SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For December 9, 2002
CNOOC Limited
(Translation of registrant's name into English)
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65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
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(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934.)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): N/A.)
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
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If you are in any doubt as to any aspect of this circular, or as to the action
to be taken, you should consult your stockbroker or other registered dealer in
securities, 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 hand this circular, together with the enclosed form of proxy, to the
purchaser or the transferee or to the bank, stockbroker or other agent through
whom the sale was effected for transmission to the purchaser or the
transferee.
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.
_______________________________________________________________________________
CNOOC Limited
[CHINESE CHARACTERS]
(Incorporated in Hong Kong with limited liability
under the Companies Ordinance)
ONGOING CONNECTED TRANSACTIONS
Independent Financial Adviser to the Independent Board Committee
_______________________________________________________________________________
A letter from the Independent Board Committee is set out on pages 19 to 20 of
this circular.
A letter from Cazenove Asia Limited, the independent financial adviser,
containing its advice to the Independent Board Committee is set out on pages
21 to 34 of this circular.
An extraordinary general meeting of CNOOC Limited is to be held at Island
Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong at 11
am on 23 December 2002. A copy of the notice convening such extraordinary
general meeting, which was dispatched on 5 December 2002, is set out on pages
39 to 40 of this circular for ease of reference. Whether or not you are able
to attend the meeting, you are requested to complete and return the form of
proxy, despatched together with the notice of meeting on 5 December 2002 and a
further copy of which is enclosed for convenience, in accordance with the
instructions printed thereon as soon as possible to the registered office of
CNOOC Limited at 65/F, Bank of China Tower, 1 Garden Road, Hong Kong in any
event not less than 48 hours before the time appointed for holding of the
meeting. Completion and return of the form of proxy will not preclude you from
attending and voting at the meeting should you so desire.
9 December 2002
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CONTENTS
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Page
Definitions ............................................................... 1
Letter from the Board
1. Introduction...................................................... 3
2. Ongoing Connected Transactions.................................... 3
3. Reason and Benefit of the Ongoing Connected Transactions.......... 7
4. Disclosure requirement and waiver sought.......................... 7
5. Approval by Independent Shareholders.............................. 10
6. EGM............................................................... 11
7. Recommendation.................................................... 11
8. Additional information............................................ 11
Letter from the Independent Board Committee ............................... 12
Letter from Cazenove Asia Limited ......................................... 13
Appendix - General Information ............................................ 22
Notice of Extraordinary General Meeting ................................... 25
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DEFINITIONS
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In this circular, the following expressions have the following meanings
unless the context requires otherwise:
"associates" has the meaning ascribed to it in the Listing Rules
"Board" the board of Directors
"Cazenove" Cazenove Asia Limited, an investment adviser and dealer
registered under the Securities Ordinance (Chapter 333
of the Laws of Hong Kong)
"Chairman" the chairman of the Board
"Circular" the circular issued by the Company dated 9 December 2002
in respect of the on-going connected transactions
entered into between the Group and CNOOC Group
"CNOOC" [CHINESE CHARACTERS] (China National Offshore Oil
Corporation), a state-owned enterprise incorporated
under the laws of PRC on 12 February 1982, and the
indirect controlling shareholder of the Company
"CNOOC BVI" CNOOC (BVI) Limited, a company incorporated on 6 August
1999 in the British Virgin Islands with limited
liability, a wholly-owned indirect subsidiary of CNOOC
and the controlling shareholder of the Company
"CNOOC China" CNOOC China Limited, a wholly foreign-owned enterprise
established on 15 September 1999 under the laws of the
PRC, which is wholly-owned by the Company
"CNOOC Group" CNOOC and, following the Restructuring, its subsidiaries
and affiliates, excluding the Group
"Company" CNOOC Limited, a company incorporated on 20 August 1999
in Hong Kong under the Companies Ordinance with limited
liability
"Director(s)" the director(s) of the Company
"EGM" an extraordinary general meeting of the Company to be
held to approve the Ongoing Connected Transactions
"Existing Waiver" the waiver granted by the Stock Exchange on 3 April 2001
to the Company in respect of the Ongoing Connected
Transactions between the Group and CNOOC Group, subject
to the conditions set out in such waiver
"Group" the Company and its subsidiaries
"HK$" Hong Kong dollars, the lawful currency of Hong Kong
"Independent Shareholders" Shareholders other than CNOOC BVI and its associates
"Independent board committee" an independent committee of the Board of directors of
the or "IBC" Company established on 2 December 2002 for
the purpose of reviewing the Ongoing Connected
Transactions, which comprises Mr So Chak Kwong and Mr
Chiu Sung Hong, both of whom are independent
non-executive directors of the Company
"IPO" the Initial Pubic Offering of the Company's shares in
the year 2001
"Latest Practicable Date" 4 December 2002, being the latest practicable date
before the printing of this circular for ascertaining
certain information for the purpose of inclusion in this
circular
"Listing Rules" the Rules Governing the Listing of Securities on the
Stock Exchange
"New Waiver" the waiver submitted to the Stock Exchange by the
Company applying for a waiver from strict compliance of
the Listing Rules in respect of the Ongoing Connected
Transactions
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DEFINITIONS
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"Ongoing Connected Transactions" the ongoing connected transactions which are and will
continue to be entered into between the Group and the
CNOOC Group comprising the connected transactions which
were the subject of the Existing Waiver
"PRC" the People's Republic of China
"Prospectus" the prospectus dated 16 February 2001 issued by the
Company relating to its IPO and the listing of its shares
on the Stock Exchange
"Restructuring" the restructuring of CNOOC Group of companies now
comprised within the Group and their respective
businesses, effective 1 October 1999 and as detailed in
the Prospectus
"Rmb" Renminbi, the lawful currency of the PRC
"S$" Singapore dollars, the lawful currency of Singapore
"SDI Ordinance" Securities (Disclosure of Interests) Ordinance (Chapter
396 of the Laws of Hong Kong)
"Shareholder(s)" the holder(s) of the shares of the Company
"Stock Exchange" The Stock Exchange of Hong Kong Limited
For the purpose of this circular, unless otherwise indicated, the
exchange rates at HK$1.00 = Rmb1.06 have been used, where applicable, for
purpose of illustration only and not constitute a representation that any
amount have been, could have been or may be exchanged.
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LETTER FROM THE BOARD
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CNOOC Limited
[CHINESE CHARACTERS]
(Incorporated in Hong Kong with limited liability
under the Companies Ordinance)
Board of Directors: Registered Office:
Wei Liucheng (Chairman) 65/F, Bank of China Tower
Fu Chengyu 1 Garden Road
Jiang Longsheng Hong Kong
Zhou Shouwei
Luo Han
So Chak Kwong*
Chiu Sung Hong*
Kenneth Courtis*
Dr. Erwin Schurtenberger*
* Independent non-executive Director
9 December 2002
To the Shareholders
Dear Sir or Madam,
ONGOING CONNECTED TRANSACTIONS
1. INTRODUCTION
As you would no doubt be aware, the Company is an indirect subsidiary of
CNOOC with CNOOC indirectly owning approximately 70.61% of the issued share
capital of the Company. Accordingly, transactions between CNOOC Group and the
Company constitute connected transactions for the Company for the purpose of
Listing Rules.
On 14 November 2000, the Company made an application for a waiver to the
Stock Exchange from strict compliance with the relevant requirement of the
Listing Rules in respect of the Ongoing Connected Transactions between CNOOC
Group and the Company. Subsequently, the Stock Exchange, on 3 April 2001,
granted the Existing Waiver to the Company subject to, inter alia, the
conditions set out in the Prospectus. The Existing Waiver will expire on 31
December 2002 and the Company has applied to the Stock Exchange for the New
Waiver. An announcement was made by the Company on 5 December 2002 in relation
the convening of an extraordinary general meeting to be held on 23 December
2002 for the purpose of considering and, if thought fit, approving the Ongoing
Connected Transactions.
The Company is currently proposing to increase the annual limits of
certain categories of Ongoing Connected Transactions in its New Waiver as
compared with the annual limits in the Existing Waiver, further details of
which are set out in the paragraphs headed "Disclosure Requirement and Waiver
Sought" of this letter.
The main purposes of this circular are (i) to provide you with detailed
information relating to the Ongoing Connected Transactions; (ii) to set out
the letter of advice from Cazenove Asia Limited to the IBC and recommendation
and opinion of the IBC as advised by Cazenove Asia Limited in relation to the
Ongoing Connected Transactions; and (iii) to seek your approval at the EGM of
the ordinary resolution in relation to the Ongoing Connected Transactions.
2. ONGOING CONNECTED TRANSACTIONS
The following connected transaction agreements were entered into between
the Group and the CNOOC Group at the time of the Company's IPO. The Directors
expect that the Company will continuously enter into transactions with CNOOC
Group as stated in these agreements, which will constitute Ongoing Connected
Transactions:
o Contracts with foreign petroleum companies;
o Trademark licence agreements;
o Lease agreement in respect of Nanshan terminal;
o Provision of materials, utilities and ancillary services;
o Technical services;
o Research and development services;
o Lease and property management services; and
o Sales of crude oil, condensate oil and liquefied petroleum gas.
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Contracts with foreign petroleum companies
Immediately prior to the Restructuring, CNOOC had 37 production sharing
contracts and one geophysical survey agreement with various international oil
and gas companies. As part of the Restructuring, and in preparation for the
Company's IPO, CNOOC transferred to the Group all of its rights and
obligations under these contracts and future contracts, except those rights
and obligations relating to CNOOC's administrative functions. However, CNOOC
remains and will remain a party to the production sharing contracts, as
required by existing laws and regulations. Under PRC national law, the
negotiation of a production sharing contract is a function that only a
national company, such as CNOOC, can perform. This function cannot be
transferred to the Company because the Company is a pure commercial entity.
Following the Global Offering, the Group has continued to deal with CNOOC with
respect to the performance of the rights and obligations retained by CNOOC
under the production sharing contracts. The Company expects that it will
continue to enter into such arrangements with the CNOOC in the future.
New production sharing contracts are entered into between CNOOC and
foreign partners primarily through bidding organised by CNOOC and, to a lesser
extent, through direct negotiation.
Trademark licence agreements
CNOOC and CNOOC's associate are the respective registered owners of two
"CNOOC" trademarks. Under two non-exclusive licence agreements entered into on
9 September 1999 and which are due to expire on 8 September 2008, the Group
has obtained the right to use the trademarks for a nominal consideration of
Rmb1,000 for each of the trademarks. The registration of the trademarks will
expire on 6 December 2008 and 20 April 2009, respectively. Each of CNOOC and
CNOOC's associate has undertaken that so long as CNOOC is the controlling
shareholder (as defined in the Listing Rules) of the Company, it will renew
the registration of the trademarks to enable the Group to continue to use the
trademarks without any additional payment.
Lease agreement in respect of Nanshan Terminal
Under an agreement dated 9 September, 1999 among CNOOC, CNOOC's
associate and the Group, CNOOC and its associate have granted the Group a
right to use the land and buildings comprising the Nanshan Terminal, Yacheng
13-1 without any consideration payable to CNOOC or its associate for a term of
20 years. The property is occupied by the Group for natural gas processing
purposes.
Provision of materials, utilities and ancillary services
After the establishment of CNOOC, four PRC subsidiaries were formed to
undertake the exploration and production of oil and natural gas businesses. In
addition, their scope of business included the provision of various facilities
and ancillary services, such as the supply of materials for offshore oil and
gas production, medical and employee welfare services, major equipment
maintenance and repair work and the supply of water, electricity and heat.
After the Restructuring, these PRC subsidiaries of CNOOC no longer
undertake the exploration and production of oil and natural gas businesses but
continue to hold interests in various properties, including office buildings
and warehouses, and to provide to CNOOC China, a wholly-owned subsidiary of
the Company, facilities and ancillary services, some of which may not be
available from independent third parties or available on comparable terms.
Currently, these PRC subsidiaries of CNOOC only provide facilities and
ancillary services to the Group. Following the expiry of existing supply
agreements in September 2002, CNOOC China renewed such supply agreements with
each of the four PRC subsidiaries of CNOOC for the supply of materials,
utilities and ancillary services under the terms described below. Under these
agreements, each of these four PRC subsidiaries provide to CNOOC China various
materials, utilities and ancillary services, including:
o materials for offshore oil and gas production (including cement,
diesel oil, mud, fuels, barite and paint);
o oil and gas production labour services;
o warehousing and storage;
o road transportation services;
o telecommunication and network services;
o wharf services;
o construction services, including the construction of roads, piers,
buildings, plants and embankment;
o major equipment maintenance and repair works; medical, child care
and social welfare services; water, electricity and heat supply;
o security and fire services; technical training; accommodation;
o repair and maintenance of buildings; and o catering services.
The materials, utilities and ancillary services will be provided at:
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LETTER FROM THE BOARD
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(i) state-prescribed prices; or
(ii) where there is no state-prescribed price, market prices, including
the local or national market prices; or
(iii) when neither (i) nor (ii) is applicable, the cost to CNOOC's
associates of providing the relevant materials, utilities and
ancillary services, including the cost of sourcing or purchasing
from third parties, plus a margin of not more than 5%, before any
applicable taxes.
The prices, volumes and other terms for the supply of materials,
utilities and ancillary services will be reviewed by the parties annually. If
any of the terms are to be amended, the parties will enter into a supplemental
agreement no later than 60 days prior to the end of the financial year
preceding the financial year in which such amendments are to take effect. If
the parties fail to reach an agreement by then, the existing terms of the
supply agreement will continue to apply until the parties agree on the terms
of the supplemental agreement. The Company undertakes to comply with the
provisions of the Listing Rules for any supplemental agreements to be entered
into subsequently.
For the two years ended 31 December 2001 and the six months ended 30
June 2002 the historical costs of the materials, utilities and ancillary
services provided to the Group were Rmb793 million, Rmb815 million and Rmb272
million, respectively, representing 3.27%, 3.91% and 2.56%, respectively, of
the Group's total revenues.
Technical services
Since the establishment of CNOOC, a number of specialised companies have
been formed by CNOOC to provide sub-contracting services for CNOOC's offshore
oil and gas production activities. These specialised companies have provided
services to the operators of oil and gas fields under the production sharing
contracts through an open bidding process.
In connection with the Restructuring, CNOOC's associates transferred to
the Group the existing technical services agreements with the specialised
companies. In 2002, the specialised companies novated these agreements to
China Oilfield Services Limited ("COSL"), a company listed on the main board
of the Stock Exchange and a subsidiary of CNOOC, who has since assumed the
rights and obligations of the specialised companies thereunder, except in
relation to the provision of engineering and construction services. The Group
may terminate any of these agreements by giving 30 days' written notice to
COSL or the specialised companies, as the case may be. The Group will continue
to use the technical and labour services provided by COSL and the specialised
companies, including:
o offshore drilling;
o ship tugging, oil tanker transportation and security services;
o well survey, well logging, well cementation and other related
technical services;
o collection of geophysical data, ocean geological prospecting, and
data processing;
o platform fabrication service and maintenance; and
o design, construction, installation and test of offshore and onshore
production facilities.
For the two years ended 31 December 2001 and the six months ended 30
June 2002, the charges for such technical services payable to COSL (or its
predecessors, as the case may be) and the specialised companies, as the case
may be, were approximately Rmb 2,038 million, Rmb 2,367 million and Rmb 918
million, respectively, representing 8.41%, 11.37% and 8.63%, respectively, of
the Group's total revenue. These costs are based on arm's length negotiations
with COSL on normal commercial terms or on terms that are no less favourable
than those available to 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 and, in the case of the specialised companies, are based on an open
bidding process. The Company expects that the costs relating to any future
contract with COSL or the specialised companies will be on a similar basis.
Research and development services
General research and development services
Under the terms of an original general research and development services
agreement dated 9 September 1999 with CNOOC's subsidiaries and China Offshore
Oil Research Centre ("the Centre"), the Group pays the Centre for a term of
three years from 9 September 1999, an annual amount of Rmb110 million, for the
provision of the services, including:
o geophysical exploration services;
o seismic data processing;
o comprehensive exploration research services; and
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o information technology services.
The Group may terminate the agreement by giving three months' written
notice to the Centre. The Centre undertakes that the number of working hours
spent by its senior, middle rank and junior staff on services provided to the
Group under the agreement will not be less than 187,000, 215,000 and 150,000
hours per year, respectively, which is in line with the number of working
hours spent by such staff during the two years ended 31 December 1998. After
the first year, the Group may request downward adjustments in light of the
Group's requirements.
Following the expiry of the original three years' term of the general
research and development services agreement, the Group and the Centre entered
into a supplemental agreement to renew the original general research and
development services agreement on the same terms and conditions for an
indefinite period.
Research and development services for particular projects
The Group may also use the research and development services provided by
the Centre for the provision of research and development services for
particular projects through an open bidding process, for example in relation
to the exploration and development of oilfields. For the two years ended 31
December 2001 and the six months ended 30 June 2002, the costs for research
and development services for particular projects through an open bidding
process, were approximately Rmb 52 million, Rmb 50 million and Rmb 46 million,
respectively, representing approximately 0.21%, 0.24% and 0.43%, respectively,
of the Group's total revenues. The agreements for provision of research and
development services for particular projects are entered into on a
project-by-project basis.
Lease and property management services
CNOOC's associate and the Group have entered into an agreement and
management agreements in respect of certain premises situated at CNOOC Plaza,
No. 6 Dongzhimenwai Xiaojie, Beijing, the PRC as the head office of the Group
in Beijing. The gross floor area of the premises is approximately 6,060 square
metres. The monthly rent is Rmb 996,100 and the annual management fees are Rmb
2,004,270. Both the lease agreement and the management agreements are for a
fixed term of four years commencing 1 January 2000.
CNOOC's associate and the Group entered into an office lease agreement
in respect of certain office premises at 2-37 He Kou Jie, Tanggu District,
Tianjin, the PRC. The gross floor area of the premises is approximately 12,245
square metres. The monthly rent (including management fee but excluding water
and electricity charges) is Rmb1,127,108. The lease agreement is for a fixed
term of four years commencing 1 January 2000.
CNOOC's associate and the Group entered into an office lease agreement
in respect of office premises at Nantiao Road, Potou District, Zhanjiang,
Guangdong Province, the PRC. The gross floor area of the premises is
approximately 9,670 square metres. The monthly rent (including management fee
but excluding water and electricity charges) is Rmb560,650. The lease
agreement is for a fixed term of four years commencing 1 January 2000.
CNOOC's associate and the Group entered into an office lease agreement
in respect of office premises at 20th, 22nd and 23rd Floors, 583 Lingling
Road, Shanghai, the PRC. The gross floor area of the premises is approximately
3,439 square metres. The monthly rent (including management fee but excluding
water and electricity charges) is Rmb 392,046. The lease agreement is for a
fixed term of four years commencing 1 January 2000.
CNOOC's associate and the Group entered into two lease agreements in
respect of certain premises situated at 1 Second Industrial Road, Shekou,
Shenzhen, the PRC. The gross floor area of the premises is approximately 5,440
square metres. The monthly rent (including management fees but excluding water
and electricity charges) is Rmb530,657. The lease agreements are for a fixed
term of four years commencing 1 January 2000.
The Group entered into lease agreements with CNOOC's associate in
respect of the three residential premises at 60 Bayshore Road and 50 Bayshore
Road, Singapore at an aggregate quarterly rental of S$4,000 (excluding an
aggregate quarterly service fee of approximately S$2,311). The lease
agreements expired on 30 September 2002 and the Group expects to renew the
leases prior to the EGM on the same terms as previously agreed.
The aggregate amount of the annual rentals under these lease agreements
is approximately Rmb 43.3 million. The aggregate amount of management fees
payable under the management agreements are Rmb 2,004,270 million. Sallmanns
(Far East) Limited, an independent 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 fees, respectively.
The Company has entered into further lease agreements with CNOOC Group
since the IPO and will continue to enter into further leases from time to time
on normal commercial terms, subject to the annual limits set out below. For
the two years ended 31 December 2001 and the six months ended 30 June 2002,
the aggregate rentals and management fees payable by the Group were
approximately Rmb 49 million, Rmb 46 million and Rmb 27 million, respectively.
Sales of crude oil, condensate oil and liquefied petroleum gas
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The Group may sell crude oil, condensate oil and liquefied petroleum gas
to associates of CNOOC which engage in the downstream petroleum business at
international market prices on normal commercial terms. The prices for such
sales are, and will be, no less favourable to the Group than the prices for
sales to independent third party customers of the Group such as China
Petroleum & Chemical Corporation, PetroChina Company Limited and Castle Peak
Power Company Limited. For the two years ended 31 December 2001 and the six
months ended 30 June 2002, the total amounts the Group received from
associates of CNOOC were Rmb 508 million, Rmb 1,814 million and Rmb 1,950
million, respectively, representing approximately 2.1%, 8.7% and 18.3% of the
Group's total revenues for the respective periods.
3. REASONS FOR AND BENEFIT OF THE ONGOING CONNECTED TRANSACTIONS
Prior to the Restructuring of CNOOC and establishment of the Company,
the members of CNOOC Group 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 Group will
constitute Ongoing Connected Transactions for the Company under Listing Rules.
The Ongoing Connected Transactions as referred to in the Circular 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
it to be beneficial to the Company to continue to enter into the Ongoing
Connected Transactions as these transactions have facilitated and will
continue to facilitate the operation and growth of the Company's business.
4. DISCLOSURE REQUIREMENT AND WAIVER SOUGHT
Under the Listing Rules, the Ongoing Connected Transactions as stated in
Part 2 above would normally require full disclosure and/or prior Independent
Shareholders' approval. However, as such transactions have been, and/or will
continue to be carried out in the ordinary and usual course of business and
occur on a regular basis on normal commercial terms and on terms that are fair
and reasonable so far as the Shareholders are concerned, the Directors
considered that it would not be practical to make disclosure or if necessary,
obtain Shareholders' approval for each Ongoing Connected Transaction as it
arises.
In relation to the Ongoing Connected Transactions, the Company has
applied to the Stock Exchange to grant a waiver for a period of three years up
to 31 December 2005 from the relevant requirements of the Listing Rules in
respect of the Ongoing Connected Transactions as described above and matters
arising out or in connection with such Ongoing Connected Transactions on the
conditions that:
i. in relation to the Ongoing Connected Transactions referred to in
the paragraphs headed "Contracts with foreign petroleum companies",
"Trademark licence agreements" and "Lease agreement in respect of
Nanshan Terminal" the transactions, and the respective agreements
(if any) governing such transactions, must be on terms that are
fair and reasonable so far as the Company's shareholders are
concerned and in relation to the Ongoing Connected Transactions
referred to in the paragraphs headed "Provision of materials,
utilities and ancillary services", "Technical services", "Research
and development services", "Lease and property management services"
and "Sales of crude oil, condensate oil and liquefied petroleum
gas" the transactions, and the respective agreements (if any)
governing such transactions must be:
a. entered into by the Group in its ordinary and usual course of
business;
b. either on normal commercial terms or, where there is no
available comparison, on terms no less favourable than those
available to or from independent third parties; and
c. on terms that are fair and reasonable so far as the
Shareholders are concerned;
ii. brief details of the Ongoing Connected Transactions in each year as
required by Rule 14.25(1)(A) to (D) of the Listing Rules, i.e., the
date or period of the transaction, the parties thereto and a
description of their connected relationship, a brief description of
the transaction and the purpose of the transaction, the total
consideration and the terms, and the nature and the extent of the
interest of the connected person in the transaction, shall be
disclosed in the Company's annual report and account for the
relevant year;
iii. the Company's independent non-executive directors shall review
annually the transactions and confirm, in the Company's annual
report and accounts for the year in question, that such
transactions have been conducted in the manner stated in (i) above
and, where applicable, within the limit stated in (v) below;
iv. the Company's auditors shall carry out review procedures annually
in relation to the Ongoing Connected Transactions and shall confirm
in writing whether the transactions:
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a. received the approval of the Directors;
b. have been entered into in accordance with the pricing
policies as stated in the Company's financial statements; and
c. have been entered into in accordance with the terms of the
agreement governing the transactions or, where there is no
agreement, on terms that are not less favourable than terms
available to or from independent third parties.
For the purpose of the above review by the Company's auditors,
CNOOC has undertaken to the Company that it will provide the
auditors with access to its relevant accounting records;
v. the aggregate annual volume of transactions shall not exceed the
proposed annual limits set out in the following table:
Annual limited Proposed annual
in the Existing limit in the New Basis of determination of
The transactions Waiver Waiver the new cap amounts
Materials, 10% of the 10% of the During the Relevant
utilities and audited audited Period, the maximum amount
ancillary services consolidated consolidated in this category was
supply agreements total revenues total revenues 3.91%. Based on this track
of the Company of the Company record and the projection
in the in the immediate of future needs of such
immediate preceding services and prices and
preceding financial year availability of
financial year alternative providers of
such services, the
Directors believe that the
new cap amount for the
three financial years
ending on 31 December 2005
should remain at 10% of
the audited consolidated
total revenues of the
Company in the immediate
preceding financial year.
The Directors believe that
the existing limit
provides sufficient
flexibility to the Group.
Technical Services In respect of In respect of During the Relevant
the three the three Period, the maximum amount
financial years financial years in this category was Rmb
ending 31 ending 31 2,367 million. Based on
December 2002, December 2005, the continued expansion of
Rmb 2,200 Rmb 5,853 existing oilfields and the
million, Rmb million, Rmb development of two new
3,800 million 7,338 million oilfields in Bohai Bay
and Rmb 5,300 and Rmb 4,880 which the Directors expect
million, million, to be completed by the end
respectively respectively of year 2004, the
Directors' believe that
the new cap amount for
such services should be
set at Rmb 5,853 million,
Rmb 7,338 million and Rmb
4,880 million for the
three financial years
ending on 31 December
2005. The increase in the
cap amounts for such
services also reflect the
fact that the Company is
increasingly involved in
the operation of
oilfields, which in turn
involves the provision of
a higher amount of
technical services. The
Directors are of the view
that the new cap amounts
provide sufficient
increment for the Group to
capture the Group's future
anticipated expansion plan.
8
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LETTER FROM THE BOARD
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Annual limited Proposed annual
in the Existing limit in the New Basis of determination of
The transactions Waiver Waiver the new cap amounts
Research and In respect of In respect of During the Relevant
development the three the three Period, the maximum amount
services for financial years financial years in this category was Rmb
particular projects ending 31 ending 31 52 million. Based on this
December 2002, December 2005, track record and the
Rmb 140 Rmb 141 million, Company's projection of
million, Rmb Rmb 148 million future needs for such
150 million and and Rmb 153 services, the Directors
Rmb 160 million, believe the new cap
million, respectively amounts for each of the
respectively three financial years
ending 31 December 2005
should be marginally
revised downward to Rmb
141 million, Rmb 148
million and Rmb 153
million respectively, to
take into account the
possible inclusion of the
research and development
service within the
Company. The Directors
believe such new cap
amounts provide sufficient
flexibility to the Group
Sales of crude oil, In respect of In respect of During the Relevant
condensate oil and the three the three Period, the maximum amount
liquefied petroleum financial years financial years in this category was Rmb
gas ending 31 ending 31 1,950 million
December 2002, December 2005, (representing 18% of the
4%, 25% and 42%, 56% and audited consolidated
38%, 82%, revenues of the Company
respectively, respectively, of for the six months ended
of the audited the audited 30 June 2002) and the
consolidated consolidated amount has been increasing
total revenues total revenues substantially during the
of the Company of the Company Relevant Period. Based on
in the in the immediate this track record and the
immediate financial year ongoing development of
financial year existing oilfields and the
development of two new
oilfields in Bohai Bay
which the Directors expect
to be completed by the end
of year 2004, the
Directors believe the new
cap amounts for the three
financial years ending on
31 December 2005 should
not exceed 42%, 56% and
82%, respectively, of the
audited consolidated total
revenues of the Company,
respectively. The
increases in such cap
amounts also reflect the
fact that the crude oil
from new oilfields, which
is made up of a higher
proportion of heavy crude
oil, needs to undergo
refining processes which
are carried out primarily
by CNOOC Group. The
increases in such cap
amounts also reflect the
fact that the Company may
be able to sell its
products at higher prices
to CNOOC Group due to
lower transportation
costs. The terms of such
sales to CNOOC Group are,
and will be, no less
favourable to the Group
than sales to independent
third parties. The cap
amounts are based on the
Company's own projections
of revenues and are
intended to provide the
Company with a certain
level of flexibility. The
Company will continue to
deal with other
9
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LETTER FROM THE BOARD
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Annual limited Proposed annual
in the Existing limit in the New Basis of determination of
The transactions Waiver Waiver the new cap amounts
customers in the normal course
of business. The Directors
believe such new cap
amounts provide sufficient
flexibility to the Group.
General research Rmb 110 million Rmb 110 million During the Relevant
and development Period, the maximum amount
services agreement in this category was Rmb
110 million. Based on this
track record and the
Company's projection of
future needs for such
services, the Directors
believe that the new cap
amount for the three
financial years ending 31
December 2005 should be
maintained at Rmb 110
million. The Directors
believe maintaining the
existing cap amount
provides sufficient
flexibility to the Group.
Lease and Rmb 55 million Rmb 78 million During the Relevant
management services Period, the maximum amount
in this category was Rmb
49 million. Based on the
Company's projection of
future expansion of its
business and availability
of alternative providers,
the Directors believe that
the new cap amounts for
each of the three years
ending 31 December 2005
should increase to Rmb 78
million. The Directors
believe such a new cap
amount provides sufficient
flexibility to the Group.
The proposed increase in the annual limits for the transactions is
primarily a result of the continued expansion in the scope and operations of
the Group, including the ongoing development of existing oilfields and the
development of two new oilfields in Bohai Bay Provision has been made in the
proposed annual limits for the transactions to take into consideration
increases in the amounts of such transactions due to the development and
operation of, and sales of crude oil from, the two new oilfields in Bohai Bay;
and
vi. the Company will undertake that if any of the terms of the
agreements or arrangements referred to above are altered or if the
Group enters into any new agreements with any connected persons
(within the meaning of the Listing Rules) in the future or if the
limits stated in (v) above are exceeded, the Company will comply
with the provisions of Chapter 14 of the Listing Rules dealing with
connected transactions unless it applies for and obtains a separate
waiver from the Stock Exchange.
5. APPROVAL BY INDEPENDENT SHAREHOLDERS
As CNOOC indirectly owns an aggregate of approximately 70.61% of the
issued share capital of the Company, transactions between CNOOC Group and the
Company constitute connected transactions for the Company under the Listing
Rules and are subject to approval from the Independent Shareholders.
In view of the interests of CNOOC held indirectly through CNOOC BVI,
CNOOC BVI and its associates will abstain from voting in relation to the
resolutions approving the Ongoing Connected Transactions. An Independent Board
Committee of the Company has been appointed to advise the Independent
Shareholders on whether or not the terms of the Ongoing Connected Transactions
are in the interest of the Company and are fair and reasonable so far as the
Independent Shareholders are concerned. An Independent Financial Adviser,
Cazenove Asia Limited, has been appointed to advise the Independent Board
Committee of the Company regarding the terms of the Ongoing Connected
Transactions. A letter from Cazenove Asia Limited containing its advice to the
IBC is set out on pages 21 to 34 of this Circular.
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LETTER FROM THE BOARD
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6. EGM
The Notice convening the EGM to be held at Island Shangri-la Hong Kong,
Two Pacific Place, Supreme Court Road, Hong Kong on 23 December 2002 at 11 am
was published and despatched to Shareholders of the Company on 5 December
2002. A form of proxy for use at the EGM was also enclosed. The EGM will be
held for the purpose of considering and, if thought fit, approving the Ongoing
Connected Transactions.
A form of proxy for use at the EGM is enclosed herewith. Whether or not
you are able to attend the EGM in person, you are requested to complete and
return the form of proxy in accordance with the instructions printed thereon
to the registered office of the Company at 65/F, 1 Garden Road, Hong Kong as
soon as possible but in any event no later than 48 hours before the time
appointed for the holding of EGM. Completion and return of the form of proxy
will not preclude you from attending and voting at the EGM should you wish.
As at the Latest Practicable Date, CNOOC BVI, which is a wholly-owned
indirect subsidiary of CNOOC, owned approximately 70.61% of the issued capital
of the Company, and will abstain from voting, along with its associates, in
respect of the ordinary resolutions to approve the Ongoing Connected
Transactions at the EGM because of its interest in these transactions.
7. RECOMMENDATION
Your attention is drawn to (i) the letter from the IBC set out on pages
19 to 20 of this circular which contains the recommendation of the IBC to the
Independent Shareholders concerning the Ongoing Connected Transactions; and
(ii) the letter from Cazenove Asia Limited set out from pages 21 to 34 of this
circular which contains its recommendations to the IBC on the Ongoing
Connected Transactions and the principal factors and reasons considered by
Cazenove Asia Limited in arriving at its recommendations.
The IBC, having taken into account the advice of Cazenove Asia Limited,
considers that the terms of the Ongoing Connected Transactions are fair and
reasonable so far as the Independent Shareholders are concerned and that the
Ongoing Connected Transactions are in the interests of the Company and the
Shareholders as a whole. Accordingly, it unanimously recommends that the
Independent Shareholders vote in favour of the ordinary resolutions to be
proposed at the EGM to approve the Ongoing Connected Transactions.
8. ADDITIONAL INFORMATION
Your attention is also drawn to the additional information set out in
the Appendix and the notice of the EGM set out in this circular.
Yours faithfully,
By order of the Board
CNOOC Limited
Wei Liucheng
Chairman
11
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
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CNOOC Limited
[CHINESE CHARACTERS]
(Incorporated in Hong Kong with limited liability
under the Companies Ordinance)
Independent Board Committee 9 December 2002
So Chak Kwong
Chiu Sung Hong
To the Independent Shareholders
Dear Sir or Madam,
RENEWAL OF WAIVER FOR ONGOING
CONNECTED TRANSACTIONS
We refer to the Circular dated 9 December 2002 of the Company of which
this letter forms part. Terms defined in the Circular shall have the same
meanings when used herein unless the context requires otherwise.
As CNOOC indirectly own an aggregate of approximately 70.61% of the
issued share capital of the Company, transactions between the Group and CNOOC
Group constitute connected transactions for the Company and the Group under
the Listing Rules and are subject to approval from the Independent
Shareholders.
In view of the interest of Independent Shareholders, we have been
appointed by the Board to constitute the IBC to consider and advise the
Independent Shareholders as to the fairness and reasonableness in relation to
the Ongoing Connected Transactions entered into, or to be entered into,
between the Group and CNOOC Group, details of which are set out in the Letter
from the Board in the Circular to the Shareholders. Cazenove Asia Limited has
been retained as the independent financial adviser to advise the IBC in this
respect. We wish to draw your attention to the letter from Cazenove Asia
Limited as set out on pages 21 to 34 of this Circular.
Having taken into account the information set out in the letter from the
Board, and the principal factors, reasons and recommendations set out in the
letter from Cazenove Asia Limited, we consider the terms of the Ongoing
Connected Transactions to be fair and reasonable from a financial point of
view insofar as the Independent Shareholders are concerned and believe that
the Ongoing Connected Transactions are in the interests of the Company and its
Shareholders as a whole. Accordingly, we recommend that the Independent
Shareholders should vote in favour of the resolutions to be proposed at the
EGM to approve the Ongoing Connected Transactions.
Yours faithfully,
So Chak Kwong Chiu Sung Hong
independent non-executive director independent non-executive director
Independent Board Committee
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LETTER FROM CAZENOVE ASIA LIMITED
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The following is the full text of the letter from Cazenove setting out
its advice to the independent board committee of CNOOC Limited in relation to
the Ongoing Connected Transactions
[Logo]
Cazenove Asia Limited
5001 One Exchange Square, 8 Connaught Place, Central, Hong Kong
9 December 2002
The Independent Board Committee
CNOOC Limited
65/F, Bank of China Tower
1 Garden Road
Hong Kong
Dear Sir and Madam,
ONGOING CONNECTED TRANSACTIONS
We refer to our engagement as an independent financial adviser to advise
the Independent Board Committee (the "IBC") with respect to whether the terms
of the Ongoing Connected Transactions are fair and reasonable so far as the
Independent Shareholders are concerned, details of the Ongoing Connected
Transactions are contained in the letter from the Board (the "Letter from the
Board") in the circular dated 9 December 2002 (the "Circular") issued to the
Shareholders of the Company. This letter has been prepared for inclusion in
the Circular and the terms used in this letter shall have the same meanings as
defined in the Circular unless the context otherwise requires.
In formulating our opinion with regard to the Ongoing Connected
Transactions, we have relied on the information supplied, representations made
and opinions expressed by the Company, its Directors, advisers,
representatives and Sallmanns (Far East) Limited ("Sallmanns"), an independent
valuer, for which they are solely responsible. We have assumed that all such
information and representations and those contained or referred to in the
Circular were true, accurate and complete at the time they were made and
continue to be so at the date of this letter. We have also assumed that all
statements of belief, opinion and intention of the Directors and the Company's
advisers as set out in the Circular were reasonably made after due and careful
enquiry. We have been advised by the Company and its advisers that there were
no material facts the omission of which would make any statement or opinion
contained in the Circular, including this letter, misleading.
We consider that we have been provided with, and we have reviewed,
sufficient information to enable us to reach an informed view regarding the
Ongoing Connected Transactions and to justify reliance on the accuracy of the
information provided to us and those contained in the Circular so as to
provide a reasonable basis for our advice. We have no reason to suspect that
any material facts or information have been omitted or withheld from the
information supplied or opinions expressed to us nor to doubt the truth,
accuracy and completeness of the information and representations provided, or
the reasonableness of the opinions expressed, to us by the Company, its
Directors, advisers and representatives. We have not, however, carried out any
independent verification of the information provided to us by the Company, its
Directors, advisers and representatives, nor have we conducted any independent
in-depth investigation into the business and affairs or future prospects of
the Group. Accordingly, we do not warrant the accuracy or completeness of any
such information.
This letter is for the information of the IBC solely in connection with
their consideration of the Ongoing Connected Transactions and, except for its
inclusion in the Circular, is not to be quoted or referred to, in whole or in
part, nor shall this letter be used for any other purpose, without our prior
written consent. In particular, this letter does not constitute a
recommendation to any Shareholder as to how such Shareholder should vote on
the Ongoing Connected Transactions.
Cazenove is a registered dealer under the Securities Ordinance (Chapter
333 of the Laws of Hong Kong). Cazenove and its affiliates, whose ordinary
businesses involve the trading of and dealing in securities, may involve in
the trading of, dealing in, and holding of the securities of the Company for
client accounts.
ONGOING CONNECTED TRANSACTIONS
Pursuant to an announcement dated 5 December 2002, the Directors
announced that the Company has applied to the Stock Exchange for a New Waiver
in respect of the Ongoing Connected Transactions for a period of three
financial years ending 31 December 2005. CNOOC indirectly owns an aggregate of
approximately 70.61% of the issued share capital of the Company, and
transactions between the CNOOC Group and the Group constitute connected
transactions for the Company under the Listing Rules and are subject to
approval from the Independent Shareholders.
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PRINCIPAL FACTORS CONSIDERED
In considering whether or not the terms of the Ongoing Connected
Transactions are fair and reasonable so far as the Independent Shareholders
are concerned, we have taken into consideration, inter alia, the following
principal factors:-
1. Background of the Existing Waiver
Prior to the Restructuring of CNOOC and establishment of the Company,
the members of the CNOOC Group and the Group operated as an integrated
organisation which undertook numerous intra-group transactions each year. As a
consequence of the Restructuring and following the listing of the Company's
shares on the Stock Exchange, a number of transactions which had been entered
into and which were to be entered into between the Group and the CNOOC Group
constituted connected transactions for the Company under the Listing Rules.
Under the Listing Rules, the Ongoing Connected Transactions would
normally require full disclosure and/or prior Independent Shareholders'
approval. At the time of the IPO, the Directors considered that it would not
be practical to make disclosure or if necessary, obtain Shareholders' approval
for each transaction as it arises as such transactions would be conducted in
the ordinary and usual course of business and occur on a regular basis on
normal commercial terms that were considered fair and reasonable so far as the
Shareholders were concerned. Therefore, on 14 November 2000, the Company made
an application for a waiver to the Stock Exchange from strict compliance with
the relevant requirements of the Listing Rules in respect of the Ongoing
Connected Transactions between the CNOOC Group and the Group. Subsequently,
the Stock Exchange, on 3 April 2001, granted the Existing Waiver to the
Company subject to, inter alia, the conditions set out in the Prospectus. The
Existing Waiver will expire on 31 December 2002 and the Company has applied to
the Stock Exchange for the New Waiver.
2. Nature and principal terms of the Ongoing Connected Transactions
The following connected transaction agreements were entered into between
the Group and the CNOOC Group at the time of the Company's IPO in relation to
which the Company has applied to the Stock Exchange for the New Waiver. The
Directors expect that the Company will continue to enter into transactions
with the CNOOC Group as stated in these agreements, which will constitute
Ongoing Connected Transactions:-
2.1 Contracts with foreign petroleum companies
As part of the Restructuring, and in preparation for the Company's
IPO, CNOOC transferred to the Group all of its rights and obligations
under the existing 37 production sharing contracts and one geophysical
survey agreement and future contracts, except those rights and
obligations relating to CNOOC's administrative functions. However, CNOOC
remains and will remain a party to the production sharing contracts, as
required by existing laws and regulations in the PRC. Under the PRC law,
the negotiation of a production sharing contract is a function that only
a national company, such as CNOOC, can perform. This function cannot be
transferred to the Company because the Company is a pure commercial
entity. The Company expects that in the normal course of its business
activities, it will continue to enter into such arrangements with the
CNOOC Group in the future. New production sharing contracts are entered
into between CNOOC and foreign partners primarily through bidding
organised by CNOOC and, to a lesser extent, through direct negotiation.
We have reviewed all the above contracts and the above agreement
and note that no management fee and/or other costs will be charged by
the CNOOC Group to the Group. Therefore, we agree with the Directors
that the terms of these contracts and agreement are fair and reasonable
so far as the Independent Shareholders are concerned.
2.2 Trademark licence agreements
CNOOC and CNOOC's associate are the respective registered owners of
two "CNOOC" trademarks. Under two non-exclusive licence agreements
entered into on 9 September 1999 and which are due to expire on 8
September 2008, the Group has obtained the right to use the trademarks
for a nominal consideration of Rmb1,000 for each of the trademarks. The
registration of the trademarks will expire on 6 December 2008 and 20
April 2009, respectively. Each of CNOOC and CNOOC's associate has
undertaken that so long as CNOOC is the controlling shareholder (as
defined in the Listing Rules) of the Company, it will renew the
registration of the trademarks to enable the Group to continue to use
the trademarks without any additional payment.
Since no additional payment is required to be paid to CNOOC Group
in relation to the above trademark licence agreements for the three
financial years ending 31 December 2005 and the Board considers it to be
beneficial to the Company to continue to enter into the trademark
licence agreements, we are of the view that the terms of the trademark
licence agreements are fair and reasonable so far as the Independent
Shareholders are concerned.
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2.3 Lease agreement in respect of Nanshan terminal
Under an agreement dated 9 September 1999 among CNOOC, CNOOC's
associate and the Group, CNOOC and its associate have granted the Group
a right to use the land and buildings comprising the Nanshan Terminal,
Yacheng 13-1 without any consideration payable to CNOOC or its associate
for a term of 20 years. The property is occupied by the Group for
natural gas processing purposes.
Since no additional payment is required to be paid to CNOOC Group
in relation to the above licence agreement in respect of Nanshan
terminal for the three financial years ending 31 December 2005 and the
Board considers it to be beneficial to the Company to continue to enter
into such lease agreement, we are of the view that the terms of the
licence agreement in respect of Nanshan terminal are fair and reasonable
so far as the Independent Shareholders are concerned.
2.4 Provision of materials, utilities and ancillary services
Following the expiry of existing supply agreements in September
2002, CNOOC China, a wholly-owned subsidiary of the Company, renewed
such supply agreements with four PRC subsidiaries of CNOOC for the
supply to CNOOC China of materials, utilities and ancillary services,
some of which may not be available from independent third parties or
available on comparable terms. Details of the above connected
transactions can be found in the Letter from the Board.
According to the agreements, these materials, utilities and
ancillary services will be provided at:
(i) state-prescribed prices; or
(ii) where there is no state-prescribed price, market prices,
including the local or national market prices; or
(iii) when neither (i) nor (ii) is applicable, the cost to CNOOC's
associates of providing the relevant materials, utilities
and ancillary services, including the cost of sourcing or
purchasing from third parties, plus a margin of not more than
5%, before any applicable taxes.
The prices, volumes and other terms for the supply of materials,
utilities and ancillary services will be reviewed by the parties
annually. If any of the terms are to be amended, the parties will enter
into a supplemental agreement no later than 60 days prior to the end of
the financial year preceding the financial year in which such amendments
are to take effect. If the parties fail to reach an agreement by then,
the existing terms of the supply agreement will continue to apply until
the parties agree on the terms of the supplemental agreement. The
Company undertakes to comply with the provisions of the Listing Rules
for any supplemental agreements to be entered into subsequently.
We have reviewed the supply agreements. Based on the above pricing
structures as stated in the supply agreements, the priority is set under
(i) to (iii) such that the price mechanism in (ii) and (iii) would only
apply where the preceding price mechanism(s) are inapplicable. As (i)
and (ii) are based on the state-prescribed prices and market prices,
including the local or national market prices, respectively, we agree
with the Directors that such basis is fair and reasonable as far as the
Independent Shareholders are concerned.
In relation to (iii) above, when neither of the pricing mechanisms
referred to in (i) or (ii) is applicable, then the supply agreements
provide that prices will be based on the cost to CNOOC's associates of
providing the relevant materials, utilities and ancillary services,
including the cost of sourcing or purchasing from third parties, plus a
margin of not more than 5%, before any applicable taxes. According to
the Company, the margin of not more than 5% set out in the supply
agreements is charged to cover the administrative expenses incurred by
the CNOOC Group during the course of providing the relevant materials,
utilities and ancillary services to the Company, and on that basis, we
concur with the Directors' view that such pricing basis is fair and
reasonable as far as the Independent Shareholders are concerned.
Based on the above, we agree with the Directors' views that the
terms of these transactions are fair and reasonable as far as the
Independent Shareholders are concerned.
2.5 Technical services
In connection with the Restructuring, CNOOC's associates
transferred to the Group the existing technical services agreements with
the specialised companies. These specialised companies provided services
to the operators of oil and gas fields under production sharing
contracts through an open bidding process. In 2002, the specialised
companies novated these agreements to China Oilfield Services Limited
("COSL"), a company listed on the main board of the Stock Exchange and a
subsidiary of CNOOC, who has since assumed the rights and obligations of
the specialised companies thereunder, except in relation to the
provision of engineering and construction services. The Group will
continue to use the technical and labour services provided by COSL and
the specialised companies.
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Details of these transactions can be found in the Letter from the Board.
The Group may terminate any of these agreements by giving 30 days'
written notice to COSL or the specialised companies, as the case may be.
At the time of COSL's listing, COSL made an application for a
waiver to the Stock Exchange from strict compliance with the relevant
requirements of the Listing Rules in respect of the Ongoing Connected
Transactions under this sub-section between COSL and the Company.
Subsequently, the Stock Exchange granted a waiver to COSL subject to,
inter alia, the conditions set out in the prospectus of COSL dated 11
November 2002. The waiver granted to COSL will expire on 31 December
2004.
The prices COSL charged to the Company are based on arm's length
negotiations with COSL on normal commercial terms no less favourable
than those available to independent third parties, under prevailing
local market conditions and reflect considerations such as volume of
sales, length of contracts, package of services, overall customer
relationship and other market factors and, in the case of the
specialised companies, are based on an open bidding process. The Company
expects that the costs relating to any future contract with COSL or the
specialised companies will be on a similar basis.
We have reviewed the technical services agreement. The terms of the
technical services agreement provide that the prices COSL charges to the
Company are to be based on arm's length negotiations with COSL on normal
commercial terms no less favourable than those available to independent
third parties and, in the case of the specialised companies, are to be
based on an open bidding process. Based on the above, we concur with the
Directors' views that the terms of the technical services agreement are
fair and reasonable as far as the Independent Shareholders are
concerned.
2.6 Research and development services
General research and development services
Under the terms of an original general research and development
services agreement dated 9 September 1999 with CNOOC's subsidiaries and
China Offshore Oil Research Centre (the "Centre"), the Centre undertakes
that a minimum number of hours per annum to be spent by its senior,
middle rank and junior staff on services provided to the Group, which
will not be less than 187,000, 215,000 and 150,000 hours per year,
respectively, which is in line with the number of working hours spent by
such staff during the two years ended 31 December 1998. The Group may
request downward adjustments in light of the Group's requirements.
Following the expiry of the original three years' term of the
general research and development services agreement, the Group and the
Centre entered into a supplemental agreement to renew the original
general research and development services agreement on the same terms
and conditions for an indefinite period.
We have reviewed the captioned agreements. According to the
Company, the above pricing structure set out in the general research and
development agreement (as renewed) is determined based on the cost to
the Centre of providing the general research and development services to
the Group. On that basis, we concur with the Directors' views that the
terms of the supplemental agreement to the general research and
development services agreement are fair and reasonable as far as the
Independent Shareholders are concerned.
Research and development services for particular projects
The Group may also use the research and development services
provided by the Centre for the provision of research and development
services for particular projects through an open bidding process. The
agreements for provision of research and development services for
particular projects are entered into on a project-by-project basis.
As the Company adopts an open bidding process for its particular
research and development projects, therefore we agree with the Directors
that the terms of such agreements are fair and reasonable as far as the
Independent Shareholders are concerned.
2.7 Lease and property management services
The Group has entered into a number of separate lease and property
management agreements with CNOOC's associates. For details of each of
these agreements, please refer to the Letter from the Board. Sallmanns,
an independent valuer, has confirmed that the payments due under each of
the lease agreements and management agreement reflects the fair and
reasonable commercial market rent and/or management fee. According to
the management of the Company, the Company has entered into further
lease agreements since the IPO and will continue to enter into further
leases from time to time on normal commercial terms, subject to the
annual limits set out below.
We have discussed with Sallmanns the basis which they adopted and
workings to support their confirmation and concur with the Directors'
views that the terms of the lease agreements and property management
agreement are fair and reasonable as far as the Independent Shareholders
are concerned.
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2.8 Sales of crude oil, condensate oil and liquefied petroleum gas
The Group may sell crude oil, condensate oil and liquefied
petroleum gas to associates of CNOOC, which are engaged in the
downstream petroleum business, at international market prices on normal
commercial terms. The Company has confirmed that the prices for such
sales are, and will be, no less favourable to the Group than the prices
for sales to independent third party customers of the Group such as
China Petroleum & Chemical Corporation, PetroChina Company Limited and
Castle Peak Power Company Limited.
We have reviewed the supply agreements. As the prices are to be
determined at international market prices under those supply agreements
and the Company has confirmed that the prices are, and will be, no less
favourable to the Group than the prices for sales to independent third
party customers of the Group, we concur with the Directors' views that
the terms of these transactions are fair and reasonable as far as the
Independent Shareholders are concerned.
3. Reasons for the Ongoing Connected Transactions
As stated in the Letter from the Board, the Ongoing Connected
Transactions will be conducted in the ordinary and usual course of business of
the Company. The Directors have confirmed that these transactions will
continue to be agreed on an arm's length basis with terms that are fair and
reasonable to the Company. The Board also considers it to be beneficial to the
Company to continue to enter into the Ongoing Connected Transactions with
CNOOC Group as these transactions have facilitated and the Board considers
will continue to facilitate the operation and growth of the Company's
business.
4. Implementation of the Ongoing Connected Transactions under the Existing
Waiver
Set out below are details of the actual amount of each of the Ongoing
Connected Transactions referred to under sub-sections 2.4 to 2.8 above for the
two financial years ended 31 December 2001 and the six months ended 30 June
2002 (the "Relevant Period") as compared with the annual limits set out in the
Existing Waiver.
For the 6
For the 12 months ended 31 months
December ended 30 June
2002
2000 2001 2002
Rmb million Rmb million Rmb million
Category of the (% of the (% of the (% of the
Ongoing Connected Group's total Group's total Group's total Annual limits in
Transactions revenue) revenue) revenue) Existing Waiver
* Materials, 793 815 272 10% of the audited
utilities and (3.27%) (3.91%) (2.56%) consolidated total
ancillary services revenues of the
supply agreements Company in the
immediate
preceding
financial year
* Technical services 2,038 2,367 918 2000: Rmb 2,200 million
(8.41%) (11.37%) (8.63%) 2001: Rmb 3,800 million
2002: Rmb 5,300 million
* Research and 52 50 46 2000: Rmb 140 million
development (0.21%) (0.24%) (0.43%) 2001: Rmb 150 million
services for 2002: Rmb 160 million
particular services
* General research 110 110 44 2000: Rmb 110 million
and development (0.45%) (0.53%) (0.41%) 2001: Rmb 110 million
services agreement 2002: Rmb 110 million
Total research and 162 160 90
development services (0.66%) (0.77%) (0.84%)
* Lease and property 49 46 27 2000: Rmb 55 million
management services (0.20%) (0.22%) (0.25%) 2001: Rmb 55 million
2002: Rmb 55 million
* Sales of crude oil, 508 1,814 1,950 2000: 4%
condensate oil and (2.1%) (8.7%) (18.3%) 2001: 25%
liquefied petroleum 2002: 38%
gas
17
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LETTER FROM CAZENOVE ASIA LIMITED
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of the audited
consolidated total
revenues of the
Company in the
immediate
financial year
5. Application for the New Waiver
Set out below is a summary of the existing and proposed cap amounts for
each of the Ongoing Connected Transactions for each of the three financial
years ending on 31 December 2005 as well as the basis of determination of the
aggregate annual volume of the transactions:-
Category of the Annual limit in Proposed annual Basis of determination of the
Ongoing Connected the Existing limit in the new cap amounts
Transactions Waiver New Waiver
* Materials, 10% of the unchanged During the Relevant Period,
utilities and audited the maximum amount in this
ancillary consolidated category was 3.91%. Based on
services total revenues this track record and the
supply of the Company projection of future needs of
agreements in the such services and prices and
immediate availability of alternative
preceding providers of such services,
financial year the Directors believe that
the new cap amount for the
coming three years ending on
31 December 2005 should
remain at 10% of the audited
consolidated total revenues
of the Company in the
immediate preceding financial
year. The Directors believe
that the existing limit
provides sufficient
flexibility to the Group.
* Technical In respect of In respect of During the Relevant Period,
Services the three the three the maximum amount in this
financial years financial years category was Rmb 2,367
ending 31 ending 31 million. Based on the
December 2002, December 2005, continued expansion of
Rmb 2,200 Rmb 5,853 existing oilfields and the
million, Rmb million, Rmb development of two newly
3,800 million 7,338 million discovered oilfields in Bohai
and Rmb 5,300 and Rmb 4,880 Bay which the Directors
million, million, expect to be completed by the
respectively respectively end of year 2004, the
Directors believe that the
new cap amount for such
services should be set at Rmb
5,853 million, Rmb 7,338
million and Rmb 4,880 million
for the three financial years
ending on 31 December 2005.
The increase in the cap
amounts for such services
also reflect the fact that
the Company is increasingly
involved in the operation of
oilfields which in turn
involves the provision of a
higher amount of technical
services. The Directors are
of the view that the new cap
amounts provide sufficient
increment for the Group to
capture the Group's future
anticipated expansion plan.
* Research and In respect of In respect of During the Relevant Period,
development the three the three the maximum amount in this
services for financial years financial years category was Rmb 52 million.
particular ending 31 ending 31 Based on this track record
projects December 2002, December 2005, and the Company's projection
Rmb 140 Rmb 141 of future needs for such
million, Rmb million, Rmb services, the Directors
150 million and 148 million and believe the new cap amounts
Rmb 160 Rmb 153 for each of the three
million, million, financial years ending 31
respectively respectively December 2005 should be
marginally revised downward
to Rmb
18
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LETTER FROM CAZENOVE ASIA LIMITED
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141 million, Rmb 148
million and Rmb 153 million
respectively, to take into
account the possible
inclusion of the research and
development service within
the Company. The Directors
believe such new cap amounts
provide sufficient
flexibility to the Group.
* General Rmb 110 million unchanged During the Relevant Period,
research and the maximum amount in this
development category was Rmb 110 million.
services Based on the existing track
agreement record and the Company's
projection of future needs
for such services, the
Directors believe that the
new cap amount for the coming
three financial years ending
31 December 2005 should be
maintained at Rmb 110
million. The Directors
believe maintaining the
existing cap amount provides
sufficient flexibility to the
Group.
* Lease and Rmb 55 million Rmb 78 million During the Relevant Period,
property the maximum amount in this
management category was Rmb 49 million.
services Based on the Company's
projection of future
expansion of its business and
availability of alternative
providers, the Directors
believe that the new cap
amounts for each of the
coming three years ending 31
December 2005 should increase
to Rmb 78 million. The
Directors believe such new
cap amount provides
sufficient flexibility to the
Group.
* Sales of crude In respect of In respect of During the Relevant Period,
oil, the three the three the maximum amount in this
condensate oil financial years financial years category was Rmb 1,950
and liquefied ending 31 ending 31 million and the amount has
petroleum gas December 2002, December 2005, been increasing substantially
4%, 25% and 42%, 56% and during the Relevant Period.
38%, 82% Based on the existing track
respectively, respectively, record and the ongoing
of the audited of the development of existing
consolidated projected oilfields and the development
total revenues consolidated of two new oilfields in Bohai
of the Company total revenues Bay which the Directors
in the of the Company expect to be completed by the
immediate end of year 2004, the
financial year Directors believe the new cap
amounts for the coming three
financial years ending on 31
December 2005 should not
exceed Rmb 8,300 million, Rmb
12,250 million and Rmb 19,775
million respectively. The
increases in such cap amounts
also reflect the fact that
the crude oil from new
oilfields, which is made up
of a higher proportion of
heavy crude oil, needs to
undergo refining processes
which are carried out
primarily by the CNOOC Group.
The increases in such cap
amounts also reflect the fact
that the Company may be able
to sell its products at
higher prices to the CNOOC
Group due to lower
transportation costs. The
terms of such sales to the
CNOOC Group are, and will be,
no less favourable to the
Group than sales to
independent third parties.
The cap amounts are based on
the Company's own projections
of
19
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LETTER FROM CAZENOVE ASIA LIMITED
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revenues and are intended
to provide the Company with a
certain level of flexibility.
The Company will continue to
deal with other customers in
its normal course of
business. The Directors also
believe such new cap amounts
provide sufficient
flexibility to the Group.
We have reviewed the historical figures provided by the Company for each
of the Ongoing Connected Transactions during the Relevant Period. Based on
those historical figures, we note that the volume of the above Ongoing
Connected Transactions carried out by the Group during the Relevant Period
were within the relevant caps set under the Existing Waiver. On that basis,
and based on the representations of the Directors, including but not limited
to, their representations relating to the track record and the Company's
projection of the Group's future developments (including, but not limited to,
the two new oilfields in Bohai Bay) and needs, we are of the view that the new
caps proposed by the Directors for each of the above transactions are
reasonable.
6. Conditions of the New Waiver
Under the Listing Rules, the Ongoing Connected Transactions as stated in
paragraphs 2.3 to 2.8 above would normally require full disclosure and/or
prior Independent Shareholders' approval. However, as the Directors consider
that such transactions have been, and/or will continue to be carried out in
the ordinary and usual course of business and occur on a regular basis on
normal commercial terms and on terms that are fair and reasonable so far as
the Shareholders are concerned, the Directors considered that it would not be
practical to make disclosure or if necessary, obtain Shareholders' approval
for each transaction as it arises. Accordingly, the Company has applied to the
Stock Exchange to grant the New Waiver for a period of three years up to 31
December 2005 from the relevant requirements of the Listing Rules in respect
of the Ongoing Connected Transactions as described above and matters arising
out of or in connection with such Ongoing Connected Transactions on the
conditions that:
(i) in relation to the Ongoing Connected Transactions referred to in
the sub-sections 2.1 to 2.3 above, the transactions, and the
respective agreements (if any) governing such transactions, must be
on terms that are fair and reasonable so far as the Company's
shareholders are concerned and in relation to the Ongoing Connected
Transactions referred to in the sub-sections 2.4 to 2.8 above, the
transactions, and the respective agreements (if any) governing such
transactions must be:
a. entered into by the Group in its ordinary and usual course of
business;
b. either on normal commercial terms or, where there is no
available comparison, on terms no less favourable that those
available to or from independent third parties; and
c. on terms that are fair and reasonable so far as the
Shareholders are concerned;
(ii) brief details of the Ongoing Connected Transactions in each year as
required by Rule 14.25(1)(A) to (D) of the Listing Rules, i.e., the
date or period of the transaction, the parties thereto and a
description of their connected relationship, a brief description of
the transaction and the purpose of the transaction, the total
consideration and the terms, and the nature and the extent of the
interest of the connected person in the transaction, shall be
disclosed in the Company's annual report and accounts for the
relevant year;
(iii) the Company's independent non-executive Directors shall review
annually the transactions and confirm, in the Company's annual
report and accounts for the year in question, that such
transactions have been conducted in the manner stated in (i) above
and, where applicable, within the limit referred to in (v) below;
(iv) the Company's auditors shall carry out review procedures annually
in relation to the Ongoing Connected Transactions and shall confirm
in writing whether the transactions:
a. received the approval of the Directors;
b. have been entered into in accordance with the pricing
policies as stated in the Company's financial statements; and
c. have been entered into in accordance with the terms of the
agreement governing the transactions or, where there is no
agreement, on terms that are not less favourable that terms
available to or from independent third parties.
For the purpose of the above review by the Company's auditors,
CNOOC has undertaken to the Company that it will provide the auditors
with access to its relevant accounting records;
20
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LETTER FROM CAZENOVE ASIA LIMITED
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(v) the aggregate annual value of transactions shall not exceed the
proposed annual limits set out in section 5 "Application for the
New Waiver" above.
(vi) the Company will undertake that if any of the terms of the
agreements or arrangements referred to above are altered or if the
Group enters into any new agreements with any connected persons
(within the meaning of the Listing Rules) in the future or if the
limits stated in section 5 "Application for the New Waiver" above
are exceeded, the Company will comply with the provisions of
Chapter 14 of the Listing Rules dealing with connected transactions
unless it applies for and obtains a separate waiver from the Stock
Exchange.
RECOMMENDATION
Having taken into account the information and representations provided
to us and the above principal factors and reasons and the conditions
stipulated by the Stock Exchange, we are of the opinion that the terms of the
Ongoing Connected Transactions are fair and reasonable so far as the Company
and the Independent Shareholders are concerned and the Ongoing Connected
Transactions are in the interests of the Company and the Independent
Shareholders. Accordingly, we advise the IBC to recommend the Independent
Shareholders to vote in favour of the ordinary resolution to be proposed at
the EGM to approve the Ongoing Connected Transactions and the transactions
contemplated thereunder.
Yours faithfully,
For and on behalf of
Cazenove Asia Limited
May Tan Karman Hsu
Managing Director Director and Head of Corporate Finance
21
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APPENDIX GENERAL INFORMATION
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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 no other facts the omission of which would make any statement herein
misleading.
2. DISCLOSURE OF INTEREST
As at the Latest Practicable Date:
(a) other than So Chak Kwong, an independent non-executive director of
the Company, who holds 30,000 ordinary shares in the Company, none
of the Directors or chief executive had any interest in any shares
or debentures of the Company or any associated corporation (within
the meaning of SDI Ordinance), as recorded in the register required
to be kept under Section 29 of SDI Ordinance for the purposes of
Sections 28 and 31 of the SDI Ordinance, or as otherwise notified
to the Company and the HKSE pursuant to the Model Code for
Securities Transactions by Directors of Listed Companies;
(b) other than as set out in the table below, the Company not granted
any of its Directors or their respective spouses or children below
18 any rights to subscribe for its equity securities or debt
securities:
Name of Grantee Date of Grant Exercise Price No. of Options
(HK$)
Wei Liucheng 12 March 2001 5.95 500,000
27 August 2001 6.16 500,000
Fu Chengyu 12 March 2001 5.95 350,000
27 August 2001 6.16 350,000
Jiang Longsheng 12 March 2001 5.95 280,000
27 August 2001 6.16 230,000
Zhou Shouwei 12 March 2001 5.95 280,000
27 August 2001 6.16 350,000
Luo Han 12 March 2001 5.95 280,000
27 August 2001 6.16 230,000
(c) none of the Directors was materially interested in any contract or
arrangement entered into by any member of the Group since 30 June
2002, being the date to which the latest published audited
financial statements of the Company were made up, and which was
significant in relation to the business of the Group;
(d) none of the Directors or experts had any direct or indirect
interest in any assets which had since 30 June 2002, being the date
to which the latest published audited financial statements of the
Company were made up, been acquired or disposed of by or leased to
any member of the Group, or are proposed to be acquired or disposed
of by or leased to any member of the Group;
3. SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, so far as is known to, or can be
ascertained after reasonable enquiry by, the Directors, the following persons
were, directly or indirectly, interested in 10% or more of the issued share
capital carrying rights to vote at general meetings of the Company:
Name of substantial Number of shares Approximate percentage
shareholder of the Company of the total issued
shares
CNOOC (BVI) Limited 5,800,000,000 70.61%
Save as disclosed herein, as at the Latest Practicable Date, so far as
the Directors are aware, there was no person who was interested directly or
indirectly in 10% or more of the issued share capital carrying rights to vote
at general meetings of any member of the Group or any options in respect of
such share capital.
22
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APPENDIX GENERAL INFORMATION
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4. PROFESSIONAL QUALIFICATION AND CONSENT
The following are the qualifications of the experts who have given
opinions or advice which are contained in this circular:
Names Qualifications
Cazenove Asia Limited Registered dealer
Sallmans (Far East) Limited Property valuer
(a) None of Cazenove Asia Limited and Sallmans (Far East) Limited is
beneficially interested in the share capital of any member of the
Group and none of them has any right, whether legally enforceable
or not, to subscribe for or to nominate persons to subscribe for
securities in any member of the Group.
(b) Cazenove Asia Limited and Sallmans (Far East) Limited have given
and have not withdrawn their respective written consents to the
issue of this circular with inclusion of their opinions and
letters, as the case may be, and the reference to its name 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 Practicable Date, the Directors are not aware of any material
adverse change in the financial or trading positions of the Company since 30
June 2002, the date to which the latest published audited financial statement
of the Company were made up.
7. SERVICE CONTRACT
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
(excluding contracts expiring or determinable by the employer within one year
without payment of compensation (other than statutory compensation)).
8. GENERAL
(a) The secretary of the Company is Cao Yunshi.
(b) The principal share register and transfer office is Computershare
Hong Kong Investor Services Limited at 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong.
(c) In the event of inconsistency, the English language text of this
circular shall prevail over the Chinese language text.
9. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection
during normal business hours at the offices of Freshfields Bruckhaus Deringer
at 11th Floor, Two exchange Square, Central, Hong Kong from the date of this
circular up to and including 23 December 2002:
(a) the articles of association of the Company;
(b) the connected transactions agreements entered into between the
Company and CNOOC;
(c) the letter of recommendation from the IBC, the text of which is set
out on pages 19 to 20 of this circular;
(d) the letter issued by Cazenove Asia Limited, the text of which is
set out on pages 21 to 34 of this circular;
(e) the letter issued by Sallmans (Far East) Limited confirming the
matters set out in the Letter from the Board on pages 9 to 10 of
this circular;
(f) the written consents of Cazenove Asia Limited and Sallmans (Far
East) Limited referred to in paragraph 4 of this appendix;
23
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APPENDIX GENERAL INFORMATION
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(g) the annual report of the Company for the year ended 31 December
2001; and
(h) the interim report of the Company for the six months ended 30 June
2002.
24
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NOTICE OF EXTRAORDINARY GENERAL MEETING
-----------------------------------------------------------------------------
The following is the text of the notice of extraordinary general meeting
despatched to Shareholders on 5 December 2002 which is reproduced below for
ease of reference.
[LOGO]
CNOOC Limited
[CHINESE CHARACTERS]
(Incorporated in Hong Kong with limited liability
under the Companies Ordinance)
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the
shareholders of CNOOC Limited (the "Company") will be held at Island
Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong on 23
December 2002 at 11 am for the purpose of considering and, if thought fit,
passing, with or without modification, the following resolutions as Ordinary
Resolutions:
ORDINARY RESOLUTION
1. "THAT the ongoing connected transactions as described in the
Announcement made by the Company on 5 December 2002, 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, be and are hereby generally and
unconditionally approved and the directors of the Company are
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."
By Order of the Board
Cao Yunshi
Company Secretary
Hong Kong, 5 December 2002
25
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NOTICE OF EXTRAORDINARY GENERAL MEETING
-----------------------------------------------------------------------------
Notes:
1. Shareholders whose names are registered in the register of members of
the Company on or before 18 December 2002 are entitled to attend and
vote at the Extraordinary General Meeting.
2. Any Shareholder entitled to vote at the Extraordinary General Meeting is
entitled to appoint one (1) or more proxies to attend and vote on his
behalf. A proxy need not be a shareholder of the Company. Shareholders
must appoint a proxy in writing. Such instrument should be signed by the
person appointing the proxy or by such person's authorised
representative. If the form of proxy is signed by another person so
authorised by the shareholder, the power of attorney or other
authorising document must be certified by a notary. The notarially
certified power of attorney or other authorising document together with
the proxy form must be returned to the Registered Office of the Company
not later than 48 hours prior to the commencement of the Extraordinary
General Meeting. The completion and deposit of a form of proxy will not
preclude any shareholder from attending and voting at the Extraordinary
General Meeting.
3. Each shareholder (or his/her proxy) shall be entitled to one vote for
each share held. If a shareholder has appointed more than one proxy to
attend the meeting, the voting rights can only be exercised by way of
poll.
Address of the Registered Office of the Company:
CNOOC Limited
65/F, 1 Garden Road, Hong Kong
Tel: 852-2213 2500
Fax: 852-2525 9322
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be issued on its behalf
by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
----------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: December 9, 2002
27