UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
6-K
Report
of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16
of
the Securities Exchange Act of 1934
For
the
month of November 2007
Commission
File Number 1-14966
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CNOOC
Limited
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(Translation
of registrant’s name into English)
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|
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65th
Floor
Bank
of China Tower
One
Garden Road
Central,
Hong Kong
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(Address
of principal executive offices)
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Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.
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Form
20-F X Form 40-F
___
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Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): ____
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7): ____
Indicate
by check mark whether by furnishing the information contained in this Form,
the
registrant is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
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Yes
___ No X
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If
"Yes"
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): Not applicable
Signature
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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CNOOC
Limited
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||||||||
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Dated:
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November 14,
2007
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By:
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/s/ Kang
Xin
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|||||
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Name:
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Kang
Xin
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|||||||
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Title:
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Company
Secretary
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EXHIBIT
INDEX
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Exhibit
No.
|
Description
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|
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99.1
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Notice
of Extraordinary General Meeting dated November 13,
2007.
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|
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99.2
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Form
of Proxy for the Extraordinary General Meeting to be held on 6
December 2007.
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|
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99.3
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Circular
dated November 13, 2007, entitled “Revised Cap for a Category
of Continuing Connected Transactions in Respect of 2007 and Renewal
of
Continuing Connected Transactions in Respect of 2008 to
2010”.
|
Exhibit
99.1
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 883)
NOTICE
OF EXTRAORDINARY GENERAL MEETING
NOTICE
IS HEREBY GIVEN that an extraordinary general meeting of the
shareholders of CNOOC Limited (the “Company”) will be held at Island Shangri-La,
Pacific Place, Supreme Court Road, Central, Hong Kong on 6 December 2007
at 2
p.m. for the purpose of considering and, if thought fit, passing, with or
without modification, the following resolutions as Ordinary
Resolutions:
ORDINARY
RESOLUTIONS
|
1.
|
“THAT
the Revised Cap for the “Provision of exploration and support
services” category of continuing connected transactions, as described in
the circular of the Company dated 13 November 2007 (the “Circular”), be
and is hereby approved, ratified and confirmed.”
|
|
2.
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“THAT
the Non-exempt Continuing Connected Transactions as described
in
the Circular, which the Company expects to occur on a regular and
continuous basis in the ordinary and usual course of business of
the
Company and its subsidiaries, as the case may be, and to be conducted
on
normal commercial terms, be and are hereby generally and unconditionally
approved and that any Director of the Company be and is hereby
authorised
to do all such further acts and things and execute such further
documents
and take all such steps which in their opinion may be necessary,
desirable
or expedient to implement and/or give effect to the terms of such
transactions.”
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|
3.
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“THAT
the Proposed Caps for each category of the Non-exempt
Continuing
Connected Transactions, as described in the Circular, be and are
hereby
approved, ratified and confirmed.”
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|
By
Order of the Board
CNOOC
Limited
Kang
Xin
Company
Secretary
|
Hong
Kong,
13 November 2007
Registered
Office:
65th
Floor, Bank of China Tower
1
Garden
Road
Central
Hong
Kong
Notes:
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1.
|
The
register of members of the Company will be closed from 3 December
2007 to
6 December 2007 (both dates inclusive) during which no transfer
of shares
will be registered. In order to qualify for voting at the EGM,
members are
reminded to ensure that all instruments of transfer of shares accompanied
by the relevant share certificate(s), must be lodged with the Company´s
registrar, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F,
Hopewell Centre, 183 Queen´s Road East, Wanchai, Hong Kong for
registration not later than 4:30 p.m. on 30 November
2007.
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2.
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A
member entitled to attend and vote at the EGM convened by this
notice is
entitled to appoint one or more proxies to attend and vote in his
stead. A
proxy need not be a member of the Company.
|
1
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3.
|
To
be effective, the instrument appointing a proxy together with the
power of
attorney or other authority, if any, under which it is signed or
a
certified copy of that power or authority, must be completed and
returned
to the Company´s registered office at 65th Floor, Bank of China Tower, 1
Garden Road, Hong Kong, not less than 48 hours before the time
for holding
the EGM or any adjournment thereof.
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|
4.
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A
form of proxy for use at the meeting is enclosed. Completion and
return of
the form of proxy will not preclude shareholders from attending
and voting
in person at the EGM or any adjournment thereof and, in such event,
the
relevant form of proxy shall be deemed to be revoked.
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5.
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Where
there are joint registered holders of any Share, any one of such
persons
may vote at the EGM, either personally or by proxy, in respect
of such
Share as if he were solely entitled thereto; but if more than one
of such
joint registered holders be present at the EGM personally or by
proxy,
then the registered holder so present whose name stands first on
the
register of members of the Company in respect of such Share will
alone be
entitled to vote in respect thereof.
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|
6.
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Capitalised
terms used in this notice have the same meaning as is set out in
the
section entitled “Definitions” on pages 1 to 4 of the Circular of the
Company dated 13 November 2007.
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As
at the
date of this announcement, the Board comprises the following:
|
Executive
Directors
Fu
Chengyu (Chairman)
Zhou
Shouwei
Wu
Guangqi
Yang
Hua
Non-executive
Directors
Luo
Han
Cao
Xinghe
Wu
Zhenfang
|
Independent
Non-executive Directors
Edgar
W. K. Cheng
Chiu
Sung Hong
Evert
Henkes
Lawrence
J. Lau
Tse
Hau Yin, Aloysius
|
2
Exhibit
99.2
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 883)
Form
of Proxy for the Extraordinary General Meeting
to
be held on 6 December 2007
| I/We (Note 1) |
| of |
| being the registered holder(s) of | shares (Note 2) of HK$0.02 each in the share capital of the above- |
| named Company HEREBY APPOINT THE CHAIRMAN OF THE MEETING (Note 3) or |
| of |
as
my/our
proxy to attend and act for me/us at the Extraordinary General Meeting
(and any
adjournment thereof) of the said Company to be held at Island Shangri-La,
Pacific Place, Supreme Court Road, Central, Hong Kong on 6 December 2007
at 2
p.m. for the purposes of considering and, if thought fit, passing the
Resolutions as set out in the Notice of Extraordinary General Meeting
and at
such Meeting (and at any adjournment thereof) to vote for me/us and in
my/our
name(s) in respect of the Resolutions as indicated below (Note 4)
.
|
ORDINARY
RESOLUTIONS
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FOR
(Note
4)
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AGAINST
(Note
4)
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1.
To approve the Revised Cap for the “Provision of exploration and support
services” category of continuing connected transactions
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||
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2. To
approve the Non-exempt Continuing Connected Transactions
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||
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3. To
approve the Proposed Caps for each category of the Non-exempt
Continuing
Connected Transactions
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| Dated this |
day
of
|
2007
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Signed(Note 5) |
Notes:
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1.
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Full
name(s) and address(es) to be inserted in BLOCK
CAPITALS.
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2.
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Please
insert the number of shares registered in your name(s) to which
this proxy
relates. If no number is inserted, this form of proxy will be
deemed to
relate to all the shares in the Company registered in your
name(s).
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3.
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If
any proxy other than the Chairman is preferred, strike out the
words “THE
CHAIRMAN OF THE MEETING” and insert the name and address of the proxy
desired in the space provided. A member may appoint one or more
proxies to
attend and vote in his stead. ANY ALTERATION MADE TO THIS FORM OF
PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS
IT.
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4.
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IMPORTANT:
IF YOU WISH TO VOTE FOR THE RESOLUTIONS, TICK THE APPROPRIATE
BOXES MARKED
“FOR”. IF YOU WISH TO VOTE AGAINST THE RESOLUTIONS, TICK THE APPROPRIATE
BOXES MARKED “AGAINST”. Failure to complete any or all the boxes
will entitle your proxy to cast his votes at his discretion.
Your proxy
will also be entitled to vote at his discretion on any resolution
properly
put to the Meeting other than those referred to in the Notice
of
Extraordinary General Meeting.
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5.
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This
form of proxy must be signed by you or your attorney duly authorised
in
writing or, in the case of a corporation, must be either executed
under
its common seal or under the hand of an officer or attorney or
other
person duly authorised to sign the
same.
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6.
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In
the case of joint holders of any share, any one of such joint
holders may
vote at the Meeting, either personally or by proxy, in respect
of such
shares as if he were solely entitled thereto. However, if more
than one of
such joint holders is present at the Meeting, personally or by
proxy, the
vote of the joint holder whose name stands first in the Register
of
Members and who tenders a vote, whether in person or by proxy,
will be
accepted to the exclusion of the votes of the other joint
holder(s).
|
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7.
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To
be valid, this form of proxy together with the power of attorney
(if any)
or other authority under which it is signed (if any) or a certified
copy
thereof, must be deposited at the Company’s registered office at 65th
Floor, Bank of China Tower, 1 Garden Road, Hong Kong not less
than 48
hours before the time for holding the Meeting or any adjournment
thereof
(as the case may be).
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8.
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The
proxy need not be a member of the Company but must attend the
Meeting in
person to represent you.
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9.
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Completion
and delivery of the form of proxy will not preclude you from
attending and
voting at the Extraordinary General Meeting in person if you
so wish. In
such event, the instrument appointing a proxy shall be deemed
to be
revoked.
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Exhibit
99.3
|
THIS
DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION
|
If
you are in any doubt as to any aspect of this circular or as to the
action to be taken, you should consult a stockbroker or other registered
dealer
in securities, a bank manager, solicitor, professional accountant or
other
professional adviser.
If
you have sold or transferred all your shares in CNOOC Limited you
should at once pass this circular with the accompanying form of proxy
to the
purchaser or to the bank, stockbroker or other agent through whom the
sale was
effected for transmission to the purchaser.
The
Stock
Exchange of Hong Kong Limited takes no responsibility for the contents
of this
circular, makes no representation as to its accuracy or completeness
and
expressly disclaims any liability whatsoever for any loss howsoever
arising from
or in reliance upon the whole or any part of the contents of this
circular.
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 883)
REVISED
CAP FOR A CATEGORY OF
CONTINUING
CONNECTED TRANSACTIONS IN RESPECT OF 2007
AND
RENEWAL
OF CONTINUING CONNECTED TRANSACTIONS
IN
RESPECT OF 2008 TO 2010
Independent
Financial Adviser to the Independent Board Committee
SOMERLEY
LIMITEDA
notice
convening an extraordinary general meeting of CNOOC Limited to be held
on 6
December 2007 at 2 p.m. at Island Shangri-La, Pacific Place, Supreme
Court Road,
Central, Hong Kong is set out on pages 64 to 65 of this circular. Whether
or not
you intend to attend such meeting, please complete and return the enclosed
form
of proxy in accordance with the instructions printed thereon as soon
as possible
and in any event not less than 48 hours before the time appointed for
holding
such meeting or any adjournment thereof. Completion and return of the
form of
proxy will not preclude shareholders of CNOOC Limited from attending
and voting
in person at the meeting or any adjourned meeting if they so wish.
13
November 2007
|
CONTENTS
|
Page
|
Definitions
|
1
|
|
|
Letter
from the Board
|
||
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1.
|
Introduction
|
5
|
|
2.
|
Revised
Cap for a category of continuing connected transactions in
respect of
2007
|
6
|
|
3.
|
Renewal
of Continuing Connected Transactions in respect of 2008 to
2010
|
11
|
|
4.
|
General
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27
|
|
5.
|
EGM
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27
|
|
6.
|
Recommendation
of the Board
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28
|
|
7.
|
Recommendation
of the Independent Board Committee
|
28
|
|
Letter
from the Independent Board Committee
|
30
|
|
|
Letter
from the Independent Financial Adviser
|
31
|
|
|
Appendix — General
Information
|
58
|
|
|
Notice
of Extraordinary General Meeting
|
64
|
|
-
i
-
|
DEFINITIONS
|
In
this Circular, unless the context otherwise requires, the following
expressions
have the following meanings:
|
“2005
Circular”
|
the
circular issued by the Company to its Shareholders in respect
of the
Existing Waiver for certain continuing connected transactions
of the
Company dated 12 December 2005
|
|
“2005
EGM”
|
the
extraordinary general meeting of the Company held on 31 December
2005
|
|
“Announcement”
|
the
announcement dated 8 November 2007 made by the Company in
relation to the
Revised Cap for a category of continuing connected transactions
in respect
of 2007 and renewal of Continuing Connected Transactions
in respect of
2008 to 2010
|
|
“Articles
of Association”
|
the
articles of association of the Company
|
|
“Associate”
|
has
the meaning ascribed thereto under the Listing Rules
|
|
“BlueChemical”
|
China
BlueChemical Ltd.
 , a company incorporated in
the PRC and a subsidiary of CNOOC, the H-shares of which
are listed on the
Stock Exchange |
|
“Board”
|
the
board of Directors of the Company
|
|
“Circular”
|
the
circular issued by the Company to its Shareholders dated
13 November
2007
|
|
“CNOOC”
|
China
National Offshore Oil Corporation
 , the
controlling shareholder of the Company indirectly holding
approximately
65.08% of all of the Shares in issue as at the Latest Practicable
Date |
|
“CNOOC
BVI”
|
CNOOC
(BVI) Limited, a company incorporated in the British Virgin
Islands with
limited liability, a wholly-owned indirect subsidiary of
CNOOC and the
controlling shareholder of the Company
|
|
“CNOOC
Engineering”
|
Offshore
Oil Engineering Co., Ltd.
 ,
a company incorporated in the PRC and a
subsidiary of CNOOC, the shares of which are listed on the
Shanghai Stock
Exchange |
|
“CNOOC
Group”
|
CNOOC
and its subsidiaries (excluding the Group)
|
|
“COBGL”
|
CNOOC
Oil Base Group Limited
 , a company
incorporated in the PRC and a subsidiary of CNOOC |
|
“Company”
|
CNOOC
Limited, a company incorporated in Hong Kong with limited
liability, the
shares of which are listed on the Stock Exchange and the
New York Stock
Exchange
|
|
“Comprehensive
Framework Agreement(s)”
|
the
comprehensive framework agreement(s) dated 8 November 2007
entered into
between the Company and each of CNOOC, COSL, BlueChemical
and CNOOC
Engineering in relation to the Continuing Connected
Transactions
|
|
“Continuing
Connected Transactions”
|
the
continuing connected transactions between the Group and CNOOC
and/or its
Associates as set out in the section headed “Continuing Connected
Transactions under the Comprehensive Framework Agreements” in this
Circular
|
|
“COSL”
|
China
Oilfield Services Limited
 , a company
incorporated in the PRC and a subsidiary of CNOOC, the H-shares
and
A-shares of which are listed on the Stock Exchange and the
Shanghai Stock
Exchange, respectively |
|
“Director(s)”
|
director(s)
of the Company
|
-
1
-
|
DEFINITIONS
|
|
“EGM”
|
the
extraordinary general meeting of the Company proposed to
be convened and
held on 6 December 2007 at 2 p.m. to approve the Revised
Cap for the
Relevant Category and the Non-exempt Continuing Connected
Transactions
(including the relevant Proposed Caps), or any adjournment
thereof
|
|
“EGM
Notice”
|
the
notice dated 13 November 2007 convening the EGM as set out
on pages 64 to
65 of this Circular
|
|
“Existing
Waiver”
|
the
approval by the Independent Shareholders in relation to the
Non-exempt
Continuing Connected Transactions (except the category “FPSO vessel
leases” which were previously exempted from Independent Shareholders’
approval requirement as detailed in the 2005 Circular) between
the Group
and CNOOC and/or its Associates, subject to the conditions
set out in the
2005 Circular
|
|
“Group”
|
the
Company and its subsidiaries from time to time
|
|
“Hong
Kong”
|
the
Hong Kong Special Administrative Region of the PRC
|
|
“HK$”
|
Hong
Kong dollars, the lawful currency of Hong Kong
|
|
“Independent
Board Committee”
|
an
independent committee of the Board comprising of Mr. Edgar
W. K. Cheng,
Mr. Chiu Sung Hong, Mr. Evert Henkes, Mr. Lawrence J. Lau
and Mr. Tse Hau
Yin, Aloysius, the independent non-executive Directors, formed
for the
purpose of advising the Independent Shareholders in relation
to the
Revised Cap for the Relevant Category and the Non-exempt
Continuing
Connected Transactions (including the relevant Proposed Caps),
with Mr.
Chiu Sung Hong acting as the Chairman
|
|
“Independent
Financial Adviser” or “Somerley”
|
Somerley
Limited, a corporation licensed to carry out type 1 (dealings
in
securities), type 4 (advising on securities), type 6 (advising
on
corporate finance) and type 9 (asset management) regulated
activities
under the SFO, is the independent financial adviser to the
Independent
Board Committee and the Independent Shareholders
|
|
“Independent
Shareholders”
|
Shareholders
other than CNOOC and its Associates
|
|
“Latest
Practicable Date”
|
9
November 2007, being the latest practicable date prior to
the printing of
this Circular for ascertaining certain information
herein
|
|
“Listing
Rules”
|
the
Rules Governing the Listing of Securities on the Stock Exchange
(as
amended from time to time)
|
|
“Non-exempt
Continuing Connected Transactions”
|
the
Continuing Connected Transactions other than those under
the categories of
“Provision of marketing, management and ancillary services
” and
“Provision of management, technical, facilities and ancillary
services,
including the supply of materials by the Group to CNOOC and/or
its
Associates”,
as
set out in the section headed “Continuing Connected Transactions under the
Comprehensive Framework Agreements” in this Circular
|
|
“OOGC”
|
Overseas
Oil and Gas Corporation, Ltd., a company incorporated in
Bermuda with
limited liability and a wholly-owned subsidiary of
CNOOC
|
|
“Ordinary
Resolution(s)”
|
the
proposed ordinary resolution(s) as referred to in the EGM
Notice
|
|
“PRC”
or “China”
|
The
People’s Republic of China, excluding for the purpose of this Circular,
Hong Kong, Macau and Taiwan
|
|
“Proposed
Cap(s)”
|
the
proposed maximum annual aggregate value(s) for each of the
Continuing
Connected Transactions of the Company in respect of 2008
to 2010 as set
out in the paragraph headed “Proposed Caps and Rationale” in this
Circular
|
-
2
-
|
DEFINITIONS
|
|
“Relevant
Category”
|
the
“Provision of exploration and support services” category of continuing
connected transactions between the Group and CNOOC and/or
its Associates,
which involves the provision of services by CNOOC and/or
its Associates to
the Group on exploration operations
|
|
“Revised
Cap”
|
the
proposed maximum annual cap for the Relevant Category in
respect of 2007,
as set out in the paragraph headed “Revised Cap and Rationale” in this
Circular
|
|
“RMB”
|
Renminbi,
the lawful currency of the PRC
|
|
“SFO”
|
the
Securities and Futures Ordinance (Chapter 571 of the Laws
of Hong
Kong)
|
|
“Share(s)”
|
share(s)
of HK$0.02 each in the share capital of the Company
|
|
“Shareholder(s)”
|
registered
holder(s) of the Shares
|
|
“Stock
Exchange”
|
The
Stock Exchange of Hong Kong Limited
|
-
3
-
|
LETTER
FROM THE BOARD
|
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 883)
|
Board
of Directors
Executive
Directors
Fu
Chengyu (Chairman)
Zhou
Shouwei
Wu
Guangqi
Yang
Hua
Non-executive
Directors
Luo
Han
Cao
Xinghe
Wu
Zhenfang
Independent
Non-executive Directors
Edgar
W. K. Cheng
Chiu
Sung Hong
Evert
Henkes
Lawrence
J. Lau
Tse
Hau Yin, Aloysius
|
Registered
office
65th
Floor, Bank of China Tower
1
Garden Road
Central
Hong
Kong
|
|
13
November 2007
|
To
the
Shareholders
Dear
Sir
or Madam,
REVISED
CAP FOR A CATEGORY OF
CONTINUING
CONNECTED TRANSACTIONS IN RESPECT OF 2007
AND
RENEWAL
OF CONTINUING CONNECTED TRANSACTIONS
IN
RESPECT OF 2008 TO 2010
1. INTRODUCTION
Reference
is made to the Announcement in relation to the Revised Cap for a category
of
continuing connected transactions in respect of 2007 and the renewal
of
Continuing Connected Transactions in respect of 2008 to 2010. The purpose
of
this Circular is to provide you with information necessary to enable
you to make
an informed decision on whether to vote for or against the ordinary
resolutions
to be proposed at the EGM relating to the approval of the Revised Cap
for the
Relevant Category and the Non-exempt Continuing Connected Transactions
(including the relevant Proposed Caps).
|
2.
|
REVISED
CAP FOR A CATEGORY OF CONTINUING CONNECTED TRANSACTIONS IN
RESPECT OF
2007
|
Background
Reference
is made to the 2005 Circular in relation to Continuing Connected Transactions
between the Group and CNOOC and/or its Associates. These Continuing
Connected
Transactions include the Relevant Category (being the “Provision of exploration
and support services” category) as described below.
-
4
-
|
LETTER
FROM THE BOARD
|
CNOOC
indirectly owns approximately 65.08% of the issued share capital of
the Company.
Accordingly, CNOOC is a connected person of the Company and transactions
between
CNOOC and/or its Associates and the Group constitute connected transactions
of
the Company for the purposes of the Listing Rules. The Independent
Shareholders
approved the non-exempt continuing connected transactions (which included
the
Relevant Category) with CNOOC and/or its Associates and the relevant
annual caps
at the 2005 EGM.
The
value
of continuing connected transactions under the Relevant Category is
subject to
annual caps as approved at the 2005 EGM. Independent Shareholders´ approval will
be required if any of the annual caps needs to be revised pursuant
to Chapter
14A of the Listing Rules.
The
Directors have been monitoring the value of the Company’s Continuing Connected
Transactions. With the estimated increase (particularly in the second
half of
2007) in the level of exploration activities by the Group within the
PRC, the
rise of exploration costs and the expansion of overseas exploration,
and taking
into account the fact that, based on historical trends, the amount
of
transactions for the second half of each year often accounts for more
than
two-thirds of the value for the full year, the Directors consider that
the
existing annual cap in respect of 2007 for one of the categories of
Continuing
Connected Transactions, namely the Relevant Category, may possibly
be
insufficient for the Group’s requirements for the whole year. In particular, the
Directors note that the Group leased a large number of additional drilling
vessels (being the major equipment required for drilling services)
for provision
of drilling services in the second half of 2007 as they became available,
and
took on the opportunity to increase its exploration efforts in offshore
China,
and it is expected that most of the services will be completed in the
last
quarter of 2007 and invoiced in December 2007. The Directors therefore
propose
that the existing annual cap for the Relevant Category in respect of
2007 be
revised in order to cater for the Group´s demand for the year ending 31 December
2007.
The
Company entered into a comprehensive framework agreement on 8 December
2005 with
each of CNOOC, COSL and CNOOC Engineering 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, details of which
are set out
in the 2005 Circular.
The
term
of each of the comprehensive framework agreements was for a period
of two years
from 1 January 2006. The comprehensive framework agreements and respective
annual caps for each category of continuing connected transactions
were approved
by the Independent Shareholders at the 2005 EGM. The Continuing Connected
Transactions under the comprehensive framework agreements included
the Relevant
Category.
The
Relevant Category — Provision of exploration and support services by CNOOC
and/or its Associates to the Group
As
disclosed in the 2005 Circular,
since the establishment of CNOOC, certain Associates of CNOOC specialising
in
exploration, oil and gas development, oil and gas production, as well
as
marketing, management and ancillary services provided these services
to the
Group through bidding process (which generally involves inviting potential
suppliers to provide their qualifications in the relevant field of
services,
selecting suitable suppliers based on a review of their qualifications
and
inviting them for bidding, evaluating the bidding documents and quotations,
and
awarding the contract to the bidder who offered the best commercial
terms and
technical terms to the Company). Depending on the total value of the
bid, an
independent committee comprising outside specialists may also be involved.
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 well;
• tow-boat,
transportation and safety services; and
• other
related technical and supporting services.
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For
the two years ended 31 December
2006, the six months ended 30 June 2007 and the nine months ended 30
September
2007, the charges for provision of the above services and payable to
CNOOC
and/or its Associates were approximately RMB1,290 million, RMB1,940
million,
RMB848 million and RMB1,491 million, respectively.
Pricing
of services provided by CNOOC and/or its Associates to the Group under
the
Relevant Category
The
Relevant Category of continuing
connected transactions referred to 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 arm’s length negotiations with
CNOOC and/or its Associates on normal commercial terms, or on terms
no less
favourable 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.
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 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 services (including
the cost of
sourcing or purchasing from third parties) plus a margin
of not more than
10%, before any applicable
taxes.
|
The
Company expects that the pricing
principles relating to any future contract with CNOOC and/or its Associates
will
be on a similar basis.
It
is envisaged that from time to time
and as required, individual agreements will be entered into between
CNOOC and/or
its Associates and the relevant members of the Group. Each agreement
will set
out the specific services requested by the relevant party and any detailed
technical and other specifications which may be relevant to those services.
The
agreements will be consistent in all material respects with the guidelines
and
terms and conditions as set out above.
Revised
Cap and rationale
The
Board has proposed that the
following Revised Cap in respect of the Relevant Category be set as
the maximum
annual value of such transactions for the year ending 31 December
2007:
|
Continuing
connected transactions
|
Historical
amount
|
Existing
2007
annual
cap
|
Revised
Cap
in
respect of 2007
|
Basis
of determination
of
the Revised Cap
|
|
Provision
of exploration and support services by CNOOC and/or its Associates
to the
Group
|
For
the two years ended 31 December 2006, the six months ended
30 June 2007
and the nine months ended 30 September 2007, approximately
RMB1,290
million, RMB1,940 million, RMB848 million and RMB1,491 million,
respectively
|
For
the year ending 31 December 2007, RMB2,293 million
|
For
the year ending 31 December 2007, RMB3,500 million
|
The
Revised Cap has been determined with reference to previous
transactions
conducted and transaction amounts in respect of the exploration
and
support services provided by CNOOC and/or its Associates
to the Group; the
estimated increase in the level of exploration activities
by the Group
within the PRC, the rise of exploration costs and the expansion
of
overseas exploration. In particular, the Directors note that
the Group
leased a large number of additional drilling vessels (being
the major
equipment required for drilling services) for provision of
|
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|
|
|
|
|
drilling
services in the second half of 2007 as they became available,
and took on
the opportunity to increase its exploration efforts in
offshore China, and
it is expected that most of the services will be expected
to be completed
in the last quarter of 2007 and invoiced in December
2007. Based on
historical trends, the amount of transactions for the
second half of each
year often accounts for more than two-thirds of the value
for the full
year. In light of this factor and the basis as set out
above, the
Directors consider that such existing annual cap may
possibly be
insufficient for the Group´s requirements for the whole year. The
Directors are of the view that the proposed Revised Cap
provides
sufficient increment for the Group to capture the Group’s needs for the
year ending 31 December 2007.
|
Reasons
for and benefits of the continuing connected transactions under the
Relevant
Category
Prior
to the restructuring of CNOOC and
establishment of the Company, CNOOC and/or its Associates and the Group
operated
as an integrated organisation which undertook numerous intra-group
transactions
each year. As a consequence of the restructuring and upon the listing
of the
Shares on the Stock Exchange, a number of transactions which have been
entered
into and which are to be entered into between the Group and CNOOC and/or
its
Associates will constitute continuing connected transactions for the
Company
under the Listing Rules.
The
continuing connected transactions
under the Relevant Category are and will be conducted in the ordinary
and usual
course of business of the Company. This category of transactions will
continue
to be agreed on an arm’s length basis with terms that are fair and reasonable to
the Company. Due to the long-term relationship between the Group and
CNOOC
Group, the Board considers that: (a) it is beneficial to the Company
to continue
to enter into the Relevant Category of continuing connected transactions
as
these transactions have facilitated and will continue to facilitate
the
operation and growth of the Group’s business; (b) the continuing connected
transactions under the Relevant Category have been conducted on normal
commercial terms or on terms no less favourable than those available
to the
Group from independent third parties, under prevailing local market
conditions,
and were entered into in the ordinary and usual course of business
of the Group,
are fair and reasonable and in the interests of the Company and the
Shareholders
as a whole, and that the Revised Cap for the Relevant Category is fair
and
reasonable.
In
particular, it should be noted that
the independent non-executive Directors constituting the Independent
Board
Committee have given their view in support of the Revised Cap after
considering
the advice from the Independent Financial Adviser. Please refer to
the Letter
from the Independent Board Committee on page 30 of this Circular and
the Letter
from the Independent Financial Adviser from pages 31 to 57 of this
Circular for
further details.
Disclosure
and Independent Shareholders’ approval requirements
Under
the Listing Rules, the continuing
connected transactions under the Relevant Category are subject to reporting,
announcement and Independent Shareholders’ approval requirements. The Company
will seek Independent Shareholders’ approval at the EGM for the Revised Cap on
the condition that:
|
1.
|
the
annual amount of the continuing connected transactions under
the Relevant
Category for the year ending 31 December 2007 shall not exceed
the Revised
Cap;
|
|
2.
|
(i)
|
the
above continuing connected transactions will be entered into
in the
ordinary and usual course of business of the Group and either
(A) on
normal commercial terms or (B) if there is no available comparison,
on
terms no less favourable than terms available to the Group
from
independent third parties; and
|
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|
(ii)
|
the
above continuing connected transactions will be entered
into in accordance
with the relevant agreements and on terms that are fair
and reasonable and
in the interests of the Company and the Shareholders
as a
whole.
|
The
Company will comply with relevant
provisions of the Listing Rules in relation to the continuing connected
transactions under the Relevant Category.
3. RENEWAL
OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2008 TO
2010
Background
Reference
is made to the 2005 Circular
in relation to Continuing Connected Transactions between the Group
and CNOOC
and/or its Associates. As mentioned above, the Independent Shareholders
had
approved the Non-exempt Continuing Connected Transactions (except the
category
“FPSO vessel leases” which were previously exempted from Independent
Shareholders’ approval requirement as detailed in the 2005 Circular) between the
Group and CNOOC and/or its Associates and the relevant annual caps
for the two
years ending 31 December 2007 at the 2005 EGM. The Independent Shareholders
had
also approved the revised caps for the two years ending 31 December
2007 for one
of the categories of continuing connected transactions “Sales of petroleum and
natural gas products (other than long term sales of natural gas and
liquefied
natural gas)” at the extraordinary general meeting held on 29 September
2006.
The
Company expects to continue the
Continuing Connected Transactions after 31 December 2007 and therefore
will, in
accordance with the Listing Rules, re-comply with the provisions of
Chapter 14A
of the Listing Rules in relation to the Continuing Connected Transactions
for
the next three years (i.e. from 1 January 2008 to 31 December 2010),
including
disclosing further information thereof in this Circular and seeking
Independent
Shareholders’ approval for the Non-exempt Continuing Connected Transactions
(including the relevant Proposed Caps).
Continuing
Connected Transactions under the Comprehensive Framework
Agreements
The
Company entered into a
Comprehensive Framework Agreement on 8 November 2007 with each of CNOOC,
COSL,
BlueChemical and CNOOC Engineering 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 Continuing
Connected Transactions, the details of which are set out below. The
term of each
of the Comprehensive Framework Agreements is for a period of three
years from 1
January 2008, and is conditional upon Independent Shareholders’ approval. The
Comprehensive Framework Agreements are substantially on the same terms
as the
comprehensive framework agreements entered into by the Company with
each of
CNOOC, COSL and CNOOC Engineering on 8 December 2005, as described
in the 2005
Circular.
The
Continuing Connected Transactions
under the Comprehensive Framework Agreements can be categorised 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
|
(a) Provision
of exploration and support services;
(b) Provision
of oil and gas development and support services;
(c) Provision
of oil and gas production and support services;
(d) Provision
of marketing, management and ancillary services; and
(e) FPSO
vessel leases.
|
|
•
|
Provision
of management, technical, facilities and ancillary services,
including the
supply of materials by the Group to CNOOC and/or its
Associates
|
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|
|
•
|
Sales
of petroleum and natural gas products by the Group
to CNOOC and/or its
Associates
|
|
|
(a)
|
Sales
of petroleum and natural gas products (other than long term
sales of
natural gas and liquefied natural gas);
and
|
|
|
(b)
|
Long
term sales of natural gas and liquefied natural
gas.
|
|
|
Note:
|
The
categories “Provision of exploration and support services”, “Provision of
oil and gas development and support services”, “Provision of oil and gas
production and support services”, “FPSO vessel leases”, “Sales of
petroleum and natural gas products (other than long term
sales of natural
gas and liquefied natural gas)” and “Long term sales of natural gas and
liquefied natural gas” are Non-exempt Continuing Connected Transactions
subject to the reporting, announcement and Independent Shareholders’
approval requirements. The other categories of Continuing
Connected
Transactions are exempted from the Independent Shareholders’ approval
requirement but are subject to the reporting and announcement
requirements.
|
Since
the establishment of CNOOC,
certain Associates of CNOOC specialising in exploration, oil and gas
development, oil and gas production, as well as marketing, management
and
ancillary services provided these services to the Group through bidding
process
(which generally involves inviting potential suppliers to provide their
qualifications in the relevant field of services, selecting suitable
suppliers
based on a review of their qualifications and inviting them for bidding,
evaluating the bidding documents and quotations, and awarding the contract
to
the bidder who offered the best commercial terms and technical terms
to the
Company). Depending on the total value of the bid, an independent committee
comprising outside specialists may also be involved. The Group will
continue to
use these services provided by Associates of CNOOC, including but not
limited to
COSL, BlueChemical, CNOOC Engineering and 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
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 well;
• tow-boat,
transportation and safety services; and
• other
related technical and supporting services.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, the charges for the
provision
of such exploration and support services and payable to CNOOC and/or
its
Associates were approximately RMB1,290 million, RMB1,940 million and
RMB1,491
million, respectively.
(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;
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9
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LETTER
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• 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.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, the charges for the
provision
of such oil and gas development services payable to CNOOC and/or its
Associates
were approximately RMB6,132 million, RMB7,230 million and RMB5,265
million,
respectively.
(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 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;
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10
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LETTER
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• 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.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, the charges for the
provision
of such oil and gas production services payable to CNOOC and/or its
Associates
were approximately RMB1,972 million, RMB2,463 million and RMB1,630
million,
respectively.
(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, which include:
• marketing
services;
• management;
• staff
recruitment;
• publishing;
• telecommunications;
• leases
of properties;
• property
management;
• water,
electricity and heat supply;
• sewage
disposal;
• car
rental;
• integrated
services such as record keeping, filing, repair of computer, catering
and
photocopying; and
• integrated
research.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, the charges for the
provision
of other marketing, management and ancillary services excluding leases
of
properties and property management payable to CNOOC and/or its Associates
were
approximately RMB239 million, RMB238 million and RMB121 million,
respectively.
In
addition, as part of providing
administration and management services to the Group, CNOOC and/or its
Associates
leased certain premises covering an aggregate area of approximately
70,000
square meters, including its headquarters, located throughout the PRC
and in
Singapore, to the Group for use as office premises and staff quarters.
In
addition to leasing these properties, CNOOC and/or its Associates also
provided
management services in respect of
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11
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LETTER
FROM THE BOARD
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certain
properties leased to the Group. CNOOC and/or its Associates which own
one or
more of the leased buildings have entered into individual lease and/or
management agreements with the Company. Each agreement is in writing
and for a
term of less than three years.
As
its business continues to expand,
the Group may, subject to the relevant Proposed Caps, also enter into
additional
lease and management agreements with CNOOC and/or its Associates from
time to
time.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, the aggregate rentals
and
management fees payable by the Group were approximately RMB99 million,
RMB187
million and RMB151 million, respectively. Sallmanns (Far East) Limited,
an
independent property valuer, has confirmed that the payments due under
each of
the lease agreements and the management agreements reflect the fair
and
reasonable commercial market rent and management fee, respectively.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, the aggregate charges
for the
provision of marketing, management and ancillary services (including
leasing and
management of properties) payable to CNOOC and/or its Associates were
approximately RMB338 million, RMB425 million and RMB272 million,
respectively.
Pricing
of transactions relating to services provided by CNOOC and/or its Associates
to
the Group under 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 arm’s length negotiations with
CNOOC and/or its Associates on normal commercial terms, or on terms
no less
favourable 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.
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 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 services (including
the cost of
sourcing or purchasing from third parties) plus a margin
of not more than
10%, before any applicable
taxes.
|
The
Company expects that the pricing principles relating to any future
contracts
with CNOOC and/or its Associates will be on a similar
basis.
It
is envisaged that from time to time
and as required, individual agreements will be entered into between
CNOOC and/or
its Associates and relevant members of the Group. Each agreement will
set out
the specific services requested by the relevant party and any detailed
technical
and other specifications which may be relevant to those services. The
agreements
may only contain provisions which are in all material respects consistent
with
the guidelines and terms and conditions as set out above.
(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 and 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 Company currently leases two FPSO vessels from COBGL,
an
Associate of CNOOC, for a term of 10 years and 20 years (where the
lease was for
an initial term of 10 years with a right of renewal, at the sole option
of the
Company, for another 10 years) respectively. The Directors expects
that the
Group may enter into other FPSO vessel leases with CNOOC and/or its
Associates
from time to time as
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12
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LETTER
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the
operations of the Group expand. The Comprehensive Framework Agreements
provide
that if the Company fails to obtain approval of the annual caps for
this
category of continuing connected transactions after 31 December 2010,
then the
agreements falling under this category will terminate on that date.
The views of
the Independent Financial Adviser in accordance with the requirements
of Rule
14A.35(1) of the Listing Rules have been included in the Letter from
the
Independent Financial Adviser on pages 31 to 57 of this Circular. For
the two
years ended 31 December 2006 and the nine months ended 30 September
2007, the
aggregate rentals payable by the Group to CNOOC and/or its Associates
were
approximately RMB148 million, RMB437 million and RMB297 million,
respectively.
Provision
of management, technical, facilities and ancillary services, including
the
supply of materials by 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 paragraph (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 such
transactions for the two years ended 31 December 2006 and the nine
months ended
30 September 2007. However, the development of CNOOC towards a world-class
integrated energy company requires it to continue to optimize its industrial
chain. To facilitate such development, it is anticipated that CNOOC
may require
the provision of technical consulting, technical transfer, management
services,
technical research services and other related services from the Group,
and the
Group may provide certain of these services to CNOOC and/or its Associates
in
the near future.
Sales
of petroleum and natural gas products by the Group to CNOOC and/or
its
Associates
|
(a)
|
Sales
of petroleum and natural gas products (other than long term
sales of
natural gas and liquefied natural
gas)
|
The
Group 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 individual sales contracts will be entered into from
time to time
between the Group and CNOOC and/or its Associates in relation to such
sales.
Although most of the natural gas and liquefied natural gas will be
sold under
the long term sales contracts as described below, the Group also sells
certain
volumes of natural gas and liquefied natural gas to CNOOC and/or its
Associates
on a short-term basis for the purpose of peak adjustment and to reap
higher
profits.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, sales of petroleum
and natural
gas products to CNOOC and/or its Associates were approximately RMB25,988
million, RMB34,246 million and RMB28,087 million, respectively.
(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 downstream petroleum businesses
(such as
the fertilizer and methanol business operated by BlueChemical) 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 pipeline. Due to
the size of
investment and the fact that sales are usually made to markets proximate
to the
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|
production
site, and that purchasers tend to utilize the natural gas products
in areas
close to the production site, and in order to ensure the return on
investment
from 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 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. In order to ensure
the
return on investment and to achieve the requirements of the lenders,
it is
anticipated that the terms of sales contracts in relation to the liquefied
natural gas will be around 25 years. The Group may sell liquefied 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 taking into account the term of the sales
contract.
It
is envisaged that individual sales
contracts will be entered into from time to time between the Group
and CNOOC
and/or its Associates in relation to such sales. The relevant Comprehensive
Framework Agreements provide that if the Company fails to obtain approval
of the
annual caps for this category of continuing connected transactions
after 31
December 2010, then the individual agreements falling under this category
will
terminate on that date. The views of the Independent Financial Adviser
in
accordance with the requirements of Rule 14A.35(1) of the Listing Rules
have
been included in the Letter from the Independent Financial Adviser
on pages 31
to 57 of this Circular.
For
the two years ended 31 December
2006 and the nine months ended 30 September 2007, long term sales of
natural gas
and liquefied natural gas to CNOOC and/or its Associates were approximately
RMB588 million, RMB1,248 million and RMB1,246 million,
respectively.
Reasons
for and benefits of the Continuing Connected Transactions
Prior
to the restructuring of CNOOC and
establishment of the Company, CNOOC and/or its Associates and the Group
operated
as an integrated organisation which undertook numerous intra-group
transactions
each year. As a consequence of the restructuring and upon the listing
of the
Company’s shares on the Stock Exchange, a number of transactions which have
been
entered into and which are to be entered into between the Group and
CNOOC and/or
its Associates will constitute continuing connected transactions for
the Company
under the Listing Rules.
The
Continuing Connected Transactions
are and will be conducted in the ordinary and usual course of business
of the
Company. These transactions will continue to be agreed on an arm’s length basis
with terms that are fair and reasonable to the Company. Due to the
long-term
relationship between the Group and CNOOC Group, the Board considers
that: (a) it
is beneficial to the Company to continue to enter into the Continuing
Connected
Transactions as these transactions have facilitated and will continue
to
facilitate the operation and growth of the Company’s business; (b) all the above
Continuing Connected Transactions have been conducted on normal commercial
terms, or on terms no less favourable than those available to the Group
from
independent third parties, under prevailing local market conditions,
and were
entered into in the ordinary and usual course of business of the Group,
are fair
and reasonable and in the interests of the Company and the Shareholders
as a
whole, and that the relevant Proposed Caps for each of the above Continuing
Connected Transactions are fair and reasonable.
In
particular, it should be noted that
the independent non-executive Directors constituting the Independent
Board
Committee have given their view in support of the Non-exempt Continuing
Connected Transactions (including the relevant Proposed Caps) after
considering
the advice from the Independent Financial Adviser. Please refer to
the Letter
from the Independent Board Committee on page 30 of this Circular and
the Letter
from the Independent Financial Adviser from pages 31 to 57 of this
Circular for
further details.
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14
-
|
LETTER
FROM THE BOARD
|
Proposed
Caps and rationale
The
Board has considered and proposed
that the following Proposed Caps in respect of the Continuing Connected
Transactions which will serve as the maximum annual value of the relevant
transactions above for the period from 1 January 2008 to 31 December
2010:
|
Continuing
connected transactions
|
Historical
amount
|
Existing
2007 annual cap
|
2008
to 2010
Proposed
Caps
|
Basis
of determination of the Proposed Caps
|
|
Provision
of exploration, oil and gas development, oil and gas production
as well as
marketing, management and ancillary services by CNOOC and/or
its
Associates to the Group
|
||||
|
(a)
Provision of exploration and support services
|
For
the two years ended 31 December 2006 and the nine months
ended 30
September 2007, approximately RMB1,290 million, RMB1,940
million and
RMB1,491 million, respectively
|
For
the year ending 31 December 2007, RMB2,293 million (proposed
to be revised
to RMB3,500 million)
|
For
the three years ending 31 December 2010, RMB6,296 million,
RMB7,555
million and RMB9,066 million, respectively
|
The
annual proposed caps for the provision of exploration and
support services
have been determined with reference to previous transactions
conducted and
transaction amounts in respect of the exploration and support
services
provided by CNOOC and/or its Associates to the Group; the
estimated
increase in the level of exploration activities by the Group
within the
PRC, the rise of exploration costs and the expansion of overseas
exploration. The Directors are of the view that the proposed
caps provide
sufficient increment for the Group to capture the Group’s future
anticipated expansion plan.
|
|
(b) Provision
of oil and gas development and support services
|
For
the two years ended 31 December 2006 and the nine months
ended 30
September 2007, approximately RMB6,132 million, RMB7,230
million and
RMB5,265 million, respectively
|
For
the year ending 31 December 2007, RMB10,458 million
|
For
the three years ending 31 December 2010, RMB18,608 million,
RMB22,879
million and RMB26,759 million, respectively
|
The
annual proposed caps for the provision of oil and gas development
and
support services have been determined with reference to previous
transactions conducted and transaction amounts in respect
of the oil and
gas development and support services provided by CNOOC and/or
its
Associates to the Group; and the estimated expansion of existing
oil and
gas fields and the development of several newly discovered
oil and gas
fields in offshore China. The Directors are of the view that
the proposed
caps provide sufficient increment for the Group to capture
the Group’s
future anticipated expansion plan.
|
-
15
-
|
LETTER
FROM THE BOARD
|
|
(c)
Provision of oil and gas production and support services
|
For
the two years ended 31 December 2006 and the nine months
ended 30
September 2007, approximately RMB1,972 million, RMB2,463
million and
RMB1,630 million, respectively
|
For
the year ending 31 December 2007, RMB4,132 million
|
For
the three years ending 31 December 2010, RMB5,124 million,
RMB6,147
million and RMB7,253 million, respectively
|
The
annual proposed caps for the provision of oil and gas production
and
support services have been determined with reference to previous
transactions conducted and transaction amounts in respect
of the oil and
gas production and support services provided by CNOOC and/or
its
Associates to the Group; and the estimated growth of the
Group’s business,
including the estimated expansion of existing oil and gas
fields and
production of several newly discovered oil and gas fields
in offshore
China. The Directors are of the view that the proposed caps
provide
sufficient increment for the Group to capture the Group’s future
anticipated expansion plan.
|
|
(d)
Provision of marketing, management and ancillary services
|
For
the two years ended 31 December 2006 and the nine months
ended 30
September 2007, approximately RMB338 million, RMB425 million
and RMB272
million, respectively
|
For
the year ending 31 December 2007, RMB504 million
|
For
the three years ending 31 December 2010, RMB789 million,
RMB854 million
and RMB967 million, respectively
|
The
annual proposed caps for the provision of marketing, management
and
ancillary services have been determined with reference to
previous
transactions conducted and transaction amounts in respect
of the
marketing, management and ancillary services provided by
CNOOC and/or its
Associates to the Group; the continued expansion of the Group’s business
and sales of oil and gas; and the potential increase in staffing.
The
Directors are of the view that the proposed caps provide
sufficient
increment for the Group to capture the Group’s future anticipated
expansion plan.
|
|
(e)
FPSO vessel leases
|
For
the year ended 31 December 2006 and the nine months ended
30 September
2007, approximately RMB148 million, RMB437 million and RMB297
million,
respectively
|
For
the year ending 31 December 2007, RMB463 million
|
For
the three years ending 31 December 2010, RMB1,908 million,
RMB3,182
million and RMB3,250 million, respectively
|
The
annual proposed caps for the FPSO vessel leases have been
determined with
reference to previous transactions conducted and transaction
amounts in
respect of the FPSO vessel leases provided by CNOOC and/or
its Associates
to the Group and the estimated increase in the number of
oilfields
|
-
16
-
|
LETTER
FROM THE BOARD
|
|
requiring
FPSO vessels. The Directors are of the view that the proposed
caps provide
sufficient increment for the Group to capture the Group’s future
anticipated expansion plan.
|
||||
|
Provision
of management, technical, facilities and ancillary services,
including the
supply of materials by the Group to CNOOC and/or its
Associates
|
||||
|
Provision
of management, technical, facilities and ancillary services,
including the
supply of materials
|
There
have been no such transactions for the two years ended 31
December 2006
and the nine months ended 30 September 2007
|
For
the year ending 31 December 2007, RMB100 million
|
For
the three years ending 31 December 2010, RMB100 million,
RMB100 million
and RMB100 million, respectively
|
The
annual proposed caps for the provision of management, technical,
facilities and ancillary services, including the supply of
materials by
the Group to CNOOC and/or its Associates have been determined
with
reference to the anticipated need by CNOOC and/or its Associates
for the
provision of such services as a result of CNOOC’s need to optimize its
industrial chain to facilitate its development towards a
world-class
integrated energy company. The Directors are of the view
that the proposed
caps provide sufficient flexibility for the Group’s future anticipated
business activities.
|
|
Sales
of petroleum and natural gas products by the Group to CNOOC
and/or its
Associates
|
||||
|
(a)
Sales of petroleum and natural gas products (other than long
term sales of
natural gas and liquefied natural gas)
|
For
the two years ended 31 December 2006 and the nine months
ended 30
September 2007, approximately RMB25,988 million, RMB34,246
million and
RMB28,087 million, respectively
|
For
the year ending 31 December 2007, RMB63,251 million (as revised
in
September 2006)
|
For
the three years ending 31 December 2010, RMB94,440 million,
RMB156,692
million and RMB181,782 million, respectively
|
The
annual proposed caps for the sales of petroleum and natural
gas products
by the Group to CNOOC and/or its Associates have been determined
with
reference to historical transactions and transaction amounts
in respect of
the sales of petroleum and natural gas products by the Group
to CNOOC
and/or its Associates; the ongoing production of existing
oil and gas
fields and the estimated production of several new oil and
gas fields in
offshore China; the anticipated demand by CNOOC and/or its
Associates for
its downstream operations (in particular, CNOOC Group expects
to have a
number of new downstream facilities
|
-
17
-
|
LETTER
FROM THE BOARD
|
|
commencing
production between 2008 and 2010); the estimated resultant
increase in the
Group´s production and sales; and the potential fluctuation and
increase
in the prices of crude oil (for example, the average price
of offshore
crude oil has increased by over 70% overall since 2004).
The increase in
such cap amounts also took into account the fact that crude
oil from new
oilfields, which is expected to be made up of a higher proportion
of heavy
crude oil, needs to undergo refining processes which are
carried out
primarily by CNOOC and/or its Associates. The Directors are
of the view
that the proposed caps provide sufficient increment for the
Group to
capture the Group’s future anticipated expansion
plan.
|
||||
|
(b) Long
term sales of natural gas and liquefied natural gas
|
For
the year ended 31 December 2006 and the nine months ended
30 September
2007, approximately RMB588 million, RMB1,248 million and
RMB1,246 million,
respectively
|
For
the year ending 31 December 2007, RMB3,599 million
|
For
the three years ending 31 December 2010, RMB4,844 million,
RMB7,118
million and RMB8,763 million, respectively
|
The
annual proposed caps for long term sales of natural gas and
liquefied
natural gas by the Group to CNOOC and/or its Associates have
been
determined with reference to historical transactions and
transaction
amounts in respect of the long term sales of natural gas
and liquefied
natural gas by the Group to CNOOC and/or its Associates;
the ongoing
production of existing gas fields; the anticipated demand
by CNOOC and/or
its Associates for its downstream operations; the estimated
resultant
increase in sales; and the potential fluctuation and increase
in the
prices of natural gas. The Directors are of the view that
the proposed
caps provide sufficient increment for the Group to capture
the Group’s
future anticipated expansion plan.
|
Disclosure
and/or Independent Shareholders’ approval requirements
Under
the Listing Rules, the following
categories of Continuing Connected Transactions are exempted from the
Independent Shareholders’ approval requirement but are subject to the reporting
and announcement requirements set
-
18
-
|
LETTER
FROM THE BOARD
|
out
in
Rules 14A.45 to 14A.47 of the Listing Rules, as each of the percentage
ratios
under Rule 14.07 of the Listing Rules (other than the profits ratio),
where
applicable, in relation of each of these categories is, on an annual
basis,
expected to be less than 2.5% under Rule 14A.34(1) of the Listing
Rules:
|
|
•
|
Provision
of marketing, management and ancillary services from CNOOC
and/or its
Associates to the Group; and
|
|
|
•
|
Provision
of management, technical, facilities and ancillary services,
including the
supply of materials by the Group to CNOOC and/or its
Associates.
|
Under
the Listing Rules, the Non-exempt
Continuing Connected Transactions are subject to the reporting, announcement
and
Independent Shareholders’ approval requirements. The Company will seek the
Independent Shareholders’ approval at the Extraordinary General Meeting for the
Non-exempt Continuing Connected Transactions and the relevant Proposed
Caps on
the condition that:
|
1.
|
the
annual amount of each category of the Non-exempt Continuing
Connected
Transactions shall not exceed the relevant Proposed Cap;
|
||
|
2.
|
(i)
|
the
Non-exempt Continuing Connected Transactions will be entered
into in the
ordinary and usual course of business of the Group and
either (A) on
normal commercial terms or (B) if there is no available
comparison, on
terms no less favourable than terms available to the Group
from
independent third parties; and
|
|
|
(ii)
|
the
Non-exempt Continuing Connected Transactions will be entered
into in
accordance with the relevant Comprehensive Framework Agreements
and on
terms that are fair and reasonable and in the interests
of the Company and
the Shareholders as a whole.
|
||
The
Company will comply with relevant
provisions of the Listing Rules in relation to each category of the
Non-exempt
Continuing Connected Transactions.
4. GENERAL
The
principal business activity of the
Company is investment holding. The Group principally engages in the
exploration,
development, production and sales of crude oil, natural gas and other
petroleum
products.
CNOOC
Group principally engages in the
provision of technical services, logistic services, chemicals and fertilizer
production, natural gas and power generation, and financial
services.
5. EGM
Approval
from the Independent
Shareholders will be sought at the EGM for the Revised Cap for the
Relevant
Category and renewal of the Non-exempt Continuing Connected Transactions
(including the relevant Proposed Caps). A notice convening the EGM
is set out on
pages 64 to 65 of this Circular. Voting will be conducted by poll at
the EGM as
required under the Listing Rules.
As
CNOOC indirectly owns an aggregate
of approximately 65.08% of the issued share capital of the Company,
the Revised
Cap for the Relevant Category and the Non-exempt Continuing Connected
Transactions (including the relevant Proposed Caps) are subject to
approval by
the Independent Shareholders under the Listing Rules. In view of the
interests
of CNOOC held indirectly through OOGC and CNOOC BVI, OOGC, CNOOC BVI
and their
respective Associates will abstain from voting in relation to the resolutions
approving the Revised Cap for the Relevant Category and the Non-exempt
Continuing Connected Transactions (including the relevant Proposed
Caps).
There
is (i) no voting trust or other
agreement or arrangement or understanding entered into by or binding
upon CNOOC;
and (ii) no obligation or entitlement of CNOOC as at the Latest Practicable
Date, whereby it has or may have temporarily or permanently passed
control over
the exercise of the voting right in respect of its Shares to a third
party,
either generally or on a case-by-case basis.
A
form of proxy for use at the EGM is
enclosed. Shareholders are requested to complete the form of proxy
and return it
to the registered office of the Company at 65th Floor, Bank of China
Tower, 1
Garden Road, Hong Kong in accordance with the instructions printed
on it not
less than 48 hours before the time fixed for holding the EGM, if they
do not
intend to be present in person at the EGM.
-
19
-
|
LETTER
FROM THE BOARD
|
6. RECOMMENDATION
OF THE BOARD
The
Directors are of the opinion that
the terms of the Revised Cap for the Relevant Category and the Non-exempt
Continuing Connected Transactions (including the relevant Proposed
Caps) are
fair and reasonable and in the interests of the Company and its Shareholders
as
a whole. Accordingly, the Directors recommend that the Independent
Shareholders
should vote in favour of the ordinary resolutions to be
proposed at the EGM.
7. RECOMMENDATION
OF THE INDEPENDENT BOARD COMMITTEE
An
Independent Board Committee has been
formed to advise the Independent Shareholders in connection with the
terms of
the Revised Cap for the Relevant Category and the Non-exempt Continuing
Connected Transactions (including the relevant Proposed Caps), and
Somerley has
been appointed as the Independent Financial Adviser to advise the Independent
Board Committee and the Independent Shareholders.
Somerley
considers the Revised Cap, the
Proposed Caps and the terms of the Comprehensive Framework Agreements
with CNOOC
and/or its Associates in relation to the Non-exempt Continuing Connected
Transactions are fair and reasonable so far as the Independent Shareholders
are
concerned and that the entering into of the Non-exempt Continuing Connected
Transactions is in the interests of the Company and the Shareholders
as a whole.
The text of the letter of advice from Somerley containing its recommendation
in
respect of the Revised Cap for the Relevant Category and the Non-exempt
Continuing Connected Transactions (including the relevant Proposed
Caps) is set
out on pages 31 to 57 of this Circular.
The
Independent Board Committee, having
taken into account the advice of Somerley, considers the Revised Cap
for the
Relevant Category and the Non-exempt Continuing Connected Transactions
(including the relevant Proposed Caps) fair and reasonable so far as
the
Independent Shareholders are concerned and are in the interests of
the Company
and the Shareholders as a whole. Accordingly, the Independent Board
Committee
recommends that the Independent Shareholders should vote in favour
of the ordinary resolutions to be proposed at the
EGM to approve the
Revised Cap for the Relevant Category and the Non-exempt Continuing
Connected
Transactions (including the relevant Proposed Caps). The full text
of the letter
from the Independent Board Committee is set out on page 30 of this
Circular.
|
Yours
faithfully,
For
and on behalf of the Board
CNOOC
Limited
Fu
Chengyu
Chairman
|
-
20
-
|
LETTER
FROM THE INDEPENDENT BOARD
COMMITTEE
|
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 883)
13
November 2007
To
the
Independent Shareholders
Dear
Sir
or Madam,
We
have been appointed as the
Independent Board Committee to advise you in connection with the Revised
Cap for
the Relevant Category and the Non-exempt Continuing Connected Transactions
(including the relevant Proposed Caps), details of which are set out
in the
letter from the Board contained in the circular of the Company to the
Shareholders dated 13 November 2007 (the “Circular”), of which
this letter forms part. We wish to draw your attention to the letter
from
Somerley Limited as set out on pages 31 to 57 of the Circular. Terms
defined in
the Circular shall have the same meanings when used herein, unless
the context
otherwise requires.
Having
considered the information set
out in the letter from the Board, the Revised Cap for the Relevant
Category, the
terms of the Non-exempt Continuing Connected Transactions (including
the
relevant Proposed Caps) and the advice of Somerley in relation thereto
as set
out on pages 31 to 57 of the Circular, we are of the view that the
terms of the
Revised Cap for the Relevant Category and the Non-exempt Continuing
Connected
Transactions (including the relevant Proposed Caps) are in the interests
of the
Company and its Shareholders as a whole and are fair and reasonable
so far as
the Independent Shareholders are concerned.
Accordingly,
we recommend the
Independent Shareholders to vote in favour of the ordinary
resolutions to be proposed at the EGM to approve the Revised Cap for
the
Relevant Category and the Non-exempt Continuing Connected Transactions
(including the relevant Proposed Caps).
|
Yours
faithfully,
For
and on behalf of the Independent Board Committee
CNOOC
Limited
Chiu
Sung Hong
Chairman
of the Independent Board Committee
Independent
Non-executive Director
|
-
21
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
The
following is the letter of
advice from the Independent Financial Adviser, Somerley Limited, to
the
Independent Board Committee and the Independent Shareholders, which
has been
prepared for the purpose of inclusion in this circular.
|
|
SOMERLEY
LIMITED
10th
Floor
The
Hong Kong Club Building
3A
Chater Road
Central
Hong
Kong
|
13
November 2007
To: the
Independent Board Committee and
the
Independent
Shareholders
Dear
Sirs,
REVISED
CAP FOR A CATEGORY OF
CONTINUING
CONNECTED TRANSACTIONS IN RESPECT OF 2007
AND
RENEWAL
OF CONTINUING CONNECTED TRANSACTIONS
IN
RESPECT OF 2008 TO 2010
We
refer to our appointment to advise
the Independent Board Committee and the Independent Shareholders on
(1) the
Revised Cap and the Non-exempt Continuing Connected Transactions (including
the
Proposed Caps), in respect of which the Independent Shareholders’ approval is
being sought; and (2) the duration of agreements regarding (i) floating
production, storage and offloading (the “FPSO”) vessel leases with CNOOC and/or
its Associates; and (ii) long term sales of natural gas and liquefied
natural
gas to CNOOC and/or its Associates for longer than three years. Details
of the
Revised Cap, the Non-exempt Continuing Connected Transactions, the
applicable
Proposed Caps and the duration of agreements regarding (i) FPSO vessel
leases
with CNOOC and/or its Associates; and (ii) long term sales of natural
gas and
liquefied natural gas to CNOOC and/or its Associates for longer than
three years
are set out in the Letter from the Board contained in the circular
of the
Company to the Shareholders dated 13 November 2007 (the “Circular”), of which
this letter forms part. Capitalised terms used in this letter shall
have the
same meanings as those defined in the Circular.
As
at the Latest Practicable Date,
based on the records of the Company, CNOOC indirectly owned approximately
65.08%
of the issued share capital of the Company. CNOOC is therefore a connected
person (as defined under the Listing Rules) of the Company and the
transactions
contemplated under the Comprehensive Framework Agreements constitute
continuing
connected transactions for the Company under the Listing Rules. The
Non-exempt
Continuing Connected Transactions (except the category of FPSO vessel
leases
which were previously exempted from the Independent Shareholders’ approval as
detailed in the 2005 Circular) and the relevant annual caps for the
two
financial years ending 31 December 2007 were approved by the Independent
Shareholders at the 2005 EGM and the extraordinary general meeting
convened on
29 September 2006 (in the case of the revised caps for the category
“Sales of
petroleum and natural gas products (other than long term sales of natural
gas
and liquefied natural gas)”). As the Group will continue to carry out the
Non-exempt Continuing Connected Transactions with CNOOC and/or its
Associates,
the Directors propose to seek Independent Shareholders’ approval of the
Non-exempt Continuing Connected Transactions (including the relevant
Proposed
Caps) which will be conducted in the coming three financial years ending
31
December 2008, 2009 and 2010.
The
Independent Board Committee,
comprising all of the five independent non-executive Directors, namely
Messrs
Edgar W. K. Cheng, Chiu Sung Hong, Evert Henkes, Lawrence J. Lau and
Tse Hau
Yin, Aloysius, has been established to make a recommendation to the
Independent
Shareholders on whether (1) the Non-exempt Continuing Connected Transactions
are
in the ordinary and usual course of business; (2) the terms of the
Comprehensive
Framework Agreements in relation to the Non-exempt Continuing Connected
Transactions are on normal commercial terms which are fair and reasonable;
and
(3) the Revised Cap and the Proposed Caps are fair and reasonable in
so far as
the Independent Shareholders are concerned. We, Somerley Limited, have
been
appointed to advise the Independent Board Committee and the Independent
Shareholders in this regard. Furthermore, under Rule 14A.35(1) of the
Listing
Rules, we are required to explain why contract periods exceeding three
years are
required for the agreements relating to
-
22
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
the
FPSO
vessel leases with CNOOC and/or its Associates and the long term sales
of
natural gas and liquefied natural gas to CNOOC and/or its Associates,
and to
confirm that it is normal business practice for such contracts to be
of such
duration.
In
formulating our opinion, we have
relied on the information and facts supplied, and the opinions expressed,
by the
executive Directors and management of the Company and have assumed
that the
information and facts provided and opinions expressed to us are true,
accurate
and complete in all material aspects at the time they were made and
up to the
date of the EGM. We have also sought and received confirmation from
the
executive Directors that no material facts have been omitted from the
information supplied and opinions expressed to us. We have relied on
such
information and consider that the information we have received is sufficient
for
us to reach our advice and recommendation as set out in this letter
and to
justify our reliance on such information. We have no reason to believe
that any
material information has been withheld, nor doubt the truth or accuracy
of the
information provided. We have, however, not conducted any independent
investigation into the business and affairs of the Group, CNOOC or
its
Associates, nor have we carried out any independent verification of
the
information supplied. We have not relied on the opinion or advice of
any third
party expert in formulating our opinion.
PRINCIPAL
FACTORS AND REASONS CONSIDERED
In
considering whether the terms of the
Non-exempt Continuing Connected Transactions, the Revised Cap and the
Proposed
Caps are fair and reasonable in so far as the Independent Shareholders
are
concerned, we have taken into account the principal factors and reasons
set out
below:
(A) Revised
Cap
The
provision of exploration and
support services by CNOOC and/or its Associates to the Group for the
two
financial years ending 31 December 2007 subject to the respective annual
caps of
RMB2,117 million and RMB2,293 million was approved by the Independent
Shareholders at the 2005 EGM.
The
Directors have been monitoring the
Non-exempt Continuing Connected Transactions since the 2005 EGM. In
view of the
increase in the level of exploration activities by the Group within
the PRC; the
rise of exploration costs; and the expansion of overseas exploration,
and taking
into the account the fact that, based on historical trends, the amount
of
transactions for the second half of each year often accounts for more
than
two-thirds of the value for the full year, the Directors consider that
the
existing annual cap for the provision of exploration and support services
of
RMB2,293 million in respect of 2007 will be insufficient for the Group’s
requirements for the whole year. In particular, the Directors note
that the
Group is leasing a large number of additional drilling vessels (being
the major
item of equipment required for drilling services) for provision of
drilling
services in the second half of 2007 as they become available, and is
taking the
opportunity to increase its exploration efforts in offshore China.
It is
expected that most of these services will be completed in the last
quarter of
2007 and invoices for most of such services will be received in December
2007.
Accordingly, the Directors propose to revise the annual cap in respect
of 2007
to RMB3,500 million.
To
assess the reasonableness of the
Revised Cap, we have reviewed the transaction volumes for the three
financial
years ended 31 December 2004, 2005 and 2006, for the six months ended
30 June
2007 and for the nine months ended 30 September 2007, and discussed
with the
Directors the basis and underlying assumptions for setting the Revised
Cap.
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23
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LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
Set
out below are the approximate
values of the provision of exploration and support services by CNOOC
and/or its
Associates to the Group for the three financial years ended 31 December
2004,
2005 and 2006, for the six months ended 30 June 2007 and for the nine
months
ended 30 September 2007:
|
Financial
year ended 31 December
|
Six
months ended
|
Nine
months ended
|
||||
|
2004
|
2005
|
2006
|
30
June
2007
|
30
September 2007
|
||
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
||
|
Aggregate
value of the provision of exploration and support services
by CNOOC and/or
its Associates to the Group
|
1,330
|
1,290
|
1,940
|
848
|
1,491
|
|
|
Approximate
(decrease)/ increase as compared to the previous year (%)
|
(3.0%)
|
50.4%
|
||||
As
an exploration and production
corporation, the value of the Group depends to a large degree on the
scale of
its reserves and production. In response to this, the Group actively
seeks more
areas for exploration, development and production so as to extend its
development potential and enhance value for the Shareholders. With
this
development strategy in mind, the Group initiated more exploration
activities,
acquired more seismic data and drilled more exploration wells in various
exploration areas for the past three financial years ended 31 December
2004,
2005 and 2006. During the past three financial years, the Group also
extended
the reach of its exploration initiatives to deep-water areas. The Group
has to
lease drilling vessels to conduct such exploration activities. We understand
from the Company that at present, there are only a limited number of
companies
operating drilling vessels in the PRC, and most of the drilling vessels
suitable
for the Group’s exploration activities and operating in offshore China are owned
by COSL, an Associate of CNOOC.
The
Company has compared the terms
available from COSL with those offered by other international service
providers.
Since the terms offered by COSL are generally more competitive than
terms
offered by other international service providers, the Group has historically
leased such drilling vessels from COSL. There was a big increase in
2006 because
the Group stepped up its research and exploration efforts in new areas
and made
six major breakthroughs, details of which were set out in the 2006
annual
report. Accordingly, there was an increase of approximately 50.4% in
the value
of exploration and support services provided by CNOOC and/or its Associates
in
2006.
We
are advised by the Directors that,
in respect of drilling vessels that can be used for both exploration
and
development activities, it is the Group’s policy that development activities
take priority over exploration activities because the progress of development
affects production volumes more immediately. Since most of the drilling
vessels
were occupied for developing gas and oil fields in the first half of
2005 and
2006, exploration activities were rescheduled to be carried out during
the
second half of 2005 and 2006. This explains why the historical amount
of
exploration transactions with CNOOC and/or its Associates for the second
half of
2005 and 2006 accounts for about two-thirds of the value for the respective
full
year.
We
understand from the Directors that
this is also projected to be the case for 2007. The Group has made
significant
progress in exploration in 2007. As stated in the 2007 interim report,
a total
of seven new discoveries were made in the first half of 2007. One of
them is the
Jinzhou 25-1 discovery in Bohai Bay which is estimated to contain substantial
reserves with high crude quality and is expected to be developed into
a large
field. For offshore China exploration, the Group primarily focuses
on four
areas, namely, Bohai Bay, Western South China Sea, Eastern South China
Sea and
East China Sea. With high crude oil prices and recent new major discoveries
in
Bohai Bay and the South China Sea by the Group and other oil companies,
the
Group has accelerated its exploration activities in Bohai Bay and the
South
China Sea in the second half of 2007.
Based
on the exploration activities
carried out and currently on hand, the Directors expect that the existing
annual
cap in respect of 2007 for the provision of exploration and support
services
will be exceeded in early December 2007. We understand from the Directors
that
the Group has obtained commitments from COSL to lease more drilling
vessels
(being the major item of equipment required for drilling services)
to the Group
and has signed agreements with COSL for the provision of drilling services
for
offshore China exploration, in particular in Bohai Bay and the South
China Sea,
as drilling vessels become available. As a result, there will be further
heavy
expenditures in December 2007 for the provision of services by
COSL.
-
24
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LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
The
Revised Cap of RMB3,500 million
reflects these factors. It represents an increase of approximately
52.6% as
compared to the existing cap of RMB2,293 million, not only because
of an
increased level of activities but also increased prices. Due to the
surge of
international crude oil price, more exploration activities are being
carried out
internationally. This exerts upward pressure on exploration costs.
Accordingly,
the Revised Cap was
determined by the Directors after taking into account (i) the exploration
activities carried out and currently on hand; and (ii) the upward exploration
costs. Having considered the basis on which the Revised Cap was determined
as
described above, we are of the view that the Revised Cap is fair and
reasonable.
(B) Renewal
of the Non-Exempt Continuing Connected Transactions
1. Background
to and reasons for the Non-exempt Continuing Connected
Transactions
CNOOC
is the controlling Shareholder of
the Company. Prior to the reorganisation (the “Reorganisation”) carried out for
the purpose of facilitating the listing of the Shares on the Stock
Exchange in
February 2001, the businesses of the Group were carried out by CNOOC
Group. The
Non-exempt Continuing Connected Transactions were carried out between
the Group
and CNOOC and/or its Associates prior to the Reorganisation. As part
of the
Reorganisation, CNOOC established the Company and transferred all of
its
operational and commercial interests in its offshore petroleum business
to the
Group. CNOOC retained enterprises which are primarily engaged in, among
other
things, provision of exploration, development, production, marketing,
management
and ancillary services in respect of the oil and gas and downstream
petroleum
businesses (such as fertilizer and methanol business).
Given
the above delineation in
businesses of the Group and CNOOC Group, the Group became a supplier
of
petroleum and natural gas products to CNOOC, while CNOOC continued
to provide
exploration, development, production, marketing, management and ancillary
services in respect of the oil and gas to the Group. We consider this
is a
normal business practice. We note from the recent annual report of
PetroChina
Company Limited (“PetroChina”), a company listed on the Stock Exchange, that
PetroChina sells, among other things, refined products, chemical products,
natural gas and crude oil to its parent company, China National Petroleum
Corporation (“CNPC”). At the same time, CNPC group provides, among other things,
exploration technology services, downhole operation services, oilfield
construction services, oil refinery construction services, engineering
and
design services and other ancillary services to PetroChina. This is
also the
case for China Petroleum & Chemical Corporation (“Sinopec”), a company
listed on the Stock Exchange. As disclosed in its recent annual report,
Sinopec
also engages in a number of continuing connected transactions involving
(i)
sales of oil and gas products by Sinopec to its parent company; and
(ii)
provision of, among other things, technical and ancillary production
services by
its parent company to Sinopec.
We
are advised by the Directors that if
the Group chooses to conduct exploration, development, production and
support
services on its own instead of from CNOOC and/or its Associates, the
Group will
have to incur a substantial amount of capital costs and staff overheads
which
would adversely affect its financial gearing and increase its risk
profile.
Moreover, the Directors consider that it may be more costly to carry
out such
services itself. The Group has also tried to source these services
and lease the
FPSO vessels from international service providers, and found that the
terms
offered by international service providers are, in general, less competitive
than the terms offered by CNOOC and/or its Associates. Therefore, the
provision
of exploration, development, production and support services by CNOOC
and/or its
Associates and the lease of FPSO vessels from CNOOC and/or its Associates
cannot
be easily or efficiently eliminated.
Based
on our discussions with the
Directors, both the supply and usage of petroleum and natural gas products
in
the PRC are dominated by CNPC, China Petrochemical Corporation and
CNOOC, being
the three largest oil and gas companies in the PRC. Given that the
local market
prices for petroleum and natural gas products are generally competitive
with the
international market prices after taking into account the associated
costs for
export such as tariff and overseas transportation costs, the Group
has sold most
of its petroleum and natural gas products within the PRC. As a result,
the Group
has historically supplied petroleum and natural gas products to CNOOC
and/or its
Associates, as well as to CNPC, China Petrochemical Corporation and/or
their
respective Associates.
Given
that the Non-exempt Continuing
Connected Transactions are conducted on normal commercial terms or
on terms no
less favourable to the Group than terms available from independent
third parties
(as more particularly discussed below), we consider that it is in the
interests
of the Company and the Shareholders as a whole to conduct the Non-exempt
Continuing Connected Transactions. In light of the respective principal
activities of the Group, CNOOC and its Associates, we also consider
that the
Non-exempt Continuing Connected Transactions are entered into in the
ordinary
and usual course of business of the Group, CNOOC and its
Associates.
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25
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LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
The
Non-exempt Continuing Connected
Transactions (except the category of FPSO vessel leases which were
previously
exempted from the Independent Shareholders’ approval as detailed in the 2005
Circular) and the relevant annual caps for the two financial years
ending 31
December 2007 were approved by the Independent Shareholders at the
2005 EGM and
the extraordinary general meeting convened on 29 September 2006 (in
respect of
the revised caps for the category “Sales of petroleum and natural gas products
(other than long term sales of natural gas and liquefied natural gas)”). On 8
November 2007, the Company entered into the Comprehensive Framework
Agreements
with each of CNOOC, COSL, BlueChemical and CNOOC Engineering to regulate
their
business relationship for the next three financial years ending 31
December
2008, 2009 and 2010. Since the Board anticipates that the applicable
percentage
ratios (other than the profit ratio) for the Non-exempt Continuing
Connected
Transactions on an annual basis will not be less than 2.5% and the
annual
consideration is expected to be higher than HK$10,000,000, the Non-exempt
Continuing Connected Transactions constitute non-exempt continuing
connected
transactions for the Company under the Listing Rules. The Directors
therefore
consider that it is in the commercial interest of the Company to seek
approval
from the Independent Shareholders for continuing the Non-exempt Continuing
Connected Transactions for the coming three financial years ending
31 December
2008, 2009 and 2010 up to the limit specified in the Proposed Caps.
2. Principal
terms of the Non-exempt Continuing Connected Transactions
The
Comprehensive Framework Agreements
set out the major terms such as the pricing basis for the provision
of the
Non-exempt Continuing Connected Transactions and are substantially
on the same
terms as the comprehensive framework agreements entered into by the
Company with
each of CNOOC, COSL and CNOOC Engineering on 8 December 2005, as described
in
the 2005 Circular. The detailed terms as to (1) specific products and
services
requested by the relevant party; (2) detailed technical and other specifications
which may be relevant to those products or services; and (3) the quantities
and
fees for the products and services will be agreed from time to time
based on the
major terms as set out in the Comprehensive Framework Agreements. Details
of the
major terms of the Comprehensive Framework Agreements are as
follows:
(i) 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
well, tow-boat, transportation and safety services, and other related
technical
and supporting services.
Exploration
is the first step towards
the production process for an oil and gas company. The Directors distinguish
two
types of exploration, namely risk exploration 
and
rollover exploration 
. Risk exploration involves
exploring a completely new site, while rollover exploration is exploring
a site
that is adjacent to an oil and gas field that is currently in
production.
and
rollover exploration . Risk exploration involves
exploring a completely new site, while rollover exploration is exploring
a site
that is adjacent to an oil and gas field that is currently in
production.(ii) 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.
Following
successful completion of the
exploration activity (i.e. oil or gas reserve is found), the oil and
gas field
will proceed to the development phase. Accordingly, the development
of oil and
gas fields is the second step of production process for an oil and
gas
company.
(iii) 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 include
integrated research on production techniques, 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. Some of these services may
-
26
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|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
not
be
available from independent third parties or available on comparable
terms.
We
understand from the Directors that
in general for the provision of services described in paragraphs (i)
to (iii)
above, the Group will request CNOOC and/or its Associates to provide,
along with
other independent service providers, quotations in respect of the requested
services. Following the receipt of quotations from CNOOC and/or its
Associates,
and other independent service providers, the Group will compare and
negotiate
the terms of quotations with service providers and determine the selection
of
service providers by taking into account factors such as price quotations,
quality of the services, ability of the service providers in meeting
technical
specifications and delivery schedules, and qualification and relevant
experiences of the service providers. The contract will be awarded
to the
service provider who offers the best commercial terms and technical
terms to the
Company. Depending on the total value of the bid, an independent committee
comprising outside specialists may also be involved. Accordingly, CNOOC
and/or
its Associates may or may not be awarded the contracts. On the other
hand,
should CNOOC and/or its Associates consider that the terms offered
by the Group
are not commercially acceptable, CNOOC and/or its Associates may choose
not to
accept the contracts. We are of the view that this bidding process
is in the
interests of the Independent Shareholders as their interests are safeguarded
by
obtaining and comparing independent third party quotations.
(iv) FPSO
vessel leases
The
Group leases FPSO vessels from
COBGL, an Associate of CNOOC, for use in oil production operations
at market
prices and on normal commercial terms which are calculated on a daily
basis. We
understand from the Directors that the Group is unable to secure FPSO
vessel
leases from others at comparable terms. FPSO vessels are usually located
next to
offshore oil platforms and are an integrated facility used by the Group
during
its offshore oil production. A FPSO vessel is a type of floating tank
system
used in the offshore oil industry to take the oil produced from a nearby
platform(s), process it, and store it until the oil can be offloaded
onto
waiting tankers, or sent through a pipeline. FPSO vessel is also capable
to
carry out some form of oil separation process obviating the need for
such
facilities to be located on an oil platform. Partial separation may
still be
done on the oil platform to increase the oil capacity of the pipeline(s)
to the
FPSO vessels. FPSO vessels are particularly effective in remote or
deepwater
locations where subsea pipelines are not cost effective because they
can
eliminate the need to lay expensive long-distance pipelines from the
oil well to
an onshore terminal. FPSO vessels can also be used economically in
smaller oil
fields which can be exhausted in a few years and do not justify the
expense of
installing a fixed oil platform. At present, two FPSO vessels are leased
by the
Company with a term of 10 years from COBGL. One of the FPSO vessel
leases can be
renewed for another 10 years after the initial term of 10 years at
the sole
discretion of the Company.
(v) Sales
of petroleum and natural gas products by the Group to CNOOC and/or
its
Associates
(a) Sales
of petroleum and natural gas products (other than long term sales of
natural gas
and liquefied natural gas)
The
Group 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. Although most of the natural
gas and
liquefied natural gas will be sold under the long term sales contracts
described
under the paragraph headed “Long term sales of natural gas and liquefied natural
gas” below, the Group also sells a certain volume of natural gas and liquefied
natural gas to CNOOC and/or its Associates on a short-term basis for
the purpose
of peak adjustment and to reap higher profits.
(b) Long
term sales of natural gas and liquefied natural gas
Natural
gas is sold to CNOOC and/or its
Associates engaging in downstream petroleum businesses (such as the
fertilizer
and methanol business operated by BlueChemical). The Group has liquefied
natural
gas related upstream projects in Tangguh, Indonesia and the North West
Shelf,
Australia and may sell liquefied natural gas from these gas reserves
and other
gas reserves in which the Group may invest in the future to CNOOC and/or
its
Associates. These sales are long term in nature due to the reasons
mentioned in
the paragraph headed “Duration of agreements regarding the FPSO vessel leases
and the long term sales of natural gas and liquefied natural gas”
below.
(vi) Pricing
of the Non-exempt Continuing Connected Transactions
The
Non-exempt Continuing Connected
Transactions will be conducted, after arm’s length negotiations among parties,
on normal commercial terms or on terms no less favourable than those
available
to the Group offered by independent third parties under prevailing
market
conditions.
For
services provided by CNOOC and/or
its Associates to the Group as described in paragraphs (i) to (iii)
above,
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27
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LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
if,
for
any reason, the above pricing principle for a particular service is
not
applicable or there is no open market for such services, such service
must then
be charged in accordance with the following general pricing
principles:
|
(a)
|
state-prescribed
prices; or
|
|
(b)
|
where
there is no state-prescribed price, market prices, including
the local,
national or international market prices; or
|
|
(c)
|
when
neither (a) nor (b) 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.
|
The
Directors confirm that the priority
is set from (a) to (c) such that the pricing mechanism (b) and (c)
will be
applied only if the preceding pricing mechanism(s) are not applicable.
We
consider the aforesaid pricing principles to be fair and reasonable
because (a)
and (b) are determined on the basis of state-prescribed prices and
market
prices, including the local, national or international market
prices.
In
order to assess the fairness and
reasonableness of the 10% margin set out in pricing mechanism (c) above,
we have
identified six oil field servicing companies listed on the New York
Stock
Exchange (the “Comparable Companies”), which are principally engaged in the
provision of oil and gas services including drilling, evaluation, production
and
completion of oil and gas wells, and providing equipments and products
for
oilfield and gas services. The Comparable Companies have market capitalization
above US$10 billion (equivalent to approximately HK$78 billion) as
at the day
before the Latest Practicable Date.
The
table below illustrates the
operating profit margins (calculated by dividing the operating income
of
oilfield services related segment by that segment revenue) of the Comparable
Companies for the three financial years ended 31 December 2004, 2005
and
2006.
|
Operating
profit margin
|
|||
|
Financial
year ended 31 December
|
|||
|
Name
of the Comparable Companies
|
2004
|
2005
|
2006
|
|
Schlumberger
Limited (NYSE: SLB)
|
17.6%
|
22.2%
|
27.5%
|
|
Halliburton
Company (NYSE: HAL)
|
15.8%
|
22.6%
|
26.1%
|
|
Baker
Hughes Incorporated (NYSE: BHI)
|
17.4%
|
21.5%
|
25.0%
|
|
National
Oilwell Varco, Incorporated
(NYSE:
NOV)
|
7.8%
|
12.0%
|
17.3%
|
|
Weatherford
International Limited
(NYSE:
WFT)
|
14.5%
|
16.7%
|
22.0%
|
|
Smith
International, Incorporated (NYSE: SII)
|
13.1%
|
15.7%
|
18.8%
|
The
operating profit margins of the
Comparable Companies ranged from 7.8% to 27.5% for the three financial
years
ended 31 December 2004, 2005 and 2006, and the pricing mechanism referred
to (c)
above, that is, a margin of not more than 10% (before any applicable
taxes) lies
in the lower end of the range. As such, we consider a margin of not
more than
10% to be fair and reasonable in so far as the Independent Shareholders
are
concerned.
The
FPSO vessel leases as described in
paragraph (iv) above will be charged at market prices and on normal
commercial
terms. The sales of petroleum and natural gas products (including long
term
sales of natural gas and liquefied natural gas) by the Group to CNOOC
and/or its
Associates as described in paragraph (v) above will be charged at
state-prescribed prices or local, national or international market
prices and on
normal commercial terms.
(vii) Review
of the Non-exempt Continuing Connected Transactions by the
auditors
The
auditors of the Company have
performed a review of the Non-exempt Continuing Connected Transactions
for the
financial year ended 31 December 2006 (the “Past Transactions”). We noted from
the 2006 annual report of the Company that the auditors have confirmed
that the
Past Transactions were conducted in the manner stated in Rule 14A.38
of the
Listing Rules.
Based
on the analysis above and the
auditors’ review of the Past Transactions, we consider that the Non-exempt
Continuing Connected Transactions are being conducted on normal commercial
terms.
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28
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LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
3. Proposed
Caps
The
Non-exempt Continuing Connected
Transactions are subject to the Proposed Caps whereby for each of the
three
financial years ending 31 December 2008, 2009 and 2010, the value of
the
Non-exempt Continuing Connected Transactions will not exceed the applicable
annual amounts stated in the Letter from the Board contained in the
Circular.
In
assessing the reasonableness of the
Proposed Caps, we have discussed with the Directors and management
of the
Company the basis and underlying assumptions for the purpose of setting
the
Proposed Caps.
(i) Provision
of exploration and support services
As
advised by the Directors, the
Proposed Caps were determined based on, among other things, the scheduled
exploration activities for coming years. Given the Group’s aim to extend its
development potential and in light of current oil market conditions,
the Group
intends to devote more resources to exploration activities in coming
three
years, with substantial overseas exploration activities scheduled to
be carried
out in around 2008. The reason for increasing overseas exploration
activities is
to pursue a wide range of opportunities so as to sustain its long term
growth.
The Group also intends to extend its exploration to the deep-water
areas which
are more costly to explore.
As
advised by the Directors, the
negotiation of an offshore China production sharing contract with foreign
companies is a function that only CNOOC can perform under the laws
of the PRC.
We are further advised that pursuant to the undertaking between CNOOC
and the
Company given at the time of its listing, CNOOC undertook to transfer
to the
Company all of its rights and obligations under any new offshore China
production sharing contracts except those relating to its administrative
functions. It is noted from the website of the Company that CNOOC entered
into a
production sharing contract with Singapore Petroleum Company Limited
for a block
in Pearl River Mouth Basin in August 2007. CNOOC also entered into
two
production sharing contracts with Newfield Exploration Company for
two blocks
(one located in Western South China Sea and the other located in Pearl
River
Mouth Basin) in August 2007. The Company has been assigned the right
to
participate up to 51% in production sharing contracts in respect of
any
successful discovery, in these three blocks, with the remaining interests
for
these production sharing contracts held by foreign partners. If the
Company
exercises the right to participate in these investments, the Company
is
obligated to share the exploration costs incurred. After taking into
account the
scheduled 2008 exploration activities, including the expected exploration
activities in deep-water areas and the possible participation in the
above
production sharing contracts, it is expected that exploration activities
would
reach a new peak in 2008. Following the peak in 2008, the Group intends
to
continue with a similar scale of exploration but expects unit costs
to continue
to rise. After taking into account the level of exploration activities
as well
as the possible adjustment of service charges, the Directors consider
that an
average annual growth in monetary amount of 20% is likely in 2009 and
2010 for
the Proposed Caps. Taking into account the aforesaid factors, the Proposed
Caps
for the provision of exploration and support services are set as
follows:
|
Financial
year ending 31 December
|
|||
|
2008
|
2009
|
2010
|
|
|
RMB
million
|
RMB
million
|
RMB
million
|
|
|
Proposed
Caps for the provision of exploration and support services
|
6,296
|
7,555
|
9,066
|
|
Approximate
increase as compared to the annual cap of previous year
(%)
|
79.9%*
|
20.0%
|
20.0%
|
*
Compared to the Revised Cap of 2007
-
29
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
(ii) Provision
of oil and gas development and support services
Set
out below are the approximate
values of the provision of oil and gas development and support services
by CNOOC
and/or its Associates to the Group for the three financial years ended
31
December 2004, 2005 and 2006 and for the nine months ended 30 September
2007:
|
Financial
year ended 31 December
|
Nine
months ended
|
||||
|
2004
|
2005
|
2006
|
30
September 2007
|
||
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
||
|
Aggregate
value of the provision of oil and gas development and support
services
|
4,681
|
6,132
|
7,230
|
5,265
|
|
|
Approximate
increase as compared to the previous year (%)
|
31.0%
|
17.9%
|
|||
The
total development and support
services expenditures (being the aggregate amount payable to independent
third
party service providers as well as CNOOC and/or its Associates) increased
by
approximately 32.8% and 23.8% in 2005 and 2006 respectively. In 2005,
more
development and engineering projects were undertaken than in 2004 with
altogether 16 projects under construction. The Group laid 540 kilometres
of
subsea pipelines during the year 2005. Considerable capital was also
made
available for developing gas and oil fields in 2006. The respective
increase of
aggregate value of the provision of oil and gas development and support
services
by CNOOC and/or its Associates in 2005 and 2006 was, in general, in
line with
the respective increase in the total development and support services
expenditures of the Group (being the aggregate amount payable to independent
third party service providers as well as CNOOC and/or its Associates)
in 2005
and 2006. As set out in the paragraph headed “Revised Cap” above, the Jinzhou
25-1 discovery was made during the first half of 2007. As the Jinzhou
25-1
discovery is estimated to contain substantial reserves with high crude
quality,
the Group plans to develop it aggressively. With such development plan
in mind,
the Directors consider that the development activities will be increased
by
approximately 53.0% in 2008 and foresee that the service charge rate
will be
increased further by approximately 25.0% in 2008, which is equivalent
approximately to the average annual service charge rate increase for
the past
three financial years. Following the peak of development in 2008, the
level of
development activities in 2009 and 2010 is anticipated to increase
moderately by
approximately 23.0% and 17.0% in 2009 and 2010 respectively.
Based
on such assumptions, the Proposed
Caps for the provision of oil and gas development and support services
are as
follows:
|
Financial
year ending 31 December
|
|||
|
2008
|
2009
|
2010
|
|
|
RMB
million
|
RMB
million
|
RMB
million
|
|
|
Proposed
Caps for the provision of oil and gas development and support
services
|
18,608
|
22,879
|
26,759
|
|
Approximate
increase as compared to the annual cap of previous year
(%)
|
77.9%
|
23.0%
|
17.0%
|
-
30
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
(iii) Provision
of oil and gas production and support services
Set
out below are the approximate
values of the provision of oil and gas production and support services
by CNOOC
and/or its Associates to the Group for the three financial years ended
31
December 2004, 2005 and 2006 and for the nine months ended 30 September
2007:
|
Financial
year ended 31 December
|
Nine
months ended
|
||||
|
2004
|
2005
|
2006
|
30
September 2007
|
||
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
||
|
Aggregate
value of the provision of oil and gas production and support
services
|
1,354
|
1,972
|
2,463
|
1,630
|
|
|
Approximate
increase as compared to the previous year (%)
|
45.6%
|
24.9%
|
|||
The
total production and support
services expenditures (being the aggregate amount payable to independent
third
party service providers as well as CNOOC and/or its Associates) increased
by
approximately 15.3% and 13.4% in 2005 and 2006 respectively. During
2005, the
Group awarded a big production and maintenance project to CNOOC and/or
its
Associates to reduce the production decline of certain mature oilfields.
As
such, there was a greater growth for the value of the provision of
oil and gas
production and support services by CNOOC and/or its Associates in 2005
as
compared to the total growth of approximately 15.3% in that year. For
the same
reason, the increase of value of the provision of oil and gas production
and
support services by CNOOC and/or its Associates of approximately 24.9%
in 2006
exceeded the increase of the total production and support services
expenditures
of 13.4% in that year. In view of rising operating costs, the Group
will
continue to monitor costs closely and implement cost control measures.
The
Directors expect that there will be moderate increase in production
and support
services expenditures payable to CNOOC and/or its Associates for the
coming
three financial years ending 31 December 2008, 2009 and 2010 with the
level of
increase similar to that in 2006.
Taking
into account the aforesaid
factors, the Proposed Caps for the provision of production and support
services
are as follows:
|
Financial
year ending 31 December
|
|||
|
2008
|
2009
|
2010
|
|
|
RMB
million
|
RMB
million
|
RMB
million
|
|
|
Proposed
Caps for the provision of oil and gas production and support
services
|
5,124
|
6,147
|
7,253
|
|
Approximate
increase as compared to the annual cap of previous year
(%)
|
24.0%
|
20.0%
|
18.0%
|
(iv) FPSO
vessel leases
Set
out below are the approximate
values of the FPSO vessel leases for the three financial years ended
31 December
2004, 2005 and 2006 and for the nine months ended 30 September
2007:
|
Financial
year ended 31 December
|
Nine
months ended
|
||||
|
2004
|
2005
|
2006
|
30
September 2007
|
||
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
||
|
Aggregate
value of the FPSO vessel leases
|
52
|
148
|
437
|
297
|
|
|
Approximate
increase as compared to the previous year (%)
|
184.6%
|
195.3%
|
|||
-
31
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
The
Group leased a FPSO vessel from
COBGL, an Associate of CNOOC, in August 2004. The significant increase
of the
FPSO vessel charges from approximately RMB52 million in 2004 to approximately
RMB148 million in 2005 was mainly due to the full year vessel charges
in 2005.
An additional FPSO vessel was leased in 2006. For the FPSO vessel leased
in
2006, COBGL was responsible for the maintenance, operation, staff and
other
costs while all such costs were borne by the Company for the first
FPSO vessel
leased in 2004. Accordingly, a higher rate was charged to the Company
in respect
of the second FPSO vessel and the aggregate value of the FPSO vessel
leases rose
by approximately 195.3% to approximately RMB437 million in 2006.
In
order to accommodate the business
expansion of the Group, the Company plans to lease two more FPSO vessels
for
each year of 2008 and 2009. Based on quotations from COBGL for the
two FPSO
vessels to be leased in 2008, the Directors estimate that the aggregate
value
for the FPSO leases will rise by approximately RMB1,445 million (as
compared to
the cap amount for 2007) to approximately RMB1,908 million in 2008.
The charging
rates for the two FPSO vessels to be leased in 2008 are higher than
that of the
FPSO vessels currently leased by the Group. As advised by the Directors,
such
increase is mainly due to the surge of vessel construction costs primarily
as a
result of higher raw material costs, labour costs and overheads. The
sizes of
the two FPSO vessels to be leased in 2009 are expected to be similar
to that of
those to be leased in 2008. Accordingly, additional amount of approximately
RMB1,274 million was included in estimating the Proposed Cap for 2009.
We
understand from the Directors that the terms offered by COBGL for the
four
additional FPSO vessels are, in general, more competitive than the
terms offered
by other international service providers. Accordingly, the Group plans
to
continue to lease the FPSO vessels from COBGL. At present, there is
no plan to
lease more FPSO vessels in 2010. Therefore, the Directors consider
that the FPSO
vessel charges in 2010 will be at a level similar to that of 2009.
Based
on such assumptions, the Proposed
Caps for the FPSO vessel leases are as follows:
|
Financial
year ending 31 December
|
|||
|
2008
|
2009
|
2010
|
|
|
RMB
million
|
RMB
million
|
RMB
million
|
|
|
Proposed
Caps for the FPSO vessel leases
|
1,908
|
3,182
|
3,250
|
|
Approximate
increase as compared to the annual cap of previous year
(%)
|
312.1%
|
66.8%
|
2.1%
|
(v) Sales
of petroleum and natural gas products by the Group to CNOOC and/or
its
Associates
(a) Sales
of petroleum and natural gas products (other than long term sales of
natural gas
and liquefied natural gas)
Set
out below are the approximate
values of the sales of petroleum and natural gas products (other than
long term
sales of natural gas and liquefied natural gas) by the Group to CNOOC
and/or its
Associates for the three financial years ended 31 December 2004, 2005
and 2006
and for the nine months ended 30 September 2007:
|
Financial
year ended 31 December
|
Nine
months ended
|
||||
|
2004
|
2005
|
2006
|
30
September 2007
|
||
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
||
|
Aggregate
value of the sales of petroleum and natural gas products
(other than long
term sales of natural gas and liquefied natural gas)
|
13,630
|
25,988
|
34,246
|
28,087
|
|
|
Approximate
increase as compared to the previous year (%)
|
90.7%
|
31.8%
|
|||
We
are advised by the Directors that
nearly all the sales under this category relate to petroleum. Very
little
natural gas is sold to CNOOC and/or its Associates under this category
because
natural gas products are mainly sold to CNOOC and/or its Associates
under long
term sales contracts as more particularly discussed below. We note
that CNOOC
and/or its Associates account for a greater proportion of sales to
the Group
over the past three years, rising from approximately 40.0% in 2004
to
approximately 53.8% in 2006. The Directors advise that the overall
terms offered
by CNOOC and/or its Associates are, in general, more favourable than
those
offered by other customers. Moreover, the
-
32
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
Group
maintains a stable relationship with CNOOC and/or its Associates and
has not
encountered any significant problem in collecting sales proceeds from
them.
Therefore, the Directors consider that it is in the interest of the
Company and
the Shareholders as a whole to deal with CNOOC and/or its
Associates.
It
was disclosed in the 2005 annual
report of the Company that the sales of crude oil (being the total
sales to
independent third party customers as well as CNOOC and/or its Associates)
and
the average realised price for crude oil in 2005 increased by approximately
11.6% and 33.6% respectively over 2004. CNOOC and/or its Associates
entered into
a number of new petroleum supply agreements with the Group in 2005
and this
contributed to an increase of approximately 49.9% of the sales value
of
petroleum and natural gas products to CNOOC and/or its Associates in
2005 as
compared to previous year. With the general increase of the average
realised
price for crude oil in 2005, a growth of approximately 90.7% in respect
of the
sales value of petroleum and natural gas products to CNOOC and/or its
Associates
was recorded in 2005 over 2004. The sales of crude oil (being the total
sales to
independent third party customers as well as CNOOC and/or its Associates)
and
the average realised price for crude oil continued to rise in 2006
with
respective increases of approximately 4.3% and 24.5% over 2005 due
to high oil
price and growth in production. The increase of value of sales of petroleum
and
natural gas products to CNOOC and/or its Associates in 2006 was, in
general, in
line with the overall increase of total sales by the Group in that
year.
The
Board has noted the recent surge in
international crude oil prices and expects that the high prices may
continue
into 2008. Accordingly, the Directors assume that the petroleum sales
price may
increase by approximately 25% in 2008 over the average for 2007 but
may slow
down in 2009 and 2010 at an annual rate of approximately 10%. These
assumptions
have been made by the Directors based on their knowledge of the market
solely
for determining the Proposed Caps and do not represent a forecast of
the actual
petroleum sale prices for the relevant periods. The Company notes from
CNOOC
and/or its Associates that they will continue to expand their downstream
petroleum businesses for the coming two years and that they will have
an
increasing demand of petroleum for their downstream petroleum businesses.
As
such, the Directors consider that more sales will be generated from
CNOOC and/or
its Associates in 2008 and 2009.
It
is stated on CNOOC’s website that
China’s Ministry of Commerce (“MOFCOM”) posted on MOFCOM’s website on 23 May
2007 details of granting two oil products wholesale licences to CNOOC’s
subsidiaries. It is reasonable for the Directors to anticipate that
the Group
may benefit from the growth of CNOOC’s downstream petroleum businesses with
increased crude oil sales to CNOOC and/or its Associates. After considering
these factors, the Directors estimate there will be an increase of
approximately
49.3%, 65.9% and 16.0% of sales of petroleum and natural gas products
to CNOOC
and/or its Associates in 2008, 2009 and 2010 respectively. Following
incorporation of these factors, the Proposed Caps for the sales of
petroleum and
natural gas products (other than long term sales of natural gas and
liquefied
natural gas) are set as follows:
|
Financial
year ending 31 December
|
|||
|
2008
|
2009
|
2010
|
|
|
RMB
million
|
RMB
million
|
RMB
million
|
|
|
Proposed
Caps for the sales of petroleum and natural gas products
(other than long
term sales of natural gas and liquefied natural gas)
|
94,440
|
156,692
|
181,782
|
|
Approximate
increase as compared to the annual cap of previous year
(%)
|
49.3%*
|
65.9%
|
16.0%
|
* Compared
to the revised cap of 2007 in the amount of RMB63,251 million
-
33
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
(b) Long
term sales of natural gas and liquefied natural gas
Set
out below are the approximate
values of the long term sales of natural gas and liquefied natural
gas by the
Group to CNOOC and/or its Associates for the three financial years
ended 31
December 2004, 2005 and 2006 and for the nine months ended 30 September
2007:
|
Financial
year ended 31 December
|
Nine
months ended
|
||||
|
2004
|
2005
|
2006
|
30
September 2007
|
||
|
RMB
million
|
RMB
million
|
RMB
million
|
RMB
million
|
||
|
Aggregate
value of the long term sales of natural gas and liquefied
natural
gas
|
315
|
588
|
1,248
|
1,246
|
|
|
Approximate
increase as compared to the previous year (%)
|
86.7%
|
112.2%
|
|||
The
sales volume of natural gas (being
the total sales to independent third party customers as well as CNOOC
and/or its
Associates) and the average realised price for natural gas increased
by
approximately 6.8% and 2.6% respectively in 2005 as compared to 2004.
As
disclosed in the 2006 annual report of the Company, the sales volume
of natural
gas (being the total sales to independent third party customers as
well as CNOOC
and/or its Associates) and the average realised price for natural gas
increased
by approximately 27.8% and 8.2% respectively in 2006 over 2005. The
growth in
value of the long term sales of natural gas and liquefied natural gas
to CNOOC
and/or its Associates in 2005 and 2006 was primarily attributable to
the
increase in sales volume as a result of signing more long term supply
agreements
for natural gas and liquefied natural gas in 2005 and 2006. The Dongfang
1-1
Phase II in the PRC and the North West Shelf in Australia gas projects
of the
Group also commenced production in 2006, where supply agreements have
been
signed with CNOOC and/or its Associates and this contributed mainly
to a surge
of long term sales of natural gas and liquefied natural gas to CNOOC
and/or its
Associates.
In
estimating the Proposed Caps in
respect of the long term sales of natural gas and liquefied natural
gas for the
coming three years, the Directors have made reference to the development
and
production phases of the gas fields on hand as well as the latest business
development of CNOOC. Based on current development plan, a new liquefied
natural
gas project is expected to commence production in 2009 to supply liquefied
natural gas to CNOOC and/or its Associates. We note from CNOOC’s website that
CNOOC signed a contract to supply 2.6 million tons of liquefied natural
gas
annually to five cities in the PRC, namely, Fuzhou, Putian, Quanzhou,
Xiamen and
Zhangzhou starting in 2009.
Accordingly,
it is reasonable for the
Directors to anticipate that there will be a greater growth of sales
in 2009.
The Directors have assumed that the sales price of natural gas and
liquefied
natural gas will, on average, increase over the coming three years
at an annual
rate of approximately 10%. These assumptions have been made by the
Directors
based on their knowledge of the market solely for determining the Proposed
Caps
and do not represent a forecast of the actual sale prices of natural
gas
products for the relevant periods. On this basis, the Directors estimate
that
the increases in the long term sales value of natural gas and liquefied
natural
gas will be approximately 34.6%, 46.9% and 23.1% in 2008, 2009 and
2010
respectively. Taking into account the aforesaid factors, the Proposed
Caps for
the long term sales of natural gas and liquefied natural gas are as
follows:
|
Financial
year ending 31 December
|
|||
|
2008
|
2009
|
2010
|
|
|
RMB
million
|
RMB
million
|
RMB
million
|
|
|
Proposed
Caps for the long term sales of natural gas and liquefied
natural
gas
|
4,844
|
7,118
|
8,763
|
|
Approximate
increase as compared to the annual cap of previous year
(%)
|
34.6%
|
46.9%
|
23.1%
|
Having
considered the basis on which
the Proposed Caps were determined as described above, we are of the
view that
the Proposed Caps are fair and reasonable.
-
34
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
4. Conditions
of the Non-exempt Continuing Connected Transactions
In
compliance with the Listing Rules,
the conduct of the Non-exempt Continuing Connected Transactions is
subject to a
number of conditions which include, among other things:
|
(i)
|
the
Proposed Caps for each of the three financial years ending
31 December
2008, 2009 and 2010 will not be exceeded;
|
||
|
(ii)
|
the
independent non-executive Directors must, in accordance
with Rule 14A.37
of the Listing Rules, review annually the Non-exempt Continuing
Connected
Transactions and confirm in the Company’s annual report and accounts that
the Non-exempt Continuing Connected Transactions have been
entered into
(a) in the ordinary and usual course of business of the
Company; (b)
either on normal commercial terms or, if there are not
sufficient
comparable transactions to judge whether they are on normal
commercial
terms, on terms no less favourable to the Group than terms
available to or
from independent third parties; and (c) in accordance with
the relevant
agreements governing them on terms that are fair and reasonable
and in the
interests of the Shareholders as a whole;
|
||
|
(iii)
|
the
auditors of the Company will, in accordance with Rule 14A.38
of the
Listing Rules, review annually the Non-exempt Continuing
Connected
Transactions and they will confirm in a letter to the Directors
(a copy of
which letter will be provided to the Stock Exchange at
least ten business
days prior to the bulk printing of the annual report of
the Company)
whether the Non-exempt Continuing Connected
Transactions:
|
||
|
(a)
|
have
received the approval of the Board;
|
||
|
(b)
|
are
in accordance with the pricing principles of the Group;
|
||
|
(c)
|
have
been entered into in accordance with the Comprehensive
Framework
Agreements governing the Non-exempt Continuing Connected
Transactions;
and
|
||
|
(d)
|
have
not exceeded the relevant Proposed Caps;
|
||
|
(iv)
|
the
Company shall promptly notify the Stock Exchange and publish
an
announcement in the newspapers if it knows or has reason
to believe that
the independent non-executive Directors and/or the auditors
will not be
able to confirm the matters set out in points (ii) and/or
(iii) above
respectively;
|
||
|
(v)
|
the
Company will allow, and procure that CNOOC and/or its Associates
will
allow, the auditors of the Company sufficient access to
the relevant
records of the Non-exempt Continuing Connected Transactions
for the
purpose of the auditors’ review as referred to in point (iii) above. The
Board must state in the annual report whether its auditors
have confirmed
the matters stated in Rule 14A.38 of the Listing Rules;
and
|
||
|
(vi)
|
the
Company will comply with the applicable provisions of the
Listing Rules
governing connected transactions in the event that the
total amount of the
Non-exempt Continuing Connected Transactions exceeds the
Proposed Caps, or
that there is any material amendment to the terms of the
Comprehensive
Framework Agreements.
|
||
In
light of the conditions attached to
the Non-exempt Continuing Connected Transactions, in particular, (i)
the
restriction of the value of the Non-exempt Continuing Connected Transactions
by
way of the Proposed Caps; (ii) the ongoing review by the independent
non-executive Directors and auditors of the Company regarding the terms
of the
Non-exempt Continuing Connected Transactions; and (iii) the continuing
review by
the auditors of the Company confirming the Proposed Caps not being
exceeded, we
are of the view that appropriate measures will be in place to govern
the conduct
of the Non-exempt Continuing Connected Transactions and safeguard the
interests
of the Independent Shareholders.
|
5.
|
Duration
of agreements regarding the FPSO vessel leases and the long
term sales of
natural gas and liquefied natural
gas
|
(i) Reasons
for the duration of agreements exceeding three years
We
have discussed with the Directors
the rationale for the duration of the agreements regarding the FPSO
vessel
leases and the long term sales of natural gas and liquefied natural
gas.
-
35
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
(a) Leases
of FPSO vessels
The
Group currently leases two FPSO
vessels for its offshore oil fields due to the advantages discussed
under the
paragraph headed “FPSO vessel leases” above. The Company’s policy is to focus
its capital resources on exploration, development and production activities.
Accordingly, ancillary assets such as the FPSO vessels, are given a
lower
priority in the Group’s allocation of assets. Due to the significant capital
cost involved in building FPSO vessels and the fact that, unlike say
an oil
field, a FPSO vessel is not a critical asset to own, the Company leases
two FPSO
vessels with a term of 10 years from COBGL, an Associate of CNOOC.
One of the
FPSO vessel leases can be renewed for another 10 years after the initial
term of
10 years at the sole discretion of the Company. As confirmed by the
Directors,
the Company has not yet decided whether or not to extend the lease
beyond the
initial term of 10 years.
The
duration of the FPSO vessel leases
was determined based on the expected term of oil production. The FPSO
vessels
are currently used by the Group for its offshore oil production for
processing,
storage and offloading of crude oil, in conjunction with the offshore
oil
platforms of the Group. In view of the substantial capital needed to
build FPSO
vessels, COBGL required the security of a long term lease. From the
Group’s
point of view, such arrangements are in the Group’s favour as they enable the
Group to equip itself with the FPSO vessels throughout the expected
term of
production of its oil fields without committing its own capital upfront.
It is
also cost-effective for the Group to have a long-term lease because
rental
charges for long-term leases can usually be negotiated at a lower rate
compared
to short-term leases. For these reasons, the terms were fixed for a
period
exceeding three years. We consider that these long term lease arrangements
are
necessary for the Group to underpin its long-term business development.
Due to
future expansion of the business of the Group, the Directors expect
that the
Group may enter into other FPSO vessel leases with CNOOC and/or its
Associates
from time to time and the lease term may exceed three years for the
reasons
discussed above. Pursuant to the relevant Comprehensive Framework Agreements,
if
the Independent Shareholders do not approve the annual caps for the
FPSO vessel
leases after 31 December 2010, the FPSO vessel leases will be terminated.
We
consider that the Independent Shareholders’ interests are protected by this
mechanism.
(b) Long
term sales of natural gas and liquefied natural gas
We
are advised by the Directors that
huge capital resources are required to develop a gas field as a result
of heavy
capital expenditures to construct the gas field platforms and long-distance
pipelines. In order to ensure the return on the investment, the Group
will
identify its target customers and sign long term supply agreements/sales
contracts with them during the development phase of the gas field.
It is the
Group’s practice to make reference to the estimated reserves and production
profile of the relevant gas fields to determine the term of supply
agreements/sales contracts. The Directors expect the Group to enter
into supply
agreements/sales contracts with CNOOC and/or its Associates for a term
of 15
years to 20 years for sales of natural gas and a term around 25 years
for sales
of liquefied natural gas. Given the substantial capital investment
in the gas
field, the Directors consider and we concur that it is in the interests
of the
Group to secure CNOOC and/or its Associates as an “anchor” customer, matching
the estimated gas reserve of the gas field. Shortening the period of
the term of
the supply agreements/sales contracts to three years may leave the
Group
significantly exposed to the risk of a shortfall in customer demand.
Accordingly, we are of the view that a period longer than three years
is
required for the Group to lock-in the return on the gas field investment.
Pursuant to the relevant Comprehensive Framework Agreements, if the
Company
fails to obtain the Independent Shareholders’ approval regarding the annual caps
for the long term sales of natural gas and liquefied natural gas after
31
December 2010, the supply agreements/sales contracts will be terminated.
We
consider that the Independent Shareholders’ interests are protected by this
mechanism.
(ii) Third
party agreements
We
have researched publicly available
information regarding a number of FPSO vessel leases and supply of
natural gas
products which involve contracts with terms in excess of three
years.
SBM
Offshore N.V. (“SBM Offshore”), a
company listed on the stock exchange of Amsterdam, is a multinational
group
selling systems and services (including engineering, supply and offshore
installation of floating facilities for the production, storage and
export of
crude oil and gas) to the oil and gas industry. SBM Offshore recorded
audited
consolidated revenue and net profit attributable to its shareholders
of
approximately US$1,989.7 million and US$216.3 million for the year
ended 31
December 2006 respectively. SBM Offshore leases and operates FPSO vessels.
It is
stated on its website that the lease period of twenty FPSO vessels
ranges from 2
years to 15 years. Seventeen of them have a lease term of 5 years or
more. Of
these seventeen leases, five can be extended from 1.5 years to 5
years.
BW
Offshore Limited (“BW Offshore”) is
a company listed on the Oslo Stock Exchange and engaged in
-
36
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
development
and operation of oil and gas FPSO vessels. For the year ended 31 December
2006,
BW Offshore generated audited consolidated revenue and net profit of
approximately US$450.8 million and US$4.5 million respectively. We
note from its
interim report for the six months ended 30 June 2007 that BW Offshore
leases two
FPSO vessels with a term of 4 years, one FPSO vessel with a term of
7 years and
another FPSO vessel with a term of 15 years.
It
is noted from the interim report of
PetroChina for the six months ended 30 June 2007 that PetroChina entered
into
long term take-or-pay natural gas supply contracts under which the
customers are
required to take or pay and PetroChina group is obligated to deliver
minimum
quantities of natural gas annually. As at 31 December 2006 and 30 June
2007, the
future minimum delivery commitments under contracts were approximately
15,060
billion of cubic feet (approximately 83.1% of which would be delivered
after
2009) and 14,702 billion of cubic feet (approximately 78.3% of which
would be
delivered after 2010) respectively.
We
have identified certain long term
supply contracts for liquefied natural gas with term of 20 years or
longer.
Relevant details are set out below:
|
Parties
|
Term
of agreement
|
Details
of the transactions
|
|
(a)
Sakhalin Energy Investment Company Ltd. (“Sakhalin Energy”);
and
Osaka
Gas
Date
of agreement:
8
February 2007
|
Over
20 years
|
Sakhalin
Energy signed a binding heads of agreement with Osaka Gas
for the supply
of approximately 0.2 million tonnes of liquefied natural
gas per annum to
Japan for over 20 years.
|
|
(b)
Shell Eastern LNG (“Shell”); and
PetroChina
International Company Limited (“PetroChina International”)
Date
of media release:
4
September 2007
|
20
years
|
Shell
concluded a binding heads of agreement with PetroChina International
for
the supply of liquefied natural gas with the primary source
being the
Gorgon project in Western Australia.
The
heads of agreement set out key terms of the transaction and
provided for
Shell and PetroChina International to conclude and execute
a detailed sale
and purchase agreement before December 2008 for the supply
of one million
tonnes per annum of liquefied natural gas to PetroChina International
for
a term of 20 years.
|
Sources:
the website of Royal Dutch Shell plc
The
above arrangements made by Sakhalin
and Shell cover a term of 20 years or more. The terms of supply of
natural gas
and liquefied natural gas by the Group to CNOOC and/or its Associates
are 15
years to 20 years and around 25 years respectively, which is not longer
(in the
case of natural gas) or not considerably longer (in the case of liquefied
natural gas) than the minimum term of 20 years for the above third
party
arrangements of Sakhalin and Shell.
In
light of the above, we are of the
opinion that the duration of the agreements regarding the FPSO vessel
leases and
the long term sales of natural gas and liquefied natural gas of the
Group for
such longer term is in line with normal business practice for contracts
of this
type.
Discussion
and analysis
The
Shares were listed on the Stock
Exchange in February 2001. Prior to the Reorganisation to facilitate
the
listing, the Company’s businesses were substantially integrated with those of
CNOOC Group. Following the Reorganisation, the businesses, assets and
contractual arrangements were separated as far as possible, but inevitably
some
connections remained. We consider this is the normal situation when
a relatively
integrated business is spun-off from its parent.
-
37
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
There
are transactions among members of
the Group and CNOOC Group, which are common where each group subsidiary
has its
own business specialisation. This is also the case for PetroChina and
Sinopec.
The Directors consider that if the Group chooses to conduct exploration,
development, production and support services on its own instead of
from CNOOC
and/or its Associates, the Group will have to commit a substantial
amount of
capital which could otherwise be better utilized in its core exploration
and
production businesses. It will also incur additional staff overheads
and various
other costs which would adversely affect its financial results.
Based
on the quotations received by the
Group, the terms offered by international service providers for the
aforesaid
services and the FPSO vessel leases are generally less competitive
than the
terms offered by CNOOC and/or its Associates. Therefore, the provision
of
services and the lease of FPSO vessels between the Group and CNOOC
Group cannot
be easily or efficiently eliminated.
Based
on our discussions with the
Directors, both the supply and usage of petroleum and natural gas products
in
the PRC are dominated by CNPC, China Petrochemical Corporation and
CNOOC, being
the three largest oil and gas companies in the PRC. Given that the
local market
prices for petroleum and natural gas products are generally competitive
with
international prices after taking into account the associated costs
for export
such as tariff and overseas transportation costs, the Group has sold
most of its
petroleum and natural gas products within the PRC. As a result, the
Group has
historically supplied petroleum and natural gas products to CNOOC and/or
its
Associates, as well as to CNPC, China Petrochemical Corporation and/or
their
respective Associates. These factors result in the Non-exempt Continuing
Connected Transactions of the types summarised above. We consider a
fair and
reasonable basis for pricing and other terms has been established under
the
Comprehensive Framework Agreements, as discussed above. Whilst the
approval of
the Proposed Caps gives the Company the flexibility to use its parent’s
services, the Company is not committed to do so, nor does the approval
obviate
the need for a competitive bidding process to be carried out, as outlined
above.
As
explained above, exploration
transactions with CNOOC and/or its Associates for the second half of
2005 and
2006 accounted for about two-thirds of the value for the respective
full year.
This is also projected to be the case for 2007. The Group primarily
focuses on
four areas, namely, Bohai Bay, Western South China Sea, Eastern South
China Sea
and East China Sea for its offshore China exploration. With high crude
oil
prices and recent new major discoveries in Bohai Bay and the South
China Sea,
the Group has accelerated its exploration activities in the second
half of 2007.
The Group has signed agreements with COSL for the provision of drilling
services
for offshore China exploration, in particular in Bohai Bay and the
South China
Sea, as the drilling vessels (being the major item of equipment required
for
drilling services) become available. Most of these services will be
completed in
the fourth quarter of 2007 and invoiced in December 2007. This is the
main
reason for the need for a substantial revision of the cap for the provision
of
exploration and support services in respect of 2007 to RMB3,500
million.
The
Proposed Caps have been established
for the Non-exempt Continuing Connected Transactions. We consider the
transactions themselves will be conducted on normal commercial terms
and to
enhance the development of the Group. We concur with the Directors
that the
Proposed Caps, which are in our opinion based on well-supported projections
with
a reasonable buffer, allow the Group a degree of flexibility in managing
its
businesses.
Where
the terms of the agreements for
the FPSO vessel leases and the long term sales of natural gas and liquefied
natural gas are longer than three years, we consider these terms are
in line
with the terms of comparable transactions we have researched. A period
longer
than three years is required for the sales of natural gas and liquefied
natural
gas so as to lock in the Group’s return on its substantial capital investment in
the gas fields. A longer term is also necessary for the FPSO vessel
leases to
match the services of the FPSO vessels with the expected life of the
Group’s oil
fields, together with the financial advantages mentioned above.
OPINION
Having
taken into account the above
principal factors, we consider that the Non-exempt Continuing Connected
Transactions are in the ordinary and usual course of business of the
Group and
the terms of the Comprehensive Framework Agreements with CNOOC and/or
its
Associates in relation to the Non-exempt Continuing Connected Transactions
are
on normal commercial terms. We also consider that the Revised Cap,
the Proposed
Caps and the terms of the Comprehensive Framework Agreements with CNOOC
and/or
its Associates in relation to the Non-exempt Continuing Connected Transactions
are fair and reasonable so far as the Independent Shareholders are
concerned and
that the entering into of the Non-exempt Continuing Connected Transactions
is in
the interests of the Company and the Shareholders as a whole.
-
38
-
|
LETTER
FROM THE INDEPENDENT FINANCIAL
ADVISER
|
Given
that (i) the Group wishes to use
the services of the FPSO vessels throughout the expected term of production
of
its oil fields; (ii) COBGL requires the security of a long-term lease
for its
considerable capital commitments to build and construct the FPSO vessels;
and
(iii) it is cost-effective for the Group to have a long-term lease
because
rental charges for long-term leases can usually be negotiated at a
lower rate
compared to short-term leases, we are of the opinion that it is necessary
from a
commercial point of view for the FPSO vessel leases to be of a longer
period
than three years. In view of substantial capital investment in the
gas fields,
we concur with the Directors’ view that a longer period is required for the long
term sales of natural gas and liquefied natural gas to lock in the
Group’s
return on the gas field investment.
Based
on our research into other FPSO
vessel leases and long term sales of natural gas and liquefied natural
gas
summarised above, we consider that it is normal business practice for
agreements
of a similar nature to the agreements with CNOOC and/or its Associates
to be of
such duration.
Accordingly,
we advise the Independent
Board Committee to recommend the Independent Shareholders to vote in
favour of
the ordinary resolutions to be proposed at the EGM to approve the Revised
Cap,
the Non-exempt Continuing Connected Transactions and the Proposed
Caps.
|
Yours
faithfully,
for
and on behalf of
SOMERLEY
LIMITED
M.
N. Sabine
Chairman
|
-
39
-
| APPENDIX |
GENERAL
INFORMATION
|
1. RESPONSIBILITY
STATEMENT
This
Circular includes particulars
given in compliance with the Listing Rules for the purpose of giving
information
with regard to the Company. The Directors collectively and individually
accept
full responsibility for the accuracy of the information contained in
this
Circular and confirm, having made all reasonable enquiries, that to
the best of
their knowledge and belief, there are no other facts the omission of
which would
make any statement herein misleading.
2. DISCLOSURE
OF INTERESTS
As
at the Latest Practicable Date, the
interests of each Director and chief executive of the Company in the
equity or
debt securities of the Company or any associated corporations (within
the
meaning of the SFO) which were required (i) to be notified to the Company
and
the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the
SFO
(including interests and short positions which they are taken or deemed
to have
under such provisions of the SFO), (ii) pursuant to section 352 of
the SFO, to
be entered in the register referred to therein or (iii) pursuant to
the Model
Code for Securities Transactions by Directors of Listed Issuers, to
be notified
to the Company and the Stock Exchange were as follows:
Interests
in share options granted by the Company
|
Name
of grantee
|
Date
of grant
|
Exercise
price
|
Underlying
shares granted
pursuant to options |
|
(HK$)
|
|||
|
Fu
Chengyu
|
12
March 2001
|
1.19
|
1,750,000
|
|
27
August 2001
|
1.232
|
1,750,000
|
|
|
24
February 2003
|
2.108
|
1,150,000
|
|
|
5
February 2004
|
3.152
|
2,500,000
|
|
|
31
August 2005
|
5.62
|
3,500,000
|
|
|
14
June 2006
|
5.56
|
3,850,000
|
|
|
25
May 2007
|
7.29
|
4,041,000
|
|
|
Luo
Han
|
12
March 2001
|
1.19
|
1,400,000
|
|
27
August 2001
|
1.232
|
1,150,000
|
|
|
24
February 2003
|
2.108
|
1,150,000
|
|
|
5
February 2004
|
3.152
|
1,150,000
|
|
|
31
August 2005
|
5.62
|
1,610,000
|
|
|
14
June 2006
|
5.56
|
1,770,000
|
|
|
25
May 2007
|
7.29
|
1,857,000
|
|
Zhou
Shouwei
|
12
March 2001
|
1.19
|
1,400,000
|
|
27
August 2001
|
1.232
|
1,750,000
|
|
|
24
February 2003
|
2.108
|
1,750,000
|
|
|
5
February 2004
|
3.152
|
1,750,000
|
|
|
31
August 2005
|
5.62
|
2,450,000
|
|
|
14
June 2006
|
5.56
|
2,700,000
|
|
|
25
May 2007
|
7.29
|
2,835,000
|
|
|
Cao
Xinghe
|
31
August 2005
|
5.62
|
800,000
|
|
14
June 2006
|
5.56
|
1,770,000
|
|
|
25
May 2007
|
7.29
|
1,857,000
|
|
|
Wu
Zhenfang
|
31
August 2005
|
5.62
|
800,000
|
|
14
June 2006
|
5.56
|
1,770,000
|
|
|
25
May 2007
|
7.29
|
1,857,000
|
|
|
Wu
Guangqi
|
31
Aug 2005
|
5.62
|
1,610,000
|
|
14
June 2006
|
5.56
|
1,770,000
|
|
|
25
May 2007
|
7.29
|
1,857,000
|
|
-
40
-
| APPENDIX |
GENERAL
INFORMATION
|
|
Yang
Hua
|
12
March 2001
|
1.19
|
1,150,000
|
|
27
August 2001
|
1.232
|
1,150,000
|
|
|
24
February 2003
|
2.108
|
1,150,000
|
|
|
5
February 2004
|
3.152
|
1,150,000
|
|
|
31
August 2005
|
5.62
|
1,610,000
|
|
|
14
June 2006
|
5.56
|
1,770,000
|
|
|
25
May 2007
|
7.29
|
1,857,000
|
|
|
Chiu
Sung Hong
|
5
February 2004
|
3.152
|
1,150,000
|
|
Evert
Henkes
|
5
February 2004
|
3.152
|
1,150,000
|
Save
as disclosed above, as at the
Latest Practicable Date, none of the Directors and chief executive
of the
Company was interested in the equity or debt securities of the Company
or any
associated corporations (within the meaning of the SFO) which were
required (i)
to be notified to the Company and the Stock Exchange pursuant to Divisions
7 and
8 of Part XV of the SFO (including interests and short positions which
they are
taken or deemed to have under such provisions of the SFO), (ii) pursuant
to
section 352 of the SFO, to be entered in the register referred to therein
or
(iii) pursuant to the Model Code for Securities Transactions by Directors
of
Listed Issuers, to be notified to the Company and the Stock
Exchange.
3. SUBSTANTIAL
SHAREHOLDER
As
at the Latest Practicable Date, so
far as was known to the Directors and chief executive of the Company,
the
persons, other than a Director or chief executive of the Company, who
had an
interest or a short position in the Shares and underlying Shares which
would
fall to be disclosed to the Company under the provisions of Divisions
2 and 3 of
Part XV of the SFO were as follows:
|
Name
of substantial shareholder of the Company
|
Ordinary
shares held
|
Approximate
percentage of the total issued shares
|
|
CNOOC
(BVI)
|
28,772,727,268
|
65.08%
|
|
OOGC
|
28,772,727,273
|
65.08%
|
|
CNOOC
|
28,772,727,273
|
65.08%
|
|
|
Note:
|
CNOOC
(BVI) is a wholly-owned subsidiary of OOGC, which in turn
is a
wholly-owned subsidiary of CNOOC. Accordingly, CNOOC (BVI)’s interests are
recorded as the interests of OOGC and
CNOOC.
|
All
the interests stated above
represent long positions. As at the Latest Practicable Date, no short
positions
were recorded in the Register of Interests in Shares and Short Positions
required to be kept under section 336 of the SFO.
Save
as disclosed above, the Directors
and chief executive of the Company are not aware that there is any
party who, as
at the Latest Practicable Date, had an interest or a short position
in the
Shares and underlying Shares which would fall to be disclosed to the
Company
under the provisions of Divisions 2 and 3 of Part XV of the SFO, or
who is,
directly or indirectly, interested in 10% or more of the nominal value
of any
class of share capital carrying rights to vote in all circumstances
at general
meetings of any other member of the Group.
4. PROFESSIONAL
QUALIFICATIONS AND CONSENTS
The
following are the qualifications of
the experts who have given their opinions or advices which are contained
in this
Circular:
|
Names
|
Qualifications
|
|
Somerley
Limited
|
A
corporation licensed to carry out type 1 (dealings in securities),
type 4
(advising on securities), type 6 (advising on corporate finance)
and type
9 (asset management) regulated activities under the SFO
|
|
Sallmanns
(Far East) Limited
|
Independent
property valuer
|
-
41
-
| APPENDIX |
GENERAL
INFORMATION
|
|
(a)
|
As
at the Latest Practicable Date, none of Somerley and Sallmanns
(Far East)
Limited had any beneficial interest in the share capital
of any member of
the Group or had any right, whether legally enforceable
or not, to
subscribe for or to nominate persons to subscribe for securities
in any
member of the Group and did not have any interest, either
directly or
indirectly, in any assets which had been, since 31 December
2006, being
the date of the latest published audited accounts of the
Company, acquired
or disposed of by or leased to or are proposed to be acquired
or disposed
of by or leased to any member of the Group.
|
|
(b)
|
Somerley
and Sallmanns (Far East) Limited have given and have not
withdrawn their
respective written consent to the issue of this Circular
with inclusion of
their opinions and letters, as the case may be, and the
reference to their
names included herein in the form and context in which
they respectively
appear.
|
5. LITIGATION
Neither
the Company nor any of its
subsidiaries is engaged in any litigation or arbitration of material
importance
and, so far as the Directors are aware, no litigation or arbitration
of material
importance is pending or threatened against the Company.
6. MATERIAL
ADVERSE CHANGE
As
at the Latest Practicable Date, the
Directors are not aware of any material adverse change in the financial
or
trading positions of the Company since 31 December 2006, being the
date of the
latest published audited financial statement of the Company.
7. SERVICE
CONTRACTS
As
at the Latest Practicable Date, none
of the Directors had entered into any service contract with the Company
or any
member of the Group referred to in Rule 13.68 of the Listing Rules
(excluding
contracts expiring or determinable by the employer within one year
without
payment of compensation (other than statutory compensation)).
8. INTERESTS
OF DIRECTORS
|
(a)
|
The
Directors are not aware that any Director had, as at the
Latest
Practicable Date, any interest in any business which competes
or is likely
to compete, either directly or indirectly, with the business
of the Group
which would be required to be disclosed under the Listing
Rules.
|
|
(b)
|
No
Director was materially interested in any contract or arrangement
subsisting at the Latest Practicable Date which was significant
to the
business of the Group taken as a whole.
|
|
(c)
|
Since
31 December 2006, being the date of the latest published
audited
consolidated accounts of the Company, none of the Directors
has, or has
had, any direct or indirect interest in any assets which
have been
acquired or disposed of by or leased to or which are proposed
to be
acquired, disposed of by or leased to, any member of the
Group.
|
9. PROCEDURES
FOR DEMANDING A POLL
Pursuant
to Article 69(a) of the
Articles of Association, a resolution put to the vote of a general
meeting shall
be decided on a show of hands unless (before or on the declaration
of the result
of the show of hands or on the withdrawal of any other demand for a
poll) a poll
is demanded by:
|
(a)
|
the
Chairman of such meeting; or
|
|
(b)
|
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; or
|
|
(c)
|
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 the aggregate not less than one-tenth of the
total voting
rights of all members having the right to attend and vote
at the meeting;
or
|
-
42
-
| APPENDIX |
GENERAL
INFORMATION
|
|
(d)
|
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
one-tenth of the total sum paid up on all shares conferring
that
right.
|
10. GENERAL
|
(a)
|
The
registered office of the Company is situated at 65th Floor,
Bank of China
Tower, 1 Garden Road, Hong Kong.
|
|
(b)
|
The
Company’s registrar is Hong Kong Registrars Limited of Shops 1712-1716,
17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong
Kong.
|
|
(c)
|
The
Company Secretary of the Company is Kang Xin.
|
|
(d)
|
The
Qualified Accountant of the Company is Li Feilong.
|
|
(e)
|
The
English texts of this Circular and the accompanying form
of proxy shall
prevail over the Chinese texts.
|
11. DOCUMENTS
AVAILABLE FOR INSPECTION
Copies
of the following documents will
be available for inspection during normal business hours at the offices
of
Herbert Smith at 23rd Floor, Gloucester Tower, 15 Queen’s Road Central, Hong
Kong, from the date of this Circular up to and including 30 November
2007:
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(a)
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the
Articles of Association;
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(b)
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the
Comprehensive Framework Agreements entered into between
the Company and
each of CNOOC, COSL, BlueChemical and CNOOC
Engineering;
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(c)
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the
letter of recommendation from the Independent Board Committee,
the text of
which is set out on page 30 of this Circular;
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(d)
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the
letter issued by Somerley, the text of which is set out
on pages 31 to 57
of this Circular;
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(e)
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the
letter issued by Sallmanns (Far East) Limited confirming
certain matters
set forth out in the Letter from the Board referred to
on page 16 of this
Circular; and
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(f)
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the
written consents of Somerley and Sallmanns (Far East) Limited
referred to
in paragraph 4 of this appendix.
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-
43
-
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 883)
NOTICE
IS HEREBY GIVEN
that an extraordinary general meeting of the shareholders
of CNOOC
Limited (the “Company”) will be held at Island Shangri-La, Pacific Place,
Supreme Court Road, Central, Hong Kong on 6 December 2007 at 2 p.m.
for the
purpose of considering and, if thought fit, passing, with or without
modification, the following resolutions as Ordinary Resolutions:
ORDINARY
RESOLUTIONS
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1.
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“THAT
the Revised Cap for the “Provision of exploration and support
services” category of continuing connected transactions, as described
in
the circular of the Company dated 13 November 2007 (the “Circular”), be
and is hereby approved, ratified and
confirmed.”
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2.
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“THAT
the Non-exempt Continuing Connected Transactions
as described in
the Circular, which the Company expects to occur on a regular
and
continuous basis in the ordinary and usual course of business
of the
Company and its subsidiaries, as the case may be, and to
be conducted on
normal commercial terms, be and are hereby generally and
unconditionally
approved and that any Director of the Company be and is hereby
authorised
to do all such further acts and things and execute such further
documents
and take all such steps which in their opinion may be necessary,
desirable
or expedient to implement and/or give effect to the terms
of such
transactions.”
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3.
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“THAT
the Proposed Caps for each category of the Non-exempt
Continuing
Connected Transactions, as described in the Circular, be
and are hereby
approved, ratified and confirmed.”
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|
By
Order of the Board
CNOOC
Limited
Kang
Xin
Company
Secretary
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Hong
Kong,
13 November 2007
Registered
Office:
65th
Floor, Bank of China Tower
1
Garden
Road
Central
Hong
Kong
Notes:
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1.
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The
register of members of the Company will be closed from 3
December 2007 to
6 December 2007 (both dates inclusive) during which no transfer
of shares
will be registered. In order to qualify for voting at the
EGM, members are
reminded to ensure that all instruments of transfer of shares
accompanied
by the relevant share certificate(s), must be lodged with
the Company´s
registrar, Hong Kong Registrars Limited, at Shops 1712-1716,
17/F,
Hopewell Centre, 183 Queen´s Road East, Wanchai, Hong Kong for
registration not later than 4:30 p.m. on 30 November
2007.
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2.
|
A
member entitled to attend and vote at the EGM convened by
this notice is
entitled to appoint one or more proxies to attend and vote
in his stead. A
proxy need not be a member of the
Company.
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3.
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To
be effective, the instrument appointing a proxy together
with the power of
attorney or other authority, if any, under which it is signed
or a
certified copy of that power or authority, must be completed
and returned
to the
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Company´s
registered office at 65th Floor, Bank of China Tower, 1
Garden Road, Hong
Kong, not less than 48 hours before the time for holding
the EGM or any
adjournment thereof.
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4.
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A
form of proxy for use at the meeting is enclosed. Completion
and return of
the form of proxy will not preclude shareholders from attending
and voting
in person at the EGM or any adjournment thereof and, in such
event, the
relevant form of proxy shall be deemed to be
revoked.
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5.
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Where
there are joint registered holders of any Share, any one
of such persons
may vote at the EGM, either personally or by proxy, in respect
of such
Share as if he were solely entitled thereto; but if more
than one of such
joint registered holders be present at the EGM personally
or by proxy,
then the registered holder so present whose name stands first
on the
register of members of the Company in respect of such Share
will alone be
entitled to vote in respect
thereof.
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6.
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Capitalised
terms used in this notice have the same meaning as is set
out in the
section entitled “Definitions” on pages 1 to 4 of the Circular of the
Company dated 13 November 2007.
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