SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For April 18, 2006
CNOOC Limited
(Translation of registrant's name into English)
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65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
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(Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange
Act of 1934.)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A.)
2005 Hong Kong Annual Report
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Company Profile
CNOOC Limited (the "Company", together with its subsidiaries, the "Group" or
"we") - Incorporated in Hong Kong in August 1999, was listed on the New York
Stock Exchange (code: CEO) and The Stock Exchange of Hong Kong Limited (code:
0883) on 27 and 28 February 2001, respectively. The Company was admitted as a
constituent stock of the Hang Seng Index in July 2001.
The Group is China's largest producer of offshore crude oil and natural gas
and one of the largest independent oil and gas exploration and production
companies in the world. The Group mainly engages in oil and natural gas
exploration, development, production and sales.
The Group has four major oil production areas offshore China, which are Bohai
Bay, Western South China Sea, Eastern South China Sea and East China Sea. It
is one of the largest offshore oil producer in Indonesia. The Group also has
certain upstream assets in regions such as Africa and Australia.
As at 31 December 2005, the Group owned net proved reserves of approximately
2.36 billion barrels-of-oil equivalent and its annual average net production
was 424,108 barrels-of-oil equivalent per day. The Group had 2,696 employees
and total assets of approximately RMB114.7 billion.
1
Content
002 Financial Summary 070 Report of the Auditors
003 Operating Summary 071 Consolidated Income Statement
004 Milestones 2005 073 Consolidated Balance Sheet
006 Chairman's Report 074 Consolidated Statement of Changes in Equity
012 Operations Review 076 Consolidated Cash Flow Statement
028 Corporate Governance Report 077 Balance Sheet
042 Health, Safety and Environment 078 Notes to Financial Statements
046 Corporate Citizen 146 Supplementary Information on Oil & Gas
048 Human Resources Production Activities (Unaudited)
052 Directors and Senior Management 151 Notice of Annual General Meeting
058 Report of the Directors 161 Glossary
064 Management Discussion and Analysis 163 Company Information
002
Financial Summary
(Amounts expressed in millions of RMB)
Consolidated Income Statement (Audited)
Year ended 31 December
2001 2002 2003 2004 2005
(Restated) (Restated) (Restated)
(Note 2) (Note 1) (Note 1) (Note 1)
----------------------------------------------------------------------
Total revenue 20,820 26,374 40,950 55,222 69,456
Total expenses (10,596) (13,652) (25,305) (32,882) (33,284)
Interest income/(expenses), net 201 (147) (171) (235) (741)
Exchange gains/(losses), net 235 (114) (7) 29 287
Share of profit of associates 90 165 220 344 307
Investment income 221 193 123 72 248
Non-operating income/(expenses), net 35 (71) 315 519 28
----------------------------------------------------------------------
Profit before tax 11,006 12,748 16,125 23,070 36,301
Tax (3,048) (3,541) (4,628) (6,931) (10,978)
----------------------------------------------------------------------
Net profit 7,958 9,207 11,497 16,139 25,323
----------------------------------------------------------------------
Consolidated Balance Sheet (Audited)
As at 31 December
2001 2002 2003 2004 2005
(Restated) (Restated) (Restated)
(Note 2) (Note 1) (Note 1) (Note 1)
----------------------------------------------------------------------
Current assets 20,030 24,486 29,263 35,293 44,421
Property, plant and equipment, net 23,828 35,797 42,849 57,182 66,625
Investment in associates 462 537 1,117 1,327 1,402
Intangible assets -- -- -- -- 1,300
Available-for-sale financial assets -- -- -- -- 1,017
----------------------------------------------------------------------
Total assets 44,320 60,820 73,229 93,802 114,765
----------------------------------------------------------------------
Current liabilities (4,392) (7,134) (9,307) (10,402) (13,616)
Non-current liabilities (6,617) (13,393) (17,461) (26,957) (27,546)
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Total Liabilities (11,009) (20,527) (26,768) (37,359) (41,162)
----------------------------------------------------------------------
Shareholders' Equity 33,311 40,293 46,461 56,443 73,603
----------------------------------------------------------------------
Note 1: Certain prior year amounts have been restated upon adoption of
new/revised accounting policies, details of which are included in note
2 to the financial statements.
Note 2: 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. As such, no restatement was made
for 2001 as the impacts on the consolidated financial statements are
considered not material.
003
Operating Summary
Year ended 31 December
2001 2002 2003 2004 2005
----------------------------------------------------------------------
Production
Net production of crude and liquids (barrels/day)
Bohai Bay 99,978 127,756 129,506 134,512 178,840
Western South China Sea 41,277 56,910 60,944 55,873 49,016
Eastern South China Sea 81,404 73,792 72,981 96,989 103,741
East China Sea 3,967 3,223 2,536 2,121 1,706
Overseas 2,247 36,944 40,497 29,941 23,565
----------------------------------------------------------------------
Total 228,873 298,625 306,464 319,436 356,868
----------------------------------------------------------------------
Net production of natural gas (mmcf/day)
Bohai Bay 46.2 47.1 47.1 47.7 49.1
Western South China Sea 139.0 142.3 127.8 215.2 229.6
Eastern South China Sea 0.0 0.0 0.0 0.0 0.0
East China Sea 9.8 12.4 14.2 17.1 18.3
Overseas 0.0 70.8 101.9 84.1 92.7
----------------------------------------------------------------------
Total 195.0 272.6 291.0 364.1 389.6
----------------------------------------------------------------------
Total net production (BOE/day) 261,379 346,639 356,729 382,513 424,108
----------------------------------------------------------------------
Reserves at year end
Net proved crude and liquids reserves (mm barrels)
Bohai Bay 961.3 992.5 990.4 974.6 920.2
Western South China Sea 131.6 160.4 173.7 189.7 205.7
Eastern South China Sea 132.2 120.3 154.7 168.0 211.2
East China Sea 12.4 12.5 13.9 21.5 21.2
Overseas 8.4 138.7 103.4 101.9 99.1
----------------------------------------------------------------------
Total 1,245.9 1,424.4 1,436.1 1,455.6 1,457.4
----------------------------------------------------------------------
Net proved natural gas reserves (bcf)
Bohai Bay 629.1 598.6 566.6 706.2 740.7
Western South China Sea 2,421.5 2,511.2 2,564.0 2,484.8 2,604.0
Eastern South China Sea 0.0 42.8 548.2 730.8 784.2
East China Sea 197.0 179.4 275.3 403.4 402.2
Overseas 0.0 215.9 200.3 321.4 899.9
----------------------------------------------------------------------
Total 3,247.6 3,547.9 4,154.4 4,646.6 5,430.9
----------------------------------------------------------------------
Total net proved reserves (million BOE)
Bohai Bay 1,066.2 1,092.3 1,084.8 1,092.3 1,043.7
Western South China Sea 535.1 578.9 601.0 603.8 639.7
Eastern South China Sea 132.2 127.5 246.1 289.8 341.9
East China Sea 45.2 42.4 59.8 88.7 88.2
Overseas 8.4 174.7 136.8 155.5 249.1
----------------------------------------------------------------------
Total 1,787.1 2,015.8 2,128.5 2,230.0 2,362.6
----------------------------------------------------------------------
Others
Reserve life (years) 18.7 15.9 16.3 15.9 15.3
Reserve replacement ratio (%) 131 281 187 173 186
Average realised price
Crude oil (US$/barrel) 23.34 24.35 28.11 35.41 47.31
Natural gas (US$/mcf) 3.08 2.98 2.87 2.75 2.82
----------------------------------------------------------------------
004
Milestones 2005
13 January o CNOOC signed an agreement with the Shanghai Municipal Government to
construct a LNG terminal in Shanghai.
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4 February o CNOOC signed a petroleum contract with Kerr-McGee for the deepwater
block 43/11 in the Eastern South China Sea.
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March o Named the "Best Managed Company in China" by The Assets.
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April o Ranked the top of the "Best Managed Companies in China" in a
FinanceAsia poll.
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12 April o Announced the acquisition of a 16.69% stake in the Canada-based MEG
Energy Corporation for C$150 million.
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21 April o Announced the production of Luda 10-1 in Bohai Bay, which outperformed
the Company's expectation with a daily output of over 7,000 barrels in
well A11.
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23 June o Made an offer for Unocal for a cash consideration of US$18.5 billion,
but the offer was finally withdrawn on 2 August.
----------------------------------------------------------------------------------------------------------------
005
September o Announced the commencement of production of Bozhong 25-1/25-1S (C/F
Platforms) and Nanbao 35-2 oilfields.
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12 October o Announced the independent discovery of Luda 27-1 in Bohai Bay.
----------------------------------------------------------------------------------------------------------------
15 November o Standard & Poor's upgraded the Company's credit rating from "BBB+" to
"A-" (Outlook Stable).
21 November o Announced the commencement of production of Luda 5-2.
29 November o Announced the independent discovery of Jinxian 1-1 in the Northeastern
part of Bohai.
----------------------------------------------------------------------------------------------------------------
6 December o CNOOC signed a petroleum contract with Devon Energy Corporation for the
deepwater block 42/05 in the Eastern South China Sea.
28 December o Chairman Mr. Fu Chengyu was honoured CCTV 2005 Chinese Business Figures
of the Year.
006
Chairman's Report
007
We clearly know, for a high-quality public company, the opportunities are
abundant when it comes to growth, innovation and the pursuit of excellence.
Being mindful of these opportunities, we will exercise prudence and yet at the
same time make aggressive efforts to take the company to news height.
008
Chairman's Report
Dear Shareholders, During the year, our basic and diluted earnings per
share were RMB0.62 and RMB0.61 respectively. To reward
When you get this annual report, we, CNOOC Limited, a our shareholders for their support, the Board of
company listed in New York and Hong Kong, have been in Directors (the "Board") proposed a final dividend of
the capital market for five years. HK$0.10 per share. Together with the interim dividend
of HK$0.05 per share and the special interim dividend
We believe that we have achieved good financial and of HK$0.05 per share, we will distribute a total of
operational performance over the past five years. HK$0.20 per share to our shareholders for the year
Thanks to the satisfactory growth in our assets, 2005.
revenues and net profits, we have been able to show
continuing progress in creating value and delivering Looking back at the year 2005 as well as the previous
good return to our shareholders. four years of listing, we have been committed to
deliver, and have delivered, the best return to our
First, let us look at the outstanding performance of shareholders. As a responsible company, we will
CNOOC Limited in 2005. Our growth momentum was continue to strive to create and add value to our
successfully maintained in 2005 as evidenced by our business to share the fruits of our success with our
annual results. In addition to the detailed financial shareholders, to allow employees and the Company to
statements and other information set out hereafter, I grow together and to be responsible to the society,
am pleased to share with you a few highlights of our community and environment. We also believe that our
performance in 2005: shareholders will continue to be able to reap
satisfactory return from our business growth, our
Our total revenue rose by 25.8% to RMB69,455.7 dividend payouts and the excellent performance of our
million, while net profit reached yet another record stock price.
high of RMB25,323.1 million, the highest ever since
our listing in 2001.
There was a steady growth in our oil and gas
production. We produced a total of 130.3 million
barrels of oil and 142.2 billion cubic feet of natural
gas, achieving a total production of 154.8 million
barrels of oil equivalent ("BOE"), representing a
year-on-year increase of 10.6%.
Our production growth mainly came from the development
projects offshore China coming on stream during the
year. Seven new projects commenced production, which
have contributed significantly to production growth
during the year. Additionally, sixteen projects were
under way.
The achievements of our exploration initiatives were
just as remarkable. Altogether, we made fourteen new
oil and gas discoveries and eight structures were
successfully appraised offshore China. During the
year, we realized a reserve replacement ratio of 186%
and our net proved reserves increased by 288 million
BOE.
009
In light of the above, we would like to show you our
key initiatives.
As a E&P corporation, our value depends on the scale
of our reserve and production. Therefore we have
always been seeking more areas for exploration,
development and production and to extend our
development potentials.
Within China, we intend to further step up our efforts
in exploration in offshore China in 2006. We will
initiate more exploration activities, acquire more
seismic data and drill more exploration wells in
various exploration areas. We will also extend the
reach of our exploration initiatives to the deep-water [GRAPHIC OMITTED]
areas for more reserves to support the sustainable
rapid growth of our business. As far as production is
concerned, we plan to bring 10 oil and gas fields on
stream this year.
In respect of our overseas business efforts, we made a
friendly offer to acquire the US-based Unocal
Corporation in 2005. However, the desired outcome did
not materialize due to a host of factors. During the
process, from bidding to the final voluntary
withdrawal, our overriding principles remain focused
on the Company's future growth and our commitment to
increasing shareholders' value.
As ever, our priority was on shareholders' interests
and the Company's future growth, whether at the time
of making the C$150 million acquisition of a 16.69%
stake in Canadian MEG Energy Corporation, or when we [GRAPHIC OMITTED]
acquired a 45% stake in the license covering the OML
130 in Nigeria for a cash consideration of US$2.268
billion in January 2006.
We are dedicated to develop a path to overseas
expansion to sustain the long-term growth of the
Company. Our management team has been working hard
towards this objective.
010
Chairman's Report
Of course, we never forget our social responsibilities
in the course of value creation. We are a socially
responsible company well aware of the importance of
our staff, the environment and our society as a whole.
We grow healthily together with our staff. At the same
time, we also made determined efforts to undertake
responsibilities for the community, the environment
and the society. "Win-Win for All" has been one of our
essential approaches. Indeed, in pursuit of our
corporate development, we constantly seek win-win [GRAPHIC OMITTED]
situation for our staff, the community and the
environment. We believe that our long-term viability
and success, and our ability to continue to create and
deliver value for our shareholders and the communities
we serve, very much depend on conducting our business
in a socially responsible manner.
In 2005, we continued to enhance our health, safety
and environment (HSE) protection system by
strengthening the implementation of safety management
policies. The safety management standards were also
improved further with the development of the HSE
system, employees' safety education program and the
establishment of its accountability system. Throughout
the year, the Company was neither involved in any
material spillage or pollution incident, nor subject
to any liability claim for loss of over RMB1 million.
Currently, all oil and gas fields of the Company are
equipped with anti-pollution facilities and have
achieved stable discharge standards. They all have in
place environment monitoring system combining both [GRAPHIC OMITTED]
manual and automatic monitors. Besides, contingency
plan for safety protection have been established for
every offshore oil and gas fields and safety drills
are also conducted on regular basis.
As far as staff welfare is concerned, we not only
provide a safe and healthy working environment, but
also offer our staff reasonable packages and ample
training opportunities in order to provide them with
sufficient room for career development and added
incentives. The section headed "Human Resources" in
the annual report will explain more about the
initiatives undertaken in fulfilling our
responsibilities towards our staff.
011
OUR TREASURE,
YOUR ENERGY OF LIFE.
We are happy to take up our social responsibility in different areas and
contribute to the advancement of the community and the society. As a
responsible corporate citizen, we actively participate in various charity
events and have long been involved in poverty relief and education endowments.
We also give our whole-hearted support and donations to victims of natural
disasters. In 2005, the Company made donations to several Chinese regions
affected by Typhoons Talim and Damrey. Besides, donations were also made to
the regions wreaked by Hurricane Katrina in the US. These efforts clearly
reflect our heightened awareness of our social responsibility as a corporate
citizen.
Last but not least, I would like to take this opportunity to welcome on board
Mr. Tse Hau Yin, Aloysius and Mr. Lawrence J. Lau joining us as our
independent non-executive directors; and Mr. Cao Xinghe, Mr. Wu Zhenfang and
Mr. Wu Guangqi and Mr. Yang Hua joining us as our executive directors. Given
their extensive experience and valuable insights, I strongly believe that they
will make great contributions for the benefit of the Company.
Our success today is the result of dedicated efforts and devotion of our
management and staff. Therefore I would also like to express my sincere
gratitude for their support and hard work.
We clearly know, for a high-quality public company, the opportunities are
abundant when it comes to growth, innovation and the pursuit of excellence.
Being mindful of these opportunities, we will exercise prudence and yet at the
same time make aggressive efforts to take the company to news height.
Fu Chengyu
Chairman and Chief Executive Officer
Hong Kong, 24 March 2006
012
Operations Review
The Company continued its stable and robust growth in 2005: Encouraging
success was achieved in exploration; Development projects came on stream on
schedule; Production and reserves continued to grow. All these progresses
combined with our high degree of transparency in corporate governance and
prudent financial policies, gave a further boost to the business development
of the Company.
013
[GRAPHIC OMITTED]
014
Solid Foundation and Unlimited Potential
In 2005, to create value for our shareholders, we continued to pursue active
business expansion. Brilliant achievements were made on exploration, project
development and overseas acquisitions. Our outstanding business performance is
widely recognized by our shareholders and the market alike.
During the year, the Company made a lot of progresses in its active
exploration activities, with 14 new oil and gas discoveries and 8
hydrocarbon-bearing structures successfully appraised. Its reserve replacement
ratio reached 186%, surpassing that of previous year and continued to stand at
the forefront amongst peers. As a result, the Company successfully maintained
the growth momentum of its reserves.
Despite heavy workload, the Company's engineering constructions progressed
with high efficiency . During the year, a record number of projects were put
on stream, and these new projects contributed substantially to the Company's
production. In addition, more than 10 projects were under way as scheduled.
In order to fulfill its commitment to future growth and to its shareholders,
the Company continued to seek overseas acquisition opportunities. In 2005, it
acquired assets and signed co-operation agreements in, among others, Canada
and Morocco. The successful implementation of its overseas development
strategy helped greatly to improve the Company's reputation around the world.
During the year, the Company continued to maintain its prudent financial
policy and its credit rating was upgraded by Standard and Poor's. In respect
of health, safety and environmental protection, no material safety nor
pollution incident was recorded throughout the year. Meanwhile, the Company
actively participated in community charity activities, further reinforcing its
positive image as a corporate citizen.
Results Figures
In 2005, the Company followed its business strategies to achieve various
targets of the year.
As of 31 December 2005, the Company's oil and gas production reached 154.8
million BOE, representing a year-on-year (YOY) increase of 10.6%. Crude oil
production amounted to 356,868 barrels per day, while natural gas production
was 389.6 MMCF per day, representing a YOY increase of 11.7% and 7.0%
respectively. Total oil and gas production offshore China was 140.6 million
BOE, including 121.7 million barrels of crude oil and 108.4 bcf of gas. In
Indonesia, oil and gas production was 14.2 million BOE, including 8.6 million
barrels of crude oil and 33.8 bcf of gas.
015
In 2005, the realized oil price of the Company was US$47.31 per barrel, an
increase of 33.6% over the previous year. Realized natural gas price was
US$2.82 per thousand cubic feet, a YOY increase of 2.6%.
Benefiting from high oil prices and the increase in its production, the
Company's results were outstanding in terms of total revenue and net profits,
etc. in 2005.
The Company realized a total revenue of RMB69,455.7 million, a YOY increase of
25.8% , and a net profit of RMB25,323.1 million, a YOY increase of 56.9%,
setting yet another record in its history. The earnings per share were RMB0.62
and the return on shareholders' equity reached 38.9%.
Surging prices of raw materials, among other things, leading to higher
production costs, represented a tough challenge for the whole industry. In
2005, the Company's production cost per BOE increased by 8.7% over 2004.
Still, the figure fared better than those of international peers.
Operation Updates
In 2005, the Company realized a reserve replacement ratio of 186%, continuing
its leading position among peers. During the year, 7 new projects commenced
production, breaking the record set the previous year. At the same time, 16
projects were under way as scheduled. Below are the Company's activities on
exploration, development and engineering constructions:
Exploration
In 2005, the Company was very active in exploration offshore China and made 14
new oil and gas discoveries, including 9 independent discoveries and 5
discoveries under Production Sharing Contracts (PSCs). Moreover, 8 structures
were successfully appraised, of which 6 were independent and 2 were under
PSCs. These appraisals helped cement a solid base for the subsequent
development activities of the Company.
Meanwhile, the Company's overseas exploration activities were also vigorous.
In 2005, the Company completed 2 wildcats in Indonesia and acquired 324
kilometers of 2D seismic data in block M in Myanmar.
During the year, the Company's reserves maintained its growth momentum. In
2005, the proved reserves increased by 288 million BOE, comprising 132 million
barrels of crude oil and 926 bcf of natural gas. The Company realized a
reserve replacement ratio of 186%.
016
Construction and Development
In 2005, the Company undertook more engineering projects than in 2004. There
were altogether 16 projects under construction. Among these projects, 7 have
been completed and have commenced production, namely Luda 10-1, Luda 4-2, Luda
5-2, Nanbao 35-2, Bozhong 25-1/25-1S (C/F platforms), Lufeng 13-2 and
Caofeidian 11-3/5. These oil and gas fields made remarkable contributions to
the Company's production for the year. The remaining projects are under way as
scheduled.
During the year, the Company completed the construction and installation of 19
and 12 jackets respectively, and of 28 and 15 platform modules respectively.
It also laid 540 kilometers of subsea pipelines and completed 2 terminals.
It is expected that a number of construction projects will be launched in
2006. Hence the Company's construction schedule will continue to be busy. It
is estimated that the number of oil and gas projects under way will maintain
at above 16. Besides, Chunxiao, Dongfang 1-1 Phase II, Qikou 17-2 East,
Pinghu-BJT, etc. will be completed and commence production in 2006.
Natural Gas Business
Apart from actively finding new reserves, the Company is also aggressively
developing its natural gas business. In 2005, its production of natural gas
offshore China reached 142 bcf.
In 2005, the development project on Dongfang 1-1 Phase II was completed, and
will commence production in the first half of 2006. Besides, in 2006, the
North West Shelf Gas Project in Australia will also commence production to
supply gas to the LNG Terminal in Guangdong province, marking the beginning of
significant gas importing to China.
In the future, the Company will strengthen its exploration efforts in the
South China Sea and develop more natural gas fields, in order to consolidate
its leading position in the natural gas market along coastal China.
Overseas Development
In 2005, in order to fulfill its commitment to future growth and to its
shareholders, the Company continued to seek overseas acquisition
opportunities.
On 25 January 2005, a consortium led by the Company, the Singaporean Golden
Aaron Pte Limited and the PRC-based HQCEC, signed PSCs with Myanma Oil and Gas
Enterprise ("MOGE") on three blocks, C1, C2 and M2. In these blocks the
Company is the Operator and owns 81.25% participation interests.
On 21 February 2005, the Company signed a joint study agreement with Office
National de Recherches et d'Exploitations Petrolieres ("ONAREP"), a Morocco
National Oil Company, to assess the oil potential in the basins of Haha and
Missour, Morocco.
On 11 March 2005, the Company reached an agreement with the Canadian MEG
Energy Corporation ("MEG") on the acquisition of a 18.5% (16.69% on a diluted
basis) stake in MEG, for a consideration of C$150 million. The Company thereby
obtained entry into potential oil sand projects in Canada.
017
On 23 June 2005, the Company 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 unbearable risks associated with the
political environment in the US, the Company finally withdrew its offer on 2
August 2005. During the whole process, from bidding to the final voluntary
withdrawal, our overriding principles remained unchanged, with the emphasis on
the Company's future growth and our commitment to shareholders.
On 8 January 2006, the Company signed a definitive agreement with South
Atlantic Petroleum Limited ("SAPETPO") 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. Conditional upon, among other things, the approval of
Nigerian National Petroleum Corporation ("NNPC") and the PRC government, the
transaction is expected to be completed in the first half of 2006.
On 27 Jannuary 2006, the Company also acquired a 35% working interest in the
contract for OPL229 in Nigeria for a consideration of US$60 million. In
addition, the Company signed a PSC for block S in Equatorial Guinea, marking
another progress in the Company's overseas business.
Research and Development
The technology research and development are mainly conducted by our research
center. Besides, the Company's branches in Tianjin, Zhanjiang, Shenzhen and
Shanghai are also engaged in certain research and development programs.
In 2005, we continued to actively pursue technology development in support of
our core business of oil exploration and development. Encouraging progress was
made in respect of those critical technology development projects on the
exploration of offshore oil and gas resources, development of offshore
marginal oil fields and enhancement of recovery of offshore heavy oil fields.
Pioneer studies were also conducted on the exploration and development in deep
water areas.
Certain research and development outcomes are already being applied in the
production process of the Company with remarkable benefits. For example, the
technology "Maximizing Reservoir Exposure Drilling & Fit-For-Purpose Sand
Management" is found to be very effective in increasing the single-well
production of offshore oilfields. This technology has been applied to the well
A11 in Luda 10-1 field, realizing a production rate of over 7,000 barrels per
day.
Health, Safety and Environmental Protection (HSE)
Our first priorities are always health, safety and environmental protection to
guarantee the health and safety of employees. Over the years, the Company's
staff and management at different levels have realized that "safety is always
the weak link in corporate management". As a result, production safety, staff
care and environmental protection have become an important part of our
corporate culture.
In 2005, the Company made satisfactory progress in respect of safeguarding
health, safety and environmental protection. During the year, it was neither
involved in any material injury liability case, spillage and pollution
incidents, nor subject to any safety-related liability claims for losses over
RMB 1 million. Besides, the Company's OSHA Statistics results continued to be
above average among its peers.
018
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT
Net Reserves as of
31 December 2005
Total (BOE/day) Total (MM BOE)
Oil (Bbls/day) Oil (MM Bbls)
Name of Block Major Oil and Gas Field Gas (Mmcf/day) Gas (Bcf)
---------------------------------------------------------------------------------------------------------------
Bohai Bay
---------------------------------------------------------------------------------------------------------------
o Production
---------------------------------------------------------------------------------------------------------------
Liaoxi Jinzhou20-2, Jinzhou9-3, Suizhong36-1, 104,680 323.0
Luda4-2, Luda 5-2, Luda 10-1 Oil 98,065 Oil 286.5
Gas 40 Gas 219.1
---------------------------------------------------------------------------------------------------------------
09/18 Chengbei 4,229 5.5
---------------------------------------------------------------------------------------------------------------
Boxi QK18-1, QK18-2, QK17-2, QK17-3 10,008 18.5
Oil 8,951 Oil 15.9
Gas 6 Gas 15.4
---------------------------------------------------------------------------------------------------------------
05/36 Nanbao35-2, Qinghuangdao32-6 21,914 121.3
---------------------------------------------------------------------------------------------------------------
11/05 Penglai19-3 7,422 132.5
---------------------------------------------------------------------------------------------------------------
Bonan Bozhong34-2/4, Bozhong28-1, Bozhong26-2 21,797 184.4
Bozhong25-1, Bozhong25-1s Oil 21,289 Oil 165.2
Gas 3 Gas 115.2
---------------------------------------------------------------------------------------------------------------
04/36 Caofeidian11-1, Caofeidian11-2, Caofeidian11-3,
Caofeidian11-5 16,970 28.8
---------------------------------------------------------------------------------------------------------------
o Development
---------------------------------------------------------------------------------------------------------------
Liaoxi Jinzhou21-1/25-1S 90.7
Oil 38.9
Gas 310.3
---------------------------------------------------------------------------------------------------------------
Bozhong Qinhuangdao33-1, Bozhong3-1, Bozhong3-2 9.8
---------------------------------------------------------------------------------------------------------------
Boxi Caofeidian18-1, Caofeidian18-2, QK18-9, Bozhong13-1 20.1
Oil 9.0
Gas 67.1
---------------------------------------------------------------------------------------------------------------
11/05 Penglai25-6 10.5
---------------------------------------------------------------------------------------------------------------
04/36&05/36 Caofeidian12-1, Caofeidian12-1S 13.8
---------------------------------------------------------------------------------------------------------------
Bonan Bozhong34-1, Bozhong34-1S, Bozhong34-3/5 28.3
---------------------------------------------------------------------------------------------------------------
Liaodong Luda27-2, Luda32-2 37.4
---------------------------------------------------------------------------------------------------------------
11/19 Bozhong19-4, Bozhong26-2N 19.1
Oil 16.8
Gas 13.6
---------------------------------------------------------------------------------------------------------------
Bohai Subtotal 187,021 1,043.7
Oil 178,840 Oil 920.2
Gas 49 Gas 740.7
---------------------------------------------------------------------------------------------------------------
019
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
31 December, 2005
Total (BOE/day) Total (MM BOE)
Oil (Bbls/day) Oil (MM Bbls)
Name of Block Major Oil and Gas Field Gas (Mmcf/day) Gas (Bcf)
---------------------------------------------------------------------------------------------------------------
Eastern South China Sea
---------------------------------------------------------------------------------------------------------------
o Production
---------------------------------------------------------------------------------------------------------------
Huizhou14 Huizhou Oil Fields 18,117 22.0
---------------------------------------------------------------------------------------------------------------
16/19 Huizhou19-3, Huizhou19-2, Huizhou19-1 2,782 21.6
---------------------------------------------------------------------------------------------------------------
15/12 Xijiang24-3 16,576 15.0
---------------------------------------------------------------------------------------------------------------
Xijiang24 Xijiang30-2 10,788 8.5
---------------------------------------------------------------------------------------------------------------
Huizhou31 Liuhua11-1 18,699 29.8
---------------------------------------------------------------------------------------------------------------
16/05 Lufeng13-1, Lufeng13-2 3,513 20.6
---------------------------------------------------------------------------------------------------------------
Lufeng08 Lufeng22-1 2,382 2.4
---------------------------------------------------------------------------------------------------------------
15/34 Panyu4-2, Panyu5-1 30,885 29.7
---------------------------------------------------------------------------------------------------------------
o Development
---------------------------------------------------------------------------------------------------------------
Liuhua07 Panyu30-1, Liuhua19-5 96.7
Oil 3.0
Gas 562.0
---------------------------------------------------------------------------------------------------------------
Panyu33 Panyu34-1 30.7
Oil 0.6
Gas 180.8
---------------------------------------------------------------------------------------------------------------
Xijiang04 Xijiang23-1 47.2
---------------------------------------------------------------------------------------------------------------
15/34 Panyu11-6 2.6
---------------------------------------------------------------------------------------------------------------
Huizhou 14 Huizhou21-1(G) 9.1
Oil 2.2
Gas 41.3
---------------------------------------------------------------------------------------------------------------
Huizhou 16 Huizhou25-1, Huizhou25-3 6.1
---------------------------------------------------------------------------------------------------------------
Eastern South China Sea Subtotal 103,741 341.9
Oil 103,741 Oil 211.2
Gas 0 Gas 784.2
---------------------------------------------------------------------------------------------------------------
020
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
31 December, 2005
Total (BOE/day) Total (MM BOE)
Oil (Bbls/day) Oil (MM Bbls)
Name of Block Major Oil and Gas Field Gas (Mmcf/day) Gas (Bcf)
---------------------------------------------------------------------------------------------------------------
Western South China Sea
---------------------------------------------------------------------------------------------------------------
o Production
---------------------------------------------------------------------------------------------------------------
Yulin35 Weizhou Oil Fields 25,864 46.4
Oil 24,706 Oil 44.7
Gas 7 Gas 10.5
---------------------------------------------------------------------------------------------------------------
Yangjiang31 Wenchang13-1, Wenchang13-2 23,077 30.1
---------------------------------------------------------------------------------------------------------------
Ledong01 Yacheng13-1 25,020 76.2
Oil 1,027 Oil 4.5
Gas 130 Gas 430.1
---------------------------------------------------------------------------------------------------------------
Changjiang25 Dongfang1-1 15,622 223.1
Oil 208 Oil 3.0
Gas 92 Gas 1,320.4
---------------------------------------------------------------------------------------------------------------
o Development
---------------------------------------------------------------------------------------------------------------
Yangjiang31/32 Wenchang8-3, Wenchang14-3, Wenchang15-1,
Wenchang19-1, Wenchang9-2, Wenchang9-3, Wenchang10-3 123.6
Oil 83.6
Gas 239.7
---------------------------------------------------------------------------------------------------------------
Ledong01 Yacheng13-4, Ledong22-1, Ledong15-1 101.8
Oil 1.3
Gas 603.3
---------------------------------------------------------------------------------------------------------------
Yulin35 Weizhou6-1, Weizhou11-1, Weizhou11-1N,
Weizhou11-4N, Weizhou6-10, Weizhou12-8 38.5
---------------------------------------------------------------------------------------------------------------
Western South China Sea Subtotal 89,583 639.7
---------------------------------------------------------------------------------------------------------------
Oil 49,016 Oil 205.7
Gas 230 Gas 2,604.0
021
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
31 December, 2005
Total (BOE/day) Total (MM BOE)
Oil (Bbls/day) Oil (MM Bbls)
Name of Block Major Oil and Gas Field Gas (Mmcf/day) Gas (Bcf)
---------------------------------------------------------------------------------------------------------------
East China Sea
---------------------------------------------------------------------------------------------------------------
o Production
---------------------------------------------------------------------------------------------------------------
Pinghu Pinghu Gas Field 4,751 9.1
Oil 1,706 Oil 3.0
Gas 18 Gas 36.5
---------------------------------------------------------------------------------------------------------------
o Development
---------------------------------------------------------------------------------------------------------------
Xihu Trough
---------------------------------------------------------------------------------------------------------------
Canxue 9.4
Oil 5.1
Gas 25.5
---------------------------------------------------------------------------------------------------------------
Duanqiao 7.8
Oil 2.3
Gas 33.4
---------------------------------------------------------------------------------------------------------------
Chunxiao 32.0
Oil 3.8
Gas 169.0
---------------------------------------------------------------------------------------------------------------
Tianwaitian 6.1
Oil 0.5
Gas 33.7
---------------------------------------------------------------------------------------------------------------
Baoyunting 19.2
Oil 4.6
Gas 87.5
---------------------------------------------------------------------------------------------------------------
Wuyunting 4.7
Oil 1.9
Gas 16.6
---------------------------------------------------------------------------------------------------------------
East China Sea Subtotal 4,751 88.3
Oil 1,706 Oil 21.2
Gas 18 Gas 402.2
022
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
31 December, 2005
Total (BOE/day) Total (MM BOE)
Oil (Bbls/day) Oil (MM Bbls)
Name of Block Major Oil and Gas Field Gas (Mmcf/day) Gas (Bcf)
---------------------------------------------------------------------------------------------------------------
Offshore China Subtotal 385,095 2,113.7
Oil 333,303 Oil 1,358.5
Gas 297 Gas 4,531.0
---------------------------------------------------------------------------------------------------------------
o Production
---------------------------------------------------------------------------------------------------------------
Indonesia 39,013 123.2
Oil 23,565 Oil 73.7
Gas 93 Gas 296.9
---------------------------------------------------------------------------------------------------------------
o Development
---------------------------------------------------------------------------------------------------------------
Australia
---------------------------------------------------------------------------------------------------------------
NWS 125.9
Oil 25.4
Gas 603.0
---------------------------------------------------------------------------------------------------------------
Overseas Subtotal 39,013 249.1
Oil 23,565 Oil 99.1
Gas 93 Gas 899.9
---------------------------------------------------------------------------------------------------------------
Total 424,108 2,363
Oil 356,868 Oil 1,457
Gas 390 Gas 5,431
---------------------------------------------------------------------------------------------------------------
023
REVIEW BY AREA
In 2005, the Company made 14 oil and gas discoveries offshore China, including
9 independent discoveries and 5 discoveries under PSCs. The 9 independent
discoveries were Bozhong 26-2N, Bozhong 34-1N, Luda 27-1, Jinxian 1-1, Jinxian
1-1E and Qikou 17-2S in the Bohai Bay area; Weizhou 6-10, Wenchang 9-3, and
Wenchang 10-3 in the Western South China Sea area. The 5 PSC discoveries,
included Bozhong 19-4N, Bozhong 19-4S, Wushi 17-1, Huizhou 25-4 and
Qinhuangdao 32-6N.
In offshore China, the Company successfully appraised 8 structures, including
6 independent appraisals, namely Bozhong 3-2, Luda 27-2, Weizhou 11-1N,
Weizhou 11-4N, Wenchang 9-2 and Liuhua 19-5; and 2 PSC appraisals, including
Bozhong 19-4N and Huizhou 25-3 (CACT 16/19 Block). These appraisals greatly
accelerated the progress of development and construction of the Company's oil
and gas fields.
In 2005, the Company acquired a total of 29,122 kilometers 2D seismic data
offshore China, including 14,947 kilometers acquired independently and 14,175
kilometers acquired by PSC partners. Besides, a total of 3,633 square
kilometers of 3D seismic data were also acquired, including 3,612 square
kilometers acquired independently and 21 square kilometers acquired by PSC
partners. Meanwhile, the Company completed 47 exploration wells, including 31
independent wells and 16 wells under PSCs, with total footage of 133,594
meters, including 90,756 meters drilled independently and 42,838 meters by PSC
partners. As for overseas operations, the Company acquired 324 kilometers of
2D seismic data, drilled 2 exploration with total footage of 6,778 meters.
Bohai Bay
Bohai Bay is the Company's most important and largest oil and gas production
base offshore China. In 2005, the Company's production and reserves in Bohai
Bay continued to grow, further strengthening its leadership position. As of 31
December 2005, the net proved reserves in this region amounted to 1,044
million BOE, accounting for 44% of the Company's total. The average daily
production in this area amounted to 187,021 BOE, accounting for 44% of the
Company's total. Currently, the Company has exploration licenses of 15 blocks
in the region, with 6 PSC blocks in cooperation with foreign companies.
In 2005, there were altogether 6 new oil and gas projects that commenced
production in Bohai Bay, namely Luda 10-1, Luda 4-2, Luda 5-2, Nanbao 35-2,
Caofeidian 11-3/5 and Bozhong 25-1/25-1S (C/F Platforms). The commencement of
production of these projects further strengthened the position of Bohai Bay as
the most important oil and gas operation base of the Company. They also
contributed greatly to the Company's sustainable production growth.
In 2005, the Company continued to invest substantially in seismic data
acquisition and drilling. Encouraging results were obtained in exploration.
In Bohai Bay, 22 wells were drilled during the year. 15 wells were drilled
independently, including 11 wildcats and 4 appraisal wells. 2,770 kilometers
of 2D seismic data and 775 square kilometers of 3D seismic data were acquired
independently. 7 wells were drilled by PSC partners, including 4 wildcats and
3 appraisal wells. 21 square kilometers of 3D seismic data were acquired by
PSC partners. There were 9 new oil and gas discoveries and 3 structures were
successfully appraised in Bohai Bay.
Bozhong Block
In 2005, 3 wells were drilled, including 1 wildcats and 2 appraisal wells. 1
structure (Bozhong 3-2) was successfully appraised in the region. 57.5 square
kilometers of 3D seismic data were acquired.
Bonan Block
In 2005, 2 wildcats and 1 appraisal well were drilled. Besides, there was 1
new discovery, namely Bozhong 34-1N.
Liaodong Bay Block
During the year, 1 wildcat was drilled and 407 square kilometers of 3D seismic
data were acquired.
Boxi Block
In 2005, 2 wildcats were drilled and there was 1 new discovery, namely Qikou
17-2S.
Block 06/17
In 2005, 1 wildcat was drilled in the area.
024
Block 02/31
During the year, 4 wells were drilled in the area, including 3 wildcats and 1
appraisal well. There were 3 new discoveries, including Jinxian 1-1, Jinxian
1-1E and Luda 27-1 and 1 hydrocarbon-bearing structure, namely Luda 27-2, was
successfully appraised.
Block 11/19
In 2005, 1 wildcat was drilled in the area. There was 1 new discovery, namely
Bozhong 26-2N. 1,061 kilometers of 2D seismic data and 310 square kilometers
of 3D seismic data were acquired. In 2005, 3 PSC wells were drilled in the
area, including 2 wildcats and 1 appraisal well. There were 2 new discoveries,
namely Bozhong 19-4N and Bozhong 19-4S. Besides, the structure of Bozhong
19-4N was successfully appraised.
Qinhuangdao 32-6 Block
In 2005, 1 PSC wildcat was drilled. There was 1 new discovery, namely
Qinhuangdao 32-6N.
Block 09/06 & 09/18
In 2005, Kerr-McGee Group drilled 2 appraisal wells on the Caofeidian 14-5
hydrocarbon-bearing structure.
Block 04/36
In 2005, Kerr-McGee Group drilled 1 wildcat on Caofeidian 2-2 in block 04/36.
Other Independent Blocks
During the year, the Company acquired 1,710 kilometers of 2D seismic data in
the Bodong Miaoxi Sag.
Western South China Sea
This is the Company's another important natural gas production and exploration
base. Two largest natural gas fields, Yacheng 13-1 and Dongfang 1-1 are
located in this region. The Company's Dongfang 1-1 Phase II engineering
project was completed in 2005 and will commence production in the first half
of 2006.
By the end of 2005, a total of 640 million BOE of net proved reserves were
confirmed in the region, accounting for 27% of the Company's total. The
average daily net production amounted to 89,583 BOE, or 21% of the Company's
total.
The major exploration areas in the Western South China Sea include Beibu Gulf,
Yinggehai Basin and Qiongdongnan Basin. Currently, the Company has exploration
licenses of 34 blocks in the region and with 6 PSC blocks in cooperation with
foreign companies. In 2005, the Company drilled 6 wildcats and 3 appraisal
wells and made 3 new discoveries appraised. In addition, 5,664 kilometers of
2D seismic data and 787 square kilometers of 3D seismic data were acquired.
Meanwhile, the Company's PSC partners drilled 4 wildcats and had 1 new
discovery in the region.
Yulin Block 35 of Beibu Gulf
In 2005, 3 wildcats and 2 appraisal wells were drilled. There was 1 new
discovery, namely Weizhou 6-10 and 2 hydrocarbon-bearing structures, Weizhou
11-1N and Weizhou 11-4N, were successfully appraised.
Yangjiang Block 32 by the Western Estuary of the Pearl River
During the year, 2 wildcats and 1 appraisal well were drilled in the area.
There were 2 new discoveries, Wenchang 10-3 and Wenchang 9-3, and 1 structure,
namely Wenchang 9-2, was successfully assessed.
Songtao Block 22 in Qiongdongnan Basin
In 2005, 1 wildcat was drilled.
Other Independent Blocks
In 2005, 787 square kilometers of 3D seismic data were collected from the
Southwestern Weixi Region. Besides, 5,664 kilometers of 2D seismic data were
also acquired from Beijiao in Qiongdongnan Basin.
PSC Blocks
In 2005, Husky Oil China Limited drilled 1 wildcat and had 1 oil and gas
discovery, namely Wushi 17-1 in block 23/15 in Beibu Gulf. Besides, it drilled
1 wildcat in block 23/20 and 2 wildcats in Wenchang 13-1/2 in Qionghai.
025
Eastern South China Sea
This is one of the important crude oil production bases of the Company. The
crude oil produced in this region is mainly medium or light oil.
By the end of 2005, the Company had a total of 342 million BOE of net proved
reserves in the Eastern South China Sea, accounting for 14% of the Company's
total. The average daily net production in the area amounted to 103,741 BOE,
or 24% of the Company's total.
Currently, the Company made aggressive exploration efforts in the region. The
Company has exploration licenses of 38 blocks, with 9 PSC blocks in
cooperation with foreign companies. In 2005, the Company drilled 5 wildcats
and 2 appraisal well in the region independently. Besides, it acquired 6,512
kilometers of 2D seismic data and 1,111 square kilometers of 3D seismic data.
Meanwhile, the Company's PSC partners drilled 4 wildcats and 1 appraisal well.
A new discovery, namely Huizhou 25-4 was made and 3,153 kilometers of 2D
seismic data were acquired. In the region, 2 structures, including Liuhua 19-5
and Huizhou 25-3, were successfully assessed in 2004. This further helped
prove the promising natural gas exploration potential in Baiyun Trough.
Block 27/10
In 2005, 2 wildcats were drilled.
Liuhua Block 07
During the year, 1 wildcat was drilled and 1 appraisal well, namely Liuhau
19-5, was successfully appraised.
Enping Block 15
In 2005, 1 wildcat was drilled.
Huizhou Block 14
In 2005, 1 wildcat was drilled.
Block 16/21
During the year, 1 wildcat was drilled.
Other Independent Blocks
In 2005, 6,512 kilometers of 2D seismic data were acquired from Panyu 28-1,
Baiyun 16-1, Xijiang 35-1, Hanjiang and Zhu I Sag. 1,111 square kilometers of
3D seismic data were acquired from Liuhua 4-1 and Xijiang 23-1.
PSC Blocks
Block 17/22
In 2005, Statoil drilled 1 wildcat.
Block 16/19
In 2005, Eni and Chevron drilled 1 wildcat and had 1 new discovery, namely
Huizhou 25-4; it also drilled 1 appraisal well and successfully assessed one,
namely Huizhou 25-3.
Block 15/34
During the year, Devon drilled 2 wildcats.
Block 43/11
In 2005, Kerr-McGee Group acquired 3,153 kilometers of 2D seismic data from
the area.
East China Sea
This is an area with enormous exploration potential and extensive exploration
acreage. By the end of 2005, a total of 88 million BOE of net proved reserves
was certified in the East China Sea, accounting for 4% of the Company's total.
The average daily net production in the area amounted to 4,751 BOE, or 1% of
the Company's total.
Currently, the Company has exploration licenses of 57 blocks, with 3 PSC
blocks in cooperation with foreign companies. In joint efforts with Sinopec,
the Company is carrying out exploration and development activities in the Xihu
area of the East China Sea.
In 2005, the Company acquired 940 square kilometers of 3D seismic data from
Xihu Trough 27/05.
Overseas
As of 31 December 2005, the Company had net proved reserves of 249 million BOE
in Indonesia and Australia, accounting for 11% of the Company's total. Our
overseas average daily net production amounted to 39,013 BOE, or 9% of the
Company's total.
During the year, the Company continued to conduct exploration work overseas. 2
wildcats were drilled in Indonesia and 324 kilometers of 2D seismic data were
acquired in Block M in Myanmar.
026
Table of major exploration blocks
Exploration License
(Commencement-
Blocks Block Area (km2) Expiration)
---------------------------------------------------------------------------------------------------------------
Middle of Bohai Bay 4,974 26.4.04~26.4.06
Southern Bohai Bay 3,679 8.6.04~8.6.06
Western Bohai Bay 1,895 8.6.04~8.6.06
Western Liaodong Bay 3,344 31.3.00~8.4.06
Eastern Liaodong Bay 2,829 2.7.01~2.7.06
Eastern Bozhong 1,861 30.5.04~30.5.06
Bohai Block 09/11 843 5.4.04~5.4.06
Bohai Block 06/17 2,586 20.2.03~20.2.07
Bohai Block 02/31 4,990 29.5.03~29.5.07
Bohai Block 11/19 3,068 8.6.04~8.6.06
Bohai Block 05/36 2,721 7.4.05~10.2.07
Eastern Bohai Block 11/05 3,601 10.2.04~10.2.06
Western Bohai Block 11/05 2,897 1.2.04~1.2.06
Bohai Block 09/18 2,234 4.2.05~4.2.07
Bohai Block 04/36 1,691 23.9.05~23.9.07
----------------------------------------------------------------------------------------------------------------
Bohai Total 43,213
----------------------------------------------------------------------------------------------------------------
North Yellow Sea 6,471 25.5.01~25.5.06
Northern Trough (Northen South Yellow Sea) 912 30.8.00~30.8.07
Xihu Hangzhou 26 (East China Sea) 3,642 31.3.03~31.3.07
Xihu Hangzhou 17 (East China Sea) 4,227 28.8.01~28.8.08
Xihu Huangyan 04 (East China Sea) 2,848 28.8.01~28.8.08
Xihu Zhenhai 01 (East China Sea) 1,536 28.8.01~28.8.08
Lishui 33 (East China Sea) 2,999 05.12.05~01.7.09
Wenzhou 21 (East China Sea) 1,437 05.12.05~01.7.07
East China Sea 25/34 7,017 05.12.05~05.12.07
Kunshan Block 02 (East China Sea) 2,628 11.5.01~11.5.06
Jinhua Block 12 (East China Sea) 6,931 11.5.01~11.5.06
Tiantai 32 (East China Sea) 5,400 17.7.01~17.7.06
Fuzhou Block 02 (East China Sea) 3,064 11.5.01~11.5.06
Taibei Block 27 (East China Sea) 7,379 9.7.01~9.7.06
Taoyuan 07 (East China Sea) 6,457 9.7.01~9.7.06
Jilong 25 (East China Sea) 5,692 9.7.01~9.7.06
----------------------------------------------------------------------------------------------------------------
East China Sea Total 68,640
----------------------------------------------------------------------------------------------------------------
Xijiang 04 (Pearl River Mouth Basin) 7,969 11.5.01~11.5.06
Xijiang 33 (Pearl River Mouth Basin) 4,983 12.5.05~12.5.07
Lufeng 06 (Pearl River Mouth Basin) 4,457 11.5.01~11.5.06
Huizhou 31 (Pearl River Mouth Basin) 3,074 11.5.01~11.5.06
Enping 15 (Pearl River Mouth Basin) 5,833 11.5.01~11.5.06
Enping 10 (Pearl River Mouth Basin) 6,547 11.5.01~11.5.06
Panyu 33 (Pearl River Mouth Basin) 4,830 11.5.01~11.5.06
Liuhua 07 (Pearl River Mouth Basin) 4,172 11.5.01~11.5.06
Dongsha 04 (Pearl River Mouth Basin) 5,295 11.5.01~11.5.06
Kaiping 14 (Pearl River Mouth Basin) 7,753 11.5.01~11.5.06
Kaiping 32 (Pearl River Mouth Basin) 8,104 11.5.01~11.5.06
Dongsha 32(Pearl River Mouth Basin) 7,350 5.11.03~5.11.10
027
Table of major exploration blocks (continued)
Exploration License
(Commencement-
Blocks Block Area (km2) Expiration)
--------------------------------------------------------------------------------------------------------------
Liwan 14 (Pearl River Mouth Basin) 7,752 11.5.01~11.5.06
Zijin 27 (Pearl River Mouth Basin) 5,396 11.5.01~11.5.06
15/20 (Pearl River Mouth Basin) 1,895 11.5.00~16.10.06
16/02 (Pearl River Mouth Basin) 3,495 3.31.01~31.3.07
Baiyun 15 (Pearl River Mouth Basin) 6,463 11.5.01~11.5.06
Huizhou 30 (Pearl River Mouth Basin) 5,862 11.5.01~11.5.06
Lufeng 08 (Pearl River Mouth Basin) 4,684 6.6.05~6.6.07
16/05 (Pearl River Mouth Basin) 3,007 31.3.00~31.3.07
--------------------------------------------------------------------------------------------------------------
Eastern South China Sea Total 108,921
--------------------------------------------------------------------------------------------------------------
Weizhou 12 (Beibu Gulf) 6,980 11.5.01~11.5.06
Yulin 35 (Beibu Gulf) 6,050 11.5.01~11.5.06
Weizhou 26 (Beibu Gulf) 4,358 5.11.03~11.5.06
Ledong 01 (Yinggehai) 6,543 3.12.03~3.12.05
Lingtou 20 (Yinggehai) 2,692 30.8.00~30.8.07
Lingao 11 (Yinggehai) 4,117 11.5.01~11.5.06
Songtao 22 (Qiongdongnan) 4,063 11.5.01~11.5.06
Songtao 31 (Qiongdongnan) 5,264 11.5.01~11.5.06
Lingshui 18 (Qiongdongnan) 7,738 6.8.02~6.8.07
Yangjiang 31 (Pearl River Mouth Basin) 6,003 3.12.03~3.12.05
Qionghai 28 (Pearl River Mouth Basin) 5,208 11.5.01~11.5.06
Wenchang 11 (Pearl River Mouth Basin) 4,901 11.5.01~11.5.06
North Wanan-21 A 6,801 30.9.05~30.9.07
North Wanan-21 B 6,118 30.9.05~30.9.07
North Wanan-21 C 6,372 30.9.05~30.9.07
North Wanan-21 D 6,126 30.9.05~30.9.07
--------------------------------------------------------------------------------------------------------------
Western South China Sea 89,334
--------------------------------------------------------------------------------------------------------------
Offshore China Subtotal 310,108
--------------------------------------------------------------------------------------------------------------
Indonesia
MALACCA STRAIT 11,865 4.8.00~4.8.20
SES 8,276 1968~2018
ONWJ 13,582 1967~2010
WEST MADURA 1,615 1981~2011
POLENG TAC 41 1993~2013
BLORA 3,431 1996~2006
--------------------------------------------------------------------------------------------------------------
Myanmar
M 7,786 19.10.05~18.4.07
C1 16,988 24.01.06~23.1.08
C2 26,506 24.01.06~23.1.08
A4 8,493 13.03.06~12.3.08
M2 9,653 25.01.05~23.4.06
M10 13,379 13.03.06~12.3.08
--------------------------------------------------------------------------------------------------------------
Morocco
RAS TAFELNEY 14,000 20.4.05-20.1.07
--------------------------------------------------------------------------------------------------------------
Overseas Subtotal 135,615
--------------------------------------------------------------------------------------------------------------
Total 445,723
--------------------------------------------------------------------------------------------------------------
As at 31 December, 2005
028
Corporate Governance Report
[GRAPHIC OMITTED]
029
GOVERNANCE STANDARDS
The Company has always upheld and executed high standard of business ethics,
for which its transparency and standard of governance have been recognized by
the public and its shareholders. High and strict standard of corporate
governance enables the Company to operate steadily and efficiently and is in
the long-term interests of the Company and its shareholders.
Since its listing, the Company has endeavoured to maximize its shareholders'
value. In 2005, the Company executed its corporate governance policies
strictly and sought to comply with relevant provisions of the Code on
Corporate Governance Practices (the "CG Code") as set out in Appendix 14 of
the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited (the "Listing Rules"), ensuring that all decisions were made on
principles of trust and fairness and in an open and transparent manner, so as
to protect the interests of all shareholders.
KEY CORPORATE GOVERNANCE PRINCIPLES AND THE COMPANY'S PRACTICES
A. DIRECTORS
A.1 The Board
Principle: "An issuer should be headed by an effective board which should
assume responsibility for leadership and control of the issuer and be
collectively responsible for promoting the success of the issuer by
directing and supervising the issuer's affairs. Directors should take
decisions objectively in the interests of the issuer."
o The Board consists of twelve members. Five of them are Independent
Non-executive Directors.
o The list of Directors, their respective biographies, and their
respective roles in the Board committees are set out on pages 52 to 56
and 163 respectively. The relevant information is also disclosed in
the Company's website.
o The Board and committee members of the Company are dedicated,
professional and accountable. With internationally recognised figures
serving on the international advisory board, the Company's corporate
governance standards are further enhanced.
o Board meetings have been held 17 times during last year. In addition
to the Board meetings, the members of the Board have also actively
participated in the discussion on the business and operation of the
Company, either in person or through other electronic means of
communication such as email, when necessary.
o There exists an open atmosphere for Directors to contribute
alternative views. All decisions of the Board are made on the
principles of trust and fairness in an open and transparent manner, so
as to protect the interests of all shareholders.
Attendance at full Board meetings in 2005
No. of Meetings attended
Executive Directors (17 meetings in total)
-----------------------------------------------------
Fu Chengyu 17/17
Luo Han 14/17
Zhou Shouwei 17/17
Cao Xinghe (Note 3) 3/3
Wu Zhenfang (Note 3) 2/3
Wu Guangqi (Note 1) 14/15
Yang Hua (Note 3) 2/3
-----------------------------------------------------
Independent Non-executive Directors
Chiu Sung Hong 17/17
Kenneth S. Courtis 14/17
Evert Henkes 16/17
Tse Hau Yin, Aloysius (Note 2) 14/14
Lawrence J. Lau (Note 4) 3/3
Note 1: Mr. Wu Guangqi was appointed as Executive Director with effect from
1 June 2005.
Note 2: Mr. Tse Hau Yin, Aloysius was appointed as Independent
Non-executive Director with effect from 8 June 2005.
Note 3: Mr. Cao Xinghe, Mr. Wu Zhenfang and Mr. Yang Hua were appointed as
Executive Directors with effect from 31 August 2005.
Note 4: Professor Lawrence J. Lau was appointed as Independent
Non-executive Director with effect from 31 August 2005.
030
o The Company Secretary consulted the Directors on matters to be
included in the agenda for regular Board meetings.
o Dates of regular Board meetings are scheduled at least 2 months ahead
to provide sufficient notice to give all Directors an opportunity to
attend. For non-regular Board meetings, reasonable notice will be
given.
o Directors have access to the advice and services of the Company
Secretary to ensure that Board procedures as well as all applicable
rules and regulations are followed.
o Minutes of meetings of the Board and Board committees are kept by the
Company Secretary and open for inspection at any reasonable time on
reasonable notice by any Director.
o Minutes of meetings of the Board and Board committees recorded
sufficient details the matters considered by the Board and Board
committees and decisions reached, including any concerns raised by
Directors or dissenting views expressed. Draft and final versions of
minutes of Board meetings and Board committee meetings are sent to all
Directors and all committee members respectively for their comments
and records respectively.
o The committees of the Board are able, upon reasonable request, to seek
independent professional advice in appropriate circumstances, at the
Company's expense.
o If a substantial shareholder or a Director has conflict of interest in
a matter to be considered by the Board which the Board has determined
to be material, the matter shall not be dealt with by way of
circulation or by a committee (except an appropriate Board committee
set up for that purpose pursuant to a resolution passed in a Board
meeting) but a Board meeting shall be held. Independent Non-executive
Directors who have no material interest in the transaction shall be
present at such Board meeting.
A.2 Chairman and Chief Executive Officer
Principle: "There are two key aspects of the management of every issuer -
the management of the board and the day-to-day management of the issuer's
business. There should be a clear division of these responsibilities at
the board level to ensure a balance of power and authority, so that power
is not concentrated in any one individual."
o The Board, as representatives of the shareholders of the Company, is
committed to the achievement of business success and the enhancement
of long-term shareholder value with the highest standards of integrity
and ethics. The Board comprises five Independent Non-executive
Directors who participate in the decision-making of the Board.
Besides, the Audit Committee and the Remuneration Committee comprise
solely Independent Non-executive Directors. The Company believes that
the high involvement of the Independent Non-executive Directors in the
management and decision making of the Board and its committees
strengthens the objectivity and independence of the Board.
o The role of the Board is to direct, guide and oversee the conduct of
the Company's business and to ensure that the interests of the
shareholders are being served.
o On the other hand, the senior management, under the direction of the
Chief Executive Officer, is responsible for conducting the Company's
business and affairs consistent with the principles and directions
established by the Board. The clear division of responsibilities
between the Board and the senior management ensures a balance of power
and authority, as well as efficient management and operation of the
Company, which help to contribute to the success of the Company.
031
o The Company did not divide the roles of the Chairman and the Chief
Executive Officer. The Board believes that this structure contributes
to a strong and efficient leadership which is beneficial to the
development of the Company. It also enables the Company to make and
implement decisions promptly and efficiently. On the other hand, the
balance of power and authority is ensured by the operations of the
Board and the Board committees. Further explanation on the deviation
from the Code Provision is set out on page 38.
A.3 Board composition
Principle: "The board should have a balance of skills and experience
appropriate for the requirements of the business of the issuer. The board
should ensure that changes to its composition can be managed without
undue disruption. The board should include a balanced composition of
executive and non-executive directors (including independent
non-executive directors) so that there is a strong independent element on
the board, which can effectively exercise independent judgement.
Non-executive directors should be of sufficient calibre and number for
their views to carry weight."
o The Board consists of twelve members. Five of them are Independent
Non-executive Directors. All Directors are expressly identified by
categories of Executive Directors and Independent Non-executive
Directors in all corporate communications that disclose the names of
Directors of the Company.
o The Executive Directors of the Company are all individuals with
immense experience in the Company's respective fields of operation.
They are all engineers who are familiar with the Company's business
and have been exposed to dealing with leading global players in the
oil and gas industry. Most of them have over 25 years of experience in
petroleum exploration and operation.
o The five Independent Non-executive Directors of the Company are all
professionals or scholars with backgrounds in the legal, economics,
financial and investment fields. They have extensive experience and
knowledge of corporate management, making significant contributions to
the Company's strategic decisions.
o The appointment of Mr. Tse Hau Yin, Aloysius and Professor Lawrence J.
Lau as Independent Non-executive Directors in 2005 strengthened the
independence and broadened the expertise of the Board.
o The diverse background of the Board members ensures that they can
fully represent the interests of all shareholders of the Company.
o The Company has received annual confirmations from all its Independent
Non-executive Directors acknowledging full compliance with the
relevant requirements in respect of their independence pursuant to
Rule 3.13 of the Listing Rules. The Company therefore considers all
Independent Non-executive Directors independent.
A.4 Appointments, re-election and removal
Principle: "There should be a formal, considered and transparent
procedure for the appointment of new directors to the board. There should
be plans in place for orderly succession for appointments to the board.
All directors should be subject to re-election at regular intervals. An
issuer must explain the reasons for the resignation or removal of any
director."
o The Company has established a Nomination Committee which consists of
an Executive Director and three Independent Non-Executive Directors. A
list of members of the Nomination Committee is set out under the
section headed "Company Information" on page 163 of the annual report.
032
o The role of the Nomination Committee is to establish proper procedures
for the selection of the Company's leadership positions, upgrade the
quality of Board members and perfect the Company's corporate
governance structure.
o The main authorities and responsibilities of the Nomination Committee
are to nominate candidates for approval by the Board, to review the
structure and composition of the Board, and to evaluate the leadership
abilities of Executive and Non-executive Directors, so as to ensure
the competitive position of the Company.
o When nominating a particular candidate, the Nomination Committee will
consider (1) the breadth and depth of management and/or leadership
experience of the candidate; (2) financial literacy or other
professional or business experience of the candidate that are relevant
to the Company and its business; and (3) the experience in or
knowledge of international operations of the candidate. All candidates
must be able to meet the standards set out in Rules 3.08 and 3.09 of
the Listing Rules.
o The Nomination Committee is also responsible for evaluating the
contributions and independence of incumbent Directors so as to
determine whether they should be recommended for re-election. Based on
such evaluation, the Nomination Committee will recommend to the Board
candidates for re-election at general meetings and appropriate
replacements (as necessary). The Board, based on the recommendation of
the Nomination Committee, will propose to the shareholders the
candidates for re-election at the relevant general meetings.
o A Director appointed by the Board to fill a casual vacancy or as an
addition shall hold office until the next extraordinary general
meeting and/or annual general meeting (as appropriate).
o During the year ended 31 December 2005, the Nomination Committee
recommended the following candidates as Directors:
(a) the appointment of Mr. Wu Guangqi as Executive Director with
effect from 1 June 2005 to replace Mr. Jiang Longsheng, who
ceased to be an Executive Director with effect from 1 June 2005;
(b) the appointment of Mr. Tse Hau Yin, Aloysius with effect from 8
June 2005 to replace Dr. Erwin Schurtenburger, who ceased to be
an Independent Non-executive Director with effect from 1 April
2005; and
(c) the appointment of Mr. Cao Xinghe, Mr. Wu Zhenfang and Mr. Yang
Hua as Executive Directors, and Professor Lawrence J. Lau as
Independent Non-executive Director with effect from 31 August
2005, to further strengthen the Board and cater for the needs of
the expanding business of the Company.
Attendance of individual members at
Nomination Committee meetings in 2005
No. of Meetings attended
Directors (5 meetings in total)
-----------------------------------------------------
Luo Han (Chairman) 5/5
Chiu Sung Hong 5/5
Tse Hau Yin, Aloysius (Note 1) 1/1
Lawrence J. Lau (Note 2) 0/0
Note 1: Mr. Tse Hau Yin, Aloysius was appointed as a member of the Nomination
Committee with effect from 31 August 2005.
Note 2: Professor Lawrence J. Lau was appointed as a member of the Nomination
Committee with effect from 20 December 2005.
033
A.5 Responsibilities of directors
Principle: "Every director is required to keep abreast of his
responsibilities as a director of an issuer and of the conduct, business
activities and development of that issuer. Given the essential unitary
nature of the board, non-executive directors have the same duties of care
and skill and fiduciary duties as executive directors."
o The Company regularly updates its Directors with changes in laws and
regulations relevant to their role as Director of the Company.
o All Directors newly appointed to the Board (whether as Executive or
Non-executive Directors) receive appropriate briefing and training
from the Company. The senior management and the Company Secretary will
also conduct subsequent briefings as and when necessary, to ensure
that the Directors are kept appraised of the latest developments
relevant to the operations and business of the Company and are able to
discharge their responsibilities properly.
o Each Independent Non-executive Director attended all regularly
scheduled meetings of the Board and committees on which such
Independent Non-executive Director sat in, and reviewed the meeting
materials distributed in advance for such meetings. A number of
Executive Directors, together with several Independent Non-executive
Directors, attended the annual general meeting and the extraordinary
general meetings and answered questions raised by the shareholders.
A.6 Supply of and access to information
Principle: "Directors should be provided in a timely manner with
appropriate information in such form and of such quality as will enable
them to make an informed decision and to discharge their duties and
responsibilities as directors of an issuer."
o The Company's senior management regularly supplies the Board and its
committees with adequate information in a timely manner to enable them
to make informed decisions. Senior management also organised
presentations to the Board by professional advisers on specific
transactions as appropriate.
o For regular Board meetings and Board committee meetings, the agenda
and accompanying Board papers were sent in full to all Directors at
least three days before the intended date of the Board meetings or
Board committee meetings.
o The Board and each Director have separate and independent access to
the Company's senior management and also the Company Secretary. All
Directors are entitled to have access to Board papers, minutes and
related materials upon reasonable notice.
B. REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT
B.1 The level and make-up of remuneration and disclosure
Principle: "An issuer should disclose information relating to its
directors' remuneration policy and other remuneration related matters.
There should be a formal and transparent procedure for setting policy on
executive directors' remuneration and for fixing the remuneration
packages for all directors. Levels of remuneration should be sufficient
to attract and retain the directors needed to run the company
successfully, but companies should avoid paying more than is necessary
for this purpose. No director should be involved in deciding his own
remuneration."
o Comprising three Independent Non-executive Directors, the Remuneration
Committee is responsible for reviewing and approving all Executive
Directors' salaries, bonuses, share option packages, performance
appraisal systems and retirement plans. A list of members of the
Remuneration Committee is set out in "Company Information" on page
163.
o Details of the remuneration, as well as the share option benefits of
Directors for the year ended 31 December 2005, are set out on pages
105 to 106.
034
o The major responsibilities and authorities of the Remuneration
Committee are to make recommendations to the Board on the
Company's policy and structure for all remuneration of Directors
and the senior management, determine the specific remuneration
packages for all Executive Directors and senior management, such
as benefits in kind, pension rights and compensation payments,
including any compensation payable for loss or termination of
their office or appointment, and make recommendations to the Board
on the remuneration of Independent Non-executive Directors.
o The Company's emolument policy is to maintain fair and competitive
packages with reference to perception of industry standards and
prevailing market conditions. The Remuneration Committee was mindful
that levels of remunerations sufficient to attract and retain the
Directors and senior management were needed to run the Company
successfully, but at the same time avoid paying more than is necessary
for this purpose. The Directors' emolument package comprises
Director's fee, basic salaries and allowances, bonuses, share options
and others. The following factors are considered when determining the
Directors' remuneration package:
-- Business needs and company development;
-- Responsibilities of the Directors and individual contribution;
-- Changes in appropriate markets, e.g. supply/demand
fluctuations and changes in competitive conditions; and
-- The desirability of performance-based remuneration.
No individual Director or senior management of the Company was
permitted to determine his/her own remuneration.
The Company sought to apply similar principles when determining the
remuneration packages for senior management and other general staff,
and employees are rewarded on a performance-rated basis as well as
other fringe benefits such as social insurance, pension fund and
medical cover.
Please refer to note 12 and note 13 to the financial statements on
page 105 to 107 for details of Directors' remuneration and the five
highest paid individuals in the Company.
o The remuneration of Independent Non-executive Directors recommended by
the Remuneration Committee was determined by the Board where the vote
of the Directors concerned will not be counted in relation to their
remuneration.
o The Remuneration Committee also administered the Company's share
option schemes and all other employee equity-based compensation plans,
with full authority to make all other determinations in the
administration thereof, but subject to the limitations prescribed by
laws and the rules of such plans and programs.
o The Remuneration Committee would consult the Chairman and Chief
Executive Officer about its proposal relating to the remuneration of
other Executive Directors and have access to professional advice if
necessary.
Attendance of individual members at Remuneration
Committee meetings in 2005
-----------------------------------------------------
Independent No. of Meetings attended
Non-executive Directors (5 meetings in total)
-----------------------------------------------------
Chiu Sung Hong (Chairman) 5/5
Evert Henkes 5/5
Tse Hau Yin, Aloysius (Note) 3/3
Note: Mr. Tse Hau Yin, Aloysius was appointed as a member of the Remuneration
Committee with effect from 8 June 2005.
035
C. ACCOUNTABILITY AND AUDIT
C.1 Financial reporting
Principle: "The board should present a balanced, clear and
comprehensible assessment of the company's performance, position
and prospects."
o The Company regularly updates investors with progress of development
and performance of the Company through formal channels such as annual
report, interim report and announcements made through HKEx's website
and newspapers, as well as through press releases. The Company also
issues quarterly operational statistics and announces its strategy at
the beginning of the year to enhance transparency about its
performance and to give details of the latest development of the
Company in a timely manner.
o The Company provides a comprehensive business review in its interim
and annual reports to enable investors to appraise its development
over time and its financial position.
o The Company has also engaged an independent technical consultant firm
to conduct a review of its oil and gas information and discloses
details of its oil and gas properties in its annual report (as set out
on pages 146 to 150).
C.2 Internal controls
Principle: "The board should ensure that the issuer maintains sound and
effective internal controls to safeguard the shareholders' investment
and the issuer's assets."
o The Company has established internal control system and mechanism and
will continue to improve such systems to comply with regulatory
requirements and to enhance corporate governance of the Company.
o The Audit Committee of the Board is responsible for overseeing the
operation of the internal monitoring systems, so as to ensure that the
Board is able to monitor the Company's overall financial position, to
protect the Company's assets, and to prevent major errors resulting
from financial reporting or loss.
o The Audit Committee has reviewed, together with senior management and
the external auditors, the accounting principles and practices adopted
by the Group and discussed the internal control and financial
reporting matters.
C.3 Audit Committee
Principle: "The board should establish formal and transparent
arrangements for considering how it will apply the financial reporting
and internal control principles and for maintaining an appropriate
relationship with the company's auditors. The audit committee established
by an issuer pursuant to the Exchange Listing Rules should have clear
terms of reference."
o The Audit Committee consists of three Independent Non-executive
Directors, with Dr. Kenneth Courtis designated as the Audit Committee
financial expert for the purposes of U.S. securities laws. A list of
members of the Audit Committee is under the section headed "Company
Information" on page 163 of the annual report.
o The Audit Committee meets at least twice a year and is responsible for
reviewing the completeness, accuracy and fairness of the Company's
accounts, evaluating the Company's auditing scope and procedures as
well as its internal control systems.
o Full minutes of Audit Committee meetings are kept by the Company
Secretary. Draft and final versions of minutes of the Audit Committee
meetings are sent to all members of the Audit Committee for their
comments and records respectively, in both cases within a reasonable
time after the meetings.
o The Audit Committee is also responsible for overseeing the operation
of the internal monitoring systems so as to ensure that the Board is
able to monitor the Company's overall financial position, to protect
the Company's assets, and to prevent major errors resulting from
financial reporting or loss.
036
o The following is a summary of the work performed by the Audit
Committee under its charter during the year:
-- Reviewed the Company's audited accounts and results announcement
before it is tabled before the Board for approval, discussing
with senior management and the external auditors;
-- The Audit Committee held formal meetings with the external
auditors and senior management of the Company at least twice a
year to discuss the following matters:
(i) the external auditor's engagement letter and general scope
of their audit work, including planning and staffing of the
audit;
(ii) the Company's management discussion and analysis disclosures
in the interim report and annual report of the Company;
(iii)the applicable accounting standards relating to the audit of
the Company's financial statements, including any recent
changes;
-- In addition to formal meetings arrangement by the Company,
members of the Audit Committee were also given direct access to
the external auditors and have frequent contacts with the
external auditors to discuss issues from time to time;
-- Conducted a review of the effectiveness of the system of internal
controls of the Company and its subsidiaries, including
financial, operational and compliance controls, as well as risk
management aspects of internal controls, and made recommendation
to the Board based on the review;
-- Discussing with senior management of the Company ways of
improving and strengthening the scope, adequacy and effectiveness
of the Company's internal controls, including corporate
accounting and financial controls, both under the Listing Rules
as well as under relevant US requirements;
-- Made recommendation to senior management and the Board on the
scope and quality of management's ongoing monitoring of risks and
issues relevant to internal controls;
-- Reviewed the work performed by the Company's external auditors
and their relationship with the Company's senior management, and
recommended to the Board for the re-appointment of Ernst & Young
as external auditors, as well as the proposed auditor's fees;
-- Reviewed the Company's audit and non-audit services
pre-approval policy to ensure auditor independence;
-- Members of the Audit Committee received materials from the
Company's external auditors from time to time in order to keep
abreast of changes in financial reporting principles and
practices, as well as issues relating to financial reporting and
internal controls relevant to the Company.
-- Considered and approved the non-audit services provided by the
external auditors during the year;
-- Reviewed the Company's business ethics and compliance policies,
related reports and training programs and making recommendation
for improvement; and
-- Reported on its findings and suggestions to the Board following
its review of different aspects of the Company's financial
reporting and internal control systems, and made appropriate
recommendations where necessary.
o The Audit Committee is provided with sufficient resources, including
independent access to and advice from external auditors.
037
Attendance of individual members at
Audit Committee meetings in 2005
-----------------------------------------------------
Independent No. of Meeting attended
Non-executive Directors (3 meetings in total)
-----------------------------------------------------
Chiu Sung Hong (Chairman) 3/3
Kenneth S. Courtis 3/3
Tse Hau Yin, Aloysius (Note) 2/2
Note: Mr. Tse Hau Yin, Aloysius was appointed as a member of the Audit
Committee with effect from 8 June 2005.
D. DELEGATION BY THE BOARD
D.1 Management functions
Principle: "An issuer should have a formal schedule of matters
specifically reserved to the board for its decision. The board should
give clear directions to management as to the matters that must be
approved by the board before decisions are made on behalf of the issuer."
o The Board is the ultimate decision-making body of the Company, other
than those matters reserved to shareholders of the Company. The Board
oversees and provides strategic guidance to senior management in order
to enhance the long-term value of the Company for its shareholders.
o The day-to-day management is conducted by senior management and
employees of the Company, under the direction of the Chief Executive
Officer and the oversight of the Board. In addition to its general
oversight of management, the Board also performs a number of specific
functions.
o The primary functions performed by the Board include:
(i) reviewing and approving long-term strategic plans and annual
operating plans, and monitoring the implementation and execution
of those plans;
(ii) reviewing and approving significant financial and business
transactions and other major corporate actions; and
(iii) reviewing and approving financial statements and reports, and
overseeing the establishment and maintenance of controls,
processes and procedures to ensure accuracy, integrity and
clarity in financial and other disclosures.
D.2 Board committees
Principle: "Board committees should be formed with specific written
terms of reference which deal clearly with the committees' authority and
duties."
o The Company has formed an Audit Committee, a Remuneration Committee
and a Nomination Committee of the Board, each committee with its own
specific charter.
E. COMMUNICATION WITH SHAREHOLDERS
E.1 Effective communication
Principle: "The board should endeavour to maintain an on-going dialogue
with shareholders and in particular, use annual general meetings or other
general meetings to communicate with shareholders and encourage their
participation."
o The Board recognises the importance of good and effective
communication with all shareholders. With a policy of being
transparent, strengthening investor relations, and providing
consistent and stable returns to shareholders, the Company seeks to
ensure transparency through establishing and maintaining different
communication channels with shareholders.
o The Company has a professionally-run investor relations department to
serve as an important communication channel between the Company and
its shareholders and other investors. In 2005, the Company was
selected by sell-side analysts as "the Best Investor Relations in Oil
and Gas Industry" according to the Institutional Investor research
group and was named No. 1 for Best Corporate Governance in China by
FinanceAsia magazine.
038
o A key element of effective communication with shareholders and
investors is prompt and timely dissemination of information in
relation to the Company. In addition to announcing its interim and
annual results to shareholders and investors, the Company also
publicises its major business developments and activities through
press releases, announcements and the Company's website in accordance
with relevant rules and regulations. Press conferences and analyst
briefings are held from time to time on financial performance and
major transactions.
o The annual general meeting also provides a useful forum for
shareholders to exchange views with the Board. The Chairman of the
Board, as well as chairmen of the Audit Committee, Nomination
Committee and Remuneration Committee, or in their absence, members of
the respective committees, are available to answer questions from
shareholders at annual general meetings and extraordinary general
meetings of the Company.
E.2 Voting by Poll
Principle: "The issuer should regularly inform shareholders of the
procedure for voting by poll and ensure compliance with the requirements
about voting by poll contained in the Exchange Listing Rules and the
constitutional documents of the issuer."
o Details of the poll voting procedures and the rights of shareholders
to demand a poll are set out on page 63 of this annual report, and are
included in circulars to shareholders despatched by the Company.
o The results of the poll are published in newspapers as well as on the
Stock Exchange and the Company's website.
o The Company has also complied with the requirements concerning voting
by poll under the Listing Rules. For example, voting was conducted by
poll in respect of the connected transactions at the Company's recent
extraordinary general meeting held on 31 December 2005.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the Code Provisions of the CG Code as set out in
Appendix 14 of the Listing Rules throughout the year ended 31 December, 2005,
except for deviations from Code Provisions A.2.1, A.4.1, A.4.2 and B.1.3 only.
The following summaries the Company's deviations from the CG Code and the
reasons for such deviations.
Code Provision A.2.1
Under Code Provision A.2.1, the roles of the chairman and chief executive
officer are required to be separated and not to be performed by the same
individual.
Mr. Fu Chengyu ("Mr. Fu") is the Chairman of the Board. In addition to the
role of the Chairman, the role of Chief Executive Officer is also designated
to Mr. Fu. This constitutes a deviation from Code Provision A.2.1. The reason
for such deviation is set out below.
The Company is engaged in the oil and gas exploration and production business
which is different from integrated oil companies engaging in both upstream and
downstream operations. In light of this, the Board considers that the interest
of the Company's oil and gas exploration and production business is best
served when strategic planning decisions are made and implemented by the same
person. The Company's Nomination Committee also agreed that it is in the best
interest of the Company that the roles of the Chairman of the Board and Chief
Executive Officer be performed by the same individual.
In light of the above, the Company does not currently propose to designate
another person as the Chief Executive Officer of the Company.
039
Code Provision A.4.1
Under Code Provision A.4.1, non-executive directors should be appointed for a
specific term and be subject to re-election.
None of the existing Independent Non-executive Directors of the Company is
appointed for a specific term. This constitutes a deviation from Code
Provision A.4.1. However, all the Directors of the Company (executive and
non-executive) are subject to the retirement provisions under article 97 of
the articles of association of the Company ("Article 97"). According to
Article 97, one-third of the Directors for the time being must retire from the
office by rotation at each annual general meeting. The Company has observed
the need for good corporate governance practices and all the existing
Independent Non-executive Directors of the Company have been re-elected in
past three years, except Mr. Lawrence J. Lau, who was appointed as an
Independent Non-executive Director of the Company with effect from 31 August
2005. Therefore, the Company considers that sufficient measures have been
taken to ensure that the Company's corporate governance practices are no less
exacting than those in the CG Code.
Code Provision A.4.2
Under Code Provision A.4.2, every Director, including those appointed for a
specific term, should be subject to retirement by rotation at least once every
three years. Mr. Fu, the Chairman of the Company, was re-elected as a Director
on 6 June 2002. Although he did not retire by rotation at the annual general
meeting held on 25 May 2005 as under Article 97 a Director who is also a
chairman or chief executive officer of the Company is exempted from the
requirement to retire by rotation, he was re-elected as a Director at the
extraordinary general meeting held on 31 December 2005 to comply with Code
Provision A.4.2.
Code Provision B.1.3
Code Provision B.1.3 requires the terms of reference of the remuneration
committee of the Company to include, as a minimum, certain specific duties set
out in such Code Provision.
Previously, the Company's Remuneration Committee charter did not mirror the
exact wording of the terms of reference in Code Provision B.1.3. The Company
has therefore revised its Remuneration Committee charter to comply with the
provisions in Code Provision B.1.3.
CHANGES IN DIRECTORSHIP
On 1 April 2005, Mr. Erwin Schurtenberger resigned as an Independent
Non-executive Director of the Company for personal reasons due to ill health.
Mr. Tse Hau Yin, Aloysius ("Mr. Tse") was subsequently appointed as an
Independent Non-executive Director of the Company in place of Mr. Erwin
Schurtenberger on 8 June 2005. Mr. Tse was also appointed as a member of the
Audit Committee, Remuneration Committee and Nomination Committee of the
Company.
Mr. Jiang Longsheng, an Executive Director of the Company, retired on 1 June
2005 and Mr. Wu Guangqi was appointed as an Executive Director of the Company
in place of Mr. Jiang Longsheng with effect from the same day. Mr. Wu Guangqi
was also appointed as the Compliance Officer of the Company.
Based on the recommendation of the Nomination Committee, Mr. Cao Xinghe, Mr.
Wu Zhenfang and Mr. Yang Hua were appointed as Executive Directors of the
Company, and Mr. Lawrence J. Lau was appointed as an Independent Non-executive
Director of the Company, all with effect from 31 August 2005, to further
strengthen the Board and cater for the needs of the expanding business of the
Company.
During the period between Mr. Erwin Schurtenberger's resignation and Mr. Tse's
appointment as an Independent Non-executive Director of the Company, the Audit
Committee only comprised of two Independent Non-executive Directors and
therefore the Company was not in strict compliance with Rule 3.21 of the
Listing Rules, which requires an audit committee to comprise of at least three
Independent Non-executive Directors. The Company had informed the Stock
Exchange immediately and published an announcement in newspapers containing
relevant details in compliance with Rule 3.23 of the Listing Rules. The
Company had also, in accordance with Rule 3.23 of the Listing Rules, ensured
that an appropriate member was appointed to the Audit Committee within three
months of Mr. Erwin Schurtenberger's resignation. After Mr. Tse's appointment
with effect from 8 June 2005 as an Independent Non-executive Director and a
member of the Audit Committee of the Company, the Audit Committee comprised
three Independent Non-executive Directors and the Company is in compliance
with Rule 3.21 of the Listing Rules.
040
CODE OF ETHICS
The Board adopted a code of ethics ("Code of Ethics") on 28 August 2003 to
provide guidelines to the 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 the Company's assets as well as
reporting requirements.
All the senior management members and Directors are required to familiarise
themselves with and follow the Code of Ethics to ensure that the Company's
operations are honest and legal. Violations of the rules will be penalized and
serious offences will result in dismissals.
The Company reviewed its Code of Ethics and adopted the revised code of ethics
("New Code of Ethics") in 2005, as part of its continued efforts to improve
its corporate governance standards. The Company has provided all its 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 the Company's operation is
proper and lawful. The Company will take disciplinary actions towards any act
which is in breach of the New Code of Ethics.
MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS
The Company's Code of Ethics and New Code of Ethics both incorporated the
Model Code for Securities Transactions by Directors of Listed Issuers (the
"Model Code") as set out in Appendix 10 to the Listing Rules. All Directors
have confirmed that they complied, during the year ended 31 December 2005,
with the required standards set out in the Model Code.
SERVICES AND REMUNERATION OF AUDITORS
Ernst & Young was appointed and engaged as the Company's auditor ("Auditor")
for the financial year ended 31 December 2005. Services provided by the
Auditor and fees charged by the Auditor for the services are as follows:
Audit Fees
The aggregate fees billed for professional services rendered by the Auditor
for the audit of the Company's annual financial statements or services that
are normally provided by the Auditor in connection with statutory and
regulatory filings or engagements were RMB6,750,000 (approximately US$815,562)
for the financial year ended 31 December 2004 and RMB7,961,006 (approximately
US$986,469) for the financial year ended 31 December 2005.
Audit-Related Fees
The aggregate fees billed for assurance and related services by the Auditor
that are reasonably related to the performance of the audit or review of the
Company's financial statements and are not reported under "Audit Fees" were
RMB993,180 (approximately US$120,000) for the financial year ended 31 December
2004 and RMB2,098,252 (approximately US$260,000) for the financial year ended
31 December 2005. The audit-related services provided by the Auditor included
assistance in the implementation of Section 404 of the Sarbanes-Oxley Act.
Tax Fees
The aggregate fees billed for professional service rendered by the Auditor for
tax compliance, tax advice and tax planning were RMB99,318 (approximately
US$12,000) for the financial year ended 31 December 2004 and nil for the
financial year ended 31 December 2005.
All other fees
There are no other fees payable to the Auditor for products and/or services
provided by the Auditor, other than the services reported above, for the
financial year ended 31 December 2004 and for the financial year ended 31
December 2005.
041
STATEMENT ON CORPORATE GOVERNANCE AS REQUIRED BY SECTION 303A.11 OF THE NEW
YORK STOCK EXCHANGE LISTED COMPANY MANUAL
The Company is incorporated under the laws of Hong Kong and the principal
trading market for the ordinary shares of the Company is the Stock Exchange of
Hong Kong Limited. In addition, because the Company's ordinary shares are
registered with the United Sates Securities and Exchange Commission and are
listed on the New York Stock Exchange (the "NYSE"), the Company is 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 the Company as a "foreign private issuer" and the Company is
permitted to follow its home country corporate governance practices in lieu of
most corporate governance standards contained in the NYSE Standards. Section
303A.11 of the NYSE Listed Company Manual 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.
companies listed on the NYSE. The Company has posted a brief summary of such
significant differences on its website, which may be accessed through the
following web page:
http://www.cnoocltd.com/investor/channel/investor1851.asp
042
Health, Safety and Environment
043
The Company is committed to the promotion of the concept and culture of
health, safety and environmental protection among all the staff. Employees are
encouraged and urged to put these ideas into practice. Hence, we are making
every effort to develop the HSE system and structure, and to organize the
related training for all the management and staff members of the Company.
At CNOOC Limited, health, safety and environmental protection (HSE) are always
the priority in various operating activities.
The culture of improving and reinforcing HSE has already become a consensus
among our management and staff members at all levels. The emphasis on strict
implementation has become part of the routine of HSE management. The priority
on environmental protection and employees' health has also been acted on. In
addition, there is an increasing awareness of social responsibility during the
project implementation.
In 2005, the Company made sustained progress in respect of HSE management.
During the year, it was neither involved in any material injury liability
case, spillage or pollution incidents, nor subject to any safety-related
liability claims for losses of over RMB1 million. Besides, the Company's OSHA
Statistics results continued to be above average when compared with
international peers.
Strict HSE Management
As an environment-friendly company, the Company is committed to preserving
health and safety of its staff, as well as maintaining the harmony with
environment, when pursuing its development and profit growth.
The oil and gas field development projects of the Company that were started
during the year all underwent simultaneous reviews on health, safety and
environmental protection in accordance with the laws of the PRC. These
projects had been endorsed by the competent government departments. Relevant
government approvals had been obtained.
During the year, our focus in HSE management was also placed on contractors.
Through organizing case study seminars and issuing the HSE management
standards for contractors, the Company further strengthened our HSE management
toward contractors.
In 2005, we also placed considerable emphasis on safety in helicopter, diving
and vehicle operations. Professional auditors were hired to conduct safety
checks on 11 leased helicopters. In 2006, we plan to carry out special audits
on diving operations.
044
The Company introduced the system of occupation health profiles to all
branches in order to strengthen the health management of offshore operating
staff.
Besides, we continued to require offshore operating staff to submit health
certificates. We also analyze their health data, so as to offer proactive and
constructive advices to them on health improvement.
In 2005, we enhanced our information exchange on HSE. As an OGP (International
Association of Oil and Gas Producer) member, the Company assisted the Group in
organizing the "Workshop on Safety Management of Offshore Accidents" in 2005.
Improvement on HSE Crisis Management
In 2005, the Company organized a large-scale offshore emergency drill. There
were over 300 participants, including our offshore service contractors and
transportation service contractors. This exercise was very successful in
training the involved parties, including our offshore units, branches,
contractors and the relevant public authorities, on working together to tackle
emergency situations.
The Company continued to work with other entities to set up Oil Spill Response
Base in Tangguh, Longkou, Weizhou and Zhuhai. Such initiatives strengthened
our capability in handling offshore oil spill emergencies.
045
Cultivation of HSE Culture
To reinforce its work on health, safety and environmental protection, the
Company kept on organizing various training sessions to further promote the
HSE culture among its employees.
In 2005, nearly all the staff from the management to the operational level
participated in our HSE training sessions. The topics covered HSE regulations,
corporate values and policies, risk management and control, offshore rescue and
special operations.
In addition, the scope of our HSE training has been extended to the employees
of contractors. The training requirement have also been further embedded in
performance appraisals in order to enhance HSE practices during operations.
More than 10,000 employees of our contractors participated in our training
sessions in 2005.
CNOOC LTD'S osha Occupational Injury & Occupation Disease Statistics of 2005
Number of Number of
Rate of days away days away
Gross Recordable recordable Number of Rate of & working & working
Scope man-hours cases cases cases away cases away shifts bounds Deaths
----------------------------------------------------------------------------------------------------------------
Company 7,196,936 5 0.139 1 0 3 0.028 0
staff
Company staff 31,558,087 50 0.317 15 0.095 138 0.875 0
& direct
contractors
046
Corporate Citizen
047
As a socially responsible corporate citizen, the Company not only devotes to
good causes in the form of Tibet-aid, poverty relief and education subsidies,
but also gives whole-hearted support and donations to help victims of natural
disasters.
Support the Community and Contribute to the Society
The Company-considers social responsibility as one of the essential
prerequisites for corporate development. While emphasizing the creation of
economic value to satisfy the high expectations of our shareholders, we are
also eager to take up our social responsibility as a corporate citizen to
generate social benefit for the advancement of the community and the whole
society.
In 2005, the Company undertook a number of initiatives to give back to
society.
In respect of education and culture, the Company established various endowment
funds and education funds to support the education and living of
poverty-stricken children. Besides, the Company also set up several
free-education primary schools and made substantial donations in Hainan and
other places to the construction of school buildings and dormitories.
In 2005, the Company made further contributions to the Western Australia
Symphony Orchestra as part of a 3-year sponsorship campaign. Besides, together
with its seven partners in the North West Shelf Gas Project in Australia, the
Company jointly sponsored the visit of the Western Australia Symphony
Orchestra to China to promote cultural exchange between the two countries.
The Company also sustained its oil aid activities to help relieve poverty by
providing community support to different places in the form of provisions and
volunteer labour.
Meanwhile, the Company and its branches and subsidiaries in various provinces
and cities continued to actively participate in a charity project to support
mothers in poverty, the donation of money and provisions to the Children's
Village in Beijing, blood donations, charity tree planting and other charity
events.
Apart from the corporate level, the employees of the Company also actively
took part in volunteer work, relief support and other charity activities.
The Company, as an active supporter of humanitarian causes and a socially
responsible corporate citizen, is eager to help the victims of natural
disasters with forthcoming and speedy responses through donations of money and
provisions.
In September 2005, we donated US$100,000 to the areas in the US where
Hurricane Katrina wreaked havoc.
In the same month, we also made substantial donations of money and provisions
to several Chinese regions which were affected by Typhoon Talim.
In December 2005, we donated HK$1 million to support student exchange at the
Chinese University of Hong Kong.
In February 2006, the Company donated US$50,000 to Southern Leyte, Philippines
in support of the relief work for a landslide disaster, which caused massive
deaths and injuries.
048
Human Resources
[Graphic omitted]
049
Bringing Together Talents to Create Win-win Situation
In 2005, the Company successfully speeded up its progress in aligning the
standards of its human resources management system and corporate management
system with those of international energy groups. This effectively created a
solid platform to secure the abundant supply of high quality talents to
support the Company down the road to globalization by enhancing its
competitiveness in the international market.
During the year, the Company continued to offer reasonable salary packages and
ample training opportunities to provide the staff with sufficient room for
career development and added incentives.
Innovating Ideas and Optimizing Management Model
To further enhance its competitiveness in respect of human resources, the
Company started to work out its corporate competence models in a systematic
manner under the human-oriented management principle. Various competence
models, including core strengths leadership, professional and technical
personnel and front line competence models, were designed for different ranks.
The establishment of these competence models served to provide guidance on our
human resources management with a revolutionary mindset. It also helps to
ensure that those who are recruited, selected and promoted are competent for
the relevant positions in the Company. Besides, it facilitates the development
of a more focused training system so as to nurture and develop our staff more
strategically in a target-oriented manner. Moreover, we keep improving our
performance review system so that the emphasis on positions will be gradually
replaced by the emphasis on career development.
050
Management Transparency and Professional Ethics
During the year, the Company continued to emphasize that all employees should
be respected and treated equally and fairly.
During the year under review, the Company issued a series of policy documents,
including the "Management Authority Manual", "Disciplinary Action Policy and
Associated Regulations", "Code of Business Conduct and Ethics" and "Conflict
of Interest Policy". By doing so, we managed to further improve the standards
and increase transparency of the relevant management systems and their
information disclosures, and to raise the professional standards of our
employees.
Comprehensive System and Reasonable Rewards
In the course of its pursuit of corporate growth, the Company keeps on
improving its salary structure and incentive schemes to reward its staff in
recognition of their performance.
During the year, we completed the "Compensation Administration and Adjustment
Plan" and concluded the reform on our staff remuneration structure. Besides,
we also introduced various incentive schemes, such as, among others, the
"Project Team Incentive Scheme" and the "New discovery Incentive Scheme". Such
efforts help not only further regulate the existing system of staff
remuneration and benefits, but also effectively motivate our employees at all
levels to contribute more to the business development of the Company.
With respect to overseas staff, we continued to improve our remuneration
policy to make it competitive in the international market. Besides, we also
started to build up international recruitment database to support our overseas
business expansion.
051
Staff Training and Long-term Development
The Company places great importance to the long-term personal growth of the
employees. Therefore, we keep on designing versatile, practical and
target-oriented training courses to develop the capabilities of the employees
in a systematic and progressive manner.
During the year, apart from being active in recruiting external talents, we
continued to strengthen internal training and personnel development. We
constantly improved our training management system to upgrade our standards in
this area. Besides, we took steps to build and develop various online training
channels, including the E-learning online platform and other initiatives.
Various management and other training programs were provided to our employees
for the benefit of their career development, as well as the business
development of the Company in order to create a win-win situation.
In 2005, the Company organized a number of professional and general management
training programs in a strategic manner. During the year, 818 training classes
were organized with 12,215 participants, amounting to a total of 95,295
training hours or 50 training hours per person.
052
Directors and Senior Management
[Graphic omitted]
053
Executive Directors
Fu Chengyu
Born in 1951, Mr. 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 China National
Offshore Oil Corporation ("CNOOC"), the controlling shareholder of the
Company, 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 the Executive Vice President, President and Chief Operating
Officer of the Company 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 the Chairman of the Board of Directors and Chief Executive
Officer of the Company with effect from 16 October 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 the subsidiaries of the Company. Mr. Fu was
appointed as an Executive Director of the Company with effect from 23 August
1999.
Luo Han
Born in 1953, Mr. 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, a subsidiary of the
Company. Mr. Luo was appointed as an Executive Director of the Company with
effect from 20 December 2000.
Zhou Shouwei
Born in 1950, Mr. 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 the Executive Vice President
of the Company in September 1999 and the President of the Company 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 subsidiaries of the Company. He
also serves as the Chairman of CNOOC Southeast Asia Limited, a wholly-owned
subsidiary of the Company since April 2003. Mr. Zhou became the chairman of
CNOOC Engineering Company Limited, a listed company in Shanghai Stock Exchange
and a subsidiary of CNOOC, on 6 December 2003. Mr. Zhou was appointed as an
Executive Director of the Company with effect from 23 August 1999.
054
Cao Xinghe
Born in 1949, Mr. 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 Assistant President of CNOOC. He became 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 an Executive Director of the Company with effect from 31 August
2005.
Wu Zhenfang
Born in 1952, Mr. 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 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 an Executive Director of
the Company with effect from 31 August 2005.
Wu Guangqi
Born in 1957, Mr. 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 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 the Compliance Officer of the Company
since 1 June 2005. Mr. Wu was appointed as an Executive Director of the
Company with effect from 1 June 2005.
Yang Hua
Born in 1961, Mr. 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 CNOOC
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 the Company and its subsidiaries. From 1993 to 1999, he served as
the Deputy Chief Geologist, the Deputy Director and the Acting Director for
Overseas Development Department of the Company and the Vice President of CNOOC
International Limited, a wholly-owned subsidiary of the Company. In 1999, he
became a Senior Vice President of the Company and then became an Executive
Vice President in December 2005. From 2002 to 2003, Mr. Yang was the Director
and President of CNOOC Southeast Asia Limited, a wholly-owned subsidiary of
the Company. He was appointed as the Chief Financial Officer of the Company
with effect from 1 January 2005. He also serves as the Director of CNOOC
International Limited. Mr. Yang was appointed as an Executive Director with
effect from 31 August 2005.
055
Independent Non-executive Directors
Chiu Sung Hong
Born in 1947, Mr. 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 30 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 an Independent Non-executive Director of the Company with effect
from 7 September 1999.
Kenneth S. Courtis
Born in 1946, Dr. 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 an Independent Non-executive Director of the Company with
effect from 11 November 2002.
Evert Henkes
Born in 1943, Mr. 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 an Independent Non-executive Director of the Company
with effect from 16 September 2003.
Tse Hau Yin, Aloysius
Born in 1948, Mr. 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 an
Independent Non-executive Director of the Company with effect from 8 June
2005.
056
Lawrence J. Lau
Born in 1944, Professor 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 an Independent Non-executive Director of the Company with effect
from 31 August 2005.
Company Secretary
Cao Yunshi
Born in 1945, Mr. Cao is the Company Secretary, General Counsel and a Senior
Vice President of the Company. He received a B.S. degree from the Beijing
Petroleum Institute and studied law at the Law School of Columbia University.
He joined CNOOC in 1982. From 1992 to 1999, Mr. Cao was the General Manager of
the Legal Department of CNOOC. He has been the General Counsel of CNOOC since
1999. Mr. Cao is a senior economist and licensed lawyer in the PRC. He has
extensive experience in production sharing contracts.
Other Members of Senior Management
Liu Jian
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.
Chen Wei
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.
057
Zhang Guohua
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.
Li Ning
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.
Chen Bi
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.
Zhu Weilin
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.
Zhu Mingcai
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.
Fang Zhi
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.
Changes in Director and Senior Management of the Company
In April 2005, Mr. Erwin Schurtenberger resigned from the post of Independent
Non-executive Director due to health reason.
In June 2005, Mr. Jiang Longsheng was no longer an Executive Director of the
Company due to retirement. Mr. Wu Guangqi was appointed as Executive Director
to replace Mr. Jiang Longsheng. He was also appointed as the compliance
officer. Mr. Tse Hau Yin, Aloysius was appointed as Independent Non-executive
Director.
In August 2005, Mr. Cao Xinghe, Mr. Wu Zhenfang and Mr. Yang Hua was appointed
as Executive Directors of the Company and Professor Lawerence J. Lau was
appointed as Independent Non-executive Director.
In December 2005, Mr. Yang Hua and Mr. Liu Jian was appointed as Executive
Vice President of the Company.
058
Report of the Directors
The directors (the "Directors") of the Company are pleased to present their
report together with the audited financial statements of the Company for the
year ended 31 December 2005.
PRINCIPAL ACTIVITIES
The principal activity of the Company is investment holding of its
subsidiaries, (together with the Company collectively referred to as the
"Group"). These subsidiaries are principally engaged in the exploration,
development, production and sales of crude oil and natural gas and other
petroleum products.
SUMMARY OF FINANCIAL INFORMATION AND OPERATING RESULTS
Please refer to the financial summary on page 2 for a summary of the assets
and liabilities of the Group as at 31 December 2005 and the operating results
for the year then ended.
LOANS
Please refer to note 27 to the financial statements on pages 118 to 119, for
details of the long-term bank loans of the Group for the year ended 31
December 2005.
PROPERTY, PLANT AND EQUIPMENT
Please refer to note 18 to the financial statements on pages 112 to 113 for
net movements in property, plant and equipment of the Group for the year ended
31 December 2005.
RESERVES
The distributable reserves of the Company as at 31 December 2005, as
calculated under section 79B of the Companies Ordinance (Cap. 32 of the Laws
of Hong Kong), amounted to RMB7,762,096,000.
Please refer to the statement of changes in equity on pages 74 to 75 and note
33 to the financial statements on page 133 to 134 for movements in the
reserves of the Group and the Company, respectively, for the year ended 31
December 2005.
SUBSIDIARIES AND ASSOCIATED COMPANIES
Particulars of the Company's subsidiaries and associated companies as at 31
December 2005 are set out in notes 20 and 21 to the financial statements on
pages 113 to 116.
DIVIDENDS
An interim dividend of HK$0.05 per share and a special interim dividend of
HK$0.05 per share was declared on 30 August 2005 and paid to the shareholders
of the Company on 29 September 2005.
The Directors recommend the payment of a final dividend of HK$0.10 per share
for the year ended 31 December 2005 payable on 7 June 2006 to all shareholders
on the register of members of the Company on 24 May 2006 subject to
shareholders' approval.
RETIREMENT BENEFITS
Please refer to note 34 to the financial statements on page 135 for details of
the retirement benefits of the Group for the year ended 31 December 2005.
MAJOR SUPPLIERS AND CUSTOMERS
Purchases from the largest supplier of the Group for the year ended 31
December 2005 represented approximately 17.4% of the Group's total purchases.
The total purchases attributable to the five largest suppliers of the Group
accounted for approximately 41.4% of the total purchases of the Group for the
year then ended.
Sales to the largest customer for the year ended 31 December 2005 represented
approximately 11.3% of the Group's total revenue. The total sales attributable
to the five largest customers of the Group accounted for approximately 35.8%
of the total oil and gas sales of the Group for the year ended 31 December
2005.
059
For the year ended 31 December 2005, except for the continuing connected
transactions with its indirect controlling shareholder China National Offshore
Oil Corporation ("CNOOC") and its associates, as disclosed in the section
headed "Connected Transactions" below, none of the Directors or their
respective associates or any shareholder of the Company (which to the
knowledge of the Directors owns more than 5% of the Company's share capital)
had any interests in the five largest suppliers or customers of the Group.
CONNECTED TRANSACTIONS
The Independent Non-executive Directors have confirmed that the following
connected transactions for the year ended 31 December 2005 to which any member
of the Group was a party were entered into by the Group:
1. in the ordinary and usual course of its business;
2. either (a) on normal commercial terms, or (b) where there was no
available comparison, on terms no less favourable to the Group than those
available to or from independent third parties; and
3. in accordance with the relevant agreement governing them on terms that
were fair and reasonable so far as the shareholders of the Company were
concerned and in the interests of the shareholders of the Company as a
whole.
The Independent Non-executive Directors have further confirmed that for the
year ended 31 December 2005:
1. the aggregate annual volume of transactions under the materials,
utilities and ancillary services supply agreements did not exceed 10% of
the audited consolidated total revenues of the Company for the year ended
31 December 2004;
2. the aggregate annual volume of transactions in relation to technical
services did not exceed RMB 7,218 million (being the revised cap for the
year ended 31 December 2005, as approved by the independent shareholders
of the Company on 31 December 2005);
3. the aggregate annual volume of transactions in relation to research and
development services for particular projects did not exceed RMB 153
million;
4. the aggregate annual volume of transactions in relation to sales of crude
oil, condensate oil and liquefied petroleum gas did not exceed 82% of the
audited consolidated total revenues of the Group in the year ended 31
December 2004;
5. the amount paid under the general research and development services
agreement did not exceed RMB 110 million;
6. the aggregate amounts paid under the lease and management agreements did
not exceed RMB 78 million; and
7. the maximum outstanding balance of deposits (including interest received
in respect of these deposits) placed with CNOOC Finance Corporation
Limited did not exceed RMB 6,800 million.
The auditors of the Group have reviewed the connected transactions referred to
in paragraphs 1 to 7 above and confirmed to the Directors that:
1. the transactions have received the approval of the Directors;
2. the transactions were in accordance with the pricing policies as stated
in the Company's financial statements;
3. the transactions were entered into in accordance with the terms of the
agreements governing the transactions; and
4. the amount of the transactions has not exceeded the cap for which waiver
was granted.
Please also refer to note 30 to the financial statements on pages 121 to 123
for a summary of the related party transactions which include the Group's
connected transactions.
060
In order to present a more coherent, logical and understandable picture to
shareholders, and also to enable the Company to monitor the status of
connected transactions following each category more effectively going forward,
the Company has adopted a new categorisation for continuing connected
transactions. On 8 December 2005, the Company entered into three comprehensive
framework agreements with each of CNOOC, China Oilfield Services Limited and
Offshore Oil Engineering Co., Ltd respectively for the provision (1) by the
Group to CNOOC and/or its associates and (2) by CNOOC and/or its associates to
the Group, of a range of products and services which may be required and
requested from time to time by either party and/or its associates in respect
of the new categories of continuing connected transactions. The term of each
of the comprehensive framework agreements is for a period of two years from 1
January 2006. The new categorisation and caps for each category of continuing
connected transactions as approved by the independent shareholders of the
Company on 31 December 2005 which will apply to the Company for the period
from 1 January 2006 to 31 December 2007 are as follows:
Categories of continuing
connected transactions Annual 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 the Group
(a) Exploration and For the two years ending 31 RMB2,117 million
support services and RMB2,293 million, respectively
(b) Oil and gas field For the two years ending 31 December 2007,
development and RMB7,628 million and RMB10,458 million,
support services respectively
(c) Oil and gas field For the two years ending 31 December 2007,
production and RMB3,935 million and RMB4,132 million,
support services respectively
(d) Marketing, For the two years ending 31 and December 2007,
management RMB478 million and RMB504 million, respectively
ancillary services
(e) FPSO vessel leases For the two years ending 31 December 2007,
RMB453 million and RMB463 million, respectively
Provision of management, technical, facilities and ancillary services,
including the supply of materials from the Group to CNOOC and/or its
associates
Provision of management, For the two years ending 31 December 2007,
technical, facilities and RMB50 million and RMB100 million, respectively
ancillary services,
including the supply of
materials to CNOOC and/or
its associates
Sales of petroleum and natural gas products by the Group to CNOOC and/or its
associates
(a) Sales of petroleum For the two years ending 31 December
and natural 2007, RMB33,469 million and RMB44,199 million,
gas products respectively
(b) Long term sales of For the two years ending 31 December
natural gas and 2007, RMB1,960 million and RMB3,599 million,
liquefied natural gas respectively
SHARE CAPITAL
Please refer to note 32 to the financial statements on pages 124 to 132 for
details of movements in the Company's share capital for the year ended 31
December 2005.
061
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;
2. 2001 Share Option Scheme;
3. 2002 Share Option Scheme; and
4. 2005 Share Option Scheme.
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 31 December 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.
Please refer to note 32 to the financial statements on pages 124 to 132 for
details regarding each of the share option scheme of the Company and options
granted by the Company pursuant to each of the Pre-Global Offering Share
Option Scheme, the 2001 Share Option Scheme, the 2002 Share Option Scheme and
the 2005 Share Option Scheme.
During the year ended 31 December 2005, 2,300,100 options granted under the
share option schemes of the Company had been exercised. Save as those
disclosed in note 32 to the financial statements on pages 124 to 132, no right
to subscribe for equity or debt securities of the Company has been granted by
the Company to, nor have any such rights been exercised by, any other person
during the year ended 31 December 2005.
PURCHASE, SALE OR REDEMPTION OF SHARES
There was no purchase, sale or redemption of the Company's shares by the
Company, or any of its subsidiaries during the year ended 31 December 2005.
SUBSTANTIAL SHAREHOLDERS' INTERESTS IN SHARE CAPITAL
As at 31 December 2005, the following persons (other than the Directors and
chief executives of the Company) had interests in the shares of the Company as
recorded in the register required to be kept by the Company under section 336
of the Securities and Futures Ordinance ("SFO"):
Ordinary Shares Percentage of
Directly Indirectly Total Issued
held held Shares
----------------------------------------------------------------------------------------------------------------
(i) CNOOC (BVI) Limited ("CNOOC (BVI)") 28,999,999,995 -- 70.64%
(ii) Overseas Oil & Gas Corporation, Limited 5 28,999,999,995 70.64%
("OOGC")
(iii) CNOOC -- 29,000,000,000 70.64%
Note: CNOOC (BVI) is a wholly-owned subsidiary of OOGC, which is in turn a wholly-owned subsidiary of CNOOC.
Accordingly, CNOOC (BVI)'s interests are recorded as the interests of OOGC and CNOOC.
062
All the interests stated above represent long positions. Save as disclosed
above, as at 31 December 2005, the Company is not aware of any other person
having interests or short positions (other than the Directors and chief
executives of the Company) in the shares or underlying shares of the Company
as recorded in the register required to be kept under section 336 of the SFO.
DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY
Please refer to pages 52 to 57 for information concerning the Directors and
senior management of the Company.
DIRECTORS' INTERESTS
Apart from holding personal interests in options to subscribe for shares in
the Company granted under the share option schemes of the Company (as set out
in note 32 to the financial statements on pages 124 to 132), as at 31 December
2005, none of the Directors and chief executives of the Company had registered
an interest or short position in the shares, underlying shares or debentures
of the Company or any of its associated corporations (within the meaning of
Part XV of the SFO), or as being recorded pursuant to section 352 of the SFO,
or as otherwise notified to the Company and the HKSE pursuant to the Model
Code. All the interests held by the Company's directors and chief executive
represent long positions.
DIRECTORS' SERVICE CONTRACTS AND INTERESTS IN CONTRACTS
No re-electing Director has an unexpired service contract with the Company
which is not determinable by the Company within one year without payment of
compensation (other than normal statutory obligations).
Save as disclosed in this annual report, as at 31 December 2005 or during the
year, none of the Directors had a material interest, whether directly or
indirectly, in any contract of significance to the business of the Group to
which the Company or any of its subsidiaries was a party.
EMOLUMENTS OF THE DIRECTORS AND THE FIVE HIGHEST PAID INDIVIDUALS
Please refer to notes 12 and 13 to the financial statements on pages 105 to
107 for details of the emoluments of the Directors and the five highest paid
individuals of the Company.
MATERIAL LEGAL PROCEEDINGS
As at 31 December 2005, the Company was not involved in any material
litigation or arbitration and no material litigation or claims was pending or
threatened or made against the Company so far as the Company is aware.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company is committed to high standards of corporate governance through the
establishment of an efficient framework of policies, procedures and systems.
Except for deviations from the code provisions A.2.1, A.4.1, A.4.2 and B.1.3,
the Company has complied with the code provisions of the Code on Corporate
Governance Practices as set out in Appendix 14 of the Listing Rules throughout
the year ended 31 December 2005.
Please refer to the Corporate Governance Report on pages 28 to 41 for details.
AUDITORS
Ernst & Young was appointed as the auditors of the Company for the year ended
31 December 2005 and has audited the accompanying financial statements. A
resolution to re-appoint Ernst & Young as auditors of the Company will be
proposed at the forthcoming annual general meeting to be held on 24 May 2006.
SUFFICIENCY OF PUBLIC FLOAT
As at the date of this report, the Directors confirmed that based on
information that is publicly available to the Company and within the knowledge
of the Directors, the Company had maintained sufficient amount of public float
as required under the Listing Rules.
063
PROCEDURES FOR DEMANDING A POLL
Pursuant to Article 69(a) of the articles of association of the Company, a
resolution put to the vote of a general 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 such 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 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.
By Order of the Board
Fu Chengyu
Chairman
Hong Kong, 24 March 2006
064
Management Discussion and Analysis
BUSINESS REVIEW AND PROSPECTS
As at 31 December 2005, our total revenue amounted to RMB69,455.7 million
(US$8,470.4 million), representing a year-on-year increase of 25.8%. Net
profit amounted to RMB25,323.1 million (US$3,088.3 million), representing a
year-on-year increase of 56.9%. The profit growth was attributable to the
following reasons: due to the increased oil price and high market demand, we
seized favorable opportunities from such optimism and strengthened our
exploration and development to actively expand our production capacity of oil
and gas. We continued to implement effective cost control measures and
maintained our leadership position in production cost per barrel among our
peers.
As at 31 December 2005, the Company's basic and diluted earnings per share
were RMB0.62 and RMB0.61 respectively.
Looking ahead, it is expected that the global economy will maintain positive
development and the demand for energy will continue to rise. It apparently
appears that oil price will likely stay at high level. We will increase our
capital expenditure and strengthen exploration activities. More work will be
done on the acquisitions of seismic data as well as exploration drilling. The
development projects will also be conducted in a continual and highly
efficient manner. There will be sixteen new projects in progress in 2006, of
which ten of them are expected to commence operation during the year. The
large number of oil and gas fields put into development are also expected to
contribute positively to achieve the Company's production target.
In 2006, we will consistently maintain a healthy financial position and
continue to expand our overseas development and pursuit of opportunities for
acquisition. At the same time, our exploration work will be extended to
deepwater area.
The management remains confident in the development potential of the Company.
CONSOLIDATED NET PROFIT
Our consolidated net income after tax was RMB25,323.1 million (US$3,088.3
million) in 2005, an increase of RMB9,184.0 million (US$1,120.0 million), or
56.9% from RMB16,139.1 million in 2004.
REVENUE
Income from our oil and gas sales for 2005 was RMB53,417.7 million (US$6,514.5
million), respesenting an increase of RMB16,531.7 million (US$2,016.1
million), or 44.8% from RMB 36,886.0 million in 2004. The increase was
attributable to the high oil price, whilst growth in production also
attributed to higher profits in the Company. The average realised price for
our crude oil was US$47.31 per barrel in 2005, respesenting an increase of
US$11.9, or 33.6% from US$35.41 per barrel in 2004. Sale of crude oil amounted
to 129.8 million barrels, respesenting an increase of 11.6% over 2004. The
average realised price for our natural gas was US$2.82 per thousand cubic feet
in 2005, respesenting an increase of US$0.07, or 2.6% from US$2.75 per
thousand cubic feet in 2004. At the same time, sales volume of our natural gas
increased by 6.8% from 21.9 million BOE in 2004 to 23.4 million BOE in 2005.
In 2005, our net marketing profit, which was derived from marketing revenue
less purchase cost of crude oil and oil products, was RMB197.2 million
(US$24.1 million), respesenting a decrease of RMB30.7 million (US$3.7
million), or 13.5%, from RMB227.9 million in 2004. Marketing revenue from the
Company's wholly-owned subsidiary, CNOOC China Limited, was RMB9,430.8 million
(US$1,150.1 million), respesenting an increase of RMB1,688.2 million (US$205.9
million) from RMB 7,742.6 million in 2004. The net marketing profit was
RMB85.0 million (US$10.4 million), however, 45.7% decreased from the same
period last year due to the significant reduction in sales margin which was
mainly influenced by market price in local market. Marketing revenue from the
Company's wholly-owned subsidiary, China Offshore Oil (Singapore)
International Pte Ltd., was RMB6,470.5 million (US$789.1 million). Netting off
purchase cost of crude oil and oil production, the net marketing profit was
RMB112.2 million (US$13.7 million), or 57.4% increased from the same period
last year.
Our other income, reported on a net basis, was derived from our other income
less corresponding costs. In 2005, our other net income was RMB59.7 million
(US$7.3 million), respesenting a decrease of RMB39.1 million (US$4.8 million)
from RMB98.8 million in 2004. The decrease mainly came from the fluctuation of
income from service fee relating to PSC projects.
065
EXPENSES
Operating expenses
Our operating expenses in 2005 were RMB5,934.6 million (US$723.7 million),
respesenting an increase of RMB864.3 million (US$105.4 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 the
year. Operating expenses in 2005 were RMB38.8 (US$4.73) per BOE, an increase
of 5.7% from RMB36.7 (US$4.43) per BOE in 2004. Operating expenses offshore
China in 2005 were RMB32.5 (US$3.96) per BOE, respesenting 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
offshore Indonesia in 2005 were RMB100.2 (US$12.22) per BOE, respesenting an
increase of 13.0% from 2004. The increase in operating expenses per barrel for
our Indonesian oil fields was due to lower net production volume based on
their production sharing models. Based on working interest production,
operating expenses in offshore Indonesia in 2005 were RMB48.7 (US$5.94) per
BOE.
Production taxes
Our production taxes for 2005 were RMB2,596.5 million (US$316.7 million),
respesenting an increase of RMB870.8 million (US$106.2 million), or 50.5% from
RMB1,725.7 million in 2004. The increase was mainly due to the increased
income from oil and gas sales.
Exploration costs
Our exploration costs for 2005 were RMB1,293.7 million (US$157.8 million), a
slight decrease of RMB22.5 million (US$2.7 million), or 1.7% from RMB1,316.2
million in 2004, as a result of increase in capitalisation of investment in
exploration.
Depreciation, depletion and amortisation
Our depreciation, depletion and amortisation were RMB5,964.7 million (US$727.4
million) for 2005, respesenting an increase of RMB509.6 million (US$62.1
million), or 9.3% from RMB 5,455.1 million in 2004. Our average depreciation,
depletion and amortisation per barrel were RMB39.0 (US$4.75) per BOE which
were more or less the same as those in 2004.
Dismantlement
Our dismantling costs for 2005 were RMB252.9 million (US$30.8 million), an
increase of RMB51.3 million (US$6.3 million) from RMB201.6 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
average dismantling costs were RMB1.7 (US$0.20) per BOE, a corresponding
increase from RMB1.5 (US$0.18) per BOE in 2004.
Impairment losses related to property, plant and equipment
Our impairment losses for 2005 were RMB90.2 million (US$11.0 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 RMB0.6 (US$0.07)
per BOE.
Selling and administrative expenses
Our selling and administrative expenses for 2005 were RMB1,370.4 million
(US$167.1 million), respesenting an increase of RMB266.1 million (US$32.5
million), or 24.1% from RMB1,104.3 million in 2004. Of which, the selling and
administrative expenses of companies in China were RMB6.3 (US$0.77) per BOE,
respesenting an increase of 14.5% from the previous year. Compared with last
year, the increase was mainly attributable to the increase in management fees
related to more PSC projects in production, labor costs and general research
expenditures occurred in 2005.
Finance costs, net of interest income
Our net finance costs for 2005 were RMB741.2 million (US$90.4 million), an
increase of 215.5% from the net interest expenses of RMB235.0 million in 2004.
On one hand, our interest income increased RMB152.4 million from RMB206.9
million in 2004 to RMB359.3 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 RMB164.4 million
(US$20.1 million), RMB373.1 million (US$45.5) and RMB79.2 million (US$9.7
million) respectively.
066
Exchange gains/losses, net
Our net exchange gains incurred in 2005 were RMB287.0 million (US$35.0
million), an increase of RMB257.7 million (US$31.4 million) from net exchange
gains of RMB29.3 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 RMB in the second
half of the year.
Investment income
Our investment income for 2005 was RMB247.9 million (US$30.2 million), a
significant increase of RMB175.5 million (US$21.4 million), or 242.4% from
RMB72.4 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
RMB261.8 million (US$31.9 million), respesenting 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
RMB45.3 million (US$5.5 million) during the period, relatively comparable to
that from 2004.
Non-operating income/expenses, net
Our net non-operating income for 2005 was RMB28.6 million (US$3.5 million),
and our net non-operating income for 2004 was RMB 519.2 million. The
non-operating income in 2004 represented the tax refund from re-investment in
China.
Income tax
Our income tax for the year 2005 was RMB10,977.8 million (US$1,338.8 million),
respesenting an increase of RMB4,047.0 million (US$493.5 million), or 58.4%
from RMB6,930.8 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.
Cash generated from operating activities
Net cash generated from operating activities in 2005 amounted to RMB32,153.8
million (US$3,921.3 million), respesenting an increase of RMB9,825.9 million
(US$1,198.3 million), or 44.0% from RMB22,327.9 million in 2004.
The increase in cash was mainly due to an increase in profit before tax of
RMB13,231.0 million (US$1,613.6 million), an increase in depreciation,
depletion and amortization expenses of RMB509.7 million (US$62.2 million), an
increase in finance costs of RMB658.7 million (US$80.3 million), an increase
in provision for inventory of RMB35.8 million (US$4.4 million), an increase in
dismantlement costs of RMB51.2 million (US$6.2 million), a decrease in share
of profits of associates of RMB37.4 million (US$4.6 million), an increase in
amortisation of discount of long term guaranteed notes of RMB26.3 million
(US$3.2 million), and an increase in impairment losses related to property,
plant and equipment of RMB90.2 million (US$11.0 million).
Increase of cash flow was also partially offset by an increase of income tax
paid of RMB2,447.2 million (US$298.4 million), an increase in our finance
exchange gain and loss of RMB257.8 million (US$31.4 million), an increase in
investment income received of RMB175.5 million (US$21.4 million), a decrease
in the loss on disposal and write off of property, plant and equipment of
RMB14.3 million (US$1.7 million), an increase in interest income of RMB152.4
million (US$18.6 million) and a decrease in compensation cost for share based
payment of RMB17.5 million (US$2.1 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 RMB2,103.9 million (US$256.6 million), and
a simultaneous increase in changes of current liabilities from operating
activities of RMB71.0 million (US$8.7 million).
067
Capital expenditures and investments
Net cash outflow from investing activities in 2005 was RMB29,349.2 million
(US$3,579.3 million), representing an increase of RMB4,742.0 million (US$578.3
million) from RMB24,607.2 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 purchases of oil and gas properties. Total
capital expenditures were RMB17,469.5 million (US$2,130.5 million) in 2005,
representing a decrease of RMB1,152.5 million (US$140.6 million), or 6.2%,
from RMB18,622.0 million in 2004. Capital expenditures in 2005 mainly
comprised of RMB875.8 million (US$106.7 million) for capitalised exploration
activities, RMB15,729.7 million (US$1,918.4 million) for development
investments, and RMB1,017.0 million (US$124.0 million) for acquisition of
16.69% equity interest of MEG, netting off a tax refund of RMB153.0 million
(US$18.7 million) from NWS Project. Our development expenditures in 2005
related principally to the development of PanYu 30-1, Bozhong 25-1/25-1S,
PL19-3 phase II, 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 RMB3,597.0 million (US$438.7 million),
and the net purchase of available-for-sale financial assets of RMB8,282.7
million (US$1,010.1 million).
Financing activities
The net cash flow arising from financing activities in 2005 was an outflow of
RMB7,786.4 million (US$ 949.6 million) while that in 2004 was an inflow of
RMB1,970.5 million. Compared with 2004, there was no issuance of debt
financing instruments or bank loan increase in 2005. The distribution of
dividends of RMB7,772.2 million (US$947.9 million) and the repayment of bank
loans of RMB18.7 million (US$2.3 million) by the Company generated a total
cash outflow of RMB 7,790.9 million (US$950.1 million). Some cash inflow was
generated by the proceeds from the exercise of share options of RMB4.5 million
(US$0.5 million) in 2005.
Repayment arrangements of our total debts as at 31 December 2005 were as
follows:
Debt maturities principal only
Original currency
Total
RMB Total US$
Due by 31 December US$ JPY RMB equivalent equivalent
----------------------------------------------------------------------------------------------------------------
(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%
The gearing ratio of the Company was 19.1%. Gearing ratio is (Total Debt)/(Total Debt + Equity).
068
Market risks
Our market risk exposures primarily consist of fluctuations in oil and gas
prices, exchange rates and interest rates.
Oil and gas price risk
As our oil and gas prices are mainly determined by reference to the oil and
gas prices in international markets, changes in international oil and gas
prices have a large impact on us. International oil and gas prices are
volatile, and this volatility has a significant effect on our net sales and
net profits.
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 policies of
maintaining a stable exchange rate and China's ample foreign reserves have
contributed to the stability of the Renminbi. Starting from 21 July 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 US dollar. From
that day to 31 December 2005, Renminbi has appreciated by approximately 2.5%
against US dollars.
The appreciation of Renminbi against US dollars may have certain 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 Remminbi will also decrease the Group's costs for imported equipment
and materials. 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 our yen-denominated loans was only
RMB37.3 million. Since the Group has hedged our yen loans against foreign
currency swaps, the Group does not expect any exchange risk relating to
Japanese yen in the future.
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.
Significant investments and material acquisitions
i) On 11 March 2005, CNOOC reached agreement with Canadian MEG Energy
Corporation, on the acquisition of 18.5% (16.69% on a diluted basis) of the
issued shares of MEG Energy Corp., for a consideration of C$150 million. The
Company thereby acquired an interest in the oil sand project in Canada, which
has a huge development potential.
ii) On 23 June 2005, the Company made a merger proposal to Unocal Corporation
to acquire all the shares of Unocal Corporation at US$67 per share, or a total
consideration of approximately US$18.5 billion. However, in light of huge
uncertainties and unbearable risks associated with the political environment
in the US, the Company finally withdrew its offer on 2 August 2005.
iii) On 8 January 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. 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.
iv) On 27 January 2006, the Company acquired a 35% working interest in the
Nigeria OPL229 for a consideration of US$60 million.
069
EMPLOYEES
We had 2,696 employees as at 31 December 2005.
We have adopted share option schemes for directors, senior management officers
and other eligible grantees of the Company since 4 February 2001. The Board
has granted options to eligible grantees pursuant to the terms of the relevant
schemes in effect from time to time.
In 2005, we further improved the implementation and utilization of
performance-based assessment system and continued implementing the "target
management" and "Balance Score Card" effectively. We also upgraded our
remuneration systems and various incentive systems and formulated "Proposal
for employees' remuneration and its adjustments". At the same time, we
accomplished the task of standardising our internal remuneration and awarded a
number of prizes and awards. We effectively awarded employees who made
contribution to our development while further standardised the existing
remuneration and benefits system.
We put great emphasis on the cultivation and development of our staff and
increased our efforts and strength on training. By continuously improving the
training and management system of the Company, formulating the standard for
training as well as establishing and amending on-line training, we provide our
staff with all kinds of management and business training, which is beneficial
to both our staff and the development of the enterprise.We strive to create a
win-win situation for our staff and the enterprise.
Furthermore, we continue implementing and refining our competitive
remuneration and benefits packages for overseas employees. We have also
started establishing a pool of talented staff which will guarantee the
provision of the necessary resources to cater for our strategic opportunities
for continuous fast growth.
CHARGES ON ASSETS
Except for the change on the interest of the Group in the NWS Project as
discussed in note 4 to the financial statements, the Group had no charge on
assets as at 31 December 2005.
CONTINGENT LIABILITIES
The Group had no contingent liabilities as at 31 December 2005.
070
Report of the Auditors
[GRAPHIC OMITTED] Ernst & Young
To the shareholders of
CNOOC Limited
(Incorporated in Hong Kong with limited liability)
We have audited the financial statements of CNOOC Limited (the "Company") and
its subsidiaries (the "Group") on pages 71 to 145 which have been prepared in
accordance with accounting principles generally accepted in Hong Kong.
Respective responsibilities of directors and auditors
The Companies Ordinance requires the directors to prepare financial statements
which give a true and fair view. In preparing financial statements which give
a true and fair view it is fundamental that appropriate accounting policies
are selected and applied consistently. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion solely to you, as a body, in accordance with Section 141 of
the Companies Ordinance, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the
contents of this report.
Basis of opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing
issued by the Hong Kong Institute of Certified Public Accountants. An audit
includes an examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgments made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the Company's and the Group's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis
for our opinion.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 2005 and of the
profit and cash flows of the Group for the year then ended and have been
properly prepared in accordance with the Companies Ordinance.
Ernst & Young
Certified Public Accountants
Hong Kong
24 March 2006
071
Consolidated Income Statement
Year ended 31 December 2005
(All amounts expressed in thousands of Renminbi, except per share data)
Notes 2005 2004
(Restated)
--------------------------------------------------------------
REVENUE
Oil and gas sales 7, 30 53,417,669 36,886,019
Marketing revenues 8 15,901,325 18,191,353
Other income 136,749 144,691
--------------------------------------------------------------
69,455,743 55,222,063
--------------------------------------------------------------
EXPENSES
Operating expenses (5,934,598) (5,070,344)
Production taxes (2,596,543) (1,725,674)
Exploration expenses (1,293,687) (1,316,160)
Depreciation, depletion and amortisation (5,964,740) (5,455,062)
Dismantlement 31 (252,857) (201,637)
Impairment losses related to property,
plant and equipment (90,190) --
Crude oil and product purchases 8 (15,704,100) (17,963,461)
Selling and administrative expenses 10 (1,370,368) (1,104,348)
Others (77,062) (45,844)
--------------------------------------------------------------
(33,284,145) (32,882,530)
--------------------------------------------------------------
PROFIT FROM OPERATING ACTIVITIES 36,171,598 22,339,533
Interest income 359,294 206,872
Finance costs 11 (1,100,532) (441,825)
Exchange gains, net 287,027 29,269
Investment income 9 247,893 72,438
Share of profits of associates 307,075 344,469
Non-operating income/(expenses), net 28,579 519,206
--------------------------------------------------------------
PROFIT BEFORE TAX 9 36,300,934 23,069,962
Tax 14 (10,977,812) (6,930,826)
--------------------------------------------------------------
NET PROFIT 15 25,323,122 16,139,136
==============================================================
072
Notes 2005 2004
(Restated)
--------------------------------------------------------------
DIVIDENDS
Special interim dividend declared
in place of 2003 final dividend 16 -- 2,617,526
Interim dividend 16 2,138,128 1,306,451
Special interim dividend 16 2,138,128 2,177,418
Proposed final dividend 16 4,250,391 1,310,022
Proposed special final dividend 16 -- 2,183,371
--------------------------------------------------------------
8,526,647 9,594,788
--------------------------------------------------------------
EARNINGS PER SHARE
Basic 17 RMB 0.62 RMB 0.39
Diluted 17 RMB 0.61 RMB 0.39
DIVIDEND PER SHARE
Special interim dividend declared
in place of 2003 final dividend 16 RMB -- RMB 0.06
Interim dividend 16 RMB 0.05 RMB 0.03
Special interim dividend 16 RMB 0.05 RMB 0.05
Proposed final dividend 16 RMB 0.10 RMB 0.03
Proposed special final dividend 16 RMB -- RMB 0.05
==============================================================
073
Consolidated Balance Sheet
31 December 2005
(All amounts expressed in thousands of Renminbi)
Group
Notes 2005 2004
(Restated)
--------------------------------------------------------------
NON-CURRENT ASSETS
Property, plant and equipment, net 18 66,625,167 57,182,026
Intangible assets 19 1,299,643 --
Investments in associates 21 1,401,839 1,327,109
Available-for-sale financial assets 1,017,000 --
--------------------------------------------------------------
Total non-current assets 70,343,649 58,509,135
--------------------------------------------------------------
CURRENT ASSETS
Accounts receivable, net 22 5,277,784 4,276,489
Inventories and supplies 23 1,199,626 1,147,294
Due from related companies 30 2,099,197 1,173,374
Other current assets 806,115 556,931
Available-for-sale financial assets/short term investments 24 13,846,935 5,444,113
Time deposits with maturities over three months 12,200,000 8,603,000
Cash and cash equivalents 30 8,991,758 14,091,524
--------------------------------------------------------------
Total current assets 44,421,415 35,292,725
--------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable 25 2,867,678 3,102,024
Other payables and accrued liabilities 26 5,206,943 4,191,024
Current portion of long term bank loans 27 825,674 24,364
Due to the parent company 29, 30 488,482 370,060
Due to related companies 30 759,934 211,425
Tax payable 14 3,467,505 2,503,466
--------------------------------------------------------------
Total current liabilities 13,616,216 10,402,363
--------------------------------------------------------------
NET CURRENT ASSETS 30,805,199 24,890,362
--------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 101,148,848 83,399,497
--------------------------------------------------------------
NON-CURRENT LIABILITIES
Long term bank loans 27 24,392 865,211
Long term guaranteed notes 28 16,531,780 16,313,550
Provision for dismantlement 31 4,161,663 3,089,448
Deferred tax liabilities 14 6,827,916 6,688,498
--------------------------------------------------------------
Total non-current liabilities 27,545,751 26,956,707
--------------------------------------------------------------
Net assets 73,603,097 56,442,790
==============================================================
CAPITAL AND RESERVES
Issued capital 32 876,635 876,586
Reserves 33 72,726,462 55,566,204
--------------------------------------------------------------
Total equity 73,603,097 56,442,790
==============================================================
Zhou Shouwei Yang Hua
Director Director
074
Consolidated Statement of Changes in Equity
Year ended 31 December 2005
(All amounts expressed in thousands of Renminbi)
Share premium
and capital Asset Cumulative Statutory and
Issued redemption revaluation translation non-distributive Other Retained
share capital reserve reserve reserve reserve reserves earnings Total
---------------------------------------------------------------------------------------------------------------
Balances at
1 January 2004
as previously
reported 876,978 20,761,205 274,671 22,647 8,050,489 -- 16,750,542 46,736,532
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) -- -- -- -- (274,671)
---------------------------------------------------------------------------------------------------------------
Balances at
1 January 2004
as restated 876,978 20,761,205 -- 22,647 8,050,489 63,502 16,687,040 46,461,861
---------------------------------------------------------------------------------------------------------------
Exchange realignment -- -- -- (42,301) -- -- -- (42,301)
---------------------------------------------------------------------------------------------------------------
Total income and
expenses for the
year recognised
directly in equity -- -- -- (42,301) -- -- -- (42,301)
Net profit for the
year (as restated) -- -- -- -- -- -- 16,139,136 16,139,136
---------------------------------------------------------------------------------------------------------------
Total income and
expenses
for the year -- -- -- (42,301) -- -- 16,139,136 16,096,835
Repurchases of shares (392) -- -- -- -- -- (60,761) (61,153)
Transfer of reserve
upon share
repurchases -- 392 -- -- -- -- (392) --
2004 special interim
dividend declared
in place of 2003
final dividends -- -- -- -- -- -- (2,617,526) (2,617,526)
2004 interim dividends -- -- -- -- -- -- (1,306,451) (1,306,451)
2004 special interim
dividends -- -- -- -- -- -- (2,177,418) (2,177,418)
Appropriation to
statutory reserve -- -- -- -- 1,363,121 -- (1,363,121) --
Equity-settled share
option expenses -- -- -- -- -- 46,642 -- 46,642
---------------------------------------------------------------------------------------------------------------
Balances at
31 December 2004
as restated 876,586 20,761,597 -- (19,654) 9,413,610 110,144 25,300,507 56,442,790
===============================================================================================================
Balances at
1 January 2005 as
previously reported 876,586 20,761,597 274,671 (19,654) 9,413,610 -- 25,410,651 56,717,461
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) -- -- -- -- (274,671)
---------------------------------------------------------------------------------------------------------------
Balances at
1 January 2005
as restated 876,586 20,761,597 -- (19,654) 9,413,610 10,144 25,300,507 56,442,790
---------------------------------------------------------------------------------------------------------------
075
Share premium
and capital Asset Cumulative Statutory and
Issued redemption revaluation translation non-distributive Other Retained
share capital reserve reserve reserve reserve reserves earnings Total
---------------------------------------------------------------------------------------------------------------
Changes in fair value
of available-for-
sale investments -- -- -- -- -- 69,069 -- 69,069
Exchange realignment -- -- -- (493,289) -- -- -- (493,289)
---------------------------------------------------------------------------------------------------------------
Total income and
expenses for the
year recognised
directly in equity -- -- -- (493,289) -- 69,069 -- (424,220)
Net profit for the year -- -- -- -- -- -- 25,323,122 25,323,122
---------------------------------------------------------------------------------------------------------------
Total income and
expenses for the year -- -- -- (4 93,289) -- 69,069 25,323,122 24,898,902
2004 final dividends -- -- -- -- -- -- (3,495,962) (3,495,962)
2005 interim dividends -- -- -- -- -- -- (4,276,256) (4,276,256)
Exercise of share options 49 4,451 -- -- -- -- -- 4,500
Appropriation to
statutory reserve -- -- -- -- 2,268,364 -- (2,268,364) --
Equity-settled share
option expenses -- -- -- -- -- 29,123 -- 29,123
---------------------------------------------------------------------------------------------------------------
Balances at
31 December 2005 876,635 20,766,048 -- (512,943) 11,681,974 208,336 40,583,047 73,603,097
===============================================================================================================
*These reserve accounts comprise the consolidated reserves of
RMB72,726,462,000 (2004: RMB55,566,204,000 (restated)) in the consolidated
balance sheet.
076
Consolidated Cash Flow Statement
Year ended 31 December 2005
(All amounts expressed in thousands of Renminbi)
Notes 2005 2004
--------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 35(a) 41,695,648 29,705,761
Income taxes paid (9,849,454) (7,402,280)
Interest received 359,294 206,871
Dividends received 232,346 135,000
Short term investment income received 45,785 4,626
Interest paid (329,797) (322,118)
--------------------------------------------------------------
Net cash inflow from operating activities 32,153,822 22,327,860
--------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of and prepayment for oil and
gas properties 35(b) (864,007) (5,779,140)
Additions of property, plant and equipment (16,605,548) (12,842,905)
Increase in time deposits with
maturities over three months (3,597,000) (6,280,000)
Purchase of available-for-sale financial assets/
short term investments (21,487,478) (5,735,093)
Disposals of available-for-sale financial assets/
short term investments 13,204,817 6,029,946
--------------------------------------------------------------
Net cash outflow from investing activities (29,349,216) (24,607,192)
--------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long term guaranteed notes -- 8,154,085
Repayment of bank loans (18,654) (21,075)
Dividends paid (7,772,218) (6,101,395)
Share repurchases -- (61,153)
Proceeds from exercise of share options 4,500 --
--------------------------------------------------------------
Net cash (outflow)/inflow from financing activities (7,786,372) 1,970,462
--------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,981,766) (308,870)
Cash and cash equivalents at beginning of year 14,091,524 14,400,394
Effect of foreign exchange rate changes, net (118,000) --
--------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 8,991,758 14,091,524
==============================================================
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and cash equivalents balances 8,991,758 14,091,524
==============================================================
077
Balance Sheet
31 December 2005
(All amounts expressed in thousands of Renminbi)
Company
Notes 2005 2004
--------------------------------------------------------------
NON-CURRENT ASSETS
Property, plant and equipment, net 18 1,074 164
Investment in subsidiaries 20 7,766,971 7,766,971
Loans to a subsidiary 20 4,138,290 4,138,290
--------------------------------------------------------------
Total non-current assets 11,906,335 11,905,425
--------------------------------------------------------------
CURRENT ASSETS
Other current assets 1,848 5,416
Due from the parent company 29 34 5
Due from subsidiaries 20 22,213,478 13,206,016
Available-for-sale financial assets 24 9,086,576 4,439,554
Cash and cash equivalents 572,792 9,240,575
--------------------------------------------------------------
Total current assets 31,874,728 26,891,566
--------------------------------------------------------------
CURRENT LIABILITIES
Other payables and accrued liabilities 52,532 50,244
Due to subsidiaries 20 14,468,726 15,256,082
--------------------------------------------------------------
Total current liabilities 14,521,258 15,306,326
--------------------------------------------------------------
NET CURRENT ASSETS 17,353,470 11,585,240
--------------------------------------------------------------
NET ASSETS 29,259,805 23,490,665
--------------------------------------------------------------
CAPITAL AND RESERVES
Issued capital 32 876,635 876,586
Reserves 33 28,383,170 22,614,079
==============================================================
Total equity 29,259,805 23,490,665
==============================================================
Zhou Shouwei Yang Hua
Director Director
078
Notes to Financial Statements
31 December 2005
(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.
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 31 December 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.
079
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 1 January 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
080
2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") (continued) 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.
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 1
January 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 1 January 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.
081
2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") (continued)
(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 1 January 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
082
2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING
STANDARDS (continued)
The HKAS 1 Amendment shall be applied for accounting periods beginning on
or after 1 January 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.
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 1 January 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 1 January 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 1 January 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)
==============
083
2.4 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (continued)
(a) Effect on the consolidated balance sheet (continued)
Effect of adopting
-------------------------------------------------------------------
HKAS 16# HKASs 32 HKAS 39* HKFRS 2#
At 31 December 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)
===============
(b) Effects on the balances of equity at 1 January 2004 and at 1 January
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
1 January 2004
Asset revaluation reserve (274,671) -- (274,671)
Other reserves -- 63,502 63,502
Retained earnings -- (63,502) (63,502)
--------------
(274,671)
==============
1 January 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 1 January 2005.
# Adjustments taken effect retrospectively.
084
2.4 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (continued)
(c) Effect on the consolidated income statement for the years ended 31
December 2005 and 2004
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 31 December 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 31 December 2004
Increase in selling and
administrative expenses -- -- 46,642 46,642
------------------------------------------------------------------------
Total decrease in profit -- -- 46,642 46,642
========================================================================
There was no material impact on basic earnings per share and diluted
earnings per share for the years ended 31 December 2005 and 2004 for
the adoption of the above new policies.
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.
085
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 arrangment 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).
086
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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
judgement. 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.
087
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment (continued)
(i) Oil and gas properties (continued)
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.
(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.
088
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Investments and other financial assets Applicable to the year ended 31
December 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 31 December 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.
089
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets (continued)
(c) Held-to-maturity investments
During this year, the Group did not hold any investments assets in
this category.
(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 31 December
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.
090
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets (Applicable to the year ended 31 December
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 31
December 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.
091
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 31
December 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 31
December 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.
092
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
093
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
094
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
095
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 32. 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.
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.
096
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
097
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies (continued)
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.
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, 18 and 31.
098
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:
RMB'000
--------------------
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.
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.
099
5. PRODUCTION SHARING CONTRACTS (continued)
PRC (continued)
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.
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.
100
6. SEGMENT INFORMATION (continued)
(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.
The following table presents revenue, profit and certain assets,
liabilities and expenditures information for the Group's business
segments for the years ended 31 December 2005 and 2004.
Independent Production Trading
operations sharing contracts business
Segment revenue 2005 2004 2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated) (Restated)
----------------------------------------------------------------------------------------------
Sales to external customers:
Oil and gas sales 22,808,733 15,177,621 30,608,936 21,708,398 -- --
Marketing revenues -- -- -- -- 15,901,325 18,191,353
Intersegment revenues 1,598,171 920,669 7,467,429 2,551,181 -- --
Other income 13,093 6,139 103,047 136,942 -- --
----------------------------------------------------------------------------------------------
Total 24,419,997 16,104,429 38,179,412 24,396,521 15,901,325 18,191,353
----------------------------------------------------------------------------------------------
Segment results
Operating expenses (2,095,273) (1,828,614) (3,839,325) (3,241,730) -- --
Production taxes (1,154,771) (775,210) (1,441,772) (950,464) -- --
Exploration costs (1,025,993) (1,136,055) (267,694) (180,105) -- --
Depreciation, depletion
and amortisation (2,554,896) (2,235,064) (3,409,844) (3,219,998) -- --
Dismantlement (152,796) (117,310) (100,061) (84,327) -- --
Impairment loss related to
property, plant and equipment (39,494) -- (50,696) -- -- --
Crude oil and product purchases(1,598,171) (920,669) (7,467,429) (2,551,181) (15,704,100) (17,963,461)
Selling and administrative
expenses (39,486) (50,721) (676,062) (557,521) -- --
Others -- -- (77,062) (45,844) -- --
Interest income -- -- 7,328 2,077 -- --
Finance costs (183,325) (135,119) (94,885) (64,956) -- --
Exchange gains/(losses), net -- -- (5,119) (15,308) -- --
Investment income -- -- -- -- -- --
Share of profits of associates -- -- -- -- -- --
Non-operating income/
(expenses), net -- -- -- -- -- --
Tax -- -- -- -- -- --
----------------------------------------------------------------------------------------------
Net profit 15,575,792 8,905,667 20,756,791 13,487,164 197,225 227,892
----------------------------------------------------------------------------------------------
Other segment information
Segment assets 25,054,275 21,120,584 51,125,491 37,851,716 2,413,195 1,712,212
Investments in associates -- -- -- -- -- --
----------------------------------------------------------------------------------------------
Total assets 25,054,275 21,120,584 51,125,491 37,851,716 2,413,195 1,712,212
Segment liabilities (5,187,124) (3,913,905) (12,876,516) (11,453,307) (667,336) (809,663)
Capital expenditure 7,806,927 6,309,397 8,914,306 13,145,839 -- --
----------------------------------------------------------------------------------------------
Unallocated Eliminations Consolidated
Segment revenue 2005 2004 2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated) (Restated)
---------------------------------------------------------------------------------------------
Sales to external customers:
Oil and gas sales -- -- -- -- 53,417,669 36,886,019
Marketing revenues -- -- -- -- 15,901,325 18,191,353
Intersegment revenues -- -- (9,065,600) (3,471,850) -- --
Other income 20,609 1,610 -- -- 136,749 144,691
---------------------------------------------------------------------------------------------
Total 20,609 1,610 (9,065,600) (3,471,850) 69,455,743 55,222,063
---------------------------------------------------------------------------------------------
Segment results
Operating expenses -- -- -- -- (5,934,598) (5,070,344)
Production taxes -- -- -- -- (2,596,543) (1,725,674)
Exploration costs -- -- -- -- (1,293,687) (1,316,160)
Depreciation, depletion
and amortisation -- -- -- -- (5,964,740) (5,455,062)
Dismantlement -- -- -- -- (252,857) (201,637)
Impairment loss related to
property, plant and equipment -- -- -- -- t (90,190) --
Crude oil and product purchases -- -- 9,065,600 3,471,850 s (15,704,100) (17,963,461)
Selling and administrative
expenses (654,820) (496,106) -- -- (1,370,368) (1,104,348)
Others -- -- -- -- (77,062) (45,844)
Interest income 351,966 204,795 -- -- 359,294 206,872
Finance costs (822,322) (241,750) -- -- (1,100,532) (441,825)
Exchange gains/(losses), net 292,146 44,577 -- -- 287,027 29,269
Investment income 247,893 72,438 -- -- 247,893 72,438
Share of profits of associates 307,075 344,469 -- -- 307,075 344,469
Non-operating income/
(expenses), net 28,579 519,206 -- -- 28,579 519,206
Tax (10,977,812) (6,930,826) -- -- (10,977,812) (6,930,826)
---------------------------------------------------------------------------------------------
Net profit (11,206,686) (6,481,587) -- -- 25,323,122 16,139,136
---------------------------------------------------------------------------------------------
Other segment information
Segment assets 34,770,264 31,790,239 -- -- 113,363,225 92,474,751
Investments in associates 1,401,839 1,327,109 -- -- 1,401,839 1,327,109
---------------------------------------------------------------------------------------------
Total assets 36,172,103 33,117,348 -- -- 114,765,064 93,801,860
Segment liabilities (22,430,991) (21,182,195) -- -- (41,161,967) (37,359,070)
Capital expenditure 144,442 164,775 -- -- 16,865,675 19,620,011
---------------------------------------------------------------------------------------------
101
6. SEGMENT INFORMATION (continued)
(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 31 December 2005
and 2004.
PRC Outside PRC Total
2005 2004 2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated)
------------------------------------------------------------------------------------
Total revenue 38,992,740 30,453,453 30,463,003 24,768,610 69,455,743 55,222,063
Segment assets 92,845,974 75,023,500 21,919,090 18,778,360 114,765,064 93,801,860
Capital expenditure 14,496,690 12,014,894 2,368,985 7,605,117 16,865,675 19,620,011
------------------------------------------------------------------------------------------------------
(c) An analysis of sales to major customers by business segment is as
follows:
2005 2004
RMB'000 RMB'000
-------------------------------------
Production sharing contracts
China Petroleum & Chemical Corporation 9,996,768 6,932,008
PetroChina Company Limited 1,410,369 1,944,709
Castle Peak Power Company Limited 1,107,314 1,070,436
-------------------------------------
12,514,451 9,947,153
-------------------------------------
Independent operations
China Petroleum & Chemical Corporation 5,628,968 3,702,058
PetroChina Company Limited 365,830 --
-------------------------------------
5,994,798 3,702,058
-------------------------------------
18,509,249 13,649,211
-------------------------------------
102
7. OIL AND GAS SALES
2005 2004
RMB'000 RMB'000
-------------------------------------
Gross sales 57,988,465 39,955,702
Royalties (708,537) (610,055)
PRC government share oil (3,862,259) (2,459,628)
-------------------------------------
53,417,669 36,886,019
-------------------------------------
8. MARKETING PROFIT
2005 2004
RMB'000 RMB'000
-------------------------------------
Marketing revenues 15,901,325 18,191,353
Crude oil and product purchases (15,704,100) (17,963,461)
-------------------------------------
197,225 227,892
-------------------------------------
103
9. PROFIT BEFORE TAX
The Group's profit before tax is arrived at after charging/(crediting):
2005 2004
RMB'000 RMB'000
(Restated)
-------------------------------------
Crediting:
Interest income on bank deposits (359,294) (206,872)
Exchange gains, net (287,027) (29,269)
Interest income on available-for-sale financial assets (9,757) (1,654)
Dividend income on available-for-sale financial assets (175,416) (93,040)
Realised gains on available-for-sale financial assets (62,720) (2,972)
Unrealised losses on investments -- 25,228
-------------------------------------
Investment income (247,893) (72,438)
-------------------------------------
Charging:
Auditors' remuneration
- Audit fee 7,961 6,750
- Other fees 2,098 1,093
-------------------------------------
10,059 7,843
-------------------------------------
Employee benefit expense (including directors' remuneration (note 12)):
- Wages, salaries and allowances 363,668 265,007
- Labour costs paid to contractors 750,651 666,599
- Equity-settled share option expense 29,123 46,642
-------------------------------------
1,143,442 978,248
-------------------------------------
Depreciation, depletion and amortisation 5,941,755 5,410,413
Add: Oil-in tank adjustments 22,985 44,649
-------------------------------------
5,964,740 5,455,062
-------------------------------------
Operating lease rentals
-Office buildings 87,440 107,803
-Equipment 641,846 494,264
-------------------------------------
729,286 602,067
-------------------------------------
Loss on disposal of property, plant and equipment 9,629 173
Repairs and maintenance 1,047,979 1,193,700
Research and development costs 401,640 268,477
Provision for/(reversal of) inventory obsolescence 33,088 (2,710)
104
10. SELLING AND ADMINISTRATIVE EXPENSES
2005 2004
RMB'000 RMB'000
(Restated)
-------------------------------------
Salary and staff benefits 392,791 311,649
Utility and office expenses 143,204 115,817
Travel and entertainment 94,590 75,675
Rentals and maintenance 111,426 128,579
Management fees 243,730 218,087
Selling expenses 32,983 36,015
Provision for/(reversal of) for inventory obsolescence 33,088 (2,710)
Other 318,556 221,236
-------------------------------------
1,370,368 1,104,348
-------------------------------------
11. FINANCE COSTS
2005 2004
RMB'000 RMB'000
-------------------------------------
Interest on bank loans which are
- wholly repayable within five years 98,892 80,829
Interest on other loans (including convertible bonds) 671,849 485,812
Other borrowing costs 3,773 163
-------------------------------------
Total interest 774,514 566,804
Less: Amount capitalised in property, plant and equipment (note 18) (245,987) (244,686)
-------------------------------------
528,527 322,118
Other finance costs:
Increase in discounted amount of provisions
arising from the passage of time (note 31) 198,945 119,707
Loss on embedded derivative component in convertible bonds 373,060 --
-------------------------------------
1,100,532 441,825
-------------------------------------
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 31 December 2005.
105
12. 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:
2005 2004
RMB'000 RMB'000
(Restated)
-------------------------------------
Fees for executive directors -- --
Fees for non-executive directors** 2,360 851
Other emoluments for executive and independent non-executive directors
- Basic salaries, allowances and benefits in kind** 12,988 7,756
- Bonuses -- --
- Pension scheme contributions 104 62
-------------------------------------
Amount paid/payable during the year 15,452 8,669
Share option benefits* 8,561 9,208
-------------------------------------
24,013 17,877
-------------------------------------
(a) Independent non-executive directors
The fees paid/payable to independent non-executive directors during
the year were as follows:
2005 2004
RMB'000 RMB'000
-------------------------------------
Chiu Sung Hong 619 213
Evert Henks 619 213
Kenneth S Courtis 619 213
Erwin Schurtenberger 350 213
Tse Hau Yin, Aloysius 153 --
Lawrence J. Lau -- --
-------------------------------------
Professor Lawrence J. Lau, appointed as the independent
non-executive director of the Company on 31 August 2005, waived his
remuneration in 2005.
106
12. DIRECTORS' REMUNERATION AND SHARE OPTION BENEFITS (continued)
(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:
Fu Chengyu -- 4,411 -- -- 4,411 2,236 6,647
Zhou Shouwei -- 3,519 -- 82 3,601 1,653 5,254
Luo Han -- 1,291 -- -- 1,291 1,086 2,377
Cao Xinghe -- 430 -- -- 430 269 699
Wu Zhenfang -- 430 -- -- 430 269 699
Wu Guangqi -- 1,377 -- -- 1,377 542 1,919
Yang Hua -- 967 -- 22 989 1,086 2,075
Jiang Longsheng -- 563 -- -- 563 55 618
-------------------------------------------------------------------------------------------------
Independent non-executive
director:
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 -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
2004
Executive directors:
Fu Chengyu -- 3,934 -- -- 3,934 2,077 6,011
Luo Han -- 561 -- -- 561 1,107 1,668
Zhou Shouwei -- 2,710 -- 62 2,772 1,685 4,457
Jiang Longsheng -- 551 -- -- 551 1,107 1,658
-------------------------------------------------------------------------------------------------
Independent non-executive
director:
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 32 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 1 April 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.
107
13. FIVE HIGHEST PAID EMPLOYEES
The five highest paid employees during the year included three (2004:
Nil) directors and two (2004: five) non-directors are as follows:
2005 2004
RMB'000 RMB'000
(Restated)
-------------------------------------
Basic salaries, allowances and benefits in kind* 15,843 20,509
Bonuses 471 4,589
Pension scheme contributions 542 1,509
-------------------------------------
Amount paid/payable during the year 16,856 26,607
Share option benefits** 4,975 1,107
-------------------------------------
21,831 27,714
-------------------------------------
Number of directors 3 --
Number of employees 2 5
* 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 the five highest paid employees whose remuneration fell
within the following bands is as follows:
Number of employees
2005 2004
-------------------------------------
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 32 to the
financial statements.
108
14. 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:
2005 2004
RMB'000 RMB'000
-------------------------------------
Overseas income taxes
- Current 845,390 755,568
- Deferred 14,907 (170,118)
PRC enterprise income tax
- Current 9,912,426 6,411,417
- Deferred 205,089 (66,041)
-------------------------------------
Total tax charge for the year 10,977,812 6,930,826
-------------------------------------
A reconciliation of the statutory PRC enterprise income tax rate to
the effective income tax rate of the Group is as follows:
2005 2004
% %
(Restated)
-------------------------------------
Statutory PRC enterprise income tax rate 33.0 33.0
Effect of tax exemption granted (3.0) (3.0)
Effect of different tax rates for the Company and
overseas subsidiaries 0.5 0.3
Tax credit from the government (0.3) (0.6)
Tax effect on other permanent differences (0.0) 0.3
-------------------------------------
Tax charge at the Group's effective rate 30.2 30.0
-------------------------------------
109
14. TAX (continued)
(i) Income tax (continued)
The tax effect of significant temporary differences of the Group was
as follows:
(Credited)/
Recognised charged to
in income foreign
2004 statements exchange 2005
RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------
Deferred tax assets
Provision for retirement and
termination benefits 112,150 (10,659) (2,795) 98,696
Provision for dismantlement 926,834 321,664 -- 1,248,498
Provision for impairment of
property, plant
and equipment and write-off
of unsuccessful
exploratory drillings 869,286 17,116 -- 886,402
-------------------------------------------------------------------------
1,908,270 328,121 (2,795) 2,233,596
-------------------------------------------------------------------------
Deferred tax liabilities
Accelerated amortization
allowance for oil
and gas properties (8,596,768) (548,117) 83,373 (9,061,512)
-------------------------------------------------------------------------
Net deferred tax liabilities (6,688,498) (219,996) 80,578 (6,827,916)
-------------------------------------------------------------------------
As at 31 December 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.
110
14. TAX (continued)
(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.
15. NET PROFIT AFTER TAX
The net profit after tax for the year ended 31 December 2005 dealt with
in the financial statements of the Company, was approximately
RMB13,791,976,000 (2004: RMB5,395,306,000 (restated)) (see note 33).
16. DIVIDENDS
On 30 August 2005, the Board of Directors declared an interim dividend of
HK$0.05 per share (2004: HK$0.03 per share), totalling 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), totalling 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, totalling
HK$2,464,249,697 (equivalent to approximately RMB2,617,526,000) in place
of its 2003 final dividend.
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 31 December 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.
111
17. EARNINGS PER SHARE
2005 2004
(Restated)
-------------------------------------------------------
Earnings:
Net profit from ordinary activities attributable
to shareholders for the year for the
purpose of basic earnings per share RMB 25,323,122,000 RMB16,139,136,000
Interest expense and losses recognised on the
derivative component of convertible bonds RMB 537,468,873 --
-------------------------------------------------------
Net profit from ordinary activities attributable
to shareholders for the year for the
purpose of diluted earnings per share RMB 25,860,590,873 RMB16,139,136,000
-------------------------------------------------------
Number of shares:
Weighted average number of ordinary shares
for the purpose of basic earnings per share
before effects of shares repurchased and
share options exercised 41,052,375,275 41,070,828,275
Effect of shares repurchased -- (10,587,616)
Effect of share options exercised 2,124,707 --
-------------------------------------------------------
Weighted average number of ordinary shares for
the purpose of basic earnings per share 41,054,499,982 41,060,240,659
-------------------------------------------------------
Effect of dilutive potential ordinary shares
under the share option schemes 38,861,432 66,720,503
Effect of dilutive potential ordinary shares
for convertible bonds 1,292,694,352 52,552,274
-------------------------------------------------------
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 42,386,055,766 41,179,513,436
-------------------------------------------------------
Earnings per share - Basic RMB0.62 RMB0.39
- Diluted RMB0.61 RMB0.39
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.
112
18. PROPERTY, PLANT AND EQUIPMENT, NET
Movements in the property, plant and equipment of the Group are as
follows:
Group
2005 2004
Vehicles
Oil and gas Land and and office
properties buildings equipment Total Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated)
------------------------------------------------------------------------------
Cost:
At beginning of the year
as previously reported 89,917,894 941,578 187,705 91,047,177 71,102,511
Cumulative adjustment for the
adoption of HKAS 16 666,907 (941,578) -- (274,671) (274,671)
At beginning of the year
as restated 90,584,801 -- 187,705 90,772,506 70,827,840
Additions 17,500,195 -- 146,226 17,646,421 13,010,141
Acquisitions (including
prepayments) -- -- -- -- 6,934,951
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-offs -- -- (14,511) (14,511) (177)
Exchange realignment (504,132) -- (6) (504,138) (249)
------------------------------------------------------------------------------
End of year 106,128,228 -- 319,414 106,447,642 90,772,506
==============================================================================
Accumulated depreciation,
depletion and amortisation
and amortisation:
At beginning of the year
as previously reported (33,414,136) (132,455) (43,889) (33,590,480) (27,978,710)
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) (27,978,710)
Depreciation provided
during the year (6,176,784) -- ( 57,248) (6,234,032) (5,612,050)
Impairment recognised in
the income statement
during the year (90,190) -- -- (90,190) --
Disposals -- -- 4,881 4,881 5
Exchange realignment 87,346 -- -- 87,346 275
------------------------------------------------------------------------------
End of year (39,726,219) -- (96,256) (39,822,475) (33,590,480)
==============================================================================
Net book value:
Beginning of year as
previously reported 56,503,758 809,123 143,816 57,456,697 43,123,801
==============================================================================
Beginning of the year
as restated 57,038,210 -- 143,816 57,182,026 42,849,130
==============================================================================
End of year 66,402,009 -- 223,158 66,625,167 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.
113
18. PROPERTY, PLANT AND EQUIPMENT, NET (continued)
The property, plant and equipment of the Company mainly comprised office
equipment and were stated at cost less accumulated depreciation. The
movements in property, plant and equipment of the Company are as follows:
Company
2005 2004
RMB'000 RMB'000
-------------------------------------
Cost:
Beginning of the year 5,833 5,833
Additions 2,128 --
-------------------------------------
End of year 7,961 5,833
-------------------------------------
Accumulated depreciation:
Beginning of the year (5,669) (5,562)
Charge for the year (1,218) (107)
-------------------------------------
End of year (6,887) (5,669)
-------------------------------------
Net book value:
Beginning of year 164 271
-------------------------------------
End of year 1,074 164
-------------------------------------
19. 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.
20. INVESTMENT IN SUBSIDIARIES/LOANS TO AND DUE FROM/TO SUBSIDIARIES
Company
2005 2004
RMB'000 RMB'000
-------------------------------------
Unlisted shares, at cost 7,766,971 7,766,971
Loans to a subsidiary 4,138,290 4,138,290
Due from subsidiaries 22,213,478 13,206,016
Due to subsidiaries (14,468,726) (15,256,082)
-------------------------------------
19,650,013 9,855,195
-------------------------------------
114
20. INVESTMENT IN SUBSIDIARIES/LOANS TO AND DUE FROM/TO SUBSIDIARIES
(continued)
The loans to a subsidiary are unsecured and bear interest at a rate of
7.084% per annum. The carrying value of the loans approximated to fair
value. The maturities of the balance are as follows:
2005 2004
RMB'000 RMB'000
-------------------------------------
Balances due:
Within five years -- --
More than five years 4,138,290 4,138,290
-------------------------------------
4,138,290 4,138,290
-------------------------------------
The amounts due from/to subsidiaries are unsecured, interest-free and are
repayable on demand.
Particulars of the principal subsidiaries are as follows:
Nominal value Percentage
Place and date of of issued and paid/ of equity
incorporation/ registered ordinary attributable to
Name of entity establishment share capital the Group Principal activities
--------------------------------------------------------------------------------------------------------------
Directly held subsidiaries:
CNOOC China Limited Tianjin, PRC RMB15 billion 100% Offshore petroleum
15 September 1999 exploration,
development,
production and
sale in the PRC
CNOOC International British Virgin Islands US$2 100% Investment holding
Limited 23 August 1999
China Offshore Oil Singapore S$3 million 100% Sale and marketing
(Singapore) 14 May 1993 of petroleum
International Pte., Ltd. Outside the PRC
CNOOC Finance (2002) British Virgin Islands US$1,000 100% Bond issuance
Limited 24 January 2002
CNOOC Finance (2003) British Virgin Islands US$1,000 100% Bond issuance
Limited 2 April 2003
CNOOC Finance (2004) British Virgin Islands US$1,000 100% Bond issuance
Limited 9 December 2004
115
20. INVESTMENT IN SUBSIDIARIES/LOANS TO AND DUE FROM/TO SUBSIDIARIES
(continued)
Nominal value Percentage
Place and date of of issued and paid/ of equity
incorporation/ registered ordinary attributable to
Name of entity establishment share capital the Group Principal activities
--------------------------------------------------------------------------------------------------------------
Indirectly held subsidiaries*:
Malacca Petroleum Bermuda US$12,000 100% Offshore petroleum
Limited 2 November 1995 exploration,
development and
production in Indonesia
OOGC America, Inc. State of Delaware, US$1,000 100% Investment holding
United States of America
2 September 1997
OOGC Malacca Limited Bermuda US$12,000 100% Offshore petroleum
2 November 1995 exploration,
development and
production in Indonesia
CNOOC Southeast Asia Bermuda US$12,000 100% Investment holding
Limited 16 May 1997
CNOOC ONWJ Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in Indonesia
CNOOC SES Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in Indonesia
CNOOC Poleng Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in Indonesia
CNOOC Madura Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in Indonesia
CNOOC Blora Ltd. Labuan, F.T., US$1 100% Onshore petroleum
Malaysia exploration,
27 March 2002 development and
production in Indonesia
116
20. INVESTMENT IN SUBSIDIARIES/LOANS TO AND DUE FROM/TO SUBSIDIARIES
(continued)
Nominal value Percentage
Place and date of of issued and paid/ of equity
incorporation/ registered ordinary attributable to
Name of entity establishment share capital the Group Principal activities
--------------------------------------------------------------------------------------------------------------
CNOOC NWS Private Limited Singapore S$1 100% Offshore petroleum
8 October 2002 exploration,
development and
production in Australia
CNOOC Wiriagar Overseas British Virgin Islands US$1 100% Offshore petroleum
Ltd. 15 January 2003 exploration,
development and
production in Indonesia
CNOOC Muturi Ltd. The Isle of Man US$7,780,700 100% Offshore petroleum
8 February 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.
21. INVESTMENTS IN ASSOCIATES
The Group's 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 7 September 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 14 June 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.
Group
2005 2004
RMB'000 RMB'000
-------------------------------------
Share of net assets 1,401,839 1,327,109
-------------------------------------
117
22. 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 31 December 2005 and 2004, substantially all the accounts
receivable were aged within six months.
23. INVENTORIES AND SUPPLIES
Group
2005 2004
RMB'000 RMB'000
-------------------------------------
Materials and supplies 969,915 879,300
Oil in tanks 268,834 274,029
Less: Provision for inventory obsolescence ( 39,123) (6,035)
-------------------------------------
1,199,626 1,147,294
-------------------------------------
24. AVAILABLE-FOR-SALE FINANCIAL ASSETS (CURRENT) / SHORT TERM INVESTMENT As
at 31 December 2005, available-for-sale financial assets mainly
represented investments in liquidity funds and were stated at fair value
at the balance sheet date. Details of the available-for-sale financial
assets were as follows:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------
Unlisted investments, at fair value:
Liquidity funds 13,185,139 3,763,959 8,424,780 2,759,400
Corporate bonds 199,877 1,639,956 199,877 1,639,956
Common stock -- 40,198 -- 40,198
Listed investments, at fair value:
Common stock 461,919 -- 461,919 --
--------------------------------------------------------------------------
13,846,935 5,444,113 9,086,576 4,439,554
--------------------------------------------------------------------------
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.
118
25. ACCOUNTS PAYABLE
As at 31 December 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.
26. OTHER PAYABLES AND ACCRUED LIABILITIES
Group
2005 2004
RMB'000 RMB'000
-------------------------------------
Accrued payroll and welfare payable 178,872 156,706
Provision for retirement and termination benefits 239,591 292,128
Accrued expenses 3,411,784 2,818,785
Advances from customers 22,238 12,588
Royalties payable 297,139 142,638
Other payables 1,057,319 768,179
-------------------------------------
5,206,943 4,191,024
-------------------------------------
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.
27. LONG TERM BANK LOANS
As at 31 December 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.
Group
2005 2004
RMB'000 RMB'000
-------------------------------------
Effective interest rate and final maturity
US$ denominated Effective interest rate of 9.2% per annum with
bank loans maturities through to 2006 812,759 827,650
Japanese Yen
denominated bank Effective interest rate of 4.1% per annum
loans with maturities through to 2007 37,307 61,925
-------------------------------------
850,066 889,575
Less: Current portion of long term bank loans (825,674) (24,364)
-------------------------------------
24,392 865,211
-------------------------------------
As at 31 December 2005, all the bank loans of the Group were unsecured
and none of the outstanding borrowings were guaranteed by CNOOC.
119
27. LONG TERM BANK LOANS (continued)
The maturities of the long term bank loans are as follows:
Group
2005 2004
RMB'000 RMB'000
-------------------------------------
Balances due:
Within one year 825,674 24,364
After one year but within two years 24,392 846,471
After two years but within three years -- 18,740
After three years but within four years -- --
After four years but within five years -- --
-------------------------------------
850,066 889,575
Amount due within one year shown under current liabilities (825,674) (24,364)
-------------------------------------
24,392 865,211
-------------------------------------
Supplemental information with respect to long term bank loans:
Maximum Average Weighted
Weighted amount amount average
average outstanding outstanding interest rate
Balance interestrate during the during the during the
For the year ended at year end at year end year year* year**
31 December 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
outstanding principal balances as at 1 January and 31 December by
two.
** The weighted average interest rate is computed by dividing the total
weighted average interest rates as at 1 January and 31 December by
two.
120
28. 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 15 December 2004. The bonds are convertible from 15
January 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 7 June 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 15 December 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
15 December 2007 at an early redemption amount of 103.038% of the
principal amount.
29. BALANCES WITH THE PARENT COMPANY
As at 31 December 2005 and 2004, the balances with CNOOC were unsecured,
interest-free and were repayable on demand.
121
30. 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:
Notes 2005 2004
RMB'000 RMB'000
-------------------------------------------------------
Materials, utilities and ancillary services (i) 2,995,772 1,295,598
Technical services (ii) 6,651,240 6,362,206
Research and development services (iii) 8,110 7,800
Lease and property management services (iv) 77,273 76,721
Included in:
Exploration expenses 753,534 960,031
Operating expenses 1,972,431 1,405,877
Selling and administrative expenses 337,816 326,004
Capitalised under property, plant and equipment 6,668,614 5,050,413
(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;
-- 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.
122
30. RELATED PARTY TRANSACTIONS (continued)
(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.
(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 31
December 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 31 December 2004. No such trading by using
CNOOC's import license occurred during the year.
123
30. RELATED PARTY TRANSACTIONS (continued)
(vi) Transactions with CNOOC Finance Corporation Limited The Company
entered into a framework agreement ("Framework Agreement") with
CNOOC Finance Corporation Limited ("CNOOC Finance") on 8 April 2004.
Under the Framework Agreement, the Group utilises the financial
services provided by CNOOC Finance, a 31.8% owned associate company
of the Company which 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 31 December 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).
31. 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 18.
The details of the provision for dismantlement are as follows:
Group
2005 2004
RMB'000 RMB'000
-------------------------------------
At the beginning of year 3,089,448 2,646,800
Additions during the year and capitalised in oil and gas properties 873,270 322,941
Increase in a discounted amount of provisions arising from
the passage of time 198,945 119,707
-------------------------------------
At the end of year 4,161,663 3,089,448
-------------------------------------
124
32. SHARE CAPITAL
Issued
share capital
Number of shares Share capital equivalent of
Shares (after subdivision of shares*) HK$'000 RMB'000
-----------------------------------------------------------
Authorised:
Ordinary shares of HK$0.02 each
As at 31 December 2005 and 31 December 2004 75,000,000,000 1,500,000
========================================
Issued and fully paid:
Ordinary shares of HK$0.02 each
As at 1 January 2004 41,070,828,275 821,417 876,978
Repurchased and cancelled (18,453,000) (369) (392)
-----------------------------------------------------------
As at 31 December 2004 41,052,375,275 821,048 876,586
Exercise of options 2,300,100 46 49
-----------------------------------------------------------
As at 31 December 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 17 March 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.
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 31 December 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.
125
32. SHARE CAPITAL (continued)
Share option schemes (continued)
Pre-Global Offering Share Option Scheme
On 4 February 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 12 March 2001.
No further options may be granted under the Pre-Global Offering Share
Option Scheme.
2001 Share Option Scheme
On 4 February 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;
(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 27 August 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 1 September 2001, no
further options will be granted under the 2001 Share Option Scheme.
126
32. SHARE CAPITAL (continued)
Share option schemes (continued)
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 24 February 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.
The exercise period for the above options granted under the 2002 Share
Option Scheme shall end not later than 10 years from 24 February 2003.
127
32. SHARE CAPITAL (continued)
Share option schemes (continued)
2002 Share Option Scheme (continued)
On 5 February 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 5 February 2004.
On 31 August 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 31 August 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 31 December 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.
128
32. SHARE CAPITAL (continued)
Share option schemes (continued)
2005 Share Option Scheme (continued)
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.
129
32. SHARE CAPITAL (continued)
Share option schemes (continued)
During the year ended 31 December 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 1 January 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
Fu Chengyu 1,750,000 -- -- -- -- 1,750,000 12 March 2001
1,750,000 -- -- -- -- 1,750,000 27 August 2001
1,150,000 -- -- -- -- 1,150,000 24 February 2003
2,500,000 -- -- -- -- 2,500,000 5 February 2004
-- 3,500,000 -- -- -- 3,500,000 31 August 2005
Luo Han 1,400,000 -- -- -- -- 1,400,000 12 March 2001
1,150,000 -- -- -- -- 1,150,000 27 August 2001
1,150,000 -- -- -- -- 1,150,000 24 February 2003
1,150,000 -- -- -- -- 1,150,000 5 February 2004
-- 1,610,000 -- -- -- 1,610,000 31 August 2005
Zhou Shouwei 1,400,000 -- -- -- -- 1,400,000 12 March 2001
1,750,000 -- -- -- -- 1,750,000 27 August 2001
1,750,000 -- -- -- -- 1,750,000 24 February 2003
1,750,000 -- -- -- -- 1,750,000 5 February 2004
-- 2,450,000 -- -- -- 2,450,000 31 August 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
Fu Chengyu 12 March 2001 to 12 March 2011 1.19 1.23 -- --
27 August 2001 to 27 August 2011 1.232 1.46 -- --
24 February 2003 to 24 February 2013 2.108 2.09 -- --
5 February 2004 to 5 February 2014 3.152 3.13 -- --
31 August 2005 to 31 August 2015 5.62 5.75 -- --
Luo Han 12 March 2001 to 12 March 2011 1.19 1.23 -- --
27 August 2001 to 27 August 2011 1.232 1.46 -- --
24 February 2003 to 24 February 2013 2.108 2.09 -- --
5 February 2004 to 5 February 2014 3.152 3.13 -- --
31 August 2005 to 31 August 2015 5.62 5.75 -- --
Zhou Shouwei 12 March 2001 to 12 March 2011 1.19 1.23 -- --
27 August 2001 to 27 August 2011 1.232 1.46 -- --
24 February 2003 to 24 February 2013 2.108 2.09 -- --
5 February 2004 to 5 February 2014 3.152 3.13 -- --
31 August 2005 to 31 August 2015 5.62 5.75 -- --
------------------------------------------------------------------------------------------------------------------------
130
32. SHARE CAPITAL (continued)
Share option schemes (continued)
Number of share options
-----------------------------------------------------------------------------
Granted Exercised Forfeited Expired At 31
Name of category At 1 January during during during during December Date of grant of
of participant 2005 the year the year the year the year 2005 share options
------------------------------------------------------------------------------------------------------------------------------------
Jiang Longsheng* 1,400,000 -- -- -- -- 1,400,000 12 March 2001
1,150,000 -- -- -- -- 1,150,000 27 August 2001
1,150,000 -- -- 383,300 -- 766,700 24 February 2003
1,150,000 -- -- 766,700 -- 383,300 5 February 2004
-- 1,610,000 -- 1,610,000 -- -- 31 August 2005
Cao Xinghe -- 800,000 -- -- -- 800,000 31 August 2005
Wu Zhenfang -- 800,000 -- -- -- 800,000 31 August 2005
Wu Guangqi -- 1,610,000 -- -- -- 1,610,000 31 August 2005
Yang Hua 1,150,000 -- -- -- -- 1,150,000 12 March 2001
1,150,000 -- -- -- -- 1,150,000 27 August 2001
1,150,000 -- -- -- -- 1,150,000 24 February 2003
1,150,000 -- -- -- -- 1,150,000 5 February 2004
-- 1,610,000 -- -- -- 1,610,000 31 August 2005
------------------------------------------------------------------------------------------------------------------------------------
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$
------------------------------------------------------------------------------------------------------------------
Jiang Longsheng* 12 March 2001 to 12 March 2011 1.19 1.23 -- --
27 August 2001 to 27 August 2011 1.232 1.46 -- --
24 February 2003 to
24 February 2013 2.108 2.09 -- --
5 February 2004 to 5 February 2014 3.152 3.13 -- --
31 August 2005 to 31 August 2015 5.62 5.75 -- --
Cao Xinghe 31 August 2005 to 31 August 2015 5.62 5.75 -- --
Wu Zhenfang 31 August 2005 to 31 August 2015 5.62 5.75 -- --
Wu Guangqi 31 August 2005 to 31 August 2015 5.62 5.75 -- --
Yang Hua 12 March 2001 to 12 March 2011 1.19 1.23 -- --
27 August 2001 to 27 August 2011 1.232 1.46 -- --
24 February 2003 to
24 February 2013 2.108 2.09 -- --
5 February 2004 to 5 February 2014 3.152 3.13 -- --
31 August 2005 to 31 August 2015 5.62 5.75 -- --
------------------------------------------------------------------------------------------------------------------
131
32. SHARE CAPITAL (continued)
Share option schemes (continued)
Number of share options
-----------------------------------------------------------------------------
Granted Exercised Forfeited Expired At 31
Name of category At 1 January during during during during December
of participant 2005 the year the year the year the year 2005
------------------------------------------------------------------------------------------------------------------------
Non-executive Directors
Chiu Sung Hong 1,150,000 -- -- -- -- 1,150,000
Evert Henkes 1,150,000 -- -- -- -- 1,150,000
Kenneth S Courtis 1,150,000 -- -- -- -- 1,150,000
Erwin Schurtenberger* 1,150,000 -- -- 1,150,000 -- --
Other Employees
In aggregate 6,550,000 -- -- 1,700,000 -- 4,850,000
22,650,000 -- 1,150,000 2,350,000 -- 19,150,000
26,500,000 -- 766,700 3,733,400 -- 21,999,900
35,850,000 -- 383,400 4,683,200 -- 30,783,400
-- 51,880,000 -- 2,380,000 -- 49,500,000
------------------------------------------------------------------------------------------------------------------------
Total 124,250,000 65,870,000 2,300,100 18,756,600 -- 169,063,300
========================================================================================================================
Price of
Company's
shares
------------
Exercise Immediately
price before the
Name of category Date of grant of Exercise period of of share grant date
of participant share options share options** options of options
HK$ HK$
------------------------------------------------------------------------------------------------------------------------------------
Non-executive Directors
Chiu Sung Hong 5 February 2004 5 February 2004 to 5 February 2014 3.152 3.13
Evert Henkes 5 February 2004 5 February 2004 to 5 February 2014 3.152 3.13
Kenneth S Courtis 5 February 2004 5 February 2004 to 5 February 2014 3.152 3.13
Erwin Schurtenberger* 5 February 2004 5 February 2004 to 5 February 2014 3.152 3.13
Other Employees
In aggregate 12 March 2001 12 March 2001 to 12 March 2011 1.19 1.23
27 August 2001 27 August 2001 to 27 August 2011 1.232 1.46
24 February 2003 24 February 2003 to 24 February 2013 2.108 2.09
5 February 2004 5 February 2004 to 5 February 2014 3.152 3.13
31 August 2005 31 August 2005 to 31 August 2015 5.62 5.75
------------------------------------------------------------------------------------------------------------------------------------
Total
====================================================================================================================================
Weighted average
price of the
Company's shares
------------------------------
Immediately
before the At exercise
Name of category exercise date of
of participant date options
HK$ HK$
--------------------------------------------------------------------
Non-executive Directors
Chiu Sung Hong -- --
Evert Henkes -- --
Kenneth S Courtis -- --
Erwin Schurtenberger* -- --
Other Employees
In aggregate -- --
4.03 4.05
4.16 4.19
3.85 3.93
-- --
--------------------------------------------------------------------
Total
====================================================================
* Mr. Erwin Schurtenberger resigned as an Independent Non-executive
Director of the Company on 1 April 2005 and Mr. Jiang Longsheng
retired as an Executive Director of the Company on 1 June 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.
132
32. SHARE CAPITAL (continued)
Share option schemes (continued)
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 31 December 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 1 April 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 31 December 2005 was
70,416,522. No share options had been cancelled during the year ended 31
December 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.
133
33. 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 fund, 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 fund, 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 fund 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 31 December 2005, the general reserve fund 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 depend 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 31 December 2005, the aggregate amount of the subsidiaries'
retained earnings available for distribution to the Company amounted to
approximately RMB30,275,453,000 (2004: RMB16,652,414,000).
134
33. RESERVES (continued)
Company
Share
premium
account
Issued and capital Cumulative
share redemption translation Other Retained
capital reserve reserve reserves earnings Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------
Balances at 1 January 2004
as previously reported 876,978 20,761,205 -- -- 2,573,082 24,211,265
Cumulative adjustment for the
adoption of HKFRS 2 (note 2.2) -- -- -- 63,502 (63,502) --
----------------------------------------------------------------------------------
Balances at 1 January 2004 as restated 876,978 20,761,205 -- 63,502 2,509,580 24,211,265
Exchange realignment -- -- -- -- -- --
----------------------------------------------------------------------------------
Total income and expenses for the year
recognised in equity -- -- -- -- -- --
Net profit for the year (as restated) -- -- -- -- 5,395,306 5,395,306
----------------------------------------------------------------------------------
Total income and expenses for the year -- -- -- -- 5,395,306 5,395,306
Repurchases of shares (392) -- -- -- (60,761) (61,153)
Transfer of reserve upon share repurchase -- 392 -- -- (392) --
2004 special interim dividend declared
in place of 2003 final dividends -- -- -- -- (2,617,526) (2,617,526)
2004 interim dividends -- -- -- -- (1,306,451) (1,306,451)
2004 special interim dividends -- -- -- -- (2,177,418) (2,177,418)
Equity-settled share option arrangements -- -- -- 46,642 -- 46,642
----------------------------------------------------------------------------------
Balances at 31 December 2004
as restated 876,586 20,761,597 -- 110,144 1,742,338 23,490,665
==================================================================================
Balances at 1 January 2005
as previously reported 876,586 20,761,597 -- -- 1,852,482 23,490,665
Cumulative adjustment for the adoption
of HKFRS 2 (note 2.2) -- -- -- 110,144 (110,144) --
----------------------------------------------------------------------------------
Balances at 1 January 2005 as restated 876,586 20,761,597 -- 110,144 1,742,338 23,490,665
Changes in fair value of
available-for-sale investments -- -- -- 64,900 -- 64,900
Exchange realignment -- -- (349,141) -- -- (349,141)
----------------------------------------------------------------------------------
Total income and expenses for the
year recognised in equity -- -- (349,141) 64,900 -- (284,241)
Net profit for the year -- -- -- -- 13,791,976 13,791,976
----------------------------------------------------------------------------------
Total income and expenses for the year -- -- (349,141) 64,900 13,791,976 13,507,735
2004 final dividends -- -- -- -- (3,495,962) (3,495,962)
2005 interim dividends -- -- -- -- (4,276,256) (4,276,256)
Exercise of share options 49 4,451 -- -- -- 4,500
Equity-settled share option arrangements -- -- -- 29,123 -- 29,123
----------------------------------------------------------------------------------
Balances at 31 December 2005 876,635 20,766,048 (349,141) 204,167 7,762,096 29,259,805
==================================================================================
As at 31 December 2005, the distributable profits of the Company amounted
to approximately RMB7,762,096,000 (2004: RMB1,742,338,000 (restated)).
135
34. 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.
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.
136
35. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit before tax to cash generated from operations
2005 2004
RMB'000 RMB'000
(Restated)
-------------------------------------
Profit before tax 36,300,934 23,069,962
Adjustments for:
Interest income (359,294) (206,872)
Finance costs 1,100,532 441,825
Exchange (gains)/losses, net (287,027) (29,269)
Share of profits of associates (307,075) (344,469)
Investment income (247,893) (72,438)
Provision for/(reversal) of inventory obsolescence 33,088 (2,710)
Depreciation, depletion and amortisation 5,964,740 5,455,062
Loss on disposal and write-off of property, plant and equipment 141,574 155,876
Dismantlement 252,857 201,637
Amortisation of discount of long term guaranteed notes 41,959 15,634
Impairment losses related to property, plant and euipment 90,190 --
Equity-settled share option expenses 29,123 46,642
-------------------------------------
Operating cash flows before movements in working capital 42,753,708 28,730,880
Increase in accounts receivable (1,001,296) (27,466)
Increase in inventories and supplies (108,405) (96,307)
(Increase)/decrease in other current assets (342,087) 267,168
Increase in amounts due from related companies (925,824) (417,091)
Increase in an amount due to the parent company 118,422 205,407
Increase in accounts payable,
other payables and accrued liabilities 677,522 1,318,415
Decrease in other taxes payable (24,900) (12,447)
Increase/(decrease) in amounts due to related companies 548,508 (262,798)
-------------------------------------
Cash generated from operations 41,695,648 29,705,761
-------------------------------------
137
35. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
(b) Acquisitions
2005 2004
RMB'000 RMB'000
-------------------------------------
Acquisitions
Net assets acquired:
Property, plant and equipment, net 3,129,662 4,686,857
Intangible assets 1,299,643 --
Accounts receivable -- 453
Other current assets -- 66,744
Accounts payable -- (81,547)
Deferred tax liabilities -- (1,141,461)
-------------------------------------
4,429,305 3,531,046
Prepayment for the NWS Project -- 4,693,809
Acquisition of interests of MEG 1,017,000 --
-------------------------------------
5,446,305 8,224,855
-------------------------------------
Satisfied by:
Prepayments made in 2004 4,582,298 2,445,715
Cash paid for the NWS project (including cash call
for the Tangguh Project) -- 5,779,140
Cash paid for the interests of MEG 1,017,000 --
Tax refund from the NWS Project (152,993) --
-------------------------------------
5,446,305 8,224,855
-------------------------------------
An analysis of the net outflow of cash and cash equivalents in
respect of the acquisitions is as follows:
2005 2004
RMB'000 RMB'000
-------------------------------------
Cash consideration 1,017,000 5,779,140
Cash received for tax refund of the NWS project (152,993) --
-------------------------------------
Net outflow of cash and cash equivalents 864,007 5,779,140
-------------------------------------
Further details of the acquisitions of the NWS Project and MEG are
included in note 4 to the financial statements. The purchase price
allocations for the 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.
138
36. COMMITMENTS
(i) Capital commitments
As at 31 December 2005, the Group and the Company had the following
capital commitments, principally for the construction and purchase
of property, plant and equipment:
2005 2004
RMB'000 RMB'000
-------------------------------------
Contracted for 7,511,100 9,568,971
Authorised, but not contracted for 23,736,582 20,331,504
-------------------------------------
As at 31 December 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 for properties are
negotiated for terms ranging from 10 months to 3 years.
As at 31 December 2005, the Group had total minimum lease
payments under non-cancelable operating leases falling due as
follows:
2005 2004
RMB'000 RMB'000
-------------------------------------
Commitments due:
Within one year 157,181 24,824
In the first to second years, inclusive 22,351 549
After the second but before the fifth years, inclusive 23,972 --
-------------------------------------
203,504 25,373
-------------------------------------
139
36. COMMITMENTS (continued)
(ii) Operating lease commitments (continued)
(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 31 December 2005, the Group had total minimum lease
payments under non-cancelable operating lease falling due as
follows:
2005 2004
RMB'000 RMB'000
-------------------------------------
Commitments due:
Within one year 183,137 149,360
In the first to second years, inclusive 183,137 597,442
After the second but before the fifth years, inclusive 1,006,289 1,834,023
-------------------------------------
1,372,563 2,580,825
-------------------------------------
37. Financial instruments
(a) Currency swap contracts
As at 31 December 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
rate stipulated in the swap contract for the United States dollars
was the floating LIBOR rate.
The details are as follows:
2005 2004
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
-------------------------------------------------------------------------
140
37. Financial instruments (continued)
(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 31
December 2005 (2004: RMB 967,770,000).
The estimated fair value of long term guaranteed notes based on
current market interest rates was approximately RMB16,592,412,000 as
at 31 December 2005 (2004: RMB16,428,934,000).
38. 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:
2005 2004
RMB'000 RMB'000
-------------------------------------
China Petroleum & Chemical Corporation 15,625,736 10,634,066
PetroChina Company Limited 1,776,199 1,944,709
Castle Peak Power Company Limited 1,107,314 1,070,436
-------------------------------------
39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group's principal
financial instruments, other than derivatives, comprise bank loans,
convertible bonds, guaranteed notes, and cash and short term deposits.
The main purpose of these financial instruments is to raise finance for
the Group's operations. The Group has various other financial assets and
liabilities such as trade receivables and trade payables, which arise
directly from its operations.
The Group also enters into a currency swap contract. The purpose is to
manage the currency risks arising from the Group's operations and its
sources of finance.
(i) 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.
141
39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(ii) 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
policies of maintaining a stable exchange rate and China's ample
foreign reserves have contributed to the stability of the Renminbi.
Starting from 21 July 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 31 December 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
Remminbi 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.
(iii) Interest rate risk
As of the end of 2005, the interest rates for all 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.
(iv) 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.
142
40. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA ("US GAAP ")
Net profit and net equity
(a) 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 31 December 2005, an impairment of approximately
RMB90,190,000 was recognised under Hong Kong GAAP and US GAAP.
143
40. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA ("US GAAP ")
(continued)
Net profit and net equity (continued)
(b) Accounting for convertible bonds
With effect from 1 January 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.
(c) 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.
2005 2004
RMB'000 RMB'000
-------------------------------------
Net income under US GAAP 25,343,158 16,176,492
Other comprehensive income:
Foreign currency translation adjustments (493,289) (42,301)
Unrealised gains /(losses) on available-for-sale
investments/Short term investments 69,069 (25,228)
Less: Reclassification adjustment for gains
included in net income (20,036) (2,972)
-------------------------------------
Comprehensive income under US GAAP 24,898,902 16,105,991
-------------------------------------
144
40. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA ("US GAAP ")
(continued)
Net profit and net equity (continued)
(c) Comprehensive income (continued)
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 1 January 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 31 December 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 31 December 2005 (512,943) 69,069 (443,874)
--------------------------------------------------------
(d) 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.
(e) 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.
There are no significant differences between Hong Kong GAAP and US GAAPs
on the consolidated balance shees as at 31 December 2005 and 2004 and the
consolidated income statements for the years ended 31 December 2005 and
2004. As such, no reconciliation tables have been presented.
145
41. SUBSEQUENT EVENT
On 8 January 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$2.268 billion, subject to adjustment. Conditional on,
among other things, the approval of the Nigerian National Petroleum
Corporation ("NNPC") and the PRC government, the transaction is expected
to be completed in the first half of 2006.
On 27 January 2006, CNOOC Africa Limited, a wholly-owned subsidiary of
the Company, signed an agreement to acquire from AERD Projects Nigeria
Limited a 35% of right to Oil Prospecting Licence 229 "OPL229" in Nigeria
for US$ 60 million in cash, subject to adjustments.
42. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the
Board of Directors on 24 March 2006.
146
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.
147
(a) Reserve quantity information (continued)
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)
------------------------------------------------------------------------------
31 December 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
------------------------------------------------------------------------------
31 December 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)
------------------------------------------------------------------------------
31 December 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)
------------------------------------------------------------------------------
31 December 2005 1,358 4,531 73 297 25 603 1,456 5 ,431
==============================================================================
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)
------------------------------------------------------------------------------
31 December 2003 459 2,054 91 135 -- -- 550 2,189
31 December 2004 617 2,134 85 138 -- -- 702 2,272
31 December 2005 644 2,098 63 155 14 378 721 2,631
==============================================================================
148
(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
================================================
(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.
149
(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 31 December 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.
Present value of estimated future net cash flows:
2003 2004
Notes PRC Indonesia Others Total PRC Indonesia Others
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 --
Future production
Costs (106,854,167) (17,532,095) -- (124,386,262) (115,267,250) (20,472,914) --
Future development
Costs (2) (52,917,280) (4,114,091) -- (57,031,371) (60,319,348) (6,709,341) --
Future income taxes (72,124,755) (3,346,547) -- (75,471,302) (78,717,296) (4,001,019) --
----------------------------------------------------------------------------------------------
Future net cash flows (3) 190,433,490 5,142,988 -- 195,576,478 213,032,928 6,015,510 --
10% discount factor (84,550,531) (1,226,300) -- (85,776,831) (91,755,987) (1,905,679) --
----------------------------------------------------------------------------------------------
Standardised measure 105,882,959 3,916,688 -- 109,799,647 121,276,941 4,109,831 --
----------------------------------------------------------------------------------------------
2005
Total PRC Indonesia Others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------
Future cash inflows 504,535,606 661,693,176 40,919,470 21,855,452 724,468,098
Future production
Costs (135,740,164) (156,122,249) (19,370,535) (3,742,250) (179,235,034)
Future development
Costs (67,028,689) (69,918,424) (7,481,211) (4,497,517) (81,897,152)
Future income taxes (82,718,315) (119,326,469) (5,678,110) (2,759,755) (127,764,334)
----------------------------------------------------------------------------
Future net cash flows 219,048,438 316,326,034 8,389,614 10,855,930 335,571,578
10% discount factor (93,661,666) (128,177,514) (2,494,083) (5,472,748) (136,144,345)
----------------------------------------------------------------------------
Standardised measure 125,386,772 188,148,520 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.
150
(e) Standardised measure of discounted future net cash flows and changes
therein (continued) 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
--------------------------------------------------------
151
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the shareholders of
CNOOC Limited (the "Company") will be held on 24 May 2006, at 2:30 p.m. at
Island Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong,
for the following purposes:
A. As ordinary business, to consider and, if thought fit, pass with or
without amendments, the following ordinary resolutions:
1. To receive and consider the audited Statement of Accounts together
with the Reports of the Directors and Auditors thereon for the year
ended 31 December 2005.
2. To declare a final dividend for the year ended 31 December 2005.
3. To re-elect retiring Directors, to elect Dr. Edgar W. K. Cheng as a
new Independent Non-executive Director, and to authorise the Board
of Directors to fix the remuneration of each of the Directors.
The Directors to be re-elected and elected are as follows:
Zhou Shouwei
Born in 1950, Mr. Zhou received a doctorate degree from the
Southwest Petroleum Institute in China and is a senior engineer. He
joined China National Offshore Oil Corporation ("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 the
Executive Vice President of the Company in September 1999 and the
President of the Company 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 subsidiaries of the Company. He also
serves as the Chairman of CNOOC Southeast Asia Limited, a
wholly-owned subsidiary of the Company since April 2003. Mr. Zhou
became the chairman of CNOOC Engineering Company Limited, a listed
company in Shanghai Stock Exchange and a subsidiary of CNOOC, on 6
December 2003. Mr. Zhou was appointed as an Executive Director of
the Company with effect from 23 August 1999.
Save as aforesaid, Mr. Zhou does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 9,100,000 share options in the Company, Mr. Zhou
has no other interest in the Company's securities within the meaning
of Part XV of the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Zhou, Mr.
Zhou's emoluments comprise an annual remuneration of HK$ 2,600,000
(after Hong Kong tax), plus performance-based bonuses. The
emoluments of Mr. Zhou were determined with reference to perception
of industry standards and prevailing market conditions. The
Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary.
Mr. Zhou is subject to the provisions of his service contract and
the retirement provisions in the articles of association of the
Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
152
Evert Henkes
Born in 1943, Mr. 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 an Independent Non-executive
Director of the Company with effect from 16 September 2003.
Mr. Henkes does not have any relationship with any other Director,
senior management, substantial shareholder or controlling
shareholder of the Company.
Apart from holding 1,150,000 share options in the Company, Mr.
Henkes has no other interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Mr. Henkes. Mr.
Henkes' emoluments comprise an annual remuneration of HK$500,000
(after Hong Kong tax). The Remuneration Committee will review the
level of directors' remuneration from time to time and make
recommendation to the Board for adjustments if necessary. The
emoluments of Mr. Henkes were determined with reference to
perception of industry standards and prevailing market conditions.
Mr. Henkes is subject to the retirement provisions in the articles
of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Cao Xinghe
Born in 1949, Mr. 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 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 Assistant President of CNOOC. He became
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 an Executive Director
of the Company with effect from 31 August 2005.
Save as aforesaid, Mr. Cao does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 800,000 share options in the Company, Mr. Cao has
no other interest in the Company's securities within the meaning of
Part XV of the Securities and Futures Ordinance.
153
Under the service contract between the Company and Mr. Cao, Mr.
Cao's emoluments comprise an annual remuneration of HK$ 800,000
(after Hong Kong tax), plus performance-based bonuses. The
emoluments of Mr. Cao were determined with reference to perception
of industry standards and prevailing market conditions. The
Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary.
Mr. Cao is subject to the provisions of his service contract and the
retirement provisions in the articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Wu Zhenfang
Born in 1952, Mr. 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 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 an Executive Director of the Company with
effect from 31 August 2005.
Save as aforesaid, Mr. Wu does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 800,000 share options in the Company, Mr. Wu has
no other interest in the Company's securities within the meaning of
Part XV of the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Wu, Mr. Wu's
emoluments comprise an annual remuneration of HK$ 800,000 (after
Hong Kong tax), plus performance-based bonuses. The emoluments of
Mr. Wu were determined with reference to perception of industry
standards and prevailing market conditions. The Remuneration
Committee will review the level of directors' remuneration from time
to time and make adjustments if necessary. Mr. Wu is subject to the
provisions of his service contract and the retirement provisions in
the articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
154
Yang Hua
Born in 1961, Mr. 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 CNOOC 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 the Company and its subsidiaries. From 1993 to
1999, he served as the Deputy Chief Geologist, the Deputy Director
and the Acting Director for Overseas Development Department of the
Company and the Vice President of CNOOC International Limited, a
wholly-owned subsidiary of the Company. In 1999, he became a Senior
Vice President of the Company and then became an Executive Vice
President in December 2005. From 2002 to 2003, Mr. Yang was the
Director and President of CNOOC Southeast Asia Limited, a
wholly-owned subsidiary of the Company. He was appointed as the
Chief Financial Officer of the Company with effect from 1 January
2005. He also serves as the Director of CNOOC International Limited.
Mr. Yang was appointed as an Executive Director with effect from 31
August 2005.
Save as aforesaid, Mr. Yang does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 6,210,000 share options in the Company, Mr. Yang
has no other interest in the Company's securities within the meaning
of Part XV of the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Yang, Mr.
Yang's emoluments comprise an annual remuneration of HK$ 2,100,000
(after Hong Kong tax), plus performance-based bonuses. The
emoluments of Mr. Yang were determined with reference to perception
of industry standards and prevailing market conditions. The
Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary.
Mr. Yang is subject to the provisions of his service contract and
the retirement provisions in the articles of association of the
Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
155
Lawrence J. Lau
Born in 1944, Professor 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 an
Independent Non-executive Director of the Company with effect from
31 August 2005.
Professor Lau does not have any relationship with any other
Director, senior management, substantial shareholder or controlling
shareholder of the Company.
Professor Lau has no interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Professor Lau.
Professor Lau's emoluments comprise an annual remuneration of
HK$500,000 (after Hong Kong tax). The emoluments of Professor Lau
were determined with reference to perception of industry standards
and prevailing market conditions. The Remuneration Committee will
review the level of directors' remuneration from time to time and
make recommendation to the Board for adjustments if necessary.
Professor Lau is subject to the retirement provisions in the
articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
156
Edgar W. K. Cheng
Born in 1943, Dr. 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 does not have any relationship with any other Director,
senior management, substantial shareholder or controlling
shareholder of the Company.
Dr. Cheng has no interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Dr. Cheng. Dr.
Cheng's emoluments are expected to comprise an annual remuneration
of HK$500,000 (after Hong Kong tax). The emoluments of Dr. Cheng
will be determined with reference to perception of industry
standards and prevailing market conditions. The Remuneration
Committee will review the level of directors' remuneration from time
to time and make recommendation to the Board for adjustments if
necessary. Dr. Cheng is subject to the retirement provisions in the
articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
4. To re-appoint Auditors and to authorise the Board of Directors to
fix their remuneration.
157
B. As special business, to consider and, if thought fit, pass with or
without amendments, the following resolutions as ordinary resolutions:
1. "THAT:
(a) subject to paragraph (b) below, the exercise by the Directors
during the Relevant Period (as hereinafter defined) of all the
powers of the Company to repurchase shares in the capital of
the Company on The Stock Exchange of Hong Kong Limited (the
"Stock Exchange") or on any other exchange on which the shares
of the Company may be listed and recognised by the Securities
and Futures Commission of Hong Kong and the Stock Exchange for
this purpose ("Recognised Stock Exchange"), subject to and in
accordance with all applicable laws, rules and regulations and
the requirements of the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong Limited (the
"Listing Rules"), or of any other Recognised Stock Exchange and
the Articles of Association (the "Articles") of the Company, be
and is hereby generally and unconditionally approved;
(b) the aggregate nominal amount of shares of the Company which the
Company is authorised to repurchase pursuant to the approval in
paragraph (a) above shall not exceed 10% of the aggregate
nominal amount of the share capital of the Company in issue as
at the date of the passing of this resolution; and
(c) for the purposes of this resolution:
"Relevant Period" means the period from the date of the passing
of this resolution until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the
Company;
(ii) the expiration of the period within which the next annual
general meeting of the Company is required by any
applicable laws or the Articles of the Company to be held;
and
(iii) the revocation or variation of the authority given under
this resolution by an ordinary resolution of the
shareholders of the Company in general meeting."
2. "THAT:
(a) subject to the following provisions of this resolution, the
exercise by the Directors during the Relevant Period (as
hereinafter defined) of all the powers of the Company to allot,
issue and deal with additional shares in the capital of the
Company and to make or grant offers, agreements and options
(including bonds, notes, warrants, debentures and securities
convertible into shares of the Company) which would or might
require the exercise of such powers be and is hereby generally
and unconditionally approved;
(b) the approval in paragraph (a) above shall authorise the
Directors during the Relevant Period to make or grant offers,
agreements and options (including bonds, notes, warrants,
debentures and securities convertible into shares of the
Company) which would or might require the exercise of such
powers after the end of the Relevant Period;
158
(c) the aggregate nominal amount of share capital of the Company
allotted or agreed conditionally or unconditionally to be
allotted, issued or dealt with (whether pursuant to an option
or otherwise) by the Directors pursuant to the approval in
paragraph (a) above, otherwise than pursuant to:
(i) a Rights Issue (as hereinafter defined);
(ii) an issue of shares pursuant to any specific authority
granted by shareholders of the Company in general meeting,
including upon the exercise of rights of subscription or
conversion under the terms of any warrants issued by the
Company or any bonds, notes, debentures or securities
convertible into shares of the Company;
(iii) an issue of shares pursuant to the exercise of any option
granted under any share option scheme or similar
arrangement for the time being adopted by the Company
and/or any of its subsidiaries;
(iv) any scrip dividend or similar arrangement providing for
the allotment of shares in lieu of the whole or part of a
dividend on shares of the Company in accordance with the
Articles of the Company; or
(v) any adjustment, after the date of grant or issue of any
options, rights to subscribe or other securities referred
to above, in the price at which shares in the Company
shall be subscribed, and/or in the number of shares in the
Company which shall be subscribed, on exercise of relevant
rights under such options, warrants or other securities,
such adjustment being made in accordance with, or as
contemplated by, the terms of such options, rights to
subscribe or other securities,
shall not exceed 20% of the aggregate nominal amount of the
share capital of the Company in issue as at the date of the
passing of this resolution; and
(d) for the purposes of this resolution:
"Relevant Period" means the period from the date of passing of
this resolution until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the
Company;
(ii) the expiration of the period within which the next annual
general meeting of the Company is required by any
applicable laws or the Articles of the Company to be held;
and
(iii) the revocation or variation of the authority given under
this resolution by an ordinary resolution of the
shareholders of the Company in general meeting.
"Rights Issue" means an offer of shares open for a period fixed
by the Directors made to holders of shares whose names appear
on the register of members of the Company on a fixed record
date in proportion to their then holdings of such shares
(subject to such exclusions or other arrangements as the
Directors may deem necessary or expedient in relation to
fractional entitlements or having regard to any restrictions or
obligations under the laws of, or the requirements of, any
recognised regulatory body or any stock exchange in or in any
territory outside Hong Kong).
159
3. "THAT subject to the passing of the resolutions numbered B1 and B2
as set out in the notice convening this meeting, the general mandate
granted to the Directors to allot, issue and deal with additional
shares of the Company pursuant to resolution numbered B2 set out in
this notice be and is hereby extended by the addition to it of an
amount representing the aggregate nominal amount of the shares in
the capital of the Company which are repurchased by the Company
pursuant to and since the granting to the Company of the general
mandate to repurchase shares in accordance with resolution numbered
B1 set out in this notice, provided that such extended amount shall
not exceed l0% of the aggregate nominal amount of the share capital
of the Company in issue as at the date of the passing of this
resolution."
By Order of the Board
CNOOC Limited
Cao Yunshi
Company Secretary
Hong Kong, 12 April 2006
Registered office:
65th Floor,
Bank of China Tower,
1 Garden Road,
Hong Kong.
160
Notes:
1. Every member entitled to attend and vote at the above meeting (or at any
adjournment thereof) is entitled to appoint one or more proxies to attend
and vote on his behalf. A proxy need not be a shareholder of the Company.
2. In order to be valid, the form of proxy duly completed and signed in
accordance with the instructions printed thereon, together with the power
of attorney or other authority (if any) under which it is signed, or a
copy of such authority notarially certified, must be completed and
returned to the Company's registered office at 65th Floor, Bank of China
Tower, 1 Garden Road, Hong Kong not less than 48 hours before the time
appointed for the holding of the meeting or any adjournment thereof (as
the case may be).
3. Completion and return of the form of proxy will not preclude a
shareholder from attending and voting at the meeting or any adjournment
thereof if the shareholder so desires and, in such event, the relevant
form of proxy shall be deemed to be revoked.
4. Where there are joint registered holders of any share of the Company, any
one of such persons may vote at the meeting, either personally or by
proxy, in respect of such share as if he were solely entitled thereto;
but if more than one of such joint registered holders be present at the
meeting personally or by proxy, then the registered holder so present
whose name stands first on the register of members of the Company in
respect of such share will alone be entitled to vote in respect thereof.
5. With respect to resolution numbered B1, approval is being sought from
shareholders for a general mandate to repurchase shares to be given to
the Directors. The Directors wish to state that they have no immediate
plans to repurchase any existing shares. The Explanatory Statement
containing the information necessary to enable the shareholders to make
an informed decision on whether to vote for or against the resolution to
approve the repurchase by the Company of its own shares, as required by
the Listing Rules, is set out in a separate letter from the Company.
6. With respect to resolution numbered B2, approval is being sought from
shareholders for a general mandate to allot, issue and deal with shares
to be given to the Directors. The Directors wish to state that they have
no immediate plans to allot or issue any new shares of the Company.
Approval is being sought from the shareholders as a general mandate for
the purpose of Section 57B of the Companies Ordinance (Cap. 32 of the
Laws of Hong Kong) and the Listing Rules.
7. With respect to resolution numbered B3, approval is being sought from
shareholders for an extension of the general mandate granted to the
Directors to allot and issue shares by adding to it the number of shares
purchased under the authority granted pursuant to resolution numbered B1.
8. For the sake of good corporate governance practice, the Chairman intends
to demand voting by poll for all the resolutions set out in the notice of
the annual general meeting.
9. The register of members of the Company will be closed from 17 May 2006 to
24 May 2006 (both days inclusive), during which no transfer of shares in
the Company will be registered. In order to qualify for the proposed
final dividends and voting at the meeting, members are reminded to ensure
that all instrument of transfer of shares accompanied by the relevant
share certificate(s) must be lodged with the Company's registrar, Hong
Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183
Queen's Road East, Wanchai, Hong Kong for registration not later than
4:00 p m on 16 May 2006.
161
Glossary
API gravity
The America Petroleum Institute's scale for specific gravity for liquid
hydrocarbons, measured in degrees.
Appraisal well
An exploratory well drilled for the purpose of evaluating the commerciality of
a geological trap in which petroleum has been discovered.
Bbls
Barrels
Bcf
Billion cubic feet
BOE
Barrels-of-oil-equivalent
DD&A
Depreciation, depletion and amortization
Dismantlement
Post closure and other environmental exit
Lifting costs per barrel
(Operating expenditures + production taxes)/total net production
Downstream business
Refinery and petrochemical processing
Finding costs
For a given period, costs incurred in identifying areas that may warrant
examination and in examining specific areas that are considered to have
prospects of containing oil and gas reserves, including costs of drilling
exploratory wells.
FPSO
Floating, Production, Storage and Offloading
LNG
Liquefied Natural Gas
Mbbls
Thousand barrels
MBOE
Thousand barrels of equivalent
Mcf
Thousand cubic feet
Mmboe
Million barrels-of-oil equivalent
Mmbbls
Million barrels
Mmcf
Million cubic feet
Net Production
Net production is calculated in the same way as net proved reserves.
Net reserve additions
Total additions of reserves plus or minus reserves revisions
OGP
International Association of Oil & Gas Producers
Net Proved Reserves
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 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.
162
PSC
Production sharing contract
Reserve replacement ratio
For a given year, total additions to proved reserves divided by production
during the year
Total production costs per barrel
(operating expenditures + production taxes + dismantlement + DD&A +
SG&A)/total net production
Upstream business
Oil and gas exploration, development, production and sales
Wildcats
A well drilled on any geological trap for the purpose of searching for
petroleum accumulations in an area or rock formation that has no known
reserves or previous discoveries
Note: In calculating barrels-of-oil equivalent, or BOE, 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.
163
Company Information
Board of Directors:
Fu Chengyu Executive Director, Chairman & CEO
Luo Han Executive Director
Zhou Shouwei Executive Director & President
Cao Xinghe Executive Director
Wu Zhenfang Executive Director
Wu Guangqi Executive Director & Compliance Officer
Yang Hua Executive Director, Executive Vice
President & CFO
Chiu Sung Hong Independent Non-executive Director
Kenneth S. Courtis Independent Non-executive Director
Evert Henkes Independent Non-executive Director
Tse Hau Yin, Aloysius Independent Non-executive Director
Lawrence J. Lau Independent Non-executive Director
Company Secretary
Cao Yunshi
Audit Committee
Chiu Sung Hong (Chairman)
Dr. Kenneth S. Courtis (Financial Expert)
Tse Hau Yin, Aloysius
Remuneration Committee
Chiu Sung Hong (Chairman)
Evert Henkes
Tse Hau Yin, Aloysius
Nomination Committee
Luo Han (Chairman)
Chiu Sung Hong
Tse Hau Yin, Aloysius
Lawrence J. Lau
Other Members of the Senior Management
Liu Jian Executive Vice President
Chen Wei Senior Vice President
Zhang Guohua Senior Vice President
Li Ning Senior Vice President
Chen Bi Vice President
Zhu Weilin Vice President
Zhu Mingcai Vice President
Fang Zhi Vice President
Department Management
Zhu Weilin General Manager,
Exploration Department
Li Fanrong General Manager,
Development & Production Department
Yang Shubo General Manager,
Engineering & Project Department
Li Feilong Qualified Accountant & Financial Controller,
Finance Department
Zhao Liguo General Manager, Legal Department
Song Lisong General Manager,
Health, Safety & Environmental Department
Wang Zhong'an General Manager,
Strategic Development & Planning
Department
Chen Hezhi Human Resources Manager,
Human Resources Department
Zheng Baoguo General Manager, Marketing Department
Huang Xiaofeng General Manager, Treasury Department
Xiao Zongwei General Manager, Investor Relations
Department
Zhu Mingcai General Manager, International Affairs
Dong Weiliang General Manager,
Science and Technology Development
Department
Zhang Benchun General Manager,
Audit and Supervision Department
164
Branch Offices & Subsidiaries Management
Chen Bi General Manager,
CNOOC China Limited - Tianjin Branch
Xie Yuhong General Manager,
CNOOC China Limited - Zhanjiang Branch
Li Ning General Manager,
CNOOC China Limited - Shenzhen Branch
Zhang Guohua General Manager,
CNOOC China Limited - Shanghai Branch
Chen Wei Director,
CNOOC China Limited Research Center
Zhu Mingcai President,
CNOOC International Limited
Fang Zhi Director & President,
CNOOC Southeast Asia Limited
Sun Dalu General Manager,
China Offshore Oil (Singapore)
International Pte. Ltd.
Principal bankers:
Bank of China (Hong Kong) Limited
Hang Seng Bank Limited
Bank of China
Industrial and Commercial Bank of China
China CITIC Bank
China Construction Bank
Hong Kong Share Registrar:
Hong Kong Registrars Limited
17th Floor, Room 1712-6
Hopewell Center
183 Queen's Road East
Wan Chai
Hong Kong
ADS Depositary:
JPMorgan Chase Bank, N.A.
4 New York Plaza, 13th Floor
New York, NY 10004
United States of America
Symbol and stock code:
NYSE: CEO
HKSE: 0883
Investor / Public Relations:
Hong Kong
Tel: (852) 2213 2500
Fax: (852) 2525 9322
Beijing
Tel: (8610) 8452 1646
Fax: (8610) 8452 1441
E-mail: xiaozw@cnooc.com.cn
Registered office:
65/F, Bank of China Tower, 1 Garden Road, Hong Kong
Tel: (852) 2213 2500
Fax: (852) 2525 9322
Beijing office:
CNOOC Tower, No.6 Dong Zhi Men Wai Xiao Jie,
Beijing, 100027, China
Zip Code: 100027
Tel: (8610) 8452 1604
Fax: (8610) 6460 2503
Website: www.cnoocltd.com
Company Announcement
--------------------
CNOOC LIMITED
[GRAPHIC OMITTED]
(Incorporated in Hong Kong with limited liability under the
Companies Ordinance)
(Stock Code: 883)
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the shareholders of
CNOOC Limited (the "Company") will be held on 24 May 2006, at 2:30 p.m. at
Island Shangri-la, Hong Kong, Two Pacific Place, Supreme Court Road, Hong
Kong, for the following purposes:
A. As ordinary business, to consider and, if thought fit, pass with or
without amendments, the following ordinary resolutions:
1. To receive and consider the audited Statement of Accounts together
with the Reports of the Directors and Auditors thereon for the year
ended 31 December 2005.
2. To declare a final dividend for the year ended 31 December 2005.
3. To re-elect retiring Directors, to elect Dr. Edgar W. K. Cheng as a
new Independent Non-executive Director, and to authorise the Board
of Directors to fix the remuneration of each of the Directors.
The Directors to be re-elected and elected are as follows:
Zhou Shouwei
Born in 1950, Mr. Zhou received a doctorate degree from the
Southwest Petroleum Institute in China and is a senior engineer. He
joined China National Offshore Oil Corporation ("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 the
Executive Vice President of the Company in September 1999 and the
President of the Company 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 subsidiaries of the Company. He also
serves as the Chairman of CNOOC Southeast Asia Limited, a
wholly-owned subsidiary of the Company since April 2003. Mr. Zhou
became the chairman of CNOOC Engineering Company Limited, a listed
company in Shanghai Stock Exchange and a subsidiary of CNOOC, on 6
December 2003. Mr. Zhou was appointed as an Executive Director of
the Company with effect from 23 August 1999.
Save as aforesaid, Mr. Zhou does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 9,100,000 share options in the Company, Mr. Zhou
has no other interest in the Company's securities within the meaning
of Part XV of the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Zhou, Mr.
Zhou's emoluments comprise an annual remuneration of HK$2,600,000
(after Hong Kong tax), plus performance-based bonuses. The
emoluments of Mr. Zhou were determined with reference to perception
of industry standards and prevailing market conditions. The
Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary.
Mr. Zhou is subject to the provisions of his service contract and
the retirement provisions in the articles of association of the
Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Evert Henkes
Born in 1943, Mr. 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 an Independent Non-executive
Director of the Company with effect from 16 September 2003.
Mr. Henkes does not have any relationship with any other Director,
senior management, substantial shareholder or controlling
shareholder of the Company.
Apart from holding 1,150,000 share options in the Company, Mr.
Henkes has no other interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Mr. Henkes. Mr.
Henkes' emoluments comprise an annual remuneration of HK$500,000
(after Hong Kong tax). The Remuneration Committee will review the
level of directors' remuneration from time to time and make
recommendation to the Board for adjustments if necessary. The
emoluments of Mr. Henkes were determined with reference to
perception of industry standards and prevailing market conditions.
Mr. Henkes is subject to the retirement provisions in the articles
of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Cao Xinghe
Born in 1949, Mr. Cao graduated from Tianjin Politics and Law
Management College majoring in
2
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 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 Assistant President of CNOOC. He became 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 an Executive Director of the Company
with effect from 31 August 2005.
Save as aforesaid, Mr. Cao does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 800,000 share options in the Company, Mr. Cao has
no other interest in the Company's securities within the meaning of
Part XV of the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Cao, Mr.
Cao's emoluments comprise an annual remuneration of HK$800,000
(after Hong Kong tax), plus performance-based bonuses. The
emoluments of Mr. Cao were determined with reference to perception
of industry standards and prevailing market conditions. The
Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary.
Mr. Cao is subject to the provisions of his service contract and the
retirement provisions in the articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Wu Zhenfang
Born in 1952, Mr. 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 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 an Executive Director of the Company with
effect from 31 August 2005.
Save as aforesaid, Mr. Wu does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 800,000 share options in the Company, Mr. Wu has
no other interest in the
3
Company's securities within the meaning of Part XV of the Securities
and Futures Ordinance.
Under the service contract between the Company and Mr. Wu, Mr. Wu's
emoluments comprise an annual remuneration of HK$800,000 (after Hong
Kong tax), plus performance-based bonuses. The emoluments of Mr. Wu
were determined with reference to perception of industry standards
and prevailing market conditions. The Remuneration Committee will
review the level of directors' remuneration from time to time and
make adjustments if necessary. Mr. Wu is subject to the provisions
of his service contract and the retirement provisions in the
articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Yang Hua
Born in 1961, Mr. 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 CNOOC 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 the Company and its subsidiaries. From 1993 to
1999, he served as the Deputy Chief Geologist, the Deputy Director
and the Acting Director for Overseas Development Department of the
Company and the Vice President of CNOOC International Limited, a
wholly-owned subsidiary of the Company. In 1999, he became a Senior
Vice President of the Company and then became an Executive Vice
President in December 2005. From 2002 to 2003, Mr. Yang was the
Director and President of CNOOC Southeast Asia Limited, a
wholly-owned subsidiary of the Company. He was appointed as the
Chief Financial Officer of the Company with effect from 1 January
2005. He also serves as the Director of CNOOC International Limited.
Mr. Yang was appointed as an Executive Director with effect from 31
August 2005.
Save as aforesaid, Mr. Yang does not have any relationship with any
other Director, senior management, substantial shareholder or
controlling shareholder of the Company.
Apart from holding 6,210,000 share options in the Company, Mr. Yang
has no other interest in the Company's securities within the meaning
of Part XV of the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Yang, Mr.
Yang's emoluments comprise an annual remuneration of HK$2,100,000
(after Hong Kong tax), plus performance-based bonuses. The
emoluments of Mr. Yang were determined with reference to perception
of industry standards and prevailing market conditions. The
Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary.
Mr. Yang is subject to the provisions of his service contract and
the retirement provisions in the articles of association of the
Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
4
Lawrence J. Lau
Born in 1944, Professor 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 an
Independent Non-executive Director of the Company with effect from
31 August 2005.
Professor Lau does not have any relationship with any other
Director, senior management, substantial shareholder or controlling
shareholder of the Company.
Professor Lau has no interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Professor Lau.
Professor Lau's emoluments comprise an annual remuneration of
HK$500,000 (after Hong Kong tax). The emoluments of Professor Lau
were determined with reference to perception of industry standards
and prevailing market conditions. The Remuneration Committee will
review the level of directors' remuneration from time to time and
make recommendation to the Board for adjustments if necessary.
Professor Lau is subject to the retirement provisions in the
articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
Edgar W. K. Cheng
Born in 1943, Dr. 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
5
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 does not have any relationship with any other Director,
senior management, substantial shareholder or controlling
shareholder of the Company.
Dr. Cheng has no interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Dr. Cheng. Dr.
Cheng's emoluments are expected to comprise an annual remuneration
of HK$500,000 (after Hong Kong tax). The emoluments of Dr. Cheng
will be determined with reference to perception of industry
standards and prevailing market conditions. The Remuneration
Committee will review the level of directors' remuneration from time
to time and make recommendation to the Board for adjustments if
necessary. Dr. Cheng is subject to the retirement provisions in the
articles of association of the Company.
There is no other information required to be disclosed pursuant to
any of the requirements of Rule 13.51(2) of the Listing Rules.
4. To re-appoint Auditors and to authorise the Board of Directors to
fix their remuneration.
6
B. As special business, to consider and, if thought fit, pass with or
without amendments, the following resolutions as ordinary resolutions:
1. "THAT:
(a) subject to paragraph (b) below, the exercise by the Directors
during the Relevant Period (as hereinafter defined) of all the
powers of the Company to repurchase shares in the capital of
the Company on The Stock Exchange of Hong Kong Limited (the
"Stock Exchange") or on any other exchange on which the shares
of the Company may be listed and recognised by the Securities
and Futures Commission of Hong Kong and the Stock Exchange for
this purpose ("Recognised Stock Exchange"), subject to and in
accordance with all applicable laws, rules and regulations and
the requirements of the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong Limited (the
"Listing Rules"), or of any other Recognised Stock Exchange and
the Articles of Association (the "Articles") of the Company, be
and is hereby generally and unconditionally approved;
(b) the aggregate nominal amount of shares of the Company which the
Company is authorised to repurchase pursuant to the approval in
paragraph (a) above shall not exceed 10% of the aggregate
nominal amount of the share capital of the Company in issue as
at the date of the passing of this resolution; and
(c) for the purposes of this resolution:
"Relevant Period" means the period from the date of the passing
of this resolution until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the
Company;
(ii) the expiration of the period within which the next annual
general meeting of the Company is required by any
applicable laws or the Articles of the Company to be held;
and
(iii) the revocation or variation of the authority given under
this resolution by an ordinary resolution of the
shareholders of the Company in general meeting."
2. "THAT:
(a) subject to the following provisions of this resolution, the
exercise by the Directors during the Relevant Period (as
hereinafter defined) of all the powers of the Company to allot,
issue and deal with additional shares in the capital of the
Company and to make or grant offers, agreements and options
(including bonds, notes, warrants, debentures and securities
convertible into shares of the Company) which would or might
require the exercise of such powers be and is hereby generally
and unconditionally approved;
(b) the approval in paragraph (a) above shall authorise the
Directors during the Relevant Period to make or grant offers,
agreements and options (including bonds, notes, warrants,
debentures and securities convertible into shares of the
Company) which would or might require the exercise of such
powers after the end of the Relevant Period;
7
(c) the aggregate nominal amount of share capital of the Company
allotted or agreed conditionally or unconditionally to be
allotted, issued or dealt with (whether pursuant to an option
or otherwise) by the Directors pursuant to the approval in
paragraph (a) above, otherwise than pursuant to:
(i) a Rights Issue (as hereinafter defined);
(ii) an issue of shares pursuant to any specific authority
granted by shareholders of the Company in general meeting,
including upon the exercise of rights of subscription or
conversion under the terms of any warrants issued by the
Company or any bonds, notes, debentures or securities
convertible into shares of the Company;
(iii) an issue of shares pursuant to the exercise of any option
granted under any share option scheme or similar
arrangement for the time being adopted by the Company
and/or any of its subsidiaries;
(iv) any scrip dividend or similar arrangement providing for
the allotment of shares in lieu of the whole or part of a
dividend on shares of the Company in accordance with the
Articles of the Company; or
(v) any adjustment, after the date of grant or issue of any
options, rights to subscribe or other securities referred
to above, in the price at which shares in the Company
shall be subscribed, and/or in the number of shares in the
Company which shall be subscribed, on exercise of relevant
rights under such options, warrants or other securities,
such adjustment being made in accordance with, or as
contemplated by, the terms of such options, rights to
subscribe or other securities,
shall not exceed 20% of the aggregate nominal amount of the
share capital of the Company in issue as at the date of the
passing of this resolution; and
(d) for the purposes of this resolution:
"Relevant Period" means the period from the date of passing of
this resolution until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the
Company;
(ii) the expiration of the period within which the next annual
general meeting of the Company is required by any
applicable laws or the Articles of the Company to be held;
and
(iii) the revocation or variation of the authority given under
this resolution by an ordinary resolution of the
shareholders of the Company in general meeting.
"Rights Issue" means an offer of shares open for a period fixed
by the Directors made to holders of shares whose names appear
on the register of members of the Company on a fixed record
date in proportion to their then holdings of such shares
(subject to such exclusions or other arrangements as the
Directors may deem necessary or expedient in relation to
fractional entitlements or having regard to any restrictions or
obligations under the laws of, or the requirements of, any
recognised
8
regulatory body or any stock exchange in or in any territory
outside Hong Kong).
3. "THAT subject to the passing of the resolutions numbered B1 and
B2 as set out in the notice convening this meeting, the general
mandate granted to the Directors to allot, issue and deal with
additional shares of the Company pursuant to resolution
numbered B2 set out in this notice be and is hereby extended by
the addition to it of an amount representing the aggregate
nominal amount of the shares in the capital of the Company
which are repurchased by the Company pursuant to and since the
granting to the Company of the general mandate to repurchase
shares in accordance with resolution numbered B1 set out in
this notice, provided that such extended amount shall not
exceed l0% of the aggregate nominal amount of the share capital
of the Company in issue as at the date of the passing of this
resolution."
By Order of the Board
CNOOC Limited
Cao Yunshi
Company Secretary
Hong Kong, 12 April 2006
Registered office:
65th Floor,
Bank of China Tower,
1 Garden Road,
Hong Kong.
Notes:
1. Every member entitled to attend and vote at the above meeting (or at any
adjournment thereof) is entitled to appoint one or more proxies to attend
and vote on his behalf. A proxy need not be a shareholder of the Company.
2. In order to be valid, the form of proxy duly completed and signed in
accordance with the instructions printed thereon, together with the power
of attorney or other authority (if any) under which it is signed, or a
copy of such authority notarially certified, must be completed and
returned to the Company's registered office at 65th Floor, Bank of China
Tower, 1 Garden Road, Hong Kong not less than 48 hours before the time
appointed for the holding of the meeting or any adjournment thereof (as
the case may be).
3. Completion and return of the form of proxy will not preclude a
shareholder from attending and voting at the meeting or any adjournment
thereof if the shareholder so desires and, in such event, the relevant
form of proxy shall be deemed to be revoked.
4. Where there are joint registered holders of any share of the Company, any
one of such persons may vote at the meeting, either personally or by
proxy, in respect of such share as if he were solely entitled thereto;
but if more than one of such joint registered holders be present at the
meeting personally or by proxy, then the registered holder so present
whose name stands first on the register of members of the Company in
respect of such share will alone be entitled to vote in respect thereof.
5. With respect to resolution numbered B1, approval is being sought from
shareholders for a general mandate to repurchase
9
shares to be given to the Directors. The Directors wish to state that
they have no immediate plans to repurchase any existing shares. The
Explanatory Statement containing the information necessary to enable the
shareholders to make an informed decision on whether to vote for or
against the resolution to approve the repurchase by the Company of its
own shares, as required by the Listing Rules, is set out in a separate
letter from the Company.
6. With respect to resolution numbered B2, approval is being sought from
shareholders for a general mandate to allot, issue and deal with shares
to be given to the Directors. The Directors wish to state that they have
no immediate plans to allot or issue any new shares of the Company.
Approval is being sought from the shareholders as a general mandate for
the purpose of Section 57B of the Companies Ordinance (Cap. 32 of the
Laws of Hong Kong) and the Listing Rules.
7. With respect to resolution numbered B3, approval is being sought from
shareholders for an extension of the general mandate granted to the
Directors to allot and issue shares by adding to it the number of shares
purchased under the authority granted pursuant to resolution numbered B1.
8. For the sake of good corporate governance practice, the Chairman intends
to demand voting by poll for all the resolutions set out in the notice of
the annual general meeting.
9. The register of members of the Company will be closed from 17 May 2006 to
24 May 2006 (both days inclusive), during which no transfer of shares in
the Company will be registered. In order to qualify for the proposed
final dividends and voting at the meeting, members are reminded to ensure
that all instrument of transfer of shares accompanied by the relevant
share certificate(s) must be lodged with the Company's registrar, Hong
Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183
Queen's Road East, Wanchai, Hong Kong for registration not later than
4:00 p m on 16 May 2006.
As at the date of this announcement, the Board comprises:
Executive Directors:
Fu Chengyu (Chairman)
Luo Han
Zhou Shouwei
Cao Xinghe
Wu Zhenfang
Wu Guangqi
Yang Hua
Independent Non-Executive Directors:
Chiu Sung Hong
Kenneth S. Courtis
Evert Henkes
Hau Yin Tse, Aloysius
Lawrence J. Lau
10
--------------------------------------------------------------------------------
IMPORTANT
--------------------------------------------------------------------------------
If you are in any doubt as to any aspect of this document or as to the action
to be taken, you should consult a stockbroker or other registered dealer in
securities, a bank manager, solicitor, professional accountant or other
professional adviser.
If you have sold or transferred all your shares in CNOOC Limited you should at
once pass this document to the purchaser or to the bank, stockbroker or other
agent through whom the sale was effected for transmission to the purchaser.
The Stock Exchange of Hong Kong Limited takes no responsibility for the
contents of this document, makes no representation as to its accuracy or
completeness and expressly disclaims any liability whatsoever for any loss
howsoever arising from or in reliance upon the whole or any part of the
contents of this document.
--------------------------------------------------------------------------------
CNOOC LIMITED
[GRAPHIC OMITTED]
(Incorporated in Hong Kong with limited liability under the
Companies Ordinance)
(Stock Code: 883)
EXPLANATORY STATEMENT RELATING TO
GENERAL MANDATES TO ISSUE SECURITIES AND REPURCHASE SHARES
AND
RE-ELECTION AND ELECTION OF DIRECTORS
--------------------------------------------------------------------------------
A notice convening an annual general meeting of CNOOC Limited to be held on 24
May 2006 at 2:30 p.m. at Island Shangri-la Hong Kong, Two Pacific Place,
Supreme Court Road, Hong Kong is set out on pages 151 to 160 of the annual
report of the Company for the year ended 31 December 2005. Whether or not you
intend to attend such meeting, please complete and return the form of proxy in
accordance with the instructions printed thereon as soon as possible, and in
any event not less than 48 hours before the time appointed for holding such
meeting. Completion and return of the form of proxy will not preclude
shareholders from attending and voting at the meeting or any adjourned meeting
if they so wish.
12 April 2006
1
CNOOC LIMITED
[GRAPHIC OMITTED]
(Incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 883)
Board of Directors: Registered office:
Fu Chengyu (Chairman) 65/F, Bank of China Tower
Luo Han 1 Garden Road
Zhou Shouwei Central
Cao Xinghe Hong Kong
Wu Zhenfang
Wu Guangqi
Yang Hua
Sung Hong Chiu*
Kenneth S. Courtis*
Evert Henkes*
Tse Hau Yin, Aloysius*
Lawrence J. Lau*
* Independent Non-executive Directors
12 April 2005
To the shareholders
Dear Sir or Madam,
EXPLANATORY STATEMENT RELATING TO
GENERAL MANDATES TO ISSUE SECURITIES AND REPURCHASE SHARES
AND
RE-ELECTION AND ELECTION OF DIRECTORS
INTRODUCTION
The purpose of this document is to provide you with information in
connection with the proposed ordinary resolution set out as items A3, B1, B2
and B3 of the notice of annual general meeting for the approval of renewal of
the general mandates for issue of securities and repurchase Shares, and
re-election of retiring directors and election of new independent
non-executive director at the annual general meeting to be held at Island
Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong on 24
May 2006 at 2:30 p.m. (the "Annual General Meeting"). References in this
document to "Shares" are share(s) of all classes in the issued share capital
of CNOOC Limited (the "Company").
GENERAL MANDATES TO ISSUE SECURITIES AND REPURCHASE SHARES
At the annual general meeting of the Company held on 25 May 2005,
ordinary resolutions were passed granting general mandates to the directors of
the Company (the "Directors"), inter alia, (i) to repurchase Shares not
exceeding 10 per cent. of the aggregate nominal amount of the issued share
capital of the Company as at 25 May 2005; and (ii) to allot, issue and deal
with additional Shares not exceeding 20 per cent. of the aggregate nominal
amount of the issued share capital of the Company as at 25 May 2005 and those
Shares not exceeding 10 per cent. of the aggregate nominal amount of the
issued share capital of the Company as at 25 May 2005 which may be repurchased
by the Company (collectively referred to as "Existing General Mandates").
2
The Existing General Mandates will lapse at the conclusion of the Annual
General Meeting. Accordingly, new general mandates to issue securities and to
repurchase Shares, respectively, as set out as ordinary resolutions in the
notice of the Annual General Meeting, are now proposed to be granted. The
Directors, at the date hereof, have no immediate plans to repurchase any
existing Shares or to issue any new securities pursuant to the relevant
mandates.
The explanatory statement, as required by the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing
Rules") to be sent to the shareholders of the Company (the "Shareholders") in
connection with the proposed general mandate to issue securities and
repurchase Shares, is set out in Appendix I to this document. The explanatory
statement contains all information reasonably necessary to enable the
Shareholders to make an informed decision on whether to vote for or against
the relevant resolutions at the Annual General Meeting.
RE-ELECTION AND ELECTION OF DIRECTORS
Pursuant to Article 97 of the Articles of Association (the "Articles") of
the Company, Messrs. Zhou Shouwei, Kenneth S. Courtis and Evert Henkes will
retire from office at the Annual General Meeting and, being eligible for
re-election, Messrs. Zhou Shouwei and Evert Henkes have been recommended by
the Board and have offered themselves for re-election. Mr. Kenneth S. Courtis
will retire at the Annual General Meeting. The Board has recommended Mr. Edgar
W. K. Cheng for election at the Annual General Meeting as a new independent
non-executive director of the Company.
In addition, pursuant to Article 101 of the Articles of the Company,
Messrs. Cao Xinghe, Wu Zhenfang, Yang Hua and Professor Lawrence J. Lau will
also retire from office at the Annual General Meeting and, being eligible for
re-election, have been recommended by the Board for re-election at the Annual
General Meeting.
Details of such Directors required to be disclosed under the Listing
Rules are set out in Appendix II to this document.
ANNUAL GENERAL MEETING
A notice convening the Annual General Meeting is set out on pages 151 to
160 of the annual report of the Company for the year ended 31 December 2005.
There is no Shareholder that is materially interested in the proposed
resolutions regarding the general mandates to issue securities and repurchase
Shares, and therefore none of the Shareholders is required to abstain from
voting in respect of such resolutions.
Pursuant to the Articles of the Company, at any general meeting of the
Company, a resolution put to the vote of the meeting shall be decided on a
show of hands unless a poll is demanded. Details of the procedures by which
Shareholders may demand a poll are set out in Appendix III to this document.
For the sake of good corporate governance practice, the Chairman intends to
demand voting by poll for all the resolutions set out in the notice of the
Annual General Meeting.
A form of proxy for use at the Annual General Meeting is enclosed.
Shareholders are requested to complete the form of proxy and return it to the
registered office of the Company at 65th Floor, Bank of China Tower, 1 Garden
Road, Central, Hong Kong in accordance with the instructions printed on it not
less than 48 hours before the time appointed for the holding of the meeting or
any adjournment thereof (as the case may be), if they do not intend to be
present in person at the meeting. Completion and return of the form of proxy
will not preclude Shareholders from attending and voting at the meeting or any
adjournment thereof if they so wish and, in such event, the relevant form of
proxy shall be deemed to be revoked.
RECOMMENDATION
The Directors believe that the granting of the general mandates to issue
securities and repurchase Shares, and the re-election or election of the said
Directors (as appropriate) are in the best interests of the Company and the
Shareholders as a whole, and accordingly recommend the Shareholders to vote in
favour of all the relevant resolutions to be proposed at the Annual General
Meeting.
Yours faithfully,
For and on behalf of the Board
CNOOC Limited
Fu Chengyu
Chairman
3
-------------------------------------------------------------------------------
APPENDIX I EXPLANATORY NOTES TO REPURCHASE MANDATE
-------------------------------------------------------------------------------
The following is the explanatory notes required to be sent to the
Shareholders under the Listing Rules in connection with the proposed general
mandate for repurchase of securities and also constitutes the memorandum
required under section 49BA of the Companies Ordinance.
GENERAL MANDATE TO REPURCHASE SHARES
At the Annual General Meeting, an ordinary resolution will be proposed
to give the Directors a general and unconditional mandate (the "Repurchase
Mandate") to exercise all the powers of the Company to repurchase on the Stock
Exchange of Hong Kong Limited (the "Stock Exchange") the issued and fully paid
Shares. Under the Repurchase Mandate, the number of Shares that the Company
may repurchase shall not exceed 10 per cent. of the aggregate nominal amount
of the issued share capital of the Company as at the date of passing the
resolution.
Shareholders should note that the Repurchase Mandate covers purchases
made only during the period ending on the earliest of the date of the next
annual general meeting of the Company, the date by which the next annual
general meeting of the Company is required by any applicable laws or the
Articles of the Company to be held and the date upon which such authority is
revoked or varied.
SHARE CAPITAL
On 10 April 2006, being the latest practicable date before printing of
this document for ascertaining certain information for the purpose of
inclusion in this document (the "Latest Practicable Date"), 41,054,675,375
Shares were in issue and fully paid. Assuming that there are no changes from
the Latest Practicable Date to the date of the Annual General Meeting in the
Company's issued and fully paid share capital and subject to the passing of
the ordinary resolution approving the Repurchase Mandate, the maximum number
of Shares that may be repurchased by the Company pursuant to the Repurchase
Mandate will be 4,105,467,537 Shares.
DIRECTORS AND CONNECTED PERSONS
None of the Directors nor, to the best of the knowledge and belief of
the Directors having made all reasonable enquiries, any of their respective
associates (as defined in the Listing Rules) has a present intention, in the
event that the Repurchase Mandate is approved by the Shareholders, to sell
Shares to the Company or its subsidiaries.
No persons who are connected persons (as defined in the Listing Rules)
have notified the Company that they have a present intention to sell Shares to
the Company or have undertaken not to sell any of the Shares held by them to
the Company, in the event that the Company is authorised to make purchases of
Shares, on the Stock Exchange.
DIRECTORS' UNDERTAKING
The Directors have undertaken to the Stock Exchange to exercise the
powers of the Company to make purchases pursuant to the Repurchase Mandate in
accordance with the Listing Rules and all applicable laws of Hong Kong.
EFFECT OF THE HONG KONG CODE ON TAKEOVERS AND MERGERS
If as a result of a repurchase of Shares by the Company, a Shareholder's
proportionate interest in the voting rights of the Company increases, such
increase will be treated as an acquisition for the purpose of the Hong Kong
Code on Takeovers and Mergers (the "Takeovers Code"). As a result, a
Shareholder, or a group of Shareholders acting in concert, depending on the
level of increase of its or their shareholding, could obtain or consolidate
control of the Company and become obliged to make a mandatory offer in
accordance with Rules 26 and 32 of the Takeovers Code.
As at the Latest Practicable Date, the immediate controlling shareholder
of the Company, CNOOC (BVI) Limited ("CNOOC BVI"), was recorded in the
register required to be kept by the Company under section 336(1) of the
Securities and Futures Ordinance as having an interest in 28,999,999,995
Shares, representing approximately 70.64 per cent. of the issued share capital
of the Company as at that date. CNOOC BVI is a wholly-owned subsidiary of
Overseas Oil & Gas Corporation, Limited ("OOGC"), which is in turn a wholly
owned subsidiary of China National Offshore Oil Corporation ("CNOOC").
Accordingly, CNOOC (BVI)'s interests are recorded as the interests of OOGC and
CNOOC. OOGC also has a direct interest in 5 Shares. If the Repurchase Mandate
is exercised in full, CNOOC BVI, OOGC and CNOOC will be regarded as being
interested in approximately 78.49 per cent. of the reduced issued share
capital of the Company. Regardless of such increase in shareholding, neither
CNOOC BVI, OOGC nor CNOOC would become obliged to make a mandatory offer for
all securities not already owned by it or its concert parties under Rule 26 of
the Takeovers Code.
4
PUBLIC FLOAT
The Directors do not have a present intention to exercise the Repurchase
Mandate to such extent, causing the public float of the securities of the
Company to fall below 25 per cent..
LISTING RULES FOR REPURCHASE OF SHARES
Reasons for Repurchase
The Directors consider that the Repurchase Mandate will provide the
Company with the flexibility to make such repurchases when appropriate and
beneficial to the Company and its Shareholders. Such purchases may, depending
on the market conditions and funding arrangements at the time, lead to an
enhancement of the net asset value per Share and/or earnings per Share.
Source of Funds
Repurchases must be made from internal resources, borrowings and/or
other funds legally available for the purpose in accordance with the Company's
Memorandum and Articles of Association, the Listing Rules and applicable laws
and regulations in Hong Kong.
On the basis of the consolidated financial position of the Company as at
31st December 2005 (being the date to which the latest published audited
financial statements of the Company have been made up) and in particular the
working capital position and gearing ratio of the Company and the number of
Shares in issue, the Directors consider that there will not be a material
impact on the working capital or the gearing position of the Company in the
event that the proposed repurchases were to be carried out in full at any time
during the proposed repurchase period. No repurchase would be made in
circumstances that would have a material adverse impact on the working capital
of the Company (as compared with the position disclosed in the latest
published audited financial statements) unless the Directors consider that
such purchases were in the best interests of the Company and its Shareholders
as a whole.
SHARE REPURCHASE MADE BY THE COMPANY
The Company has not repurchased any of its Shares (whether on the Stock
Exchange or otherwise) in the six months preceding the Latest Practicable
Date.
GENERAL
During each of the twelve months preceding the Latest Practicable Date,
the highest and lowest traded prices for Shares on the Stock Exchange were as
follows:
Price Per Share
Month Highest Lowest
HK$ HK$
2005
April 4.400 3.950
May 4.400 4.075
June 4.650 4.100
July 5.30 4.600
August 6.05 5.30
September 5.80 5.35
October 5.55 4.825
November 5.25 4.900
December 5.60 5.25
2006
January 6.55 5.25
February 6.80 6.30
March 6.60 5.90
April (up to the Latest Practicable Date) 6.20 6.05
5
-------------------------------------------------------------------------------
APPENDIX II DETAILS OF PROPOSED DIRECTORS FOR
RE-ELECTION AND ELECTION AT THE AGM
-------------------------------------------------------------------------------
The following are the particulars of the Directors who are proposed for
re-election and election at the Annual General Meeting as required under Rule
13.51(2) of the Listing Rules:
Zhou Shouwei
Born in 1950, Mr. Zhou received a doctorate degree from the Southwest
Petroleum Institute in China and is a senior engineer. He joined China
National Offshore Oil Corporation ("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 the Executive Vice President of the Company in September 1999 and
the President of the Company 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
subsidiaries of the Company. He also serves as the Chairman of CNOOC Southeast
Asia Limited, a wholly-owned subsidiary of the Company since April 2003. Mr.
Zhou became the chairman of CNOOC Engineering Company Limited, a listed
company in Shanghai Stock Exchange and a subsidiary of CNOOC, on 6 December
2003. Mr. Zhou was appointed as an Executive Director of the Company with
effect from 23 August 1999.
Save as aforesaid, Mr. Zhou does not have any relationship with any
other Director, senior management, substantial shareholder or controlling
shareholder of the Company.
Apart from holding 9,100,000 share options in the Company, Mr. Zhou has
no other interest in the Company's securities within the meaning of Part XV of
the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Zhou, Mr. Zhou's
emoluments comprise an annual remuneration of HK$2,600,000 (after Hong Kong
tax), plus performance-based bonuses. The emoluments of Mr. Zhou were
determined with reference to perception of industry standards and prevailing
market conditions. The Remuneration Committee will review the level of
directors' remuneration from time to time and make adjustments if necessary.
There is no fixed term under the service contract and either party may
terminate with 3 month's notice. Mr. Zhou is subject to the provisions of his
service contract and the retirement provisions in the articles of association
of the Company.
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
Evert Henkes
Born in 1943, Mr. 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 an Independent Non-executive
Director of the Company with effect from 16 September 2003.
Mr. Henkes does not have any relationship with any other Director,
senior management, substantial shareholder or controlling shareholder of the
Company.
Apart from holding 1,150,000 share options in the Company, Mr. Henkes
has no other interest in the Company's securities within the meaning of Part
XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Mr. Henkes. Mr.
Henkes' emoluments comprise an annual remuneration of HK$500,000 (after Hong
Kong tax). The Remuneration Committee will review the level of directors'
remuneration from time to time and make recommendation to the Board for
adjustments if necessary. The emoluments of Mr. Henkes were determined with
reference to perception of industry standards and prevailing market
conditions. Mr. Henkes is subject to the retirement provisions in the articles
of association of the Company, and is expected to retire and stand for
re-election before 2009.
6
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APPENDIX II DETAILS OF PROPOSED DIRECTORS FOR
RE-ELECTION AND ELECTION AT THE AGM
-------------------------------------------------------------------------------
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
Cao Xinghe
Born in 1949, Mr. 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 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 Assistant President of CNOOC. He became 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 an
Executive Director of the Company with effect from 31 August 2005.
Save as aforesaid, Mr. Cao does not have any relationship with any other
Director, senior management, substantial shareholder or controlling
shareholder of the Company.
Apart from holding 800,000 share options in the Company, Mr. Cao has no
other interest in the Company's securities within the meaning of Part XV of
the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Cao, Mr. Cao's
emoluments comprise an annual remuneration of HK$800,000 (after Hong Kong
tax), plus performance-based bonuses. The emoluments of Mr. Cao were
determined with reference to perception of industry standards and prevailing
market conditions. The Remuneration Committee will review the level of
directors' remuneration from time to time and make adjustments if necessary.
There is no fixed term under the service contract and either party may
terminate with 3 month's notice. Mr. Cao is subject to the provisions of his
service contract and the retirement provisions in the articles of association
of the Company.
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
Wu Zhenfang
Born in 1952, Mr. 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 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 an Executive Director of the Company
with effect from 31 August 2005.
Save as aforesaid, Mr. Wu does not have any relationship with any other
Director, senior management, substantial shareholder or controlling
shareholder of the Company.
Apart from holding 800,000 share options in the Company, Mr. Wu has no
other interest in the Company's securities within the meaning of Part XV of
the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Wu, Mr. Wu's
emoluments comprise an annual remuneration of HK$800,000 (after Hong Kong
tax), plus performance-based bonuses. The emoluments of Mr. Wu were determined
with reference to perception of industry standards and prevailing market
conditions. The Remuneration Committee will review the level of directors'
remuneration from time to time and make adjustments if necessary. There is no
fixed term under the service contract and either party may terminate with 3
month's notice. Mr. Wu is subject to the provisions of his service contract
and the retirement provisions in the articles of association of the
7
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APPENDIX II DETAILS OF PROPOSED DIRECTORS FOR
RE-ELECTION AND ELECTION AT THE AGM
-------------------------------------------------------------------------------
Company.
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
Yang Hua
Born in 1961, Mr. 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 CNOOC 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 the Company and its subsidiaries. From 1993 to 1999, he
served as the Deputy Chief Geologist, the Deputy Director and the Acting
Director for Overseas Development Department of the Company and the Vice
President of CNOOC International Limited, a wholly-owned subsidiary of the
Company. In 1999, he became a Senior Vice President of the Company and then
became an Executive Vice President in December 2005. From 2002 to 2003, Mr.
Yang was the Director and President of CNOOC Southeast Asia Limited, a
wholly-owned subsidiary of the Company. He was appointed as the Chief
Financial Officer of the Company with effect from 1 January 2005. He also
serves as the Director of CNOOC International Limited. Mr. Yang was appointed
as an Executive Director with effect from 31 August 2005.
Save as aforesaid, Mr. Yang does not have any relationship with any
other Director, senior management, substantial shareholder or controlling
shareholder of the Company.
Apart from holding 6,210,000 share options in the Company, Mr. Yang has
no other interest in the Company's securities within the meaning of Part XV of
the Securities and Futures Ordinance.
Under the service contract between the Company and Mr. Yang, Mr. Yang's
emoluments comprise an annual remuneration of HK$2,100,000 (after Hong Kong
tax), plus performance-based bonuses. The emoluments of Mr. Yang were
determined with reference to perception of industry standards and prevailing
market conditions. The Remuneration Committee will review the level of
directors' remuneration from time to time and make adjustments if necessary.
There is no fixed term under the service contract and either party may
terminate with 3 month's notice. Mr. Yang is subject to the provisions of his
service contract and the retirement provisions in the articles of association
of the Company.
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
Lawrence J. Lau
Born in 1944, Professor 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
8
-------------------------------------------------------------------------------
APPENDIX II DETAILS OF PROPOSED DIRECTORS FOR
RE-ELECTION AND ELECTION AT THE AGM
-------------------------------------------------------------------------------
companies in Taiwan. Professor Lau was appointed as an Independent
Non-executive Director of the Company with effect from 31 August 2005.
Professor Lau does not have any relationship with any other Director,
senior management, substantial shareholder or controlling shareholder of the
Company.
Professor Lau has no interest in the Company's securities within the
meaning of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Professor Lau.
Professor Lau's emoluments comprise an annual remuneration of HK$500,000
(after Hong Kong tax). The emoluments of Professor Lau were determined with
reference to perception of industry standards and prevailing market
conditions. The Remuneration Committee will review the level of directors'
remuneration from time to time and make recommendation to the Board for
adjustments if necessary. Professor Lau is subject to the retirement
provisions in the articles of association of the Company, and is expected to
retire and stand for re-election before 2009.
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
Edgar W. K. Cheng
Born in 1943, Dr. 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 does not have any relationship with any other Director, senior
management, substantial shareholder or controlling shareholder of the Company.
Dr. Cheng has no interest in the Company's securities within the meaning
of Part XV of the Securities and Futures Ordinance.
There is no service contract between the Company and Dr. Cheng. Dr.
Cheng's emoluments are expected to comprise an annual remuneration of
HK$500,000 (after Hong Kong tax). The emoluments of Dr. Cheng will be
determined with reference to perception of industry standards and prevailing
market conditions. The Remuneration Committee will review the level of
directors' remuneration from time to time and make recommendation to the Board
for adjustments if necessary. Dr. Cheng is subject to the retirement
provisions in the articles of association of the Company, and is expected to
retire and stand for re-election before 2009.
There is no other information required to be disclosed pursuant to any
of the requirements of Rules 13.51(2)(h)-13.51(2)(v) of the Listing Rules, nor
are there other matters that need to be brought to the attention of the
Shareholders.
9
APPENDIX III PROCEDURES FOR DEMANDING A POLL
Pursuant to Article 69(a) of the Articles of the Company, a resolution
put to the vote of a general 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 such 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 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
aggregate equal to not less than one-tenth of the total sum paid
up on all Shares conferring that right.
10
CNOOC LIMITED
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 883)
Form of proxy for the Annual General Meeting to be held on 24 May 2006
I/We(Note 1) _________________________________________________________________
of ___________________________________________________________________________
being the registered holder(s) of ___________________ shares(Note 2) of
HK$0.02 each in the share capital of the above-named Company HEREBY APPOINT
THE CHAIRMAN OF THE MEETING(Note 3) or _______________________________________
______________________________________________________________________________
of ___________________________________________________________________________
as my/our proxy to attend and act for me/us at the Annual General Meeting (and
any adjournment thereof) of the said Company to be held at Island Shangri-la,
Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong on 24 May 2006 at
2:30 p.m. for the purposes of considering and, if thought fit, passing the
Resolutions as set out in the Notice of Annual General Meeting and at such
Meeting (and at any adjournment thereof) to vote for me/us and in my/our
name(s) in respect of the Resolutions as indicated below(Note 4).
----------------------------------------------------------------------------------------------------------------
ORDINARY RESOLUTIONS FOR(Note 4) AGAINST(Note 4)
----------------------------------------------------------------------------------------------------------------
A1. To receive and consider the Audited Statement of Accounts together
with the Reports of the Directors and the Auditors thereon for the
year ended 31 December 2005.
----------------------------------------------------------------------------------------------------------------
A2. To declare a final dividend for the year ended 31 December 2005.
----------------------------------------------------------------------------------------------------------------
A3. (i)___To re-elect Mr. Zhou Shouwei as Executive Director; (i) (i)
----------------------------------------------------------------------------------------------------------------
(ii) To re-elect Mr. Evert Henkes as Independent Non-executive (ii (ii)
Director;
----------------------------------------------------------------------------------------------------------------
(iii) To re-elect Mr. Cao Xinghe as Executive Director; (iii) (iii)
----------------------------------------------------------------------------------------------------------------
(iv) To re-elect Mr. Wu Zhenfang as Executive Director; (iv) (iv)
----------------------------------------------------------------------------------------------------------------
(v) To re-elect Mr. Yang Hua as Executive Director; (v) (v)
----------------------------------------------------------------------------------------------------------------
(vi) To re-elect Professor Lawrence J. Lau as Independent (vi) (vi)
Non-executive Director;
----------------------------------------------------------------------------------------------------------------
(vii) To elect Dr. Edgar W. K. Cheng as a new Independent (vii) (vii)
Non-executive Director; and
----------------------------------------------------------------------------------------------------------------
(viii) To authorise the Board of Directors to fix the (viii) (viii)
remuneration of each of the Directors.
----------------------------------------------------------------------------------------------------------------
A4. To re-appoint the Company's auditors and to authorise the Board of
Directors to fix their remuneration.
----------------------------------------------------------------------------------------------------------------
B1. To grant a general mandate to the Directors to repurchase shares in
the capital of the Company not exceeding 10% of the aggregate nominal
amount of the share capital of the Company in issue as at the date of
passing of this resolution.
----------------------------------------------------------------------------------------------------------------
B2. To grant a general mandate to the Directors to allot, issue and deal
with additional shares in the capital of the Company not exceeding 20%
of the aggregate nominal amount of the share capital of the Company in
issue as at the date of passing of this resolution.
----------------------------------------------------------------------------------------------------------------
B3. To extend the general mandate granted to the Directors to allot, issue
and deal with shares by the number of shares repurchased.
----------------------------------------------------------------------------------------------------------------
Dated this ________________day of _____________2006 Signed(Note 5) _______________________________
Notes:
1. Full name(s) and address(es) to be inserted in BLOCK CAPITALS.
2. Please insert the number of shares registered in your name(s) to which
this proxy relates. If no number is inserted, this form of proxy will be
deemed to relate to all the shares in the Company registered in your
name(s).
3. If any proxy other than the Chairman is preferred, strike out the words
"THE CHAIRMAN OF THE MEETING" and insert the name and address of the
proxy desired in the space provided. A member may appoint one or more
proxies to attend and vote in his stead. ANY ALTERATION MADE TO THIS
FORM OF PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS IT.
4. IMPORTANT: IF YOU WISH TO VOTE FOR THE RESOLUTIONS, TICK THE APPROPRIATE
BOXES MARKED "FOR". IF YOU WISH TO VOTE AGAINST THE RESOLUTIONS, TICK
THE APPROPRIATE BOXES MARKED "AGAINST". Failure to complete any or all
the boxes will entitle your proxy to cast his votes at his discretion.
Your proxy will also be entitled to vote at his discretion on any
resolution properly put to the Meeting other than those referred to in
the Notice of Annual General Meeting.
5. This form of proxy must be signed by you or your attorney duly
authorised in writing or, in the case of a corporation, must be either
executed under its common seal or under the hand of an officer or
attorney or other person duly authorised to sign the same.
6. In the case of joint holders of any share, any one of such joint holders
may vote at the Meeting, either personally or by proxy, in respect of
such shares as if he were solely entitled thereto. However, if more than
one of such joint holders is present at the Meeting, personally or by
proxy, the vote of the joint holder whose name stands first in the
Register of Members and who tenders a vote, whether in person or by
proxy, will be accepted to the exclusion of the votes of the other joint
holder(s).
7. To be valid, this form of proxy together with the power of attorney (if
any) or other authority under which it is signed (if any) or a
notarially certified copy thereof, must be deposited at the Company's
registered office at 65th Floor, Bank of China Tower, 1 Garden Road,
Hong Kong not less than 48 hours before the time for holding the Meeting
or any adjournment thereof (as the case may be).
8. The proxy need not be a member of the Company but must attend the
Meeting in person to represent you.
9. Completion and delivery of the form of proxy will not preclude you from
attending and voting at the Meeting if you so wish. In such event, the
instrument appointing a proxy shall be deemed to be revoked.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report on Form 6-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
-----------------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: April 18, 2006