ll
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM 20-F
(Mark
One)
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REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
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OR
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ý
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
_________________ to
_______________
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OR
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SHELL COMPANY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Date of event requiring this
shell company report ________________
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Commission File Number
1-14966
CNOOC LIMITED
(Exact name of Registrant as
specified in its charter)
Hong Kong
(Jurisdiction of incorporation or
organization)
65th Floor, Bank of China
Tower
One Garden Road,
Central
Hong Kong
(Address of principal executive
offices)
Xin
Kang
65th Floor,
Bank of China Tower
One Garden
Road, Central
Hong
Kong
Tel +852
2213 2500
Fax +852
2525 9322
(Name,
telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be
registered pursuant to Section 12(b) of the Act.
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Title of each
class
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Name of each exchange
on which registered
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American
depositary shares, each representing 100 shares of par
value HK$0.02 per share
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New
York Stock Exchange, Inc.
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Shares
of par value HK$0.02 per share
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New
York Stock Exchange, Inc.*
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Securities registered or to be
registered pursuant to Section 12(g) of the
Act. None
(Title of Class)
Securities for which there is a
reporting obligation pursuant to Section 15(d) of the
Act. None
(Title of Class)
Indicate the number of outstanding
shares of each of the issuer’s classes of capital or common stock as of the
close of the period covered by the annual report.
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Shares,
par value HK$0.02 per share
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44,302,616,976**
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ý No ¨
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes ¨ No ý
Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant is required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ý No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer ý Accelerated
filer ¨ Non-accelerated
filer ¨
Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S.
GAAP ¨ International
Financial Reporting Standards as issued by the International Accounting
Standards Board ¨ Other ý
If “Other”
has been checked in response to the previous question, indicate by check mark
which financial statement item the Registrant has elected to
follow.
Item
17 ¨ Item
18 ý
If this is
an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No ý
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes ¨ No ¨
* Not for trading, but only in connection with the registration of American depositary shares.
** As a result of the conversion of bonds
and the exercise of options, the number of shares outstanding has changed to
44,668,049,984 as of May 30, 2008.
Definitions
Unless the
context otherwise requires, references in this annual report to:
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“CNOOC”
are to our controlling shareholder, China National Offshore Oil
Corporation, a PRC state-owned enterprise, and its affiliates, excluding
us and our subsidiaries;
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“CNOOC
Limited” are to CNOOC Limited, a Hong Kong limited liability company and
the registrant of this annual
report;
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“Our
company”, “we”, “our” or “us” are to CNOOC Limited and its
subsidiaries;
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“China”
or “PRC” are to the People’s Republic of China, excluding for purposes of
geographical reference in this annual report, the Hong Kong Special
Administrative Region, the Macau Special Administrative Region and
Taiwan;
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“Hong
Kong Stock Exchange” or “HKSE” are to The Stock Exchange of Hong Kong
Limited;
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“Hong
Kong Stock Exchange Listing Rules” are to the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong
Limited;
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“HK$”
are to the Hong Kong dollar, the legal currency of the Hong Kong Special
Administrative Region;
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“HKFRS”
are to all Hong Kong Financial Reporting Standards and Hong Kong
Accounting Standards and Interpretations approved by the Council of the
Hong Kong Institute of Certified Public
Accountants;
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“JPY”
are to the Japanese yen, the legal currency of
Japan;
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“Rmb”
are to the Renminbi, the legal currency of the PRC;
and
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“US$”
are to the U.S. dollar, the legal currency of the United States of
America.
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Conventions
We have
translated amounts from Renminbi into U.S. dollars solely for the convenience of
the reader at the noon buying rate for cable transfers in Renminbi as certified
for customs purposes by the Federal Reserve Bank of New York on December 31,
2007 of US$1.00=Rmb 7.2946. We have also translated amounts in Hong
Kong dollars solely for the convenience of the reader at the noon buying rate
for cable transfers in Hong Kong dollars as certified for customs purposes by
the Federal Reserve Bank of New York on December 31, 2007 of HK$7.7984 to
US$1.00. We make
no representation that the Renminbi amounts or Hong Kong dollar amounts could
have been, or could be, converted into U.S. dollars at those rates on December
31, 2007, or at all. For further
information on exchange rates, see “Item 3—Key Information—Selected Financial
Data.”
Totals
presented in this annual report may not total correctly due to rounding of
numbers.
Our
“average net realized price” for oil and gas in each period is derived from a
numerator divided by a denominator, where:
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the
numerator is equal to the sum of (i) revenues from our oil and gas sales
offshore China for the applicable period; (ii) the 30% ownership share of
revenues from gas sales for the applicable period from an unconsolidated
investee; and (iii) the revenues from oil and gas sales for the applicable
period from our overseas interests;
and
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the
denominator is equal to the sum of (i) the volume of oil and gas sales
offshore China for the applicable period; (ii) 30% of the volume of gas
sales for the applicable period from an unconsolidated investee; and (iii)
the volume of oil and gas sales for the applicable period from our
overseas interests.
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Except as
otherwise noted, all information in this annual report relating to our oil and
natural gas reserves is based upon estimates prepared by us. In
calculating barrels-of-oil equivalent amounts, we have assumed that 6,000 cubic
feet of natural gas equals one BOE, with the exception of natural gas from
certain fields which is converted using the actual heating value of the natural
gas.
Unless
otherwise noted, all operating data presented in this annual report, including
reserve and production information, includes our interest in the oil and gas
field held by an unconsolidated investee in which we hold a 30% equity
interest. For more information on our reserves and related
information, see “Supplementary Information on Oil and Gas Producing Activities”
in our consolidated financial statements included elsewhere in this annual
report, in which we separately disclose reserve and related information for this
unconsolidated investee in accordance with U.S. Statement of Financial
Accounting Standards No. 69, “Disclosures about Oil and Gas Producing
Activities.”
Glossary
of Technical Terms
Unless
otherwise indicated in the context, references to:
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“API
gravity” means the American Petroleum Institute’s scale for specific
gravity for liquid hydrocarbons, measured in degrees. The lower
the API gravity, the heavier the liquid and, generally, the lower its
commercial value. For example, asphalt has an API gravity of
eight degrees, West Texas Intermediate, a benchmark crude oil, has an API
of 40 degrees, and gasoline has an API gravity of 50
degrees.
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“appraisal
well” means an exploration well drilled after a successful wildcat well to
gain more information on a newly discovered oil or gas
reserve.
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“condensate”
means light hydrocarbon liquids separated from natural gas in the field
through condensation when natural gas is exposed to surface temperature
and pressure. This group generally includes slightly heavier
hydrocarbons than natural gas liquids, such as pentane. It is
combined with crude oil production and reserve
figures.
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“crude
oil” means crude oil and liquids, including condensate, natural gas
liquids and liquefied petroleum
gas.
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“LNG”
means liquefied natural gas.
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“dry
hole” means an exploration well that is not commercial (i.e., economically
feasible to develop). Dry hole costs include the full costs for
such drilling and are charged as an
expense.
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“exploration
well” means a wildcat or appraisal
well.
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“natural
gas liquids” means light hydrocarbons that can be extracted in liquid form
from natural gas through special separation plants. This group
includes typically lighter liquid hydrocarbons than condensate, such as
butane, propane and ethane. It is combined with crude oil
production but not with crude oil reserve
figures.
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“net
wells” means a party’s working interest in
wells.
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“proved
developed reserves” means reserves that can be expected to be recovered
through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through
the application of fluid injection or other improved recovery techniques
for supplementing the natural forces and mechanisms of primary recovery
are included as “proved developed reserves” only after testing by a pilot
project or after the operation
of an installed program has confirmed through production response that
increased recovery will be
achieved.
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“proved
reserves” means the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future
conditions.
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(i)
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a
reservoir considered proved includes:
(A) that
portion delineated by drilling and defined by gas-oil and/or oil-water contacts,
if any; and
(B) the
immediately adjoining portions not yet drilled, but which can be reasonably
judged as economically productive on the basis of available geological and
engineering data. In the absence of information on fluid contacts,
the lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
(ii)
Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the “proved”
classification when successful testing by a pilot project, or the operation of
an installed program in the reservoir, provides support for the engineering
analysis on which the project or program was based.
(iii)
Estimates of proved reserves do not include the following:
(A) oil that may become available
from known reservoirs but is classified separately as “indicated additional
reserves;”
(B) crude oil, natural gas, and
natural gas liquids, the recovery of which is subject to reasonable doubt
because of uncertainty as to geology, reservoir characteristics, or economic
factors;
(C) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and
(D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, coal, gilsonite and
other such sources.
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“proved
undeveloped reserves” means reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for
recompletion. Reserves on undrilled acreage is limited to those
drilling units offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled
units can be claimed only where it can be demonstrated with certainty that
there is continuity of production from the existing productive
formation. Estimates for proved undeveloped reserves are not
attributable to any acreage for which an application of fluid injection or
other improved recovery technique is contemplated, unless such techniques
have been proved effective by actual tests in the area and in the same
reservoir.
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“share
oil” means the portion of production that must be allocated to the
relevant government entity or company under our production sharing
contracts.
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For
further definitions relating to reserves:
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“reserve
replacement ratio” means, for a given year, total additions to proved
reserves, which consist of additions from purchases, discoveries and
extensions and revisions of prior reserve estimates, divided by production
during the year. Reserve additions used in this calculation are
proved developed and proved undeveloped reserves; unproved reserve
additions are not used. Data used in the calculation of reserve
replacement ratio is derived directly from the reserve quantity
reconciliation prepared in accordance with paragraph 11 of U.S. Statement
of Financial Accounting Standards No. 69, which reconciliation is included
in “Supplementary Information on Oil and Gas Producing Activities”
beginning on page S-1 of this annual report. However, the
reserve replacement ratios included in this annual report also include the
reserve additions and production of an investee company accounted for by
us using the equity method, which were not included in the reconciliation
found in “Supplementary Information on Oil and Gas Producing
Activities.” In 2005, 2006 and 2007, including the reserve
additions and production of this investee company did not have a material
impact on our reserve replacement
ratio.
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Our
reserve replacement ratio reflects our ability to replace proved
reserves. A rate higher than 100% indicates that more reserves
were added than produced in the period. However, this measure
has limitations, including its predictive and comparative
value. Reserve replacement ratio measures past performance only
and fluctuates from year to year due to differences in the extent and
timing of new discoveries and acquisitions. It is also not an
indicator of profitability because it does not reflect the cost or timing
of future production of reserve additions. It does not
distinguish between reserve additions that are developed and those that
will require additional time and funding to develop. As such,
reserve replacement ratio is only one of the indices used by our
management in formulating its acquisition, exploration and development
plans.
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“reserve-to-production
ratio” means the ratio of proved reserves to annual production of crude
oil or, with respect to natural gas, to wellhead production excluding
flared gas.
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“seismic
data” means data recorded in either two-dimensional (2D) or
three-dimensional (3D) form from sound wave reflections off of subsurface
geology. This is usually used to understand and map geological
structures for exploratory purposes to predict the location of
undiscovered reserves.
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“success”
means a discovery of oil or gas by an exploration well. Such an
exploration well is a successful well and is also known as a
discovery. A successful well is commercial, which means there
are enough hydrocarbon deposits discovered for economical
recovery.
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“success
rate” means the total number of successful exploration wells divided by
the total number of exploration wells drilled in a given
period. Success rate can be applied to wildcat wells or
appraisal wells in general.
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“wildcat
well” means an exploration well drilled in an area or rock formation that
has no known reserves or previous
discoveries.
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References
to:
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bbls
means barrels, which is equivalent to approximately 0.134 tons of oil (33
degrees API);
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mmbbls
means million barrels;
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BOE
means barrels-of-oil equivalent;
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million
BOE means million barrels-of-oil
equivalent;
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mcf
means thousand cubic feet;
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mmcf
means million cubic feet;
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bcf
means billion cubic feet, which is equivalent to approximately 283.2
million cubic meters;
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BTU
means British Thermal Unit, a universal measurement of energy;
and
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km
means kilometers, which is equivalent to approximately 0.62
miles.
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This
annual report includes “forward-looking statements” within the meaning of the
United States Private Securities Litigation Reform Act of 1995. The words
“believe,” “intend,” “expect,” “anticipate,” “project,” “estimate,” “plan,”
“predict” and similar expressions are also intended to identify such
forward-looking statements.
These
forward-looking statements address, among others, such issues as:
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the
amount and nature of future exploration, development and other capital
expenditures,
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wells
to be drilled or reworked,
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oil
and gas prices and demand,
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future
earnings and cash flow,
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development
projects,
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exploration
prospects,
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estimates
of proved oil and gas reserves,
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potential
reserves,
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development
and drilling potential,
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drilling
prospects,
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expansion
and other development trends of the oil and gas
industry,
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business
strategy,
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production
of oil and gas,
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development
of undeveloped reserves,
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expansion
and growth of our business and operations,
and
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our
estimated financial information.
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These
statements are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate under the circumstances. However, whether actual results
and developments will meet our expectations and predictions depend on a number
of risks and uncertainties which could cause our actual results, performance and
financial condition to differ materially from our expectations, including those
associated with fluctuations in crude oil and natural gas prices, our
exploration or development activities, our capital expenditure requirements, our
business strategy, the highly competitive nature of the oil and natural gas
industries, our foreign operations, environmental liabilities and compliance
requirements, and economic and political conditions in the PRC. For a
description of these and other risks and uncertainties, see “Item 3—Key
Information—Risk Factors.”
Consequently,
all of the forward-looking statements made in this annual report are qualified
by these cautionary statements. We cannot assure that the actual
results or developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected effect on us, our
business or our operations.
PART
I
Not
applicable, but see “Item 6—Directors, Senior Management and Employees—Directors
and Senior Management.”
Not
applicable.
You should
read our selected historical consolidated financial data set forth below in
conjunction with our consolidated financial statements and their notes under
“Item 18—Financial Statements” and “Item 5—Operating and Financial Review and
Prospects” in this annual report.
The Hong
Kong Institute of Certified Public Accountants issued a number of new and
amended Hong Kong Financial Reporting Standards (“HKFRS”), which were mandatory
for annual periods beginning on or after January 1, 2007. Details of
such new and amended HKFRSs are included in note 2.1 to our consolidated
financial statements included elsewhere in this annual report.
We have
prepared and presented our consolidated financial statements in accordance with
Hong Kong generally accepted accounting principles (“Hong Kong
GAAP”). For an explanation of the reconciliation of our profit and
shareholders’ equity to U.S. generally accepted accounting principles (“US
GAAP”), see note 39 to our consolidated financial statements included elsewhere
in this annual report.
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Year
ended December 31,
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2003
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2004
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2005
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2006
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2007
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2007
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Rmb
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Rmb
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Rmb
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Rmb
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Rmb
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US$
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(in
millions, except per share and per ADS data)
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Income
Statement Data:
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Hong
Kong GAAP
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Operating
revenues:
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Oil
and gas
sales
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28,117 | 36,886 | 53,418 | 67,828 | 73,037 | 10,012 | ||||||||||||||||||
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Marketing
revenues
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12,399 | 18,191 | 15,901 | 20,964 | 17,397 | 2,385 | ||||||||||||||||||
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Other
income
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434 | 145 | 137 | 155 | 290 | 40 | ||||||||||||||||||
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Total
operating
revenues
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40,950 | 55,222 | 69,456 | 88,947 | 90,724 | 12,437 | ||||||||||||||||||
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Expenses:
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Operating
expenses
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(4,513 | ) | (5,070 | ) | (5,935 | ) | (6,999 | ) | (8,040 | ) | (1,102 | ) | ||||||||||||
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Production
taxes
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(1,239 | ) | (1,726 | ) | (2,597 | ) | (3,316 | ) | (3,497 | ) | (479 | ) | ||||||||||||
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Exploration
expenses
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(848 | ) | (1,316 | ) | (1,294 | ) | (1,705 | ) | (3,432 | ) | (471 | ) | ||||||||||||
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Depreciation,
depletion and amortization
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(4,643 | ) | (5,455 | ) | (5,965 | ) | (6,933 | ) | (7,374 | ) | (1,011 | ) | ||||||||||||
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Dismantlement
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(167 | ) | (202 | ) | (253 | ) | (472 | ) | (562 | ) | (77 | ) | ||||||||||||
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Special
oil gain
levy
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— | — | — | (3,981 | ) | (6,837 | ) | (937 | ) | |||||||||||||||
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Impairment
losses related to property, plant and equipment
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— | — | (90 | ) | (252 | ) | (614 | ) | (84 | ) | ||||||||||||||
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Crude
oil and product purchases
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(12,295 | ) | (17,963 | ) | (15,704 | ) | (20,573 | ) | (17,083 | ) | (2,342 | ) | ||||||||||||
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Selling
and administrative expenses
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(1,250 | ) (f) | (1,104 | ) (f) | (1,370 | ) | (1,544 | ) | (1,741 | ) | (239 | ) | ||||||||||||
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Others
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(350 | ) | (46 | ) | (76 | ) | (117 | ) | (345 | ) | (47 | ) | ||||||||||||
| (25,305 | ) | (32,882 | ) | (33,284 | ) | (45,892 | ) | (49,525 | ) | (6,789 | ) | |||||||||||||
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Interest
income
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184 | 207 | 359 | 781 | 673 | 92 | ||||||||||||||||||
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Finance
costs
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(355 | ) | (442 | ) | (1,100 | ) | (1,832 | ) | (2,032 | ) | (279 | ) | ||||||||||||
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Exchange
gains/ (losses),
net
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(7 | ) | 29 | 287 | 308 | 1,856 | 254 | |||||||||||||||||
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Investment
income
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124 | 72 | 248 | 613 | 902 | 124 | ||||||||||||||||||
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Share
of profits of
associates
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220 | 344 | 307 | 322 | 719 | 99 | ||||||||||||||||||
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Non-operating
income/ (expenses), net
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315 | 519 | 28 | 876 | (7 | ) | (1 | ) | ||||||||||||||||
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Profit
before
tax
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16,125 | 23,070 | 36,301 | 44,123 | 43,310 | 5,937 | ||||||||||||||||||
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Tax
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(4,628 | ) | (6,931 | ) | (10,978 | ) | (13,196 | ) | (12,052 | ) | (1,652 | ) | ||||||||||||
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Profit
for the
year
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11,497 | 16,139 | 25,323 | 30,927 | 31,258 | 4,285 | ||||||||||||||||||
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Earnings
per share (basic)(a)(b)
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0.28 | 0.39 | 0.62 | 0.73 | 0.72 | 0.10 | ||||||||||||||||||
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Earnings
per share (diluted)(a)(c)
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0.28 | 0.39 | 0.61 | 0.73 | 0.72 | 0.10 | ||||||||||||||||||
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Earnings
per ADS (basic)(a)(b)
|
27.99 | 39.31 | 61.68 | 72.75 | 71.68 | 9.83 | ||||||||||||||||||
|
Earnings
per ADS (diluted)(a)(c)
|
27.97 | 39.19 | 61.01 | 72.64 | 71.48 | 9.80 | ||||||||||||||||||
|
Dividend
per share(a)
|
||||||||||||||||||||||||
|
Special
interim dividend declared in place of 2003 final dividend(d)
|
— | 0.060 | — | — | — | — | ||||||||||||||||||
|
Interim
|
0.030 | 0.030 | 0.052 | 0.123 | 0.122 | 0.017 | ||||||||||||||||||
|
Interim
(in US$)(e)
|
0.004 | 0.004 | 0.006 | 0.016 | — | — | ||||||||||||||||||
|
Special
interim
|
0.038 | 0.050 | 0.052 | — | — | — | ||||||||||||||||||
|
Special
interim (in US$)(e)
|
0.005 | 0.006 | 0.006 | — | — | — | ||||||||||||||||||
|
Proposed
final(d)
|
0.026 | 0.030 | 0.103 | 0.139 | 0.159 | 0.022 | ||||||||||||||||||
|
Proposed
final (in US$)(d)(e)
|
0.003 | 0.004 | 0.013 | 0.018 | — | — | ||||||||||||||||||
|
Proposed
special final(d)
|
0.038 | 0.050 | — | — | — | — | ||||||||||||||||||
|
Proposed
special final (in US$)(d)(e)
|
0.005 | 0.006 | — | — | — | — | ||||||||||||||||||
|
U.S.
GAAP
|
||||||||||||||||||||||||
|
Operating
revenues:
|
||||||||||||||||||||||||
|
Oil
and gas
sales
|
28,117 | 36,886 | 53,418 | 67,828 | 73,037 | 10,012 | ||||||||||||||||||
|
Marketing
revenues
|
12,399 | 18,191 | 15,901 | 20,964 | 17,397 | 2,385 | ||||||||||||||||||
|
Other
income
|
434 | 145 | 137 | 155 | 290 | 40 | ||||||||||||||||||
|
Total
operating
revenues
|
40,950 | 55,222 | 69,456 | 88,947 | 90,724 | 12,437 | ||||||||||||||||||
|
Profit
for the
year
|
11,980 | 16,176 | 25,343 | 31,104 | 28,257 | 3,874 | ||||||||||||||||||
|
Earnings
per share (basic)(a)(b)
|
0.29 | 0.39 | 0.62 | 0.73 | 0.65 | 0.09 | ||||||||||||||||||
|
Year
ended December 31,
|
||||||||||||||||||||||||
|
2003
|
2004
|
2005
|
2006
|
2007
|
2007
|
|||||||||||||||||||
|
Rmb
|
Rmb
|
Rmb
|
Rmb
|
Rmb
|
US$
|
|||||||||||||||||||
|
(in
millions, except per share and per ADS data)
|
||||||||||||||||||||||||
|
Earnings
per share (diluted)(a)(c)
|
0.29 | 0.39 | 0.61 | 0.73 | 0.65 | 0.09 | ||||||||||||||||||
|
Earnings
per ADS (basic)(a)(b)
|
29.17 | 39.40 | 61.73 | 73.16 | 64.80 | 8.88 | ||||||||||||||||||
|
Earnings
per ADS (diluted)(a)(c)
|
29.14 | 39.28 | 61.06 | 73.05 | 64.61 | 8.86 | ||||||||||||||||||
|
As
of December 31,
|
||||||||||||||||||||||||
|
2003
|
2004
|
2005
|
2006
|
2007
|
2007
|
|||||||||||||||||||
|
Rmb
|
Rmb
|
Rmb
|
Rmb
|
Rmb
|
US$
|
|||||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||||||
|
Hong
Kong GAAP
|
||||||||||||||||||||||||
|
Cash
and cash equivalents
|
14,400 | 14,092 | 8,992 | 14,364 | 23,357 | 3,202 | ||||||||||||||||||
|
Time
deposits with maturity over three months
|
2,323 | 8,603 | 12,200 | 9,233 | 7,200 | 987 | ||||||||||||||||||
|
Available-for
sale financial assets/Short term investments
|
5,684 | 5,444 | 13,847 | 12,390 | 6,688 | 917 | ||||||||||||||||||
|
Current
assets
|
29,263 | 35,293 | 44,421 | 47,892 | 55,732 | 7,640 | ||||||||||||||||||
|
Property,
plant and equipment, net
|
42,849 | (g) | 57,182 | (g) | 66,625 | 103,406 | 118,880 | 16,297 | ||||||||||||||||
|
Interests
in
associates
|
1,118 | 1,327 | 1,402 | 1,544 | 2,031 | 278 | ||||||||||||||||||
|
Intangible
assets
|
— | — | 1,300 | 1,409 | 1,331 | 182 | ||||||||||||||||||
|
Long
term available-for-sale financial assets
|
— | — | 1,017 | 1,017 | 1,819 | 249 | ||||||||||||||||||
|
Total
assets
|
73,229 | (g) | 93,802 | (g) | 114,765 | 155,268 | 179,793 | 24,647 | ||||||||||||||||
|
Current
liabilities
|
9,307 | 10,402 | 13,616 | 14,481 | 21,402 | 2,934 | ||||||||||||||||||
|
Long
term bank loans, net of current portion
|
890 | 865 | 24 | 2,438 | 2,720 | 373 | ||||||||||||||||||
|
Long
term guaranteed
notes
|
8,142 | 16,313 | 16,532 | 17,886 | 8,326 | 1,141 | ||||||||||||||||||
|
Total
long term
liabilities
|
17,461 | 26,957 | 27,546 | 32,973 | 24,077 | 3,301 | ||||||||||||||||||
|
Total
liabilities
|
26,768 | 37,359 | 41,162 | 47,454 | 45,479 | 6,235 | ||||||||||||||||||
|
Capital
stock
|
21,638 | 21,638 | 21,643 | 35,889 | 41,986 | 5,756 | ||||||||||||||||||
|
Minority
interest
|
— | — | — | 42 | — | — | ||||||||||||||||||
|
Shareholders’
equity
|
46,461 |
(f),(g)
|
56,443 |
(f),(g)
|
73,603 | 107,772 | 134,315 | 18,413 | ||||||||||||||||
|
U.S.
GAAP
|
||||||||||||||||||||||||
|
Total
assets
|
73,234 | 93,846 | 114,809 | 171,579 | 196,070 | 26,879 | ||||||||||||||||||
|
Total
long term
liabilities
|
17,461 | 26,957 | 27,546 | 49,063 | 43,529 | 5,967 | ||||||||||||||||||
|
Minority
interest
|
— | — | — | 42 | — | — | ||||||||||||||||||
|
Shareholders’
equity
|
46,496 | 56,487 | 73,647 | 107,993 | 131,140 | 17,978 | ||||||||||||||||||
|
(a)
|
On
March 17, 2004, our shareholders approved a five-for-one stock split of
our shares. The stock split was effected by dividing each of
our issued and unissued shares of HK$0.10 each into five shares of HK$0.02
each, and by increasing the board lot size for trading on the Hong Kong
Stock Exchange from 500 shares of HK$0.10 each to 1,000 subdivided shares
of HK$0.02 each. The ratio of our ADSs listed on the New York
Stock Exchange also changed such that each ADS now represents 100
subdivided shares of HK$0.02 each, as opposed to 20 shares of HK$0.10 each
prior to the stock split. As such, per share amounts of our
shares have been adjusted retroactively for the stock
split.
|
|
(b)
|
Earnings
per share (basic) and earnings per ADS (basic) for each year from 2003 to
2007 have been computed, without considering the dilutive effect of the
shares underlying our share option schemes and, as applicable, convertible
bonds, by dividing profit by the weighted average number of shares and the
weighted average number of ADSs of 41,070,828,275 and 410,708,283
respectively for 2003, 41,060,240,659 and 410,602,407 respectively for
2004, 41,054,499,982 and 410,545,000 respectively for 2005, 42,512,190,394
and 425,121,904 respectively for 2006 and 43,605,437,212 and 436,054,372
respectively for 2007, in each case based on a ratio of 100 shares to one
ADS.
|
|
(c)
|
Earnings
per share (diluted) and earnings per ADS (diluted) for each year from 2003
to 2007 have been computed, after considering the dilutive effect of the
shares underlying our share option schemes and, as applicable, convertible
bonds, by using 41,110,339,095 shares and 411,103,391 ADSs for 2003,
41,179,513,436 shares and 411,795,134 ADSs for 2004, 42,386,055,766 shares
and 423,860,558 ADSs for 2005, 42,577,841,013 shares and 425,778,410 ADSs
for 2006 and 43,731,936,869 shares and 437,319,369 ADSs for
2007. For the years 2006 and 2007, the convertible bonds had an
anti-dilutive effect on the basic earnings per share and were ignored in
the calculation of diluted earnings per
share.
|
|
(d)
|
The
proposed final dividend and special final dividend for 2003 were cancelled
and replaced by the special interim dividend of HK$0.06 per share declared
and paid in 2004.
|
|
(e)
|
For
the purposes of this chart, the exchange rate used for the conversion of
dividends from Renminbi into U.S. Dollars is the noon buying rate for
cable transfers in Renminbi as certified for customs purposes by the
Federal Reserve Bank of New York on the last business day of the year for
which the applicable dividend was
issued.
|
|
(f)
|
In
periods prior to 2005, no recognition and measurement of share-based
transactions in which employees (including directors) were granted share
options in our company were required until such options were exercised by
the employees, at which time the share capital and share premium were
credited with the proceeds received. In 2005, we adopted the
provisions of Hong Kong Financial Reporting Standard (“HKFRS”)
retrospectively to all stock options granted from the date of our
incorporation. Under HKFRS 2, when employees (including
directors) render services as consideration for equity transactions
(“equity-settled transaction”), the cost of equity-settled transaction is
measured by reference to the fair value on the date on which the
instrument is granted.
|
|
(g)
|
In
2005, we restated certain prior year amounts upon adoption of new Hong
Kong accounting policies. For example, in prior periods, we
classified the on-shore processing plants as land and buildings and
depreciated over 30-50 years on a straight-line basis. Upon the
adoption of HKAS 16, we have retrospectively reclassified our property,
plant and equipment into two categories: oil and gas properties, and
vehicles and office equipment. We have reclassified the onshore
terminals previously classified as land and buildings to oil and gas
properties as they will be used in similar operations and are expected to
have similar economic useful lives. We also changed our
accounting policy retrospectively for 2003 and 2004 to state the onshore
terminals at cost instead of valuation and to amortize those terminals by
the unit-of-production method on a property-by-property
basis.
|
|
Year
ended December 31,
|
||||||||||||||||||||||||
|
2003
|
2004
|
2005
|
2006
|
2007
|
2007
|
|||||||||||||||||||
|
Rmb
|
Rmb
|
Rmb
|
Rmb
|
Rmb
|
US$
|
|||||||||||||||||||
|
(in
millions, except percentages and ratios)
|
||||||||||||||||||||||||
|
Other
Financial Data:
|
||||||||||||||||||||||||
|
Hong
Kong GAAP
|
||||||||||||||||||||||||
|
Capital
expenditures paid(1)
|
8,272 | 12,843 | 16,606 | 23,041 | 26,942 | 3,693 | ||||||||||||||||||
|
Cash
provided by (used for):
|
||||||||||||||||||||||||
|
Operating
activities
|
17,819 | 22,328 | 32,154 | 39,226 | 42,713 | 5,855 | ||||||||||||||||||
|
Investing
activities
|
(9,513 | ) | (24,607 | ) | (29,349 | ) | (39,526 | ) | (22,939 | ) | (3,145 | ) | ||||||||||||
|
Financing
activities
|
(1,745 | ) | 1,970 | (7,786 | ) | 6,039 | (10,646 | ) | (1,459 | ) | ||||||||||||||
|
Ratio
of total debt to total capitalization(2)
|
16.2 | % | 23.3 | % | 19.1 | % | 15.5 | % | 7.6 | % | 7.6 | % | ||||||||||||
|
U.S.
GAAP
|
||||||||||||||||||||||||
|
Cash
provided by (used for):
|
||||||||||||||||||||||||
|
Operating
activities
|
17,819 | 22,328 | 32,154 | 39,226 | 42,713 | 5,855 | ||||||||||||||||||
|
Investing
activities
|
(9,513 | ) | (24,607 | ) | (29,349 | ) | (39,526 | ) | (22,939 | ) | (3,145 | ) | ||||||||||||
|
Financing
activities
|
(1,745 | ) | 1,970 | (7,786 | ) | 6,039 | (10,646 | ) | (1,459 | ) | ||||||||||||||
|
Ratio
of cash provided by operating activities to gross interest expense(3)
|
35.1 | x | 39.4 | x | 41.5 | x | 40.4 | x | 45.0 | x | 45.0 | x | ||||||||||||
|
Ratio
of total debt to cash provided by operating activities
|
0.5 | x | 0.8 | x | 0.5 | x | 0.5 | x | 0.3 | x | 0.3 | x | ||||||||||||
|
Profit
for the
year
|
11,980 | 16,176 | 25,343 | 31,104 | 28,257 | 3,874 | ||||||||||||||||||
|
Profit
for the year margin(4)
|
29.3 | % | 29.3 | % | 36.5 | % | 35.0 | % | 31.1 | % | 31.1 | % | ||||||||||||
|
Ratio
of profit to gross interest expense(3)
|
23.6 | x | 28.5 | x | 32.7 | x | 32.0 | x | 29.8 | x | 29.8 | x | ||||||||||||
|
Ratio
of total debt to
profit
|
0.8 | x | 1.1 | x | 0.7 | x | 0.8 | x | 0.5 | x | 0.5 | x | ||||||||||||
|
Ratio
of total debt to total capitalization(2)
|
16.3 | % | 23.4 | % | 19.1 | % | 15.5 | % | 9.9 | % | 9.9 | % | ||||||||||||
(1) Capital
expenditures paid excludes acquisition capital expenditures.
(2) Total
capitalization excludes current portion of long-term debt.
(3) Gross interest
expense includes capitalized interest.
(4) Profit
margin represents profit as a percentage of our total operating revenues, as
computed under U.S. GAAP.
We publish
our financial statements in Renminbi. Unless otherwise
indicated, all translations from Renminbi to U.S. dollars have been made at a
rate of Rmb 7.2946 to US$1.00, the noon buying rate for cable transfers in
Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York on December 31, 2007. We do not represent
that Renminbi or U.S. dollar amounts could be converted into U.S. dollars or
Renminbi, as the case may be, at any particular rate, the rate above or at
all.
The
following table sets forth the noon buying rates for U.S. dollars for cable
transfers in Renminbi as certified for customs purposes by the Federal Reserve
Bank of New York for the periods indicated:
|
Noon Buying Rate
|
||||||||||||||||
|
Period
|
End
|
Average(1)
|
High
|
Low
|
||||||||||||
|
(Rmb
per US$1.00)
|
||||||||||||||||
|
2003
|
8.2767
|
8.2771
|
8.2800
|
8.2765
|
||||||||||||
|
2004
|
8.2765
|
8.2768
|
8.2774
|
8.2764
|
||||||||||||
|
2005
|
8.0702
|
8.1998
|
8.2765
|
8.0702
|
||||||||||||
|
2006
|
7.8041
|
7.9723
|
8.0702
|
7.8041
|
||||||||||||
|
2007
|
7.2946
|
7.5806
|
7.8127
|
7.2946
|
||||||||||||
|
December
2007
|
7.2946
|
—
|
7.4120
|
7.2946
|
||||||||||||
|
January
2008
|
7.1818
|
—
|
7.2946
|
7.1818
|
||||||||||||
|
February
2008
|
7.1115
|
—
|
7.1973
|
7.1100
|
||||||||||||
|
March
2008
|
7.0120
|
—
|
7.1110
|
7.0105
|
||||||||||||
|
April
2008
|
6.9870
|
—
|
7.0185
|
6.9840
|
||||||||||||
|
May
2008
|
6.9400
|
—
|
7.0000
|
6.9377
|
||||||||||||
|
(1)
|
Determined
by averaging the noon buying rates on the last business day of each month
during the relevant period.
|
As of May
30, 2008, the noon buying rate for cable transfers in Renminbi as certified for
customs purposes by the Federal Reserve Bank of New York was Rmb 6.9400 to
US$1.00.
Unless
otherwise indicated, all translations from Hong Kong dollars to U.S. dollars
have been made at a rate of HK$7.7984 to US$1.00, the noon buying rate for cable
transfers in Hong Kong dollars as certified for customs purposes by the Federal
Reserve Bank of New York on December 31, 2007. We do not represent
that Hong Kong dollar or U.S. dollar amounts could be converted into U.S.
dollars or Hong Kong dollars, as the case may be, at any particular rate, the
rate above or at all.
The
following table sets forth the noon buying rates for U.S. dollars for cable
transfers in Hong Kong dollars as certified for customs purposes by the Federal
Reserve Bank of New York for the periods indicated.
|
Noon Buying Rate
|
||||||||||||||||
|
Period
|
End
|
Average(1)
|
High
|
Low
|
||||||||||||
|
(HK$
per US$1.00)
|
||||||||||||||||
|
2003
|
7.7640
|
7.7864
|
7.8001
|
7.7285
|
||||||||||||
|
2004
|
7.7723
|
7.7891
|
7.8010
|
7.7632
|
||||||||||||
|
2005
|
7.7533
|
7.7755
|
7.7999
|
7.7514
|
||||||||||||
|
2006
|
7.7771
|
7.7681
|
7.7928
|
7.7506
|
||||||||||||
|
2007
|
7.7984
|
7.8008
|
7.8289
|
7.7497
|
||||||||||||
|
December
2007
|
7.7984
|
—
|
7.8073
|
7.7879
|
||||||||||||
|
January
2008
|
7.7961
|
—
|
7.8107
|
7.7961
|
||||||||||||
|
February
2008
|
7.7807
|
—
|
7.8012
|
7.7807
|
||||||||||||
|
March
2008
|
7.7819
|
—
|
7.7897
|
7.7642
|
||||||||||||
|
April
2008
|
7.7950
|
—
|
7.7963
|
7.7863
|
||||||||||||
|
May
2008
|
7.8041
|
—
|
7.8060
|
7.7931
|
||||||||||||
|
(1)
|
Determined
by averaging the noon buying rates on the last business day of each month
during the relevant period.
|
As of May
30, 2008, the noon buying rate for cable transfers in Hong Kong dollars as
certified for customs purposes by the Federal Reserve Bank of New York was
HK$7.8041 to US$1.00.
Not
applicable.
Not
applicable.
|
D.
|
Risks
relating to our business
Our business,
revenues and profits fluctuate with changes in oil and gas
prices
Even
relatively modest declines in crude oil prices may adversely affect our
business, revenues and profits. Our profitability is
determined in large part by the difference between the prices received for the
crude oil we produce and the costs of exploring for, developing, producing and
selling these products.
Prices for
crude oil fluctuate widely in response to relatively minor changes in the supply
and demand for oil, market uncertainty and various other factors that are beyond
our control, including:
|
|
·
|
political
developments in petroleum producing
regions;
|
|
|
·
|
the
ability of the Organization of Petroleum Exporting Countries and other
petroleum producing nations to set and maintain production levels and
prices;
|
|
|
·
|
the
price and availability of other energy sources, such as
coal;
|
|
|
·
|
domestic
and foreign government regulations;
|
|
|
·
|
weather
conditions; and
|
|
|
·
|
overall
economic conditions.
|
Our
revenues and profit have increased significantly in recent years, mainly due to
increasing oil prices. However, we cannot assure that oil prices will remain
high in the future.
The prices
for the natural gas we sell are determined by negotiations between us and the
prospective buyers. Our typical
contracts with gas buyers include provisions for periodic resets and adjustment
formulas that depend on a basket of crude oil prices and inflation as well as
various other factors. These resets and
adjustment formulas can result in natural gas price fluctuations which may
adversely affect our business, results of operations and financial
condition.
Lower oil
and gas prices may result in the write-off of higher cost reserves and other
assets and may lower our earnings or cause losses. Lower oil and
natural gas prices may also reduce the amount of oil and natural gas we can
produce economically and render existing contracts that we have entered into
uneconomical. For further details
regarding the effects of oil and gas price fluctuations on our financial
condition and results of operations, see “Item 5—Operating and Financial Review
and Prospects.”
The
oil and gas reserve estimates in this annual report may require substantial
revision as a result of future drilling, testing and production
The
reliability of reserves estimates depends on a number of factors,
including:
|
|
·
|
the
quality and quantity of technical and economic
data;
|
|
|
·
|
the
prevailing oil and gas prices for our
production;
|
|
|
·
|
the
production performance of
reservoirs;
|
|
|
·
|
extensive
engineering judgments; and
|
|
|
·
|
royalty
and share oil policies in the PRC and foreign countries and regions where
we have operations or assets.
|
Many of
the factors, assumptions and variables involved in estimating reserves are
beyond our control and may prove to be incorrect over time. Consequently, the
results of drilling, testing and production may require substantial upward or
downward revisions in our initial reserves data. For more information
on our oil and gas reserves data, see “Item 4—Information on the
Company—Business Overview—Exploration and Production—Oil and Natural Gas
Reserves.”
Any
failure to develop our proved undeveloped reserves and gain access to additional
reserves could adversely affect our business and our financial
position
Approximately
59.3% of our proved reserves were undeveloped as of December 31,
2007. Our future success will depend on our ability to develop these
reserves in a timely and cost-effective manner. There are various
risks in developing reserves, including construction, operational, geophysical,
geological and regulatory risks. Future drilling, exploration and
acquisition activities may not be successful. If our exploration and
development activities or acquisition of properties containing proved reserves
are unsuccessful, our total proved reserves will decline.
Our
future prospects largely depend on our capital expenditure plans, which are
subject to various risks
The oil
and gas exploration and production business is capital intensive. Our
ability to maintain and increase our revenues, profit and cash flows depends
upon continued capital spending. Our capital expenditure plans are
subject to a number of contingencies, some of which are beyond our
control. These variables include:
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our
ability to generate sufficient cash flows from operations to finance our
capital expenditures, investments and other
requirements;
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the
availability and terms of external
financing;
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changes
in crude oil and natural gas prices, which may affect cash flows from
operations and capital expenditure and investment
plans;
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the
mix of exploration and development activities conducted on an independent
basis and under production sharing
contracts;
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new
investment opportunities that may be presented to us, including
international investment opportunities and liquefied and other natural gas
projects;
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approvals
required from foreign governments for certain capital expenditures and
investments outside the PRC;
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our
ability to obtain sufficient foreign currency to finance our capital
expenditures; and
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economic,
political and other conditions in the PRC and in foreign countries and
regions where we have operations.
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Therefore,
our actual capital expenditures and investments in the future may differ
significantly from our current planned amounts. There can be no
assurance that we will be able to execute our capital expenditure program on
schedule or as planned. If we are unable to obtain sufficient funding
for our operations or development plans, our business, revenues, profit and cash
flows could be adversely affected. For additional
information on our capital expenditure plans and financing requirements, see
“Item 5—Operating and Financial Review and Prospects—Liquidity and Capital
Resources.”
Any failure to implement our natural
gas business strategy may adversely affect our business and financial
position
As part of
our business strategy and to meet increasing market demand in China, we continue
to expand our natural gas business. In addition to the risks that
affect our business generally, this strategy involves a number of risks and
uncertainties including the following:
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we
have limited experience in investing in liquefied natural gas facilities,
gas transmission and distribution systems, and overseas upstream natural
gas properties;
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the
natural gas transmission and supply infrastructure in China is
underdeveloped and its development depends on a number of factors, many of
which are beyond our control, such as funding, national and local
government approvals and timely completion of
construction;
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the
natural gas market in China is also underdeveloped and its development
depends on the establishment of long-term natural gas supply contracts
with natural gas utilities or large end-users, such as power and chemical
plants. The demand of these buyers for natural gas could be
affected by a number of regulatory and market factors, such as regulation
of coal prices, government power and utility policies, chemical commodity
cycles, electricity pricing and demand, and environmental
policies;
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we
do not have the same preferential rights with respect to overseas natural
gas businesses that we enjoy with respect to our upstream natural gas
business offshore China; and
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we
are evaluating the options to invest in CNOOC’s liquefied natural gas
projects in China. However, we have not decided whether to
exercise these options. The options are subject to various
conditions, including the receipt of certain governmental
approvals.
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Due to the
above factors or other reasons, we may fail to implement our natural gas
strategy successfully.
CNOOC
largely controls us and we regularly enter into related party transactions with
CNOOC and its affiliates
CNOOC
indirectly owned 64.41% of our shares as of May 30, 2008. As a
result, CNOOC is able to control the composition of the board of directors of
our company (our “Board”), determine the timing and amount of our dividend
payments and otherwise control us. Therefore, CNOOC may cause us to
enter into transactions, to take or fail to take other actions, or to make
decisions that conflict with the best interests of our other shareholders. If
CNOOC takes actions that favor its interests over ours, our results of
operations and financial position may be adversely affected.
In
addition, we regularly enter into transactions with CNOOC and its affiliates,
such as China Oilfield Services Limited (“COSL”), and Offshore Oil Engineering
Co., Ltd. (“CNOOC Engineering”). For further details, see “Item
7—Major Shareholders and Related Party Transactions.” Some of our
transactions with CNOOC and its affiliates constitute connected transactions
under the Hong Kong Stock Exchange Listing Rules. However, these
connected transactions are subject to review by the Hong Kong Stock Exchange and
may also be subject to the prior approval of our independent
shareholders. If we do not obtain these approvals, we will not be
allowed to effect these transactions and our business operations and financial
condition could be adversely affected.
Under
current PRC law, CNOOC has the exclusive right to enter into production sharing
contracts with foreign oil and gas companies for petroleum exploration and
production offshore China, and we are restricted from contracting directly with
foreign enterprises for these purposes without CNOOC. CNOOC has
undertaken to us that it will transfer all of its rights and obligations under
any new production sharing contracts to us, except those relating to its
administrative functions. The interests of CNOOC in entering into production
sharing contracts with international oil and gas companies may differ from our
interests, especially with respect to the criteria for determining whether, and
on what terms, to enter into production sharing contracts. Our future
business development may be adversely affected if CNOOC does not enter into new
production sharing contracts on terms that are acceptable to us.
Our
business performance relies heavily on our sales to large domestic customers and
a substantial drop in such sales could have a material adverse effect on our
results of operations
We sell a
significant proportion of our production to CNOOC-affiliated companies and China
Petroleum & Chemical Corporation (“Sinopec”). For the years ended
December 31, 2005, 2006 and 2007, net sales to CNOOC-affiliated companies
accounted for 38.3%, 39.9%
and 35.0%, respectively, of
our total operating revenues, and sales to Sinopec accounted for 22.5%,
21.6% and 24.0%, respectively, of our total
operating revenues. CNOOC has a controlling interest in us. However,
our transactions with CNOOC-affiliated companies are on normal commercial terms
and CNOOC does not guarantee our sales volume or profit margin. Sinopec has its
own oil and gas fields and has the right to import crude oil directly from the
international market. We do not have any long-term crude oil sales
contracts with CNOOC and its affiliates or Sinopec. Our business,
results of operations and financial condition would be adversely affected if
either CNOOC-affiliated companies or Sinopec significantly reduced their crude
oil purchases from us and we could not find other ready buyers in the
international market to purchase our crude oil at comparable prices and in
comparable volumes.
The
PRC petroleum and natural gas industries are very competitive
We compete
in the PRC and international markets for customers, capital financing and
business opportunities, including desirable oil and gas
prospects. The performance of our competitors may also affect the
international market price for comparable crude oil, which in turn would likely
affect the price of our crude oil. Our principal competitors in the
PRC market are PetroChina and Sinopec. For further details, see “Item
4—Information on the Company—Business Overview—Competition.”
We are the
dominant player in the oil and gas industry offshore
China. Currently, we, through CNOOC, are the only company permitted
to engage in oil and gas exploration offshore China in cooperation with foreign
oil and gas companies. Any change to PRC law that allows new entrants
to conduct oil and gas exploration activities offshore China in cooperation with
international oil and gas companies could increase the competition for new oil
and gas properties offshore China.
CNOOC has
undertaken to us that so long as it retains a controlling interest in us and our
securities are listed on the Hong Kong Stock Exchange, the New York Stock
Exchange or other securities trading systems in other parts of the world, we
will have the exclusive right to exercise CNOOC’s rights to engage in offshore
oil and gas exploration, development, production and sales in the PRC and that
it will not compete with us in such business. However, CNOOC’s
controlling interest in us may not continue in the future and CNOOC’s
undertaking may be subject to interpretative challenges. See “Item
4—Information on the Company—Organizational Structure” and “Item 7—Major
Shareholders and Related Party Transactions.”
Exploration,
development and production risks and natural disasters may affect our operations
and could result in losses that are not covered by insurance
Our
petroleum exploration, development and production operations are subject to
various risks, including pipeline ruptures and spills, fires, explosions,
encountering formations with abnormal pressures, blowouts, cratering and natural
disasters. Any of these risks could result in loss of hydrocarbons,
environmental pollution and other damage to our properties and the properties of
operators under production sharing contracts. The costs of drilling,
completing and operating wells also are uncertain and are subject to numerous
factors beyond our control, including:
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weather
conditions;
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natural
disasters;
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availability
of equipment and services;
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equipment
shortages and delays; and
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lack
of adequate transportation
facilities.
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We
maintain insurance coverage against some, but not all, potential
losses. We do not maintain business interruption insurance for all of
our oil and gas fields. We may suffer material losses resulting from
uninsurable or uninsured risks or insufficient insurance
coverage. For further information on insurance coverage, see “Item
4—Information on the Company—Business Overview—Operating Hazards and Uninsured
Risks.”
We
are exposed to operating risks in some foreign countries and regions in which we
have operations
We
currently have operations and assets in various foreign countries and regions,
including Indonesia, Australia and Nigeria, and may expand our operations into
other countries to further enhance our reserve base and diversify our geographic
risk profile. See “Item 4—Information on the Company—Business
Overview—Overseas Activity.” These interests are subject to operating
risks in their respective regions, including economic and political
risks.
Our
non-PRC interests are subject to the laws and regulations of these non-PRC
jurisdictions respectively, including those relating to the development,
production, marketing, pricing, transportation and storage of crude oil and
natural gas, taxation and environmental and safety matters. In
addition, our overseas operations generally are subject to fiscal arrangements
with our partners. As we expand to different countries, we may become
exposed to various operating risks in each of these
jurisdictions. Our non-PRC interests may be adversely affected by
changes in governmental policies or social instability or other political,
economic or diplomatic developments in or affecting these foreign nations which
are not within our control, including, among other things, a change in crude oil
or natural gas pricing policy, the risks of war and terrorism, expropriation,
nationalization, renegotiation or nullification of existing concessions and
contracts, taxation policies, foreign exchange and repatriation restrictions,
changing political conditions, foreign exchange rate fluctuations and currency
controls.
Some foreign
countries and regions in which we have operations or may have operations in the
future may not have diplomatic or trade relations with other countries and may
be subject to trade or economic sanctions imposed by such other
countries
While the
foreign countries and regions in which we have operations or may have operations
in the future may maintain an amicable relationship with China, some of them may
not have diplomatic or trade relations with other countries and may be subject
to trade or economic sanctions imposed from time to time by such other
countries. See “Item 4—Information on the Company—Business
Overview—Overseas Activity—Asia—Myanmar.” We will endeavor to limit
our investment and scale of operations in these foreign jurisdictions to
minimize our exposure, but we cannot assure that the operations and assets that
we currently have or in the future may have in foreign countries and regions
will not be affected by trade or economic sanctions that may be imposed by other
countries due to their deteriorated relations with each other. Our
business and results of operations may be adversely affected if such sanctions
are imposed and result in interruption of our overseas operations or
non-accessibility of our overseas assets for a significant period of
time.
Our controlling
shareholder, CNOOC, or its affiliates may enter into activities in certain
countries that are the subject of U.S. sanctions, which could result in negative
media and investor attention.
CNOOC owns
64.41% of our outstanding shares, and is therefore our controlling
shareholder. CNOOC or its affiliates may from time to time engage in
activities in countries that are the subject of U.S. economic
sanctions.
We cannot
predict the interpretation or implementation of U.S. government policy under the
Iran Sanctions Act or other relevant measures with respect to any current or
future activities by CNOOC or its affiliates in Iran or other countries that are
the subject of U.S. sanctions. It is possible that the United States
could subject CNOOC to sanctions due to these activities.
It is
possible that as a result of activities by CNOOC or its affiliates in these
countries, we may be subject to negative media or investor attention, which may
distract management, consume internal resources and affect investors’ perception
of our company. Nonetheless, if such events were to occur, we do not
believe that enforcement of U.S. sanctions (including the imposition of the
maximum sanctions under the current law and regulations on CNOOC) would have a
material adverse effect on our results of operations or financial
condition.
We may be
penalized if we fail to comply with existing or future environmental laws and
regulations
Our
business is subject to environmental protection laws and regulations in the PRC,
as well as other jurisdictions, which, among other things:
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impose
fees for the discharge of waste
substances;
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require
the payment of fines and damages for serious environmental pollution;
and
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provide
that the government may, at its discretion, close or suspend any facility
which fails to comply with orders requiring it to cease or cure operations
causing environmental damage.
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We believe
that all of our facilities and operations are in material compliance with the
requirements of the relevant environmental protection laws and regulations.
However, amendment of existing laws or regulations may impose additional or more
stringent requirements. In addition, our compliance with such laws or
regulations may require us to incur significant capital expenditures or other
obligations or liabilities, which could create a substantial financial burden on
us. For a further discussion of the relevant environmental
regulations, particularly those in the PRC, see “Item 4—Information on the
Company—Business Overview—Regulatory Framework—Environmental
Regulation.”
Risks
relating to the PRC petroleum industry
A
change in PRC petroleum industry regulations could have an adverse effect on our
operations
The PRC
government exercises control over the PRC petroleum industry, including with
respect to licensing, exploration, production, distribution, pricing, taxation,
imports and exports and allocation of various resources. We have
benefited from various favorable PRC government policies, laws and regulations
that have been enacted to encourage the development of the offshore petroleum
industry. See “Item 4—Information on the Company—Regulatory
Framework—Special Policies Applicable to the Offshore Petroleum Industry in
China” and “Item 4—Information on the Company—Business Overview—PRC Fiscal
Regimes for Offshore Crude Oil and Natural Gas Activities.” We cannot
assure that the legal and fiscal regimes affecting our businesses will remain
substantially unchanged or that we will continue to benefit from favorable PRC
government policies.
Changes to
the tax regime affecting the petroleum industry that have been recently
implemented or are currently under consideration could increase our tax
burden. In March 2006, the PRC government imposed a special oil gain
levy on revenues generated from sales of domestically produced crude oil when
the realized price exceeds US$40 per barrel, which significantly increased our
expenses. In addition, the PRC government imposed an export tariff of
5% on crude oil in November 2006. The PRC government has also
announced that it plans to reform the current resource taxation system, which
could increase our tax burden.
In
addition, existing PRC regulations require us to apply for and obtain various
PRC government licenses and other approvals, including in some cases approvals
for amendments and extensions of existing licenses and approvals, to conduct
exploration and development activities offshore China. If we are unable
to obtain any necessary approvals, our reserves and production would be
adversely affected. See “Item 4—Information on the Company—Regulatory
Framework.”
Risks
relating to the PRC
PRC economic and
political conditions may adversely affect our operations
Most of
our businesses, assets and operations are located in the PRC. The
economic system of the PRC differs from the economies of most developed
countries in many respects, including government investment, control of capital
investment and control of foreign exchange.
The
economy of the PRC has been undergoing a transformation from a planned economy
to a market-oriented economy. In recent years the PRC government has
implemented economic reform measures
emphasizing decentralization, utilization of market forces in the development of
the PRC economy and a higher level of management autonomy. These
economic reform measures have and will continue to subject our businesses to
some uncertainty. In the future, our operating results could be
adversely affected by changes to the laws and regulations that govern our
industry and changes in the PRC political and economic
systems.
The PRC
government has implemented various policies from time to time to restrain the
rate of such economic growth, control inflation and otherwise regulate economic
expansion. Certain measures taken by the PRC government, such as placing
additional controls on prices of petroleum and petroleum products, could
restrict our business operations and adversely affect our financial
position.
Government
control of currency conversion and future movements in exchange rates may
adversely affect our operations and financial condition
A portion
of our Renminbi revenue may need to be converted into other currencies by our
wholly owned principal operating subsidiary in the PRC, CNOOC China Limited, to
meet our foreign currency obligations. We have substantial
requirements for foreign currency, including:
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debt
service on foreign currency denominated
debt;
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overseas
acquisitions of oil and gas
properties;
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purchases
of imported equipment; and
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payment
of dividends declared in respect of shares held by international
investors.
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CNOOC
China Limited may undertake current account foreign exchange transactions
without prior approval from the State Administration for Foreign
Exchange. It has access to current account foreign exchange so long
as it can produce commercial documents evidencing such transactions and provided
that they are processed through certain banks in China. Foreign
exchange transactions under the capital account, including principal payments
with respect to foreign currency denominated obligations, are subject to the
approval requirements of the State Administration for Foreign
Exchange.
The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in China’s political and economic
conditions. On July 21, 2005, China reformed its foreign exchange regime by
moving into a managed floating exchange rate regime based on market supply and
demand with reference to a basket of currencies. From that day to May 30, 2008,
the Renminbi appreciated approximately 19.1% against the U.S.
dollar.
The
appreciation of the Renminbi against the U.S. dollar may cause a decrease in our
oil sales, since the benchmark oil prices are usually in U.S. dollars. However,
the appreciation of the Renminbi against the U.S. dollar may also decrease our
costs for imported equipment and materials, most of which are denominated in
U.S. dollars, as well as our debt repayment burden, since approximately 96% of
our debt is denominated in U.S. dollars. For further information on foreign
exchange risks, foreign exchange rates and hedging activities, see
“Item 3—Key Information—Selected Financial Data” and “Item 11—Qualitative and
Quantitative Disclosure about Market Risk.”
Certain
legal restrictions on dividend distribution may have a material adverse effect
on our cash flows
We are a
holding company. Our exploration, development, production and sales
businesses are owned and conducted through various wholly owned subsidiaries,
including CNOOC China Limited, our wholly foreign-owned enterprise in the
PRC. Accordingly, our future cash flows will consist principally of
dividends from our subsidiaries. Our PRC subsidiary’s ability to pay
dividends to us is subject to PRC regulations, including a restriction that
companies may pay dividends only out of profit determined in accordance with PRC
accounting standards and regulations. In addition, under PRC laws,
CNOOC China Limited is required to allocate at least 10% of its net profit to a
reserve fund until the balance of the fund has reached 50% of its registered
capital. The balance of the reserve fund of CNOOC China Limited
reached 50% of its registered capital in 2007 and CNOOC China Limited will be
required to make further allocations only if its registered capital is
increased.. Such reserve is not distributable as cash
dividends. Therefore, there is a risk that we may not be able to
maintain sufficient cash flows due to these restrictions on dividend
distribution.
The
interpretation and enforcement of PRC laws and regulations is subject to some
uncertainty
The PRC
legal system is based on statutory law. Under this system, prior
court decisions may be referred to but are not binding. Since 1979,
the PRC government has been developing a comprehensive system of commercial laws
and considerable progress has been made in the promulgation of laws and
regulations dealing with economic matters, such as corporate organization and
governance, foreign investments, commerce, taxation and
trade. Because these laws, regulations and legal requirements are
relatively new, and because of the limited volume of published cases and
judicial interpretations and the non-binding nature of prior court decisions,
the interpretation and enforcement of these laws, regulations and legal
requirements involve some uncertainty.
Risks
relating to our ADSs and shares
Additional
shares or ADSs eligible for public sale could adversely affect the price of our
shares or ADSs
Sales, or
the real or perceived possibility of sales, of a significant number of
additional shares in the public market could adversely affect prevailing market
prices for our shares and ADSs. As of May 30, 2008, CNOOC, through
its wholly owned subsidiaries, CNOOC (BVI) Limited and Overseas Oil & Gas
Corporation Ltd., held approximately 64.41% of our shares and the rest of our
shares were held by public investors, including institutional
investors. We cannot predict the effect, if any, that sales of our
shares, including sales of large positions held by institutional and corporate
investors, or the availability of our shares for future sale, will have on the
market price of our shares or ADSs.
Our legal
and commercial name is CNOOC Limited. We were incorporated with
limited liability on August 20, 1999 in Hong Kong under the Hong Kong Companies
Ordinance. Our business registration number in Hong Kong is
685974. Under the third section of our memorandum of association, we
may do anything which we are permitted to do by any enactment or rule of
law. Our head office is located at 65th Floor,
Bank of China Tower, One Garden Road, Central, Hong Kong, and our telephone
number is 852-2213-2500.
The PRC
government established CNOOC, our controlling shareholder, as the state-owned
offshore petroleum company of China in 1982 under the Regulation of the People’s
Republic of China on the Exploitation of Offshore Petroleum Resources in
Cooperation with Foreign Enterprises, whereby CNOOC assumed overall
responsibility for the administration and development of PRC offshore petroleum
operations with foreign oil and gas companies. Prior to March 2003,
CNOOC was regulated and supervised by the State Economic and Trade
Commission. Since March 2003, the PRC government has undergone
substantial reform. The National Development and Reform Commission
has succeeded the State Economic and Trade Commission as the primary coordinator
for the petroleum industry.
Prior to
CNOOC’s internal business reorganization in 1999, CNOOC and its various
affiliates performed both commercial and administrative functions relating to
petroleum exploration and development offshore China, including:
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exercising
the exclusive right to cooperate with foreign partners in offshore
petroleum exploration, development, production and sales activities, and
taking participating interests in production sharing
contracts;
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organizing
international bidding for offshore petroleum
exploitation;
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conducting
independent exploration, development, production and sales activities in
independently operated oil and gas fields offshore
China;
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awarding
contracts to and signing bilateral contracts with foreign partners for
offshore petroleum exploitation;
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reviewing
and confirming appraisal reports and overall development plans required
under production sharing contracts;
and
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obtaining
from the PRC government all approvals, permits, licenses, consents and
special policies necessary under production sharing
contracts.
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Reorganization
Pursuant
to CNOOC’s internal business reorganization in 1999, CNOOC transferred all of
its then current operational and commercial interests in its offshore petroleum
business, including the related assets and liabilities, to us. CNOOC also
transferred 917 employees to us to facilitate the transfer of the oil and
natural gas businesses previously operated by CNOOC. As a result, we and our
subsidiaries are the only vehicle through which CNOOC engages in petroleum
exploration, development, production and sales activities both within and
outside China.
CNOOC
retained its commercial interests in operations and projects not related to oil
and gas exploration and production, as well as all of its administrative
functions, which it performed prior to the reorganization,
including:
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organizing
international bidding for offshore petroleum
exploitation;
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awarding
contracts to and signing bilateral contracts with foreign partners for
offshore petroleum exploitation;
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approving
any extension of the period for the completion of the appraisal work on
petroleum discovery under the production sharing contracts;
and
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submitting
the overall development plans, reports of the oil and gas fields and the
environmental impact statements related to the production sharing
contracts to the PRC governmental
authorities.
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Undertakings
CNOOC has
undertaken to us that:
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we
will enjoy the exclusive right to exercise all of CNOOC’s commercial and
operational rights under the PRC laws and regulations relating to the
exploration, development, production and sales of oil and natural gas
offshore China;
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it
will transfer to us all of CNOOC’s rights and obligations under any new
production sharing contracts and geophysical exploration operations,
except those relating to CNOOC’s administrative
functions;
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it
will not engage or be interested, directly or indirectly, in oil and
natural gas exploration, development, production and sales in or outside
the PRC;
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we
will be able to participate jointly with CNOOC in negotiating new
production sharing contracts and to set out our views to CNOOC on the
proposed terms of new production sharing
contracts;
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we
will have unlimited and unrestricted access to all data, records, samples
and other original data owned by CNOOC relating to oil and natural gas
resources;
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we
will have an option to make investment in liquefied natural gas projects
in which CNOOC invested or proposed to invest, and CNOOC will at its own
expense help us to procure all necessary government approvals needed for
our participation in these projects;
and
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we
will have an option to participate in other businesses related to natural
gas in which CNOOC invested or proposed to invest, and CNOOC will procure
all necessary government approvals needed for our participation in such
business.
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The
undertakings from CNOOC will cease to have any effect:
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if
we become a wholly owned subsidiary of
CNOOC;
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if
our securities cease to be listed on any stock exchange or automated
trading system; or
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12
months after CNOOC or any other PRC government-controlled entity ceases to
be our controlling shareholder.
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Overview
We are an
oil and gas company engaged in the exploration, development and production of
crude oil and natural gas primarily offshore China. We are the dominant
producer of crude oil and natural gas offshore China and, through CNOOC, are the
only company permitted to conduct exploration and production activities with
foreign oil and gas companies offshore China. As of December 31,
2007, we had estimated net proved reserves of 2,601.2 million BOE, comprised of
1,564.1 million barrels of crude oil and condensate and 6,222.8 billion cubic
feet of natural gas. For 2007, our net
production averaged 371,827 barrels per day of crude oil, condensate and natural
gas liquids and 559.6 million cubic feet per day of natural gas, which together
totaled 469,407 BOE per day. Unless otherwise noted, all operating
data presented in this annual report, including reserve and production
information, includes our interest in the oil and gas field held by an
unconsolidated investee in which we hold a 30% equity interest. For
more information on our reserves and related information, see “Supplementary
Information on Oil and Gas Producing Activities” in our consolidated financial
statements included elsewhere in this annual report, in which we separately
disclose reserve and related information for this unconsolidated investee in
accordance with U.S. Statement of Financial Accounting Standards No. 69,
“Disclosures about Oil and Gas Producing Activities.”
Our net
proved reserves increased from 2,528.5 million BOE as of December 31, 2006 to
2,601.2 million BOE as of December 31, 2007, representing an increase of
2.9%. Based on
net proved reserves, we are one of the largest independent oil and gas
exploration and production companies in the world. In the petroleum
industry, an “independent” company owns oil and gas reserves independently of
other downstream assets, such as refining and marketing assets, whereas an
integrated company owns downstream assets in addition to oil and gas
reserves.
We conduct
exploration, development, production and sales activities through both
independent operations and production sharing contracts with foreign
partners. We
have added to our reserves in recent years primarily through our independent
operations. As
of December 31, 2007, independent properties accounted for 62.0% of our total
net proved reserves and independent net proved
undeveloped reserves accounted for 64.8% of our total net proved
undeveloped reserves. For the year ended
December 31, 2007, production from our independent properties accounted for
46.8% of our total net production.
Our
controlling shareholder, CNOOC, has the exclusive right to enter into contracts
with international oil and gas companies to conduct exploration and production
activities offshore China. Under these production sharing contracts,
we have the sole right to acquire, at no cost, participating interests
in any successful discovery offshore China made by our foreign
partners. Our foreign partners can recover their exploration costs
under the production sharing contracts only if a commercially viable discovery
is made. As of December 31, 2007, we had 27 foreign partners under
our existing production sharing contracts offshore China, all of which are
international oil and gas companies, including BG International Ltd., BP China
Exploration & Production Company, Burlington Resources China LLC,
ChevronTexaco China Energy Company, ConocoPhillips China Inc., Devon Energy
China Ltd., ENI China B.V., Horizon Oil Ltd., Husky Oil China Ltd., Kerr-McGee
China Petroleum Ltd., Newfield China LDC., Roc Oil (China) Company, Shell China
Exploration and Production Co., Ltd. and Texas American Resources-Asia
Limited. As of December 31, 2007, we were a party to 40 production
sharing contracts offshore China. We are currently the operator or
joint operator of some of the properties developed under our production sharing
contracts.
Natural
gas is becoming an increasingly important part of our business strategy because
of rapidly growing domestic demand. In view of increasing demand for
natural gas, we have continued to explore for natual gas and develop our natural
gas properties. We have also made strategic investments in liquefied natural gas
related upstream projects outside the PRC, and may continue to do so in the
future. We have acquired interests in gas reserves located in
Tangguh, Indonesia and the North West Shelf, Australia. In addition,
CNOOC, our controlling shareholder, has granted us an option to invest in
liquefied natural gas projects or other natural gas related business in which
CNOOC invested or proposed to invest. The terms of this option
require us, if we exercise the option, to reimburse CNOOC for any contribution
CNOOC has made with respect to the project together with interest calculated at
the prevailing market rate. CNOOC’s
major liquefied natural gas projects in the PRC, which it has entered into with
various partners, include LNG terminals under production or development in
Guangdong, Fujian, Zhejiang and Shanghai.
Competitive
Strengths
We believe
that our historical success and future prospects are directly related to a
combination of our strengths, including the following:
|
|
·
|
large
proved reserve base with significant exploitation
opportunities;
|
|
|
·
|
sizable
operating areas with demonstrated exploration
potential;
|
|
|
·
|
successful
independent exploration and development
record;
|
|
|
·
|
competitive
cost structure;
|
|
|
·
|
reduced
risks and access to capital and technology through production sharing
contracts;
|
|
|
·
|
strategic
position in China’s growing natural gas markets;
and
|
|
|
·
|
experienced
management team.
|
Large
proved reserve base with significant exploitation opportunities
Based on
net proved reserves as of December 31, 2007 and net production for the year
ended December 31, 2007, we had a reserve-to-production ratio of 15.2
years. As of December 31, 2007, approximately 59.3% of our net proved
reserves were classified as net proved undeveloped. Our large proved
reserve base gives us the opportunity to achieve substantial production
growth.
Sizable
operating area with demonstrated exploration potential
Since
CNOOC’s inception in 1982 to the end of 2007, we and foreign partners have
together drilled a total of 929 exploration wells in China’s sizable offshore
exploration area, including 589 wildcat wells with a success rate of
approximately 35%. For the year ended December 31, 2007, we and
foreign partners made 11 discoveries and one discovery, respectively, offshore
China.
Successful
independent exploration and development record.
From the
inception of CNOOC in 1982 to December 31, 2007, we achieved a success rate of
approximately 42% on our 290 offshore China independent wildcat
wells. As of December 31, 2007, independent properties accounted for
62.0% of our total net proved reserves and independent net proved undeveloped
reserves accounted for 64.8% of our total net proved undeveloped
reserves. In 2007, we, acting as operator, completed 5 of our major
development projects.
Competitive
cost structure
For the
year ended December 31, 2007, our total offshore China lifting costs, also known
as production costs, were US$8.60 per BOE. Total lifting costs for
independent operations offshore China were US$8.39 per BOE during the same
period. Lifting costs consist of operating expenses and production
taxes. We have kept our offshore China lifting costs low through
various measures, including more efficient use of existing offshore facilities,
the linking of employee bonuses to cost reduction and the adoption of new
technology in our operations. We believe that such cost structure
allows us to compete effectively even in a low crude oil price
environment.
Reduced
risks and access to capital and technology through production sharing
contracts
Production
sharing contracts help us minimize our offshore China finding costs, exploration
risks and capital requirements because our foreign partners are responsible for
all costs associated with exploration. Our foreign partners recover
their exploration costs only if a commercially viable discovery is
made.
Strategic
position in China’s growing natural gas markets
The
proximity of our natural gas reserves to the major demand areas in the coastal
regions of China provides us with a competitive advantage over other natural gas
suppliers in China, whose natural gas reserves are located primarily in
northwest and southwest China. We have natural gas fields near many
of China’s rapidly growing coastal areas, including Hong Kong, Shanghai and
Guangzhou. We have also acquired interests in gas reserves located in
Tangguh, Indonesia and the North West Shelf, Australia. In addition,
CNOOC has granted us an option to invest in liquefied natural gas projects or
other natural gas related businesses in the PRC in which CNOOC invested or
proposed to invest. For further information, see “Item 4—Information
on the Company—Business Overview—Overview.”
Experienced
management team
Our senior
management team has extensive experience in the oil and gas industry, and most
of our executives have been with the CNOOC group since its inception in
1982. We evolved from a company heavily reliant on production sharing
contracts with foreign partners to a company with a balance of both independent
and production sharing contract operations. Our management team and
staff have had the opportunity to work closely with foreign partners both within
and outside China. We have implemented international management
practices, including incentive compensation arrangements such as share option
schemes. See “Item 6—Directors, Senior Management and Employees—Share
Ownership.”
Business
Strategy
We intend
to continue expanding our oil and gas exploration and production activities and,
where appropriate, to continue making strategic investments in natural gas
businesses. While our expansion strategy will continue to focus
primarily on offshore China, we may also consider overseas acquisition
opportunities that may be presented to us. The principal components
of our strategy are as follows:
|
|
·
|
increase
production primarily through the development of our net proved undeveloped
reserves;
|
|
|
·
|
add
to our reserves through independent exploration and production sharing
contracts;
|
|
|
·
|
capitalize
on the growing demand for natural gas in
China;
|
|
|
·
|
selectively
pursue acquisitions to ensure long-term production growth, geographical
reserves risk diversification, and to further our natural gas
strategy;
|
|
|
·
|
maintain
operational efficiency and low production costs;
and
|
|
|
·
|
maintain
financial flexibility through prudent financial
practices.
|
Increase
production primarily through the development of our net proved undeveloped
reserves
As of
December 31, 2007, approximately 59.3% of our proved reserves were classified as
net proved undeveloped, which gives us the opportunity to achieve substantial
production growth even without additional reserve discoveries, assuming that we
will be able to develop these reserves more quickly than we deplete our
currently producing reserves. We are currently undertaking a number
of large development projects, which are primarily located in the Bohai Bay and
the Western South China Sea offshore China and in Nigeria and
Indonesia. We plan to spend approximately US$4,149 million to develop
our net proved undeveloped reserves in 2008.
Add to our
reserves through independent exploration and production sharing
contracts
We plan to
concentrate our independent exploration efforts in existing operating
areas. We plan to spend approximately US$1,042 million in 2008 on
exploration activities. We plan to increase independent exploration
efforts while continuing to enter into production sharing contracts with foreign
partners to lower capital requirements and exploration risks. In
2008, we plan to drill approximately 86 exploration wells, and independently
acquire approximately 33,350 kilometers and 12,460 square kilometers of 2D
seismic data and 3D seismic data, respectively. Our foreign partners
under existing production sharing contracts plan to drill approximately 40 exploration wells,
and acquire approximately 5,200 kilometers and 10,638 square kilometers of 2D
seismic data and 3D seismic data, respectively, in 2008.
Capitalize
on the growing demand for natural gas in China
We plan to
capitalize on the growth potential of the PRC natural gas market through the
following initiatives:
|
|
·
|
continue
to explore and develop natural gas
fields;
|
|
|
·
|
evaluate
whether to exercise the options to invest in CNOOC’s liquefied natural gas
projects in China; and
|
|
|
·
|
evaluate
investment opportunities in related natural gas businesses that will help
develop markets for our natural gas
production.
|
To the
extent we invest in businesses and geographic areas where we have limited
experience and expertise, we plan to structure our investments as alliances or
partnerships with parties possessing the relevant experience and
expertise.
Selectively
pursue acquisitions to ensure long-term production growth and geographical
reserves risk diversification, and to further our natural gas
strategy
We plan to
make selective acquisitions that will meet one or more of our strategic
objectives of enhancing our production profile, diversifying our reserve base
and geographic risk profile and furthering our natural gas
strategy. We evaluate acquisition opportunities based on our expected
economic return criteria. Since 2002, we have made a number of acquisitions
overseas. We currently have operations and assets in various foreign
countries and regions, including Indonesia, Australia and
Nigeria. See “Item 4—Information on the Company—Business
Overview—Overseas Activity.”
Maintain
operational efficiency and low production costs
We will
continue to maintain our low cost structure and operational efficiency through
the following initiatives:
|
|
·
|
Apply
up-to-date drilling, production and offshore engineering technology to our
operations through our oilfield service
providers;
|
|
|
·
|
Proactively
manage service contracts and cooperate with our oilfield service providers
to improve exploration efficiency and reduce exploration costs;
and
|
|
|
·
|
Maintain
high production volume levels on an individual well basis and increase the
productivity of producing wells.
|
Maintain
financial flexibility through prudent financial practices
Currently,
we have a strong financial profile with a low leverage ratio. We
intend to maintain our financial strength by managing key measures such as
capital expenditures, cash flows and fixed charge coverage. We intend
to actively manage our accounts receivable and inventory positions to enhance
liquidity and improve profitability. We will continue to monitor our
foreign currency denominated debt and to minimize our exposure to foreign
exchange rate fluctuations.
Selected
Operating and Reserves Data
The
following table sets forth our operating data and our net proved reserves as of
the time and for the periods indicated. Unless otherwise noted, all
operating data presented in this annual report, including reserve and production
information, includes our interest in the oil and gas field held by an
unconsolidated investee in which we hold a 30% equity interest. For
more information on our reserves and related information, see “Supplementary
Information on Oil and Gas Producing Activities” in our consolidated financial
statements included elsewhere in this annual report, in which we separately
disclose reserve and related information for this unconsolidated investee in
accordance with U.S. Statement of Financial Accounting Standards No. 69,
“Disclosures about Oil and Gas Producing Activities.”
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Net
Production:
|
||||||||||||
|
Oil
(daily average bbls/day)
|
356,868 | 372,720 | 371,827 | |||||||||
|
Gas
(daily average
mmcf/day)
|
389.6 | 490.9 | 559.6 | |||||||||
|
Oil
equivalent
(BOE/day)
|
424,108 | 457,482 | 469,407 | |||||||||
|
Average
net realized prices:
|
||||||||||||
|
Oil
(per
bbl)
|
US$47.31 | US$58.90 | US$66.26 | |||||||||
|
Gas
(per
mcf)
|
2.82 | 3.05 | 3.30 | |||||||||
|
Offshore
China lifting costs (per BOE)
|
6.34 | 7.30 | 8.60 | |||||||||
|
Overseas
lifting costs (per
BOE)
|
12.41 | 14.07 | 13.98 | |||||||||
|
Net
Proved Reserves (end of period):
|
||||||||||||
|
Oil
(mmbbls)
|
1,457.4 | 1,489.8 | 1,564.1 | |||||||||
|
Gas
(bcf)
|
5,430.9 | 6,231.6 | 6,222.8 | |||||||||
|
Total
(million
BOE)
|
2,362.6 | 2,528.5 | 2,601.2 | |||||||||
|
Proved
developed reserves (million BOE)
|
1,159.8 | 1,136.7 | 1,058.8 | |||||||||
|
Annual
reserve replacement ratio(1)
|
186 | % | 199 | % | 142 | % | ||||||
|
Estimated
reserves life
(years)
|
15.3 | 15.1 | 15.2 | |||||||||
|
Standardized
measure of discounted future net cash flow
(million
Rmb)
|
198,316 | 196,614 | 313,926 | |||||||||
(1) For
information on the calculation of this ratio, see “Terms and
Conventions—Glossary of Technical Terms—reserve replacement
ratio.” For more information regarding our reserve replacement, see
“Item 4—Information on the Company—Business Overview—Exploration and
Production—Oil and Natural Gas Reserves.”
At our
request, Ryder Scott Company, an independent petroleum engineering consulting
company, carried out an independent evaluation of the reserves of all our
properties as of December 31, 2005, 2006 and 2007, except for certain reserves
of the OML130 project in Nigeria in 2006, which were evaluated by us. For
further information regarding our reserves, see “Item 3—Key Information—Risk
Factors—Risks relating to our business—The oil and gas reserve estimates in this
annual report may require substantial revision as a result of future drilling,
testing and production” and “Item 4—Information on the Company—Business
Overview—Exploration and Production—Oil and Natural Gas Reserves.”
The
following table sets forth summary information with respect to our estimated net
proved reserves of crude oil and natural gas as of the dates
indicated.
|
Net
proved reserves at
December 31,
|
Net
proved reserves at
December 31, 2007
|
|||||||||||||||||||
|
2005
|
2006
|
Developed
|
Undeveloped
|
Total
|
||||||||||||||||
|
Bohai
Bay:
|
||||||||||||||||||||
|
Crude
oil (mmbbls)
|
920.2 | 933.4 | 437.4 | 513.9 | 951.3 | |||||||||||||||
|
Natural
gas (bcf)
|
740.7 | 765.0 | 254.7 | 506.8 | 761.5 | |||||||||||||||
|
Total
(million BOE):
|
1,043.7 | 1,060.9 | 479.9 | 598.3 | 1,078.2 | |||||||||||||||
|
Independent
(million BOE)
|
622.4 | 669.4 | 337.8 | 383.1 | 720.9 | |||||||||||||||
|
Production
sharing contracts (million BOE)
|
421.3 | 391.5 | 142.1 | 215.2 | 357.3 | |||||||||||||||
|
Western
South China Sea:
|
||||||||||||||||||||
|
Crude
oil (mmbbls)
|
205.7 | 190.5 | 62.8 | 146.1 | 208.9 | |||||||||||||||
|
Natural
gas (bcf)
|
2,604.0 | 2,648.1 | 1,267.2 | 1,272.0 | 2,539.2 | |||||||||||||||
|
Total
(million BOE):
|
639.7 | 631.9 | 274.0 | 358.1 | 632.1 | |||||||||||||||
|
Independent
(million BOE)
|
531.2 | 545.8 | 206.5 | 351.5 | 558.0 | |||||||||||||||
|
Production
sharing contracts (million BOE)
|
108.5 | 86.0 | 67.5 | 6.6 | 74.1 | |||||||||||||||
|
Eastern
South China Sea:
|
||||||||||||||||||||
|
Crude
oil (mmbbls)
|
211.2 | 200.2 | 120.0 | 106.6 | 226.6 | |||||||||||||||
|
Natural
gas (bcf)
|
784.2 | 792.0 | 24.7 | 754.7 | 779.4 | |||||||||||||||
|
Total
(million BOE):
|
341.9 | 332.3 | 124.1 | 232.4 | 356.5 | |||||||||||||||
|
Independent
(million BOE)
|
220.3 | 226.2 | 58.3 | 191.6 | 249.9 | |||||||||||||||
|
Production
sharing contracts (million BOE)
|
121.6 | 106.1 | 65.8 | 40.8 | 106.6 | |||||||||||||||
|
East
China Sea:
|
||||||||||||||||||||
|
Crude
oil (mmbbls)
|
21.2 | 20.4 | 2.7 | 17.8 | 20.5 | |||||||||||||||
|
Natural
gas (bcf)
|
402.2 | 390.0 | 42.8 | 331.0 | 373.8 | |||||||||||||||
|
Total
(million BOE):
|
88.2 | 85.4 | 9.8 | 73.0 | 82.8 | |||||||||||||||
|
Independent
(million BOE)
|
88.2 | 85.4 | 9.8 | 73.0 | 82.8 | |||||||||||||||
|
Production
sharing contracts (million BOE)
|
— | — | — | — | — | |||||||||||||||
|
Overseas:
|
||||||||||||||||||||
|
Crude
oil (mmbbls)
|
99.1 | 145.3 | 65.9 | 90.8 | 156.7 | |||||||||||||||
|
Natural
gas (bcf)
|
899.9 | 1,636.5 | 630.2 | 1,138.7 | 1,768.9 | |||||||||||||||
|
Total
(million BOE):
|
249.1 | 418.0 | 170.9 | 280.6 | 451.6 | |||||||||||||||
|
Independent
(million BOE)
|
— | — | — | — | — | |||||||||||||||
|
Production sharing
contracts (million BOE)(a)
|
249.1 | 418.0 | 170.9 | 280.6 | 451.6 | |||||||||||||||
|
Total:
|
||||||||||||||||||||
|
Total
crude oil (mmbbls)
|
1,457.4 | 1,489.8 | 688.8 | 875.2 | 1,564.1 | |||||||||||||||
|
Total
natural gas (bcf)
|
5,430.9 | 6,231.6 | 2,219.6 | 4,003.2 | 6,222.8 | |||||||||||||||
|
Total
(million BOE):
|
2,362.6 | 2,528.5 | 1,058.7 | 1,542.4 | 2,601.2 | |||||||||||||||
|
Independent
(million BOE)
|
1,462.2 | 1,526.9 | 612.4 | 999.2 | 1,611.6 | |||||||||||||||
|
Production
sharing contracts (million BOE)
|
900.4 | 1,001.6 | 446.3 | 543.2 | 989.6 | |||||||||||||||
|
(a)
|
These
amounts include our net proved reserves in Australia, in which the
petroleum regime adopted is a royalty/tax system. See “Item
4—Information on the Company—Business Overview—Fiscal
Regimes—Overseas.”
|
Exploration
and Production
Summary
We
currently conduct exploration, development and production activities primarily
in four areas offshore China:
|
|
·
|
the
Bohai Bay;
|
|
|
·
|
the
Western South China Sea;
|
|
|
·
|
the
Eastern South China Sea; and
|
|
|
·
|
the
East China Sea.
|
The
following chart sets forth the aggregate area in square kilometers of our major
exploration areas as of December 31, 2007.
In
addition, we hold several equity interests in oil and gas properties in foreign
countries and regions, including Indonesia, Australia and
Nigeria. See “Item 4—Information on the Company—Business
Overview—Overseas Activity.”
As of
December 31, 2007, we had estimated net proved reserves of 2,601.2 million BOE,
comprised of 1,564.1 million barrels of crude oil and condensate and 6,222.8
billion cubic feet of natural gas. As of December 31, 2007, we had
interests in 58 producing properties and 51 properties under development
offshore China. In 2007, four projects offshore China and one
overseas project commenced production. For 2007, net production
averaged 371,827 barrels per day of crude oil, condensate and natural gas
liquids and 559.6 million cubic feet per day of natural gas, which together
totaled 469,407 BOE per day, representing a 2.6% increase over the annual
average daily production for 2006.
We conduct
our exploration, development and production activities independently as well as
through production sharing contracts with foreign
partners. Production sharing contracts contain provisions regarding
the exploration, development, production and operation of an oil and gas field
and the formula through which foreign partners may recover exploration,
development and production costs and share in the production after the
successful development of petroleum reserves. In 2007, our controlling
shareholder, CNOOC, signed four production sharing contracts offshore China with
foreign partners, most of which relate to area in the South China Sea. See “Item
4—Information on the Company—Business Overview—Fiscal Regimes—Offshore China”
for a detailed discussion of these arrangements.
From time
to time, we also conduct exploration efforts through geophysical survey
agreements with foreign companies. These geophysical survey
agreements allow international oil and gas companies to make geophysical surveys
and conduct geophysical studies before deciding whether to negotiate a
production sharing contract with CNOOC. If a foreign partner decides
to enter into a production sharing contract with CNOOC, the costs and expenses
that the foreign partner incurs in conducting geophysical exploration may be
recovered during the production period by the foreign partner, subject to our
confirmation. Currently, we are not a party to any geophysical survey
agreements.
We have
access to 932,484 kilometers of 2D seismic data and 60,611 square kilometers of
3D seismic data. From the beginning of CNOOC’s operations in 1982 to
December 31, 2007, a total of 929 exploration wells have been drilled, including
589 wildcat wells, with a success rate of approximately 35%. During
this period we achieved a success rate of approximately 42% on 290 independent
exploration wildcat wells, while our foreign partners achieved a success rate of
approximately 28% on their 299 exploration wildcat wells.
Oil
and Natural Gas Reserves
We have a
large base of net proved undeveloped reserves as a result of our exploration
successes. As of December 31, 2007, approximately 59.3% of our net
proved reserves were classified as net proved undeveloped.
As
reflected in the reconciliation in “Supplementary Information on Oil and Gas
Producing Activities” on page S-1 of this annual report, the primary sources of
our reserve additions in 2007 were discoveries and extensions in the Bohai Bay
and the Eastern South China Sea. For more information on these
activities see “Item 4—Information on the Company—Business Overview—Principal
Oil and Gas Regions Offshore China—Bohai Bay” and “Item 4—Information on the
Company—Business Overview—Principal Oil and Gas Regions Offshore China—Eastern
South China Sea.” 61.7% of our reserve additions in 2007 were proved
undeveloped reserves, which generally take more time and funding to bring to
production than do proved developed reserves. A number of risks,
including factors outside our control, can impact the extent to which future
reserve additions will come from a given source and the time and costs involved
in bringing reserves additions to production. For information on
risks relating to our reserves, see “Item 3—Key Information—Risk Factors—Risks
relating to our business.”
We explore
and develop our reserves offshore China under exploration and production
licenses granted by the PRC government. The PRC government generally
grants exploration licenses for individual blocks, while production licenses
generally are granted for individual fields. All of our proved
reserves are under production licenses granted by the PRC
government.
The
following tables set forth net proved crude oil reserves, net proved natural gas
reserves and total net proved reserves, as of the dates indicated, for our
independent and production sharing contract operations in each of our operating
areas.
Total
Net Proved Crude Oil Reserves
(mmbbls)
|
As
of December 31,
|
As
of December 31, 2007
|
|||||||||||||||||||
|
2005
|
2006
|
Developed
|
Undeveloped
|
Total
|
||||||||||||||||
|
Offshore
China
|
||||||||||||||||||||
|
Independent
|
||||||||||||||||||||
|
Bohai
Bay
|
498.9 | 541.9 | 295.3 | 298.7 | 594.0 | |||||||||||||||
|
Western
South China Sea
|
169.0 | 170.5 | 45.8 | 143.8 | 189.6 | |||||||||||||||
|
Eastern
South China
Sea
|
96.5 | 100.4 | 58.3 | 65.8 | 124.1 | |||||||||||||||
|
East
China
Sea
|
21.2 | 20.4 | 2.7 | 17.8 | 20.5 | |||||||||||||||
|
Total
|
785.6 | 833.2 | 402.1 | 526.1 | 928.2 | |||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||
|
Bohai
Bay
|
421.3 | 391.5 | 142.1 | 215.2 | 357.3 | |||||||||||||||
|
Western
South China Sea
|
36.8 | 20.1 | 17.0 | 2.3 | 19.3 | |||||||||||||||
|
Eastern
South China
Sea
|
114.7 | 99.9 | 61.7 | 40.7 | 102.4 | |||||||||||||||
|
East
China
Sea
|
— | — | — | — | — | |||||||||||||||
|
Total
|
572.8 | 511.4 | 220.8 | 258.2 | 479.0 | |||||||||||||||
|
Combined
|
||||||||||||||||||||
|
Bohai
Bay
|
920.2 | 933.4 | 437.4 | 513.9 | 951.3 | |||||||||||||||
|
Western
South China Sea
|
205.7 | 190.5 | 62.8 | 146.1 | 208.9 | |||||||||||||||
|
Eastern
South China
Sea
|
211.2 | 200.2 | 120 | 106.6 | 226.6 | |||||||||||||||
|
East
China
Sea
|
21.2 | 20.4 | 2.7 | 17.8 | 20.5 | |||||||||||||||
|
Total
|
1,358.3 | 1,344.6 | 622.9 | 784.4 | 1,407.3 | |||||||||||||||
|
Overseas
|
||||||||||||||||||||
|
Asia
|
73.7 | 79.7 | 50.0 | 5.3 | 55.2 | |||||||||||||||
|
Oceania
|
25.4 | 24.5 | 15.9 | 13.1 | 29.1 | |||||||||||||||
|
Africa
|
— | 41.0 | — | 72.4 | 72.5 | |||||||||||||||
|
Total
|
99.1 | 145.3 | 65.9 | 90.8 | 156.7 | |||||||||||||||
|
Total
|
1,457.4 | 1,489.8 | 688.9 | 875.2 | 1,564.1 | |||||||||||||||
Total
Net Proved Natural Gas Reserves
(bcf)
|
As
of December 31,
|
As
of December 31, 2007
|
|||||||||||||||||||
|
2005
|
2006
|
Developed
|
Undeveloped
|
Total
|
||||||||||||||||
|
Offshore
China
|
||||||||||||||||||||
|
Independent
|
||||||||||||||||||||
|
Bohai
Bay
|
740.7 | 765.0 | 254.7 | 506.8 | 761.5 | |||||||||||||||
|
Western
South China Sea
|
2,173.8 | 2,252.4 | 964.4 | 1,246.1 | 2,210.5 | |||||||||||||||
|
Eastern
South China
Sea
|
742.8 | 754.7 | 0 | 754.7 | 754.7 | |||||||||||||||
|
East
China
Sea
|
402.2 | 390.0 | 42.8 | 331.0 | 373.8 | |||||||||||||||
|
Total
|
4,059.6 | 4,162.1 | 1,261.8 | 2,838.7 | 4,100.5 | |||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||
|
Bohai
Bay
|
— | — | — | — | — | |||||||||||||||
|
Western
South China Sea
|
430.1 | 395.7 | 302.7 | 26.0 | 328.7 | |||||||||||||||
|
Eastern
South China
Sea
|
41.3 | 37.3 | 24.7 | 0 | 24.7 | |||||||||||||||
|
East
China
Sea
|
— | — | — | — | — | |||||||||||||||
|
Total
|
471.4 | 433.1 | 327.4 | 26.0 | 353.4 | |||||||||||||||
|
Combined
|
||||||||||||||||||||
|
Bohai
Bay
|
740.7 | 765.0 | 254.7 | 506.8 | 761.5 | |||||||||||||||
|
Western
South China Sea
|
2,603.9 | 2,648.1 | 1,267.1 | 1,272.0 | 2,539.1 | |||||||||||||||
|
Eastern
South China
Sea
|
784.2 | 792.0 | 24.7 | 754.7 | 779.4 | |||||||||||||||
|
East
China
Sea
|
402.2 | 390.0 | 42.8 | 331.0 | 373.8 | |||||||||||||||
|
Total
|
4,531.0 | 4,595.1 | 1,589.3 | 2,864.5 | 4,453.8 | |||||||||||||||
|
Overseas
|
||||||||||||||||||||
|
Asia
|
296.9 | 985.1 | 193.9 | 815.4 | 1,009.3 | |||||||||||||||
|
Oceania
|
603.0 | 651.4 | 436.3 | 323.3 | 759.6 | |||||||||||||||
|
Total
|
899.9 | 1,636.5 | 630.2 | 1,138.7 | 1,768.9 | |||||||||||||||
|
Total
|
5,430.9 | 6,231.6 | 2,219.5 | 4,003.3 | 6,222.8 | |||||||||||||||
Total
Net Proved Reserves
(million
BOE)
|
As
of December 31,
|
As
of December 31, 2007
|
|||||||||||||||||||
|
2005
|
2006
|
Developed
|
Undeveloped
|
Total
|
||||||||||||||||
|
Offshore
China
|
||||||||||||||||||||
|
Independent
|
||||||||||||||||||||
|
Bohai
Bay
|
622.4 | 669.4 | 337.8 | 383.1 | 720.9 | |||||||||||||||
|
Western
South China Sea
|
531.2 | 545.8 | 206.5 | 351.5 | 558.0 | |||||||||||||||
|
Eastern
South China
Sea
|
220.3 | 226.2 | 58.3 | 191.6 | 249.9 | |||||||||||||||
|
East
China
Sea
|
88.2 | 85.4 | 9.8 | 73.0 | 82.8 | |||||||||||||||
|
Total
|
1,462.1 | 1,526.9 | 612.4 | 999.2 | 1,611.6 | |||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||
|
Bohai
Bay
|
421.3 | 391.5 | 142.1 | 215.2 | 357.3 | |||||||||||||||
|
Western
South China Sea
|
108.5 | 86.0 | 67.5 | 6.6 | 74.1 | |||||||||||||||
|
Eastern
South China
Sea
|
121.6 | 106.1 | 65.8 | 40.7 | 106.5 | |||||||||||||||
|
East
China
Sea
|
— | — | — | — | — | |||||||||||||||
|
Total
|
651.4 | 583.6 | 275.4 | 262.5 | 537.9 | |||||||||||||||
|
Combined
|
||||||||||||||||||||
|
Bohai
Bay
|
1,043.7 | 1,060.9 | 479.9 | 598.3 | 1,078.2 | |||||||||||||||
|
Western
South China Sea
|
639.7 | 631.9 | 274.0 | 358.1 | 632.1 | |||||||||||||||
|
Eastern
South China
Sea
|
341.9 | 332.3 | 124.1 | 232.4 | 356.5 | |||||||||||||||
|
East
China
Sea
|
88.2 | 85.4 | 9.8 | 73 | 82.8 | |||||||||||||||
|
Total
|
2,113.5 | 2,110.5 | 887.8 | 1,261.8 | 2,149.6 | |||||||||||||||
|
Overseas
|
||||||||||||||||||||
|
Asia
|
123.2 | 243.9 | 82.3 | 141.2 | 223.5 | |||||||||||||||
|
Oceania
|
125.9 | 133.1 | 88.6 | 67.0 | 155.6 | |||||||||||||||
|
Africa
|
— | 41.0 | — | 72.4 | 72.5 | |||||||||||||||
|
Total
|
249.1 | 418.0 | 170.9 | 280.6 | 451.6 | |||||||||||||||
|
Total
|
2,362.6 | 2,528.5 | 1,058.8 | 1,542.4 | 2,601.2 | |||||||||||||||
Oil
and Natural Gas Production
The
following tables show average daily net oil production, net natural gas
production, and average net total production for the periods
indicated. Oil production comprises crude oil, condensate and natural
gas liquids.
Average
Daily Net Production of Crude Oil
(bbls
per day)
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Offshore
China
|
||||||||||||
|
Independent
|
||||||||||||
|
Bohai
Bay
|
118,605 | 129,985 | 133,225 | |||||||||
|
Western
South China Sea
|
24,913 | 21,932 | 14,929 | |||||||||
|
Eastern
South China
Sea
|
20,047 | 28,727 | 30,129 | |||||||||
|
East
China
Sea
|
1,706 | 1,464 | 1,394 | |||||||||
|
Total
|
165,271 | 182,108 | 179,677 | |||||||||
|
Production
Sharing Contracts
|
||||||||||||
|
Bohai
Bay
|
60,235 | 70,959 | 73,524 | |||||||||
|
Western
South China Sea
|
24,103 | 18,505 | 19,234 | |||||||||
|
Eastern
South China
Sea
|
83,694 | 77,175 | 73,586 | |||||||||
|
East
China
Sea
|
— | — | 72 | |||||||||
|
Total
|
168,032 | 166,639 | 166,416 | |||||||||
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Combined
|
||||||||||||
|
Bohai
Bay
|
178,840 | 200,944 | 206,748 | |||||||||
|
Western
South China Sea
|
49,016 | 40,437 | 34,163 | |||||||||
|
Eastern
South China
Sea
|
103,741 | 105,902 | 103,715 | |||||||||
|
East
China
Sea
|
1,706 | 1,464 | 1,467 | |||||||||
|
Total
|
333,303 | 348,747 | 346,093 | |||||||||
|
Overseas
|
||||||||||||
|
Asia
|
23,565 | 22,475 | 20,756 | |||||||||
|
Oceania
|
— | 1,498 | 4,979 | |||||||||
|
Total
|
23,565 | 23,973 | 25,735 | |||||||||
|
Total
|
356,868 | 372,720 | 371,827 | |||||||||
Average
Daily Net Production of Natural Gas
(mmcf
per day)
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Offshore
China
|
||||||||||||
|
Independent
|
||||||||||||
|
Bohai
Bay
|
49.1 | 64.5 | 70.2 | |||||||||
|
Western
South China Sea
|
99.4 | 126.9 | 144.9 | |||||||||
|
Eastern
South China
Sea
|
— | — | — | |||||||||
|
East
China
Sea
|
18.3 | 21.2 | 15.3 | |||||||||
|
Total
|
166.8 | 212.6 | 230.4 | |||||||||
|
Production
Sharing Contracts
|
||||||||||||
|
Bohai
Bay
|
— | — | — | |||||||||
|
Western
South China Sea
|
130.1 | 124.9 | 92.4 | |||||||||
|
Eastern
South China
Sea
|
— | 23.1 | 27.4 | |||||||||
|
East
China
Sea
|
— | — | 8.7 | |||||||||
|
Total
|
130.1 | 148.0 | 128.4 | |||||||||
|
Combined
|
||||||||||||
|
Bohai
Bay
|
49.1 | 64.5 | 70.2 | |||||||||
|
Western
South China Sea
|
229.6 | 251.8 | 237.3 | |||||||||
|
Eastern
South China
Sea
|
— | 23.1 | 27.4 | |||||||||
|
East
China
Sea
|
18.3 | 21.2 | 24.0 | |||||||||
|
Total
|
296.9 | 360.6 | 358.9 | |||||||||
|
Overseas
|
||||||||||||
|
Asia
|
92.7 | 106.6 | 119.6 | |||||||||
|
Oceania
|
— | 23.8 | 81.1 | |||||||||
|
Total
|
92.7 | 130.3 | 200.7 | |||||||||
|
Total
|
389.6 | 490.9 | 559.6 | |||||||||
Average
Daily Net Production
(BOE
per day)
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Offshore
China
|
||||||||||||
|
Independent
|
||||||||||||
|
Bohai
Bay
|
126,786 | 140,739 | 144,923 | |||||||||
|
Western
South China Sea
|
41,486 | 43,071 | 39,086 | |||||||||
|
Eastern
South China
Sea
|
20,047 | 28,727 | 30,129 | |||||||||
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
East
China
Sea
|
4,751 | 5,004 | 5,462 | |||||||||
|
Total
|
193,069 | 217,541 | 218,082 | |||||||||
|
Production
Sharing Contracts
|
||||||||||||
|
Bohai
Bay
|
60,235 | 70,959 | 73,524 | |||||||||
|
Western
South China Sea
|
48,097 | 41,554 | 36,487 | |||||||||
|
Eastern
South China
Sea
|
83,694 | 81,017 | 78,151 | |||||||||
|
Total
|
192,026 | 193,530 | 189,679 | |||||||||
|
Combined
|
||||||||||||
|
Bohai
Bay
|
187,020 | 211,697 | 218,447 | |||||||||
|
Western
South China Sea
|
89,583 | 84,625 | 75,573 | |||||||||
|
Eastern
South China
Sea
|
103,741 | 109,744 | 108,279 | |||||||||
|
East
China
Sea
|
4,751 | 5,004 | 5,462 | |||||||||
|
Total
|
385,095 | 411,071 | 407,761 | |||||||||
|
Overseas
|
||||||||||||
|
Asia
|
39,013 | 40,237 | 40,687 | |||||||||
|
Oceania
|
— | 6,174 | 20,959 | |||||||||
|
Total
|
39,013 | 46,411 | 61,646 | |||||||||
|
Total
|
424,108 | 457,482 | 469,407 | |||||||||
Principal
Oil and Gas Regions Offshore China
Bohai
Bay
The Bohai
Bay holds our largest net proved reserves and, for the year ended December 31,
2007, was our largest producing area for crude oil. The Bohai Bay is
located in the northeastern part of China, approximately 200 kilometers east of
Beijing. Our operating area contains oil and gas fields in shallow
waters with typical depths ranging from 10 to 30 meters. The crude
oil produced is generally of heavy gravity ranging from 15 to 20 degrees
API. As of December 31, 2007, net proved reserves in this region were
951.3 million barrels of crude oil and condensate and 761.5 billion cubic feet
of natural gas, totaling 1,078.2 million BOE and representing approximately
41.5% of our total net proved reserves.
The Bohai
Bay has been a prolific area with significant oil discoveries in recent years
and we expect it will continue to be one of our principal areas for exploration
in the near future. In 2007, we independently drilled in this area 12
wildcat wells, three of which were successful, and 24 appraisal wells, 15 of
which were successful. In 2007, our foreign partners drilled in this
area four wildcat wells, one of which was successful, and one appraisal well,
which was successful. We and our foreign partners made three
discoveries and one discovery, respectively, in this area in
2007. During the year ended December 31, 2007, we independently
acquired 3,554 square kilometers of 3D seismic data in the Bohai
Bay. We have an aggregate of approximately 181,664 kilometers and
15,560 square kilometers of independent 2D and 3D seismic data, respectively, in
the Bohai Bay. We also have access through our production sharing
contract partners to approximately 66,903 kilometers and 9,561 square kilometers
of additional 2D and 3D seismic data, respectively, in this area. Our
exploration capital expenditures for 2007 for the Bohai Bay were US$243
million. We currently plan to drill 40 exploration wells in the Bohai
Bay in 2008.
For 2007,
net production in this region averaged 206,748 barrels per day of crude oil,
condensate and natural gas liquids and 70.2 million cubic feet per day of
natural gas, representing approximately 46.5% of our total daily net
production. Our development capital expenditures for the Bohai Bay
for 2007 were US$1,240 million.
Western
South China Sea
The
Western South China Sea has been our most important natural gas producing
area. The Western South China Sea is located in the southern part of
China southwest of Hong Kong. Typical water depths of our operating
area in this region range from 40 meters to 120 meters. The crude oil
produced is of medium to light gravity, ranging from 27 to 41 degrees
API. As of December 31, 2007, we had net proved reserves of 208.9
million barrels of crude oil and condensate and 2,539.2 billion cubic feet of
natural gas in this region, totaling 632.1 million BOE and representing 24.3% of
our total net proved reserves.
The
Western South China Sea is one of our least explored areas but we expect it will
become increasingly important as the markets for natural gas in the southern
part of China develop. In 2007, we independently drilled in this area nine
wildcat wells, five of which were successful, and five appraisal wells, all of
which were successful. We made five discoveries in this area in
2007.
During the
year ended December 31, 2007, we independently acquired 5,893 kilometers of 2D
seismic data and 252 square kilometers of 3D seismic data and our foreign
partners acquired 6,681 kilometers of 2D seismic data and 1,059 square
kilometers of 3D seismic data in the Western South China Sea. We have
an aggregate of approximately 199,126 kilometers and 10,241 square kilometers of
independent 2D and 3D seismic data, respectively, in the Western South China
Sea. We also have access through our production sharing contract
partners to approximately 115,304 kilometers and 5,715 square kilometers
of additional 2D and 3D seismic data, respectively, in this area. Our
exploration capital expenditures for the Western South China Sea for 2007 were
US$159 million. We currently plan to drill 25 exploration wells in
the Western South China Sea area in 2008.
For 2007,
net production in this region averaged 34,163 barrels per day of crude oil,
condensate and natural gas liquids and 237.3 million cubic feet per day of
natural gas, representing approximately 16.1% of our total daily net
production. Our development capital expenditures for the Western
South China Sea for 2007 were US$681 million.
Eastern
South China Sea
The
Eastern South China Sea is currently one of our most important oil producing
areas in terms of its contribution to our total production and
sales. The Eastern South China Sea is located in the southern part of
China, southeast of Hong Kong. This area includes the important Pearl
River Mouth Basin. Typical water depths of our operating area in this
region range from 100 meters to 300 meters. The crude oil produced is
of heavy to light gravity, ranging from 20 to 40 degrees API. As of
December 31, 2007, we had net proved reserves of 226.6 million barrels of crude
oil and condensate and 779.4 billion cubic feet of natural gas in this region,
totaling 356.5 million BOE and representing approximately 13.7% of our total net
proved reserves.
In 2007,
we independently drilled in this area six wildcat wells, three of which were
successful, and two appraisal wells, neither of which was
successful. In 2007, our foreign partners drilled in this area one
wildcat well, which was not successful. We made three discoveries in
this area in 2007.
During the
year ended December 31, 2007, we independently acquired 3,246 kilometers of 2D
seismic data and 187 square kilometers of 3D seismic data and our foreign
partners acquired 3,684 kilometers of 2D seismic data and 3,667 square
kilometers of 3D seismic data in the Eastern South China Sea area. We
have an aggregate of approximately 82,801 kilometers and 5,019
square kilometers of independent 2D seismic data and 3D seismic data,
respectively, in the Eastern South China Sea. We also have access
through our production sharing contract partners to approximately 116,099
kilometers and 12,042 square kilometers of additional 2D and 3D seismic data,
respectively, in this area. Our exploration capital expenditures for
the Eastern South China Sea for 2007 were US$95 million. We currently
plan to drill 15 exploration wells in the Eastern South China Sea in
2008.
For 2007,
net production in this region averaged approximately 103,715 barrels per day of
crude oil, condensate and natural gas liquids and 27.4 million cubic feet per
day of natural gas, representing approximately
23.1% of our total daily net production. Our development capital
expenditures for this region for 2007 were US$386 million.
East
China Sea
The East
China Sea is the least explored area of our four principal regions offshore
China. The East China Sea is located east of
Shanghai. Typical water depths of our operating area in this region
are approximately 90 meters and the crude oil and condensate produced are of
light gravity. As of December 31, 2007, our net proved reserves in
the region, including our share of the reserves of an unconsolidated investee in
which we hold a 30% equity interest, were 20.5 million barrels of crude oil and
condensate and 373.8 billion cubic feet of natural gas, totaling 82.8 million
BOE and representing 3.2% of our total net proved reserves.
In 2007,
we and our foreign partners drilled no exploratory wells in this
area.
During the
year ended December 31, 2007, we independently acquired 132 square kilometers of
3D seismic data in the East China Sea. We have an aggregate of
approximately 119,132 kilometers and 1,449
square kilometers of independent 2D and 3D seismic data, respectively, in the
East China Sea area. We also have access through our production
sharing contract partners to approximately 51,455 kilometers and 1,025 square kilometers,
respectively, of additional 2D and 3D seismic data in this area. Our
exploration capital expenditures for the East China Sea for 2007 were US$12
million. We plan to drill two exploration wells in this area in
2008.
For 2007,
our net production in this region, including our share of the production of an
unconsolidated investee in which we hold a 30% equity interest, averaged 1,467
barrels per day of crude oil, condensate and natural gas liquids and 24.0
million cubic feet per day of natural gas, totaling 5,462 BOE per day and
representing 1.2% of our total daily net production. Our development
capital expenditures for the East China Sea for 2007 were US$8
million.
Overseas
Activity
We
currently have operations and assets in various foreign countries and
regions. We conduct our overseas operations through various fiscal
regimes, including production sharing contracts, permits and
licenses. For more information on our overseas fiscal regimes, see
“Item 4—Information on the Company—Business Overview—Fiscal
Regimes—Overseas.”
As of
December 31, 2007, our net proved reserves in our overseas properties were 156.7
million barrels of crude oil and 1,768.9 billion cubic feet of natural gas,
representing approximately 10.0% and 28.4%, respectively, of our total net
proved crude oil reserves and total net proved natural gas reserves, and
together represented approximately 17.4% of our total net proved
reserves. Approximately 62.1% of our total net proved reserves in our
overseas properties were classified as net proved undeveloped.
For 2007,
net production from our overseas properties averaged 25,735 barrels per day of
crude oil, condensate and natural gas liquids and 200.7 million cubic feet per
day of natural gas, representing approximately 6.9% and 35.9%, respectively, of
our total daily net production of crude oil and total daily net production of
natural gas, and together represented approximately 13.1% of our total daily net
production.
During the
year ended December 31, 2007, we acquired 4,473 kilometers of 2D seismic data
and 364 square kilometers of 3D seismic data overseas. In 2007, we
drilled seven exploration wells overseas, including five in Asia and two in
Africa. We currently plan to drill 17 exploration wells overseas in 2008,
including 10 wells in Indonesia. For information on our capital
expenditures overseas, see “Item 5—Operating and Financial Review and
Prospects—Liquidity and Capital Resources—Capital Expenditures and
Investments.”
Asia
Asia holds
our largest overseas net proved reserves and, for the year ended December 31,
2007, was our largest overseas producing area for both crude oil and natural
gas. As of December 31, 2007, our net proved reserves in our Asian
properties were 55.2 million barrels of crude oil and 1,009.3 billion cubic feet
of natural gas, representing approximately 3.5% and 16.2%, respectively, of our
total net proved crude oil reserves and total net proved natural gas
reserves. For 2007, net production from our Asian properties averaged
20,756 barrels per day of crude oil, condensate and natural gas liquids and
119.6 million cubic feet per day of natural gas, representing approximately 5.6%
and 21.4%, respectively, of our total daily net production of crude oil and
total daily net production of natural gas. All our net proved
reserves and net production in Asia currently come from our operations in
Indonesia, where we are also currently undertaking a number of large development
projects. Our operations in Myanmar and the Philippines are currently
in the exploration stage.
Indonesia
In April
2002, our wholly owned subsidiary, CNOOC Southeast Asia Limited, acquired
subsidiaries in Indonesia formerly owned by Repsol YPF, S.A. These
Indonesian subsidiaries together hold a portfolio of interests in four oil and
gas production sharing contracts and one technical assistance contract in areas
located offshore and onshore Indonesia. The main businesses of our
Indonesian subsidiaries are the exploration, development and production of oil
and gas offshore and onshore Indonesia.
The
interests owned by the Indonesian subsidiaries comprise the following
assets:
|
|
·
|
South East Sumatra Production
Sharing Contract. Our Indonesian subsidiaries own a
65.5409% interest in the South East Sumatra production sharing
contract. This contract area covers approximately 5,851 square
kilometers located offshore Sumatra and is the largest of the assets held
by the Indonesian subsidiaries. It is operated and
majority-owned by us. It has produced more than one billion BOE
in over 30 years of production. The concession expires in
2018.
|
|
|
·
|
Offshore North West Java
Production Sharing Contract. Our Indonesian subsidiaries
own a 36.7205% interest in the Offshore North West Java production sharing
contract. This contract area
covers approximately 8,304 square kilometers in the Southern Java Sea,
offshore Jakarta, and has produced more than one billion BOE in over 20
years of production. It is operated by a member of the BP group
and currently produces crude oil and natural gas. Its natural
gas is sold to the Indonesia State Electric Company and the Indonesia
State Gas Utility Company. The concession expires in
2017.
|
|
|
·
|
West Madura Production Sharing
Contract and Poleng Technical Assistance Contract. Our
Indonesian subsidiaries own a 25.0% interest in the West Madura production
sharing contract and a 50.0% interest in the Poleng technical assistance
contract. These contract
areas are located offshore Java, near the island of Madura and the Java
city of Surabaya and cover approximately 1,600 square kilometers
combined. Kodeco Energy Company is the operator for these
contracts and is assisted by certain of our Indonesian
subsidiaries. These contract areas currently produce crude oil
and natural gas. Their natural gas is sold to the Indonesia
State Electric Company as well as a number of other local
users. The West Madura production sharing contract expires in
May 2011. The Poleng technical assistance contract expires in
December 2013.
|
|
|
·
|
Blora Production Sharing
Contract. Our Indonesian subsidiaries own a 16.7%
interest in the Blora production sharing contract. This contract area
lies entirely onshore Java and covers an area of approximately 3,430
square kilometers. The current operator is Lundin Blora
B.V. The exploration permit for this production sharing
contract expired in October 2007 and the partners under this contract are
in the process of relinquishing this block, subject to the relevant
government approvals.
|
Tangguh. The
Tangguh LNG project, located in West Papua, Indonesia, consists of a number of
offshore gas wells, production facilities, pipelines and LNG plant facilities.
The project comprises three areas under production sharing contracts: Berau,
Muturi and Wiriagar. BP is acting as the operator for this project.
Commercial production is currently expected to begin in the first quarter of
2009.
We
acquired our interests in the Muturi and Wiriagar production sharing contracts
in 2003 and 2004. As of December 31, 2007, our interests in the
Muturi and Wiriagar production sharing contracts represented approximately
16.96% of the total working interest of the Tangguh LNG project. In
early 2008, we transferred a portion of our interests in the project to Talisman
Energy Inc for a consideration of US$212.5 million, which reduced our interest
in the project to approximately 13.90%.
The
Tangguh LNG project has entered into gas sale and purchase agreements with
various buyers for its planned future production, including an LNG terminal
project in Fujian Province, China developed by CNOOC, our controlling
shareholder, and various partners.
Malacca Strait Production Sharing
Contract. In addition to our Indonesian subsidiaries and the
acquisition of interests in the Tangguh LNG project, we have a 39.51%
participating interest in a production sharing contract in the Malacca Strait in
Indonesia.
Batanghari Production Sharing
Contract. In January 2007, we entered into a production
sharing contract with the Indonesian government for the Batanghari block, which
is located in the south central region of Sumatra Island and covers 2,323 square
kilometers. We are the operator and hold 87% working interest.
Myanmar
In 2004
and 2005, we, along with two other partners, entered into six production sharing
contracts with Myanmar Oil and Gas Enterprise. We act as the operator under
these production sharing contracts. The blocks under these production
sharing contracts are still in the exploration stage.
Philippines
In April
2006, we signed a farm-in agreement with PNOC Exploration Corporation, under
which we acquired a 51% working interest in Block SC57 (also named Calamian) in
the Philippines. We act as the operator for this
project. This project is in the exploration stage.
Singapore
We
currently conduct all of our international oil sales through China Offshore Oil
(Singapore) International Pte Ltd, our wholly owned subsidiary, which is also
engaged in oil trading activities.
Oceania
– Australia
Our
operations and assets in Oceania are currently located entirely in
Australia. As of December 31, 2007, our net proved reserves in our
Australian properties were 29.1 million barrels of crude oil and 759.6 billion
cubic feet of natural gas, representing approximately 1.9% and 12.2%,
respectively, of our total net proved crude oil reserves and total net proved
natural gas reserves. For 2007, net production from our Australian
properties averaged 4,979 barrels per day of crude oil, condensate and natural
gas liquids and 81.1 million cubic feet per day of natural gas, representing
approximately 1.3% and 14.5%, respectively, of our total daily net production of
crude oil and total daily net production of natural gas.
North West
Shelf. In May 2003, we acquired a 5.3% interest in the
reserves and upstream production and exploration of Australia’s North West Shelf
project. Woodside Petroleum is the operator for the
project. We also acquired a 25% interest in the China LNG Joint
Venture, a joint venture established to supply liquefied natural gas from the
North West Shelf project to a liquefied natural gas terminal in Guangdong
Province, China developed by CNOOC, our controlling shareholder, and various
partners. The terms of this transaction require us to pay the other
partners in the North West Shelf project for gas
production and processing services provided over the term of the China LNG Joint
Venture. The partners of the project signed a 25-year supply
agreement in December 2004 to provide liquefied natural gas to the Guangdong
liquefied natural gas terminal starting in 2006. The North West Shelf
project started commercial production in 2006.
Outer Browse
Basin. In April 2006, we acquired a 25% interest in four
exploration permits in the Outer Browse Basin of Australia.
WA406-p. In June 2007, we
were granted an exploration permit for Block W06-1 of the Bonaparte basin in
offshore Australia.
Africa
Africa
holds our largest source of overseas net proved oil reserves. As of
December 31, 2007, our net proved reserves in our African properties were 72.5
million barrels of crude oil, representing approximately 4.6% of our total net
proved crude oil reserves. Our African operations and assets are
primarily located in Nigeria.
Nigeria
In April
2006, we acquired a 45% working interest in the offshore oil mining lease “OML
130” in Nigeria for an acquisition price of US$2.268 billion plus a working
capital adjustment of US$424 million for financial, operating and capital
expenditures. The OML 130 project has not yet begun commercial
production.
In
December 2006, we acquired a 35% working interest in the offshore oil
prospecting license “OPL 229” in Nigeria for US$60 million. The
OPL229 project is still in the exploration stage.
Equatorial
Guinea
In
February 2006, we signed a production sharing contract for Block S exploration
block in south offshore Equatorial Guinea. Block S is still in the
exploration stage.
Kenya
In April
2006, we signed production sharing contracts for six blocks in Kenya (Block 1,
Block 9, Block 10A, L2, L3, and L4). These blocks are located in the
basins of Lamu, Anza and Mandera. This project is in the exploration
stage.
North
America – Canada
In early
2005, we acquired a 16.69% stake in MEG Energy Corp. for consideration of 150
million Canadian dollars. In April 2007, we spent approximately 120 million
Canadian dollars for the purchase of additional shares of MEG Energy Corp. from
an existing shareholder. By March 31, 2008, our stake in MEG Energy
Corp. decreased to 12.46% as a result of issuance of new shares in which we did
not participate. MEG Energy Corp. is principally engaged in the
exploration and production of oil sands.
Other
Oil and Gas Data
Production
Cost Data
The
following table sets forth average sales prices per barrel of crude oil,
condensate and natural gas liquids sold, average sales prices per thousand cubic
feet of natural gas sold and production costs per BOE produced for each of our
independent, production sharing contract and combined operations for the periods
indicated.
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
(US$)
|
(US$)
|
(US$)
|
||||||||||
|
Average
Sales Prices of Petroleum Produced
|
||||||||||||
|
Per
Barrel of Crude Oil, Condensate and Natural Gas Liquids
Sold
|
47.31 | 58.90 | 66.26 | |||||||||
|
Per
Thousand Cubic Feet of Natural Gas
Sold
|
2.82 | 3.05 | 3.30 | |||||||||
|
Offshore
China Average Lifting Costs per BOE Produced
|
||||||||||||
|
Independent
|
5.86 | 6.85 | 8.39 | |||||||||
|
Production
Sharing
Contracts
|
6.81 | 7.79 | 8.83 | |||||||||
|
Offshore
China
Average
|
6.34 | 7.30 | 8.60 | |||||||||
|
Overseas
Average Lifting Costs per BOE Produced
|
||||||||||||
|
Net
Entitlement
|
12.41 | 14.07 | 13.98 | |||||||||
Drilling
and Productive Wells
The
following table sets forth our exploratory and productive wells drilled as of
December 31, 2007 by independent and production sharing contract operations in
each of our operating areas. It includes exploratory and productive
wells drilled offshore China prior to our inception in 1982.
|
As
of December 31, 2007
|
||||||||||||||||||||||||
|
Total
|
Bohai
Bay
|
Western
South
China
Sea
|
Eastern
South
China
Sea
|
East
China
Sea
|
Overseas
|
|||||||||||||||||||
|
Independent
|
||||||||||||||||||||||||
|
Net
Exploratory Wells
|
622 | 375 | 195 | 36 | 16 | — | ||||||||||||||||||
|
Net
Productive Wells
|
655 | 512 | 115 | 28 | — | — | ||||||||||||||||||
|
Crude
Oil
|
600 | 487 | 85 | 28 | — | — | ||||||||||||||||||
|
Natural
Gas
|
55 | 25 | 30 | — | — | — | ||||||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||||||
|
Net
Exploratory Wells
|
31.4 | 5.8 | 1.2 | 0.5 | 2.6 | 21.3 | ||||||||||||||||||
|
Net
Productive Wells*
|
1,070.8 | 258.6 | 23.0 | 89.4 | 9.6 | 690.2 | ||||||||||||||||||
|
Crude
Oil
|
1,018.2 | 258.6 | 17.4 | 86.8 | 3.3 | 652.1 | ||||||||||||||||||
|
Natural
Gas
|
52.6 | — | 5.6 | 2.6 | 6.3 | 38.1 | ||||||||||||||||||
|
Totals
|
||||||||||||||||||||||||
|
Net
Exploratory Wells
|
653.4 | 380.8 | 196.2 | 36.5 | 18.6 | 21.3 | ||||||||||||||||||
|
Net
Productive Wells
|
1,725.8 | 770.6 | 138.0 | 117.4 | 9.6 | 690.2 | ||||||||||||||||||
|
Crude
Oil
|
1,618.2 | 745.6 | 102.4 | 114.8 | 3.3 | 652.1 | ||||||||||||||||||
|
Natural
Gas
|
107.6 | 25.0 | 35.6 | 2.6 | 6.3 | 38.1 | ||||||||||||||||||
*Excluding abandoned
wells.
Drilling
Activity
The
following tables set forth our net exploratory and development wells broken down
by independent and production sharing contract operations in each of our
operating areas for the years ended December 31, 2007, 2006 and
2005.
|
Year
ended December 31, 2007
|
||||||||||||||||||||||||
|
Total
|
Bohai
Bay
|
Western
South
China
Sea
|
Eastern
South
China
Sea
|
East
China
Sea
|
Overseas
|
|||||||||||||||||||
|
Independent
|
||||||||||||||||||||||||
|
Net
Exploratory Wells Drilled
|
58 | 36 | 14 | 8 | — | — | ||||||||||||||||||
|
Successful
|
31 | 18 | 10 | 3 | — | — | ||||||||||||||||||
|
Dry
|
27 | 18 | 4 | 5 | — | — | ||||||||||||||||||
|
Net
Development Wells Drilled
|
88 | 46 | 42 | — | — | — | ||||||||||||||||||
|
Successful
|
86 | 45 | 41 | — | — | — | ||||||||||||||||||
|
Dry
|
2 | 1 | 1 | — | — | — | ||||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||||||
|
Total
|
Bohai
Bay
|
Western
South
China
Sea
|
Eastern
South
China
Sea
|
East
China
Sea
|
Overseas
|
|||||||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||||||
|
Net
Exploratory Wells Drilled
|
6.4 | 2 | — | — | — | 4.4 | ||||||||||||||||||
|
Successful
|
2.5 | 2 | — | — | — | 0.5 | ||||||||||||||||||
|
Dry
|
3.9 | — | — | — | — | 3.9 | ||||||||||||||||||
|
Net
Development Wells Drilled
|
30.8 | 29.5 | — | 1.0 | 0.3 | — | ||||||||||||||||||
|
Successful
|
30.8 | 29.5 | — | 1.0 | 0.3 | — | ||||||||||||||||||
|
Dry
|
— | — | — | — | — | — | ||||||||||||||||||
|
Year
ended December 31, 2006
|
||||||||||||||||||||||||
|
Total
|
Bohai
Bay
|
Western
South
China
Sea
|
Eastern
South
China
Sea
|
East
China
Sea
|
Overseas
|
|||||||||||||||||||
|
Independent
|
||||||||||||||||||||||||
|
Net
Exploratory Wells Drilled
|
39 | 27 | 11 | 1 | — | — | ||||||||||||||||||
|
Successful
|
20 | 17 | 3 | — | — | — | ||||||||||||||||||
|
Dry
|
19 | 10 | 8 | 1 | — | — | ||||||||||||||||||
|
Net
Development Wells Drilled
|
69 | 51 | 18 | — | — | — | ||||||||||||||||||
|
Successful
|
69 | 51 | 18 | — | — | — | ||||||||||||||||||
|
Dry
|
— | — | — | — | — | — | ||||||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||||||
|
Net
Exploratory Wells Drilled
|
4.7 | — | — | — | — | 4.7 | ||||||||||||||||||
|
Successful
|
3 | — | — | — | — | 3 | ||||||||||||||||||
|
Dry
|
1.7 | — | — | — | — | 1.7 | ||||||||||||||||||
|
Net
Development Wells Drilled
|
45.7 | 25.3 | — | — | 1.0 | 19.4 | ||||||||||||||||||
|
Successful
|
43.7 | 25.3 | — | — | 1.0 | 17.4 | ||||||||||||||||||
|
Dry
|
2 | — | — | — | — | 2 | ||||||||||||||||||
|
Year
ended December 31, 2005
|
||||||||||||||||||||||||
|
Total
|
Bohai
Bay
|
Western
South
China
Sea
|
Eastern
South
China
Sea
|
East
China
Sea
|
Overseas
|
|||||||||||||||||||
|
Independent
|
||||||||||||||||||||||||
|
Net
Exploratory Wells Drilled
|
31 | 15 | 9 | 7 | — | — | ||||||||||||||||||
|
Successful
|
15 | 8 | 6 | 1 | — | — | ||||||||||||||||||
|
Dry
|
16 | 7 | 3 | 6 | — | — | ||||||||||||||||||
|
Net
Development Wells Drilled
|
84 | 68 | 14 | 2 | — | — | ||||||||||||||||||
|
Successful
|
84 | 68 | 14 | 2 | — | — | ||||||||||||||||||
|
Dry
|
— | — | — | — | — | — | ||||||||||||||||||
|
Production
Sharing Contracts
|
||||||||||||||||||||||||
|
Net
Exploratory Wells Drilled
|
6.3 | 3.8 | 1.2 | — | — | 1.3 | ||||||||||||||||||
|
Successful
|
3.8 | 3.8 | — | — | — | — | ||||||||||||||||||
|
Dry
|
2.5 | — | 1.2 | — | — | 1.3 | ||||||||||||||||||
|
Net
Development Wells Drilled
|
54 | 42 | — | 4 | 2 | 6 | ||||||||||||||||||
|
Successful
|
54 | 42 | — | 4 | 2 | 6 | ||||||||||||||||||
|
Dry
|
— | — | — | — | — | — | ||||||||||||||||||
Segment
Information
The
following table shows the breakdown of our total consolidated operating revenues
for each of the periods indicated and the percentage contribution of each
revenue component to our total operating revenues:
|
Year
ended December 31,
|
||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
||||||||||||||||||||||
|
Rmb’000
|
%
|
Rmb’000
|
%
|
Rmb’000
|
%
|
|||||||||||||||||||
|
Independent
operations
|
24,419,997 | 35.2 | 32,303,389 | 36.3 | 34,586,214 | 38.1 | ||||||||||||||||||
|
Production
sharing contracts
|
38,179,412 | 55.0 | 47,542,023 | 53.4 | 45,815,712 | 50.5 | ||||||||||||||||||
|
Trading
businesses
|
15,901,325 | 22.9 | 20,964,093 | 23.6 | 17,397,338 | 19.2 | ||||||||||||||||||
|
Unallocated
and elimination
|
(9,044,991 | ) | (13.1 | ) | (11,862,221 | ) | (13.3 | ) | (7,075,433 | ) | (7.8 | ) | ||||||||||||
|
Total
operating revenues
|
69,455,743 | 100.0 | 88,947,284 | 100.0 | 90,723,831 | 100.0 | ||||||||||||||||||
We are
mainly engaged in the exploration, development and production of crude oil and
natural gas primarily offshore China. For the year ended December 31,
2007, approximately 86.5% of our total revenue was contributed by PRC
customers. Our overseas activities are mainly conducted in Indonesia,
Australia and Nigeria.
Sales
and Marketing
Sales
of Crude Oil
We sell
crude oil produced offshore China to the PRC market through our wholly owned PRC
subsidiary, CNOOC China Limited, and sell to the international market through
our wholly owned subsidiary, China Offshore Oil (Singapore) International Pte
Ltd, located in Singapore. We sell crude oil produced overseas through China
Offshore Oil (Singapore) International Pte Ltd.
We submit
production and sales plans with respect to crude oil produced offshore China to
the National Development and Reform Commission each year. Based on
information provided by China’s three crude oil producers, PetroChina, Sinopec
and us, the National Development and Reform Commission compiles an overall
national plan to coordinate sales. Our sales of
crude oil to the international market also require us to obtain export licenses
issued by the PRC Ministry of Commerce. Historically, we
have been able to obtain all required export licenses.
Pricing
We price
our crude oil with reference to prices for crude oil of comparable quality in
the international market, including a premium or discount mutually agreed upon
by us and our customers according to market conditions at the time of the
sale. Prices
are quoted in U.S. dollars, but domestic sales are billed and paid in
Renminbi. We currently market three types of crude oil produced
offshore China: Light Crude, Medium Crude and Heavy Crude. The table below
sets forth the sales and marketing volumes, pricing benchmarks and average
realized prices for each of these three types of crude oil for the periods
indicated.
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Sales
and Marketing Volumes (benchmark) (mmbbls)(1)
|
||||||||||||
|
Light
Crude (APPI(2)
Tapis(3))
|
18.4 | 15.3 | 17.6 | |||||||||
|
Medium
Grade (Daqing OSP(4))
|
85.3 | 83.3 | 74.4 | |||||||||
|
Heavy
Crude (APPI(2)
Duri(5))
|
86.7 | 90.2 | 89.4 | |||||||||
|
Average Realized Prices
(US$/bbl)(6)
|
||||||||||||
|
Light
Crude
|
US$54.52 | US$67.83 | US$76.28 | |||||||||
|
Medium
Grade
|
51.88 | 64.78 | 73.29 | |||||||||
|
Heavy
Crude
|
42.81 | 52.81 | 59.56 | |||||||||
|
Benchmark
Prices (US$/bbl)
|
||||||||||||
|
APPI(2)
Tapis(3)
|
US$57.05 | US$68.21 | US$76.89 | |||||||||
|
Daqing
OSP(4)
|
52.56 | 63.45 | 72.08 | |||||||||
|
APPI(2)
Duri(5)
|
42.48 |
NA
|
NA
|
|||||||||
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
ICP(7)
Duri(5)
|
46.01 | 54.93 | 59.89 | |||||||||
|
ICP(7)
Cinta
|
51.14 | 61.77 | 70.33 | |||||||||
|
ICP(7)
Widuri
|
51.19 | 61.94 | 70.41 | |||||||||
|
West
Texas Intermediate (US$/bbl)
|
US$61.04 | US$66.04 | $US72.23 | |||||||||
|
(1)
|
Includes
the sales volumes of us and our foreign partners under production sharing
contracts.
|
|
(2)
|
Asia
Petroleum Price Index.
|
|
(3)
|
Tapis
is a light crude oil produced in
Malaysia.
|
|
(4)
|
Daqing
official selling price. Daqing is a medium crude oil produced
in northeast China.
|
|
(5)
|
Duri
is a heavy crude oil produced in Indonesia. The benchmark
prices for heavy crude were APPI Duri and ICP Duri in 2005, and the
Indonesian crude price (“ICP”) Duri has been the sole benchmark price for
heavy crude since 2006.
|
|
(6)
|
Includes
the average realized prices of us and our foreign partners under
production sharing contracts.
|
|
(7)
|
Indonesian
crude price.
|
The
international benchmark crude oil price, West Texas Intermediate, was US$96.01
per barrel as of December 28, 2007 and US$127.35 per barrel as of May 30,
2008.
Markets
and Customers
We sell
most of our crude oil production in the PRC domestic market. We also sell to
customers outside the PRC, including South Korea, Japan, the United States and
Australia, as well as to crude oil traders in the spot market. For the years ended
December 31, 2005, 2006 and 2007, we sold approximately 70.9%, 75.8% and 90.1%,
respectively, of our crude oil in the PRC, and exported approximately 29.1%,
24.2% and 9.9%, respectively.
Most of
our crude oil production sales in the PRC domestic market are to refineries and
petrochemical companies that are affiliates of Sinopec, PetroChina and CNOOC,
our controlling shareholder. Sales volume to
Sinopec has been high historically because most of the PRC refineries and
petrochemical companies were affiliates of Sinopec. After the
restructuring of the PRC petroleum industry in July 1998, some refineries and
petrochemical companies were transferred to PetroChina from
Sinopec. For the years ended December 31, 2005, 2006 and 2007, sales
to Sinopec were approximately 41.9%, 39.7% and 44.1%, respectively, and sales to
PetroChina were approximately 5.0%, 9.1% and 14.6%, respectively, of our total
crude oil sales in the PRC domestic market. Together these two
customers accounted for approximately 46.9%, 48.8% and 58.7%, respectively, of
our total crude oil sales in the PRC domestic market. For the same
periods, sales to affiliates of CNOOC were approximately 48.0%, 48.8% and 38.0%,
respectively, of our total crude oil sales in the PRC domestic
market. For further information about our sales to CNOOC-affiliated
companies, please see note 27 to our consolidated financial statements included
elsewhere in this annual report.
The
following table presents, for the periods indicated, our revenues sourced in the
PRC and outside the PRC:
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
(Rmb
in millions, except percentages)
|
||||||||||||
|
Revenues
sourced in the PRC
|
38,993 | 75,280 | 78,468 | |||||||||
|
Revenues
sourced outside the PRC
|
30,463 | 13,667 | 12,256 | |||||||||
|
Total
revenues
|
69,456 | 88,947 | 90,724 | |||||||||
|
% of
revenues sourced outside the PRC
|
43.9 | % | 15.4 | % | 13.5 | % | ||||||
Sales
Contracts
We sign
sales contracts with our oil customers for each shipment. Sales contracts are
standard form contracts containing ordinary commercial terms such as quality,
quantity, price, delivery and payment. All sales are made
on free-on-board terms. Some of our
customers are required to make payments within 30 days after the shipper
takes possession of the crude oil cargo at our delivery points. Some of them are
required to make prepayment or provide guarantee letters or letter of
credit. As of December 31, 2005, 2006 and 2007, most of our account
receivables were aged within six months. During the years ended December 31,
2005, 2006 and 2007, the accounts receivable turnover were approximately 32.6
days, 28.8 days and 31.4 days, respectively. Doubtful accounts
provision during the years ended December 31, 2005, 2006 and 2007 were
nil.
We price
our crude oil in U.S. dollars. PRC customers are
billed and make actual payments in Renminbi based on the exchange rate
prevailing at the bill of lading date, while overseas customers are billed and
are required to make payments in U.S. dollars within 30 days of the bill of
lading date.
Sales
of Natural Gas from Offshore China
In 1989,
the PRC government adopted a favorable royalty treatment, which provides a
royalty exemption for natural gas production up to two billion cubic meters
(70.6 billion cubic feet or 11.8 million BOE) per year as compared to a royalty
exemption available for crude oil production of up to one million tons or
approximately seven million BOE per year. This treatment also
includes lower royalty rates on incremental increases in natural gas production
as compared with the royalty rates for crude oil production.
Since
1989, the PRC government has adopted the following requirements for royalty
payments of up to 3% of the annual gross production of natural gas:
|
Annual
gross production
|
Royalty
rate
|
||||
|
Less
than 2 billion cubic meters
|
—
|
||||
|
2–3.5
billion cubic meters
|
1.0%
|
||||
|
3.5–5
billion cubic meters
|
2.0%
|
||||
|
Above
5 billion cubic meters
|
3.0%
|
||||
We sell a
large portion of our offshore China natural gas production to Hong Kong and
Hainan Province. In December 1992, we
entered into a long-term gas supply contract with Castle Peak Power in Hong Kong
under which it agreed to purchase from us approximately 102.4 billion cubic feet
of natural gas per year on a take-or-pay basis until 2015. Gas prices are
quoted and paid in U.S. dollars.
Castle Peak Power purchased approximately 38.5% of our total offshore
China natural gas production for the year ended December 31, 2007. We
sold the remaining of our total offshore China natural gas production to
mainland China customers, including but not limited to China BlueChemical Ltd.,
Hainan Yangpu Power, Shandong Yantai Zhongshi Gas and Hainan Refinery.
The price
of gas sold to the PRC market is determined by negotiations between us and
prospective buyers based on market conditions. Contracts typically
consist of a base price with provisions for periodic resets and adjustment
formulas which depend on a basket of crude oil prices, inflation and various
other factors.
Procurement
of Services
We usually
outsource work in connection with the acquisition and processing of seismic
data, reservoir studies, well drilling services, well logging and perforating
services and well control and completion service to independent third parties,
or CNOOC and its affiliates.
In
addition, we normally employ, on a contract basis, independent third parties for
single point mooring (“SPM”) services and employ either independent third
parties or CNOOC and/or its affiliates for floating production storage and
offloading (“FPSO”) services, and other services. We conduct a
bidding process to determine who we employ to construct platforms, terminals and
pipelines, to drill production wells and to install offshore production
facilities. Both independent third parties and CNOOC affiliates participate
in the bidding process. We are closely involved in the design and management of
services by contractors and exercise extensive control over their performance,
including their costs, schedule, quality and HSE (health, safety, and
environment) measures.
Competition
Domestic
Competition
The
petroleum industry is very competitive. We compete in the PRC and in
international markets for customers as well as capital to finance our
exploration, development and production activities. Our principal
competitors in the PRC market are PetroChina and Sinopec.
We price
our crude oil on the basis of comparable crude oil prices in the international
market. The majority of our customers for crude oil are refineries
affiliated with Sinopec and PetroChina to which we have been selling crude oil,
from time to time. Based on our dealings with these refineries, we
believe that we have established a stable business relationship with
them.
We are the
dominant player in the oil and gas industry offshore China and, through CNOOC,
are the only company permitted to engage in oil and gas exploration and
production offshore China in cooperation with foreign parties. We may
face increasing competition in the future from other petroleum companies in
obtaining new PRC offshore oil and gas properties, or, as a result of changes in
current PRC laws or regulations permitting an expansion of existing companies’
activities or new entrants into the industry.
As part of
our business strategy, we intend to expand our natural gas business to meet
rapidly increasing domestic demand. Our competitors in the PRC
natural gas market are PetroChina and, to a lesser extent,
Sinopec. Our principal competitor, PetroChina, is the largest
supplier of natural gas in China in terms of volume of natural gas
supplied. PetroChina’s natural gas business benefits from strong
market positions in Beijing, Tianjin, Hebei Province and northern
China. We intend to develop related natural gas businesses in China’s
coastal provinces, where we may face competition from PetroChina and, to a
lesser extent, Sinopec. We believe that our extensive natural gas
resources base, the proximity of these resources to the markets in China and our
experienced management team will enable us to compete effectively in the
domestic natural gas market.
Foreign
Competition and the World Trade Organization
Imports of
crude oil are subject to import licenses, handling fees and other
restrictions. The PRC government also restricts the availability of
foreign exchange with which the imports must be purchased. The
combination of licenses and restrictions on foreign exchange has, to some
extent, limited the competition from imported crude oil.
In line
with the general progress of its economic reform programs, the PRC government
has agreed to reduce import barriers as part of its World Trade Organization
commitments. As a result of China joining the World Trade
Organization as a full member on December 11, 2001, it is required to further
reduce its import tariffs and other trade barriers over time, including with
respect to certain categories of petroleum and crude oil. At present,
CNOOC, Sinopec, PetroChina and several other domestic state-owned enterprises
have received permission to import crude oil on their own. Foreign
owned or foreign invested entities and other non-state-owned enterprises are
subject to certain import quotas.
PRC
Fiscal Regimes for Offshore Crude Oil and Natural Gas Activities
We conduct
exploration and production operations either independently or jointly with
foreign partners under our production sharing contracts. The PRC
government has established different fiscal regimes for crude oil and natural
gas production from our independent operations and from the operations under our
production sharing contracts.
Royalties
paid to the PRC government are based on our gross production from both
independent operations and oil and gas fields under production sharing
contracts. The amount of the royalties varies up to 12.5% based on
the annual production of the relevant property. The PRC government
has provided companies such as us with a royalty exemption for up to one million
tons, or approximately seven million BOE, per year for our crude oil production
and for up to 70.6 billion cubic feet, or approximately 11.8 million BOE, per
year for our natural gas production. The limits in these exemptions
apply to our total production from both independent properties and properties
under production sharing contracts. In addition, we pay production
taxes to the PRC government equal to 5% of our crude oil and gas produced
independently and under production sharing contracts.
Under our
production sharing contracts, production of crude oil and gas is allocated among
us, the foreign partners and the PRC government according to a formula contained
in the contracts. Under this formula, a percentage of production
under our production sharing contracts is allocated to the PRC government as its
share oil. For more information about the allocation of production
under the production sharing contracts, see “Item 4—Information on the
Company—Business Overview—Fiscal Regimes—Offshore China—Production Sharing
Formula.”
Fiscal
Regimes
Offshore
China
When
exploration and production operations offshore China are conducted through a
production sharing contract, the operator of the oil or gas field must submit a
detailed evaluation report upon discovery of petroleum reserves. If
such a discovery is determined commercially viable pursuant to the procedures
set forth in the production sharing contract, an overall development plan must
be submitted to a joint management committee established under the production
sharing contract for its review and adoption. After that, the overall
development plan must also be submitted to CNOOC. After CNOOC
confirms the overall development plan, CNOOC submits it to the National
Development and Reform Commission for approval. After receiving the
governmental approval, the parties to the production sharing contract may begin
the commercial development of the oil and gas field.
As part of
the reorganization in 1999, CNOOC transferred all of its rights and obligations
under its then existing production sharing contracts to us and our
subsidiaries. It also undertook to transfer its future production
sharing contracts to us and our subsidiaries. However, CNOOC retains all rights
and obligations relating to its administrative functions. As of December 31,
2007, we had 40 production sharing contracts under implementation.
Under PRC
law, the negotiation of a production sharing contract is a function that only a
state-owned company, such as CNOOC, may perform. This function cannot
be transferred to us because we are a pure commercial entity. Since
the reorganization, under the terms of its undertaking with us, CNOOC, after
entering into production sharing contracts with international oil and gas
companies, is required to assign immediately to us all of its rights and
obligations under the production sharing contracts except for those relating to
CNOOC’s administrative functions. For further details, see “Item
4—Information on the Company—History and Development” and “Item 7—Major
Shareholders and Related Party Transactions—Related Party
Transactions.”
New
production sharing contracts are entered into between CNOOC and foreign partners
primarily through bidding organized by CNOOC and direct
negotiation.
Bidding
Process
The
bidding process typically involves the following steps:
|
|
·
|
CNOOC,
with the approvals of the PRC government, determines which blocks are open
for bidding and prepares geological information packages and bidding
documentation for these blocks;
|
|
|
·
|
CNOOC
invites foreign enterprises to bid;
|
|
|
·
|
potential
bidders are required to provide information, including estimates of
minimum work commitments, exploration costs and percentage of share oil
payable to the PRC government; and
|
|
|
·
|
CNOOC
evaluates each bid and negotiates a production sharing contract with the
successful bidder.
|
Under
CNOOC’s undertaking with us, we may participate with CNOOC in all negotiations
of new production sharing contracts.
The term
of a production sharing contract typically lasts for 30 years and has three
distinct phases:
|
|
·
|
Exploration. The
exploration period is divided into three phases, with three, two and two
years, respectively, and may be extended with the consent of CNOOC and the
approval of relevant PRC regulatory authorities. During this
period, exploratory and appraisal work on the exploration block is
conducted in order to discover petroleum and to enable the parties to
determine the commercial viability of any petroleum
discovery.
|
|
|
·
|
Development. The
development period begins on the date on which the relevant PRC regulatory
authorities approve the overall development plan, which outlines the
recoverable reserves and schedule for developing the discovered petroleum
reserves. The development phase ends when the design,
construction, installation, drilling and related research work for the
realization of petroleum production as provided in the overall development
plan have been completed.
|
|
|
·
|
Production. The
production period begins when commercial production commences and usually
lasts for 15 years. The production period may be extended upon
approval of the PRC government.
|
Minimum
Work Commitment
Under
production sharing contracts that involve exploration activities, the foreign
partners must complete a minimum amount of work during the exploration period,
generally including:
|
|
·
|
drilling
a minimum number of exploration
wells;
|
|
|
·
|
acquiring
a fixed amount of seismic data; and
|
|
|
·
|
incurring
a minimum amount of exploration
expenditures.
|
Foreign
partners are required to bear all exploration costs during the exploration
period. However, such exploration costs can be recovered according to
the production sharing formula after commercial discoveries are made and
production begins. During the exploration period, foreign partners
are required to relinquish 25% of the contract area, excluding the development
and production areas, to CNOOC at the end of each phase of the exploration
period. At the end of the exploration period, all areas, excluding
the development areas, production areas and areas under evaluation, must be
relinquished to CNOOC.
Participating
Interests
Pursuant
to production sharing contracts, we have the right to take participating
interests in any oil or gas field discovered in the contract area and may
exercise this right after the foreign partners have made commercially viable
discoveries. The foreign partners retain the remaining participating
interests.
Production
Sharing Formula
A chart
illustrating the production sharing formula under our production sharing
contracts is shown below.
|
Percentage
of annual gross production
|
Allocation
|
|
|
5.0%
|
Production
tax payable to the PRC government(1)
|
|
|
0.0%
— 12.5%(2)
|
Royalty
oil payable to the PRC government
|
|
|
50.0%
— 62.5%(2)
|
Cost
recovery oil allocated according to the following priority:
1.
recovery of current year operating costs by us and foreign
partner(s);
2.
recovery of earlier exploration costs by foreign partner(s);
3.
recovery of development costs and deemed interest by us and foreign
partner(s) based on participating interests; and
4.
any excess, allocated to the remainder oil.
|
|
|
32.5%(3)
|
Remainder
oil allocated according to the following formula:
1.
(1-X) multiplied by 32.5% represents share oil payable to the PRC
government; and
2. X
multiplied by 32.5% represents remainder oil distributed according to each
partner’s participating interest.(4)
|
|
(1)
|
In
this annual report and in our consolidated financial statements included
elsewhere in this annual report, references to production tax on oil and
gas produced offshore China are to the value-added tax set out in our
production sharing contracts offshore
China.
|
|
(2)
|
Assumes
annual gross production of more than four million metric tons,
approximately 30 million BOE. For lower amounts of production,
the royalty rate will be lower and the cost recovery will be greater than
50.0% by the amount that the royalty rate is less than
12.5%.
|
|
(3)
|
The
ratio “X” is agreed in each production sharing contract based on
commercial considerations and ranges from 8% to
100%.
|
|
(4)
|
See
“Item 4—Information on the Company—Business Overview—Principal Oil and Gas
Regions Offshore China” for our participating interest percentage in our
production sharing contracts.
|
The first
5.0% of the annual gross production is paid to the PRC government as production
tax. The PRC
government is also entitled to a royalty payment equal to the next 0% to 12.5%
of the annual gross production as follows:
|
Annual
gross production of oil(1)
|
Royalty
rate
|
||
|
Less
than 1 million
tons
|
0.0%
|
||
|
1–1.5
million
tons
|
4.0%
|
||
|
1.5–2.0
million
tons
|
6.0%
|
||
|
2.0–3.0
million
tons
|
8.0%
|
||
|
3.0–4.0
million
tons
|
10.0%
|
||
|
Above
4 million
tons
|
12.5%
|
|
(1)
|
The
royalties for natural gas reach a maximum at
3.0%.
|
Depending
on the percentage of the PRC government’s royalty payment, an amount equal to
the next 50.0% to 62.5% of the annual gross production is allocated to the
partners for cost recovery purposes. This amount is allocated
according to the following priority schedule:
|
|
·
|
recovery
of operating costs incurred by the partners during the
year;
|
|
|
·
|
recovery
of exploration costs, excluding interest accrued thereon, incurred but not
yet recovered by foreign partners during the exploration period;
and
|
|
|
·
|
recovery
of development investments incurred but not yet recovered, and interest
accrued in the current year, according to each partner’s participating
interest.
|
The
remaining 32.5% of the annual gross production, which is referred to as the
remainder oil, is distributed to each of the PRC government, us and the foreign
partners according to a “ratio X” agreed to by CNOOC and the foreign partners in
the production sharing contracts. An amount of oil and gas equal to
the product of the remainder oil and one minus the “ratio X” is first
distributed to the PRC government as share oil. The balance of the
remainder oil, which is referred to as the allocable remainder oil, is then
distributed to us and the foreign partners based on each party’s participating
interest.
We pay
production tax and royalty to the PRC government on a monthly basis for oil and
natural gas production. At the end of each month, we calculate the
production tax and royalty payable and file this information with the PRC tax
bureau for current month payment. We make adjustments for any
overpayment or underpayment of production tax and royalty at the end of the
year.
The
foreign partners have the right to either take possession of their allocable
remainder oil for sale in the international market, or sell such crude oil to us
for resale in the PRC market.
Management
and Operator
Under each
production sharing contract, a party will be designated as an operator to
undertake the execution of the production sharing contract which
includes:
|
|
·
|
preparing
work programs and budgets;
|
|
|
·
|
procuring
equipment and materials relating to
operations;
|
|
|
·
|
establishing
insurance programs; and
|
|
|
·
|
issuing
cash-call notices to the parties to the production sharing contract to
raise funds.
|
A joint
management committee, which usually consists of six or eight persons, is set up
under each production sharing contract to perform supervisory functions, and
each of us and the foreign partners as a group has the right to appoint an equal
number of representatives to form the joint management committee. The chairman of the
joint management committee is the chief representative designated by us and the
vice chairman is the chief representative designated by the foreign partners as
a group. The
joint management committee has the authority to make decisions on matters
including:
|
|
·
|
reviewing
and approving operational and budgetary
plans;
|
|
|
·
|
determining
the commercial viability of each petroleum
discovery;
|
|
|
·
|
reviewing
and adopting the overall development plan;
and
|
|
|
·
|
approving
significant procurements and expenditures, and insurance
coverage.
|
Daily
operations of a property subject to a production sharing contract are carried
out by the designated operator. The operator is
typically responsible for determining and executing operational and budgetary
plans and all routine operational matters. Upon discovery of
petroleum reserves, the operator is required to submit a detailed overall
development plan to the joint management committee.
After the
foreign partner has fully recovered its exploration and development costs under
production sharing contracts in which the foreign partner is the operator, we
have the exclusive right to take over the operation of the particular oil or gas
field. With the
consent of the foreign partner, we may also take over the operation before the
foreign partner has fully recovered its exploration and development
costs.
Ownership
of Data and Assets
All data,
records, samples, vouchers and other original information obtained by foreign
partners in the process of exploring, developing and producing offshore
petroleum become the property of CNOOC as a state-owned oil company under PRC
law. Through
CNOOC, we have unlimited and unrestricted access to the data.
Our
foreign partners and we have joint ownership in all of the assets purchased,
installed or constructed under the production sharing contract until
either:
|
|
·
|
the
foreign partners have fully recovered their development costs,
or
|
|
|
·
|
upon
the expiration of the production sharing
contract.
|
After
that, as a state-owned oil company under PRC law, CNOOC will assume ownership of
all of the assets under the production sharing contracts; our foreign partners
and we retain the exclusive right to use the assets during the production
period.
Abandonment
Costs
Any party
to our production sharing contracts must give prior written notice to the other
party or parties if it plans to abandon production of the oil or gas field
within the contracted area. If the other party
or parties agree to abandon production from the oil or gas field, all parties
pay abandonment costs in proportion to their respective percentage of
participating interests in the field. If we decide not to
abandon production upon notice from a foreign partner, all of such foreign
partner’s rights and obligations under the production sharing contract in
respect of the oil or gas field, including the responsibilities for payment of
abandonment costs, terminate automatically. We bear the
abandonment costs if we decide to abandon production after an initial decision
to proceed with production.
Production
Tax
The PRC
production tax rate on the oil and natural gas produced under production sharing
contracts is currently 5%.
Overseas
In
addition to our production sharing contracts in the PRC, we are subject to other
fiscal regimes in the foreign countries and regions where we conduct operations,
including Indonesia, Australia and Nigeria. See “Item 4—Information on the
Company—Business Overview—Overseas Activity.”
In
Indonesia, Myanmar, Nigeria, Equatorial Guinea, and Kenya, we conduct our
operations through production sharing contracts. Our OML 130 project
in Nigeria also involves a production sharing arrangement. We and the
other partners to overseas production sharing contracts are required to bear all
exploration, development and operating costs according to our 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.
Our net
interest in the production sharing contracts overseas consists of our
participating interest in the properties covered under the relevant production
sharing contracts, less oil and gas distributed to the local government and/or
the domestic market obligation, as applicable.
In
Australia, we conduct our operations through exploration and production permits
or licenses. We, as one of the title owners under these licenses or
permits, are required to bear all exploration, development and operating costs
together with other co-owners. Once production occurs, a certain percentage of
the annual production or revenue will first be distributed to the local
government, in most of cases in the form of a royalty, and the rest of the
annual production or revenue will be allocated among the co-owners. Exploration,
development and operating costs are deductible for the purpose of income tax
calculation in accordance with local tax regulations.
Operating
Hazards and Uninsured Risks
Our
operations are subject to hazards and risks inherent in the drilling, production
and transportation of crude oil and natural gas, including pipeline ruptures and
spills, fires, explosions, encountering formations with abnormal pressures,
blowouts, cratering and natural disasters, any of which can result in loss of
hydrocarbons, environmental pollution and other damage to our properties and the
properties of operators under production sharing contracts. In addition, certain
of our crude oil and natural gas operations are located in areas that are
subject to tropical weather disturbances such as typhoons, some of which can be
severe enough to cause substantial damage to facilities and interrupt
production.
As
protection against operating hazards, we maintain insurance coverage against
some, but not all, potential losses, including the loss of wells, blowouts,
pipeline leakage or other damage, certain costs of pollution control and
physical damages on certain assets. Our insurance
coverage includes oil and gas field properties and construction insurance,
marine hull insurance, protection and indemnity insurance, drilling equipment
insurance, marine cargo insurance and third party and comprehensive general
liability insurance. The operators of the
projects in which we participate overseas are required by local law to purchase
insurance policies customarily taken out by international petroleum companies.
As of December 31, 2007, we paid an annual insurance premium of approximately
US$29.1 million and US$27.3 million for operational insurance and all risk
construction insurance, respectively, to maintain our insurance coverage. We believe that our
level of insurance is adequate and customary for the PRC petroleum industry and
international practices. However, we may not
have sufficient coverage for some of the risks we face, either because insurance
is not available or because of high premium costs. See “Item 3—Key
Information—Risk Factors—Risks relating to our business—Exploration, development
and production risks and natural disasters may affect our operations and could
result in losses that are not covered by insurance.”
Research
and Development
Historically,
we used research and development services provided by CNOOC’s
affiliates, including CNOOC Research Center, as well as other international
research entities. In July 2003, we established our own research
center within our subsidiary, CNOOC (China) Limited, and in 2006, we established
CNOOC China Limited, Beijing Research Center, to undertake most of our research
and development activities. During the years ended December 31, 2005,
2006 and 2007, our research and development costs were approximately Rmb 401.6
million, Rmb 377.1 million and Rmb 482.2 million, respectively.
Our
research efforts have focused on:
|
|
·
|
enhancing
oil recovery in offshore China oil
fields;
|
|
|
·
|
engineering
and developing deepwater
fields;
|
|
|
·
|
engineering
and developing marginal fields;
and
|
|
·
|
developing
new offshore exploration technology and frontier exploration
areas.
|
We are
also studying various ways of optimizing our existing reserves
including:
|
|
·
|
building
more accurate reservoir
models;
|
|
|
·
|
re-processing
existing seismic and log data to locate potential areas near existing
fields to be integrated into existing production facilities;
and
|
|
|
·
|
researching
ways to reduce development risks for marginal fields and to group fields
into joint developments to share common
facilities.
|
For
further information regarding research and development services provided by
CNOOC and/or its associates, see “Item 7—Major Shareholders and Related Party
Transactions—Related Party Transactions.”
Regulatory
Framework
Government
Control
The PRC
government owns all of China’s petroleum resources and exercises regulatory
control over petroleum exploration and production activities in
China. We are required to obtain various governmental approvals,
including those from the Ministry of Land and Resources, the State Oceanic
Administration, the National Development and Reform Commission and the Ministry
of Commerce before we are permitted to conduct production activities. Our sales are
coordinated by the National Development and Reform Commission. For
joint exploration and production with foreign enterprises, we are required to
obtain various governmental approvals, through CNOOC, including those
from:
|
|
·
|
the
Ministry of Land and Resources, for a permit for exploration blocks, an
approval of a reserve report submitted through
CNOOC;
|
|
|
·
|
the
Ministry of Land and Resources or the National Development and Reform
Commission to designate such blocks as an area for foreign
cooperation;
|
|
|
·
|
the
Ministry of Commerce for the production sharing contracts between CNOOC
and the foreign enterprises;
|
|
·
|
the
State Oceanic Administration for an environmental impact report submitted
through CNOOC;
|
|
|
·
|
the
National Development and Reform Commission for an overall development plan
submitted through CNOOC; and
|
|
·
|
the
Ministry of Land and Resources, for an extraction
permit.
|
Special
Policies Applicable to the Offshore Petroleum Industry in China
Since the
early 1980s, the PRC government has adopted policies and measures to encourage
the development of the offshore petroleum industry. These policies and
measures, which were applicable to CNOOC’s operations prior to the
reorganization, became applicable to our operations in accordance with an
undertaking agreement between us and CNOOC. As approved by the
relevant PRC government authorities, including the Ministry of Land and
Resources and the Ministry of Commerce, these policies and measures have
provided us with the following benefits:
|
|
·
|
the
exclusive right to explore for, develop and produce petroleum in
designated areas offshore China in cooperation with international oil and
gas companies and to sell petroleum in
China;
|
|
|
·
|
the
flexibility to set our prices in accordance with international market
prices and determine where to sell our crude oil, with only minimal
supervision from the PRC government;
and
|
|
|
·
|
production
from one of our major gas fields, Yacheng 13-1, is exempt from the PRC
royalties under an approval by the State Tax Bureau granted in May 1989
and from the 5% production tax applicable to the oil and gas produced
under other production sharing contracts in accordance with an approval by
the Ministry of Finance granted in August 1985. Our natural gas
revenues from Yacheng 13-1 for each of the three years ended
December 31, 2005, 2006 and 2007 represented approximately 2.3%, 2.0% and
1.6%, respectively,
of our total oil and natural gas sales in those
years.
|
Although
we historically have benefited from the foregoing special policies, we cannot
assure that such policies will continue in the future. We are also
regulated by the PRC government in various other aspects of our business and
operations, including required government approvals for new independent
development and production projects and new production sharing
contracts. For a further discussion of ways in which we are regulated
by the PRC government, see “Item 4—Information on the Company—Business Overview—
Regulatory Framework—Government Control.”
In March
2006, the State Council issued the Decision to Impose a Special Oil Gain Levy
and the Ministry of Finance promulgated the Management Rules on the
Administration of Special Oil Gain Levy, effective March 26,
2006. According to the rules, the Ministry of Finance imposes a
special oil gain levy at progressive rates from 20% to 40% on any income derived
from sales by an oil exploration and production company of locally produced
crude oil at a price which exceeds US$40 per barrel. The special oil
gain levy is collected on a quarterly basis. For the years ended
December 31, 2006 and 2007, we incurred approximately Rmb 4.0 billion and Rmb
6.8 billion (US$937.3 million) in connection with the Special Oil Gain
Levy. As international oil prices, the exchange rate of Renminbi and
our crude oil production fluctuate, we cannot ascertain the full impact of the
Special Oil Gain Levy going forward.
In
addition, the PRC government imposed an export tariff of 5% on crude oil in
November 2006.
Policies
Applicable to International Oil and Gas Companies Operating Offshore
China
The PRC
government encourages foreign participation in offshore petroleum exploration
and production through exclusive cooperation with CNOOC. In 1982, the
State Council promulgated the Regulation of the People’s Republic of China on
the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign
Enterprises, which grants to CNOOC the exclusive right to enter into joint
cooperation arrangements with foreign enterprises for offshore petroleum
exploration and production. From 1982 to 2000, CNOOC successfully
completed several rounds of bidding for offshore petroleum exploration and
production projects, and many international oil and gas companies have been
involved in and awarded exploration blocks for joint exploration,
development and production with CNOOC.
In October
2001, the State Council amended the regulation referred to above as a part of
the comprehensive review of all business laws and regulations by the Chinese
government to ensure compliance with its World Trade Organization
commitments. The amendment revised those terms in the law governing
offshore exploration as restrictive provisions on technology transfers and
domestic components requirements in procurement. The removal of these
restrictions will provide a level playing field for all oilfield service
contractors, domestic or international. CNOOC will continue to enjoy the
exclusive right to conduct production sharing contract activities with foreign
contractors and is entitled to all rights and privileges under the previous
regulation. The regulation also states that CNOOC, as a state-owned
enterprise, is to be in charge of all efforts to exploit petroleum resources
with contractors in Chinese waters. Currently, international oil and
gas companies can only undertake offshore petroleum exploration and production
activities in China after they have entered into a production sharing contract
with CNOOC.
Environmental
Regulation
Our
operations are required to comply with various applicable environmental laws and
regulations, including PRC laws and regulations administered by the central and
local government environmental protection bureaus for our operations in
China. We are also subject to the environmental rules introduced by
governments in whose jurisdictions our logistical support facilities are
located.
Government
agencies set national or local enviromental protection standards. The relevant
environment protection bureau must approve or review each stage of a
project. We must file an environmental impact statement or, in some
cases, an environmental impact assessment outline before an approval can be
issued. The filing must demonstrate that the project conforms to
applicable environmental standards. The relevant environmental
protection bureau generally issues approvals and permits for projects using
modern pollution control measurement technology.
The PRC
national and local environmental laws and regulations impose fees for the
discharge of waste substances above prescribed levels, require the payment of
fines for serious violations and provide that the PRC national and local
governments may at their own discretion close or suspend any facility which
fails to comply with orders requiring it to cease or cure operations causing
environmental damage.
The PRC
environmental laws require offshore petroleum developers to pay abandonment
costs. Our financial statements include provisions for costs
associated with the dismantlement of oil and gas fields during the years ended
December 31, 2005, 2006 and 2007 of approximately Rmb 252.9 million, Rmb 472.3
million and Rmb 561.7 million, respectively.
Environmental
protection and prevention costs and expenses in connection with the operation of
offshore petroleum exploitation are covered under each individual production
sharing contract. Each platform has its own environmental protection
and safety staff responsible for monitoring and operating the environmental
protection equipment. However, no assurance can be given that the PRC
government will not impose new or stricter regulations which would require
additional environmental protection expenditures.
We believe
that our environmental protection systems and facilities comply with applicable
national and local environmental protection regulations.
Patents
and Trademarks
We own or
have licenses to use two trademarks which are of value in the conduct of our
business. CNOOC is the owner of the two trademarks. Under
two non-exclusive license agreements between CNOOC and us, we have obtained the
right to use the two trademarks for a nominal consideration.
Real
Properties
Our
corporate headquarters is located in Hong Kong. We lease several
other properties from CNOOC in China and Singapore. The rental
payments under these lease agreements are determined with reference to market
rates. See “Item 7—Major Shareholders and Related Party
Transactions—Related Party Transactions.”
We own the
following main property interests in the PRC:
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·
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51%
interest in land, various buildings and structures at Yacheng 13-1
Processing Plant, Hainan Province;
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·
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51%
interest in land, various buildings and structures at Yacheng 13-1
Processing Plant, Hong Kong;
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·
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land,
various buildings and structures at Xingcheng JZ 20-2 Natural Gas
Separating Plant, Liaoning
Province;
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land,
various buildings and structures located at Boxi Processing Plant,
Tianjin;
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land,
various buildings and structures at Weizhou Terminal Processing Plant,
Guangxi Zhuang Autonomous Region;
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land,
various buildings and structures at Suizhong 36-1 Base, Liaoning
Province;
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land,
various buildings and structures located at Bonan Processing Plant,
Shandong Province;
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·
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land,
various buildings and structures located at Dongfang 1-1 Processing Plant,
Hainan Province;
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·
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land,
various buildings and structures located at Panyu Huizhou Gas Processing
Plant, Guangdong Province; and
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·
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land,
various buildings and structures located at a Gas Processing Plant,
Ningbo, Zhejiang Province.
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Employees
and Employee Benefits
During the
years ended December 31, 2005, 2006 and 2007, we employed 2,696 persons, 2,929
persons and 3,288 persons, respectively. Of the 3,288 employees we
employed as of December 31, 2007, approximately 79.3% were involved in petroleum
exploration, development and production activities, approximately 6.2% were
involved in accounts and finance work and the remainder were senior management,
coordinators of production sharing contracts and safety and environmental
supervisors. Workers for the operation of the oil and gas fields, maintenance
personnel and ancillary service workers are hired on a contract
basis.
We have a
union that:
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protects
employees’ rights;
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organizes
educational programs;
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assists
in the fulfillment of economic
objectives;
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encourages
employee participation in management decisions;
and
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assists
in mediating disputes between us and individual
employees.
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We have
not been subject to any strikes or other labor disturbances and believe that
relations with our employees are good.
The total
remuneration of employees includes salary, bonuses and
allowances. Bonus for any given period is based primarily on
individual and our performance. Employees also receive health
benefits and other miscellaneous subsidies.
We have
implemented an occupational health and safety program similar to that employed
by other international oil and gas companies. Under this program, we
closely monitor and record health and safety incidents and promptly report them
to government agencies and organizations. On March 15, 2000, we
finalized and implemented our occupational health and safety
program. We believe this program is broadly in line with the United
States government’s Occupational Safety & Health Administration
guidelines.
All
full-time employees in the PRC are covered by a government-regulated
pension. The PRC government is responsible for the pension of these
retired employees. We are required to contribute monthly
approximately 10% to 22% of our employees’
salaries, with each employee contributing 8% of his or her salary for
retirement. The contributions vary from region to
region.
Our
Indonesian subsidiaries employ approximately 888 employees, including
approximately 40 expatriates. We provide benefits to
expatriates that we believe to be in line with customary international
practices. Our local staff in Indonesia enjoy welfare benefits
mandated by Indonesian labor laws.
For
further details regarding retirement benefits, see note 31 to our consolidated
financial statements included elsewhere in this annual report.
As an oil
and gas exploration and production company operating in highly competitive
markets, we depend in large part on our employees for effective and efficient
operations. We devote significant resources to train our
employees. During 2007, we held 5,471 training workshops, which were
attended by 52,545 participants. To ensure smooth
implementation of our overseas strategy, we have established an international
human resources system to attract and retain talent in the international
market. In order to enhance the planning and budget control of
our labor costs, we have installed target benchmarks in performance appraisals
to guide various business units to cut their labor costs and to increase the
accuracy of their budgets.
Health,
Safety and Environmental Policy
We are
committed to the promotion of the concept and culture of health, safety and
environmental (“HSE”) protection among all the staff. We have safety
compliance standards to facilitate enforcement of corporate social
responsibilities, enhance the awareness of work safety, promote environmental
protection during project implementation, and strengthen crisis management
skills in our staff. We also have HSE management standards for
contractors.
We
organize HSE training sessions for all staff from management to the operational
level, covering such topics as HSE regulations, corporate values and policies,
risk management and control, offshore rescue and special
operations. We also provide HSE training to the employees of our
contractors. In 2007, more than 30,000 people participated in such
training during the year. We also issue safety warnings,
environmental protection information and health guidelines on a regular
basis.
We conduct
HSE reviews on our oil and gas field development projects for compliance with
PRC requirements. To strengthen our capability in handling oil spill
emergencies, we periodically organize large-scale emergency drills that include
our employees, offshore service contractors, transportation contractors and
officials from relevant governmental authorities and have set up several oil
spill response bases.
We also
place considerable emphasis on safety in helicopter, diving and vehicle safety
operations. We hire professional auditors to conduct management
audits on helicopter companies we engage and conduct safety checks on their
helicopters. We also conduct special audits on diving
operations.
We have
introduced a system of occupation health profiles in all our branches in order
to strengthen the health management of offshore operating staff in addition to
requiring them to submit health certificates. The health data is to
be analyzed so as to offer the staff proactive and constructive advice on health
improvement.
In 2007,
we were not involved in any material injury liability case. We have
never been subject to any safety-related liability claims for losses of over
US$120,000.
We seek to
align our operations with international standards and have been applying for the
ISO14000 environmental management qualification for our oilfields. By
the end of 2007, our Qinhuangdao 32-6,Wenchang, Yacheng 13-1 and Liuhua 11-1
oilfields had been certified under the ISO14000 environmental management
system.
In
accordance with changes to the statistical requirements of the U.S. Occupational
Safety and Health Administration (“OSHA”), we have revised our internal
documentation procedures to comply with OSHA standards, which uses OGP reporting
methods to record the differences and standards of particular
incidents. We use updated OSHA and incident reporting forms in order
to better meet the requirements of international associations such as OGP and
API. We deliver working hour statistics and incident reports to investors and
API on a quarterly basis.
CNOOC
indirectly owned or controlled an aggregate of approximately 64.41% of our
shares as of May 30, 2008. Accordingly, CNOOC continues to be able to
exercise all the rights of a controlling shareholder, including electing our
directors and voting to amend our articles of association. Although
CNOOC has retained a controlling interest in us, the management of our business
will be our directors’ responsibility.
The
following chart sets forth our controlling entities and our directly-held
subsidiaries as of May 30, 2008 and notes our significant indirectly-held
subsidiaries.
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(1)
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Overseas
Oil & Gas Corporation, Ltd also directly owns five shares of our
company.
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(2)
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Owner
of our overseas interests in petroleum exploration and production
businesses and operations, including our indirect wholly-owned
subsidiaries CNOOC Southeast Asia Limited (Bermuda), CNOOC Exploration
& Production Nigeria Limited (Nigeria), CNOOC Africa Holding Ltd.
(British Virgin Islands) and CNOOC Africa Ltd. (British Virgin
Islands).
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(3)
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Owner
of substantially all of our PRC petroleum exploration and production
businesses, operations and
properties.
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(4)
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Business
vehicle through which we engage in sales and marketing activities in the
international markets.
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(5)
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Includes
CNOOC Finance (2002) Limited, the financing vehicle through which we
issued our US$500 million 6.375% guaranteed notes due 2012, CNOOC Finance
(2003) Limited, the financing vehicle through which we issued our US$200
million 4.125% guaranteed notes due 2013 and US$300 million 5.5%
guaranteed notes due 2033, and CNOOC Finance (2004) Limited, the financing
vehicle through which we issued our US$1 billion zero coupon guaranteed
convertible bonds due 2009, which were redeemed in February 2008. These
finance companies are our wholly owned subsidiaries with our company as
their sole corporate director.
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None.
You
should read the following discussion and analysis in conjunction with our
consolidated financial statements, selected historical consolidated financial
data and operating and reserves data, in each case together with the
accompanying notes, contained in this annual report. Our consolidated
financial statements have been prepared in accordance with Hong Kong GAAP, which
differ in certain material respects from U.S. GAAP. Note 39 to our
consolidated financial statements included elsewhere in this annual report
provides an explanation of our reconciliation to U.S. GAAP of profit and
shareholders’ equity. Certain statements set forth below constitute
“forward-looking statements” within the
meaning of the United States Private Securities Litigation Reform Act of
1995. See “Forward-Looking Statements.”
Overview
We are an
oil and gas company engaged in the exploration, development and production of
crude oil and natural gas primarily offshore China. We are the
dominant producer of crude oil and natural gas offshore China and, through
CNOOC, are the only company permitted to conduct exploration and production
activities with international oil and gas companies offshore China. As of December
31, 2007, we had estimated net proved reserves of 2,601.2 million BOE, comprised
of 1,564.1 million barrels of crude oil and condensate and 6,222.8 billion cubic
feet of natural gas. In 2007, our net
production averaged 371,827 barrels per day of crude oil, condensate and natural
gas liquids and 559.6 million cubic feet per day of natural gas, which together
totaled 469,407 BOE per day.
Our
revenues and profitability are largely determined by our production volume and
the prices we realize for our crude oil and natural gas, as well as the costs of
our exploration and development activities. Although crude
oil prices depend on various market factors and have been volatile historically,
our total net production volume has increased over the past few
years.
The
following table sets forth our net production and profit for the periods
indicated.
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Year
ended December 31,
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2003
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2004
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2005
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2006
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2007
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Net
production of crude oil, condensate and
natural
gas liquids (BOE/day)
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306,464 | 319,436 | 356,868 | 372,720 | 371,827 | |||||||||||||||
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Net
production of natural gas (mmcf/day)
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291.0 | 364.1 | 389.6 | 490.9 | 559.6 | |||||||||||||||
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Profit
for the year (Rmb in millions)
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11,497.0 | 16,139.0 | 25,323.1 | 30,926.9 | 31,258.3 | |||||||||||||||
For a
description of certain factors affecting our financial performance, see “Item
3—Key Information—Risk Factors.”
Relationship
with CNOOC
Prior to
the reorganization of CNOOC in October 1999, our business and operations were
conducted by CNOOC and its various affiliates. In connection
with the reorganization, CNOOC’s oil and gas exploration, development,
production and sales business and operations conducted both inside and outside
China were transferred to us.
Before the
reorganization, certain PRC affiliates of CNOOC provided various materials,
utilities and ancillary services for CNOOC’s exploration and production
activities. In connection with the reorganization, we entered into
various agreements under which we continued to use various services and
properties provided by these CNOOC affiliates and sell crude oil, condensate and
liquified petroleum gas to CNOOC affiliates. These agreements
included: (i) a materials, utilities and ancillary services supply agreement;
(ii) technical service agreements; (iii) agreements for the sale of crude oil,
condensate oil and liquefied petroleum gas; (iv) various lease agreements;
and (v) a research and development services agreement. In 2005,
in order to present a more coherent, logical and understandable picture to
shareholders, and also to enable us to monitor the status of our related
party/connected transactions more effectively going forward, we entered into new
framework agreements with CNOOC and certain of its associates and adopted a new
categorization for our transactions with these parties. Under this
new framework, we continue to receive services from CNOOC and its associates in
connection with oil and natural gas exploration, development and production,
marketing, management, technical and other ancillary matters and sell our crude
oil, natural gas and other petroleum products to CNOOC and its
associates.
For more
information on our relationship with CNOOC, see “Item 4—Information on the
Company—History and Development,” “Item 4—Information on the
Company—Organizational Structure,”
“Item 7—Major Shareholders and Related Party Transactions—Related Party
Transactions,” and note 27 to our consolidated financial statements included
elsewhere in this annual report.
Production
Sharing Contracts Offshore China
We conduct
a significant amount of our offshore China oil and gas activities through
production sharing contracts with international oil and gas
companies. Under these production sharing contracts, our foreign
partners are required to bear all exploration costs during the exploration
period. The parties to the contracts may recover exploration costs
after commercial discoveries are made and production begins. The
amount of exploration costs recoverable is derived from a production sharing
formula set forth in each contract. Our production sharing contracts
provide us with the option to take participating interests in properties covered
by the production sharing contracts which we may exercise after the foreign
partners have made viable commercial discoveries. The foreign
partners retain the remaining participating interests. We and the
foreign partners fund our development and operating costs according to our
respective participating interests. Based on a formula contained in
the applicable contract, we are entitled to allocate specified amounts of the
annual gross production of petroleum from those producing fields. See
“Item 4—Information on the Company—Business Overview—Fiscal Regimes—Offshore
China—Production Sharing Formula.”
Before we
exercise our option to take a participating interest in a production sharing
contract, we do not account for the exploration costs incurred, as these costs
were incurred by our foreign partners. After we exercise the option
to take a participating interest in a production sharing contract, we recognize
our share of development costs, revenues and expenses from such operations based
on our participating interest in the production sharing
contracts. See note 4 to our consolidated financial statements
included elsewhere in this annual report.
The
foreign partners have the right to either take possession of their petroleum for
sale in the international market or sell their petroleum to us for resale in the
PRC market. See “Item 4—Information on the Company—Business
Overview—Fiscal Regimes—Offshore China.”
As
described above, production of crude oil and natural gas is allocated among us,
our foreign partners and the PRC government according to a formula contained in
the production sharing contracts. We have excluded the government’s
share oil from net sales in our historical consolidated financial
statements. Since our historical consolidated financial statements
already exclude the government’s share oil from our net sales figure, we do not
expect any future share oil payments to affect our results of operations or
operating cash flows differently than the effects reflected in our historical
consolidated financial statements. For information regarding the
historical amounts of government share oil payable to the government, see note 6
to our consolidated financial statements included elsewhere in this annual
report. For information regarding treatment of the PRC government’s
share oil, see “Item 4—Information on the Company—Business Overview—Fiscal
Regimes—Offshore China—Production Sharing Formula.”
Production
from Independent Operations Offshore China Versus Production from Production
Sharing Contracts Offshore China
Historically
we have cooperated with foreign partners under production sharing contracts,
which have provided us with the expertise to undertake our independent
operations more effectively. The percentage of our net production
arising from independent operations offshore China was 50.2%, 52.9% and 53.5%,
for the years ended December 31, 2005, 2006 and 2007, respectively. Although we will
continue to focus on independent operations, we plan to continue seeking
appropriate opportunities to cooperate with foreign partners under production
sharing contracts.
Our cost
structures for production sharing contracts and for independent operations are
different. The total expenses per unit of production under production
sharing contracts are generally higher due to our foreign partners’ use of
expatriate staff, who generally command higher wages, as well as administrative
and overhead costs that may be allocated by the operators and a larger
proportion of imported equipment, which is more expensive.
Provision
for Dismantlement
We
estimate future dismantlement costs for oil and gas properties with reference to
the estimates provided from either internal and external engineers after taking
into consideration the anticipated method of dismantlement required in
accordance with then current legislation and industry
practice. Provisions are made for present obligations, either legal
or constructive. The associated cost is capitalized and the liability is
discounted and accretion expense is recognized using the credit adjusted
risk-free rate in effect when the liability is initially
recognized. The dismantlement costs for the years ended December 31,
2005, 2006 and 2007 were Rmb 252.9 million, Rmb 472.3 million and Rmb 561.7
million, respectively. The accrued
liability is reflected in our consolidated balance sheet under “provision for
dismantlement.” See note 28 to our consolidated financial statements
included elsewhere in this annual report.
Production
Imbalance
We account
for oil overlifts and underlifts using the entitlement method, under which we
record overlifts as liabilities and underlifts as assets. An overlift
occurs when we sell more than our percentage interest of oil from a property
subject to a production sharing contract. An underlift occurs when we
sell less than our participating interest of oil from a property under a
production sharing contract.
Allowances
for Doubtful Accounts
We
evaluate our accounts receivable by considering the financial condition of our
customers, their past payment history and credit standing and other specific
factors, including whether the accounts receivable in question are under
dispute. We make provisions for accounts receivable when they are
overdue for six months and we are concerned about our ability to collect
them. For the years ended December 31, 2005, 2006 and 2007,
allowances for doubtful accounts were not material in the context of total
operating expenses and did not have a material effect on our results of
operations or financial condition.
Critical
Accounting Policies
We prepare
our consolidated financial statements in accordance with Hong Kong
GAAP. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
our assets and liabilities, the disclosure of our contingent assets and
liabilities as of the date of our financial statements and the reported amounts
of our revenues and expenses during the periods reported. Management
makes these estimates and judgments based on historical experience and other
factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the following
significant accounting policies may involve a higher degree of judgment in the
preparation of our consolidated financial statements. For additional
discussion of our significant accounting policies, see note 3 to our
consolidated financial statements included elsewhere in this annual
report.
Oil
and Gas Properties
For oil
and gas exploration, we have adopted the successful efforts method of
accounting. As a result, we capitalize initial acquisition costs of
oil and gas properties and recognize impairment of initial acquisition costs
based on exploratory experience and management judgment. Upon
discovery of commercial reserves, we transfer acquisition costs to proved
properties and capitalize the costs of drilling and equipping successful
exploratory wells, all development expenditure 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 that extend the economic lives of the assets, and the related
borrowing costs. We treat the costs of unsuccessful exploratory wells
and all other related exploration costs as expenses when
incurred. 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 provision of depreciation, depletion and amortization.
Common facilities that are built specifically to service production directly
attributed to designated oil and gas properties are amortized based on the
proved developed reserves of the respective oil and gas properties on a pro-rata
basis. When applying the pro-rata basis of proved developed reserve
allocation to the common facilities, we first calculate the amortization rate by
dividing the total cost of the common facilities to be amortized by the total
quantities of proved developed reserves of the relevant oil and gas
properties. Then we determine the amortization amount attributable to
the respective oil and gas properties by multiplying the production volume of
the respective oil and gas properties by the amortization
rate. Generally, common facilities that are not built specifically to
service identified oil and gas properties are depreciated using the
straight-line method over their estimated useful lives. 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. We amortize capitalized
acquisition costs of proved properties by the unit-of-production method on a
property-by-property basis based on the total estimated units of proved
reserves. We estimate future dismantlement costs for oil and gas
properties with reference to the estimates provided from either internal or
external engineers after taking into consideration the anticipated method of
dismantlement required in accordance with current legislation and industry
practices. The associated cost is capitalized and the liability is
discounted and an accretion expense is recognized using the credit-adjusted
risk-free interest rate in effect when the liability is initially
recognized.
Impairment
of Assets
We make an
assessment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, or when there is any
indication that an impairment loss previously recognized for an asset in prior
years may no longer exist or may have decreased. In any event, we
would make an estimate of the asset’s recoverable amount, which is calculated as
the higher of the asset’s value in use or its net selling price. We
recognize an impairment loss only if the carrying amount of an asset exceeds its
recoverable amount. We charge an impairment loss to the income
statement in the period in which it arises. A reversal of an impairment loss is
credited to the income statement in the period in which it arises.
Provisions
We
recognize a provision when a present obligation (legal or constructive) has
arisen as a result of a past event and it is probable that a future outflow of
resources will be required to settle the obligation so long as a reliable
estimate can be made of the amount of the obligation. When the effect
of discounting is material, the amount recognized for a provision is the present
value at the balance sheet date of the future expenditures expected to be
required to settle the obligation. The increase in the discounted
present value amount arising from the passage of time is included in finance
costs in the income statement. We make provisions for dismantlement
based on the present value of our future costs expected to be incurred, on a
property-by-property basis, in respect of our expected dismantlement and
abandonment costs at the end of the related oil exploration and recovery
activities.
Deferred
Tax
Deferred
tax is provided, using the liability method, on all temporary differences at the
balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
62
Recognition
of Revenue from Oil and Gas Sales and Marketing
We
recognize revenue when it is probable that the economic benefits will flow to us
and when the revenue can be measured reliably. For oil and gas sales,
our revenues represent the invoiced value of sales of
oil and gas attributable to our interests, net of royalties and any government
share oil that is lifted and sold on behalf of the PRC
government. Sales are recognized when the significant risks and
rewards of ownership of oil and gas have been transferred to
customers. Oil and gas lifted and sold by us above or below our
participating interests in any production sharing contract result in overlifts
and underlifts. We record these transactions in accordance with the
entitlement method under which overlifts are recorded as liabilities and
underlifts are recorded as assets at year-end oil prices. Settlement
will be in kind or in cash when the liftings are equalized. We enter
into gas sales contracts with customers which often contain take-or-pay
clauses. These clauses require our customers to take a specified
minimum volume of gas each year. If a customer fails to take the
minimum volume of gas, the customer must pay for the gas even though it did not
take the gas. The customer can offset the deficiency payment against
any future purchases in excess of the specified volume. We record any
deficiency payment as deferred revenue which is included in other payables until
any make-up gas is taken by the customer or until the expiry of the
contract.
Our
marketing revenues represent sales of oil purchased from the foreign partners
under our production sharing contracts and revenues from the trading of oil
through our subsidiary in Singapore. The title, together with the
risks and rewards of the ownership of such oil purchased from the foreign
partners, are transferred to us from the foreign partners and other unrelated
oil and gas companies before we sell such oil to our customers. The
cost of the oil sold is included in crude oil and product
purchases.
Accounting
for Convertible Bonds
In July
2007, we renounced the cash settlement option related to the zero coupon
guaranteed convertible bonds. For conversion before the renunciation
of the cash settlement option, the bifurcated derivative component was marked to
market through earnings up to the conversion date. The host bond was accreted
and any deferred issuance costs were amortized up to the conversion date as if
bond were to remain outstanding for its contractual life. For those bonds that
were converted, the accreted value of the host bond and the marked-to-market
value of the derivative component were then reclassified into equity. Upon
renunciation of the cash settlement option, the entire derivative component was
marked to market and reclassified into equity. Subsequent conversions were
accounted for in the same way but without considering the derivative
component.
Results
of Operations
Overview
The
following table summarizes the components of our revenues and net production as
percentages of our total revenues and total net production for the periods
indicated:
|
Year
ended December 31,
|
||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
||||||||||||||||||||||
|
(Rmb
in millions, except percentages, production data and
prices)
|
||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||
|
Oil
and gas sales: (1)
|
||||||||||||||||||||||||
|
Crude
oil
|
50,361 | 72.5 | % | 63,645 | 71.6 | % | 68,039 | 75.0 | % | |||||||||||||||
|
Natural
gas
|
3,057 | 4.4 | % | 4,183 | 4.7 | % | 4,998 | 5.5 | % | |||||||||||||||
|
Total
oil and gas sales
|
53,418 | 76.9 | % | 67,828 | 76.3 | % | 73,037 | 80.5 | % | |||||||||||||||
|
Marketing
revenues
|
15,901 | 22.9 | % | 20,964 | 23.5 | % | 17,397 | 19.2 | % | |||||||||||||||
|
Other
income
|
137 | 0.2 | % | 155 | 0.2 | % | 290 | 0.3 | % | |||||||||||||||
|
Total
revenues
|
69,456 | 100.0 | % | 88,947 | 100.0 | % | 90,724 | 100.0 | % | |||||||||||||||
|
Net
production (million BOE):
|
||||||||||||||||||||||||
|
Crude
oil
|
130.3 | 84.2 | % | 136.0 | 81.4 | % | 135.7 | 79.2 | % | |||||||||||||||
|
Natural
gas
|
24.5 | 15.8 | % | 31.0 | 18.6 | % | 35.6 | 20.8 | % | |||||||||||||||
|
Total
net production
|
154.8 | 100.0 | % | 167.0 | 100.0 | % | 171.3 | 100.0 | % | |||||||||||||||
|
Average
net realized prices:
|
||||||||||||||||||||||||
|
Crude
oil (per bbl)
|
US$47.31 | US$58.90 | US$66.26 | |||||||||||||||||||||
|
Natural
Gas (per mcf)
|
2.82 | 3.05 | 3.30 | |||||||||||||||||||||
|
(1)
|
These
figures do not include revenues of an unconsolidated
investee.
|
The
following table sets forth, for the periods indicated, certain income and
expense items in our consolidated income statements as a percentage of total
revenues:
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Operating
Revenues:
|
||||||||||||
|
Oil
and gas sales
|
76.9 | % | 76.3 | % | 80.5 | % | ||||||
|
Marketing
revenues
|
22.9 | % | 23.5 | % | 19.2 | % | ||||||
|
Other
income
|
0.2 | % | 0.2 | % | 0.3 | % | ||||||
|
Total
revenues
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Expenses:
|
||||||||||||
|
Operating
expenses
|
(8.5 | )% | (7.9 | )% | (8.9 | )% | ||||||
|
Production
taxes
|
(3.7 | )% | (3.7 | )% | (3.9 | )% | ||||||
|
Exploration
costs
|
(1.9 | )% | (1.9 | )% | (3.8 | )% | ||||||
|
Depreciation,
depletion and amortization
|
(8.6 | )% | (7.8 | )% | (8.1 | )% | ||||||
|
Dismantlement
|
(0.4 | )% | (0.5 | )% | (0.6 | )% | ||||||
|
Special
oil gain levy
|
– | (4.5 | )% | (7.5 | )% | |||||||
|
Impairment
losses related to property, plant and equipment
|
(0.1 | )% | (0.3 | )% | (0.7 | )% | ||||||
|
Crude
oil and product purchases
|
(22.6 | )% | (23.1 | )% | (18.8 | )% | ||||||
|
Selling
and administrative expenses
|
(2.0 | )% | (1.7 | )% | (1.9 | )% | ||||||
|
Other
|
(0.1 | )% | (0.1 | )% | (0.4 | )% | ||||||
| (47.9 | )% | (51.6 | )% | (54.6 | )% | |||||||
|
Interest
income
|
0.5 | % | 0.9 | % | 0.7 | % | ||||||
|
Finance
costs
|
(1.6 | )% | (2.1 | )% | (2.2 | )% | ||||||
|
Exchange
gain, net
|
0.4 | % | 0.3 | % | 2.0 | % | ||||||
|
Investment
income
|
0.4 | % | 0.7 | % | 1.0 | % | ||||||
|
Share
of profits of associates
|
0.4 | % | 0.4 | % | 0.8 | % | ||||||
|
Non-operating
income (expenses), net
|
0.0 | % | 1.0 | % | 0.0 | % | ||||||
|
Profit
before tax
|
52.3 | % | 49.6 | % | 47.7 | % | ||||||
|
Tax
|
(15.8 | )% | (14.8 | )% | (13.3 | )% | ||||||
|
Profit
for the year
|
36.5 | % | 34.8 | % | 34.4 | % | ||||||
Calculation
of Revenues
China
We report
total revenues, which consist of oil and gas sales, marketing revenues and other
income, in our consolidated financial statements included elsewhere in this
annual report. With respect to revenues derived from our offshore
China operations, oil and gas sales represent gross oil and gas sales less
royalties and share oil payable to the PRC government. These amounts
are calculated as follows:
|
·
|
gross
oil and gas sales consist of our percentage interest in total oil and gas
sales, comprised of (i) a 100% interest in our independent oil and gas
properties and (ii) our participating interest in the properties covered
under our production sharing contracts, less an adjustment for production
allocable to foreign partners under our production sharing contracts as
reimbursement for exploration costs attributable to our participating
interest;
|
|
·
|
royalties
represent royalties we pay to the PRC government on production with
respect to each of our oil and gas fields. The amount of
royalties varies from 0% up to 12.5% based on the annual gross production
of the relevant property. We pay royalties on oil and gas we
produce independently and under production sharing
contracts;
|
|
·
|
government
share oil, which is only paid on oil and gas produced under production
sharing contracts, is calculated as described under “Item 4—Information on
the Company—Business Overview—Fiscal Regimes—Offshore China;”
and
|
|
·
|
we
pay production taxes to the PRC government that are equal to 5% of the oil
and gas we produce independently and under production sharing
contracts. Our oil and gas sales are not reduced by production
taxes. Production taxes are included in our expenses under
“production
taxes.”
|
Marketing
revenues represent our sales of our foreign partners’ oil and gas produced under
our production sharing contracts and purchased by us from our foreign partners
under such contracts as well as from international oil and gas companies through
our wholly owned subsidiary in Singapore. Net marketing revenues
represent the marketing revenues net of the cost of purchasing oil and gas from
foreign partners and from international oil and gas companies. Our
foreign partners have the right to either take possession of their oil and gas
for sale in the international market or to sell their oil and gas to us for
resale in the PRC market.
Other
income mainly represents project management fees charged to our foreign partners
and handling fees charged to end customers—both fees are recognized when the
services are rendered. Reimbursement of insurance claims is
recognized when the compensation becomes receivable.
Our share
of the oil and gas sales of an unconsolidated investee is not included in our
revenues, but our share of the profit or loss of this company is included in our
consolidated statements of income under “share of profit of
associates.”
Indonesia
The oil
and gas sales from our subsidiaries in Indonesia consist of our participating
interest in the properties covered under the relevant production sharing
contracts, less adjustments for oil and gas distributable to the Indonesian
government under our Indonesian production sharing contracts and for a domestic
market obligation under which the contractor must sell a specified percentage of
its crude oil to the local Indonesian market at a reduced price.
Australia
The oil
and gas sales from our subsidiaries in Australia consist of our participating
interest in the properties of the North West Shelf project.
2007
versus 2006
Consolidated
Net Profit
Our
consolidated net profit increased 1.1% to Rmb 31,258.3 million (US$4,285.1
million) in 2007 from Rmb 30,926.9 million in 2006.
Revenue
Our oil
and gas sales increased 7.7% to Rmb 73,036.9 million (US$10,012.5 million) in
2007 from Rmb 67,828.0 million in 2006. The increase was primarily attributable
to higher oil prices in 2007. The average realised price for our crude oil
increased US$7.36 per barrel, or 12.5%, to US$66.26 per barrel in 2007 from
US$58.90 per barrel in 2006. We sold 134.6 million barrels of crude oil in 2007,
representing a decrease of 0.6% from 135.4 million barrels in 2006. The average
realised price for our natural gas increased US$0.25 per thousand cubic feet, or
8.7%, to US$3.30 per thousand cubic feet in 2007 from US$3.05 per thousand cubic
feet in 2006. Sales volume of our natural gas increased 16.1% to 34.7 million
BOE in 2007 from 29.9 million BOE in 2006.
Our net
marketing profit, which is marketing revenue less purchase costs, decreased
19.6% to Rmb 314.7 million (US$43.1 million) from Rmb 391.2 million in 2006. Our
realised marketing profit margin, which is our net marketing profit as a
percentage of marketing revenues, was 1.8%, relatively unchanged from 2006. In
2007, over 86% of our revenues was contributed by customers located in China,
with the remainder generated from overseas.
Expenses
Operating
expenses. Our operating expenses increased 14.9% to Rmb
8,039.6 million (US$1,102.1 million) in 2007 from Rmb 6,999.2 million in 2006.
Operating expenses per BOE increased 11.8% to Rmb 47.3 (US$6.48) per BOE in 2007
from Rmb 42.3 per BOE in 2006. Operating expenses per BOE offshore China
increased 11.4% to Rmb 38.6 (US$5.29) per BOE in 2007 from Rmb 34.6 per BOE in
2006, primarily as a result of higher service fees and raw material prices.
Operating expenses per BOE overseas decreased 4.6% to Rmb 104.7 (US$14.35) per
BOE in 2007 from Rmb 109.8 per BOE in 2006, primarily as a result of the
increased production volume of the North West Shelf project in Australia, which
has a lower than average cost structure among our overseas
operations.
Production
taxes. Our production taxes increased 5.5% to Rmb 3,497.4
million (US$479.5 million) in 2007 from Rmb 3,315.7 million in 2006, primarily
as a result of increased oil and gas sales.
Exploration
costs. Our exploration costs increased 101.3% to Rmb 3,432.4
million (US$470.5 million) in 2007 from Rmb 1,705.1 million in 2006. Exploration
costs incurred offshore China and overseas increased 50.0% and 268.6%,
respectively. In 2007, we continued to invest substantial human
resources and capital in exploration activities, with a higher level of
geological and geophysical activities.
Depreciation, depletion and
amortization. Our depreciation, depletion and amortisation
increased 6.4% to Rmb 7,374.5 million (US$1,011.0 million) in 2007 from Rmb
6,933.2 million in 2006. Our average depreciation, depletion and amortisation
per barrel increased 3.6% to Rmb 43.4 (US$5.95) per BOE in 2007 from Rmb 41.9
per BOE in 2006, primarily as a result of the commencement of production of oil
and gas fields in 2006 and 2007.
Dismantlement. Our
dismantling expenses increased 18.9% to Rmb 561.7 million (US$77.0 million) in
2007 from Rmb 472.3 million in 2006, primarily as a result of the reevaluation
of work commitments, higher service fees and raw material prices. Our average
dismantling costs increased to Rmb 3.3 (US$0.45) per BOE in 2007 from Rmb 2.9
per BOE in 2006.
Special Oil Gain
Levy. Our Special Oil Gain Levy increased 71.7% to Rmb 6,837.2
million (US$937.3 million) in 2007 from Rmb 3,981.2 million in 2006, primarily
as a result of our higher average realised oil price and the corresponding
progressive rates imposed under the levy. In addition, as the levy was
implemented in March 2006, we were subject to the levy for less than a full year
in 2006.
Impairment losses related to
property, plant and equipment. Our impairment losses increased
143.1% to Rmb 613.5 million (US$84.1 million) in 2007 from Rmb 252.4 million in
2006, primarily as a result of an expected increase in future capital
expenditures and a lower reserve estimation with respect to an oil and gas field
overseas.
Selling and administrative
expenses. Our selling and administrative expenses increased
12.8% to Rmb 1,741.2 million (US$238.7 million) in 2007 from Rmb 1,543.8 million
in 2006. Selling and administrative expenses for our offshore China operations
increased 15.8% to Rmb 8.2 (US$1.12) per BOE in 2007 from Rmb 7.0 in 2006,
primarily as a result of higher prices in the PRC and share options expense
recognised in 2007. Selling and administrative expenses for our overseas
operations decreased 22.5% to Rmb 13.4 (US$1.84) per BOE in 2007 from Rmb 17.3
per BOE in 2006, primarily as a result of the increased production volume of the
North West Shelf project in Australia, which has a lower than average cost
structure among our overseas operations.
Finance
costs, net of interest income
Our net
finance costs increased 10.9% to Rmb 2,031.8 million (US$278.5 million) in 2007
from Rmb 1,832.1 million in 2006, primarily as a result of losses on fair value
changes of the embedded derivative component of our convertible bonds and the
effect of an increase in the amount of our provision for dismantlement arising
from the passage of time. Our interest income decreased 13.9% to Rmb
673.0 million in 2007 from Rmb 781.5 million in 2006, primarily as a result of
an increase in financial investments in our short term asset
portfolio.
Exchange
gains/losses, net
Our net
exchange gains incurred in 2007 were Rmb 1,856.0 million (US$254.4 million),
representing an increase of Rmb 1,547.6 million from net exchange gains of Rmb
308.4 million in 2006. Compared with 2006, the significantly increased exchange
gains mainly came from dividends receivable from a subsidiary and active changes
in the currency structure of our asset portfolio in response to the ongoing
appreciation of Rmb during 2007.
Investment
income
Our
investment income increased Rmb 289.4 million, or 47.2%, to Rmb 902.4 million
(US$123.7 million) in 2007 from Rmb 613.0 million in 2006, primarily as a result
of realised gain from sales of investment funds and the shares of well-known
publicly listed companies.
Share
of profits of associates
Primarily
as a result of the good performance of one of our associate companies, CNOOC
Finance Corporation Limited, our share of profits of associates increased 123.5%
to Rmb 719.0 million (US$98.6 million) in 2007 from Rmb 321.7 million in
2007.
Non-operating
income/expenses, net
Our net
non-operating expenses for 2007 was Rmb 7.0 million (US$1.0 million), and our
net non-operating income for 2006 was Rmb 876.4 million. The decrease was
primarily the result of a tax refund in 2006 in connection with re-investment in
the PRC.
Income
tax
Our income
tax expense decreased 8.7% to Rmb 12,052.3 million (US$1,652.2 million) in 2007
from Rmb 13,196.3 million in 2006, primarily as a result of the deferred tax
liability effect of the implementation of a tax rate decrease from 30% to 25%
under the PRC Corporate Income Tax Law effective on January 1, 2008. Our
effective tax rate for 2007 was 27.8%, versus 29.9% in 2006.
2006
versus 2005
Consolidated
Net Profit
Our
consolidated net profit was Rmb 30,926.9 million in 2006, representing an
increase of Rmb 5,603.8 million, or 22.1%, from Rmb 25,323.1 million in
2005.
Revenue
Income
from our oil and gas sales for 2006 was Rmb 67,828.0 million, representing an
increase of Rmb 14,410.3 million, or 27.0%, from Rmb 53,417.7 million in 2005.
The increase was attributable to the high oil price, while growth in production
also contributed to our higher profits. The average realized price for our crude
oil was US$58.90 per barrel in 2006, representing an increase of US$11.59, or
24.5%, from US$47.31 per barrel in 2005. Sale of crude oil amounted to 135.4
million barrels, representing an increase of 4.3% over 2005. The average
realized price for our natural gas was US$3.05 per thousand cubic feet in 2006,
representing an increase of US$0.23 per thousand cubic feet, or 8.2%, from
US$2.82 per
thousand cubic feet in 2005. At the same time, sales volume of our natural gas
increased by 27.8% from 23.4 million BOE in 2005 to 29.9 million BOE in
2006.
In 2006,
our net marketing profit, which was derived from marketing revenue less purchase
cost of crude oil and oil products, was Rmb 391.2 million, representing an
increase of Rmb 193.9 million, or 98.3%, from Rmb 197.2 million in 2005. Since
we are one of the companies that have the right to sell crude oil in China, upon
request by our production sharing contract partners, we may purchase the oil of
these partners for sale in China. However, the amount of oil we may purchase and
sell in China depends on our foreign partners and, therefore, we cannot control
the amount of crude oil that we are able to sell for any specific period. In
2006, marketing revenue from our wholly owned subsidiary, CNOOC China Limited,
was Rmb 15,867.6 million, representing an increase of Rmb 6,436.8 million from
Rmb 9,430.8 million in 2005. The net marketing profit was Rmb 203.4 million,
increased 139.3% from 2005 due to the significant increase in sales volume in
local market. Marketing revenue from our wholly owned subsidiary, China Offshore
Oil (Singapore) International Pte Ltd, was Rmb 5,096.5 million. Netting off
purchase cost of crude oil and oil production, the net marketing profit was Rmb
187.8 million, or 67.3% increased from the same period in 2005.
Our other
income, reported on a net basis, was derived from our other income, which mainly
represents project management fees charged to foreign partners and handling fees
charged to customers, less corresponding costs. In 2006, our net other income
was Rmb 37.9 million, representing a decrease of Rmb 21.8 million from Rmb 59.7
million in 2005. The decrease was primarily due to higher service fees relating
to production sharing contract projects.
Expenses
Operating
expenses. Our operating expenses in 2006 were Rmb 6,999.2
million, representing an increase of Rmb 1,064.6 million, or 17.9%, from Rmb
5,934.6 million in 2005. The increase was mainly attributable to the
commencement of production of new oil and gas fields in 2006. Operating expenses
in 2006 were Rmb 42.3 per BOE, representing an increase of 9.1% from Rmb 38.8
per BOE in 2005. Operating expenses for our offshore China operations in 2006
were Rmb 34.6 per BOE, representing an increase of 6.6% from 2005. Operating
expenses for our offshore Indonesia operations in 2006 were Rmb 119.3 per BOE,
representing an increase of 19.1% from 2005. Besides the increase of service
fees, supply vessels, equipment lease, chemicals and fuel, resulting from the
higher international crude oil price, the maintenance and repair cost increased
due to the effect of typhoons.
Production
taxes. Our production taxes for 2006 were Rmb 3,315.7 million,
representing an increase of Rmb 719.2 million, or 27.7%, from Rmb 2,596.5
million in 2005. The increase was mainly due to the increased income from oil
and gas sales.
Exploration
costs. Our exploration costs for 2006 were Rmb 1,705.1
million, representing an increase of Rmb 411.4 million, or 31.8%, from Rmb
1,293.7 million in 2005, as a result of increased exploration
activities.
Depreciation, depletion and
amortization. Our depreciation, depletion and amortization for
2006 were Rmb 6,933.2 million, representing an increase of Rmb 968.5 million, or
16.2%, from Rmb 5,964.7 million in 2005. On a unit of production basis,
depreciation, depletion and amortization expenses for 2006 were Rmb 41.9 per
BOE, as compared to Rmb 39.0 per BOE in 2005, representing an increase of 7.4%
from 2005. The increase was mainly attributable to the commencement of
production of new oil and gas fields during 2006.
Dismantlement. Our
dismantling costs for 2006 were Rmb 472.3 million, representing an increase of
Rmb 219.4 million from Rmb 252.9 million in 2005. The increase was primarily due
to the increased dismantling costs resulting from the reevaluation of workload
and the higher service fees resulting from the higher international crude oil
price. Our average dismantling costs were Rmb 2.9 per BOE, which increased from
Rmb 1.7 per BOE in 2005.
Special Oil Gain Levy.
During 2006, a Special Oil Gain Levy was imposed by the Ministry of Finance of
the PRC at progressive rates from 20% to 40% on any income derived from sales of
locally produced crude at a price which exceeds US$40 per barrel. The amount
paid pursuant to this levy can be claimed as a deductible expense for corporate
income tax purpose and is calculated based on the actual volume of the crude oil
entitled. For the year ended December 31, 2006, we incurred
approximately Rmb 4.0 billion in connection with the Special Oil Gain
Levy.
Impairment losses related to
property, plant and equipment. Due to the downward revision of
the reserve of HZ19-1/2/3 oil fields and the postponement of PY 30-1 gas
project, we recognised Rmb 252.4 million of impairment losses in
2006.
Selling and administrative
expenses. Our selling and administrative expenses for 2006
were Rmb 1,543.8 million, representing an increase of Rmb 173.4 million, or
12.7%, from Rmb 1,370.4 million in 2005. Of which, the selling and
administrative expenses of companies in China in 2006 were Rmb 7.0 per BOE,
representing an increase of 11.8% from 2005. Compared with 2005, the increase
was mainly attributable to the staff and workers bonus and welfare fund accrued
and expense for newly granted options recognized in 2006.
Finance
costs, net of interest income
Our net
finance costs for 2006 were Rmb 1,050.6 million, representing an increase of
41.7% from the net finance costs of Rmb 741.2 million in 2005. On one hand, our
interest income increased Rmb 422.2 million from Rmb 359.3 million in 2005 to
Rmb 781.5 million in 2006. On the other hand, the finance costs increased
significantly mainly due to the losses on fair value changes of the embedded
derivative component of the convertible bonds and the effect of increased amount
of provision of dismantlement arising from the passage of time. The increases
due to the factors mentioned above were Rmb 1,150.2 million, and Rmb 52.0
million respectively.
Exchange
gains/losses, net
Our net
exchange gains incurred in 2006 were Rmb 308.4 million, representing an increase
of Rmb 21.4 million from net exchange gains of Rmb 287.0 million in 2005.
Compared with 2005, the increased exchange gains mainly came from the Chinese
government’s efforts on the improvement of rate-forming mechanism and the
ongoing appreciation of Renminbi in 2006.
Investment
income
Our
investment income for 2006 was Rmb 613.0 million, representing a significant
increase of Rmb 365.1 million, or 147.3%, from Rmb 247.9 million in 2005. For
the purpose of improving the performance of our current assets portfolio, we
increased the investment in financial instruments such as money market funds and
other equity instruments. Benefiting from the structural changes in the
investment portfolio and the influence from the market, we obtained a favorable
return in 2006.
Share
of profits of associates
In 2006,
there were gains from our investments in unconsolidated investees of Rmb 321.7
million, representing an increase of 4.8% from 2005.
Non-operating
income/expenses, net
Our net
non-operating income for 2006 was Rmb 876.4 million, as compared to
non-operating income of Rmb 28.6 million for 2005. In 2006, non-operating income
primarily arose from tax refunds from re-investment in China.
Income
tax
Our income
tax for 2006 was Rmb 13,196.3 million, representing an increase of Rmb 2,218.5
million, or 20.2%, from Rmb 10,977.8 million in 2005. The primary reason for the
increase was the increase in profit before tax. The effective tax rate for 2006
was 29.9%, slightly lower than the effective rate of 30.2% in 2005.
The
following table summarizes our cash flows for the periods
presented:
|
Year
ended December 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
(Rmb
in millions)
|
||||||||||||
|
Cash
provided by (used for):
|
||||||||||||
|
Operating
activities
|
32,154 | 39,226 | 42,713 | |||||||||
|
Investing
activities
|
(29,349 | ) | (39,526 | ) | (22,939 | ) | ||||||
|
Financing
activities
|
(7,787 | ) | 6,039 | (10,646 | ) | |||||||
|
Net
increase/(decrease) in cash and cash equivalents
|
(4,982 | ) | 5,739 | 9,128 | ||||||||
Cash
Provided by Operations
Net cash
generated from operating activities in 2007 amounted to Rmb 42,712.6 million
(US$5,855.3 million), representing an increase of Rmb 3,487.0 million, or 8.9%,
from Rmb 39,225.6 million in 2006.
Cash
generated from operations increased mainly due to an increase in non-cash items
such as depreciation, depletion and amortization expenses and impairment losses
related to property, plant and equipment of Rmb 802.4 million (US$110.0
million).
The
increase of cash flow was also partially offset by an increase of share of
profit of associates of Rmb 397.4 million, a decrease of profit before tax of
Rmb 812.6 million and an increase of net exchange gains of Rmb 1,547.3
million.
Compared
with 2006, the increase in operating cash flow was partially attributable to the
increase in changes of working capital of Rmb 3,948.1 million. In addition, an
increase of investment income received of Rmb 396.4 million and a decrease in
income taxes paid of Rmb 1,133.5 million also contributed to the increase of net
cash inflow from operating activities.
Capital
Expenditures and Investments
Net cash
outflow from investing activities in 2007 was Rmb 22,939.0 million (US$3,144.7
million), representing a decrease of Rmb 16,586.6 million, or 42.0%, from Rmb
39,525.6 million in 2006.
Our total
capital expenditures and investments primarily include successful exploration
and development expenditures and purchases of oil and gas properties. Total
capital expenditures were Rmb 26,942.1 million (US$3,693.4 million) in 2007,
representing a decrease of Rmb 17,274.5 million, or 39.1%, from Rmb 44,216.6
million in 2006. Our development expenditures in 2007 mainly related to the
development of OML130, Penglai 19-3 Phase II, Luda 22-1, Bozhong 34-1, Liuhua
11-1 and Xijiang 23-1 oil and gas fields. Compared with 2006, there were no
significant merger and acquisition expenditures.
In
addition, our cash inflow was attributable to the time deposits with maturities
over three months of Rmb 2,032.8 million (US$278.7 million) and our net proceeds
from sales of available-for-sale financial assets and disposals of property,
plant and equipment of Rmb 8,577.3 million (US$1,175.8 million). Our cash
outflow was attributable to the purchases of held-to-maturity financial assets
of Rmb 3,000.0 million (US$411.3 million) and available-for-sale financial
assets of Rmb 3,607.0 million (US$472.8 million).
For 2008,
we have budgeted approximately US$5.9 billion for capital expenditures. The
following table sets forth actual or budgeted capital expenditures on an accrual
basis for our key operating areas for the periods indicated.
|
Year
ended December 31,
|
||||||||||||||||||||
|
2005(1)
|
2006(1)
|
2007(1)
|
2007(1)
|
2008(2)
|
||||||||||||||||
|
(Rmb
million)
|
(US$
million)
|
|||||||||||||||||||
|
Operating
Area:
|
||||||||||||||||||||
|
Bohai
Bay
|
||||||||||||||||||||
|
Development
|
6,911.3 | 7,995.8 | 9,044.2 | 1,239.9 | 2,213.4 | |||||||||||||||
|
Exploration
|
680.3 | 1,221.3 | 1,771.5 | 242.8 | 260.0 | |||||||||||||||
|
Western
South China Sea
|
||||||||||||||||||||
|
Development
|
1,301.7 | 3,759.5 | 4,970.9 | 681.4 | 627.2 | |||||||||||||||
|
Exploration
|
613.3 | 761.3 | 1,162.5 | 159.4 | 219.2 | |||||||||||||||
|
East
China Sea
|
||||||||||||||||||||
|
Development
|
847.4 | 77.1 | 61.1 | 8.4 | 40.5 | |||||||||||||||
|
Exploration
|
50.8 | 48.5 | 85.0 | 11.7 | 6.4 | |||||||||||||||
|
East
South China Sea
|
||||||||||||||||||||
|
Development
|
4,471.7 | 2,924.1 | 2,817.7 | 386.3 | 534.7 | |||||||||||||||
|
Exploration
|
426.9 | 121.5 | 689.4 | 94.5 | 139.9 | |||||||||||||||
|
Other
Offshore China
|
||||||||||||||||||||
|
Development
|
— | — | — | — | 215.5 | |||||||||||||||
|
Exploration
|
108.1 | 61.8 | 112.5 | 15.4 | 38.1 | |||||||||||||||
|
Subtotal
|
15,411.5 | 16,970.9 | 20,714.8 | 2,839.8 | 4,294.8 | |||||||||||||||
|
Overseas
|
||||||||||||||||||||
|
Development
|
2,328.3 | 6,962.0 | 8,662.2 | 1,187.5 | 1,264.7 | |||||||||||||||
|
Exploration
|
158.2 | 1,065.0 | 1,625.6 | 222.8 | 378.6 | |||||||||||||||
|
Subtotal
|
2,486.5 | 8,027.0 | 10,287.8 | 1,410.3 | 1,643.3 | |||||||||||||||
|
Total
|
17,898.0 | 24,997.9 | 31,002.6 | 4,250.1 | 5,938.1 | |||||||||||||||
|
(1)
|
Figures
for 2005, 2006 and 2007 represent our actual spending for capital
expenditure purposes, including expensed exploration
costs.
|
|
(2)
|
Figures
for 2008 represent our budgeted capital
expenditures.
|
In
addition to the budgeted development and exploration expenditures relating to
the oil and gas properties described above, we may make additional capital
expenditures and investments consistent with our business
strategy. See “Item 4—Information on the Company—Business
Overview—Business Strategy.” We expect to fund our capital
expenditures with our cash flows from operations and our
borrowings.
Our
ability to maintain and grow our revenues, profit and cash flows depends upon
continued capital spending. Generally, we adjust our capital
expenditure and investment budget on an annual basis. Our capital
expenditure plans are subject to a number of risks, contingencies and other
factors, some of which are beyond our control. Therefore, our actual
future capital expenditures and investments will likely be different from our
current planned amounts, and such differences may be significant. See
“Item 3—Key Information—Risk Factors—Risks relating to our business—Our future
prospects largely depend on our capital expenditure plans, which are subject to
various risks.”
Financing
activities
Our net
cash outflow arising from financing activities in 2007 was Rmb 10,645.8 million
(US$1,495.4 million), versus a net cash inflow of Rmb 6,038.6 million in 2006,
representing a net increase of cash outflow of Rmb 16,684.4 million from 2006.
In 2007, our net cash outflow was mainly due to the distribution of dividends of
Rmb 11,523.7 million (US$1,579.8 million), and the repayment of bank loans
of Rmb 17.8 million (US$2.4 million). It was partially offset by cash inflow,
which was mainly contributed by bank borrowings of Rmb 895.7 million (US$122.8
million).
Our
gearing ratio, which is interest bearing debt divided by interest bearing debt
plus equity, was 7.9% as of December 31, 2007.
In 2006
and 2007, we, together with our partners on the Tangguh LNG project, borrowed
bank loans amounting to approximately US$2.6 billion and US$884 million,
respectively, for the purpose of financing the Tangguh LNG project in Indonesia.
We shared in these bank loans in proportion to our 16.95688% interest in the
project, or approximately US$593.3 million, of which our share of the utilized
bank loans amounted to approximately US$248.2 million as of December 31, 2006,
and approximately US$370.8 million as of December 31, 2007. These utilized loans
are unsecured, bear interest at LIBOR + 0.23% through 0.38% per annum and have a
final maturity of 2021.
We, as
guarantor, have delivered a guarantee dated October 29, 2007 in favor of Mizuho
Corporate Bank, Ltd., as facility agent for and on behalf of various
international commercial banks under a US$884 million commercial loan agreement
dated October 29, 2007 in connection with the Tangguh LNG project in
Indonesia. Pursuant to the guarantee, we guarantee the payment
obligations of the trustee borrower under the subject loan agreement and are
subject to a maximum cap of approximately US$164.9 million (Rmb 1.2
billion). Together with the loan agreement dated July 31, 2006 with a
maximum cap of approximately US$487.9 million, the total maximum guarantee cap
is approximately US$652.8 million (Rmb 4.8 billion).
On
February 21, 2008, CNOOC Finance (2004) Limited extinguished all the outstanding
convertible bonds by exercising an early redemption option. The withdrawal of
delisting of the convertible bonds on Hong Kong Stock Exchange was effective at
the close of business on March 6, 2008. We currently have no convertible bond
liability.
We have
debt service obligations consisting of principal and interest payments on our
outstanding indebtedness. The following table summarizes the
maturities of our long-term debt outstanding as of December 31,
2007. As of the date this annual report is filed, we have not
incurred any material long-term debt since December 31, 2007.
|
Debt
maturities (principal only)
|
|||||||||||||||||||||
|
Original
currency
|
Total
Rmb
equivalents
|
Total
US$
equivalents
|
|||||||||||||||||||
|
Due
by December 31,
|
US$
|
JPY
|
Rmb
|
||||||||||||||||||
|
(in
millions, except percentages)
|
|||||||||||||||||||||
|
2008
|
— | — | — | — | — | ||||||||||||||||
| 2009-2011 | 318.8 | — | — | 2,325.5 | 318.8 | ||||||||||||||||
| 2012-2013 | 759.9 | — | 500.0 | 6,043.2 | 828.4 | ||||||||||||||||
|
2014
and beyond
|
564.0 | — | — | 4,114.2 | 564.0 | ||||||||||||||||
|
Total
|
1,642.7 | — | 500.0 | 12,482.8 | 1,711.2 | ||||||||||||||||
|
Percentage
of total debt
|
96.0% | — | 4.0% | 100.0% | 100.0% | ||||||||||||||||
As of May
30, 2008, we had total foreign currency debt of US$1,404.7 million, all of which
is in U.S. dollars.
As of
December 31, 2007, we had unutilized banking facilities amounting to
approximately Rmb 46,997.1 million (US$6,442.7 million) as compared to Rmb
47,040.9 million as of December 31, 2006.
In 2005,
2006 and 2007, we paid dividends totaling Rmb 7,772.2 million, Rmb 9,813.7
million and Rmb 11,523.7 million (US$1,579.8 million),
respectively. The payment and the amount of any dividends in the
future will depend on our results of operations, cash flows, financial
condition, the payment by our subsidiaries of cash dividends to us, future
prospects and other factors which our directors may consider
relevant. The amount of dividends we paid historically is not
indicative of the dividends that we will pay in the future.
We believe
our future cash flows from operations, borrowing capacity and funds raised from
our debt offerings will be sufficient to fund planned capital expenditures and
investments, debt maturities and working capital requirements through at least
2008. However, our ability to obtain adequate financing to satisfy
our capital expenditures and debt service requirements may be limited by our
financial condition and results of operations and the liquidity of international
and domestic financial markets. See “Item 3—Key Information—Risk
Factors—Risks relating to our business—Our future prospects largely depend on
our capital expenditure plans, which are subject to various risks”.
Employee
Benefits
As part of
its reorganization in October 1999, CNOOC retained all liabilities for
retirement benefits for its employees, both former and current, who had not been
transferred to us. As compensation for CNOOC’s retention of
liabilities for retirement benefits payable to approximately 7,000 retired CNOOC
employees who were previously engaged in the oil and gas business that was
transferred to us under the reorganization, we made a one-time payment to CNOOC
of Rmb 1,660.0 million in 2001.
All of our
full-time employees in the PRC are covered by a government-regulated pension
plan and are entitled to an annual pension at their retirement
dates. The PRC government is responsible for the pension liabilities
to these retired employees under this government pension plan. The
actual pension payable to each retiree is subject to a formula based on the
status of the individual pension account, general salary and inflation
movements. We are required to make annual contributions to the
government pension plan at rates ranging from 10% to 22% of our employees’
salaries. The related pension costs are expensed as
incurred.
The
expenses attributable to mandatory contributions under the current government
pension plan are included in our historical consolidated income statements under
either operating expenses for our production staff or selling and administrative
expenses for our administrative staff. We expect that, under the
current PRC laws and regulations regarding employee retirement benefits, the
future costs of the current government pension plan will be comparable to our
historical costs, subject to customary increases largely in line with salary
increases of our employees.
We are
required to make contributions to a mandatory provident fund at a rate of
5% of the base
salaries for full-time employees in Hong Kong. The costs are expensed
as incurred.
Our
Indonesian subsidiaries employ approximately 888 employees, including
approximately 40 expatriates. We provide benefits to expatriates that
we believe to be in line with customary international practices. Our
local staff in Indonesia enjoy welfare benefits mandated by Indonesia labor
laws.
Holding
Company Structure
We are a
holding company. Our entire petroleum exploration, development,
production and sales business in the PRC is owned and conducted by CNOOC China
Limited, our wholly foreign-owned enterprise in the PRC. Our entire
petroleum exploration, development and production business outside the PRC is
owned and conducted by CNOOC International Limited, our wholly owned subsidiary
incorporated in the British Virgin Islands. International sales of
crude oil are conducted by China Offshore Oil (Singapore) International Pte Ltd,
our wholly owned subsidiary incorporated in Singapore. Accordingly,
our future cash flows will consist principally of dividends from our
subsidiaries. The subsidiaries’ ability to pay dividends to us is
subject to various restrictions, including legal restrictions in their
jurisdictions of incorporation. For example, legal restrictions in
the PRC permit payment of dividends only out of profit determined in accordance
with PRC accounting standards and regulations. In addition, under PRC
law, CNOOC China Limited is required to set aside a portion of its profit each
year to fund certain reserve funds. These reserves are not
distributable as cash dividends.
Inflation/Deflation
According
to the China Statistical Bureau, as represented by the general consumer price
index, China experienced an overall inflation rate of 1.8% in 2005, an overall
inflation rate of 1.5% in 2006, and an overall inflation rate of 4.8% in
2007. Neither deflation nor inflation has had a significant impact on
our results of operations in the respective years.
U.S.
GAAP Reconciliation
Our
consolidated financial statements are prepared in accordance with Hong Kong
GAAP, which differ in certain material respects from U.S. GAAP. These
differences relate primarily to the treatment of impairment of long-lived assets
and the treatment for convertible bonds. For differences between Hong
Kong GAAP and U.S. GAAP that affect our profit or shareholders’ equity, please
refer to note 39 to our consolidated financial statements included elsewhere in
this annual report.
Taxation
We are
subject to income taxes on an entity basis on income arising in or derived from
the tax jurisdictions in which we and each of our subsidiaries are domiciled and
operate. We are subject to profits tax at a rate of 17.5% on profits
arising in or derived from Hong Kong. Pursuant to a notice issued by
the State Administration of Taxation in March 2001, we are entitled to all tax
benefits conferred by Chinese law on foreign invested enterprises.
Before
January 1, 2008, our PRC subsidiary, as a wholly foreign owned enterprise, was
exempted from the 3% local surcharges of the enterprise income tax, reducing its
enterprise income tax rate from 33% to 30%.
In March
2007, the National People’s Congress of the PRC adopted new tax legislation, the
PRC Corporate Income Tax Law, which became effective on January 1, 2008. This
new tax legislation introduced a wide range of changes, including the
unification of the income tax rate for domestic-invested and foreign-invested
enterprises, including our PRC subsidiary, at 25%.
As a
result of this tax rate change, we estimate that the change in corporate income
tax rates had the following impact on our results and financial position for the
year ended December 31, 2007:
| RMB’000 | |
|
Decrease
in income tax expenses
|
1,019,564
|
|
Decrease
in deferred tax liability
|
1,019,564
|
The PRC
enterprise income tax is levied based on taxable income including income from
operations as well as other components of earnings, as determined in accordance
with the generally accepted accounting principles in the PRC (“PRC
GAAP”).
Besides
income taxes, our PRC subsidiary also pays certain other taxes,
including:
|
·
|
production
taxes equal to 5% of independent production and production under
production sharing contracts;
|
|
·
|
export
tariffs on crude oil of 5%, levied beginning November 1, 2006;
and
|
|
·
|
business
tax of 3% to 5% on other income.
|
Our
subsidiary in Singapore, China Offshore Oil (Singapore) International Pte Ltd,
is subject to income tax at the rate of 10% and 20% for its oil trading
activities and other income-generating activities,
respectively.
Our
subsidiaries owning interests in oil and gas properties in the Malacca Strait in
Indonesia are subject to corporate and dividend tax at the rate of
44%.
Certain of
our oil and gas interests in Indonesia are held through Labuan incorporated
companies. Labuan incorporated companies enjoy certain current reduced tax rates
provided by the tax treaty between Indonesia and Malaysia. According to the
current tax treaty between Indonesia and Malaysia, our subsidiaries owning
interests in oil and gas properties in Indonesia are subject to corporate and
dividend tax combined at rates ranging from 43.125% to 51.875%. In May 2006,
certain proposed amendments to the tax treaty were agreed by the respective
ministers of the two countries. According to the proposed amendments, the tax
rates will increase from 43.125% to 48% and from 51.875% to 56% respectively.
The proposed amendments will need to be ratified by the two countries and will
take effect two months after the ratification. It is still uncertain when the
ratification will be completed by the two countries as at December 31,
2007.
Our
subsidiary owning interests in oil and gas properties in North West Shelf
project in Australia is subject to income tax at the rate of 30%. All of our
other subsidiaries had no taxable profit in their respective jurisdictions for
the years presented.
We
calculate deferred taxation to account for temporary differences between our tax
bases, which is used for income tax reporting and prepared in accordance with
applicable tax guidelines, and our accounting bases, which is prepared in
accordance with applicable financial reporting requirements. Major
temporary differences include accelerated amortization allowances for oil and
gas properties, which are offset in part by provision for dismantlement and a
provision for impairment of property, plant and equipment and write-off of
unsuccessful exploratory drilling. As of December 31, 2005, 2006 and
2007, we had Rmb 6,827.9 million, Rmb 7,236.2 million and Rmb 6,293.6 million
(US$862.8 million), respectively, in net deferred tax
liabilities. See note 12 to our consolidated financial statements
included elsewhere in this annual report.
We adopted
the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (“FIN 48”), on January 1, 2007, which prescribes a comprehensive
model for how a company should recognize, measure, present and disclose in its
financial statements uncertain tax positions that the company has taken or
expects to take on a tax return. The adoption of FIN 48 did not have any
material effect on our financial position and results of
operations.
Impact
of Recently Issued Accounting Standards
U.S.
GAAP
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 141 (revised 2007) “Business Combinations” (“SFAS 141 (R)”), which
requires the acquiring entity in a business combination to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date to be measured at their respective fair values.
It also requires acquisition-related costs, as well as restructuring costs the
acquirer expects to incur for which it is not obligated at acquisition date, to
be recorded against income rather than included in purchase-price determination.
Under this statement, contingent arrangements shall be recognised at their
acquisition-date fair values, with subsequent changes in fair value generally
reflected in income. SFAS No. 141 will become effective for
business combinations for which the acquisition date is on or after
January 1, 2009. We are currently evaluating the potential impact of
SFAS No. 141(R) on our financial position and results of
operations.
In
December 2007, FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”, which establishes
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
It will become effective for the accounting period
beginning on or after January 1, 2009. We are
currently evaluating the potential impact of SFAS No. 160 on our financial
position and results of operations.
75
In March
2008, FASB issued SFAS No. 161 "Disclosures about Derivative Instruments and
Hedging Activities—an amendment of
FASB Statement No. 133", which amends and expands the disclosure requirements of
SFAS No.133, Accounting for Derivative Instruments and Hedging Activities. It
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. It will become effective for
financial statements issued for accounting period beginning on or after January
1, 2009. As our existing accounting policy for derivatives complies with the
requirements of this Statement, we do not believe the adoption of SFAS No. 161
will have a material effect on our financial position or results of
operations.
Hong
Kong GAAP
The Hong
Kong Institute of Certified Public Accountants has issued a number of new and
revised HKFRSs, some of which were mandatory for financial statements for annual
periods beginning on or after January 1, 2007. We have included the
new disclosures as required by HKAS 1 Amendment and HKFRS 7 and the adoption of
the other new and revised Hong Kong Financial Reporting Standards, amendments
and interpretation did not have a material impact on our results of operations
or financial position.
The Hong
Kong Institute of Certified Public Accountants has issued a number of new and
revised HKFRSs that are effective for accounting periods beginning on or after
January 1, 2008. We have not early applied these HKFRSs in our
consolidated financials statements included elsewhere in this annual
report. We are in the process of making an assessment of the impact
of these new and revised HKFRSs upon initial application. So far, we have
concluded that while certain new or revised HKFRSs may result in new or amended
disclosures, these new and revised HKFRSs are unlikely to have a significant
impact on our results of operations and financial position.
For
details, please refer to note 2.1 and 2.2 to our consolidated financial
statements included elsewhere in this annual report.
See “Item
4—Information on the Company—Business Overview—Research and Development” and
“Item 7—Major Shareholders and Related Party Transactions—Related Party
Transactions.”
Crude oil
prices are a major driver of our results of operations. We price our
crude oil with reference to the international crude oil prices, which have
fluctuated considerably over the years. On January 3, 2007 the
international benchmark crude oil, West Texas Intermediate, was US$58.32 per
barrel. As of May 30, 2008, it was US$127.35 per
barrel. In addition, continued political conflicts in the Middle East
and Nigeria, economic uncertainty and the threat of terrorism worldwide raise
concerns about the security and availability of ample supplies to meet growing
demand. It is expected that crude oil prices will remain relatively
high in 2008. For more information about crude oil prices, see “Item
3—Key Information—Risk Factors—Risks relating to our business—Our business,
revenues and profits fluctuate with changes in oil and gas prices,” “Item
4—Information on the Company—Business Overview—Sales and Marketing—Sales of
Crude Oil—Pricing,” and “Item 5—Operating and Financial Review and
Prospects—Operating Results—Results of Operations—2007 versus
2006.”
In
addition to crude oil, natural gas is becoming an increasingly important part of
our business. The Chinese government promotes the use of natural gas
as a clean and efficient fuel. Demand for natural gas in the PRC is
likely to increase significantly. We have expanded and will continue
to expand our natural gas business and intend to exploit our natural gas
reserves to meet growing demand for natural gas. For more information
about our natural gas business, see “Item 3—Key Information—Risk Factors—Risks
relating to our business—Any failure to implement our natural gas business
strategy may adversely
affect our business and financial position” and “Item 4—Information on the
Company—Business Overview—Competitive Strengths—Strategic position in China’s
growing natural gas markets.”
None.
The
following table sets forth information regarding our contractual obligations for
the periods indicated.
|
Payments
due by period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
|||||||||||||||
|
Rmb’000
|
Rmb’000
|
Rmb’000
|
Rmb’000
|
Rmb’000
|
||||||||||||||||
|
Long-term
debt obligations
|
12,515,916 | — | 2,158,959 | 4,524,862 | 5,832,095 | |||||||||||||||
|
Operating
lease obligations
|
1,969,660 | 475,892 | 663,694 | 567,258 | 262,816 | |||||||||||||||
|
Provision
for dismantlement(1)
|
6,737,319 | — | — | 235,310 | 6,502,009 | |||||||||||||||
|
Total
|
21,222,895 | 475,892 | 2,822,653 | 5,327,430 | 12,596,920 | |||||||||||||||
|
(1)
|
Provision
for dismantlement represents the discounted present value of retirement
obligations in connection with upstream assets, which primarily relate to
asset removal costs at the completion date of the relevant
project.
|
As of
December 31, 2006 and 2007, we had the following capital commitments,
principally for the construction and purchase of property, plant and
equipment:
|
Capital Commitments
|
2007
|
2006
|
||||||
|
Rmb’000
|
Rmb’000
|
|||||||
|
Contracted,
but not provided for
|
8,655,830 | 11,857,620 | ||||||
|
Authorized,
but not contracted for
|
24,498,130 | 30,029,132 | ||||||
In
accordance with Hong Kong law and our Articles of Association, our affairs are
managed by our Board, which has 12 members, including five independent
non-executive directors.
The table
below sets forth information about our directors and senior
officers:
|
Name
|
Year
of Birth
|
Position
|
||
|
Chengyu
Fu
|
1951
|
Chairman
of our Board, Executive Director and Chief Executive
Officer
|
||
|
Shouwei
Zhou
|
1950
|
Executive
Director and President
|
||
|
Guangqi
Wu
|
1957
|
Executive
Director and Compliance Officer
|
||
|
Hua
Yang
|
1961
|
Executive
Director, Executive Vice President and Chief Financial
Officer
|
||
|
Han
Luo
|
1953
|
Non-executive
Director
|
|
Name
|
Year
of Birth
|
Position
|
||
|
Xinghe
Cao
|
1949
|
Non-executive
Director
|
||
|
Zhenfang
Wu
|
1952
|
Non-executive
Director
|
||
|
Edgar
W. K. Cheng
|
1943
|
Independent
Non-executive Director
|
||
|
Sung
Hong Chiu
|
1947
|
Independent
Non-executive Director
|
||
|
Evert
Henkes
|
1943
|
Independent
Non-executive Director (retired on May 29, 2008)
|
||
|
Lawrence
J. Lau
|
1944
|
Independent
Non-executive Director
|
||
|
Aloysius
Hau Yin Tse
|
1948
|
Independent
Non-executive Director
|
||
|
Tao
Wang
|
1931
|
Independent
Non-executive Director (since May 29, 2008)
|
||
|
Xin
Kang
|
1974
|
Company
Secretary and Senior Counsel
|
||
|
Jian
Liu
|
1958
|
Executive
Vice President
|
||
|
Weilin
Zhu
|
1956
|
Executive
Vice President and General Manager of Exploration
Department
|
||
|
Wei
Chen
|
1958
|
Senior
Vice President and General Director of CNOOC China Limited, Beijing
Research Center
|
||
|
Guohua
Zhang
|
1960
|
Senior
Vice President and General Manager of CNOOC China Limited, Shanghai
Branch
|
||
|
Bi
Chen
|
1961
|
Vice
President and General Manager of CNOOC China Limited, Tianjin
Branch
|
||
|
Mingcai
Zhu
|
1956
|
Vice
President and President of CNOOC International Limited
|
||
|
Zhi
Fang
|
1962
|
Vice
President and President of CNOOC Southeast Asia
Limited
|
We have a
management team with extensive experience in the oil and gas
industry. As a result of our cooperation with international oil and
gas companies, the management team and staff have had the opportunity to work
closely with foreign partners both within and outside China. Such
opportunities, in conjunction with management exchange programs with foreign
partners, have provided valuable training to our personnel in international
management practices. A description of the business experience and
present position of each director and executive officer is provided
below. Our principal executive offices are located at 65th Floor,
Bank of China Tower, One Garden Road, Central, Hong Kong.
Executive
Directors
Chengyu Fu
received a B.S. degree in geology from the Northeast Petroleum Institute in
China and a Master’s degree in petroleum engineering from the University of
Southern California in the United States. He has over 30 years of experience in
the oil industry in the PRC. He previously worked in China’s Daqing, Liaohe and
Huabei oil fields. He joined CNOOC, our controlling shareholder, in 1982 and was
the Chairman of the Management Committees formed through joint ventures between
CNOOC and Amoco,
Chevron, Texaco, Phillips Petroleum, Shell and Agip respectively. From 1994 to
1995, Mr. Fu was the Deputy General Manager of CNOOC Nanhai East 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 CNOOC Nanhai East
Corporation. In 2000, Mr. Fu became the Vice President of CNOOC. Subsequently,
he became our Executive Vice President, President and Chief Operating Officer in
2001. Mr. Fu became the President of CNOOC in October 2003 and the Chairman of
our Board and Chief Executive Officer with effect from October 16, 2003. He also
serves as the Chairman of the Board of Directors of CNOOC China Limited and
CNOOC International Limited, both being our subsidiaries. Mr. Fu is the Chairman
of COSL, a company listed on HKSE and Shanghai Stock Exchange, and a subsidiary
of CNOOC. He was an independent director of Suntech Power Holdings Co., Ltd., a
NYSE-listed company from December 2005 to October 2007. He is also a Chairman of
the Presidium of China Federation of Industrial Economics and the Vice-chairman
of China Chamber of International Commerce. Mr. Fu was appointed as Executive
Director with effect from August 23, 1999.
Shouwei
Zhou received a doctorate degree from the Southwest Petroleum Institute
in China and is a senior engineer. He joined CNOOC in 1982. Mr. Zhou served as
the Deputy General Manager of CNOOC Bohai Corporation, a subsidiary of CNOOC and
the General Manager of CNOOC China Limited, Tianjin Branch. He was appointed as
our Executive Vice President in September 1999 and our President in July 2002.
Since 2000, Mr. Zhou has been the Vice President of CNOOC. Mr. Zhou serves as
the Director and the President of CNOOC China Limited and the Director of CNOOC
International Limited, both being our subsidiaries. He also serves as the
Chairman of CNOOC Southeast Asia Limited, our subsidiary since April 2003. Mr.
Zhou became the Chairman of CNOOC Engineering, a listed company on the Shanghai
Stock Exchange and a subsidiary of CNOOC, on December 6, 2003. Mr. Zhou was
appointed as Executive Director with effect from August 23, 1999.
Guangqi Wu
is a geologist, senior economist and Certified Senior Enterprise Risk Manager
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 as Assistant President in
2003, and has been the Vice President of CNOOC since 2004. Mr. Wu has also
served as an Independent Non-executive Director of China Yangtze Power Limited,
a company listed on the Shanghai Stock Exchange, since May 2003, and our
Compliance Officer since June 1, 2005. Mr. Wu also serves as the Director of
CNOOC China Limited and CNOOC International Limited, both being our
subsidiaries. Mr. Wu was appointed as Executive Director with effect from June
1, 2005.
Hua
Yang is a
senior engineer and graduated from Petroleum University with a B.S. degree in
Petroleum Engineering. He also received an MBA degree from the Sloan School of
Management at MIT as a Sloan Fellow. Mr. Yang joined CNOOC in 1982 and has over
25 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 and the Project Manager. Mr. Yang then
mainly was involved in international business, corporate finance and capital
market in our company and its subsidiaries. From 1993 to 1999, he served as our
Deputy Chief Geologist, the Deputy Director and the Acting Director for Overseas
Development Department and the Vice President of CNOOC International Limited,
our subsidiary. In 1999, he became Senior Vice President of CNOOC Limited. From
2002 to 2003, he was Director and President of CNOOC Southeast Asia Limited, our
subsidiary. Mr. Yang was appointed as our Chief Financial Officer with effect
from January 1, 2005 as well as our Executive Vice President in December 2005.
He also serves as the Assistant President of CNOOC and the Director of CNOOC
Finance Corporation Limited, and the Director of CNOOC China Limited and CNOOC
International Limited, both being our subsidiaries. Mr. Yang was appointed as
Executive Director with effect from August 31, 2005.
Non-executive
Directors
Han Luo
received a doctorate degree from the Petroleum University in China. He has over
30 years of experience in the oil industry in the PRC. He joined CNOOC in 1982.
From 1993 to 1999, Mr. Luo served as the Vice President of CNOOC Nanhai East
Corporation, a subsidiary of CNOOC, and concurrently as the Chairman of the CACT
(CNOOC-AGIP-Chevron-Texaco) operators group, and the Executive Vice President of
CNOOC Nanhai East Corporation. In 1999, he served as the General Manager of
CNOOC China Limited, 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 Co., Ltd. and CNOOC Finance Corporation Limited,
both being subsidiaries of CNOOC, and the Director of CNOOC China Limited, our
subsidiary. Mr. Luo was appointed as Executive Director with effect from
December 20, 2000 and was re-designated from Executive Director to Non-executive
Director with effect from September 1, 2006.
Xinghe Cao
graduated from Tianjin Politics and Law Management College majoring in
Economic Laws and later studied for an MBA in Capital University of Economics
and Business. Mr. Cao has over 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 the Manager of Bohai Oil Commercial Company and later as the Manager
of Bohai Oil Transportation Company, both being subsidiaries of CNOOC. From 1996
to 2003, he worked as Deputy General Manager and General Manager of CNOOC Bohai
Corporation, a subsidiary of CNOOC, 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 and the Chairman of the Board of Directors
of China Ocean Oilfields Services (Hong Kong) Limited, both being subsidiaries
of CNOOC. Mr. Cao was appointed as Executive Director with effect from August
31, 2005 and was re-designated from Executive Director to Non-executive Director
with effect from September 1, 2006.
Zhenfang
Wu is a senior engineer and graduated with a bachelor’s degree from
Dalian University of Technology, majoring in Offshore Petroleum Engineering and
Construction. He later studied for an 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, a
subsidiary of CNOOC. He became the President of CNOOC Chemical Limited, a
subsidiary of CNOOC, in 2000. He was also the Chairman of the Board of Directors
of Fudao Fertilizer Limited and CNOOC Chemical Limited, both being subsidiaries
of CNOOC, from 2001 to 2003 and from 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, 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 Executive Director with effect from August 31, 2005 and was
re-designated from Executive Director to Non-executive Director with effect from
September 1, 2006.
Independent
Non-executive Directors
Edgar W. K.
Cheng was a graduate from the University of Notre Dame and the Medical
College of Wisconsin, USA. He was Clinical Associate Professor of Medicine at
Cornell University Medical College and practiced medicine and conducted clinical
research at the Memorial Sloan-Kettering Cancer Centre in New York. Dr. Cheng
was a former Chairman of the University Grants Commission in Hong Kong, and a
member of the Education Commission. He is at present the Chairman of the Council
of The Chinese University of Hong Kong. In addition to his academic experience,
Dr. Cheng is currently the Chairman of the World-Wide Investment Co. Ltd. and
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., Member of the Conference
Board’s Global Advisory Council and an independent non-executive director of the
Standard Chartered Bank (Hong Kong) Ltd. He is currently a member of the Board
of Directors of the Hong Kong Institute for Monetary Research, an independent
non-executive director of American International Assurance Co. Ltd. and an
independent non-executive director of Shui On Land Limited. In his other public
service capacity, Dr. Cheng served as the Head of the Central Policy Unit of the
Government of Hong Kong Special Administrative Region from 1999 to 2001. He was
a member of the Greater Pearl River Delta Business Council and a member of the
Commission on Strategic Development. He is currently Chairman of the Council for
Sustainable Development and a member of the Judicial Officers Recommendation
Commission. Dr. Cheng also plays an active role in Hong Kong-China affairs. 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). At present, he is a member of the 11th
Chinese People’s Political Consultative Conference National Committee. Dr. Cheng
was appointed as Independent Non-executive Director with effect from May 24,
2006.
Sung Hong
Chiu received an LL.B. degree
from the University of Sydney. He is admitted as a solicitor of the Supreme
Court of New South Wales and the High Court of Australia. He has over 30 years’
experience in legal practice and had been a director of a listed company in
Australia. Mr. Chiu is the founding member of the Board of Trustees of the
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 Independent Non-executive Director with effect from September 7,
1999.
Evert
Henkes served as the CEO of Shell global chemical business from 1998 to
2003. Since joining Shell in 1973, he held various executive positions
worldwide, including Managing Director of Shell Chemicals UK Ltd., Managing
Director of Shell UK, President of Billiton Metals, Shell’s Metals Coordinator,
Shell’s Chemical Coordinator, and Director of Strategy & Business Services
of Shell International Chemicals Ltd. He also served as directors in regional
and global industrial bodies, including CEFIC and ICCA. He is also a director of
Tate & Lyle Plc, SembCorp Industries Ltd. and Outokumpu Oy, and became a
non-executive director of Air Products and Chemicals Inc since July 7, 2006. Mr.
Henkes served as Independent Non-executive Director with effect from
September 16, 2003 and retired from our Board on May 29, 2008. Mr. Henkes became
a member of our International Advisory Board with effect from May 29,
2008.
Lawrence J. Lau
has been serving as Vice-Chancellor (President) of The Chinese University
of Hong Kong since July 1, 2004. Professor Lau 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. He 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 became Kwoh-Ting Li Professor of Economic Development, Emeritus, at
Stanford University in 2006. He is concurrently the Ralph and Claire Landau
Professor of Economics at The Chinese University of Hong Kong. Professor Lau
specializes in economic development, economic growth, and the economies of East
Asia, including that of China. He has authored, co-authored, or edited five
books and published more than 160 articles and notes in professional journals.
Professor Lau was awarded the degree of Doctor of Social Sciences, honoris
causa, by the Hong Kong University of Science and Technology in 1999, and was
conferred the degrees of Doctor, honoris causa, by Soka University and Doctor of
Laws, honoris causa, by Waseda University in 2007. Professor Lau has rendered
academic and professional services to a large number of institutions. He is an
Honorary Research Fellow of the Shanghai Academy of Social Sciences, and an
Honorary Professor of 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. Professor Lau is a member of the 11th National
Committee of the Chinese People’s Political Consultative Conference. Professor
Lau also serves as a member of the HKSAR Government’s Commission on Strategic
Development, the Advisory Committee on Corruption of the Independent Commission
Against Corruption, the Steering Committee on Innovation and Technology, the
Exchange Fund Advisory Committee and its Currency Board Sub-Committee, and the
Honours Committee. He was appointed a Justice of the Peace in July 2007. He also
serves on the Boards of Directors of the Hong Kong Science and Technology Parks
Corporation and the US-based Achievo Corporation, as well as those of the Far
EasTone Telecommunications Co. Ltd. as an independent director and the Shin Kong
Financial Holding Corporation as an independent supervisor, the latter two being
companies listed in Taiwan. Professor Lau was appointed as Independent
Non-executive Director with effect from August 31, 2005.
Aloysius Hau Yin
Tse is a
fellow of The Institute of Chartered Accountants in England and Wales, and the
Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr. Tse is a
past president of the HKICPA. He joined KPMG in 1976, 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, Linmark Group Limited and Sinofert Holdings Ltd., companies
listed on HKSE. Mr. Tse is also the chairman of the International Advisory
Council of the People’s Municipal Government of Wuhan. Mr. Tse was appointed as
Independent Non-executive Director with effect from June 8, 2005.
Tao Wang
is the Chairman of the Chinese National Committee for World Petroleum
Council, the Vice-chairman of the Chinese-Arab Friendship Association and the
Chairman of the Chinese-Saudi Arabia Friendship Association. He also serves as
adjunct professor and/or doctoral advisor in several institutions, including
China University of Petroleum. From 1954 to 1963, Mr. Wang studied at the Moscow
Institute of Oil in the former Soviet Union, where he obtained his Deputy
Doctoral degree in Geological Mineralogy. Mr. Wang has been working in the oil
and gas sector for more than fifty years. As of September 1963 he served in the
post of the Chief Geologist in Beijing Research Institute of Petroleum Science;
as of May 1965 the Deputy Commander and Chief Geologist of the North China Oil
Exploration Command Office; as of March 1970 the Secretary, the Deputy
Director-General and Chief Geologist of Liao River Petroleum Exploration Bureau;
as of November 1979 the Principal of the Preparation and Construction Office for
the Pearl River Mouth Project in the Command Office of South China Sea Oil
Exploration; as of June 1983 the General Manager of CNOOC Nanhai East
Corporation; as of June 1985 the Minister and Secretary of the Party Leadership
Group of the Ministry of Petroleum Industry; and as of May 1988 the General
Manager and Secretary of the Party Leadership Group of China National Petroleum
Corporation. He was also a Member of the 12th, 13th and 14th Central Committees
of the Communist Party of China, a Member of the Standing Committee of the 9th
National People’s Congress and the Vice-chairman of the Environmental Protection
and Resources Conservation Committee of the National People’s Congress. He also
served successively as the Vice Chairman and Senior Vice Chairman of the World
Petroleum Council from 1994 to 2005. Mr. Wang is the Honorary Chairman and an
Executive Director of Sino Union Petroleum & Chemical International Limited,
which is listed on HKSE. Mr. Wang was appointed as Independent Non-executive
Director with effect from May 29, 2008.
Company
Secretary
Xin Kang
is our Company Secretary. She graduated from Peking University Law School. Ms.
Kang joined CNOOC in 1997 as legal advisor. At the end of 2000, Ms. Kang joined
CNOOC and Shell Petrochemicals Company Limited as legal advisor. Ms. Kang has
served as Chief of the Legal Consultation Division of Legal Department at CNOOC
and our Legal Department since June 2004. Ms. Kang was appointed as our Company
Secretary and Senior Counsel with effect from April 25, 2007.
Other
Members of Senior Management
Jian Liu
is our Executive Vice President. He is responsible for our development and
production. Mr. Liu is a senior engineer. He graduated from Huazhong University
of Science and Technology with a B.S. degree and received his MBA degree from
Tianjin University in 2000. Mr. Liu joined CNOOC in 1982. He has over 25 years
of experience in the oil and gas industry. He served as the manager of CNOOC
Bohai Corporation Oil Production Company, and the Deputy General Manager of
CNOOC China Limited, Tianjin Branch, the General Manager of CNOOC China Limited,
Zhanjiang Branch and the Senior Vice President and General Manager of our
Development and Production Department. He is also a Director of CNOOC China
Limited, CNOOC International Limited, and CNOOC Southeast Asia Limited, which
are all our subsidiaries. He was appointed as an Assistant President of CNOOC on
November 8, 2006.
Weilin
Zhu is
our Executive Vice President and the General Manager of the Exploration
Department. He is responsible for our exploration operations. Mr. Zhu
is a senior geologist. He graduated from Shanghai Tongji University
with a Ph.D degree. Mr. Zhu joined CNOOC in 1982. He has
over 25 years of experience in the oil and gas industry. He has
served as the Chief Geologist of CNOOC Research Center, the Deputy General
Manager and General Manager of the Exploration Department, the General Manager
of CNOOC China Limited, Zhanjiang Branch and Vice President of our
company. He was appointed as the Chief Geologist of CNOOC on August
6, 2007.
Wei Chen
is our Senior Vice President, the General Manager of the Scientific Development
Department, and the General Director of CNOOC China Limited, Beijing Research
Center. Mr. Chen is a senior engineer. He received his B.S. degree from
Petroleum University of China and holds an MBA degree from Tsinghua University.
He has over 25 years of experience in the oil and gas industry. Mr. Chen joined
CNOOC in 1984 and previously served as the Deputy Manager of the Exploration and
Development Department, the Deputy Manager of the Overseas Research Department,
the Manager of the Information Department, and the Deputy Director of CNOOC
Research Center. He has also served as General Manager of Human Resources
Department of CNOOC, and General Manager of the Administration Department of our
company.
Guohua
Zhang is our
Senior Vice President and the General Manager of CNOOC China Limited Shanghai
Branch. He graduated from Qingdao Oceanographic Institute with a Bachelor
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 CNOOC Naihai West Corporation, a subsidiary of CNOOC, Chief
Geologist of CNOOC Research Center, Assistant to General Manager of CNOOC China
Limited and the General Manager of the Exploration Department of our
company.
Bi Chen is
our Vice President and the General Manager of CNOOC China Limited, Tianjin
Branch. He graduated from the Southwest Petroleum Institute, and received a
Bachelor degree in Engineering. He received a Master’s degree of Petroleum
Engineering from Edinburgh Heriot-Watt University in 1988. He received a degree
of MBA 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, the Deputy Manager and then the General Manager of the Development and
Production Department of our company.
Mingcai Zhu
is our Vice President and the General Manager of the International
Affairs Department of our company, and the General Manager of CNOOC
International Limited. He graduated from Southwest Petroleum Institute with a
Bachelor degree in Engineering and received a MBA degree from Lancaster
University in the United Kingdom. Mr. Zhu joined CNOOC in 1985. He served as the
Vice President of CNOOC Bohai Corporation, a subsidiary of CNOOC, and the
General Manager of CNOOC China Limited, Tianjin Branch and Shenzhen
Branch.
Zhi Fang
is our Vice President and the President of CNOOC Southeast Asia Limited
and is responsible for our businesses in Indonesia. He graduated from Zhejiang
University with a Bachelor degree in science and received a MBA degree from the
University of Birmingham in 1995. Mr. Fang joined CNOOC in 1982. He served as
Deputy Director of the Research Center of CNOOC Nanhai East Corporation, a
subsidiary of CNOOC, Deputy General Manager of CNOOC-AMOCO Liuhua Joint
Operating Group, and the General Manager of the Exploration and Development
Department of CNOOC Nanhai East Corporation, and the Deputy General Manager and
General Manager of CNOOC China Limited, Shenzhen Branch.
|
B.
|
The
aggregate amounts of fees, salaries, housing allowances, other allowances and
benefits in kind paid to our directors for the year ended December 31, 2007 was
approximately Rmb 24.0 million (US$3.3 million), while the amount paid to other
senior management for the same period was approximately Rmb 8.8 million (US$1.2
million). In addition, under our pension plan for 2007, we set aside
an aggregate amount of Rmb 611,378 (US$83,812) for pension and similar benefits
for our directors (other than independent non-executive directors) and senior
management. Our directors (other than independent non-executive
directors) and senior management contributed an additional Rmb 611,378
(US$83,812) to the pension plan for 2007. Each director’s annual
compensation, including fees, salary, allowances, benefits in kind, pension
benefits and share option benefits, is disclosed in note 10 to our consolidated
financial statements included elsewhere in this annual report. For
further details regarding share options granted to our directors, officers and
employees, see “Item 6—Directors, Senior Management and Employees—Share
Ownership”. For further details regarding employee compensation, see
“Item 4—Information on the Company—Business Overview—Employees and Employee
Benefits.”
Committees
We have
established an audit committee, a remuneration committee and a nomination
committee. Our audit committee meets at least twice a year and is
responsible for reviewing the completeness, accuracy and fairness of our
accounts, evaluating our auditing scope and procedures, as well as its internal
control systems. Our audit committee is also responsible for
overseeing the operation of the internal monitoring systems, so as to ensure our
Board is able to monitor our overall financial position, to protect our assets,
and to prevent major errors or losses resulting from financial
reporting. Our Board is responsible for these systems and appropriate
delegations and guidance have been made. Our audit committee
regularly reports to our Board. Our audit committee consists of Mr.
Aloysius Hau Yin Tse as the audit committee financial expert for the purposes of
U.S. securities laws and chairman of the audit committee, Mr. Sung Hong Chiu and
Professor Lawrence J. Lau.
The
primary responsibilities of our remuneration committee are to review and approve
all our executive directors’ salaries, bonuses, share option packages,
performance appraisal systems and retirement plans. In 2007, our
remuneration committee consisted of three independent non-executive directors
(Mr. Sung Hong Chiu, Mr. Evert Henkes and Mr. Aloysius Hau Yin Tse) and one
non-executive director (Mr. Xinghe Cao). Mr. Evert Henkes retired from our Board
on May 29, 2008 and is no longer a member of our remuneration
committee.
The
primary responsibilities of our nomination committee include nominating
candidates for directors subject to our Board’s approval, conducting routine
examination of the structure, scale and composition of our Board, and review the
leadership capabilities of our directors in order to ensure that we remain
competitive. In, 2007, our nomination committee consisted of Mr. Han
Luo, Dr. Edgar W. K. Cheng and Professor Lawrence J. Lau. Mr. Tao Wang joined
our nomination committee with effect from May 29, 2008.
For
information on our audit committee financial expert and our code of ethics, see
“Item 16A—Audit Committee Financial Expert,” and “Item 16B—Code of
Ethics.”
International
Advisory Board
On October
29, 2001, we announced the establishment of an International Advisory Board with
globally well-respected political figures and corporate leaders as
members. The purpose of the International Advisory Board is to
provide the management with strategic advice on world events and macro issues
that may impact our development. Chengyu Fu, Chairman of our Board,
is the Chairman of the International Advisory Board.
Set forth
below is information on the current members of our International Advisory
Board.
|
Name
|
Biographical
Information
|
|
|
Chengyu
Fu
|
See
“Item 6—Directors, Senior Management and Employees—Directors and Senior
Management—Executive Directors.”
|
|
|
Erwin
Schurtenberger
|
The
Ambassador of Switzerland to the People's Republic of China, the
Democratic People's Republic of Korea and the Republic of Mongolia from
1988 to 1995. He joined the Swiss Foreign Services in
1969. Over the years, he held various diplomatic positions in
Bangkok, Hong Kong, Beijing and Tokyo. He also served as the
Ambassador of Switzerland to Iraq. He has been an independent
business advisor to various European multinationals, American groups and
humanitarian aid organizations. He was the President of the
Swiss-Asia Foundation. He serves on the Boards of ROBERT BOSCH
RBint and its International Advisory Board, BUHLER GROUP Switzerland,
FIRMENICH-China, TAIKANG Life Insurance, WINTERTHUR Insurances
(Asia). Dr. Schurtenberger is also a senior advisor to the
China Training Center for Senior Personnel Management
Officials. He is a graduate in both political science and
philosophy of the University of Paris and received a Ph.D. Degree in
Economics. Dr. Schurtenberger was a director on our Board from
November 11, 2002 to April 1, 2005.
|
|
|
Simon
Murray
|
Chairman
of General Enterprise Management Services (International) Limited (GEMS),
a private equity fund management company. Formerly he was the Executive
Chairman of Asia Pacific for the Deutsche Bank Group, and the Group
Managing Director of Hutchison Whampoa Ltd. He is currently a
director of a number of companies that include Arnhold Holdings Ltd.,
Cheung Kong Holdings Ltd., Orient Overseas (International) Limited, USI
Holding Ltd., Compagnie Financiere Richemont SA and Sino-Forest
Corporation.
|
|
|
Edward
S. Steinfeld
|
Assistant
professor at the MIT Sloan School of Management. He received
both his undergraduate and doctoral training at Harvard
University. As a China specialist, he has conducted extensive
firm-level research in China.
|
|
|
Chas
Freeman
|
Became
Chairman of Projects International, Inc. in 1995, after an extensive
career in the U.S. Government spanning three decades and numerous senior
positions, including U.S. Ambassador to Saudi Arabia and Assistant
Secretary of Defense for International Security Affairs. He is
currently president of the Middle East Policy Council, co-chair of the
U.S. China Policy Foundation, vice-chair of the Atlantic Council, and a
trustee of the Institute for Defense Analyses, among numerous other
positions. Ambassador Freeman attended the National Autonomous
University of Mexico and received his A.B. from Yale University as well as
a J.D. from the Harvard Law School. He is the author of two
widely circulated books on statecraft and diplomacy: The Diplomat's
Dictionary
and Arts of
Power.
|
|
|
Evert
Henkes
|
See
“Item 6—Directors, Senior Management and Employees—Directors and Senior
Management—Independent Non-executive
Directors.”
|
|
D.
|
See “Item
4—Information on the Company—Business Overview—Employees and Employee
Benefits.”
We have
adopted the following share option schemes for the grant of options to
our directors, senior management and other eligible grantees:
|
|
1. Pre-Global
Offering Share Option Scheme (as defined
below);
|
|
|
2. 2001
Share Option Scheme (as defined
below);
|
|
|
3. 2002
Share Option Scheme (as defined below);
and
|
|
|
4. 2005
Share Option Scheme (as defined
below).
|
Under
these share option schemes, our remuneration committee has, and will, from
time to time propose for our Board’s approval the grant of and the number
of share options to be granted to the relevant grantees. The maximum aggregate
number of shares (including those that could be subscribed 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 issued upon
exercise of all options granted shall not exceed 10% of our total issued share
capital as at December 31, 2005, being the date on which our shareholders
approved the 2005 Share Option Scheme, excluding shares under options which
have lapsed.
Pre-Global
Offering Share Option Scheme
On
February 4, 2001, we 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
to subscribe for an aggregate of 23,100,000 shares have been
granted;
|
|
|
2.
|
the
exercise price for such options is HK$1.19 per share;
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 grant; and
|
|
(b)
|
50%
of the rights to exercise the options shall vest 30 months after the date
of grant.
|
The
exercise periods for options granted under the Pre-Global Offering Share Option
Scheme shall end not later than 10 years from March 12, 2001. No further
options may be granted under the Pre-Global Offering Share Option
Scheme.
2001
Share Option Scheme
On
February 4, 2001, we adopted a share option scheme (the “2001 Share Option
Scheme”) for the purposes of recognizing the contribution that certain
individuals had made to our company and attracting and retaining the best
available personnel to our company. Pursuant to the 2001 Share Option
Scheme:
|
|
1.
|
options
to subscribe for an aggregate of 44,100,000 shares have been
granted;
|
|
|
2.
|
the
exercise price for such options is HK$1.232 per share;
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 grant;
|
|
|
(b)
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
(c)
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for options granted under the 2001 Share Option Scheme shall
end not later than 10 years from August 27, 2001.
In view of
the amendments to the relevant provisions of Hong Kong Stock
Exchange Listing Rules regarding the requirements of share option
schemes of Hong Kong listed companies effective on September 1, 2001, no further
options may be granted under the 2001 Share Option Scheme.
2002
Share Option Scheme
In June
2002, we adopted a new share option scheme (the “2002 Share Option
Scheme”).
Under the
2002 Share Option Scheme, our Board may, at its discretion, offer to grant to
the directors and employees of our company or any of our subsidiaries options to
subscribe for our shares. The maximum number of shares in respect of which
options may be granted under the 2002 Share Option Scheme to any individual in
any 12-month period up to the date of the latest grant shall not exceed 1% of
our total issued share capital from time to time.
According
to the 2002 Share Option Scheme, the consideration payable by a grantee for the
grant of options will be HK$1.00. The exercise price for such options is
determined by our Board at its discretion at the date of grant, except that such
price shall be not less than the higher of:
|
|
1.
|
the
nominal value of a share of our company on the date of
grant;
|
|
|
2.
|
the
average closing price of the shares on HKSE as stated in
HKSE’s quotation sheets for the five trading days immediately
preceding the date of grant; and
|
|
|
3.
|
the
closing price of the shares on HKSE as stated in HKSE’s quotation sheets
on the date of grant.
|
On
February 24, 2003, our Board approved to grant options in respect of 42,050,000
shares to our directors and senior management under the 2002 Share Option
Scheme. The exercise price for such options is HK$2.108 per share.
The closing market price immediately before the date on which such options
were granted was HK$2.11 per share. Such options granted under the 2002
Share Option Scheme may be exercised, in whole or in part, in accordance with
the following vesting schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2002 Share Option
Scheme shall end not later than 10 years from February 24, 2003.
On
February 5, 2004, our Board approved a grant of options in respect of 50,700,000
shares to our directors and senior management under the 2002 Share Option
Scheme. The exercise price for such options is HK$3.152 per share.
The closing market price immediately before the date on which such options
were granted was HK$3.146 per share. Such options granted under the 2002
Share Option Scheme may be exercised, in whole or in part, in accordance with
the following vesting schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2002 Share Option
Scheme shall end not later than 10 years from February 5,
2004.
On August
31, 2005, our Board approved a grant of options in respect of 65,870,000 shares
to our directors and senior management under the 2002 Share Option Scheme.
The exercise price for 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 grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2002 Share Option
Scheme shall end not later than 10 years from August 31, 2005.
2005
Share Option Scheme
We undertook
a review of the 2002 Share Option Scheme in 2005 and noted that certain
provisions could be clarified and improved. Accordingly, our Board
proposed, and on December 31, 2005, we adopted a new share option scheme
(the “2005 Share Option Scheme”) and terminated the 2002 Share Option Scheme.
Upon termination of the 2002 Share Option Scheme, no further options may
be granted under the 2002 Share Option Scheme, but in all other respects the
provisions of the 2002 Share Option Scheme shall remain in force. The
outstanding options under the 2002 Share Option Scheme shall continue to be
subject to the provisions of the 2002 Share Option Scheme, and the adoption of
the 2005 Share Option Scheme will not in any way affect the terms of the grant
of such outstanding options.
Under the
2005 Share Option Scheme, our Board has the authority to grant options to
subscribe for shares to the directors, officers and employees of
our company and its subsidiaries, and any other persons who in sole
discretion of our Board have contributed or will contribute to us. Unless
approved by our shareholders, the total number of shares issued and to be issued
upon exercise of the options granted to each individual (including exercised and
unexercised options) under the 2005 Share Option Scheme or any other share
option scheme adopted by us, in any 12 months period, must not exceed 1% of our
shares in issue.
According
to the 2005 Share Option Scheme, the consideration payable by a grantee for the
grant of options will be HK$1.00. The exercise price for such options will
be determined by our Board at its discretion at the date of grant, except that
such price shall be at least the higher of:
|
|
1.
|
the
nominal value of a share of our company on the date of
grant;
|
|
|
2.
|
the
average closing price of the shares as stated in HKSE’s quotation sheets
for the five trading days immediately preceding the date of grant;
and
|
|
|
3.
|
the
closing price of the shares as stated in HKSE’s quotation sheets on the
date of grant.
|
The period
within which the options must be exercised, as well as any minimum holding
period or performance targets which apply to the options, will be specified by
our Board at the time of grant. The exercise periods for options granted
under the 2005 Share Option Scheme shall end not later than 10 years from the
date of grant.
On June
14, 2006, our Board approved a grant of options in respect of 82,320,000 shares
to our directors and senior management under the 2005 Share Option Scheme. The
exercise price for such options is HK$5.56 per share. The closing market price
immediately before the date on which such options were granted was HK$5.30 per
share. Such options granted under the 2005 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 grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2005 Share Option
Scheme shall end not later than 10 years from June 14, 2006.
On May 25,
2007, our Board approved a grant of options in respect of 87,222,000 shares to
our directors and senior management under the 2005 Share Option Scheme. The
exercise price for such options is HK$7.29 per share. The closing market price
immediately before the date on which such options were granted was HK$7.43 per
share. Such options granted under the 2005 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 grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2005 Share Option
Scheme shall end not later than 10 years from May 25, 2007.
On May 29,
2008, our Board approved a grant of options in respect of 88,143,000 shares to
our directors and senior management under the 2005 Share Option Scheme. The
exercise price for such options is HK$14.828 per share. The closing market price
immediately before the date on which such options were granted was HK$14.2 per
share. Such options granted under the 2005 Share Option Scheme may be
exercised, in whole or in part, in accordance with the following vesting
schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2005 Share Option
Scheme shall end not later than 10 years from May 29,
2008.
As of May
30, 2008, our directors and employees had the following personal interests in
options to subscribe for shares granted under our share option
schemes:
|
Name
of Grantee
|
Number
of shares involved in the options outstanding as of
January
1, 2007
|
Number
of shares involved in the options outstanding as of May 30,
2008
|
Date
of Grant
|
Date
of Expiration*
|
Closing
price per share immediately before the date of grant
(HK$)
|
Exercise
Price
(HK$)
|
||||||
|
Executive
Directors:
|
||||||||||||
|
Chengyu
Fu
|
1,750,000
|
1,750,000
|
March
12, 2001
|
March
12, 2011
|
1.23
|
1.19
|
||||||
|
1,750,000
|
1,750,000
|
August
27, 2001
|
August
27, 2011
|
1.46
|
1.232
|
|||||||
|
1,150,000
|
1,150,000
|
February
24, 2003
|
February
24, 2013
|
2.09
|
2.108
|
|||||||
|
2,500,000
|
2,500,000
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
|||||||
|
3,500,000
|
3,500,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
|||||||
|
3,850,000
|
3,850,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
4,041,000
|
4,041,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
4,041,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Shouwei
Zhou
|
1,400,000
|
1,400,000
|
March
12, 2001
|
March
12, 2011
|
1.23
|
1.19
|
||||||
|
1,750,000
|
1,750,000
|
August
27, 2001
|
August
27, 2011
|
1.46
|
1.232
|
|||||||
|
1,750,000
|
1,750,000
|
February
24, 2003
|
February
24, 2013
|
2.09
|
2.108
|
|||||||
|
1,750,000
|
1,750,000
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
|||||||
|
2,450,000
|
2,450,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
|||||||
|
2,700,000
|
2,700,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
2,835,000
|
2,835,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
2,835,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Guangqi
Wu
|
1,610,000
|
1,610,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
||||||
|
1,770,000
|
1,770,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
1,857,000
|
1,857,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
1,857,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Hua
Yang
|
1,150,000
|
1,150,000
|
March
12, 2001
|
March
12, 2011
|
1.23
|
1.19
|
||||||
|
1,150,000
|
1,150,000
|
August
27, 2001
|
August
27, 2011
|
1.46
|
1.232
|
|||||||
|
1,150,000
|
1,150,000
|
February
24, 2003
|
February
24, 2013
|
2.09
|
2.108
|
|||||||
|
1,150,000
|
1,150,000
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
|||||||
|
1,610,000
|
1,610,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
|||||||
|
1,770,000
|
1,770,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
1,857,000
|
1,857,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
1,857,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Non-executive
Directors:
|
||||||||||||
|
Han
Luo
|
1,400,000
|
1,400,000
|
March
12, 2001
|
March
12, 2011
|
1.23
|
1.19
|
||||||
|
1,150,000
|
1,150,000
|
August
27, 2001
|
August
27, 2011
|
1.46
|
1.232
|
|||||||
|
1,150,000
|
1,150,000
|
February
24, 2003
|
February
24, 2013
|
2.09
|
2.108
|
|||||||
|
1,150,000
|
1,150,000
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
|||||||
|
1,610,000
|
1,610,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
|||||||
|
1,770,000
|
1,770,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
1,857,000
|
1,857,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
1,857,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Xinghe
Cao
|
800,000
|
800,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
||||||
|
1,770,000
|
1,770,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
1,857,000
|
1,857,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
1,857,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Zhenfang
Wu
|
800,000
|
800,000
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
||||||
|
1,770,000
|
1,770,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
1,857,000
|
1,857,000 | May 25, 2007 |
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
1,857,000 |
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|
Name
of Grantee
|
Number
of shares involved in the options outstanding as of
January
1, 2007
|
Number
of shares involved in the options outstanding as of May 30,
2008
|
Date
of Grant
|
Date
of Expiration*
|
Closing
price per share immediately before the date of grant
(HK$)
|
Exercise
Price
(HK$)
|
||||||
|
Independent
Non-executive
Directors:
|
||||||||||||
|
Sung
Hong Chiu
|
1,150,000
|
1,150,000
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
||||||
|
Evert
Henkes
|
1,150,000
|
1,150,000
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
||||||
|
Other
Employees In Aggregate:
|
||||||||||||
|
6,250,000
|
6,250,000
|
March
12, 2001
|
March
12, 2011
|
1.23
|
1.19
|
|||||||
|
19,650,000
|
16,200,000
|
August
27, 2001
|
August
27, 2011
|
1.46
|
1.232
|
|||||||
|
22,333,300
|
18,883,300
|
February
24, 2003
|
February
24, 2013
|
2.09
|
2.108
|
|||||||
|
29,733,267
|
26,533,267
|
February
5, 2004
|
February
5, 2014
|
3.13
|
3.152
|
|||||||
|
45,183,333
|
40,563,333
|
August
31, 2005
|
August
31, 2015
|
5.75
|
5.62
|
|||||||
|
65,920,000
|
56,580,000
|
June
14, 2006
|
June
14, 2016
|
5.30
|
5.56
|
|||||||
|
—
|
68,961,000
|
May
25, 2007
|
May
25, 2017
|
7.43
|
7.29
|
|||||||
|
—
|
71,982,000
|
May
29, 2008
|
May
29, 2018
|
14.2
|
14.828
|
|||||||
|
Total
|
242,399,900
|
391,604,900
|
|
*
|
The
share options are only exercisable by the relevant grantees upon the
vesting of such share options. The vesting of our share options
is by stage and the details are disclosed
above.
|
For the
year ended December 31, 2007, no share options granted under our share option
schemes were exercised. For the period from January 1, 2008 to May
30, 2008, 333,333 share options were exercised.
As of
December 31, 2007, we had 303,795,233 share options outstanding under our share
option schemes, which represented approximately 0.69% of our shares in issue as
of that date.
For
further details about our share option schemes, see notes 10 and 29 to our
consolidated financial statements included elsewhere in this annual
report.
As of May
30, 2008, none of our directors or employees owned 1% or more of our shares
including the shares underlying the stock options granted as of that
date.
The
following table sets forth information regarding the ownership of our
outstanding shares by major shareholders as of May 30, 2008.
|
Shareholder
|
Number
of Shares Owned
|
Percentage
|
||
|
CNOOC(1)
|
28,772,727,273
|
64.41%
|
|
(1)
|
CNOOC
owns our shares indirectly through its wholly owned subsidiaries, CNOOC
(BVI) Limited and Overseas Oil & Gas Corporation,
Ltd. CNOOC’s share ownership decreased from 64.95% as of
December 31, 2007 to 64.41% as of May 30, 2008 due to an increase in our
total outstanding shares as a result of the conversion of bonds and the
exercise of options.
|
Our major
shareholder listed above does not have voting rights different from our other
shareholders. Except as set forth in the above table, we are not
aware of any shareholders that hold more than 5% of our
shares. Except as disclosed above, we are not aware of any
significant changes in the percentage ownership of our major shareholder over
the course of the past three years. To our knowledge, no arrangements
are currently in place that could lead to a change of control of our
company.
As of May
30, 2008, 11,651,950 American depositary shares were outstanding in the United
States, representing approximately 2.61% of our then outstanding
shares. At such date, the number of registered American depositary
share holders in the United States was 28.
Overview
We
regularly enter into transactions with related parties, including CNOOC and its
associates, as defined under the Hong Kong Stock Exchange Listing
Rules. Since CNOOC indirectly owns an aggregate of approximately
64.41% of our issued share capital, some of these transactions constitute
connected transactions under the Hong Kong Stock Exchange Listing Rules, and are
regulated by the Hong Kong Stock Exchange.
Under the
Hong Kong Stock Exchange Listing Rules, many of these connected transactions
normally would require full disclosure and the prior approval of our independent
shareholders. However, since the connected transactions are carried
out in the ordinary and usual course of business and occur on a regular basis on
normal commercial terms and on terms that are fair and reasonable as far as our
shareholders are concerned, the Hong Kong Stock Exchange granted us a waiver
from strict compliance with requirements of the Hong Kong Stock Exchange Listing
Rules for the period from April 3, 2001 through December 31, 2002, after which
this waiver was renewed to cover the period from January 1, 2003 to December 31,
2005. Following the amendments to the Hong Kong Stock Exchange
Listing Rules in March 2004, waivers for connected transactions from the Hong
Kong Stock Exchange are no longer required, and we are only required to obtain
our independent shareholders’ approval for such continuing connected
transactions. Accordingly, we obtained independent shareholders’
approval at the extraordinary general meetings held on December 31, 2005 and on
December 6, 2007 for our continuing connected transactions with CNOOC and/or its
associates for the period from January 1, 2006 to December 31, 2007 and for the
period from January 1, 2008 to December 31, 2010, respectively. The
continuing connected transactions are categorized into different categories, and
each category of connected transactions is subject to annual caps and other
conditions as specified below.
Original
Categories of Connected Transactions
Connected
transactions in respect of which we were granted a waiver for the period from
January 1, 2003 to December 31, 2005 consisted of the following eight
categories:
|
·
|
Contracts
with foreign petroleum companies;
|
|
·
|
Trademark
license agreements;
|
|
·
|
Lease
agreement in respect of the Nanshan
terminal;
|
|
·
|
Provision
of materials, utilities and ancillary
services;
|
|
·
|
Technical
services;
|
|
·
|
Research
and development services;
|
|
·
|
Lease
and property management services;
and
|
|
·
|
Sales
of crude oil, condensate oil and liquefied petroleum
gas.
|
Waiver
Conditions
The waiver
granted by the Hong Kong Stock Exchange to us in January 2003 in respect of the
connected transactions for the period from January 1, 2003 to December 31, 2005
contains the following typical conditions:
|
|
i.
|
in
relation to the connected transactions mentioned above as “Contracts with
foreign petroleum companies,” “Trademark license agreements” and “Lease
agreement in respect of the Nanshan Terminal,” the transactions and the
respective agreements (if any) governing such transactions, must be on
terms that are fair and reasonable so far as our shareholders are
concerned; and in relation to the connected transactions mentioned above
as “Provision of materials, utilities and ancillary services,” “Technical
services,” “Research and development services,” “Lease and property
management services” and “Sales of crude oil, condensate oil and liquefied
petroleum gas,” the transactions and the respective agreements (if any)
governing such transactions must
be:
|
|
|
a.
|
entered
into by us in our ordinary and usual course of
business;
|
|
|
b.
|
either
on normal commercial terms or, where there is no available comparison, on
terms no less favorable than those available to or from independent third
parties; and
|
|
|
c.
|
on
terms that are fair and reasonable so far as our shareholders are
concerned;
|
|
|
ii.
|
brief
details of the continuing connected transactions in each year as required
by Rule 14.25(1)(A) to (D) of the Hong Kong Stock Exchange Listing Rules
then in force before March 31, 2004 (i.e., the date or period of the
transaction, the parties thereto and a description of their connected
relationship, a brief description of the transaction and the purpose of
the transaction, the total consideration and the terms, and the nature and
the extent of the interest of the connected person in the transaction),
must be disclosed in our annual report and accounts for the relevant
year;
|
|
|
iii.
|
our
independent non-executive directors must review annually the transactions
and confirm, in our annual report and accounts for the year in question,
that such transactions have been conducted in the manner stated in (i)
above and, where applicable, within the annual limit stated in (v)
below;
|
|
|
iv.
|
our
auditors must carry out review procedures annually in relation to the
connected transactions and must confirm in writing whether the
transactions:
|
|
|
a.
|
received
the approval of our Board;
|
|
|
b.
|
have
been entered into in accordance with the pricing policies as stated in our
financial statements; and
|
|
|
c.
|
have
been entered into in accordance with the terms of the agreement governing
the transactions or, where there is no agreement, on terms that are not
less favorable than terms available to or from independent third
parties;
|
For the
purpose of the above review by our auditors, CNOOC undertook to us that it would
provide the auditors with access to its relevant accounting
records;
|
|
v.
|
the
aggregate annual volume of transactions was not to exceed the proposed
annual limits set out in the following
table:
|
|
Transaction
|
Annual
Limit
|
|
Materials,
utilities and ancillary services supply agreements
|
10%
of our audited consolidated total revenues in the preceding financial
year
|
|
Technical
services
|
In
respect of the three financial years ended December 31, 2005, Rmb 5,853
million, Rmb 7,338 million and Rmb 7,218*
million, respectively
|
|
Research
and development services for particular projects
|
In
respect of the three financial years ended December 31, 2005, Rmb 141
million, Rmb 148 million and Rmb 153 million,
respectively
|
|
Sales
of crude oil, condensate oil and liquefied petroleum gas
|
In
respect of the three financial years ended December 31, 2005, 42%, 56% and
82%, respectively, of our audited consolidated total revenues in the
preceding financial year
|
|
General
research and development services agreement
|
Rmb
110 million
|
|
Lease
and management services
|
Rmb
78 million
|
|
* On December 31,
2005, we proposed a revised cap for the category of technical services of
continuing connected transactions at the extraordinary general meeting and
obtained the approval of our independent
shareholders.
|
|
|
|
vi.
|
we
undertook that if any of the terms of the agreements or arrangements
referred to above were altered or if we entered into any new agreements
with any connected persons (within the meaning of the Hong Kong Stock
Exchange Listing Rules) in the future or if the limits stated in (v) above
were exceeded, we would comply with the standard disclosure and
shareholder approval provisions in the Hong Kong Stock Exchange Listing
Rules unless we applied for and obtained a separate waiver from the Hong
Kong Stock Exchange.
|
New
Categories of Continuing Connected Transactions
In order
to present a more coherent, logical and understandable picture to shareholders,
and also to enable our company to monitor the status of connected transactions
as defined under the Hong Kong Stock Exchange Listing Rules more effectively
going forward, we adopted a new categorization for our continuing connected
transactions with CNOOC and/or its associates. On December 8, 2005,
we entered into three comprehensive framework agreements with each of CNOOC,
COSL and CNOOC Engineering, respectively for the provision (1) by us to CNOOC
and/or its associates and (2) by CNOOC and/or its associates to us, 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 January 1,
2006. The new categorization and caps for each category of continuing
connected transactions were approved by our independent shareholders on December
31, 2005 and are applicable for the period from January 1, 2006 to December 31,
2007. On September 29, 2006, we further obtained independent
shareholders’ approval for the revised cap for the category “sales of petroleum
and natural gas products” by us to CNOOC and/or its associates. The
new categorization of continuing connected transactions,
which are discloseable under the Hong Kong Stock Exchange Listing Rules and
applicable to our company for the period from January 1, 2006 to December 31,
2007, are set out below:
|
|
·
|
Provision
of exploration, oil and gas development, oil and gas production as well as
marketing, management and ancillary services by CNOOC and/or its
associates to us;
|
|
|
·
|
Provision
of management, technical, facilities and ancillary services, including the
supply of materials from us to CNOOC and/or its associates;
and
|
|
|
·
|
Sales
of petroleum and natural gas products by us to CNOOC and/or its
associates.
|
Since the
establishment of CNOOC, certain associates of CNOOC specialized in exploration,
oil and gas development, oil and gas production, as well as marketing,
management and ancillary services provided these services to us through a
bidding process. We will continue to use these services provided by
associates of CNOOC, including but not limited to COSL, CNOOC Engineering and
CNOOC Oil Base Group Limited (“COBGL”). CNOOC also provides certain of these
services from time to time. The services provided by CNOOC and/or its
associates are set out below.
Provision
of exploration, oil and gas development, oil and gas production as well as
marketing, management and ancillary services by CNOOC and/or its associates to
us
(a) Provision of
exploration and support services. The services provided
by CNOOC and/or its associates to us on exploration operations
include:
· well
site survey;
· seismic
data acquisition and processing;
· integrated
exploration research services;
· exploration
well operation;
· related
technical services on exploration well;
· tow-boat,
transportation and safety services; and
· other
related technical and supporting services.
(b) Provision of oil
and gas development and support services. The services provided
by CNOOC and/or its associates to us on oil and gas development operations
include:
· platform
survey;
· drilling
and completion of well operation;
· related
technical services on drilling and completion;
· design,
construction, installation and tuning of production facilities;
· shipping
transportation;
· provision
of materials;
· integrated
research on development techniques; and
· other
related technical and supporting services.
(c) Provision of oil
and gas production and support services. The services provided
by CNOOC and/or its associates to us on oil and gas production operations are
set out below. In addition, CNOOC and/or its associates also provide
various facilities and ancillary services, such as provision of different types
of materials, medical and employee welfare services, maintenance and repair of
major equipments and supply of water, electricity and heat to us, some of which
may not be available from independent third parties or available on comparable
terms.
· well
workover;
· shipping
transportation;
· oil
tanker transportation;
· provision
of materials;
· maintenance
of platform;
· repair
of equipment and pipeline;
· production
operations;
· oil
and gas production labour services;
· warehousing
and storage;
· lease
of equipment and building;
· road
transportation services;
· telecommunication
and network services;
· wharf
services;
· construction
services, including roads, wharf, buildings, factories and water
barrier;
· maintenance
and repair of major equipment;
· medical,
childcare and social services;
· provision
of water, electricity and heat;
· security
and fire services;
· technical
training;
· accommodation;
· maintenance
and repair of buildings;
· catering
services; and
· other
related technical and supporting services.
(d) Provision of
marketing, management and ancillary services. CNOOC and/or its
associates provide marketing, administration and management of oil and gas
operations and integrated research services to us, as well as other ancillary
services relating to the exploration, development, production and research
activities to us. Details of these services are set out
below:
· marketing
services;
· management;
· staff
recruitment;
· publishing;
· telecommunications;
· leases
of properties;
· property
management;
· water,
electricity and heat supply;
· car
rental;
·
integrated
services such as record keeping, filing, repair of computer, catering and
photocopying; and
· integrated
research.
In addition, as part of providing
administration and management services to us, CNOOC and/or its associates leased
certain premises to us. In addition to leasing these properties,
CNOOC and/or its associates also provided management services in respect of
certain properties leased to us.
Pricing principles for transactions
referred to in paragraphs (a) to (d) above:
The
continuing connected transactions referred to in paragraphs (a) to (d) above
relate to services provided by CNOOC and/or its associates to us. In general,
the services provided by CNOOC and/or its associates to us are based on
negotiations with CNOOC and/or its associates on normal commercial terms, or on
terms no less favourable than those available to us from independent third
parties, under prevailing local market conditions, including considerations such
as volume of sales, length of contracts, package of services, overall customer
relationship and other market factors.
If, for
any reason, the above pricing principle for a particular service ceases to be
applicable or there is no open market for such services, whether due to a change
in circumstances or otherwise, such services must then be provided in accordance
with the following general pricing principles:
(i) state-prescribed
prices; or
(ii) where there is no
state-prescribed price, market prices, including the local, national or
international market prices; or
(iii) when neither (i) nor
(ii) is applicable, the cost to CNOOC and/or its associates for providing the
relevant services (including the cost of sourcing or purchasing from third
parties) plus a margin of not more than 10%, before any applicable
taxes.
(e) FPSO vessel
leases. We lease FPSO vessels from COBGL for use in oil
production operations at market prices on normal commercial terms which are
calculated on a daily basis. FPSO vessels are usually located next to
the offshore oil platforms and are an integrated facility used by us during the
offshore oil production for processing, storage and offloading of crude oil. The
terms of FPSO vessel leases are usually determined based on the expected term of
oil production.
Provision
of management, technical, facilities and ancillary services, including the
supply of materials from us to CNOOC and/or its associates
In
addition to providing various services to us, CNOOC and/or its associates may
also utilise various types of management, facilities, technical and ancillary
services, including the supply of materials provided by us from time to time.
The pricing for such services will be determined based on the same pricing
principles applicable to transactions relating to services provided by CNOOC
and/or its associates to us under paragraphs (a) and (d) above, which will be
negotiated and agreed on normal commercial terms between the parties. The
services that may be provided by us to CNOOC and/or its associates
include:
· technical
consulting;
· technology
transfer;
· management;
· technical
research services; and
· other
supporting services.
Sales
of petroleum and natural gas products by us to CNOOC and/or its
associates
(a) Sales of
petroleum and natural gas products. We may sell petroleum and
natural gas products, including crude oil, condensate oil, liquefied petroleum
gas, natural gas and liquefied natural gas, to CNOOC and/or its associates which
engage in downstream petroleum businesses at state-prescribed prices or local,
national or international market prices and on normal commercial terms. It is
envisaged that an individual sales contract will be entered into from time to
time between us and CNOOC and/or its associates in relation to such
sales.
(b) Long term sales
of natural gas and liquefied natural gas. We sell natural gas
to CNOOC and/or its associates which engage in downstream petroleum businesses
at state-prescribed prices or local, national
or international market prices and on normal commercial terms, which is subject
to adjustment in accordance with movements in international oil prices as well
as other factors such as the term of the sales agreement and length of the
relevant pipelines. Due to the size of investment and the fact that sales are
usually made to markets proximate to the production sites, and that purchasers
tend to utilise the natural gas products in areas close to the production sites,
and in order to ensure the return on the investment from the production of
natural gas, we will usually enter into long term sales contracts with a term of
15 to 20 years. It is market practice for the term of the sales contract to be
determined based on the estimated reserves and production profile of the
relevant gas fields. We have also invested and acquired interests in
liquefied natural gas related upstream projects in Tangguh of Indonesia and the
North West Shelf of Australia. It is also envisaged that from time to
time we may sell liquefied natural gas explored from these gas reserves
mentioned above and other gas reserves in which we may invest in the future to
CNOOC and/or its associates.
Disclosure
and/or Independent Shareholders’ approval requirements
Under the
Hong Kong Stock Exchange Listing Rules, the following categories amongst the new
categories of continuing connected transactions are exempted from the
independent shareholders’ approval requirement but are subject to the reporting
and announcement requirements set out in Rules 14A.45 to 14A.47 of the Hong Kong
Stock Exchange Listing Rules, because the percentage ratios for these categories
under the Listing Rules (other than the profits ratio) are expected to be less
than 2.5% on an annual basis:
|
|
·
|
Provision
of marketing, management and ancillary services by CNOOC and/or its
associates to us;
|
|
|
·
|
FPSO
vessel leases*;
and
|
|
|
·
|
Provision
of management, technical, facilities and ancillary services, including the
supply of materials from us to CNOOC and/or its
associates.
|
* The continuing connected
transactions under the category of FPSO vessel leases by CNOOC and/or its
associates to us for the period of three years from January 1, 2008 to December
31, 2010 are subject to the reporting, announcement and independent
shareholders’ approval requirements, because the percentage ratios for this
category under the Listing Rules (other than the profits ratio) are not expected
to be less than 2.5% on an annual basis during this period.
Under the
Hong Kong Stock Exchange Listing Rules, the following categories amongst the new
categories of continuing connected transactions, or the non-exempt continuing
connected transactions, are subject to the reporting, announcement and
independent shareholders’ approval requirements:
|
|
·
|
Provision
of exploration, oil and gas development, oil and gas production as well as
marketing, management and ancillary services by CNOOC and/or its
associates to us
|
(a) Provision
of exploration and support services;
(b) Provision
of oil and gas development and support services; and
(c) Provision
of oil and gas production and support services.
|
|
·
|
Sales
of petroleum and natural gas products by us to CNOOC and/or its
associates
|
(a) Sales
of petroleum and natural gas products; and
(b) Long
term sales of natural gas and liquefied natural gas.
On
November 8, 2007, we entered into renewed framework agreements with CNOOC, COSL
and CNOOC Engineering, as well as an additional framework agreement with China
BlueChemical Ltd. On December 6, 2007, our independent shareholders approved the
renewal of the continuing connected transactions pursuant to the
framework agreements for the next three years (from January 1, 2008 to December
31, 2010), including the proposed caps. The revised cap for the
category “provision of exploration and support services” by CNOOC and/or its
associates to us for the year ended December 31, 2007 was also approved. The
annual caps and the conditions are specified as follows:
|
Category
of continuing connected transactions
|
Caps
|
|
|
Provision
of exploration, oil and gas development, oil and gas production as well as
marketing, management and ancillary services by CNOOC and/or its
associates to us
|
||
|
(a)
Provision of exploration and support services
|
For
the two years ended December 31, 2007, Rmb 2,117 million and
Rmb 3,500 million*, respectively, and for the three years ending
December 31, 2010, Rmb 6,296 million, Rmb 7,555 million and Rmb 9,066
million, respectively
|
|
|
(b)
Provision of oil and gas development and support services
|
For
the two years ended December 31, 2007, Rmb 7,628 million and
Rmb 10,458 million, respectively, and for the three years ending
December 31, 2010, Rmb 18,608 million, Rmb 22,879 million and Rmb 26,759
million, respectively
|
|
|
(c)
Provision of oil and gas production and support services
|
For
the two years ended December 31, 2007, Rmb 3,935 million and
Rmb 4,132 million, respectively, and for the three years ending
December 31, 2010, Rmb 5,124 million, Rmb 6,147 million and Rmb
7,253 million, respectively
|
|
|
(d)
Provision of marketing, management and ancillary services
|
For
the two years ended December 31, 2007, Rmb 478 million and
Rmb 504 million, respectively, and for the three years ending
December 31, 2010, Rmb 789 million, Rmb 854 million and Rmb 967 million,
respectively
|
|
|
(e)
FPSO vessel leases
|
For
the two years ended December 31, 2007, Rmb 453 million and
Rmb 463 million, respectively, and for the three years ending
December 31, 2010, Rmb 1,908 million, Rmb 3,182 million and Rmb 3,250
million, respectively
|
|
|
Provision
of management, technical, facilities and ancillary services, including the
supply of materials from us to CNOOC and/or its
associates
|
||
|
Provision
of management, technical, facilities and ancillary services, including the
supply of materials to CNOOC and/or its associates
|
For
the two years ended December 31, 2007, Rmb 50 million and
Rmb 100 million, respectively, and for the three years ending
December 31, 2010, Rmb 100 million, Rmb 100 million and Rmb 100 million,
respectively
|
|
|
|
||
|
Sales
of petroleum and natural gas products by us to CNOOC and/or its
associates
|
|
|
(a)
Sales of petroleum and natural gas products
|
For
the two years ended December 31, 2007, Rmb 48,806 million and
Rmb 63,251 million, respectively**, and for the three years ending
December 31, 2010, Rmb 94,440 million, Rmb 156,692 million and Rmb 181,782
million, respectively
|
|
(b)
Long term sales of natural gas and liquefied natural gas
|
For
the two years ended December 31, 2007, Rmb 1,960 million
and Rmb 3,599 million, respectively, and for the three years ending
December 31, 2010, Rmb 4,844 million, Rmb 7,118 million and Rmb 8,763
million, respectively
|
|
* At
the extraordinary general meeting held on December 31, 2005, our
independent shareholders approved an annual cap of Rmb 2,293 million for
2007. Our independent shareholders subsequently approved the above revised
annual cap at the extraordinary general meeting held on December 6,
2007.
**
At the extraordinary general meeting held on December 31, 2005, our
independent shareholders approved annual caps of Rmb 33,469 million and
Rmb 44,199 million for 2006 and 2007, respectively. Our
independent shareholders subsequently approved the above revised annual
caps at the extraordinary general meeting held on September 29,
2006.
|
|
The
non-exempt continuing connected transactions for the year ended December 31,
2007 to which any member of us was a party were entered into by us:
|
|
(i)
|
in
the ordinary and usual course of our
business;
|
|
|
(ii)
|
either
(a) on normal commercial terms, or (b) if there is no available
comparison, on terms no less favourable to us than terms available from
independent third parties; and
|
|
|
(iii)
|
in
accordance with the relevant agreements governing them on terms that were
fair and reasonable so far as our shareholders were concerned and in the
interests of our company and shareholders as a
whole.
|
We
confirmed that the annual amount of each category of the non-exempt continuing
connected transactions for the year ended December 31, 2007 did not exceed the
applicable annual caps; and we have complied with other relevant provisions of
the Hong Kong Stock Exchange Listing Rules in relation to each category of the
non-exempt continuing connected transactions.
Transactions
with CNOOC Finance Corporation Limited
In
addition to the above related party transactions, we also entered into a
framework agreement (the “Framework Agreement”) with CNOOC Finance Corporation
Limited (“CNOOC Finance”) on April 8, 2004. Under the Framework Agreement, we
utilized the financial services provided by CNOOC Finance, our 31.8% owned
associate and a subsidiary of CNOOC. Such services include placing of our cash
deposits with CNOOC Finance, settlement services for transactions between us and
other entities including CNOOC and its associates and the provision of loans.
The charges including the interest rates and other fees levied by CNOOC Finance
for the financial services provided to us are based on the pricing policies of
CNOOC Finance, which are subject to the pricing guidelines of the People’s Bank
of China , as well as the guidelines published by the China Banking Regulatory
Committee. Based on these guidelines, CNOOC Finance has limited
discretion in setting its prices.
As the
waiver for the deposit services provided by CNOOC Finance to us with the cap of
Rmb 6.8 billion, which expired on April 7, 2007, was not renewed, we have only
continued to use the financial services provided by CNOOC Finance to the extent
that they are exempted from the reporting, announcement and independent
shareholders’ approval requirements under the Hong Kong Stock Exchange Listing
Rules.
For the
years ended December 31, 2005 and 2006 and 2007, the maximum outstanding balance
of deposits (including interest received in respect of these deposits) placed
with CNOOC Finance Corporation Limited amounted to approximately Rmb 3.9
billion, Rmb 6.4 billion and Rmb 6.5 billion (US$891.3 million),
respectively.
Not
applicable.
See pages
beginning on page F-1 following Item 19.
Legal
Proceedings
We are not
a defendant in any material litigation, claim or arbitration, and we know of no
pending or threatened proceeding which would have a material adverse effect on
our financial condition.
Dividend
Distribution Policy
The
payment of any future dividends will be determined by our Board, subject to
shareholders’ approval for all dividends other than interim dividends, based
upon, among other things, our future earnings, capital requirements, financial
conditions, future prospects and other factors which our Board may consider
relevant. Our ability to pay dividends will also depend on the cash flows
determined by the dividends, if any, received by us from our subsidiaries and
associates. Holders of our shares will be entitled to receive such
dividends declared by our Board pro rata according to the amounts paid up or
credited as paid up on the shares. Subject to the factors described
above, we currently intend to pursue a dividend policy consistent with other
international oil and gas exploration and production companies.
Dividends
may be paid only out of our distributable profits as permitted under Hong Kong
law, which does not restrict the payment of dividends to nonresident holders of
our securities. To the extent profits are distributed as dividends,
such portion of profits will not be available to be reinvested in our
operations.
Holders of
our ADSs will be entitled to receive dividends, subject to the terms of the
deposit agreement, to the same extent as holders of our shares, less the fees
and expenses payable under the deposit agreement. Cash dividends will
be paid to the depositary in Hong Kong dollars and will be converted by the
depositary into U.S. dollars and paid to holders of ADSs. Stock dividends, if
any, will be distributed to the depositary and will be distributed by the
depositary, in the form of additional ADSs, to holders of the ADSs.
In 2005,
we declared and paid dividends totaling Rmb 7,772.2 million. In 2006,
we declared and paid dividends totaling Rmb 9,813.7 million. In 2007, we declared and
paid dividends totaling Rmb 11,523.7 million (US$1,579.8
million). The amount of dividends we paid historically is not
indicative of the dividends that we will pay in the future.
101
Substantially
all our dividend payments result from dividends paid to us by CNOOC China
Limited. CNOOC China Limited must follow the laws and regulations of
the PRC and its articles of association in determining its
dividends. As a wholly foreign owned enterprise in China, CNOOC China
has to provide for a reserve fund and staff and workers’ bonus and welfare fund,
each of which is appropriated from net profit after taxation but before dividend
distribution according to the prevailing accounting
rules and regulations in the PRC. CNOOC China Limited is required to
allocate at least 10% of its net profit to the reserve fund until the balance of
this fund has reached 50% of its registered capital, which amount was reached in
2007. Appropriations to the staff and workers’ bonus and welfare
fund, which are determined at the discretion of the directors of CNOOC China
Limited, are charged to expense as incurred in our consolidated financial
statements, which were prepared under Hong Kong GAAP. None of the
contributions of CNOOC China Limited to these statutory funds may be used for
dividend purposes.
For the
years ended December 31, 2005, 2006 and 2007, CNOOC China Limited made the
following appropriations to the statutory reserves:
|
For
the year ended
December 31, 2005
|
For
the year ended
December 31, 2006
|
For
the year ended
December 31, 2007
|
||||||||||||||||||||||
|
Percentage
of Net Profits
|
Rmb
(in millions)
|
Percentage
of Net Profits
|
Rmb
(in millions)
|
Percentage
of Net Profits
|
Rmb
(in millions)
|
|||||||||||||||||||
|
Reserve
fund
|
10%
|
2,268.4
|
10%
|
2,778.7
|
2%
|
539.4
|
||||||||||||||||||
|
Staff
and workers’ bonus and welfare
fund
|
—
|
—
|
0.2%
|
55.6
|
—
|
—
|
||||||||||||||||||
First
Quarter 2008 Financial and Operating Results
During the
first quarter of 2008, our unaudited revenues from the sale of oil and gas were
Rmb 23.8 billion. Our daily average crude oil production was 392,722
barrels per day during this period, compared to 378,734 barrels per day in 2007,
while our daily average natural gas production was 601 million cubic feet per
day, compared to 550 million cubic feet per day in 2007. The average
net realized price of our crude oil was US$88.76 per barrel during the first
quarter of 2008, compared to US$52.45 per barrel in 2007, while the average net
realized price of our natural gas was US$3.65 per thousand cubic feet, compared
to US$3.19 per thousand cubic feet in 2007.
Not
applicable, except for Item 9.A.4 and Item 9.C.
We listed
our shares on the Hong Kong Stock Exchange and our ADSs on the New York Stock
Exchange in February 2001. Our shares are listed on the Hong Kong
Stock Exchange under the stock code “883” and our ADSs are listed on the New
York Stock Exchange under the symbol “CEO.” On March 17, 2004, our
shareholders approved a five-for-one stock split of our shares. The
stock split was effected by dividing each of our issued and unissued shares of
HK$0.10 each into five shares of HK$0.02 each. The ratio of our
American depositary shares listed on the New York Stock Exchange also changed
such that each ADS now represents 100 subdivided shares of HK$0.02 each, as
opposed to 20 shares of HK$0.10 each prior to the stock split. The
following table sets forth, for the periods indicated, the high and low closing
prices per share, as reported on the Hong Kong Stock Exchange and adjusted
retroactively to reflect the stock split, and per ADS, as reported on the New
York Stock Exchange.
|
Hong Kong Stock Exchange
|
New York Stock Exchange
|
|||||||||||||||
|
Period
|
High
|
Low
|
High
|
Low
|
||||||||||||
|
(HK$
per share)
|
(US$
per ADS)
|
|||||||||||||||
|
2003
|
3.54 | 1.96 | 42.78 | 23.83 | ||||||||||||
|
2004
|
4.53 | 2.75 | 58.73 | 35.00 | ||||||||||||
|
2005
|
6.05 | 3.80 | 76.73 | 48.16 | ||||||||||||
|
2006
|
7.39 | 5.25 | 94.63 | 67.19 | ||||||||||||
|
2007
|
16.92 | 6.16 | 216.49 | 78.18 | ||||||||||||
|
2006
Financial Quarters
|
||||||||||||||||
|
1st
Quarter
|
6.80 | 5.25 | 88.03 | 69.19 | ||||||||||||
|
2nd
Quarter
|
6.85 | 5.25 | 87.90 | 67.19 | ||||||||||||
|
Hong Kong Stock Exchange
|
New York Stock Exchange
|
|||||||||||||||
|
Period
|
High
|
Low
|
High
|
Low
|
||||||||||||
|
(HK$
per share)
|
(US$
per ADS)
|
|||||||||||||||
|
3rd
Quarter
|
7.15 | 6.25 | 91.78 | 71.45 | ||||||||||||
|
4th
Quarter
|
7.39 | 6.24 | 94.63 | 80.58 | ||||||||||||
|
2007
Financial Quarters
|
||||||||||||||||
|
1st
Quarter
|
7.48 | 6.16 | 94.27 | 78.18 | ||||||||||||
|
2nd
Quarter
|
9.13 | 6.71 | 116.95 | 85.57 | ||||||||||||
|
3rd
Quarter
|
13.06 | 7.53 | 166.43 | 97.02 | ||||||||||||
|
4th
Quarter
|
16.92 | 11.76 | 216.49 | 151.67 | ||||||||||||
|
2008
Financial Quarter
|
||||||||||||||||
|
1st
Quarter
|
14.12 | 9.65 | 183.36 | 134.75 | ||||||||||||
|
Last
Six Months
|
||||||||||||||||
|
December
2007
|
14.48 | 11.96 | 189.69 | 151.67 | ||||||||||||
|
January
2008
|
14.10 | 9.65 | 180.63 | 137.71 | ||||||||||||
|
February
2008
|
13.50 | 11.02 | 173.86 | 142.90 | ||||||||||||
|
March
2008
|
13.26 | 10.18 | 172.03 | 134.75 | ||||||||||||
|
April
2008
|
14.20 | 11.50 | 184.90 | 152.78 | ||||||||||||
|
May
2008
|
15.90 | 13.36 | 203.00 | 175.25 | ||||||||||||
Not
applicable.
We were
incorporated with limited liability on August 20, 1999 in Hong Kong under the
Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (the “Hong Kong
Companies Ordinance”). Our company registration number in Hong Kong
is 685974. Under section three of our memorandum of association, we
have the capacity and the rights, powers and privileges of a natural person and
we may also do anything which we are permitted or required to do by any
enactment or rule of law. The following are summaries of provisions
of our memorandum and articles of association and the Hong Kong Companies
Ordinance. For further details, you should read our memorandum of
association, which was filed as an exhibit to our registration statement on Form
F-1 (Registration No.333-10862) and our articles of association, as amended,
which was filed as an exhibit to our annual report on Form 20-F for the fiscal
year of 2005.
Issue
of Shares
Under the
Hong Kong Companies Ordinance our directors may, without obtaining the prior
approval of our shareholders, offer to allot new shares in our company to
existing shareholders on a pro rata basis. Our directors may not
allot new shares of our company in any other manner without the prior approval
of our shareholders at a general meeting. Any approval given at a
general meeting granting our directors power to allot shares or securities
convertible into shares generally shall continue in force from the date of the
passing of the resolution until the earliest of:
|
·
|
the
conclusion of the next annual general
meeting;
|
|
·
|
the
expiration of the period within which the next annual general meeting is
required by any applicable laws or our articles of association to be held;
or
|
|
·
|
the
revocation or variation of the authority given under an ordinary
resolution of the shareholders, in a general meeting of our
company.
|
If such an
approval for a general mandate to issue shares is given, the unissued shares of
our company shall be at the disposal of our Board. Our directors may
offer, allot, grant options over or otherwise dispose of the unissued shares to
persons at such times and for such consideration and upon such terms and
conditions as our directors may determine, subject to the restrictions under the
Hong Kong Stock Exchange Listing Rules.
In
accordance with Hong Kong Stock Exchange Listing Rules, any such approval of the
shareholders must be limited to shares not exceeding 20% of our share capital in
issue as of the date of granting such approval plus the share capital
repurchased by us since the granting of such approval.
Dividends
Subject to
the Hong Kong Companies Ordinance, the shareholders at a general meeting may
declare dividends to be paid to shareholders. However, under our
articles of association, dividends cannot be declared in excess of the amount
recommended by our Board.
In
addition to dividends declared at a general meeting, our Board may declare and
pay to the shareholders interim dividends as our Board deems justified by our
financial position. Our Board may also pay any fixed dividend on any
shares of our company semi-annually or at other suitable intervals, whenever our
financial position, in their opinion, justifies such payment.
Winding
Up
If we are
wound up, the surplus assets remaining after payment to all creditors are to be
divided among our shareholders in proportion to the capital paid up on the
shares held by them respectively, and if such surplus assets are insufficient to
repay the whole of the paid-up capital, they are to be distributed so that the
losses are borne by our shareholders in proportion to the capital paid up on the
shares held by them respectively. The liquidator may, with the
sanction of a special resolution, divide among our shareholders in specie or in
kind the whole or any part of our assets or vest any part of our assets in
trustees upon such trusts for the benefit of our shareholders or any of them as
the resolution shall provide.
Voting
Rights
Under the
Hong Kong Companies Ordinance, any action to be taken by the shareholders at a
general meeting requires the affirmative vote of either an ordinary or a special
resolution passed at such meeting.
|
·
|
An
ordinary resolution is a resolution passed by the majority of shareholders
that are entitled to, and do, vote in person or by proxy at a general
meeting;
|
|
·
|
A
special resolution is a resolution passed by not less than 75% of
shareholders that are entitled to, and do, vote in person or by proxy at a
general meeting.
|
Generally,
resolutions of shareholders are passed by ordinary
resolution. However, the Hong Kong Companies Ordinance provides that
certain specified matters may only approved by shareholders by way of special
resolutions. These matters include, for example:
|
·
|
alteration
of the object clause;
|
|
·
|
alteration
of the articles;
|
|
·
|
change
of a company’s name;
|
|
·
|
reduction
of share capital; and
|
|
·
|
voluntary
winding up.
|
Subject to
the requirement of the Hong Kong Stock Exchange Listing Rules, voting at any
general meeting is by a show of hands unless a poll is demanded. If
voting is by a show of hands, every shareholder who is present at the meeting in
person or by proxy has one vote. On a poll, every shareholder who is
present in person or by proxy has one vote for every share held or represented
by him. A poll may be demanded by:
|
·
|
the
chairman of the meeting;
|
|
·
|
at
least three members present in person (or in the case of a member being a
corporation, by its duly authorized representative) or by proxy and
entitled to vote at the meeting;
|
|
·
|
any
member or members present in person (or in the case of a member being a
corporation, by its duly authorized representative) or by proxy and
representing in the aggregate not less than 10% of the total voting rights
of all members having the right to attend and vote at the meeting;
or
|
|
·
|
any
member or members present in person (or in the case of a member being a
corporation, by its duly authorized representative) or by proxy and
holding shares conferring a right to attend and vote at the meeting on
which there have been paid up sums in the aggregate equal to not less than
10% of the total sum paid up on all shares conferring that
right.
|
Any action
to be taken by the shareholders requires the affirmative vote of the requisite
majority of the shares at a general meeting. There are no cumulative
voting rights. Accordingly, the holders of a majority of the shares
voting for the election of directors can elect all the directors if they choose
to do so.
Under Hong
Kong law and our memorandum and articles of association, shareholders who are
not residents of Hong Kong may hold, vote and transfer their shares in our
company in the same manner as our shareholders who are Hong Kong
residents.
General
Meetings
We are
required to hold an annual general meeting each year within fifteen months from
the date of our last annual general meeting. We may also hold
extraordinary general meetings from time to time. Our Board may
convene an extraordinary general meeting at will, and shall on requisition in
accordance with the Hong Kong Companies Ordinance, proceed to convene an
extraordinary general meeting. Our annual general meeting and a
meeting called for the purpose of passing a special resolution require at least
twenty-one days’ prior notice, and any other general meeting requires at least
fourteen days’ prior notice. The notice must specify the place, day
and time of the meeting and, in the case of special business, the general nature
of that business. The quorum for a general meeting is two
shareholders present in person or by proxy. If within thirty minutes
from the time appointed for the meeting a quorum is not present, the meeting, if
convened upon requisition in accordance with the Hong Kong Companies Ordinance,
must be dissolved; but in any other case it must stand adjourned to the same day
in the next week at the same time and place, or to such other day, time and
place as the chairman of the meeting may determine. If at such
adjourned meeting a quorum is not present within thirty minutes from the time
appointed for the meeting, the member or members present in person or by proxy
shall be a quorum and may transact the business for which the meeting is
called.
At each
annual general meeting one third of our directors are to retire from office by
rotation, save any director holding office as chairman or chief executive
officer. The directors to retire every year are to be those who have
been longest in office since their last election and the retiring directors will
be eligible for re-election.
Modification
of Rights
Subject to
the Hong Kong Companies Ordinance, any of the rights attaching to any class of
shares, unless otherwise provided for by the terms of issue of the shares of
that class, may be varied or abrogated with the written consent of the holders
of not less than 75% of the issued shares of that class or with the sanction of
a special resolution passed at a separate general meeting of the holders of
shares of that class.
Borrowing
Powers
Our Board
may exercise all the powers of our company to borrow money and to mortgage or
charge all or any part of our undertaking, property and assets, whether present
or future, and uncalled capital. Our Board may issue debentures,
debenture stock, bonds or other securities of our company, whether outright or
as collateral security for any debt, liability or obligation of our company or
of any third party. These borrowing powers are subject to variation
by a special resolution of our company.
Interested
Transactions
Subject to
the exceptions described below, none of our directors may vote on any contract,
arrangement or proposal in which the director or any of his or her associates is
materially interested. For this purpose, existence of
material interest is presumed if a company, in which the director and/or his or
her associates beneficially own 5% or more of any class of its shares or voting
rights, is materially interested in the transaction. Our directors
may, however, vote on the following matters:
|
·
|
any
contract or arrangement to give security or indemnity to the director or
his or her associates for money lent or obligations undertaken by such
director or his or her associates at the request of or for the benefit of
our company or subsidiaries;
|
|
·
|
any
contract or arrangement to give security or indemnity to a third party for
our debts or debts of our subsidiaries for which such director or his or
her associates assumed responsibility by giving guarantee or
security;
|
|
·
|
any
contract or arrangement concerning offering of securities by us (or any
company which we may promote or be interested in purchasing) for which the
director or his or her associates participate in the underwriting or
sub-underwriting;
|
|
·
|
any
contract or arrangement in which the director or his or her associates are
interested only by virtue of their interest in our
securities;
|
|
·
|
any
contract or arrangement concerning any other company in which the director
or his or her associates are interested as an officer or executive or a
shareholder in which the director or his or her associates are
beneficially interested in shares of that company other than a company in
which they in aggregate beneficially own more than 5% of the issued shares
of any class or voting rights;
|
|
·
|
any
proposal or arrangement concerning employee benefits that do not provide
privileges to our directors or their associates not generally accorded to
the class of persons to whom such scheme or fund relates, including
pension fund or retirement, death or disability benefits schemes;
and
|
|
·
|
any
proposal or arrangement concerning the adoption, modification or operation
of any employees’ share scheme involving the issue or grant of options
over shares or other securities by us to, or for the benefit of, our
employees or employees of our subsidiaries under which the director or his
or her associates may benefit.
|
We have
not entered into any material contracts in the last two years other than in the
ordinary course of business and other than those described in “Item 7―Major
Shareholders and Related Party Transactions―Related Party
Transactions.”
For
information on foreign exchange controls in the PRC, foreign exchange rates,
hedging activities and related foreign exchange risks, see “Item 3—Key
Information—Selected Financial Data,” “Item 3—Key Information—Risk Factors—Risks
relating to the PRC—Government control of currency conversion and future
movements in exchange rates may adversely affect our operations and financial
condition” and “Item 11—Qualitative and Quantitative Disclosure about Market
Risk.”
|
E.
|
The
taxation of income and capital gains of holders of our shares or ADSs is subject
to the laws and practices of Hong Kong and of jurisdictions in which holders of
our shares or ADSs are resident or otherwise subject to tax. The
following is a summary of taxation provisions that are anticipated to be
material based on current law and practice. This summary is subject
to change and does not constitute legal or tax advice. The discussion
does not deal with all possible tax consequences relating to an investment in
our shares or ADSs. In particular, the discussion does not address
the tax consequences under state, local or other laws, such as non-Hong Kong or
non-U.S. federal laws. Accordingly, we urge you to consult your tax
adviser regarding the tax consequences of an investment in our shares and
ADSs. The discussion is based upon laws and relevant interpretations
in effect as of the date of this annual report, all of which are subject to
changes. There is no reciprocal tax treaty in effect between Hong
Kong and the United States.
Hong
Kong
Tax
on Dividends
Under the
current practices of the Hong Kong Inland Revenue Department, no tax is payable
in Hong Kong in connection with dividends paid by us.
Profits
Tax
No tax is
imposed in Hong Kong in respect of capital gains from the sale of property, such
as the shares and ADSs. Trading gains from the sale of property by
persons carrying on a trade, profession or business in Hong Kong where such
gains are derived from or arise in Hong Kong from such trade, profession or
business will be chargeable to Hong Kong profits tax which is currently imposed
at the rate of 17.5% on corporations and at a maximum rate of 16% on
individuals. Gains from sales of the shares effected on the Hong Kong
Stock Exchange will be considered to be derived from or arise in Hong
Kong. Liability for Hong Kong profits tax would thus arise in respect
of trading gains from sales of shares or ADSs realized by persons carrying on a
business of trading or dealing in securities in Hong Kong.
Stamp
Duty
Hong Kong
stamp duty, currently charged at the rate of HK$1.00 per HK$1,000 or part
thereof on the higher of the consideration for or the value of the shares, will
be payable by the purchaser on every purchase and by the seller on every sale of
shares. A total of HK$2.00 per HK$1,000 or part thereof is currently
payable on a typical sale and purchase transaction involving
shares. In addition, a fixed duty of HK$5 is currently payable on any
instrument of transfer of shares. The withdrawal of shares upon the
surrender of ADRs, and the issuance of ADRs upon the deposit of shares, will
also attract stamp duty at the rate described above for sale and purchase
transactions unless the withdrawal or deposit does not result in a change in the
beneficial ownership of the shares under Hong Kong law. The issuance
of the ADRs upon the deposit of shares issued directly to the depositary or for
the account of the depositary does not incur stamp duty. No Hong Kong
stamp duty is payable upon the transfer of ADSs outside Hong Kong.
Estate
Duty
The shares
are Hong Kong property under Hong Kong law, and accordingly such shares may be
subject to estate duty on the death of the beneficial owner of such shares,
regardless of the owner’s residence, citizenship or domicile. We
cannot assure that the Hong Kong Inland Revenue Department will not treat the
ADRs as Hong Kong property that may be subject to estate duty on the death of
the beneficial owner of the ADR even if the ADRs are located outside Hong Kong
at the date of such death. Hong Kong estate duty is imposed on a
progressive scale from 5% to 15%. The rate of and the threshold for
estate duty has, in the past, been adjusted on a fairly regular
basis. No estate duty is payable when the aggregate value of the
dutiable estate does not exceed HK$7.5 million, and a maximum rate of duty of
15% applies when the aggregate value of the dutiable estate exceeds HK$10.5
million. The Hong Kong Government is considering abolishing estate
duty in Hong Kong.
United
States
U.S.
Federal Income Tax Considerations
The
following is a discussion of the material U.S. federal income tax consequences
of owning and disposing of ADSs or shares by U.S. Holders (as defined below),
but it does not purport to be a comprehensive description of all the tax
considerations that may be relevant to a particular person’s decision to hold
such ADSs or shares. This discussion does not address U.S. state,
local and non-U.S. tax consequences. The discussion applies only to
U.S. Holders who hold ADSs or shares as capital assets for U.S. federal income
tax purposes and it does not address special classes of holders, such
as:
|
·
|
certain
financial institutions;
|
|
·
|
insurance
companies;
|
|
·
|
dealers
and traders in securities or foreign
currencies;
|
|
·
|
persons
holding ADSs or shares as part of a hedge, straddle, conversion,
integrated transaction or similar
transaction;
|
|
·
|
persons
whose functional currency for U.S. federal income tax purposes is not the
U.S. dollar;
|
|
·
|
partnerships
or other entities classified as partnerships for U.S. federal income tax
purposes;
|
|
·
|
persons
liable for the alternative minimum
tax;
|
|
·
|
tax-exempt
organizations; or
|
|
·
|
persons
holding ADSs or shares that own or are deemed to own 10% or more of our
voting stock.
|
This
discussion is based on the Internal Revenue Code of 1986, as amended,
administrative pronouncements, judicial decisions and final, temporary and
proposed U.S. Treasury regulations, all as of the date hereof. These
laws are subject to change, possibly on a retroactive basis. U.S.
Holders should consult their own tax advisors concerning the U.S. federal,
state, local and non-U.S. tax consequences of purchasing, owning and disposing
of ADSs or shares in their particular circumstances.
As used
herein, a “U.S. Holder” is a beneficial
owner of ADSs or shares that is, for U.S. federal income tax purposes: (i) a
citizen or resident of the United States; (ii) a corporation, or other entity
taxable as a corporation, created or organized in or under the laws of the
United States or any political subdivision thereof; or (iii) an estate or trust
the income of which is subject to U.S. federal income taxation regardless of its
source.
In
general, if you hold ADSs, you will be treated as the holder of the underlying
shares represented by those ADSs for U.S. federal income tax
purposes. Accordingly, no gain or loss will be recognized if you
exchange ADSs for the underlying shares represented by those ADSs.
The U.S.
Treasury has expressed concerns that parties to whom American Depositary
Receipts are released before delivery of shares to the depositary
(“pre-release”) may be taking actions that are inconsistent
with the claiming of foreign tax credits for United States holders of American
Depositary Receipts. Such actions would also be inconsistent with the
claiming of the reduced rate of tax, described below, applicable to dividends
received by certain non-corporate holders. Accordingly, the
availability of the reduced tax rate for dividends received by certain
non-corporate holders, described below, could be affected by actions taken by
parties to whom the ADSs are pre-released.
This
discussion assumes that we were not, and will not become, a passive foreign
investment company (“PFIC”), as described below.
Taxation
of Distributions
Distributions
received by a U.S. Holder on ADSs or shares, other than certain pro rata
distributions of common shares to all shareholders, will constitute foreign
source dividend income to the extent paid out of our current or accumulated
earnings and profits (as determined for U.S. federal income tax
purposes). Because we do not maintain calculations of our earnings
and profits under U.S. federal income tax principles, it is expected that
distributions generally will be reported to U.S. Holders as
dividends. The amount of the dividend a U.S. Holder will be required
to include in income will equal the U.S. dollar value of the Hong Kong dollar
distribution, calculated by reference to the exchange rate in effect on the date
the payment is received by the depositary (or, in the case of shares, received
by the holder), regardless of whether the payment is converted into U.S. dollars
on the date of receipt. If the dividend is converted into U.S.
dollars on the date of receipt, a U.S. Holder will not be required to recognize
foreign currency gain or loss in respect of the dividend income. A
U.S. Holder may have foreign currency gain or loss if the dividend is converted
into U.S. dollars after the date of receipt. Corporate U.S. Holders
will not be entitled to claim the dividends-received deduction with respect to
dividends paid by us.
Subject to
applicable limitations and the discussion above regarding concerns expressed by
the U.S. Treasury, certain dividends paid by “qualified foreign corporations” to
certain non-corporate U.S. Holders in taxable years beginning before January 1,
2011, are taxable at a maximum rate of 15%. A foreign corporation is
treated as a qualified foreign corporation with respect to dividends paid on
stock that is readily tradable on an established securities market in the United
States, such as the New York Stock Exchange where our ADSs are traded.
Non-corporate U.S. Holders should consult their own tax advisers to determine
whether these favorable rates may apply to dividends they receive from us and
whether they are subject to any special rules that limit their ability to be
taxed at this favorable rate.
Sale
or Other Disposition of ADSs or Shares
A U.S.
Holder will generally recognize capital gain or loss on the sale or other
disposition of ADSs or shares, which will be long-term capital gain or loss if
the holder has held such ADSs or shares for more than one year. The
amount of the U.S. Holder’s gain or loss will be equal to the difference between
the amount realized on the sale or other disposition (as determined in U.S.
dollars) and such holder’s tax basis in the ADSs or shares (as determined in
U.S. dollars). Any gain or loss will generally be U.S. source gain or
loss for foreign tax credit purposes.
Passive
Foreign Investment Company Considerations
We believe
that we were not a PFIC for U.S. federal income tax purposes for our taxable
year ended December 31, 2007. In general, a non-U.S. company will be
considered a PFIC for U.S. federal income tax purposes for any taxable year in
which (i) 75% or more of its gross income consists of passive income (such as
dividends, interest, rents and royalties) or (ii) 50% or more of the average
quarterly value of its assets consists of assets that produce, or are held for
the production of, passive income. As PFIC status depends upon the
composition of our income and assets and the market value of our assets
(including, among other things, any equity investments in less than 25%-owned
entities) from time to time, and since there are uncertainties in the manner of
application of the PFIC rules, there can be no assurance that we will not be
considered a PFIC for any taxable year.
If we were
to be treated as a PFIC for any taxable year during which a U.S. Holder held
ADSs or shares, certain adverse U.S. federal income tax rules would apply on a
disposition (including a pledge) of ADSs or shares by the U.S.
Holder. In general, under those rules, gain recognized by the U.S.
Holder on a sale or other disposition of ADSs or shares would be allocated
ratably over the U.S. Holder’s holding period for the ADSs or
shares. The amounts allocated to the taxable year of the sale or
other disposition and to any year before we became a PFIC would be taxed as
ordinary income. The amount allocated to each other taxable year
would be subject to tax at the highest rate in effect for individuals or
corporations, as appropriate, for such taxable year, and an interest charge
would be imposed on the amount allocated to each such taxable
year. Further, any distribution in respect of ADSs or shares in
excess of 125% of the average of the annual distributions on ADSs or shares
received by the U.S. Holder during the preceding three years or the U.S.
Holder’s holding period, whichever is shorter, would be subject to taxation as
described above. Certain elections may be available (including a
mark-to-market election) to U.S. Holders that may mitigate the adverse tax
consequences resulting from PFIC status.
In
addition, if we were to be treated as a PFIC in a taxable year in which we pay a
dividend or the prior taxable year, the 15% dividend rate
discussed above with respect to dividends received by certain non-corporate U.S.
Holders would not apply.
Information
Reporting and Backup Withholding
Payment of
dividends and sales proceeds that are made within the United States or through
certain U.S.-related financial intermediaries generally are subject to
information reporting and to backup withholding unless the U.S. Holder is a
corporation or other exempt recipient or, in the case of backup withholding, the
U.S. Holder provides a correct taxpayer identification number and certifies that
no loss of exemption from backup withholding has occurred. The amount of any
backup withholding from a payment to a U.S. Holder will be allowed as a credit
against the holder’s U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is furnished to the
Internal Revenue Service.
Not
applicable.
Not
applicable.
We are
subject to the informational requirements of the Exchange Act and accordingly
file reports and other information with the Securities and Exchange
Commission. You may inspect and copy our reports and other
information we file with the Securities and Exchange Commission at the public
reference facilities maintained by the Securities and Exchange Commission.
Copies of such material may also be obtained at prescribed rates by writing to
the Public Reference Section of the Securities and Exchange Commission at 100 F
Street, NE, Washington, D.C. 20549. Please call 1-800-SEC-0330 for
information on the location and operation of the Securities and Exchange
Commission’s public reference facilities. Our filings with the
Securities and Exchange Commission are also available to the public over the
internet at its website at http://www.sec.gov.
Not
applicable.
Our market
risk exposures primarily consist of fluctuations in oil and gas prices, exchange
rates and interest rates.
Commodity
Price Risks
We are
exposed to fluctuations in prices of crude oil. International oil
prices are volatile and this volatility has a significant effect on our net
sales and profit. We do not hedge market risk resulting from fluctuations in oil
prices. See “Item 4—Information on the Company—Business Overview—Overview” and
“Item 3—Key Information—Risk Factors—Risks relating to our business—Our
business, revenues and profits fluctuate with changes in oil and gas
prices.”
Currency
Risk
Our
foreign exchange exposure gives rise to market risk associated with exchange
rate movements.
Substantially
all of our oil and gas sales are denominated in Renminbi and U.S.
dollars. In the last ten years, the PRC government’s policy of
maintaining a stable exchange rate and China’s ample foreign reserves have
contributed to the stability of the Renminbi. On July 21, 2005, China
reformed its foreign exchange regime by moving into a managed floating exchange
rate system based on market supply and demand with reference to a basket of
currencies. The Renminbi is no longer pegged to the U.S.
dollar. From that day to May 30, 2008, the Renminbi appreciated
approximately 19.1% against the U.S. dollar. However, the Chinese
government has not yet determined if or when the exchange rate will be
deregulated.
Our
management has assessed our exposure to foreign currency risk using a
sensitivity analysis. Based on a five percent change in the value of
the U.S. dollar occurring on December 31, 2007, the exposure of our results of
operations, monetary assets and liabilities and investments in foreign
subsidiaries would each be less than 0.1% of our profit for the
year.
The
appreciation of the Renminbi against the U.S. dollar may have the following
impact on us:
|
·
|
Our
oil and gas sales may decrease, because the benchmark oil and gas prices
are usually in U.S. dollars;
|
|
·
|
Our
cost for imported equipment and materials will decrease, because most of
these costs are denominated in U.S. dollars;
and
|
|
·
|
Our
debt repayment burden will decrease, since approximately 96% of our debt
is denominated in U.S. dollars.
|
For
further information on our currency risk, see “Item 3—Key Information—Risk
Factors—Risks relating to the PRC— Government control of currency conversion and
future movements in exchange rates may adversely affect our operations and
financial condition.”
Interest
Rate Risk
We are
exposed to interest rate risk arising from our loans. An upward
fluctuation in interest rates increases the cost of new debt and the cost of
servicing our floating rate debt. We may use interest rate swap
transactions, from time to time, to hedge our interest rate exposure when
considered appropriate, based on existing and anticipated market
conditions.
As of
December 31, 2007, the interest rates for 78% of our outstanding debts were
fixed. The term of the weighted average balance was approximately 8.5
years. A fixed interest rate can reduce the volatility
of finance costs and is considered to be favorable in an environment of rising
interest rates. We do not currently engage in any interest rate hedging
activities.
The
following table sets forth additional information about the expected maturity
dates of our outstanding debt as of December 31, 2007.
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
and
after
|
Total
|
Fair
value
as
of
December
31, 2007
|
|||||||||||||||||||||||||
|
(Rmb
in millions, except percentages)
|
||||||||||||||||||||||||||||||||
|
Long-term
debt, including current portion
|
||||||||||||||||||||||||||||||||
|
Fixed
rate
|
- | - | - | - | 500.0 | - | 500.0 | 466.8 | ||||||||||||||||||||||||
|
Average
interest rate
|
4.050 | % | 4.050 | % | 4.050 | % | 4.050 | % | 4.050 | % | - | |||||||||||||||||||||
|
Long-term
debt, including current portion(1)
|
||||||||||||||||||||||||||||||||
|
Floating
rate
|
- | 21.7 | 134.7 | 170.1 | 202.5 | 2,179.8 | 2,708.8 | 2,708.8 | ||||||||||||||||||||||||
|
Interest
rate
|
LIBOR+
|
LIBOR+
|
LIBOR+
|
LIBOR+
|
LIBOR+
|
LIBOR+
|
— | — | ||||||||||||||||||||||||
|
0.23%
~0.38%
|
0.23%
~0.38%
|
0.23%
~0.38%
|
0.23%
~0.38%
|
0.23%
~0.38%
|
0.23%
~0.38%
|
|||||||||||||||||||||||||||
|
Long-term
guaranteed notes
|
||||||||||||||||||||||||||||||||
|
Fixed
rate
|
- | 2,002.6 | - | - | 3,652.3 | 3,652.3 | 9,307.2 | 11,932.1 | ||||||||||||||||||||||||
|
Average
interest rate
|
5.351 | % | 5.361 | % | 5.663 | % | 5.663 | % | 5.154 | % | 5.169 | % | - | - | ||||||||||||||||||
(1)
Long-term debt, including the current portion, contains long term bank loans
classified as liabilities directly associated with non-current assets classified
as held for sale as of December 31, 2007. For more details, see note
37 to our consolidated financial statements included elsewhere in this annual
report.
For
additional discussions of our market risks, see “Item 3—Key Information—Risk
Factors.”
Not
applicable.
PART II
None.
None.
None.
Not
applicable.
Not
applicable.
Not
applicable.
(a)
Disclosure Controls and Procedures
An
evaluation was carried out under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness, as of December 31, 2007, of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)).
Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2007, our disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported as and when required by the SEC’s rules and forms and is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
(b) Management’s annual report on
internal control over financial reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rule 13a-15(f) under the
Exchange Act.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may
deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007 using the criteria set forth in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, our
management has concluded that our internal control over financial reporting as
of December 31, 2007 was effective.
(c)
Attestation Report of the Registered Public Accounting Firm
Our
independent auditors have issued an audit report on the effectiveness of our
internal control over financial reporting. This report appears on page
F-4.
(d)
Changes in Internal Control over Financial Reporting
There were
no changes in our internal control over financial reporting that occurred during
the period ended December 31, 2007 that have materially affected, or that were
reasonably likely to materially affect, our internal control over financial
reporting.
Mr.
Aloysius Hau Yin Tse has been designated by our Board as an audit committee
financial expert. Mr. Tse is independent as defined in the listing
standards of the New York Stock Exchange.
Our Board
adopted a code of ethics on August 28, 2003 to provide guidelines to our senior
management and directors in legal and ethical matters as well as the
sensitivities involved in reporting illegal and unethical
matters. Such code of ethics covers such areas as supervisory rules,
insider dealing, market malpractices, conflict of interests, company
opportunities, protection and proper use of our assets as well as reporting
requirements. We reviewed our code of ethics and adopted a revised
code of ethics in 2005, as part of our continuing efforts to improve our
corporate governance standards. The revised code of ethics clarified
the scope of senior management, and expanded the applicability of prohibitions
against insider trading and other market misconduct.
We have
provided all our directors and senior officers with a copy of the revised code
of ethics and require them to comply with the revised code of ethics, so as to
ensure our operations are proper and lawful. We will take
disciplinary actions towards any act which is in breach of the revised code of
ethics. Any change or waiver, explicit or implicit, with respect to
our revised code of ethics, must be disclosed to our shareholders either in our
annual report or on our internet website, www.cnoocltd.com.
Audit Fees
The
aggregate fees billed for professional services rendered by our principal
accountants for the audit of our annual financial statements or services that
are normally provided by the accountants in connection with statutory and
regulatory filings or engagements were Rmb 10.4 million for 2006 and Rmb 14.4
million (US$2.0 million) for 2007.
Audit-Related
Fees
The
aggregate fees billed for assurance and related services by our principal
accountants that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under “Audit Fees” were
Rmb 4.7 million for 2006 and Rmb 1.6 million (US$0.2 million) for 2007.
The audit-related
services provided 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 principal
accountant for tax compliance, tax advice and tax planning were nil for 2006 and
Rmb 0.3 million (approximately US$35,000) for 2007.
All
other fees
The
aggregate fees billed for professional services rendered by our principle
accountant for risk management advisory services and information systems reviews
were nil for 2006 and Rmb 1.1 million (US$0.1 million) for 2007.
The
aggregate fees billed for products and services provided by our principal
accountant, other than the services reported above, were nil for fiscal years
2006 and 2007.
Audit Committee’s pre-approval
policies and procedures
Our audit
committee under our Board is responsible for the appointment, compensation and
oversight of the work of our principal accountant. In
2003, our audit committee adopted a policy calling for the audit committee’s
pre-approval for the engagement of our principal accountant for audit and
permitted non-audit services. Our
Board has also ratified the policy and procedures. Under this audit
committee policy, proposed services may be pre-approved by our audit committee
either on an annual basis or on a case-by-case basis. Appendices to
the audit committee policy set forth (1) the audit, audit-related, tax and other
services that may be subject to the general annual pre-approval of the audit
committee; (2) non-audit services of a routine and recurring nature that may be
subject to specific pre-approval from the audit committee on a case-by-case
basis; and (3) a list of prohibited non-audit services. Our audit
committee will periodically review and revise these appendices based on its
subsequent determinations. The audit committee policy also provides
for procedures to establish annual fee levels or budgets for pre-approved
services and ratios between different categories of pre-approved
services. In addition, the audit committee policy contains provisions
that deal with compliance, monitoring, reporting and other related
matters.
During
2007, all fees for audit-related services, tax services and all other services
paid to our principal accountant were approved by our audit
committee.
Not
applicable.
None.
PART III
Not
applicable.
See pages
beginning on page F-1 following Item 19.
The
following documents are filed as part of this annual report:
|
Exhibit
Number
|
Document
|
|
|
1.1
|
Articles
of Association of the Registrant, as amended in 2005, incorporated by
reference to Exhibit 1.1 to our Annual Report on Form 20-F for fiscal year
2005 filed with the Securities and Exchange Commission (File Number:
1-14966).
|
|
|
1.2
|
Memorandum
of Association of the Registrant, incorporated by reference to Exhibit 3.2
to our Registration Statement on Form F-1 filed with the Securities and
Exchange Commission (File Number: 333-10862).
|
|
|
2.1
|
Form
of Indenture, incorporated by reference to Exhibit 2.1 to our annual
report on Form 20-F for fiscal year 2002 filed with the Securities and
Exchange Commission (File Number: 1-14966).
|
|
|
2.2
|
Trust
Deed dated December 15, 2004 among CNOOC Limited, CNOOC Finance (2004)
Limited and J.P. Morgan Corporate Trustee Services Limited, incorporated
by reference to Exhibit 2.2 to our annual report on Form 20-F for fiscal
year 2004 filed with the Securities and Exchange Commission (File Number:
1-14966).
|
|
|
4.1
|
The
Asset Swap Agreement dated July 20, 1999 between CNOOC and Offshore Oil
Company Limited, incorporated by reference to Exhibit 10.1 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
|
|
|
4.2
|
The
Asset Allocation Agreement dated July 20, 1999 between CNOOC and Offshore
Oil Company Limited, incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
|
|
|
4.3
|
The
Reorganization Agreement dated September 13, 1999 between CNOOC, Offshore
Oil Company Limited and CNOOC Limited, incorporated by reference to
Exhibit 10.3 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.4
|
Form
of the Equity Transfer Agreement between CNOOC and CNOOC Limited,
incorporated by reference to Exhibit 10.4 to our Registration Statement on
Form F-1 filed with the Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.5
|
Form
of the Transfer Agreement dated October 1, 1999 between CNOOC and Offshore
Oil Company Limited regarding the transfer of the rights and obligations
of CNOOC under the 37 production sharing contracts and one geophysical
exploration agreement, incorporated by reference to Exhibit 10.5 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number:
333-10862).
|
|
4.6
|
Form
of Equity Transfer Agreement between China Offshore Oil East China Sea
Corporation and Offshore Oil Company Limited regarding the transfer of the
rights and obligations under Joint Venture Contract of Shanghai Petroleum
and Natural Gas Company Limited dated July 28, 1992 to Offshore Oil
Company Limited, incorporated by reference to Exhibit 10.6 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
|
|
|
4.7
|
Transfer
Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company
Limited regarding the transfer of the rights and obligations of CNOOC
under the Natural Gas Sale and Purchase Contract dated December 22, 1992
to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.7
to our Registration Statement on Form F-1 filed with the Securities and
Exchange Commission (File Number: 333-10862).
|
|
|
4.8
|
Transfer
Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company
Limited regarding the transfer of the rights and obligations of CNOOC
under the Natural Gas Sale and Purchase Contract dated November 7, 1992 to
Offshore Oil Company Limited, incorporated by reference to Exhibit 10.8 to
our Registration Statement on Form F-1 filed with the Securities and
Exchange Commission (File Number: 333-10862).
|
|
|
4.9
|
Transfer
Agreement dated September 9, 1999 among CNOOC, Offshore Oil Company
Limited, the four PRC subsidiaries and CNOOC’s affiliates regarding the
transfer of the rights and obligations of the technical services
agreements to Offshore Oil Company Limited, incorporated by reference to
Exhibit 10.9 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.10
|
Nanshan
Terminal Leasing Agreement dated September 9, 1999 between CNOOC, Hainan
China Oil and Offshore Natural Gas Company and Offshore Oil Company
Limited, incorporated by reference to Exhibit 10.10 to our Registration
Statement on Form F-1 filed with the Securities and Exchange Commission
(File Number: 333-10862).
|
|
|
4.11
|
Trademark
License Agreement dated September 9, 1999 between CNOOC, Offshore Oil
Company Limited and CNOOC Limited, incorporated by reference to Exhibit
10.11 to our Registration Statement on Form F-1 filed with the Securities
and Exchange Commission (File Number: 333-10862).
|
|
|
4.12
|
Trademark
License Agreement dated September 9, 1999 between China Offshore Oil
Marketing Company, CNOOC Limited and Offshore Oil Company Limited,
incorporated by reference to Exhibit 10.12 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
|
|
|
4.13
|
Property
Leasing Agreement dated September 9, 1999 between Wui Hai Enterprise
Company Limited and Offshore Oil Company Limited in respect of the office
premises at 6th,
7th
and 8th
Floors, CNOOC Plaza, No. 6 Dong Zhi Men Wai Xiao Jie, Beijing,
incorporated by reference to Exhibit 10.18 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
|
|
|
4.14
|
Property
Leasing Agreement dated September 9, 1999 between China Offshore Oil
Western South China Sea Corporation and Offshore Oil Company Limited in
respect of the office premises at 1st
to 9th
Floors, Nantiao Road, Potou District Zhangjiang, Guangdong, incorporated
by reference to Exhibit 10.19 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.15
|
Property
Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai
Corporation and Offshore Oil Company Limited in respect of the office
premises at 1st
to 7th
Floors and 9th
Floor, 2-37 He Kou Jie, Tanggu District, Tianjin, incorporated by
reference to Exhibit 10.20 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission (File Number:
333-10862).
|
|
4.16
|
Property
Leasing Agreement dated September 9, 1999 between China Offshore Oil East
China Sea Corporation and Offshore Oil Company Limited in respect of the
office premises at 20th,
22nd
and 23rd
Floors, 583 Ling Ling Road, Shanghai, the PRC, incorporated by reference
to Exhibit 10.21 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.17
|
Property
Leasing Agreement dated September 9, 1999 between China Offshore Oil
Eastern South China Sea Corporation and Offshore Oil Company Limited in
respect of the office premises at 3rd
Floor and 6th
to 11th
Floors, 1 Second Industrial Road, Shekou, Shenzhen, the PRC, incorporated
by reference to Exhibit 10.22 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.18
|
Property
Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai
Corporation and Offshore Oil Company Limited in respect of the Chengbei
Warehouse, Chengbei Road, Tanggu District, Tianjin City, the PRC,
incorporated by reference to Exhibit 10.23 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
|
|
|
4.19
|
Property
Leasing Agreement dated September 9, 1999 between Overseas Oil & Gas
Corporation Ltd. and China Offshore Oil (Singapore) International Pte Ltd
in respect of the residential premises at 10-01 and 17-002 Aquamarine
Tower, 50 Bayshore Road, 13-05 Jade Tower, 60 Bayshore Road, Singapore,
incorporated by reference to Exhibit 10.24 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
|
|
|
4.20
|
Suizhong
Pier Agreement dated September 9, 1999 between Offshore Oil Company
Limited and China Offshore Bohai Corporation, incorporated by reference to
Exhibit 10.25 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.21
|
Form
of Novation Agreement among CNOOC, CNOOC China Limited, the Banks and
other financial institution and the Fuji Bank Limited Hong Kong Branch, as
agent, in respect of the transfer of the US$110 million syndicated loan,
incorporated by reference to Exhibit 10.26 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
|
|
|
4.22
|
Form
of the Undertaking Agreement between CNOOC and CNOOC Limited, incorporated
by reference to Exhibit 10.27 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.23
|
Form
of Pre-Global Offering Share Option Scheme for the Senior Management of
CNOOC Limited, incorporated by reference to Exhibit 10.31 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission (File Number: 333-10862).
|
|
|
4.24
|
Form
of Share Option Scheme for the Senior Management of CNOOC Limited,
incorporated by reference to Exhibit 10.32 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission (File
Number: 333-10862).
|
|
|
4.25
|
CNOOC
Limited Share Option Scheme adopted on December 31, 2005, incorporated by
reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal
year 2005 filed with the Securities and Exchange Commission (File Number:
1-14966).
|
|
|
4.26
|
Subscription
Agreement dated March 17, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
Overseas Oil & Gas Corporation, Ltd., et al., incorporated by
reference to Exhibit 10.33 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.27
|
Subscription
Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
Overseas Oil & Gas Corporation, Ltd. and Hutchison International
Limited, incorporated by reference to Exhibit 10.34 to our Registration
Statement on Form F-1 filed with the Securities and Exchange Commission
(File Number: 333-10862).
|
|
4.28
|
Subscription
Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
Overseas Oil & Gas Corporation, Ltd. and Hong Kong Electric Holdings
Limited, incorporated by reference to Exhibit 10.35 to our Registration
Statement on Form F-1 filed with the Securities and Exchange Commission
(File Number: 333-10862).
|
|
|
4.29
|
Subscription
Agreement dated June 28, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
Overseas Oil & Gas Corporation, Ltd., et al., incorporated by
reference to Exhibit 10.36 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission (File Number:
333-10862).
|
|
|
4.30
|
Corporation
Placing Agreement dated February 6, 2001 among CNOOC Limited, China
National Offshore Oil Corporation, Shell Eastern Petroleum (Pte) Limited
and Merrill Lynch Far East Limited, incorporated by reference to Exhibit
10.37 to our Registration Statement on Form F-1 filed with the Securities
and Exchange Commission (File Number: 333-10862).
|
|
|
4.31
|
Equity
Transfer Agreement dated September 5, 2003 between CNOOC China Limited and
CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to
our annual report on Form 20-F for fiscal year 2003 filed with the
Securities and Exchange Commission (File Number:
1-14966).
|
|
|
4.32
|
Framework
Agreement dated April 8, 2004 with CNOOC Finance Corporation Limited
(Summary Translation), incorporated by reference to Exhibit 4.39 to our
annual report on Form 20-F for fiscal year 2003 filed with the Securities
and Exchange Commission (File Number: 1-14966).
|
|
|
4.33
|
Framework
Agreement dated December 8, 2005 with CNOOC (Summary Translation),
incorporated by reference to Exhibit 4.45 to our Annual Report on Form
20-F for fiscal year 2005 filed with the Securities and Exchange
Commission (File number: 1-14966).
|
|
|
4.34
|
Framework
Agreement dated December 8, 2005 with China Oilfield Services Limited
(Summary Translation), incorporated by reference to Exhibit 4.46 to our
Annual Report on Form 20-F for fiscal year 2005 filed with the Securities
and Exchange Commission (File number: 1-14966).
|
|
|
4.35
|
Framework
Agreement dated December 8, 2005 with Offshore Oil Engineering Co., Ltd.
(Summary Translation), incorporated by reference to Exhibit 4.47 to our
Annual Report on Form 20-F for fiscal year 2005 filed with the Securities
and Exchange Commission (File number: 1-14966).
|
|
|
4.36
|
Sale
and Purchase Agreement, dated January 8, 2006 between CNOOC
Exploration & Production Limited and South Atlantic
Petroleum Limited (certain statements, marked with an asterisk in brackets
[*], have been omitted from this agreement pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended, and the omitted materials have been
filed separately in paper form with the Securities and Exchange
Commission), incorporated by reference to Exhibit 4.49 to our Annual
Report on Form 20-F for fiscal year 2005 filed with the Securities and
Exchange Commission (File number: 1-14966).
|
|
|
4.37
|
Framework
Agreement dated November 8, 2007 with China BlueChemical Ltd. (Summary
Translation).
|
|
|
4.38
|
Framework
Agreement dated November 8, 2007 with CNOOC (Summary
Translation).
|
|
|
4.39
|
Framework
Agreement dated November 8, 2007 with China Oilfield Services Limited
(Summary Translation).
|
|
|
4.40
|
Framework
Agreement dated November 8, 2007 with Offshore Oil Engineering Co., Ltd.
(Summary Translation).
|
|
|
8.1
|
List
of Subsidiaries.
|
|
10.1
|
Letter
from CNOOC Limited dated May 23, 2002 regarding receipt of certain
representations from Arthur Andersen & Co pursuant to the requirements
of the Securities and Exchange Commission, incorporated by reference to
Exhibit 10 to our annual report on Form 20-F for fiscal year 2001 filed
with the Securities and Exchange Commission (File Number:
1-14966).
|
|
|
11.1
|
Code
of Ethics for Directors and Senior Officers, as amended in 2005,
incorporated by reference to Exhibit 11.1 to our Annual Report on Form
20-F for fiscal year 2005 filed with the Securities and Exchange
Commission (File Number: 1-14966).
|
|
|
12.1
|
Certification
by the Chief Executive Officer in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
12.2
|
Certification
by the Chief Financial Officer in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
13.1
|
Sarbanes-Oxley
Act of 2002 Section 906 Certification furnished to (not filed with) the
Securities and Exchange Commission.
|
120
SIGNATURE
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
| CNOOC Limited | |||
|
|
By:
|
/s/ Xin Kang | |
| Name: Xin Kang | |||
| Title: Company Secretary | |||
Date: June
26, 2008
121
CNOOC LIMITED AND ITS
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
TOGETHER
WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
INDEX TO FINANCIAL
STATEMENTS
|
Page
|
|
|
CNOOC LIMITED AND ITS
SUBSIDIARIES
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-7
|
|
|
F-8
|
|
|
F-11
|
|
|
F-12
|
The Board
of Directors and Shareholders of CNOOC Limited
(Incorporated in Hong Kong with
limited liability)
We have
audited the accompanying consolidated balance sheets of CNOOC Limited (the
“Company”) and its subsidiaries (the “Group”) as of December 31, 2007 and 2006,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2007. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and Hong Kong Standards on Auditing
issued by the Hong Kong Institute of Certified Public Accountants. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Group at December
31, 2007 and 2006 and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2007, in
conformity with accounting principles generally accepted in Hong Kong (“Hong
Kong GAAP”).
Accounting
principles generally accepted in Hong Kong vary in certain significant aspects
from U.S. generally accepted accounting principles. Information relating to the
nature and effect of such differences is presented in note 39 to the
consolidated financial statements.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Group's internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 27, 2008 expressed an
unqualified opinion thereon.
/S/ Ernst &
Young
Ernst & Young
Certified Public
Accountants
Hong
Kong
March 27,
2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Board
of Directors and Shareholders of CNOOC Limited
(Incorporated in Hong Kong with
limited liability)
We have
audited CNOOC Limited’s internal control over financial reporting as of December
31, 2007, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). CNOOC Limited’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying “Management’s annual report on internal control over financial
reporting”. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, CNOOC Limited maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of CNOOC
Limited as of December 31, 2007 and 2006, and the related consolidated
statements of income, changes in shareholders’ equity and cash flows for each of
the three years in the period ended December 31, 2007 of CNOOC Limited and our
report dated March 27, 2008 expressed an unqualified opinion
thereon.
/S/ Ernst &
Young
Ernst & Young
Certified Public
Accountants
Hong
Kong
March 27,
2008
CNOOC LIMITED AND ITS
SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
2005, 2006 AND 2007
|
Notes
|
2005
|
2006
|
2007
|
2007
|
||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
US$’000
|
|||||||||||||||||
|
REVENUE
|
||||||||||||||||||||
|
Oil
and gas sales
|
6,27
|
53,417,669
|
67,827,953
|
73,036,906
|
10,012,462
|
|||||||||||||||
|
Marketing
revenues
|
7
|
15,901,325
|
20,964,093
|
17,397,338
|
2,384,961
|
|||||||||||||||
|
Other
income
|
136,749
|
155,238
|
289,587
|
39,699
|
||||||||||||||||
|
69,455,743
|
88,947,284
|
90,723,831
|
12,437,122
|
|||||||||||||||||
|
EXPENSES
|
||||||||||||||||||||
|
Operating
expenses
|
(5,934,598 | ) | (6,999,184 | ) | (8,039,603 | ) | (1,102,131 | ) | ||||||||||||
|
Production
taxes
|
(2,596,543 | ) | (3,315,661 | ) | (3,497,440 | ) | (479,456 | ) | ||||||||||||
|
Exploration
expenses
|
(1,293,687 | ) | (1,705,075 | ) | (3,432,419 | ) | (470,542 | ) | ||||||||||||
|
Depreciation,
depletion and
amortisation
|
(5,964,740 | ) | (6,933,214 | ) | (7,374,469 | ) | (1,010,949 | ) | ||||||||||||
|
Dismantlement
|
28
|
(252,857 | ) | (472,269 | ) | (561,701 | ) | (77,002 | ) | |||||||||||
|
Special
oil gain levy
|
8
|
—
|
(3,981,170 | ) | (6,837,213 | ) | (937,298 | ) | ||||||||||||
|
Impairment
losses related to property, plant and equipment
|
15
|
(90,190 | ) | (252,357 | ) | (613,505 | ) | (84,104 | ) | |||||||||||
|
Crude
oil and product purchases
|
7
|
(15,704,100 | ) | (20,572,935 | ) | (17,082,624 | ) | (2,341,818 | ) | |||||||||||
|
Selling
and administrative
expenses
|
(1,370,368 | ) | (1,543,777 | ) | (1,741,161 | ) | (238,692 | ) | ||||||||||||
|
Others
|
(77,062 | ) | (117,301 | ) | (344,679 | ) | (47,251 | ) | ||||||||||||
| (33,284,145 | ) | (45,892,943 | ) | (49,524,814 | ) | (6,789,243 | ) | |||||||||||||
|
PROFIT
FROM OPERATING ACTIVITIES
|
36,171,598
|
43,054,341
|
41,199,017
|
5,647,879
|
||||||||||||||||
|
Interest
income
|
359,294
|
781,536
|
672,987
|
92,258
|
||||||||||||||||
|
Financial
costs
|
9
|
(1,100,532 | ) | (1,832,130 | ) | (2,031,788 | ) | (278,533 | ) | |||||||||||
|
Exchange
gains, net
|
287,027
|
308,382
|
1,855,968
|
254,430
|
||||||||||||||||
|
Investment
income
|
247,893
|
613,028
|
902,378
|
123,705
|
||||||||||||||||
|
Share
of profit of associates
|
307,075
|
321,676
|
719,039
|
98,571
|
||||||||||||||||
|
Non-operating
income/(expenses), net
|
28,579
|
876,423
|
(6,979 | ) | (957 | ) | ||||||||||||||
|
PROFIT
BEFORE TAX
|
36,300,934
|
44,123,256
|
43,310,622
|
5,937,353
|
||||||||||||||||
|
Tax
|
12
|
(10,977,812 | ) | (13,196,313 | ) | (12,052,323 | ) | (1,652,225 | ) | |||||||||||
|
PROFIT
FOR THE YEAR
|
25,323,122
|
30,926,943
|
31,258,299
|
4,285,128
|
||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
CNOOC LIMITED AND ITS
SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(CONT’D)
FOR THE YEARS ENDED DECEMBER 31,
2005, 2006 AND 2007
|
Notes
|
2005
|
2006
|
2007
|
2007
|
||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
US$’000
|
|||||||||||||||||
|
DIVIDENDS
|
||||||||||||||||||||
|
Interim
dividend
|
13
|
2,138,128
|
5,334,091
|
5,547,488
|
760,492
|
|||||||||||||||
|
Special
interim dividend
|
13
|
2,138,128
|
—
|
—
|
—
|
|||||||||||||||
|
Proposed
final dividend
|
13
|
4,250,391
|
6,001,819
|
7,052,445
|
966,804
|
|||||||||||||||
|
8,526,647
|
11,335,910
|
12,599,933
|
1,727,296
|
|||||||||||||||||
|
DIVIDENDS
PER SHARE
|
||||||||||||||||||||
|
Interim
dividend
|
13
|
RMB0.052
|
RMB0.123
|
RMB0.122
|
US$0.017
|
|||||||||||||||
|
Special
interim dividend
|
13
|
RMB0.052
|
—
|
—
|
—
|
|||||||||||||||
|
Proposed
final dividend
|
13
|
RMB0.103
|
RMB0.139
|
RMB0.159
|
US$0.022
|
|||||||||||||||
|
EARNINGS
PER SHARE
|
||||||||||||||||||||
|
Basic
|
14
|
RMB0.62
|
RMB0.73
|
RMB0.72
|
US$0.10
|
|||||||||||||||
|
Diluted
|
14
|
RMB0.61
|
RMB0.73
|
RMB0.72
|
US$0.10
|
|||||||||||||||
|
EARNINGS
PER ADS
|
||||||||||||||||||||
|
Basic
|
14
|
RMB61.68
|
RMB72.75
|
RMB71.68
|
US$9.83
|
|||||||||||||||
|
Diluted
|
14
|
RMB61.01
|
RMB72.64
|
RMB71.48
|
US$9.80
|
|||||||||||||||
The accompanying notes are an integral part of these financial statements.
CNOOC LIMITED AND ITS
SUBSIDIARIES
AS OF DECEMBER 31, 2006 AND
2007
|
Notes
|
2006
|
2007
|
2007
|
|||||||||||||
|
RMB’000
|
RMB’000
|
US$’000
|
||||||||||||||
|
NON-CURRENT
ASSETS
|
||||||||||||||||
|
Property,
plant and equipment, net
|
15
|
103,406,376
|
118,880,204
|
16,297,015
|
||||||||||||
|
Intangible
assets
|
16
|
1,409,053
|
1,331,204
|
182,491
|
||||||||||||
|
Interests
in associates
|
17
|
1,543,515
|
2,030,999
|
278,425
|
||||||||||||
|
Available-for-sale
financial assets
|
20
|
1,017,000
|
1,818,732
|
249,326
|
||||||||||||
|
Total
non-current assets
|
107,375,944
|
124,061,139
|
17,007,257
|
|||||||||||||
|
CURRENT
ASSETS
|
||||||||||||||||
|
Accounts
receivable, net
|
18
|
5,437,873
|
7,129,848
|
977,415
|
||||||||||||
|
Inventories
and supplies
|
19
|
1,691,479
|
2,345,887
|
321,592
|
||||||||||||
|
Due
from related companies
|
27
|
2,340,447
|
3,299,392
|
452,306
|
||||||||||||
|
Other
current assets
|
2,435,363
|
1,625,663
|
222,858
|
|||||||||||||
|
Available-for-sale
financial assets
|
20
|
12,390,058
|
6,687,948
|
916,835
|
||||||||||||
|
Time
deposits with maturity over three months
|
22
|
9,232,797
|
7,200,000
|
987,032
|
||||||||||||
|
Cash
and cash equivalents
|
22,27
|
14,364,055
|
23,356,569
|
3,201,899
|
||||||||||||
|
Non-current
asset classified as held for sale
|
—
|
1,086,798
|
148,987
|
|||||||||||||
|
Held-to-maturity
financial asset
|
21
|
—
|
3,000,000
|
411,263
|
||||||||||||
|
Total
current assets
|
47,892,072
|
55,732,105
|
7,640,187
|
|||||||||||||
|
TOTAL
ASSETS
|
155,268,016
|
179,793,244
|
24,647,444
|
|||||||||||||
|
CURRENT
LIABILITIES
|
||||||||||||||||
|
Accounts
payable
|
23
|
4,145,977
|
5,051,420
|
692,488
|
||||||||||||
|
Other
payables and accrued liabilities
|
24
|
5,481,499
|
9,051,258
|
1,240,816
|
||||||||||||
|
Current
portion of long term bank loans
|
25
|
17,816
|
—
|
—
|
||||||||||||
|
Due
to the parent company
|
27
|
456,961
|
587,228
|
80,502
|
||||||||||||
|
Due
to related companies
|
27
|
1,175,271
|
1,533,424
|
210,213
|
||||||||||||
|
Tax
payable
|
12
|
3,203,856
|
4,690,026
|
642,945
|
||||||||||||
|
Liabilities
directly associated with non-current asset classified as held for
sale
|
—
|
488,322
|
66,943
|
|||||||||||||
|
Total
current liabilities
|
14,481,380
|
21,401,678
|
2,933,907
|
|||||||||||||
|
NON-CURRENT
LIABILITIES
|
||||||||||||||||
|
Long
term bank loans
|
25
|
2,438,172
|
2,720,431
|
372,938
|
||||||||||||
|
Long
term guaranteed notes
|
26
|
17,885,841
|
8,325,519
|
1,141,326
|
||||||||||||
|
Provision
for dismantlement
|
28
|
5,412,581
|
6,737,319
|
923,604
|
||||||||||||
|
Deferred
tax liabilities
|
12
|
7,236,169
|
6,293,559
|
862,769
|
||||||||||||
|
Total
non-current liabilities
|
32,972,763
|
24,076,828
|
3,300,637
|
|||||||||||||
|
EQUITY
|
||||||||||||||||
|
Issued
capital
|
29
|
923,653
|
942,541
|
129,211
|
||||||||||||
|
Reserves
|
30
|
106,848,275
|
133,372,197
|
18,283,689
|
||||||||||||
|
107,771,928
|
134,314,738
|
18,412,900
|
||||||||||||||
|
Minority
interest
|
41,945
|
—
|
—
|
|||||||||||||
|
Total
equity
|
107,813,873
|
134,314,738
|
18,412,900
|
|||||||||||||
|
TOTAL
EQUITY AND LIABILITIES
|
155,268,016
|
179,793,244
|
24,647,444
|
|||||||||||||
The
accompanying notes are an integral part of these financial
statements.
CNOOC LIMITED AND ITS
SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
2005, 2006 AND 2007
|
Issued
share
capital
|
Share
premium
and
capital
redemption
reserve
|
Cumulative
translation
reserve
|
Statutory
and
non-
distributive
reserves
|
Other
reserves
|
Retained
earnings
|
Proposed
final
dividend
|
Total
|
Minority
Interests
|
Total
equity
|
|||||||||||||||||||||||||||||||
|
RMB'000
|
|
RMB'000
|
RMB'000
|
RMB'000 | RMB'000 |
RMB'000
|
RMB'000 |
RMB'000
|
RMB'000
|
RMB'000
|
||||||||||||||||||||||||||||||
|
Balances
at January 1, 2005
|
876,586
|
20,761,597
|
(19,654 | ) |
9,413,610
|
110,144
|
21,807,114
|
3,493,393
|
56,442,790
|
—
|
56,442,790
|
|||||||||||||||||||||||||||||
|
Changes
in fair value of available-for-sale investments
|
—
|
—
|
—
|
—
|
69,069
|
—
|
—
|
69,069
|
—
|
69,069
|
||||||||||||||||||||||||||||||
|
Exchange
realignment
|
—
|
—
|
(493,289 | ) |
—
|
—
|
—
|
—
|
(493,289 | ) |
—
|
(493,289 | ) | |||||||||||||||||||||||||||
|
Total
income and expenses for the year recognised directly in
equity
|
—
|
—
|
(493,289 | ) |
—
|
69,069
|
—
|
—
|
(424,220 | ) |
—
|
(424,220 | ) | |||||||||||||||||||||||||||
|
Profit
for the year
|
—
|
—
|
—
|
—
|
—
|
25,323,122
|
—
|
25,323,122
|
—
|
25,323,122
|
||||||||||||||||||||||||||||||
|
Total
income and expenses for the year
|
—
|
—
|
(493,289 | ) |
—
|
69,069
|
25,323,122
|
—
|
24,898,902
|
—
|
24,898,902
|
|||||||||||||||||||||||||||||
|
2004
final dividend declared
|
—
|
—
|
—
|
—
|
—
|
(2,569 | ) | (3,493,393 | ) | (3,495,962 | ) |
—
|
(3,495,962 | ) | ||||||||||||||||||||||||||
|
2005
interim dividend
|
—
|
—
|
—
|
—
|
—
|
(4,276,256 | ) |
—
|
(4,276,256 | ) |
—
|
(4,276,256 | ) | |||||||||||||||||||||||||||
|
Proposed
2005 final dividend
|
—
|
—
|
—
|
—
|
—
|
(4,250,391 | ) |
4,250,391
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Exercise
of share options
|
49
|
4,451
|
—
|
—
|
—
|
—
|
—
|
4,500
|
—
|
4,500
|
||||||||||||||||||||||||||||||
|
Appropriation
to statutory reserve
|
—
|
—
|
—
|
2,268,364
|
—
|
(2,268,364 | ) |
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Equity-settled
share option expenses
|
—
|
—
|
—
|
—
|
29,123
|
—
|
—
|
29,123
|
—
|
29,123
|
||||||||||||||||||||||||||||||
|
Balances
at December 31, 2005*
|
876,635
|
20,766,048
|
(512,943 | ) |
11,681,974
|
208,336
|
36,332,656
|
4,250,391
|
73,603,097
|
—
|
73,603,097
|
F-8
CNOOC LIMITED AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY (CONT’D)
FOR THE YEARS ENDED DECEMBER 31,
2005, 2006 AND 2007
|
Issued
share
capital
|
Share
premium
and
capital
redemption
reserve
|
Cumulative
translation
reserve
|
Statutory
and
non-
distributive
reserves
|
Other
reserves
|
Retained
earnings
|
Proposed
final
dividend
|
Total
|
Minority
Interests
|
Total
equity
|
|||||||||||||||||||||||||||||||
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
|||||||||||||||||||||||||||||||
|
Balances
at January 1, 2006
|
876,635
|
20,766,048
|
(512,943 | ) |
11,681,974
|
208,336
|
36,332,656
|
4,250,391
|
73,603,097
|
—
|
73,603,097
|
|||||||||||||||||||||||||||||
|
Changes
in fair value of available-for-sale investments
|
—
|
—
|
—
|
—
|
(9,059 | ) |
—
|
—
|
(9,059 | ) |
—
|
(9,059 | ) | |||||||||||||||||||||||||||
|
Exchange
realignment
|
—
|
—
|
(1,257,594 | ) |
—
|
—
|
—
|
—
|
(1,257,594 | ) |
—
|
(1,257,594 | ) | |||||||||||||||||||||||||||
|
Total
income and expenses for the year recognised directly in
equity
|
—
|
—
|
(1,257,594 | ) |
—
|
(9,059 | ) |
—
|
—
|
(1,266,653 | ) |
—
|
(1,266,653 | ) | ||||||||||||||||||||||||||
|
Profit
for the year
|
—
|
—
|
—
|
—
|
—
|
30,926,943
|
—
|
30,926,943
|
—
|
30,926,943
|
||||||||||||||||||||||||||||||
|
Total
income and expenses for the year
|
—
|
—
|
(1,257,594 | ) |
—
|
(9,059 | ) |
30,926,943
|
—
|
29,660,290
|
—
|
29,660,290
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Acquisition
of a subsidiary
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
41,945
|
41,945
|
||||||||||||||||||||||||||||||
|
2005
final dividend declared
|
—
|
—
|
—
|
—
|
—
|
(229,229 | ) | (4,250,391 | ) | (4,479,620 | ) |
—
|
(4,479,620 | ) | ||||||||||||||||||||||||||
|
2006
interim dividend
|
—
|
—
|
—
|
—
|
—
|
(5,334,091 | ) |
—
|
(5,334,091 | ) |
—
|
(5,334,091 | ) | |||||||||||||||||||||||||||
|
Proposed
2006 final dividend
|
—
|
—
|
—
|
—
|
—
|
(6,001,819 | ) |
6,001,819
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Transfer
to/(from) reserve**
|
—
|
—
|
—
|
5,000,000
|
—
|
(5,000,000 | ) |
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Issue
of shares
|
46,994
|
14,195,775
|
—
|
—
|
—
|
—
|
—
|
14,242,769
|
—
|
14,242,769
|
||||||||||||||||||||||||||||||
|
Exercise
of share options
|
24
|
3,691
|
—
|
—
|
—
|
—
|
—
|
3,715
|
—
|
3,715
|
||||||||||||||||||||||||||||||
|
Appropriation
to statutory reserve
|
—
|
—
|
—
|
2,778,657
|
—
|
(2,778,657 | ) |
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Equity-settled
share option expenses
|
—
|
—
|
—
|
—
|
75,768
|
—
|
—
|
75,768
|
—
|
75,768
|
||||||||||||||||||||||||||||||
|
Balances
at December 31, 2006*
|
923,653
|
34,965,514
|
(1,770,537 | ) |
19,460,631
|
275,045
|
47,915,803
|
6,001,819
|
107,771,928
|
41,945
|
107,813,873
|
CNOOC LIMITED AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY (CONT’D)
FOR THE YEARS ENDED DECEMBER 31,
2005, 2006 AND 2007
|
Issued
share
capital
|
Share
premium
and
capital
redemption
reserve
|
Cumulative
translation
reserve
|
Statutory
and
non-
distributive
reserves
|
Other
reserves
|
Retained
earnings
|
Proposed
final
dividend
|
Total
|
Minority
Interests
|
Total
equity
|
|||||||||||||||||||||||||||||||
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
|||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Balances
at January 1, 2007
|
923,653
|
34,965,514
|
(1,770,537 | ) |
19,460,631
|
275,045
|
47,915,803
|
6,001,819
|
107,771,928
|
41,945
|
107,813,873
|
|||||||||||||||||||||||||||||
|
Changes
in fair value of available-for-sale investments
|
—
|
—
|
—
|
—
|
3,416
|
—
|
—
|
3,416
|
—
|
3,416
|
||||||||||||||||||||||||||||||
|
Exchange
realignment
|
—
|
—
|
(3,861,917 | ) |
—
|
—
|
—
|
—
|
(3,861,917 | ) |
—
|
(3,861,917 | ) | |||||||||||||||||||||||||||
|
Total income and
expenses for the year recognised directly in
equity
|
—
|
—
|
(3,861,917 | ) |
—
|
3,416
|
—
|
—
|
(3,858,501 | ) |
—
|
(3,858,501 | ) | |||||||||||||||||||||||||||
|
Profit
for the year
|
—
|
—
|
—
|
—
|
—
|
31,258,299
|
—
|
31,258,299
|
—
|
31,258,299
|
||||||||||||||||||||||||||||||
|
Total
income and expenses for the year
|
—
|
—
|
(3,861,917 | ) |
—
|
3,416
|
31,258,299
|
—
|
27,399,798
|
—
|
27,399,798
|
|||||||||||||||||||||||||||||
|
2006
final dividend declared
|
—
|
—
|
—
|
—
|
—
|
25,598
|
(6,001,819 | ) | (5,976,221 | ) |
—
|
(5,976,221 | ) | |||||||||||||||||||||||||||
|
2007
interim dividend
|
—
|
—
|
—
|
—
|
—
|
(5,547,488 | ) |
—
|
(5,547,488 | ) |
—
|
(5,547,488 | ) | |||||||||||||||||||||||||||
|
Proposed
2007 final dividend
|
—
|
—
|
—
|
—
|
—
|
(7,052,445 | ) |
7,052,445
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Conversion
from bonds
|
18,888
|
6,078,272
|
—
|
—
|
4,471,324
|
—
|
—
|
10,568,484
|
—
|
10,568,484
|
||||||||||||||||||||||||||||||
|
Appropriation
to statutory reserve
|
—
|
—
|
—
|
539,369
|
—
|
(539,369 | ) |
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Equity-settled
share option expenses
|
—
|
—
|
—
|
—
|
98,237
|
—
|
—
|
98,237
|
—
|
98,237
|
||||||||||||||||||||||||||||||
|
Share
of losses
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(41,945 | ) | (41,945 | ) | ||||||||||||||||||||||||||||
|
Balances
at December 31, 2007*
|
942,541
|
41,043,786
|
(5,632,454 | ) |
20,000,000
|
4,848,022
|
66,060,398
|
7,052,445
|
134,314,738
|
—
|
134,314,738
|
|||||||||||||||||||||||||||||
|
*
|
These
reserve accounts comprise the consolidated reserves of approximately
RMB133,372,197,000 (2006: RMB106,848,275,000, 2005: RMB72,726,462,000) in
the consolidated balance sheet.
|
|
**
|
In
2006, one of the Company’s subsidiaries, CNOOC China Limited, increased
its share capital from RMB15 billion to RMB20 billion through the
reinvestment of its retained earnings from prior
periods.
|
The
accompanying notes are an integral part of these financial
statements.
CNOOC LIMITED AND ITS
SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
2005, 2006 AND 2007
|
Notes
|
2005
|
2006
|
2007
|
2007
|
||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
US$’000
|
|||||||||||||||||
|
CASH
FLOW FROM OPERATING ACTIVITIES
|
||||||||||||||||||||
|
Cash
generated from operations
|
32
|
41,695,648
|
50,901,846
|
53,041,602
|
7,271,352
|
|||||||||||||||
|
Income
taxes paid
|
(9,849,454 | ) | (12,874,544 | ) | (11,741,048 | ) | (1,609,553 | ) | ||||||||||||
|
Interest
received
|
359,294
|
781,536
|
672,987
|
92,258
|
||||||||||||||||
|
Dividends
received from associates
|
232,346
|
180,000
|
231,555
|
31,743
|
||||||||||||||||
|
Investments
income received
|
45,785
|
264,134
|
660,509
|
90,548
|
||||||||||||||||
|
Interest
paid
|
(329,797 | ) | (27,376 | ) | (153,031 | ) | (20,979 | ) | ||||||||||||
|
Net
cash inflow from operating activities
|
32,153,822
|
39,225,596
|
42,712,574
|
5,855,369
|
||||||||||||||||
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Acquisition
of and prepayment for oil and gas properties
|
(864,007 | ) | (21,175,390 | ) |
─
|
─
|
||||||||||||||
|
Additions
of property, plant and equipment
|
(16,605,548 | ) | (23,041,164 | ) | (26,862,293 | ) | (3,682,490 | ) | ||||||||||||
|
Additions
of intangible assets
|
─
|
─
|
(79,844 | ) | (10,946 | ) | ||||||||||||||
|
Proceeds
from disposals of property, plant and equipment
|
─
|
1,520
|
42,040
|
5,763
|
||||||||||||||||
|
Decrease
/(Increase) in time deposits with maturity over three
months
|
(3,597,000 | ) |
2,967,203
|
2,032,797
|
278,671
|
|||||||||||||||
|
Purchase
of available-for-sale financial assets
|
(21,487,478 | ) | (12,281,407 | ) | (3,606,978 | ) | (494,472 | ) | ||||||||||||
|
Disposals
of available-for-sale financial assets
|
13,204,817
|
14,003,627
|
8,535,241
|
1,170,077
|
||||||||||||||||
|
Increase
in held-to-maturity financial asset
|
─
|
─
|
(3,000,000 | ) | (411,263 | ) | ||||||||||||||
|
Net
cash outflow from investing activities
|
(29,349,216 | ) | (39,525,611 | ) | (22,939,037 | ) | (3,144,660 | ) | ||||||||||||
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Proceeds
from new or existing bank loans
|
─
|
2,413,780
|
895,702
|
122,790
|
||||||||||||||||
|
Net
proceeds on issue of shares
|
─
|
14,242,768
|
─
|
─
|
||||||||||||||||
|
Repayment
of bank loans
|
(18,654 | ) | (807,858 | ) | (17,816 | ) | (2,442 | ) | ||||||||||||
|
Dividends
paid
|
(7,772,218 | ) | (9,813,711 | ) | (11,523,709 | ) | (1,579,759 | ) | ||||||||||||
|
Proceeds
from exercise of share options
|
4,500
|
3,715
|
─
|
─
|
||||||||||||||||
|
Net
cash inflow/ (outflow) from financing activities
|
(7,786,372 | ) |
6,038,694
|
(10,645,823 | ) | (1,459,411 | ) | |||||||||||||
|
NET
INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(4,981,766 | ) |
5,738,679
|
9,127,714
|
1,251,298
|
|||||||||||||||
|
Cash
and cash equivalents at beginning of year
|
14,091,524
|
8,991,758
|
14,364,055
|
1,969,135
|
||||||||||||||||
|
Effect
of foreign exchange rate changes, net
|
(118,000 | ) | (366,382 | ) | (135,200 | ) | (18,534 | ) | ||||||||||||
|
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
8,991,758
|
14,364,055
|
23,356,569
|
3,201,899
|
||||||||||||||||
|
ANALYSIS
OF BALANCES OF CASH AND CASH EQUIVALENTS
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
8,991,758
|
14,364,055
|
23,356,569
|
3,201,899
|
||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
(All amounts expressed in Renminbi
unless otherwise stated)
|
1.
|
CORPORATE
INFORMATION
|
CNOOC
Limited (the “Company”) was incorporated in the Hong Kong Special Administrative
Region (“Hong Kong”) of the People’s Republic of China (the “PRC”) on August 20,
1999 to hold the interests in certain entities whereby creating a group
comprising the Company and its subsidiaries (hereinafter collectively referred
to as the “Group”). During the year, the Group was principally engaged in the
exploration, development, production and sales of crude oil, natural gas and
other petroleum products.
The
registered office address of the Company is 65/F, Bank of China Tower, 1 Garden
Road, Hong Kong.
In the
opinion of the directors of the Company (the “Directors”), the parent and the
ultimate holding company is China National Offshore Oil Corporation (“CNOOC”), a
company established in the PRC.
Particulars
of the principal subsidiaries are as follows:
|
Name
of entity
|
Place
and date of incorporation/ establishment
|
Nominal
value of issued and paid /registered ordinary share
capital
|
Percentage
of equity attributable to the Group
|
Principal
activities
|
||||
|
Directly held
subsidiaries:
|
||||||||
|
CNOOC
China Limited
|
Tianjin,
PRC
September
15, 1999
|
RMB20
billion
|
100%
|
Offshore
petroleum exploration, development, production and sales in the
PRC
|
||||
|
CNOOC
International Limited
|
British
Virgin Islands
August
23, 1999
|
US$2
|
100%
|
Investment
holding
|
||||
|
China
Offshore Oil (Singapore) International Pte Ltd
|
Singapore
May
14, 1993
|
S$3
million
|
100%
|
Sales
and marketing of petroleum products outside the PRC
|
||||
|
CNOOC
Finance (2002) Limited
|
British
Virgin Islands
January
24, 2002
|
US$1,000
|
100%
|
Bond
issuance
|
||||
|
CNOOC
Finance (2003) Limited
|
British
Virgin Islands
April
2, 2003
|
US$1,000
|
100%
|
Bond
issuance
|
||||
|
CNOOC
Finance (2004) Limited
|
British
Virgin Islands
December
9, 2004
|
US$1,000
|
100%
|
Bond
issuance
|
F-12
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
1.
CORPORATE INFORMATION (CONTINUED)
|
Name
of entity
|
Place
and date of incorporation/ establishment
|
Nominal
value of issued and paid /registered ordinary share
capital
|
Percentage
of equity attributable to the Group
|
Principal
activities
|
||||
|
Indirectly held
subsidiaries*:
|
||||||||
|
Malacca
Petroleum Limited
|
Bermuda
November
2, 1995
|
US$12,000
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
OOGC
America, Inc.
|
State
of Delaware, United States of America
August
28, 1997
|
US$1,000
|
100%
|
Investment
holding
|
||||
|
OOGC
Malacca Limited
|
Bermuda
November
23, 1995
|
US$12,000
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
Southeast Asia Limited
|
Bermuda
May
16, 1997
|
US$12,000
|
100%
|
Investment
holding
|
||||
|
CNOOC
ONWJ Ltd.
|
Labuan,
F.T.,
Malaysia
March
27, 2002
|
US$1
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
SES Ltd.
|
Labuan,
F.T.,
Malaysia
March
27, 2002
|
US$1
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
Poleng Ltd.
|
Labuan,
F.T.,
Malaysia
March
27, 2002
|
US$1
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
Madura Ltd.
|
Labuan,
F.T.,
Malaysia
March
27, 2002
|
US$1
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
Blora Ltd.
|
Labuan,
F.T.,
Malaysia
March
27, 2002
|
US$1
|
100%
|
Onshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
NWS Private Limited
|
Singapore
October
8, 2002
|
S$2
|
100%
|
Offshore
petroleum exploration, development and production in
Australia
|
F-13
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
1. CORPORATE
INFORMATION (CONTINUED)
|
Name
of entity
|
Place
and date of incorporation/ establishment
|
Nominal
value of issued and paid /registered ordinary share
capital
|
Percentage
of equity attributable to the Group
|
Principal
activities
|
||||
|
Indirectly held subsidiaries*
(cont’d):
|
||||||||
|
CNOOC
Wiriagar Overseas Limited**
|
British
Virgin Islands
January
15, 2003
|
US$1
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
Muturi Limited
|
The
Isle of Man
February
8, 1996
|
US$7,780,700
|
100%
|
Offshore
petroleum exploration, development and production in
Indonesia
|
||||
|
CNOOC
Exploration & Production Nigeria Limited.
|
Nigeria
January
6, 2006
|
Naira10,000,000
|
100%
|
Offshore
petroleum exploration, development and production in Africa
|
||||
|
AERD
PROJECTS NIGERIA Limited
|
Nigeria
January
28, 2005
|
Naira10,000,000
|
92.11%
|
Offshore
petroleum exploration, development and production in
Africa
|
|
|
*
|
Indirectly held through CNOOC
International Limited
|
|
|
**
|
The company has been sold
after 31 December 2007 (see note
37).
|
The above
table lists the subsidiaries of the Company which, in the opinion of the
Directors, principally affected the results for the year or formed a substantial
portion of the net assets of the Group. To give details of other subsidiaries
would, in the opinion of the Directors, result in particulars of excessive
length.
|
2.1
|
IMPACT OF NEW AND REVISED HONG
KONG FINANCIAL REPORTING STANDARDS
(“HKFRSs”)
|
The Hong
Kong Institute of Certified Public Accountants has issued the following new and
amended HKFRSs, which are mandatory for annual periods beginning on or after
January 1, 2007:
|
HKAS
1 Amendment
|
Capital
Disclosures
|
|
HKFRS
7
|
Financial
Instruments: Disclosures
|
|
HK
(IFRIC)-Int 8
|
Scope
of HKFRS 2
|
|
HK
(IFRIC)-Int 9
|
Reassessment
of Embedded Derivatives
|
|
HK
(IFRIC)-Int 10
|
Interim
Financial Reporting and Impairment
|
The
principal effects of adopting these new and revised HKFRSs are as
follows:
|
|
(a)
|
HKAS
1 Amendment requires the Group to make disclosures that enable users of
the financial statements to evaluate the Group’s objectives, policies and
processes for managing capital. These new disclosures are included in note
35 to the financial statements.
|
F-14
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
2.1
|
IMPACT OF NEW AND REVISED HONG
KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)
(CONTINUED)
|
|
(b)
|
HKFRS
7 requires disclosures that enable users of the financial statements to
evaluate the significance of the Group’s financial instruments and the
nature and extent of risks arising from those financial instruments. The
new disclosures are included throughout the financial statements. While
there has been no impact on the financial position or results of
operations of the Group, comparative information has been included/revised
where appropriate.
|
|
(c)
|
HK(IFRIC)-Int
8 requires HKFRS 2 to be applied to any arrangement in which the Group
cannot identify specifically some or all of the goods or services
received, for which equity instruments are granted or liabilities (based
on a value of the Group’s equity instruments) are incurred by the Group
for a consideration, and which appears to be less than the fair value of
the equity instruments granted or liabilities incurred. As the Company has
only issued equity instruments to the Group’s employees in accordance with
the Company’s share option scheme, the interpretation has had no impact on
the financial position or results of operations of the
Group.
|
|
(d)
|
HK(IFRIC)-Int
9 requires that the date to assess whether an embedded derivative is
required to be separated from the host contract and accounted for as a
derivative is the date that the Group first becomes a party to the
contract, with reassessment only if there is a change to the contract that
significantly modifies the cash flows. As the Group’s existing policy of
accounting for derivatives complies with the requirements of the
interpretation, the interpretation has had no impact on the financial
position or results of operations of the
Group.
|
|
(e)
|
The
Group has adopted HK(IFRIC)-Int 10 as of January 1, 2007, which requires
that an impairment loss recognised in a previous interim period in respect
of goodwill or an investment in either an equity instrument classified as
available-for-sale or a financial asset carried at cost is not
subsequently reversed. As the Group had no impairment losses previously
reversed in respect of such assets, the interpretation has had no impact
on the financial position or results of operations of the
Group.
|
|
2.2
|
IMPACT OF ISSUED BUT NOT YET
EFFECTIVE HONG KONG FINANCIAL REPORTING
STANDARDS
|
The Hong
Kong Institute of Certified Public Accountants 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. Unless
otherwise stated, the following HKFRSs are effective for accounting periods
beginning on or after January 1, 2008:
|
HKAS
1 (Revised)
|
Presentation
of Financial Statements
|
|
HKAS
23 (Revised)
|
Borrowing
Costs
|
|
HKFRS
8
|
Operating
Segments
|
|
HK(IFRIC)-Int
11
|
HKFRS
2-Group and Treasury Share
Transactions
|
HKAS 1
(Revised) requires an entity to present, in a statement of changes in equity,
all owner changes in equity. All non-owner changes in equity (comprehensive
income) are required to be presented in one statement of comprehensive income or
in two statements (a separate income statement and a statement of comprehensive
income). It also requires an entity to present a statement of financial position
as at the beginning of the earliest comparative period in a complete set of
financial statements and disclose reclassification adjustments and income tax
relating to each component of other comprehensive income. Dividends recognised
as distributions to owners and related amounts per share are required to be
presented in the statement of changes in equity or in the notes.
F-15
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
2.2
|
IMPACT OF ISSUED BUT NOT YET
EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS
(CONTINUED)
|
HKAS 23
has been revised to require capitalisation of borrowing costs when such costs
are directly attributable to the acquisition, construction or production of a
qualifying asset. As the Group’s current policy for borrowing costs aligns with
the requirements of the revised standard, the revised standard is unlikely to
have any financial impact on the Group.
HKFRS 8,
which will replace HKAS 14 Segment Reporting, specifies
how an entity should report information about its operating segments, based on
information about the components of the entity that is available to the chief
operating decision maker for the purposes of allocating resources to the
segments and assessing their performance. The standard also requires the
disclosure of information about the products and services provided by the
segments, the geographical areas in which the Group operates, and revenue from
the Group’s major customers. The Group expects to adopt HKFRS 8 from January 1,
2009.
HK(IFRIC)-Int
11 requires arrangements whereby an employee is granted rights to the Group’s
equity instruments, to be accounted for as an equity-settled scheme, even if the
Group acquires the instruments from another party, or the shareholders provide
the equity instruments needed. HK(IFRIC)-Int 11 also addresses the accounting
for share-based payment transactions involving two or more entities within the
Group. As the Group currently has no such transactions, the interpretation is
unlikely to have any financial impact on the Group.
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of
preparation
These
financial statements have been prepared in accordance with Hong Kong Financial
Reporting Standards (which include all Hong Kong Financial Reporting Standards,
Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong
Kong Institute of Certified Public Accountants (the “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 except when otherwise indicated.
Basis of
consolidation
The
consolidated financial statements include the financial statements of the
Company and its subsidiaries for the year ended December 31, 2007. 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 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 identifiable 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.
Minority
interests represent the interests of outside shareholders not held by the Group
in the results and net assets of the Company’s subsidiaries.
F-16
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Subsidiaries
A
subsidiary is an entity 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; or over which the Company has a
contractual right to exercise a dominant influence with respect to that entity’s
financial and operating policies.
The
results of subsidiaries are included in the Company’s income statement to the
extent of dividends received and receivable. The Company’s interests in
subsidiaries are stated at cost less any impairment losses.
Associates
An
associate is an entity, not being a subsidiary or a jointly-controlled entity,
in which the Group has a long term interest of generally not less than 20% of
the equity voting rights and over which it is in a position to exercise
significant influence.
The
Group’s share of the post-acquisition results and reserves of the associates are
included in the consolidated income statement and consolidated reserves,
respectively. The Group’s interests in 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. Unrealised gains and losses resulting
from transactions between the Group and its associates are eliminated to the
extent of the Group’s interests in the associates, except where unrealised
losses provide evidence of an impairment of the asset transferred.
The
results of associates are included in the Company’s income statement to the
extent of dividends received and receivable. The Company’s interests in
associates are treated as non-current assets and are stated at cost 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 4 below. These arrangements are
a form of joint venture whereby a contractual arrangement exists between two or
more parties to undertake an economic activity that is subject to joint control.
These joint arrangements are included in the consolidated financial statements
in proportion to the Group’s interests in the income, expenses, assets and
liabilities of these arrangements.
Related parties
A party is
considered to be related to the Group if:
|
(a)
|
the
party, directly or indirectly through one or more intermediaries, (i)
controls, is controlled by, or is under common control with, the Group;
(ii) has an interest in the Group that gives it significant influence over
the Group; or (iii) has joint control over the
Group;
|
|
(b)
|
the
party is an associate;
|
|
(c)
|
the
party is a jointly controlled
entity;
|
|
(d)
|
the
party is a member of the key management personnel of the Group or its
parent;
|
|
(e)
|
the
party is a close member of the family of any individual referred to in (a)
or (d); or
|
F-17
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Related parties
(continued)
|
(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).
|
Impairment of non-financial assets
other than goodwill
Where an
indication of impairment exists, or when annual impairment testing for an asset
is required (other than inventories, deferred tax assets and financial assets),
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 consolidated 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 of an asset other than goodwill is
reversed only if there has been a change in the estimates used to determine the
recoverable amount of that asset, but 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 consolidated income statement in the
period in which it arises.
Property, plant and equipment and
depreciation
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 the initial acquisition costs of oil and gas properties.
Impairment of initial acquisition costs is recognised based on exploratory
experience and management judgment. Upon discovery of commercial reserves,
acquisition costs are transferred to proved properties. The costs of drilling
and equipping successful exploratory wells, all development expenditures on
construction, installation or completion of infrastructure facilities such as
platforms, pipelines, processing plants and the drilling of development wells,
including those renewals and betterments that extend the economic lives of the
assets, and the related borrowing costs are capitalised. The costs of
unsuccessful exploratory wells and all other exploration costs are expensed as
incurred.
F-18
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Property, plant and equipment and
depreciation (continued)
|
(i)
|
Oil and gas properties
(continued)
|
The Group
carries exploratory well costs as an asset when the well has found a sufficient
quantity of reserves to justify its completion as a producing well and where the
Group is making sufficient progress assessing the reserves and the economic and
operating viability of the project. Exploratory well costs not meeting these
criteria are charged to expense. 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 the successful completion of further exploratory work remain capitalised
and are reviewed periodically for impairment.
Productive
oil and gas properties and other tangible and intangible costs of producing
properties are amortised using the unit-of-production method on a
property-by-property basis under which the ratio of produced oil and gas to the
estimated remaining proved developed reserves is used to determine the provision
of depreciation, depletion and amortisation. Common facilities that are built
specifically to service production directly attributed to designated oil and gas
properties are amortised based on the proved developed reserves of the
respective oil and gas properties on a pro-rata basis. Common facilities that
are not built specifically to service identified oil and gas properties are
depreciated using the straight-line method over their estimated useful lives.
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 the current legislation and industry practices. The associated
cost is capitalised and the liability is discounted and an accretion expense is
recognised using the credit-adjusted risk-free interest rate in effect when the
liability is initially recognised. No market-risk premium has been included in
the Company’s calculation of asset retirement obligations balances since no
reliable estimate can be made by the Company.
|
(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.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Property, plant and equipment and
depreciation (continued)
|
(ii)
|
Vehicles and office equipment
(continued)
|
When an
item of property, plant and equipment is classified as held for sale or when it
is part of a disposal group classified as held for sale, it is not depreciated
and is accounted for in accordance with HKFRS 5, as further explained in the
accounting policy for “Non-current assets and disposal groups held for sale”.
The cost of an item of property, plant and equipment comprises its purchase
price and any directly attributable costs of bringing the asset to its working
condition and location for its intended use. Expenditure incurred after items of
property, plant and equipment, have been put into operation, such as repairs and
maintenance, is normally charged to the consolidated income statement in the
period in which it is incurred. In situations where it can be clearly
demonstrated that the expenditure has resulted in an increase in the future
economic benefits expected to be obtained from the use of an item of property,
plant and equipment, and where the cost of the item can be measured reliably,
the expenditure is capitalised as an additional cost of that asset or as a
replacement.
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 when no future
economic benefits are expected from its use or disposal. Any gain or loss on
disposal or retirement recognised in the consolidated income statement in the
year that the asset is derecognised is the difference between the net sales
proceeds and the carrying amount of the relevant asset.
Non-current assets and disposal
groups held for sale
Non-current
assets and disposal groups are classified as held for sale if their carrying
amounts will be recovered principally through a sale transaction rather than
through continuing use. For this to be the case, the asset or disposal group
must be available for immediate sale in its present condition subject only to
terms that are usual and customary for the sale of such assets or disposal
groups and its sale must be highly probable.
Non-current
assets and disposal groups (other than investment properties, deferred tax
assets and financial assets) classified as held for sale are measured at the
lower of their carrying amounts and fair values less costs to sell.
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.
F-20
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Intangible assets
(continued)
The
amortisation period and the amortisation method for an intangible asset with a
finite useful life are reviewed at least at each balance sheet
date.
Research and development
costs
All
research costs are charged to the consolidated 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
Financial
assets within the scope of HKAS 39 are classified as financial assets at fair
value through profit or loss, loans and receivables, held-to-maturity financial
asset, 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
assesses whether a contract contains an embedded derivative when the Group first
becomes a party to it and assesses whether an embedded derivative is required to
be separated from the host contract when the analysis shows that the economic
characteristics and the risks of the embedded derivative are not closely related
to those of the host contract. Reassessment only occurs if there is a change in
the terms of the contract that significantly modifies the cash flows that would
otherwise be required under the contract.
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, that is, the date that the Group commits to purchase or sell 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.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Investments and other financial
assets (continued)
|
(a)
|
Financial assets at fair value
through profit or loss
|
Financial
assets at fair value through profit or loss include financial assets held for
trading and financial assets designated upon initial recognition as at fair
value through profit or loss. Financial assets are classified as held for
trading if they are acquired for the purpose of sale in the near term.
Derivatives, including separated embedded derivatives, are also classified as
held for trading unless they are designated as effective hedging instruments or
financial guarantee contracts. Gains or losses on investments held for trading
or these financial assets are recognised in the consolidated income statement.
The net fair value gain or loss recognised in the consolidated income statement
does not include any dividends or interest earned on these financial assets,
which are recognised in accordance with the policies set out for “Revenue
recognition” below.
Where a
contract contains one or more embedded derivatives, the entire hybrid contract
may be designated as a financial asset at fair value through profit or loss,
except where the embedded derivative does not significantly modify the cash
flows or it is clear that separation of the embedded derivative is
prohibited.
Financial
assets may be designated upon initial recognition as at fair value through
profit or loss if the following criteria are met:
|
|
(i)
|
the
designation eliminates or significantly reduces the inconsistent treatment
that would otherwise arise from measuring the assets or recognising gains
or losses on them on a different
basis;
|
|
|
(ii)
|
the
assets are part of a group of financial assets which are managed and their
performance evaluated on a fair value basis, in accordance with a
documented risk management strategy;
or
|
|
|
(iii)
|
the
financial asset contains an embedded derivative that would need to be
separately recorded.
|
|
(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. Such assets are subsequently
carried at amortised cost using the effective interest method less any allowance
for impairment. Amortised cost is calculated taking into account any discount or
premium on acquisition and includes fees that are an integral part of the
effective interest rate and transaction costs. Gains and losses are recognised
in the consolidated income statement when the loans and receivables are
derecognised or impaired, as well as through the amortisation
process.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Investments and other financial
assets (continued)
|
(c)
|
Held-to-maturity financial
asset
|
Non-derivative
financial assets with fixed or determinable payments and fixed maturity are
classified as held-to-maturity when the Group has the positive intention and
ability to hold to maturity. Held-to-maturity investments are subsequently
measured at amortised cost less any allowance for impairment. Amortised cost is
computed as the amount initially recognised minus principal repayments, plus or
minus the cumulative amortisation using the effective interest method of any
difference between the initially recognised amount and the maturity
amount.
|
(d)
|
Available-for-sale financial
assets
|
Available-for-sale
financial assets are 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 three categories. After initial recognition
available-for-sale financial assets are measured at fair value, with gains or
losses 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
consolidated income statement. Interest and dividends earned are reported as
interest income and dividend income, respectively and are recognised in the
consolidated income statement as “Investment income”. Losses arising from the
impairment of such investments, if any, are recognised in the consolidated
income statement as “Impairment losses on available-for-sale financial assets”
and are transferred from the available-for-sale investment revaluation
reserve.
When the
fair value of unlisted equity securities cannot be reliably measured because (a)
the variability in the range of reasonable fair value estimates is significant
for 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 the 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
The Group
assesses at each balance sheet date whether there is any objective evidence that
a financial asset or a group of financial assets is impaired.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Assets carried at amortised
cost
If there
is objective evidence that an impairment loss on loans and receivables or
held-to-maturity investments 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 (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 the consolidated income statement. Loans and
receivables together with any associated allowance are written off when there is
no realistic prospect of future recovery.
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 by adjusting
the allowance account. Any subsequent reversal of an impairment loss is
recognised in the consolidated income statement, to the extent that the carrying
value of the asset does not exceed its amortised cost at the reversal
date.
In
relation to trade and other receivables, a provision for impairment is made when
there is objective evidence (such as the probability of insolvency or
significant financial difficulties of the debtor and significant changes in the
technological, market economic or legal environment that have an adverse effect
on the debtor) that the Group will not be able to collect all of the amounts due
under the original terms of an invoice. The carrying amount of the receivables
is reduced through the use of an allowance account. Impaired debts are
derecognised when they are assessed as uncollectible.
Assets carried at
cost
If there
is objective evidence that an impairment loss has been incurred on an unquoted
equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, 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 discounted at the current market rate of return for
a similar financial asset. Impairment losses on these assets are not
reversed.
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 the consolidated
income statement, is transferred from equity to the consolidated income
statement. A provision for impairment is made for available-for-sale equity
investments when there has been a significant or prolonged decline in the fair
value below its cost or where other objective evidence of impairment exists. The
determination of what is “significant” or “prolonged” requires judgement. In
addition, the Group evaluates other factors, such as the share price volatility.
Impairment losses on equity instruments classified as available-for-sale are not
reversed through the consolidated income statement.
Impairment
losses on debt instruments are reversed through the consolidated income
statement, if the increase in fair value of the instrument can be objectively
related to an event occurring after the impairment loss was recognised in the
consolidated income statement.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Derecognition of financial
assets
A
financial asset (or, where applicable, a part of a financial asset or part of a
group of similar financial assets) is derecognised where:
|
|
•
|
the
rights to receive cash flows from the asset have
expired;
|
|
|
•
|
the
Group retains the rights to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a
third party under a “pass-through” arrangement;
or
|
|
|
•
|
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.
Financial liabilities at amortised
cost (including interest-bearing loans and borrowings)
Financial
liabilities including trade and other payables, amount due to the parent
company, amount due to related companies and interest-bearing loans and
borrowings are initially stated at fair value including directly attributable
transaction costs and are subsequently measured at amortised cost, using the
effective interest method unless the effect of discounting would be immaterial,
in which case they are stated at cost. The related interest expense is
recognised within “finance costs” in the consolidated income
statement.
Gains and
losses are recognised in the consolidated income statement when the liabilities
are derecognised as well as through the amortisation process.
Financial guarantee
contracts
Financial
guarantee contracts in the scope of HKAS 39 are accounted for as financial
liabilities. A financial guarantee contract is recognised initially as its fair
value including transaction costs that are directly attributable to the
acquisition or issue of the financial guarantee contract, except when such
contract is recognised at fair value through profit or loss. Subsequent to
initial recognition, the Group measures the financial guarantee contract at the
higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities
and Contingent Assets; and (ii) the amount initially recognised less,
when appropriate, cumulative amortisation recognised in accordance with HKAS 18
Revenue.
F-25
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Convertible bonds
For the
accounting periods prior to July 27, 2007, the Group’s convertible bonds issued
with a cash settlement option and other embedded derivative features were 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 was
remeasured at each balance sheet date and any gains or losses arising from
change in the fair value were recognised in the consolidated income statement
upto July 27, 2007 when the Group renounced the cash settlement option and the
embedded derivative component was reclassified from a financial liability to
other reserves included in shareholders’ equity.
Derecognition of financial
liabilities
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 the
consolidated income statement.
Derivative financial
instruments
The Group
uses currency swaps, classified as derivative financial instruments, 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 the consolidated income
statement.
The fair
value of currency swap contracts is determined by reference to market values for
similar instruments.
Inventories and
supplies
Inventories
primarily consist of oil and supplies, which mainly consist 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 the renewal and
betterment 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 that are readily convertible into known amounts of cash 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
repayable on demand and form an integral part of the Group’s cash
management.
F-26
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Cash and cash equivalents
(continued)
For the
purpose of the balance sheets, cash and cash equivalents comprise cash on hand
and at banks, including term deposits with maturity 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 consolidated 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.
Income tax
Income tax
comprises current and deferred tax. Income tax is recognised in the consolidated
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,
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
|
|
|
•
|
in
respect of taxable temporary differences associated with investments in
subsidiaries, associates and interests in joint ventures, 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.
|
Deferred
tax assets are recognised for all deductible temporary differences, carryforward
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 carryforward of unused tax credits and unused tax losses
can be utilised, except:
|
|
•
|
where
the deferred tax assets relating to the deductible temporary differences
arise 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
|
F-27
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Income tax
(continued)
|
|
•
|
in
respect of deductible temporary differences associated with investments in
subsidiaries, associates and interests in joint ventures, 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 substantively
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.
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 the 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 results 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 the make-up gas is
taken by those customers or the expiry of the contracts.
F-28
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Revenue recognition
(continued)
|
(ii)
|
Marketing
revenues
|
Marketing
revenues represent the sales of oil and gas purchased from the foreign partners
under the production sharing contracts and revenues from the trading of oil and
gas 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 and gas 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 have
been rendered. Reimbursement of insurance claim is recognised when the
compensation becomes receivable.
|
(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 institutions is
recognised on a time proportion basis taking into account the effective yield on
the assets.
The Group
presents taxes collected from customers in the consolidated income statement on
a net basis.
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 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 the Black-Scholes model, further details of which are given in note 29.
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 the cumulative expense recognised as at the beginning and end of
that period.
F-29
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Employee benefits
Share-based payment transactions
(continued)
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
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 10% to 22% of the
employees’ basic salaries. The Group’s contributions to these defined
contribution plans are charged to expense in the year to which they
relate.
Dividends
Final
dividends, if any, 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
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. Investment income
earned on the temporary of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs capitalised.
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 those
borrowings during the period less any investment income on the temporary
investment of those borrowings.
F-30
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Borrowing costs
(continued)
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 the 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 costs 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 dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies are retranslated at the functional currency rates of exchange
ruling at the balance sheet date. All differences are taken to the consolidated
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.
The
functional currencies of certain overseas subsidiaries are currencies other than
the RMB. As at the balance sheet date, the assets and liabilities of these
entities are translated into the presentation currency of the Company 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 exchange differences are included in the cumulative translation
reserve. On disposal of a foreign entity, the deferred cumulative amount
recognised in equity relating to that particular foreign operation is recognised
in the consolidated income statement.
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 and
maintenance
Repairs
and maintenance are normally charged to the consolidated 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 Group is the lessee,
rentals payable under the operating leases are charged to the consolidated
income statement on the straight-line basis over the lease terms.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
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 is 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 requires management to make judgments,
estimates and assumptions that affect the reported amounts of revenues, expense,
assets and liabilities, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainty about these assumptions and estimates could
result in outcomes that could require a material adjustment to the carrying
amounts of the assets or liabilities affected in the future. The most
significant estimates pertain to proved oil and gas reserve volumes and its
future development, purchase price allocation, provision for dismantlement as
well as impairment and estimates relating to certain oil and gas revenues and
expenses. Actual amounts could differ from those estimates and assumptions.
Further details are given in notes 3, 15 and 28 to the financial
statements.
|
4.
|
PRODUCTION SHARING
CONTRACTS
|
The
PRC
For
production sharing contracts in relation to offshore China (the “China PSC”),
the foreign parties to the China PSC (“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
exploration stage, the development and operating costs are funded by the Group
and the foreign partners according to their respective percentage of the
participating interests.
In
general, the Group has the option to take up to 51% participating interests in
the development and production of the oil field and/or gas field under the China
PSC and may exercise such option after the foreign partners have independently
undertaken all the exploration risks and costs, completed all the exploration
works and viable commercial discoveries have been made.
After the
Group exercises its option to take certain participating interests in a China
PSC, the Group accounts for the oil and gas properties according to its
participating interest in the China PSC and recognizes its share of development
costs, revenues and expenses from operations according to its participating
interests in the China PSC. The Group does not account for either the
exploration costs incurred by its foreign partners or the foreign partners’
share of development costs, revenues and expenses from operations.
F-32
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
4.
|
PRODUCTION SHARING CONTRACTS
(CONTINUED)
|
Part of
the annual gross production of oil and gas under the China PSC is distributed to
the PRC government as a settlement of royalties which are payable pursuant to
relevant requirements of the competent authority. The Group and the foreign
partners also pay the value-added tax, currently classified as production 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 (including the deemed interest) and operating costs incurred by the
foreign partners and the Group according to their respective participating
interests. Any remaining oil, after the foregoing priority allocations is first
distributed to the PRC government as government share oil on a pre-determined
ratio calculated by the successive incremental tiers on the basis of the annual
gross production, and then distributed to the Group and the foreign partners
according to their respective participating interests. As the government share
oil is not included in the Group’s interest in the annual production, the net
sales revenue of the Group does 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 sell their allocable
remainder oil in the PRC market according to the relevant laws and regulations
of the PRC.
Overseas
In certain
countries, 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 locations
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/or the domestic market obligation.
In other
countries, the Group, as one of the title owners under certain exploration
and/or production licenses or permits, is required to bear all exploration,
development and operating costs together with other co-owners. Once production
occurs, a certain percentage of the annual production or revenue will first be
distributed to the local government, which, in most of cases, with the nature of
royalty, and the rest of the annual production or revenue will be allocated
among the co-owners. Exploration, development and operating costs can be
deductible for the purpose of income tax calculation in accordance with local
tax regulations.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
5.
|
SEGMENT
INFORMATION
|
Segment
information is presented by way of two segment formats: (i) on a primary segment
reporting basis, by business segment; and (ii) on a secondary segment reporting
basis, by geographical segment.
Intersegment
transactions: segment revenue, segment expenses and segment performance include
transfers between business segments and between geographical segments. Such
transfers are accounted for at cost. Those transfers are eliminated on
consolidation.
|
(a)
|
Business
segments
|
The Group
is organised on a worldwide basis into three major operating segments. The Group
is involved in the upstream operating activities of the petroleum industry that
comprise independent operations, production sharing contracts with foreign
partners and trading business. These segments are determined primarily because
senior management makes key operating decisions and assesses the 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
expenditure information for the Group’s business segments for the years ended
December 31, 2007, 2006 and 2005.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
5.
|
SEGMENT INFORMATION
(CONTINUED)
|
|
Independent operations
|
Production
sharing contracts
|
Trading
business
|
||||||||||||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
||||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|
|||||||||||||||||||||||||||
|
Sales to external
customers:
|
||||||||||||||||||||||||||||||||||||
|
Oil
and gas sales
|
22,808,733
|
31,431,976
|
33,276,884
|
30,608,936
|
36,395,977
|
39,760,022
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Marketing
revenues
|
─
|
─
|
─
|
─
|
─
|
15,901,325
|
20,964,093
|
17,397,338
|
||||||||||||||||||||||||||||
|
Intersegment
revenues
|
1,598,171
|
851,604
|
1,128,726
|
7,467,429
|
11,056,807
|
6,006,262
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Other
income
|
13,093
|
19,809
|
180,604
|
103,047
|
89,239
|
49,428
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Total
|
24,419,997
|
32,303,389
|
34,586,214
|
38,179,412
|
47,542,023
|
45,815,712
|
15,901,325
|
20,964,093
|
17,397,338
|
|||||||||||||||||||||||||||
|
Segment
results
|
||||||||||||||||||||||||||||||||||||
|
Operating
expenses
|
(2,095,273 | ) | (2,538,092 | ) | (3,119,948 | ) | (3,839,325 | ) | (4,461,092 | ) | (4,919,655 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Production
taxes
|
(1,154,771 | ) | (1,606,059 | ) | (1,697,064 | ) | (1,441,772 | ) | (1,709,602 | ) | (1,800,376 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Exploration
costs
|
(1,025,993 | ) | (1,296,424 | ) | (1,870,775 | ) | (267,694 | ) | (408,651 | ) | (1,561,644 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Depreciation,
depletion and amortisation
|
(2,554,896 | ) | (2,502,336 | ) | (2,690,210 | ) | (3,409,844 | ) | (4,430,878 | ) | (4,684,259 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Dismantlement
|
(152,796 | ) | (242,855 | ) | (261,282 | ) | (100,061 | ) | (229,414 | ) | (300,419 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Special
oil gain levy
|
─
|
(1,928,985 | ) | (3,315,007 | ) |
─
|
(2,052,185 | ) | (3,522,206 | ) |
─
|
─
|
─
|
|||||||||||||||||||||||
|
Impairment
loss related to property, plant and equipment
|
(39,494 | ) | (150,399 | ) |
─
|
(50,696 | ) | (101,958 | ) | (613,505 | ) |
─
|
─
|
─
|
||||||||||||||||||||||
|
Crude
oil and product purchases
|
(1,598,171 | ) | (851,604 | ) | (1,128,726 | ) | (7,467,429 | ) | (11,056,807 | ) | (6,006,262 | ) | (15,704,100 | ) | (20,572,935 | ) | (17,082,624 | ) | ||||||||||||||||||
|
Selling
and administrative expenses
|
(39,486 | ) | (82,377 | ) | (57,363 | ) | (676,062 | ) | (708,652 | ) | (738,895 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Others
|
─
|
(6,134 | ) | (82,468 | ) | (77,062 | ) | (101,147 | ) | (256,348 | ) |
─
|
─
|
─
|
||||||||||||||||||||||
|
Interest
income
|
─
|
─
|
─
|
7,328
|
82,747
|
37,016
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Finance
costs
|
(183,325 | ) | (200,110 | ) | (184,521 | ) | (94,885 | ) | (112,379 | ) | (192,516 | ) |
─
|
─
|
─
|
|||||||||||||||||||||
|
Exchange
gains/(losses), net
|
─
|
(19 | ) |
79
|
(5,119 | ) |
19,544
|
(13,109 | ) |
─
|
─
|
─
|
||||||||||||||||||||||||
|
Investment
income
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Share
of profit of associates
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Non-operating
income/(expenses), net
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Tax
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Profit
for the year
|
15,575,792
|
20,897,995
|
20,178,929
|
20,756,791
|
22,271,549
|
21,243,534
|
197,225
|
391,158
|
314,714
|
|||||||||||||||||||||||||||
|
Unallocated
|
Eliminations
|
Consolidated
|
||||||||||||||||||||||||||||||||||
|
2005
|
2006
|
|
2007
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
|||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||||||||||||||||||||
|
Sales to external
customers:
|
||||||||||||||||||||||||||||||||||||
|
Oil
and gas sales
|
─
|
─
|
─
|
─
|
─
|
─
|
53,417,669
|
67,827,953
|
73,036,906
|
|||||||||||||||||||||||||||
|
Marketing
revenues
|
─
|
─
|
─
|
─
|
─
|
─
|
15,901,325
|
20,964,093
|
17,397,338
|
|||||||||||||||||||||||||||
|
Intersegment
revenues
|
─
|
─
|
─
|
(9,065,600 | ) | (11,908,411 | ) | (7,134,988 | ) |
─
|
─
|
─
|
||||||||||||||||||||||||
|
Other
income
|
20,609
|
46,190
|
59,555
|
─
|
─
|
-
|
136,749
|
155,238
|
289,587
|
|||||||||||||||||||||||||||
|
Total
|
20,609
|
46,190
|
59,555
|
(9,065,600 | ) | (11,908,411 | ) | (7,134,988 | ) |
69,455,743
|
88,947,284
|
90,723,831
|
||||||||||||||||||||||||
|
Segment
results
|
||||||||||||||||||||||||||||||||||||
|
Operating
expenses
|
─
|
─
|
─
|
─
|
─
|
─
|
(5,934,598 | ) | (6,999,184 | ) | (8,039,603 | ) | ||||||||||||||||||||||||
|
Production
taxes
|
─
|
─
|
─
|
─
|
─
|
─
|
(2,596,543 | ) | (3,315,661 | ) | (3,497,440 | ) | ||||||||||||||||||||||||
|
Exploration
costs
|
─
|
─
|
─
|
─
|
─
|
─
|
(1,293,687 | ) | (1,705,075 | ) | (3,432,419 | ) | ||||||||||||||||||||||||
|
Depreciation,
depletion and amortisation
|
─
|
─
|
─
|
─
|
─
|
─
|
(5,964,740 | ) | (6,933,214 | ) | (7,374,469 | ) | ||||||||||||||||||||||||
|
Dismantlement
|
─
|
─
|
─
|
─
|
─
|
─
|
(252,857 | ) | (472,269 | ) | (561,701 | ) | ||||||||||||||||||||||||
|
Special
oil gain levy
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
(3,981,170 | ) | (6,837,213 | ) | |||||||||||||||||||||||||
|
Impairment
loss related to property, plant and equipment
|
─
|
─
|
─
|
─
|
─
|
─
|
(90,190 | ) | (252,357 | ) | (613,505 | ) | ||||||||||||||||||||||||
|
Crude
oil and product purchases
|
─
|
─
|
─
|
9,065,600
|
11,908,411
|
7,134,988
|
(15,704,100 | ) | (20,572,935 | ) | (17,082,624 | ) | ||||||||||||||||||||||||
|
Selling
and administrative expenses
|
(654,820 | ) | (752,748 | ) | (944,903 | ) |
─
|
─
|
─
|
(1,370,368 | ) | (1,543,777 | ) | (1,741,161 | ) | |||||||||||||||||||||
|
Others
|
─
|
(10,020 | ) | (5,863 | ) |
─
|
─
|
─
|
(77,062 | ) | (117,301 | ) | (344,679 | ) | ||||||||||||||||||||||
|
Interest
income
|
351,966
|
698,789
|
635,971
|
─
|
─
|
─
|
359,294
|
781,536
|
672,987
|
|||||||||||||||||||||||||||
|
Finance
costs
|
(822,322 | ) | (1,519,641 | ) | (1,654,751 | ) |
─
|
─
|
─
|
(1,100,532 | ) | (1,832,130 | ) | (2,031,788 | ) | |||||||||||||||||||||
|
Exchange
gains/(losses), net
|
292,146
|
288,857
|
1,868,998
|
─
|
─
|
─
|
287,027
|
308,382
|
1,855,968
|
|||||||||||||||||||||||||||
|
Investment
income
|
247,893
|
613,028
|
902,378
|
─
|
─
|
─
|
247,893
|
613,028
|
902,378
|
|||||||||||||||||||||||||||
|
Share
of profit of associates
|
307,075
|
321,676
|
719,039
|
─
|
─
|
─
|
307,075
|
321,676
|
719,039
|
|||||||||||||||||||||||||||
|
Non-operating
income/(expenses), net
|
28,579
|
876,423
|
(6,979 | ) |
─
|
─
|
─
|
28,579
|
876,423
|
(6,979 | ) | |||||||||||||||||||||||||
|
Tax
|
(10,977,812 | ) | (13,196,313 | ) | (12,052,323 | ) |
─
|
─
|
─
|
(10,977,812 | ) | (13,196,313 | ) | (12,052,323 | ) | |||||||||||||||||||||
|
Profit
for the year
|
(11,206,686 | ) | (12,633,759 | ) | (10,478,878 | ) |
─
|
─
|
─
|
25,323,122
|
30,926,943
|
31,258,299
|
||||||||||||||||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
5.
|
SEGMENT INFORMATION
(CONTINUED)
|
|
Independent operations
|
Production sharing contracts | Trading business | ||||||||||||||||||||||||||||||||||
|
2005
|
2006
|
|
|
2007
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||||||||||||||||||||
|
Other segment
information
|
||||||||||||||||||||||||||||||||||||
|
Segment
assets
|
25,054,275
|
34,244,925
|
45,256,127
|
51,125,491
|
76,750,372
|
85,965,366
|
2,413,195
|
1,793,132
|
889,072
|
|||||||||||||||||||||||||||
|
Investment
in associates
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Non-current
asset classified as held for sale
|
─
|
─
|
─
|
─
|
─
|
1,086,798
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Total
assets
|
25,054,275
|
34,244,925
|
45,256,127
|
51,125,491
|
76,750,372
|
87,052,164
|
2,413,195
|
1,793,132
|
889,072
|
|||||||||||||||||||||||||||
|
Segment
liabilities
|
(5,187,124 | ) | (5,505,398 | ) | (8,514,615 | ) | (12,876,516 | ) | (11,105,725 | ) | (17,718,385 | ) | (667,336 | ) | (304,333 | ) | (296,971 | ) | ||||||||||||||||||
|
Liabilities
directly associated with non-current asset classified as held for
sale
|
─
|
─
|
─
|
─
|
─
|
(488,322 | ) |
─
|
─
|
─
|
||||||||||||||||||||||||||
|
Total
Liabilities
|
(5,187,124 | ) | (5,505,398 | ) | (8,514,615 | ) | (12,876,516 | ) | (11,105,725 | ) | (18,206,707 | ) | (667,336 | ) | (304,333 | ) | (296,971 | ) | ||||||||||||||||||
|
Capital
expenditure
|
7,806,927
|
8,839,966
|
12,437,280
|
8,914,306
|
35,673,922
|
15,150,291
|
─
|
─
|
─
|
|||||||||||||||||||||||||||
|
Unallocated
|
Eliminations
|
Consolidated
|
|||||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
|||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||||||||||
|
Other segment
information
|
|||||||||||||||||||||||||||||
|
Segment
assets
|
34,770,264
|
40,936,072
|
44,564,882
|
─
|
─
|
─-
|
113,363,225
|
153,724,501
|
176,675,447
|
||||||||||||||||||||
|
Investment
in associates
|
1,
401,839
|
1,543,515
|
2,030,999
|
─
|
─
|
─
|
1,401,839
|
1,543,515
|
2,030,999
|
||||||||||||||||||||
|
Non-current
asset classified as held for sale
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
1,086,798
|
||||||||||||||||||||
|
Total
assets
|
36,172,103
|
42,479,587
|
46,595,881
|
─
|
─
|
─
|
114,765,064
|
155,268,016
|
179,793,244
|
||||||||||||||||||||
|
Segment
liabilities
|
(22,430,991 | ) | (30,538,687 | ) | (18,460,213 | ) |
─
|
─
|
─
|
(41,161,967 | ) | (47,454,143 | ) | (44,990,184 | ) | ||||||||||||||
|
Liabilities
directly associated with non-current asset classified as held for
sale
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
─
|
(488,322 | ) | |||||||||||||||||||
|
Total
Liabilities
|
(22,430,991 | ) | (30,538,687 | ) | (18,460,213 | ) |
─
|
─
|
─
|
(41,161,967 | ) | (47,454,143 | ) | (45,478,506 | ) | ||||||||||||||
|
Capital
expenditure
|
144,442
|
128,538
|
26,186
|
─
|
─
|
─
|
16,865,675
|
44,642,426
|
27,613,757
|
||||||||||||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
5.
|
SEGMENT INFORMATION
(CONTINUED)
|
|
(b)
|
Geographical
segments
|
The Group
mainly engages in the exploration, development and production of crude oil,
natural gas and other petroleum products at offshore China. Any activities
outside the PRC are mainly conducted in Indonesia, Australia, Nigeria, Canada
and Singapore.
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. No further analysis of geographical segment information is presented for
revenues as over 86% of the Group’s revenues are generated from PRC customers,
and revenues generated from customers in other locations are individually less
than 10%.
The
following table presents certain assets and capital expenditure information for
the Group’s geographical segments for the years ended December 31, 2007, 2006
and 2005.
|
PRC
|
Africa
|
Indonesia
|
Others
|
|||||||||||||||||||||||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
2005
|
2006
|
|
2007
|
2005
|
2006
|
2007
|
||||||||||||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||||||||||||||||||||||||||
|
Segment
assets
|
96,297,414
|
141,671,505
|
165,069,955
|
3,296
|
24,885,876
|
28,552,281
|
15,489,010
|
19,006,251
|
18,869,876
|
12,795,292
|
35,901,096
|
39,600,715
|
||||||||||||||||||||||||||||||||||||
|
Capital
expenditure
|
14,496,690
|
15,794,450
|
18,919,577
|
─
|
25,265,423
|
5,972,625
|
2,363,233
|
3,384,807
|
2,592,117
|
5,752
|
197,746
|
129,438
|
||||||||||||||||||||||||||||||||||||
|
Consolidation and
Elimination
|
Total
|
|||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
|||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||||||||
|
Segment
assets
|
(9,819,948 | ) | (66,196,712 | ) | (72,299,583 | ) |
114,765,064
|
155,268,016
|
179,793,244
|
|||||||||||||||
|
Capital
expenditure
|
─
|
─
|
─
|
16,865,675
|
44,642,426
|
27,613,757
|
||||||||||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
6.
|
OIL AND GAS
SALES
|
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Gross
sales
|
57,988,465
|
72,709,179
|
78,181,343
|
|||||||||
|
Less:
Royalties
|
(708,537 | ) | (752,958 | ) | (1,059,018 | ) | ||||||
|
PRC
government share oil
|
(3,862,259 | ) | (4,128,268 | ) | (4,085,419 | ) | ||||||
|
53,417,669
|
67,827,953
|
73,036,906
|
||||||||||
|
7.
|
MARKETING
PROFIT
|
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Marketing
revenues
|
15,901,325
|
20,964,093
|
17,397,338
|
|||||||||
|
Crude
oil and product purchases
|
(15,704,100 | ) | (20,572,935 | ) | (17,082,624 | ) | ||||||
|
197,225
|
391,158
|
314,714
|
||||||||||
|
8.
|
SPECIAL OIL GAIN
LEVY
|
In 2006, a
Special Oil Gain Levy (“SOG Levy”) was imposed by the Ministry of Finance of the
PRC at the progressive rates from 20% to 40% on the portion of the monthly
weighted average sales price of the crude oil lifted in the PRC exceeding US$40
per barrel. The SOG Levy paid can be claimed as a deductible expense for
corporate income tax purpose and is calculated based on the actual volume of the
crude oil entitled.
|
9.
|
FINANCE
COSTS
|
|
2005
|
2006
|
|
2007
|
|||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Interest on
bank loans which are:
|
||||||||||||
|
-
repayable within five years
|
98,892
|
51,345
|
182,144
|
|||||||||
|
-
repayable after five years
|
—
|
10,631
|
—
|
|||||||||
|
Interest
on other loans (including convertible bonds)
|
671,849
|
907,565
|
688,876
|
|||||||||
|
Other
borrowing costs
|
3,773
|
1,535
|
78,393
|
|||||||||
|
Total
borrowing costs
|
774,514
|
971,076
|
949,413
|
|||||||||
|
Less:
Amount capitalised in property, plant
and
equipment
|
(245,987 | ) | (913,175 | ) | (846,206 | ) | ||||||
|
528,527
|
57,901
|
103,207
|
||||||||||
|
Other
finance costs:
|
||||||||||||
|
Increase
in discounted amount of provisions arising from the passage of time (note
28)
|
198,945
|
250,922
|
305,758
|
|||||||||
|
Fair
value losses on embedded derivative component of convertible
bonds
|
373,060
|
1,523,307
|
1,622,823
|
|||||||||
|
1,100,532
|
1,832,130
|
2,031,788
|
||||||||||
The
interest rates used for interest capitalisation represented the cost of capital
from raising the related borrowings and varied from 4.1% to 6.375% (2006: from
4.1% to 6.375%, 2005: from 4.1% to 9.2%) per annum for the year ended December
31, 2007.
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
10.
|
DIRECTORS’ REMUNERATION AND
SHARE OPTION BENEFITS
|
Directors’
remuneration and share option benefits, disclosed pursuant to the Listing Rules
and Section 161 of the Hong Kong Companies Ordinance, are as
follows:
|
Salaries,
|
Amount
|
|||||||||||||||||||||||||||
|
allowances
|
Performance
|
Pension
|
paid/payable
|
|||||||||||||||||||||||||
|
and
benefits
|
related
|
|
scheme
|
during
|
Share
option
|
|||||||||||||||||||||||
|
Fees(1)
|
in
kind(1)
|
bonuses
|
|
contributions
|
the year
|
benefits(3)
|
Total
|
|||||||||||||||||||||
|
RMB’000
|
|
RMB’000
|
RMB’000
|
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||
|
Executive
directors:
|
||||||||||||||||||||||||||||
|
Fu
Chengyu
|
929
|
3,346
|
2,329
|
88
|
6,692
|
4,610
|
11,302
|
|||||||||||||||||||||
|
Zhou
Shouwei
|
929
|
2,481
|
1,233
|
79
|
4,722
|
3,229
|
7,951
|
|||||||||||||||||||||
|
Wu
Guangqi
|
929
|
1,390
|
675
|
78
|
3,072
|
1,680
|
4,752
|
|||||||||||||||||||||
|
Yang
Hua
|
929
|
1,871
|
1,076
|
76
|
3,952
|
2,120
|
6,072
|
|||||||||||||||||||||
|
Subtotal
|
3,716
|
9,088
|
5,313
|
321
|
18,438
|
11,639
|
30,077
|
|||||||||||||||||||||
|
Non-executive
directors:
|
||||||||||||||||||||||||||||
|
Luo
Han
|
1,037
|
—
|
—
|
—
|
1,037
|
2,120
|
3,157
|
|||||||||||||||||||||
|
Cao
Xinghe
|
929
|
—
|
—
|
—
|
929
|
1,272
|
2,201
|
|||||||||||||||||||||
|
Wu
Zhenfang
|
929
|
—
|
—
|
—
|
929
|
1,272
|
2,201
|
|||||||||||||||||||||
|
Subtotal
|
2,895
|
—
|
—
|
—
|
2,895
|
4,664
|
7,559
|
|||||||||||||||||||||
|
Independent
non-executive
|
||||||||||||||||||||||||||||
|
directors:
|
||||||||||||||||||||||||||||
|
Edgar
W. K. Cheng(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Chiu
Sung Hong
|
1,037
|
—
|
—
|
—
|
1,037
|
440
|
1,477
|
|||||||||||||||||||||
|
Evert
Henkes
|
929
|
—
|
—
|
—
|
929
|
440
|
1,369
|
|||||||||||||||||||||
|
Lawrence
J. Lau(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Tse
Hau Yin, Aloysius
|
1,076
|
—
|
—
|
—
|
1,076
|
—
|
1,076
|
|||||||||||||||||||||
|
Subtotal
|
3,042
|
—
|
—
|
—
|
3,042
|
880
|
3,922
|
|||||||||||||||||||||
|
Total
|
9,653
|
9,088
|
5,313
|
321
|
24,375
|
17,183
|
41,558
|
|||||||||||||||||||||
|
2006
|
||||||||||||||||||||||||||||
|
Executive
directors:
|
||||||||||||||||||||||||||||
|
Fu
Chengyu
|
977
|
3,384
|
—
|
89
|
4,450
|
5,184
|
9,634
|
|||||||||||||||||||||
|
Zhou
Shouwei
|
977
|
2,510
|
—
|
81
|
3,568
|
3,644
|
7,212
|
|||||||||||||||||||||
|
Wu
Guangqi
|
977
|
1,408
|
—
|
80
|
2,465
|
2,196
|
4,661
|
|||||||||||||||||||||
|
Yang
Hua
|
977
|
1,893
|
—
|
79
|
2,949
|
2,392
|
5,341
|
|||||||||||||||||||||
|
Subtotal
|
3,908
|
9,195
|
—
|
329
|
13,432
|
13,416
|
26,848
|
|||||||||||||||||||||
|
Non-executive
directors:
|
||||||||||||||||||||||||||||
|
Luo
Han
|
977
|
300
|
—
|
80
|
1,357
|
2,392
|
3,749
|
|||||||||||||||||||||
|
Cao
Xinghe
|
977
|
300
|
—
|
80
|
1,357
|
1,538
|
2,895
|
|||||||||||||||||||||
|
Wu
Zhenfang
|
977
|
300
|
—
|
80
|
1,357
|
1,538
|
2,895
|
|||||||||||||||||||||
|
Subtotal
|
2,931
|
900
|
—
|
240
|
4,071
|
5,468
|
9,539
|
|||||||||||||||||||||
F-39
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
10.
|
DIRECTORS’ REMUNERATION AND
SHARE OPTION BENEFITS
(CONTINUED)
|
|
Salaries,
|
Amount
|
|||||||||||||||||||||||||||
|
allowances
|
Performance
|
Pension
|
paid/payable
|
|||||||||||||||||||||||||
|
and
benefits
|
|
related
|
scheme
|
during
|
Share
option
|
|||||||||||||||||||||||
|
Fees(1)
|
in
kind(1)
|
|
bonuses
|
contributions
|
the year
|
benefits(3)
|
Total
|
|||||||||||||||||||||
|
RMB’000
|
RMB’000
|
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||||||||||
|
2006
(continued)
|
||||||||||||||||||||||||||||
|
Independent
non-executive
|
||||||||||||||||||||||||||||
|
directors:
|
||||||||||||||||||||||||||||
|
Chiu
Sung Hong
|
977
|
—
|
—
|
—
|
977
|
181
|
1,158
|
|||||||||||||||||||||
|
Evert
Henkes
|
977
|
—
|
—
|
—
|
977
|
181
|
1,158
|
|||||||||||||||||||||
|
Kenneth
S. Courtis (4)
|
407
|
—
|
—
|
—
|
407
|
181
|
588
|
|||||||||||||||||||||
|
Tse
Hau Yin, Aloysius
|
977
|
—
|
—
|
—
|
977
|
—
|
977
|
|||||||||||||||||||||
|
Lawrence
J. Lau(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Edgar
W. K. Cheng(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Subtotal
|
3,338
|
—
|
—
|
—
|
3,338
|
543
|
3,881
|
|||||||||||||||||||||
|
Total
|
10,177
|
10,095
|
—
|
569
|
20,841
|
19,427
|
40,268
|
|||||||||||||||||||||
|
2005
|
||||||||||||||||||||||||||||
|
Executive
directors:
|
||||||||||||||||||||||||||||
|
Fu
Chengyu
|
832
|
3,579
|
—
|
—
|
4,411
|
2,236
|
6,647
|
|||||||||||||||||||||
|
Zhou
Shouwei
|
832
|
2,687
|
—
|
82
|
3,601
|
1,653
|
5,254
|
|||||||||||||||||||||
|
Luo
Han
|
832
|
459
|
—
|
—
|
1,291
|
1,086
|
2,377
|
|||||||||||||||||||||
|
Cao
Xinghe
|
277
|
153
|
—
|
—
|
430
|
269
|
699
|
|||||||||||||||||||||
|
Wu
Zhenfang
|
277
|
153
|
—
|
—
|
430
|
269
|
699
|
|||||||||||||||||||||
|
Wu
Guangqi
|
486
|
891
|
—
|
—
|
1,377
|
542
|
1,919
|
|||||||||||||||||||||
|
Yang
Hua
|
277
|
690
|
—
|
22
|
989
|
1,086
|
2,075
|
|||||||||||||||||||||
|
Jiang
Longsheng
|
347
|
216
|
—
|
—
|
563
|
55
|
618
|
|||||||||||||||||||||
|
Subtotal
|
4,160
|
8,828
|
—
|
104
|
13,092
|
7,196
|
20,288
|
|||||||||||||||||||||
|
Independent
non-executive
|
||||||||||||||||||||||||||||
|
directors:
|
||||||||||||||||||||||||||||
|
Chiu
Sung Hong
|
619
|
—
|
—
|
—
|
619
|
437
|
1,056
|
|||||||||||||||||||||
|
Evert
Henkes
|
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(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Subtotal
|
2,360
|
—
|
—
|
—
|
2,360
|
1,365
|
3,725
|
|||||||||||||||||||||
|
Total
|
6,520
|
8,828
|
—
|
104
|
15,452
|
8,561
|
24,013
|
|||||||||||||||||||||
Notes:
|
(1)
|
Fees
and salaries, allowances and benefits in kind represent the gross amount
(before Hong Kong individual salary tax) paid/payable to individual
directors.
|
|
(2)
|
Dr.
Edgar W. K. Cheng has voluntarily waived his director’s remuneration in
2007 and 2006, and Professor Lawrence J. Lau has voluntarily waived his
director’s remuneration in 2007, 2006,
2005.
|
F-40
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
(3)
|
During
the year, certain directors were granted share options in respect of their
services to the Group under the applicable share option schemes of the
Company, further details of which are set out in note 29 to the financial
statements. The fair value of such options which have been recognised to
the consolidated income statement over the vesting period, was determined
as at the date of grant and the amount included in the financial
statements for the current year is included in the above directors’
remuneration disclosures.
|
|
(4)
|
Dr.
Kenneth S. Courtis retired as an independent non-executive director of the
Company with effect from May 24,
2006.
|
Save as
disclosed above, there was no arrangement under which a director waived or
agreed to waive any remuneration during the year.
F-41
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
11.
|
FIVE HIGHEST PAID
EMPLOYEES
|
The five
highest paid employees during the year included four (2006: four, 2005: three)
directors and one (2006:one, 2005: two) non-director. Their remuneration
and share option benefits are as follows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Fees
|
2,496
|
3,908
|
3,716
|
|||||||||
|
Basic
salaries, allowances and benefits in kind*
|
13,347
|
12,022
|
11,646
|
|||||||||
|
Performance
related bonuses
|
471
|
808
|
6,137
|
|||||||||
|
Pension
scheme contributions
|
542
|
370
|
424
|
|||||||||
|
Amount
paid/payable during the year
|
16,856
|
17,108
|
21,923
|
|||||||||
|
Share
option benefits**
|
4,975
|
15,653
|
13,625
|
|||||||||
|
21,831
|
32,761
|
35,548
|
||||||||||
|
Number
of directors
|
3
|
4
|
4
|
|||||||||
|
Number
of employees
|
2
|
1
|
1
|
|||||||||
|
*
|
Fees and salaries, allowances
and benefits in kind represent the gross amount (before Hong Kong
individual salary tax) paid/payable to individual
employees.
|
|
**
|
During the year, share options
were granted to certain of the five highest paid employees in respect of
their services to the Group, further details of which are included in the
disclosures in note 29 to the financial statements. The fair value of such
options which have been recognised to the consolidated income statement
over the vesting period, was determined as at the date of grant and the
amount included in the financial statements for the current year is
included in the above five highest paid employees’ remuneration
disclosures.
|
The number
of the five highest paid employees whose remuneration and share option benefits
fell within the following bands is as follows:
|
Number of
employees
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Nil
to HK$5,000,000
|
3
|
1
|
1
|
|||||||||
|
HK$5,000,001-
HK$5,500,000
|
1
|
1
|
—
|
|||||||||
|
HK$5,500,001-
HK$6,000,000
|
—
|
1
|
1
|
|||||||||
|
HK$6,000,001-
HK$6,500,000
|
1
|
—
|
1
|
|||||||||
|
HK$6,500,001-
HK$8,000,000
|
—
|
1
|
—
|
|||||||||
|
HK$8,000,001-
HK$10,000,000
|
—
|
1
|
1
|
|||||||||
|
HK$10,000,001-
HK$12,000,000
|
—
|
—
|
1
|
|||||||||
|
5
|
5
|
5
|
||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
12.
|
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 the entities of
the Group are domiciled and operate. The Company is subject to profits tax at a
rate of 17.5% on profits arising in or derived from Hong Kong.
The
Company’s subsidiary in Mainland China, CNOOC China Limited, is a wholly-owned
foreign enterprise. It is exempt from the 3% local surcharge and is subject to
an enterprise income tax rate of 30% under the prevailing tax rules and
regulations.
During the
5th Session of the 10th National People’s Congress, which was concluded on March
16, 2007, the PRC Corporate Income Tax Law (the “New CIT Law”) was approved and
has become effective on 1 January 2008. The regulations on the implementation of
the New CIT Law were approved at the 197th Executive Meeting of the State
Council on November 28, 2007. The New CIT Law and the implementation regulations
introduce a wide range of changes which include, but not limited to, the
unification of the income tax rate for domestic-invested and foreign-invested
enterprises at 25%.
As a
result of the tax rate change, the Group estimates that the change in the
corporate income tax rates has had the following impact on the results and
financial position of the Group for the year ended 31 December
2007:
|
RMB’000
|
|
|
Decrease
in income tax expenses
|
1,019,564
|
|
Decrease
in deferred tax liabilities
|
1,019,564
|
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 and gas
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%. According to the current tax treaty between Indonesia and Malaysia, the
Company’s subsidiaries owning interests in oil and gas properties in Indonesia
are subject to corporate and dividend tax combined at rates ranging from 43.125%
to 51.875%. The Company’s subsidiary owning interests in oil and gas properties
in the North West Shelf Project (the “NWS Project”) in Australia is subject to
income tax at the rate of 30%. All of the Company’s other subsidiaries are not
subject to any income taxes in their respective jurisdictions for the years
presented.
Certain of
the Group’s oil and gas interests in Indonesia are held through Labuan
incorporated companies. Companies incorporated in Labuan enjoy certain reduced
tax rates provided by the tax treaty between Indonesia and Malaysia. In May
2006, certain proposed amendments to the tax treaty were agreed by the
respective ministers of the two countries. According to the proposed amendments,
the tax rates will increase from 43.125% to 48% and from 51.875% to 56%
respectively. The proposed amendments will need to be ratified by the two
countries and will take effect two months after the ratification. It was still
uncertain when the ratification will be completed by the two countries as at
March 27, 2008.
F-43
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
12.
|
TAX
(CONTINUED)
|
|
(i)
|
Income
tax (continued)
|
An
analysis of the provision for tax in the Group’s consolidated income statement
was as follows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Overseas
|
||||||||||||
|
-
Current income taxes
|
845,390
|
874,378
|
967,047
|
|||||||||
|
-
Deferred income taxes
|
14,907
|
141,615
|
(83,178 | ) | ||||||||
|
PRC
|
||||||||||||
|
-
Current income taxes
|
9,912,426
|
11,791,620
|
11,786,176
|
|||||||||
|
-
Deferred income taxes
|
205,089
|
388,700
|
(617,722 | ) | ||||||||
|
Total
tax charge for the year
|
10,977,812
|
13,196,313
|
12,052,323
|
|||||||||
A
reconciliation of the statutory PRC enterprise income tax rate to the effective
income tax rate of the Group is as follows:
|
2005
|
2006
|
2007
|
||||||||||
|
%
|
%
|
%
|
|
|||||||||
|
Statutory
PRC enterprise income tax rate
|
33.0
|
33.0
|
33.0
|
|||||||||
|
Effect
of tax exemption granted
|
(3.0 | ) | (3.0 | ) | (3.0 | ) | ||||||
|
Effect
of different tax rates for the Company and overseas
subsidiaries
|
0.8
|
0.8
|
1.3
|
|||||||||
|
Tax
credit from government
|
(0.3 | ) | (0.7 | ) | (0.8 | ) | ||||||
|
Effect
of change of PRC tax rate
|
—
|
—
|
(2.4 | ) | ||||||||
|
Profit
attributes to associates
|
(0.3 | ) | (0.2 | ) | (0.3 | ) | ||||||
|
Tax
charge at the Group’s effective rate
|
30.2
|
29.9
|
27.8
|
|||||||||
The
movements of deferred tax liabilities during the year are as
follows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Balance
at beginning of the year
|
6,688,498
|
6,827,916
|
7,236,169
|
|||||||||
|
Credited
to the consolidated income statement during the year
|
219,996
|
530,315
|
(700,900 | ) | ||||||||
|
Exchange
realignment
|
(80,578 | ) | (122,062 | ) | (241,710 | ) | ||||||
|
Balance
at the end of the year
|
6,827,916
|
7,236,169
|
6,293,559
|
|||||||||
F-44
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
12.
|
TAX
(CONTINUED)
|
|
(ii)
|
Income
tax (continued)
|
Principal
components of the provision for deferred tax are as follows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Deferred tax
assets
|
||||||||||||
|
Provision
for retirement and termination benefits
|
98,696
|
102,521
|
120,285
|
|||||||||
|
Provision
for dismantlement
|
1,248,498
|
1,623,774
|
998,309
|
|||||||||
|
Impairment
of property, plant and equipment and write-off of unsuccessful exploratory
drillings
|
886,402
|
1,006,260
|
1,198,668
|
|||||||||
|
Overseas
tax loss carryforward
|
─
|
131,441
|
149,020
|
|||||||||
|
2,233,596
|
2,863,996
|
2,466,282
|
||||||||||
|
Deferred tax
liabilities
|
||||||||||||
|
Accelerated
amortisation allowance for oil and gas properties
|
(9,061,512 | ) | (10,011,208 | ) | (8,754,455 | ) | ||||||
|
Others
|
─
|
(88,957 | ) | (5,386 | ) | |||||||
| (9,061,512 | ) | (10,100,165 | ) | (8,759,841 | ) | |||||||
|
Net
deferred tax liabilities
|
(6,827,916 | ) | (7,236,169 | ) | (6,293,559 | ) | ||||||
As at
December 31, 2007, there was no significant unrecognised deferred tax liability
(2006 and 2005: 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.
|
(iii)
|
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;
|
|
|
—
|
Export
tariffs on petroleum oils at a rate of 5% levied beginning on November 1,
2006; and
|
|
|
—
|
Business
tax at rates of 3% to 5% on other
income.
|
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
13.
|
DIVIDENDS
|
On August
29, 2007, the board of directors of the Company (the “Board”) declared an
interim dividend of HK$0.13 per share (equivalent to approximately RMB0.12 per
share) (2006: HK$0.12 per share, 2005: HK$0.05 per share). The interim dividend
amounting to HK$5,730,284,000 (equivalent to approximately RMB5,547,488,000) was
paid, based on the number of issued shares as at the date of record (2006:
approximately RMB5,334,091,000, 2005: approximately
RMB2,138,128,000).
The Board
has recommended a final dividend of HK$0.17 (equivalent to approximately
RMB0.16) (2006: HK$0.14, 2005: HK$0.10) per ordinary share, amounting to
HK7,531,445,000 (equivalent to approximately RMB7,052,445,000) for the year
ended December 31, 2007 (2006: RMB6,001,819,000, 2005: RMB4,250,391,000). The
proposed final dividend for the year is subject to the approval of the Company’s
shareholders at the forthcoming annual general meeting.
The
payment of future dividends will be determined by the Board, which are based
upon, among other things, the Company’s future earnings, capital requirements,
financial conditions, future prospects and other factors which the Board may
consider relevant. 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.
Cash
dividends to the shareholders in Hong Kong will be paid in Hong Kong dollars.
Cash dividends to the American Depositary Receipts (the “ADRs”) 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 the
ADRs.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
14.
|
EARNINGS PER
SHARE
|
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Earnings:
|
||||||||||||
|
Profit
from ordinary activities attributable
to
shareholders for the year for the
basic
earnings per share calculation
|
25,323,122
|
30,926,943
|
31,258,299
|
|||||||||
|
Interest
expense and fair value losses recognised on the embedded derivative
component of convertible bonds
|
537,469
|
1,915,415
|
1,622,824 | * | ||||||||
|
Profit
from ordinary activities attributable to shareholders for the year
for the purpose of diluted earnings per share
calculation
|
25,860,591
|
32,842,358
|
32,881,123 | * | ||||||||
|
Number
of shares:
|
||||||||||||
|
Number
of ordinary shares issued at beginning of the year before
the weighted average effects of new shares issued and share
options exercised during the year
|
41,052,375,275
|
41,054,675,375
|
43,328,552,648
|
|||||||||
|
Weighted
average effects of new shares issued during the year
|
—
|
1,457,036,115
|
276,884,564
|
|||||||||
|
Weighted
average effects of shares options exercised during the
year
|
2,124,707
|
478,904
|
—
|
|||||||||
|
Weighted
average number of ordinary shares for the basic earnings per share
calculation
|
41,054,499,982
|
42,512,190,394
|
43,605,437,212
|
|||||||||
|
Effect
of dilutive potential ordinary shares under the shares option
scheme
|
38,861,432
|
65,650,619
|
126,499,657
|
|||||||||
|
Effect
of dilutive potential ordinary shares for convertible bonds based on the
“if converted method”
|
1,292,694,352
|
1,310,307,143
|
1,055,500,755 | * | ||||||||
|
Weighted
average number of ordinary shares for the purpose of diluted earnings per
share
|
42,386,055,766
|
43,888,148,156
|
44,787,437,624 | * | ||||||||
|
Earnings
per share
|
||||||||||||
|
--Basic
|
RMB0.62
|
RMB0.73
|
RMB0.72
|
|||||||||
|
--Diluted
|
RMB0.61
|
RMB0.73
|
RMB0.72
|
* | ||||||||
Net income
per ADS for the three years ended December 31, 2007 has been computed by
dividing net income by the number of ADS outstanding. Each ADS represented 100
shares.
The
calculation of basic earnings per share amounts is based on the profit from
ordinary activities attributable to shareholders 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 profit for the year, adjusted
to reflect the interest expenses 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 onto
ordinary shares.
|
*
|
Since the diluted earnings per
share amount is increased when taking the convertible bonds into account,
the convertible bonds had an anti-dilutive effect on the basic earnings
per share for the period and were ignored in the calculation of diluted
earnings per share. Therefore, the diluted earnings per share amounts are
based on the profit for the year of approximately RMB31,258,299,000, and
the weighted average of 43,731,936,869 ordinary
shares.
|
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
15.
|
PROPERTY, PLANT AND EQUIPMENT,
NET
|
Movements
in the property, plant and equipment of the Group are as
follows:
|
2006
|
||||||||||||
|
Vehicles
and
|
||||||||||||
|
Oil and
gas
|
office
|
|||||||||||
|
properties
|
equipment
|
Total
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Cost:
|
||||||||||||
|
At
January 1, 2006
|
106,128,228
|
319,414
|
106,447,642
|
|||||||||
|
Additions
|
24,299,341
|
132,260
|
24,431,601
|
|||||||||
|
Acquisition
|
21,217,335
|
─
|
21,217,335
|
|||||||||
|
Reclassification
to intangible asset (note 16) *
|
(175,387 | ) |
─
|
(175,387 | ) | |||||||
|
Disposals
and write-offs
|
─
|
(1,912 | ) | (1,912 | ) | |||||||
|
Exchange
realignment
|
(1,232,003 | ) | (413 | ) | (1,232,416 | ) | ||||||
|
At
December 31, 2006
|
150,237,514
|
449,349
|
150,686,863
|
|||||||||
|
Accumulated depreciation,
depletion and amortisation:
|
||||||||||||
|
At
January 1, 2006
|
(39,726,219 | ) | (96,256 | ) | (39,822,475 | ) | ||||||
|
Depreciation
provided during the year
|
(7,268,835 | ) | (84,290 | ) | (7,353,125 | ) | ||||||
|
Impairment
recognised in the income statement during the year
|
(252,357 | ) |
─
|
(252,357 | ) | |||||||
|
Disposals
and write-offs
|
─
|
16
|
16
|
|||||||||
|
Exchange
realignment
|
147,207
|
247
|
147,454
|
|||||||||
|
At
December 31, 2006
|
(47,100,204 | ) | (180,283 | ) | (47,280,487 | ) | ||||||
|
Net book
value:
|
||||||||||||
|
At
January 1, 2006
|
66,402,009
|
223,158
|
66,625,167
|
|||||||||
|
At
December 31, 2006
|
103,137,310
|
269,066
|
103,406,376
|
|||||||||
*
The
reclassification of intangible assets of RMB 175,387,000 in 2006 represented an
adjustment for a tax refund received in 2005 relating to the acquisition of the
NWS Project, which was temporarily recorded in Property, Plant and Equipment
pending finalization of the purchase price allocation in
2006.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
15.
|
PROPERTY, PLANT AND EQUIPMENT,
NET (CONTINUED)
|
Movements
in the property, plant and equipment of the Group are as follows:
(continued)
|
2007
|
||||||||||||
|
Vehicles
and
|
||||||||||||
|
Oil and
gas
|
office
|
|||||||||||
|
properties
|
equipment
|
Total
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Cost:
|
||||||||||||
|
At
January 1, 2007
|
150,237,514
|
449,349
|
150,686,863
|
|||||||||
|
Additions
|
28,145,573
|
29,579
|
28,175,152
|
|||||||||
|
Reclassification
to non-current asset as held for sale (note 37)
|
(1,086,798 | ) |
—
|
(1,086,798 | ) | |||||||
|
Purchase
price adjustment
|
||||||||||||
|
Disposals
and write-offs
|
(953,066 | ) | (2,622 | ) | (955,688 | ) | ||||||
|
Exchange
realignment
|
(3,397,438 | ) | (906 | ) | (3,398,344 | ) | ||||||
|
At
December 31, 2007
|
172,945,785
|
475,400
|
173,421,185
|
|||||||||
|
Accumulated depreciation,
depletion and amortisation:
|
||||||||||||
|
At
January 1, 2007
|
(47,100,204 | ) | (180,283 | ) | (47,280,487 | ) | ||||||
|
Depreciation
provided during the year
|
(7,829,002 | ) | (56,563 | ) | (7,885,565 | ) | ||||||
|
Impairment
recognised in the income statement during the year
|
(613,505 | ) |
—
|
(613,505 | ) | |||||||
|
Disposals
and write-offs
|
857,893
|
—
|
857,893
|
|||||||||
|
Exchange
realignment
|
380,152
|
531
|
380,683
|
|||||||||
|
At
December 31, 2007
|
(54,304,666 | ) | (236,315 | ) | (54,540,981 | ) | ||||||
|
Net book
value:
|
||||||||||||
|
At
January 1, 2007
|
103,137,310
|
269,066
|
103,406,376
|
|||||||||
|
At
December 31, 2007
|
118,641,119
|
239,085
|
118,880,204
|
|||||||||
Included
in the current year additions was an amount of approximately RMB846,206,000 in
respect of interest capitalised in property, plant and equipment.
F-49
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
16.
|
INTANGIBLE
ASSETS
|
The
intangible assets of the Company comprised of software and gas processing rights
of the NWS Project. The software is amortised over 3 years on a straight-line
basis. The NWS Project started commercial production in 2006. Accordingly, the
intangible asset regarding the gas processing rights has been amortised upon the
commercial production of the liquefied natural gas using the unit-of-production
method.
|
2006
|
2007
|
|||||||||||||||
|
NWS
Project
|
Software
|
Total
|
||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||
|
Cost:
|
||||||||||||||||
|
At
January 1
|
1,299,643
|
1,432,917
|
—
|
1,432,917
|
||||||||||||
|
Reclassification
from property, plant and equipment (note 15)
|
175,387
|
—
|
—
|
—
|
||||||||||||
|
Additions
|
—
|
—
|
79,844
|
79,844
|
||||||||||||
|
Exchange
realignment
|
(42,113 | ) | (88,215 | ) |
—
|
(88,215 | ) | |||||||||
|
At
December 31
|
1,432,917
|
1,344,702
|
79,844
|
1,424,546
|
||||||||||||
|
Accumulated
amortisation:
|
||||||||||||||||
|
At
January 1
|
—
|
(23,864 | ) |
—
|
(23,864 | ) | ||||||||||
|
Amortisation
provided during the year
|
(23,864 | ) | (64,640 | ) | (4,838 | ) | (69,478 | ) | ||||||||
|
At
December 31
|
(23,864 | ) | (88,504 | ) | (4,838 | ) | (93,342 | ) | ||||||||
|
Net book
value:
|
||||||||||||||||
|
At
January 1
|
1,299,643
|
1,409,053
|
—
|
1,409,053
|
||||||||||||
|
At
December 31
|
1,409,053
|
1,256,198
|
75,006
|
1,331,204
|
||||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
17.
|
INTERESTS IN
ASSOCIATES
|
The
Group’s investments in associates represent (1) a 30% equity interest in
Shanghai Petroleum Corporation Limited (“SHPC”) through CNOOC China Limited.
SHPC was incorporated on September 7, 1992 in the PRC with limited liability and
is principally engaged in offshore petroleum exploration, development,
production and sales in China. The issued and paid-up capital of SHPC is RMB900
million; and (2) a 31.8% equity interest in CNOOC Finance Corporation Limited
through CNOOC China Limited. CNOOC Finance Corporation Limited was incorporated
on June 14, 2002 in the PRC with limited liability and is principally engaged in
deposit, 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. Both of the associates are unlisted
companies and indirectly held by the Company.
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’
000
|
|||||||
|
Share
of net assets
|
1,543,515
|
2,030,999
|
||||||
CNOOC
Finance Corporation Limited is not audited by Ernst & Young Hong Kong or
other member firm of the Ernst & Young global network.
The
following table illustrates the summarized financial information of the Group’s
associates extracted from their management accounts:
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’
000
|
|||||||
|
Assets
|
36,604,682
|
34,718,921
|
||||||
|
Liabilities
|
31,862,159
|
28,406,325
|
||||||
|
Revenue
|
2,719,102
|
4,798,200
|
||||||
|
Profits
|
1,008,949
|
2,144,521
|
||||||
|
18.
|
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 credit terms of
the Group are generally within 30 days after the delivery of oil and gas. Trade
receivables are non-interest-bearing.
As at
December 31, 2007 and 2006, substantially all the accounts receivable were aged
within six months. Receivables that were neither past due nor impaired relate to
customers for whom there were no history of default.
|
19.
|
INVENTORIES AND
SUPPLIES
|
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’000
|
|||||||
|
Materials
and supplies
|
1,508,403
|
2,052,747
|
||||||
|
Oil
in tanks
|
224,203
|
338,918
|
||||||
|
Less:
Provision for inventories obsolescence
|
(41,127 | ) | (45,778 | ) | ||||
|
1,691,479
|
2,345,887
|
|||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
20.
|
AVAILABLE-FOR-SALE FINANCIAL
ASSETS
|
Current:
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’000
|
|||||||
|
Unlisted
investments, at fair value:
|
||||||||
|
Liquidity
funds
|
12,264,926
|
6,594,390
|
||||||
|
Listed
investments, at fair value:
|
||||||||
|
Common
stock
|
125,132
|
93,558
|
||||||
|
12,390,058
|
6,687,948
|
|||||||
The above
listed investments in common stock and liquidity funds which were designated as
available-for-sale financial assets have no fixed maturity date and no coupon
rate.
The fair
values of listed equity 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 gains of the Group’s available-for-sale financial assets
recognised directly in equity amounted to approximately RMB63,426,000 (2006:
RMB60,010,000). In addition, the unrealised gains of the Group’s
available-for-sale financial assets of approximately RMB60,010,000 recognised
directly in equity in 2006 were transferred from equity to the consolidated
income statement during the year (2006: RMB69,069,000 ). The amounts removed
from equity to the consolidated income statement were determined on a specific
identification basis.
Non-current:
The
non-current available-for-sale financial asset consists of investment in
unlisted equity securities of MEG Energy Corporation (“MEG”) and is stated at
cost less any impairment. MEG is principally engaged in the exploitation and
production of oil sands.
|
21.
|
HELD-TO-MATURITY FINANCIAL
ASSET
|
The
held-to-maturity financial asset comprises a corporate wealth management product
arranged with a financial institution with an expected interest rate of 4%. The
product matured on January 31, 2008.
F-52
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
22.
|
CASH AND CASH EQUIVALENTS AND
TIME DEPOSITS WITH MATURITY OVER THREE
MONTHS
|
The
Group’s and the Company’s cash and cash equivalents mainly consist of time
deposits with maturity ranging between seven days and one month. The interest
rates of the Group’s RMB denominated deposits range between 1.53% and 1.71% and
the interest rates of the Group’s and the Company’s US dollar denominated
deposits range between 4.75% and 5.28%. The Group’s time deposits with maturity
over three months consist of all RMB denominated time deposits with interest
rates ranging between 3.33% and 3.78%. The bank balances are deposited with
creditworthy banks with no recent history of default.
|
23.
|
ACCOUNTS
PAYABLE
|
As at
December 31, 2007 and 2006, substantially all the accounts payable were aged
within six months. The accounts payable are non-interest-bearing and are
normally settled within six months.
|
24.
|
OTHER PAYABLES AND ACCRUED
LIABILITIES
|
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’000
|
|
||||||
|
Accrued
payroll and welfare payable
|
251,251
|
373,329
|
||||||
|
Provision
for retirement and termination benefits
|
282,710
|
428,133
|
||||||
|
Accrued
expenses
|
3,188,603
|
3,933,793
|
||||||
|
Advances
from customers
|
183,850
|
740,873
|
||||||
|
Royalties
payable
|
360,334
|
374,272
|
||||||
|
Special
oil gain levy payable
|
567,387
|
2,945,323
|
||||||
|
Other
payables
|
647,364
|
255,535
|
||||||
|
5,481,499
|
9,051,258
|
|||||||
Other
payables are non-interest-bearing and have an average term of less than six
months.
F-53
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
25.
|
LONG TERM BANK
LOANS
|
As at
December 31, 2007, the long term bank loans of the Group were used primarily to
finance the development of oil and gas properties and to meet working capital
requirements.
|
Effective
interest rate and
final maturity
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’000
|
|
|||||||
|
RMB
denominated bank
loans
|
Effective
interest rate of 4.05% per annum with maturity through
2016
|
500,000
|
500,000
|
||||||
|
US$
denominated bank loans*
|
Effective
interest rate of LIBOR+0.23%~0.38% per annum
with maturity through 2017
|
1,938,172
|
2,708,753
|
||||||
|
Japanese
Yen denominated bank loans
|
Effective
interest rate of 4.1% per annum with maturity through to
2007
|
17,816
|
—
|
||||||
|
2,455,988
|
3,208,753
|
||||||||
|
Less:
Current portion of long term bank loans
|
(17,816 | ) |
—
|
||||||
|
Less:
Liabilities directly associated with non-current asset classified as held
for sale (note 37)
|
—
|
(488,322 | ) | ||||||
|
2,438,172
|
2,720,431
|
||||||||
|
*
|
The
amount represented the Group’s share of the utilised bank loans in Tangguh
Liquefied Natural Gas Project (“Tangguh LNG
Project”).
|
The
Company delivered a guarantee dated October 29, 2007 in favor of Mizuho
Corporate Bank, Ltd., as the facility agent for and on behalf of various
international commercial banks under a US$884 million commercial loan agreement
dated October 29, 2007 in connection with the Tangguh LNG Project in Indonesia.
The Company guarantees the payment obligations of the trustee borrower under the
subject loan agreement and is subject to a maximum cap of approximately
US$164,888,000. Together with the loan agreement dated July 31, 2006 with a
maximum cap of approximately US$487,862,000, the total maximum guarantee cap is
US$652,750,000.
As at
December 31, 2007, all the bank loans of the Group were unsecured, and none of
the outstanding borrowings were guaranteed by CNOOC.
F-54
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
25.
|
LONG TERM BANK LOANS
(CONTINUED)
|
The
maturities of the long term bank loans are as follows:
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’000
|
|
||||||
|
Repayable:
|
||||||||
|
Within
one year
|
17,816
|
—
|
||||||
|
After
one year but within two years
|
—
|
21,673
|
||||||
|
After
two years but within three years
|
17,316
|
134,723
|
||||||
|
After
three years but within four years
|
112,556
|
170,083
|
||||||
|
After
four years but within five years
|
181,820
|
702,479
|
||||||
|
After
five years
|
2,126,480
|
2,179,795
|
||||||
|
2,455,988
|
3,208,753
|
|||||||
|
Amount
due within one year shown under current liabilities
|
(17,816 | ) |
—
|
|||||
|
Liabilities
directly associated with non-current asset classified
as held for sale (note 37)
|
—
|
(488,322 | ) | |||||
|
2,438,172
|
2,720,431
|
|||||||
Supplemental
information with respect to long term bank loans:
|
Maximum
|
Average
|
Weighted
|
||||||||
|
Weighted
|
amount
|
amount
|
average
|
|||||||
|
average
|
outstanding
|
outstanding
|
interest
rate
|
|||||||
|
Balance
|
interest
rate
|
during
the
|
during
the
|
during
the
|
||||||
|
For
the year ended
|
at
year end
|
at
year end
|
year
|
year*
|
year**
|
|||||
|
December
31
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||
|
2007
|
3,208,753
|
4.85%
|
3,208,753
|
2,832,371
|
5.05%
|
|||||
|
2006
|
2,455,988
|
5.25%
|
2,455,988
|
1,653,027
|
7.11%
|
|
*
|
The average amount outstanding
is computed by dividing the total outstanding principal balances as at
January 1, and December 31, by
two.
|
|
**
|
The weighted average interest
rate is computed by dividing the total weighted average interest rates as
at January 1, and December 31, by
two.
|
There are
no defaults during the year of principal, interest or redemption terms of the
long term bank loans.
F-55
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
26.
|
LONG TERM GUARANTEED
NOTES
|
Long term
guaranteed notes comprised the following:
|
(i)
|
The
principal amount of US$500 million of 6.375% guaranteed notes due in 2012
issued by CNOOC Finance (2002) Limited, a wholly-owned subsidiary of the
Company. The obligations of CNOOC Finance (2002) Limited in respect of the
notes are unconditionally and irrevocably guaranteed by the
Company.
|
|
(ii)
|
The
principal amount of US$200 million of 4.125% guaranteed notes due in 2013
and the principal amount of US$300 million of 5.500% guaranteed notes due
in 2033 issued by CNOOC Finance (2003) Limited, a wholly-owned subsidiary
of the Company. The obligations of CNOOC Finance (2003) Limited in respect
of the notes are unconditionally and irrevocably guaranteed by the
Company.
|
|
(iii)
|
The
principal amount of US$1 billion zero coupon guaranteed convertible bonds
due in 2009, unconditionally and irrevocably guaranteed by, and
convertible into shares of the Company issued by CNOOC Finance (2004)
Limited, a wholly-owned subsidiary of the Company, on December 15, 2004.
The bonds are convertible from January 15, 2005 onwards at a price of
HK$6.075 per share, subject to adjustments. The conversion price was
adjusted to HK$5.97, HK$5.90 and HK$5.79 per share on June 7, 2005, June
7, 2006 and June 7, 2007, respectively, as a result of the declaration of
the dividends for 2004, 2005 and 2006 by the Company. Unless previously
redeemed, converted or purchased and cancelled, the bonds will be redeemed
on the maturity date at 105.114% of the principal amount. CNOOC Finance
(2004) Limited has an early redemption option at any time after December
15, 2007 (subject to certain criteria) and a cash settlement option to pay
cash in lieu of delivering shares when the bondholders exercise their
conversion right. The bondholders also have an early redemption option to
require CNOOC Finance (2004) Limited to redeem all or part of the bonds on
December 15, 2007 at an early redemption amount of 103.038% of the
principal amount.
|
CNOOC
Finance (2004) Limited renounced its cash settlement option by way of a
supplemental trust deed dated July 31, 2007 entered into amongst the Company,
CNOOC Finance (2004) Limited and BNY Corporate Trustee Services Limited. As
such, the derivative component of the convertible bonds is no longer a liability
and was transferred to equity.
During the
year, convertible bonds with a face value of US$725,848,000 were converted into
new shares of the Company. As at December 31, 2007, US$274,151,000 of
convertible bonds were outstanding.
For
conversion before the renunciation of cash settlement option, the bifurcated
derivative component was marked to market through earnings up to the conversion
date. The host bond was accreted and any deferred issuance costs was amortized
up to the conversion date as if bond were to remain outstanding for its
contractual life. The accreted value of the host bond and the marked-to-market
value of derivative component were then reclassified into equity. Upon
renunciation of the cash settlement option, the entire derivative component was
marked to market and reclassified into equity. Subsequent conversions were
accounted for in the same way but without considering the derivative
component.
On
February 21, 2008, CNOOC Finance (2004) Limited extinguished all the outstanding
convertible bonds by exercising an early redemption option. The withdrawal of
delisting of the convertible bonds on The Stock Exchange of Hong Kong Limited
was effective at the close of business on March 6, 2008. The Group currently has
no convertible bond liability.
There is
no default during the year of principal, interest or redemption term of the long
term guaranteed notes.
F-56
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY
TRANSACTIONS
|
The
majority of the Group’s business activities are conducted with state-owned
enterprises (including CNOOC and its associates). As the Group is controlled by
CNOOC, transactions with CNOOC and its associates are disclosed as related party
transactions. The Group considers that transactions with other state-owned
enterprises (other than CNOOC and its associates) are in the ordinary course of
business and there are no indicators that the Group influenced, or was
influenced by, those state-owned enterprises. Accordingly, the Group has not
disclosed such transactions with other state-owned enterprises (other than CNOOC
and its associates) as related party transactions.
In order
to present a more coherent, logical and understandable picture to shareholders,
and also to enable the Company to monitor the status of its connected
transactions as defined under the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited (the “Listing Rules”) more effectively,
the Company has adopted a new categorisation for its related party/continuing
connected transactions with CNOOC and/or its associates. On December 8, 2005,
the Company entered into three comprehensive framework agreements with each of
CNOOC, China Oilfield Services Limited (“COSL”) and Offshore Oil Engineering
Co., Ltd (“CNOOC Engineering”) 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 related party/continuing connected transactions. The term of each
of the comprehensive framework agreements is for a period of two years from
January 1, 2006. The new categorisation and caps for each category of related
party/continuing connected transactions as approved by the independent
shareholders of the Company on December 31, 2005 applicable to the
Company for the period from January 1, 2006 to December 31, 2007 are as
follows:
|
|
•
|
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;
|
|
|
•
|
Provision
of management, technical, facilities and ancillary services, including the
supply of materials from the Group to CNOOC and/or its associates;
and
|
|
|
•
|
Sales
of petroleum and natural gas products by the Group to CNOOC and/or its
associates.
|
On
December 6, 2007, the independent shareholders of the Company approved the
renewal of the continuing connected transactions for the next three years (from
January 1, 2008 to December 31, 2010) including the relevant proposed caps. The
revised cap for the provision of exploration and support services by CNOOC
and/or its associates to the Group for the year ended December 31, 2007 was also
approved.
Since the
establishment of CNOOC, certain associates of CNOOC specialised in exploration,
oil and gas development, oil and gas production, as well as marketing,
management and ancillary services to the Group through bidding process. The
Group will continue to use these services provided by the associates of CNOOC,
including but not limited to COSL, CNOOC Engineering and CNOOC Oil Base Group
Limited (“COBGL”). CNOOC also provides certain of these services from time to
time. The services provided by CNOOC and/or its associates are set out
below.
F-57
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(i)
|
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)
|
Provision of exploration and
support services
|
The
services provided by CNOOC and/or its associates to the Group on exploration
operations include:
|
|
•
|
well
site survey;
|
|
|
•
|
seismic
data acquisition and processing;
|
|
|
•
|
integrated
exploration research services;
|
|
|
•
|
exploration
well operation;
|
|
|
•
|
related
technical services on exploration
wells;
|
|
|
•
|
tow-boat,
transportation and safety services;
and
|
|
|
•
|
other
related technical and supporting
services.
|
|
|
(b)
|
Provision of oil and gas
development and support
services
|
The
services provided by CNOOC and/or its associates to the Group on oil and gas
development operations include:
|
|
•
|
platform
survey;
|
|
|
•
|
drilling
and completion well operation;
|
|
|
•
|
related
technical services on drilling and
completion;
|
|
|
•
|
design,
construction, installation and tuning of production
facilities;
|
|
|
•
|
shipping
transportation;
|
|
|
•
|
provision
of materials;
|
|
|
•
|
integrated
research on development techniques;
and
|
|
|
•
|
other
related technical and supporting
services.
|
F-58
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(i)
|
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 (continued)
|
|
|
(c)
|
Provision of oil and gas
production and support
services
|
The
services provided by CNOOC and/or its associates to the Group on oil and gas
production operations are set out below. In addition, CNOOC and/or its
associates also provide various facilities and ancillary services, such as
provision of different types of materials, medical and employee welfare
services, maintenance and repair of major equipments and supply of water,
electricity and heat to the Group, some of which may not be available from
independent third parties or available on comparable terms.
|
|
•
|
integrated
research on production techniques;
|
|
|
•
|
well
workover;
|
|
|
•
|
shipping
transportation;
|
|
|
•
|
oil
tanker transportation;
|
|
|
•
|
provision
of materials;
|
|
|
•
|
maintenance
of platform;
|
|
|
•
|
repair
of equipment and pipelines;
|
|
|
•
|
production
operations;
|
|
|
•
|
oil
and gas production labour services;
|
|
|
•
|
warehousing
and storage;
|
|
|
•
|
lease
of equipment and building;
|
|
|
•
|
road
transportation services;
|
|
|
•
|
telecommunication
and network services;
|
|
|
•
|
wharf
services;
|
|
|
•
|
construction
services, including roads, wharfs, buildings, factories and water
barriers;
|
|
|
•
|
maintenance
and repair of major equipment;
|
|
|
•
|
medical,
childcare and social services;
|
|
|
•
|
provision
of water, electricity and heat;
|
|
|
•
|
security
and fire services;
|
|
|
•
|
technical
training;
|
|
|
•
|
accommodation;
|
|
|
•
|
maintenance
and repair of buildings;
|
|
|
•
|
catering
services; and
|
|
|
•
|
other
related technical and supporting
services.
|
F-59
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(i)
|
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 (continued)
|
|
(d)
|
Provision of marketing,
management and ancillary
services
|
CNOOC
and/or its associates provide marketing, administration and management,
management of oil and gas operations and integrated research services to the
Group, as well as other ancillary services relating to the exploration,
development, production and research activities of the Group. Details of these
services are set out below:
|
|
•
|
marketing
services;
|
|
|
•
|
management;
|
|
|
•
|
staff
recruitment;
|
|
|
•
|
publishing;
|
|
|
•
|
telecommunications;
|
|
|
•
|
leases
of properties;
|
|
|
•
|
property
management;
|
|
|
•
|
water,
electricity and heat supply;
|
|
|
•
|
car
rental;
|
|
|
•
|
integrated
services such as record keeping, filing, repair of computer, catering and
photocopying; and
|
|
|
•
|
integrated
research.
|
In
addition, as part of providing administration and management services to the
Group, CNOOC and/or its associates leased certain premises to the Group for use
of office premises and staff quarters. In addition to leasing these properties,
CNOOC and/or its associates also provided management services in respect of
certain properties leased to the Group.
Pricing principles for transactions
referred to in paragraphs (a) to (d) above
The
continuing connected transactions referred to in paragraphs (a) to (d) above
relate to services provided by CNOOC and/or its associates to the Group. In
general, the services provided by CNOOC and/or its associates to the Group are
based on negotiations with CNOOC and/or its associates on normal commercial
terms, or on terms no less favorable than those available to the Group from
independent third parties, under prevailing local market conditions, including
considerations such as volume of sales, length of contracts, package of
services, overall customer relationship and other market factors.
F-60
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(i)
|
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 (continued)
|
|
(d)
|
Provision of marketing,
management and ancillary services
(continued)
|
If, for
any reason, the above pricing principle for a particular service ceases to be
applicable or there is no open market for such service, whether due to a change
in circumstances or otherwise, such service must then be provided in accordance
with the following general pricing principles:
|
|
(i)
|
state-prescribed
prices; or
|
|
(ii)
|
where
there is no state-prescribed price, market prices, including the local,
national or international market prices;
or
|
|
(iii)
|
when
neither (i) nor (ii) is applicable, the cost to CNOOC and/or its
associates for providing the relevant service (including the cost of
sourcing or purchasing from third parties) plus a margin of not more than
10%, before any applicable taxes.
|
|
|
(e)
|
FPSO vessel
leases
|
The Group
leases floating production, storage and offloading (FPSO) vessels from COBGL for
use in oil production operations at market prices on normal commercial terms
which are calculated on a daily basis. FPSO vessels are usually located next to
the offshore oil platforms and are an integrated facility used by the Group
during its offshore oil production for processing, storage and offloading of
crude oil. The terms of FPSO vessel leases are usually determined based on the
expected term of oil production.
The
Group’s transactions with related parties referred to above during the year are
as follows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Provision
of exploration and support services under exploration
expenses
|
1,290,269
|
1,940,075
|
2,812,893
|
|||||||||
|
Included
in: capitalised under property, plant and equipment
|
536,735
|
912,809
|
2,009,944
|
|||||||||
|
Provision
of oil and gas field development and support services under development
expenses
|
6,131,879
|
7,229,841
|
7,995,999
|
|||||||||
|
Provision
of oil and gas field production and support services under operating
expenses
|
1,824,298
|
2,462,513
|
2,993,985
|
|||||||||
|
Provision
of marketing, management and ancillary services under selling and
administrative expenses
|
337,816
|
424,725
|
494,633
|
|||||||||
|
Provision
of FPSO vessel leases under operating expenses
|
148,133
|
436,783
|
450,695
|
|||||||||
|
9,732,395
|
12,493,937
|
14,748,205
|
||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(ii)
|
Provision of management,
technical, facilities and ancillary services, including the supply of
materials from the Group to CNOOC and/or its
associates
|
In
addition to providing various services to the Group, CNOOC and/or its associates
may also utilise various types of management, technical, facilities and
ancillary services, including the supply of materials provided by the Group from
time to time. The pricing for such services will be determined based on the same
pricing principles applicable to transactions relating to services provided by
CNOOC and/or its associates to the Group under paragraphs (a) to (d) above,
which will be negotiated and agreed on normal commercial terms between the
parties. The services that may be provided by the Group to CNOOC and/or its
associates include:
• technical
consulting;
• technology
transfer;
• management;
• technical
research services; and
• other
supporting services.
The Group
did not enter into any transactions in the above category for the years ended
December 31, 2007, 2006 and 2005.
|
(iii)
|
Sales of petroleum and natural
gas products by the Group to CNOOC and/or its
associates
|
|
|
(a)
|
Sales of petroleum and natural
gas products
|
The Group
sells petroleum and natural gas products, including crude oil, condensate oil,
liquefied petroleum gas, natural gas and liquefied natural gas, to CNOOC and/or
its associates which engage in downstream petroleum businesses at
state-prescribed prices or local, national or international market prices and on
normal commercial terms. It is envisaged that an individual sales contract will
be entered into from time to time between the Group and CNOOC and/or its
associates in relation to such sales.
F-62
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(iii)
|
Sales of petroleum and natural
gas products by the Group to CNOOC and/or its associates
(continued)
|
|
(b)
|
Long term sales of natural gas
and liquefied natural gas
|
The Group
sells natural gas to CNOOC and/or its associates which engage in the downstream
petroleum businesses at state-prescribed prices or local, national or
international market prices and on normal commercial terms, which is subject to
adjustment in accordance with movements in international oil prices as well as
other factors such as the term of the sales agreement and the length of the
relevant pipeline. Due to the size of investment and the fact that sales are
usually made to markets proximate to the production site, and that purchasers
tend to utilise the natural gas products in areas close to the production sites,
and in order to ensure the return on investment from the production of natural
gas, the Group will usually enter into long term sales contracts with a term of
15 to 20 years. It is market practice for the term of the sales contract to be
determined based on the estimated reserves and production profile of the
relevant gas fields. The Group has also invested and acquired interests in
liquefied natural gas related upstream projects in Tangguh, Indonesia and the
North West Shelf, Australia. It is also envisaged that from time to time the
Group may sell liquefied natural gas explored from these gas reserves mentioned
above and other gas reserves in which the Group may invest in the future to
CNOOC and/or its associates.
For the
year ended December 31, 2007, the total sales of petroleum and natural gas
products by the Group to CNOOC and/or its associates amounted to approximately
RMB40,053,593,000 (2006: RMB35,493,341,000, 2005: RMB26,576,247,000). Among such
sales, the sales under long term sales contracts for natural gas and liquefied
natural gas amounted to approximately RMB1,524,731,000 (2006: RMB1,247,561,000,
2005: RMB588,297,000), and the sales under the sales contracts of petroleum and
natural gas products amounted to approximately RMB38,528,862,000 (2006:
RMB34,245,780,000, 2005: RMB25,987,950,000).
|
(iv)
|
Transactions with CNOOC Finance
Corporation Limited
|
In
addition to the above related party transactions, the Company also entered into
a framework agreement (the “Framework Agreement”) with CNOOC Finance Corporation
Limited (“CNOOC Finance”) on April 8, 2004. Under
the Framework Agreement, the Group utilises the financial services provided by
CNOOC Finance, a 31.8% owned associate of the Company and also a subsidiary of
CNOOC. Such services include placing of the Group’s cash deposits with CNOOC
Finance, the settlement services for transactions between the Group and other
entities including CNOOC and its associates and the provision of loans. The
charges including the interest rates and other fees levied by CNOOC Finance for
its financial services to the Group are based on the pricing policies of CNOOC
Finance, which are subject to the People’s Bank of China guidelines, as well as
guidelines published by PRC self-regulatory bodies, such as China National
Association of Finance Companies. Based on these guidelines, CNOOC Finance has
limited discretion in setting its prices.
As the
waiver for the deposit services provided by CNOOC Finance to the Group with the
cap of RMB6.8 billion which expired on April 7, 2007 was not renewed, the Group
has only continued to use the financial services provided by CNOOC Finance to
the extent that they are exempted from the reporting, announcement and
independent shareholders’ approval requirements under the Listing Rules since
then. For the year ended December 31, 2007, the interest income earned from
deposits in CNOOC Finance amounted to approximately RMB26,875,000 (2006:
RMB65,499,000, 2005: RMB58,076,000).
F-63
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
27.
|
RELATED PARTY TRANSACTIONS
(CONTINUED)
|
|
(iv)
|
Transactions with CNOOC Finance
Corporation Limited
(continued)
|
For the
period from January 1 to April 7, 2007, the maximum outstanding
balance of deposits (including interest received in respect of these deposits)
placed with CNOOC Finance amounted to approximately RMB6,501,841,000 (2006:
RMB6,395,706,000, 2005: RMB3,922,468,000).
The
related party transactions in respect of items listed above also constitute
connected transactions or continuing connected transactions as defined in
Chapter 14A of the Listing Rules.
Details of
the compensation of the key management personnel of the Group are disclosed in
note 11 to the consolidated financial statements.
The amount
due to the parent company and amounts due from/to related parties are unsecured,
interest-free and are repayable on demand.
|
28.
|
PROVISION FOR
DISMANTLEMENT
|
Provision
for dismantlement represents the estimated costs of dismantling offshore oil
platforms and abandoning oil and gas properties. The provision for dismantlement
has been classified under long term liabilities. The associated cost is
capitalised and the liability is discounted and an accretion expense is
recognised using the credit-adjusted risk-free interest rate in effect when the
liability is initially recognised. The current year’s income statement charge
represents the amortisation charge on the dismantlement liabilities capitalised
in accordance with HKAS 37 and is included in the accumulated depreciation,
depletion and amortisation of property, plant and equipment in note 15 to the
financial statements.
The
details of the provision for dismantlement are as follows:
|
2006
|
2007
|
|||||||
|
RMB’000
|
RMB’000
|
|||||||
|
At
beginning of year:
|
4,161,663
|
5,412,581
|
||||||
|
Additions
during the year and capitalised in oil and gas properties
|
999,996
|
1,018,980
|
||||||
|
Increase
in discounted amount of provisions arising from the passage of time
included in finance costs (note 9)*
|
250,922
|
305,758
|
||||||
|
At
the end of year
|
5,412,581
|
6,737,319
|
||||||
|
|
*
|
The
discount rate used for calculating the amount of provisions arising from
the passage of time is 5% (2006:
5%).
|
F-64
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE
CAPITAL
|
Shares
|
Number
of
Shares
|
Share
capital
HK$’000
|
Issued
share
capital
equivalent
of
RMB’000
|
||||||||||
|
Authorised:
|
||||||||||||
|
Ordinary
shares of HK$0.02 each as at
December
31, 2006 and December 31, 2007
|
75,000,000,000
|
1,500,000
|
||||||||||
|
Issued and fully
paid:
|
||||||||||||
|
Ordinary
shares of HK$0.02 each as at January 1, 2006
|
41,054,675,375
|
821,094
|
876,635
|
|||||||||
|
Exercise
of options
|
1,150,000
|
23
|
24
|
|||||||||
|
Issue
of new shares for cash
|
2,272,727,273
|
45,454
|
46,994
|
|||||||||
|
As
at December 31, 2006
|
43,328,552,648
|
866,571
|
923,653
|
|||||||||
|
Conversion
of bonds
|
974,064,328
|
19,481
|
18,888
|
|||||||||
|
As
at December 31, 2007
|
44,302,616,976
|
886,052
|
942,541
|
|||||||||
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
grantees of and the number of share options. The maximum aggregate number of
shares (including those that could be subscribed 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 issued upon
exercise of all options granted shall not exceed 10% of the total issued share
capital of the Company as at December 31, 2005, being the date on which the
shareholders of the Company approved the 2005 Share Option Scheme, excluding
shares under options which have lapsed.
Pre-Global Offering Share Option
Scheme
On
February 4, 2001, the Company adopted a pre-global offering share option scheme
(the “Pre-Global Offering Share Option Scheme”). Pursuant to the Pre-Global
Offering Share Option Scheme:
|
|
1.
|
options
for an aggregate of 23,100,000 shares have been
granted;
|
|
|
2.
|
the
subscription price per share is HK$1.19;
and
|
|
|
3.
|
the
period during which an option may be exercised is as
follows:
|
F-65
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
Pre-Global Offering Share Option
Scheme (continued)
|
(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 the options granted under the Pre-Global Offering Share
Option Scheme shall end not later than 10 years from March 12, 2001. No further
options may be granted under the Pre-Global Offering Share Option
Scheme.
2001 Share Option
Scheme
On
February 4, 2001, the Company adopted a share option scheme (the “2001 Share
Option Scheme”) for the purposes of recognising the contribution that certain
individuals had made to the Company and attracting and retaining the best
available personnel to the Company. Pursuant to the 2001 Share Option
Scheme:
|
|
1.
|
options
for an aggregate of 44,100,000 shares have been
granted;
|
|
|
2.
|
the
subscription price per share is HK$1.232;
and
|
|
|
3.
|
the
period during which an option may be exercised is as
follows:
|
|
(a)
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of the grant;
|
|
(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 the options granted under the 2001 Share Option Scheme
shall end not later than 10 years from August 27, 2001.
In view of
the amendments to the relevant provisions of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”)
regarding the requirements of share option schemes of Hong Kong listed companies
effective on September 1, 2001, no further options will be granted under the
2001 Share Option Scheme.
2002 Share Option
Scheme
In June
2002, the Company adopted a new share option scheme (the “2002 Share Option
Scheme”).
Under the
2002 Share Option Scheme, the directors may, at their discretion, invite
employees, including executive directors, of the Company or any of its
subsidiaries, to take up options to subscribe for shares in the Company. The
maximum number of shares which may be granted under the 2002 Share Option Scheme
to any individual in any 12-month period up to the next grant shall not exceed
1% of the total issued share capital of the Company from time to
time.
F-66
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
2002 Share Option Scheme
(continued)
According
to the 2002 Share Option Scheme, the consideration payable by a grantee for the
grant of options will be HK$1.00. The subscription price of a share payable by a
grantee upon the exercise of an option is determined by the directors at their
discretion at the date of grant, except that such price shall
be at least the higher of:
|
|
1.
|
the
nominal value of a 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 daily 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 daily
quotations sheets on the date of grant of the
option.
|
On
February 24, 2003, the Board of Directors approved to grant options in respect
of 42,050,000 shares to the Company’s directors and senior management under the
2002 Share Option Scheme. The exercise price for such options is HK$2.108 per
share. The closing market price immediately before the date on which such
options were granted was HK$2.11 per share. Such options granted under the 2002
Share Option Scheme may be exercised, in whole or in part, in accordance with
the following vesting schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of the grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of the grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of the grant.
|
The
exercise period for the above options granted under the 2002 Share Option Scheme
shall end not later than 10 years from February 24, 2003.
On
February 5, 2004, the Board of Directors approved a grant of options in respect
of 50,700,000 shares to the Company’s directors and senior management under the
2002 Share Option Scheme. The exercise price for such options is HK$3.152 per
share. The closing market price immediately before the date on which such
options were granted was HK$3.146 per share. Such options granted under the 2002
Share Option Scheme may be exercised, in whole or in part, in accordance with
the following vesting schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of the grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of the grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of the grant.
|
The
exercise periods for the above options granted under the 2002 Share Option
Scheme shall end not later than 10 years from February 5, 2004.
F-67
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE
CAPITAL (CONTINUED)
|
Share option schemes
(continued)
2002 Share Option Scheme
(continued)
On August
31, 2005, the Board of Directors approved a grant of options in respect of
65,870,000 shares to the Company’s directors and senior management under the
2002 Share Option Scheme. The exercise price of such options is HK$5.62 per
share. The closing market price immediately before the date on which such
options were granted was HK$5.75 per share. Such options granted under the 2002
Share Option Scheme may be exercised, in whole or in part, in accordance with
the following vesting schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of the grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of the grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of the grant.
|
The
exercise periods for the above options granted under the 2002 Share Option
Scheme shall end not later than 10 years from August 31, 2005.
2005 Share Option
Scheme
The
Company undertook a review of the 2002 Share Option Scheme in 2005 and noted
that certain provisions could be clarified and improved. Accordingly, the Board
proposed, and on December 31, 2005, the Company adopted a new share option
scheme (the “2005 Share Option Scheme”) and terminated the 2002 Share Option
Scheme. Upon termination of the 2002 Share Option Scheme, no further options may
be granted under the 2002 Share Option Scheme, but in all other respects the
provisions of the 2002 Share Option Scheme shall remain in force. The
outstanding options under the 2002 Share Option Scheme shall continue to be
subject to the provisions of the 2002 Share Option Scheme, and the adoption of
the 2005 Share Option Scheme will not in any way affect the terms of the
exercise of such outstanding options.
Under the
2005 Share Option Scheme, the Board of the Company has 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 grantee for the
grant of options will be HK$1.00. The subscription price of a share payable by a
grantee upon the exercise of an option will be determined by the directors at
their discretion at the date of the grant, except that such price shall be at
least the higher of:
|
|
1.
|
the
nominal value of a 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 daily 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 daily HKSE’s
quotations sheet on the date of the grant of the
option.
|
F-68
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
2005 Share Option Scheme
(continued)
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 the
options granted under the 2005 Share Option Scheme shall end not later than 10
years from the date of the grant of the options.
On June
14, 2006, the Board of Directors approved a grant of options in respect of
82,320,000 shares to the Company’s directors and senior management under the
2005 Share Option Scheme. The exercise price for such options is HK$5.56 per
share. The closing market price immediately before the date on which such
options were granted was HK$5.30 per share. Such options granted under the 2005
Share Option Scheme may be exercised, in whole or in part, in accordance with
the following vesting schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of the grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of the grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of the grant.
|
The
exercise periods for the above options granted under the 2005 Share Option
Scheme shall end not later than 10 years from June 14, 2006.
On May 25,
2007, the Board approved a grant of options in respect of 87,222,000 shares to
the Company’s Directors and senior management under the 2005 Share Option
Scheme. The exercise price for such options is HK$7.29 per share. The closing
market price immediately before the date on which such options were granted was
HK$7.43 per share. Such options granted under the 2005 Share Option Scheme may
be exercised, in whole or in part, in accordance with the following vesting
schedule:
|
|
1.
|
one-third
of the rights to exercise the options shall vest on the first anniversary
of the date of grant;
|
|
|
2.
|
one-third
of the rights to exercise the options shall vest on the second anniversary
of the date of grant; and
|
|
|
3.
|
one-third
of the rights to exercise the options shall vest on the third anniversary
of the date of grant.
|
The
exercise periods for the above options granted under the 2005 Share Option
Scheme shall end not later than 10 years from May 25, 2007.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
During the
year ended December 31, 2007, the movements in the options granted under all of
the above share option schemes were as follows:
|
Number of share
options
|
Price of the
Company’s shares
|
Weighted average
price of the
Company's
shares
|
||||||||||||||
|
Name of category of
grantee
|
At January 1
2007
|
Granted during the
year
|
Exercised during the
year
|
Forfeited during the
year
|
Expired during the
year
|
At December 31
2007
|
Date of grant of
share
options
|
Exercise period of
share
options*
|
Exercise price of share
options
HK$
per
share
|
Immediately before the grant
date of options
HK$
per
share
|
Immediately before the exercise
date
HK$
per
share
|
At exercise date of
options
HK$
per
share
|
||||
|
Executive
Directors
|
||||||||||||||||
|
Chengyu
Fu
|
1,750,000
|
—
|
—
|
—
|
—
|
1,750,000
|
March
12, 2001
|
March
12, 2001 to March
12, 2011
|
1.19
|
1.23
|
—
|
—
|
||||
|
1,750,000
|
—
|
—
|
—
|
—
|
1,750,000
|
August
27, 2001
|
August
27, 2001 to August
27, 2011
|
1.232
|
1.46
|
—
|
—
|
|||||
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
February
24, 2003
|
February
24, 2003 to February 24, 2013
|
2.108
|
2.09
|
—
|
—
|
|||||
|
2,500,000
|
—
|
—
|
—
|
—
|
2,500,000
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
|||||
|
3,500,000
|
—
|
—
|
—
|
—
|
3,500,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
|||||
|
3,850,000
|
—
|
—
|
—
|
—
|
3,850,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
4,041,000
|
—
|
—
|
—
|
4,041,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
|
Shouwei
Zhou
|
1,400,000
|
—
|
—
|
—
|
—
|
1,400,000
|
March
12, 2001
|
March
12, 2001 to March
12, 2011
|
1.19
|
1.23
|
—
|
—
|
||||
|
1,750,000
|
—
|
—
|
—
|
—
|
1,750,000
|
August
27, 2001
|
August
27, 2001 to August
27, 2011
|
1.232
|
1.46
|
—
|
—
|
|||||
|
1,750,000
|
—
|
—
|
—
|
—
|
1,750,000
|
February
24, 2003
|
February
24, 2003 to February 24, 2013
|
2.108
|
2.09
|
—
|
—
|
|||||
|
1,750,000
|
—
|
—
|
—
|
—
|
1,750,000
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
|||||
|
2,450,000
|
—
|
—
|
—
|
—
|
2,450,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
|||||
|
2,700,000
|
—
|
—
|
—
|
—
|
2,700,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
2,835,000
|
—
|
—
|
—
|
2,835,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
|
Guangqi
Wu
|
1,610,000
|
—
|
—
|
—
|
—
|
1,610,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
||||
|
1,770,000
|
—
|
—
|
—
|
—
|
1,770,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
1,857,000
|
—
|
—
|
—
|
1,857,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
||||||
|
Hua
Yang
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
March
12, 2001
|
March
12, 2001 to March
12, 2011
|
1.19
|
1.23
|
—
|
—
|
||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
During the
year ended December 31,
2007, the movements in the options granted under all of the above share option
schemes were as follows: (continued)
|
Number of share
options
|
Price of the Company’s shares
|
Weighted average
price of the
Company's
shares
|
||||||||||||||
|
Name of category of
grantee
|
At January 1
2007
|
Granted during the
year
|
Exercised during the
year
|
Forfeited during the
year
|
Expired during the
year
|
At December 31
2007
|
Date of grant of
share
options
|
Exercise period of share
options*
|
Exercise price of share
options
HK$
per
share
|
Immediately before the grant
date of options
HK$
per
share
|
Immediately before the exercise
date
HK$
per
share
|
At exercise date of
options
HK$
per
share
|
||||
|
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
August
27, 2001
|
August
27, 2001 to August
27, 2011
|
1.232
|
1.46
|
—
|
—
|
||||
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
February
24, 2003
|
February
24, 2003 to February 24, 2013
|
2.108
|
2.09
|
—
|
—
|
|||||
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
|||||
|
1,610,000
|
—
|
—
|
—
|
—
|
1,610,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
|||||
|
1,770,000
|
—
|
—
|
—
|
—
|
1,770,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
1,857,000
|
—
|
—
|
—
|
1,857,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
|
Non-executive
Directors
|
||||||||||||||||
|
Han
Luo
|
1,400,000
|
—
|
—
|
—
|
—
|
1,400,000
|
March
12, 2001
|
March
12, 2001 to March
12, 2011
|
1.19
|
1.23
|
—
|
—
|
||||
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
August
27, 2001
|
August
27, 2001 to August
27, 2011
|
1.232
|
1.46
|
—
|
—
|
|||||
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
February
24, 2003
|
February
24, 2003 to February 24, 2013
|
2.108
|
2.09
|
—
|
—
|
|||||
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
|||||
|
1,610,000
|
—
|
—
|
—
|
—
|
1,610,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
|||||
|
1,770,000
|
—
|
—
|
—
|
—
|
1,770,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
1,857,000
|
—
|
—
|
—
|
1,857,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
|
Xinghe
Cao
|
800,000
|
—
|
—
|
—
|
—
|
800,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
||||
|
1,770,000
|
—
|
—
|
—
|
—
|
1,770,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
1,857,000
|
—
|
—
|
—
|
1,857,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
|
Zhenfang
Wu
|
800,000
|
—
|
—
|
—
|
—
|
800,000
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
||||
|
1,770,000
|
—
|
—
|
—
|
—
|
1,770,000
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
1,857,000
|
—
|
—
|
—
|
1,857,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
During the
year ended December 31, 2007, the movements in the options granted under all of
the above share option schemes were as follows: (continued)
|
Number of share
options
|
Price of the Company’s
shares
|
Weighted average
price of
the
Company's
shares
|
||||||||||||||
|
Name of category of
grantee
|
At January 1
2007
|
Granted during the
year
|
Exercised during the
year
|
Forfeited during the
year
|
Expired during the
year
|
At December 31
2007
|
Date of grant
of share
options
|
Exercise period of share
options*
|
Exercise price of share
options
HK$
per
share
|
Immediately before the
grant date of options
HK$
per
share
|
Immediately before the exercise
date
HK$
per
share
|
At exercise date of
options
HK$
per
share
|
||||
|
Independent
Non-executive Directors
|
||||||||||||||||
|
Chiu
Sung Hong
|
1,150,000
|
—
|
—
|
—
|
—
|
1,150,000
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
||||
|
Evert
Henkes
|
1,150,000
|
—
|
—
|
—
|
—
|
1,500,000
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
||||
|
Other
Employees
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
In
aggregate
|
6,250,000
|
—
|
—
|
—
|
—
|
6,250,000
|
March
12, 2001
|
March
12, 2001 to March
12, 2011
|
1.19
|
1.23
|
—
|
—
|
||||
|
19,650,000
|
—
|
—
|
(3,450,000)
|
—
|
16,200,000
|
August
27, 2001
|
August
27, 2001 to August
27, 2011
|
1.232
|
1.46
|
—
|
—
|
|||||
|
22,333,300
|
—
|
—
|
(3,450,000)
|
—
|
18,883,300
|
February
24, 2003
|
February
24, 2003 to February 24, 2013
|
2.108
|
2.09
|
—
|
—
|
|||||
|
29,733,267
|
—
|
—
|
(3,200,000)
|
—
|
26,533,267
|
February
5, 2004
|
February
5, 2004 to February
5, 2014
|
3.152
|
3.13
|
—
|
—
|
|||||
|
45,183,333
|
—
|
—
|
(4,620,000)
|
—
|
40,563,333
|
August
31, 2005
|
August
31, 2005 to August
31, 2015
|
5.62
|
5.75
|
—
|
—
|
|||||
|
65,920,000
|
—
|
—
|
(9,006,667)
|
—
|
56,913,333
|
June
14, 2006
|
June
14, 2006 to June
14, 2016
|
5.56
|
5.30
|
—
|
—
|
|||||
|
—
|
71,061,000
|
—
|
(2,100,000)
|
—
|
68,961,000
|
May
25, 2007
|
May
25, 2007 to May
25, 2017
|
7.29
|
7.43
|
—
|
—
|
|||||
|
Total
|
242,399,900
|
87,222,000
|
—
|
(25,826,667)
|
—
|
303,795,233
|
|
|
|
|
|
|
||||
|
*
|
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.
|
F-72
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
29.
|
SHARE CAPITAL
(CONTINUED)
|
Share option schemes
(continued)
The fair
value of the share options granted during the year was HK$148,277,400 (2006:
HK$126,795,127, 2005:HK$103,881,616) and the Group recognised equity-settled
share option expenses of approximately RMB98,237,000 (2006: RMB75,768,000; 2005:
RMB29,123,000) during the year.
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:
|
2005
|
2006
|
2007
|
||||||||||
|
Dividend
yield
|
2% | 2.00% | 3.58% | |||||||||
|
Expected
volatility
|
31% | 32.10% | 30.80% | |||||||||
|
Risk-free
interest rate
|
4.57% | 5.53% | 4.25% | |||||||||
|
Expected
life of option
|
5
years
|
5
years
|
5
years
|
|||||||||
|
Weighted
average share price
|
HK$5.62
|
|
HK$5.56
|
HK$7.29
|
||||||||
|
Grant-date
fair value
|
HK$1.58
|
HK$1.54
|
HK$1.70
|
|||||||||
The
expected life of the options is based on the historical data and is not
necessarily indicative of the exercise patterns that may occur. The expected
volatility reflects the assumption that the historical volatility is indicative
of future trends, which may also not necessarily be the actual outcome. No other
feature of the options granted was incorporated into the measurement of fair
value. Any changes to the above assumptions may affect the estimation of the
fair value of the option.
Details of
the share options outstanding during the year are as follows:
|
2006
|
2007
|
|||||||||||||||
|
No.
of share
options
|
Weighted
average
exercise
price
|
No.
of share
options
|
Weighted
average
exercise
price
|
|||||||||||||
|
HK$
|
HK$
|
|||||||||||||||
|
Outstanding
at beginning of the year
|
169,063,300
|
3.45
|
242,399,900
|
4.13
|
||||||||||||
|
Granted
during the year
|
82,320,000
|
5.56
|
87,222,000
|
7.29
|
||||||||||||
|
Forfeited
during the year
|
(7,833,400 | ) |
4.60
|
(25,826,667 | ) |
4.37
|
||||||||||
|
Exercised
during the year
|
(1,150,000 | ) |
3.15
|
—
|
—
|
|||||||||||
|
Outstanding
at end of year
|
242,399,900
|
4.13
|
303,795,233
|
5.02
|
||||||||||||
|
Exercisable
at end of year
|
113,013,133
|
2.73
|
154,143,233
|
3.53
|
||||||||||||
No share
option had been cancelled during the year ended December 31, 2007.
At the
date of approval of these financial statements, the share options outstanding
under these share option schemes represented approximately 0.69% of the
Company’s shares in issue as at that date. The aggregate intrinsic value and the
weighted average remaining contractual life of share options outstanding at the
end of the year is RMB2,349,754,052 and 7.50 years respectively (2006:
RMB791,478,699 and 7.76 years respectively). The aggregate intrinsic value and
the weighted average remaining contractual life of share options exercisable at
the end of the year is RMB1,407,312,303 and 6.12 years respectively (2006:
RMB527,965,205 and 6.30 years respectively). The exercise in full of the
outstanding share options would, under the present capital structure of the
Company, result in the issue of 303,795,233 additional ordinary shares of the
Company and additional share capital of RMB5,689,356 and share premium of
RMB1,421,132,027.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
30.
|
RESERVES
|
According
to the laws and regulations of the PRC and the articles of association of CNOOC
China Limited, CNOOC China Limited is required to provide for certain statutory
funds, namely, the general reserve fund and staff and workers’ bonus and welfare
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 the board of directors of CNOOC China Limited, 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.
As at
December 31, 2007, the general reserve fund amounted to RMB10,000,000,000 (2006:
RMB9,460,631,000), representing 50.0% (2006: 47.3%) of the total registered
capital of CNOOC China Limited.
Included
in retained earnings is an amount of approximately RMB1,774,109,000 (2006:
RMB1,183,515,000), 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 principles required by the local authorities. As at December 31,
2007, the aggregate amount of the Group’s retained earnings available for
distribution to the Company’s shareholders amounted to approximately
RMB56,774,492,000 (2006: RMB40,013,439,000).
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
31.
|
RETIREMENT AND TERMINATION
BENEFITS
|
All the
Group’s full-time employees in the PRC are covered by a state-managed retirement
benefit plan operated by the government of the PRC, 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 state-managed retirement benefit plan at rates ranging from 10% 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.
|
32.
|
NOTES TO THE CONSOLIDATED CASH
FLOW STATEMENT
|
Reconciliation
of profit before tax to cash generated from operations
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
|
RMB’000
|
RMB’000
|
|||||||||
|
Profit
before tax
|
36,300,934
|
44,123,256
|
43,310,622
|
|||||||||
|
Adjustments
for:
|
||||||||||||
|
Interest
income
|
(359,294 | ) | (781,536 | ) | (672,987 | ) | ||||||
|
Finance
costs
|
1,100,532
|
1,799,370
|
1,953,698
|
|||||||||
|
Exchange
gains , net
|
(287,027 | ) | (308,382 | ) | (1,855,969 | ) | ||||||
|
Share
of profit of associates
|
(307,075 | ) | (321,676 | ) | (719,039 | ) | ||||||
|
Minority
interest share of losses
|
—
|
—
|
(41,945 | ) | ||||||||
|
Investment
income
|
(247,893 | ) | (613,028 | ) | (902,378 | ) | ||||||
|
Provision
for inventory obsolescence
|
33,088
|
2,004
|
4,651
|
|||||||||
|
Depreciation,
depletion and amortisation
|
5,964,740
|
6,933,214
|
7,374,469
|
|||||||||
|
Loss
on disposals and write-off of property, plant and
equipment
|
141,574
|
408
|
55,755
|
|||||||||
|
Dismantlement
|
252,857
|
472,269
|
561,701
|
|||||||||
|
Amortisation
of discount of long term guaranteed notes
|
41,959
|
32,760
|
78,090
|
|||||||||
|
Impairment
losses related to property, plant and equipment
|
90,190
|
252,357
|
613,505
|
|||||||||
|
Equity-settled
share option expenses
|
29,123
|
75,768
|
98,237
|
|||||||||
|
42,753,708
|
51,666,784
|
49,858,410
|
||||||||||
|
Increase
in accounts receivable
|
(1,001,296 | ) | (160,089 | ) | (1,768,887 | ) | ||||||
|
Increase
in inventories and supplies
|
(108,405 | ) | (493,857 | ) | (640,185 | ) | ||||||
|
Decrease
/ (increase) in other current assets
|
(342,087 | ) | (1,629,248 | ) |
809,700
|
|||||||
|
Increase
in amounts due from related companies
|
(925,824 | ) | (241,250 | ) | (958,945 | ) | ||||||
|
Increase
/ (decrease) in an amount due to the parent company
|
118,422
|
(31,521 | ) |
130,267
|
||||||||
|
Increase
in accounts payable, other payables and accrued
liabilities
|
677,522
|
1,552,855
|
4,760,476
|
|||||||||
|
Increase
/ (decrease) in other taxes payable
|
(24,900 | ) | (177,165 | ) |
492,613
|
|||||||
|
Increase
in amounts due to related companies
|
548,508
|
415,337
|
358,153
|
|||||||||
|
Cash
generated from operations
|
41,695,648
|
50,901,846
|
53,041,602
|
|||||||||
F-75
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
33.
|
COMMITMENTS
|
|
(i)
|
Capital
commitments
|
As at
December 31, 2007, the Group had the following capital commitments, principally
for the construction and purchase of property, plant and equipment:
|
2006
|
2007
|
|||||||
|
RMB’000
|
|
RMB’000
|
||||||
|
Contracted,
but not provided for
|
11,857,620
|
8,655,830
|
||||||
|
Authorised,
but not contracted for
|
30,029,132
|
24,498,130
|
||||||
As at
December 31, 2007, the Group had unutilised banking facilities amounting to
approximately RMB46,997,140,000 (2006: RMB47,040,884,000).
|
(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 1 month to 5
years.
As at
December 31, 2007, the Group had total minimum lease payments under
non-cancellable operating leases falling due as follows:
|
2006
|
|
2007
|
||||||
|
Commitments
due:
|
RMB’000
|
RMB’000
|
||||||
|
-
Within one year
|
47,458
|
84,508
|
||||||
|
- In
the first to second years, inclusive
|
37,712
|
16,419
|
||||||
|
-
After the second but before the fifth years, inclusive
|
7,962
|
1,802
|
||||||
|
93,132
|
102,729
|
|||||||
|
(b)
|
Plant
and equipment
|
The Group
leases certain of its plant and equipment under operating lease arrangements for
a term from 6 years to 10 years.
As at
December 31, 2007, the Group had total minimum lease payments under
non-cancellable operating leases falling due as follows:
|
2006
|
2007
|
|||||||
|
Commitments
due:
|
RMB’000
|
RMB’000
|
||||||
|
-
Within one year
|
299,619
|
391,384
|
||||||
|
- In
the first to second years, inclusive
|
299,619
|
363,327
|
||||||
|
-
After the second but before the fifth years, inclusive
|
882,329
|
849,404
|
||||||
|
-
After five years
|
-
|
262,816
|
||||||
|
1,481,567
|
1,866,931
|
|||||||
F-76
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
33.
|
COMMITMENTS
(CONTINUED)
|
|
(iii)
|
Contingent
liabilities
|
On January
8, 2006, the Company signed a definitive agreement with South Atlantic Petroleum
Limited (“SAPETRO”) to acquire a 45% working interest in the Offshore Oil Mining
Lease 130 (“OML130”) in Nigeria (the “OML130 Transaction”) and the OML130
Transaction was completed on April 20, 2006. The OML130 project is still in the
exploration and development phase.
In 2007, a
local tax office in Nigeria (the “Nigerian Local Tax Office”) conducted a tax
audit on SAPETRO. According to the preliminary tax audit results, the Nigerian
Local Tax Office has raised a disagreement in the tax filings made for the
OML130 Transaction. The final tax audit results might affect the acquisition
cost of the Company for the OML130 Transaction.
The tax
audit assessment made by the Nigerian Local Tax Office has been contested by the
Company in accordance with Nigerian laws. After seeking legal and tax advice,
the Company’s management believes that the Company has reasonable grounds in
making the contest. Consequently, no provision has been made for any expenses
and/or adjustment to the acquisition cost of OML 130 which might arise as a
result of the dispute.
F-77
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
34.
|
FINANCIAL
INSTRUMENTS
|
|
(a)
|
Currency
swap contracts
|
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
Japanese Yen loans were fully paid and the currency swap contract had expired as
at December 31, 2007.
|
(b)
|
Fair
value of financial instruments
|
The
carrying values of the Group’s cash and cash equivalents, time deposits, current
available-for-sale investments, accounts receivable, other current assets,
accounts payable, other payables and balances with related companies
approximated to their fair values at the balance sheet date due to the short
maturity of these instruments.
The
estimated fair value of the Group’s long term bank loans based on current market
interest rates was approximately RMB3,175,413,000 as at December 31, 2007 (2006:
RMB2,450,147,000), which was the present value of the loans’ future cash flows
discounted by the interest rates as at December 31, 2007. The fair value of the
floating interest rate loan equalled to the carrying amount as at December 31,
2007.
The
estimated fair value of the Group’s long term guaranteed notes based on current
market interest rates was approximately RMB11,932,142,000 as at December 31,
2007 (2006: RMB17,735,947,000), which was calculated based on the market price
as at December 31,2007.
|
(c)
|
Financial
instruments by category
|
The
carrying amounts of
each of the categories of financial instruments as at the balance sheet date are
as follows:
Financial
assets
2007
|
Available-
|
||||||||||||||||
|
Held-to-
|
for-sale
|
|||||||||||||||
|
maturity
|
Loans
and
|
financial
|
||||||||||||||
|
investments
|
receivables
|
assets
|
Total
|
|||||||||||||
|
RMB'000
|
RMB'000
|
RMB'000
|
RMB'000
|
|||||||||||||
|
Available-for-sale
financial assets
|
—
|
—
|
8,506,680
|
8,506,680
|
||||||||||||
|
Accounts
receivable
|
—
|
7,129,848
|
—
|
7,129,848
|
||||||||||||
|
Due
from related companies
|
—
|
3,299,392
|
—
|
3,299,392
|
||||||||||||
|
Held-to-maturity
financial asset
|
3,000,000
|
—
|
—
|
3,000,000
|
||||||||||||
|
Financial assets
included in other current assets
|
—
|
1,606,462
|
—
|
1,606,462
|
||||||||||||
|
Time
deposits with maturity
|
||||||||||||||||
|
over
three months
|
—
|
7,200,000
|
—
|
7,200,000
|
||||||||||||
|
Cash
and cash equivalents
|
—
|
23,356,569
|
—
|
23,356,569
|
||||||||||||
|
3,000,000
|
42,592,271
|
8,506,680
|
54,098,951
|
|||||||||||||
F-78
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
34.
|
FINANCIAL INSTRUMENTS
(CONTINUED)
|
|
(c)
|
Financial
instruments by category (continued)
|
The
carrying amounts of each of the categories of financial instruments as at the
balance sheet date are as follows (continued):
Financial
liabilities
2007
|
Financial
liabilities
|
||||
|
at
amortised cost
|
||||
|
RMB'000
|
||||
|
Accounts
payable
|
5,051,420
|
|||
|
Financial
liabilities included in other payables and accrued
liabilities
|
4,316,003
|
|||
|
Due
to the parent company
|
587,228
|
|||
|
Due
to related companies
|
1,533,424
|
|||
|
Interest-bearing
bank and other borrowings
|
3,208,753
|
|||
|
Long
term guaranteed notes
|
8,325,519
|
|||
|
23,022,347
|
||||
Financial
assets
2006
|
Available-
|
||||||||||||
|
for-sale
|
||||||||||||
|
Loans
and
|
financial
|
|||||||||||
|
receivables
|
assets
|
Total
|
||||||||||
|
RMB'000
|
RMB'000
|
RMB'000
|
||||||||||
|
Available-for-sale
financial assets
|
—
|
13,407,058
|
13,407,058
|
|||||||||
|
Accounts
receivable
|
5,437,873
|
—
|
5,437,873
|
|||||||||
|
Due
from related companies
|
2,340,447
|
—
|
2,340,447
|
|||||||||
|
Financial
assets included
|
||||||||||||
|
in
other current assets
|
2,358,070
|
—
|
2,358,070
|
|||||||||
|
Time
deposits with maturity over
|
||||||||||||
|
three
months
|
9,232,797
|
—
|
9,232,797
|
|||||||||
|
Cash
and cash equivalents
|
14,364,055
|
—
|
14,364,055
|
|||||||||
|
33,733,242
|
13,407,058
|
47,140,300
|
||||||||||
F-79
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
34.
|
FINANCIAL INSTRUMENTS
(CONTINUED)
|
|
(c)
|
Financial
instruments by category (continued)
|
The
carrying amounts of each of the categories of financial instruments as at the
balance sheet date are as follows (continued):
Financial
liabilities
2006
|
Financial
liabilities at fair value through profit or loss – designated as
such
upon
initial recognition
|
Financial
liabilities at amortised cost
|
Total
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Accounts
payable
|
—
|
4,145,977
|
4,145,977
|
|||||||||
|
Financial
liabilities included
|
||||||||||||
|
in
other payables and accrued liabilities
|
—
|
1,758,935
|
1,758,935
|
|||||||||
|
Due
to the parent company
|
—
|
456,961
|
456,961
|
|||||||||
|
Due
to related companies
|
—
|
1,175,271
|
1,175,271
|
|||||||||
|
Interest-bearing
bank and other borrowings
|
—
|
2,455,988
|
2,455,988
|
|||||||||
|
Derivative
financial instruments
|
2,988,387
|
—
|
2,988,387
|
|||||||||
|
Long
term guaranteed notes
|
—
|
14,897,454
|
14,897,454
|
|||||||||
|
2,988,387
|
24,890,586
|
27,878,973
|
||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
35.
|
CONCENTRATION OF
RISKS
|
The
Group’s principal financial instruments, other than derivatives, comprise bank
loans, convertible bonds, long term guaranteed notes, available-for-sale
financial assets, 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 accounts receivable
and accounts payable, which arise directly from its operations.
|
(a)
|
Credit
risk
|
The
carrying amount of the Group’s cash and cash equivalents, time deposits,
liquidity funds and bond investments, accounts receivable and other receivables,
and amounts due from related parties and other current assets except for
prepayments represents the Group’s maximum exposure to credit risk in relation
to its 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 does not require
collateral on accounts receivable. The Group made impairment on doubtful
receivables and actual losses have been within management’s
expectation.
Since the
Group trades only with recognised and creditworthy third parties, there is no
requirement for collateral. Concentrations of credit risk are managed by
customer/counterparty and by geographical region. At the balance sheet date, the
Group has certain concentrations of credit risk as 52% (2006: 31%) and 83%
(2006: 56%) of the Group’s trade receivables were due from the Group’s largest
customer and the five largest customers, respectively.
No other
financial assets carry a significant exposure to credit risk.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
35.
|
CONCENTRATION OF RISKS
(CONTINUED)
|
(b) Oil
and gas price risk
As our oil
prices are mainly determined by reference to the oil prices in international
markets, changes in international oil prices have a large impact on us. Unstable
and high volatility of international oil prices will have a significant effect
on our net sales and net profits.
(c) Currency
risk
Substantially
all of the Group’s oil and gas sales are denominated in Renminbi and United
States dollar (“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 July 21, 2005, China
reformed the exchange rate regime by moving into a managed floating exchange
rate regime based on market supply and demand with reference to a basket of
currencies. Renminbi would no longer be pegged to the US dollars. From that day
to December 28, 2007 (the last working day in 2007), Renminbi has appreciated by
approximately 13.31% against US dollars.
The
management has assessed the Group’s exposure to foreign currency risks by using
a sensitivity analysis on the change in foreign exchange rate of US dollars, to
which the Group is mainly exposed to as at December 31, 2006 and 2007. Based on
management’s assessment, a reasonably possible change in foreign exchange rate
of US dollar of 5 percent is used, and assuming that had the change in foreign
currency rates had occurred at 31 December, the exposures of the Group’s results
of operations, monetary assets and liabilities and investment in its foreign
subsidiaries were less than 0.10% of the profit of the year.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
35.
|
CONCENTRATION OF RISKS
(CONTINUED)
|
(c) Currency
risk (continued)
The
appreciation of Renminbi against US dollars may have the following impact on the
Group. On one hand, since the benchmark oil and gas prices are usually in US
dollars, the Group’s oil and gas sales may decrease due to the depreciation of
US dollars against Renminbi. On the other hand, the depreciation of US dollars
against Renminbi will also decrease the Group’s costs for imported equipment and
materials, most of which are denominated in US dollars. In addition, the debt
repayment by the Group will decrease since approximately 96% of the Group’s
debts are also denominated in US dollars.
(d) Interest
rate risk
As of the
end of 2007, the interest rates for 78% of the Group’s debts were fixed. The
term of the weighted average balance was approximately 8.5 years. The fixed
interest rate can reduce the volatility of financial cost and is considered to
be favorable under the environment of rising interest rate hike.
(e) Business
risk
The major
operations of the Group are conducted in the PRC, Indonesia, Africa 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.
(f) Liquidity
risk
The Group
manages its liquidity risk by regularly monitoring its liquidity requirements
and its compliance with debt covenants, to ensure that it maintains sufficient
cash and cash equivalents, and readily realisable available-for-sale financial
assets, and adequate time deposits to meet its liquidity requirements in the
short and long term. In addition, bank facilities have been put in place for
contingency purposes.
(g) 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
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
China
Petroleum & Chemical Corporation
|
28,319,981
|
30,977,233
|
36,681,065
|
|||||||||
|
PetroChina
Company Limited
|
3,717,446
|
8,881,328
|
12,116,807
|
|||||||||
|
Panjin
Northern Asphalt Company Limited
|
1,510,240
|
1,900,170
|
2,179,059
|
|||||||||
|
Arcadia
Petroleum Limited
|
2,407,989
|
1,906,631
|
1,286,727
|
|||||||||
|
Castle
Peak Power Company Limited
|
2,179,425
|
1,137,371
|
1,050,024
|
|||||||||
China
Petroleum & Chemical Corporation and PetroChina Company Limited, which are
customers in both the independent operations segment and the production sharing
contracts segment, account for 47% and 15% of the Group’s consolidated revenue
respectively.
F-83
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
35.
|
CONCENTRATION OF RISKS
(CONTINUED)
|
(h) Capital
management
The
primary objective of the Group’s capital management is to safeguard the Group’s
ability to continue as a going concern and to maintain healthy capital ratios in
order to support its business and maximize shareholder value.
The Group
manages its capital structure and makes adjustments to it, in light of changes
in economic conditions. To maintain or adjust the capital structure, the Group
may return capital to shareholders, raise new debt or issue new shares. No
changes were made in the objectives, policies or processes during the years end
December 31, 2007 and December 31, 2006.
The Group
monitors capital on the basis of the debt to capitalisation ratio, which is
calculated as interest-bearing debts divided by total capital (equity
attributable to equity holders plus interest bearing debts).
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Interest-bearing
loans and borrowings
|
850,066
|
2,455,988
|
3,208,753
|
|||||||||
|
Long
term guaranteed notes
|
16,531,780
|
17,885,841
|
8,325,519
|
|||||||||
|
Interest-bearing
debts
|
17,381,846
|
20,341,829
|
11,534,272
|
|||||||||
|
|
||||||||||||
|
Equity
attributable to equity holders
|
73,603,097
|
107,771,928
|
134,314,738
|
|||||||||
|
Total
capital
|
90,984,943
|
128,113,757
|
145,849,010
|
|||||||||
|
Gearing
ratio
|
19.1% | 15.9% | 7.9% | |||||||||
|
36.
|
CHARGE OF
ASSETS
|
CNOOC NWS
Private Limited is a wholly-owned subsidiary, and together with the other joint
venture partners and the operator of the NWS Project, signed a Deed of Cross
Charge and an Extended Deed of Cross Charge whereby certain liabilities incurred
or to be incurred, if any, by the Company in respect of the NWS Project are
secured by its interests in the NWS Project.
F-84
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
37.
|
SUBSEQUENT
EVENTS
|
The
Company and certain of its subsidiaries were the named defendants (the
“Defendants”) in a case brought by a subsidiary of Talisman Energy Inc. (the
“Plaintiff”) which is a partner of a joint operating agreement (the “JOA”)
relating to the Southeast Sumatra production sharing contract working area in
Indonesia. The Plaintiff was claiming rights under the JOA to demand an interest
in the Tangguh LNG Project. The Defendants have fully settled the litigation
with the Plaintiff and Talisman Energy Inc. by reaching an agreement to sell to
Talisman Energy Inc. a 3.05691% working interest in the Tangguh LNG Project for
a consideration of US$212.5 million. The transaction was completed through the
equity transfer of an indirect subsidiary of the Company and became effective on
January 1, 2008 (Hong Kong time). The Company through its subsidiary continues
to hold a 13.89997% working interest in the Tangguh LNG Project after the
sale.
Accordingly,
the related property, plant and equipment are classified as a non-current asset
classified as held for sale and the related long term bank loan is classified as
liabilities directly associated with non-current asset classified as held for
sale as at December 31, 2007.
|
38.
|
COMPARATIVE
AMOUNTS
|
Certain
comparative amounts have been adjusted to conform with the current year's
presentation. Due to the adoption of the new and revised HKFRSs during the
current year, certain comparative amounts were disclosed for the first time in
2007.
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“US
GAAP”)
|
(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 the
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 a property. The fair value of the property is estimated by the Group
using the present value of future cash flows. The impairment is 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.
F-85
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
(a)
Impairment of long-lived assets (continued)
In
addition, under Hong Kong GAAP, a subsequent increase in the recoverable amount
of an asset (other than goodwill and available-for-sale equity investments) is
reversed to the income statement to the extent that an impairment loss on the
same asset was previously recognised as an expense when the circumstances and
events that led to the write-down or write-off cease to exist. The reversal is
reduced by the amount that would have been recognised as depreciation had the
write-down or write-off not occurred. Under US GAAP, an impairment loss
establishes a new cost basis for the impaired asset and the new cost basis
should not be adjusted subsequently other than for further impairment
losses.
For the
year ended December 31, 2007, an impairment of approximately RMB613,505,000
related to an aged oil field was recognised under both Hong Kong GAAP and US
GAAP. For the year ended December 31, 2006, an impairment of approximately
RMB252,357,000 was recognised under Hong Kong GAAP and no impairment was
recognised under US GAAP because the carrying amounts of certain oil and gas
fields exceed their fair values estimated using discounted future cash flows
even though the undiscounted future cash flows of these oil and gas fields
exceed their respective carrying amounts. As a result, additional depreciation
of approximately RMB34,080,000 was recognised under US GAAP.
(b) Accounting
for convertible bonds
With
effect from January 1, 2005, under HKAS 32 Financial Instruments: Disclosure
and Presentation, financial instruments with cash settlement options and
other derivative components 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 are charged/credited to the consolidated
income statement. However, with the renunciation of the cash settlement option
in relation to the Group’s convertible bonds on July 27, 2007, under Hong Kong
GAAP, the derivative component is transferred to equity. As such, no further
mark-to-market of the derivative component is required going forward. There was
no impact on the debt component, which has been stated at amortised
cost.
Under US
GAAP, convertible bonds are subject to different rules on the bifurcation of the
debt and derivative components. According to SFAS No. 133 Implementation Issue No. C8,
the renunciation of the cash settlement options does not cause the derivative
component to be reclassified to an equity component, therefore the derivative
component is still marked to market at each balance sheet date and the
differences will be charged/credited to the consolidated income statement. The
debt component is stated at amortised cost.
The
Company considered whether the convertible bonds contain embedded derivative
features which warrant separate accounting under the guidance provided in SFAS
No. 133. To the extent that the embedded derivatives are determined to exist,
the embedded derivatives are bifurcated as a single, compound derivative and are
accounted for in accordance with SFAS No. 133. The Company bifurcated its
embedded derivatives at fair value and determined the initial carrying value
assigned to the host contract as the difference between the basis of the hybrid
instrument and the fair value of the embedded derivatives, resulting in a
discount attributed to the host bond contract. The host bond contract is then
accreted from the initial amount to the maturity amount over the period from the
date of issuance to the maturity date using the effective interest
method.
The
embedded derivative features within the convertible bonds that would
individually warrant separate accounting as a derivative instrument under SFAS
No. 133 are bundled together as a single, compound embedded derivative
instrument that is bifurcated and accounted for separately from the host
contract under SFAS No. 133. The Company used the binominal tree valuation model
to value the compound embedded derivative features both initially and at each
reporting period to record the changes in fair value of the derivative
instruments.
F-86
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
(b) Accounting
for convertible bonds (continued)
Instruments
with potential embedded derivative features are evaluated at inception to
determine whether such features meet the definition of a derivative. The
embedded derivative feature would be separated from the host contract and
accounted for as a derivative instrument only if all of the following conditions
are met:
|
(i)
|
the
economic characteristics and risks of the embedded derivative instrument
are not clearly and closely related to the economic characteristics and
risks of the host contract;
|
|
(ii)
|
the
hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value;
and
|
|
(iii)
|
a
separate instrument with the same terms as the embedded derivative
instrument would meet the definition of a derivative as described in SFAS
No. 133.
|
The
Group’s convertible bonds include the following embedded derivative features
that warrant separate accounting as a single, compound embedded derivative
instrument under SFAS No. 133:
|
(i)
|
The
bondholders’ right to convert the convertible bonds into the Company’s
shares at specific price;
|
|
(ii)
|
Prior
to the renunciation of cash settlement option, upon exercise of the
conversion right by the bondholders of the convertible bonds, the Company
has the option to settle the exercise of the conversion right in cash;
and
|
|
(iii)
|
The
convertible bonds are denominated in US dollars and are convertible into
the Company’s share denominated into Hong Kong dollars using a fixed
exchange rate of US$1 to HK$7.77.
|
(c) Use
of estimates in the preparation of financial statements
The
preparation of financial statements in conformity with US 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, the future development cost and provision
for dismantlement as well as estimates relating to certain oil and gas revenues
and expenses. Actual amounts could differ from those estimates and
assumptions.
(d) Segment
reporting
The
Group’s segment information is based on the segmental operating results
regularly reviewed by the Group’s chief operating decision maker. The accounting
policies used are the same as those used in the preparation of the Group’s
consolidated Hong Kong GAAP financial statements.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
(e) Income
tax
The Group
completed the acquisition of certain oil and gas interests in Nigeria in 2006.
The oil and gas properties are still under exploration and development
stage.
According
to HKAS 12 “Income Taxes”, no deferred income tax liability is recognised for an
asset acquisition. However, under US GAAP, a deferred income tax liability is
recognised in accordance with EITF 98-11 “Accounting for Acquired Temporary
Differences in Certain Purchase Transactions that are not Accounted for as
Business Combinations”. Accordingly, both the property, plant and equipment and
deferred tax liabilities related to OML130 are increased by RMB16,014,569,000
under US GAAP. The difference in accounting treatment has had no impact on the
net equity reported under US GAAP.
(f) Provision
for dismantlement
Hong Kong
GAAP requires the provision for dismantlement to be recorded for a present
obligation no matter whether the obligation is legal or constructive. The
associated cost is capitalised and the liability is discounted and accretion
expense is recognised using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
In cases of remeasuring the provision for dismantlement of oil and gas
properties, the Group shall use such a discount rate as mentioned above no
matter whether future cash flows would move upward or downward. HK(IFRIC)-Int 1
requires that adjustments arising from changes in the estimated cash flows or
the current discount rate should be added to or deducted from the cost of the
related asset and liability.
Under US
GAAP, SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation to be recognised in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalised as part of the carrying amount of the long-lived assets.
Further, under SFAS No. 143, the liability is discounted and accretion expense
is recognised using the credit-adjusted risk-free interest rate in effect when
the liability is initially recognised. If the Group remeasures the provision for
dismantlement of oil and gas properties, upward revisions in the amount of
undiscounted estimated cash flows shall be discounted using the current
credit-adjusted risk-free rate; downward revisions in the amount of undiscounted
estimated cash flows shall be discounted using the credit-adjusted risk-free
rate that existed when the original liability was recognised. In cases that
changes occur to the discount rate, the Group shall apply the original discount
rate used to initially measure the dismantlement costs, rather than remeasuring
the liability for changes in the discount rate. There were no differences
between the amounts under Hong Kong GAAP and US GAAP for the periods
presented.
(g) Income
tax rates
Under Hong
Kong GAAP, HKAS 12 required the application of tax rates that have been enacted
or substantively enacted by the balance sheet date.
Under US
GAAP, SFAS No. 109 requires that a deferred tax liability or asset shall be
measured using the enacted tax rates expected to apply to taxable income in the
periods in which the deferred tax liability or asset is expected to be settled
or realised.
There were
no differences in the tax rates used for both Hong Kong GAAP and US GAAP for the
periods presented.
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
(h) Accounting
for uncertainty in income taxes
Under US
GAAP, FIN 48 clarifies the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet before being
recognised in the financial statements. It provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The adoption of FIN 48 by the Company on
January 1, 2007 had no significant impact on its financial position and result
of operations.
However,
under HK GAAP, there are no established standards specifically dealing with
accounting for uncertainty in income taxes except for HKAS 37 Provisions,
Contingent Liabilities and Contingent Assets that applies to all
contingencies.
|
(i)
|
Effects on net profit and
equity
|
The
effects on net profit and equity of the above significant differences between
Hong Kong GAAP and US GAAP are summarised below:
|
Net
Profit
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
|
RMB’000
|
RMB’000
|
|
||||||||
|
As
reported under Hong Kong GAAP
|
25,323,122
|
30,926,943
|
31,258,299
|
|||||||||
|
Impact
of U.S GAAP adjustments:
|
||||||||||||
|
-
Fair value losses on embedded derivative component of convertible
bonds
|
—
|
—
|
(2,975,664 | ) | ||||||||
|
-
Reversal of impairment losses related to property, plant and
equipment
|
—
|
252,357
|
—
|
|||||||||
|
-
Deferred income tax related to impairment losses on property, plant and
equipment
|
—
|
(75,708 | ) |
—
|
||||||||
|
- Depreciation
of property, plant and equipment due to reversal of impairment
losses
|
—
|
—
|
(34,080 | ) | ||||||||
|
- Deferred
income tax related to depreciation of property, plant and
equipment
|
—
|
—
|
8,520
|
|||||||||
|
-
Unrealised gains transferred from equity to the income
statement
|
20,036
|
—
|
—
|
|||||||||
|
Net
profit under US GAAP
|
25,343,158
|
31,103,592
|
28,257,075
|
|||||||||
|
Net
profit per share under US GAAP
|
||||||||||||
|
-
Basic
|
RMB0.62
|
RMB0.73
|
RMB0.65
|
|||||||||
|
-
Diluted
|
RMB0.61
|
RMB0.73
|
RMB0.65
|
|||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
|
(i)
|
Effects on net profit and
equity (continued)
|
The
effects on net profit and equity of the above significant differences between
Hong Kong GAAP and US GAAP are summarised below: (continued)
|
Net
equity
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
As
reported under Hong Kong GAAP
|
73,603,097
|
107,771,928
|
134,314,738
|
|||||||||
|
Impact
of U.S GAAP adjustments:
|
||||||||||||
|
-
Reversal of derivative component of convertible bonds reclassified to
equity
|
—
|
—
|
(4,471,324 | ) | ||||||||
|
-
Addition of share premium related to conversion of bonds
|
—
|
—
|
4,076,738
|
|||||||||
|
-
Fair value losses on embedded derivative component of convertible
bonds
|
—
|
—
|
(2,975,664 | ) | ||||||||
|
-
Reversal of impairment losses related to property, plant and
equipment
|
—
|
252,357
|
252,357
|
|||||||||
|
-
Deferred income tax related to impairment losses on property, plant and
equipment
|
—
|
(75,708 | ) | (75,708 | ) | |||||||
|
-
Depreciation of property, plant and equipment due to reversal of
impairment losses
|
—
|
—
|
(34,080 | ) | ||||||||
|
-
Deferred income tax related to depreciation of property, plant and
equipment
|
—
|
—
|
8,520
|
|||||||||
|
-
Reversal of additional accumulated depreciation, depletion and
amortisation arising from the revaluation surplus on land and
buildings
|
44,207
|
44,207
|
44,207
|
|||||||||
|
Net
equity under US GAAP
|
73,647,304
|
107,992,784
|
131,139,784
|
|||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
|
(j)
|
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
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Net
income under US GAAP
|
25,343,158
|
31,103,592
|
28,257,075
|
|||||||||
|
Other
comprehensive income:
|
||||||||||||
|
Foreign
currency translation adjustments
|
(493,289 | ) | (1,257,594 | ) | (3,861,917 | ) | ||||||
|
Unrealised gains on
available-for-sale investments
|
69,069
|
60,010
|
63,426
|
|||||||||
|
Less:
Reclassification adjustment for gains
included
in net income
|
(20,036 | ) | (69,069 | ) | (60,010 | ) | ||||||
|
Comprehensive
income under US GAAP
|
24,898,902
|
29,836,939
|
24,398,574
|
|||||||||
The
movement 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 December 31, 2004
|
(19,654 | ) |
20,036
|
382
|
||||||||
|
Reversal
of current year’s realised gains
|
—
|
(20,036 | ) | (20,036 | ) | |||||||
|
Current
year’s change
|
(493,289 | ) |
69,069
|
(424,220 | ) | |||||||
|
Balance
at December 31, 2005
|
(512,943 | ) |
69,069
|
(443,874 | ) | |||||||
|
Reversal
of current year’s realised gains
|
—
|
(69,069 | ) | (69,069 | ) | |||||||
|
Current
year’s change
|
(1,257,594 | ) |
60,010
|
(1,197,584 | ) | |||||||
|
Balance
at December 31, 2006
|
(1,770,537 | ) |
60,010
|
(1,710,527 | ) | |||||||
|
Reversal
of current year’s realised gains
|
—
|
(60,010 | ) | (60,010 | ) | |||||||
|
Current
year’s change
|
(3,861,917 | ) |
63,426
|
(3,798,491 | ) | |||||||
|
Balance
at December 31, 2007
|
(5,632,454 | ) |
63,426
|
(5,569,028 | ) | |||||||
F-91
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP (CONTINUED)
|
|
(k)
|
Additional disclosure under
FSP19-1
|
The Group
adopted FASB Staff Position FAS19-1, “Accounting for Suspended Well Costs”. Upon
adoption of the FSP, the Group evaluated all existing capitalised exploratory
well costs under the provisions of the FSP. The following table reflects the net
changes in capitalised exploratory well costs during 2006 and 2007, and does not
include amounts that were capitalised and subsequently expensed in the same
period. Capitalised exploratory well costs for fiscal year ended December 31,
2005 are presented based on the Group’s previous accounting policy.
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Beginning
of year
|
429,461
|
281,573
|
879,189
|
|||||||||
|
Additions
to capitalised exploratory well costs
|
||||||||||||
|
pending
the determination of proved reserves
|
279,180
|
803,184
|
1,592,302
|
|||||||||
|
Reclassifications
to oil and gas properties
|
||||||||||||
|
based
on the determination
|
||||||||||||
|
of
proved reserves
|
(328,475 | ) | (182,582 | ) | (36,027 | ) | ||||||
|
Capitalised
exploratory well
|
||||||||||||
|
costs
charged to expense
|
(98,242 | ) | (7,976 | ) | (385,609 | ) | ||||||
|
Exchange
realignment
|
(351 | ) | (15,010 | ) | (55,913 | ) | ||||||
|
End
of year
|
281,573
|
879,189
|
1,993,942
|
|||||||||
Aging of
capitalised exploratory well costs and the number of projects for which
exploratory well costs have been capitalised for a period greater than one year
as follows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Capitalised
exploratory well costs
|
||||||||||||
|
that
have been capitalised
|
||||||||||||
|
for
a period for one year or less
|
281,573
|
834,333
|
1,549,223
|
|||||||||
|
Capitalised
exploratory well costs
|
||||||||||||
|
that
have been capitalised
|
||||||||||||
|
for
a period greater than one year
|
—
|
44,856
|
444,719
|
|||||||||
|
End
of year
|
281,573
|
879,189
|
1,993,942
|
|||||||||
|
Number
of projects for which exploratory
|
||||||||||||
|
well
costs have been
|
||||||||||||
|
capitalised
for a period greater than one year
|
—
|
1
|
4
|
|||||||||
The
RMB444,719,000 of suspended well costs capitalised for a period greater than one
year as at December 31, 2007 represents six exploratory wells in four projects.
RMB48,162,000 is related to wells drilled in 2005 and 2006 for two projects that
had drilling activities under way that were firmly planned for the near future,
and RMB396,557,000 is related to wells drilled in 2005 and 2006 for two
projects, for which additional drilling was not deemed necessary, because the
presence of hydrocarbons had already been established, and other activities were
in process to enable a future decision on project development.
F-92
CNOOC LIMITED AND ITS
SUBSIDIARIES
NOTES TO FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi
unless otherwise
stated)
|
39.
|
SIGNIFICANT DIFFERENCES BETWEEN
HONG KONG GAAP AND US GAAP
(CONTINUED)
|
|
(l)
|
Impact of recently issued
accounting standards
|
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007) “Business Combinations”(“SFAS No.141(R)”), which requires the
acquiring entity in a business combination to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date to be measured at their respective fair values. It also
requires acquisition-related costs, as well as restructuring costs the acquirer
expects to incur for which it is not obligated at acquisition date, to be
recorded against income rather than included in purchase-price determination.
Under this statement, contingent arrangements shall be recognised at their
acquisition-date fair values, with subsequent changes in fair value generally
reflected in income. SFAS No. 141(R) will become effective for business
combinations for which the acquisition date is on or after January 1, 2009. We
are currently evaluating the potential impact of SFAS No. 141(R) on our
financial position and results of operations.
In
December 2007, FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”, which establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It will become effective
for the accounting period beginning on or after January 1, 2009. We are
currently evaluating the potential impact of SFAS No. 160 on our financial
position and results of operations.
In March
2008, FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133”, which amends and
expands the disclosure requirements of SFAS No.133, Accounting for Derivative
Instruments and Hedging Activities. It requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. It will become effective for financial statements issued for
accounting period beginning on or after January 1, 2009. As our existing
accounting policy for derivatives complies with the requirements of this
Statement, we do not believe the adoption of SFAS No. 161 will have a material
effect on our financial statements disclosures.
F-93
CNOOC LIMITED AND ITS
SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(UNAUDITED)
(All amounts expressed in Renminbi
unless otherwise stated)
The
following disclosures are included in accordance with the United States
Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and
Gas Producing Activities”. The disclosures are categorised 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, Morocco and Nigeria etc., are combined in the following disclosures as
“Others”, among which all the other projects are still in joint study,
exploration or development stage except that the North West Shelf Project in
Australia is in production 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 (i) 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 (ii) 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 Nigeria;
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.
The
Company determines its net entitlement oil and gas reserves under production
sharing contracts using the economic interest method.
S-1
CNOOC LIMITED AND ITS
SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(UNAUDITED)
(All amounts expressed in Renminbi
unless otherwise stated)
|
(a)
|
Reserve Quantity Information
(continued)
|
Proved
developed and undeveloped reserves
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||||||||||||||
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
|||||||||||||||||||||||||
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
|||||||||||||||||||||||||
|
December
31, 2004
|
1,350
|
4,282
|
101
|
321
|
–
|
–
|
1,451
|
4,603
|
||||||||||||||||||||||||
|
Purchase
of reserves
|
–
|
–
|
–
|
–
|
25
|
603
|
25
|
603
|
||||||||||||||||||||||||
|
Discoveries
and extensions
|
133
|
314
|
–
|
17
|
–
|
–
|
133
|
331
|
||||||||||||||||||||||||
|
Production
|
(121 | ) | (101 | ) | (9 | ) | (34 | ) |
–
|
–
|
(130 | ) | (135 | ) | ||||||||||||||||||
|
Revisions
of prior estimates
|
(7 | ) |
–
|
(19 | ) | (7 | ) |
–
|
–
|
(26 | ) | (7 | ) | |||||||||||||||||||
|
December
31, 2005
|
1,355
|
4,495
|
73
|
297
|
25
|
603
|
1,453
|
5,395
|
||||||||||||||||||||||||
|
Purchase
of reserves
|
–
|
–
|
2 | * | 694 | * |
41
|
–
|
43
|
694
|
||||||||||||||||||||||
|
Discoveries
and extensions
|
132
|
109
|
–
|
11
|
–
|
–
|
132
|
120
|
||||||||||||||||||||||||
|
Production
|
(127 | ) | (130 | ) | (8 | ) | (39 | ) | (1 | ) | (10 | ) | (136 | ) | (179 | ) | ||||||||||||||||
|
Revisions
of prior estimates
|
(18 | ) |
95
|
12
|
22
|
–
|
58
|
(6 | ) |
175
|
||||||||||||||||||||||
|
December 31,
2006
|
1,342
|
4,569
|
79
|
985
|
65
|
651
|
1,486
|
6,205
|
||||||||||||||||||||||||
|
Purchase
of reserves
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
||||||||||||||||||||||||
|
Discoveries
and extensions
|
136
|
158
|
–
|
–
|
36
|
94
|
172
|
252
|
||||||||||||||||||||||||
|
Production
|
(125 | ) | (129 | ) | (7 | ) | (44 | ) | (2 | ) | (35 | ) | (134 | ) | (208 | ) | ||||||||||||||||
|
Revisions
of prior estimates
|
52
|
(171 | ) | (17 | ) |
68
|
2
|
50
|
37
|
(53 | ) | |||||||||||||||||||||
|
December
31, 2007
|
1,405
|
4,427
|
55 | ** | 1,009 | ** |
101
|
760
|
1,561
|
6,196
|
||||||||||||||||||||||
|
*
|
The acquisition of the Tangguh
LNG Project was completed in 2004. No proved reserves have been included
until 2006 when the related sales contracts were signed and the necessary
criteria of proved reserves were
fulfilled.
|
|
**
|
Included in the proved
reserves of 0.4 mmbls of oil and 137 bcf of natural gas represent the
interest of 3.05691% working interest in the Tangguh LNG Project which was
sold to Tailisman Energy Inc. after year
end.
|
CNOOC LIMITED AND ITS
SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(UNAUDITED)
(All amounts expressed in Renminbi
unless otherwise stated)
|
(a)
|
Reserve Quantity Information
(continued)
|
Enterprise’s
proportional interest in reserves of investees accounted for by the equity
method:
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||||||||||||||
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
|||||||||||||||||||||||||
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
|||||||||||||||||||||||||
|
December
31, 2005
|
3
|
36
|
–
|
–
|
–
|
–
|
3
|
36
|
||||||||||||||||||||||||
|
December
31, 2006
|
2
|
26
|
–
|
–
|
–
|
–
|
2
|
26
|
||||||||||||||||||||||||
|
December
31, 2007
|
3
|
27
|
–
|
–
|
–
|
–
|
3
|
27
|
||||||||||||||||||||||||
|
Proved
developed reserves:
|
||||||||||||||||||||||||||||||||
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||||||||||||||
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
Oil
|
Natural
gas
|
|||||||||||||||||||||||||
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
(mmbls)
|
(bcf)
|
|||||||||||||||||||||||||
|
December 31,
2005
|
642
|
2,072
|
63
|
155
|
14
|
378
|
719
|
2,605
|
||||||||||||||||||||||||
|
December
31, 2006
|
632
|
1,901
|
67
|
174
|
15
|
421
|
714
|
2,496
|
||||||||||||||||||||||||
|
December
31, 2007
|
620
|
1,563
|
50
|
194
|
16
|
436
|
686
|
2,193
|
||||||||||||||||||||||||
|
(b)
|
Results Of
Operations
|
|
2005
|
2006
|
2007
|
||||||||||||||||||||||||||||||||||||||||||||||
|
PRC
|
Indonesia
|
Others
|
Total
|
PRC
|
Indonesia
|
Others
|
Total
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||||||||||||||||||||||||||
|
Net
sales to customers
|
48,778,934
|
4,638,735
|
–
|
53,417,669
|
62,224,126
|
5,138,396
|
465,431
|
67,827,953
|
66,076,736
|
5,175,327
|
1,784,843
|
73,036,906
|
||||||||||||||||||||||||||||||||||||
|
Operating
expenses
|
(4,507,915 | ) | (1,426,683 | ) |
–
|
(5,934,598 | ) | (5,139,130 | ) | (1,751,675 | ) | (108,379 | ) | (6,999,184 | ) | (5,683,754 | ) | (1,978,596 | ) | (377,253 | ) | (8,039,603 | ) | |||||||||||||||||||||||||
|
Production
taxes
|
(2,596,543 | ) |
–
|
–
|
(2,596,543 | ) | (3,315,661 | ) |
–
|
–
|
(3,315,661 | ) | (3,497,440 | ) |
–
|
–
|
(3,497,440 | ) | ||||||||||||||||||||||||||||||
|
Exploration
|
(1,169,067 | ) | (77,842 | ) | (46,779 | ) | (1,293,688 | ) | (1,304,917 | ) | (104,608 | ) | (295,550 | ) | (1,705,075 | ) | (1,957,357 | ) | (130,279 | ) | (1,344,783 | ) | (3,432,419 | ) | ||||||||||||||||||||||||
|
Accretion
expense
|
(198,945 | ) |
–
|
–
|
(198,945 | ) | (250,922 | ) |
–
|
–
|
(250,922 | ) | (305,758 | ) |
–
|
–
|
(305,758 | ) | ||||||||||||||||||||||||||||||
|
Depreciation,
depletion
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
and
amortisation
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
(including
dismantlement)
|
(5,360,745 | ) | (856,775 | ) |
–
|
(6,217,520 | ) | (6,345,167 | ) | (986,988 | ) | (73,328 | ) | (7,405,483 | ) | (6,720,809 | ) | (1,018,881 | ) | (196,481 | ) | (7,936,171 | ) | |||||||||||||||||||||||||
|
34,945,719
|
2,277,435
|
(46,779 | ) |
37,176,375
|
45,868,329
|
2,295,125
|
(11,826 | ) |
48,151,628
|
47,911,618
|
2,047,571
|
(133,674 | ) |
49,825,515
|
||||||||||||||||||||||||||||||||||
|
Income
tax expenses
|
(10,483,716 | ) | (995,885 | ) |
–
|
(11,479,601 | ) | (13,760,499 | ) | (989,773 | ) | (85,191 | ) | (14,835,463 | ) | (14,373,486 | ) | (883,015 | ) | (350,352 | ) | (15,606,853 | ) | |||||||||||||||||||||||||
|
Result
of operations
|
24,462,003
|
1,281,550
|
(46,779 | ) |
25,696,774
|
32,107,830
|
1,305,352
|
(97,017 | ) |
33,316,165
|
33,538,132
|
1,164,556
|
(484,026 | ) |
34,218,662
|
|||||||||||||||||||||||||||||||||
|
Enterprise’s
share of equity
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
method
investee’s results of
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
operations
for
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
producing
activities
|
260,496
|
–
|
–
|
260,496
|
247,797
|
–
|
–
|
247,797
|
195,875
|
–
|
–
|
195,875
|
||||||||||||||||||||||||||||||||||||
S-3
CNOOC LIMITED AND ITS
SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(UNAUDITED)
(All amounts expressed in Renminbi
unless otherwise stated)
|
(c)
|
Capitalised
Costs
|
|
2005
|
2006
|
2007
|
||||||||||||||||||||||||||||||||||||||||||||||
|
PRC
|
Indonesia
|
Others
|
Total
|
PRC
|
Indonesia
|
Others
|
Total
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
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
|
102,687,282
|
19,528,600
|
9,857,637
|
132,073,519
|
120,642,419
|
19,635,135
|
26,734,330
|
167,011,884
|
||||||||||||||||||||||||||||||||||||
|
Unproved
oil and gas
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Properties
|
267,432
|
5,529,450
|
–
|
5,796,882
|
212,913
|
63,402
|
33,527,905
|
33,804,220
|
1,080,870
|
60,606
|
19,410,862
|
20,552,338
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
depreciation,
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
depletion
and
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
amortization
|
(35,875,926 | ) | (3,850,293 | ) |
–
|
(39,726,219 | ) | (42,066,757 | ) | (4,691,090 | ) | (45,793 | ) | (46,803,640 | ) | (47,902,346 | ) | (5,951,246 | ) | (154,511 | ) | (54,008,103 | ) | |||||||||||||||||||||||||
|
Net
capitalised costs
|
50,351,845
|
12,920,502
|
3,129,662
|
66,402,009
|
60,833,438
|
14,900,912
|
43,339,749
|
119,074,099
|
73,820,943
|
13,744,495
|
45,990,681
|
133,556,119
|
||||||||||||||||||||||||||||||||||||
|
Enterprise’s
share of
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
equity
method
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
investee’s
net
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
capitalised
costs
|
412,109
|
–
|
–
|
412,109
|
499,903
|
–
|
–
|
499,903
|
509,187
|
–
|
–
|
509,187
|
||||||||||||||||||||||||||||||||||||
|
(d)
|
Costs
Incurred
|
|
2005
|
2006
|
2007
|
||||||||||||||||||||||||||||||||||||||||||||||
|
PRC
|
Indonesia
|
Others**
|
Total
|
PRC
|
Indonesia
|
Others
|
Total
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||||||||||||||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
|||||||||||||||||||||||||||||||||||||
|
Acquisition
costs
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
–
Proved
|
–
|
–
|
3,864,342
|
3,864,342
|
–
|
–
|
6,374,981
|
6,374,981
|
–
|
–
|
–
|
–
|
||||||||||||||||||||||||||||||||||||
|
–
Unproved
|
–
|
–
|
681,943
|
681,943
|
–
|
–
|
30,856,923
|
30,856,923
|
–
|
–
|
–
|
–
|
||||||||||||||||||||||||||||||||||||
|
Exploration
costs
|
1,878,931
|
111,219
|
46,779
|
2,036,929
|
2,214,202
|
152,654
|
912,325
|
3,279,181
|
3,956,784
|
362,495
|
1,787,799
|
6,107,078
|
||||||||||||||||||||||||||||||||||||
|
Development
costs*
|
14,423,266
|
2,328,200
|
–
|
16,751,466
|
15,763,138
|
3,336,760
|
3,625,336
|
22,725,234
|
17,912,945
|
2,559,692
|
6,102,474
|
26,575,111
|
||||||||||||||||||||||||||||||||||||
|
Total
costs incurred
|
16,302,197
|
2,439,419
|
4,593,064
|
23,334,680
|
17,977,340
|
3,489,414
|
41,769,565
|
63,236,319
|
21,869,729
|
2,922,187
|
7,890,273
|
32,682,189
|
||||||||||||||||||||||||||||||||||||
|
Enterprise’s
share of
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
equity
method
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
investee’s
costs of
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
property
acquisition,
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
exploration,
and
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
development
|
20,854
|
–
|
–
|
20,854
|
235,816
|
–
|
–
|
235,816
|
161,549
|
–
|
–
|
161,549
|
||||||||||||||||||||||||||||||||||||
|
|
*
|
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 approximately
RMB4,693,809,000 and a tax refund of approximately RMB152,993,000 related
to the acquisition of the NWS Project received in
2005.
|
S-4
CNOOC LIMITED AND ITS
SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(UNAUDITED)
(All amounts expressed in Renminbi
unless otherwise stated)
|
(e)
|
Standardised Measure of
Discounted Future Net Cash Flows and Changes
Therein
|
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 proved 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$86 as
at December 31, 2007 (2006: US$51; 2005; US$48). 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:
|
2005
|
||||||||||||||||||||
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||
|
Notes
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||||||||
|
Future
cash inflows
|
(1)
|
658,890,903
|
40,919,470
|
21,855,452
|
721,665,825
|
|||||||||||||||
|
Future
production
|
||||||||||||||||||||
|
costs
|
(155,478,507 | ) | (19,370,535 | ) | (3,742,250 | ) | (178,591,292 | ) | ||||||||||||
|
Future
development
|
||||||||||||||||||||
|
costs
|
(2)
|
(69,631,972 | ) | (7,481,211 | ) | (4,497,517 | ) | (81,610,700 | ) | |||||||||||
|
Future
income taxes
|
(118,764,845 | ) | (5,678,110 | ) | (2,759,755 | ) | (127,202,710 | ) | ||||||||||||
|
Future
net cash flows
|
(3)
|
315,015,579
|
8,389,614
|
10,855,930
|
334,261,123
|
|||||||||||||||
|
10%
discount factor
|
(127,977,962 | ) | (2,494,083 | ) | (5,472,748 | ) | (135,944,793 | ) | ||||||||||||
|
Standardised
measure
|
187,037,617
|
5,895,531
|
5,383,182
|
198,316,330
|
||||||||||||||||
|
Enterprise’s
share of
|
||||||||||||||||||||
|
equity
method
|
||||||||||||||||||||
|
investee’s
|
||||||||||||||||||||
|
standardised
measure
|
||||||||||||||||||||
|
of
discounted future
|
||||||||||||||||||||
|
net
cash flows
|
1,605,386
|
–
|
–
|
1,605,386
|
||||||||||||||||
|
2006
|
||||||||||||||||||||
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||
|
Notes
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||||||||
|
Future
cash inflows
|
(1)
|
652,466,884
|
60,388,183
|
45,074,262
|
757,929,329
|
|||||||||||||||
|
Future
production
|
||||||||||||||||||||
|
costs
|
(179,879,722 | ) | (25,320,990 | ) | (6,063,979 | ) | (211,264,691 | ) | ||||||||||||
|
Future
development
|
||||||||||||||||||||
|
costs
|
(2)
|
(72,962,533 | ) | (10,238,119 | ) | (7,728,167 | ) | (90,928,819 | ) | |||||||||||
|
Future
income taxes
|
(106,075,580 | ) | (8,637,768 | ) | (6,696,189 | ) | (121,409,537 | ) | ||||||||||||
|
Future
net cash flows
|
(3)
|
293,549,049
|
16,191,306
|
24,585,927
|
334,326,282
|
|||||||||||||||
|
10%
discount factor
|
(118,607,628 | ) | (7,802,067 | ) | (11,302,262 | ) | (137,711,957 | ) | ||||||||||||
|
Standardised
measure
|
174,941,421
|
8,389,239
|
13,283,665
|
196,614,325
|
||||||||||||||||
|
Enterprise’s
share of
|
||||||||||||||||||||
|
equity
method
|
||||||||||||||||||||
|
investee’s
|
||||||||||||||||||||
|
standardised
measure
|
||||||||||||||||||||
|
of
discounted future
|
||||||||||||||||||||
|
net
cash flows
|
883,476
|
–
|
–
|
883,476
|
||||||||||||||||
|
2007
|
||||||||||||||||||||
|
PRC
|
Indonesia
|
Others
|
Total
|
|||||||||||||||||
|
Notes
|
RMB’000
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||||||||
|
Future
cash inflows
|
(1)
|
995,962,772
|
67,457,543
|
88,529,648
|
1,151,949,963
|
|||||||||||||||
|
Future
production
|
||||||||||||||||||||
|
costs
|
(341,660,401 | ) | (25,434,120 | ) | (17,669,682 | ) | (384,764,203 | ) | ||||||||||||
|
Future
development
|
||||||||||||||||||||
|
costs
|
(2)
|
(85,414,711 | ) | (10,640,713 | ) | (15,636,029 | ) | (111,691,453 | ) | |||||||||||
|
Future
income taxes
|
(128,253,725 | ) | (11,005,945 | ) | (13,731,732 | ) | (152,991,402 | ) | ||||||||||||
|
Future
net cash flows
|
(3)
|
440,633,935
|
20,376,765
|
41,492,205
|
502,502,905
|
|||||||||||||||
|
10%
discount factor
|
(160,975,012 | ) | (9,217,306 | ) | (18,384,252 | ) | (188,576,570 | ) | ||||||||||||
|
Standardised
measure
|
279,658,923
|
11,159,459
|
23,107,953
|
313,926,335
|
||||||||||||||||
|
Enterprise’s
share of
|
||||||||||||||||||||
|
equity
method
|
||||||||||||||||||||
|
investee’s
|
||||||||||||||||||||
|
standardised
measure
|
||||||||||||||||||||
|
of
discounted future
|
||||||||||||||||||||
|
net
cash flows
|
1,271,780
|
–
|
–
|
1,271,780
|
||||||||||||||||
CNOOC LIMITED AND ITS
SUBSIDIARIES
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(UNAUDITED)
(All amounts expressed in Renminbi
unless otherwise stated)
|
(e)
|
Standardised Measure of
Discounted Future Net Cash Flows and Changes Therein
(continued)
|
|
(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 (i) an adjustment for the
royalties payable to the PRC government and share oil payable to the PRC
government under production sharing contracts and (ii) 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 Nigeria, and (b) the participating interest in the
properties covered under the production sharing contracts in Indonesia,
less an adjustment of share oil attributable to Indonesian government and
the domestic market obligation.
|
|
(2)
|
Future
development costs include the estimated costs of drilling future
development wells and building the production
platforms.
|
|
(3)
|
Future
net cash flows have been prepared taking into consideration estimated
future dismantlement costs of dismantling offshore oil platforms and gas
properties.
|
Changes in
the standardised measure of discounted future net cash flows:
|
2005
|
2006
|
2007
|
||||||||||
|
RMB’000
|
RMB’000
|
RMB’000
|
||||||||||
|
Standardised
measure, beginning of year
|
124,411,601
|
198,316,330
|
196,614,325
|
|||||||||
|
Sales
of production, net of royalties and production costs
|
(44,886,528 | ) | (57,513,108 | ) | (61,560,825 | ) | ||||||
|
Net
change in prices, net of royalties and production costs
|
99,253,723
|
8,603,374
|
147,976,255
|
|||||||||
|
Extensions
discoveries and improved recovery,
|
||||||||||||
|
net
of related future costs
|
26,648,779
|
20,226,150
|
44,896,861
|
|||||||||
|
Change
in estimated future development costs
|
(18,559,873 | ) | (19,719,116 | ) | (32,127,867 | ) | ||||||
|
Development
costs incurred during the year
|
15,592,789
|
20,333,024
|
24,858,355
|
|||||||||
|
Revisions
in quantity estimates
|
(3,061,393 | ) |
1,903,268
|
4,893,538
|
||||||||
|
Accretion
of discount
|
16,996,168
|
26,111,261
|
25,061,537
|
|||||||||
|
Net
change in income taxes
|
(29,168,139 | ) |
958,885
|
(28,376,275 | ) | |||||||
|
Purchase
of properties
|
8,981,882
|
19,031,535
|
–
|
|||||||||
|
Changes
in timing and other
|
2,107,321
|
(21,637,278 | ) | (8,309,570 | ) | |||||||
|
Standardised
measure, end of year
|
198,316,330
|
196,614,325
|
313,926,334
|
|||||||||
S-6