNOOC LIMITED AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(All amounts expressed in Renminbi unless otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)
(e) Impact of Recently Issued Accounting Standards (continued)
In March 2005, the FASB issued FASB Interpretation Number 47("FIN No.47"), "Accounting for conditional asset retirement obligations". The interpretation clarifies the requirement to record abandonment liabilities stemming from legal obligations when the retirement depends on a conditional future event. FIN No.47 requires that the uncertainty about the timing or method of settlement of a conditional retirement obligation be factored into the measurement of the liability when sufficient information exists. FIN No.47 is effective for fiscal years ending after December 15, 2005 and application of the interpretation did not change how abandonment obligations are currently calculated by the Company.
In May 2005, the FASB issued FAS No. 154, i(degree)Accounting Changes and Error Corrections,i+/- a replacement of APB Opinion No. 20, i(degree)Accounting Changesi+/- and FAS No. 3, i(degree)Reporting Accounting Changes in Interim Financial Statementsi+/- (i(degree)FAS No. 154i+/-). FAS No.154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, voluntary changes in accounting principles were generally required to be recognised by way of a cumulative effect adjustment within net income during the period of the change. FAS No. 154 requires retrospective application to prior periodsi- financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. FAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements. The Company does not believe adoption of FAS No. 154 will have a material effect on its financial position, cash flows or results of operations.
In February 2006, the FASB issued FAS No. 155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140" ("FAS No.155"). FAS No. 155 clarifies certain issues relating to embedded derivatives and beneficial interests in securitized financial assets, including permitting fair value measurement for any hybrid financial instrument that contains an embedded derivative, eliminating the prohibition on a qualifying special-purpose entity from holding certain derivative instruments, and providing clarification that concentrations of credit risk in the form of subordination are not embedded derivatives. The provisions of FAS No. 155 are effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. The Company does not believe adoption of FAS No. 155 will have a material effect on its financial position, cash flows or results of operations.
CNOOC LIMITED AND ITS SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
The following disclosures are included in accordance with the United States Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities". The disclosures are categorized by the geographical areas in which the Group conducts oil and gas activities. Except for PRC and Indonesia, the information on the other geographical areas, such as Australia, Myanmar and Morocco, etc., are combined in the following disclosures as "Others", among which all the other projects are still in exploration or joint study stage except that the North West Shelf Project in Australia is in development stage.
(a) Reserve quantity information
Crude oil and natural gas reserve estimates are determined through analysis of geological and engineering data which appear, with reasonable certainty, to be recoverable at commercial rates in the future from known oil and natural gas reservoirs under existing economic and operating conditions.
Estimates of crude oil and natural gas reserves have been made by
independent engineers. The Group's net proved reserves consist of its
percentage interest in reserves, comprised of a 100% interest in its
independent oil and gas properties and its participating interest in the
properties covered under the production sharing contracts in PRC, less
(a) an adjustment for the Group's share of royalties payable by the
Group to the PRC government and the Group's participating interest in
share oil payable to the PRC government under the production sharing
contracts, and less (b) an adjustment for production allocable to
foreign partners under the PRC production sharing contracts as
reimbursement for exploration expenses attributable to the Group's
participating interest, and plus (a) its participating interest in the
properties in Australia, and (b) the participating interest in the
properties covered under the production sharing contracts in Indonesia
less an adjustment of share oil attributable to the Indonesian
government and the domestic market obligation.
Proved developed and undeveloped reserves (net of royalties and PRC government share oil):
PRC Indonesia Others Total
Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas
(mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf)
---------------------------------------------------------------------------------------------------
December 31, 2002 1,287 3,333 138 215 -- -- 1,425 3,548
Purchase of reserves 53 142 -- -- -- -- 53 142
Discoveries and extensions 114 506 1 2 -- -- 115 508
Production (97) (69) (15) (37) -- -- (112) (106)
Revisions of prior estimates (24) 42 (21) 20 -- -- (45) 62
---------------------------------------------------------------------------------------------------
December 31, 2003 1,333 3,954 103 200 -- -- 1,436 4,154
Purchase of reserves 6 161 -- -- -- -- 6 161
Discoveries and extensions 129 414 4 157 -- -- 133 571
Production (106) (103) (11) (31) -- -- (117) (134)
Revisions of prior estimates (8) (101) 5 (5) -- -- (3) (106)
---------------------------------------------------------------------------------------------------
December 31, 2004 1,354 4,325 101 321 -- -- 1,455 4,646
Purchase of reserves -- -- -- -- 25 603 25 603
Discoveries and extensions 133 314 -- 17 -- -- 133 331
Production (122) (108) (9) (34) -- -- (131) (142)
Revisions of prior estimates (7) -- (19) (7) -- -- (26) (7)
---------------------------------------------------------------------------------------------------
December 31, 2005 1,358 4,531 73 297 25 603 1,456 5,431
===================================================================================================
|
(a) Reserve quantity information (cont'd)
CNOOC LIMITED AND ITS SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
Proved developed reserves:
PRC Indonesia Others Total
Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas
(mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf)
---------------------------------------------------------------------------------------
December 31, 2003 459 2,054 91 135 -- -- 550 2,189
December 31, 2004 617 2,134 85 138 -- -- 702 2,272
December 31, 2005 644 2,098 63 155 14 378 721 2,631
=======================================================================================
|
(b) Results of operations
2003 2004
PRC Indonesia Others Total PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------------------------------------
Net sales to customers 23,644,659 4,472,172 -- 28,116,831 32,723,277 4,162,742 -- 36,886,019
Operating expenses (2,903,094) (1,609,715) -- (4,512,809) (3,643,182) (1,427,162) -- (5,070,344)
Production taxes (1,238,598) -- -- (1,238,598) (1,725,674) -- -- (1,725,674)
Exploration (764,165) (83,907) -- (848,072) (1,202,203) (113,957) -- (1,316,160)
Accretion expense (93,246) -- -- (93,246) (119,707) -- -- (119,707)
Depreciation,
depletion and
amortisation
(including
dismantlement) (3,700,349) (1,109,730) -- (4,810,079) (4,670,988) (985,711) -- (5,656,699)
---------------------------------------------------------------------------------------------------------
14,945,207 1,668,820 -- 16,614,027 21,361,523 1,635,912 -- 22,997,435
Income tax expenses (4,483,562) (719,695) -- (5,203,257) (6,408,457) (705,487) -- (7,113,944)
---------------------------------------------------------------------------------------------------------
Result of operations 10,461,645 949,125 -- 11,410,770 14,953,066 930,425 -- 15,883,491
=========================================================================================================
|
2005
PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------
Net sales to customers 48,778,934 4,638,735 -- 53,417,669
Operating expenses (4,507,915) (1,426,683) -- (5,934,598)
Production taxes (2,596,543) -- -- (2,596,543)
Exploration (1,169,067) (77,842) (46,779) (1,293,688)
Accretion expense (198,945) -- -- (198,945)
Depreciation,
depletion and
amortisation
(including
dismantlement) (5,360,745) (856,775) -- (6,217,520)
-------------------------------------------------------
34,945,719 2,277,435 (46,779) 37,176,375
Income tax expenses (10,483,716) (995,885) -- (11,479,601)
-------------------------------------------------------
Result of operations 24,462,003 1,281,550 (46,779) 25,696,774
=======================================================
|
(c) Capitalised costs
2003 2004
PRC Indonesia Others Total PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------------
Proved oil and gas
Properties 57,537,676 9,440,843 -- 66,978,519 70,931,798 10,100,116 -- 81,031,914
Unproved oil and gas
Properties 713,594 -- -- 713,594 437,513 4,696,237 -- 5,133,750
Accumulated
depreciation,
depletion and
amortization (25,740,836) (2,098,269) -- (27,839,105) (30,462,658) (3,083,933) -- (33,546,591)
-----------------------------------------------------------------------------------------------------------------
Net capitalised
costs 32,510,434 7,342,574 -- 39,853,008 40,906,653 11,712,420 -- 52,619,073
==============================================================================================================
|
2005
PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------
Proved oil and gas
Properties 85,960,339 11,241,345 3,129,662 100,331,346
Unproved oil and gas
Properties 267,432 5,529,450 -- 5,796,882
Accumulated
depreciation,
depletion and
amortization (35,875,926) (3,850,293) -- (39,726,219)
---------------------------------------------------------
Net capitalised costs 50,351,845 12,920,502 3,129,662 66,402,009
=========================================================
|
CNOOC LIMITED AND ITS SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
(d) Costs incurred
2003 2004
PRC Indonesia Others Total PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------------------
Acquisition costs 1,579,726 -- -- 1,579,726 -- 3,531,046 -- 3,531,046
Exploration costs 1,225,926 102,067 -- 1,327,993 1,806,556 137,361 -- 1,943,917
Development costs* 7,489,472 512,064 -- 8,001,536 11,693,183 645,501 -- 12,338,684
----------------------------------------------------------------------------------------------
Total costs incurred 10,295,124 614,131 -- 10,909,255 13,499,739 4,313,908 -- 17,813,647
===============================================================================================
2005
PRC Indonesia Others** Total
RMB'000 RMB'000 RMB'000 RMB'000
------------- -----------------------------------
Acquisition costs -- -- 4,546,285 4,546,285
Exploration costs 1,878,931 111,219 46,779 2,036,929
Development costs* 14,423,266 2,328,200 -- 16,751,466
------------------------------------------------------
Total costs incurred 16,302,197 2,439,419 4,593,064 23,334,680
======================================================
|
* The development costs include estimated future dismantlement costs of dismantling offshore oil platforms and gas properties.
** The amounts include prepayments made in 2004 for the NWS Project of RMB 4,693,809,000 and a tax refund of RMB152,993,000 related to the acquisition of the NWS Project received in 2005.
(e) Standardised measure of discounted future net cash flows and changes therein
In calculating the standardised measure of discounted future net cash flows, year-end constant price and cost assumptions were applied to the Group's estimated annual future production from proven reserves to determine future cash inflows. Year end average realised oil prices used in the estimation of proved reserves and calculation of the standardised measure were US$48 as at December 31, 2005 (2004: US$32; 2003: US$30). Future development costs are estimated based upon constant price assumptions and assume the continuation of existing economic, operating and regulatory conditions. Future income taxes are calculated by applying the year-end statutory rate to estimate future pre-tax cash flows after provision for the tax cost of the oil and natural gas properties based upon existing laws and regulations. The discount was computed by application of a 10% discount factor to the estimated future net cash flows.
Management believes that this information does not represent the fair market value of the oil and natural gas reserves or the present value of estimated cash flows since no economic value is attributed to potential reserves, the use of a 10% discount rate is arbitrary, and prices change constantly from year-end levels.
CNOOC LIMITED AND ITS SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
(e) Standardised measure of discounted future net cash flows and changes therein (cont'd)
Present value of estimated future net cash flows:
2003 2004
Notes PRC Indonesia Others Total PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------------------------------
Future cash
inflows (1) 422,329,692 30,135,721 -- 452,465,413 467,336,822 37,198,784 -- 504,535,606
Future
production
Costs (106,854,167) (17,532,095) -- (124,386,262) (115,267,250) (20,472,914) -- (135,740,164)
Future
development
Costs (2) (52,917,280) (4,114,091) -- (57,031,371) (60,319,348) (6,709,341) -- (67,028,689)
Future income
taxes (72,124,755) (3,346,547) -- (75,471,302) (78,717,296) (4,001,019) -- (82,718,315)
---------------------------------------------------------------------------------------------------------------
Future net
cash flows (3) 190,433,490 5,142,988 -- 195,576,478 213,032,928 6,015,510 -- 219,048,438
10% discount
factor (84,550,531) (1,226,300) -- (85,776,831) (91,755,987) (1,905,679) -- (93,661,666)
---------------------------------------------------------------------------------------------------------------
Standardised measure 105,882,959 3,916,688 -- 109,799,647 121,276,941 4,109,831 -- 125,386,772
===============================================================================================================
2005
PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------
Future cash inflows 661,693,176 40,919,470 21,855,452 724,468,098
Future production
Costs (156,122,249) (19,370,535) (3,742,250) (179,235,034)
Future development
Costs (69,918,424) (7,481,211) (4,497,517) (81,897,152)
Future income taxes (119,326,469) (5,678,110) (2,759,755) (127,764,334)
---------------------------------------------------------------
Future net cash flows 316,326,034 8,389,614 10,855,930 335,571,578
10% discount factor (128,177,514) (2,494,083) (5,472,748) (136,144,345)
---------------------------------------------------------------
Standardised measure 188,148,520 5,895,531 5,383,182 199,427,233
===============================================================
|
(1) Future cash flows consist of the Group's 100% interest in the independent oil and gas properties and the Group's participating interest in the properties under production sharing contracts in PRC less (a) an adjustment for the royalties payable to the PRC government and share oil payable to the PRC government under production sharing contracts and (b) an adjustment for production allocable to foreign partners under the PRC production sharing contracts for exploration costs attributable to the Group's participating interest, plus (a) its participating interest in the properties in Australia, and (b) the participating interest in the properties covered under the production sharing contracts in Indonesia, less an adjustment of share oil attributable to Indonesian government and the domestic market obligation.
(2) Future development costs include the estimated costs of drilling future development wells and building the production platforms.
(3) Future net cash flows have been prepared taking into consideration estimated future dismantlement costs of dismantling offshore oil platforms and gas properties.
Changes in the standardised measure of discounted future net cash flows:
2003 2004 2005
RMB'000 RMB'000 RMB'000
------------ ------------ ------------
Standardised measure, beginning of year 100,141,049 109,799,647 125,386,772
Sales of production, net of royalties and production costs (22,345,781) (30,090,001) (44,886,528)
Net change in prices, net of royalties and production costs 22,321,949 17,826,421 99,412,030
Extensions discoveries and improved recovery,
net of related future costs 13,790,936 20,772,271 26,693,961
Change in estimated future development costs (14,673,054) (21,766,234) (18,500,061)
Development costs incurred during the year 7,718,863 11,768,916 15,592,789
Revisions in quantity estimates (2,942,902) (1,954,130) (3,087,240)
Accretion of discount 13,428,654 14,202,072 17, 132,630
Net change in income taxes (6,290,099) (5,515,547) (29,228,637)
Purchase of properties 5,363,142 2,352,004 8,981,882
Changes in timing and other (6,713,110) 7,991,353 1,929,635
------------ ------------ ------------
Standardised measure, end of year 109,799,647 125,386,772 199,427,233
============ ============ ============
|
Exhibit 1.1
THE COMPANIES ORDINANCE (CHAPTER 32)
Company Limited by Shares
NEW ARTICLES OF ASSOCIATION*
OF
CNOOC LIMITED
[CHINESE LANGUAGE OMITTED]
*as amended by special resolutions passed on 14 June 2004 and 31 December 2005
PRELIMINARY
1. The regulations in Table A in the First Schedule to the Ordinance shall not apply to the Company.
INTERPRETATION
2. (a) In these Articles save where the context otherwise requires:
Associate shall have the meaning ascribed to it under the Listing Rules as amended from time to time;
Auditors means the Auditors of the Company for the time being;
Chairman means the Chairman presiding at any meeting of members or the Board;
Company means the above-named Company;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), and includes every other ordinance incorporated therewith or substituted therefor, and in the case of any such substitution the references in these Articles to the provisions of the Ordinance shall be read as references to the provisions substituted therefor in the new ordinance;
Board and Directors means the directors for the time being of the Company or the Directors present at a duly convened meeting of directors at which a quorum is present;
call includes any instalment of a call and, in the application of provisions of these Articles to forfeiture of shares, a sum which, by the terms of issue of a share, is payable at a fixed time either in respect of the nominal value of the share or by way of premium;
Exhibit 1.1-1
capital means the share capital from time to time of the Company;
Clearing House shall mean a recognised clearing house within the meaning of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Chapter 571) as amended from time to time;
Dividend includes distributions in specie or in kind, capital distributions and capitalisation issues;
Dollars and $ means dollars in the lawful currency of Hong Kong;
Hong Kong means the Hong Kong Special Administrative Region of the People's Republic of China;
Listing Rules means the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited as amended from time to time;
month means calendar month;
Office means the registered office of the Company for the time being;
paid up includes credited as paid up;
Register means the register of members of the Company kept pursuant to the Ordinance and includes any branch register kept pursuant to the Ordinance;
Seal means the common seal of the Company or any official seal that the Company may have as permitted by the Ordinance;
Secretary means the person or persons appointed for the time being to perform for the Company the duties of a secretary;
share means a share in the capital of the Company and includes stock except where a distinction between stock and shares is expressed or implied;
Stock Exchange means The Stock Exchange of Hong Kong Limited;
Subsidiary and holding company shall have the meanings ascribed to them under the Listing Rules;
these Articles means these Articles of Association in their present form or as altered from time to time;
in writing and written includes facsimile and telex messages and any mode of reproducing words in a legible and non-transitory form.
(b) In these Articles, if not inconsistent with the subject or context, words importing the singular number only shall include the plural number and vice versa, words importing any gender shall include all other genders and references to persons shall include corporations (acting, where applicable, by their duly authorised representatives).
Exhibit 1.1-2
(c) Subject as aforesaid, any words defined in the Ordinance shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.
(d) The headings and any marginal notes are inserted for convenience only and shall not affect the construction of these Articles.
THE OFFICE
3. The Office shall be at such place in Hong Kong as the Directors shall from time to time appoint.
SHARES
4. Shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company and with a special, or without any, right of voting.
5. Without prejudice to any special rights, privileges or restrictions for the time being attached to any issued shares, any unissued or forfeited shares may be issued or re-issued upon such terms and conditions, and with such rights, privileges and restrictions attached thereto, whether in regard to dividends, voting, repayment or redemption of share capital, or otherwise, as the Company may, subject to the Ordinance, from time to time determine or, in the absence of any such determination, as the Directors shall determine.
6. The Board may, subject to the approval by the members in general meeting, issue warrants to subscribe for any class of shares or securities of the Company on such terms as the Board may from time to time determine. Where warrants are issued to bearer, no certificate thereof shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate thereof has been destroyed and the Company has received an indemnity in such form as the Board shall think fit with regard to the issue of any such replacement certificate.
7. Save as provided by contract or the Ordinance or these Articles to the contrary, all unissued shares shall be at the disposal of the Directors who may allot, grant options over or otherwise deal with or dispose of the same to such persons, at such times, for such consideration and generally upon such terms and conditions as they shall in their absolute discretion think fit, provided that no shares of any class shall be issued at a discount except in accordance with section 50 of the Ordinance.
8. The Company may make arrangements on the issue of shares for a difference between the holders of such shares in the amount of calls to be paid and the time of payment of such calls.
9. If by the conditions of allotment of any shares the whole or part of the issue price thereof shall be payable by instalments, every such instalment shall, when due, be paid to the Company by the person who for the time being and from time to time shall be the registered holder of the shares, or his legal personal representative.
10. Subject to the provisions of section 49 of the Ordinance, any preference share may, with the sanction of a special resolution, be issued on the terms that it is, or at the option of the Company is liable, to be redeemed.
11. Subject to the provisions of these Articles, except as required by law or ordered by a court of competent jurisdiction, no person shall be recognised by the Company as holding any share upon any trust, and except as aforesaid, the Company shall not be bound by or required in any way to recognise any contingent, future, partial or equitable interest in any share or in
Exhibit 1.1-3
any fractional part of a share or any other right in respect of any share or any other claim to or in respect of any such share on the part of any person (even when having notice thereof) except an absolute right to the entirety thereof in the registered holder.
12. The Company may in connection with the issue of any shares exercise all powers of paying interest out of capital and of paying commission and brokerage conferred or permitted by the Ordinance.
13. No person shall become a member until his name shall have been entered into the Register.
JOINT HOLDERS OF SHARES
14. Where two or more persons are registered as the holders of any share they shall be deemed to hold the same as joint tenants with the benefit of survivorship, subject to the following provisions:
(a) the Company shall not be bound to register more than four persons as the holders of any shares except in the case of the legal personal representatives of a deceased member;
(b) the joint holders of any shares shall be liable severally as well as jointly in respect of all payments which ought to be made in respect of such shares;
(c) on the death of any one of such joint holders the survivor or survivors shall be the only person or persons recognised by the Company as having any title to such shares, but the Directors may require such evidence of death as they may deem fit;
(d) any one of such joint holders may give effectual receipts for any dividend, bonus or return of capital payable to such joint holders; and
(e) the Company shall be at liberty to treat the person whose name stands first in the Register as one of the joint holders of any shares as solely entitled to delivery of the certificate relating to such shares, or to receive notices from the Company, or to attend or vote at general meetings of the Company, and any notice given to such person shall be deemed notice to all the joint holders; but any one of such joint holders may be appointed the proxy of the persons entitled to vote on behalf of such joint holders, and as such proxy to attend and vote at general meetings of the Company, but if more than one of such joint holders be present at any meeting personally or by proxy that one so present whose name stands first in the Register in respect of such shares shall alone be entitled to vote in respect thereof.
SHARE CERTIFICATES
15. Every person whose name is entered as a member in the Register shall be entitled without payment to receive within two months after allotment or lodgment of an instrument of transfer duly stamped, or within such other period as the conditions of issue shall provide, one certificate for all his shares of any particular class, or if he shall so request, upon payment of a fee (not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit) for every certificate after the first, as the Directors shall from time to time determine, such number of certificates for shares in Stock Exchange board lots or multiples thereof as he shall request and one for the balance (if any) of the shares in question, provided that in the event of a member transferring part of the shares represented by a certificate in his name a new certificate in respect of the balance thereof shall be issued in his name without payment and, in the case of a share or shares held jointly by several persons the
Exhibit 1.1-4
Company shall not be bound to issue a certificate or certificates to each such person, and the issue and delivery of a certificate or certificates to one of several joint holders shall be sufficient delivery to all such holders. In any event, the Company shall, within 10 business days (being any day on which a recognised stock market is open for the business of dealing in securities) after the date on which a transfer of any of its shares, debentures or debenture stock is lodged with the Company, complete and have ready for delivery the certificates of all shares, the debentures and the certificates of all debenture stock so transferred, unless the conditions of issue of the shares, debentures or debenture stock otherwise provide.
16. Every share certificate shall be issued under the Seal (which for this purpose may be any official seal as permitted by section 73A of the Ordinance) and shall specify the number and class of shares and, if required, the distinctive numbers thereof, to which the certificate relates, and the amount paid up thereon and may otherwise be in such form as the Board may from time to time determine. If at any time the share capital of the Company is divided into different classes of shares, every share certificate issued at that time shall comply with section 57A of the Ordinance, and no certificate shall be issued in respect of more than one class of shares.
17. Subject to section 71A of the Ordinance, if any share certificate shall be worn out, defaced, destroyed or lost, it may be replaced on payment of such fee, if any (not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit), on such evidence being produced as the Directors shall require, and in case of wearing out or defacement, on delivery up of the old certificate, and in case of destruction or loss, on the execution of such indemnity (if any), as the Directors may require. In case of destruction or loss, the person to whom such replacement certificate is given shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such destruction or loss and of the production of such indemnity.
CALLS ON SHARES
18. (a) The Directors may from time to time make calls upon the members in respect of all moneys unpaid on their shares whether on account of the nominal value of the shares or by way of premium but subject always to the terms of issue of such shares, and any such call may be made payable by instalments.
(b) Each member shall, subject to receiving at least fourteen days' notice specifying the time or times and place of payment, pay to the Company the amount called on his shares and at the time or times and place so specified. The non-receipt of a notice of any call by, or the accidental omission to give notice of a call to, any of the members shall not invalidate the call.
19. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. A call may be revoked, varied or postponed as to all or any of the members liable therefor as the Directors may determine. A person on whom a call is made will remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect whereof the call was made.
20. If any part of a call is not paid before or on the day appointed for payment thereof, the person from whom the payment is due shall be liable to pay all costs, charges and expenses that the Company may have incurred by reason of such non-payment together with interest on the outstanding part thereof at such rate as the Directors shall determine (not exceeding twenty per cent. per annum) from the day appointed for the payment of such call or instalment to the
Exhibit 1.1-5
time of discharge thereof in full; but the Directors may, if they shall think fit, waive the payment of such costs, charges, expenses or interest or any part thereof.
21. If, by the terms of the issue of any shares or otherwise, any amount is made payable upon allotment or at any fixed time, whether on account of the nominal amount of the shares or by way of premium, every such amount shall be payable as if it were a call duly made and payable on the date on which by the terms of issue the same becomes payable; and all the provisions hereof with respect to the payment of calls and interest thereon, or to the forfeiture of shares for non-payment of calls, shall apply to every such amount and the shares in respect of which it is payable in the case of non-payment thereof.
22. The Directors may, if they shall think fit, receive from any member willing to advance the same (either in money or money's worth) all or any part of the moneys uncalled and unpaid or instalments payable upon any shares held by him; and upon all or any of the moneys so paid in advance the Directors may (until the same would, but for such payment in advance, become presently payable) pay interest at such rate as may be agreed upon between the member paying the moneys in advance and the Directors (not exceeding twenty per cent. per annum). But a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called. The Directors may also at any time repay the amount so advanced upon giving to such member one month's notice in writing unless before the expiration of such notice the amount so advanced shall have been called up on the shares in respect of which it was advanced.
23. On the trial or hearing of any action for the recovery of any money due for any call, it shall be sufficient to prove that the name of the member sued is entered in the Register as the holder, or one of the holders, of the shares in respect of which such money is due; that the resolution making the call is duly recorded in the minute book of the Company; and that notice of such call was duly given to the member sued in pursuance of these Articles, and it shall not be necessary to prove the appointment of the Directors who made such call, nor any other matter whatsoever, but the proof of the matters aforesaid shall be conclusive evidence that the money is due.
24. No member shall, unless the Directors otherwise determine, be entitled to receive any dividend or bonus, or to receive notice of or to be present or vote at any general meeting, either personally or (save as proxy for another member) by proxy, or to exercise any privileges as a member, or be reckoned in a quorum, until he shall have paid all calls or other sums for the time being due and payable on every share held by him, whether alone or jointly with any other person, together with interest and expenses (if any).
FORFEITURE
25. If any member fails to pay in full any call or any instalment of a call on the day appointed for payment thereof, the Directors may at any time thereafter, during such time as any part of the call remains unpaid without prejudice to the provisions of Article 24, serve a notice on him requiring him to pay so much of the call as is unpaid together with interest accrued and any expenses incurred by reason of such non-payment.
26. The notice shall name a further day (not being less than fourteen days from the date of the notice) on or before which such call or part thereof and all interest accrued and expenses incurred by reason of such non-payment are to be paid, and it shall also name the place where payment is to be made, such place being either the Office, or some other place at which calls of the Company are usually made payable. The notice shall also state that, in the event of
Exhibit 1.1-6
non-payment at or before the time and at the place appointed, the shares in respect of which such call is payable will be liable to forfeiture.
27. If the requirements with regard to payment of any such notice as aforesaid are not complied with, any shares in respect of which such notice has been given may, at any time thereafter and before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect, and any such forfeiture shall extend to all dividends and bonuses declared in respect of the shares so forfeited but not payable until after such forfeiture. The Directors may accept surrender of any shares liable to be forfeited hereunder and in such cases references in the Articles to forfeiture shall include surrender.
28. Any shares so forfeited shall be deemed for the purposes of this Article to be the property of the Company and may be sold, re-allotted or otherwise disposed of either subject to or discharged from all calls made prior to the forfeiture, to any person, upon such terms as to subscription price and otherwise and in such manner and at such time or times as the Directors think fit. For the purpose of giving effect to any such sale or other disposition the Directors may authorise the transfer of the shares so sold or otherwise disposed of to the purchaser thereof or any other person becoming entitled thereto. The Directors shall account to the person whose shares have been forfeited with the balance (if any) of monies received by the Company in respect of those shares after deduction of expenses of forfeiture, sale or disposal of the shares and any amount due to the Company in respect of the shares.
29. The Directors may, at any time before any shares so forfeited shall have been sold, re-allotted or otherwise disposed of, annul the forfeiture thereof upon such conditions as they think fit or permit the share forfeited to be redeemed upon the terms of payment of all calls and interest due thereon and all expenses incurred in respect of the share, and upon such further terms (if any) they think fit.
30. Any person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall notwithstanding the forfeiture be and remain liable to pay to the Company all moneys which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with interest thereon from the date of forfeiture until payment at such rate as the Directors may prescribe (not exceeding twenty per cent. per annum), and the Directors may enforce the payment of such moneys or any part thereof and without any deduction or allowance for the value of the shares at the date of forfeiture, but his liability shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares. For the purposes of this Article any sum which, by the terms of issue of a share payable thereon at a fixed time which is subsequent to the date of forfeiture, whether on account of the nominal value of the share or by way of premium, shall notwithstanding that that time has not yet arrived be deemed to be payable at the date of forfeiture, and the same shall become due and payable immediately upon the forfeiture, but interest thereon shall only be payable in respect of any period between the said fixed time and the date of actual payment.
31. When any shares have been forfeited, notice of the resolution shall be given to the member in whose name it stood immediately prior to the forfeiture and an entry shall be made in the Register recording the forfeiture and the date thereof but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice or make any such entry, and so soon as the shares so forfeited have been sold or otherwise disposed of an entry shall also be made of the manner and date of the sale or disposal thereof.
Exhibit 1.1-7
LIEN
32. The Company shall have a first and paramount lien on every share (not being a fully paid-up share) for all moneys outstanding in respect of such share whether presently payable or not, and the Company shall also have a first and paramount lien on every share (other than fully paid-up shares) standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice has been given to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have already arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member or not. The Company's lien on a share shall extend to all dividends payable thereon. The Directors may at any time either generally or in any particular case waive any lien that has arisen, or declare any share to be wholly or in part exempt from the provisions of this Article.
33. The Company may sell in such manner as the Directors think fit any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable or the liability or engagement in respect of such lien exists is liable to be presently fulfilled or discharged, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of the sum presently payable and giving notice of intention to sell in default shall have been given to the holder for the time being of the share or the person entitled thereto by reason of his death, bankruptcy or winding-up or otherwise by operation of law or court order.
34. The net proceeds of such sale after payment of the costs of such sale shall be applied in or towards payment or satisfaction of the debts or liabilities in respect whereof the lien exists so far as the same are presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the time of the sale. For giving effect to any such sale the Directors may authorise some person to transfer the shares so sold to the purchaser thereof and may enter the purchaser's name in the Register as holder of the shares, and the purchaser shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.
35. A statutory declaration in writing that the declarant is a Director or the Secretary of the Company and that a share has been duly forfeited or surrendered or sold on a date stated in the declaration shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. Such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allocation or disposal thereof together with the share certificate delivered to a purchaser or allottee thereof shall (subject to the execution of a transfer if the same be required) constitute a good title to the share and the person to whom the share is sold, re-allotted or disposed of shall be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share.
TRANSFER OF SHARES
36. The instrument of transfer of any shares in the Company shall be in writing in the usual common form or in such other form as the Board may accept and may be under hand only or, if the transferor or transferee is a Clearing House (or its nominee), by hand or by machine imprinted signature or by such other manner of execution as the Board may approve from
Exhibit 1.1-8
time to time and shall be executed by or on behalf of the transferor and by or on behalf of the transferee. The transferor shall remain the holder of the shares concerned until the name of the transferee is entered in the Register in respect thereof. Nothing in these Articles shall preclude the Board from recognising a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person.
37. Every instrument of transfer shall be lodged at the Office for registration (or at such other place the Board may appoint for such purpose) accompanied by the certificate relating to the shares to be transferred and such other evidence as the Directors may require in relation thereto. All instruments of transfer which shall be registered shall be retained by the Company, but save where fraud is suspected any instrument of transfer which the Directors may decline to register shall, on demand, be returned to the person depositing the same.
38. There shall be paid to the Company in respect of the registration of a transfer and of any Grant of Probate or Letters of Administration, Certificate of Marriage or Death, Power of Attorney or other document relating to or affecting the title to any share or for making of any entry in the Register affecting the title to any share such fee (if any) as the Directors may from time to time require or prescribe (but not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit).
39. The registration of transfers may be suspended at such times and for such periods as the Directors may, in accordance with section 99 of the Ordinance, from time to time determine and either generally or in respect of any class of shares.
40. The Directors may, subject to section 69 of the Ordinance, at any time in their absolute discretion and without assigning any reason therefor decline to register any transfer of any share (not being a fully paid-up share). If the Directors refuse to register a transfer they shall, within two months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.
41. The Directors may also decline to register any transfer unless:
(a) the instrument of transfer is in respect of only one class of share;
(b) in the case of a transfer to joint holders, the number of transferees does not exceed four;
(c) the shares concerned are free of any lien in favour of the Company;
(d) the instrument of transfer is properly stamped;
(e) such other conditions as the Directors may from time to time impose for the purpose of guarding against losses arising from forgery are satisfied;
(f) a fee not exceeding the maximum fee prescribed or permitted from time to time by the Stock Exchange is paid to the Company in respect thereof;
(g) the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer.
42. No transfer may be made to an infant or to a person of unsound mind or under other legal disability.
Exhibit 1.1-9
TRANSMISSION OF SHARES
43. In the case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole or only surviving holder, shall be the only persons recognised by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder, whether sole or joint, from any liability in respect of any share solely or jointly held by him.
44. Any person becoming entitled to shares in the Company in consequence of the death, bankruptcy or winding-up of any member or otherwise by operation of law or by court order shall, upon procuring such evidence of his title as the Directors may require, have the right either to be registered himself as the holder of the shares upon giving to the Company notice in writing of such his desire or to transfer such shares to some other person. All the limitations, restrictions and provisions of these Articles and the Ordinance relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as if the same were a transfer of shares by a member, including the Directors' right to refuse or suspend registration.
45. A person becoming entitled to shares in the Company in consequence of the death, bankruptcy or winding-up of any member or otherwise by operation of law or by court order shall have the right to receive and give a discharge for any dividends or other moneys payable in respect of the shares, provided always that the Directors may at any time give notice requiring any such person to elect to be registered himself or to transfer the shares, and if the notice is not complied with within sixty days, the Directors may thereafter withhold payment of all dividends or other moneys payable in respect of the shares until the requirements of the notice have been complied with but, subject to the requirements of Article 76 being met, such a person may vote at meetings.
STOCK
46. The Company may from time to time by ordinary resolution convert any fully paid-up shares into stock and may reconvert any stock into fully paid-up shares of any denomination. After the passing of any resolution converting all the fully paid-up shares of any class in the capital of the Company into stock, any shares of that class which subsequently become fully paid-up and rank pari passu in all other respects with such shares shall, by virtue of this Article and such resolution, be converted into stock transferable in the same units as the shares already converted.
47. The holders of stock may transfer the same or any part thereof in the same manner and subject to the same regulations as the shares from which the stock arose might prior to conversion have been transferred or as near thereto as circumstances admit. The Directors may from time to time fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of such minimum, but the minimum shall not, without the sanction of an ordinary resolution of the Company, exceed the nominal amount of each of the shares from which the stock arose. No warrants to bearer shall be issued in respect of any stock.
48. The holders of stock shall, according to the amount of the stock held by them, have the same rights as regards dividends, participation in assets on a winding-up, voting at general meetings of the Company and other matters as if they held the shares from which the stock arose, but no such right (except as to participation in dividends, profits and in assets on a reduction of capital or a winding-up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred such right.
Exhibit 1.1-10
49. Such of these Articles as are applicable to fully paid-up shares shall apply mutatis mutandis to stock, and the words "share" and "shareholder" shall include "stock" and "stockholder".
INCREASE OF CAPITAL AND PURCHASE OF OWN SHARES
50. The Company may, from time to time, by ordinary resolution increase its authorised capital by such sum divided into shares of such amounts as the resolution shall prescribe.
51. The general meeting resolving upon the creation of any new shares may direct that the same or any of them shall be offered in the first instance, and either at par or at a premium or (subject to the provisions of the Ordinance) at a discount, to all the holders for the time being of any class of shares in the capital of the Company, in proportion to the number of shares of such class held by them respectively, or make any other provisions as to the issue and allotment of the new shares, and in default of any such direction, or so far as the same shall not extend, the new shares shall be at the disposal of the Directors, and Article 7 shall apply thereto. The Company may exercise any powers conferred or permitted by the Ordinance or any other ordinance from time to time to purchase or otherwise acquire its own shares and warrants (including any redeemable shares) at any price or to give, directly or indirectly, by means of a loan, guarantee, the provision of security or otherwise, financial assistance for the purpose of or in connection with a purchase or other acquisition made or to be made by any person of any shares or warrants in the Company and should the Company purchase or otherwise acquire its own shares or warrants neither the Company nor the Board shall be required to select the shares or warrants to be purchased or otherwise acquired ratably or in any other particular manner as between the holders of shares or warrants of the same class or as between them and the holders of shares or warrants of any other class or in accordance with the rights as to dividends or capital conferred by any class of shares provided always that (a) purchases not made through the market or by tender shall be limited to a maximum price, and (b) if purchases are by tender, tenders shall be available to all shareholders alike and provided further that any such purchase or other acquisition or financial assistance shall only be made or given in accordance with any relevant rules or regulations issued by the Stock Exchange or the Securities and Futures Commission from time to time in force.
52. Subject to any direction or determination that may be given or made in accordance with the powers contained in these Articles, all new shares created pursuant to Article 50 shall be subject to the same provisions herein contained with reference to the payment of calls, transfer, transmission, forfeiture, lien and otherwise as the existing shares of the Company.
ALTERATION OF SHARE CAPITAL
53. The Company may by ordinary resolution:
(a) subdivide its existing shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association of the Company, provided that in the subdivision of an existing share the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived, and that the resolution whereby any share is subdivided may determine that as between the holders of the shares resulting from such subdivision one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights or be subject to any such restrictions as the Company has power to attach to unissued or new shares;
(b) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;
Exhibit 1.1-11
(c) consolidate and divide its share capital or any part thereof into shares of larger amount than its existing shares;
(d) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its authorised capital by the amount of the shares so cancelled; or
(e) make provision for the issue and allotment of shares which do not carry any voting rights.
54. The Company may by special resolution reduce its share capital and any capital redemption reserve fund or any share premium account in any manner allowed by law.
55. Where any difficulty arises in regard to any consolidation and division under paragraph (c) of Article 53, the Directors may settle the same as they think expedient and in particular may arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the members who would have been entitled to the fractions, and for this purpose the Directors may authorise some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.
MODIFICATION OF RIGHTS
56. All or any of the special rights attached to any class of shares (unless otherwise provided for by the terms of issue of the shares of that class) for the time being in issue may subject to the provisions of the Ordinance, at any time, as well before as during liquidation, be altered or abrogated either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of that class, and all the provisions contained in these Articles relating to general meetings shall mutatis mutandis apply to every such meeting but so that the quorum thereof shall be not less than two persons holding or representing by proxy one-third in nominal value of the issued shares of the class, and that any holder of shares of that class present in person or by proxy may demand a poll.
57. The provisions of the foregoing Article shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the rights whereof are to be varied.
58. The special rights conferred upon the holders of shares or any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith.
GENERAL MEETINGS
59. The Company shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year. The annual general meeting shall be held at such time (within a period of not more than fifteen months, or such longer period as the Registrar of Companies may authorise in writing, after the holding of the last preceding annual general meeting) and place as may be determined by the Directors. All other general meetings shall be called extraordinary general meetings.
Exhibit 1.1-12
60. The Directors may wherever they think fit, and shall on requisition in accordance with the Ordinance, proceed to convene an extraordinary general meeting.
NOTICE OF GENERAL MEETINGS
61. Subject to section 116C of the Ordinance, an annual general meeting and a meeting called for the passing of a special resolution shall be called by not less than twenty-one days' notice in writing, and any other general meeting shall be called by not less than fourteen days' notice in writing. The notice shall specify the place, date and time of meeting, and, in the case of special business, the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. There shall appear on every such notice with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him and that a proxy need not be a member of the Company.
62. Notwithstanding that a meeting of the Company is called by shorter notice than that specified in these Articles or required by the Ordinance, it shall be deemed to have been duly called if it is so agreed:
(a) in the case of a meeting called as the annual general meeting, by all the members entitled to attend and vote thereat; and
(b) in the case of any other meeting, by a majority in number of the members having the right to attend and vote at the meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right.
63. The accidental omission to give notice of a meeting or (in cases where instruments of proxy are sent out with the notice) the accidental omission to send such instrument of proxy to, or the non-receipt of notice of a meeting or such instrument of proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
64. All business shall be deemed special that is transacted at an extraordinary general meeting and at an annual general meeting with the exception of:
(a) the receipt of the accounts and balance sheet and the reports of the Directors and other documents required to be annexed to the accounts;
(b) the declaration and sanction of dividends;
(c) the election of Directors in place of those retiring (if any);
(d) the election or re-election of the Auditors of the Company; and
(e) the fixing of, or the determination of the method of fixing, the remuneration or extra remuneration of the Directors and of the Auditors of the Company.
65. No business save the election of a Chairman of the meeting shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business. Two members present in person or by proxy and entitled to vote shall be a quorum for all purposes.
Exhibit 1.1-13
66. If, within thirty minutes from the time appointed for the meeting a quorum be not present, the meeting, if convened upon requisition in accordance with the Ordinance, shall be dissolved; but in any other case it shall stand adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the Chairman of the meeting may determine. If at such adjourned meeting a quorum be not present within thirty minutes from the time appointed for the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting is called.
67. The Chairman (if any) of the Board shall preside as Chairman at every general meeting. If there is no such Chairman or if at any meeting the Chairman is not present within fifteen minutes after the time appointed for holding the meeting, or if the Chairman is not willing to act as Chairman at the meeting, the Directors present shall choose one of their number to act, or if one Director only is present he shall preside as Chairman if willing to act. If no Director is present, or if each of the Directors present declines to act as Chairman, the persons present and entitled to vote shall elect one of their number to be Chairman of the meeting.
68. The Chairman of any general meeting at which a quorum is present may, with the consent of the meeting, and shall, if so directed by the meeting, adjourn the meeting from time to time and from place to place or sine die; but no business shall be transacted at any adjourned meeting other than business which might have been transacted at the meeting from which the adjournment took place unless due notice thereof is given or such notice is waived in the manner prescribed by these Articles. When a meeting is adjourned for thirty days or more, or sine die, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjourned meeting or the business to be transacted thereat. Where a meeting is adjourned sine die the time and place for the adjourned meeting shall be fixed by the Directors.
VOTING
69. (a) At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:
(i) the Chairman of the meeting; or
(ii) at least three members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote at the meeting; or
(iii) any member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or
(iv) any member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right.
(b) Unless a poll is so demanded and the demand is not withdrawn, a declaration by the Chairman that a resolution has, on a show of hands, been carried unanimously or by a particular majority or lost shall be final and conclusive, and an entry to that effect
Exhibit 1.1-14
in the minute book of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded for or against such resolution.
70. A demand for a poll may be withdrawn only with the approval of the Chairman of the meeting, at any time before the close of the meeting or the taking of the poll, whichever is earlier. If a poll be directed or demanded in the manner (including the use of ballot or voting papers or tickets) above mentioned it shall (subject to the provisions of Article 72 hereof) be taken at such time (being not later than thirty days after the date of the demand) and in such manner as the Chairman of the meeting may appoint. No notice need be given of a poll not taken immediately. The result of such poll shall be deemed for all purposes to be the resolution of the meeting at which the poll was so directed or demanded.
71. In the case of an equality of votes at any general meeting, whether upon a show of hands or on a poll, the Chairman of the meeting shall be entitled to a second or casting vote.
72. A poll demanded upon the election of a Chairman or upon a question of adjournment shall be taken forthwith. Any business, other than that upon which a poll has been demanded, may be proceeded with pending the taking of the poll.
73. (a) Save as expressly provided in these Articles, no person other than a member duly registered and who shall have paid everything for the time being due from him payable to the Company in respect of his shares shall be entitled to be present or to vote (save as proxy for another member) either personally or by proxy, or to be reckoned in a quorum at any general meeting.
(b) No objection shall be made to the validity of any vote except at a meeting at which such vote shall be tendered and every vote whether given personally or by proxy not disallowed at such meeting shall be deemed valid for all purposes whatsoever of such meeting or poll.
(c) In case of any dispute as to voting the Chairman shall determine the same, and such determination shall be final and conclusive.
74. Subject to the provisions of the Ordinance, a resolution in writing signed by all the members for the time being entitled to receive notice of and to attend and vote at general meetings shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. A written notice of confirmation of such resolution in writing signed by or on behalf of a member shall be deemed to be his signature to such resolution in writing for the purposes of this Article. Such resolution in writing may consist of several documents each signed by or on behalf of one or more members.
VOTES OF MEMBERS
75. Subject to Article 85 and to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, every member who (being an individual) is present in person or (being a corporation) is present by a representative duly authorised under section 115 of the Ordinance at any general meeting shall be entitled, on a show of hands, to one vote only and, on a poll, to one vote for every fully paid-up share of which he is the holder.
76. Any person entitled under Article 45 to be registered as the holder of any shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that at least 48 hours before the time of the holding of the meeting or adjourned meeting (as the case may be) at which he proposes to vote, he shall satisfy the
Exhibit 1.1-15
Board of his right to be registered as the holder of such shares or the Board shall have previously admitted his right to vote at such meeting in respect thereof.
77. On a poll, votes may be given either personally or by proxy and a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
78. A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, curator bonis or other person in the nature of a committee or curator bonis appointed by that court, and such committee, curator bonis or other person may on a poll, vote by proxy. If any member be a minor he may vote by his guardian or one of his guardians who may give their votes personally or by proxy. Where a member is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.
PROXIES
79. (a) A proxy need not be a member of the Company.
(b) An instrument appointing a proxy shall be in writing in any usual or common form or in any other form which the Directors may accept, and shall be deemed, subject to the proviso hereinafter contained, to confer authority upon the proxy to vote on any resolution (or amendment thereto) put to the meeting for which it is given as the proxy thinks fit.
Provided that any form issued to a member for use by him for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which special business (determined as provided in Article 64) is to be transacted shall be such as to enable the member according to his intention to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such special business and shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates.
80. The instrument appointing a proxy shall be signed by the appointor, or his duly authorised attorney, of if such appointor be a corporation, under its common seal or signed by some officer, attorney or other person duly authorised in that behalf.
81. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be deposited at the Office at least forty-eight hours before the time fixed for holding the meeting at which the person named in such instrument proposes to attend and vote or, in the case of a poll, at least thirty-six hours before the time appointed for the taking of the poll; otherwise the person so named shall not be entitled to vote at that meeting (or as the case may be) except with the approval of the Chairman of the meeting. No instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution, except at an adjourned meeting or on a poll demanded at a meeting or an adjourned meeting in cases where the meeting was originally held within twelve months from such date. Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
Exhibit 1.1-16
82. Any member may by power of attorney appoint any person to be his attorney for the purpose of attending and voting at any meeting, and such power may be a special power limited to any particular meeting or a general power extending to all meetings at which such member is entitled to vote. Every such power shall be deposited at the Office at least thirty-six hours before the time fixed for holding the meeting at which such attorney proposes to attend and vote or, in the case of a poll, at least twenty-four hours before the time appointed for the taking of the poll; otherwise the attorney shall not be entitled to vote at that meeting (or as the case may be) except with the approval of the Chairman of the meeting.
83. (a) An instrument of proxy may be revoked by forwarding to the Office written notification of such revocation signed by or on behalf of the person who issued or authorised the issue of the instrument of proxy.
(b) A vote given in accordance with the terms of an instrument of proxy or power of attorney or by the duly authorised representative of a corporation shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy or power of attorney or other authority, or transfer of the shares in respect of which the proxy is given, provided no intimation in writing of the death, insanity, revocation or transfer shall have been received at the Office at least twenty-four hours before the time fixed for holding the meeting, or adjourned meeting, or the taking of the poll, at which the instrument of proxy is used.
84. Any corporation which is a member of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise such persons at it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Company. References in these Articles to a member present in person at a meeting shall, unless the context otherwise requires, include a corporation which is a member represented at the meeting by such duly authorised representative.
85. Without prejudice to the generality of Article 84 if a Clearing House (or its nominee) is a member of the Company, it (or, as the case may be, its nominee) may authorise such person or persons as it thinks fit to act as its proxy and proxies or representative or representatives at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the proxy form or authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person so authorised under the provisions of this Article shall be entitled to exercise the same powers on behalf of the Clearing House (or its nominee) which he represents as that Clearing House (or its nominee) could exercise if it were an individual member of the Company and, on a show of hands, each such person shall be entitled to a separate vote.
DIRECTORS
86. Unless and until otherwise determined by an ordinary resolution of the Company, the Directors shall be not fewer than two in number, and there shall be no maximum number of Directors.
87. The Company shall keep in accordance with the Ordinance a register containing the names and addresses and occupations of its Directors and shall from time to time notify to the Registrar of Companies any change that takes place in such Directors as required by the Ordinance.
Exhibit 1.1-17
88. A Director need not hold any shares in the Company. If invited by the Company, a Director who is not a member of the Company shall nevertheless be entitled to attend and speak at general meetings.
DIRECTORS' REMUNERATION
89. (a) Without prejudice to the provisions of Article 90, the Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) is to be divided amongst the Directors in such proportions and in such manner as the Board may determine, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. The foregoing provisions shall not apply to a Director who holds any salaried employment or office in the Company except in the case of sums paid in respect of directors' fees.
(b) The Directors shall also be entitled to be repaid their reasonable travelling, hotel and other expenses incurred by them in or about the performance of their duties as Directors, including their expenses of travelling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or on the discharge of their duties as directors.
90. The Directors may award special remuneration out of the funds of the Company (by way of salary, commission or otherwise as the Directors may determine) to any Director who performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director.
POWERS OF DIRECTORS
91. The Directors may establish any local boards or agencies for managing any of the affairs of the Company, either in Hong Kong or elsewhere, and may appoint any persons to be members of such local boards, or any managers or agents for the Company, and may fix their remuneration, and may delegate (with or without power to sub-delegate as the Directors shall determine) to any local board, manager or agent any of the powers, authorities and discretions vested in the Directors, and may authorise the members of any local boards, or any of them, to fill any vacancies therein, and to act notwithstanding vacancies, and such appointment or delegation may be made upon such terms and subject to such conditions as the Directors may think fit, and the Directors may remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.
92. The Directors may from time to time and at any time by power of attorney or other instrument appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other instrument may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. The Company may, by writing under its seal, empower any person, either generally or in respect of any specified matter, as its attorney to execute deeds and instruments on its
Exhibit 1.1-18
behalf and to enter into contracts and sign the same on its behalf and every deed signed by such attorney on behalf of the Company and under his seal shall bind the Company and have the same effect as if it were under the seal of the Company.
93. Subject to and to the extent permitted by the Ordinance, the Company or the Directors on behalf of the Company, may cause to be kept in any territory a Branch Register of members resident in such territory, and the Directors may make and vary such regulations as they may think fit respecting the keeping of any such Branch Register.
94. All cheques, promissory notes, drafts, bills of exchange, and other negotiable or transferable instruments, and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by resolution determine. The Company's bank accounts shall be kept with such banker or bankers as the Board shall from time to time determine.
95. (a) The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures, debenture stocks, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. Debentures, debenture stocks, bonds and other securities of the Company may be made assignable free from any equities between the Company and the person to which the same may be issued, and may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise.
(b) The Directors shall cause a proper register to be kept, in accordance with the provisions of the Ordinance, of all mortgages and charges affecting the property of the Company and shall duly comply with the requirements of the Ordinance in regard to the registration of mortgages and charges therein specified and otherwise. Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by notice to the members or otherwise, to obtain priority over such prior charge.
96. The Board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or superannuation funds for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the wives, widows, families and dependants of any such persons. The Board may also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well being of the Company or of any such other company as aforesaid or of any such persons as aforesaid, and may make payments for or towards the insurance of any such persons as aforesaid, and subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. The Board may do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid. Any Director holding any such employment or office
Exhibit 1.1-19
shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.
APPOINTMENT AND REMOVAL OF DIRECTORS
97. At each annual general meeting one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third, shall retire from office by rotation save any Director holding office as Chairman or Chief Executive Officer. The Directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became Directors on the same day shall (unless they otherwise agree between themselves) be determined by lot. The retiring Directors shall be eligible for re-election. The Company at any general meeting at which any Directors retire may fill the vacated offices. No person other than a Director retiring at the meeting, shall, unless recommended by the Directors for election, be eligible for election as a Director at any general meeting unless there shall have been lodged at the Office or at the head office of the Company within the period referred to in the next succeeding sentence a notice signed by a member (other than the person to be proposed) duly qualified to attend and vote at the meeting for which such notice is given of his intention to propose such person for election and also a notice signed by the person to be proposed of his willingness to be elected. The period for lodgement of such notices shall commence on (and include) the day after the despatch of the notice of meeting appointed for such election and end on (and exclude) the date that is seven (7) days before the date appointed for the meeting.
98. If at any general meeting at which an election of Directors ought to take place the places of the retiring Directors are not filled, the retiring Directors or such of them as have not had their places filled shall be deemed to have been re-elected and shall, if willing, continue in office until the next annual general meeting and so on from year to year until their places are filled, unless:
(a) it shall be determined at such meeting to reduce the number of Directors;
(b) it is expressly resolved at such meeting not to fill such vacated offices;
(c) in any such case the resolution for re-election of a Director is put to the meeting and lost; or
(d) such Director has given notice in writing to the Company that he is not willing to be re-elected.
99. The Company may, from time to time, by ordinary resolution elect any person to be a Director either to fill a casual vacancy or as an addition to the Board.
100. The Company may by ordinary resolution remove any Director notwithstanding anything in these Articles or in any agreement between him and the Company (but without prejudice to any right to damages for termination of such agreement not in accordance with the terms thereof), and may, if thought fit, by ordinary resolution appoint another person in his stead. Special notice is required of a resolution to remove a Director, or to appoint somebody in place of a Director so removed at the meeting at which he is removed, in accordance with the Ordinance. Any person so elected shall hold office for such time only as the Director in whose place he is elected would have held the office if he had not been removed.
101. The Directors shall have power, exercisable at any time and from time to time, to appoint any other person as a Director, either to fill a casual vacancy or as an addition to the Board but so that the number of Directors so appointed shall not exceed the maximum number determined
Exhibit 1.1-20
from time to time (if any) by the shareholders in general meeting and any directors so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election, but shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at each annual general meeting.
102. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as the number of Directors is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. If there shall be no Directors able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors.
103. No person other than a retiring Director shall, unless recommended by the Board for re-election, be eligible for election to the office of Director at any annual general meeting unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his consent to be elected shall have been lodged at the Office or head office of the Company. The period for lodgement of such notices shall commence on (and include) the day after the despatch of the notice of meeting appointed for such election and end on (and exclude) the date that is seven (7) days before the date appointed for the meeting.
ALTERNATE DIRECTORS
104. Each Director may by written notification to the Company nominate any other person to act as alternate Director in his place for a specified period and at his discretion in similar manner remove such alternate Director. If such person is not another Director, such appointment, unless previously approved by the Board, shall have effect only upon and subject to being so approved. The alternate Director shall (except as regards the power to appoint an alternate) be subject in all respects to the terms and conditions existing with reference to the other Directors of the Company; and each alternate Director, whilst acting as such, shall exercise and discharge all the functions, powers and duties of the Director he represents, but shall look to such Director solely for his remuneration as alternate Director. Every person acting as an alternate Director shall (except when absent from Hong Kong) be entitled to receive notices of meetings of the Board and shall have one vote for each Director for whom he acts as alternate at any such meeting at which the Director appointing him is not personally present (in addition to his own vote if he is also a Director). The signature of an alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the notice of his appointment provides to the contrary, be as effective as the signature of his appointor. Any person appointed as an alternate Director shall vacate his office as such alternate Director if and when the Director by whom he has been appointed removes him or vacates office as Director. An alternate Director shall be responsible and liable for his own acts, omissions and defaults. An alternate Director shall not be deemed to be an agent of the Director who appoints him. The Director who appoints the alternate Director shall not be vicariously liable for any acts or omissions, including but not limited to any tort, committed by or of the alternate Director while acting in the capacity of alternate Director. To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this paragraph shall also apply mutatis mutandis to any meeting of any committee of which his appointor is a member. An alternate Director shall not, save as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles.
Exhibit 1.1-21
DISQUALIFICATION OF DIRECTORS
105. The office of a Director shall ipso facto be vacated:
(a) if he becomes prohibited by law or court order from being a Director;
(b) if a receiving order is made against him or he makes any arrangement or composition with his creditors;
(c) if he becomes of unsound mind;
(d) if he absents himself from the meetings of the Board during a continuous period of six months, without special leave of absence from the Board, and his alternate Director (if any) shall not during such period have attended in his stead, and the Board passes a resolution that he has by reason of such absence vacated his office;
(e) if he shall be removed from office by notice in writing served upon him signed by all his co-directors;
(f) if he resigns his office;
(g) if he is removed by a special resolution of the Company; or
(h) if he is convicted of an indictable offence.
DIRECTORS' INTERESTS
106. A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest in accordance with the provisions of the Ordinance. A general notice given to the Directors by a Director to the effect that he is a member or a director of a specified company or firm, and is to be regarded as interested in any contract, arrangement or dealing which may, after the date of the notice, be entered into or made with that company or firm, shall, for the purpose of this Article, be deemed to be a sufficient disclosure of interest in relation to any contract, arrangement or dealing so entered into or made. Without prejudice to the generality of the foregoing, a Director shall give notice to the Company of such matters relating to himself as may be necessary for the purposes of sections 155B, 158, 161 and 161B of the Ordinance.
107. A Director may hold any other office or place of profit under the Company (other than the office of Auditor), and he or any firm of which he is a member may act in a professional capacity for the Company in conjunction with his office of Director, for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Article. No Director or intended Director shall be disqualified by his office from contracting with the Company, nor shall any contract or arrangement entered into by or on behalf of the Company with any Director or any firm or company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit, remuneration or other benefits realised by any such contract or arrangement by reason only of such Director holding that office or of any fiduciary relationship thereby established, provided that such Director shall disclose the nature of his interest in any contract or arrangement in which he is interested at the meeting of the Board at which the question of entering into the contract or arrangement is
Exhibit 1.1-22
first taken into consideration, if he knows his interest then exists, or in any other case at the first meeting of the Board after he knows that he is or has become so interested.
108. A Director shall not vote (nor shall he be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement or proposal in which he is or any of his associates are materially interested, and if he shall do so his vote shall not be counted (nor shall he be counted in the quorum for that resolution), but this prohibition shall not apply to any of the following matters, namely:
(a) any contract or arrangement for the giving by the Company of any security or indemnity to the Director or his associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries;
(b) any contract or arrangement for the giving by the Company of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/themselves assumed responsibility, or guaranteed or secured in whole or in part whether alone or jointly;
(c) any contract or arrangement concerning an offer of the shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;
(d) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company;
(e) any contract or arrangement concerning any other company in which the Director or his associate(s) is/are interested whether directly or indirectly as an officer or executive or a shareholder or in which the Director or his associate(s) is/are beneficially interested in shares of that company other than a company in which the Director and any of his associates are in aggregate beneficially interested 5% or more of the issued shares of any class of the equity share capital of such company (or of any third company through which his interest or that of his associates is derived) or of the voting rights (excluding for the purpose of calculating such five per cent. interest any indirect interest of such Director or his associates by virtue of an interest of the Company in such company);
(f) any proposal or arrangement for the benefit of employees of the Company or its subsidiaries including the adoption, modification or operation of a pension fund or retirement, death or disability benefit scheme which relates both to Directors, his associate(s) and employees of the Company or of any of its subsidiaries and does not give in respect of any Director, or his associate(s), as such any privilege or advantage not generally accorded to the class of persons to whom such scheme or fund relates;
(g) any proposal or arrangement concerning the adoption, modification or operation of any employees' share scheme involving the issue or grant of options over shares or other securities by the Company to, or for the benefit of, the employees of the Company or its subsidiaries under which the Director or his associate(s) may benefit.
Exhibit 1.1-23
A company shall be deemed to be a company in which a Director and/or his associate(s) owns 5% or more if and so long as (but only if and so long as) he and/or his associate(s) (either directly or indirectly) is/are the holders of or beneficially interested in 5% or more of any class of the equity share capital of such company or of the voting rights available to members of such company (or any third company through which his/their interest or that of any of his associates is derived) or of the voting rights of any class of shares available to shareholders of the Company. For the purpose of this paragraph there shall be disregarded any shares held by a Director or his associate(s) as bare or custodian trustee and in which he or any of them has no beneficial interest, any shares comprised in a trust in which the interest of the Director or his associate(s) is/are in reversion or remainder if and so long as some other person is entitled to receive the income thereof, and any shares comprised in an authorised unit trust scheme in which the Director or his associate(s) is interested only as a unit holder and any shares which carry no voting right at general meetings and restrict dividend and return of capital rights.
Where a company in which a Director and/or his associate(s) holds 5% or more of any class of the equity share capital of such company or of the voting rights of any class of shares available to shareholders of the Company is/are materially interested in a transaction, then that Director shall also be deemed materially interested in such transaction.
If any question shall arise at any meeting of the Board as to the materiality of the interest of a Director (other than the Chairman of the meeting) or as to the entitlement of any Director (other than such Chairman) to vote or be counted in the quorum and such question is not resolved by his voluntarily agreeing to abstain from voting or not to be counted in the quorum, such question shall be referred to the Chairman of the meeting and his ruling in relation to such other Director shall be final and conclusive except in a case where the nature or extent of the interest of the Director as known to such Director has not been fairly disclosed to the Board. If any question as aforesaid shall arise in respect of the Chairman of the meeting such question shall be decided by a resolution of the Board (for which purpose such Chairman shall not be counted in the quorum and shall not vote thereon) and such resolution shall be final and conclusive except in a case where the nature or extent of the interest of such Chairman as known to such Chairman has not been fairly disclosed to the Board.
109. A Director may continue to be or become a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer or manager or other officer or member of any other company in which the Company is interested, and (unless otherwise agreed) shall not be liable to account to the Company for any remuneration or other benefits received by him as a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer, manager or other officer or member of any such other company. The Board may exercise the voting powers conferred by the shares in any other company held or owned by the Company or exercisable by it as directors of such other company in such manner as in all respects as the Board thinks fit (including the exercise thereof in favour of any resolution appointing themselves or any of them directors, chief executive officers, managing directors, joint managing directors, deputy managing directors, executive directors, managers or other officers of such company) and any director may vote in favour of the exercise of such voting rights in manner aforesaid notwithstanding that he may be, or be about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer, manager or other officer of such a company, and that as such he is or may become interested in the exercise of such voting rights in manner aforesaid. A Director of the Company may be or become a director of any company promoted by the Company or in which it may be interested as a vendor, shareholder or otherwise and no such Director will be accountable for
Exhibit 1.1-24
any benefits received as a director or member of such company. A Director of the Company or his firm may not act as auditor of the Company.
CHIEF EXECUTIVE OFFICERS AND OTHER APPOINTMENTS
110. The Directors may, from time to time, appoint one or more of their number to be Chief Executive Officer or Chief Operating Officer of the Company, or to hold such office in the management, administration or conduct of the business of the Company as they may decide, and for such period and upon such terms and for such remuneration as the Directors shall think fit, and the Directors may also, from time to time (subject to the provisions of any agreement between him or them and the Company) remove him or them from office, and appoint another or others in his or their place or places.
111. A Chief Executive Officer or a Chief Operating Officer (subject to the provisions of any agreement between him and the Company) shall be subject to the same provisions as to resignation and removal as the other Directors of the Company, and shall ipso facto and immediately cease to be Chief Executive Officer or Chief Operating Officer if he shall cease to hold the office of Director.
112. The Directors may, from time to time, entrust to and confer upon any Chief Executive Officer, Chief Operating Officer or Director, holding any other office in the management, administration or conduct of the business of the Company, such of the powers exercisable under these Articles by the Directors as they may think fit, and may confer such powers for such time, and to be exercised for such objects and purposes, and upon such terms and conditions and with such restrictions as they may consider expedient, and may from time to time revoke, withdraw, alter or vary all or any of such powers.
PROCEEDINGS OF DIRECTORS
113. The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit, and determine the quorum necessary for the transaction of business. Until otherwise determined by the Board, two Directors shall constitute a quorum. For the purpose of this Article an alternate Director shall be counted in a quorum but, notwithstanding that an alternate Director is also a Director or is an alternate for more than one Director, he shall for quorum purposes count as only one Director. Matters arising at any meeting shall be decided by a majority of votes. In case of an equality of votes the Chairman of the meeting shall have a second or casting vote. A Director or the Secretary may, at any time, summon a meeting of the Directors. A meeting of the Board or any committee of the Board may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.
114. Notice of a meeting of Directors shall be deemed to be duly given to a Director if it is given to him personally, in writing or by word of mouth, or sent to him at his last known address or any other address given by him to the Company for this purpose. A Director may waive notice of any meeting and any such waiver may be retrospective.
115. The Directors may elect a Chairman of the Board and determine the period for which he is to hold office; but if no such Chairman be elected, or if at any meeting the Chairman be not present within five minutes after the time appointed for holding the same, the Directors present shall choose one of their number to be Chairman of such meeting.
Exhibit 1.1-25
116. A resolution in writing signed by all the Directors except such as are temporarily unable to act through ill health or disability (or their alternate Directors) shall (so long as they constitute a quorum) be as effective for all purposes as a resolution of the Directors passed at a meeting duly convened, held and constituted. A written notification of confirmation of such resolution in writing signed by a Director shall be deemed to be his signature to such resolution in writing for the purposes of this Article. Such resolution in writing may consist of several documents, each signed by one or more Directors or alternate Directors and for this purpose, a facsimile signature of a Director or an alternate Director shall be treated as valid.
117. A meeting of the Directors at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board generally.
118. The Directors may, from time to time, appoint committees consisting of such one or more persons as they think fit, and may delegate any of their powers to any such committee and, from time to time, revoke any such delegation and discharge any such committee wholly or in part. Any committee so appointed shall, in the exercise of the powers so delegated, conform to any regulations that may, from time to time, be imposed upon it by the Directors. All acts done by any such committee in conformity with such regulations and in fulfilment of the purposes for which it is appointed, but not otherwise, shall have the like force and effect as if done by the Board, and the Board shall have power, with the consent of the Company in general meeting, to remunerate the members of any special committee, and charge such remuneration to the current expenses of the Company.
119. The meetings and proceedings of any such committee consisting of two or more members shall be governed mutatis mutandis by the provisions of these Articles regulating the meetings and proceedings of the Directors, insofar as the same are not superseded by any regulations made by the Directors under the last preceding Article.
120. All acts done bona fide by any meeting of the Directors or of a committee of Directors, or by any persons acting as Directors, shall, notwithstanding that there was some defect in the appointment of any such Directors or persons acting as aforesaid, or that they or any of them were disqualified, or had vacated office, be as valid as if every such person had been duly appointed and was qualified and continued to be a Director.
MINUTES
121. The Directors shall cause to be entered and kept in books provided for the purpose minutes of the following:
(a) all appointments of officers;
(b) all the names of the Directors and any alternate Director who is not also a Director present at each meeting of the Directors and of any committee; and
(c) all resolutions and proceedings of general meetings and of meetings of the Directors and committees.
Any such minutes of any meeting of the Directors, or of any committee, or of the Company, if purporting to be signed by the Chairman of such meeting, or by the Chairman of the next succeeding meeting, shall be receivable as evidence of the proceedings of such meeting.
Exhibit 1.1-26
THE SEAL
122. The Directors shall procure a common seal to be made for the Company, and shall provide for the safe custody thereof. The Seal shall not be affixed to any instrument except by the authority of the Directors or a committee authorised by the Board in that behalf, and every instrument to which the Seal shall be affixed shall be signed by one Director or some other person nominated by the Directors for the purpose, provided that the Board may either generally or in any particular case or cases resolve (subject to such restrictions as to the manner in which the Seal may be affixed as the Board may determine) that such signature may be affixed to certificates for shares or debentures or representing any other form of security by some mechanical means other than autographic to be specified in such resolution or that such certificates need not be signed by any person. Every instrument executed in the manner provided by this Article shall be deemed to be sealed and executed with the authority of the Directors previously given.
123. The Company may have an official seal for use for sealing certificates for shares or other securities, with the addition of the word `Securities' on its face or in such other form as the Board may approve, issued by the Company as permitted by section 73A of the Ordinance (and no signature of any Director, officer or other person and no mechanical reproduction thereof shall be required on any such certificates or other document to which such official seal is affixed and such certificates or other document shall be valid and deemed to have been sealed and executed with the authority of the Board notwithstanding the absence of any such signature or mechanical reproduction as aforesaid) and an official seal for use abroad under the provisions of the Ordinance where and as the Board shall determine, and the Company may by writing under the Seal appoint any agents or agent, committees or committee abroad to be the duly authorised agents of the Company for the purpose of affixing and using such official seal and may impose such restrictions on the use thereof as may be thought fit. Wherever in these Articles reference is made to the Seal, the reference shall, when and so far as may be applicable, be deemed to include any such official seal as aforesaid.
124. The Company may exercise all the powers of having official seals conferred by the Ordinance and such powers shall be vested in the Directors.
SECRETARY
125. The Directors shall appoint such person, persons or entities to be Secretary or Joint Secretaries of the Company for such period, at such remuneration and upon such conditions as they may think fit, and any Secretary or Joint Secretaries so appointed may be removed by them. Anything by the Ordinance or these Articles required or authorised to be done by or to the Secretary or Joint Secretaries, if the office is vacant or there is for any other reason no person capable of acting in the capacity as Secretary or Joint Secretaries, may be done by or to any assistant or deputy Secretary, or if there is no assistant or deputy Secretary capable of acting, by or to any officer of the Company authorised generally or specially in that behalf by the Board.
DIVIDENDS AND RESERVES
126. The Company may by ordinary resolution declare dividends but no such dividend shall exceed the amount recommended by the Directors.
127. Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in respect of which the dividend is paid) be apportioned and paid pro rata according to
Exhibit 1.1-27
the amounts paid on the shares during any portion or portions of the period in respect of which the dividend is paid. For the purposes of this Article no amount paid on a share in advance of calls shall be treated as paid on the share.
128. The Directors may retain any dividend or other monies payable on or in respect of a share on which the Company has a lien, and may apply the same in or towards satisfaction of the debts and liabilities in respect of which the lien exists. The Board may deduct from any dividend or bonus payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.
129. Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in general meeting or a resolution of the Directors, may specify that the same shall be payable to the persons registered as the holders of such shares at the close of business on a particular date, notwithstanding that it may be a date prior to that on which the resolution is passed, and thereupon the dividend shall be payable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of such dividend of transferors and transferees of any such shares. The provisions of this Article shall mutatis mutandis apply to capitalisations to be effected in pursuance of these Articles.
130. Any general meeting sanctioning a dividend may make a call on the members of such amount as the meeting fixes, but so that the call on each member shall not exceed the dividend payable to him, and so that the call shall be made payable at the same time as the dividend, and the dividend may, if so arranged between the Company and the member, be set off against the call.
131. (a) In respect of any dividend which the Board has resolved to pay or
any dividend declared or sanctioned or proposed to be declared or
sanctioned by the Board or by the Company in general meeting, the
Board may determine and announce, prior to or contemporaneously
with the announcement, declaration or sanction of the dividend in
question:
either
(i) that members entitled thereto will receive in lieu of such
dividend (or such part thereof as the Board may think fit)
an allotment of shares credited as fully paid provided that
the members are at the same time accorded the right to elect
to receive such dividend (or part thereof as the case may
be) in cash in lieu of such allotment. In such case, the
following provisions shall apply:
(A) the basis of any such allotment shall be determined by
the Board;
(B) the Board, after determining the basis of allotment
and notwithstanding that the number of shares to be
allotted may not be calculated until after notice to
the members has been given as required by the
provisions of this sub-paragraph and subject to the
provisions of sub-paragraph (D) below, shall give
notice in writing to the members of the right of
election accorded to them and shall send with such
notice forms of election and specify the procedure to
be followed and the place at which and the latest date
and time by which duly completed forms of election
must be lodged in order to be effective which shall be
not less than two weeks from the date on which the
notice above referred to was despatched to the
members;
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Exhibit 1.1-28
(C) the right of election accorded to members as aforesaid may be exercised in whole or in part;
(D) the Board may resolve:
(I) that the right of election accorded to members as aforesaid may be exercised so as to take effect on all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (i) of this paragraph (a); and/or
(II) that a member who does not exercise the right of
election accorded to him as aforesaid either in
whole or in part may notify the Company that he
will not exercise the right of election accorded
to him in respect of all future occasions (if
any) when the Board makes a determination
pursuant to sub-paragraph (i) of this paragraph
(a) of this Article.
Provided that a member may exercise such election or give such notice in respect of all but not, some of the shares held by him and may at any time give seven days notice in writing to the Company of the revocation of such an election or such a notice which revocation shall take effect at the expiry of such seven days, and until such revocation has taken effect, the Board shall not be obligated to give to such member notice of the right of election accorded to him or send to him any form of election;
(E) the dividend (or that part of the dividend in lieu of which an allotment of shares is to be made as aforesaid) shall not be payable in cash on shares in respect whereof the cash election has not been duly exercised (the "Non-Elected Shares") and in lieu thereof shares shall be allotted credited as fully paid to the holders of the Non-Elected Shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of the amount standing to the credit of share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate nominal amount of shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Non-Elected Shares on such basis;
(F) the Board may resolve that the shares to be allotted shall be allotted at a premium provided that the premium is credited as fully paid up and in such case the Board shall in addition to the amount to be capitalised and applied pursuant to sub-paragraph (E) above, and for the purposes therein set out, capitalise and apply out of the amount standing to the credit of the share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Directors may determine, a sum equal to the aggregate amount of the premium on the shares to be allotted and shall apply the same together with the sum to be applied pursuant to
Exhibit 1.1-29
sub-paragraph (E) above and on the basis therein set out in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Non-Elected Shares;
or
(ii) that members entitled to such dividend be entitled to elect to receive an allotment of shares credited as fully paid in lieu of the whole or such part of the dividend as the Board may think fit. In such case, the following provisions shall apply:
(A) the basis of any such allotment shall be determined by the Board;
(B) the Board, after determining the basis of allotment and notwithstanding that the number of shares to be allotted may not be calculated until after notice to the members has been given as required by the provisions of this sub-paragraph and subject to the provisions of sub-paragraph (D) below, shall give notice in writing to the members of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective which shall be not less than two weeks from the date on which the notice above referred to was despatched to the members;
(C) the right of election accorded to members as aforesaid may be exercised in whole or in part;
(D) the Board may resolve;
(I) that the right of election accorded to members as aforesaid may be exercised so as to take effect on all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (ii) of this paragraph (a); and/or
(II) that a member who does not exercise the right of election accorded to him as aforesaid either in whole or in part may notify the Company that he will not exercise the right of election accorded to him in respect of all future occasions (if any) when the Board makes determination pursuant to sub-paragraph (ii) of paragraph (a).
Provided that a member may exercise such election or give such notice in respect of all but not some of the shares held by him and may at any time give seven days' notice in writing to the Company of the revocation of such an election or such a notice which revocation shall take effect at the expiry of such seven days, and until revocation has taken effect, the Board shall not be obliged to give to such member notice of the right of election accorded to him or send to him any form of election;
(E) the dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable on shares in respect whereof the share election has been duly exercised (the
Exhibit 1.1-30
Elected Shares) and in lieu thereof shares shall be allotted credited as fully paid to the holders of the Elected Shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of the amount standing to the credit of share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate nominal amount of shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Elected Shares on such basis;
(F) the Board may resolve that the shares to be allotted shall be allotted at a premium provided that the premium is credited as fully paid up and in such case the Board shall in addition to the amount to be capitalised and applied pursuant to sub-paragraph (E) above, and for the purpose therein set out, capitalise and apply out of the amount standing to the credit of the share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate amount of the premium on the shares to be allotted and shall apply the same together with the sum to be applied pursuant to sub-paragraph (E) above and on the basis therein set out in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst holders of the Elected Shares.
(b) The shares allotted pursuant to the provisions of paragraph (a) of this Article shall rank pari passu in all respects with the fully paid shares then in issue save only as regards participation:
(i) in the relevant dividend (or the right to receive or to elect to receive an allotment of shares in lieu thereof as aforesaid); or
(ii) in any other distributions, bonuses or rights paid, made, declared or announced prior to or contemporaneously with the payment or declaration of the relevant dividend
unless, contemporaneously with the announcement by the Board of its proposal to apply the provisions of sub-paragraph (i) or (ii) of paragraph (a) of this Article in relation to the relevant dividend or contemporaneously with their announcement of the distribution, bonus or rights in question, the Board shall specify that the shares to be allotted pursuant to the provisions of paragraph (a) of this Article shall rank for participation in such distribution, bonus or rights.
(c) The Board may do all acts and things considered necessary or expedient to give effect to any capitalisation pursuant to the provisions of paragraph (a) of this Article with full power to the Board to make such provisions as they think fit in the case of shares becoming distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members concerned). The Board may authorise any person to enter into on behalf
Exhibit 1.1-31
of all members interested, an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made pursuant to such authority shall be effective and binding on all concerned.
(d) The Company may upon the recommendation of the Board by ordinary resolution resolve in respect of any one particular dividend of the Company that notwithstanding the provisions of paragraph (a) of this Article a dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shares to elect such dividend in cash in lieu of such allotment.
(e) The Board may on any occasion when it makes a determination pursuant to paragraph (a) of this Article, resolve that no allotment of shares or rights of election for shares to be issued pursuant to such determination shall be made available or made to any members with registered addresses in any particular territory or territories or to a Depositary where the allotment of shares or the circulation of an offer of such rights of election would or might, in the opinion of the Board, be unlawful or would or might, in the opinion of the Board, be unlawful in the absence of a registration statement or other special formalities, and in such event the provision aforesaid shall be read and construed subject to such resolution and the only entitlement of members in any such territory or territories shall be to receive in cash the relevant dividend resolved to be paid or declared. "Depositary" means a custodian or other person (or a nominee for such custodian or other person) appointed under contractual arrangements with the Company or other arrangements approved by the Board whereby such custodian or other person or nominee holds or is interested in shares of the Company or rights or interests in shares of the Company and issues securities or other documents of title or otherwise evidencing the entitlement of the holder thereof to or to receive such shares, rights or interests, provided and to the extent that such arrangements have been approved by the Board for the purpose of these Articles and shall include, where approved by the Board, the trustees (acting in their capacity as such) of any employees' share scheme established by the Company or any other scheme or arrangements principally for the benefit of employees of the Company and/or its subsidiaries which have been approved by the Board.
(f) The Board may at any time resolve to cancel all (but not some only) of the elections made and the notices given by the members pursuant to sub-paragraphs (i)(D) and (ii)(D) of paragraph (a) of this Article by giving seven days' notice in writing to the relevant members.
(g) The Board may on any occasion determine that rights of election under paragraph (a) of this Article shall not be made available to members who are registered in the Register, or in respect of shares the transfer of which is registered, after a date fixed by the Board and in such event the provisions aforesaid shall be read and construed subject to such determination.
132. No dividend shall be payable except out of the profits or other distributable reserves of the Company, and no dividend shall bear interest as against the Company.
133. The Directors may, if they think fit, from time to time, resolve to pay to the members such interim dividends as appear to the Directors to be justified by the reserves of the Company. If at any time the share capital of the Company is divided into different classes the Directors may resolve to pay such interim dividends in respect of those shares in the capital of the
Exhibit 1.1-32
Company which confer on the holders thereof deferred or non-preferred rights as well as in respect of those shares which confer on the holders thereof preferential or special rights in regard to dividend, and provided that the Directors act bona fide they shall not incur any responsibility to the holders of shares conferring a preference for any damage that they may suffer by reason of the payment of an interim dividend on any shares having deferred or non-preferred rights. The Directors may also resolve to pay at half-yearly or at other suitable intervals to be settled by them any dividend which may be payable at a fixed rate if they are of the opinion that the reserves of the Company justify the payment.
134. All dividends unclaimed for one year after having become payable may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed, and all dividends unclaimed for six years after having become payable may be forfeited by the Directors and shall revert to the Company. The payment into a separate account of any monies payable in respect of a dividend shall not constitute the Company a trustee in respect thereof for any person.
135. Unless otherwise directed any dividend or other monies payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the member or person entitled, or, in the case of joint holders, to the registered address of that one whose name stands first on the Register in respect of the joint holding, or addressed to such person at such address as the holder or joint holders shall direct. The Company shall not be liable or responsible for any cheque or warrant lost in transmission nor for any dividend or other monies lost to the member or person entitled thereto by the forged endorsement of any cheque or warrant. Payment of the cheque or warrant by the banker on whom it is drawn shall be a good discharge to the Company.
136. The Directors may distribute in specie or in kind among the members in satisfaction in whole or in part of any dividend any of the assets of the Company, and in particular any shares or securities of other companies to which the Company is entitled and where any difficulty arises in regard to the distribution the Board may settle the same as it thinks expedient, and in particular may issue fractional certificates, disregard fractional entitlements or round the same up or down, and may fix the value for distribution of such specific assets, or any part thereof, and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Board and may appoint any person to sign any requisite instruments of transfer and other documents on behalf of the persons entitled to the dividend and such appointment shall be effective. Where required, a contract shall be filed in accordance with the provisions of the Ordinance and the Board may appoint any person to sign such contract on behalf of the persons entitled to the dividend and such appointment shall be effective.
137. Before recommending a dividend the Directors may set aside any part of the net profits of the Company to one or more reserves, and may apply the same either by employing it in the business of the Company or by investing it in such manner as they shall think fit and the income arising from such reserves shall be treated as part of the profits of the Company. Such reserves may be applied for the purpose of maintaining the property of the Company, replacing wasting assets, meeting contingencies, forming an insurance fund, equalising dividends, paying special dividends, or for any other purpose for which the undivided profits of the Company may lawfully be used, and until the same shall be so applied it shall be deemed to remain undivided profit. The Directors may also carry forward as undivided profit any profit or balance of profit which they shall not think fit to recommend as dividend or to place to reserve.
Exhibit 1.1-33
AUTHENTICATION OF DOCUMENTS
138. Any Director or the Secretary or other authorised officer of the Company shall have power to authenticate any documents affecting the constitution of the Company and any resolutions passed by the Company or the Directors or any committee, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies of extracts; and where any books, records, documents or accounts are elsewhere than at the Office, the local manager or such other officer of the Company having the custody thereof shall be deemed to be the authorised officer of the Company as aforesaid. A document purporting to be a copy of a resolution or an extract from the minutes of a meeting of the Company or of the Directors or any local board or committee which is certified as aforesaid shall be conclusive evidence in favour of all persons dealing with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that any minute so extracted is a true and accurate record of proceedings at a duly constituted meeting.
CAPITALISATION OF RESERVES ETC.
139. The Company in general meeting may upon the recommendation of the Directors resolve to capitalise any part of the Company's reserves or undivided profits not required for the payment or provision of the dividend on any shares with a preferential right to a dividend, and accordingly that such part be divided amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportions, on condition that the same be not paid in cash but be applied as a capitalisation issue either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares or debentures or other securities of the Company to be allotted and distributed credited as fully paid to and amongst such members in the proportion aforesaid, or partly in one way and partly in the other:
Provided that any amount standing to the credit of a share premium account or a capital redemption reserve fund may, for the purposes of this Article, only be applied in the paying up of unissued shares to be issued to members of the Company as fully paid-up shares.
140. Whenever such a resolution as aforesaid shall have been passed the Directors shall make all appropriations and applications of the reserves and undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid-up shares, debentures or other securities and generally shall do all acts and things required to give effect thereto.
141. For the purpose of giving effect to any resolution under Articles 136 and 139 hereof the Directors may settle any difficulty which may arise in regard to the distribution or capitalisation issue as they think expedient, and in particular may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any members based upon the value so fixed or that fractions of such value as the Directors may determine may be disregarded in order to adjust the rights of all parties, and may vest any such cash or specific assets in trustees upon such trusts for the persons entitled to the distribution or capitalisation issue as may seem expedient to the Directors. The provisions of the Ordinance in relation to the filing of contracts for allotment shall be observed, and the Directors may appoint any person to sign such contract on behalf of the persons entitled to share in the distribution or capitalisation issue, and such appointment shall be effective and binding upon all concerned, and the contract may provide for the acceptance by such persons of the shares, debentures or other securities to be allotted and distributed to them respectively in satisfaction of their claims in respect of the sum so capitalised.
Exhibit 1.1-34
ACCOUNTS AND AUDITORS
142. The Directors shall cause proper books of account to be kept with respect to:
(a) all sums of money received and expended by the Company and the matters in respect of which such receipt and expenditure take place; and
(b) the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such books of accounts as are necessary to give a true and fair view of the transactions.
143. The Directors shall from time to time, in accordance with the provisions of the Ordinance, cause to be prepared and to be laid before the Company in general meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as are required by the Ordinance.
144. A copy of every balance sheet (including every document required by law
to be annexed thereto) which is to be laid before the Company in general
meeting, together with a copy of the Directors' report and a copy of the
Auditors' report, shall not less than twenty-one days before the date of
the meeting be sent to every member of, and every holder of debentures
of, the Company and all persons other than members or holders of
debentures of the Company, being persons entitled to receive notices of
general meetings of the Company:
Provided that this Article shall be subject to Article 144B and shall
not require a copy of those documents to be sent to any person of whose
address the Company is not aware, to more than one of the joint holders
of any shares or debentures, nor to any person to whom the Company has
duly sent a copy of a summary financial report (as defined in the
Ordinance) in accordance with the provisions of the Ordinance and
Article 144A.
144A Subject to Article 144B, a copy of a summary financial report in the
form and containing the contents as required by the Ordinance shall be
sent by the Company in accordance with the provisions of the Ordinance
to a person who has been offered and agrees, in accordance with the
provisions of the Ordinance, to be sent a copy of such summary financial
report.
144B Where a person has, in accordance with the provisions of the Ordinance
where applicable, consented to treat the publication or the making
available of the relevant financial documents and/or the summary
financial report (each as defined in the Ordinance) on a computer
network or by such other means as discharging the Company's obligation
under the Ordinance to send a copy of the relevant financial documents
and/or the summary financial report (each as defined in the Ordinance),
then the publication or the making available by the Company, in
accordance with the provisions of the Ordinance where applicable, on
such computer network or by such other means of the relevant financial
documents or the summary financial report (each as defined in the
Ordinance) shall, in relation to each consenting person, be deemed to
discharge the Company's obligations under Article 144 and/or Article
144A.
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145. Auditors shall be appointed and their duties regulated in the manner provided by the Ordinance.
146. Subject as otherwise provided by the Ordinance the remuneration of the Auditors shall be fixed by the Company in general meeting provided always that in respect of any particular
Exhibit 1.1-35
year the Company in general meeting may delegate the fixing of such remuneration to the Board.
147. Every statement of accounts audited by the Company's Auditors and presented by the Board at a general meeting shall after approval at such meeting be conclusive except as regards any error discovered therein within three months of the approval thereof. Whenever any such error is discovered within that period, it shall forthwith be corrected, and the statement of accounts amended in respect of the error shall be conclusive.
NOTICES
148. Any notice, document or communication to be given or issued to the members shall be in writing in any one or more languages, may be served by the Company upon any member either personally or by sending it by mail, postage prepaid, addressed to such member at his registered address, and, in any case where the registered address of such member is outside Hong Kong, by prepaid airmail, or by delivering, sending or otherwise making available through electronic or other means to such member.
149. Any notice sent by mail shall be deemed to have been served in the case where the member's registered address is in Hong Kong on the day following that on which the notice is mailed in Hong Kong and in any other case on the fifth day after the day of mailing. In proving such service it shall be sufficient to prove that the notice was properly addressed and mailed, postage prepaid.
150. Any person who, by operation of law, transfer or other means whatsoever, shall become entitled to any share shall be bound by every notice in respect of such share which, previously to his name and address being entered in the Register, shall be duly given to the person from whom he derives his title to such share.
151. Any notice, document or communication delivered or sent by mail to, or left at the registered address of, or made available through electronic or other means to, any member, in pursuance of these Articles, shall, notwithstanding such member be then deceased or bankrupt, and whether or not the Company have notice of his death or bankruptcy, be deemed to have been duly served in respect of any shares held by such member, whether held solely or jointly with other persons by such member, until some other person be registered in his stead as the holder or joint holder thereof, and such service shall for all purposes of these Articles be deemed a sufficient service of such notice, document or communication on his executors, administrators or assigns and all persons (if any) jointly interested with him in any such share.
152. Any summons, notice, order or other document required to be sent to or served upon the Company, or upon any officer of the Company, may be sent or served by leaving the same or sending it through the post in a prepaid letter, envelope or wrapper, addressed to the Company or to such officer at the Office.
153. The signature to any notice to be given by the Company may be written or printed.
154. Subject to any special provisions contained in these Articles or in the Ordinance, all notices required to be given by advertisement shall be advertised in at least one daily Chinese and one daily English newspaper circulating in Hong Kong.
155. In reckoning the period for any notice given under these Articles, the day on which notice is served, or deemed to be served, and the day for which such notice is given shall be excluded.
Exhibit 1.1-36
WINDING UP
156. If the Company shall be wound up, the surplus assets remaining after payment to all creditors shall be divided among the members in proportion to the capital paid up on the shares held by them respectively, and if such surplus assets shall be insufficient to repay the whole of the paid-up capital, they shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid upon on the shares held by them respectively. This Article is, however, subject to the rights of the holders of any shares which may be issued on special terms or conditions.
157. If the Company shall be wound up, the liquidator (whether voluntary or official) may, with the sanction of a special resolution, divide among the members in specie or kind the whole or any part of the assets of the Company or vest any part of the assets of the Company in trustees upon such trusts for the benefit of the members or any of them as the resolution shall provide. Any such resolution may provide for and sanction a distribution of any specific assets amongst different classes of members otherwise than in accordance with their existing rights, but each member shall in that event have a right of dissent and other ancillary rights in the same manner as if such resolution were a special resolution passed pursuant to section 237 of the Ordinance.
158. In the event of a winding-up of the Company in Hong Kong, every member of the Company who is not for the time being in Hong Kong shall be bound, within fourteen days after the passing of an effective resolution to wind up the Company voluntarily, or within the like period after the making of an order for the winding up of the Company, to serve notice in writing on the Company appointing some person resident in Hong Kong upon whom all summonses, notices, processes, orders and judgements in relation to or under the winding up of the Company may be served and, in default of such nomination, the liquidator of the Company shall be at liberty on behalf of such member to appoint some such person, and service upon any such appointee shall be deemed to be a good personal service on such member for all purposes, and where the liquidator makes any such appointment he shall, with all convenient speed, give notice thereof to such member by advertising in such English language daily newspaper circulating in Hong Kong as he shall deem appropriate or by a registered letter sent through the post and addressed to such member at his address as appearing in the Register, and such notice shall be deemed to be served on the day on which the advertisement appears or the letter is posted.
INDEMNITY
159. Subject to the provisions of the Ordinance, every Director or other officer of the Company shall be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he may sustain or incur in or about the execution of his office or otherwise in relation thereto and in particular and without prejudice to the generality of the foregoing every Director and other officer of the Company shall be indemnified by the Company against, and it shall be the duty of the Directors out of the funds of the Company to pay all costs, losses and expenses which any such Director and other officer may incur or become liable for by reason of any contract entered into, or act or thing done by him or them as such Director and other officer, or in any way in the discharge of their or his duties, including travelling expenses; and the amount for which such indemnity is provided shall immediately attach as a lien on the property of the Company, and have priority as between the members over all other claims. Any person who is a Director or other officer of the Company shall not be liable (except in consequence of his own dishonesty) for the acts, receipts, neglects or defaults of any other Director or other officer of the Company or for any losses or expenses incurred by the Company through the insufficiency or deficiency of title to
Exhibit 1.1-37
any property acquired by order of the Directors for or on behalf of the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects of the Company shall be deposited or for any loss occasioned by any error of judgement, omission, default or oversight on their or his part, or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his office or in relation thereto. Each member of the Company agrees to waive any claim or right of action he might have, whether individually or by or in the right of the Company, against any Director on account of any action taken by such Director, or the failure of such Director to take any action in the performance of his duties with or for the Company; provided that such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director.
159A. Subject to Article 159 and the provisions of and so far as may be permitted by the Ordinance, the Company may purchase and maintain for any officer of the Company:
(i) insurance against any liability to the Company, a related company or any other party in respect of any negligence, default, breach of duty or breach of trust (save for fraud) of which he may be guilty in relation to the Company or a related company; and
(ii) insurance against any liability incurred by him in defending any proceedings, whether civil or criminal, taken against him for any negligence, default, breach of duty or breach of trust (including fraud) of which he may be guilty in relation to the Company or a related company.
In this Article 159A, "related company" in relation to the Company means any company that is the Company's subsidiary or holding company or a subsidiary of the Company's holding company.
DESTRUCTION OF DOCUMENTS
160 (a) Subject to the Ordinance, the Company may destroy:
(i) any share certificate which has been cancelled at any time after the expiry of one year from the date of such cancellation;
(ii) any dividend mandate or any variation or cancellation thereof or any notification of change of name or address at any time after the expiry of two years from the date on which such mandate, variation, cancellation or notification was recorded by the Company;
(iii) any instrument of transfer of shares which has been registered at any time after the expiry of six years from the date of registration; and
(iv) any other document, on the basis of which any entry in the register is made, at any time after the expiry of six years from the date on which an entry in the register was first made in respect of it;
and it shall conclusively be presumed in favour of the Company that every share certificate so destroyed was a valid certificate duly and properly cancelled and that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and that every other document destroyed hereunder was a
Exhibit 1.1-38
valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company. Provided always that:
(2) the foregoing provisions of this Article shall apply only to the destruction of a document in good faith and without express notice to the Company that the preservation of such document was relevant to a claim;
(3) nothing contained in this Article shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (1) above are not fulfilled; and
(3) references in this Article to the destruction of any document include reference to its disposal in any manner.
(b) Notwithstanding any provision contained in these Articles, the Directors may, if permitted by applicable law, authorise the destruction of documents set out in sub-paragraph (a)(i) to (iv) of this Article and any other documents in relation to share registration which have been microfilmed or electronically stored by the Company or by the share registrar on its behalf provided always that this Article shall apply only to the destruction of a document in good faith and without express notice to the Company and its share registrar that the preservation of such document was relevant to a claim.
UNTRACEABLE MEMBERS
161. Without prejudice to the rights of the Company, the Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive occasions. However, the Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.
162. The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a member who is untraceable, but no such sale shall be made unless:
(a) all cheques or warrants, being not less than three in total number, for any sum payable in cash to the holder of such shares in respect of them sent during the relevant period in the manner authorised by the Articles of Association of the Company have remained uncashed;
(b) so far as it is aware at the end of the relevant period, the Company has not at any time, during the relevant period received any indication of the existence of the member who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law;
(c) the Company has caused an advertisement to be inserted in English in one English language daily newspaper and in Chinese in one Chinese language daily newspaper (provided that the aforesaid daily newspapers shall be included in the list of newspapers issued and published in the Hong Kong Government Gazette for the purpose of section 71A of the Ordinance) advertising its intention to sell such shares and a period of three months has elapsed since the date of such advertisement; and
Exhibit 1.1-39
(d) the Company has notified the stock exchange in the relevant territory of its intention to effect such sale.
For the purpose of the foregoing, "relevant period" means the period commencing twelve years before the date of publication of the advertisement referred to in paragraph (c) of this Article and ending at the expiry of the period referred to in that paragraph.
The manner, timing and terms of any sale of shares pursuant to this Article (including but not limited to the price or prices at which the same is made) shall be such as the Board determines, based upon advice from such bankers, brokers or other persons as the Board considers appropriate consulted by it for the purposes, to be reasonably practicable having regard to all the circumstances including the number of shares to be disposed of and the requirement that the disposal be made without delay and the Board shall not be liable to any person for any of the consequences of reliance on such advice.
163. To give effect to any such sale pursuant to Article 162 the Board may authorise any person to transfer the said shares and the instrument of transfer signed or otherwise executed by or on behalf of such person shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and, upon receipt by the Company of such proceeds, it shall become indebted to the former member by carrying all moneys in respect thereof to a separate account for an amount equal to such net proceeds. No trusts shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Article shall include any additional shares which during the relevant period or during any period ending on the date when all the requirements of sub-paragraphs (a) to (d) of Article 162 have been satisfied have been issued in respect of those held at the beginning of such relevant period and shall be valid and effective notwithstanding that the member holding the shares sold is dead, bankrupt or otherwise under any legal disability or incapacity.
INFORMATION
164. No member of the Company shall be entitled to require discovery of or any information in respect of any detail of the Company's trading and any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interests of the members of the Company to communicate to the public.
Exhibit 1.1-40
[GRAPHIC OMITTED]
EXHIBIT 8.1
SUBSIDIARIES
As of December 31, 2005, we owned, directly or indirectly, the following subsidiaries. All of these entities are private limited liability companies and they do business in their corporate names.
Name Our Interest Jurisdiction of incorporation -------------------------------------------------------------------------------------------------------- CNOOC China Limited 100% Tianjin, PRC CNOOC Finance (2002) Limited 100% British Virgin Islands CNOOC Finance (2003) Limited 100% British Virgin Islands CNOOC Finance (2004) Limited 100% British Virgin Islands Malacca Petroleum Limited 100% Bermuda OOGC America, Inc. 100% Delaware, USA OOGC Malacca Limited 100% Bermuda CNOOC Southeast Asia Limited 100% Bermuda CNOOC ONWJ Ltd. 100% Labuan, F.T., Malaysia CNOOC SES Ltd. 100% Labuan, F.T., Malaysia CNOOC Poleng Ltd. 100% Labuan, F.T., Malaysia CNOOC Madura Ltd. 100% Labuan, F.T., Malaysia CNOOC Blora Ltd. 100% Labuan, F.T., Malaysia CNOOC Wiriagar Holding Ltd. 100% British Virgin Islands CNOOC Wiriagar Overseas Ltd. 100% British Virgin Islands CNOOC Muturi Holding Ltd. 100% British Virgin Islands CNOOC Muturi Ltd. 100% The Isle of Man CNOOC Morocco Limited 100% Cayman Islands CNOOC Canada Limited 100% British Virgin Islands CNOOC Hong Kong Holding Limited 100% Hong Kong CNOOC Belgium BVBA 100% Belgium CNOOC Australia Limited 100% British Virgin Islands CNOOC NWS Private Ltd. 100% Singapore CNOOC Singapore Private Limited 100% Singapore CNOOC Africa Holding Limited 100% British Virgin Islands |
CNOOC Africa Limited 100% British Virgin Islands CNOOC Exploration & Production Limited 100% Nigeria CNOOC Africa (UK) Limited 100% London, UK CNOOC Myanmar Holding Limited 100% British Virgin Islands CNOOC Myanmar Limited 100% British Virgin Islands CNOOC Caspian (Kazakhstan) Limited 100% Cayman Islands -------------------------------------------------------------------------------------------------------- |
Exhibit 11.1
CNOOC Limited
(incorporated under laws of Hong Kong with limited liability)
Code of Ethics for Directors and Senior Officers
Exhibit 11.1-1
I. INTRODUCTION
This "CNOOC Limited Code of Ethics for Directors and Senior Officers" ("Code of Ethics") summarizes the major long-standing principles of conduct that our company, CNOOC Limited ("Company" or "our company"), follows to ensure our business is conducted with integrity and in compliance with the law. Because our company is incorporated in Hong Kong with our shares listed on the Stock Exchange of Hong Kong Limited ("Hong Kong Stock Exchange") and our ADSs listed on the New York Stock Exchange, and because most of our operations are conducted in the People's Republic of China ("PRC"), we are subject to laws and ethical rules of all these jurisdictions. We expect our directors and senior management to know and follow the policies outlined in this Code of Ethics. For the purpose of this Code, the scope of senior management includes Chief Executive Officer, President, Chief Financial Officer, Executive Vice President, Senior Vice Presidents, Vice President, the general managers and vice general managers or other equal ranking personnel of the Company's headquarter, departments of the Company's headquarter, wholly-owned subsidiaries and regional branch companies (collectively, "Senior Officers"). Any director or Senior Officer who violates the provisions or spirit of these policies is subject to disciplinary action, up to and including termination.
Each of the directors and Seniors Officer has the responsibility to obey the law and act honestly and ethically. To that end, this Code of Ethics is a guide intended to assist each of the directors and Senior Officers to decide to perform proper commercial conduct and to report existing illegal or unethical conduct. It is not, however, a comprehensive document that addresses every legal or ethical issue that a director or Senior Officer may confront, nor is it a summary of all laws and policies that apply to our business. This Code of Ethics is supplemental to other policies, manuals and internal regulations of our company.
If any director or Senior Officer has any questions about this Code of Ethics or is concerned or unsure about conducts he believes may violate this Code of Ethics, other policies of our company or any applicable laws, rules or regulations, the director or Senior Officer should consult with our Compliance Officer, General Counsel, and/or a member of the Audit Committee of our Board of Directors. No one at our company has the authority to make exceptions to these policies, other than our Board of Directors or a committee of our Board of Directors.
II. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
The directors and Senior Officers must comply fully with all applicable laws, rules and regulations that govern our business conduct in the PRC, Hong Kong Special Administrative Region of the PRC ("Hong Kong"), the United States of America ("U.S."), and any other region or country in which the Company conducts its business, including but not limited to, securities laws, Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ("Hong Kong Stock Exchange Listing Rules"), New York Stock Exchange rules, environmental laws, insider trading and other
Exhibit 11.1-2
market misconduct laws (including but not limited to the Securities and Futures Ordinance (Cap.571)) and the U.S. Foreign Corrupt Practices Act.
III. PROHIBITION AGAINST INSIDER TRADING/INSIDER DEALING
The directors and Senior Officers who have access to, or knowledge of, material nonpublic information from or about our company are prohibited from buying, selling or otherwise trading in our stock or other securities of our company. The prohibition contained in this section not only applies to the directors and Senior Officers but also any "manager, secretary of, or any other person involved in the management of, a corporation" (collectively, the "Managers"). "Material nonpublic" information includes any information, positive or negative, that has not yet been made available or disclosed to the public and that might be of significance to an investor, as part of the total mix of information, in deciding whether to buy or sell stock or other securities.
Such insiders also are prohibited from giving "tips" on material nonpublic information, that is, directly or indirectly disclosing such information to any other person, including family members, other relatives and friends, so that they may trade in our stock or other securities. Furthermore, if, during the course of service with our company, any director, Senior Officer or Manager acquires material nonpublic information about another company, such as one of our customers or suppliers or our affiliates, or you learn that our company is planning to enter into a major transaction with another company (such as an acquisition), the director, Senior Officer or Manager is restricted from trading in the securities of the other company. In U.S., such "insider trading" is both unethical and illegal, with criminal penalties of up to US$5 million and a jail term of up to 20 years and civil penalties in U.S. of up to three times the illegal profit gained or loss avoided.
In Hong Kong, "insider dealing" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) is broadly similar to insider trading in the U.S.. It also constitutes a criminal offence, subject to a maximum penalty of HK$10,000,000 and 10 years' imprisonment.
IV. PROHIBITION AGAINST OTHER MARKET MISCONDUCT
The prohibition contained in this section is derived from Hong Kong laws and regulations. It not only applies to the directors and Senior Officers but also the Managers. Each of the directors, Senior Officers and Managers is ethically and legally required to take all reasonable measures from time to time to ensure that proper safeguards exist to prevent our company from acting in a way which would result in our company perpetrating any "market misconduct" within the meaning of the Hong Kong Securities and Futures Ordinance. Under Hong Kong law, the directors, Senior Officers and Managers may be subject to criminal liability if they have actively participated in, consented to, or connived in the criminal misconduct of the corporation which they manage. Under the Hong Kong Securities and Futures Ordinance, "market misconduct" includes insider trading (see above) and the following:
Exhibit 11.1-3
(a) False Trading
False trading in our securities takes place if a person, whether in Hong Kong or overseas, does or causes anything to be done with the intention that, or being reckless as to whether, it has or is likely to have the effect of creating a false market in our securities. Creation of a false market includes activities undertaken by any person creating or maintaining an artificial price for our securities. The directors, Senior Officers and Managers are therefore obliged not to undertake any such activities and to have due regard to the prohibition against false trading in carrying out or authorizing transactions which may impact the price of our securities.
(b) Price Rigging
Price rigging occurs where a person, in Hong Kong or elsewhere, engages in a sale or purchase of securities, not involving change in the beneficial ownership of those securities and which has the effect of maintaining, increasing, reducing, stabilizing or causing fluctuations in the price of securities traded on a recognized stock exchange in Hong Kong or overseas. The directors, Senior Officers and Managers must not engage in any such transaction if price rigging, as described above, forms a purpose, even if not the dominant purpose, of the transaction. The onus will be on the relevant director, Senior Officers or Manager to establish that the purpose of any transaction which has the effect of price rigging did not include the purpose of creating a false or misleading appearance with respect to the price of our securities.
(c) Disclosure of False or Misleading Information Inducing Transactions
In broad terms, the Hong Kong Securities and Futures Ordinance prohibits the disclosure of false or misleading information that is likely to induce another person to subscribe for, sell or buy securities or deal in futures contracts in Hong Kong. Accordingly, with respect to information disclosed to third parties or to the public generally and which may be expected to induce transactions in our securities (which could include, without limitation, information disclosed through or in the form of a prospectus or other offer memorandum, annual reports, periodic reports, press releases and announcements or through the release of financial information), the directors, Senior Officers and Managers are required to pay proper regard to the veracity of any such information and to consider whether such information is misleading through the inclusion or omission of any material fact.
(d) Disclosure of Information About Prohibited Transactions
Disclosure of information concerning the effect on the price of our securities or futures contracts dealt in by our company, by a transaction carried out in breach of the market misconduct provisions relating to our securities or one of our related corporations or to the futures contracts is itself prohibited in circumstances where the person making the disclosure has been involved directly or indirectly in the transaction or has, or expects to
Exhibit 11.1-4
receive, directly or indirectly a benefit as a result of the disclosure. Accordingly, the directors, Senior Officers and Managers should exercise caution and have regard to the relevant provisions of the Hong Kong Securities and Futures Ordinance.
(e) Stock Market Manipulation
"Stock market manipulation" refers to two or more transactions in securities of a corporation that, by themselves or in conjunction with any other transactions, affects or likely to affect (by way of increasing, reducing, or stabilizing) the price of any securities traded on a recognized stock exchange in Hong Kong or overseas and with the intention of inducing another person to purchase or subscribe for, or to refrain from selling such securities or the securities of a related corporation. The directors, Senior Officers and Managers must ensure that no transactions in our securities or securities of our affiliates constitute stock market manipulation.
Each form of market misconduct identified above is unethical and illegal. All such market misconduct constitutes criminal offences in Hong Kong, with penalties of up to HK$10,000,000 and 10 years' imprisonment. An offender may also be liable to civil penalties and may be disqualified from acting as a director of, or participating in the management of, a listed or other specified corporation for a period of up to five years. In addition, as a part of this Code of Ethics, we have attached the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") issued by the Hong Kong Stock Exchange. All of our directors should comply with the Model Code; and all Senior Officers should follow the spirit of the Model Code in conducting their securities transactions. In most instances, Senior Officers who are not our directors are subject to the same ethical and legal requirements in securities transactions as our directors.
V. CONFLICTS OF INTEREST
Business decisions must be made in the best interest of our company, not motivated by personal interest or gain. Therefore, as a matter of our company policy, all directors and Senior Officers must avoid any actual or perceived conflict of interest. A "conflict of interest" occurs when an individual's personal interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of our company. A conflict of interest situation can arise when an employee takes actions or has interests (financial or other) that may make it difficult to perform his or her company work objectively and effectively. Conflicts of interest also may arise when an employee or a member of his or her family receives improper personal benefits as a result of his or her position in our company, regardless of whether such benefits are received from our company or a third party. In relation to loans to, or guarantees of obligations of, employees and their family members, please refer to our company's "Regulations on Prohibition of Provision of Loans to Directors and Senior Officers of CNOOC Limited". Senior Officers should also read carefully and comply with our company's "Regulations on the Management of Conflict of Interests of CNOOC Limited".
Exhibit 11.1-5
It is difficult to identify exhaustively what constitutes a conflict of interest. For this reason, the directors and Senior Officers must avoid any situation in which their independent business judgment might appear to be compromised. Questions about potential conflicts of interest situations, and disclosure of these situations as they arise, should be addressed and reported to our Compliance Officer, General Counsel and/or a member of the Audit Committee of our Board of Directors.
VI. CORPORATE OPPORTUNITIES
All directors and Senior Officers are prohibited from: (a) taking themselves personally opportunities that properly belong to our company or are discovered through the use of corporate property, information or position; (b) using corporate property, information or position for personal gain; and (c) competing with our company. All directors and Senior Officers owe a duty to our company to advance its legitimate interests when the opportunity to do so arises.
VII. PROTECTION AND PROPER USE OF COMPANY ASSETS
All directors and Senior Officers must protect our assets and ensure their efficient use. Such assets include, without limitation, intellectual property such as our corporate name, logos, trademarks, patents, copyrights, confidential information, ideas, plans and strategies. Theft, carelessness and waste have a direct impact on our profitability. Any misuse or infringement of our company assets should be reported to our Compliance Officer, General Counsel and/or a member of the Audit Committee of our Board of Directors.
VIII. PUBLIC COMPANY REPORTING
As a result of our status as a public company in Hong Kong and U.S., we are required to file periodic and other reports with the U.S. Securities and Exchange Commission and with the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange. Our company views its public disclosure responsibility seriously. To that end in respect of the various disclosure and reporting obligations to which our company is from time to time subject both in U.S. and in Hong Kong:
A. each of the directors and Senior Officers must take all reasonable steps to ensure that these reports and other public communications furnish the marketplace with full, fair, accurate, timely and understandable disclosure regarding the financial and business condition of our company;
B. each of the directors and Senior Officers must promptly bring to the attention of the Audit Committee of our Board of Directors any material information of which such Senior Officer may become aware that affects the disclosures made by our company in its public filings or otherwise would assist the Audit Committee of our Board of Directors in fulfilling its responsibilities as specified in applicable securities laws and regulations; and
Exhibit 11.1-6
C. each of the directors and Senior Officers must promptly bring to the attention of our Compliance Officer, General Counsel and/or the Audit Committee of our Board of Directors any information he or she may have concerning (i) significant deficiencies in the design or operation of internal controls that could adversely affect our company's ability to record, process, summarize and report financial data or (ii) any fraud, whether or not material, involving management or other employees who have a significant role in our company's financial reporting, disclosures or internal controls.
IX. REPORTING ILLEGAL OR UNETHICAL BEHAVIOR
Each of the directors and Senior Officers has a duty to adhere to this Code of Ethics. Each of the directors and Senior Officers must also promptly bring to the attention of our Compliance Officer, General Counsel and/or the Audit Committee of our Board of Directors any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to our company and the operation of its business, by our company or any agent thereof, or of a violation of this Code of Ethics, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in our company's financial reporting, disclosures or internal controls. Confidentiality will be maintained to the fullest extent possible.
A director or Senior Officer will not be penalized for making a good-faith report of violations of this Code of Ethics or other illegal or unethical conduct, nor will we permit retaliation of any kind against anyone who makes a good-faith report. A director or Senior Officer who deliberately submits a false report of a violation, however, will be subject to disciplinary action. If you report a violation and in some way also are involved in the violation, the fact that you stepped forward will be considered. If the result of an investigation indicates that corrective action is required, our Board of Directors will decide, or designate appropriate persons to decide, what actions to take, including, when appropriate, legal proceedings and disciplinary action up to and including termination, to rectify the problem and avoid the likelihood of its recurrence.
X. RELATIONSHIP WITH COMPANY MANUAL
This Code of Ethics supplements the existing policies and procedures already in place as stated in other company manuals and communicated to all employees. Certain policies referred to in this Code of Ethics are contained in their entirety in the other company manuals. The company manuals contain information that is proprietary and confidential, and our company hereby expressly denies waiving any right to assert claims that the contents of such company manuals are proprietary and/or confidential. This Code of Ethics and other company manuals are statements of goals and expectations for individual and business conduct. They are not intended to, and do not in any way constitute, an employment contract or an assurance of continued employment. Our company does not create any contractual rights by issuing this Code of Ethics or any company manual.
Exhibit 11.1-7
XI. AMENDMENT, MODIFICATION AND WAIVER
This Code of Ethics may be amended, modified or waived by our Board of Directors. Any change to, or waiver (whether explicit or implicit) of, this Code of Ethics must be disclosed to our stockholders either by including a statement in our annual report on Form 20-F filed with the U.S. Securities and Exchange Commission or by publishing a statement on our internet website, www.cnoocltd.com.
XII. ACKNOWLEDGMENT
Each of the directors and Senior Officers is accountable for knowing and abiding by the policies contained in this Code of Ethics. Our company may require that the directors and Senior Officers sign an acknowledgment every year confirming that they have received and read this Code of Ethics, understand them and are complying with them.
Appendix 1:
Contact Information
(June 2005)
Compliance Officer: Mr. Wu Guangqi
Address: Room 2203, CNOOC Building, No.6,
Dongzhimenwai Xiaojie, Beijing 100027, China
Tel: (86-10( 84522602
Email: wugq@cnooc.com.cn
General Counsel: Mr. Victor Zhikai Gao
Address: Room 2205, CNOOC Building, No.6,
Dongzhimenwai Xiaojie, Beijing 100027, China
Tel: (86-10) 84523388
Email: gaovictor@cnooc.com.cn
The above contact information shall be released as appendix according to changes of circumstances.
Appendix 2: Model Code for Securities Transactions by Directors of Listed Issuers by the Hong Kong Stock Exchange
1. This code (both the basic principles and the rules) sets a required standard against which directors must measure their conduct regarding transactions in securities of their listed issuers. Any breach of such required standard will be regarded as a breach of the Exchange Listing Rules. A director must seek to secure that all dealings in which he is or is deemed to be interested be conducted in accordance with this code.
Exhibit 11.1-8
2. A listed issuer may adopt its own code on terms no less exacting than those set out in this code if it so wishes. Any breach of such code will not be a breach of the Exchange Listing Rules unless it is also a breach of the required standard contained in this code.
3. The Exchange regards it as highly desirable that directors of a listed issuer should hold securities in the listed issuer.
4. Directors wishing to deal in any securities in a listed issuer must first have regard to the provisions of Parts XIII and XIV of the Securities and Futures Ordinance with respect to insider dealing and market misconduct. However, there are occasions where directors should not be free to deal in the listed issuer's securities even though the statutory requirements will not be contravened.
5. The single most important thrust of this code is that directors who are aware of or privy to any negotiations or agreements related to intended acquisitions or disposals which are notifiable transactions under Chapter 14 of the Exchange Listing Rules or connected transactions under Chapter 14A of the Exchange Listing Rules or any price-sensitive information must refrain from dealing in the listed issuer's securities as soon as they become aware of them or privy to them until proper disclosure of the information in accordance with the Exchange Listing Rules. Directors who are privy to relevant negotiations or agreements or any price-sensitive information should caution those directors who are not so privy that there may be unpublished price-sensitive information and that they must not deal in the listed issuer's securities for a similar period.
6. In addition, a director must not make any unauthorised disclosure of confidential information, whether to co-trustees or to any other person (even those to whom he owes a fiduciary duty) or make any use of such information for the advantage of himself or others.
7. For the purpose of this code:
(a) "dealing" includes, subject to paragraph (d) below, any acquisition, disposal or transfer of, or offer to acquire, dispose of or transfer, or creation of pledge, charge or any other security interest in, any securities of the listed issuer or any entity whose assets solely or substantially comprise securities of the listed issuer, and the grant, acceptance, acquisition, disposal, transfer, exercise or discharge of any option (whether call, put or both) or other right or obligation, present or future, conditional or unconditional, to acquire, dispose of or transfer securities, or any interest in securities, of the listed issuer or any such entity, in each case whether or not for consideration and any agreements to do any of the foregoing, and "deal" shall be construed accordingly;
(b) "beneficiary" includes any discretionary object of a discretionary trust (where the director is aware of the arrangement) and any beneficiary of a non-discretionary
Exhibit 11.1-9
trust;
(c) "securities" means listed securities and any unlisted securities that are convertible or exchangeable into listed securities and structured products (including derivative warrants), such as those described in Chapter 15A of the Exchange Listing Rules, issued in respect of the listed securities of a listed issuer;
(d) notwithstanding the definition of "dealing"in paragraph (a) above, the following dealings are not subject to the provisions of this code:
(i) taking up of entitlements under a rights issue, bonus issue, capitalisation issue or other offer made by the listed issuer to holders of its securities (including an offer of shares in lieu of a cash dividend) but, for the avoidance of doubt, applying for excess shares in a rights issue or applying for shares in excess of an assured allotment in an open offer is a "dealing";
(ii) allowing entitlements to lapse under a rights issue or other offer made by the listed issuer to holders of its securities (including an offer of shares in lieu of a cash dividend);
(iii) undertakings to accept, or the acceptance of, a general offer for shares in the listed issuer made to shareholders other than those that are concert parties (as defined under the Takeovers Code) of the offeror;
(iv) exercise of share options or warrants or acceptance of an offer for shares pursuant to an agreement entered into by the director and listed issuer before a period during which the director is prohibited from dealing under this code at the pre-determined exercise price, being a fixed monetary amount determined at the time of grant of the share option or warrant or acceptance of an offer for shares; and
(v) an acquisition of qualification shares by a director where, under the listed issuer's constitutional documents, the final date for acquiring such shares falls within a period during which the director is prohibited from dealing under this code and the director cannot acquire such shares at another time.
8. For the purpose of this code, the grant to a director of an option to subscribe or purchase his company's securities shall be regarded as a dealing by him, if the price at which such option may be exercised is fixed at the time of such grant. If, however, an option is granted to a director on terms whereby the price at which such option may be exercised is to be fixed at the time of exercise, the dealing is to be regarded as taking place at the time of exercise.
Exhibit 11.1-10
RULES
A. Absolute Prohibitions:
1. A director must not deal in any of the securities of the listed issuer at any time when he is in possession of unpublished price-sensitive information in relation to those securities, or where clearance to deal is not otherwise conferred upon him under rule B.8 of this code.
2. A director must not deal in the securities of a listed issuer when by virtue of his position as a director of another listed issuer, he is in possession of unpublished price-sensitive information in relation to those securities.
3. During the period commencing one month immediately preceding the earlier
of:
(a) the date of the board meeting (as such date is first notified to the
Exchange in accordance with the Exchange Listing Rules) for the approval of
the listed issuer's results for any year, half-year, quarterly or any other
interim period (whether or not required under the Exchange Listing Rules); and
(b) the deadline for the listed issuer to publish an announcement of its
results for any year or half-year under the Exchange Listing Rules, or
quarterly or any other interim period (whether or not required under the
Exchange Listing Rules), and ending on the date of the results announcement, a
director must not deal in any securities of the listed issuer unless the
circumstances are exceptional, for example, where a pressing financial
commitment has to be met as described in section C below. In any event, he
must comply with the procedure in rules B.8 and B.9 of this code.
Note: Directors should note that the period during which they are not allowed to deal under rule A.3 of this code will cover any period of delay in the publication of a results announcement.
4. Where a director is a sole trustee, the provisions of this code will apply to all dealings of the trust as if he were dealing on his own account (unless the director is a bare trustee and neither he nor any of his associates is a beneficiary of the trust, in which case the provisions of this code will not apply).
5. Where a director deals in the securities of a listed issuer in his capacity as a co-trustee and he has not participated in or influenced the decision to deal in the securities and is not, and none of his associates is, a beneficiary of the trust, dealings by the trust will not be regarded as his dealings.
6. The restrictions on dealings by a director contained in this code will be regarded as equally applicable to any dealings by the director's spouse or by or on behalf of any minor child (natural or adopted) and any other dealings in which for the purposes of Part XV of the Securities and Futures Ordinance he is or is to be treated as interested. It is the duty of the director, therefore, to seek to avoid any such dealing at a time when he himself is not free to deal.
Exhibit 11.1-11
7. When a director places investment funds comprising securities of the listed issuer under professional management, discretionary or otherwise, the managers must nonetheless be made subject to the same restrictions and procedures as the director himself in respect of any proposed dealings in the listed issuer's securities.
B. Notification
8. A director must not deal in any securities of the listed issuer without first notifying in writing the chairman or a director (otherwise than himself) designated by the board for the specific purpose and receiving a dated written acknowledgement. In his own case, the chairman must first notify the board at a board meeting, or alternatively notify a director (otherwise than himself) designated by the board for the purpose and receive a dated written acknowledgement before any dealing. The designated director must not deal in any securities of the listed issuer without first notifying the chairman and receiving a dated written acknowledgement.
9. The procedure established within the listed issuer must, as a minimum, provide for there to be a written record maintained by the listed issuer that the appropriate notification was given and acknowledged pursuant to rule B.8 of this code, and for the director concerned to have received written confirmation to that effect.
10. Any director of the listed issuer who acts as trustee of a trust must ensure that his cotrustees are aware of the identity of any company of which he is a director so as to enable them to anticipate possible difficulties. A director having funds under management must likewise advise the investment manager.
11. Any director who is a beneficiary, but not a trustee, of a trust which deals in securities of the listed issuer must endeavour to ensure that the trustees notify him after they have dealt in such securities on behalf of the trust, in order that he in turn may notify the listed issuer. For this purpose, he must ensure that the trustees are aware of the listed issuers of which he is a director.
12. The register maintained in accordance with Section 352 of the Securities and Futures Ordinance should be made available for inspection at every meeting of the board.
13. The directors of a company must as a board and individually endeavour to ensure that any employee of the company or director or employee of a subsidiary company who, because of his office or employment in the company or a subsidiary, is likely to be in possession of unpublished price-sensitive information in relation to the securities of any listed issuer does not deal in those securities at a time when he would be prohibited from dealing by this code if he were a director.
C. Exceptional circumstances
14. If a director proposes to sell or otherwise dispose of securities of the listed issuer under exceptional circumstances where the sale or disposal is otherwise prohibited under this
Exhibit 11.1-12
code, the director must, in addition to complying with the other provisions of this code, comply with the provisions of rule B.8 of this code regarding prior written notice and acknowledgement. The director must satisfy the chairman or the designated director that the circumstances are exceptional and the proposed sale or disposal is the only reasonable course of action available to the director before the director can sell or dispose of the securities. The listed issuer shall give written notice of such sale or disposal to the Exchange as soon as practicable stating why it considered the circumstances to be exceptional. The listed issuer shall publish an announcement in the newspapers immediately after any such sale or disposal and state that the chairman or the designated director is satisfied that there were exceptional circumstances for such sale or disposal of securities by the director. An example of the type of circumstances which may be considered exceptional for such purposes would be a pressing financial commitment on the part of the director that cannot otherwise be satisfied.
D. Disclosure
15. In relation to securities transactions by directors, a listed issuer shall
disclose in its interim reports (and summary interim reports, if any) and the
Corporate Governance Report contained in its annual reports (and summary
financial reports, if any):
(a) whether the listed issuer has adopted a code of conduct regarding
securities transactions by directors on terms no less exacting than the
required standard set out in this code; (b) having made specific enquiry of
all directors, whether its directors have complied with, or whether there has
been any non-compliance with, the required standard set out in this code and
its code of conduct regarding securities transactions by directors; and
(c) in the event of any non-compliance with the required standard set out in
this code, details of such non-compliance and an explanation of the remedial
steps taken by the listed issuer to address such non-compliance.
Exhibit 11.1-13
EXHIBIT 12.1
Certification
I, Chengyu Fu, Chairman and Chief Executive Officer of CNOOC Limited, certify that:
1. I have reviewed this annual report on Form 20-F of CNOOC Limited;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
(c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 26, 2006
By: /s/ Chengyu Fu
-------------------------------------------
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Name: Chengyu Fu Title: Chairman and Chief Executive Officer
EXHIBIT 12.2
Certification
I, Hua Yang, Chief Financial Officer and Executive Vice President of CNOOC Limited, certify that:
1. I have reviewed this annual report on Form 20-F of CNOOC Limited;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
(c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 26, 2006
By: /s/ Hua Yang
---------------------------------------
Name: Hua Yang
Title: Chief Financial Officer and
Executive Vice President
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EXHIBIT 13.1
Sarbanes-Oxley Act Section 906 Certification
The following Sarbanes-Oxley Act of 2002 Section 906 Certification is furnished to (not file with) the Securities and Exchange Commission:
In connection with this annual report on Form 20-F of CNOOC Limited, we, Chengyu Fu, Chairman and Chief Executive Officer, and Hua Yang, Chief Financial Officer and Executive Vice President, of CNOOC Limited certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. This annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in this annual report fairly presents, in all material respects, the financial condition and results of operations of CNOOC Limited.
Date: June 26, 2006
By: /s/ Chengyu Fu
---------------------------------------
Name: Chengyu Fu
Title: Chairman and Chief Executive Officer
By: /s/ Hua Yang
---------------------------------------
Name: Hua Yang
Title: Chief Financial Officer
and Executive Vice President
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Exhibit 4.28
CNOOC LIMITED
FU CHENGYU
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.28-1
CONTENTS
Section Page
1. DEFINITIONS.................................................................1 2. TERMS AND JOB DESCRIPTION...................................................1 3. DUTIES......................................................................2 4. REMUNERATION................................................................2 5. INCOME TAX..................................................................3 6. EXPENSES....................................................................3 7. ANNUAL LEAVE................................................................4 8. SICKNESS AND OTHER INCAPACITY...............................................4 9. OTHER INTERESTS.............................................................4 10. SHARE DEALING..............................................................5 11. TERMINATION................................................................5 12. SUSPENSION.................................................................7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY................................7 14. MISCELLANEOUS.............................................................10 |
Exhibit 4.28-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) FU Chengyu of No. 401, Blue Garden, Shekou, Shenzhen, Guangdong Province, PRC. (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.28-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board; (c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$3,952,381 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.28-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.28-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.28-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.28-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.28-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
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The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.28-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly or
|
Exhibit 4.28-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company;
(d) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), deal with any person, firm, company or
organization who or which at any time during the preceding six months
shall have been a customer of or in the habit of dealing with the
Company or any other Group Company and with whom or which the Director
has had direct dealings or personal contact as part of the Employment so
as to harm the goodwill of the Company or any other Group Company or so
as to compete with the Company or any other Group Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
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Exhibit 4.28-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
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Exhibit 4.28-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.28-13
Exhibit 4.29
CNOOC LIMITED
LUO HAN
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.29-1
CONTENTS
Section Page
1. DEFINITIONS............................................................ 1 2. TERMS AND JOB DESCRIPTION.............................................. 1 3. DUTIES................................................................. 2 4. REMUNERATION........................................................... 2 5. INCOME TAX............................................................. 3 6. EXPENSES............................................................... 3 7. ANNUAL LEAVE........................................................... 4 8. SICKNESS AND OTHER INCAPACITY.......................................... 4 9. OTHER INTERESTS........................................................ 4 10. SHARE DEALING......................................................... 5 11. TERMINATION........................................................... 5 12. SUSPENSION............................................................ 7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY........................... 7 14. MISCELLANEOUS......................................................... 10 |
Exhibit 4.29-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) LUO Han of Room 8C, Aibo Building, 583 Lingling Road, Shanghai, PRC (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.29-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board;
(c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$952,381 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.29-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.29-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.29-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.29-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.29-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
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The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.29-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly
or
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Exhibit 4.29-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company; (d) for a period of six months after the Termination
Date, directly or indirectly (whether on his own account or for any
other person, firm, company or organization), deal with any person,
firm, company or organization who or which at any time during the
preceding six months shall have been a customer of or in the habit of
dealing with the Company or any other Group Company and with whom or
which the Director has had direct dealings or personal contact as part
of the Employment so as to harm the goodwill of the Company or any other
Group Company or so as to compete with the Company or any other Group
Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
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Exhibit 4.29-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
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Exhibit 4.29-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.29-13
Exhibit 4.30
CNOOC LIMITED
ZHOU SHOUWEI
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.30-1
CONTENTS
Section Page
1. DEFINITIONS......................................................... 1 2. TERMS AND JOB DESCRIPTION........................................... 1 3. DUTIES.............................................................. 2 4. REMUNERATION........................................................ 2 5. INCOME TAX.......................................................... 3 6. EXPENSES............................................................ 3 7. ANNUAL LEAVE........................................................ 4 8. SICKNESS AND OTHER INCAPACITY....................................... 4 9. OTHER INTERESTS..................................................... 4 10. SHARE DEALING...................................................... 5 11. TERMINATION........................................................ 5 12. SUSPENSION......................................................... 7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY........................ 7 14. MISCELLANEOUS...................................................... 10 |
Exhibit 4.30-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) ZHOU Shouwei of Room 601, 19th Building, North Liu Fang, Xiang He Gardens, Chaoyang District, Beijing, PRC. (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.30-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board;
(c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$3,095,238 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.30-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.30-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.30-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.30-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.30-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
|
The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.30-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly
or
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Exhibit 4.30-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company;
(d) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), deal with any person, firm, company or
organization who or which at any time during the preceding six months
shall have been a customer of or in the habit of dealing with the
Company or any other Group Company and with whom or which the Director
has had direct dealings or personal contact as part of the Employment so
as to harm the goodwill of the Company or any other Group Company or so
as to compete with the Company or any other Group Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
|
Exhibit 4.30-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
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Exhibit 4.30-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.30-13
Exhibit 4.31
CNOOC LIMITED
CAO XINGHE
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.31-1
CONTENTS
Section Page
1. DEFINITIONS.......................................................... 1 2. TERMS AND JOB DESCRIPTION............................................ 1 3. DUTIES............................................................... 2 4. REMUNERATION......................................................... 2 5. INCOME TAX........................................................... 3 6. EXPENSES............................................................. 3 7. ANNUAL LEAVE......................................................... 4 8. SICKNESS AND OTHER INCAPACITY........................................ 4 9. OTHER INTERESTS...................................................... 4 10. SHARE DEALING....................................................... 5 11. TERMINATION......................................................... 5 12. SUSPENSION.......................................................... 7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY......................... 7 14. MISCELLANEOUS....................................................... 10 |
Exhibit 4.31-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) CAO Xinghe of Room 9C, Ambassador Mansion, B21 Jiuxianqiao Road, Chaoyang District, PRC (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.31-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board;
(c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$952,381 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.31-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.31-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.31-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.31-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.31-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
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The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.31-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly
or
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Exhibit 4.31-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company;
(d) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), deal with any person, firm, company or
organization who or which at any time during the preceding six months
shall have been a customer of or in the habit of dealing with the
Company or any other Group Company and with whom or which the Director
has had direct dealings or personal contact as part of the Employment so
as to harm the goodwill of the Company or any other Group Company or so
as to compete with the Company or any other Group Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
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Exhibit 4.31-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
|
Exhibit 4.31-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.31-13
Exhibit 4.32
CNOOC LIMITED
WU ZHENFANG
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.32-1
CONTENTS
Section Page
1. DEFINITIONS............................................................ 1 2. TERMS AND JOB DESCRIPTION.............................................. 1 3. DUTIES................................................................. 2 4. REMUNERATION........................................................... 2 5. INCOME TAX............................................................. 3 6. EXPENSES............................................................... 3 7. ANNUAL LEAVE........................................................... 4 8. SICKNESS AND OTHER INCAPACITY.......................................... 4 9. OTHER INTERESTS........................................................ 4 10. SHARE DEALING......................................................... 5 11. TERMINATION........................................................... 5 12. SUSPENSION............................................................ 7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY........................... 7 14. MISCELLANEOUS......................................................... 10 |
Exhibit 4.32-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) WU Zhenfang of Room 1102, Building 8, Lane 2455, Xietu Road, Xuhui District, Shanghai, PRC (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.32-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board;
(c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$952,381 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.32-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.32-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.32-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.32-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.32-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
|
The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.32-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly
or
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Exhibit 4.32-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company; (d) for a period of six months after the Termination
Date, directly or indirectly (whether on his own account or for any
other person, firm, company or organization), deal with any person,
firm, company or organization who or which at any time during the
preceding six months shall have been a customer of or in the habit of
dealing with the Company or any other Group Company and with whom or
which the Director has had direct dealings or personal contact as part
of the Employment so as to harm the goodwill of the Company or any other
Group Company or so as to compete with the Company or any other Group
Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
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Exhibit 4.32-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
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Exhibit 4.32-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.32-13
Exhibit 4.33
CNOOC LIMITED
WU GUANGQI
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.33-1
CONTENTS
Section Page
1. DEFINITIONS.......................................................... 1 2. TERMS AND JOB DESCRIPTION............................................ 1 3. DUTIES............................................................... 2 4. REMUNERATION......................................................... 2 5. INCOME TAX........................................................... 3 6. EXPENSES............................................................. 3 7. ANNUAL LEAVE......................................................... 4 8. SICKNESS AND OTHER INCAPACITY........................................ 4 9. OTHER INTERESTS...................................................... 4 10. SHARE DEALING....................................................... 5 11. TERMINATION......................................................... 5 12. SUSPENSION.......................................................... 7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY......................... 7 14. MISCELLANEOUS....................................................... 10 |
Exhibit 4.33-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) WU Guangqi of Room 5-2908 Zhujiang Lu Zhou, 18 Jianguo Road, Chaoyang District, Beijing, PRC. (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.33-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board;
(c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$2,023,810 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.33-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.33-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.33-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.33-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.33-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
|
The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.33-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly
or
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Exhibit 4.33-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company; (d) for a period of six months after the Termination
Date, directly or indirectly (whether on his own account or for any
other person, firm, company or organization), deal with any person,
firm, company or organization who or which at any time during the
preceding six months shall have been a customer of or in the habit of
dealing with the Company or any other Group Company and with whom or
which the Director has had direct dealings or personal contact as part
of the Employment so as to harm the goodwill of the Company or any other
Group Company or so as to compete with the Company or any other Group
Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
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Exhibit 4.33-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
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Exhibit 4.33-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.33-13
Exhibit 4.34
CNOOC LIMITED
YANG HUA
SERVICE AGREEMENT
FOR EXECUTIVE DIRECTOR
Exhibit 4.34-1
CONTENTS
Section Page
1. DEFINITIONS........................................................ 1 2. TERMS AND JOB DESCRIPTION.......................................... 1 3. DUTIES............................................................. 2 4. REMUNERATION....................................................... 2 5. INCOME TAX......................................................... 3 6. EXPENSES........................................................... 3 7. ANNUAL LEAVE....................................................... 4 8. SICKNESS AND OTHER INCAPACITY...................................... 4 9. OTHER INTERESTS.................................................... 4 10. SHARE DEALING..................................................... 5 11. TERMINATION....................................................... 5 12. SUSPENSION........................................................ 7 13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY....................... 7 14. MISCELLANEOUS..................................................... 10 |
Exhibit 4.34-2
THIS AGREEMENT is made
BETWEEN
(1) CNOOC LIMITED whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the Company); and
(2) YANG Hua of Room 904, Building 37, Zuojiazhuang Beili, Chaoyang District, Beijing, PRC (the Director).
IT IS AGREED as follows:
1. DEFINITIONS
Board means the Board of Directors of the Company or a duly constituted committee of the Board of Directors;
Effective Date means June 1, 2006;
Employment means the Director's employment in accordance with the terms and conditions of this Agreement;
Exchange means The Stock Exchange of Hong Kong Limited;
Group means the Company and any subsidiary of the Company (with subsidiary having the meaning given to it by section 2 of the Ordinance;
Group Company means the Company or any of the subsidiaries or affiliates of the Company;
Hong Kong means the Hong Kong Special Administrative Region of PRC;
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);
PRC means the People's Republic of China.
2. TERMS AND JOB DESCRIPTION
2.1 The Director shall be employed by the Company as Executive Director or in such other capacity, consistent with his status and seniority, to which he may be lawfully assigned by the Board from time to time.
2.2 The Employment shall begin on the Effective Date.
Exhibit 4.34-3
2.3 Subject to clause 11, the Employment will continue for a period of 12 months and will be renewed on a 12 months' rolling basis as determined by the Board of Directors or the Shareholders of the Company.
3. DUTIES
3.1 During the Employment, the Director will:
(a) perform all such duties and exercise all such powers as are lawfully and properly assigned to him from time to time by the Board, whether such duties or powers relate to the Company or any Company in the Group;
(b) comply with all directions lawfully and properly given to him by the Board;
(c) use his best endeavours to protect and promote the interests of the Company;
(d) devote sufficient time, attention, skill and ability to discharge the duties of his office as an executive director of the Company;
(e) keep the Board fully informed of his actions and report to the Board in relation to his management of the Company in such manner as the Board may from time to time determine; and
(f) in pursuance of his duties hereunder perform such services for the Group and (without further remuneration unless otherwise agreed) accept such offices in the Group as the Board may from time to time reasonably require provided the same are consistent with his office.
3.2 The Director agrees to work at such location as the Board may from time to time require the Director to base himself (including Hong Kong and the PRC).
3.3 The Director shall report to the Board directly.
4. REMUNERATION
4.1 Director's Salary and -Others
4.1.1 Director's Salary
The Director's annual salary shall be paid in an amount equal to HK$2,500,000 before tax, or such other amount as from time to time notified in writing by the Company, less any required deductions as set out in this Agreement, which is payable in equal monthly installments in arrears. The Director's salary will be subject to an annual increment as determined by the Board. The Director's salary will be inclusive of all fees and other remuneration to which he may be or
Exhibit 4.34-4
become entitled as an officer of the Company or of any other company in the Group.
4.1.2 Company Car
During the Employment, the Company will provide the Director with the use of a motor car of an age and type appropriate (in the opinion of the Board) to his status, and will bear the cost of fuel and the expenses of taxing, insuring, repairing and maintaining such car and driver's salary and overtime. The Director shall take good care of the vehicle and shall procure that the provisions and conditions of any policy of insurance are observed in all respects.
4.1.3 Bonus
The Company may, in its sole discretion, consider and pay the Director a bonus of such amount as the Board may determine in light of the Company's business performance and the Director's individual performance.
4.2 Share Options
The Director is entitled to join the Company's share options programme. The Company may, in its sole discretion, change the programme from time to time, as determined by the Board.
4.3 Pension and Others
The Director is entitled to join the Company's pension scheme (the Scheme) (for the time being in force) subject to the terms and conditions of the trust deed and rules governing the Scheme from time to time in force. The Company will also provide the Director with benefits commensurate with his position as the Board may from time to time determine.
5. INCOME TAX
The Director himself shall be responsible for the tax of his income including Director's fees, salary, bonus, share options and other benefits.
6. EXPENSES
The Company will reimburse (or procure the reimbursement of) all out-of-pocket expenses properly and reasonably incurred by the Director in the course of his Employment subject to production of receipts or other appreciate evidence of payment.
Exhibit 4.34-5
7. ANNUAL LEAVE
7.1 The Director will be entitled in each calendar year to 25 working days annual leave with full salary (in addition to the general public holidays in his principal place of work) to be taken at such reasonable time or times as may be approved by the Company.
7.2 The Director's entitlement to annual leave will accrue pro rata throughout each calendar year. On termination of the Employment, the Director will be entitled to pay in lieu of any outstanding entitlement or be required to repay to the Company salary received in respect of annual leave in excess of entitlement. Such payment may be deducted from the final salary payment.
8. SICKNESS AND OTHER INCAPACITY
Provided that the Director supplies the Company with an appreciate medical certificate issued by a medical practitioner or a registered dentist covering the periods of absence, the Director will be entitled to be paid during absence from work due to sickness or injury.
9. OTHER INTERESTS
9.1 Subject to clause 9.2, during the Employment the Director will not (without the Board's prior written consent) be directly or indirectly engaged, concerned or interested in any other business activity, trade or occupation except any position held by the Director in China National Offshore Oil Corporation or its associates.
9.2 Notwithstanding clause 9.1, the Director may hold for investment purposes an interest of up to 5 percent, in nominal value in any securities listed on any stock exchange, provided that the company which issued the securities does not carry on a business which is similar to or competitive with any business for the time being carried on by any company in the Group.
9.3 The Director shall, during the Employment, disclose to the relevant authorities (including but not limited to the Exchange and the Securities and Futures Commission) and the Company all of his interests in securities of the Company and any Group Company within the meaning of Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time), and any dealings they may have in those securities. Such notifications should be made in the mode and within the time prescribed under Part XV of the Securities and Futures Ordinance (or such other applicable laws and regulations in force from time to time) and should comply with the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Exhibit 4.34-6
9.4 The Director shall, during the Employment, disclose his interest or the interests of any of his associate(s) (as defined under Rule 1.01 of the Listing Rules) in relation to any transaction in which he (or his associate) has a material interest, or any connected transaction (as defined under Rule 14A.13 of the Listing Rules) and abstain from voting in relation to those transactions.
10. SHARE DEALING
10.1 The Director must not deal in the Company's shares if he is a party to,
or is aware of, negotiations relating to transactions which may be price
sensitive or notifiable until a public announcement has been made. If
the Director is not a party to such negotiations, he must not deal in
the Company's shares for a similar period provided that he has been
informed there may be information of a price sensitive nature. The
Director shall also comply with the Model Code for Securities
Transactions by Directors of Listed Issuers under Appendix 10 of the
Listing Rules.
10.2 The Director must not deal in the Company's shares in the month
immediately preceding the announcement of the Company's results. In any
event the Director must not deal in the Company's shares without first
notifying the Chairman of the Board (or some other Director appointed
for the purpose) and receiving a dated written acknowledgement.
10.3 The dealing restrictions imposed on the Director apply equally to any
dealings by his spouse or by or on behalf of any minor child (natural or
adopted) and any other dealings in which for the purpose of Part XV of
the Securities and Futures Ordinance (or such other applicable laws and
regulations in force from time to time) he is or is to be treated as
interested.. They should also be extended to investment managers
managing any of the Director's funds whether or not they have discretion
as to the investment of such funds.
10.4 The Director in possession of confidential price sensitive information
must not counsel or procure dealing in securities listed on the
Exchange.
11. TERMINATION
11.1 Either party may terminate the Employment in accordance with clause 2.3.
11.2 The Employment may be terminated forthwith by the Company by summary
notice in writing:
(a) if the Director commits any serious or repeated breach of any of his
obligations
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Exhibit 4.34-7
under this Agreement or the Employment;
(b) if the Director is guilty of serious misconduct which, in the Board's
reasonable opinion, has damaged or may damage the business or affairs of
the Company or any Group Company;
(c) if the Director is guilty of conduct which, in the Board's reasonable
opinion, brings or is likely to bring himself, the Company or any Group
Company into disrepute;
(d) if the Director is declared bankrupt, or if he enters into any general
composition or arrangement with or for the benefit of his creditors, or
(e) if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in Hong Kong or PRC); or
(f) for any other reason permitting summary dismissal at law.
11.3 The Company may also terminate the Employment by giving at least three
months' written notice to the Director if the Director is unable
(whether due to illness or otherwise) properly and effectively to
perform his duties under this Agreement after exhausting his maximum
statutory sick leave entitlement.
11.4 On termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Director will:
(a) Immediately deliver to the Company all books, documents, papers,
computer records, computer data, credit cards, office keys, his company
car together with its keys, laptop computer, mobile telephone and any
other property relating to the business of or belonging to the Company
or any Group Company which is in his possession or under his control.
The Director is not entitled to retain copies or reproductions of any
documents, papers or computer records relating to the business of or
belonging to the Company or any Group Company; and
(b) Immediately resign from any office he holds with the Company or any
Group Company without any compensation for loss of office. Should the
Director fail to do so he hereby irrevocably authorizes the Company to
appoint some person in his name and on his behalf to sign any document
and do any thing to give effect to his resignation from office.
11.5 The Director will not at any time after termination of the Employment
represent himself as being in any way concerned with or interested in
the business of, or employed by, the Company or any Group Company.
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Exhibit 4.34-8
12. SUSPENSION
12.1 Where notice of termination has been served by either party in
accordance with clause 2.3, the Company shall be under no obligation to
provide work for or assign any duties to the Director for the whole or
any part of the notice period and may require him:
(a) not to attend any premises of the Company or any Group Company;
(b) to resign with immediate effect from any offices he holds with the
Company or any Group Company;
(c) to refrain from contact with any customers, clients or employees of the
Company or any Group Company.
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The provisions of clause 13.1 shall remain in full force and effect during any period of suspension under this clause 12.1.
Any suspension under this clause 12.1 shall be on full pay and benefits (save that the Director shall not be entitled to earn or be paid any bonus or commission during any period of suspension).
12.2 The Company may in its absolute discretion suspend the Director from the
Employment during any period in which the Company is carrying out a
disciplinary investigation into any alleged acts or defaults of the
Director (or alleged or suspected acts or defaults) provided that such
suspension shall not be for a period in excess of 14 days.
13. RESTRAINT ON ACTIVITIES AND CONFIDENTIALITY
13.1 Subject to clause 9.1, during the term of employment with Company, the
Director will not (without the prior written consent of the Company) be
directly or indirectly engaged or interested in any capacity in any
other business, trade or occupation whatsoever. Consent given in
accordance with this clause may be withdrawn at any time.
13.2 For the purposes of this clause 13, the term "Termination Date" shall
mean the termination of the Employment howsoever caused, including,
without limitation, termination by the Company which is in repudiatory
breach of this Agreement.
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Exhibit 4.34-9
13.3
(a) Save insofar as such information is already in the public domain, the Director will keep secret and will not at any time (whether during the Employment or thereafter) use for his own or another's advantage, or reveal to any person, firm, company or organization and shall use his best endeavors to prevent the publication or disclosure of any information which he knows or ought reasonably to have known to be confidential in the course of the Employment, (including but not limited to marketing plans, customer lists, and business development plans) concerning the business or affairs of the Company, or any Group Company or any of its or their customers.
(b) For the avoidance of doubt and without prejudice to the generality of sub-clause (a) above, the following is a non-exhaustive list of matters which in relation to the Company and any Group Company are considered confidential and must be treated as such by the Director:
(i) any corporate activities or transactions which have been, or will be, or are proposed to be, undertaken by the Company or by any Group Company;
(ii) any instruction or operations manual, invention, technical data, know-how or other manufacturing process pertaining to the business of the Company or Group Company;
(iii) any trade secrets of the Company or any Group Company; and
(iv) any information in respect of which the Company or any Group Company is bound by an obligation of confidence to any third party.
(c) The restrictions in this clause 13.3 shall not apply:
(i) to any disclosure or use authorized by the Board or required by
law or in the proper performance of the Employment under this
Agreement;
(ii) so as to prevent the Director from using his own personal skill in
any business in which the Director may be lawfully engaged after
the Employment is ended.
13.4 The Director hereby covenants with the Company (for itself and as
trustee and agent for each Group Company) that he shall not, whether
directly or indirectly on his own behalf or on behalf of or in
conjunction with any other person, firm, company or any other entity:
(a) for a period of six months after the Termination Date, whether directly
or
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Exhibit 4.34-10
indirectly, be engaged or interested (whether as principal, servant,
agent or otherwise) in any trade or business within Hong Kong and China
which competes with any trade or business being carried on by the
Company or any Group Company as at the Termination date and in which
trade or business the Director has been involved in or concerned with as
part of the Employment;
(b) for a period of six months after the Termination Date, directly or
indirectly (and whether on his own account or for any other person,
firm, company or organization), solicit or endeavor to solicit from the
Company or any Group Company in Hong Kong any employee of the Company in
an executive capacity at the date of termination of the Employment and
at any time within a period of six months prior to that date and with
whom the Director has worked or with whom the Director has had personal
contact as part of the Employment;
(c) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), solicit or endeavor to solicit from the
Company or any Group Company the business of any person, firm, company
or organization who or which is at the date of termination of the
Employment and who shall have been at any time during the preceding six
months a customer of or in the habit of dealing with the Company or any
Group Company and with whom the Director has had direct dealings or
personal contact as part of the Employment so as to harm the goodwill of
the Company or any Group Company or so as to compete with Company or any
Group Company;
(d) for a period of six months after the Termination Date, directly or
indirectly (whether on his own account or for any other person, firm,
company or organization), deal with any person, firm, company or
organization who or which at any time during the preceding six months
shall have been a customer of or in the habit of dealing with the
Company or any other Group Company and with whom or which the Director
has had direct dealings or personal contact as part of the Employment so
as to harm the goodwill of the Company or any other Group Company or so
as to compete with the Company or any other Group Company.
13.5 The Director acknowledges and agrees that:
(a) each of clauses 13.3 and 13.4 constitutes an entirely separate and
independent restriction on the Director; and
(b) if any such restriction is adjudged by any court of competent
jurisdiction to be void or unenforceable as going beyond what is
reasonable in the circumstances for the protection of the interests of
the Company but would be valid if part of the wording thereof was
deleted the said restriction shall apply with such deletions as
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Exhibit 4.34-11
may be necessary to make it valid and effective.
14. MISCELLANEOUS
14.1 The Duties of the Director are subject to the Articles of Association of
the Company (as amended from time to time).
14.2 If during the Employment the Director ceases (other than by resigning)
to be a director of the Company, this Agreement and the Employment will
continue for the time being and with the same duties and
responsibilities as were applicable in the latter capacity.
14.3 The Director must make a formal declaration and undertaking as set out
in Appendix 5 to the Listing Rules which he will provide the Exchange
with general information as to his professional qualifications, any
other directorships he may hold and whether, for instance, he has ever
been convicted of an offence involving dishonesty. By entering into this
Agreement the Director also undertakes to comply to the best of his
ability with the Listing Rules and the Securities and Futures Ordinance
(or such other applicable laws and regulations in force from time to
time). The Director also acknowledges that as a director of a company
with listing on the Main Board of The Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, the Director will also be
subject to other various laws, rules and regulations applicable to a
director of such listed company, which will be notified to the Director
by the Company from time to time.
14.4 This Agreement constitutes the entire agreement and understanding
between the parties and supersedes all other agreements (both oral and
in writing) between the Company and the Director (other than those
expressly referred to herein). The Director acknowledges that he has not
entered into this Agreement in reliance upon any representation,
warranty or undertaking which is not set out in this Agreement or
expressly referred to in it as forming part of the Director's contract
of employment.
14.5 The director represents and warrants to the Company that he will not by
reason of entering into the Employment, or by performing any duties
under this Agreement, be in breach of any terms of employment with a
third party (whether express or implied) or of any other obligations
binding on him.
14.6 Any notice to be given under this Agreement to the Director may be
served by being handed to him personally or by being sent by recorded
delivery post to him at his usual or last known address; and any notice
to be given to the Company may be served by being left at or by being
sent by recorded delivery post to its
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Exhibit 4.34-12
registered office for the time being. Any notice served by post shall be
deemed to have been served on the day (excluding Sundays and statutory
holidays) next following the date of posting and in proving such service
it shall be sufficient proof that the envelope containing the notice was
properly addressed and posted as a prepaid letter by recorded delivery
post.
14.7 The terms of this Agreement may be modified, varied or added to from
time to time unilaterally by the Company in its sole discretion. The
Company will notify the Director of any such variations, modifications
or additions in writing. This Agreement shall not be deemed to be
changed, modified or altered by reason of any advice, suggestions,
guides or informal notices furnished by the Company to the Director.
14.8 This Agreement is governed by, and shall be construed in accordance
with, the laws of Hong Kong.
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SIGNED by the DIRECTOR ) in the presence of: ) SIGNED for and on behalf of ) CNOOC LIMITED ) |
Exhibit 4.34-13
EXHIBIT 4.37
CNOOC LIMITED
(Incorporated in Hong Kong with limited liability)
SHARE OPTION SCHEME
(Adopted by shareholders on 31 December 2005)
1. DEFINITIONS AND INTERPRETATION
1.1 In this Scheme each of the following words and expressions shall, unless the context requires otherwise, have the following meaning:
"Adoption Date" means the date of adoption of the Scheme
by the Shareholders;
"Associate" has the meaning ascribed thereto under the
Listing Rules;
"Auditors" means the auditors for the time being of the
Company;
"Board" means the board of Directors or a duly
authorised committee thereof;
"business day" means a day on which the Stock Exchange
is open for the business of dealing in
securities;
"Company" means CNOOC Limited, a company incorporated in
Hong Kong with limited liability under the
Companies Ordinance;
"Connected Person" has the meaning ascribed thereto under the
Listing Rules;
"Director" means any director (including independent
non-executive director) of the Company for the
time being;
"Eligible Person" means any director or employee of the
Group and any other 17.03(2) person (including
a consultant or adviser) who in the sole
discretion of the Board has contributed or
will contribute to the Group
"Grantee" means any Eligible Person who accepts an Offer
in accordance with the terms of the Scheme or
(where the context so permits) any person
entitled to exercise any Option in consequence
of the death of the original
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Exhibit 4.37-1
Grantee;
"Group" means the Company and its Subsidiaries;
"Hong Kong" means the Hong Kong Special
Administrative Region of the People's Republic
of China;
"Listco Connected means any director, the chief executive or any
Person" Substantial Shareholder of the Company;
"Listing means the listing sub-committee of the board of
Committee" directors of the Stock Exchange;
"Listing Rules" means the Rules Governing the Listing of
Securities on the Stock Exchange from time to
time;
"Offer" means an offer of the grant of an Option made
in accordance with paragraph 4;
"Offer Date" means the date on which an Offer is made to an
Eligible Person, which must be a business day;
"Option" means a right to subscribe for Shares pursuant
to the Scheme;
"Option Period" means a period to be determined and notified
by the Board 17.03(5) to the Grantee during
which the Option may be exercised and in any
event shall be not more than 10 years
commencing on the date on which the Offer in
relation to such Option is deemed to have been
accepted in accordance with paragraph 4.3 and
expiring on the last day of such 10-year
period subject to the provisions for early
termination contained in paragraph 7;
"Option Price" means the amount of HK$1.00 payable for each
acceptance of 17.03(8) grant of Option(s);
"Remuneration means the remuneration committee of the board
Committee" of Directors or a duly authorised sub-committee
thereof;
"Scheme" means this share option scheme in its present
or any amended form;
"Scheme Mandate Limit" has the meaning ascribed thereto in paragraph
8.2;
"Shareholders" means the holders of Shares;
"Shares" means fully paid ordinary shares of HK$0.02
each in the capital of the Company (or, if
there has been a consolidation, reduction,
re-classification, sub-division or
reconstruction of the share capital of the
Company, shares forming part of the equity
share capital of the Company of such revised
amount as shall result from such sub-division,
consolidation, reduction, re-
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Exhibit 4.37-2
classification or reconstruction of such
ordinary shares from time to time);
"Stock Exchange" means The Stock Exchange of Hong Kong Limited;
"Subscription Price" means the price at which each Share
subject to an Option may be subscribed on the
exercise of that Option, subject to paragraphs
5 and 10;
"Subsidiary" means a subsidiary (within the meaning of
Section 2 of the Companies Ordinance, Chapter
32 of the Laws of Hong Kong) for the time
being of the Company;
"Substantial has the meaning ascribed thereto under the
Shareholder" Listing Rules; and
"HK$" means Hong Kong dollars, the lawful currency
for the time being of Hong Kong.
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1.2 In this Scheme, unless the context otherwise requires:
1.2.1 paragraph headings are inserted for convenience only and do
not affect its interpretation;
1.2.2 words in the singular include the plural and vice versa;
1.2.3 words denoting the masculine gender include the feminine
gender; and
1.2.4 a reference to any enactment shall be construed as a reference
to that enactment as from time to time amended, extended or
re-enacted.
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2. CONDITIONS
2.1 The Scheme is conditional on:
2.1.1 the passing of the necessary resolution to adopt the Scheme by
the Shareholders in general meeting; and
2.1.2 the Listing Committee granting approval of the listing of and
permission to deal in any Shares which may fall to be issued
pursuant to the exercise of any such Option.
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2.2 If either of the conditions set out in paragraph 2.1 is not satisfied on or before the expiry of two months after the Adoption Date:
2.2.1 the Scheme shall immediately determine;
2.2.2 any Option granted or agreed to be granted pursuant to the
Scheme and any Offer of such a grant shall be of no effect;
2.2.3 no person shall be entitled to any rights or benefits or be
under any obligations under or in respect of the Scheme or any
Option; and
2.2.4 any amount(s) paid by any Grantee(s) in respect of the Option
Price shall be refunded (without interest) by the Company.
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Exhibit 4.37-3
3. PURPOSE, DURATION AND ADMINISTRATION
3.1 The purpose of the Scheme is to provide incentive and/or reward to Eligible Persons for their contribution to, and continuing efforts to promote the interests of, the Company.
3.2 Subject to paragraph 15, the Scheme shall be valid and effective for a period of 10 years commencing on the Adoption Date, after which period no further Option shall be granted. Subject to the above, in all other respects, in particular, in respect of Options remaining outstanding on the expiration of the 10-year period referred to in this paragraph, the provisions of the Scheme shall remain in full force and effect.
3.3 The Scheme shall be subject to the administration of the Remuneration Committee whose decision (save as otherwise provided herein) shall be final and binding on all parties subject to the prior receipt of a statement in writing from the Auditors or the independent financial adviser if and as required by paragraph 10.
4. GRANT OF OPTIONS
4.1 Subject to the terms of the Scheme (and in particular paragraphs 4.4, 4.5, 4.6 and 8), the Board shall be entitled at any time within the period of 10 years after the Adoption Date to make an Offer to any Eligible Person as the Board may in its absolute discretion select to subscribe for such number of Shares as the Board may determine at the Subscription Price. The Board may in its absolute discretion specify such conditions as it thinks fit when making an Offer to an Eligible Person (including, without limitation, as to any performance criteria which must be satisfied by the Eligible Person and/or the Company and/or its Subsidiaries, and any minimum period for which an Option must be held, before an Option may be exercised, if any), provided that such conditions shall not be inconsistent with any other terms and conditions of the Scheme.
4.2 Each Offer shall be in writing and shall:
4.2.1 state the date of issue of the Offer;
4.2.2 specify a date, being a date not later than 21 days after (i)
the date on which the Offer was issued, or (ii) the date on
which the conditions (if any) for the Offer are satisfied, by
which the Eligible Person must accept the Offer or be deemed
to have declined it;
4.2.3 state the method for accepting the Offer and that an
acceptance of the Offer must be accompanied by payment of the
Option Price;
4.2.4 state that the Option Price is not refundable (except in the
case of paragraphs 2.2.4 and 4.9) and shall not in any
circumstances be, or be deemed to be, a part payment of the
Subscription Price;
4.2.5 specify the maximum number of Shares to which the Offer
relates;
4.2.6 specify the Subscription Price;
4.2.7 specify the Option Period, and the date or dates during the
Option Period upon which the Option shall first become
exercisable;
4.2.8 specify any other conditions which must be satisfied before
the Option may be exercised;
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Exhibit 4.37-4
4.2.9 require the Eligible Person to undertake to hold the Option on
the terms on which it is to be granted and to be bound by the
provisions of the Scheme; and
4.2.10 subject to the above, be made in such form as the Board may
from time to time prescribe.
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4.3 No Offer shall be made to, and no Option shall be capable of acceptance
by, any Eligible Person during any period specified in Listing Rule
17.05. An Offer shall be deemed to have been accepted and the Option to
which the Offer relates shall be deemed to have been granted and to
have taken effect when the Company receives the duplicate of the offer
letter comprising acceptance of the Offer duly signed by the Grantee
with the number of Shares in respect of which the Offer is accepted
clearly stated therein, together with a remittance of the Option Price
to the Company. Any Offer may be accepted in respect of all or less
than the number of Shares in respect of which it is offered provided
that it is accepted in respect of a board lot for dealing in Shares on
the Stock Exchange or an integral number thereof. To the extent that an
Offer is not accepted within the time stated in the Offer for that
purpose, it shall be deemed to have been irrevocably declined.
4.4 The provisions of paragraphs 4.5 to 4.8 and 5.1 shall be subject to any waiver or ruling granted by the Stock Exchange, and may be amended by the Board to reflect any amendments made by the Stock Exchange after the Adoption Date to the relevant provisions of the Listing Rules which these paragraphs have been drafted to reflect as at the Adoption Date. For the purpose of calculating the limit in paragraphs 4.5 and 4.7, Options that have already lapsed in accordance with paragraph 7 shall not be counted. For the purposes of paragraphs 4.5 and 4.7, "Relevant Shares" means Shares issued and to be issued upon exercise of all Options granted and to be granted (including exercised, cancelled and outstanding Options) to the relevant grantee in the 12-month period up to and including the Offer Date of the relevant Option referred to in paragraph 4.5 or 4.7 (as the case may be).
4.5 Subject to paragraph 4.6, no Option shall be granted to any Eligible Person ("Relevant Eligible Person" for the purposes of this paragraph) if, at the time of grant, the number of Relevant Shares would exceed 1% of the total number of Shares in issue, unless:
4.5.1 such grant has been duly approved, in the manner prescribed by
the relevant provisions of Chapter 17 of the Listing Rules, by
resolution of the Shareholders in general meeting, at which
the Relevant Eligible Person and his Associates abstained from
voting;
4.5.2 a circular regarding the grant has been despatched to the
Shareholders in a manner complying with, and containing the
information specified in, the relevant provisions of Chapter
17 of the Listing Rules; and
4.5.3 the number and terms (including the Subscription Price) of
such Option are fixed before the general meeting of the
Company at which the same are approved.
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4.6 Where an Option is to be granted to a Listco Connected Person (or its Associate), the grant shall not be valid unless it has been approved by the independent non-executive Directors, excluding any independent non-executive Director who is a prospective Grantee of the Option.
4.7 Where an Option is to be granted to a Substantial Shareholder or an independent non-executive Director (or any of their respective Associates), and the grant will result in the number and value of the Relevant Shares exceeding:
4.7.1 0.1% of the total number of Shares in issue at the relevant time of grant; and
Exhibit 4.37-5
4.7.2 an aggregate value (based on the closing price of the Shares
on the Stock Exchange on the date of each grant) of HK$5
million,
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such grant shall not be valid unless:
4.7.3 a circular containing the details of the grant has been
despatched to the Shareholders in a manner complying with, and
containing the matters specified in, the relevant provisions
of Chapter 17 of the Listing Rules (including, in particular,
a recommendation from the independent non-executive Directors
(excluding the independent non-executive Director who is the
prospective Grantee of the Option) to the independent
Shareholders as to voting); and
4.7.4 the grant has been approved by the Shareholders in general
meeting (taken on a poll), at which all Connected Persons must
abstain from voting in favour of the relevant resolution
granting the approval.
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4.8 Where any change is to be made to the terms of any Option granted to a Substantial Shareholder or an independent non-executive Director (or any of their respective Associates) and:
4.8.1 such grant has been approved in accordance with paragraph 4.7;
or
4.8.2 (where the grant was not subject to paragraph 4.7) as a result
of such proposed change the grant would come to be subject to
paragraph 4.7,
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such change shall not be valid unless:
4.8.3 a circular regarding the change has been despatched to the
Shareholders in a manner complying with, and containing the
matters specified in, the relevant provisions of Chapter 17 of
the Listing Rules (including, in particular, a recommendation
from the independent non-executive Directors (excluding the
independent non-executive Director who is the prospective
Grantee of the Option) to the independent Shareholders as to
voting); and
4.8.4 the change has been approved by the Shareholders in general
meeting (taken on a poll), at which all Connected Persons
abstained from voting in favour of the relevant resolution
granting the approval.
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4.9 In the cases referred to in paragraphs 4.5 to 4.8, where an Option has not been approved by the Shareholders in general meeting or by the independent non-executive Directors (as the case may be), the Option Price paid by a prospective grantee relating to such Option shall be refunded (without interest) by the Company.
5. SUBSCRIPTION PRICE
5.1 Subject to paragraphs 5.2, 5.3 and 10, the Subscription Price shall be a price determined by the Board and notified to an Eligible Person and shall be at least the higher of:
5.1.1 the closing price of the Shares as stated in the Stock
Exchange's daily quotations sheet on the Offer Date, which
must be a business day;
5.1.2 the average of the closing price of the Shares as stated in
the Stock Exchange's daily quotation sheets for the five
business days immediately preceding the Offer Date; and
5.1.3 the nominal value of a Share.
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Exhibit 4.37-6
5.2 Where an Option is to be granted under paragraphs 4.5 or 4.7, for the purposes of paragraphs 5.1.1 and 5.1.2 the date of the Board meeting at which the grant was proposed shall be taken to be the Offer Date for such Option, and the provisions of paragraph 5.1 shall apply mutatis mutandis.
6. EXERCISE OF OPTION
6.1 An Option shall be personal to the Grantee and shall not be assignable nor transferable, and no Grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (whether legal or beneficial) in favour of any third party over or in relation to any Option.
6.2 An Option may be exercised in whole or in part by the Grantee (or his personal representatives) before its expiry giving notice in writing to the Company stating that the Option is to be exercised and the number of Shares in respect of which it is exercised. Such notice must be accompanied by a remittance for the full amount of the Subscription Price for the Shares in respect of which the notice is given, except where the Grantee sells Shares of the Company in order to partly or wholly fund the Subscription Price, and the Grantee is subject to a minimum shareholding requirement, that part of the Subscription Price to be funded from the proceeds of such sale shall be paid within [5] days of the allotment of Shares to the Grantee.
Within 30 days after receipt of the notice and (where appropriate) receipt of the independent financial adviser's or the Auditors' certificate under paragraph 10, the Company shall issue and allot the relevant Shares to the Grantee (or his personal representatives) credited as fully paid and issue to the Grantee (or his personal representatives) a share certificate in respect of the Shares so issued and allotted.
6.3 Subject to the terms of grant of any Option and the provisions of paragraph 9, an Option may be exercised by the Grantee (or his personal representatives) at any time during the Option Period and in accordance with the vesting schedule and other terms specified in the relevant Offer, provided that:
6.3.1 subject to paragraphs 6.3.2 and 7.1.5, where the holder of an
outstanding Option ceases to be an Eligible Person for any
reason, the Option may be exercised within three months of the
date of cessation. The date of such cessation shall be (i) if
he is an employee of the Group, his last actual working day at
his work place with the Group whether salary is paid in lieu
of notice or not; or (ii) if he is not an employee of the
Group, the date on which the relationship constituting him an
Eligible Person ceases;
6.3.2 where the Grantee of an outstanding Option dies before
exercising the Option in full or at all, the Option may be
exercised up to the entitlement of such Grantee or, if
appropriate, an election made pursuant to paragraph 6.3.3,
6.3.4 or 6.3.5 by his or her personal representatives within
12 months of the date of death;
6.3.3 if a general offer by way of a take-over is made to all the
Shareholders (or all such holders other than the offeror
and/or any person controlled by the offeror and/or any person
acting in association or concert with the offeror) and such
offer becomes or is declared unconditional, the Company shall
give notice thereof to the Grantee and the Grantee (or his
personal representatives) may by notice in writing to the
Company within 30 days after such offer becoming or being
declared unconditional exercise the Option to its full extent
or to the extent specified in such notice;
6.3.4 if a general offer by way of a scheme of arrangement is made
to all the Shareholders and the scheme has been approved by
the necessary number of Shareholders at the
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Exhibit 4.37-7
requisite meetings, the Company shall give notice thereof to
the Grantee and the Grantee (or his personal representatives)
may thereafter (but before such time as shall be notified by
the Company) by notice in writing to the Company exercise the
Option to its full extent or to the extent specified in such
notice; and
6.3.5 in the event a notice is given by the Company to its members
to convene a general meeting for the purposes of considering,
and if thought fit, approving a resolution to voluntarily
wind-up the Company, the Company shall on the same date as or
soon after it despatches such notice to each member of the
Company give notice thereof to all Grantees (together with a
notice of the existence of the provisions of this paragraph)
and thereupon, each Grantee (or his or her personal
representatives) shall be entitled to exercise all or any of
his Options at any time not later than 5 business days prior
to the proposed general meeting of the Company by giving
notice in writing to the Company, accompanied by a remittance
for the full amount of the aggregate Subscription Price for
the Shares in respect of which the notice is given whereupon
the Company shall as soon as possible and, in any event, no
later than three business days immediately prior to the date
of the proposed general meeting referred to above, issue and
allot the relevant Shares to the Grantee credited as fully
paid.
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6.4 The Shares to be issued and allotted upon the exercise of an Option shall be subject to the Company's constitutional documents for the time being in force and shall rank pari passu in all respects with the fully-paid Shares in issue as at the date of allotment and will entitle the holders to participate in all dividends or other distributions declared or recommended or resolved to be paid or made in respect of a record date falling on or after the date of allotment. Prior to the Grantee being registered on the register of members of the Company the Grantee shall not have any voting rights, or rights to participate in any dividends or distributions of any rights arising on a liquidation of the Company, in respect of the Shares to be issued upon the exercise of the Option.
7. LAPSE OF OPTION
7.1 The right to exercise an Option (to the extent not already exercised) shall terminate immediately upon the earliest of:
7.1.1 the expiry of the Option Period;
7.1.2 the expiry of any of the periods referred to in paragraphs
6.3.1, 6.3.2 or 6.3.3;
7.1.3 subject to the scheme of arrangement becoming effective, the
expiry of the period referred to in paragraph 6.3.4;
7.1.4 subject to paragraph 6.3.5, the date of the commencement of
the winding-up of the Company;
7.1.5 the date on which the Grantee ceases to be an Eligible Person
by reason of summary dismissal for misconduct or other breach
of the terms of his employment or other contract or
arrangement constituting him an Eligible Person, or the date
on which he begins to appear to be unable to pay or has no
reasonable prospect of being able to pay his debts or has
become insolvent or has made any arrangements or composition
with his or her creditors generally or on which he has been
convicted of any criminal offence involving his or her
integrity or honesty. A resolution of the Board to the effect
that the employment or other relevant contract or arrangement
of a Grantee has or has not been terminated on one or more of
the grounds specified in this paragraph 7.1.5 shall be
conclusive; or
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Exhibit 4.37-8
7.1.6 the date on which the Grantee commits a breach of paragraph 6.1.
8. MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION
8.1 The maximum number of Shares which may be issued upon the exercise of all outstanding options granted and yet to be exercised under the Scheme and any other schemes of the Company, must not, in aggregate, exceed 30% (or such other percentage as may be allowed under the Listing Rules) of the total number of Shares in issue from time to time.
8.2 Subject to paragraphs 8.1, 8.4 and 8.5, at the time of adoption by the Company of any new share option scheme (the "New Scheme"), the number of Shares which may be issued upon exercise of all options to be granted under the New Scheme and all schemes existing at such time (the "Existing Schemes") of the Company must not in aggregate exceed 10% of the total number of Shares in issue as at the date of Shareholders' approval of the New Scheme (the "Scheme Mandate Limit").
8.3 For the purposes of calculating the Scheme Mandate Limit under paragraph 8.2, Shares which are the subject matter of any options that have already lapsed in accordance with the terms of the relevant Existing Scheme(s) shall not be counted.
8.4 The Scheme Mandate Limit may be refreshed by ordinary resolution of the Shareholders in general meeting, provided that:
8.4.1 the total number of Shares which may be issued upon exercise
of all options to be granted under all Existing Schemes under
the Scheme Mandate Limit as renewed shall not exceed 10% of
the total number of Shares in issue as at the date of
Shareholders' approval of the refreshing of the Scheme Mandate
Limit; and
8.4.2 options previously granted under the Existing Schemes
(including options exercised, outstanding, cancelled, or
lapsed in accordance with the relevant scheme rules) shall not
be counted for the purpose of calculating the Scheme Mandate
Limit as refreshed; and
8.4.3 a circular regarding the proposed refreshing of the Scheme
Mandate Limit has been despatched to the Shareholders in a
manner complying with, and containing the matters specified
in, Chapter 17 of the Listing Rules.
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8.5 The Company may seek separate approval from the Shareholders in general meeting for granting options which will result in the Scheme Mandate Limit being exceeded, provided that:
8.5.1 the grant is only to Eligible Persons specifically identified
by the Company before the approval is sought; and
8.5.2 a circular regarding the grant has been despatched to the
Shareholders in a manner complying with, and containing the
matters specified in, the relevant provisions of Chapter 17 of
the Listing Rules.
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Exhibit 4.37-9
9. REDEMPTION OF OPTIONS AFTER EXERCISE
9.1 Notwithstanding any other provision of the Scheme, where a Grantee has given notice to exercise an Option, the Board shall be entitled at its discretion (which discretion may or may not be exercised on request from a Grantee) within 10 business days of receipt of such notice to cancel the exercised Option, either in whole or in part, by giving notice in writing to the Grantee whereupon the provisions of paragraph 9.2 shall apply.
9.2 If any Option shall be cancelled pursuant to paragraph 9.1, the Grantee shall be entitled to receive a refund of the Subscription Price paid by the Grantee on exercise of such Option together with a payment in cash (calculated in accordance with the formula below) to compensate the Grantee for such cancellation, such refund and payment to be made within 10 business days of the Company giving notice of such cancellation. Once such refund and payment have been made by the Company, the Grantee shall have no other claim against the Company in connection with any Option so cancelled. The amount of payment shall be calculated by reference to the following formula:
(A x B) - C
where
A is the number of Shares that would have been issued on
exercise of the Option (the "Applicable Shares");
B is the average closing price of the Shares as stated in the
daily quotations sheets issued by the Stock Exchange for the
five business days immediately preceding the date the Company
receives notice of exercise of the Option; and
C is the aggregate Subscription Price for the Applicable Shares,
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provided that (i) if the same shall result in a negative figure there shall be no entitlement to any such payment and (ii) if the Subscription Price shall not be the same for all the Applicable Shares, separate calculations shall be made in respect of each portion of the Applicable Shares for which the Subscription Price shall be the same, as if such rights of cancellation had been exercised separately in respect of each such portion of Applicable Shares. Any payment made by the Company pursuant to the foregoing provisions shall be charged to its retained profits unless otherwise required to be accounted for in accordance with the generally accepted accounting principles which apply at the time of the relevant payment.
10. REORGANISATION OF CAPITAL STRUCTURE
10.1 In the event of any alteration in the capital structure of the Company
whilst any Option has been granted and remains exercisable, whether by
way of capitalisation of profits or reserves, rights issue,
consolidation, subdivision or reduction of the share capital of the
Company, the Company shall make corresponding adjustments (if any) to:
10.1.1 the number of Shares subject to the Options already granted so
far as they remain exercisable; and/or
10.1.2 the Subscription Price,
provided that:
10.1.3 no such adjustments shall be made in respect of an issue of
securities by the Company as consideration in a transaction;
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Exhibit 4.37-10
10.1.4 any such adjustments must be made so that each Grantee is
given the same proportion of the equity capital of the Company
as that to which he was previously entitled;
10.1.5 no such adjustments shall be made which would result in the
Subscription Price for a Share being less than its nominal
value, provided that in such circumstances the Subscription
Price shall be reduced to the nominal value;
10.1.6 any such adjustments, save those made on a capitalisation
issue, shall be confirmed by an independent financial adviser
or the Auditors in writing to the Directors as satisfying the
requirements of paragraphs 10.1.4 and 10.1.5 above; and
10.1.7 any such adjustments made pursuant to a subdivision or
consolidation of share capital shall be made on the basis that
the aggregate Subscription Price payable by a Grantee on the
full exercise of any Option shall remain as nearly as possible
the same (but shall not be greater than) as it was before such
event.
10.2 If there has been any alteration in the capital structure of the
Company as referred to in paragraph 10.1, the Company shall, upon
receipt of a notice from a Grantee in accordance with paragraph 6.2,
inform the Grantee of such alteration and shall either inform the
Grantee of the adjustment to be made pursuant to the certificate of the
independent financial adviser or the Auditors (as the case may be)
obtained by the Company for such purpose or, if no such certificate has
yet been obtained, inform the Grantee of such fact and instruct the
independent financial adviser or the Auditors (as the case may be) as
soon as practicable to issue a certificate in that regard in accordance
with paragraph 10.1.
10.3 For the purposes of this paragraph, the independent financial adviser
or the Auditors shall act as experts and not as arbitrators and their
certification being final and binding on the Company and the Grantees.
Their costs shall be borne by the Company.
11. SHARE CAPITAL
The exercise of any Option shall be subject to the Shareholders in
general meeting approving any necessary increase in the authorised
share capital of the Company. Subject to such approval, the Board shall
make available sufficient authorised but unissued share capital of the
Company to meet subsisting requirements on the exercise of Options.
12. DISPUTES
Any dispute arising in connection with the Scheme (whether as to the
number of Shares the subject of an Option, the amount of the
Subscription Price, or otherwise) shall be referred to the decision of
the Remuneration Committee whose decision shall be final and binding.
13. ALTERATION OF THE SCHEME
13.1 Those specific provisions of this Scheme which relate to the matters
set out in Rule 17.03 of the Listing Rules shall not be altered to the
advantage of Grantees or prospective Grantees except with the prior
approval of the Shareholders in general meeting (with participants and
their Associates abstaining from voting). No such alteration shall
operate to affect adversely the terms of issue of any Option granted or
agreed to be granted prior to such alteration except with the consent
or sanction in writing of such majority of the Grantees as would be
required of the Shareholders under the constitutional documents for the
time being of the Company for a variation of the rights attached to the
Shares.
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Exhibit 4.37-11
13.2 Any change to the authority of the Remuneration Committee in relation
to any alteration to the terms of the Scheme shall not be valid unless
approved by Shareholders in general meeting.
13.3 Any alterations to the provisions of the Scheme which are of a material
nature, or any change to the terms of Options granted, must be approved
by the Shareholders in general meeting, except where the alterations
take effect automatically under the existing provisions of the Scheme.
13.4 The amended terms of the Scheme or the Options must comply with Chapter
17 of the Listing Rules.
14. CANCELLATION OF OPTIONS GRANTED
14.1 The Company may cancel any Option granted but not exercised with the
approval of the Grantee of such Option.
14.2 Options may be granted to an Eligible Person in place of his cancelled
Options provided that there are available unissued Options (excluding
the cancelled Options) within the Scheme Mandate Limit of the Scheme
(or similar limit under any other scheme adopted by the Company) from
time to time.
15. CHANGE OF CONTROLLING INTERESTS
15.1 Subject to paragraph 6.3, in the event that there is a Change of
Controlling Interest, all Options granted but not exercised shall
become exercisable immediately (except for Options which have been
granted less than 6 months from the date of the occurrence of the
Change of Controlling Interest). Such Options may be exercised within
12 months from the date of the occurrence of the Change of Controlling
Interest.
15.2 For the purposes of this paragraph, "Change of Controlling Interest"
means the occurrence of any of the following:
15.2.1 Any person, entity or body has acquired or held more than 30%
(or the percentage of voting rights which will trigger an
obligation to make a general offer, as stipulated in the Hong
Kong Code on Takeovers) of:
(A) the issued Shares; or
(B) the votes attached to all issued voting securities of the
Company.
For the purposes of this paragraph 15.1.1, however, the
following shall not be regarded as "Change of Controlling
Interest":
(A) the purchase is made by the Company; or
(B) the purchase is made by an employee welfare program (or
related trust fund) set up or supervised by the Company.
15.2.2 The Company participates as a party in any reorganisation,
merger or takeover which has been approved by all shareholders
of the Company; and
15.2.3 The Company is liquidated or reorganised.
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Exhibit 4.37-12
16. TERMINATION
16.1 The Company, by resolution in general meeting, or the Board, may at any
time terminate the operation of the Scheme and in such event no further
Option will be offered but in all other respects the provisions of the
Scheme shall remain in full force and effect and Options granted prior
to such termination shall continue to be valid and exercisable in
accordance with the Scheme.
17. GENERAL
17.1 Notwithstanding any provision of any other paragraph of the Scheme :
17.1.1 the Scheme shall not form part of any contract of employment
between the Company or any Subsidiary (as appropriate) and any
Eligible Person; where an Eligible Person is an employee of
the Company or any Subsidiary, the rights and obligations
under the terms of his office or employment shall not be
affected by his participation in the Scheme or any right which
he may have to participate in it and the Scheme shall afford
such an Eligible Person no additional rights to compensation
or damages in consequence of the termination of such office or
employment for any reason; and
17.1.2 the Scheme shall not confer on any person any legal or
equitable rights (other than those constituting the Options
themselves) against the Company directly or indirectly or give
rise to any cause of action at law or in equity against the
Company.
17.2 The Company shall bear the costs of establishing and administering the
Scheme.
17.3 A Grantee shall be entitled to receive copies of all notices and other
documents sent by the Company to holders of Shares.
17.4 Any notice or other communication between the Company and a Grantee may
be given by personal delivery, by prepaid post or by fax to, in the
case of the Company, its principal place of business in Hong Kong at
65/F, Bank of China Tower, 1 Garden Road, Central, Hong Kong or as
otherwise notified to the Grantees from time to time and, in the case
of the Grantee, his or her residential address as notified to the
Company from time to time.
17.5 Any notice or other communication between the Company and a Grantee
shall be deemed to have been received:
17.5.1 in the case of delivery by hand, when delivered;
17.5.2 in the case of prepaid post, on the second day following the
day of posting; or
17.5.3 in the case of a fax, on the date of transmission provided
that the sender has a transmission report indicating that the
fax was duly transmitted and received.
17.6 In the case of a notice served by the Company by post, in proving
service it shall be sufficient to prove that the envelope containing
the notice was properly addressed and stamped and was deposited in a
post box or at the post office.
17.7 A Grantee shall be responsible for obtaining any governmental or other
official consent that may be required by any country or jurisdiction
other than Hong Kong (or the country of incorporation of the Company if
the Company is incorporated outside of Hong Kong) in order to permit
the grant or exercise of an Option. The Company shall not be
responsible for any failure by a Grantee to obtain any such consent or
for any tax or other liability to which a Grantee may become subject as
a result of his or her participation in the Scheme. The
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Exhibit 4.37-13
Company shall not be responsible for the lapse of any Options granted
to any Eligible Person by reason of the operation of paragraph 7.1.
17.8 The Remuneration Committee shall have the power from time to time to
make or vary regulations for the administration and operation of the
Scheme, provided that the same are not inconsistent with the provisions
of the Scheme. The Board shall also have the power to delegate its
powers to grant Options to Eligible Persons and to determine the
Subscription Price, to the Company's Chief Executive Officer or
Chairman of the Board from time to time, subject to the requirements
and restrictions set out in this Scheme and the Listing Rules.
17.9 The Scheme and all Options granted under the Scheme shall be governed
by and construed in accordance with the laws of Hong Kong.
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Exhibit 4.37-14
EXHIBIT 4.45
Framework Agreement
on Mutual Supply of Products and Services
between
China National Offshore Oil Corporation
and
CNOOC Limited
(Summary Translation)
Exhibit 4.45-1
Table of Contents
ARTICLE 1 SCOPE OF PRODUCTS AND SERVICES..........................................................3
ARTICLE 2 TRADING PRINCIPLES......................................................................4
ARTICLE 3 PRICING PRINCIPLES......................................................................5
ARTICLE 4 IMPLEMENTATION..........................................................................6
ARTICLE 5 RIGHTS AND OBLIGATIONS..................................................................7
ARTICLE 6 TERM AND TERMINATION OF INDIVIDUAL PRODUCT AND SERVICE CONTRACT........................7
ARTICLE 7 REPRESENTATIONS AND WARRANTIES..........................................................8
ARTICLE 8 PERFORMANCE OF THIS AGREEMENT...........................................................9
ARTICLE 9 FORCE MAJEURE...........................................................................9
ARTICLE 10 ANNOUNCEMENT...........................................................................10
ARTICLE 11 MISCELLANEOUS..........................................................................10
ARTICLE 12 NOTICE.................................................................................11
ARTICLE 13 APPLICABLE LAW AND DISPUTE RESOLUTION..................................................11
ARTICLE 14 SUPPLEMENTS............................................................................11
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Exhibit 4.45-2
Framework Agreement on Mutual Supply of Products and Services
(Summary Translation)
This agreement is entered into in Beijing on 8 December 2005 by and between the following parties:
China National Offshore Oil Corporation (hereinafter referred to as "CNOOC"), a state-owned enterprise incorporated and lawfully existing under the laws of the People's Republic of China ("PRC").
CNOOC Limited (hereinafter referred to as the "Company"), a company incorporated and lawfully existing under Hong Kong law.
(Collectively the "Parties" and individually a "Party")
WHEREAS
CNOOC owns approximately 70% of the issued share capital of the Company on the date of execution hereof.
CNOOC is engaged in ancillary production services, engineering construction services, information consulting services, supply services and financial services in connection with the production and operation of petroleum, natural gas and petrochemicals. Such services are necessary to the production and operation of the Company and its associates. CNOOC and its associates have personnel, technical and regional strength, as well as long-term cooperation with the Company and its associates. Therefore, the Company is willing to procure the said products and services from CNOOC in accordance with the provisions hereof.
The Company has crude oil, condensate oil, liquefied petroleum gas, natural gas and relevant byproducts and semi-finished products, and is capable of providing other petroleum-related products and services. The Company has also had long-term cooperation with CNOOC. Therefore, CNOOC is willing to procure the said products and services from the Company in accordance with the provisions of this Agreement.
NOW THEREFOR AFTER AMICABLE NEGOTIATION, THE PARTIES HAVE AGREED AS
FOLLOWS.
Article 1 Scope of Products and Services
1.1 The products and services to be provided by the Company to CNOOC include:
1.1.1 management, technical, facilities and ancillary services,
including supply of materials: technical consulting,
technology transfer, management, technical research
services and other supporting services;
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Exhibit 4.45-3
1.1.2 petroleum and natural gas products, byproducts and
semi-finished products as well as other various
petroleum-related products;
1.1.3 long-term contracts in connection with natural gas,
liquefied natural gas, byproducts and semi-finished
products as well as other various petroleum-related
products.
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1.2 The products and services to be provided by CNOOC to the Company include:
1.2.1 exploration and support services: geophysical exploration
services, seismic data acquisition and processing,
integrated exploration research services, collection of
geophysical data, ocean geological forecast and data
processing, offshore drilling, well survey, well logging,
well cementation and other related technical services,
ship tugging, transportation and security services and
other related technical and supporting services;
1.2.2 oil and gas field development and support services:
geologic examination, offshore drilling, well survey, well
logging, well cementation and other related technical
services, design, construction, installation and tuning of
production facilities, shipping transportation, provision
of materials, integrated research on development
techniques as well as other related technical and
supporting services;
1.2.3 oil and gas field production and support services:
integrated research on production techniques, well
workover, shipping transportation, oil tanker
transportation, provision of materials, platform
maintenance, repair of equipment and pipelines, production
operations, oil extraction, oil and gas production labor
services, warehousing and storage, lease of equipment and
building, road transportation services, telecommunication
and network services, wharf services, construction
services, including roads, wharf, buildings, factories and
water barrier, maintenance and repair of major equipment,
medical, childcare and social services, provision of
water, electricity and heat, security and fire services,
technical training, accommodation, maintenance and repair
of buildings, catering services and other related
technical and supporting services.
1.2.4 management, marketing and other ancillary services:
marketing services, management, staff recruitment,
publishing, telecommunications, leases of properties,
property management, supply of water, electricity and
heat, car rental, integrated services and integrated
research.
1.2.5 FPSO vessel leases.
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Article 2 Trading Principles
2.1 With regard to all the products and services hereunder, the particular parties may otherwise enter into relevant contracts in accordance with the scope provided herein.
Exhibit 4.45-4
The particular parties refer to CNOOC, the Company and their respective associates. The Parties agree that such relevant contracts shall be executed based on the following general principles:
o The products and services thereunder shall be satisfactory to
the other Party;
o The products and services thereunder shall be provided on an
fair and reasonable price basis;
o The products and services thereunder shall be provided by
CNOOC to the Company in accordance with such terms and
conditions as are more favorable than those offered by an
independent third party; and
o The products and services thereunder shall be provided by the
Company to CNOOC on the terms and conditions no less
favorable than those available to an independent third party.
Article 3 Pricing Principles
3.1 Subject to the trading principles set out in Article 2.1 hereof, under the prevailing local market conditions (including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and other market factors), the products and services under Article 1 shall be based on arm's length negotiation and on normal commercial terms or on terms no less favourable than those available to any independent third party. Where such pricing principles are not applicable, the products and services under Article 1 shall be respectively priced in accordance with Articles 3.2 to 3.5 hereof.
3.2 The products and services under Articles 1.2.1 to 1.2.4 hereof shall be provided in accordance with the following pricing principles and precedence(pound)(0)
(i) State -prescribed price; or
(ii) Where there is no state-prescribed price, market prices (including local, national or international market price); or
(iii) When neither (i) nor (ii) is applicable, the cost to CNOOC for providing the relevant products and services plus a margin of not more than 10%, before any applicable taxes.
3.3 The products and services under Article 1.2.5 hereof shall be provided at the market prices and according to normal commercial terms.
3.4 The products and services under Article 1.1.1 hereof shall be provided in accordance with the following principles and normal commercial terms:
(i) State -prescribed price; or
(ii) Where there is no state-prescribed price, market prices
(including local, national or international market price);
or
(iii) When neither (i) nor (ii) is applicable, the cost to CNOOC
for providing the relevant products and services plus a
margin of not more than 10%, before any applicable taxes.
Exhibit 4.45-5
3.5 The products and services under Articles 1.1.2 to 1.1.3 hereof shall be provided in accordance with the following principles and precedence:
(i) State -prescribed price; or
(ii) Where there is no state-prescribed price, market prices
(including local, national or international market price).
Article 4 Implementation
4.1 The Parties shall ensure and procure their respective associates to execute such individual product and service supply contracts as are complied with the principles and provisions hereunder.
4.2 The various product and service supply contracts which were entered into by and between the Parties and their associates before January 1, 2006 and will remain effective after January 1, 2006, shall be deemed as contracts entered into in accordance with the provisions of this Agreement. Where any or all of such contracts are inconsistent with the provisions of this Agreement, they shall be amended in compliance with the provisions of this Agreement.
4.3 The term of such individual product and service supply contracts as are entered into in accordance with Articles 1.1.1, 1.1.2 and 1.2.1 to 1.2.4 shall not be more than two years. Where the term of such contracts is not more than two years and will expire however after December 31, 2007, the followings shall be provided therein: "This contract shall be terminated on December 31, 2007 provided that CNOOC Limited fails to obtain the approval of the annual caps from 2008 to 2010 for the connected transactions falling into such category according to the requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules") until December 31, 2007."
4.4 The term of such individual product and service supply contracts as are entered into in accordance with Article 1.2.5 shall not be more than twenty (20) years. The followings shall be provided therein: This contract shall be terminated on December 31, 2007 provided that CNOOC Limited fails to obtain the approval of the annual caps from 2008 to 2010 for the connected transactions falling into such category according to the requirements the Listing Rules until December 31, 2007."
4.5 The term of such individual product and service supply contracts as are entered into in accordance with Article 1.1.3 shall not be more than twenty (20) years. The followings shall be provided included therein: This contract shall be terminated on December 31, 2007 provided that CNOOC Limited fails to obtain the approval of the annual caps from 2008 to 2010 for the connected transactions falling into such category according to the requirements the Listing Rules until December 31, 2007."
Exhibit 4.45-6
Article 5 Rights and Obligations
5.1 The Parties may
5.1.1 provide certain products and services to any third party
provided that a guarantee by one Party of supply of the
products and services hereunder has been made to the other
Party.
5.1.2 receive lawfully payment due for products and services in
accordance with the provisions herein.
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5.2 The Parties shall
5.2.1 procure and ensure their respective associates to provide
products and services to the other Party in compliance
with the standards and pricing principles set out in this
Agreement and individual product and service supply
contracts.
5.2.2 coordinate the matters related to the aforesaid individual
product and service supply contracts under engagement by
concerned parties to such individual product and service
supply contacts; and
5.2.3 make relevant payment and pay service fees due pursuant to
this Agreement and relevant individual product and service
supply contracts.
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5.3 The Company may elect to utilize the products and services provided by either CNOOC or any third party.
Article 6 Term and Termination of Individual Product and Service Contract
6.1 This Agreement shall become effective from January 1, 2006 upon execution by the authorized representatives of the Parties and shall remain in effect for a term of two (2) years.
6.2 If any Party breaches any provisions of this Agreement (the "Breaching Party"), the other party (the "Non-breaching Party") may notify the Breaching Party in writing of such breach and request the Breaching Party to make relevant remedies within the reasonable period specified; the Non-breaching Party may forthwith terminate this Agreement provided that the Breaching Party fails to make such remedies within the aforesaid specified period. The Non-breaching Party reserves the right to recourse and claim compensation and any other claims available under the applicable laws.
Exhibit 4.45-7
6.3 Any rights or obligations of any Party having arisen out of this Agreement shall survive the termination of this Agreement.
6.4 The Parties agree that each Party may terminate an individual product and service supply contract in respect of any certain or some products or services, with at least 6-month prior written notice. In addition, in respect to any products or services contracted before, such relevant contracts may be terminated only after such products and services are supplied.
6.5 Where CNOOC intends to terminate the supply of any product or service while the Company fails to find another supplier for such product or service (the Company shall notify CNOOC of such situation from time to time), CNOOC shall continue to supply such product or service pursuant to this Agreement unless otherwise consented by the Company.
Article 7 Representations and Warranties
7.1 CNOOC represents and warrants that:
7.1.1 CNOOC is a stated-owned enterprise duly incorporated
pursuant to the PRC law with independent legal person and
valid business license;
7.1.2 CNOOC has obtained all the government approvals (if
required) and internal authorizations necessary for the
execution and performance of this Agreement. This
Agreement shall become binding on CNOOC upon execution by
the authorized representative of CNOOC;
7.1.3 The execution and performance of this Agreement by CNOOC
will not violate any other agreement entered into by CNOOC
or its articles of association, nor conflict as a matter
of law with other agreements entered into by CNOOC or its
articles of association.
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7.2 The Company represents and warrants that:
7.2.1 the Company is a Hong Kong company duly incorporated in
accordance with the Hong Kong law with independent legal
person and valid business license;
7.2.2 the Company has obtained all internal authorizations
necessary for the execution of this Agreement and this
Agreement shall become binding on the Company upon
execution by the authorized representative of the Company;
7.2.3 The execution and performance of this Agreement by the
Company will not violate any other agreement entered into
by the Company or its articles of association nor conflict
as a matter of law with other agreements entered into by
the Company or its articles of association.
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Exhibit 4.45-8
Article 8 Performance of this Agreement
8.1 Where any transaction hereunder constitutes the connected transaction under the Listing Rules, such transaction may proceed, as required by the Listing Rules, only if such transaction has been exempted by the Stock Exchange of Hong Kong Limited ("HKSE") or approved by the independent shareholders or has complied with any other provisions of the Listing Rules concerning connected transactions. Such transaction under this Agreement may be carried out on conditions that the Company has obtained the approval of the independent shareholders or has complied with any other relevant provisions of the Listing Rules concerning connected transaction concerning such transaction.
8.2 Where the waiver of HKSE is conditional, this Agreement shall be performed in compliance with such conditions.
8.3 Where the waiver for certain connected transaction is withdrawn, revoked or void and such transaction fails to comply with the relevant requirements of the Listing Rules concerning connected transactions, the performance of this Agreement in connection with such transaction shall be suspended.
8.4 Where the performance of this Agreement in connection with all the transactions hereunder is suspended pursuant to Article 8.3, this Agreement shall be terminated.
Article 9 Force Majeure
9.1 If any Party fails to perform any or all of its obligations under this Agreement due to force majeure ("force majeure" shall mean any circumstances which cannot be reasonably controlled, foreseen or cannot be avoided and overcome though foreseen by the affected Party, and occurred after the execution of this Agreement, making such affected Party objectively fail to perform (including without limitation failure to perform even though on a reasonable cost) any or all of its obligations under this Agreement. Such force majeure includes but not limited to flood, fire, drought, typhoon and hurricane, earthquake and any other natural disaster, and traffic accident, strike, riot, war (whether or not declared) and acts or omissions of the government), such performance shall be suspended for the duration of force majeure.
9.2 The affected Party shall promptly after its occurrence notify the
other Party in writing and provide the other Party with
sufficient evidence specifying the nature of such force majeure
and its duration by hand or registered air mail within fifteen
(15) days. The Party who claims a failure to perform this
Agreement due to force majeure shall make all reasonable efforts
to minimize the loss or damage that may be incurred by the
Parties as a result of force majeure.
Exhibit 4.45-9
9.3 Upon the occurrence of force majeure, the Parties shall forthwith commence joint consultations aimed at how to implement this Agreement. After termination or elimination of force majeure, the Parties shall immediately resume the performance of their respective obligations hereunder.
Article 10 Announcement
Neither Party shall make any announcement with regard to the matters of this Agreement without the prior written consent of the other Party except for the announcements made in compliance with the PRC laws and relevant provisions of the China Securities Regulatory Commission, the HKSE, the Hong Kong Securities and Futures Commission, the New York Stock Exchange, the United States Securities and Exchange Commission and other governmental or regulatory authorities.
Article 11 Miscellaneous
11.1 Unless otherwise provided, neither Party shall assign in whole or in part its rights or obligations under this Agreement without the prior written consent of the other Party.
11.2 This Agreement constitutes the entire agreement between the Parties in respect of its subject matter and supersedes all previous oral or written agreements, contracts, memorandums of understanding and communications.
11.3 Should any provision of this Agreement be held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement shall remain unaffected.
11.4 The Parties agree that CNOOC and the Company will bear and pay respectively any costs and expenses arising out of this Agreement subject to relevant PRC laws. If relevant laws are not available, the Parties agree to equally share all the relevant costs and expenses.
11.5 The amendment of this Agreement shall only be valid and effective subject to the signing in writing by the duly authorized representatives of the Parties and sufficient approval by the Parties. If such amendment constitutes a substantive and material amendment to this Agreement, such amendment shall become effective provided that a notification of or consent from the HKSE (as the case may be) and shareholders' meeting of the Company (if applicable) is available.
11.6 Unless otherwise provided, failure of one Party to exercise or exercise on time any right, power or privilege hereunder shall not act as a waiver, nor shall any single or partial exercise thereof preclude any further exercise of any other right, power or privilege.
Exhibit 4.45-10
Article 12 Notice
12.1 All notices or other communications made hereunder by one Party shall be in writing and in Chinese and delivered by hand, or sent by registered air mail or facsimile addressed to the facsimile numbers specified by the other Party. Any such notice shall be deemed to have been duly served:
12.1.1 If delivered by hand when signing by the intended recipient;
12.1.2 If sent by registered airmail, the seventh (7th) day after delivery (stamp date) (If the last day is a Saturday, Sunday or statutory holiday, such date shall be postponed to the next business day);
12.1.3 If sent by facsimile, upon successful transmission by the sending party.
Article 13 Applicable Law and Dispute Resolution
13.1 This Agreement shall be governed by and construed in accordance with the PRC laws.
13.2 All disputes arising out of or in connection with this Agreement shall be settled through negotiation by the Parties. If such dispute can not be settled, such dispute shall be submitted to China International Economic and Trade Commission ("CIETAC') for arbitration which shall be conducted in accordance with CIETAC Arbitration Rules in effect at the time of applying for arbitration. The arbitration award shall be final and legally binding to the Parties.
Article 14 Supplements
14.1 Unless otherwise provided in this Agreement, in the context,
(1) one Party includes its legal successors; and
(2) the headings of the Articles of this Agreement are inserted
for convenience only and shall not be in legal force or
affect the interpretation of this Agreement.
14.2 This Agreement is written in Chinese.
14.3 IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed on the date written on the first page.
Exhibit 4.45-11
China National Offshore Oil CNOOC Limited
Corporation
---------------------------- -----------------------------
By: By:
Title: Title:
Exhibit 4.45-12
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EXHIBIT 4.46
Framework Agreement
on Mutual Supply of Products and Services
between
China Oilfield Services Limited
and
CNOOC Limited
(Summary Translation)
Exhibit 4.46-1
Table of Contents
ARTICLE 1 SCOPE OF PRODUCTS AND SERVICES..........................................................3
ARTICLE 2 TRADING PRINCIPLES......................................................................4
ARTICLE 3 PRICING PRINCIPLES......................................................................4
ARTICLE 4 IMPLEMENTATION..........................................................................5
ARTICLE 5 RIGHTS AND OBLIGATIONS..................................................................5
ARTICLE 6 TERM AND TERMINATION OF INDIVIDUAL PRODUCT AND SERVICE CONTRACT........................6
ARTICLE 7 REPRESENTATIONS AND WARRANTIES..........................................................6
ARTICLE 8 PERFORMANCE OF THIS AGREEMENT...........................................................7
ARTICLE 9 FORCE MAJEURE...........................................................................7
ARTICLE 10 ANNOUNCEMENT............................................................................8
ARTICLE 11 MISCELLANEOUS...........................................................................8
ARTICLE 12 NOTICE..................................................................................9
ARTICLE 13 APPLICABLE LAW AND DISPUTE RESOLUTION...................................................9
ARTICLE 14 SUPPLEMENTS............................................................................10
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Exhibit 4.46-2
Framework Agreement on Mutual Supply of Products and Services
(Summary Translation)
This agreement is entered into in Beijing on 8 December 2005 by and between the following parties:
China Oilfield Services Limited (hereinafter referred to as "COSL"), a company limited by shares incorporated and lawfully existing under the laws of the People's Republic of China ("PRC").
CNOOC Limited (hereinafter referred to as the "Company"), a company incorporated and lawfully existing under Hong Kong law.
(Collectively the "Parties" and individually the "Party")
WHEREAS
On the date of execution hereof, both COSL and the Company are subsidiaries controlled by China National Offshore Oil Corporation ("CNOOC") and are listed on the Hong Kong Stock Exchange. CNOOC owns approximately 62% of COSL's stock equity and 70% of the issued share capital of the Company.
COSL is engaged in the survey, exploration, development and exploitation of petroleum, natural gas and other minerals, the inspection, maintenance and repair, lease and sales of relevant equipments, tools, instruments and tubing, the contract work for overseas offshore oil engineering and domestic international bidding invitation projects, and the survey, consulting, design and supervision of the said projects, as well as in the exportation of equipments and materials for the aforementioned overseas projects. Such services are necessary to the production and operation of the Company and its associates. COSL and its associates have personnel, technical and regional strength, as well as long-term cooperation with the Company and its associates. Therefore, the Company is willing to procure the said products and services from COSL in accordance with the provisions hereof.
NOW THEREFOR AFTER AMICABLE NEGOTIATION, THE PARTIES HAVE AGREED AS
FOLLOWS:
Article 1 Scope of Products and Services
1.1 The products and services to be provided by COSL to the Company include:
1.1.1 exploration services: well site survey, seismic data
acquisition, seismic data processing, exploration well
operation and related technical services on exploration well,
ship tugging, transportation, provision of materials,
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Exhibit 4.46-3
research on exploration techniques and other related technical
and supporting services;
1.1.2 development services: platform survey, drilling and completion
well operation, related technical services on drilling and
completion; design, construction, installation and tuning of
production facilities; shipping transportation, provision of
materials, integrated research on development techniques as
well as other related technical and supporting services;
1.1.3 production services: well workover, shipping transportation,
oil tanker transportation, provision of materials, platform
maintenance, repair of equipment and pipeline, production
operations, labor services, warehousing and storage and other
related technical and supporting services;
1.1.4 management and other ancillary services: sales agent services,
management by proxy, staff recruitment and integrated
research.
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Article 2 Trading Principles
2.1 With regard to all the products and services hereunder, the particular parties may otherwise enter into relevant contracts in accordance with the scope provided herein. The particular parties refer to COSL, the Company and their respective associates. The Parties agree that such relevant contracts shall be executed based on the following general principles:
o The products and services thereunder shall be satisfactory to the
other Party;
o The products and services thereunder shall be provided on an fair and
reasonable price basis;
Article 3 Pricing Principles
3.1 Subject to the trading principles set out in Article 2.1 hereof, under the prevailing local market conditions (including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and other market factors), the products and services under Article 1 shall be based on arm's length negotiation and on normal commercial terms or on terms no less favourable than those available to any independent third party. Where such basic pricing principles are not applicable, the following general principles and precedence shall apply(pound)(0)
(i) State -prescribed price; or
(ii) Where there is no state-prescribed price, market prices (including
local, national or international market price); or
(iii) When neither (i) nor (ii) is applicable, the cost to COSL for
providing the relevant products and services plus a margin of not
more than 10%, before any applicable taxes.
Exhibit 4.46-4
Article 4 Implementation
4.1 The Parties shall ensure and procure their respective associates to execute such individual product and service supply contracts as are complied with the principles and provisions hereunder.
4.2 The various product and service supply contracts which were entered into by and between the Parties and their associates before January 1, 2006 and will remain effective after January 1, 2006, shall be deemed as contracts entered into in accordance with the provisions of this Agreement. Where any or all of such contracts are inconsistent with the provisions of this Agreement, they shall be amended in compliance with the provisions of this Agreement.
4.3 The term of such individual product and service supply contracts as are entered into in accordance with this Agreement shall not be more than two years. Where the term of such contracts is not more than two years and will expire however after December 31, 2007, the followings shall be provided therein: This contract shall be terminated on December 31, 2007 provided that CNOOC Limited fails to obtain the approval of the annual caps from 2008 to 2010 for the connected transactions falling into such category according to the requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules") until December 31, 2007."
Article 5 Rights and Obligations
5.1 The Parties may
5.1.1 provide certain products and services to any third party
provided that a guarantee by one Party of supply of the
products and services hereunder has been made to the other
Party.
5.1.2 receive lawfully payment due for products and services in
accordance with the provisions herein.
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5.2 The Parties shall
5.2.1 procure and ensure their respective associates to provide
products and service to the other Party in compliance with the
standards and pricing principles set out in this Agreement and
individual product and service supply contracts.
5.2.2 coordinate the matters related to the aforesaid individual
product and service supply contracts under engagement by
concerned parties to such individual product and service
supply contacts; and
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Exhibit 4.46-5
5.2.3 make relevant payment and pay service fees due pursuant to
this Agreement and relevant individual product and service
supply contracts.
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Article 6 Term and Termination of Individual Product and Service Contract
6.1 This Agreement shall become effective from January 1, 2006 upon execution by the authorized representatives of the Parties and shall remain in effect for a term of two (2) years.
6.2 If any Party breaches any provisions of this Agreement (the "Breaching Party"), the other party (the "Non-breaching Party") may notify the Breaching Party in writing of such breach and request the Breaching Party to make relevant remedies within the reasonable period specified; the Non-breaching Party may forthwith terminate this Agreement provided that the Breaching Party fails to make such remedies within the aforesaid specified period. The Non-breaching Party reserves the right to recourse and claim compensation and any other claims available under the applicable laws.
6.3 Any rights or obligations of any Party having arisen out of this Agreement shall survive the termination of this Agreement.
6.4 The Parties agree that each Party may terminate an individual product and service supply contract in respect of any certain or some products or services, with at least 6-month prior written notice.
Article 7 Representations and Warranties
7.1 COSL represents and warrants that:
7.1.1 COSL is a company limited by shares duly incorporated pursuant
to the PRC law with independent legal person and valid
business license;
7.1.2 COSL has obtained all the government approvals (if required)
and internal authorizations necessary for the execution and
performance of this Agreement. This Agreement shall become
binding on COSL upon execution by the authorized
representative of COSL;
7.1.3 The execution and performance of this Agreement by COSL will
not violate any other agreement entered into by COSL or its
articles of association, nor conflict as a matter of law with
other agreements entered into by COSL or its articles of
association.
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7.2 The Company represents and warrants that:
Exhibit 4.46-6
7.2.1 the Company is a Hong Kong company duly incorporated in
accordance with the Hong Kong law with independent legal
person status and valid business license;
7.2.2 the Company has obtained all internal authorizations necessary
for the execution of this Agreement and this Agreement shall
become binding on the Company upon execution by the authorized
representative of the Company;
7.2.3 the execution and performance of this Agreement by the Company
will not violate any other agreement entered into by the
Company or its articles of association nor conflict as a
matter of law with other agreements entered into by the
Company or its articles of association.
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Article 8 Performance of this Agreement
8.1 Where any transaction hereunder constitutes the connected transaction under the Listing Rules, such transaction may proceed, as required by the Listing Rules, only if such transaction has been exempted by the Stock Exchange of Hong Kong Limited ("HKSE") or approved by the independent shareholders or has complied with any other provisions of the Listing Rules concerning connected transactions. Such transaction under this Agreement may be carried out on conditions that the Company has obtained the approval of the independent shareholders or has complied with any other relevant provisions of the Listing Rules concerning connected transaction concerning such transaction.
8.2 Where the waiver of HKSE is conditional, this Agreement shall be performed in compliance with such conditions.
8.3 Where the waiver for certain connected transaction is withdrawn, revoked or voided and such transaction fails to comply with the relevant requirements of the Listing Rules concerning connected transactions, the performance of this Agreement in connection with such transaction shall be suspended.
8.4 Where the performance of this Agreement in connection with all the transactions hereunder are suspended pursuant to Article 8.3, this Agreement shall be terminated.
Article 9 Force Majeure
9.1 If any Party fails to perform any or all of its obligations under this Agreement due to force majeure ("force majeure" shall mean any circumstances which cannot be reasonably controlled, foreseen or cannot be avoided and overcome though foreseen by the affected Party, and occurred after the execution of this Agreement, making such affected Party objectively fail to perform (including without limitation failure to perform even though on a reasonable cost) any or all of its obligations
Exhibit 4.46-7
under this Agreement. Such force majeure includes but not limited to flood, fire, drought, typhoon and hurricane, earthquake and any other natural disaster, and traffic accident, strike, riot, war (whether or not declared) and acts or omissions of the government), such performance shall be suspended for the duration of force majeure.
9.2 The affected Party shall promptly after its occurrence notify the other Party in writing and provide the other Party with sufficient evidence specifying the nature of such force majeure and its duration by hand or registered air mail within fifteen (15) days. The Party who claims a failure to perform this Agreement due to force majeure shall make all reasonable efforts to minimize the loss or damage that may be incurred by the Parties as a result of force majeure.
9.3 Upon the occurrence of force majeure, the Parties shall forthwith commence joint consultations aimed at how to implement this Agreement. After termination or elimination of force majeure, the Parties shall immediately resume the performance of their respective obligations hereunder.
Article 10 Announcement
Neither Party shall make any announcement with regard to the matters of this Agreement without the prior written consent of the other Party except for the public announcements made in compliance with the PRC laws and relevant provisions of the China Securities Regulatory Commission, the HKSE, the Hong Kong Securities and Futures Commission, the New York Stock Exchange, the United States Securities and Exchange Commission and other governmental or regulatory authorities.
Article 11 Miscellaneous
11.1 Unless otherwise provided, neither Party shall assign in whole or in
part its rights or obligations under this Agreement without the prior
written consent of the other Party.
11.2 This Agreement constitutes the entire agreement between the Parties in
respect of its subject matter and supersedes all previous oral or
written agreements, contracts, memorandums of understanding and
communications.
11.3 Should any provision of this Agreement be held to be illegal, invalid
or unenforceable, the legality, validity and enforceability of the
remaining provisions of this Agreement shall remain unaffected.
11.4 The Parties agree that COSL and the Company will bear and pay
respectively any costs and expenses arising out of this Agreement
subject to relevant PRC laws. If
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Exhibit 4.46-8
relevant laws are not available, the Parties agree to equally share all the relevant costs and expenses.
11.5 The amendment of this Agreement shall only be valid and effective
subject to the signing in writing by the duly authorized representative
of the Parties and sufficient approval by the Parties. If such
amendment constitutes a substantive and material amendment to this
Agreement, such amendment shall become effective provided that a
notification of or consent from the HKSE (as the case may be) and
shareholders' meeting of the Company (if applicable) is available.
11.6 Unless otherwise provided, failure of one Party to exercise or exercise
on time any right, power or privilege hereunder shall not act as a
waiver, nor shall any single or partial exercise thereof preclude any
further exercise of any other right, power or privilege.
Article 12 Notice
12.1 All notices or other communications made hereunder by one Party shall
be in writing and in Chinese and delivered by hand, or sent by
registered airmail or facsimile addressed to the facsimile numbers
specified by the other Party. Any such notice shall be deemed to have
been duly served:
12.1.1 If delivered by hand when signing by the intended recipient;
12.1.2 If sent by registered airmail, the seventh (7th) day after
delivery (stamp date) (If the last day is a Saturday, Sunday
or statutory holiday, such date shall be postponed to the
next business day);
12.1.3 If sent by facsimile, upon successful transmission by the
sending party.
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Article 13 Applicable Law and Dispute Resolution
13.1 This Agreement shall be governed by and construed in accordance with
the PRC laws.
13.2 All disputes arising out of or in connection with this Agreement shall
be settled through negotiation by the Parties. If such dispute can not
be settled, such dispute shall be submitted to China International
Economic and Trade Commission ("CIETAC') for arbitration which shall be
conducted in accordance with CIETAC Arbitration Rules in effect at the
time of applying for arbitration. The arbitration award shall be final
and legally binding to the Parties.
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Exhibit 4.46-9
Article 14 Supplements
14.1 Unless otherwise provided in this Agreement, in the context,
(1) one Party includes its legal successors; and
(2) the headings of the Articles of this Agreement are inserted for
convenience only and shall not be in legal force or affect the
interpretation of this Agreement.
14.2 This Agreement is written in Chinese
14.3 IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on the date written on the first page.
China Oilfield Services Limited CNOOC Limited
-------------------------------- ---------------------------
By: By:
Title: Title:
Exhibit 4.46-10
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EXHIBIT 4.47
Framework Agreement
on Mutual Supply of Products and Services
between
Offshore Oil Engineering Co., Ltd.
and
CNOOC Limited
(Summary Translation)
Exhibit 4.47-1
Table of Contents
ARTICLE 1 SCOPE OF PRODUCTS AND SERVICES..........................................................3
ARTICLE 2 TRADING PRINCIPLES......................................................................3
ARTICLE 3 PRICING PRINCIPLES......................................................................4
ARTICLE 4 IMPLEMENTATION..........................................................................4
ARTICLE 5 RIGHTS AND OBLIGATIONS..................................................................5
ARTICLE 6 TERM AND TERMINATION OF INDIVIDUAL PRODUCT AND SERVICE CONTRACT........................5
ARTICLE 7 REPRESENTATIONS AND WARRANTIES..........................................................6
ARTICLE 8 PERFORMANCE OF THIS AGREEMENT...........................................................6
ARTICLE 9 FORCE MAJEURE...........................................................................7
ARTICLE 10 ANNOUNCEMENT............................................................................8
ARTICLE 11 MISCELLANEOUS...........................................................................8
ARTICLE 12 NOTICE..................................................................................8
ARTICLE 13 APPLICABLE LAW AND DISPUTE RESOLUTION...................................................9
ARTICLE 14 SUPPLEMENTS.............................................................................9
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Exhibit 4.47-2
Framework Agreement on Mutual Supply of Products and Services
(Summary Translation)
This agreement is entered into in Beijing on 8 December 2005 by and between the following parties:
Offshore Oil Engineering Co., Ltd. (hereinafter referred to as "OOECL"), a company limited by shares incorporated and lawfully existing under the laws of the People's Republic of China ("PRC").
CNOOC Limited (hereinafter referred to as the "Company"), a company incorporated and lawfully existing under Hong Kong law.
(Collectively the "Parties" and individually the "Party")
WHEREAS
On the date of execution hereof, both OOECL and the Company are subsidiaries controlled by China National Offshore Oil Corporation ("CNOOC"). CNOOC owns approximately 57.9% of OOECL's stock equity and approximately 70% of the issued share capital of the Company.
OOECL is engaged in the design of petroleum, natural gas and construction projects, and the construction of all kinds of offshore oil construction projects and other projects. Such services are necessary to the production and operation of the Company and its associates. OOECL and its associates have personnel, technical and regional strength, as well as long-term cooperation with the Company and its associates. Therefore, the Company is willing to procure the said products and services from OOECL in accordance with the provisions hereof.
NOW THERFORE THROUGH AMICABLE NEGOTIATION THE PARTIES HAVE AGREED AS
FOLLOWS:
Article 1 Scope of Products and Services
1.1 The products and services to be supplied by OOECL to the Company include:
1.1.1 development services: design, construction, installation and
tuning of oil and gas field production facilities as well as
other related technical and supporting services;
1.1.2 production services: production operations, maintenance and
repair of oil and gas field production facilities as well as
other related technical and supporting services.
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Article 2 Trading Principles
Exhibit 4.47-3
2.1 With regard to all the products and services hereunder, the particular parties may otherwise enter into relevant contracts in accordance with the scope provided herein. The particular traders refer to OOECL, the Company and their respective associates. The Parties agree that such relevant contracts shall be executed based on the following general principles:
o The products and services thereunder shall be satisfactory to the
other Party;
o The products and services thereunder shall be provided on an fair and
reasonable price basis;
Article 3 Pricing Principles
3.1 Subject to the trading principles set out in Article 2.1 hereof, under the prevailing local market conditions (including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and other market factors), the products and services under Article 1 shall be based on arm's length negotiation and on normal commercial terms or on terms no less favourable than those available to any independent third party. Where such basic pricing principles are not applicable, the following general principles and precedence shall apply:(pound)(0)
(i) State -prescribed price; or
(ii) Where there is no state-prescribed price, market prices
(including local, national or international market price); or
(iii) When neither (i) nor (ii) is applicable, the cost to OOECL for
providing the relevant products and services plus a margin of not
more than 10%, before any applicable taxes.
Article 4 Implementation
4.1 The Parties shall ensure and procure their respective associates to execute such individual product and service supply contracts as are complied with the principles and provisions hereunder.
4.2 The various product and service supply contracts which were entered into by and between the Parties and their associates before January 1, 2006 and will remain effective after January 1, 2006, shall be deemed as contracts entered into in accordance with the provisions of this Agreement. Where any or all of such contracts are inconsistent with the provisions of this Agreement, they shall be amended in compliance with the provisions of this Agreement.
4.3 The term of such individual product and service supply contracts as are entered into in accordance with this Agreement shall not be more than two years. Where the term of such contracts is not more than two years and will expire however after December 31, 2007, the followings shall be provided therein: This contract shall be terminated on December 31, 2007 on conditions that CNOOC Limited fails to
Exhibit 4.47-4
obtain the approval of the annual caps from 2008 to 2010 for the connected transactions falling into such category according to the requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules") until December 31, 2007."
Article 5 Rights and Obligations
5.1 The Parties may
5.1.1 provide certain products and services to any third party
provided that a guarantee by one Party of supply of the
products and services hereunder has been made to the other
Party.
5.1.2 receive lawfully payment due for products and services in
accordance with the provisions herein.
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5.2 The Parties shall
5.2.1 procure and ensure their respective associates to provide
product and service to the other Party in compliance with the
standards and pricing principles set out in this Agreement and
individual product and service supply contracts.
5.2.2 coordinate the matters related to the aforesaid individual
product and service supply contracts under engagement by
concerned parties to such individual product and service
supply contacts; and
5.2.3 make relevant payment and pay service fees due pursuant to
this Agreement and those relevant individual product and
service supply contracts.
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Article 6 Term and Termination of Individual Product and Service Contract
6.1 This Agreement shall become effective from January 1, 2006 upon execution by the authorized representatives of the Parties and shall remain in effect for a term of two (2) years.
6.2 If any Party breaches any provisions of this Agreement (the "Breaching Party"), the other party (the "Non-breaching Party") may notify the Breaching Party in writing of such breach and request the Breaching Party to make relevant remedies within the reasonable period specified; the Non-breaching Party may forthwith terminate this Agreement provided that the Breaching Party fails to make such remedies within the aforesaid specified period. The Non-breaching Party reserves the right to recourse and claim compensation and any other claims available under the applicable laws.
Exhibit 4.47-5
6.3 Any rights or obligations of any Party having arisen out of this Agreement shall survive the termination of this Agreement.
6.4 The Parties agree that each Party may terminate an individual product and service supply contract in respect of any certain or some products or services, with at least 6-month prior written notice.
Article 7 Representations and Warranties
7.1 OOECL represents and warrants that:
7.1.1 OOECL is a company limited by shares duly incorporated
pursuant to the PRC law with independent legal person status
and valid business license;
7.1.2 OOECL has obtained all the government approvals (if required)
and internal authorizations necessary for the execution and
performance of this Agreement. This Agreement shall become
binding on OOECL upon execution by the authorized
representative of OOECL;
7.1.3 The execution and performance of this Agreement by OOECL will
not violate any other agreement entered into by OOECL or its
articles of association, nor conflict as a matter of law with
other agreements entered into by OOECL or its articles of
association.
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7.2 The Company represents and warrants that:
7.2.1 the Company is a Hong Kong company duly incorporated in
accordance with the Hong Kong law with independent legal
person status and valid business license;
7.2.2 the Company has obtained all internal authorizations necessary
for the execution of this Agreement and this Agreement shall
become binding on the Company upon execution by the authorized
representative of the Company;
7.2.3 The execution and performance of this Agreement by the Company
will not violate any other agreement entered into by the
Company or its articles of association nor conflict as a
matter of law with other agreements entered into by the
Company or its articles of association.
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Article 8 Performance of this Agreement
8.1 Where any transaction hereunder constitutes the connected transaction under the Listing Rules, such transaction may proceed, as required by the Listing Rules, only if such transaction has been exempted by the Stock Exchange of Hong Kong Limited ("HKSE") or approved by the independent shareholders or has complied with any other provisions of the Listing Rules concerning connected transactions. Such transaction under this Agreement may be carried out on conditions that the Company has obtained the approval of the independent shareholders or has complied
Exhibit 4.47-6
with any other relevant provisions of the Listing Rules concerning connected transaction concerning such transaction.
8.2 Where the waiver of HKSE is conditional, this Agreement shall be performed in compliance with such conditions.
8.3 Where the waiver for certain connected transaction is withdrawn, revoked or voided and such transaction fails to comply with the relevant requirements of the Listing Rules concerning connected transactions, the performance of this Agreement in connection with such transaction shall be suspended.
8.4 Where the performance of this Agreement in connection with all the transactions hereunder are suspended pursuant to the above Article 8.3, this Agreement shall be terminated.
Article 9 Force Majeure
9.1 If any Party fails to perform any or all of its obligations under this Agreement due to force majeure ("force majeure" shall mean any circumstances which cannot be reasonably controlled, foreseen or cannot be avoided and overcome though foreseen by the affected Party, and occurred after the execution of this Agreement, making such affected Party objectively fail to perform (including without limitation failure to perform even though on a reasonable cost) any or all of its obligations under this Agreement. Such force majeure includes but not limited to flood, fire, drought, typhoon and hurricane, earthquake and any other natural disaster, and traffic accident, strike, riot, war (whether or not declared) and acts or omissions of the government), such performance shall be suspended for the duration of force majeure.
9.2 The affected Party shall promptly after its occurrence notify the other Party in writing and provide the other Party with sufficient evidence specifying the nature of such force majeure and its duration by hand or registered air mail within fifteen (15) days. The Party who claims a failure to perform this Agreement due to force majeure shall make all reasonable efforts to minimize the loss or damage that may be incurred by the Parties as a result of force majeure.
9.3 Upon the occurrence of force majeure, the Parties shall forthwith commence joint consultations aimed at how to implement this Agreement. After termination or elimination of force majeure, the Parties shall immediately resume the performance of their respective obligations hereunder.
Exhibit 4.47-7
Article 10 Announcement
Neither Party shall make any public announcement with regard to the matters of this Agreement without the prior written consent of the other Party except for the public announcements made in compliance with the PRC laws and relevant provisions of the China Securities Regulatory Commission, the HKSE, the Hong Kong Securities and Futures Commission, the New York Stock Exchange, the United States Securities and Exchange Commission and other governmental or regulatory authorities.
Article 11 Miscellaneous
11.1 Unless otherwise provided, neither Party shall assign in whole or in
part its rights or obligations under this Agreement without the prior
written consent of the other Party.
11.2 This Agreement constitutes the entire agreement between the Parties in
respect of its subject matter and supersedes all previous oral or
written agreements, contracts, memorandums of understanding and
communications.
11.3 Should any provision of this Agreement be held to be illegal, invalid
or unenforceable, the legality, validity and enforceability of the
remaining provisions of this Agreement shall remain unaffected.
11.4 The Parties agree that OOECL and the Company will bear and pay
respectively any costs and expenses arising out of this Agreement
subject to relevant PRC laws. If relevant laws are not available, the
Parties agree to equally share all the relevant costs and expenses.
11.5 The amendment of this Agreement shall only be valid and effective
subject to the signing in writing by the duly authorized representative
of the Parties and sufficient approval by the Parties. If such
amendment constitutes a substantive and material amendment to this
Agreement, such amendment shall become effective provided that a
notification of or consent from the HKSE (as the case may be) and
shareholders' meeting of the Company (if applicable) is available.
11.6 Unless otherwise provided, failure of one Party to exercise or exercise
on time any right, power or privilege hereunder shall not act as a
waiver, nor shall any single or partial exercise thereof preclude any
further exercise of any other right, power or privilege.
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Article 12 Notice
Exhibit 4.47-8
12.1 All notices or other communications made hereunder by one Party shall
be in writing and in Chinese and delivered by hand, or sent by
registered airmail or facsimile addressed to the facsimile numbers
specified by the other Party. Any such notice shall be deemed to have
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been duly served:
12.1.1 If delivered by hand when signing by the intended recipient;
12.1.2 If sent by registered airmail, the seventh (7th) day after
delivery (stamp date) (If the last day is a Saturday, Sunday
or statutory holiday, such date shall be postponed to the next
business day);
12.1.3 If sent by facsimile, upon successful transmission by the
sending party.
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Article 13 Applicable Law and Dispute Resolution
13.1 This Agreement shall be governed by and construed in accordance with
the PRC laws.
13.2 All disputes arising out of or in connection with this Agreement shall
be settled through negotiation by the Parties. If such dispute can not
be settled, such dispute shall be submitted to China International
Economic and Trade Commission ("CIETAC') for arbitration which shall be
conducted in accordance with CIETAC Arbitration Rules in effect at the
time of applying for arbitration. The arbitration award shall be final
and legally binding to the Parties.
Article 14 Supplements
14.1 Unless otherwise provided in this Agreement, in the context,
(1) one Party includes its legal successors; and
(2) the headings of the Articles of this Agreement are inserted for
convenience only and shall not be in legal force or affect the
interpretation of this Agreement.
14.2 This Agreement is written in Chinese
14.3 IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on the date written on the first page.
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Offshore Oil Engineering Co., Ltd. CNOOC Limited
Exhibit 4.47-9
------------------------------- -----------------------------
By: By:
Title: Title:
Exhibit 4.47-10
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EXHIBIT 4.48
Supplemental Agreement to the Undertaking Agreement
This Supplemental Agreement is made on 8 December 2005
BETWEEN:
(1) CHINA NATIONAL OFFSHORE OIL CORPORATION whose legal address is at Jingxin Plaza, A2 Dongsanhuanbei Road, Chaoyang District, Beijing 100027, the People's Republic of China ("CNOOC"); and
(2) CNOOC LIMITED, whose registered office is at 65th Floor, Bank of China Tower, 1 Garden Road, Hong Kong (the "Company").
WHEREAS:
(1) CNOOC and the Company entered into an undertaking agreement (the "Undertaking Agreement") on 6 April 2000 and a supplemental agreement to the Undertaking Agreement on 21 December 2000 (the "First Supplemental Agreement").
(2) The parties have agreed to enter into this Supplemental Agreement to amend the Undertaking Agreement (as amended by the First Supplemental Agreement).
The parties agree as follows in relation to the amendment of the Undertaking Agreement:
1. CONDITIONS PRECEDENT
1.1 The provisions of this Supplemental Agreement (other than this clause and Clauses 5 and 6) are subject to the approval of the independent shareholders of the Company (if required by law or regulation).
1.2 Each of the parties shall use its best endeavours to procure the fulfilment of the conditions contained in clause 1.1.
2. DEFINITION AND INTERPRETATION
Exhibit 4.48-1
Words and terms used in this Supplemental Agreement shall, save where the context otherwise requires, have the same meaning as defined in the Undertaking Agreement (as amended by the First Supplemental Agreement).
3. PRIORITY TO BUSINESS OPPORTUNITIES
The parties hereby agree that notwithstanding the terms of the Undertaking Agreement, the Company may offer to CNOOC any opportunities falling within the scope of the Business which are within the onshore areas of the PRC or outside the PRC and which the board of directors of the Company does not consider is in the best interests of the Company to pursue ("Business Opportunity"). If the board of directors of the Company decides to offer any such Business Opportunity to CNOOC, CNOOC or members of the CNOOC Group will thereafter be entitled to engage in, develop and operate such Business Opportunity without restriction, subject to Clause 4 below.
4. OPTION OF ACQUISITION
For any Business Opportunity afforded to and accepted by CNOOC or members of the CNOOC Group in accordance with Clause 3 above, CNOOC hereby irrevocably grants to the Company the right to acquire the businesses developed by CNOOC or members of the CNOOC Group from such Business Opportunity according to the terms of this Clause 4 ("Option of Acquisition").
4.1 Option Period: The Company may exercise the option of acquisition at any time following an offer made under Clause 3.
4.2 Preliminary Notice of Intention for Acquisition: In order to exercise the Option of Acquisition, the Company should issue a preliminary notice of intention for acquisition, which shall state that the Company is interested in the acquisition of such Business which is being operated by CNOOC or members of the CNOOC Group.
4.3 Assets Valuation: After receiving the preliminary notice of intention, CNOOC should appoint a qualified valuation institution, which is mutually accepted by the parties, in accordance with the laws of the PRC to carry out assets valuation on the business that is proposed to be acquired, and the basis of valuation shall be determined through consultation of the parties. The valuation report should be confirmed by the competent PRC government authority or other institutions authorized by it. Such valuation report, after confirmation, shall be binding on both parties. CNOOC should provide the original of the valuation report to the Company within 10 days after the confirmation of the valuation report.
4.4 Acquisition Price and Acquisition Agreement: The acquisition price should be
Exhibit 4.48-2
based on the confirmed assets valuation amount, and be determined by the parties through negotiation according to the normal commercial terms and conditions. The acquisition agreement should be finalized by the parties through negotiation according to the normal commercial terms and conditions.
4.5 If it is stipulated by law or the relevant listing rules, or considered necessary by the majority of the independent directors of the board of directors of the Company, that the Company should retain auditors, independent financial advisors, valuators outside the PRC, independent technology advisors and/or other professional advisors to carry out audit and valuation of the business proposed to be acquired and issue reports, CNOOC should assist the relevant professional advisors, and provide the relevant information to them. All the fees of such advisors should be borne by the Company.
4.6 Notice of the Exercise of Option of Acquisition: After receiving the confirmed assets valuation report, the board of directors of the Company should finish its internal approval procedures in accordance with the laws, regulations and listing rules of the PRC and the place of listing and the stipulations of the Articles of Association of the Company, and notify CNOOC in writing of its decision within 90 days or within such period as otherwise agreed between the parties. If the Company decides to exercise the Option of Acquisition, it should issue to CNOOC a notice of the exercise of Option of Acquisition; if the Company decides not to exercise the Option of Acquisition, it should also notify CNOOC in writing. If the Company fails to notify CNOOC of its decision in writing within 90 days after it receives the confirmed valuation report, or within such period as otherwise agreed between the parties, it shall be deemed to giving up the Option of Acquisition.
4.7 Exercise of the Option of Acquisition by the Company: The parties shall sign the acquisition agreement, and, upon approval of the independent shareholders of the Company (if required by law or regulation), the Company shall make payment to CNOOC according to the price and method of payment provided in the acquisition agreement and shall receive all necessary legal rights to the business acquired.
5. This Supplemental Agreement is supplemental to and forms an integral part of the Undertaking Agreement, and shall come into effect as from the date of its signing by the duly authorized representatives of both parties. Unless otherwise agreed in this Supplemental Agreement, other clauses of the Undertaking Agreement are still valid.
Exhibit 4.48-3
CHINA NATIONAL OFFSHORE OIL CORPORATION
Authorized Representative:
Name:
Position:
CNOOC LIMITED
Authorized Representative:
Name:
Position:
Exhibit 4.48-4
EXHIBIT 4.49
Dated 8th January 2006
(1) SOUTH ATLANTIC PETROLEUM LIMITED
(2) CNOOC EXPLORATION & PRODUCTION LIMITED
SALE AND PURCHASE AGREEMENT
- relating to -
Note:
Certain statements, marked with an asterisk in brackets [*], have been omitted from this agreement pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and the omitted materials have been filed separately in paper form with the Securities and Exchange Commission.
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION.........................................1
2. SALE AND PURCHASE CONDITIONS...........................................8
3. CONSIDERATION.........................................................10
4. REIMBURSEMENT OF TUPNI/BRASOIL CARRY..................................11
5. INTERIM PERIOD........................................................14
6. COMPLETION............................................................16
7. REPRESENTATIONS, WARRANTIES AND CLAIMS................................18
8. TAXATION..............................................................23
9. INDEMNITIES...........................................................24
10. NOTICES...............................................................25
11. COSTS, EXPENSES AND DELAYED PAYMENT...................................26
12. ANNOUNCEMENTS.........................................................26
13. ASSIGNMENT............................................................27
14. CONFIDENTIALITY.......................................................27
15. TERMINATION...........................................................28
16. VARIATION.............................................................28
17. GENERAL...............................................................28
18. GOVERNING LAW AND ARBITRATION.........................................29
SCHEDULE 1 COMPLETION DOCUMENTS.............................................32 SCHEDULE 2 REPRESENTATIONS AND WARRANTIES...................................48 PART A REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................49 PART B REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................53 SCHEDULE 3 DATA ROOM DOCUMENTS..............................................55 SCHEDULE 4 ESCROW AGREEMENT.................................................56 SCHEDULE 5 TUPNI STATEMENT OF ADVANCES......................................73 SCHEDULE 6 FORM OF LEGAL OPINION............................................74 SCHEDULE 7 FORM OF ACKNOWLEDGEMENTS.........................................76 |
THIS AGREEMENT is made on the 8th day of January 2006
BETWEEN
(1) SOUTH ATLANTIC PETROLEUM LIMITED a company established under the laws of the Federal Republic of Nigeria with its registered office at 11th & 12th Floor, South Atlantic Petroleum Towers, 7 Adeola Odeku Street, Victoria Island, Lagos, Nigeria (hereinafter referred to as "the Seller"); and
(2) CNOOC EXPLORATION & PRODUCTION LIMITED, a company established under the laws of the Federal Republic of Nigeria with its registered office at 16d, Akin Olugbade Street, Victoria Island, Lagos, Nigeria (hereinafter called the "Purchaser").
WHEREAS
(A) Effective 23 February 1998 the Seller was granted a 100% interest in OPL 246 and pursuant to a farm in agreement the Seller assigned a 24% interest to TUPNI and a 16% interest to Brasoil;
(B) On 1 August 2003, the Seller on behalf of itself, TUPNI and Brasoil applied for the conversion of part of the area of OPL 246 to an oil mining lease (as amended by a letter from the Seller to the Department of Petroleum Resources dated 8 March, 2004) and by a letter dated 24 February 2005 the Ministry of Petroleum Resources approved the conversion to OML 130;
(C) By a letter dated 5 May 2005 from the Ministry of Petroleum Resources, the FGN exercised its rights under the Deep Water Block Allocations to Companies (Back-in-Rights) Regulations 2003 to take a 50% participating interest in OML 130 by vesting in NNPC a 50% participating interest, so that the parties to OML 130 and their participating interests therein are NNPC (50%), TUPNI (24%), Brasoil (16%) and the Seller (10%);
(D) In respect of the funding and conduct of operations relating to NNPC's 50% interest in OML 130, NNPC has entered into the PSC with the Seller and TUPNI pursuant to which the Seller has all of the rights and obligations of the Contractor and TUPNI is designated as operator under the PSC to carry out Petroleum Operations on behalf of the Contractor; and
(E) The Seller wishes to sell and assign the Transferred Interest (as hereinafter defined) and the Purchaser is willing to purchase and acquire the Transferred Interest from the Seller subject to and upon the terms hereof.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Except where the context otherwise requires, the following expressions in this Agreement, its Recitals and Schedules shall have the following respective meanings:
Exhibit 4.49-1
"Abandonment means, in so far as these relate to the
Liabilities" Transferred Interest, any and all costs,
charges, expenses, liabilities and
obligations incurred in abandoning and/or
decommissioning and/or removing any and all
relevant assets, installations, facilities,
equipment, pipelines, or other property
whether such costs, charges, expenses,
liabilities and obligations arose on, before
or after Completion and whether such costs,
charges, expenses, liabilities and
obligations arise under any treaty,
statutory, common law, or other obligation
and regardless of negligence or breach of
statutory duty on the part of the Seller;
"Acknowledgements" means the documents to be signed by TUPNI
and Brasoil substantially in the form
attached in Schedule 7 to be provided to the
Purchaser at Completion;
"Adjusted means the Reimbursement Amount, as adjusted
Reimbursement Amount" pursuant to the provisions of Clause 4.2(a)
and as otherwise provided in this Agreement;
"Adjustment Amount" shall have the meaning given to it in Clause
3.2;
"Affiliate" means any holding company or subsidiary
company of a Party, or any company which is
a subsidiary company of the holding company
of a Party, and the expression "holding
company" and "subsidiary" shall have the
meanings respectively ascribed thereto by
Section 736 of the Companies Act 1985 as
amended by Section 144 of the Companies Act
1989;
"Base Rate" means the display rate per annum of the
offered quotation for deposits in US dollars
for a period of one month which appears on
Telerate Page 3750 (or such other page as
the parties may agree) at or about 11.00 am
London time on the Due Date, or if such Due
Date is not a Business Day in London on the
last Business Day in London prior to such
Due Date, provided that, if the debt in
question remains unpaid for longer than a
month from such Due Date, interest thereon
shall be compounded monthly and the said
display rate reset monthly by reference to
such display rate prevailing on the last
Business Day in London prior to the monthly
reset date;
"Brasoil" means Brasoil Oil Services Company Nigeria
Limited, its successors and permitted
assigns;
"Business Day" means a day other than a Saturday or Sunday
or statutory holidays on which banks are or,
as the context may require, were generally
open for all
|
Exhibit 4.49-2
normal business in Nigeria and London;
"Cash Call" means a cash call as referred to in the
Operating Agreement and the accounting
procedure attached thereto;
"Completion" means the completion of the transfer or
acquisition of the Transferred Interest as
provided for in Clause 6;
"Completion Date" means the date of Completion as determined
in accordance with Clause 6.1;
"Completion Documents" means the documents listed in Schedule 1
substantially in the form attached hereto
that must be executed in order to effect the
transfer to and acquisition by the Purchaser
of the Transferred Interest;
"Consideration" means the Purchase Price as adjusted
pursuant to Clause 3.2 and as otherwise
provided in this Agreement;
"Contractor" has the meaning given to it in the PSC;
"Cost Oil" has the meaning given to it in the PSC;
"Data" means all data and information held by the
Seller (or to which it is entitled) in its
capacity as Contractor under the PSC in
respect of the Transferred Interest
including, without prejudice to the
generality of the foregoing, accounts,
books, contracts, correspondence,
information, data and reports (including
petroleum engineering, reservoir
engineering, drilling, geological,
geophysical and all other kinds of technical
data and reports, maps, samples, well logs
and analyses in whatever form the same are
maintained), but excluding any notes,
memoranda, analyses, reports or equivalent
documents (in whatever form maintained)
prepared by the Seller, its Affiliates,
auditors, advisers and contractors for the
Seller's or its Affiliates' internal
purposes and/or corporate decision making
and/or review procedures;
"Data Room Documents" means the documents relating to the
Transferred Interest listed in Schedule 3
and, where the context so admits, any one or
more of such documents;
"Deposit" means the deposit of Dollars two hundred and
thirty-five million ($235,000,000) payable
into the Escrow Account on the date of this
Agreement;
|
Exhibit 4.49-3
"Disclosure Letter" means a letter of even date herewith,
together with the attachments thereto,
addressed by the Seller to the Purchaser
disclosing exceptions to the Seller's
Warranties;
"Dollar" or "$" means the lawful currency of the United
States of America;
"Due Date" means the date from which interest is to be
charged in accordance with the terms of this
Agreement;
"Effective Date" means 00.01 hours, Lagos Nigeria time, on 1
July 2005;
"Encumbrances" means all liens, charges, mortgages,
pledges, overriding royalties, net profit
interests, security interests, encumbrances
or third party rights other than those
arising under OML 130, the PSC, the
Operating Agreement, the Production
Co-ordination Agreement and under applicable
legislation;
"Environmental means, in so far as these relate to the
Liabilities" Transferred Interest, all costs, charges,
expenses, liabilities and obligations,
whether arising on, before or after
Completion relating to: (1) cleaning up or
removing debris from and for reinstating any
area of land, foreshore, sea or sea bed,
wherever situated, including without
limitation reinstating any and all forms of
plant and animal life and/or facilities
required to be reinstated in, on, under or
in respect of any such areas; (2) any
pollution of air, water or land whether
within natural or man made structures above
or below ground including radiation, the
cleaning up, repairing and eliminating of
such pollution, radiation or other resulting
toxic or other substances; and (3) the
breach of or strict liability under any law,
regulation, treaty, directive, statute,
subordinate legislation, common law, civil
law, order, judgment or award relating to
the environment, health, safety, control of
substances and pollution, and regardless of
whether such costs, charges, expenses,
liabilities and obligations are incurred in
tort, contract, statute, common law or civil
law and regardless of negligence or breach
of statutory duty on the part of the Seller;
"EPC Liabilities" means, in so far as these relate to the
Transferred Interest, all costs, charges,
expenses, liabilities and obligations,
whether arising on, before or after
Completion, which are incurred in connection
with any contracts entered into by TUPNI as
operator on behalf of itself, NNPC, the
Seller and Brasoil, relating
|
Exhibit 4.49-4
to the development of the Akpo field, including any claims made under such contracts, and regardless of whether such costs, charges, expenses, liabilities and obligations are incurred in tort, contract, statute, common law, maritime law or civil law and regardless of negligence or breach of statutory duty on the part of the Seller, TUPNI or any other party to OML 130 or the PSC;
"Escrow Account" has the meaning given to it in the Escrow
Agreement;
"Escrow Agreement" means the escrow agreement in the form
attached as Schedule 4 dated the date
hereof;
"Escrow Completion has the meaning given to it in the Escrow
Notice" Agreement;
"Escrow ITC Security has the meaning given to it in the Escrow
Notice" Agreement; "Expenditures" has the meaning
given to it in Clause 4.3; "FGN" means the
Government of the Federal Republic of
Nigeria which shall be deemed to include any
ministry or agency thereof;
"Final Completion means the statement prepared by the Seller
Statement" pursuant to Clause 4.4 within fifteen (15)
Business Days of Completion;
"Gas Utilisation means the agreement dated 25 April 2005 and
Agreement" entered into between NNPC and Elf Petroleum
Nigeria Limited of the one part and NNPC,
the Seller, TUPNI and Brasoil of the other
part; "HOA" means the Heads of Agreement
entered into between NNPC, TUPNI, Brasoil
and the Seller dated 25 April 2005 relating
to NNPC's entry into OML 130; "Interim
Completion Statement" means the statement
prepared by the Seller pursuant to Clause
4.3 prior to Completion; "Interim Period"
means the period between the date of this
Agreement and Completion; "ITC Security" has
the meaning attributed thereto in Clause 3.4
of this Agreement;
"Minister" means the Minister of Petroleum Resources of
the FGN or any duly-constituted successor
entity designated by the FGN or such other
equivalent
|
Exhibit 4.49-5
competent authority;
"NNPC" means the Nigerian National Petroleum
Corporation;
"OML Area" means the area covered by the OML 130;
"OML 130" means the oil mining lease granted by the
Minister to NNPC, TUPNI, Brasoil and the
Seller by a letter dated 24 February 2005 in
respect of the OML Area;
"Operating Agreement" means the operating agreement dated 25 April
2005, and entered into between the Seller
and TUPNI relating to the conduct of
operations under the PSC;
"OPL 246" means the Oil Prospecting Licence 246
offshore Nigeria dated 15 April 1999 and
with a commencement date of 23 February 1998
and granted by the FGN to the Seller, and in
respect of which the Seller has assigned a
24% interest to TUPNI and a 16% interest to
Brasoil;
"Parties" means collectively the Seller and the
Purchaser;
"Party" means the Seller or the Purchaser;
"Petroleum Operations" has the meaning given to it in the PSC;
"Production Co- means the agreement dated 26 April 2005
ordination Agreement" entered into between the Seller, TUPNI and
Brasoil to co-ordinate decisions relating to
operations in the OML Area;
"Profit Oil" has the meaning given to it in the PSC;
"PSC" the Production Sharing Contract dated 25
April 2005 and entered into by NNPC of the
one part and the Seller of the other part as
Contractor and TUPNI as operator relating to
NNPC's fifty per cent (50%) interest in OML
130 and the rights and obligations of the
Contractor and TUPNI in respect of the
funding and the conduct of Petroleum
Operations on behalf of NNPC;
"Purchase Price" means the amount referred to in Clause 3.1;
"Purchaser's Escrow has the meaning given to it in the Escrow
Termination Notice" Agreement;
"Purchaser's the representations and warranties of the
Warranties" Purchaser in Schedule 2, Part B;
"Receipts" has the meaning given to it in Clause 4.3;
|
Exhibit 4.49-6
"Reimbursement Amount" means the amount referred to in Clause 4.1;
"Retained Interest" means all of the rights, benefits, interests
and obligations attaching to and forming
part of (1) the Seller's remaining ten per
cent (10%) interest as a Contractor in and
under the PSC, and (2) the remaining ten per
cent (10%) of the Seller's participating
interest in and under the Operating
Agreement, (3) all of the corresponding
rights, interests and obligations under the
Production Co-ordination Agreement, and (4)
all of the corresponding rights, benefits
and interests under the HOA;
"Seller's Escrow has the meaning given to it in the Escrow
Termination Notice" Agreement;
"Seller's Warranties" the representations and warranties of the
Seller in Schedule 2, Part A;
"Transferred Interest" means all of the rights, benefits, interests
and obligations attaching to and forming
part of (1) the ninety per cent (90%)
interest of the Seller's interest as a
Contractor in and under the PSC, (2) the
Seller's ninety per cent (90%) participating
interest in and under the Operating
Agreement, (3) all of the corresponding
rights, interests and obligations under the
Production Co-ordination Agreement, and (4)
all of the corresponding rights, benefits
and interests under the HOA;
"TUPNI" means Total Upstream Nigeria Limited, its
successors and permitted assigns; and
"Warranties" the Seller's Warranties and the Purchaser's
Warranties.
|
1.2 All references to Clauses, Recitals and Schedules are, unless otherwise expressly stated, references to clauses of and recitals and schedules to this Agreement.
1.3 The headings in this Agreement are inserted for convenience only and shall be ignored in construing this Agreement.
1.4 Any reference to any statute or statutory instrument in this Agreement shall be a reference to the same as amended, consolidated or extended, supplemented or re-enacted from time to time or at any time prior to the date of this Agreement, and shall include any orders, regulations, instruments or other subordinate legislation made under the relevant statute.
1.5 Except where the context otherwise requires, words denoting the singular include the plural and vice versa; words denoting any gender include all genders; words denoting persons include firms and corporations and vice versa.
Exhibit 4.49-7
1.6 The word "including" shall be construed without limitation.
1.7 The Schedules form part of this Agreement and shall be construed and shall have the full force and effect as if expressly set out in the body of this Agreement, save that in the event of any conflict between the Schedules and any provision contained in the Clauses of this Agreement the latter shall prevail.
2. SALE AND PURCHASE CONDITIONS
2.1 Subject to the terms and conditions hereinafter provided, on the Completion Date and for the Consideration the Seller, as legal and beneficial owner, shall sell and assign the Transferred Interest with full title guarantee to the Purchaser and the Purchaser shall purchase and acquire the Transferred Interest free from Encumbrances.
2.2 Subject to Clause 3.3, the sale and assignment of the Transferred Interest referred to in Clause 2.1 shall be completed on the Completion Date when the conditions precedent in Clause 2.3 have been fulfilled, provided that the said sale and assignment shall, as between the Parties, be deemed for all purposes to be made with effect from the Effective Date.
2.3 The respective obligations of the Seller and of the Purchaser pursuant to Clause 2.1 shall be subject to the satisfaction of the following conditions precedent:
(a) the receipt of the unconditional written consent of NNPC under
clause 18 of the PSC to the assignment to the Purchaser of the
Seller's ninety per cent (90%) interest as a Contractor;
(b) the execution of the Completion Documents by the parties thereto
(excluding the Parties);
(c) the Seller having notified the Minister and the Nigerian
Department of Petroleum Resources (or any successor), in writing,
at the same time as requesting the consent referred to in Clause
2.3(a), that the Seller is proposing to assign the Transferred
Interest to the Purchaser; and
(d) the receipt of the consent of the government of The People's
Republic of China to the acquisition of the Transferred Interest
by the Purchaser.
2.4 (a) The Seller shall use its reasonable endeavours to procure the
satisfaction as soon as reasonably practicable of the conditions
precedent in Clause 2.3 (a), (b) and (c). The Purchaser shall
render all reasonable assistance in relation to the satisfaction
of such conditions precedent as the Seller may request, including
the provision by the Purchaser of a parent company guarantee
acceptable to NNPC, if so required by NNPC.
(b) The Purchaser shall use its reasonable endeavours to procure the
satisfaction as soon as reasonably practicable of the conditions
precedent in Clause 2.3(d). To the extent it is able the Seller
shall render all reasonable assistance in relation to the
satisfaction of such condition precedent.
(c) If the conditions precedent in Clause 2.3 are not satisfied
within four (4) months of the date hereof, the Parties shall meet
to discuss what joint action
|
Exhibit 4.49-8
should be taken in order to procure the satisfaction of such conditions precedent.
2.5 If (notwithstanding that the Parties shall have used such endeavours and rendered such assistance as aforesaid) the conditions precedent set out in Clause 2.3 have not been satisfied before 5:00 p.m. Nigerian time within six (6) months of the date of this Agreement (or such later date as the Parties shall agree in writing) the Seller or the Purchaser shall have the right to terminate this Agreement forthwith by notice to the other Party, and upon termination neither Party shall, subject to Clause 2.7, have any liability hereunder to the other Party except in respect of any breach of this Agreement committed before such time.
2.6 The Seller shall notify the Purchaser, as soon as reasonably
practicable, when each of the conditions precedent listed in Clause
2.3 has been satisfied and provide the Purchaser with a copy of the
consent received under Clause 2.3(a) and notice sent under Clause 2.3
(c) duly acknowledged for receipt by the recipient.
2.7 (a) On the day following the date of this Agreement the Purchaser
shall pay, or procure the payment of, the Deposit into the Escrow
Account in accordance with the terms of the Escrow Agreement. If
the Purchaser fails to pay the Deposit as aforesaid, without
prejudice to any other rights of the Seller, the Seller shall
have the right to seek specific performance by the Purchaser of
its obligation under this Clause 2.7(a) or, at the Seller's
option, to terminate this Agreement forthwith.
(b) The Deposit less the ITC Security shall be paid at Completion to
the Seller as provided in the Escrow Agreement and Clause 6.2(f).
(c) If this Agreement is terminated prior to Completion due to the
breach by the Purchaser of its obligations hereunder or if
Completion does not occur due to the breach by the Purchaser of
its obligations hereunder, in either case the Deposit shall,
without prejudice to any other rights of the Seller, be payable
forthwith to the Seller and the Seller's Escrow Termination
Notice shall be signed by both Parties in accordance with the
Escrow Agreement.
(d) If this Agreement is terminated prior to Completion due to the
breach by the Seller of its obligations hereunder or if
Completion does not occur as provided in Clauses 2.5, 3.3,
7.12(b) or due to the breach by the Seller of its obligations
hereunder, in any such case the Deposit shall, without prejudice
to any other rights of the Purchaser, be payable forthwith to the
Purchaser and the Purchaser's Escrow Termination Notice shall be
signed by both Parties in accordance with the Escrow Agreement.
(e) On entry into of this Agreement by the Parties, and at
Completion, the Seller shall deliver a legal opinion addressed to
the Purchaser and to CNOOC Limited from its legal advisers
substantially in the form attached hereto as Schedule 6.
|
Exhibit 4.49-9
3. CONSIDERATION
3.1 The Consideration for the sale and assignment of the Transferred Interest payable to the Seller at Completion shall be the amount of Dollars one billion seven hundred and fifty million ($1,750,000,000.00) (the "Purchase Price"), as adjusted pursuant to Clause 3.2.
3.2 (a) The Purchase Price referred to in Clause 3.1 shall be adjusted to
n
an amount (the "Adjustment Amount") equal to Sigma Xn where:-
1
n
|
where:- Xo = 0;
n = for each month in the period from 1 January 2006
to Completion;
Dn = the number of days in each month in the period
from and including 1 January 2006 up to but
excluding the Completion Date, provided that, if
the Completion Date is not the last day of a month
the number of days for the relevant month shall be
the number of days in that month up to but
excluding the Completion Date; and where a month
shall be deemed to be a period of
thirty (30) days;
P = the amount of Dollars [*];
LIBORn = means the display rate per annum of the offered
quotation for deposits in Dollars for a period of
one month which appears on Telerate Page 3750 (or
such other page as the Parties may agree) at or
about 11.00 am London time on the Business Day
immediately prior to 1 January 2006 and thereafter
on the first day of each month in the period until
Completion, or, if such day is not a Business Day
in London, on the last Business Day in London
prior to such day.
|
(b) The amount calculated under Clause 3.2(a) and notified to the Purchaser as provided in Clause 6.2(d) shall, save in the event of fraud or manifest error in calculating such amount (but not otherwise), be payable at Completion and in the case of fraud or manifest error and if not resolved by the Parties prior to Completion, the matter shall be resolved by reference to an expert appointed on request of either Party in accordance with Clause 4.5 which shall be deemed to apply mutatis mutandis to a dispute under this Clause 3.2(b).
Exhibit 4.49-10
3.3 The Seller acknowledges that the Consideration is based on the assumption that the royalty rate which will apply to, and in respect of, production attributable the Transferred Interest is zero percent (0%). In the event that prior to Completion, the royalty rate is varied,
(a) the Seller may serve a notice on the Purchaser of such variation in the royalty rate and the Purchaser shall have the right, exercisable by notice within seven (7) Business Days of receipt of such notice from the Seller, to terminate this Agreement forthwith by notice to the Seller; or
(b) if no notice is received under Clause 3.3(a), the Purchaser shall have the right exercisable at any time (i) prior to, and (ii) up to three (3) Business Days after receipt of a validly served notice under Clause 2.6 that the conditions precedent have been fulfilled, to terminate this Agreement forthwith by notice to the Seller,
and, in the case of termination pursuant to either of Clause 3.3(a) or (b), the Deposit shall be repayable to the Purchaser in accordance with the Escrow Agreement. If the Purchaser fails to exercise such termination right within the specified time detailed in Clause 3.3(a) or (b), as the case may be, the Purchaser shall be deemed to have irrevocably waived its right of termination under this Clause 3.3.
3.4 The Seller acknowledges that the Consideration is based on the assumption that the investment tax credit regime ("ITC") will apply to, and in respect of, the Transferred Interest. If prior to the date of first commercial production of hydrocarbons from the OML Area (the "Production Date"), official government written notification or written NNPC communication of the official government's decision has been received that ITC will apply to and in respect of the Transferred Interest, then at Completion, if such notice or communication has been received, or following Completion, upon receipt of such notice or communication, the Seller shall be paid the sum of Dollars [*] (the "ITC Security") and if by the Production Date, such notification has not been received, then the ITC Security shall be paid to the Purchaser, and in either case the Escrow ITC Security Notice shall be signed by both Parties all as provided in the Escrow Agreement and, if payment is to the Purchaser, the same shall be treated as a reduction to the Consideration.
4. REIMBURSEMENT OF TUPNI/BRASOIL CARRY
4.1 At Completion (or thereafter as provided in this Clause 4) the Purchaser shall reimburse directly to TUPNI and Brasoil pursuant to Clause 6.2(e) an aggregate amount of Dollars five hundred and eighteen million ($518,000,000.00) (the "Reimbursement Amount"), representing advances owing to TUPNI and Brasoil by the Seller in respect of the period prior to the Effective Date, adjusted pursuant to the following provisions of this Clause 4.
4.2 (a) The Reimbursement Amount referred to in Clause 4.1 shall be
adjusted as follows:
n
(i) to an amount equal to RD + Sigma Xn (the "Adjusted
1
Reimbursement Amount") where:-
|
Exhibit 4.49-11
where:- Xo = 0;
n = for each month in the period from 1 January 2006 to
Completion;
Dn = the number of days in each month in the period
from and including 1 January 2006 up to but
excluding the Completion Date, provided that, if
the Completion Date is not the last day of a month
the number of days for the relevant month shall be
the number of days in that month up to but
excluding the Completion Date; and where a month
shall be deemed to be a period of thirty (30)
days;
RD = the amount of Dollars [*];
LIBORn = means the display rate per annum of the offered
quotation for deposits in Dollars for a period of
one month which appears on Telerate Page 3750 (or
such other page as the Parties may agree) at or
about 11.00 am London time on the Business Day
immediately prior to 1 January 2006 and thereafter
on the first day of each month in the period until
Completion, or, if such day is not a Business Day
in London, on the last Business Day in London
prior to such day.
|
(ii) deducting or adding the payment to be made pursuant to Clause 4.3 as set out on the Interim Completion Statement, such payment being deducted from the Adjusted Reimbursement Amount, if due from the Seller, and added to the Adjusted Reimbursement Amount if due from the Purchaser.
(b) Following Completion the Adjusted Reimbursement Amount shall be further adjusted by the Final Completion Statement.
(c) The amount calculated under Clause 4.2(a)(i) and notified to the Purchaser as provided in Clause 6.2(e) shall, save in the event of fraud or manifest error in calculating such amount (but not otherwise), be payable at Completion. In the case of fraud or manifest error, if any dispute is not resolved by the Parties prior to Completion, the matter shall be resolved by reference to an expert appointed on request of either Party in accordance with Clause 4.5 which shall be deemed to apply mutatis mutandis to a dispute under this Clause 4.2(c).
4.3 The Adjusted Reimbursement Amount shall be increased by the amount of all Cash Calls (except any sums detailed in the statement of advances set out in Schedule 5 attached hereto) paid by or on behalf of the Seller under the Operating Agreement on
Exhibit 4.49-12
or after the Effective Date (herein collectively referred to as "Expenditures") and shall be reduced by the amount of all income and receipts received by or on behalf of the Seller on or after the Effective Date under the Operating Agreement (herein collectively referred to as "Receipts") and respectively attributable to the Transferred Interest, in the period from the Effective Date to the Completion Date, and at least ten (10) Business Days prior to Completion the Seller shall prepare and give to the Purchaser a statement (the "Interim Completion Statement") showing for such period:
(a) all Expenditures and all Receipts;
(b) an amount equal to interest at the Base Rate plus three per cent (3%) on all Expenditures, charged from, and including, the date such Expenditures were paid up to, but excluding, the Completion Date;
(c) an amount equal to interest at the Base Rate plus three per cent (3%) on all Receipts charged from, and including, the date such Receipts were received up to, but excluding, the Completion Date;
(d) the net balance resulting from the addition of the Expenditures and the amounts determined under Clause 4.3(b) less the sum of the Receipts and the amounts determined under Clause 4.3(c); and
if the amount of the resulting net balance is positive, such amount shall be due from the Purchaser to the Seller and payable as provided in Clause 6.2(e) and if negative, shall be due from the Seller to the Purchaser, provided always that in the event of fraud or manifest error in calculating the amounts included in the Interim Completion Statement, but not otherwise, the Purchaser shall be entitled to withhold such amount from the Adjusted Reimbursement Amount payable at the Completion Date pending the resolution of such matter in accordance with the provisions of Clause 4.5.
4.4 (a) Within fifteen (15) Business Days of Completion, the Seller shall
prepare and give to the Purchaser a further statement in respect
of the Expenditures and Receipts and other amounts as referred to
in Clause 4.3(a) to (d) inclusive in the period from the
Effective Date to the Completion Date (the "Final Completion
Statement"), which shall be prepared on the same basis as the
Interim Completion Statement and shall show any adjustments to
the Interim Completion Statement and any further adjustment to
the Reimbursement Amount. If at the time of preparing the Final
Completion Statement, there are Expenditures or Receipts which
cannot be ascertained, then the Seller shall deliver a further
statement in respect thereof as soon as reasonably practicable,
provided that following Completion, the Purchaser shall provide
promptly to the Seller such information regarding Expenditures
and Receipts as may be received by the Purchaser to permit the
Seller to prepare the Final Completion Statement.
(b) Within fifteen (15) Business Days of receipt of the Final
Completion Statement, or any further statement, the Purchaser
shall give notice to the Seller either (1) confirming acceptance
of the Final Completion Statement, or such further statement, in
which event the Purchaser or the Seller, as applicable, shall pay
or repay the amount of any such further adjustment to the
Reimbursement Amount shown to be payable on the Final Completion
|
Exhibit 4.49-13
Statement or such statement within seven (7) Business Days of the Purchaser's notice, together with interest on such amount at the Base Rate plus three per cent (3%) charged from and including Completion to and excluding the date of payment, or (2) disputing all or part of such Final Completion Statement, or further statement, in which event if the Parties cannot resolve such dispute within ten (10) Business Days, the matter shall be dealt with as provided in Clause 4.5. If the Purchaser fails to give a notice to Seller as referred to above, the Purchaser shall be deemed to have accepted the Final Completion Statement or further statement which shall be final and binding on the Parties.
4.5 In the event that the Parties cannot agree upon the Final Completion Statement or other statements as provided in Clause 4.4, the dispute may be referred at any time thereafter by either Party for resolution by a firm of independent chartered accountants appointed by the President for the time being of the Institute of Chartered Accountants of England and Wales, unless prior to such referral, the Parties have agreed upon and appointed such firm. The nominated firm of independent chartered accountants shall be afforded the same access to books, records, accounts and documents in the possession of the Parties as they have in respect of each other. The decision of the firm so appointed shall, in the absence of fraud or manifest error, be final and binding on the Parties, and settlement of any outstanding amount shall be made within five (5) Business Days of such decision together with interest charged and paid as provided in Clause 4.4. The costs of the firm shall be borne by the Parties in equal proportions, and such firm shall be deemed to be acting as an expert and not as an arbitrator.
4.6 Expenditures, Receipts and other amounts referred to in this Clause 4 and which are in currencies other than Dollars, shall be converted to Dollars at the midpoint of the day's spread of the relevant exchange rate quoted in the Financial Times, London edition, for the day the applicable Expenditures, Receipts or other amounts were paid or received (or if not so quoted the midpoint for the applicable currency as quoted by the relevant central bank or other bank of repute).
5. INTERIM PERIOD
5.1 During the Interim Period the Seller shall:
(a) perform and procure the performance of all activities and obligations in relation to the Transferred Interest in the ordinary and usual course of business and in accordance with good oilfield practices, including procuring the payment of all Cash Calls;
(b) advise the Purchaser promptly of any claim, legal proceedings, arbitration or expert reference which may arise in connection with the Transferred Interest;
(c) not terminate or amend, or permit any amendment or termination of, the PSC, the HOA, the Operating Agreement or the Production Co-ordination Agreement without the prior written consent of the Purchaser and shall not create or permit to subsist any Encumbrance over the Transferred Interest (other than in respect of the carry detailed in the farm in agreement of 19 March 1998) and not execute any new operating agreements, cooperation
Exhibit 4.49-14
agreements, unitisation agreements or project documents in relation to OML 130 without prior written consent of the Purchaser;
(d) prior to any meeting under the PSC, the Operating Agreement, or the Production Co-ordination Agreement or prior to any material decision being taken in respect of the Transferred Interest, consult with the Purchaser and, in attending such meeting or casting its vote or abstaining, take account of any reasonable representation which the Purchaser may make;
(e) use its reasonable endeavours to procure agreement to the Purchaser's representative attending meetings under the PSC, the Operating Agreement and the Production Co-ordination Agreement as an observer and together with the Seller's representative;
(f) notify the Purchaser as soon as reasonably practicable of any event or matter which would cause the Seller's Warranties, if the Seller's Warranties were repeated every day until Completion, to be breached;
(g) subject to any confidentiality restrictions by which the Seller is bound, keep the Purchaser informed in a timely manner of any Cash Calls issued and details of payments made and the adoption or amendment to any work programme and budget and the negotiation or execution of any material contract pursuant to the PSC and the Operating Agreement, and to the extent not already provided, provide the Purchaser with copies of all Data, written notices and other information provided by or to the Seller (whether before or during the Interim Period) including any technical or geological data or minutes of meetings received under the PSC, the Operating Agreement, the Production Co-ordination Agreement or the HOA and shall provide the Purchaser and the Purchaser's advisers with access, at times convenient to the Seller and subject to reasonable prior notice, during normal working hours to such information, documentation and data (subject always to any confidentiality obligations restricting disclosure) which they may reasonably require in respect of the Transferred Interest;
(h) procure TUPNI to maintain any insurance taken out under the Operating Agreement (details of which shall be provided to the Purchaser promptly following the date hereof to the extent not already provided) and shall procure TUPNI to pursue any claim under the insurance policies and apply any insurance proceeds to meet any costs and expenses or credit the proceeds to the joint account of the Contractor under the Operating Agreement;
(i) take all reasonable steps available to it to ensure that OML 130 is not amended, varied or revoked; and
(j) not transfer nor assign, nor enter into any agreement or arrangement for the transfer or assignment of, any rights or obligations in respect of the Retained Interest.
5.2 If Completion does not take place for any reason provided for in this Agreement:
Exhibit 4.49-15
(a) all information provided to the Purchaser under this Clause 5 will be returned to the Seller at the Purchaser's cost promptly after the Seller's request therefor and the Purchaser shall not retain copies thereof; and
(b) all analyses, compilations, studies or other documents prepared by or on behalf of the Purchaser relating to OML 130 and the OML Area and/or the Transferred Interest will be destroyed.
5.3 In respect of the Transferred Interest, the Purchaser agrees and accepts that all work programmes and budgets, commitments to expenditures and other decisions relating to Petroleum Operations relating to the OML Area and which are approved by the management committee under the PSC shall be binding upon the Purchaser in all respects.
5.4 It is agreed that as at Completion and as between the Parties, the words "3 representatives of Contractor" referred to in clause 15 of the HOA shall be read and construed as meaning "2 representatives of the Purchaser and 1 representative of the Seller". For the avoidance of doubt, the Seller shall support any request by the Purchaser for representation at any subcommittee established under clause 7.7 of the PSC.
5.5 If TUPNI as Operator fails to pay to or credit the Joint Account (as both terms are defined in the Operating Agreement) with any amount due to the Contractor under the PSC, then the Seller and the Purchaser shall co-operate and take such actions as are reasonable to procure that such amount is paid to the Joint Account for the benefit of the Seller and the Purchaser according to their respective Participating Interests (as defined in the Operating Agreement).
5.6 After the date hereof, the Seller shall not agree to any amendment to the HOA which affects the rights, benefits and interests under the HOA to be assigned to the Purchaser at Completion pursuant to the assignment of the HOA interests forming part of the Completion Documents without the prior consent of the Purchaser, which shall not be unreasonably withheld.
6. COMPLETION
6.1 Completion shall take place (unless otherwise agreed) at the offices of Baker Botts, 41 Lothbury, London EC2R 7HF as soon as reasonably practicable and in any event no later than ten (10) Business Days after the date on which the Seller shall have given notice under Clause 2.6 that each of the conditions in Clause 2.3 are satisfied.
6.2 At Completion, the following events shall take place:
(a) the Seller shall deliver to the Purchaser:
(i) a copy, certified as a true copy by a director or officer of the Seller, of the consent of NNPC in respect of the transfer and assignment of the Transferred Interest;
(ii) the Completion Documents duly executed by the parties thereto (other than the Purchaser) and the Seller;
Exhibit 4.49-16
(iii) a copy, certified as a true copy by a director or the secretary of the Seller, of the resolution of the board of directors of the Seller approving the disposal of the Transferred Interest and authorising the execution of this Agreement, the Completion Documents and all other documents herein contemplated;
(iv) a copy, certified as a true copy by a director or officer of the Seller, of a power of attorney authorising a person or persons to sign this Agreement, the Completion Documents and all other documents contemplated by this Agreement on behalf of the Seller;
(v) a legal opinion, dated as of the Completion Date, from the Seller's legal advisers substantially in the form attached hereto as Schedule 6; and
(vi) the Acknowledgements duly signed by TUPNI and Brasoil;
(b) the Seller shall execute all such other documents and do all such other acts and things as may reasonably be required in order to transfer the Transferred Interest to the Purchaser at Completion and otherwise carry out the true intent of this Agreement;
(c) the Purchaser shall deliver to the Seller:
(i) a copy certified as a true copy by a director or officer of the Purchaser of the consent of the government of The People's Republic of China referred to in Clause 2.3(d);
(ii) the Completion Documents duly executed by the Purchaser and thereafter the Seller shall promptly send original signed copies of the notice of assignment of the HOA interests to each of the parties to the HOA;
(iii) a copy, certified as a true copy, by a director or the secretary of the Purchaser of the resolutions of the board of directors of the Purchaser approving, in respect of the Purchaser, the acquisition of the Transferred Interest and authorising the execution on behalf of the Purchaser of this Agreement, the Completion Documents and all other documents herein contemplated; and
(iv) a copy, certified as a true copy by a director or officer of the Purchaser, of a power of attorney authorising a person or persons to sign this Agreement, the Completion Documents, and all other documents contemplated by this Agreement on behalf of the Purchaser;
(d) the Purchaser shall pay at Completion to the Seller the Purchase Price, adjusted as provided in Clause 3.2, less the Deposit, by electronic transfer to the Seller's bank account all as notified to the Purchaser by the Seller not less than three (3) Business Days prior to Completion;
(e) the Purchaser shall pay at Completion as provided below the Adjusted Reimbursement Amount and the Seller shall notify the Purchaser not less than
Exhibit 4.49-17
three (3) Business Days prior to Completion of the Adjusted Reimbursement Amount breaking out its components determined under Clause 4.2(a) and shall specify in such notice the amount to be paid to TUPNI, the amount to be paid to Brasoil and the amount to be paid to the Seller, and the bank account details of TUPNI, Brasoil and the Seller provided that all such amounts to be paid by the Purchaser shall be equal to the Adjusted Reimbursement Amount, and the Purchaser shall make such payments by electronic transfer to the bank accounts specified in the Seller's notice (which payment shall be a good discharge for the Purchaser);
(f) the Seller and the Purchaser shall execute the Escrow Completion Notice in accordance with the terms of the Escrow Agreement in order to permit the receipt by the Seller of the Deposit less the ITC Security; and
(g) the Purchaser shall execute all such other documents and do all such other acts and things as may reasonably be required in order to transfer the Transferred Interest to the Purchaser at Completion and otherwise carry out the true intent of this Agreement.
6.3 Within thirty (30) days of the Completion Date, the Seller shall make available for collection from the Seller's office in Lagos, Nigeria, so far as the same are not already in the Purchaser's possession and subject to the Purchaser requesting the same at Completion:
(a) copies of all current work programmes and budgets, Cash Calls and joint venture billings relating to the Transferred Interest;
(b) copies of all Data;
(c) copies of the Data Room Documents; and
(d) geoscientific and engineering data and logs.
7. REPRESENTATIONS, WARRANTIES AND CLAIMS
7.1 Subject to all of the provisions of this Agreement and to matters fairly disclosed in the Disclosure Letter, the Seller, in relation to the Transferred Interest, hereby represents and warrants to the Purchaser in the terms of the Seller's Warranties which shall be deemed to be repeated as at the Completion Date save as otherwise noted in Schedule 2, Part A.
7.2 Subject to all of the provisions of this Agreement, the Purchaser hereby represents and warrants to the Seller in the terms of the Purchaser's Warranties which shall be deemed to be repeated as at the Completion Date.
7.3 Save in the case of fraud, and without prejudice to the provisions of Clause 4.3 or 4.4, the Seller shall not be liable for any claim made by the Purchaser under this Agreement, including the Warranties, and any such claim shall be wholly barred and unenforceable unless (1) Completion has occurred and (2) the Seller shall have received from the Purchaser written notice, giving such details of the claim as are then available, within thirty (30) days of the Purchaser becoming aware of the facts giving
Exhibit 4.49-18
rise to such claim and in any event prior to 5pm Nigerian time on a date twelve (12) months after the Completion Date PROVIDED ALWAYS that any such claim which is validly made within the required period as aforesaid shall, unless settled or withdrawn, be deemed to have been waived or withdrawn if legal proceedings in respect thereof have not been properly issued and served on the Seller within three (3) months of written notice of the relevant claim first having been given as aforesaid. The requirement to make a claim prior to 5pm Nigerian time on a date determined as stated above shall not apply to a claim made by the Purchaser pursuant to an indemnity in this Agreement.
7.4 Save in the case of fraud, and without prejudice to the provisions of Clause 4.3 or 4.4, the Seller shall have no liability in respect of any claim under this Agreement, including the Warranties and the indemnities:
(a) where the liability of the Seller in respect of that claim would (but for this Clause) be less than Dollars two million ($2,000,000.00); or
(b) unless and until and only to the extent that the liability in respect of that claim (not being a claim for which liability is excluded under Clause 7.4(a)) when aggregated with the liability of the Seller in respect of all other such claims shall exceed Dollars ten million ($10,000,000.00); or
(c) to the extent that the aggregate liability of the Seller in respect of all claims under this Agreement exceeds twenty per cent (20%) of the sum of the Consideration and the Adjusted Reimbursement Amount.
SAVE THAT, the aggregate liability of the Seller for all claims relating to valid title to the Transferred Interest, shall not be subject to Clauses 7.4 (a), (b) and (c) and the aggregate liability in respect thereof shall be limited to the sum of the Consideration and the Adjusted Reimbursement Amount.
7.5 If the Purchaser or the Seller (as the case may be) ("First Party") receives any claim or becomes aware of any fact which is reasonably likely to result in the First Party having a claim against the Seller or the Purchaser (as the case may be) ("Second Party") under this Agreement, the First Party shall promptly notify the Second Party thereof in writing. The Second Party then shall be entitled to take and/or to require the First Party to take any reasonable action it may request to avoid, dispute, resist, compromise, defend or appeal such claim, but at the expense of the Second Party, including, but not limited to the conducting of any appeal, dispute, compromise or defence thereof and of any incidental negotiations but at all times in consultation with the First Party. The First Party shall not make any admission of liability, settle or compromise such claim unless requested in writing to do so by the Second Party. Whether the claim arises from the provisions of this Agreement (that is, there is no third party involvement) between the First Party and the Second Party or otherwise, the First Party will give the Second Party and its professional advisers all cooperation, access and assistance for the purposes of considering and resisting such claim as it may reasonably require, provided always that the First Party is indemnified to its reasonable satisfaction by the Second Party against all claims, costs, expenses, damages or losses which may thereby be incurred.
Exhibit 4.49-19
7.6 Save only as and to the extent of the Seller's Warranties, the Seller
makes no representations or warranties of any kind in respect of any
matter or thing and disclaims all liability and responsibility for any
representation, warranty, statement, opinion or information made or
communicated (orally or in writing) to the Purchaser (including,
without limiting the generality of the foregoing, any representation,
warranty, statement, opinion, information or advice made or
communicated to the Purchaser by any officer, shareholder,
stockholder, director, employee, agent, adviser, consultant or
representative of the Seller), and the Purchaser acknowledges and
affirms that it has not relied upon any such representation, warranty,
statement, opinion or information in entering into and carrying out
the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, the Seller makes no representations or
warranties as to all or any of: (i) the amounts, quality and
deliverability of hydrocarbon reserves attributable to the Transferred
Interest; (ii) any geological, geophysical, engineering, economic or
other interpretations, forecasts or evaluations; (iii) the amount of
any future revenue; (iv) any future costs and expenses, including the
provision of any security, relating to the abandonment or
decommissioning of any installation, facility or equipment under the
PSC, the Operating Agreement or any applicable laws and regulations;
(v) the physical condition of any assets, facilities, equipment,
pipelines, wells, and installations forming part of the Transferred
Interest all of which are acquired by the Purchaser hereunder on an
"as is, where is" basis and at the Purchaser's sole risk regarding the
condition thereof and the need for any repairs thereto or replacement
thereof; (vi) subject to Clause 8, any liability for tax arising out
of or in connection with the Transferred Interest; (vii) the amount
and/or value of any Cost Oil and Profit Oil which may be recoverable
or to which the Contractor is, or may become, entitled; and (viii) the
amount of or availability of tax allowances in respect of Nigerian
petroleum profits tax derived from any past costs incurred in respect
of the Transferred Interest.
7.7 The Purchaser acknowledges and affirms that it has had full access to the Data Room Documents and that the Purchaser has made its own independent investigation, analysis and evaluation of the geological, geophysical, engineering, economic or other interpretations, availability of Cost Oil, Profit Oil, tax allowances, future costs and expenditures and prospects for further development of the Transferred Interest.
7.8 If the Seller pays to the Purchaser an amount pursuant to a claim in respect of the Seller's Warranties, or any other provision of this Agreement, and the Purchaser is entitled to recover from a third party any sum in respect of any matter giving rise to such claim, the Purchaser shall, with reasonable expedition, take all reasonable and appropriate steps to enforce such recovery and shall forthwith repay to the Seller so much of the amount paid by the Seller to the Purchaser as does not exceed the amount recovered from the third party, less all reasonable costs, charges and expenses incurred by the Purchaser in obtaining that payment and in recovering that amount from the third party. In relation to such third party claims, the Purchaser shall not settle, waive or compromise such claim without the Seller's approval (such approval not to be unreasonably withheld or delayed), and the Purchaser shall cooperate with and provide access to all information to the Seller and the Seller's professional advisers.
Exhibit 4.49-20
7.9 Save in the case of any fraudulent misrepresentation, the Seller shall incur no liability to the Purchaser under this Agreement in respect of any claim made by the Purchaser relating to the Seller's Warranties to the extent that:
(a) the claim or the events giving rise to the claim would not have arisen but for, or the amount of the claim is increased as a result of, an act, omission or transaction of the Purchaser after Completion otherwise than in the ordinary and proper course of business as at present carried on or which would not have arisen but for any claim, election or surrender or disclaimer made or omitted to be made, or notice or consent given, or omitted to be given, by the Purchaser;
(b) the claim is based upon a liability which is contingent only, unless and until such contingent liability becomes an actual liability or until the same is finally adjudicated;
(c) the claim relates to any matter disclosed or contained in the Disclosure Letter and/or the Data Room Documents or otherwise is in the actual knowledge as at the date of signature of this Agreement of the Purchaser and its directors, officers and employees;
(d) the claim occurs wholly or partly out of or the amount thereof is increased as a result of:
(i) any increase in the rates of tax or royalty made after the date hereof; or
(ii) any change in law or regulation or in its interpretation or
administration by the Nigerian courts, by NNPC, the Nigerian
Inland Revenue or by any other fiscal, monetary or
regulatory authority after the date hereof; or
(iii) any change in market, political or economic conditions;
(e) the Purchaser has obtained a credit or other reimbursement in
respect of such claim;
(f) the claim is as a result of anything done or omitted to be done
by the Seller at the written request, or with the written
agreement, of the Purchaser;
(g) such claim has been satisfied, in whole or in part, by a claim
under any other warranty or indemnity; and
(h) the loss, damage or liability giving rise to the claim is
recovered by the Purchaser under any insurance policies taken out
under the Operating Agreement, or would have been so recovered if
the Purchaser had put in place at Completion insurance maintained
by or on behalf of the Seller in respect of the Transferred
Interest as notified to the Purchaser as provided in Clause
5.1(h).
7.10 In assessing any liabilities or damages recoverable by the Purchaser
as a result of a claim under the Seller's Warranties or any indemnity,
there shall be taken into account any benefit received by or accruing
to the Purchaser and/or the Purchaser's Affiliates, including, without
prejudice to the generality of the foregoing, any amount of tax
|
Exhibit 4.49-21
relief obtained and any amount by which any tax for which the
Purchaser, or any of the Purchaser's Affiliates, is or may be liable
to be assessed or accountable is reduced or extinguished, arising as a
direct consequence of the matter which gives rise to such claim.
7.11 In the event of any claim under the Warranties, a Party receiving
notice of such claim shall be given forty-five (45) days to remedy the
breach to which the claim relates, and nothing in this Agreement shall
relieve the other Party from its duty to mitigate any loss or
liability suffered in relation to such claim.
7.12 (a) Save as provided in Clause 7.12(b), the Purchaser shall have no
right to rescind or terminate this Agreement for breach of the
Seller's Warranties (save in the case of fraudulent
misrepresentation), and the Purchaser's sole remedy for any breach
of the Seller's Warranties shall be against the Seller in damages
subject to the limitations in this Agreement, and the liability
of the Seller to the Purchaser for any loss, claim or liability
arising out of or in connection with the acquisition of the
Transferred Interest shall be limited to a claim in contract
under this Agreement and (save in the case of fraudulent
misrepresentation) the Seller shall have no liability whatsoever
to the Purchaser in tort or otherwise.
(b) If prior to Completion the Seller is in breach of the Seller's
Warranties in paragraphs 1 and/or 2 the Purchaser shall have the
right, exercisable by notice given within five (5) Business Days
of the Purchaser becoming aware of such breach, to terminate this
Agreement forthwith by notice to the Seller, provided that if
Seller does not give such notice in accordance with this Clause
7.12(b) the Seller shall be deemed to have waived any right of
termination. If the Completion Date will occur in the period
during which the right of the Purchaser under this Clause 7.12(b)
is exercisable, the Completion Date shall be delayed until two
(2) Business Days after the expiry of such period.
7.13 If, prior to Completion, the Seller becomes aware that the Seller is
in material breach of any of the Seller's Warranties, the Seller shall
notify the Purchaser as soon as possible and the Seller shall use its
reasonable endeavours to remedy such breach, provided that the
provisions of this Clause 7.13 shall not operate so as to give the
Purchaser any rights in respect of such breach other than as provided
in this Clause 7 or to increase the liability of the Seller under this
Agreement.
7.14 Any amount paid in respect of a claim made under this Agreement,
including the Warranties and any indemnity, shall result in an
adjustment to the Consideration and (if applicable) the Adjusted
Reimbursement Amount.
7.15 Neither Party shall be liable under this Agreement for indirect,
consequential or special losses or damages howsoever caused, and
whether arising in contract, tort or as a result of breach of
statutory duty, including any loss of profits and lost or delayed
production of hydrocarbons; and it is hereby accepted by the Parties
that the right to recover any loss or damages under any claim for
breach of the Warranties or other obligations hereunder shall be
limited to the actual damages suffered or incurred by the Party
bringing such claim or to the payment of liquidated damages prescribed
herein.
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Exhibit 4.49-22
7.16 Save where reference is made in the Seller's Warranties to OML 130,
the Production Co-ordination Agreement or the HOA, for the purposes of
the Seller's Warranties all references to Seller shall be read and
construed as referring only to the Seller in its capacity as
Contractor and the owner of the Transferred Interest.
8. TAXATION
8.1 Subject to Clause 8.2 and 8.3 and to Completion having occurred, the
Purchaser shall be responsible for the payment of:
(a) all stamp duties, registration or similar taxes and duties, if
any, payable in respect of the assignment to and purchase by the
Purchaser of the Transferred Interest; and
(b) all other taxes and royalties payable in respect of the
Transferred Interest and all income and revenue derived therefrom
by the Purchaser whether under the Completion Documents or
applicable laws and regulations of Nigeria from the Effective
Date.
8.2 The Parties believe that the transaction hereunder is outside the
scope of value added tax or sales tax under Nigerian law or
regulations. In the event that the Seller is advised in writing by the
Nigerian tax authority that the transaction is subject to value added
tax or sales tax, the Seller shall notify the Purchaser and the
Parties shall work together as required to seek relief from payment of
such tax. In the event the Parties fail to obtain such relief, the
Seller shall be authorised to invoice the Purchaser for such tax in
addition to the Consideration and the Purchaser shall pay such invoice
at least three (3) Business Days prior to the due date for payment.
8.3 Save for the taxes to be paid by the Purchaser as provided in Clause
8.1, the Seller shall be responsible for the payment of any taxes
(including but not limited to any income or capital gains tax) payable
by it, by reason of the sale of the Transferred Interest and receipt
of the Consideration and payment by the Purchaser of the Adjusted
Reimbursement Amount.
8.4 The Parties confirm that an amount equal to 'P', as defined in Clause
3.2(a), and 'RD', as defined in Clause 4.2(a)(i), shall not be subject
to any deduction or withholding on account of tax and shall be paid in
full at Completion subject to and in accordance with the provisions of
this Agreement and notwithstanding anything to the contrary in Clause
8.5.
8.5 Save as provided in Clause 8.4, with regard to the amount payable
under Clause 3.2 and other adjustment payments to be paid at or after
Completion, if the Purchaser considers it will be required by law to
make any deduction or withholding on account of any tax, the Purchaser
shall notify the Seller as soon as reasonably practicable, and in any
event eight (8) Business Days prior to Completion, and the Parties
shall meet within two (2) Business Days of such notice. If,
notwithstanding such meeting, the Purchaser still considers it is
required to make any deduction or withholding as aforesaid the
Purchaser shall make such deduction or withholding in respect of such
amount payable under Clause 3.2 and such other adjustment payments and
shall:
(a) pay any such tax or other amount as required by law; and
|
Exhibit 4.49-23
(b) as soon as practicable after making such payment, deliver to the Seller a certificate of tax deduction or other comparable evidence as provided by law of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority.
The payment of any such amount to the relevant taxing or other authority by the Purchaser shall be a good discharge for the Purchaser with respect to the amount so paid and the Purchaser's liability with respect to the sum giving rise to the deduction or withholding shall be limited to payment of the net sum after such deduction or withholding.
9. INDEMNITIES
9.1 (a) Subject to the limitations and exclusions of liability in Clause 7, which shall apply mutatis mutandis to the indemnity in this Clause 9.1(a), and to Clauses 9.1(b) and 9.2, the Seller shall be responsible for and indemnify, defend and hold harmless the Purchaser from and against all costs, charges, expenses, liabilities and obligations arising out of or in connection with the Transferred Interest and applicable to the period prior to the Effective Date.
(b) In respect of the Transferred Interest and subject to Completion having occurred, the Purchaser shall indemnify, defend and hold harmless the Seller from and against all costs, charges, expenses, liabilities and obligations arising out of or in connection with the Transferred Interest and applicable to the period on and after the Effective Date, except where and to the extent such costs, charges, expenses, liabilities or obligations arise, or are increased, by reason of any act or omission, or transaction, or breach of any legal or contractual obligation on the part of the Seller, including a breach of the Seller's Warranties otherwise than in the ordinary and proper course of business.
9.2 Without prejudice to any limitations and exclusions and other provisions in this Agreement, from the Completion Date and only insofar as the same relate to the Transferred Interest, the Purchaser shall at its cost and expense perform and be responsible for and shall indemnify and hold the Seller harmless against:
(a) all Abandonment Liabilities incurred in relation to the Transferred Interest;
(b) all Environmental Liabilities incurred in relation to the Transferred Interest; and
(c) all EPC Liabilities incurred in relation to the Transferred Interest.
Notwithstanding termination of this Agreement following Completion, the indemnity in this Clause 9.2 is intended to survive termination and to be binding upon the Purchaser, its successors and assignees and enforceable by the Seller for so long as and until all the Abandonment Liabilities, Environmental Liabilities and EPC Liabilities relating to the Transferred Interest have been fully discharged and all assets, installations, facilities, equipment, pipelines or other property have been entirely removed and the statutory limitation period applicable to any Abandonment Liabilities, Environmental Liabilities and EPC Liabilities has expired.
Exhibit 4.49-24
9.3 The Seller confirms, subject to Clause 8.5, that all moneys due to TUPNI and Brasoil up to Completion in relation to the Transferred Interest shall be repaid at Completion as provided in Clause 6.2(e) and, as from Completion, the Seller shall indemnify and hold the Purchaser harmless from any claim of, or liability to, TUPNI and/or Brasoil in respect of any advances and any other amounts due and owing to TUPNI and/or Brasoil to the extent the same are attributable to the Transferred Interest.
10. NOTICES
10.1 Any notice pursuant to this Agreement shall be in writing and may be
given by facsimile or letter, to the Party to be served, at the
address, and for the attention of, the person stated in Clause 10.4,
or such other address as may be given for the purposes of this
Agreement by five (5) Business Days prior written notice to the other
Party.
10.2 A notice by facsimile shall be deemed to be served on the date of
dispatch provided that the date of dispatch is a Business Day and the
notice was sent during usual business hours at the place of receipt,
and a notice sent by post or delivered personally shall be deemed to
be delivered when actually received.
10.3 In proving service:
- by delivery by hand: it shall be necessary only to produce a
receipt for the communication signed by or on behalf of the
addressee;
- by post: it shall be necessary only to prove that the
communication was contained in an envelope which was duly
addressed and posted in accordance with this Clause but, for the
avoidance of doubt, shall not be deemed delivered until actually
received;
- by facsimile: it shall be necessary only to produce the
transmission report bearing the addressee's facsimile number.
10.4 The respective addresses for service are:
To: Seller:
South Atlantic Petroleum Limited
11th & 12th Floor
South Atlantic Petroleum Towers
7, Adeola Odeku Street
P.O. Box 73152
Victoria Island
Lagos
Nigeria
Fax number: (00) 2341 270 1907
Attention of: Managing Director
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Exhibit 4.49-25
To: Purchaser:
c/o CNOOC Limited
Room 1206, CNOOC Plaza
No. 6, Dongzhimenwai Xiaojie
Beijing 100027
The People's Republic of China
Fax number: +86-10-8452-1648
Attention of: Sheng Jianbo and Jiang Yongzhi
and
c/o: CNOOC Africa (UK) Limited
27th Floor, Portland House
Stag Place
London
SW1E 5RS
Fax Number: +44-20-7869-8105
Attention of: Zhuobiao Chen
11. COSTS, EXPENSES AND DELAYED PAYMENT
11.1 Each of the Parties shall pay its own costs and expenses in relation
to the preparation and execution of this Agreement and the documents
contemplated hereby or executed pursuant hereto.
11.2 Save as provided in Clause 8, the Purchaser shall be responsible for
payment in a timely fashion of all and any stamp duties, taxes and
charges payable on or in respect of this Agreement and the Completion
Documents.
11.3 In the event of the late payment by a Party of any amount due pursuant
to this Agreement, such Party shall pay further interest on such sums
as may be payable, from and including the date on which a payment is
due to be paid in accordance with the terms of this Agreement until
and excluding the date paid, at five per cent (5%) above the Base
Rate, calculated daily, using simple interest.
12. ANNOUNCEMENTS
12.1 Neither Party, nor any Affiliate of either Party, shall issue or make
or procure the making or issue of any press release, public
announcement or statement regarding this Agreement or any matter the
subject of this Agreement, without the prior written consent of the
other Party, unless it is necessary for the Party, or such Affiliate
to make such press release, public announcement or statement in order
to comply with a legal or statutory obligation to include information
in published audited accounts, or with the requirement of a competent
government agency or other regulatory body, or a recognised stock
exchange on which the Party, or such Affiliate has its shares listed,
or an unlisted securities market in which its shares are dealt, in
which event the Party,
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Exhibit 4.49-26
or such Affiliate making such press release, public announcement or
statement shall use all reasonable efforts to provide (or in the case
of its Affiliate procure its Affiliate to provide) a copy of the same
to the other Party as soon as practicable prior to publication.
12.2 Notwithstanding the foregoing, in no event prior to Completion shall
any press release, public announcement or statement made by a Party or
any Affiliate of either Party as permitted in Clause 12.1, contain any
reference to the Consideration unless required by the requirements of
a recognised stock exchange on which the Purchaser or its Affiliate is
listed.
13. ASSIGNMENT
13.1 Prior to Completion, none of the rights, liabilities and obligations
of either Party under this Agreement are assignable except with the
prior written consent of the other Party, provided that following
Completion either Party may assign its rights, liabilities and
obligations under this Agreement subject to obtaining the prior
written consent of the other Party, such consent not to be
unreasonably withheld.
13.2 This Agreement shall enure for the benefit of and be binding upon the
respective successors and assigns of the Parties.
14. CONFIDENTIALITY
14.1 The terms of this Agreement, and all information disclosed to the
Purchaser relating to the Transferred Interest, shall be held
confidential by the Purchaser and shall not be divulged in any way to
any third party without the prior written approval of the Seller;
provided, however, that the Purchaser may disclose such terms, without
such approval, to:
(a) any outside professional advisers or consultants, upon obtaining
a similar undertaking of confidentiality (but excluding this
proviso) from such advisers or consultants;
(b) any bank or financial institution from whom the Purchaser is
|
seeking or obtaining finance, upon obtaining a similar undertaking (but excluding this proviso) from such bank or institution;
(c) the extent required by any applicable statute, or the requirements of any recognised stock exchange in compliance with its rules and regulations;
(d) any employees or agents of the Purchaser, or any Affiliate of the Purchaser, upon obtaining a similar undertaking of confidentiality from such Affiliate (but excluding this proviso);
(e) any government agency lawfully requesting such information including for the purpose of obtaining requisite regulatory approvals;
(f) any court of competent jurisdiction or expert acting in pursuance of its powers;
(g) to the extent necessary under any provisions of the PSC; or
Exhibit 4.49-27
(h) to the extent any of such information is in the public domain.
Provided that neither Party shall, prior to Completion, disclose the
Consideration payable hereunder for the Transferred Interest, unless
required to do so and provided further that in respect of disclosure
by a Party of the Consideration such Party shall promptly give notice
of such disclosure to the other Party detailing the identity of the
person to whom disclosure has been made, save that no such notice
shall be required to be given in the case of disclosure to persons
within (a), (b), (d) and, in the case of (c), to the extent of
applicable statutes or the requirements of the New York or Hong-Kong
stock exchange, and, in the case of (e), to the extent that the
government agency is within China.
14.2 Upon Completion, CNOOC International Ltd. and its Affiliates shall be
released from any obligations under the confidentiality agreement
dated 14 September 2004 between the Seller, CNOOC International Ltd
and [*], and upon Completion the Confidentiality Agreement entered
into between the Parties dated 16 November 2004 shall be terminated,
and upon Completion, the Purchaser shall be released from the
restrictions on disclosure in Clause 14.1 to the extent that any of
the information is governed by any confidentiality provisions in the
Completion Documents to which the Purchaser is bound.
14.3 The terms of this Agreement and all information divulged by the
Purchaser to the Seller during the course of negotiation of this
Agreement shall be held confidential by the Seller and shall not be
divulged to any third party without the prior written approval of the
Purchaser; provided, however, that the Seller may disclose such terms,
without such approval, in the same manner as the Purchaser and the
provisions of Clauses 14.1(a) to (h) inclusive shall apply mutatis
mutandis to the Seller, as if herein set out.
15. TERMINATION
15.1 This Agreement may terminate as provided in Clauses 2.5, 2.7(a), 3.3,
or 7.12(b).
15.2 Notwithstanding the termination of this Agreement, the provisions of
Clause 14 shall continue to apply for a period of five years from the
date hereof; and termination shall be without prejudice to any accrued
rights and obligations of the Parties at the date of termination and,
in relation to the enforcement of such rights and obligations, Clauses
17 and 18 shall continue to be binding upon the Parties. Upon
termination prior to Completion, the Seller shall promptly advise, and
withdraw any application for consents and approvals made to the
Minister and NNPC.
16. VARIATION
The terms and conditions of this Agreement shall only be varied by
an agreement in writing signed by each of the Parties which
specifically references this Agreement.
17. GENERAL
17.1 The representations, warranties, undertakings and agreements contained
in this Agreement shall remain in full force and effect after and
notwithstanding Completion (but without prejudice to the provisions of
Clauses 7 and 9).
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Exhibit 4.49-28
17.2 No waiver by any Party of any breach of a provision of this Agreement
shall be binding unless made expressly in writing. Further, any such
waiver shall relate only to the breach to which it expressly relates
and shall not apply to any subsequent or other breach.
17.3 This Agreement and the Schedules constitute the entire agreement
between the Parties and supersede all previous agreements,
arrangements or understandings between the Parties relating to the
subject matter of this Agreement.
17.4 Time shall be of the essence in this Agreement.
17.5 The Contracts (Rights of Third Parties) Act 1999 shall not apply to
this Agreement, and no person other than the Parties shall have any
rights to enforce its terms.
17.6 This Agreement may be executed in any number of counterparts and all
of such counterparts taken together shall be deemed to constitute one
and the same instrument and shall take effect when each of the Parties
has had delivered to it one or more counterparts duly executed by each
Party.
18. GOVERNING LAW AND ARBITRATION
18.1 This Agreement shall be governed by and construed in accordance with
English law.
18.2 Save for any dispute or matter to be referred to an expert as herein
provided, all disputes arising out of or in connection with this
Agreement, including, without limitation, any question regarding its
existence, interpretation, validity, effectiveness or termination,
shall, if possible, be settled amicably by negotiation between the
Parties pursuant to this Clause 18.2. Upon written notice from any
Party requesting a meeting to settle a dispute, the Parties shall meet
to attempt to settle a dispute. If the dispute is not settled amicably
within a period of twenty (20) days from the receipt of such written
notice, then either Party may refer the dispute to arbitration
pursuant to Clause 18.3. Notwithstanding the foregoing, either Party
may at any time file a request for arbitration but will thereafter
agree to defer taking active steps in that arbitration to enable the
settlement process by negotiation to be completed within the said
period of twenty (20) days. Neither Party shall object to any delay in
pursuing the arbitration proceedings for the duration of the
settlement process.
18.3 (a) If a dispute is not resolved under Clause 18.2 within the said
period of twenty (20) days, then such dispute may be referred by
either Party to, and finally resolved by, arbitration under the
Rules of the London Court of International Arbitration (the "LCIA
Rules") then in force, which LCIA Rules are deemed to be
incorporated by reference in this Clause 18.3. The number of
arbitrators shall be three (3), with one arbitrator to be
appointed by the claimant and a second arbitrator to be appointed
by the defendant. The third arbitrator, who shall act as chairman
of the arbitration, shall be appointed by agreement between the
two (2) arbitrators nominated respectively by the claimant and
the defendant. If the two (2) arbitrators fail to agree on the
appointment of the third arbitrator or if either the claimant or
the defendant fails to appoint its own arbitrator, the President
of the London Court of International Arbitration shall make such
appointments in accordance with the LCIA Rules. The place of
arbitration shall be London, United Kingdom. The language to be
used in the
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Exhibit 4.49-29
arbitral proceedings shall be English. The arbitrators shall decide the dispute in accordance with the governing law of this Agreement.
(b) The Parties expressly agree that the right to make an application under Section 45 or to appeal under Section 69 of the Arbitration Act 1996 are hereby excluded in respect of any arbitration or with respect to any award made.
(c) Judgement upon any award made may be entered in any court having jurisdiction over a Party or the assets of a Party owing the judgement, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.
Exhibit 4.49-30
IN WITNESS WHEREOF the duly authorised representatives of the Parties have executed this Agreement on the day and year first above written.
Signed for and on behalf of
SOUTH ATLANTIC PETROLEUM LIMITED
By: /s/ T.Y. Danjuma Name: T.Y. Danjuma Title: Chairman |
Signed for and on behalf of
CNOOC EXPLORATION & PRODUCTION LIMITED
By: /s/ Fu Chengyu
Name: Fu Chengyu
Title: Chairman of CNOOC Limited and Attorney-in-fact for
CNOOC Exploration & Production Limited
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Exhibit 4.49-31
SCHEDULE 1
COMPLETION DOCUMENTS
1. Deed of Assignment of PSC interest
2. Novation and Amendment of Operating Agreement
3. Novation and Amendment of Production Co-ordination Agreement
4. Assignment of HOA interests
5. Notice of Assignment
Exhibit 4.49-32
DEED OF ASSIGNMENT OF PSC INTEREST
DEED OF ASSIGNMENT
BETWEEN
SOUTH ATLANTIC PETROLEUM LIMITED
AND
CNOOC EXPLORATION & PRODUCTION LIMITED
Exhibit 4.49-33
THIS DEED OF ASSIGNMENT is made this day of 2006
BETWEEN:-
(1) SOUTH ATLANTIC PETROLEUM LIMITED, a company established under the laws of the Federal Republic of Nigeria (hereinafter called the "Seller", which expression shall, where the context so admits, includes its successors and assigns); and
(2) CNOOC EXPLORATION & PRODUCTION LIMITED, a company established under the laws of the Federal Republic of Nigeria (hereinafter called the "Purchaser").
WHEREAS:-
(A) The Seller was the holder of a 60% interest under OPL 246 and, together with others, has applied for and been granted Oil Mining Lease 130 ("OML 130").
(B) The Federal Government of Nigeria has, through the Nigerian National Petroleum Corporation ("NNPC"), exercised its right to acquire from the Seller a 50% interest in OML 130.
(C) NNPC has entered into a Production Sharing Contract (the "PSC") to govern the funding and operations related to NNPC's 50% interest in OML 130 with the Seller as the Contractor and Total Upstream Nigeria Limited ("Total") as the Operator (as the terms "Contractor" and "Operator" are defined in the PSC), with the Seller holding an 100% Contractor party interest.
(D) The Seller desires to assign and the Purchaser desires to receive ninety per cent (90%) of the Seller's Contractor party interest under the PSC (hereinafter referred to as the "Transferred Interest").
(E) NNPC has granted its consent and approval to the assignment to the Purchaser by the Seller of the Transferred Interest.
IT IS HEREBY AGREED:-
1. The Seller hereby assigns to the Purchaser and the Purchaser hereby accepts, free from all liens, charges, encumbrances and third party rights, the Transferred Interest and all of the rights, title and interest, privileges, benefits, liabilities, duties, burdens and obligations attaching to and forming part of the Transferred Interest.
2. As a result of this Deed of Assignment, the Contractor party interests in the PSC shall be as follows:
Company Interest ------- -------- The Purchaser 90% The Seller 10% |
Exhibit 4.49-34
3. This Deed shall be governed by Nigerian law.
IN WITNESS WHEREOF, the parties have duly executed this Deed of Assignment as of the day and year first written above.
The Common Seal of
SOUTH ATLANTIC PETROLEUM COMPANY LIMITED
was hereunto affixed in
the presence of:
Director
Director/Secretary
The Common Seal of CNOOC EXPLORATION & PRODUCTION LIMITED\
was hereunto affixed
in the presence of:
Director
Director/Secretary
Exhibit 4.49-35
NOVATION AND AMENDMENT OF OPERATING AGREEMENT
CNOOC EXPLORATION & PRODUCTION LIMITED
and
SOUTH ATLANTIC PETROLEUM LIMITED
and
TOTAL UPSTREAM NIGERIA LIMITED
NOVATION AND AMENDMENT AGREEMENT
in relation to the Operating Agreement relating
to the PSC for OML130, Nigeria
Exhibit 4.49-36
THIS AGREEMENT is made the ________ day of ____________________ 2006
BETWEEN:
(1) CNOOC EXPLORATION & PRODUCTION LIMITED, a company established under the laws of the Federal Republic of Nigeria, with its registered office at 16d, Akin Olugbade Street, Victoria Island, Lagos, Nigeria ("CNOOC");
(2) SOUTH ATLANTIC PETROLEUM LIMITED a corporation organised and existing under the laws of Nigeria, with its registered office at 11th and 12th Floor, South Atlantic Petroleum Towers, 7 Adeola Odeku Street, Victoria Island, Lagos ("SAPETRO"); and
(3) TOTAL UPSTREAM NIGERIA LIMITED a corporation organised and existing under the laws of Nigeria, with its registered office at No 35 Kofo Abayomi Street, Victoria Island, Lagos ("TUPNI"),
being referred to collectively as the "Parties" and individually as a "Party".
WHEREAS
(A) NNPC, SAPETRO (as Contractor) and TUPNI (as Operator) entered into a production sharing contract (the "PSC") dated 25 April 2005 governing the funding and operations relating to NNPC's fifty percent (50%) interest in OML 130, with SAPETRO holding a one hundred percent (100%) contractor party interest.
(B) SAPETRO and TUPNI entered into an operating agreement (the "PSC JOA"), also dated 25 April 2005 for the purpose of defining their respective rights and obligations with respect to operations under the PSC.
(C) Following receipt of NNPC's approval thereto in accordance with clause 18 of the PSC, SAPETRO has, by a deed of assignment of even date herewith, assigned to CNOOC a ninety percent (90%) interest as Contractor in and under the PSC.
(D) The Parties desire that CNOOC shall become a party to the PSC JOA and that it shall enjoy all rights and incur all obligations arising in relation to a 90% Participating Interest under the PSC JOA (the "Transferred Interest").
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
Terms and expressions defined in the PSC JOA shall, unless the context otherwise requires, bear the same meanings in this Agreement.
2. TRANSFER
2.1 SAPETRO and TUPNI novate the PSC JOA, insofar as it relates to the Transferred Interest, in favour of CNOOC, and SAPETRO assigns to CNOOC all of its rights,
Exhibit 4.49-37
benefits and interest in respect of the Transferred Interest under the PSC JOA, and CNOOC accepts such novation and assignment subject to the terms of this Agreement.
2.2 Article 3.2(a) of the PSC JOA shall be amended to read as follows:
"The Participating Interests of the Non-Operators are:
Company Participating Interest SAPETRO 10% CNOOC 90%" |
2.3 Article 17 of the PSC JOA shall be amended as follows: after "by giving written notice thereof to all other Parties", the following shall be inserted:
"CNOOC Exploration & Production Limited:
16d, Akin Olugbade Street, Victoria Island, Lagos, Nigeria
Fax no: [ ]
Attention: [ ]"
2.4 Section 1.6.6 of Exhibit "A" - Accounting Procedure of the PSC JOA shall be amended to read as follows: "If a Non-Operator's advances are less than its share of cash expenditures, the deficiency shall, at Operator's option, be added to subsequent cash advance requirements or be paid by such Non-Operator within ten (10) Days following the receipt of Operator's billing to such Non-Operator for such deficiency".
2.5 It is recognised between SAPETRO and CNOOC that of the three representatives of the Contractor to be appointed to the Management Committee pursuant to clause 15 of the HOA, CNOOC shall be entitled to appoint two such representatives and SAPETRO one such representative.
3. CONTINUATION
Save as expressly provided in this Agreement, the provisions of the PSC JOA shall remain in full force and effect and binding on the parties thereto.
4. MUTUAL UNDERTAKINGS IN RESPECT OF CNOOC
The Parties to this Agreement agree that with effect from the date hereof:
4.1 CNOOC undertakes to each of SAPETRO and TUPNI to observe, perform, discharge and be bound by all liabilities and obligations of SAPETRO arising under the PSC JOA to the extent they are attributable to the Transferred Interest arising before, on or after the date hereof;
Exhibit 4.49-38
4.2 The other Parties shall release and discharge SAPETRO from its liabilities and obligations in respect of the Transferred Interest transferred by SAPETRO and assumed by CNOOC pursuant to clause 4.1 above, and shall accept the liabilities and obligations of CNOOC in the place thereof but only insofar as the said liabilities and obligations relate to the Transferred Interest and CNOOC undertakes to indemnify (on a full indemnity basis) and hold harmless TUPNI (solely so far as concerns the PSC JOA) in respect of any loss, damage, proceedings, injury, claim, expense or cost (including legal cost) for which SAPETRO would have been liable but for the release and discharge referred to herein.
5. MISCELLANEOUS
5.1 This Agreement shall be treated as constituting all actions, consents, confirmations, agreements and undertakings required under the PSC JOA in relation to the assignment of the Transferred Interest and shall take effect notwithstanding any provision to the contrary contained in the PSC JOA.
5.2 Nothing contained in this Agreement shall prejudice the rights and obligations of CNOOC and SAPETRO under any other agreement between them in respect of the Transferred Interest.
6. THIRD PARTY RIGHTS
No person other than a Party may enforce this Agreement by virtue of the Contracts (Rights of Third Parties) Act 1999.
7. COUNTERPARTS
This Agreement may be executed in one or more counterparts but shall not be effective until each Party has had delivered to it one or more counterparts executed by each of the other Parties. Each counterpart shall constitute an original of this Agreement but all the counterparts together shall constitute and are the same agreement.
8. GOVERNING LAW AND JURISDICTION
The provisions of Article 18 of the PSC JOA concerning applicable law and dispute resolution shall apply to this Agreement mutatis mutandis.
Exhibit 4.49-39
IN WITNESS whereof the Parties have executed this Agreement on the day and year first above written.
Signed for and on behalf of
CNOOC EXPLORATION & PRODUCTION LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Signed for and on behalf of
SOUTH ATLANTIC PETROLEUM LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Signed for and on behalf of
TOTAL UPSTREAM NIGERIA LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Exhibit 4.49-40
NOVATION AND AMENDMENT OF PRODUCTION CO-ORDINATION AGREEMENT
CNOOC EXPLORATION & PRODUCTION LIMITED
and
SOUTH ATLANTIC PETROLEUM LIMITED
and
TOTAL UPSTREAM NIGERIA LIMITED
and
BRASOIL OIL SERVICES COMPANY NIGERIA LIMITED
NOVATION AND AMENDMENT AGREEMENT
in relation to the Production Co-ordination Agreement
for OML 130, Nigeria
Exhibit 4.49-41
THIS AGREEMENT is made the ________ day of ____________________ 2006
BETWEEN:
(1) CNOOC EXPLORATION & PRODUCTION LIMITED a company established under the laws of the Federal Republic of Nigeria with its registered office at 16d, Akin Olugbade Street, Victoria Island, Lagos, Nigeria ("CNOOC");
(2) SOUTH ATLANTIC PETROLEUM LIMITED a corporation organised and existing under the laws of Nigeria, with its registered office at 11th and 12th Floor, South Atlantic Petroleum Towers, 7 Adeola Odeku Street, Victoria Island, Lagos ("SAPETRO");
(3) TOTAL UPSTREAM NIGERIA LIMITED a corporation organised and existing under the laws of Nigeria, with its registered office at No 35 Kofo Abayomi Street, Victoria Island, Lagos ("TUPNI"); and
(4) BRASOIL OIL SERVICES COMPANY NIGERIA LIMITED, a corporation organised and existing under the laws of Nigeria with its registered office at Plot 1679, Karimu Kotun Street, Victoria Island, Lagos ("BRASOIL"),
being referred to collectively as the "Parties" and individually as a "Party".
WHEREAS
(A) NNPC, SAPETRO and TUPNI have entered into the PSC dated 25 April 2005.
(B) SAPETRO and TUPNI have entered into the PSC JOA dated 25 April 2005.
(C) SAPETRO, TUPNI and BRASOIL have entered into a production co-ordination agreement dated 26 April 2005 (the "PCA").
(D) Following receipt of NNPC's approval thereto in accordance with clause 18 of the PSC, SAPETRO has assigned to CNOOC on the date hereof a ninety percent (90%) interest as contractor in and under the PSC and CNOOC has become a party to the PSC JOA with a ninety percent (90%) participating interest thereunder (together the "Transferred Interest").
(E) The Parties desire that CNOOC shall become a party to the PCA and that it shall enjoy all rights and incur all obligations under the PCA arising in relation to the Transferred Interest and its consequential rights under the PCA as a PSC Contractor and as part of the PSC Contractor Group.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
Terms and expressions defined in the PCA shall, unless the context otherwise requires, bear the same meanings in this Agreement.
Exhibit 4.49-42
2. TRANSFER
2.1 SAPETRO, TUPNI and BRASOIL novate the PCA, insofar as it relates to the Transferred Interest, in favour of CNOOC, and SAPETRO assigns to CNOOC all of its rights, benefits and interest in respect of the Transferred Interest under the PCA, and CNOOC accepts such novation and assignment subject to the terms of this Agreement.
2.2 Article 1.1 of the PCA shall be amended as follows:
(a) the definition of "Party" shall read: "(q) "Party" means either SAPETRO, TUPNI, BRASOIL or CNOOC and/or any of their respective successors and assignees, as signatory of this PCA; "Parties" shall be construed accordingly."
(b) the definition of "PSC Contractor" shall read "(z) "PSC Contractor" means SAPETRO, CNOOC and their successor(s) and assignee(s) acting as contractor of the PSC as defined therein and pursuant thereto".
(c) the definition of "PSC Contractor Group" shall read "(aa) "PSC Contractor Group" means SAPETRO, CNOOC and TUPNI in their respective capacities as Contractor and Operator under the PSC".
2.3 Article 11.1 of the PCA shall be amended and the following shall be inserted below "by giving written notice thereof to all other Parties":
"CNOOC Exploration & Production Limited:
16d, Akin Olugbade Street, Victoria Island, Lagos, Nigeria
Fax: [ ]
Attention: [ ]"
3. CONTINUATION
Save as expressly provided in this Agreement, all other provisions of the PCA shall remain in full force and effect and binding on the parties thereto.
4. MUTUAL UNDERTAKINGS IN RESPECT OF CNOOC
The Parties to this Agreement agree that with effect from the date hereof:
4.1 CNOOC undertakes to each of SAPETRO, TUPNI and BRASOIL to observe, perform, discharge and be bound by all liabilities and obligations of SAPETRO arising under the PCA to the extent they are attributable to the Transferred Interest arising before, on or after the date hereof;
4.2 The other Parties shall release and discharge SAPETRO from its liabilities and obligations in respect of the Transferred Interest transferred by SAPETRO and assumed by CNOOC pursuant to clause 4.1 above, and shall accept the liabilities and obligations of CNOOC in the place thereof but only insofar as the said liabilities and obligations relate to the Transferred Interest and CNOOC undertakes to indemnify (on a full indemnity basis) and hold harmless each of TUPNI and BRASOIL (solely so far
Exhibit 4.49-43
as concerns the PCA) in respect of any loss, damage, proceedings, injury, claim, expense or cost (including legal cost) for which SAPETRO would have been liable but for the release and discharge referred to herein.
5. MISCELLANEOUS
5.1 This Agreement shall be treated as constituting all actions, consents, confirmations, agreements and undertakings required under the PCA in relation to the assignment of the Transferred Interest and shall take effect notwithstanding any provision to the contrary contained in the PCA.
5.2 Nothing contained in this Agreement shall prejudice the rights and obligations of CNOOC and SAPETRO under any other agreement between them in respect of the Transferred Interest.
6. THIRD PARTY RIGHTS
No person other than a Party may enforce this Agreement by virtue of the Contracts (Rights of Third Parties) Act 1999.
7. COUNTERPARTS
This Agreement may be executed in one or more counterparts but shall not be effective until each Party has had delivered to it one or more counterparts executed by each of the other Parties. Each counterpart shall constitute an original of this Agreement but all the counterparts together shall constitute and are the same agreement.
8. GOVERNING LAW AND JURISDICTION
The provisions of Article 12 of the PCA concerning applicable law and dispute resolution shall apply to this Agreement mutatis mutandis.
Exhibit 4.49-44
IN WITNESS whereof the Parties have executed this Agreement on the day and year first above written.
Signed for and on behalf of
CNOOC EXPLORATION & PRODUCTION LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Signed for and on behalf of
SOUTH ATLANTIC PETROLEUM LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Signed for and on behalf of
TOTAL UPSTREAM NIGERIA LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Signed for and on behalf of
BRASOIL OIL SERVICES COMPANY NIGERIA LIMITED
By ________________________________ Name ________________________________ Title ________________________________ |
Exhibit 4.49-45
ASSIGNMENT OF HOA
From: South Atlantic Petroleum Limited
To: CNOOC EXPLORATION & PRODUCTION LIMITED
16d, Akin Olugbade Street, Victoria Island, Lagos, Nigeria
[Completion Date]
|
Dear Sirs
OML 130
Following completion of the assignment of the Transferred Interest, being a
ninety per cent (90%) interest of the Contractor (as defined in the PSC) in
and under the Production Sharing Contract dated 25 April 2005 relating to OML
130 (the "PSC"), together with all rights and obligations under the Operating
Agreement and the Production Co-ordination Agreement, we wish to assign to you
the corresponding rights under the Heads of Agreement dated 25 April 2005
entered into between Nigerian National Petroleum Corporation, Total Upstream
Nigeria Limited, Brasoil Oil Services Company Nigeria Limited and ourselves
(the "HOA").
Accordingly, we hereby assign to CNOOC Exploration & Production Limited all of our rights, interests and benefits arising under the HOA in so far as, and to the extent that, such rights, interests and benefits relate to the Transferred Interest.
The assignment hereinbefore referred to shall include, without limitation, the right of CNOOC Exploration & Production Limited to nominate two of the three representatives of Contractor on the Management Committee, all as referred to in Clause 15 of the HOA.
Yours faithfully
We hereby accept the assignment of the HOA as referred to above.
Exhibit 4.49-46
NOTICE OF ASSIGNMENT
From: South Atlantic Petroleum Limited
To: Parties to the HOA
Dear Sirs
Re: Heads of Agreement dated 25 April 2005 (the "HOA")
We hereby notify you that, following the completion of the assignment by SAPETRO of a ninety per cent (90%) interest of the Contractor under the Production Sharing Contract of 25 April 2005 to CNOOC Exploration & Production Limited (the "PSC Interest"), we have assigned to CNOOC Exploration & Production Limited all of our rights, interests and benefits under the HOA insofar as, and to the extent that, such rights, interests and benefits relate to the PSC Interest, the Production Co-ordination Agreement and the Operating Agreement. The above assignment includes the right of CNOOC Exploration & Production Limited to nominate two of the three representatives of the Contractor on the Management Committee under the PSC.
Yours faithfully
Exhibit 4.49-47
SCHEDULE 2
REPRESENTATIONS AND WARRANTIES
PART A
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Where any statement set out below is qualified by the words "as far as the Seller is aware" or "to the best of the Seller's knowledge and belief", that statement shall mean that it is made after due and careful enquiry of the directors, officers and employees of the Seller and the asset manager of OML 130 in TUPNI.
The representations and warranties of the Seller in this Part A shall be repeated at Completion save for the representations and warranties set out in paragraphs 4, 5, 7, 11 and 12.
1. The Seller is a party to the PSC and having all of the rights, interests and obligations as Contractor as that term is defined in the PSC.
2. The Seller is the legal and beneficial owner of the Transferred Interest and the Transferred Interest is free from any Encumbrances and the Seller is not a party to any agreement or commitment to create any Encumbrance over the Transferred Interest and subject to the satisfaction of the conditions precedent in Clause 2.3, the Seller has the right to transfer and assign the full legal and beneficial ownership in the Transferred Interest to the Purchaser.
3. The Seller has not committed any breach of and is not in default under the PSC, the Operating Agreement, the HOA, the Production Co-ordination Agreement or any other material contracts relating thereto including but not limited to the Gas Utilisation Agreement and the Seller is not in breach of clause 23.1(e) of the PSC.
4. The Seller has not received notice and so far as the Seller is aware none of the other parties to the PSC, the Operating Agreement and the Production Co-ordination Agreement have committed any breach of, or are in default under, the PSC, the Operating Agreement, the HOA and the Production Co-ordination Agreement or any other material contracts relating thereto including but not limited to the Gas Utilisation Agreement, and the contracts relating to the development of the Akpo field which breach or default, is of a material nature and subsisting.
5. The Seller is not party to, and to the best of the Seller's knowledge and belief no other party to the PSC, the Operating Agreement, OML 130 and the Production Co-ordination Agreement is a party to, any litigation or arbitration or administrative proceedings or to any dispute in relation to, and which is likely to have a material adverse affect on, the Transferred Interest and the Seller is not aware that any such litigation, arbitration, administrative proceedings or dispute are threatened and the Seller is not aware that any judgement or award has been issued by, or is pending before, any court, tribunal or governmental agency which would materially affect the Transferred Interest.
6. The Seller is duly incorporated and validly existing under the laws of the Federal Republic of Nigeria.
7. The Data Room Documents contain all the material agreements affecting the Transferred Interest. In respect of the Data Room Documents and Data provided:
7.1 the copies of the Data Room Documents delivered to or made available for inspection by the Purchaser prior to the execution hereof are so far as the Seller is aware, true and accurate;
7.2 all Data that has been supplied or made available to the Purchaser or to its advisers by or on behalf of the Seller and which appears on its face to have been supplied to the Seller from a source other than the Seller has not been altered by the Seller and so far as the Seller is aware, was supplied from such source; and
7.3 all Data that has been supplied or made available to the Purchaser or to its advisers by or on behalf of the Seller which originates from the Seller (save to the extent that this has been produced or taken from data, information or documents originating from another source) was produced in good faith at the time that it was created and, to the extent that it is factual in content, is based on facts which, to the knowledge, information and belief of the Seller, were at the time it was produced, true and fair in all material respects.
8. Save as provided in the PSC and legislation applicable to the PSC, there are no agreements which restrict the Seller's ability to dispose of the Transferred Interest to be acquired hereunder.
9. The conditions precedent in Clause 2.3 are the only consents, approvals and agreements to which the sale and transfer of the Transferred Interest is subject.
10. The Seller has not done any act or permitted any omission which would give rise to or could give rise to, cause or be the basis of revocation, invalidation or termination of the HOA, PSC, OML 130, the Operating Agreement or the Production Co-ordination Agreement.
11. As far as the Seller is aware, no parties to each of the HOA, PSC, OML 130, the Operating Agreement or the Production Co-ordination Agreement have done, any act or permitted any omission which would give rise to or could give rise to, cause or be the basis of revocation, invalidation or termination thereof or, so far as the Seller is aware, cause NNPC at the date hereof not to grant its consent and approval to the transfer and assignment of the Transferred Interest.
12. No sole risk and non-consent operations have been proposed or carried out by any person in relation to the OML Area and so far as the Seller is aware no such operations may be proposed and no notices have been sent by any party to the PSC, HOA or the Operating Agreement in respect of any sole risk operations.
13. The Seller has not offered, paid, promised to pay, authorised the
payment of, or transferred, money or anything of value to an Official
to secure any improper advantage or benefit in relation to the matters
contemplated by this Agreement or the Transferred Interest, either
directly or indirectly through a third party. "Official" shall mean
and include (i) any officer or employee of FGN or any department,
agency or entity controlled by FGN, or any person acting in an
official capacity on behalf of any such department, agency or entity;
(ii) any political party; (iii) any official of a political party;
(iv) any candidate for political office; or (v) any officer or
employee of
a public international organisation such as the United Nations, the World Bank or the International Monetary Fund.
14. The documents which contain or establish the Seller's constitution incorporate provisions which authorise, and all necessary corporate action has been or will prior to the Completion Date be taken to authorise, the Seller to sign deliver and perform the transactions contemplated by this Agreement and the Completion Documents. This Agreement and each of the other Completion Documents to which it is a party constitute legal, valid and binding obligations of the Seller enforceable in accordance with their respective terms.
15. Upon receipt of the consents and approvals referred to in Clause 2.3 neither the signing and delivery of this Agreement nor the performance of any of the transactions contemplated by this Agreement will:
15.1 contravene or constitute a default under any provision contained in any agreement, instrument, law, judgement, order, licence, permit or consent by which the Seller or any of its assets is bound or affected; or
15.2 cause any limitation on the Seller or the powers of its directors whether imposed by or contained in any document which contains or establishes its constitution or in any law, order, judgement, agreement, instrument or otherwise, to be exceeded.
16. No order has been made or petition presented or resolution passed for the winding up of the Seller or for an administration order in respect of it and no distress, execution or other process has been levied on any of its assets, nor has any similar procedure existing in Nigeria occurred. The Seller is not insolvent or unable to pay its debts and no receiver or manager or other analogous person has been appointed by any person of its business or assets or part thereof and no power to make such appointment has arisen.
17. No litigation, arbitration or administrative proceeding or claim, which might by itself, or together with any other such proceeding or claim materially and adversely affect the Seller's ability to observe or perform its obligations under this Agreement and the agreements contemplated hereby, is presently in progress or, to the best of the knowledge, information and belief of the Seller, pending or threatened against the Seller or any of its assets.
18. No event has occurred which would materially and adversely affect the Seller's ability to observe or perform its obligations under this Agreement and the transactions contemplated hereby.
19. All statutory obligations with relation to the conversion of OPL 246 to OML 130 have been complied with.
20. The PSC, the Operating Agreement, OML 130, the Production Co-ordination Agreement and the HOA and all of the rights and interests thereunder or deriving therefrom are in full force and effect.
21. So far as the Seller is aware, no Environmental Claim is pending or has been made against itself or the operator in relation to the Transferred Interest. "Environmental Claim" means any claim, proceeding, investigation, demand, action, official warning, abatement or other order (conditional or otherwise) or any notification or order requiring compliance with the terms of any Environmental Licence or Environmental Law. "Environmental Law" includes all or any law, statute, rule, regulation, treaty, by-law, code of practice, order, notice, demand, decision of the courts or of any governmental authority or agency or any other regulatory or other body in Nigeria relating to the pollution, conservation or protection of the environment (both natural and built) or of man or any living organisms supported by the environment or any other matter whatsoever affecting the environment or any part of it, and "Environmental Licence" includes any permit, licence, authorisation, consent or other approval required by any Environmental Law.
PART B
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Where any statement set out below is qualified by the words "as far as the Purchaser is aware" or "to the best of the Purchaser's knowledge, information and belief", that statement shall be deemed to include an additional statement that it is after due and careful enquiry, but only within the Purchaser's own organisation.
The representations and warranties of the Purchaser in this Part B shall be repeated at Completion.
1. The Purchaser is duly incorporated with limited liability and validity existing under the laws of Nigeria.
2. The documents which contain or establish the Purchaser's constitution, incorporate provisions which authorise, and all necessary corporate action has been or prior to the Completion Date will be taken to authorise, the Purchaser to sign, deliver and perform the transactions contemplated by this Agreement.
3. Neither the signing and delivery of this Agreement nor the performance of any of the transactions contemplated by this Agreement will:
3.1 contravene or constitute a default under any provision contained in any agreement, instrument, law, judgement, order, licence, permit or consent by which the Purchaser or any of its assets is bound or affected; or
3.2 cause any limitation on the Purchaser or the powers of its directors, whether imposed by or contained in any document which contains or establishes its constitution or in any law, order, judgement, agreement, instrument or otherwise, to be exceeded.
4. No event has occurred which would materially and adversely affect the Purchaser's ability to observe or perform its obligations under this Agreement and the transaction contemplated hereby.
5. No litigation, arbitration or administrative proceeding or claim, which might by itself or together with any other such proceeding or claim materially and adversely affect the Purchaser's ability to observe or perform its obligations under this Agreement and the agreements contemplated hereby, is presently in progress or, to the best of the knowledge, information and belief of the Purchaser, pending or threatened against the Purchaser or any of its assets.
6. Except as provided in this Agreement, the Purchaser assumes the risk of description and condition of the Transferred Interest, including the cost, risk and expense of compliance with all laws, rules, orders and regulations relating to the environment.
7. The Purchaser has not offered, paid, promised to pay, authorised the payment of, or transferred, money or anything of value to an Official to secure any improper advantage or benefit in relation to the matters contemplated by this Agreement, either
directly or indirectly through a third party. "Official" shall mean
and include (i) any officer or employee of FGN or any department,
agency or entity controlled by FGN, or any person acting in an
official capacity on behalf of any such department, agency or entity;
(ii) any political party; (iii) any official of a political party;
(iv) any candidate for political office; or (v) any officer or
employee of a public international organisation such as the United
Nations, the World Bank or the International Monetary Fund.
DRAFT: 4 January 2006
SCHEDULE 3
DATA ROOM DOCUMENTS
[*]
DRAFT: 4 January 2006
SCHEDULE 4
ESCROW AGREEMENT
ESCROW AGREEMENT
BETWEEN
SOUTH ATLANTIC PETROLEUM LIMITED
CNOOC EXPLORATION & PRODUCTION NIGERIA LIMITED
AND
MEESPIERSON INTERTRUST (SINGAPORE) LTD
(an Approved Trust Company in Singapore, wholly owned by Fortis Bank S.A./N.V.)
THIS ESCROW AGREEMENT is made this day of 2006
BETWEEN:
(1) SOUTH ATLANTIC PETROLEUM LIMITED, a company established under the laws of the Federal Republic of Nigeria (hereinafter called the "Seller");
(2) CNOOC EXPLORATION & PRODUCTION LIMITED, a company established under the laws of the Federal Republic of Nigeria (hereinafter called the "Purchaser"); and
(3) MEESPIERSON INTERTRUST (SINGAPORE) LTD, an approved trust company in Singapore, wholly owned by Fortis Bank S.A./N.V. and having its registered office at 63 Market Street, #21-00 Singapore 048 942 (hereinafter called the "Escrow Agent").
WHEREAS:
(A) The Seller and the Purchaser have entered into the Sale and Purchase Agreement pursuant to which it is provided that the Purchaser shall pay an amount of United States Dollars two hundred and thirty five million (US$235,000,000.00) into the Escrow Account.
(B) Upon Completion the Deposit shall be paid by the Escrow Agent to the Seller as herein provided, save that if Completion does not occur as provided in the Sale and Purchase Agreement then such amount shall be paid by the Escrow Agent to the Purchaser or Seller as applicable as herein provided.
(C) The Purchaser and the Seller have jointly appointed the Escrow Agent and the Escrow Agent has agreed to act as agent and to receive and pay out of escrow all of the amounts in the Escrow Account, together with interest earned thereon, subject to and upon the terms of this Agreement.
IT IS HEREBY AGREED:
1. DEFINITIONS
1.1 In this Agreement and its recitals, words defined in the Sale and Purchase Agreement shall have the same meaning where used in this Agreement unless otherwise provided, and the following words and expressions shall have the meanings set opposite them:
--------------------------------------------- ---------------------------------------------------------
"Business Day" means a day (other than a Saturday or Sunday) on which
banks are open for general business in London and
Singapore;
--------------------------------------------- ---------------------------------------------------------
"Deposit" means the sum of United States Dollars two hundred and
thirty-five million (US$235,000,000) to be paid into the
Escrow Account by the Purchaser in accordance with
clause 2.7(a) of the Sale and Purchase
--------------------------------------------- ---------------------------------------------------------
57
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--------------------------------------------- ---------------------------------------------------------
Agreement;
--------------------------------------------- ---------------------------------------------------------
"Escrow Account means the United States Dollars interest bearing account
with an account number [*], maintained in the name of
the Escrow Agent with Fortis Bank S.A./N.V., Singapore
branch and with payment details as follows:
USD
Pay to: [*]
For account: [*]
In Favour of: [*]
Account No: [*]
(under telex advice to Fortis Bank SA/NV Singapore
Branch, Attn: Paul Tan);
--------------------------------------------- ---------------------------------------------------------
"Escrow Completion Notice" means a notice in the form attached to this Agreement
given by the Seller to the Escrow Agent and signed by a
director of each of the Seller and the Purchaser
confirming that Completion has occurred;
--------------------------------------------- ---------------------------------------------------------
"Escrow ITC Security Notice" means a notice in the form attached to this Agreement
given by the Seller or the Purchaser to the Escrow Agent
and signed by a director of each of the Seller and the
Purchaser confirming the instructions for payment of the
ITC Security;
--------------------------------------------- ---------------------------------------------------------
"ITC Security" means the sum of United States Dollars [*];
--------------------------------------------- ---------------------------------------------------------
"LIBOR" means the display rate per annum of the offered
quotation for deposits in US dollars for a period of two
weeks or one month at the option of the Escrow Agent
which appears on Telerate Page 3750 (or such other page
as the Escrow Agent shall specify with the agreement of
the Seller and the Purchaser) at or about 11.00 am
London time on the Business Day preceding the date of
this Agreement and thereafter on the Business Day
preceding the first day of each period for which
interest is calculated hereunder;
--------------------------------------------- ---------------------------------------------------------
"Party" means the Seller, the Purchaser or the Escrow Agent and
"Parties" means all of the Seller, the Purchaser and the
Escrow Agent;
--------------------------------------------- ---------------------------------------------------------
"Purchaser's Escrow Termination Notice" means a notice in the form attached to this Agreement
given by the
--------------------------------------------- ---------------------------------------------------------
58
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--------------------------------------------- ---------------------------------------------------------
Purchaser to the Escrow Agent, signed by a director of
each of the Seller and the Purchaser, confirming that
Completion has not occurred due to the termination of
the Sale and Purchase Agreement under clause 2.5, 3.3 or
7.12(b) thereof or due to the breach by the Seller of
its obligations under the Sale and Purchase Agreement
and that the Deposit is repayable to the Purchaser;
--------------------------------------------- ---------------------------------------------------------
"Sale and Purchase Agreement" means the sale and purchase agreement of even date
entered into by the Seller and the Purchaser;
--------------------------------------------- ---------------------------------------------------------
"Seller's Escrow Termination Notice" means a notice in the form attached to this Agreement
given by the Seller to the Escrow Agent, signed by a
director of each of the Seller and the Purchaser,
confirming that Completion has not occurred due to the
breach by the Purchaser of its obligations under the
Sale and Purchase Agreement and that the Deposit is
payable to the Seller; and
--------------------------------------------- ---------------------------------------------------------
"Specimen Signatures" means the specimen signatures (as attached to this
Agreement) of the directors of each of the Seller and
the Purchaser notified to the Escrow Agent by each of
the Seller and the Purchaser respectively.
--------------------------------------------- ---------------------------------------------------------
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1.2 All references to Clauses, Recitals and Schedules are, unless otherwise expressly stated, references to clauses of and recitals and schedules to this Agreement.
1.3 The headings in this Agreement are inserted for convenience only and shall be ignored in construing this Agreement.
1.4 Any reference to any statute or statutory instrument in this Agreement shall be a reference to the same as amended, consolidated or extended, supplemented or re-enacted from time to time or at any time prior to the date of this Agreement, and shall include any orders, regulations, instruments or other subordinate legislation made under the relevant statute.
1.5 Except where the context otherwise requires, words denoting the singular include the plural and vice versa; words denoting any gender include all genders; words denoting persons include firms and corporations and vice versa.
1.6 The word "including" shall be construed without limitation.
1.7 The Schedules form part of this Agreement and shall be construed and shall have full force and effect as if expressly set out in the body of this Agreement, save that in the event of any conflict between the Schedules and any provision contained in the Clauses of this Agreement the latter shall prevail.
DRAFT: 4 January 2006
2. PAYMENT INTO ESCROW ACCOUNT
2.1 The Purchaser shall pay the Deposit into the Escrow Account in accordance with clause 2.7(a) of the Sale and Purchase Agreement.
2.2 The Escrow Agent hereby agrees that:
(a) it shall hold the Deposit in the Escrow Account until it receives the Escrow Completion Notice, the Purchaser's Escrow Termination Notice or the Seller's Escrow Termination Notice in accordance with this Agreement; and
(b) if an Escrow Completion Notice has been given under Clause 3.1(a), it shall hold the ITC Security in the Escrow Account until it receives the Escrow ITC Security Notice in accordance with this Agreement.
3. TERMS OF ESCROW
3.1 It is agreed that the amounts specified below shall be paid out of the Escrow Account by the Escrow Agent upon the first to occur of the following and in the manner and to the relevant Party as provided below:
(a) upon receipt by the Escrow Agent of the Escrow Completion Notice duly signed by a director of each of the Seller and the Purchaser, the Escrow Agent shall pay: (1) an amount equal to the Deposit less the ITC Security to the Seller; and (2) all interest accrued on the Deposit to the Purchaser;
(b) all amounts paid into the Escrow Account by the Purchaser under the Sale and Purchase Agreement as provided in Clause 2, together with all interest accrued thereon as provided in Clause 5, shall be paid to the Seller upon receipt by the Escrow Agent of the Seller's Escrow Termination Notice duly signed by a director of each of the Seller and the Purchaser; and
(c) all amounts paid into the Escrow Account by the Purchaser under the Sale and Purchase Agreement as provided in Clause 2, together with all interest accrued thereon as provided in Clause 5, shall be paid to the Purchaser upon receipt by the Escrow Agent of the Purchaser's Escrow Termination Notice duly signed by a director of each of the Purchaser and the Seller.
3.2 Following payment of the amounts under Clause 3.1(a), the amount of the ITC Security, together with all interest accrued thereon as provided in Clause 5, shall be paid to the Seller or to the Purchaser, as specified in the Escrow ITC Security Notice, upon receipt by the Escrow Agent of the Escrow ITC Security Notice duly signed by a director of each of the Purchaser and the Seller.
3.3 (a) Each of the Seller and the Purchaser hereby irrevocably
authorises and instructs the Escrow Agent to make the payment
under Clause 3.1(a), 3.1(b), 3.1(c) or 3.2, as applicable, upon
receipt of the applicable notice or notices by the Escrow Agent
as referred to in Clause 3.1(a), 3.1(b), 3.1(c) or 3.2.
(b) Payment to the Seller under Clause 3.1(a) or 3.1(b) or 3.2 shall
be made by the Escrow Agent to the Seller's bank account number
[*], maintained with MeesPierson Asia Limited.
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DRAFT: 4 January 2006
(c) Payment to the Purchaser under Clause 3.1(a), 3.1(c) or 3.2 shall be made by the Escrow Agent to the bank account designated by the Purchaser as follows.
Correspondent Bank: [*] Chips UID: [*] Beneficiary Bank: [*] In favour of: [*] Account No.: [*] |
3.4 The Parties hereby agree that the Escrow Agent may consult with competent and responsible legal counsel(s) selected by the Escrow Agent, and shall not be liable for any action taken or omitted by the Escrow Agent in good faith in accordance with the advice of such counsel(s).
4. LIABILITY AND INDEMNITY
4.1 The Escrow Agent shall incur no liability as a result of entering into this Agreement save for any loss or liability caused by the Escrow Agent's gross negligence or wilful misconduct and without prejudice to the generality of the foregoing save for verifying that any signatures conform to the Specimen Signatures (to the extent such original Specimen Signatures have been provided) the Escrow Agent may, subject to the following, act in reliance upon any instrument, notice, request, certificate, approval, consent, document or signature believed by it to be genuine and may assume that any person purporting to give receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorised to do so. The Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, or other written instrument delivered to it hereunder provided that the Escrow Agent shall confirm by telephone as soon as reasonably practicable after the receipt of any such written instrument any signature purported to be given on behalf of either the Seller or the Purchaser with the relevant contact person named in respect of the Seller and/or the Purchaser (as the case may be) in Clause 8.4, but without being required to take any further action to determine the authenticity, accuracy or the correctness of any fact stated therein or validity or the service thereof.
4.2 The Escrow Agent's duties and responsibilities, in its capacity as such, shall be limited to those expressly set forth in this Agreement, and except as set forth herein, the Escrow Agent shall not be subject to, nor obliged to recognise, any other agreement between any or all of the Parties even though reference thereto may be made herein, provided however that, with the Escrow Agent's written consent, this Agreement may be amended at any time or times by an instrument in writing signed by all the Parties.
4.3 The Escrow Agent shall have no obligation to make any payment to the Parties or one of the Parties if the making of such a payment would be unlawful in anyway. If it becomes illegal or impossible for reasons outside the Escrow Agent's control to carry out any of the provisions hereof, the Escrow Agent shall incur no liability as a
DRAFT: 4 January 2006
consequence thereof, but shall use its reasonable endeavours to agree on alternative solutions jointly with the Parties.
4.4 (a) The Seller and Purchaser shall jointly and severally indemnify
and hold harmless the Escrow Agent from and against any and all
losses, liabilities, claims, actions, damages and expenses,
(including reasonable lawyers' fees and disbursements), arising
out of or in connection with its acting or failing to act in
connection with any of the duties contemplated hereby and against
any loss, liability or expense, including on a solicitor and
client basis the expense of defending itself against any claim or
liability, it may reasonably incur in carrying out the terms of
this Agreement, save for those caused by the Escrow Agent's gross
negligence or wilful misconduct.
(b) This indemnity shall extend to the officers, directors,
employees, agents, representatives or affiliates of the Escrow
Agent save that nothing in this Clause shall indemnify such
persons in respect of such costs, damages, losses and expenses
arising out of gross negligence or wilful misconduct on the part
of the Escrow Agent or its officers, directors, employee, agents,
representatives or affiliates.
4.5 (a) The Seller and the Purchaser severally undertake to execute the
Escrow Completion Notice, the Seller's Escrow Termination Notice,
the Purchaser's Escrow Termination Notice or the Escrow ITC
Security Notice where applicable as required by Clause 3.1 or 3.2
forthwith upon the Seller and the Purchaser having an obligation
to do so as provided in the Sale and Purchase Agreement.
(b) It is acknowledged by the Seller and the Purchaser that, provided
the Party seeking such relief has first sought the signature of
the other Party's director to the relevant notice as detailed in
Clause 4.5(a), it shall be entitled to seek injunctive relief to
enforce the compliance by the Parties with this Clause 4.5 and
the terms of this Agreement.
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5. INTEREST
5.1 Subject to Clause 6, in the case that an Escrow Completion Notice has been given, all interest earned on the Deposit paid into the Escrow Account shall accrue to the Purchaser, and otherwise all interest (including on the ITC Security) shall accrue to the Party entitled to the payment of the amounts paid into the Escrow Account as herein provided. Such accrued interest shall be payable at the same time as the payment of the amounts paid into the Escrow Account in accordance with Clause 3.1(a), 3.1(b), 3.1(c) or 3.2.
5.2 Interest shall accrue on all amounts from time to time standing to the credit of the Escrow Account from day to day on the basis of a 360 day year at the rate of LIBOR minus eight (8) basis points and accrued interest shall be credited by the Escrow Agent to the Escrow Account on the last Business Day of each calendar month, except when a payment has to be made out of the Escrow Account, in which case all accrued interest shall be credited to the Escrow Account immediately prior to such payment being made.
DRAFT: 4 January 2006
6. ESCROW AGENT'S FEES
6.1 In consideration of the Escrow Agent agreeing to act in accordance with the terms of this Agreement, the Escrow Agent shall be entitled to be paid certain fees, details of which are set out in Schedule 1 to this Agreement.
6.2 For the avoidance of doubt, the Parties hereby agree that in its performance of duties set out herein, the Escrow Agent shall be reimbursed for all reasonable out-of-pocket expenses and legal fees incurred by the Escrow Agent in connection with the transactions contemplated by this Agreement.
6.3 All fees (as detailed in Schedule 1), costs and expenses charged by the Escrow Agent in respect of the Escrow Account and the Escrow Agent carrying out its obligations hereunder shall be deducted by the Escrow Agent from any interest earned on the Escrow Account and any sum deducted as aforesaid shall be retained by the Escrow Agent. The Escrow Agent shall notify the Parties of all deductions made under this Clause 6. If the interest earned is insufficient to pay for the Escrow Agent's fees, the Purchaser and the Seller shall each be severally liable for fifty per cent (50%) of any unpaid fees due and payable to the Escrow Agent and shall pay its share of such unpaid fees within fourteen (14) days of receipt of the Escrow Agent's invoice together with any applicable sales tax payable thereon. If the Escrow Agent does not receive its fees within such fourteen (14) day period, the Seller and the Purchaser hereby agree that the Escrow Agent shall be entitled to have recourse to the monies in the Escrow Account and apply such amount as is equal to the amount of any unpaid fees in payment of such fees.
7. APPLICABLE LAW
7.1 This Agreement shall be governed by and construed in accordance with English law.
7.2 (a) All disputes arising out of or in connection with this Agreement,
including, without limitation, any question regarding its
existence, interpretation, validity, effectiveness or
termination, may be referred by either Party to, and finally
resolved by, arbitration under the Rules of the London Court of
International Arbitration (the "LCIA Rules") then in force, which
LCIA Rules are deemed to be incorporated by reference in this
Clause 7.2. The number of arbitrators shall be three (3), with
one arbitrator to be appointed by the claimant and a second
arbitrator to be appointed by the defendant. The third
arbitrator, who shall act as chairman of the arbitration, shall
be appointed by agreement between the two (2) arbitrators
nominated respectively by the claimant and the defendant. If the
two (2) arbitrators fail to agree on the appointment of the third
arbitrator or if either the claimant or the defendant fails to
appoint its own arbitrator, the President of the London Court of
International Arbitration shall make such appointments in
accordance with the LCIA Rules. The place of arbitration shall be
London, United Kingdom. The language to be used in the arbitral
proceedings shall be English. The arbitrators shall decide the
dispute in accordance with the governing law of this Agreement.
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DRAFT: 4 January 2006
(b) The Parties expressly agree that the right to make an application under Section 45 or to appeal under Section 69 of the Arbitration Act 1996 are hereby excluded in respect of any arbitration or with respect to any award made.
(c) Judgement upon any award made may be entered in any court having jurisdiction over a Party or the assets of a Party owing the judgement, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.
7.3 Notwithstanding Clause 7.2 a Party may apply to any court to seek an injunction for specific performance of the obligations set out in this Agreement.
8. NOTICES
8.1 All notices to be given pursuant to this Agreement shall be in writing and given by facsimile or delivered in person at the address, and marked for the attention of the person, set out in Clause 8.3 below.
8.2 A notice by facsimile shall be deemed to be served on the date of dispatch provided that the date of dispatch is a Business Day in the place of the recipient and the notice was sent during usual business hours (being between 9am and 5pm) at the place of receipt.
8.3 The address for notices hereunder are as follows:
To: Seller:
11th & 12th Floors
South Atlantic Petroleum Towers
7 Adeola Odeku P.O. Box 73152 Victoria Island Lagos Nigeria Fax number: (00) 2341 270-1907 Attention of: Managing Director |
To: Purchaser:
Treasury Department
c/o CNOOC Limited
No. 6 Dongzhimenwai Xiaojie
Beijing 100027
The Peoples Republic of China
Fax number: (00)-86-10-8452-1512
Attention of: Mr Huang Xiaofeng
DRAFT: 4 January 2006
To: Escrow Agent
MeesPierson Intertrust (Singapore) Ltd
63 Market Street #21-00 Singapore 048 942 Fax number: +(65) 6536 5311 Attention of: Mr Alex van der Zwaard / Mr Geoffroy Dedieu |
8.4 The contact persons for the purposes of Clause 4.1 shall be notified by the Seller to the Escrow Agent within thirty (30) days of the date hereof, and for the Purchaser shall be Mr Huang Xiaofeng, telephone number: 86-10-8452-1521.
9. COUNTERPART
This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same agreement and shall take effect when each of the Parties has had delivered to it one or more counterparts duly executed by each of the other Parties.
10. THIRD PARTY RIGHTS
No person other than a Party may enforce this Agreement by virtue of the Contracts (Rights of Third Parties) Act 1999.
DRAFT: 4 January 2006
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first written above.
Signed by
For and on behalf of
SOUTH ATLANTIC PETROLEUM LIMITED
Signed by
For and on behalf of
CNOOC EXPLORATION & PRODUCTION LIMITED
Signed by
Alexander Pieter Alderd van der Zwaard
For and on behalf of
MEESPIERSON INTERTRUST (SINGAPORE) LTD
DRAFT: 4 January 2006
SCHEDULE 1
Escrow Agent's Fees
The Escrow Agent shall be entitled to Escrow Agent's Fees which shall be calculated as follows:
Set up fee: USD [*]. This fee is one-off and will cover all
activities that have to be taken by the Escrow
Agent to enter into this Agreement, set up the
account, etc. This amount will be offset
against the quarterly administration fee.
Administration fee: [*]% of the value of the assets per annum,
payable on the first day of each quarter.
For the avoidance of doubt, should ompletion
occur in the middle of a quarter, fees paid in
advance for that quarter shall be taken into
account to offset against the fees payable for
the ITC Security, such fees applicable to the
ITC Security shall continue until such date
when the ITC Security shall be cleared from
the Escrow Account.
Distribution fee: USD [*] per distribution.
|
DRAFT: 4 January 2006
ESCROW COMPLETION NOTICE
[South Atlantic headed notepaper]
Meespierson Intertrust (Singapore) Ltd
63 Market Street
#21-00
Singapore 048 942
Attention: Mr Alex van der Zwaard / Mr Geoffroy Dedieu
[Date]
Dear Sirs
Re: Escrow Completion Notice pursuant to Escrow Agreement dated [ ] between South Atlantic Petroleum Limited ("SAPETRO"), CNOOC Exploration & Production Limited ("CNOOC") and Meespierson Intertrust
(Singapore) Ltd (the "Escrow Agreement")
Capitalised terms used herein and not otherwise defined shall have the meanings given such terms in the Escrow Agreement.
We hereby confirm that completion of the Sale and Purchase Agreement occurred on [ ] in accordance with Clause 6 thereof and are giving this notice in accordance with Clause 3.1(a) of the Escrow Agreement.
We hereby request that the Escrow Agent pays:
(a) an amount equal to the Deposit less the ITC Security to SAPETRO in accordance with Clause 3.1(a) of the Escrow Agreement; and
(a) all interest earned on the Deposit to CNOOC in accordance with Clause 5 of the Escrow Agreement.
Yours faithfully
For and on behalf of
South Atlantic Petroleum Limited
For and on behalf of
CNOOC Exploration & Production Limited
DRAFT: 4 January 2006
SELLER'S ESCROW TERMINATION NOTICE
[South Atlantic headed notepaper]
Meespierson Intertrust (Singapore) Ltd
63 Market Street
#21-00
Singapore 048 942
Attention: Mr Alex van der Zwaard / Mr Geoffroy Dedieu
[Date]
Dear Sirs
Re: Seller's Escrow Termination Notice pursuant to Escrow Agreement dated
[ ] between South Atlantic Petroleum Limited ("SAPETRO"), CNOOC
Exploration & Production Limited ("CNOOC") and Meespierson Intertrust
(Singapore) Ltd (the "Escrow Agreement")
Capitalised terms used herein and not otherwise defined shall have the meanings given such terms in the Escrow Agreement.
We hereby confirm that SAPETRO and CNOOC have mutually agreed that completion of the Sale and Purchase Agreement will not occur due to the breach by CNOOC of its obligations thereunder and are giving this notice in accordance with Clause 3.1(b) of the Escrow Agreement. We hereby request that the Escrow Agent pays all the amounts in the Escrow Account, together with all interest accrued thereon, to SAPETRO in accordance with Clause 3.1(b) of the Escrow Agreement.
Yours faithfully
For and on behalf of
South Atlantic Petroleum Limited
For and on behalf of
CNOOC Exploration & Production Limited
DRAFT: 4 January 2006
PURCHASER'S ESCROW TERMINATION NOTICE
[CNOOC headed notepaper]
Meespierson Intertrust (Singapore) Ltd
63 Market Street
#21-00
Singapore 048 942
Attention: Mr Alex van der Zwaard / Mr Geoffroy Dedieu
[Date]
Dear Sirs
Re: Purchaser's Escrow Termination Notice pursuant to Escrow Agreement dated [ ] between South Atlantic Petroleum Limited ("SAPETRO"), CNOOC Exploration & Production Limited ("CNOOC") and Meespierson Intertrust
(Singapore) Ltd (the "Escrow Agreement")
Capitalised terms used herein and not otherwise defined shall have the meanings given such terms in the Escrow Agreement.
We hereby confirm that SAPETRO and CNOOC have mutually agreed that completion of the Sale and Purchase Agreement will not occur due to [the termination of the Sale and Purchase Agreement under clause 2.5 thereof / clause 3.3 thereof / clause 7.12(b) the breach by SAPETRO of its obligations thereunder *] and are giving this notice in accordance with Clause 3.1(c) of the Escrow Agreement. We hereby request that the Escrow Agent repays all the amounts in the Escrow Account, together with all interest accrued thereon, to CNOOC in accordance with Clause 3.1(c) of the Escrow Agreement.
Yours faithfully
For and on behalf of
CNOOC Exploration & Production Limited
For and on behalf of
South Atlantic Petroleum Limited
* delete as appropriate
DRAFT: 4 January 2006
ESCROW ITC SECURITY NOTICE
[South Atlantic or CNOOC headed notepaper]
Meespierson Intertrust (Singapore) Ltd
63 Market Street
#21-00
Singapore 048 942
Attention: Mr Alex van der Zwaard / Mr Geoffroy Dedieu
[Date]
Dear Sirs
Re: Escrow ITC Security Notice pursuant to Escrow Agreement dated [ ] between South Atlantic Petroleum Limited ("SAPETRO"), CNOOC Exploration & Production Limited ("CNOOC") and Meespierson Intertrust
(Singapore) Ltd (the "Escrow Agreement")
Capitalised terms used herein and not otherwise defined shall have the meanings given such terms in the Escrow Agreement.
We hereby confirm that SAPETRO and CNOOC have mutually agreed that the ITC
Security is payable in accordance with the Sale and Purchase Agreement to
[SAPETRO/CNOOC *] and are giving this notice in accordance with Clause 3.2 of
the Escrow Agreement. We hereby request that the Escrow Agent pays the ITC
Security to [SAPETRO/CNOOC *], together with all interest accrued thereon in
accordance with Clause 3.2 of the Escrow Agreement.
Yours faithfully
For and on behalf of
South Atlantic Petroleum Limited
For and on behalf of
CNOOC Exploration & Production Limited
* delete as appropriate
DRAFT: 4 January 2006
SPECIMEN SIGNATURE
Meespierson Intertrust (Singapore) Ltd
63 Market Street
#21-00
Singapore 048 942
Attention: Mr Alex van der Zwaard / Mr Geoffroy Dedieu
[Date]
Dear Sirs
Re: Specimen Signature in respect of Escrow Agreement dated [ ] between South Atlantic Petroleum Limited ("SAPETRO"), CNOOC Exploration & Production Limited ("CNOOC") and Meespierson Intertrust (Singapore) Ltd (the "Escrow Agreement")
For the purposes of the Escrow Agreement and clause 4.1 thereof, we hereby
notify you that the signatures below are the Specimen Signatures in respect of
[CNOOC OR SAPETRO]
Name: [print name] Name: [print name] Position: [Director] Position: [Director] Signature: __________________ Signature:____________________ |
Yours faithfully
For and on behalf of
[South Atlantic Petroleum Limited] or [CNOOC Exploration & Production Limited]
PURCHASER'S PDF SPECIMEN SIGNATURE PAGE WILL NEED TO BE PRINTED OUT BY EACH PARTY AND ATTACHED TO THE COUNTERPART ORIGINALS SIGNED BY THEM.
SELLER'S SPECIMEN SIGNATURE, WHEN RECEIVED, ALSO TO BE ATTACHED.
DRAFT: 4 January 2006
SCHEDULE 5
TUPNI STATEMENT OF ADVANCES
[*]
SCHEDULE 6
FORM OF LEGAL OPINION
FORM OF LEGAL OPINION TO BE ADDRESSED TO CNOOC BY
SAPETRO'S NIGERIAN LEGAL ADVISORS
TO: CNOOC LIMITED TO: CNOOC EXPLORATION &
PRODUCTION LIMITED
Dear Sirs,
In relation to any proposed sale and transfer by South Atlantic Petroleum Limited ("Sapetro") of a contractor interest under the PSC entered into with NNPC in respect of OML 130, we render the following opinion.
For the purposes of this opinion we have examined certified copies of the following documents:
- the PSC;
- the Operating Agreement;
- the Production Co-ordination Agreement; and
- the HOA.
(together "the Relevant Agreements").
We have also examined the [certificate of incorporation and the Memorandum and Articles of Association] (the "constitutional documents") of Sapetro, the particulars in relation to Sapetro available at [relevant Companies Registration Office] and such other books and records of Sapetro and issues of Nigerian law as we have considered necessary for the purposes of giving this opinion.
We are [solicitors] qualified in Nigeria. We express no opinion as to any law other than Nigerian law at the date of this opinion.
On the basis of the foregoing we are of the opinion that:
(i) Sapetro is a company duly incorporated [with limited liability], validly existing and entitled to carry on business under Nigerian law.
DRAFT: 4 January 2006
(ii) No winding-up, administration, receivership or other similar order has been made in respect of Sapetro or any of its assets and no proceedings have been commenced with a view to obtaining any such order.
(iii) Sapetro has the power and legal capacity to enter into and perform the Relevant Agreements and the execution and performance of the Relevant Agreements will not contravene its constitutional documents.
(iv) Sapetro has taken all necessary corporate action to authorise its execution, delivery and performance of the Relevant Agreements.
(v) The obligations of Sapetro under the Relevant Agreements constitute its legal, valid, binding and enforceable obligations.
Yours faithfully
DRAFT: 4 January 2006
SCHEDULE 7
FORM OF ACKNOWLEDGEMENTS
Form of Acknowledgement
[Date of Completion]
From: TUPNI
We hereby acknowledge that upon receipt of the sum of US dollars ($ ), to be paid to us on the date hereof by Purchaser, all the advances, including all interest due thereon, made by us on behalf of South Atlantic Petroleum Limited ("SAPETRO") in respect of SAPETRO's ninety per cent (90%) interest as a Contractor under the Production Sharing Contract dated 25 April 2005 between the Nigerian National Petroleum Corporation, SAPETRO and ourselves shall have been repaid in full.
TOTAL UPSTREAM NIGERIA LIMITED
DRAFT: 4 January 2006
Form of Acknowledgement
[Date of Completion]
From: Brasoil
We hereby acknowledge that upon receipt of the sum of US dollars ($ ), to be paid to us on the date hereof by Purchaser, all the advances, including all interest due thereon, made by us or on behalf of South Atlantic Petroleum Limited ("SAPETRO") in respect of SAPETRO's ninety per cent (90%) interest as a Contractor under the Production Sharing Contract dated 25 April 2005 between the Nigerian National Petroleum Corporation, SAPETRO and Total Upstream Nigeria Limited shall have been repaid in full.
BRASOIL OIL SERVICES COMPANY NIGERIA LIMITED