SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For September 9, 2004
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.)
Interim Report 2004
CONTENTS
2 CHAIRMAN'S STATEMENT
4 KEY FIGURES
5 CONSOLIDATED INCOME STATEMENT
6 CONSOLIDATED BALANCE SHEET
7 STATEMENT OF CHANGES IN EQUITY
8 CONDENSED CONSOLDATED CASH FLOW STATEMENT
9 NOTES TO INTERIM FINANCIAL STATEMENTS
29 INDEPENDENT REVIEW REPORT
30 OTHER INFORMATION
CHAIRMAN'S STATEMENT
During the first half of 2004, we continued to maintain our momentum with an
increase in oil and gas production. Benefiting from the strong international
oil prices, we saw a significant growth in oil and gas revenues, leading to a
record-high level of interim unaudited net profit. In May, we continued to
implement our natural gas strategy by completing the acquisition of additional
equity interests in the Tangguh LNG Project in Indonesia. From May to July, we
repurchased some of our listed shares. By doing so, we hope it helped some of
our shareholders to realize the value of their investments as well as helped
increase our shareholder's value generally. In addition, we maintained an
active exploration program during the period, resulting in a number of
successful discoveries and appraisals. Our oil and gas development projects
also proceeded on schedule.
Operations Review
During the first half of 2004, our total net oil and gas production reached
58.2 million BOE offshore China, representing an increase of 9.0% over the
same period last year. Due to high oil prices our net entitlement production
in Indonesia recorded lower volume, amounting to 8.4 million BOE. Overall, we
achieved a total net oil and gas production of 66.6 million BOE in the first
half of 2004.
Our realized oil price in the first half of 2004 was US$32.18 per barrel, up
12.7% from the corresponding period last year. Our realized natural gas price
in the first half of 2004 was US$2.87 per thousand cubic feet.
Owing to the stable production growth and strong oil prices, our oil and gas
sales reached RMB16.03 billion during the first half of this year,
representing an increase of 13.0% compared to RMB14.18 billion during the same
period last year. Coupled with revenues from trading and other activities, we
achieved total revenue of RMB24.32 billion during the first half of 2004,
representing a significant increase of 35.8% from the RMB17.90 billion
achieved during the first half of last year. Our profit before tax for the
first half of 2004 was RMB10.26 billion, up 17.4% from RMB8.74 billion for the
first half of 2003, and our net profit was RMB7.04 billion during the first
half of 2004, representing an increase of 11.2% compared to RMB6.33 billion
during the first half of 2003 . Our basic and diluted earnings per share for
the first half of 2004 were RMB0.17. According to our dividend policy and
considering the future trend of the oil prices, current cash position and
future needs of capital investment, the board of directors has decided to
declare and pay an interim dividend of HK$0.03 per share and a special interim
dividend of HK$0.05 per share.
During the first half of 2004, we recorded three oil discoveries through ours
successful exploration activities, all of which were independent crude oil
discoveries, namely Bozhong 34-1(No.4), Bozhong 34-1(No.5) and Huizhou 26-3.
It is worth noting that Bozhong 34-1(No.4) was both discovered and appraised
during the same period. In addition, we completed appraisals of eight
discoveries during the first half of 2004. These eight discoveries were
Jinzhou 25-1S (oil and gas), Bozhong 34-1(No. 3), Bozhong 34-1(No.4),
Qinhuangdao 33-1, Weizhou 12-1 and Liuhua 19-5 (gas) (all of which were our
independent discoveries), Penglai 14-3 and Weizhou 12-8 (both of which were
discoveries made by our PSC partners).
During this period, we continued to focus on the development of our oil and
gas fields. Oilfields WZ12-1N, Qikou 18-2 and Caofeidian 11-1/2 are already on
stream. The Bonan gas fields were on trial run and are expected to be on
stream soon. Bozhong 25-1S and Huizhou 19-3/2 oilfields will be on stream in
the second half of 2004. In addition, Luda 10-1, Nanbao 35-2 and Xihu Trough
Chunxiao projects are also proceeding on schedule.
Health, safety and environmental protection have always been of high priority
on our agenda. During the first half of 2004, we managed to keep our
recordable accident rate and our work hours lost rate at very low levels,
which were 0.21 and 0.07, respectively.
Outlook
At present, international and local environment as well as the market
conditions are having a positive impact on our operations. During the second
half of 2004, we will continue to work hard and maximize shareholders' return.
We will also continue to implement our development strategy to achieve
production and operations targets for the year. Our key tasks in the second
half of the year include:
o Keep our focus steady on attaining our oil and gas production targets for
the year, while strengthening cost control on our exploration, production
and other operations to maintain our competitive cost structure.
o Continue our active exploration program in offshore China and optimize
our exploration plans and targets, to increase our reserves.
o Closely monitor the progress and quality of our existing exploration and
production projects, notably the Bozhong 25-1/S and Huizhou 19-3/2
projects which will be on stream during the second half of the year, to
meet our development targets.
o Continue to keep health, safety and environmental protection our top
priorities.
Fu Chengyu
Chairman and Chief Executive Officer
Hong Kong, 25 August 2004
Key Figures
Six months ended 30 June
2004 2003
Net profit, million RMB 7,042 6,334
Earnings per share, RMB(1) 0.17 0.15
EBITDE, million RMB(2) 13,632 11,344
Total Oil and Gas Sales, million RMB 16,028 14,185
Total Revenue, million RMB 24,321 17,904
Net Production
Oil, million barrels 55.8 55.6
Gas, billion cubic feet 62.2 47.6
Total, million barrels-of-oil-equivalent 66.6 63.9
Daily Net Production (BOE) 365,771 352,780
Note:
(1) After the one to five stock split
(2) EBITDE refers to earnings before interest income, interest expense,
income taxes, depreciation, depletion and amortisation, dismantlement,
exploration expenses and exchange gain, net.
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2004
(All amounts expressed in thousands of Renminbi, except per share data)
Six months ended 30 June
Notes 2004 2003
(unaudited) (unaudited)
REVENUE
Oil and gas sales 4 16,027,545 14,184,773
Marketing revenue 4 8,223,351 3,582,015
Other income 69,742 137,369
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24,320,638 17,904,157
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EXPENSES
Operating expenses (2,094,917) (1,973,851)
Production taxes (726,667) (614,669)
Exploration expenses (550,671) (391,732)
Depreciation, depletion
and amortisation (2,647,826) (2,144,369)
Dismantlement (99,542) (67,477)
Crude oil and product purchases 4 (8,122,807) (3,543,138)
Selling and administrative expenses (464,758) (500,809)
Others (4,827) (103,416)
(14,712,015) (9,339,461)
PROFIT FROM OPERATING ACTIVITIES 9,608,623 8,564,696
Interest income 92,569 91,862
Interest expenses 5 (219,823) (109,312)
Exchange gain, net 56,866 19,553
Short term investments (loss)/gain, net (1,863) 57,067
Share of profits of associates 185,301 125,208
Non-operating income/(expense), net 541,683 (6,339)
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PROFIT BEFORE TAX 10,263,356 8,742,735
Tax 6 (3,221,429) (2,408,259)
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NET PROFIT 7,041,927 6,334,476
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EARNINGS PER SHARE
Basic 7 RMB0.17 RMB0.15
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Diluted 7 RMB0.17 RMB0.15
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DIVIDENDS
Interim dividend declared 12 1,308,225 1,220,132
Special interim dividend declared 12 2,180,375 1,568,741
Special interim dividend declared
in place of final 2003 dividend 12 2,617,526 -
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6,106,126 2,788,873
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CONSOLIDATED BALANCE SHEET
30 June 2004
(All amounts expressed in thousands of Renminbi)
30 June 31 December
Notes 2004 2003
(unaudited) (unaudited)
NON-CURRENT ASSETS
Property, plant and equipment, net 8 50,721,167 43,123,801
Investment in associates 1,212,941 1,117,640
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51,934,108 44,241,441
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CURRENT ASSETS
Accounts receivable, net 9 3,969,846 4,248,570
Inventories and supplies 1,344,373 1,092,926
Due from related companies 951,308 756,283
Other current assets 1,051,066 757,355
Short term investments 5,770,854 5,684,333
Time deposits with maturities
over three months 7,830,000 2,323,000
Cash and cash equivalents 5,075,886 14,400,394
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25,993,333 29,262,861
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TOTAL ASSETS 77,927,441 73,504,302
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NON-CURRENT LIABILITIES
Long term bank loans 870,123 889,575
Long term guaranteed notes 8,148,267 8,141,669
Provision for dismantlement 2,750,135 2,646,800
Deferred tax liabilities 5,574,922 5,783,196
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17,343,447 17,461,240
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CURRENT LIABILITIES
Accounts payable 10 3,996,736 3,969,922
Other payables and accrued liabilities 2,755,472 1,955,783
Current portion of long term bank loans 20,731 20,618
Due to related companies 112,639 474,223
Due to the parent company 42,102 164,653
Tax payable 2,548,808 2,721,331
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9,476,488 9,306,530
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CAPITAL AND RESERVES
Issued capital 11 876,619 876,978
Reserves 50,230,887 45,859,554
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51,107,506 46,736,532
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TOTAL EQUITY AND LIABILITIES 77,927,441 73,504,302
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Statement of Changes in Equity
30 June 2004
(All amounts expressed in thousands of Renminbi)
Share
premium Statutory
Issued and capital Cumulative and non-
share redemption Revaluation translation distributive Retained
capital reserve reserve reserve reserve earnings Total
(Unaudited)
Balances at 1 January 2003 876,978 20,761,205 274,671 (13,596) 2,232,410 16,436,820 40,568,488
Net profit for the period - - - - - 6,334,476 6,334,476
Dividends - - - - - (2,614,815) (2,614,815)
Foreign currency
translation differences - - - 103 - - 103
--------- --------- --------- --------- --------- --------- ---------
Balances at 30 June 2003 876,978 20,761,205 274,671 (13,493) 2,232,410 20,156,481 44,288,252
--------- --------- --------- --------- --------- --------- ---------
(Unaudited)
Balances at 1 January 2004 876,978 20,761,205 274,671 22,647 8,050,489 16,750,542 46,736,532
Repurchases of shares (Note 11) (359) - - - - (55,337) (55,696)
Transfer of reserve upon
shares repurchases (Note 11) - 359 - - - (359) -
Net profit for the period - - - - - 7,041,927 7,041,927
Dividends (Note 12) - - - - - (2,617,526) (2,617,526)
Foreign currency
translation differences - - - 2,269 - - 2,269
--------- --------- --------- --------- --------- --------- ---------
Balances at 30 June 2004 876,619 20,761,564 274,671 24,916 8,050,489 21,119,247 51,107,506
--------- --------- --------- --------- --------- --------- ---------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
30 June 2004
(All amounts expressed in thousands of Renminbi)
Six months ended 30 June
2004 2003
(unaudited) (unaudited)
Net cash inflow from operating activities 9,316,835 8,582,401
Net cash used in investing activities (15,957,255) (7,399,991)
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Net cash (outflow) / inflow before financing (6,640,420) 1,182,410
Net cash (outflow) / inflow from financing (2,684,088) 891,750
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Net increase in cash and cash equivalents (9,324,508) 2,074,160
Cash and cash equivalents at beginning of the period 14,400,394 7,839,114
-------------- --------------
Cash and cash equivalents at end of the period 5,075,886 9,913,274
-------------- --------------
NOTES TO INTERIM FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except numbers of shares and unless
otherwise stated)
1. ORGANISATION AND PRINCIPAL ACTIVITIES CNOOC
Limited (the "Company") was incorporated in Hong Kong Special
Administrative Region ("Hong Kong"), the People's Republic of China (the
"PRC") on 20 August 1999 to hold its interests in certain entities
whereby creating a group comprising the Company and its subsidiaries.
During the period ended 30 June 2004, the Company and its subsidiaries
(hereinafter collectively referred to as the "Group") were principally
engaged in the exploration, development, production and sale of crude
oil, natural gas and other petroleum products.
In the opinion of directors, the ultimate holding company is China
National Offshore Oil Corporation ("CNOOC"), a company established in the
PRC.
As at 30 June 2004, the Company had direct or indirect interests in the
following principal subsidiaries and associates:
Percentage of
Place and date of equity interest Nominal value of
incorporation/ attributable issued ordinary
Name of entity establishment to the Group share capital Principal activities
Directly-held subsidiaries:
CNOOC China Limited Tianjin, the PRC 100% RMB15 billion Offshore petroleum
15 September 1999 exploration,
development,
production, and sale in
the PRC
CNOOC International Limited British Virgin Islands 100% US$2 Investment holding
23 August 1999
China Offshore Oil (Singapore) Singapore 100% S$3 million Sale and marketing of
International Pte., Ltd. 14 May 1993 petroleum outside the
PRC
CNOOC Finance (2002) Limited British Virgin Islands 100% US$1,000 Bond issuance
24 January 2002
CNOOC Finance (2003) Limited British Virgin Islands 100% US$1,000 Bond issuance
2 April 2003
Indirectly-held subsidiaries*:
CNOOC Southeast Asia Limited Bermuda 100% US$12,000 Investment holding
16 May 1997
Malacca Petroleum Limited Bermuda 100% US$12,000 Offshore petroleum
2 November 1995 exploration,
development and
production in
Indonesia
* Indirectly held through CNOOC International Limited.
1. ORGANISATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Percentage of
Place and date of equity interest Nominal value of
incorporation/ attributable issued ordinary
Name of entity establishment to the Group share capital Principal activities
Indirectly-held subsidiaries* (continued):
OOGC Malacca Limited Bermuda 100% US$12,000 Offshore petroleum
2 November 1995 exploration,
development and
production in
Indonesia
OOGC America, Inc. State of Delaware, 100% US$1,000 Investment holding
United States of America
2 September 1997
CNOOC ONWJ Ltd. Labuan, F.T., 100% US$1 Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in
Indonesia
CNOOC SES Ltd. Labuan, F.T., 100% US$1 Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in
Indonesia
CNOOC Poleng Ltd. Labuan, F.T., 100% US$1 Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in
Indonesia
CNOOC Madura Ltd. Labuan, F.T., 100% US$1 Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production in
Indonesia
CNOOC Blora Ltd. Labuan, F.T., 100% US$1 Onshore petroleum
Malaysia exploration,
27 March 2002 development and
production in
Indonesia
* Indirectly held through CNOOC International Limited.
1. ORGANISATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Percentage of
Place and date of equity interest Nominal value of
incorporation/ attributable issued ordinary
Name of entity establishment to the Group share capital Principal activities
Associates:
Shanghai Petroleum and Natural Shanghai, the PRC 30% RMB900 million Offshore petroleum
Gas Company Limited 7 September 1992 exploration,
development,
production and sale in
South Yellow Sea and
East China Sea
CNOOC Finance Corporation Beijing, the PRC 31.8% RMB1,415 million Deposit-taking and
Limited 14 June 2002 money lending
activities
2. PRINCIPAL ACCOUNTING POLICIES
The accompanying interim financial statements are prepared under the
historical cost convention as modified by the revaluation of land
and buildings and short term investments, and in accordance with
Hong Kong Statement of Standard Accounting Practice ("SSAP") No. 25
"Interim financial reporting".
The principal accounting policies and basis of presentation used in the
preparation of the interim financial statements are the same as those
used in the annual audited financial statements for the year ended 31
December 2003, except for the followings:
On 16 March 2004, the Company's shareholders approved a five-for-one
stock split of the Company's shares (the "Stock Split"). The Stock Split
was effected by dividing each of the Company's issued and unissued shares
of HK$0.10 each into five shares of HK$0.02 each, and to increase the
board lot size for trading on The Stock Exchange of Hong Kong Limited
(the "HKSE") from 500 shares of HK$0.10 each to 1,000 subdivided shares
of HK$0.02 each. The ratio of the Company's American Depository Receipt
("ADR") listed on the New York Stock Exchange also changed such that each
ADR now represents 100 subdivided common shares of HK$0.02 each, as
opposed to 20 common shares of HK$0.10 each prior to the Stock Split. All
references in the consolidated financial statements referring to share,
share option and per share amounts of the shares of the Company have been
adjusted retroactively for the Stock Split.
3. ACQUISITION
During the period, the Company acquired from British Gas International
Limited ("BG" Group) a 20.767% interest in the Muturi Production Sharing
Contract ("Muturi PSC") for a consideration of US$105.1 million
(equivalent to approximately RMB869,881,000), subject to a final price
adjustment. The purchase increased the Company's interest in the Muturi
PSC to 64.767% and its interest in the Tangguh LNG Project increased from
12.5% to 16.96%. The Company completed the acquisition on 13 May 2004.
4. OIL AND GAS SALES AND MARKETING REVENUE
Oil and gas sales represent the invoiced value of sales of oil and gas
attributable to the interests of the Group, net of royalties and
government share of allocable share oil that are lifted and sold on
behalf of the PRC government. Sales are recognised when the significant
risks and rewards of ownership of oil and gas have been transferred to
customers.
Marketing revenues represent the sale of oil purchased from the foreign
partners under the production sharing contracts and revenues from trading
of oil through the Company's subsidiary in Singapore. The costs of the
oil sold are included in the crude oil and product purchases.
5. INTEREST EXPENSES
An amount of approximately RMB61,629,000 (2003: RMB44,348,000) accretion
expense for provision for dismantlement is recognised during the period.
6. TAX
(i) Income tax
The Company and its subsidiaries are subject to income taxes on an
entity basis on profit arising in or derived from the tax
jurisdictions in which they are domiciled and operated. The Company
is not liable for profits tax in Hong Kong as it does not have any
assessable income currently sourced from Hong Kong.
The Company's subsidiary, CNOOC China Limited, is a wholly
foreign-owned enterprise established in the PRC. It is exempted from
the 3% local surcharge and is subject to an enterprise income tax of
30% under the prevailing tax rules and regulations.
The Company's subsidiary in Singapore, China Offshore Oil
(Singapore) International Pte., Ltd., is subject to income tax at
rates of 10% and 22%, for its oil trading activities and other
income-generating activities, respectively. The Company's
subsidiaries owning interests in oil and gas properties in Indonesia
along the Malacca Strait are subject to corporate and dividend tax
at the rate of 44%. The Company's subsidiaries owning interests in
oil and gas properties in Indonesia acquired from Repsol YPF, S.A.
are subject to corporate and dividend tax at the rate of 43.125%
instead of the standard rate of 48% after the application of the
Malaysian Tax Treaty as recognised by the Indonesian tax
authorities. All of the Company's other subsidiaries are not subject
to any income taxes in their respective jurisdictions for the period
presented.
(ii) Other taxes
CNOOC China Limited is required to pay the following taxes:
- production taxes equal to 5% of independent production and
production under production sharing contracts; and
- business tax of 3% to 5% on other income.
7. EARNINGS PER SHARE
Six months ended 30 June
2004 2003
(unaudited) (unaudited)
Earnings:
Net profit for the period and earnings for
the purpose of basic and diluted earnings per
share RMB7,041,927,000 RMB6,334,476,000
---------------- ----------------
Number of shares (after the Stock Split):
Weighted average number of ordinary
shares for the purpose of basic
earnings per share before effects of
shares repurchased 41,070,828,275 41,070,828,275
Effect of shares repurchased (2,644,243) -
----------------- ---------------
Weighted average number of ordinary shares
for the purpose of basic earnings per share 41,068,184,032 41,070,828,275
Effect of dilutive potential ordinary shares
under the share option scheme 56,093,679 28,525,760
---------------- ---------------
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 41,124,277,711 41,099,354,035
---------------- ---------------
Earnings per share - Basic RMB0.17 RMB0.15
---------------- ---------------
- Diluted RMB0.17 RMB0.15
---------------- ---------------
8. PROPERTY, PLANT AND EQUIPMENT, NET
During the period, additions to the Group's property, plant and equipment
amounted to approximately RMB10,272,960,000 (2003: RMB8,585,798,000). The
amount includes the prepayment made for the Australia's North West Shelf
Project ("NWS" Project) interest (note 15 (iii)).
9. ACCOUNTS RECEIVABLE, NET
The customers are required to make payment within 30 days after the
delivery of oil and gas. As at 30 June 2004 and 31 December 2003,
substantially all of the accounts receivable were aged within six months.
10. ACCOUNTS PAYABLE
As at 30 June 2004 and 31 December 2003, substantially all of the
accounts payable were aged within six months.
11. SHARE CAPTIAL
Issued
Number of shares Share capital share capital
HK$'000 Equivalent of
RMB'000
Shares (after the Stock Split)
Authorised:
Ordinary shares of HK$0.02 each
As at 30 June 2004 and 31 December 2003 75,000,000,000 1,500,000
-------------- -----------
Issued and fully paid:
Ordinary shares of HK$0.02 each
As at 1 January 2003 and 1 January 2004 41,070,828,275 821,417 876,978
Repurchased and cancelled (16,893,000) (338) (359)
-------------- ----------- -----------
As at 30 June 2004 (unaudited) 41,053,935,275 821,079 876,619
-------------- ----------- -----------
The repurchases of the Company's shares during the period were effected
by the directors, pursuant to the mandate from shareholders received at
the last annual general meeting.
12. DIVIDENDS
On 28 April 2004, the board of directors declared a special interim
dividend in place of 2003 final dividend of HK$0.06 per share, totalling
HK$2,464,249,697 (equivalent to approximately RMB2,617,526,000) (2003:
nil). The board of directors also withdrew its recommendation that the
Company declared any final or special dividend for the year ended 31
December 2003.
Subsequent to 30 June 2004, on 25 August 2004, the board of directors
declared an interim dividend of HK$0.03 per share (2003: HK$0.028 per
share), totalling HK$1,231,618,058 (equivalent to approximately
RMB1,308,225,000) (2003: RMB1,220,132,166); and a special interim
dividend of HK$0.05 per share (2003: HK$0.036 per share), totalling
HK$2,052,696,764 (equivalent to approximately RMB2,180,375,000) (2003:
RMB1,568,741,357).
13. SHARE OPTION SCHEME
The Company has adopted share option schemes which provide for the grant
of options to the Company's senior management. Under these share option
schemes, the remuneration committee of the Company's board of directors
will from time to time propose for the board's approval for the recipient
of and the number of shares underlying each option. These schemes provide
for issuance of options exercisable for shares granted under these
schemes as described below not exceeding 10% of the total number of the
Company's outstanding shares, excluding shares issued upon exercise of
options granted under the schemes from time to time.
On 4 February 2001, the Company adopted a pre-global offering share
option scheme (the "Pre-Global Offering Share Option Scheme"). Pursuant
to the Pre-Global Offering Share Option Scheme:
1. options for an aggregate of 23,100,000 shares have been granted;
2 the subscription price per share is HK$1.19; and
3. the period during which an option may be exercised is as follows:
(i) 50% of the shares underlying the option shall vest 18 months
after the date of the grant; and
(ii) 50% of the shares underlying the option shall vest 30 months
after the date of the grant.
The exercise period for options granted under the Pre-Global Offering
Share Option Scheme shall end not later than 10 years from 12 March 2001.
On 4 February 2001, the Company adopted a share option scheme (the "2001
Share Option Scheme") for the purposes of recognising the contribution
that certain individuals had made to the Company and attracting and
retaining the best available personnel to the Company. Pursuant to the
2001 Share Option Scheme:
1. options for an aggregate of 44,100,000 shares have been granted;
2. the subscription price per share is HK$1.232; and
3. the period during which an option may be exercised is as follows:
(i) one-third of the shares underlying the option shall vest on the
first anniversary of the date of the grant;
(ii) one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
(iii) one-third of the shares underlying the option shall vest on
the third anniversary of the date of the grant.
The exercise period for options granted under the 2001 Share Option
Scheme shall end not later than 10 years from 27 August 2001.
13. SHARE OPTION SCHEME (CONTINUED)
In view of the amendments to the relevant provisions of the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "Listing Rules") regarding the requirements of share option
schemes of a Hong Kong listed company effective on 1 September 2001, no
further options will be granted under the 2001 Share Option Scheme.
In June 2002, the Company adopted a new share option scheme (the "2002
Share Option Scheme").
Under the 2002 Share Option Scheme, the directors of the Company may, at
their discretion, invite employees, including executive directors, of the
Company or any of its subsidiaries, to take up options to subscribe for
shares in the Company. The maximum aggregate number of shares (including
those that could be subscribed for under the Pre-Global Offering Share
Option Scheme and the 2001 Share Option Scheme) which may be granted
shall not exceed 10% of the total issued share capital of the Company.
The maximum number of shares which may be granted under the 2002 Share
Option Scheme to any individual in any 12-month period up to the next
grant of share options shall not exceed 1% of the total issued share
capital of the Company from time to time.
According to the 2002 Share Option Scheme, the consideration payable by a
participant for the grant of an option will be HK$1.00. The subscription
price of a share payable by a participant upon the exercise of an option
will be determined by the directors at their discretion at the date of
grant, except that such price may not be set below a minimum price which
is the highest of:
1. the nominal value of a share;
2. the average closing price of the shares on the HKSE as stated in the
HKSE's quotation sheet for the five trading days immediately
preceding the date of grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's
quotation sheet on the date of grant of the option.
On 24 February 2003, the board of directors approved to grant options in
respect of 42,050,000 shares to the Company's senior management under the
2002 Share Option Scheme. The exercise price for the options is HK$2.108
per share. The market price was HK$2.11 per share preceding the options
granted. Options granted under the 2002 Share Option Scheme may be
exercised, in whole or in part, in accordance with the following vesting
schedule:
1. one-third of the shares underlying the option shall vest on the
first anniversary of the date of the grant;
2. one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
3. one-third of the shares underlying the option shall vest on the
third anniversary of the date of the grant.
13. SHARE OPTION SCHEME (CONTINUED)
The exercise period for options granted under the 2002 Share Option
Scheme shall end not later than 10 years from the date on which the
option is granted.
On 5 February 2004, the board of directors approved a grant of options in
respect of 50,700,000 shares to the Company's senior management under the
2002 Share Option Scheme. The exercise price for the options is HK$3.152
per share. The market price was HK$3.146 per share preceding the options
granted. Options granted under the 2002 Share Option Scheme may be
exercised, in whole or in part, in accordance with the following vesting
schedule:
1. one-third of the shares underlying the option shall vest on the
first anniversary of the date of the grant;
2. one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
3. one-third of the shares underlying the option shall vest on the
third anniversary of the date of the grant.
The exercise period for options granted under the 2002 Share Option
Scheme shall end not later than 10 years from the date on which the
option is granted.
No options granted under the 2002 Share Option Scheme, the 2001 Share
Option Scheme and the Pre-Global Offering Share Option Scheme had been
exercised since the respective dates of grant and up to the date when the
board of directors approved the financial statements.
14. RELATED PARTY TRANSACTIONS
Companies are considered to be related if one company has the ability,
directly or indirectly, to control the other company or exercise
significant influence over the other company in making financial and
operating decisions. Companies are also considered to be related if they
are subject to common control or common significant influence.
The Group has entered into several agreements with CNOOC and its
affiliates, which govern the provision of materials, utilities and
ancillary services, the provision of technical services, the provision of
research and development services, and various other commercial
arrangements.
(i) Materials, utilities and ancillary services
CNOOC China Limited has entered into materials, utilities and
ancillary services supply agreements with the affiliates of CNOOC.
Under these agreements, the affiliates of CNOOC provide to CNOOC
China Limited various materials, utilities and ancillary services.
14. RELATED PARTY TRANSACTIONS (CONTINUED)
(i) Materials, utilities and ancillary services (continued) The
materials, utilities and ancillary services are provided at:
- state-prescribed prices;
- where there is no state-prescribed price, at market prices,
including the local or national market prices or the prices at
which CNOOC's affiliates previously provided the relevant
materials, utilities and ancillary services to independent
third parties; or
- where neither of the prices mentioned above is applicable, at
the cost to CNOOC's affiliates of providing the relevant
materials, utilities and services, including the cost of
sourcing or purchasing from third parties, plus a margin of not
more than 5% before any applicable taxes.
(ii) Technical services
CNOOC China Limited has entered into technical service agreements
with certain affiliates of CNOOC. According to the agreements, the
Group uses the technical services including:
- offshore drilling;
- ship tugging, oil tanker transportation and security services;
- well survey, well logging, well cementation and other related
technical services;
- collection of geophysical data, ocean geological prospecting,
and data processing;
- platform fabrication service and maintenance; and
- design, construction, installation and test of offshore and
onshore production facilities.
(iii) Research and development services The Group has revised the
original research and development services agreement with CNOOC's
subsidiary, China Offshore Oil Research Center, due to the
restructure of operation in 2004.
(iv) Lease and property management services The Group has entered into
lease and property management agreements with the affiliates of
CNOOC for the leasing of various office, warehouse and residential
premises. Lease charges are based on the prevailing market rates.
14. RELATED PARTY TRANSACTIONS (CONTINUED)
(v) Sale of crude oil, condensate oil and liquefied petroleum gas The
Group sells crude oil, condensate oil and liquefied petroleum gas to
CNOOC's affiliates which engage in the downstream petroleum business
at the international market price. For the six months ended 30 June
2004, the total sales amounted to approximately RMB6,504,015,000
(2003: RMB3,710,034,000).
During the period, the Company, through its wholly owned subsidiary,
China Offshore Oil (Singapore) International Pte., Ltd. imported oil
into the PRC for trading, using CNOOC's import license. For the six
months ended 30 June 2004, the total sales to its customers through
such arrangements amounted to approximately RMB77 million (2003:
RMB558 million). The commission paid by the third party customers to
CNOOC for the period amounted to approximately RMB0.5 million (2003:
RMB3 million).
(vi) Deposits with CNOOC Finance Corporation Limited The Company entered
into a framework agreement with CNOOC Finance Corporation Limited
("CNOOC Finance") on 8 April 2004. Under the framework agreement,
the Group utilises the financial services provided by CNOOC Finance,
a 31.8% owned associate company of the Company and is also a
subsidiary of CNOOC. Such services include placing of the Group's
cash deposits with CNOOC Finance, and settlement services for
transactions between the Group and other entities including CNOOC
and its subsidiaries. The charges by CNOOC Finance for its financial
services to the Group are comparable to those charged by PRC banks
for similar services.
For the six months ended 30 June 2004, the maximum outstanding
balance for deposits (including interest received in respect of
these deposits) placed with CNOOC Finance amounted to RMB3,044
million.
The following is a summary of significant recurring transactions
carried out in the ordinary course of business between the Group and
CNOOC and its affiliates.
Six months ended 30 June
2004 2003
(unaudited) (unaudited)
RMB'000 RMB'000
Materials, utilities and ancillary services 388,301 379,123
Technical services 2,225,474 1,368,109
Research and development services 503 65,454
Lease and property management services 21,702 25,798
-------------- --------------
2,635,980 1,838,484
-------------- --------------
Included in:
Exploration expenses 391,086 195,186
Operating expenses 457,275 421,573
Selling and administrative expenses 77,018 74,889
Capitalised under property, plant and equipment 1,710,601 1,146,836
-------------- --------------
2,635,980 1,838,484
--------------- --------------
15. COMMITMENTS AND CONTIGENCIES
(i) Capital commitments
As at 30 June 2004, the Group had the following capital commitments,
principally for the construction and purchase of property, plant and
equipment:
30 June 2004 31 December 2003
(unaudited) (audited)
RMB'000 RMB'000
Contracted for 4,891,698 2,534,468
Authorised, but not contracted for 17,075,175 17,489,791
As at 30 June 2004, the Group had unutilised banking facilities
amounted to approximately RMB27,455,229,500 (2003:
RMB32,455,229,500).
The Group has no significant contingent liabilities as at 30 June
2004 and 31 December 2003.
(ii) Operating lease commitments
Operating lease commitments as at 30 June 2004 amounted to
approximately RMB25,549,000 (2003: RMB20,396,000) and were due as
follows:
30 June 2004 31 December 2003
(unaudited) (audited)
RMB'000 RMB'000
Commitments due:
- Within one year 16,771 17,222
- After one year, but within two 8,778 3,174
years ----------- -------------
25,549 20,396
----------- -------------
(iii) Commitment to invest in Australia's gas project
On 15 May 2003, the Company entered into an equity sale and purchase
agreement (the "Agreement") with the existing North West Shelf
partners to acquire an interest in the upstream production and
reserves of the NWS Project. Under the Agreement, the Company will
acquire an interest of approximate 5.3% in the NWS Project and a 25%
stake in the China LNG Joint Venture, a new joint venture to be
established within the NWS Project. According to the Agreement, the
Company has the right to acquire more interest in the NWS Project
should the final quantity of LNG committed under the LNG supply
agreement to the facilities in Guangdong Province be increased. The
total consideration of the acquisition is US$348 million, subject to
certain conditions, including the LNG supply agreement to Guangdong
becoming unconditional, have been fulfilled. In addition, the
Company will be required to make an upfront tariff payment relating
to certain LNG processing facilities amounted to US$180 million.
CNOOC has an equity interest in the Guangdong Province LNG project.
15. COMMITMENTS AND CONTIGENCIES (CONTINUED)
(iii) Commitment to invest in Australia's gas project (continued)
On 23 December 2003, the Company signed a Deed of Amendment to the
Agreement and a Deed of Amendment to the Gas Production and
Processing Agreements (the "Deeds") and agreed to pay US$483,577,000
representing a 90% deposit of the consideration and tariff payment,
to the NWS Project participants by 2 January 2004. The payment was
made by the Company on 2 January 2004 and such amount would be
refunded to the Company if the acquisition is not completed by 30
June 2004. On 30 June 2004, the deadline for completion was extended
to 31 August 2004.
The consideration paid of approximately US$483,577,000 (equivalent
to RMB4,002,519,000) is included as a prepayment in properties,
plant and equipment as at 30 June 2004.
(iv) Commitment to invest in Gorgon Joint Venture
In October 2003, the Company entered into an agreement with the
participants in Gorgon Joint Venture to place a significant volume
of Gorgon LNG to supply the growing Chinese market. Subject to the
completion of formal contracts, the Company will purchase a certain
equity stake in the Gorgon gas development and its parent company,
CNOOC, will arrange to purchase LNG directly from Gorgon.
(v) Financial instruments
As at 30 June 2004, the Group had a currency swap contract with a
financial institution to sell United States dollars in exchange for
Japanese Yen in order to hedge against future repayments of certain
Japanese Yen denominated loans. The hedged Japanese Yen loans bore
interest at a fixed rate of 4.5% per annum. The interest stipulated
in the swap contract for the United States dollars was the floating
LIBOR rate.
The details of the exchange are as follows:
30 June 2004 30 June 2003
Weighted Weighted
Notional average Notional average
contract contractual contract contractual
amount exchange rate amount exchange rate
(JPY `000) (JPY / US$) (JPY `000) (JPY / US$)
Year
2003 - - 135,735 95.00
2004 135,735 95.00 271,470 95.00
2005 271,470 95.00 271,470 95.00
2006 271,470 95.00 271,470 95.00
2007 271,470 95.00 271,470 95.00
16. SEGMENT INFORMATION
The Group is involved in the upstream operating activities of the
petroleum industry which comprises production sharing contracts with
foreign partners, and independent operations and trading business. These
segments are determined primarily because the senior management makes key
operating decisions and assesses performance of the segments separately.
The following table presents revenue and profit information for the
Group's business segments.
Production
Independent sharing Trading
operations contracts Business
Six months ended Six months ended Six months ended
30 June 30 June 30 June
2004 2003 2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Segment revenue
Sales to external
customers:
Oil and gas sales 6,820,277 5,610,606 9,207,268 8,574,167 - -
Marketing revenues - - - - 8,223,351 3,582,015
Other income 6,387 5,941 63,355 131,428 - -
--------- --------- --------- --------- --------- ---------
Total 6,826,664 5,616,547 9,270,623 8,705,595 8,223,351 3,582,015
Segment results
Net profit 4,081,059 3,576,018 5,275,654 4,913,990 100,544 38,877
Unallocated Consolidated
Six months ended Six months ended
30 June 30 June 30 June
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
RMB'000 RMB'000 RMB'000 RMB'000
Segment revenue
Sales to external
customers:
Oil and gas sales - - 16,027,545 14,184,773
Marketing revenues - - 8,223,351 3,582,015
Other income - - 69,742 137,369
--------- ---------- ----------- ----------
Total - - 24,320,638 17,904,157
Segment results
Net profit (2,415,330) (2,194,409) 7,041,927 6,334,476
Approximately 66% of the total revenue of the Group is contributed by the
PRC customers. The Group's activities are conducted primarily in the PRC
and Indonesia.
17. ADDITIONAL FINANCIAL INFORMATION
As at 30 June 2004, net current assets and total assets less current
liabilities of the Group amounted to approximately RMB16,516,845,000 and
RMB68,450,953,000 (2003: RMB19,956,331,000 and RMB64,197,772,000)
respectively.
18. SUBSEQUENT EVENTS
Subsequent to 30 June 2004, the Company repurchased and cancelled
1,560,000 ordinary shares on the Stock Exchange of Hong Kong in July
2004, for a total consideration of HK$5,122,992 (equivalent to
RMB5,434,982).
19. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND U.S. GAAP
The accounting policies adopted by the Group conform to Hong Kong GAAP,
which differ in certain respects from generally accepted accounting
principles in the United States of America ("U.S. GAAP").
(a) Net profit and equity
(i) Revaluation of land and buildings
The Group revalued certain land and buildings on 31 August 1999
and 31 December 2000 and the related revaluation surplus was
recorded on the respective dates. Under Hong Kong GAAP,
revaluation of property, plant and equipment is permitted and
depreciation, depletion and amortisation are based on the
revalued amount. Additional depreciation arising from the
revaluation for the six months ended 30 June 2004 was
approximately RMB4,578,000 (2003: RMB4,578,000). Under U.S.
GAAP, property, plant and equipment are required to be stated
at cost. Accordingly, no additional depreciation, depletion and
amortisation from the revaluation are recognised under U.S.
GAAP.
(ii) Short term investments
According to Hong Kong GAAP, available-for-sale investments in
marketable securities are measured at fair value and related
unrealised holding gains and losses are included in the current
period earnings. According to U.S. GAAP, such investments are
also measured at fair value and classified in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115.
Under U.S. GAAP, related unrealised gains and losses on
available-for-sale securities are excluded from current period
earnings and included in other comprehensive income.
(iii) Impairment of long-lived assets
Under Hong Kong GAAP, impairment charges are recognised when a
long-lived asset's carrying amount exceeds the higher of an
asset's net selling price and value in use, which incorporates
discounting the asset's estimated future cash flows.
Under U.S. GAAP, long-lived assets are assessed for possible
impairment in accordance with SFAS No. 144, "Accounting for the
impairment or disposal of long-lived assets". SFAS No. 144
requires the Group to (a) recognise an impairment loss only if
the carrying amount of a long-lived asset is not recoverable
from its undiscounted cash flows; and (b) measure an impairment
loss as the difference between the carrying amount and fair
value of the asset. SFAS No. 144 requires that a long-lived
asset to be abandoned, exchanged for a similar productive
asset, or distributed to owners in a spin-off be considered as
held and used until it is disposed of.
19. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND U.S. GAAP (CONTINUED)
(a) Net profit and equity (continued)
(iii) Impairment of long-lived assets (continued)
SFAS No. 144 also requires the Group to assess the need for an
impairment of capitalised costs of proved oil and gas
properties and the costs of wells and related equipment and
facilities on a property-by-property basis. If an impairment is
indicated based on undiscounted expected future cash flows,
then an impairment is recognised to the extent that net
capitalised costs exceed the estimated fair value of the
property. Fair value of the property is estimated by the Group
using the present value of future cash flows. The impairment
was determined based on the difference between the carrying
value of the assets and the present value of future cash flows.
It is reasonably possible that a change in reserve or price
estimates could occur in the near term and adversely impact
management's estimate of future cash flows and consequently the
carrying value of properties.
In addition, under Hong Kong GAAP, a subsequent increase in the
recoverable amount of an asset is reversed to the income
statement to the extent that an impairment loss on the same
asset was previously recognised as an expense when the
circumstances and events that led to write-down or write-off
cease to exist. The reversal is reduced by the amount that
would have been recognised as depreciation had the write-off
not occurred. Under U.S. GAAP, an impairment loss establishes a
new cost basis for the impaired asset and the new cost basis
should not be adjusted subsequently other than for further
impairment losses.
For the six months ended 30 June 2004, no impairment was
recognised under Hong Kong GAAP and U.S. GAAP.
(iv) Stock compensation schemes
As described in note 13 to the interim financial statements, as
at 30 June 2004, the Group had three stock option schemes.
Prior to 31 December 2003, the Company accounted for those
plans under the recognition and measurement provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. Since certain of the options granted
under those plans had an exercise price below the market value
of the underlying common stock on the date of grant,
stock-based employee compensation costs of RMB1,316,000 for the
6 months ended 30 June 2003 was reflected in previously
reported results. During 2003, the company adopted the fair
value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation", as amended by FASB
statement No. 148, for stock-based employee compensation. All
prior periods presented have been restated to reflect the
compensation cost that would have been recognised had the
recognition provisions of Statement 123 been applied to all
awards granted to employees after 1 January 1995. Accordingly,
compensation costs recognised for the stock option schemes
amounted to RMB24,474,000 for the six months ended 30 June 2004
(2003: RMB12,832,000).
19. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND U.S. GAAP (CONTINUED)
(a) Net profit and equity (continued)
(iv) Stock compensation schemes (continued)
Weighted average fair value of the options at the grant dates
for award under the schemes was HK$0.84 per share which was
estimated using the Black-Scholes model with the following
assumptions: dividend yield of 2%; an expected life of five
years; expected volatility of 44%; and risk-free interest rates
of 5.25%. Weighted average exercise price of the stock options
was HK$1.75 per share.
(v) Acquisition of CNOOC Finance
Under Hong Kong GAAP, the Company adopted the purchase method
to account for the acquisition of 31.8% equity interest in
CNOOC Finance in December 2003. Under the purchase method, the
acquired results are included in the consolidated results of
operations of the Company from the date of the acquisition.
As the Company and CNOOC Finance are under common control of
CNOOC, under U.S. GAAP, the acquisition is considered to be a
transfer of businesses under common control and the acquired
assets and liabilities are accounted at historical cost in a
manner similar to the pooling of interests method. Accordingly,
the consolidated financial statements for all periods presented
have been retroactively restated as if the current structure
and operations had been in existence since inception. The cash
consideration paid by the Company is treated as an equity
transaction in the year of the acquisition for U.S. GAAP
purpose.
19. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND U.S. GAAP (CONTINUED)
(a) Net profit and equity (continued)
The effects on net profit and equity of the above significant
differences between Hong Kong GAAP and U.S. GAAP are summarised
below:
Net profit
Six months ended 30 June
2004 2003
(unaudited) (unaudited)
RMB'000 RMB'000
(Restated)
As reported under Hong Kong GAAP 7,041,927 6,334,476
Impact of U.S. GAAP adjustments:
- Reversal of additional depreciation, depletion and
amortisation charges arising from the
revaluation surplus on land and buildings 4,578 4,578
- Unrealised loss/(gain) from available-for-sale
marketable securities 50,443 (55,734)
- Realised holding (loss)/gain from available-for-sale
marketable securities ( 1,335) 10,238
- Recognition of stock compensation cost (24,474) (12,832)
- Equity accounting for the results of CNOOC Finance - 16,538
------------- --------------
Income before cumulative effect of change in
accounting policy for dismantlement liabilities 7,071,139 6,297,264
------------- --------------
Cumulative effect of change in accounting policy for
dismantlement liabilities - 436,112
------------- --------------
Net profit as restated under U.S. GAAP 7,071,139 6,733,376
------------- --------------
Net profit per share under U.S. GAAP (after the Stock Split)
- Basic
Before cumulative effect of change in accounting
policy for dismantlement liabilities RMB0.17 RMB0.15
Cumulative effect of change in accounting policy for
dismantlement liabilities - RMB0.01
------------- --------------
RMB0.17 RMB0.16
------------- --------------
- Diluted
Before cumulative effect of change in accounting
policy for dismantlement liabilities RMB0.17 RMB0.15
Cumulative effect of change in accounting policy for
dismantlement liabilities - RMB0.01
------------- --------------
RMB0.17 RMB0.16
------------- --------------
19. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND U.S. GAAP (CONTINUED)
(a) Net profit and equity (CONTINUED)
Equity
30 June 31 December
2004 2003
(unaudited) (audited)
RMB'000 RMB'000
As reported under Hong Kong GAAP 51,107,506 46,736,532
Impact of U.S. GAAP adjustments:
- Reversal of revaluation surplus
on land and buildings (274,671) (274,671)
- Reversal of additional accumulated
depreciation, depletion and amortisation
charges arising from the revaluation surplus
on land and buildings 39,629 35,051
- Equity accounting for the results of
CNOOC Finance - 41,576
- Dividend distribution made by
CNOOC Finance to CNOOC - (41,576)
------------- --------------
As restated under U.S. GAAP 50,872,464 46,496,912
------------- --------------
(b) Comprehensive income
According to SFAS No. 130 "Reporting comprehensive income", it is
required to include a statement of other comprehensive income for
revenues and expenses, gains and losses that under U.S. GAAP, are
included in comprehensive income and excluded from net income.
Six months ended 30 June
2004 2003
(unaudited) (unaudited)
RMB'000 RMB'000
(Restated)
Net income under U.S. GAAP 7,071,139 6,733,376
Other comprehensive income:
Foreign currency translation adjustments 2,269 103
Unrealised (loss) / gain on short term investments (50,443) 55,734
Less: Reclassification adjustment for realised
loss/(gain) included in net income 1,335 (10,238)
------------- --------------
7,024,300 6,778,975
-------------- --------------
19. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND U.S. GAAP (CONTINUED)
(c) Derivative financial instruments
The Group had a currency swap contract with a financial institution
to sell US$ in exchange for JPY in order to hedge certain JPY
denominated loan repayments in the future. In accordance with SFAS
No. 133 "Accounting for derivatives instruments and hedging
activities", the derivative contract was recorded as "Other payables
and accrued liabilities" in the accompanying consolidated balance
sheet at fair value. For the six months ended 30 June 2004, the
Group recognised related changes in fair value, a gain of
RMB1,055,000 (2003: RMB1,500,000), and included the amount in
"Exchange gain, net" in the consolidated income statement.
During the period, the Group also had into interest rate swap
agreements to partially hedge the fixed-rate debt for interest rate
risk exposure management purposes with notional contract amount of
US$200 million. The interest rate swap agreements utilised by the
Company effectively modifies the Company's exposure to interest risk
by converting the Company's fixed-rate debt to a floating rate.
These agreements involve the receipt of fixed rate amounts in
exchange for floating rate interest payments over the life of the
agreement without an exchange of the underlying principal amount.
The interest rate swap agreements were settled during the period and
the total net gain as at 30 June 2004 was approximately
RMB84,168,000 (2003:nil).
20. APPROVAL OF INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended 30 June 2004
were approved and authorised for issue by the board of directors on 25
August 2004.
Independent Review Report
[GRAPHIC OMITTED]
To the board of directors
CNOOC Limited
We have been instructed by CNOOC Limited (the "Company") to review the interim
financial report of the Company and its subsidiaries (collectively as the
"Group") for the six months ended 30 June 2004 set out on pages 5 to 28.
RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited require the preparation of an interim financial report to be in
compliance with Statement of Standard Accounting Practice 25 "Interim
financial reporting" issued by the Hong Kong Society of Accountants and the
relevant provisions thereof. The interim financial report is the
responsibility of, and has been approved by, the directors. It is our
responsibility to form an independent conclusion, based on our review, on the
interim financial report and to report our conclusion solely to you, as a
body, in accordance with our agreed terms of engagement, and for no other
purpose. We do not assume responsibility towards or accept liability to any
other person for the contents of this report.
REVIEW WORK PERFORMED
We conducted our review in accordance with Statement of Auditing Standards 700
"Engagements to review interim financial reports" issued by the Hong Kong
Society of Accountants. A review consists principally of making enquiries of
the Group's management and applying analytical procedures to the interim
financial report and based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than
an audit and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the interim financial
report.
REVIEW CONCLUSION
On the basis of our review which does not constitute an audit, we are not
aware of any material modifications that should be made to the interim
financial report for the six months ended 30 June 2004.
Ernst & Young
Certified Public Accountants
Hong Kong
25 August 2004
Other Information
DIRECTORS' INTERESTS
As at 30 June 2004, the interests of the Directors and the chief executive of
the Company in the equity securities of the Company and its associated
corporations (all within the meaning of Part XV of the Securities and Futures
Ordinance ("SFO")) as recorded in the register required to be kept under
section 352 of the SFO or disclosed in accordance with the Listing Rules
comprised only the personal interests in options to subscribe for shares in
the Company.
During the six months ended 30 June 2004, the Directors and employees of the
Group had the following personal interests in options to subscribe for shares
in the Company granted under the share option schemes of the Company:
No. of shares No. of shares
involved in involved in Closing price per share
the options the options immediately before the
outstanding outstanding date on which the
at the beginning at the end of options were granted
Name of Grantee of the period the period*Date of Grant (HK$)* Exercise Price
Before (HK$)*
adjusted Adjusted
as per Share as per Share
Subdivision Subdivision
Directors:
Fu Chengyu 350,000 1,750,000 12 Mar 2001 - - 1.19
350,000 1,750,000 27 Aug 2001 7.30 1.46 1.232
230,000 1,150,000 24 Feb 2003 10.45 2.09 2.108
500,000 2,500,000 5 Feb 2004 15.65 3.13 3.152
Jiang Long Sheng 280,000 1,400,000 12 Mar 2001 - - 1.19
230,000 1,150,000 27 Aug 2001 7.30 1.46 1.232
230,000 1,150,000 24 Feb 2003 10.45 2.09 2.108
230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Zhou Shouwei 280,000 1,400,000 12 Mar 2001 - - 1.19
350,000 1,750,000 27 Aug 2001 7.30 1.46 1.232
350,000 1,750,000 24 Feb 2003 10.45 2.09 2.108
350,000 1,750,000 5 Feb 2004 15.65 3.13 3.152
Luo Han 280,000 1,400,000 12 Mar 2001 - - 1.19
230,000 1,150,000 27 Aug 2001 7.30 1.46 1.232
230,000 1,150,000 24 Feb 2003 10.45 2.09 2.108
230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Chiu Sunghong 230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Evert Henkes 230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Erwin Schurtenberger 230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Kenneth S Courtis 230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Others 3,430,000 17,150,000 12 Mar 2001 - - 1.19
7,660,000 38,300,000 27 Aug 2001 7.30 1.46 1.232
7,370,000 36,850,000 24 Feb 2003 10.45 2.09 2.108
7,910,000 39,550,000 5 Feb 2004 15.65 3.13 3.152
* Adjustment has been made to take account of the subdivision of issued and
unissued shares of HK$0.10 each into five shares of HK$0.02 each
effective on 17 March 2004 ("Share Subdivision").
As at 30 June 2004, no options granted under the share option schemes of the
Company had been exercised.
All the interests stated above represent long positions. As at 30 June 2004,
no short positions were recorded in the Register of Directors' and Chief
Executives' Interests and Short Positions required to be kept under section
352 of the SFO.
Other than those disclosed above, no right to subscribe for equity or debt
securities of the Company has been granted by the Company to, nor have any
such rights been exercised by, any person during the half year ended 30 June
2004.
SUBSTANTIAL INTERESTS IN SHARE CAPITAL
The register maintained by the Company pursuant to the SFO recorded that, as
at 30 June 2004, the following corporations had the interests (as defined in
the SFO) in the Company set opposite their respective names:
Percentage of
Ordinary Shares Total Issued Shares
(i) CNOOC (BVI) Limited
("CNOOC (BVI)") 29,000,000,000 70.64%
(ii) Overseas Oil & Gas Corporation,
Limited ("OOGC") 29,000,000,000 70.64%
(iii) China National Offshore
Oil Corporation ("CNOOC") 29,000,000,000 70.64%
CNOOC (BVI) is a wholly-owned subsidiary of OOGC, which is a wholly-owned
subsidiary of CNOOC. Accordingly, CNOOC (BVI)'s interests are recorded as the
interests of OOGC and CNOOC.
All the interests stated above represent long positions. As at 30 June 2004,
no short positions were recorded in the Register of Interests in Shares and
Short Positions required to be kept under section 336 of the SFO.
INFORMATION ON SHARE OPTION SCHEMES
On 4 February 2001, the Company adopted a pre-global offering share option
scheme (the "Pre- Global Offering Share Option Scheme"). Pursuant to the
Pre-Global Offering Share Option Scheme:
1. options for an aggregate of 4,620,000 shares* have been granted;
2. the subscription price per share* is HK$5.95; and
3. the period during which an option may be exercised is as follows:
(a) 50% of the shares underlying the option shall vest 18 months after
the date of the grant; and
(b) 50% of the shares underlying the option shall vest 30 months after
the date of the grant.
The exercise periods for options granted under the Pre-Global Offering Share
Option Scheme ends not later than 10 years from 12 March 2001.
* Taking into account the Share Subdivision, the aggregate number of shares
underlying the options granted is equivalent to 23,100,000 and the
equivalent subscription price per share is HK$1.19.
On 4 February 2001, the Company adopted a share option scheme (the "2001 Share
Option Scheme") for the purposes of recognising the contribution that certain
individuals had made to the Company and attracting and retaining the best
available personnel to the Company. Pursuant to the 2001 Share Option Scheme:
1. options for an aggregate of 8,820,000 shares** have been granted;
2. the subscription price per share** is HK$6.16; and
3. the period during which an option may be exercised is as follows:
(a) one-third of the shares underlying the option shall vest on the
first anniversary of the date of the grant;
(b) one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
(c) one-third of the shares underlying the option shall vest on the
third anniversary of the date of the grant.
** Taking into account the Share Subdivision, the aggregate number of shares
underlying the options granted is equivalent to 44,100,000 and the
equivalent subscription price per share is HK$1.232.
The exercise period for options granted under the 2001 Share Option Scheme
ends not later than 10 years from 27 August 2001.
In view of the amendments to the relevant provisions of the Listing Rules
regarding the requirements of share option schemes of a Hong Kong listed
company effective on 1 September 2001, no further options will be granted
under the 2001 Share Option Scheme.
In June 2002, the Company adopted a new share option scheme (the "2002 Share
Option Scheme").
Under the 2002 Share Option Scheme, the Directors of the Company may, at their
discretion, invite employees, including executive directors, of the Company or
any of its subsidiaries, to take up options to subscribe for shares in the
Company. The maximum aggregate number of shares (including those that could be
subscribed for under the Pre-Global Offering Share Option Scheme and the 2001
Share Option Scheme) which may be granted shall not exceed 10% of the total
issued share capital of the Company. The maximum number of shares which may be
granted under the 2002 Share Option Scheme to any individual in any 12 month
period up to the next grant shall not exceed 1% of the total issued share
capital of the Company from time to time.
According to the 2002 Share Option Scheme, the consideration payable by a
participant for the grant of an option will be HK$1.00. The subscription price
of a share payable by a participant upon the exercise of an option is
determined by the Directors at their discretion at the date of grant, except
that such price may not be set below a minimum price which is the highest of:
1. the nominal value of a share;
2. the average closing price of the shares on the HKSE as stated in the
HKSE's quotation sheet for the five trading days immediately preceding
the date of grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's
quotation sheet on the date of grant of the option.
On 24 February 2003, the board of directors granted options in respect of
8,410,000 shares to the Company's senior management under the 2002 Share
Option Scheme. Taking into account the Share Subdivision, the aggregate number
of shares underlying the options granted is equivalent to 42,050,000 and the
exercise price per share is HK$2.108 (subject to adjustment). Options granted
under the 2002 Share Option Scheme may be exercised, in whole or in part, in
accordance with the following vesting schedule:
1. one-third of the shares underlying the option shall vest on the first
anniversary of the date of the grant;
2. one-third of the shares underlying the option shall vest on the second
anniversary of the date of the grant; and
3. one-third of the shares underlying the option shall vest on the third
anniversary of the date of the grant.
The exercise period for options granted under the 2002 Share Option Scheme
ends not later than 10 years from the date on which the option is granted.
On 5 February 2004, the board of directors grant options in respect of
10,140,000 shares to the Company's senior management under the 2002 Share
Option Scheme. Taking into account the Share Subdivision, the aggregate number
of shares underlying the options granted is equivalent to 50,700,000 and the
exercise price per share is HK$3.152 (subject to adjustment). Options granted
under the 2002 Share Option Scheme may be exercised, in whole or in part, in
accordance with the following vesting schedule:
1. one-third of the shares underlying the option shall vest on the first
anniversary of the date of the grant;
2. one-third of the shares underlying the option shall vest on the second
anniversary of the date of the grant; and
3. one-third of the shares underlying the option shall vest on the third
anniversary of the date of the grant.
The exercise period for options granted under the 2002 Share Option Scheme
ends not later than 10 years from the date on which the option is granted.
The Directors are of the view that calculation of the value of the share
options granted by the Company during the period depends on a number of
variables and can only be made subject to a number of theoretical bases and
speculative assumptions. As such, the value of the share options is not
presented in this report.
AUDIT COMMITTEE
The audit committee has reviewed together with the management the accounting
principles and practices adopted by the Group and discussed the internal
control and financial reporting matters. The interim results for the six
months ended 30 June 2004 are unaudited, but have been reviewed by Ernst &
Young in accordance with Statement of Auditing Standards 700 "Engagement to
review interim financial reports", issued by the Hong Kong Society of
Accountants. The interim financial report has been reviewed by the audit
committee.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the six months ended 30 June 2004, the Company purchased listed
securities of the Company on the Stock Exchange of Hong Kong as follows:
Aggregate number of Aggregate price paid by the
Date of purchase shares purchased Company for the purchase
(HK$)
18 May 2004 5,427,000 15,529,360.50
24 May 2004 3,450,000 10,682,580.00
17 June 2004 7,140,000 23,328,522.00
21 June 2004 876,000 2,744,420.40
All the shares purchased by the Company have been cancelled.
Save as described above, there was no other purchase, sale or redemption by
the Company, or any of its subsidiaries, of the Company's listed securities.
CODE OF BEST PRACTICE
None of the directors is aware of any information that would reasonably
indicate that the Company is not, or was not, for any part of the six months
ended 30 June 2004, in compliance with the Code of Best Practice as set out in
Appendix 14 to the Rules Governing the Listing of Securities of the HKSE (the
"Listing Rules"), except that the non-executive directors of the Company are
not appointed for a specific term but are subject to retirement by rotation
and re-election at the Company's annual general meetings in accordance with
the Company's articles of association.
CODE FOR DEALING IN THE COMPANY'S SECURITIES BY DIRECTORS
The Company has adopted a code of ethics ("Code of Ethics") incorporating the
Model Code for Securities Transactions by Directors of Listed Issuers (the
"Model Code") as set out in Appendix 10 to the Listing Rules. Having made
specific enquiry of all directors, the directors confirm that they complied,
during the six months ended 30 June 2004, with its Code of Ethics and the
required standard set out in the Model Code.
MISCELLANEOUS
The directors are of the opinion that there have been no material changes to
the information published in the annual report for the year ended 31 December
2003, other than as disclosed in this Interim Report.
REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 17 September 2004
to 23 September 2004 (both days inclusive) during which no transfer of shares
can be registered. In order to qualify for the interim dividend and the
special interim dividend, all transfers, accompanied by the relevant share
certificates, must be lodged with the Company's registrar, Hong Kong
Registrars Limited, Room 1901-5, 19th Floor, Hopewell Centre, 183 Queen's Road
East, Wanchai, Hong Kong, not later than 4.00 p.m. on 16 September 2004.
By Order of the Board
Cao Yunshi
Company Secretary
Hong Kong, 25 August 2004
FORWARD-LOOKING STATEMENTS
Certain statements contained in this interim report may be viewed as
"forward-looking statements". Such forward-looking statements involve known
and unknown risks, uncertainties and other factors, which may cause the actual
performance, financial condition or results of operations of the Company to be
materially different from any future performance, financial condition or
results of operations implied by such forward-looking statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report on Form 6-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
-----------------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: September 9, 2004